Federal Home Loan Bank of Boston

11/12/2026 | Press release | Distributed by Public on 11/12/2026 14:28

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Index to Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
29
Executive Summary
30
Economic Conditions
32
Selected Financial Data
32
Results of Operations
34
Financial Condition
40
Liquidity and Capital Resources
47
Critical Accounting Estimates
51
Legislative and Regulatory Developments
52
Forward-Looking Statements
This report includes statements describing anticipated developments, projections, estimates, or predictions of ours that are "forward-looking statements." These statements may involve matters related to, but not limited to, projections of revenues, income, earnings, capital expenditures, dividends, capital structure, or other financial items; repurchases of excess stock, our minimum retained earnings target, or the interest-rate environment in which we do business; statements of management's plans or objectives for future operations; expectations of effects or changes in fiscal and monetary policies and our future economic
performance; or statements of assumptions underlying certain of the foregoing types of statements. These statements may use forward-looking terminology such as, but not limited to, "anticipates," "believes," "continued," "expects," "plans," "intends," "may," "could," "estimates," "assumes," "should," "will," "likely," or their negatives or other variations of these terms. We caution that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the risk factors set forth in Part I - Item 1A - Risk Factors in the 2025 Annual Report and Part II - Item 1A - Risk Factors of this report and the risks set forth below. Actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements.
These forward-looking statements involve risks and uncertainties including, but not limited to, the following:
•the effects of economic, financial, credit, and market conditions on our financial and regulatory condition and results of operations, including changes in economic growth, general liquidity conditions, inflation and deflation, employment rates, interest rates, interest-rate spreads, interest-rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, members' deposit flows, liquidity needs, and loan demand; changes in the general economy, including changes resulting from U.S. fiscal and monetary policy, including international trade policy and tariffs, actions of the Federal Open Market Committee (FOMC), or changes in credit ratings of the U.S. federal government; the condition of the mortgage and housing markets on our mortgage-related assets; and the condition of the capital markets on our COs;
•political events, including legislative, regulatory, judicial, government actions, including government shutdowns and executive orders, or other developments that affect us, our members, investors in the consolidated obligations of the FHLBanks, the FHFA, the organization and structure of the FHLBank System, our ability to access the capital markets, or our counterparties, such as any GSE reforms, changes to the FHLBank Act, or changes to other statutes or regulations applicable to the FHLBanks;
•our ability to declare and pay dividends consistent with past practices as well as any plans to repurchase excess capital stock, and any amendments to our Capital Plan;
•competitive forces including, without limitation, other sources of funding available to our members and other entities borrowing funds in the capital markets;
•changes in the value and liquidity of collateral we hold as security for obligations of our members and counterparties;
•the impact of new accounting standards and the application of accounting rules, including the impact of regulatory guidance on our application of such standards and rules;
•changes in the fair value and economic value of, impairments of, and risks associated with the Bank's investments in mortgage loans and MBS or other assets and the related credit-enhancement protections;
•membership conditions, such as financial health, and membership status, such as loss of membership resulting from mergers causing an out-of-district change in principal place of business;
•external events, such as general economic and financial instability, geopolitical instability, wars, pandemics and other health emergencies, and natural disasters;
•the pace of technological change and our ability to develop and support internal controls, information systems, and other operating technologies that effectively manage the risks we face including, but not limited to, failures, interruptions, or security breaches and other cybersecurity incidents; and
•our ability to attract and retain skilled employees, including our key personnel.
These forward-looking statements speak only as of the date they are made, and we do not undertake to update any forward- looking statement herein or that may be made from time to time on our behalf.
The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our interim financial statements and notes, which begin on page three, and the 2025 Annual Report.
EXECUTIVE SUMMARY
Net income was $66.4 million for the three months ended September 30, 2026, a modest increase from $66.0 million in the third quarter of 2025.
Net interest income after provision for credit losses was $101.7 million for the third quarter of 2026, compared to $100.9 million for the third quarter of 2025. The increase was primarily driven by the impacts of a significant increase intermediate- and long-term interest rates during the third quarter of 2026 that resulted in favorable variances of $13.4 million and $5.4 million in net amortization of premiums and discounts on mortgage-backed securities and net unrealized gains and losses on
fair value hedge ineffectiveness, respectively, as well as higher earnings from a $670.1 million increase in average mortgage-backed securities and a $580.3 million increase in average mortgage loans. These favorable factors were partially offset by a $6.0 billion decline in average advances and lower income from investing the Bank's capital due to decreases in average capital and short-term interest rates compared to the third quarter of 2025.
Total assets increased $1.5 billion, or 2.2 percent, to $70.3 billion at September 30, 2026, up from $68.8 billion at year-end 2025. Advances totaled $38.9 billion at September 30, 2026, an increase of $122.9 million from year-end 2025, which was primarily concentrated in variable-rate advances. Despite the modest increase in advances since year-end 2025, during the third quarter of 2026, advances declined by $6.1 billion from June 30, 2026, a significant portion of which is attributable to the prepayment of substantially all outstanding advances by Santander Bank, N.A. following its acquisition of our former member, Webster Bank, N.A.
Total investments were $26.2 billion at September 30, 2026, an increase of $1.0 billion from $25.2 billion at the prior year end, driven primarily by purchases of mortgage-backed securities and state housing-finance-agency bonds, as well as growth in low-yielding short-term money market instruments held on our balance sheet to manage our liquidity position. Mortgage loans totaled $4.7 billion at September 30, 2026, an increase of $432.3 million from year-end 2025 as mortgage sales to the Bank outpaced mortgage loan principal repayments during 2026.
Our retained earnings grew to $2.0 billion at September 30, 2026, an increase of $55.5 million from December 31, 2025, equaling 2.9 percent of total assets at September 30, 2026. We continued to satisfy all regulatory capital requirements as of September 30, 2026.
On October 23, 2026, our board of directors declared a cash dividend that was equivalent to an annual yield of 6.72 percent on the average daily balance of capital stock outstanding during the third quarter of 2026. The yield is equivalent to the approximate daily average of SOFR for the third quarter of 2026 plus 300 basis points.
Generally, investor demand for high credit quality, fixed-income investments, including COs, continued to be strong relative to other investments. Yield spreads on CO debt relative to benchmark yields for comparable debt remained relatively stable during the period covered by this report. Our flexibility in utilizing various funding tools, in combination with a diverse investor base and our status as a government-sponsored enterprise, have helped provide reliable market access and demand for COs throughout fluctuating market environments and regulatory changes affecting dealers of and investors in COs. The Bank continued to meet all funding needs during the three months ended September 30, 2026.
Net Interest Spread and Margin
Net interest spread was 0.34 percent during the third quarter of 2026, an increase of seven basis points from the third quarter of 2025, and net interest margin was 0.57 percent for the third quarter of 2026, an increase of five basis points from the third quarter of 2025, for the reasons discussed above.
Housing and Community Investment Programs
In addition to our $7.5 million statutory assessment for the Affordable Housing Program, we made a $2.2 million contribution to our discretionary housing and community investment programs and a voluntary contribution of $239 thousand to the Affordable Housing Program for the three months ended September 30, 2026. See - Housing and Community Investment Program Expenses below for additional information.
Legislative and Regulatory Developments
Legislation has been proposed or enacted, and the FHFA and others with authority over our industry and business activities have taken action during 2026 as described below in - Legislative and Regulatory Developments. Such developments affect the way we conduct business and could impact how we satisfy our mission and the value of Bank membership.
Credit Ratings
As of October 31, 2026, Moody's Investors Service Inc. (Moody's) long- and short-term credit ratings for the Bank and the 10 other FHLBanks are Aa1 and P-1, with a stable outlook.
As of October 31, 2026, Standard & Poor's Financial Services LLC (S&P's) long- and short-term credit ratings for the Bank and the 10 other FHLBanks are AA+ and A-1+, with a stable outlook.
ECONOMIC CONDITIONS
Interest-Rate Environment
During the third quarter of 2026, short-term interest rates were lower than during the third quarter of 2025. On September 16, 2026, the FOMC raised the target range for the federal funds rate by 25 basis points to 375 to 400 basis points, in support of the Federal Reserve's dual mandate. On October 28, 2026, the FOMC left the target range for the federal funds rate unchanged. Long-term interest rates rose significantly during the quarter ending September 30, 2026. For example, the 2-year, 5-year, and 10-year constant maturity treasury yields published by the Federal Reserve Board increased by 74 basis points, 90 basis points, and 85 basis points, respectively, from June 30, 2026, to September 30, 2026.
SELECTED FINANCIAL DATA
The following financial highlights for the statement of condition and statement of operations for December 31, 2025, have been derived from our audited financial statements. Financial highlights for the quarter-ends have been derived from our unaudited financial statements.
Table 1 - Selected Financial Data
(dollars in thousands)
September 30, 2026 June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025
Statement of Condition
Total assets $ 70,326,598 $ 77,322,314 $ 71,418,349 $ 68,812,649 $ 75,733,967
Investments(1)
26,159,533 27,225,623 25,989,186 25,206,343 28,220,995
Advances 38,885,425 44,952,558 40,516,560 38,762,563 42,774,048
Mortgage loans held for portfolio, net(2)
4,718,054 4,527,656 4,362,657 4,285,722 4,157,362
Deposits and other borrowings 1,048,019 886,999 874,209 915,299 1,077,463
Consolidated obligations:
Bonds
48,038,074 48,077,888 41,752,274 42,429,753 48,429,538
Discount notes
16,916,786 23,765,892 24,471,989 21,196,160 21,833,395
Total consolidated obligations
64,954,860 71,843,780 66,224,263 63,625,913 70,262,933
Mandatorily redeemable capital stock 14,140 8,072 8,072 4,122 4,234
Class B capital stock outstanding-putable(3)
1,942,840 2,204,459 2,019,932 1,936,610 2,107,549
Unrestricted retained earnings 1,445,765 1,427,624 1,423,025 1,421,472 1,416,765
Restricted retained earnings 585,748 572,463 563,425 554,561 543,244
Total retained earnings 2,031,513 2,000,087 1,986,450 1,976,033 1,960,009
Accumulated other comprehensive loss (185,370) (132,780) (148,256) (133,304) (207,923)
Total capital 3,788,983 4,071,766 3,858,126 3,779,339 3,859,635
For the Three Months Ended
Results of Operations September 30, 2026 June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025
Net interest income after provision for credit losses $ 101,669 $ 93,341 $ 85,746 $ 85,574 $ 100,910
Other (loss) income, net (125) 2,278 238 5,272 4,543
Other expense 27,659 45,393 36,730 27,967 32,057
AHP assessments 7,455 5,036 4,935 6,295 7,348
Net income $ 66,430 $ 45,190 $ 44,319 $ 56,584 $ 66,048
Other Information
Dividends declared $ 35,004 $ 31,553 $ 33,902 $ 40,560 $ 40,739
Dividend payout ratio 52.69 % 69.82 % 76.50 % 71.68 % 61.68 %
Weighted-average dividend rate(4)
6.67 6.71 7.05 7.39 7.38
Return on average equity(5)
6.94 4.58 4.77 6.08 6.77
Return on average assets 0.37 0.24 0.26 0.32 0.34
Net interest margin(6)
0.57 0.50 0.51 0.49 0.52
Average equity to average assets 5.31 5.27 5.45 5.25 5.04
Total regulatory capital ratio(7)
5.67 5.45 5.62 5.69 5.38
_______________________
(1)Investments include available-for-sale securities, held-to-maturity securities, trading securities, interest-bearing deposits, securities purchased under agreements to resell and federal funds sold.
(2)The allowance for credit losses for mortgage loans amounted to $2.9 million at September 30, 2026, $2.7 million at June 30, 2026, $2.6 million at March 31, 2026, $2.6 million at December 31, 2025, and $2.6 million at September 30, 2025.
(3)Capital stock is putable at the option of a member upon five years' written notice, subject to applicable restrictions.
(4)Weighted-average dividend rate is the dividend amount declared divided by the average daily balance of capital stock eligible for dividends.
(5)Return on average equity is net income divided by the total of the average daily balance of outstanding Class B capital stock, accumulated other comprehensive income, and total retained earnings.
(6)Net interest margin is net interest income before provision for credit losses as a percentage of average earning assets.
(7)Total regulatory capital ratio is capital stock (including mandatorily redeemable capital stock) plus total retained earnings as a percentage of total assets. See Part I - Item 1 - Financial Statements - Notes to the Financial Statements - Note 10 - Capital.
RESULTS OF OPERATIONS
The following table presents the Bank's significant statements of operations line items for the three and nine months ended September 30, 2026, and 2025, and information regarding the changes during those quarters is provided below.
Table 2 - Statements of Operations Summary
(dollars in thousands)
Change
For the Three Months Ended September 30, 2026 vs. 2025
2026 2025 Amount Percent
Net interest income after provision for credit losses $ 101,669 $ 100,910 $ 759 0.8 %
Other (loss) income, net (125) 4,543 (4,668) (102.8)
Other expense 27,659 32,057 (4,398) (13.7)
AHP assessment 7,455 7,348 107 1.5
Net income $ 66,430 $ 66,048 $ 382 0.6 %
Change
For the Nine Months Ended September 30, 2026 vs. 2025
2026 2025 Amount Percent
Net interest income after provision for credit losses $ 280,756 $ 291,526 $ (10,770) (3.7) %
Other income, net 2,391 10,668 (8,277) (77.6)
Other expense 109,782 113,281 (3,499) (3.1)
AHP assessment 17,426 18,916 (1,490) (7.9)
Net income $ 155,939 $ 169,997 $ (14,058) (8.3) %
Third Quarter of 2026 Compared with the Third Quarter of 2025
Net income increased $382 thousand to $66.4 million for the three months ended September 30, 2026, from $66.0 million for the same period in 2025. The primary reasons for the increase are discussed under Executive Summary.
Nine Months Ended September 30, 2026, Compared with the Nine Months Ended September 30, 2025
Net income decreased $14.1 million to $155.9 million for the nine months ended September 30, 2026, from $170.0 million for the same period in 2025. The decrease in net income was primarily due to a decrease of $10.8 million in net interest income after provision for credit losses, as well as a decrease of $8.3 million in other income primarily attributable to derivatives that are economically hedging CO discount notes not receiving hedge accounting.
Net interest income after provision for credit losses for the nine months ended September 30, 2026, was $280.8 million, compared with $291.5 million for the same period in 2025. The $10.8 million decrease in net interest income after provision for credit losses was primarily driven by significantly lower short-term interest rates, and the effects on net interest income arising from a $5.7 billion decline in average advances and a $165.4 million decline in the total of average capital stock and retained earnings that is invested with no corresponding interest expense. These factors were partially offset by a $10.5 million favorable variance in net amortization of premiums and discounts on mortgage-backed securities attributable to an increase in intermediate- and long-term interest rates during 2026. In addition, growth in mortgage-related assets, consisting of a $739.9 million increase in average mortgage-backed securities and a $593.8 million increase in average mortgage loans, also contributed to net interest income.
Table 3 presents major categories of average balances, related interest income/expense, and average yields/rates for interest-earning assets and interest-bearing liabilities. Our primary source of earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments less interest paid on COs, deposits, and other sources of funds.
Table 3 - Net Interest Spread and Margin
(dollars in thousands)
For the Three Months Ended September 30,
2026 2025
Average
Balance 		Interest
Income /
Expense
Average
Yield/Rate(1)
Average
Balance 		Interest
Income /
Expense
Average
Yield/Rate(1)
Assets
Advances $ 38,072,209 $ 391,470 4.08 % $ 44,072,098 $ 508,062 4.57 %
Interest-bearing deposits 2,799,171 26,318 3.73 2,299,648 25,360 4.38
Securities purchased under agreements to resell 4,307,076 40,484 3.73 4,000,652 43,958 4.36
Federal funds sold 4,548,859 42,537 3.71 4,939,772 54,330 4.36
Investment securities(2)
16,716,339 183,263 4.35 17,178,613 202,520 4.68
Mortgage loans(2)(3)
4,637,480 53,960 4.62 4,057,197 44,853 4.39
Total interest-earning assets 71,081,134 738,032 4.12 76,547,980 879,083 4.56
Other non-interest-earning assets 612,488 621,329
Fair-value adjustments on investment securities (185,487) (296,326)
Total assets $ 71,508,135 $ 738,032 4.09 % $ 76,872,983 $ 879,083 4.54 %
Liabilities and capital
Consolidated obligations
Discount notes $ 18,555,171 $ 173,972 3.72 % $ 20,116,411 $ 215,234 4.24 %
Bonds 47,338,552 454,732 3.81 51,174,017 556,232 4.31
Other interest-bearing liabilities 954,567 7,459 3.10 737,260 6,515 3.51
Total interest-bearing liabilities 66,848,290 636,163 3.78 72,027,688 777,981 4.29
Other non-interest-bearing liabilities 863,717 974,499
Total capital 3,796,128 3,870,796
Total liabilities and capital $ 71,508,135 $ 636,163 3.53 % $ 76,872,983 $ 777,981 4.02 %
Net interest income $ 101,869 $ 101,102
Net interest spread 0.34 % 0.27 %
Net interest margin 0.57 % 0.52 %
For the Nine Months Ended September 30,
2026 2025
Average
Balance 		Interest
Income /
Expense
Average
Yield/Rate(1)
Average
Balance 		Interest
Income /
Expense
Average
Yield/Rate(1)
Assets
Advances $ 39,272,659 $ 1,187,390 4.04 % $ 44,977,025 $ 1,532,140 4.55 %
Interest-bearing deposits 2,612,222 72,516 3.71 2,402,165 78,975 4.40
Securities purchased under agreements to resell 4,356,238 120,686 3.70 3,113,787 101,957 4.38
Federal funds sold 4,465,359 123,407 3.69 5,378,707 176,388 4.38
Investment securities(2)
16,345,440 515,494 4.22 17,062,924 599,055 4.69
Mortgage loans(2)(3)
4,469,303 152,688 4.57 3,875,469 125,663 4.34
Total interest-earning assets 71,521,221 2,172,181 4.06 76,810,077 2,614,178 4.55
Other non-interest-earning assets 547,442 752,350
Fair-value adjustments on investment securities (182,188) (297,866)
Total assets $ 71,886,475 $ 2,172,181 4.04 % $ 77,264,561 $ 2,614,178 4.52 %
Liabilities and capital
Consolidated obligations
Discount notes $ 22,147,829 $ 611,854 3.69 % $ 17,755,120 $ 571,044 4.30 %
Bonds 44,294,360 1,260,846 3.81 53,696,320 1,731,947 4.31
Other interest-bearing liabilities 822,521 18,425 2.99 723,381 19,261 3.56
Total interest-bearing liabilities 67,264,710 1,891,125 3.76 72,174,821 2,322,252 4.30
Other non-interest-bearing liabilities 782,839 1,193,061
Total capital 3,838,926 3,896,679
Total liabilities and capital $ 71,886,475 $ 1,891,125 3.52 % $ 77,264,561 $ 2,322,252 4.02 %
Net interest income $ 281,056 $ 291,926
Net interest spread 0.30 % 0.25 %
Net interest margin 0.53 % 0.51 %
_________________________
(1) Yields are annualized.
(2) Average balances are reflected at amortized cost.
(3) Nonaccrual loans are included in the average balances used to determine average yield.
Rate and Volume Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income and net interest margin. Table 4 summarizes changes in interest income and interest expense for the three and nine months ended September 30, 2026, and 2025. Changes in interest income and interest expense that are not identifiable as either volume or rate-related, but 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.
Table 4 - Rate and Volume Analysis
(dollars in thousands)
For the Three Months Ended
September 30, 2026 vs 2025 		For the Nine Months Ended
September 30, 2026 vs 2025
Increase (Decrease) due to Increase (Decrease) due to
Volume Rate Total Volume Rate Total
Interest income
Advances $ (65,000) $ (51,592) $ (116,592) $ (182,737) $ (162,013) $ (344,750)
Interest-bearing deposits 5,025 (4,067) 958 6,519 (12,978) (6,459)
Securities purchased under agreements to resell 3,198 (6,672) (3,474) 36,164 (17,435) 18,729
Federal funds sold (4,077) (7,716) (11,793) (27,507) (25,474) (52,981)
Investment securities (5,344) (13,913) (19,257) (24,440) (59,121) (83,561)
Mortgage loans 6,662 2,445 9,107 20,020 7,005 27,025
Total interest income (59,536) (81,515) (141,051) (171,981) (270,016) (441,997)
Interest expense
Consolidated obligations
Discount notes (15,908) (25,354) (41,262) 128,587 (87,777) 40,810
Bonds (39,790) (61,710) (101,500) (281,934) (189,167) (471,101)
Other interest-bearing liabilities 1,761 (817) 944 2,446 (3,282) (836)
Total interest expense (53,937) (87,881) (141,818) (150,901) (280,226) (431,127)
Change in net interest income $ (5,599) $ 6,366 $ 767 $ (21,080) $ 10,210 $ (10,870)
Average Balance of Advances
The average balance of total advances decreased by $5.7 billion, or 12.7 percent, for the nine months ended September 30, 2026, compared with the same period in 2025. This decrease in the average balance of advances was primarily concentrated in variable-rate advances and long-term fixed-rate advances, partially offset by an increase in short-term fixed rate advances. We cannot predict future member demand for advances.
Average Balance of Investments
Average short-term money-market investments, consisting of interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold, increased $539.2 million, or 4.9 percent, for the nine months ended September 30, 2026, compared with the same period in 2025, to manage our liquidity position and remain compliant with all regulatory guidance. The yield earned on short-term money-market investments is highly correlated to short-term interest rates. As a result of decreases in the FOMC's target range for the federal funds rate in 2025, average yields on overnight federal funds sold decreased from 4.38 percent during the nine months ended September 30, 2025, to 3.69 percent during the nine months ended September 30, 2026, and average yields on securities purchased under agreements to resell also decreased from 4.38 percent for the nine months ended September 30, 2025, to 3.70 percent for the nine months ended September 30, 2026.
Average investment-securities balances decreased $717.5 million, or 4.2 percent for the nine months ended September 30, 2026, compared with the same period in 2025. The decrease in the average balance of investment securities is attributable to maturities of U.S. Treasury securities, partially offset by purchases of MBS and HFA bonds.
Average Balance of COs
Average CO balances decreased $5.0 billion, or 7.0 percent, for the nine months ended September 30, 2026, compared with the same period in 2025. This decrease consisted of a $9.4 billion decrease in CO bonds, offset by a $4.4 billion increase in CO discount notes.
The average balance of CO discount notes represented approximately 33.3 percent of total average COs for the nine months ended September 30, 2026, compared with 24.8 percent of total average COs for the nine months ended September 30, 2025. The average balance of CO bonds represented 66.7 percent and 75.2 percent of total average COs outstanding during the nine months ended September 30, 2026, and 2025, respectively.
Impact of Derivatives and Hedging Activities
Net interest income includes interest accrued on interest-rate-exchange agreements that are associated with advances, investments, and debt instruments that qualify for hedge accounting. The fair value gains and losses of derivatives and hedged items designated in fair-value hedge relationships are also recognized as interest income or interest expense. We enter into derivatives to manage the interest-rate-risk exposures inherent in otherwise unhedged assets and liabilities and to achieve our risk-management objectives. We generally use derivative instruments that qualify for hedge accounting as interest-rate risk-management tools. These derivatives serve to stabilize net income when interest rates fluctuate by better matching the rate repricing characteristics of financial assets and liabilities. Accordingly, the impact of derivatives on net interest income and net interest margin, as well as other income, should be viewed in the overall context of our risk-management strategy.
Table 5 provides a summary of the impact of derivatives and hedging activities on our earnings.
Table 5 - Effect of Derivative and Hedging Activities
(dollars in thousands)
For the Three Months Ended September 30, 2026
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds CO Discount Notes Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (181) $ 13,787 $ 79 $ 3,261 $ - $ 16,946
Gains (losses) on designated fair-value hedges 1,149 6,350 - (377) - 7,122
Net interest settlements (2)
11,203 31,927 - (24,091) - 19,039
Price alignment interest (3)
(491) (2,658) - 49 - (3,100)
Total net interest income 11,680 49,406 79 (21,158) - 40,007
Net gains (losses) on derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting 227 - - - (1,041) (814)
Mortgage delivery firm commitments - - (2,945) - - (2,945)
Price alignment amount (3)
- - - - 708 708
Net gains (losses) on derivatives and hedging activities 227 - (2,945) - (333) (3,051)
Total net effect of derivatives and hedging activities $ 11,907 $ 49,406 $ (2,866) $ (21,158) $ (333) $ 36,956
For the Three Months Ended September 30, 2025
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds CO Discount Notes Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (292) $ 14,468 $ 19 $ 2,352 $ - $ 16,547
Gains (losses) on designated fair-value hedges 112 601 - (411) - 302
Net interest settlements (2)
28,173 62,468 - (79,079) - 11,562
Price alignment interest (3)
190 (3,295) - 309 - (2,796)
Total net interest income 28,183 74,242 19 (76,829) - 25,615
Net (losses) gains on derivatives and hedging activities
Losses on derivatives not receiving hedge accounting - - - - (539) (539)
Mortgage delivery firm commitments - - 543 - - 543
Price alignment amount (3)
- - - - 916 916
Net gains on derivatives and hedging activities - - 543 - 377 920
Total net effect of derivatives and hedging activities $ 28,183 $ 74,242 $ 562 $ (76,829) $ 377 $ 26,535
For the Nine Months Ended September 30, 2026
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds CO Discount Notes Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (430) $ 40,947 $ 51 $ 9,051 $ - $ 49,619
Gains (losses) on designated fair-value hedges 2,499 7,857 - (701) - 9,655
Net interest settlements (2)
31,180 96,089 - (93,247) - 34,022
Price alignment interest (3)
(1,211) (5,079) - 62 - (6,228)
Total net interest income 32,038 139,814 51 (84,835) - 87,068
Net gains (losses) on derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting 206 - - - (6,372) (6,166)
Mortgage delivery firm commitments - - (3,695) - - (3,695)
Price alignment interest (3)
- - - - 2,352 2,352
Net gains (losses) on derivatives and hedging activities 206 - (3,695) - (4,020) (7,509)
Total net effect of derivatives and hedging activities $ 32,244 $ 139,814 $ (3,644) $ (84,835) $ (4,020) $ 79,559
For the Nine Months Ended September 30, 2025
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds CO Discount Notes Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (804) $ 38,963 $ 75 $ 9,052 $ - $ 47,286
(Losses) gains on designated fair-value hedges (1,710) (2,113) - 54 - (3,769)
Net interest settlements (2)
82,209 198,217 - (239,799) - 40,627
Price alignment interest (3)
(2,692) (10,361) - 687 - (12,366)
Total net interest income 77,003 224,706 75 (230,006) - 71,778
Net gains (losses) on derivatives and hedging activities
Losses on derivatives not receiving hedge accounting - - - - (2,358) (2,358)
Mortgage delivery firm commitments - - 908 - - 908
Price alignment interest (3)
- - - - 1,571 1,571
Net gains (losses) on derivatives and hedging activities - - 908 - (787) 121
Total net effect of derivatives and hedging activities $ 77,003 $ 224,706 $ 983 $ (230,006) $ (787) $ 71,899
________________________
(1) Represents the amortization/accretion of hedging fair-value adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive income.
(2) Represents interest income/expense on derivatives included in net interest income.
(3) Relates to derivatives for which variation margin payments are characterized as daily settled contracts.
Housing and Community Investment Program Expenses
We have a dual mission to provide our members with highly reliable wholesale funding and liquidity, and to support affordable housing and community economic development. In fulfilling our mission to support affordable housing and community economic development, we administer a number of programs, some of which are statutory while others are discretionary. For additional information on our dual mission and these specific programs, see Part I - Item 1 - Business - General and Part I - Item 1 - Business - Targeted Housing and Community Investment Programs in the 2025 Annual Report.
We are required to annually set aside a portion of our earnings for our Affordable Housing Program. These funds assist members serving very low-, low-, and moderate-income households and support community economic development. The Bank's net income for the nine months ended September 30, 2026, resulted in an accrual of $17.4 million to the AHP pool of funds that will be part of the Bank's annual AHP assessment that will fund the AHP in 2027. Contributions made to our discretionary housing and community investment programs reduce the Bank's net income for the year, therefore reducing our statutory accrual of funds to the AHP. The Bank's board of directors made a voluntary AHP contribution of $6.1 million for the nine months ended September 30, 2026.
Table 6 - Statutory AHP Assessment and Voluntary AHP Contributions
(dollars in thousands)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2026 2025 2026 2025
Net income subject to AHP statutory assessment $ 74,550 $ 73,475 $ 174,264 $ 189,156
Statutory AHP percentage 10 % 10 % 10 % 10 %
Statutory AHP assessment 7,455 7,348 17,426 18,916
AHP voluntary contribution(1)
239 681 6,135 7,353
Total AHP contributions $ 7,694 $ 8,029 $ 23,561 $ 26,269
________________________
(1) Includes both voluntary and supplemental voluntary contributions to the AHP. Supplemental voluntary contribution to the AHP is the amount that restores the statutory AHP assessment amount to what it otherwise would have been in the absence of the voluntary AHP contribution and the discretionary housing and community investment contribution.
Discretionary housing and community investment program expenses are shown in the table below, by program.
Table 7 - Discretionary Housing and Community Investment Program Expenses
(dollars in thousands)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
Program 2026 2025 2026 2025
Affordable housing
MPF Permanent Rate Buydown product $ 582 $ 1,296 $ 5,788 $ 5,054
Housing Our Workforce program 331 1,999 5,766 7,320
Lift Up Homeownership program 560 1,570 5,697 7,270
Economic development
Jobs for New England program 678 1,090 3,060 5,064
Community Development Financial Institutions
CDFI Advance program 4 170 5,818 6,376
Total discretionary housing and community investment program expenses $ 2,155 $ 6,125 $ 26,129 $ 31,084
FINANCIAL CONDITION
Advances
At September 30, 2026, the advances portfolio totaled $38.9 billion, an increase of $122.9 million from $38.8 billion at December 31, 2025.
Table 8 - Advances Outstanding by Product Type
(dollars in thousands)
September 30, 2026 December 31, 2025
Par Value Percent of Total Par Value Percent of Total
Fixed-rate advances
Short-term $ 10,828,604 27.7 % $ 11,210,295 28.9 %
Long-term 8,203,765 21.0 8,530,500 22.0
Putable 5,205,470 13.4 6,965,970 17.9
Overnight 2,310,620 5.9 2,179,677 5.6
Amortizing 788,489 2.0 922,613 2.4
27,336,948 70.0 29,809,055 76.8
Variable-rate advances
Simple variable (1)
11,722,957 30.0 8,989,242 23.2
All other variable-rate indexed advances 3,877 - 1,585 -
11,726,834 30.0 8,990,827 23.2
Total par value $ 39,063,782 100.0 % $ 38,799,882 100.0 %
________________________
(1) Includes floating-rate advances that may be contractually prepaid by the borrower on a floating-rate reset date without incurring prepayment or termination fees.
See Part I - Item 1 - Financial Statements - Notes to the Financial Statements - Note 4 - Advances for disclosures relating to redemption terms of advances.
Advances Credit Risk
We manage credit risk on advances by monitoring the financial condition of our borrowers and by holding collateral we believe will be sufficient to protect the Bank from credit losses. The Bank has an internal credit rating methodology that estimates each borrower's credit risk utilizing call report data and other quantitative factors as well as qualitative considerations including, but not limited to, regulatory examination reports. Based on its rating, we assign each member and non-member housing associate to one of the four credit categories below to allow the Bank to leverage risk mitigation strategies across groups of similarly rated members. Each credit category reflects increasing limitations on borrowing capacity and terms to maturity, as well as our increasing level of control over the collateral pledged by the borrower.
•Credit category one (Credit Category-1): a borrower is generally in satisfactory financial condition;
•Credit category two (Credit Category-2): a borrower shows financial weakness or weakening financial trends;
•Credit category three (Credit Category-3): a borrower demonstrates financial weaknesses that present an elevated level of concern; and
•Credit category four (Credit Category-4): a borrower shows significant financial weaknesses and an increased likelihood of failure over the next 12 months.
The Bank may impose different borrowing capacity limitations or collateral pledging requirements on a borrower if the Bank determines that doing so mitigates risks to the Bank and/or the borrower.
The following table presents a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank's borrowers as of September 30, 2026.
Table 9 - Credit Outstanding and Collateral Borrowing Capacity by Credit Category
(dollars in thousands)
September 30, 2026
Borrowers with Credit Outstanding
Number
Other Credit Outstanding(1)
Total Credit Outstanding
Collateral Borrowing Capacity(2)
Borrower Credit Category Advances Total Used
Member borrowers(3)
Credit Category-1 273 $ 37,361,004 $ 8,089,726 $ 45,450,730 $ 132,773,225 34.2 %
Credit Category-2 35 1,452,600 118,034 1,570,634 3,926,733 40.0
Credit Category-3 8 154,332 9,676 164,008 528,894 31.0
Credit Category-4 - - - - - -
Nonmember borrowers(4)
Former members 8 47,949 309,878 357,827 483,046 74.1
Housing associates 5 47,897 96 47,993 62,378 76.9
Total 329 $ 39,063,782 $ 8,527,410 $ 47,591,192 $ 137,774,276 34.5 %
_______________________
(1) Includes accrued interest on advances, letters of credit, unused lines of credit, and credit-enhancement obligations on purchased mortgage loans.
(2) Collateral borrowing capacity does not represent any commitment to lend by the Bank.
(3) Because they are subject to different laws and regulations than depository institutions, non-depository members are obligated to deliver eligible collateral regardless of their assigned credit category.
(4) Nonmember borrowers, consisting of housing associates and institutions that are former members or have acquired former members, are obligated to deliver all required collateral. Other than housing associates, nonmember borrowers may not request new advances and are not permitted to extend or renew any advances they have assumed.
The Bank may adjust the credit category of a member from time to time based on financial reviews and other information pertinent to that member.
We have not recorded any allowance for credit losses on advances as of September 30, 2026, and December 31, 2025, for the reasons discussed in Part I - Item 1 - Financial Statements - Notes to the Financial Statements - Note 4 - Advances.
Table 10 - Top Five Advance-Borrowing Institutions
(dollars in thousands)
September 30, 2026
Name Par Value of Advances Percent of Total Par Value of Advances
Weighted-Average Rate (1)
Citizens Bank, N.A. $ 8,363,055 21.4 % 4.21 %
Salem Five Cents Savings Bank 1,690,692 4.3 3.99
Hingham Institution for Savings 1,415,340 3.6 3.93
Institution for Savings in Newburyport and its Vicinity 1,341,667 3.5 3.92
Voya Retirement Insurance and Annuity Co. 1,320,000 3.4 4.27
Total of top five advance-borrowing institutions $ 14,130,754 36.2 %
December 31, 2025
Name Par Value of Advances Percent of Total Par Value of Advances
Weighted-Average Rate (1)
State Street Bank and Trust Company $ 3,500,000 9.0 % 4.06 %
Webster Bank, N.A. 2,980,718 7.7 3.86
Citizens Bank, N.A. 2,013,387 5.2 3.92
Institution for Savings in Newburyport and its Vicinity 1,468,719 3.8 3.81
Hingham Institution for Savings 1,463,815 3.8 3.94
Total of top five advance-borrowing institutions $ 11,426,639 29.5 %
_______________________
(1) Weighted-average rates are based on the contract rate of each advance without taking into consideration the effects of interest-rate-exchange agreements that we may use as hedging instruments.
Investments
At September 30, 2026, investment securities and short-term money-market instruments totaled $26.2 billion, an increase of $1.0 billion from $25.2 billion at December 31, 2025.
Short-term money-market investments increased $677.2 million to $10.2 billion at September 30, 2026, compared with December 31, 2025. The increase was attributable to increases in securities purchased under agreements to resell, federal funds sold and interest-bearing deposits of $250.0 million, $241.0 million and $186.2 million, respectively.
Investment securities increased $276.0 million to $16.0 billion at September 30, 2026, compared with $15.7 billion at December 31, 2025.
Investments Credit Risk
We are subject to credit risk on unsecured investments consisting primarily of short-term (meaning one year or less to maturity) money-market instruments issued by high-quality financial institutions and long-term (original maturity greater than one year) debentures issued or guaranteed by U.S. agencies, U.S. government-owned corporations, GSEs, and supranational institutions.
We place short-term funds with large, high-quality financial institutions. As of September 30, 2026, all of these placements either expired within one business day or were payable upon demand. See Part I - Item 1 - Business - Business Lines - Investments in the 2025 Annual Report for additional information.
In addition, we also make secured investments in the form of securities purchased under agreements to resell secured by U.S. Treasury, U.S. government guaranteed, or agency obligations with current term limits of up to 95 days to maturity and in the form of MBS and HFA securities that are directly or indirectly supported by underlying mortgage loans.
Table 11 - Credit Ratings of Investments at Carrying Value
(dollars in thousands)
As of September 30, 2026
Long-Term Credit Rating
Investment Category Triple-A Double-A Single-A
Money-market instruments: (1)
Interest-bearing deposits $ - $ 955,150 $ 1,283,373
Securities purchased under agreements to resell - - 4,750,000
Federal funds sold - 1,250,000 1,950,000
Total money-market instruments - 2,205,150 7,983,373
Investment securities:(2)
Non-MBS:
U.S. Treasury obligations - 3,829,317 -
U.S. government-owned corporations - 210,700 -
GSE - 89,614 -
Supranational institutions 202,560 - -
HFA securities 83,880 110,092 -
Total non-MBS 286,440 4,239,723 -
MBS:
U.S. government guaranteed - single-family - 87,030 -
U.S. government guaranteed - multifamily - 428,430 -
GSE - single-family - 2,109,749 -
GSE - multifamily - 8,819,638 -
Total MBS - 11,444,847 -
Total investment securities 286,440 15,684,570 -
Total investments $ 286,440 $ 17,889,720 $ 7,983,373
_______________________
(1) The counterparty's nationally recognized statistical ratings organization rating is used for money-market instruments. Counterparty ratings are obtained from Moody's, Fitch, Inc. (Fitch), and S&P and are each as of September 30, 2026. If there is a split rating, the lowest rating is used. In certain instances where a counterparty is unrated, the Bank may assign a deemed rating to the counterparty and that deemed rating is used.
(2) The issue rating is used for investment securities. Issue ratings are obtained from Moody's, Fitch, and S&P. If there is a split rating, the lowest rating is used.
Table 12 - Unsecured Credit Related to Money-Market Instruments and Debentures
(dollars in thousands)
Carrying Value
September 30, 2026 December 31, 2025
Federal funds sold $ 3,200,000 $ 2,959,000
Interest-bearing deposits 2,238,523 2,052,365
Supranational institutions 202,560 243,394
U.S. government-owned corporations 210,700 230,065
GSEs 89,614 96,535
Corporate bonds - 1,401
FHFA regulations include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties based on a percentage of regulatory capital and an internal credit rating determined by each FHLBank. See Part I - Item 1 - Business - Business Lines - Investments in the 2025 Annual Report for additional information.
Mortgage Loans
We invest in mortgages through the MPF Program. The MPF Program is further described under - Mortgage Loans Credit Risk and in Part I - Item 1 - Business - Business Lines - Mortgage Loan Finance in the 2025 Annual Report.
As of September 30, 2026, our mortgage loan investment portfolio totaled $4.7 billion, an increase of $432.3 million from December 31, 2025. This increase is the result of mortgage loan purchase volumes exceeding principal repayments during 2026. We expect continued competition from Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, as well as from private mortgage loan acquirers, for loan investment opportunities.
Mortgage Loans Credit Risk
We are subject to credit risk from the mortgage loans in which we invest due to our exposure to the credit risk of the underlying borrowers and the credit risk of the participating financial institutions when the participating financial institutions retain credit-enhancement and/or servicing obligations. For additional information on the credit risks arising from our participation in the MPF Program, see Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Mortgage Loans - Mortgage Loans Credit Risk in the 2025 Annual Report. For information on the payment status of our mortgage loan portfolio as of September 30, 2026, see Part I - Item 1 - Financial Statements - Notes to Financial Statements - Note 5 - Mortgage Loans Held for Portfolio in this report.
Although our mortgage loan portfolio includes loans throughout the U.S., concentrations of 5 percent or greater of the par value of our conventional mortgage loan portfolio are shown in Table 13.
Table 13 - State Concentrations by Par Value
Percentage of Total Par Value of Conventional Mortgage Loans
September 30, 2026 December 31, 2025
Massachusetts 51 % 54 %
Maine 20 18
Vermont 11 9
Connecticut 7 7
All others 11 12
Total 100 % 100 %
Consolidated Obligations
See Liquidity and Capital Resources for information regarding our COs.
Derivative Instruments
All derivatives are recorded on the statement of condition at fair value and classified as either derivative assets or derivative liabilities. Bilateral and cleared derivatives outstanding are classified as assets or liabilities according to the net fair value of derivatives aggregated by each counterparty. Derivative assets' net fair value, net of cash collateral and accrued interest, totaled $301.1 million and $295.7 million as of September 30, 2026, and December 31, 2025, respectively. Derivative liabilities' net fair value, net of cash collateral and accrued interest, totaled $3.4 million and $2.3 million as of September 30, 2026, and December 31, 2025, respectively.
The following table presents a summary of the notional amounts and estimated fair values of our outstanding derivatives, excluding accrued interest, and related hedged item by product and type of accounting treatment as of September 30, 2026, and December 31, 2025. The notional amount represents the hypothetical principal basis used to determine periodic interest payments received and paid. However, the notional amount does not represent an actual amount exchanged or our overall exposure to credit and market risk.
Table 14 - Derivatives and Hedge-Accounting Treatment
(dollars in thousands)
September 30, 2026 December 31, 2025
Hedged Item Derivative
Designation(1)
Notional
Amount 		Fair
Value 		Notional
Amount 		Fair
Value
Advances Swaps Fair value $ 10,753,449 $ (6,610) $ 11,482,436 $ (83,599)
Swaps Economic 6,265 12 - -
Total associated with advances 10,759,714 (6,598) 11,482,436 (83,599)
Available-for-sale securities Swaps Fair value 12,469,591 (84,269) 11,532,025 (80,385)
COs Swaps Fair value 16,801,760 (403,099) 21,078,500 (232,369)
Swaps Economic 6,761,487 589 7,722,435 2,190
Forward starting swaps Cash Flow 491,000 178 641,000 469
Total associated with COs 24,054,247 (402,332) 29,441,935 (229,710)
Total 47,283,552 (493,199) 52,456,396 (393,694)
Mortgage delivery firm commitments 64,960 (1,581) 59,316 85
Total derivatives $ 47,348,512 (494,780) $ 52,515,712 (393,609)
Accrued interest 153,170 166,995
Cash collateral, including related accrued interest 639,242 520,026
Net derivatives $ 297,632 $ 293,412
Derivative asset $ 301,051 $ 295,723
Derivative liability (3,419) (2,311)
Net derivatives $ 297,632 $ 293,412
_______________________
(1) The hedge designation "fair value" represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge changes in fair value attributable to changes in the designated benchmark interest rate. The hedge designation "cash flow" represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge the exposure to variability in expected future cash flows. The hedge designation "economic" represents derivatives hedging specific or nonspecific assets, liabilities, or firm commitments that do not qualify or were not documented as fair-value or cash-flow hedges but are documented as serving a non-speculative use and are hedging strategies under our risk-management policy.
Derivative Instruments Credit Risk. For information on our approach to the credit risks arising from our use of derivatives, see Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Derivative Instruments - Derivative Instruments Credit Risk in the 2025 Annual Report.
Table 15 - Credit Exposure to Derivatives Counterparties
(dollars in thousands)
As of September 30, 2026
Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged to (from) Counterparty Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A $ 2,560,500 $ 4,839 $ (3,867) $ 972
Cleared derivatives 7,481,968 1,211 109,448 110,659
Liability positions with credit exposure:
Uncleared derivatives:
Single-A 10,966,500 (195,418) 199,538 4,120
Cleared derivatives
18,041,463 (1,745) 187,030 185,285
Total interest-rate swap positions with nonmember counterparties to which we had credit exposure 39,050,431 (191,113) 492,149 301,036
Mortgage delivery firm commitments (1)
64,960 15 - 15
Total $ 39,115,391 $ (191,098) $ 492,149 $ 301,051
_______________________
(1) Total fair-value exposures related to firm commitments to invest in mortgage loans are offset by certain pair-off fees. Firm commitments to invest in mortgage loans are reflected as derivatives. We do not collateralize these commitments. However, should the participating financial institution fail to deliver the mortgage loans as agreed, the participating financial institution is charged a fee to compensate us for the nonperformance.
LIQUIDITY AND CAPITAL RESOURCES
Our financial structure is designed to enable us to expand and contract our assets, liabilities, and capital in response to changes in membership composition and member credit needs. Our primary source of liquidity is our access to the capital markets through CO issuance, which is described in Part I - Item 1 - Business - Consolidated Obligations in the 2025 Annual Report. Outstanding COs and the condition of the market for COs are discussed below under - Debt Financing - Consolidated Obligations. Our equity capital resources are governed by our Capital Plan, certain portions of which are described under - Capital below as well as by applicable legal and regulatory requirements.
Liquidity
We are required to maintain liquidity in accordance with the FHLBank Act, FHFA regulations and guidance, and policies established by our management and board of directors. We seek to be in a position to meet the credit and liquidity needs of our members and all current and future financial commitments 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 our assets and liabilities.
We are unable to predict future trends in member credit needs because they are driven by complex interactions among several factors, including, but not limited to, increases and decreases in member assets and deposits, and the attractiveness of advances compared to other sources of wholesale funding. We regularly monitor current trends and anticipate future debt issuance needs and maintain a portfolio of highly liquid assets to be prepared to fund member credit needs and investment opportunities. We are generally able to expand our CO debt issuance in response to members' increased need for advances and to increase our acquisitions of mortgage loans. Alternatively, in response to reduced member credit needs, we may shrink our balance sheet by allowing our COs to mature without replacement, transferring debt to another FHLBank, repurchasing and retiring outstanding COs, or redeeming callable COs on eligible redemption dates.
Sources and Uses of Liquidity. Our primary sources of liquidity are proceeds from the issuance of COs and advance repayments, and maturing short-term investments, as well as cash and investment holdings that are primarily high-quality, short- and intermediate-term financial instruments that can be sold or pledged as collateral under a repurchase agreement. During the nine months ended September 30, 2026, we maintained continuous access to funding and adapted our debt issuance to meet the needs of our members.
Secondary sources of liquidity include payments collected on mortgage loans, proceeds from the issuance of capital stock, and member deposits. In addition, under the FHLBank Act, the U.S. Treasury may purchase up to $4 billion of FHLBank COs. The terms, conditions, and interest rates in such a purchase would be determined by the U.S. Treasury. This authority may be exercised at the discretion of the U.S. Treasury with the agreement of the FHFA only if alternative means cannot be effectively employed to permit members of the FHLBanks to continue to supply reasonable amounts of funds to the mortgage market, and the ability to supply such funds is substantially impaired because of monetary stringency and high interest rates. There were no such purchases by the U.S. Treasury during the nine months ended September 30, 2026.
Our uses of liquidity are advance originations and consolidated obligation principal and interest payments. Other uses of liquidity are mortgage loan and investment purchases, dividend payments, general operating expenses, and other contractually obligated payments. We also maintain liquidity to redeem or repurchase excess capital stock, through our daily excess stock repurchases, upon the request of a member, or as required under our Capital Plan.
For information and discussion of our guarantees and other commitments we may have, see Part I - Item 1 - Financial Statements - Notes to the Financial Statements - Note 13 - Commitments and Contingencies. For further information and discussion of the joint and several liability for FHLBank COs, see Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 10 - Consolidated Obligations in the 2025 Annual Report.
Internal Liquidity Sources / Liquidity Management
Projected Net Cash Flow. We define projected net cash flow as projected sources of funds less projected uses of funds based on contractual maturities or expected option exercise periods, and settlement of committed assets and liabilities, as applicable. For mortgage-related cash flows and callable debt, we incorporate projected prepayments and call exercises.
Liquidity Management. We maintain our liquidity so that if projected net cash flow falls below zero on or before the 21st day following the measurement date, then management of the Bank is notified and determines whether any corrective action is necessary. We did not breach this threshold at any time during the nine months ended September 30, 2026. Table 16 below shows this calculation as of September 30, 2026.
Table 16 - Projected Net Cash Flow
(dollars in thousands)
As of September 30, 2026
21 Days
Uses of funds
Interest payable $ 203,999
Maturing or expected option exercise of liabilities 7,510,276
Committed asset settlements 20,330
Capital outflow 35,831
MPF delivery commitments 67,914
Gross uses of funds 7,838,350
Sources of funds
Interest receivable 241,636
Maturing or projected amortization of assets 17,257,070
Committed liability settlements 1,261,097
Cash and due from banks and interest-bearing deposits 2,260,060
Other 7,517
Gross sources of funds 21,027,380
Projected net cash flow $ 13,189,030
Base Case Liquidity Requirement. The Bank is subject to FHFA guidance on liquidity, including Advisory Bulletin 2018-07 (Liquidity Guidance AB), which communicates the FHFA's expectations with respect to the maintenance of sufficient liquidity to enable us to provide advances and fund standby letters of credit for members for a specified time without access to the capital markets or other unsecured funding sources.
The Liquidity Guidance AB provides guidance on the level of on-balance sheet liquid assets related to base case liquidity. As part of the base case liquidity measure, the guidance also includes a separate provision covering off-balance sheet commitments from standby letters of credit. In addition, the Liquidity Guidance AB provides guidance related to asset/liability maturity funding gap limits.
Under the Liquidity Guidance AB, FHLBanks are required to maintain sufficient liquid assets to achieve positive projected net cash flow while rolling over maturing advances to all members and assuming no access to capital markets for a period of time between 10 and 30 calendar days, with a specific measurement period set forth in a supervisory letter. The Liquidity Guidance AB also sets forth the initial cash flow assumptions and formula to calculate base case liquidity. With respect to standby letters of credit, the guidance states that FHLBanks should maintain a liquidity reserve of between one percent and 20 percent of its outstanding standby letters of credit commitments, as specified in a supervisory letter.
We were in compliance with the Base Case Liquidity Requirement at all times during the nine months ended September 30, 2026.
Balance Sheet Funding Gap Policy. We may use a portion of the short-term COs issued to fund assets with longer terms, including longer-term floating-rate assets. Funding longer-term floating-rate assets with shorter-term liabilities generally does not expose us to significant interest-rate risk because the interest rates on both the floating-rate assets and liabilities typically reset similarly (either through rate resets or re-issuance of the obligations). However, deviations in the cost of our short-term liabilities relative to resetting assets can cause fluctuations in our net interest margin.
Additionally, the Bank is exposed to refinancing risk since, over certain time horizons, it has more liabilities than assets maturing. In order to manage the Bank's refinancing risk, we maintain a policy that limits the potential difference between the amount of financial assets and the amount of financial liabilities expected to mature within three-month and one-year time horizons inclusive of projected mortgage-related prepayment activity. We measure this difference, or gap, as a percentage of
total assets over three-month and one-year time horizons. In conformity with the provisions of the Liquidity Guidance AB, the Bank has instituted a limit framework around these metrics as follows:
Table 17 - Funding Gap Metric
Funding Gap Metric (1)
Limit Three-Month Average
September 30, 2026 		Three-Month Average
December 31, 2025
3-month Funding Gap 15% 0.4% (0.8)%
1-year Funding Gap 30% 20.4% 14.4%
_______________________
(1) The funding gap metric is a positive value when maturing liabilities exceed maturing assets, as defined, within the given period. Compliance with limits is evaluated against the rolling three-month average of the month-end funding gaps.
External Sources of Liquidity
Amended and Restated FHLBanks P&I Funding Contingency Plan Agreement. All FHLBanks have a source of emergency external liquidity through the Amended and Restated FHLBanks P&I Funding Contingency Plan Agreement as discussed in Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - External Sources of Liquidity in the 2025 Annual Report. We have never drawn funding under this agreement, nor have we ever been required to provide funding to another FHLBank under this agreement.
Debt Financing - Consolidated Obligations
At September 30, 2026, and December 31, 2025, outstanding COs for which we are primarily liable, including both CO bonds and CO discount notes, totaled $65.0 billion and $63.6 billion, respectively. CO bonds outstanding for which we are primarily liable at September 30, 2026, and December 31, 2025, include issued callable bonds totaling $15.9 billion and $17.7 billion, respectively.
CO discount notes comprised 26.0 percent and 33.3 percent of the outstanding COs for which we are primarily liable at September 30, 2026, and December 31, 2025, respectively, but accounted for 60.5 percent and 56.2 percent of the proceeds from the issuance of such COs during the nine months ended September 30, 2026, and 2025, respectively.
Overall, we continued to experience strong demand for COs among investors. During the period covered by this report, the capital markets have supported our funding needs and we have been able to issue debt in the amounts and structures required to satisfy the demand for advances and meet our funding and risk-management needs.
Capital
Total capital was $3.8 billion at both September 30, 2026, and December 31, 2025.
The FHLBank Act and FHFA regulations specify that each FHLBank is required to satisfy certain minimum regulatory capital requirements. We were in compliance with these requirements at September 30, 2026, as discussed in Part I - Item 1 - Financial Statements - Notes to the Financial Statements - Note 10 - Capital.
Capital Rule
The FHFA's regulation on FHLBank capital classification and critical capital levels (the Capital Rule), among other things, establishes criteria for capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. The Capital Rule requires the Director of the FHFA to determine on no less than a quarterly basis the capital classification of each FHLBank. Based on financial information as of June 30, 2026, the FHFA determined that we met the definition of adequately capitalized under the Capital Rule.
Internal Capital Practices and Policies
We maintain a level and composition of capital exceeding legal and regulatory requirements that we believe to be prudent to ensure capital adequacy, reflected in our internal minimum capital requirement, which exceeds regulatory requirements, our minimum retained earnings target, and limitations on our dividends.
Internal Minimum Capital Requirement in Excess of Regulatory Requirements
In an effort to provide protection for our capital base, we maintain an internal minimum capital requirement whereby the amount of paid-in capital stock and retained earnings (together, our actual regulatory capital) must be at least equal to the sum of 4 percent of our total assets plus an amount we measure as our risk exposure with 99 percent confidence using our economic capital model (together, our internal minimum capital requirement). As of September 30, 2026, this internal minimum capital requirement equaled $3.5 billion, which was satisfied by our actual regulatory capital of $4.0 billion.
Minimum Retained Earnings Target
Our minimum required level of retained earnings is determined monthly using rolling three-month averages. Retained earnings must be at least 4.0 percent of our total assets less outstanding capital stock plus the economic capital requirement.
At September 30, 2026, we had total retained earnings of $2.0 billion, which exceeded the limit of $1.5 billion. In the event that the Bank's balance of retained earnings is below the limit, dividends may not exceed 40 percent of the prior quarter's net income.
Repurchases of Excess Stock
We have the authority, but are not obliged, to repurchase excess stock, as discussed under Part I - Item 1 - Business - Capital Resources - Repurchase of Excess Stock in the 2025 Annual Report.
Table 18 - Capital Stock Requirements and Excess Capital Stock
(dollars in thousands)
Membership Stock
Investment
Requirement 		Activity-Based
Stock Investment
Requirement
Total Stock
Investment
Requirement (1)
Outstanding Class B
Capital Stock (2)
Excess Class B
Capital Stock
September 30, 2026 $ 364,872 $ 1,556,257 $ 1,921,149 $ 1,956,980 $ 35,831
December 31, 2025 355,203 1,550,527 1,905,751 1,940,732 34,981
_______________________
(1) Total stock investment requirement is rounded up to the nearest $100 on an individual member basis.
(2) Class B capital stock outstanding includes mandatorily redeemable capital stock.
Restricted Retained Earnings and the Joint Capital Agreement
At September 30, 2026, our total required contribution to the restricted retained earnings account was $661.4 million and the balance of the restricted retained earnings account was $585.7 million, thus requiring us to contribute 20 percent of net income to our restricted retained earnings account.
Off-Balance-Sheet Arrangements
Our significant off-balance-sheet arrangements consist of the following:
• commitments that obligate us for additional advances;
• standby letters of credit;
• commitments for unused lines-of-credit advances; and
• unsettled COs.
Off-balance-sheet arrangements are more fully discussed in Part I - Item 1 - Financial Statements - Notes to the Financial Statements - Note 13 - Commitments and Contingencies.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, income and expense. To understand the Bank's financial position and results of operations, it is important to understand the Bank's most significant accounting policies and the
extent to which management uses judgment, estimates and assumptions in applying those policies. The Bank's critical accounting estimates relate to the Bank's valuation of derivatives and hedged items in a fair-value hedge relationship.
Management considers these policies to be critical because they require us to make subjective and complex judgments about matters that are inherently uncertain. Management bases its judgment 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 and/or conditions. The Audit Committee of our board of directors has reviewed these estimates. The assumptions involved in applying these policies are discussed in Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates in the 2025 Annual Report.
As of September 30, 2026, we have not made any significant changes to the estimates and assumptions used in applying our critical accounting policies and estimates from those used to prepare our audited financial statements.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
We are subject to various legal and regulatory requirements and priorities. Certain actions, regulatory priorities, and areas of focus of the current administration have changed and continue to change the regulatory environment. These changes have affected, and likely will continue to affect, certain aspects of our business operations, and could affect our financial condition, results of operations, and reputation. Additionally, we are subject to extensive regulatory oversight, including ongoing monitoring and targeted examinations by our regulator, which could affect our business operations and financial results.
Considering the changes in the regulatory environment, described in the 2025 Annual Report and in our Reports on Form 10-Q previously filed in 2026, there is uncertainty with respect to the ultimate nature and result of future regulatory actions and their ultimate effects on us and the FHLBank System. We continue to monitor these actions as they evolve and to evaluate their potential effect on the Bank. For further discussion of related risks, see Part I - Item 1A - Risk Factors in the 2025 Annual Report.
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