Results
Federal Home Loan Bank of Cincinnati
05/07/2026 | Press release | Distributed by Public on 05/07/2026 09:45
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report contains forward-looking statements that describe the objectives, expectations, estimates, and assessments of the Federal Home Loan Bank of Cincinnati (the FHLB). These statements use words such as "anticipates," "expects," "believes," "could," "estimates," "may," "should," "will," their negatives, or other variations of these terms. By their nature, forward-looking statements relate to matters involving risks or uncertainties, including the risk factors set forth in Part I, Item 1A. "Risk Factors" in our 2025 Annual Report on Form 10-K, some of which we may not be able to know, control, or completely manage. Actual future results could differ materially from those expressed or implied in forward-looking statements or could affect the extent to which we are able to realize an objective, expectation, estimate, or assessment. These risks and uncertainties include, among others, the following:
▪the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions and liquidity within the banking sector, inflation and deflation, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, trade policies, and members' mergers and consolidations, deposit flows, liquidity needs, and loan demand;
▪national or world events, threatened or actual acts of war, civil unrest, terrorism, natural disasters, climate change, pandemics, or other unanticipated or catastrophic events;
▪executive, legislative, regulatory, and judicial events and actions that affect us, our members, counterparties, other Federal Home Loan Banks (FHLBanks) or investors in the Federal Home Loan Bank System's (FHLBank System or System) unsecured debt securities, which are called Consolidated Obligations (or Obligations), such as any government-sponsored enterprise (GSE) reforms, including the potential privatization of Fannie Mae and Freddie Mac, any actions taken by the Federal Housing Finance Agency (Finance Agency) related to the FHLBank System, changes in the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), changes in applicable sections of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or changes in other statutes or regulations applicable to the FHLBanks;
▪competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;
▪the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on acceptable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;
▪changes in the credit ratings or outlook assigned to FHLBank System Obligations or the FHLB;
▪changes in investor demand for Consolidated Obligations;
▪the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;
▪the ability to effectively use derivative instruments to reduce interest rate risk associated with certain assets and liabilities;
▪the ability to attract and retain skilled management and other key employees;
▪the ability to develop, secure and support technology and information systems that effectively manage the risks we face (including cybersecurity risks), and keep pace with technological changes and innovation such as artificial intelligence;
▪the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;
▪the ability to successfully manage new products and services; and
▪the risk of loss arising from litigation filed against us or one or more other FHLBanks.
These forward-looking statements are representative only as of the date they are made, and except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in our expectations or change in events, conditions, circumstances on which any statement is based.
EXECUTIVE OVERVIEW
During the first three months of 2026, we delivered on our dual mission of providing access to ongoing liquidity funding to member financial institutions to support housing finance, affordable housing and community investment. We maintained strong profitability, which enabled us to bolster capital adequacy by increasing retained earnings, to pay a competitive dividend rate to stockholders, and to make meaningful contributions to affordable housing. We exceeded all minimum regulatory capital and liquidity requirements, and we were able to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. Additionally, overall residual credit risk exposure from our Credit Services, mortgage loan portfolio, investments, and derivative transactions remained de minimis. Likewise, our market risk measures continued to be within our risk appetite.
Mission Assets and Activities
Primary Mission Assets (i.e., principal balances of Advances and mortgage loans held for portfolio) and Supplemental Mission Activities (i.e., Letters of Credit and Mandatory Delivery Contracts) are the principal business activities by which we fulfill our mission with direct connections to members and what we refer to as Mission Assets and Activities. We regularly monitor our level of Mission Assets and Activities. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In the first three months of 2026, the Primary Mission Asset ratio averaged 70 percent, in line with the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Assets and Activities, the most significant of which is Letters of Credit issued for the benefit of members.
The following table summarizes our Mission Assets and Activities.
| Ending Balances | Average Balances | ||||||||||||||||||||||||||||||||||
| March 31, | December 31, | Three Months Ended March 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2025 | 2026 | 2025 | 2025 | |||||||||||||||||||||||||||||
|
Primary Mission Assets (1):
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|||||||||||||||||||||||||||||||||||
| Advances | $ | 78,664 | $ | 78,173 | $ | 70,104 | $ | 74,102 | $ | 79,327 | $ | 79,082 | |||||||||||||||||||||||
| Mortgage loans held for portfolio | 8,848 | 7,143 | 8,490 | 8,666 | 7,114 | 7,554 | |||||||||||||||||||||||||||||
| Total Primary Mission Assets | $ | 87,512 | $ | 85,316 | $ | 78,594 | $ | 82,768 | $ | 86,441 | $ | 86,636 | |||||||||||||||||||||||
|
Supplemental Mission Activities (2):
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|||||||||||||||||||||||||||||||||||
| Letters of Credit (notional) | $ | 44,599 | $ | 45,664 | $ | 46,532 | $ | 45,870 | $ | 47,596 | $ | 46,389 | |||||||||||||||||||||||
| Mandatory Delivery Contracts (notional) | 155 | 95 | 159 | 212 | 73 | 207 | |||||||||||||||||||||||||||||
| Total Supplemental Mission Activities | $ | 44,754 | $ | 45,759 | $ | 46,691 | $ | 46,082 | $ | 47,669 | $ | 46,596 | |||||||||||||||||||||||
(1)Amounts represent principal balances.
(2)Amounts represent off-balance sheet commitments.
Advance principal balances at March 31, 2026 increased $8.6 billion (12 percent) from year-end 2025 primarily driven by increases in Advance borrowings from a few large-asset members. However, average principal Advance balances for the first three months of 2026 decreased $5.2 billion (seven percent) compared to the same period of 2025 as the modest reductions in Advance borrowings from a few large-asset members at year-end 2025 persisted throughout most of the first quarter of 2026.
A key benefit of membership comes from our business model as a wholesale lender GSE, which provides members a reliable and flexible source of funding in order to support their housing finance and asset-liability management needs. As such, Advance balances are often volatile given our members' ability to quickly, normally on the same day, increase or decrease the amount of their Advances. Our business model is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that our Capital Plan provides for additional capital when Advances grow and the opportunity for us to retire capital when Advances decline, thereby acting to preserve competitive profitability.
Mortgage Purchase Program (MPP) principal balances increased $0.4 billion (four percent) from the year-end 2025 balance. During the first three months of 2026, we purchased $0.7 billion of mortgage loans, while principal reductions were $0.3 billion. The higher MPP purchases reflected market conditions that supported members' greater utilization of the program. Principal reductions in the first three months of 2026 were limited due in large part to the elevated mortgage rate environment keeping mortgage refinance activity low.
Letters of Credit decreased $1.9 billion (four percent) from year-end 2025. Letters of Credit balances are primarily used by members to secure public unit deposits. We normally earn fees on Letters of Credit based on the actual average amount of the Letters utilized, which generally is less than the notional amount issued.
Affordable Housing and Community Investment
In addition to providing readily-available, competitively-priced sources of funds to members, one of our core missions is to support affordable housing and community investment. We are statutorily required to set aside a portion of our profits to support affordable housing each year. These funds assist members in serving very low-, low-, and moderate-income households and community economic development. Our net income for the first three months of 2026 resulted in a statutory assessment of $12 million to the Affordable Housing Program (AHP) pool of funds available to members in 2027.
Beyond the statutory AHP assessment, the Board of Directors may elect to make voluntary contributions to the AHP or other housing and community investment activities. In 2026, we are committed to making voluntary contributions of $34 million, representing five percent of our 2025 earnings, to various voluntary housing and community investment programs. In the first three months of 2026, we partially fulfilled our commitment by contributing $12 million to our various voluntary housing and community investment programs. These contributions are recorded in non-interest expense on the Statements of Income, which reduces net income before assessments, and, in turn, reduces the statutory AHP assessment each year. As such, in 2026, we are committed to making supplemental voluntary contributions to the AHP of approximately $4 million to make the total AHP contributions equal to what the statutory AHP assessment would have been in the absence of these effects. Through the first three months of 2026, we made $1 million in supplemental voluntary AHP contributions.
Results of Operations
Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key market driven factors that can cause significant periodic volatility in our profitability include changes in Mission Assets and Activities, the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization from accelerated prepayments of mortgage assets, fair value adjustments related to the use of derivatives and the associated hedged items, and general economic conditions. The table below summarizes our results of operations.
| Three Months Ended March 31, | Year Ended December 31, | ||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | 2025 | ||||||||||||||
| Net income | $ | 100 | $ | 145 | $ | 575 | |||||||||||
| Return on average equity (ROE) | 6.08 | % | 8.76 | % | 8.45 | % | |||||||||||
| Return on average assets | 0.30 | 0.44 | 0.42 | ||||||||||||||
| Weighted average dividend rate | 7.50 | 9.00 | 8.62 | ||||||||||||||
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Dividend payout ratio (1)
|
88.5 | 72.1 | 72.9 | ||||||||||||||
|
Average Secured Overnight Financing Rate (SOFR)
|
3.66 | 4.33 | 4.24 | ||||||||||||||
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ROE spread to average SOFR
|
2.42 | 4.43 | 4.21 | ||||||||||||||
|
Dividend rate spread to average SOFR
|
3.84 | 4.67 | 4.38 | ||||||||||||||
(1)Dividend payout ratio is dividends declared in the period as a percentage of net income.
Our profitability was strong in the first three months of 2026, which enabled us to pay a competitive return to stockholders, make meaningful contributions to support affordable housing and community investment and strengthen capital by increasing retained earnings. Net income decreased $45 million in the first three months of 2026 compared to the same period of 2025. The decrease in net income reflected the combined impact of net losses on derivatives and related financial instruments carried at fair value in the first three months of 2026 compared to net gains in the same period of 2025, lower average interest rates, which decreased the earnings generated from investing capital in interest-earning assets, and lower spreads earned on mortgage loans held for portfolio.
We strive to provide a competitive return on members' capital investment in our company through quarterly dividend payments. In March 2026, we paid stockholders a quarterly dividend at a 7.50 percent annualized rate on their capital investment in our company, which was 3.84 percentage points above the first quarter average SOFR. After we paid our dividends, retained earnings totaled $2.0 billion on March 31, 2026, an increase of one percent from year-end 2025. We believe the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment in the FHLB and to provide the opportunity to stabilize future dividends.
Effect of Interest Rate Environment
Trends in market interest rates and the resulting shapes of the market yield curves strongly influence our results of operations and profitability because of how they affect members' demand for Mission Assets and Activities, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).
| Quarter 1 2026 | Year 2025 |
Quarter 1 2025
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| Ending | Average | Ending | Average | Ending | Average | ||||||||||||||||||||||||||||||
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Federal funds effective
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3.64 | % | 3.64 | % | 3.64 | % | 4.21 | % | 4.33 | % | 4.33 | % | |||||||||||||||||||||||
| SOFR | 3.68 | 3.66 | 3.87 | 4.24 | 4.41 | 4.33 | |||||||||||||||||||||||||||||
| 2-year U.S. Treasury | 3.80 | 3.58 | 3.48 | 3.82 | 3.89 | 4.16 | |||||||||||||||||||||||||||||
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10-year U.S. Treasury
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4.32 | 4.19 | 4.17 | 4.29 | 4.21 | 4.46 | |||||||||||||||||||||||||||||
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15-year mortgage current coupon (1)
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4.72 | 4.45 | 4.40 | 4.74 | 4.76 | 4.97 | |||||||||||||||||||||||||||||
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30-year mortgage current coupon (1)
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5.38 | 5.06 | 5.04 | 5.48 | 5.51 | 5.71 | |||||||||||||||||||||||||||||
(1) Current coupon rate of par uniform mortgage-backed securities (UMBS) indications.
Average overnight rates were approximately 70 basis points lower in the first three months of 2026 compared to the same period of 2025 due to several rate cuts by the Federal Reserve in the second half of 2025. Our earnings from capital decreased $12 million in the first three months of 2026 compared to the same period of 2025 because of the lower average short-term rates.
During the first three months of 2026 and throughout 2025, the market risk exposure to changing interest rates was low and within policy limits. We believe that longer-term profitability will be competitive, unless interest rates were to increase significantly for a sustained period of time.
Legislative and Regulatory Developments
For the quarterly period ended March 31, 2026 and through the date of this report, there were no significant legislative or regulatory actions and developments not previously disclosed.
ANALYSIS OF FINANCIAL CONDITION
Credit Services
Credit Activity and Advance Composition
The table below shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.
| (Dollars in millions) | March 31, 2026 | December 31, 2025 | |||||||||||||||||||||
| Balance |
Percent(1)
|
Balance |
Percent(1)
|
||||||||||||||||||||
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Adjustable/Variable-Rate Indexed:
|
|||||||||||||||||||||||
| SOFR | $ | 25,680 | 33 | % | $ | 26,112 | 37 | % | |||||||||||||||
| Other | 7,523 | 9 | 1,653 | 3 | |||||||||||||||||||
| Total | 33,203 | 42 | 27,765 | 40 | |||||||||||||||||||
| Fixed-Rate: | |||||||||||||||||||||||
| Repurchase based (REPO) | 8,621 | 11 | 6,060 | 9 | |||||||||||||||||||
| Regular Fixed-Rate | 34,596 | 44 | 33,188 | 47 | |||||||||||||||||||
|
Putable (2)
|
618 | 1 | 623 | 1 | |||||||||||||||||||
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Amortizing/Mortgage Matched
|
773 | 1 | 799 | 1 | |||||||||||||||||||
| Other | 823 | 1 | 1,669 | 2 | |||||||||||||||||||
| Total | 45,431 | 58 | 42,339 | 60 | |||||||||||||||||||
| Other Advances | 30 | - | - | - | |||||||||||||||||||
| Total Advances Principal | $ | 78,664 | 100 | % | $ | 70,104 | 100 | % | |||||||||||||||
|
Letters of Credit (notional) (3)
|
$ | 44,599 | $ | 46,532 | |||||||||||||||||||
(1)As a percentage of total Advances principal.
(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.
(3)Represents the amount of an off-balance sheet commitment.
The Advance principal balance as of March 31, 2026 increased $8.6 billion (12 percent) compared to year-end 2025, primarily driven by increases in Advance borrowings from a few large-asset members. The future levels of Advance balances are difficult to predict and depend on many factors, including changes in the level of liquidity in the financial markets, changes in our members' deposit levels compared to loan growth and the general health of the economy.
Letters of Credit are issued on behalf of members to support certain obligations of members (or members' customers) to third-party beneficiaries. Letters of Credit decreased $1.9 billion (four percent) in the first three months of 2026. Letters of Credit usually expire without being drawn upon.
The following tables present principal balances for the five members with the largest Advance borrowings.
| (Dollars in millions) | ||||||||||||||||||||||||||||||||
| March 31, 2026 | December 31, 2025 | |||||||||||||||||||||||||||||||
| Name | Principal Amount of Advances | Percent of Total Principal Amount of Advances | Name | Principal Amount of Advances | Percent of Total Principal Amount of Advances | |||||||||||||||||||||||||||
| JPMorgan Chase Bank, N.A. | $ | 16,500 | 21 | % | JPMorgan Chase Bank, N.A. | $ | 16,500 | 24 | % | |||||||||||||||||||||||
| U.S. Bank, N.A. | 10,500 | 13 | U.S. Bank, N.A. | 13,000 | 19 | |||||||||||||||||||||||||||
| The Huntington National Bank | 8,656 | 11 | The Huntington National Bank | 5,506 | 8 | |||||||||||||||||||||||||||
| Keybank, N.A. | 6,058 | 8 | Third Federal Savings and Loan Association | 4,774 | 7 | |||||||||||||||||||||||||||
| Third Federal Savings and Loan Association | 5,128 | 7 | Protective Life Insurance Company | 3,000 | 4 | |||||||||||||||||||||||||||
| Total of Top 5 | $ | 46,842 | 60 | % | Total of Top 5 | $ | 42,780 | 62 | % | |||||||||||||||||||||||
Mortgage Loans Held for Portfolio (Mortgage Purchase Program, or MPP)
MPP balances are influenced by conditions in the housing and mortgage markets, the competitiveness of prices we offer to purchase loans, as well as program features and activity from our largest sellers. We manage purchases and balances at a prudent level relative to capital and total assets to effectively manage market and credit risks consistent with our risk appetite.
The table below shows principal purchases and collections of loans in the MPP for the first three months of 2026. All loans acquired in the first three months of 2026 were conventional loans.
| (In millions) | MPP Principal | ||||
| Balance, December 31, 2025 | $ | 8,490 | |||
| Principal purchases | 643 | ||||
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Principal collections
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(285) | ||||
| Balance, March 31, 2026 | $ | 8,848 | |||
We closely model and analyze the refinancing incentives of our mortgage assets (including loans in the MPP and mortgage-backed securities (MBS)) because the option for homeowners to change their principal payments normally represents the largest portion of our market risk exposure and can affect MPP balances. MPP principal paydowns in the first three months of 2026 equated to a nine percent annual constant prepayment rate, which was an increase from the seven percent rate during 2025. Mortgage prepayment activity remains low compared to historical levels because current mortgage rates are still high relative to most borrowers' existing rates.
Investments
The table below presents the ending and average balances of our investment portfolio.
| Three Months Ended | Year Ended | ||||||||||||||||||||||
| (In millions) | March 31, 2026 | December 31, 2025 | |||||||||||||||||||||
| Ending Balance | Average Balance | Ending Balance | Average Balance | ||||||||||||||||||||
| Liquidity investments | $ | 27,965 | $ | 30,532 | $ | 30,065 | $ | 28,554 | |||||||||||||||
| MBS | 20,146 | 20,008 | 20,014 | 20,121 | |||||||||||||||||||
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Other investments (1)
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- | 2 | - | 23 | |||||||||||||||||||
| Total investments | $ | 48,111 | $ | 50,542 | $ | 50,079 | $ | 48,698 | |||||||||||||||
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
Investments that are either short-term (primarily overnight), or longer-term that consist of U.S. Treasury and GSE obligations are considered liquidity investments. These investments are primarily held to help meet the funding needs of members. Longer-term liquidity investments may be pledged or sold and converted to cash. Liquidity investment levels can vary significantly on a daily basis based on changes in the amount of actual Advances, anticipated demand for Advances, regulatory liquidity requirements, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria.
Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was 2.86 on March 31, 2026. The balance of MBS at March 31, 2026 consisted of $19.3 billion of securities issued by Fannie Mae or Freddie Mac (of which $10.2 billion were floating-rate securities), and $0.8 billion of securities issued by Ginnie Mae (which are fixed rate).
The table below shows principal purchases and paydowns of our MBS for the first three months of 2026.
| (In millions) | MBS Principal | ||||
| Balance at December 31, 2025 | $ | 20,071 | |||
| Principal purchases | 773 | ||||
| Principal paydowns | (615) | ||||
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Balance at March 31, 2026
|
$ | 20,229 | |||
MBS principal paydowns equated to a 12 percent annual constant prepayment rate in the first three months of 2026, the same as the rate experienced in all of 2025.
Consolidated Obligations
We generally fund variable-rate assets with Discount Notes (a portion of which may be swapped), adjustable-rate Bonds, and fixed-rate Bonds that have been swapped to a variable rate because they give us the ability to effectively match the underlying rate reset periods embedded in these assets. Total Consolidated Obligations on March 31, 2026 were $126.9 billion, an increase of $6.1 billion (five percent) compared to the balance at year-end 2025. The balances and composition of our Consolidated Obligations tend to fluctuate with changes in the balances and composition of our assets. In addition, changes in the amount and composition of our funding may be necessary from time to time to meet the days of positive liquidity and asset/liability maturity funding gap requirements discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."
Deposits
Total deposits with us are normally a relatively minor source of funding. Deposits with us are not insured, but are subject to statutory deposit reserve requirements. Total interest-bearing deposits on March 31, 2026 were $1.1 billion, an increase of four percent compared to year-end 2025. Interest-bearing deposits may have overnight or shorter-term maturities.
Capital Resources
The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same manner as GAAP capital stock and retained earnings.
| Three Months Ended | Year Ended | ||||||||||||||||||||||
| (In millions) | March 31, 2026 | December 31, 2025 | |||||||||||||||||||||
| Period End | Average | Period End | Average | ||||||||||||||||||||
| GAAP and Regulatory Capital | |||||||||||||||||||||||
| GAAP Capital Stock | $ | 4,984 | $ | 4,651 | $ | 4,539 | $ | 4,887 | |||||||||||||||
| Mandatorily Redeemable Capital Stock | 100 | 90 | 20 | 25 | |||||||||||||||||||
| Regulatory Capital Stock | 5,084 | 4,741 | 4,559 | 4,912 | |||||||||||||||||||
| Retained Earnings | 2,006 | 2,031 | 1,995 | 1,960 | |||||||||||||||||||
| Regulatory Capital | $ | 7,090 | $ | 6,772 | $ | 6,554 | $ | 6,872 | |||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||||
| March 31, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Period End | Average | Period End | Average | ||||||||||||||||||||
| GAAP and Regulatory Capital-to-Assets Ratio | |||||||||||||||||||||||
| GAAP | 5.14 | % | 5.00 | % | 5.05 | % | 5.00 | % | |||||||||||||||
|
Regulatory (1)
|
5.20 | 5.05 | 5.06 | 5.05 | |||||||||||||||||||
(1) At all times, the FHLB must maintain at least a four percent minimum regulatory capital-to-assets ratio.
Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in the first three months of 2026, we issued $2.1 billion of capital stock to members primarily in support of Advance borrowings, while repurchasing $1.5 billion of excess capital stock no longer supporting Mission Assets and Activities. Excess capital stock is the amount of stock held by a member (or former member) in excess of that institution's minimum stock ownership requirement.
See the "Capital Adequacy" section in "Quantitative and Qualitative Disclosures About Risk Management" for discussion of our retained earnings.
RESULTS OF OPERATIONS
Net Interest Income
Components of Net Interest Income
The following table shows selected components of net interest income.
| Three Months Ended March 31, | |||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | |||||||||||||||||||||
| Amount | % of Earning Assets | Amount | % of Earning Assets | ||||||||||||||||||||
|
Components of net interest rate spread:
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Net (amortization)/accretion (1) (2)
|
$ | (13) | (0.04) | % | $ | (7) | (0.02) | % | |||||||||||||||
|
Prepayment fees on Advances, net (2)
|
2 | 0.01 | - | - | |||||||||||||||||||
|
Other components of net interest rate spread
|
101 | 0.30 | 115 | 0.35 | |||||||||||||||||||
| Total net interest rate spread | 90 | 0.27 | 108 | 0.33 | |||||||||||||||||||
|
Earnings from funding assets with interest-free capital
|
68 | 0.21 | 80 | 0.25 | |||||||||||||||||||
|
Total net interest income/net interest margin (3)
|
$ | 158 | 0.48 | % | $ | 188 | 0.58 | % | |||||||||||||||
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Net Amortization/Accretion (generally referred to as amortization): Net amortization can become substantial and volatile with changes in interest rates, especially for mortgage assets. For example, when mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. Average mortgage rates were approximately 50 to 60 basis points lower in the first quarter of 2026 compared to the same period of 2025, which increased prepayment speeds slightly and accelerated premium amortization. However, mortgage rates remained at elevated levels relative to most borrowers' existing rates, keeping mortgage refinance activity low and amortization relatively modest compared to historical levels.
Other Components of Net Interest Rate Spread: The total other components of net interest rate spread decreased $14 million in the first three months of 2026 compared to the same period of 2025. The net decrease was primarily due to the factors below.
▪Lower net interest rate spreads earned on mortgage loans held for portfolio-Unfavorable: Lower spreads on mortgage loans held for portfolio decreased net interest income by an estimated $9 million. Spreads declined due to the maturity of lower-cost debt and the issuance of longer-term debt aimed at reducing market risk exposure.
▪Lower net interest rate spreads earned on Advances-Unfavorable: Lower spreads earned on Advances decreased net interest income by an estimated $8 million.
Earnings from Capital: Earnings from capital decreased $12 million in the three months ended March 31, 2026 compared to the same period of 2025 because of lower average short-term rates.
Average Balance Sheet and Rates
The following table provides average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. Interest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.
In addition, the net interest settlements of interest receivables or payables and the price alignment amount associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. The price alignment amount approximates the amount of interest that we would receive or pay if the variation margin payments were characterized as collateral pledged to secure outstanding credit exposure on the derivative contracts. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables and the price alignment amount are recorded in "Non-interest income (loss)" as "Net gains (losses) on derivatives" and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
| (Dollars in millions) | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||
| March 31, 2026 | March 31, 2025 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest |
Average Rate (1)
|
Average Balance | Interest |
Average Rate (1)
|
||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
|
Advances (2)
|
$ | 74,133 | $ | 738 | 4.04 | % | $ | 79,178 | $ | 931 | 4.77 | % | |||||||||||||||||||||||
|
Mortgage loans held for portfolio (3)
|
8,860 | 86 | 3.92 | 7,266 | 64 | 3.55 | |||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 3,707 | 34 | 3.68 | 2,993 | 32 | 4.38 | |||||||||||||||||||||||||||||
| Federal funds sold | 15,637 | 142 | 3.69 | 12,746 | 138 | 4.39 | |||||||||||||||||||||||||||||
|
Interest-bearing deposits in banks (4)
|
2,404 | 22 | 3.72 | 2,480 | 27 | 4.42 | |||||||||||||||||||||||||||||
|
MBS (5)
|
19,996 | 213 | 4.32 | 19,147 | 228 | 4.83 | |||||||||||||||||||||||||||||
|
Other investments (5)
|
8,777 | 87 | 4.04 | 8,413 | 95 | 4.58 | |||||||||||||||||||||||||||||
| Loans to other FHLBanks | - | - | - | 3 | - | 4.38 | |||||||||||||||||||||||||||||
| Total interest-earning assets | 133,514 | 1,322 | 4.01 | 132,226 | 1,515 | 4.65 | |||||||||||||||||||||||||||||
| Other assets | 557 | 595 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 134,071 | $ | 132,821 | |||||||||||||||||||||||||||||||
| Liabilities and Capital: | |||||||||||||||||||||||||||||||||||
| Term deposits | $ | 129 | 1 | 3.76 | $ | 131 | 1 | 4.61 | |||||||||||||||||||||||||||
|
Other interest bearing deposits (4)
|
927 | 7 | 3.12 | 843 | 8 | 3.85 | |||||||||||||||||||||||||||||
| Discount Notes | 32,921 | 300 | 3.70 | 21,242 | 230 | 4.39 | |||||||||||||||||||||||||||||
| Unswapped fixed-rate Bonds | 13,335 | 126 | 3.82 | 11,984 | 92 | 3.12 | |||||||||||||||||||||||||||||
| Unswapped adjustable-rate Bonds | 63,760 | 591 | 3.76 | 80,646 | 889 | 4.47 | |||||||||||||||||||||||||||||
| Swapped Bonds | 15,016 | 137 | 3.71 | 9,796 | 106 | 4.38 | |||||||||||||||||||||||||||||
| Mandatorily redeemable capital stock | 90 | 2 | 7.28 | 24 | 1 | 8.85 | |||||||||||||||||||||||||||||
| Other borrowings | - | - | - | 12 | - | 4.38 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 126,178 | 1,164 | 3.74 | 124,678 | 1,327 | 4.32 | |||||||||||||||||||||||||||||
| Other liabilities | 1,190 | 1,428 | |||||||||||||||||||||||||||||||||
| Total capital | 6,703 | 6,715 | |||||||||||||||||||||||||||||||||
| Total liabilities and capital | $ | 134,071 | $ | 132,821 | |||||||||||||||||||||||||||||||
| Net interest rate spread | 0.27 | % | 0.33 | % | |||||||||||||||||||||||||||||||
|
Net interest income and net interest margin (6)
|
$ | 158 | 0.48 | % | $ | 188 | 0.58 | % | |||||||||||||||||||||||||||
|
Average interest-earning assets to interest-bearing liabilities
|
105.81 | % | 106.05 | % | |||||||||||||||||||||||||||||||
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Interest on Advances includes prepayment fees of $2 million for the three months ended March 31, 2026. Advance prepayment fees for the three months ended March 31, 2025 totaled less than $1 million.
(3)Non-accrual loans are included in average balances used to determine average rate.
(4)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(5)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Rates on our interest-bearing assets and liabilities generally decreased in the three months ended March 31, 2026 compared to the same period of 2025, as these assets and liabilities have repriced to the lower interest rates. However, the average rate on mortgage loans held for portfolio increased due to a higher volume of loan purchases during 2025 and the first quarter of 2026 at interest rates above the average rate of the legacy portfolio.
Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
| (In millions) |
Three Months Ended
March 31, 2026 over 2025
|
||||||||||||||||
|
Volume (1)(3)
|
Rate (2)(3)
|
Total | |||||||||||||||
| Increase (decrease) in interest income | |||||||||||||||||
| Advances | $ | (57) | $ | (136) | $ | (193) | |||||||||||
| Mortgage loans held for portfolio | 15 | 7 | 22 | ||||||||||||||
| Securities purchased under agreements to resell | 7 | (5) | 2 | ||||||||||||||
| Federal funds sold | 28 | (24) | 4 | ||||||||||||||
| Interest-bearing deposits in banks | (1) | (4) | (5) | ||||||||||||||
| MBS | 10 | (25) | (15) | ||||||||||||||
| Other investments | 4 | (12) | (8) | ||||||||||||||
| Loans to other FHLBanks | - | - | - | ||||||||||||||
| Total | 6 | (199) | (193) | ||||||||||||||
| Increase (decrease) in interest expense | |||||||||||||||||
| Term deposits | - | - | - | ||||||||||||||
| Other interest-bearing deposits | 1 | (2) | (1) | ||||||||||||||
| Discount Notes | 111 | (41) | 70 | ||||||||||||||
|
Unswapped fixed-rate Bonds
|
11 | 23 | 34 | ||||||||||||||
|
Unswapped adjustable-rate Bonds
|
(169) | (129) | (298) | ||||||||||||||
| Swapped Bonds | 49 | (18) | 31 | ||||||||||||||
|
Mandatorily redeemable capital stock
|
1 | - | 1 | ||||||||||||||
| Other borrowings | - | - | - | ||||||||||||||
| Total | 4 | (167) | (163) | ||||||||||||||
|
Increase (decrease) in net interest income
|
$ | 2 | $ | (32) | $ | (30) | |||||||||||
(1)Volume changes are calculated as the change in volume multiplied by the prior year rate.
(2)Rate changes are calculated as the change in rate multiplied by the prior year average balance.
(3)Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.
Effect of the Use of Derivatives on Net Interest Income
The following tables show the impact on net interest income from the effect of derivatives and hedging activities. As noted above, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables and the price alignment amount related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the "Non-Interest Income (Loss)" section below.
| (In millions) | Advances | Investment Securities | Bonds | Total | |||||||||||||||||||
|
Three Months Ended March 31, 2026
|
|||||||||||||||||||||||
| Gains (losses) on designated fair value hedges | $ | (1) | $ | (1) | $ | (1) | $ | (3) | |||||||||||||||
| Net interest settlements included in net interest income | (9) | 40 | 3 | 34 | |||||||||||||||||||
|
Price alignment amount (1)
|
- | (4) | - | (4) | |||||||||||||||||||
| Increase (decrease) to net interest income | $ | (10) | $ | 35 | $ | 2 | $ | 27 | |||||||||||||||
|
Three Months Ended March 31, 2025
|
|||||||||||||||||||||||
| (Amortization)/accretion of hedging activities in net interest income | $ | - | $ | (1) | $ | - | $ | (1) | |||||||||||||||
| Gains (losses) on designated fair value hedges | 1 | 2 | - | 3 | |||||||||||||||||||
| Net interest settlements included in net interest income | 37 | 60 | (2) | 95 | |||||||||||||||||||
|
Price alignment amount (1)
|
(2) | (8) | - | (10) | |||||||||||||||||||
| Increase (decrease) to net interest income | $ | 36 | $ | 53 | $ | (2) | $ | 87 | |||||||||||||||
(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.
We primarily use derivatives to more closely match actual cash flows between assets and liabilities by synthetically converting the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., the Federal funds effective rate or SOFR). The impact of derivatives on net interest income was less favorable in the three months ended March 31, 2026 compared to the same period of 2025, driven primarily by a decline in average short-term interest rates. These lower rates resulted in net interest settlements being paid rather than received on derivatives related to certain Advances and reduced net interest settlements received on certain investment securities. The fluctuation in net interest income from the use of derivatives was acceptable because it enabled us to lower market risk exposure.
Non-Interest Income (Loss)
Non-interest income (loss) consists of certain gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). The effects of derivatives and hedging activities on non-interest income (loss) relate only to derivatives not qualifying for fair value hedge accounting.
| (In millions) | Advances | Investment Securities | Mortgage Loans | Bonds | Discount Notes | Other | Total | ||||||||||||||||||||||||||||||||||
|
Three Months Ended March 31, 2026
|
|||||||||||||||||||||||||||||||||||||||||
|
Net effect of derivatives and hedging activities
|
|||||||||||||||||||||||||||||||||||||||||
|
Gains (losses) on derivatives not receiving hedge accounting
|
$ | 1 | $ | 12 | $ | (2) | $ | (8) | $ | (5) | $ | - | $ | (2) | |||||||||||||||||||||||||||
|
Net interest settlements on derivatives not receiving hedge accounting
|
- | 4 | - | - | 1 | - | 5 | ||||||||||||||||||||||||||||||||||
|
Price alignment amount (1)
|
- | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net gains (losses) on derivatives | 1 | 16 | (2) | (8) | (4) | - | 3 | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on trading securities (2)
|
- | (23) | - | - | - | - | (23) | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on financial instruments held under fair value option (3)
|
(1) | - | - | 9 | 3 | - | 11 | ||||||||||||||||||||||||||||||||||
|
Total net effect on non-interest income (loss)
|
$ | - | $ | (7) | $ | (2) | $ | 1 | $ | (1) | $ | - | $ | (9) | |||||||||||||||||||||||||||
| (In millions) | Advances | Investment Securities | Mortgage Loans | Bonds | Discount Notes | Other | Total | ||||||||||||||||||||||||||||||||||
|
Three Months Ended March 31, 2025
|
|||||||||||||||||||||||||||||||||||||||||
|
Net effect of derivatives and hedging activities
|
|||||||||||||||||||||||||||||||||||||||||
|
Gains (losses) on derivatives not receiving hedge accounting
|
$ | (2) | $ | (47) | $ | (3) | $ | 1 | $ | (2) | $ | - | $ | (53) | |||||||||||||||||||||||||||
|
Net interest settlements on derivatives not receiving hedge accounting
|
1 | 9 | - | (1) | 2 | - | 11 | ||||||||||||||||||||||||||||||||||
|
Price alignment amount (1)
|
- | - | - | - | - | (1) | (1) | ||||||||||||||||||||||||||||||||||
| Net gains (losses) on derivatives | (1) | (38) | (3) | - | - | (1) | (43) | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on trading securities (2)
|
- | 47 | - | - | - | - | 47 | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on financial instruments held under fair value option (3)
|
2 | - | - | (2) | 5 | - | 5 | ||||||||||||||||||||||||||||||||||
|
Total net effect on non-interest income (loss)
|
$ | 1 | $ | 9 | $ | (3) | $ | (2) | $ | 5 | $ | (1) | $ | 9 | |||||||||||||||||||||||||||
(1)This amount is for derivatives for which variation margin is characterized as a daily settled contract.
(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statements of Income.
(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."
The decrease in earnings from the net effect of derivatives and hedging activities in the three months ended March 31, 2026 compared to the same period of 2025 was primarily due to net losses on derivatives and related financial instruments carried at fair value.
We elect to use the fair value option for certain financial instruments that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements. Because we intend to hold these derivatives and the related financial instruments to maturity, any unrealized gains or losses are expected to reverse in future periods.
In the tables above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations that have been swapped to a variable rate. Trading securities are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, such as changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the gains or losses on the associated interest rate swaps.
As noted above, the fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure.
Non-Interest Expense
Non-interest expense for the three months ended March 31, 2026 totaled $46 million, an increase of $2 million compared to the same period of 2025. Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or overall resource needs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT
Market Risk
Market Value of Equity and Duration of Equity
Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables, as presented in the following tables for various instantaneous and permanent interest rate shocks (in basis points). Market value of equity represents the difference between the market value of total assets and the market value of total liabilities, including off-balance sheet items. The duration of equity provides an estimate of the change in market value of equity to further changes in interest rates. We compiled average results using data for each month end.
Market Value of Equity
|
Interest Rate Scenarios
|
|||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Down 300 | Down 200 | Down 100 | Flat Rates | Up 100 | Up 200 | Up 300 | ||||||||||||||||||||||||||||||||||
| Average Results | |||||||||||||||||||||||||||||||||||||||||
| 2026 Year-to-Date | |||||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | $ | 6,632 | $ | 6,687 | $ | 6,693 | $ | 6,634 | $ | 6,564 | $ | 6,518 | $ | 6,480 | |||||||||||||||||||||||||||
| % Change from Flat Case | - | % | 0.8 | % | 0.9 | % | - | (1.1) | % | (1.7) | % | (2.3) | % | ||||||||||||||||||||||||||||
| 2025 Full Year | |||||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | $ | 6,527 | $ | 6,576 | $ | 6,581 | $ | 6,528 | $ | 6,459 | $ | 6,401 | $ | 6,350 | |||||||||||||||||||||||||||
| % Change from Flat Case | - | % | 0.7 | % | 0.8 | % | - | (1.1) | % | (2.0) | % | (2.7) | % | ||||||||||||||||||||||||||||
| Month-End Results | |||||||||||||||||||||||||||||||||||||||||
| March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | $ | 6,778 | $ | 6,818 | $ | 6,814 | $ | 6,750 | $ | 6,696 | $ | 6,657 | $ | 6,622 | |||||||||||||||||||||||||||
| % Change from Flat Case | 0.4 | % | 1.0 | % | 1.0 | % | - | (0.8) | % | (1.4) | % | (1.9) | % | ||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | $ | 6,159 | $ | 6,211 | $ | 6,220 | $ | 6,161 | $ | 6,102 | $ | 6,078 | $ | 6,064 | |||||||||||||||||||||||||||
| % Change from Flat Case | - | % | 0.8 | % | 1.0 | % | - | (1.0) | % | (1.3) | % | (1.6) | % | ||||||||||||||||||||||||||||
Duration of Equity
|
Interest Rate Scenarios
|
|||||||||||||||||||||||||||||||||||||||||
| (In years) | Down 300 | Down 200 | Down 100 | Flat Rates | Up 100 | Up 200 | Up 300 | ||||||||||||||||||||||||||||||||||
| Average Results | |||||||||||||||||||||||||||||||||||||||||
| 2026 Year-to-Date | (1.3) | (0.5) | 0.4 | 1.2 | 0.9 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||||||
| 2025 Full Year | (0.8) | (0.4) | 0.4 | 1.1 | 1.0 | 0.9 | 0.8 | ||||||||||||||||||||||||||||||||||
| Month-End Results | |||||||||||||||||||||||||||||||||||||||||
| March 31, 2026 | (2.0) | (0.3) | 0.6 | 1.0 | 0.7 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||||||
| December 31, 2025 | (0.8) | (0.6) | 0.4 | 1.3 | 0.6 | 0.3 | 0.2 | ||||||||||||||||||||||||||||||||||
The mortgage assets portfolio normally accounts for the majority of our market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining sufficient net spreads. The overall market risk exposure to changing interest rates was well within policy limits during the periods presented. At March 31, 2026, market risk exposure to falling and rising rate shocks remained stable.
Based on the totality of our risk analysis, we expect that overall profitability, defined as the level of ROE compared with short-term market rates, will be competitive over the long term unless interest rates increase by large amounts in a short period of time. Substantial declines in long-term interest rates could decrease income temporarily before reverting to average levels. This temporary reduction in income would be driven by additional recognition of mortgage asset premiums as the incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets. However, we believe the mortgage assets portfolio will continue to provide an acceptable risk-adjusted return consistent with our risk appetite philosophy.
Retained Earnings
We must hold sufficient capital to protect against exposure to various risks, including market, credit, and operational risks. We regularly conduct a variety of measurements and assessments for capital adequacy. At March 31, 2026, our capital management policy set forth approximately $690 million as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk. Our total retained earnings were $2.0 billion on March 31, 2026, which exceeds the policy minimum.
Market Capitalization Ratios
We measure two sets of market capitalization ratios. One measures the market value of equity (i.e., total capital) relative to the par value of regulatory capital stock (which is GAAP capital stock and mandatorily redeemable capital stock). The other measures the market value of total capital relative to the book value of total capital, which includes all components of capital, and mandatorily redeemable capital stock. The measures provide a point-in-time indication of the FHLB's liquidation or franchise value and can also serve as a measure of realized or potential market risk exposure.
The following table presents the market value of equity to regulatory capital stock (excluding retained earnings) for several interest rate environments.
| March 31, 2026 | December 31, 2025 | ||||||||||
|
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario
|
133 | % | 135 | % | |||||||
|
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)
|
134 | 136 | |||||||||
|
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)
|
131 | 133 | |||||||||
(1) Represents a down shock of 200 basis points.
(2) Represents an up shock of 200 basis points.
A base case value below 100 percent could indicate that, in the remote event of an immediate liquidation scenario involving redemption of all capital stock, capital stock may be returned to stockholders at a value below par. This could be due to experiencing risks that lower the market value of capital and/or to having an insufficient amount of retained earnings. In the first three months of 2026, the market capitalization ratios in the scenarios presented continued to be above our policy requirements. The base case ratio at March 31, 2026 was still well above 100 percent because retained earnings were 39 percent of regulatory capital stock and we maintained stable market risk exposure.
The following table presents the market value of equity to the book value of total capital and mandatorily redeemable capital stock.
| March 31, 2026 | December 31, 2025 | ||||||||||
|
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
|
95 | % | 94 | % | |||||||
|
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
|
96 | 95 | |||||||||
|
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
|
94 | 93 | |||||||||
(1) Capital includes total capital and mandatorily redeemable capital stock.
(2) Represents a down shock of 200 basis points.
(3) Represents an up shock of 200 basis points.
A base-case value below 100 percent can indicate that we have realized or could realize risks (especially market risk), such that the market value of total capital owned by stockholders is below the book value of total capital. The base-case ratio at March 31, 2026 indicates that the market value of total capital is $347 million below the book value of total capital. This indicates that in a hypothetical liquidation scenario, stockholders would not receive the full sum of their total equity ownership in the FHLB.
Credit Risk
Overview
We believe our risk management practices, discussed below, minimize residual credit risk levels. At March 31, 2026, we had no loan loss reserves or impairment recorded for Credit Services, investments and derivatives and had a minimal amount of credit risk exposure in the MPP.
Credit Services
Overview: The objective of our credit risk management activities is to equalize risk exposure across members and counterparties to a zero level of expected losses. This approach is consistent with our conservative risk management principles and desire to have no residual credit risk related to Advances and Letters of Credit.
Internal Credit Ratings: We perform credit underwriting of our members and nonmember institutions and assign them an internal credit rating. These credit ratings are based on internal and third-party ratings models, credit analyses and consideration of credit ratings from independent credit rating organizations. Credit ratings are used in conjunction with other measures of credit risk in managing secured credit risk exposure.
Collateral: We require each member to provide a security interest in eligible collateral before it can undertake any secured borrowing. The estimated value of pledged collateral is discounted in order to offset market, credit, and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. At March 31, 2026, total eligible pledged collateral of $535.4 billion resulted in total borrowing capacity of $394.0 billion of which $123.3 billion was used to support outstanding Advances and Letters of Credit. Borrowers often pledge collateral in excess of their collateral requirement to demonstrate access to liquidity and to have the ability to borrow additional amounts in the future. Over-collateralization by one member is not applied to another member.
MPP
Overview: The residual amount of credit risk exposure to loans in the MPP is minimal, based on the same factors described in the 2025 Annual Report on Form 10-K.
Credit Performance: The table below provides an analysis of conventional mortgage loans that are seriously delinquent or in the process of foreclosure, along with the national average serious delinquency rate.
| Conventional Loan Delinquencies | |||||||||||
| (Dollars in millions) | March 31, 2026 | December 31, 2025 | |||||||||
|
Serious delinquencies - unpaid principal balance (1)
|
$ | 11 | $ | 10 | |||||||
|
Serious delinquency rate (2)
|
0.1 | % | 0.1 | % | |||||||
|
National average serious delinquency rate (3)
|
1.1 | % | 1.0 | % | |||||||
(1)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(2)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.
(3)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The March 31, 2026 rate is based on December 31, 2025 data.
Overall, the MPP has experienced a minimal amount of delinquencies, with serious delinquency rates continuing to be well below national averages. This further supports our view that the portfolio is comprised of high-quality, well-performing loans.
Credit Losses: Residual credit risk exposure depends on the actual and potential credit performance of the loans compared to their equity and available credit enhancements (primary mortgage insurance (PMI) and the Lender Risk Account (LRA)). The LRA is a hold back of a portion of the initial purchase price to cover potential credit losses. Our available credit enhancements at March 31, 2026 were able to cover nearly all of the estimated gross credit losses.
Separate from our allowance for credit losses analysis, we regularly analyze potential adverse scenarios of lifetime credit risk exposure for the loans in the MPP. Even under severely adverse macroeconomic scenarios, we expect credit losses to remain low.
Investments
Liquidity Investments: We hold liquidity investments that can be converted to cash and may be unsecured, guaranteed or supported by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the instruments of investment-grade rated institutions, have appropriate and conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices, including active monitoring of credit quality of our counterparties and of the environment in which they operate. In addition, we believe the portion of our liquidity investments for which the investments are secured with collateral (secured resale agreements) present no credit risk exposure to us. Liquidity investments generally fluctuate because of changes in the amount of actual Advances, anticipated demand for Advances, regulatory liquidity requirements, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria.
The following table presents the carrying value of liquidity investments outstanding in relation to the counterparties' lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The ratings displayed in this table should not be taken as an indication of future ratings.
| (In millions) | March 31, 2026 | ||||||||||||||||
| Long-Term Rating | |||||||||||||||||
| AA | A | Total | |||||||||||||||
| Unsecured Liquidity Investments | |||||||||||||||||
| Interest-bearing deposits | $ | - | $ | 2,415 | $ | 2,415 | |||||||||||
| Federal funds sold | 3,407 | 9,000 | 12,407 | ||||||||||||||
| Total unsecured liquidity investments | 3,407 | 11,415 | 14,822 | ||||||||||||||
| Guaranteed/Secured Liquidity Investments | |||||||||||||||||
| Securities purchased under agreements to resell | 4,450 | - | 4,450 | ||||||||||||||
| U.S. Treasury obligations | 7,218 | - | 7,218 | ||||||||||||||
| GSE obligations | 1,475 | - | 1,475 | ||||||||||||||
| Total guaranteed/secured liquidity investments | 13,143 | - | 13,143 | ||||||||||||||
| Total liquidity investments | $ | 16,550 | $ | 11,415 | $ | 27,965 | |||||||||||
From time to time, some counterparties used to transact our securities purchased under agreements to resell are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. However, each of the counterparties are considered to have the equivalent of at least an investment grade rating based on our internal ratings resulting from a fundamental credit analysis. Securities purchased under agreements to resell are secured by the following types of collateral: U.S. Treasury obligations, U.S. agency/GSE obligations, or U.S. agency/GSE MBS. At March 31, 2026, the collateral received had long-term credit ratings of AA, based on the lowest long-term credit ratings of the issuer as provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services.
The following table presents the lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services of our unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty's immediate parent for U.S. branches and agency offices of foreign commercial banks. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The ratings displayed in this table should not be taken as an indication of future ratings.
| (In millions) | March 31, 2026 | ||||||||||||||||
| Counterparty Rating | |||||||||||||||||
| Domicile of Counterparty | AA | A | Total | ||||||||||||||
| Domestic | $ | 400 | $ | 3,415 | $ | 3,815 | |||||||||||
|
U.S. subsidiaries of foreign commercial banks
|
- | 1,000 | 1,000 | ||||||||||||||
|
Total domestic and U.S. subsidiaries of foreign commercial banks
|
400 | 4,415 | 4,815 | ||||||||||||||
|
U.S. branches and agency offices of foreign commercial banks:
|
|||||||||||||||||
| Germany | - | 2,300 | 2,300 | ||||||||||||||
| Canada | 500 | 1,700 | 2,200 | ||||||||||||||
| Australia | 1,900 | - | 1,900 | ||||||||||||||
| France | - | 1,200 | 1,200 | ||||||||||||||
| Netherlands | - | 1,000 | 1,000 | ||||||||||||||
| United Kingdom | - | 800 | 800 | ||||||||||||||
| Finland | 607 | - | 607 | ||||||||||||||
|
Total U.S. branches and agency offices of foreign commercial banks
|
3,007 | 7,000 | 10,007 | ||||||||||||||
| Total unsecured investment credit exposure | $ | 3,407 | $ | 11,415 | $ | 14,822 | |||||||||||
We are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities. Furthermore, we restrict a significant portion of unsecured lending to overnight maturities, which further limits credit risk exposure.
MBS:
GSE MBS
At March 31, 2026, $19.3 billion of MBS held were GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest.
MBS Issued by Other Government Agencies
We also invest in MBS issued and guaranteed by Ginnie Mae. These investments totaled $0.8 billion at March 31, 2026. We believe that the strength of Ginnie Mae's guarantee and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.
Derivatives
Credit Risk Exposure: We mitigate most of the credit risk exposure resulting from derivative transactions through collateralization or use of daily settled contracts. The table below presents the lowest long-term counterparty credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services for derivative positions to which we had credit risk exposure at March 31, 2026. The ratings displayed in this table should not be taken as an indication of future ratings.
|
(In millions)
|
Total Notional | Net Derivatives Fair Value Before Collateral | Cash Collateral Pledged to (from) Counterparties |
Non-cash Collateral Pledged to (from) Counterparties
|
Net Credit Exposure to Counterparties | |||||||||||||||||||||||||||
| Nonmember counterparties: | ||||||||||||||||||||||||||||||||
| Asset positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Uncleared derivatives: | ||||||||||||||||||||||||||||||||
| A-rated | $ | 7,620 | $ | 18 | $ | (14) | $ | - | $ | 4 | ||||||||||||||||||||||
| BBB-rated | 3,022 | 9 | (7) | - | 2 | |||||||||||||||||||||||||||
| Total uncleared derivatives | 10,642 | 27 | (21) | - | 6 | |||||||||||||||||||||||||||
| Liability positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Uncleared derivatives: | ||||||||||||||||||||||||||||||||
| A-rated | 1,220 | (4) | 5 | - | 1 | |||||||||||||||||||||||||||
| Total uncleared derivatives | 1,220 | (4) | 5 | - | 1 | |||||||||||||||||||||||||||
|
Cleared derivatives (1)
|
66,996 | (20) | - | 916 | 896 | |||||||||||||||||||||||||||
|
Total derivative positions with credit exposure to nonmember counterparties
|
78,858 | 3 | (16) | 916 | 903 | |||||||||||||||||||||||||||
|
Member institutions (2)
|
46 | - | - | - | - | |||||||||||||||||||||||||||
| Total | $ | 78,904 | $ | 3 | $ | (16) | $ | 916 | $ | 903 | ||||||||||||||||||||||
(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated AA- by Standard & Poor's and Fitch Ratings.
(2)Represents Mandatory Delivery Contracts.
Our exposure to cleared derivatives is primarily associated with the requirement to post initial margin through the clearing agent to the Derivatives Clearing Organizations. We may pledge both cash and non-cash (i.e., securities) as collateral to satisfy this initial margin requirement. However, the use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties.
Our net exposure to uncleared derivatives is managed to acceptable credit risk levels due to the contractual collateral provisions in these derivatives.
Although we cannot predict if we will realize credit risk losses from any of our derivative counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and satisfy the terms and conditions of their derivative contracts with us.
Liquidity Risk
Liquidity Overview
We strive to be in a liquidity position at all times to meet the borrowing needs of our members and to meet all current and future financial commitments. This objective is achieved by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of assets and liabilities. At March 31, 2026, our liquidity position complied with the FHLBank Act, Finance Agency regulations, and internal policies.
The FHLBank System's primary source of funds is the sale of Consolidated Obligations in the capital markets. Our ability to obtain funds through the sale of Consolidated Obligations at acceptable interest costs depends on the financial market's perception of the riskiness of the Obligations and on prevailing conditions in the capital markets, particularly the short-term
capital markets. The System's favorable debt ratings, which take into account our status as a GSE, and our effective risk management practices are instrumental in ensuring stable and satisfactory access to the capital markets.
We believe our liquidity position, as well as that of the System, continued to be strong during the first three months of 2026. Our overall ability to effectively fund our operations through debt issuances remained sufficient. Investor demand for System debt was robust in the first three months of 2026, as investors continued to prefer high-quality money market instruments. We believe there is a low probability of a liquidity or funding crisis in the System that would impair our ability to participate, on a cost-effective basis, in issuances of debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends.
The System works collectively to manage and monitor the System-wide liquidity and funding risks. Liquidity risk includes the risk that the System could have difficulty rolling over short-term Obligations when market conditions change, also called refinancing risk. The System has a large reliance on short-term funding; therefore, it has a sharp focus on managing liquidity risk to very low levels. Access to short-term debt markets has been reliable because investors, driven by liquidity preferences and risk aversion, have sought the System's short-term debt, which has resulted in strong demand for debt maturing in one year or less.
See the Notes to Unaudited Financial Statements for more detailed information regarding maturities of certain financial assets and liabilities which are instrumental in determining the amount of liquidity risk. In addition to contractual maturities, other assumptions regarding cash flows such as estimated prepayments, embedded call optionality, and scheduled amortization are considered when managing liquidity risks.
Liquidity Management and Regulatory Requirements
We manage liquidity risk by ensuring compliance with our regulatory liquidity requirements and regularly monitoring other metrics.
The Finance Agency establishes the expectations with respect to the maintenance of sufficient liquidity without access to the capital markets for a specified number of days, which was set as a period of between 10 to 30 calendar days in the base case. The base case generally assumes that all Advance maturities are renewed. We were in compliance with these liquidity requirements at all times during the first three months of 2026.
The Finance Agency also provides guidance related to asset/liability maturity funding gap limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. Although subject to change depending on conditions in the financial markets, the current regulatory requirement for funding gaps is between -10 percent to -20 percent for the three-month maturity horizon and is between -25 percent to -35 percent for the one-year maturity horizon. During the three months ended March 31, 2026, we operated within those limits.
To support our member deposits, we also must meet a statutory deposit reserve requirement. The sum of our investments in obligations of the United States, deposits in eligible banks or trust companies, and Advances with a final maturity not exceeding five years must equal or exceed the current amount of member deposits. The following table presents the components of this liquidity requirement.
| (In millions) | March 31, 2026 | December 31, 2025 | |||||||||
| Deposit Reserve Requirement | |||||||||||
| Total Eligible Deposit Reserves | $ | 100,538 | $ | 91,989 | |||||||
| Total Member Deposits | (1,105) | (1,064) | |||||||||
| Excess Deposit Reserves | $ | 99,433 | $ | 90,925 | |||||||
Operational Risks
There were no material developments regarding our operational risk exposure during the first three months of 2026.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes in the first three months of 2026 to our critical accounting estimates. Our critical accounting estimates are described in detail in our 2025 Annual Report on Form 10-K.
Federal Home Loan Bank of Cincinnati published this content on May 07, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 07, 2026 at 15:46 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]