UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51405

FEDERAL HOME LOAN BANK OF DALLAS

(Exact name of registrant as specified in its charter)

Federally chartered corporation		71-6013989
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
8500 Freeport Parkway South, Suite 600
Irving,	TX	75063-2547
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (214) 441-8500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbol(s) Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act: Class B Capital Stock, $100 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	þ	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The registrant’s capital stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value ($100 per share), subject to certain regulatory and statutory requirements. At March 12, 2024, the registrant had 46,461,235 shares of its capital stock outstanding. As of June 30, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate par value of the registrant’s capital stock outstanding was approximately $6.224 billion.

Documents Incorporated by Reference: None.

FEDERAL HOME LOAN BANK OF DALLAS

TABLE OF CONTENTS

	Page
PART I
Item 1. Business	1
Item 1A. Risk Factors	22
Item 1B. Unresolved Staff Comments	30
Item 1C. Cybersecurity	30
Item 2. Properties	31
Item 3. Legal Proceedings	32
Item 4. Mine Safety Disclosures	32
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6. Reserved	35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Forward-Looking Information	35
Overview	35
Financial Market Conditions	36
2023 in Summary	37
Selected Financial Data	39
Financial Condition	40
Results of Operations	60
Liquidity and Capital Resources	68
Risk-Based Capital Rules and Other Capital Requirements	70
Critical Accounting Estimates	72
Recently Issued Accounting Guidance	72
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	73
Item 8. Financial Statements and Supplementary Data	77
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	77
Item 9A. Controls and Procedures	77
Item 9B. Other Information	77
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	77
PART III
Item 10. Directors, Executive Officers and Corporate Governance	77
Item 11. Executive Compensation	89
Compensation Discussion and Analysis	89
Compensation Committee Report	102
Summary Compensation Table	103
Grants of Plan-Based Awards	104
Pension Benefits	107
Nonqualified Deferred Compensation	110
Potential Payments upon Termination or Change in Control	114
Pay Ratio	119
Director Compensation	119
Compensation Committee Interlocks and Insider Participation	121
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	121
Item 13. Certain Relationships and Related Transactions, and Director Independence	123
Item 14. Principal Accounting Fees and Services	127
PART IV
Item 15. Exhibits, Financial Statement Schedules	128
Item 16. Form 10-K Summary	130
Signatures	S-1
Index to Financial Statements	F-1
EX-10.13
EX-10.24
EX-14.1
EX-31.1
EX-31.2
EX-32.1
EX-99.1
EX-99.2
EX-101
EX-104

PART I

ITEM 1. BUSINESS

Background

The Federal Home Loan Bank of Dallas (the “Bank”) is one of 11 Federal Home Loan Banks (each individually a “FHLBank” and collectively the “FHLBanks,” and, together with the Office of Finance, a joint office of the FHLBanks, the “FHLBank System,” or the “System”). The FHLBanks were created by the Federal Home Loan Bank Act of 1932, as amended (the “FHLB Act”). Each of the 11 FHLBanks is a member-owned cooperative that operates as a separate federally chartered corporation with its own management, employees and board of directors. Each FHLBank helps finance housing, community lending, and community development needs in the specified states in its respective district. Federally insured commercial banks, savings banks, savings and loan associations, and federally or privately insured credit unions, as well as insurance companies and Community Development Financial Institutions that are certified under the Community Development Banking and Financial Institutions Act of 1994, are all eligible for membership in the FHLBank of the district in which the institution’s principal place of business is located. Housing associates, including state and local housing authorities, that meet certain statutory and regulatory criteria may also borrow from the FHLBanks.

The public purpose of the Bank is to promote housing, jobs and general prosperity through products and services that assist its members in providing affordable credit in their communities. The Bank’s primary business is to serve as a financial intermediary between the capital markets and its members. In its most basic form, this intermediation process involves raising funds by issuing debt in the capital markets and lending the proceeds to member institutions (in the form of loans known as advances) at rates that are slightly higher than the cost of the debt. The interest spread between the cost of the Bank’s liabilities and the yield on its assets, combined with the earnings on its invested capital, are the Bank’s primary sources of earnings. The Bank endeavors to manage its assets and liabilities in such a way that its net interest spread (excluding fair value hedge ineffectiveness) is consistent across a wide range of interest rate environments. The intermediation of its members’ credit needs with the investment requirements of the Bank’s creditors is made possible by the extensive use of interest rate exchange agreements. These agreements, commonly referred to as derivatives or derivative instruments, are discussed below in the section entitled “Use of Interest Rate Exchange Agreements.”

The Bank’s principal source of funds is debt issued in the capital markets. All 11 FHLBanks issue debt in the form of consolidated obligations through the Office of Finance as their agent, and each FHLBank uses these funds to make loans to its members, invest in debt securities, or for other business purposes. Generally, consolidated obligations are traded in the over-the-counter market. All 11 FHLBanks are jointly and severally liable for the repayment of all consolidated obligations. Although consolidated obligations are not obligations of or guaranteed by the U.S. government, FHLBanks are considered to be government-sponsored enterprises (“GSEs”) and thus have historically been able to borrow at the more favorable rates generally available to GSEs. Consolidated obligations are currently rated Aaa/P-1 by Moody’s Investors Service (“Moody’s”) and AA+/A-1+ by S&P Global Ratings (“S&P”). In the application of S&P's Government Related Entities criteria, the ratings of the FHLBanks are constrained by the long-term sovereign credit rating of the United States. Moody's outlook for the Aaa rating on the System's consolidated obligations is negative, reflecting Moody's negative outlook on the Aaa rating of the U.S. government. These ratings indicate that each of these nationally recognized statistical rating organizations ("NRSROs") has concluded that the FHLBanks have a very strong capacity to meet their financial commitments on consolidated obligations. The ratings also reflect the FHLBank System’s status as a GSE. Historically, the FHLBanks' GSE status and very high credit ratings on consolidated obligations have provided the FHLBanks with excellent capital markets access. Deposits, other borrowings and the proceeds from the issuance of capital stock to members are also sources of funds for the Bank.

In addition to the ratings on the FHLBanks’ consolidated obligations, each FHLBank is rated individually by both S&P and Moody’s. These individual FHLBank ratings apply to the individual obligations of the respective FHLBanks, such as interest rate derivatives, deposits, and letters of credit. As of the date of this report, Moody’s had assigned a deposit rating of Aaa/P-1 to each of the FHLBanks and S&P had rated each of the FHLBanks AA+/A-1+. Moody's outlook for the Aaa rating on each of the FHLBank's long-term deposit ratings was negative, reflecting Moody's negative outlook on the ratings of the U.S. government.

Current and prospective shareholders and debtholders should understand that these credit ratings are not a recommendation to buy, hold or sell securities and they may be revised or withdrawn at any time by the NRSRO. The ratings from each of the NRSROs should be evaluated independently.

All members of the Bank are required to purchase capital stock in the Bank as a condition of membership and in proportion to their asset size and business activity with the Bank. The Bank’s capital stock is not publicly traded and all stock is owned by members of the Bank, by non-member institutions that acquire stock by virtue of acquiring member institutions, by a federal or state agency or insurer acting as a receiver of a closed institution, or by former members of the Bank that retain capital stock to support advances or other obligations that remain outstanding or until any applicable stock redemption or withdrawal notice period expires.

1

The Federal Housing Finance Agency (“Finance Agency”), an independent agency in the executive branch of the U.S. government, is responsible for supervising and regulating the FHLBanks and the Office of Finance. The Finance Agency’s stated mission is to ensure that the housing GSEs, including the FHLBanks, operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. Consistent with this mission, the Finance Agency establishes policies and regulations covering the operations of the FHLBanks.

The Bank’s debt and equity securities are exempt from registration under the Securities Act of 1933 and are “exempted securities” under the Securities Exchange Act of 1934 (the “Exchange Act”). As required by the Housing and Economic Recovery Act of 2008 (the “HER Act”), each FHLBank has voluntarily registered a class of its equity securities with the Securities and Exchange Commission (“SEC”) under Section 12(g) of the Exchange Act. As a registrant, the Bank is subject to the periodic reporting and disclosure regime as administered and interpreted by the SEC. The SEC maintains an Internet site (https://www.sec.gov) that contains reports and other information filed with the SEC. Reports and other information that the Bank files with the SEC are also available free of charge through the Bank’s website at www.fhlb.com. To access these reports and other information through the Bank’s website, click on "About Us," then “Investor Relations,” and then “SEC” under the heading SEC Filings. The information on the Bank's website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of the Bank's other filings with the SEC.

Membership

The Bank’s members are financial institutions with their principal place of business in the Ninth Federal Home Loan Bank District, which consists of Arkansas, Louisiana, Mississippi, New Mexico and Texas (the "Ninth District"). The following table summarizes the Bank’s membership, by type of institution, as of December 31, 2023, 2022 and 2021.

MEMBERSHIP SUMMARY

	December 31,
	2023	2022	2021
Commercial banks	537	537	552
Credit unions	135	126	126
Insurance companies	61	59	59
Savings institutions	51	52	54
Community Development Financial Institutions ("CDFIs")	7	7	7
Total members	791	781	798
Housing associates	8	8	8
Non-member borrowers	2	3	2
Total	801	792	808
Community Financial Institutions (“CFIs”) (1)	496	500	521

(1)The figures presented above reflect the number of members that were CFIs as of December 31, 2023, 2022 and 2021 based upon the definitions of CFIs that applied as of those dates.

As of December 31, 2023, approximately 63 percent of the Bank’s members were Community Financial Institutions ("CFIs"). CFIs are defined by the FHLB Act (as amended by the HER Act) to include all institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) with average total assets over the three-year period preceding measurement of less than $1.0 billion, as adjusted annually for inflation. For 2023, CFIs were FDIC-insured institutions with average total assets as of December 31, 2022, 2021 and 2020 of less than $1.417 billion. For 2022 and 2021, the asset cap was $1.323 billion and $1.239 billion, respectively. For 2024, the asset cap is $1.461 billion.

As of December 31, 2023, 2022 and 2021, approximately 47.8 percent, 48.9 percent and 41.7 percent, respectively, of the Bank’s members had outstanding advances from the Bank. These usage rates are calculated excluding housing associates and non-member borrowers. While eligible to borrow, housing associates are not members of the Bank and, as such, are not required or permitted to hold capital stock. Non-member borrowers consist of institutions that have acquired former members and assumed the advances and/or other extensions of credit of those former members and former members who have withdrawn from membership but that continue to have advances and/or other extensions of credit outstanding. Non-member borrowers are required to hold capital stock to support outstanding advances or other extensions of credit until the time when those advances have been repaid or the extensions of credit have expired, as applicable. During the period that their obligations remain outstanding, non-member borrowers may not request new extensions of credit, nor are they permitted to extend or renew the assumed extensions of credit.

2

The Bank’s membership currently includes the majority of commercial banks and savings institutions in its district that are eligible to become members. Eligible non-members are primarily insurance companies, credit unions and smaller commercial banks that have thus far elected not to join the Bank. While the Bank anticipates that some number of these eligible non-member institutions will apply for membership each year, the Bank also anticipates that some number of its existing members will be acquired or merge with other institutions and it does not currently anticipate a substantial change in the number of member institutions.

As a cooperative, the Bank is managed with the primary objectives of enhancing the value of membership for member institutions and fulfilling its public purpose. The value of membership includes access to readily available credit and other services from the Bank, the value of the cost differential between Bank advances and other potential sources of funds and, to a lesser extent, the dividends paid on members’ investments in the Bank’s capital stock.

Business Segments

The Bank manages its operations as one business segment. Management and the Bank’s Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance. All of the Bank’s revenues are derived from U.S. operations.

Interest Income

The Bank’s interest income is derived from advances, investment activities and mortgage loans held for portfolio. Each of these revenue sources is more fully described below. During the years ended December 31, 2023, 2022 and 2021, interest income derived from each of these sources (expressed as a percentage of the Bank’s total interest income) was as follows:

	Year Ended December 31,
	2023			2022			2021
Advances (including prepayment fees)	69.0		%	57.9		%	34.3		%
Investments	28.9			35.7			45.1
Mortgage loans held for portfolio	2.1			6.4			20.6
Total	100.0		%	100.0		%	100.0		%
Total interest income (in thousands)	$	8,322,183		$	1,864,745		$	377,684

Substantially all of the Bank’s interest income from advances is derived from financial institutions domiciled in the Bank’s five-state district.

Products and Services

Advances. The Bank’s primary function is to provide its members with a reliable source of secured credit in the form of loans known as advances. The Bank offers advances to its members with a wide variety of terms designed to meet members’ business and risk management needs. Standard offerings include the following types of advances:

Fixed-rate, fixed-term advances. The Bank offers fixed-rate, fixed-term advances with maturities ranging from overnight to 20 years, and with maturities as long as 30 years for Community Investment advances. Interest is generally paid monthly and principal repaid at maturity for fixed-rate, fixed-term advances.

Fixed-rate, amortizing advances. The Bank offers fixed-rate advances with a variety of final maturities and fixed amortization schedules. Standard advances offerings include fully amortizing advances with final maturities of 5, 7, 10, 15 or 20 years, and advances with amortization schedules based on maturities up to 30 years but with shorter final maturities accompanied by balloon payments of the remaining outstanding principal balance. Borrowers may also request alternative amortization schedules and maturities. Amortizing Community Investment advances can have maturities as long as 40 years. Interest is generally paid monthly and principal is repaid in accordance with the specified amortization schedule. Although these advances have fixed amortization schedules, borrowers may elect to pay a higher interest rate and have an option to prepay the advance without a fee after a specified lockout period (typically five years). Otherwise, early repayments are subject to the Bank’s standard prepayment fees.

Variable-rate advances. The Bank offers term variable-rate advances with maturities between one and ten years. The Bank offers variable-rate advances indexed to discount notes that reset every 8, 13 or 26 weeks based on the results of the FHLBank System's discount note auctions that typically occur twice every week. In addition, the Bank offers short term variable-rate advances (maturities of 30 days or less) indexed to the daily federal funds rate or that adjust daily based on the prevailing discount note market. Further, the Bank offers variable-rate advances indexed to the daily Secured Overnight Financing Rate ("SOFR") for terms ranging from 3 months to 18 months. Variable-rate advances may also include an embedded cap.

3

Putable advances. The Bank also makes advances that include a put feature that allows the Bank to terminate the advance at specified points in time. If the Bank exercises its option to terminate the putable advance, the Bank offers replacement funding to the member for a period selected by the member up to the remaining term to maturity of the putable advance, provided the Bank determines that the member is able to satisfy the normal credit and collateral requirements of the Bank for the replacement funding requested.

Symmetrical prepayment advances. The Bank also offers fixed-rate, fixed-term or amortizing advances that include a symmetrical prepayment feature which allows a member to prepay an advance at the lower of par value or fair value plus a make-whole amount, thus allowing the member to realize a portion of the decrease in fair value that would arise if interest rates have increased since the advance was originated.

Fixed-rate, fixed-term advances, including Community Investment Program and Economic Development Program advances, can be forward-starting, which allows a member to lock in a rate for an advance that will settle at a future date. Amortizing advances and certain advances containing the symmetrical prepayment feature are also available on a forward-starting basis.

Finance Agency regulations require the Bank to establish a formula for and to charge, if necessary, a prepayment fee on an advance that is repaid prior to maturity in an amount sufficient to make the Bank financially indifferent to the borrower’s decision to repay the advance prior to its scheduled maturity date. Currently, these fees are generally calculated as the present value of the difference (if positive) between the interest rate on the prepaid advance and the rate derived from the FHLBank System consolidated obligations curve for the remaining term to maturity of the repaid advance.

Members are required by statute and regulation to use the proceeds of advances with an original term to maturity of greater than five years to purchase or fund new or existing residential housing finance assets which, for CFIs, are defined by statute and regulation to include small business, small farm and small agribusiness loans, loans for community development activities (subject to the Finance Agency’s requirements as described below) and securities representing a whole interest in such loans. Community Investment Cash Advances (described below) are exempt from these requirements.

The Bank prices its credit products with the objective of providing benefits of membership that are greatest for those members that use the Bank’s products most actively, while maintaining sufficient profitability to pay dividends at a rate that makes members financially indifferent to holding the Bank’s capital stock and that will allow the Bank to increase its retained earnings over time. Generally, that set of objectives results in small mark-ups over the Bank’s cost of funds for its advances. In keeping with its cooperative philosophy, the Bank provides the same pricing for advances to all similarly situated members regardless of asset or transaction size, charter type, or geographic location.

The Bank is required by the FHLB Act to obtain collateral that is sufficient, in the judgment of the Bank, to fully secure advances and other extensions of credit to members/borrowers. The Bank has not suffered any credit losses on advances since it was established in 1932. In accordance with the Bank’s Capital Plan, members and former members must hold Class B-2 capital stock in proportion to their outstanding advances and, beginning in April 2021, their outstanding letters of credit. In addition, members must hold Class B-1 capital stock to meet their membership investment requirement. Pursuant to the FHLB Act, the Bank has a lien upon and holds the Bank’s Class B-1 and Class B-2 capital stock owned by each of its shareholders as additional collateral for all of the respective shareholder’s obligations to the Bank.

In order to comply with the requirement to fully secure advances and other extensions of credit, the Bank and each of its members/borrowers execute a written security agreement that establishes the Bank’s security interest in a variety of the members’/borrowers’ assets. The Bank, pursuant to the FHLB Act and Finance Agency regulations, originates, renews, or extends advances only if it has obtained and is maintaining a security interest in sufficient eligible collateral at the time such advance is made, renewed, or extended. Eligible collateral includes whole first mortgages on improved residential real property (not more than 90 days delinquent) or securities representing an undivided interest in such mortgages; securities issued, insured, or guaranteed by the U.S. government or any of its agencies, including mortgage-backed and other debt securities issued or guaranteed by the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or the Government National Mortgage Association; term deposits in the Bank; and other real estate-related collateral acceptable to the Bank, provided that such collateral has a readily ascertainable value and the Bank can perfect a security interest in such assets.

In the case of CFIs, the Bank may also accept as eligible collateral secured small business, small farm, and small agribusiness loans, secured loans for community development activities, and securities representing a whole interest in such loans, provided the Bank can perfect a security interest in such collateral and the collateral (i) has a readily ascertainable value, (ii) can be reliably discounted to account for liquidation, and (iii) can be liquidated in due course.

The HER Act added secured loans for community development activities as a new type of eligible collateral for CFIs. To date, the Bank has not been requested to accept secured loans for community development activities as collateral.

Except as set forth in the next sentence, the FHLB Act affords any security interest granted to the Bank by any member/borrower of the Bank, or any affiliate of any such member/borrower, priority over the claims and rights of any party, including

4

any receiver, conservator, trustee, or similar party having rights of a lien creditor. The Bank’s security interest is not entitled to priority over the claims and rights of a party that (i) would be entitled to priority under otherwise applicable law and (ii) is an actual bona fide purchaser for value or is a secured party who has a perfected security interest in such collateral in accordance with applicable law (e.g., a prior perfected security interest under the Uniform Commercial Code or other applicable law). For example, as discussed further below, the Bank usually perfects its security interest in collateral by filing a Uniform Commercial Code financing statement against the borrower. If another secured party, without knowledge of the Bank's lien, perfected its security interest in that same collateral by taking possession of the collateral, rather than or in addition to filing a Uniform Commercial Code financing statement against the borrower, then that secured party’s security interest that was perfected by possession may be entitled to priority over the Bank’s security interest that was perfected by filing a Uniform Commercial Code financing statement.

From time to time, the Bank agrees to subordinate its security interest in certain assets or categories of assets granted by a member/borrower of the Bank to the security interest of another creditor (typically, a Federal Reserve Bank or another FHLBank). If the Bank agrees to subordinate its security interest in certain assets or categories of assets granted by a member/borrower of the Bank to the security interest of another creditor, the Bank will not extend credit against those assets or categories of assets.

As stated above, each member/borrower of the Bank executes a security agreement pursuant to which such member/borrower grants a security interest in favor of the Bank in certain assets of such member/borrower. The assets in which a member grants a security interest fall into one of two general structures. In the first structure, the member grants a security interest in all of its assets that are included in the eligible collateral categories, as described above, which the Bank refers to as a “blanket lien.” A member may request that its blanket lien be modified, such that the member grants in favor of the Bank a security interest limited to certain of the eligible collateral categories (i.e., whole first residential mortgages, securities, term deposits in the Bank and other real estate-related collateral). In the second structure, the member grants a security interest in specifically identified assets rather than in the broad categories of eligible collateral covered by the blanket lien and the Bank identifies those members as being on “specific collateral only status.”

The basis upon which the Bank will lend to a member that has granted the Bank a blanket lien depends on numerous factors, including, among others, that member’s financial condition and general creditworthiness. Generally, and subject to certain limitations, a member that has granted the Bank a blanket lien may borrow up to a specified percentage of the value of eligible collateral categories, as determined from that member’s financial reports filed with its federal regulator, without specifically identifying each item of collateral or delivering the collateral to the Bank. Under certain circumstances, including, among others, a deterioration of a member’s financial condition or general creditworthiness, the amount a member may borrow is determined only on the basis of the collateral that such member delivers to the Bank or a third-party custodian approved by the Bank. Under these circumstances, the Bank places the member on “custody status.” In addition, members on blanket lien status may choose to deliver some or all of the collateral to the Bank.

The members/borrowers that are granted specific collateral only status by the Bank are typically either insurance companies or members/borrowers with an investment grade credit rating from at least two NRSROs that have requested this type of structure. Insurance companies are permitted to borrow only against the eligible collateral that is delivered to the Bank, and insurance companies generally grant a security interest only in collateral they have delivered. Members/borrowers with an investment grade credit rating from at least two NRSROs may grant a security interest in, and would be permitted to borrow only against, delivered eligible securities and specifically identified, eligible first-lien mortgage loans. Such loans must be delivered to the Bank or a third-party custodian approved by the Bank, or the Bank and the member/borrower must otherwise take actions that ensure the priority of the Bank’s security interest in the loans. Investment grade rated members/borrowers that choose this option are subject to fewer provisions that allow the Bank to demand additional collateral or exercise other remedies based on the Bank’s discretion.

As of December 31, 2023, 652 of the Bank’s borrowers/potential borrowers with a total of $63.8 billion in outstanding advances were on blanket lien status, 22 borrowers/potential borrowers with $3.2 billion in outstanding advances were on specific collateral only status and 127 borrowers/potential borrowers with $13.3 billion in outstanding advances were on custody status.

The Bank perfects its security interest in members'/borrowers’ collateral in a number of ways. The Bank usually perfects its security interest in collateral by filing a Uniform Commercial Code financing statement against the relevant assets of the member/borrower. In the case of certain borrowers, the Bank perfects its security interest by taking possession or control of the collateral, which may be in addition to the filing of a financing statement. In these cases, the Bank also generally takes assignments of most of the mortgages and deeds of trust that are designated as collateral. Instead of requiring delivery of the collateral to the Bank, the Bank may allow certain borrowers to deliver specific collateral to a third-party custodian approved by the Bank or otherwise take actions that ensure the priority of the Bank’s security interest in such collateral.

5

On at least a quarterly basis, the Bank obtains updated information relating to collateral pledged to the Bank by depository institution members/borrowers, including those on blanket lien status. This information is either obtained directly from the member/borrower or obtained by the Bank from appropriate regulatory filings. In addition, on a monthly basis or as otherwise requested by the Bank, members/borrowers on custody status and members/borrowers on specific collateral only status must update information relating to collateral pledged to the Bank. Bank personnel regularly verify the existence and eligibility of collateral securing advances to members/borrowers on blanket lien status and members/borrowers on specific collateral only status with respect to any collateral not delivered to the Bank. Members/borrowers on blanket lien status are subject to collateral verifications if in the prior 12-month period ending on November 30 the member/borrower relied on blanket lien collateral to support any of its outstanding obligations. The frequency and the extent of these collateral verifications depend on the average amount by which a member's/borrower’s outstanding obligations to the Bank during the 12-month period exceed the collateral value of its securities, loans and term deposits held by the Bank. Collateral verifications are not required for members/borrowers that have had no, or only a de minimis amount of, outstanding obligations to the Bank secured by a blanket lien during the prior 12-month period ending on November 30, are on custody status, or are on blanket lien status but at all times have delivered to the Bank or an approved custodian eligible loans, securities and term deposits with a collateral value in excess of the advances and other extensions of credit to the member/borrower.

As of December 31, 2023, the Bank’s outstanding advances (at par value) totaled $80.3 billion. As of that date, advances outstanding to the Bank’s five largest borrowers represented 56.6 percent of the Bank’s total outstanding advances. Advances to the Bank’s three largest borrowers (Charles Schwab Bank, SSB, Comerica Bank and USAA Federal Savings Bank) represented 29.9 percent, 9.4 percent and 7.5 percent, respectively, of the Bank’s total outstanding advances as of December 31, 2023. For additional information regarding the composition and concentration of the Bank’s advances, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Advances.

In January 2024, the Bank announced the Community Development Special Finance Program ("CDSFP"), a pilot program that was created to increase member support for single-family home lending activity. Through the pilot program, which began on March 1, 2024, the Bank provides a more favorable collateral haircut to members that pledge single-family mortgage loans to certain income-qualified borrowers. Extensions of credit under the CDSFP cannot exceed $200 million.

Statutory and Regulatory Community Investment Programs. The Bank offers a Community Investment Cash Advances (“CICA”) program (which includes a Community Investment Program, an Economic Development Program and a Disaster Relief Program) as authorized by Finance Agency regulations. Advances made under the CICA program benefit low- to moderate-income households by providing funds for housing or economic development projects or projects that promote recovery efforts in communities that have been declared disaster areas by the Federal Emergency Management Agency ("FEMA"). CICA advances are made at rates below the rates the Bank charges on standard advances. CICA advances are provided separately from and do not count toward the Bank’s statutory obligations under the Affordable Housing Program, through which the Bank provides grants to support projects that benefit very low-, low- and moderate-income households as further described below. As of December 31, 2023, the par value of advances outstanding under the CICA program totaled $277.9 million, representing approximately 0.3 percent of the Bank’s total advances outstanding as of that date.

The Bank also offers an Affordable Housing Program (“AHP”) as required by the FHLB Act and in accordance with Finance Agency regulations. The Bank sets aside 10 percent of each year’s earnings (as adjusted for interest expense on mandatorily redeemable capital stock) for its AHP, which provides grants for projects that facilitate development of rental and owner-occupied housing for very low-, low- and moderate-income households. The calculation of the amount to be set aside for the Bank's AHP is further discussed below in the section entitled “AHP Assessments.” For 2023, 2022 and 2021, the Bank set aside $97.2 million, $35.3 million and $18.3 million, respectively, for its AHP Program. Each year, a portion of the amount set aside is typically allocated specifically for the Bank's Homebuyer Equity Leverage Partnership ("HELP") program, its Special Needs Assistance Program ("SNAP") and its Disaster Rebuilding Assistance ("DRA") program. HELP provides grant funds for down payment and closing cost assistance for eligible first-time homebuyers. SNAP provides grant funds to special needs homeowners for rehabilitation costs. The DRA program provides grant funds (for repair and construction costs that are not covered by insurance or federal or state emergency assistance) to low- and very low-income households in the Bank's member communities that have been declared disaster areas eligible for individual assistance by FEMA. HELP is administered on a first-come, first-served basis while DRA is also offered on a first-come, first-served basis but in two separate offerings each year. SNAP is offered in two 3-day funding windows. All three programs are subject to member caps. For 2023, the Bank set aside from its 2022 AHP funds a total of $10.5 million which was comprised of $6.5 million, $2.0 million and $2.0 million for HELP, SNAP and the DRA program, respectively. For 2024, the Bank has set aside from its 2023 AHP funds a total of $20.0 million which is comprised of $15.5 million, $2.0 million and $2.5 million for HELP, SNAP and the DRA program, respectively. Each year, the Bank conducts a competitive application process to allocate the AHP funds set aside from the prior year’s earnings which have not been specifically allocated for HELP, SNAP and DRA. Applications submitted by Bank members and their community partners are scored in accordance with Finance Agency regulations and the Bank’s AHP Implementation Plan. The highest scoring proposals are approved to receive funds, which are disbursed upon receipt of documentation that the projects are progressing as specified in the original applications or in approved modifications thereto.

6

Voluntary Community Investment Programs. The Bank also offers a number of voluntary loan and grant programs that are designed to meet specific community investment needs in its district, some of which were introduced in the second half of 2023 and the first quarter of 2024.

The Bank offers a Small Business Boost ("SBB") Program, which is designed to provide recoverable assistance to small businesses in their first few years of operation. SBB funds awarded to small businesses are disbursed through member institutions. In 2023, 2022 and 2021, the Bank made available $4 million, $3 million and $3 million, respectively, for SBB loans. At December 31, 2023, $11.9 million of SBB loans were outstanding, all of which were unsecured.

In addition, the Bank offers a Housing Assistance for Veterans ("HAVEN") program that is designed to provide grants to households of veterans or active service members who were disabled as a result of an injury during their active military service since August 2, 1990. In each of 2023, 2022 and 2021, the Bank made available $0.3 million for the HAVEN program.

Further, the Bank offers a Partnership Grant Program ("PGP") which provides funding for the operational needs of community-based organizations ("CBOs"). CBOs include non-profit organizations involved in affordable housing, local community development funds and small business technical assistance providers. In each of 2023, 2022 and 2021, the Bank made available $0.4 million for the PGP.

Funds available in 2024 for SBB, HAVEN and PGP are $3.0 million, $0.3 million and $1.0 million, respectively.

In the latter half of 2023, the Bank introduced two new voluntary grant programs. The Heirs' Property Program ("HPP") was developed to assist in-district organizations (specifically, non profit, governmental and tribal entities) with initiatives that help prevent or address heirs' property issues and the FHLB Dallas FORTIFIED Fund was developed to assist income-qualified homeowners with purchases of storm-resistant roofs that are designed to withstand hurricanes, high winds, hailstorms, severe thunderstorms and tornados rated EF2 or lower. During 2023, the Bank made available $1.0 million for HPP grants and $1.75 million for FORTIFIED grants. Funds available in 2024 for HPP and the FORTIFIED Fund are $2.0 million and $4.0 million, respectively.

In February 2024, the Bank introduced the Capacity Building and Growth Grant ("CBGG"), a pilot program that was created to increase nondepository CDFI's ability to support affordable housing, small businesses and community economic development. Through the pilot program, the Bank will make available to eligible CDFIs $3.0 million in CBGG grants in 2024.

The Bank currently expects to offer two additional voluntary programs in 2024, each of which is presently under development. In 2024 and subsequent years, the Bank intends to make available for its voluntary loan and grant programs an amount that equals or exceeds 5 percent of its prior year income before assessments (for 2024, this amount is expected to equal or exceed $48.583 million). The following table sets forth a summary of the amounts that the Bank has thus far made available for its voluntary loan and grant programs in 2024 (2023 amounts are provided for comparative purposes). The total funds that are ultimately made available in 2024 are expected to increase when the new programs are introduced.

FUNDS MADE AVAILABLE FOR VOLUNTARY PROGRAMS

(dollars in thousands)

	2024		2023
SBB Loan Program	$	3,000	$	4,000
Grant Programs
Housing Assistance for Veterans	300		300
Partnership Grant Program	1,000		400
Heirs' Property Program	2,000		1,000
FORTIFIED Fund	4,000		1,750
Capacity Building and Growth Grant	3,000		—
Total Grant Programs	10,300		3,450
Total	$	13,300	$	7,450

Communities within the Bank's district are subject to severe storms from time to time. To promote recovery efforts in communities that have been devastated by storms, the Bank will typically offer assistance in the form of grants and/or charitable donations. For example, in 2023, in response to the devastation that was caused by severe storms in Arkansas and Northeast Mississippi, the Bank offered $4.0 million in assistance in the form of recovery grants and charitable donations.

7

Ultimately, the Bank expended $3.4 million to assist small businesses, member employees and charitable organizations with recovery efforts.

Standby Letters of Credit. The Bank’s credit services also include standby letters of credit issued or confirmed on behalf of members to facilitate business transactions with third parties that support residential housing finance, community lending, or asset/liability management or to provide liquidity to members. Standby letters of credit are also issued on behalf of members to secure the deposits of public entities that are held by such members. All letters of credit must be fully collateralized as though they were funded advances. At December 31, 2023 and 2022, outstanding standby letters of credit totaled $33.3 billion and $21.5 billion, respectively, of which $24 million and $29 million, respectively, had been issued or confirmed under the Bank’s CICA program as of those dates.

Correspondent Banking and Collateral Services. The Bank provides its members with a variety of correspondent banking and collateral services. These services include overnight and term deposit accounts, wire transfer services, securities safekeeping, and securities pledging services.

Standby Bond Purchase Agreements. The Bank offers standby bond purchase services to state housing finance agencies within its district. In these transactions, in order to enhance the liquidity of bonds issued by a state housing finance agency, the Bank, for a fee, agrees to stand ready to purchase, in certain circumstances specified in the standby agreement, a state housing finance agency’s bonds that the remarketing agent for the bonds is unable to sell. The specific terms for any bonds purchased by the Bank are specified in the standby bond purchase agreement entered into by the Bank and the state housing finance agency. The Bank reserves the right to sell any bonds it purchases at any time, subject to any conditions the Bank agrees to in the standby bond purchase agreement. At December 31, 2023, the Bank had outstanding standby bond purchase agreements with a state housing finance agency totaling $778 million. To date, the Bank has never been required to purchase any bonds under these agreements.

MPF Xtra. The Bank offers MPF Xtra® to its members. MPF Xtra is offered under the Mortgage Partnership Finance® (“MPF”®) program administered by the FHLBank of Chicago, which is discussed on pages 10-11 of this report (“Mortgage Partnership Finance,” “MPF,” and "MPF Xtra" are registered trademarks of the FHLBank of Chicago). MPF Xtra provides members that participate in the MPF program (known as participating financial institutions or "PFIs") an opportunity to sell certain fixed-rate, conforming mortgage loans into the secondary market. Under this program, loans are sold to the FHLBank of Chicago and are concurrently sold to Fannie Mae as a third-party investor. These loans are not held by the Bank, nor are they recorded on the Bank's balance sheet. Unlike other products offered under the MPF program, PFIs are not required to provide credit enhancement and do not receive credit enhancement fees when using the MPF Xtra product. Under the MPF Xtra program, the Bank receives a fee for any loans sold by its PFIs. During 2023, 2022 and 2021, $26.3 million, $11.4 million and $68.5 million, respectively, of loans were sold through the MPF Xtra program and the fees earned on the sale of these loans were insignificant.

Investment Activities

The Bank maintains a portfolio of investments to enhance interest income and meet liquidity needs, including certain regulatory liquidity requirements, as discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources. To ensure the availability of funds to meet members’ credit needs, the Bank’s operating needs, and its other general and regulatory liquidity requirements, the Bank maintains a portfolio of short-term investments typically consisting of overnight federal funds issued by highly rated domestic banks and U.S. branches of foreign financial institutions, overnight reverse repurchase agreements, overnight interest-bearing deposits with highly rated domestic banks and U.S. Treasury Bills and Notes. At December 31, 2023, the Bank’s short-term investments were comprised of $14.7 billion of overnight reverse repurchase agreements (of which $11.1 billion was transacted with the Federal Reserve Bank of New York), $6.4 billion of overnight federal funds sold, $2.3 billion of overnight interest-bearing deposits and $1.2 billion of U.S. Treasury Notes.

To enhance net interest income, the Bank maintains a long-term investment portfolio, which currently includes mortgage-backed securities ("MBS") issued by U.S. government-sponsored enterprises (i.e., Fannie Mae and Freddie Mac); non-MBS debt instruments issued or guaranteed by the U.S. government; and non-MBS debt instruments issued by U.S. government-sponsored enterprises (i.e., Fannie Mae, Freddie Mac and the Farm Credit System). The interest rate and, in the case of MBS, prepayment risk inherent in the securities is managed through a variety of debt and interest rate derivative instruments.

8

As of December 31, 2023, 2022 and 2021, the composition of the Bank’s long-term investment portfolio was as follows (dollars in millions):

	December 31,
	2023				2022				2021
	Amortized Cost		Percentage		Amortized Cost		Percentage		Amortized Cost		Percentage
Government-sponsored enterprises
Commercial MBS	$	14,293	79.4	%	$	11,604	75.2	%	$	10,123	64.3	%
Debentures	3,084		17.1		3,121		20.2		4,471		28.4
Residential MBS	253		1.4		288		1.9		484		3.1
Government-guaranteed securities	368		2.1		379		2.5		521		3.3
Non-agency residential MBS	—		—		29		0.2		37		0.2
Other	—		—		—		—		113		0.7
Total	$	17,998	100.0	%	$	15,421	100.0	%	$	15,749	100.0	%

The Bank is precluded from purchasing additional MBS if such purchase would cause the aggregate amortized historical cost of its MBS holdings to exceed an amount equal to 300 percent of its total regulatory capital at the time of purchase. For purposes of applying this limit, the Finance Agency defines "amortized historical cost" as the sum of the initial investment, less the amount of cash collected that reduces principal, less write-downs plus yield accreted to date. This definition excludes hedge basis adjustments, which, for investment securities, are included in the definition of amortized cost basis under accounting principles generally accepted in the United States of America ("U.S. GAAP"). Using this definition, the Bank's MBS holdings totaled $15.0 billion as of December 31, 2023, which represented 210 percent of its total regulatory capital at that date. Given other balance sheet constraints imposed by the Finance Agency (see the section entitled "Core Mission Achievement" on page 11 of this report) and in the absence of a significant reduction in the size of the Bank's balance sheet and, correspondingly, its regulatory capital, the Bank's investments in MBS are expected to remain below the regulatory dollar limit which, as of December 31, 2023, was $21.5 billion.

Prior to January 1, 2020, the Bank was permitted to invest in the non-MBS debt obligations of any GSE provided such investments in any single GSE did not exceed the lesser of the Bank’s total regulatory capital or that GSE's total capital (taking into account the financial support provided by the U.S. Department of the Treasury, if applicable) at the time new investments were made. The Bank's authority to invest in the non-MBS debt obligations of GSEs that are not operating with capital support or some other form of direct financial assistance from the U.S. government was reduced beginning January 1, 2020. The Bank's investments in the non-MBS debt obligations of Fannie Mae and Freddie Mac are each currently limited to an amount equal to 100 percent of the Bank's total regulatory capital while investments in the non-MBS debt obligations of the Farm Credit System are now limited to an amount equal to 15 percent of the Bank's total regulatory capital. Although the Bank's holdings of Farm Credit System debentures exceeded this new limit on January 1, 2020, the Bank was not required to sell or otherwise reduce any of these investments. Instead, the Bank is precluded from purchasing any additional Farm Credit System debentures until such time as its holdings are reduced to an amount that is less than 15 percent of the Bank's total regulatory capital.

For additional constraints relating to the Bank's long-term investment portfolio, see the section below entitled "Core Mission Achievement."

In accordance with Finance Agency policy and regulations, total capital for purposes of determining the Bank’s MBS and non-MBS investment limitations excludes accumulated other comprehensive income (loss) and includes all amounts paid in for the Bank’s capital stock regardless of accounting classification (see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations). The Bank is not required to sell or otherwise reduce any investments that exceed these regulatory limits due to reductions in capital or increases in amortized historical cost that occur after the investments are made, but it is precluded from making additional investments that exceed these limits.

Finance Agency regulations include a variety of restrictions and limitations on the FHLBanks’ investment activities, including limits on the types, amounts, and maturities of unsecured investments in private issuers. Finance Agency rules and regulations also prohibit the Bank from investing in certain types of securities, including:

•instruments, such as common stock, that represent an ownership interest in an entity, other than stock in small business investment companies, or certain investments targeted to low-income persons or communities;

•instruments issued by non-United States entities, other than those issued by United States branches and agency offices of foreign commercial banks;

9

•debt instruments that are not investment quality, other than certain investments targeted to low-income persons or communities and instruments that became non-investment quality after purchase by the Bank;

•whole mortgages or other whole loans, other than 1) those acquired by the Bank through a duly authorized Acquired Member Assets program such as the Mortgage Partnership Finance program discussed below; 2) certain investments targeted to low-income persons or communities; 3) certain marketable direct obligations of state, local, or tribal government units or agencies that are investment quality; 4) MBS or asset-backed securities backed by manufactured housing loans or home equity loans; and 5) certain foreign housing loans authorized under Section 12(b) of the FHLB Act;

•non-U.S. dollar denominated securities;

•interest-only or principal-only stripped MBS;

•residual-interest or interest-accrual classes of collateralized mortgage obligations and real estate mortgage investment conduits; and

•fixed-rate MBS or floating-rate MBS that, on trade date, are at rates equal to their contractual cap and that have average lives that vary by more than six years under an assumed instantaneous interest rate change of 300 basis points.

Acquired Member Assets ("AMA")

Through the MPF program, the Bank currently invests in conventional residential mortgage loans originated by its PFIs. The Bank previously purchased conventional mortgage loans and government-guaranteed/insured mortgage loans (i.e., those insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs) during the period from 1998 to mid-2003, and resumed acquiring conventional mortgage loans under this program in early 2016. All of the mortgage loans acquired during the period from 2016 to 2023 were originated by certain of the Bank's PFIs and the Bank acquired a 100 percent interest in such loans. For the loans that were acquired from its members during the period from 1998 to mid-2003, the Bank retained title to the mortgage loans, subject to any participation interest in such loans that was sold to the FHLBank of Chicago; the interest in the loans retained by the Bank ranged from 1 percent to 49 percent. Additionally, during the period from 1998 to 2000, the Bank also acquired from the FHLBank of Chicago a percentage interest (ranging up to 75 percent) in certain MPF loans originated by PFIs of other FHLBanks. Substantially all of the $5.0 billion (unpaid principal balance) of mortgage loans on the Bank's balance sheet at December 31, 2023 were conventional loans acquired during the period from 2016 through 2023.

The Bank manages the liquidity, interest rate and prepayment risk of these loans, while the PFIs or their designees retain the servicing activities. The Bank and the PFIs share in the credit risk of the loans with the Bank assuming a limited first loss obligation defined as the First Loss Account (“FLA”), and the PFIs assuming credit losses in excess of the FLA, up to the amount of the required credit enhancement obligation ("CE Obligation") as specified in the master agreement (“Second Loss Credit Enhancement”). Depending on the MPF product structure, the FLA is either a memo account calculated as the cumulative amount of a specified portion of the monthly interest payments on the MPF loans (e.g., 4 basis points, annualized, per month), or a specified percentage amount of MPF loans outstanding (e.g., 35 basis points of the principal amount of the loans). In the first case, the Bank’s first loss obligation is limited to the accumulated amount of the FLA, while in the second case the Bank’s first loss obligation is limited to the specified percentage of the loans outstanding, subject to recovery from future credit enhancement fees otherwise payable to the PFI as described below.

The CE Obligation is the amount of credit enhancement needed for a pool of loans delivered under a master commitment to be considered “AMA investment grade,” which is defined in the Finance Agency's regulations as sufficient credit enhancement such that the Bank expects to be “paid principal and interest in all material respects, even under reasonably likely adverse changes to expected economic conditions.” The Bank assumes all losses in excess of the Second Loss Credit Enhancement. As further described below, the PFIs are paid a fee by the Bank for assuming a portion of the credit risk of the loans.

The PFI’s CE Obligation arises under its PFI Agreement while the amount and nature of the obligation are determined with respect to each master commitment. Under the Finance Agency’s Acquired Member Asset regulation (12 C.F.R. part 1268) (“AMA Regulation”), the PFI must “bear the economic consequences” of certain credit losses with respect to a master commitment based upon the MPF product and other criteria. Under the MPF program, the PFI’s credit enhancement protection may take the form of the CE Obligation, which represents the direct liability to pay credit losses incurred with respect to that master commitment, or may require the PFI to obtain and pay for a supplemental mortgage insurance (“SMI”) policy insuring the Bank for a portion of the credit losses arising from the master commitment, and/or the PFI may contract for a contingent performance-based credit enhancement fee whereby such fees are reduced by losses up to a certain amount arising under the master commitment. The credit risk-sharing structures utilized by the Bank during the period from 2016 through 2023 did not include SMI. Under the AMA Regulation, any portion of the CE Obligation that is a PFI’s direct liability must be collateralized by the PFI in the same way that advances are collateralized. The PFI Agreement provides that the PFI’s obligations under the PFI Agreement are secured along with other obligations of the PFI under its regular advances agreement with the Bank and, further, that the Bank may request additional collateral to secure the PFI’s obligations. PFIs are paid a credit enhancement fee

10

(“CE fee”) as an incentive to minimize credit losses, to share in the risk of loss on MPF loans and to pay for SMI (if applicable), rather than paying a guaranty fee to other secondary market purchasers. CE fees are paid monthly and are determined based on the remaining unpaid principal balance of the MPF loans. The required CE Obligation may vary depending on the MPF product alternatives selected. The Bank also pays performance-based CE fees that are based on the actual performance of the pool of MPF loans under each individual master commitment. To the extent that losses incurred by the Bank as part of its first loss obligation in the current month exceed accrued performance-based CE fees, the remaining losses may be recovered from future performance-based CE fees payable to the PFI.

PFIs must comply with the requirements of the PFI agreement, MPF guides, applicable law and the terms of mortgage documents. If a PFI fails to comply with any of these requirements, it may be required to repurchase the MPF loans that are impacted by such failure. The reasons that a PFI could be required to repurchase an MPF loan include, but are not limited to, the failure of the loan to meet underwriting standards, the PFI’s failure to deliver a qualifying promissory note and certain other relevant documents to an approved custodian, a servicing breach, fraud or other misrepresentations by the PFI. In addition, a PFI may, under the terms of the MPF servicing guide, elect to repurchase any government-guaranteed/insured loan for an amount equal to the loan’s then current scheduled principal balance and accrued interest thereon, provided no payment has been made by the borrower for three consecutive months. This policy allows PFIs to comply with loss mitigation requirements of the applicable government agency in order to preserve the insurance guaranty coverage.

As of December 31, 2023 and 2022, MPF loans held for portfolio (net of allowance for credit losses) were $5.089 billion and $4.395 billion, respectively, representing approximately 4.0 percent and 3.8 percent, respectively, of the Bank’s total assets at each of those dates. Over time, the Bank expects to increase the balance of its mortgage loan portfolio to an amount that approximates 10 percent to 15 percent of its total assets. Currently, the Bank intends to continue to acquire a 100 percent interest in the mortgage loans that it purchases from its PFIs.

On June 3, 2020, the Finance Agency issued a final rule which amended the FHLBank housing goals regulation. Beginning in 2023, the rule establishes a mortgage purchase housing goal target in which 20 percent of any mortgage loans that are purchased in a calendar year (based on the number of loans acquired) must be comprised of loans to low-income or very low-income families, or to families in low-income areas. The rule also establishes a separate small member participation housing goal. Under this provision of the rule, a target level of 50 percent of a FHLBank’s members that are selling mortgage loans to the FHLBank in a calendar year must be small members. Small members are defined as any AMA user whose average total assets over the three-year period culminating in the year preceding the one being reviewed are no greater than the applicable community-based AMA user cap (which is the same cap that is used to define CFIs). The rule's housing goals apply to each FHLBank that acquires any mortgage loans during a calendar year, eliminating the previous $2.5 billion volume threshold that, if met, triggered the application of housing goals for each FHLBank. If the Finance Agency determines that a FHLBank has failed to meet any housing goal and the achievement of that housing goal was feasible, it may require the FHLBank to submit a housing plan for approval. Among other things, the housing plan would need to describe the specific actions that the FHLBank will take to achieve the housing goal for the next calendar year. In 2023, the Bank met each of the two housing goals. During the year ended December 31, 2023, 22.8 percent of the mortgage loans purchased by the Bank were comprised of loans that were made to low-income or very low-income families, or to families in low-income areas and 57.5 percent of members that sold mortgage loans to the Bank were small members. It is possible that this rule could limit the Bank’s future purchase volumes. In addition, the rule could negatively impact PFI’s ability to sell loans to the Bank.

Core Mission Achievement

On July 14, 2015, the Finance Agency issued an Advisory Bulletin ("AB 2015-05") that provides guidance to the FHLBanks regarding core mission achievement. As stipulated in AB 2015-05, the Finance Agency assesses each FHLBank’s core mission achievement by calculating the ratio of a FHLBank's primary mission assets (defined for this purpose as advances and mortgage loans held for portfolio) relative to its consolidated obligations (hereinafter referred to as the core mission asset or "CMA" ratio). On August 23, 2018, the Finance Agency issued an Advisory Bulletin that, among other things, allows each FHLBank (beginning January 1, 2019) to adjust its CMA ratio (as defined in AB 2015-05) by deducting from the ratio's denominator the FHLBank's holdings of U.S. Treasury securities with a remaining maturity no greater than 10 years that are classified as trading or available-for-sale. The CMA ratio is calculated for each calendar year using annual average par values.

AB 2015-05 also provides the Finance Agency’s expectations for each FHLBank’s strategic plan based on the FHLBank's CMA ratio, which are:

•when the CMA ratio is 70 percent or higher, the strategic plan should include an assessment of the FHLBank’s prospects for maintaining that level of core mission achievement;

•when the CMA ratio is at least 55 percent but less than 70 percent, the strategic plan should explain the FHLBank’s plans to increase its mission focus; and

11

•when the CMA ratio is below 55 percent, the strategic plan should include a robust explanation of the circumstances that caused the CMA ratio to be below that level, as well as a detailed description of the FHLBank's plans to increase the ratio. AB 2015-05 provides that if a FHLBank has a CMA ratio below 55 percent over the course of several consecutive reviews, then the FHLBank’s board of directors should consider possible strategic alternatives as part of its strategic planning.

For the years ended December 31, 2023, 2022 and 2021, the Bank's CMA ratio was 76.7 percent, 73.0 percent and 66.4 percent, respectively.

The elevated levels of liquidity in the financial markets stemming from COVID-19 relief measures taken by the U.S. government dampened demand for the Bank's advances during 2021. Further, during that same year, the Bank's mortgage loans held for portfolio declined due to a combination of significant prepayment activity (due to historically low mortgage rates) and reduced purchase volumes (due to the Bank's less competitive mortgage pricing in the wake of the Federal Reserve's purchases of agency securities to support the flow of credit in the financial markets). The reductions in the Bank's advances and mortgage loans held for portfolio negatively impacted the Bank's CMA ratio in 2021. In 2022 and 2023, demand for advances increased significantly and mortgage prepayments moderated as a result of higher mortgage rates, both of which contributed to an increase in the Bank's CMA ratio for 2022 and 2023.

For 2024, the Bank's goal is to maintain a CMA ratio of at least 70 percent. Among other things, the achievement of this goal will be dependent upon the level of demand for advances, the volume of mortgage loan purchases and prepayments, and the Bank's ability to prudently manage the level and composition of its liquidity portfolio. Currently, the Bank believes that it can achieve this goal while at the same time continuing to acquire additional long-term investments, albeit in amounts that are likely less than the amounts that could otherwise be purchased under rules that are applicable to its investment activities. If at some point in the future the Bank expected that its CMA ratio could fall below 70 percent due, for example, to a significant and unexpected decline in advances, the Bank could choose to rely more heavily on U.S. Treasury securities to meet its liquidity requirements (given the favorable treatment afforded such investments in the Bank's CMA ratio relative to other short-term investment alternatives) and/or it could elect to selectively reduce the size of its long-term investment portfolio by selling assets. Reducing the size of the Bank's long-term investment portfolio would have the effect of reducing its future earnings. Similarly, investing in U.S. Treasury securities rather than alternative short-term investments would likely reduce the Bank's earnings. The Bank has no current plan to sell any long-term investments.

Funding Sources

General. The principal funding source for the Bank is consolidated obligations issued in the capital markets through the Office of Finance. Member deposits and the proceeds from the issuance of capital stock are also funding sources for the Bank. Consolidated obligations consist of consolidated obligation bonds and consolidated obligation discount notes. Discount notes are consolidated obligations with maturities of one year or less, and consolidated obligation bonds typically have maturities in excess of one year.

The Bank determines its participation in the issuance of consolidated obligations based upon, among other things, its own funding and operating requirements and the amounts, maturities, rates of interest and other terms available in the marketplace. In collaboration with the FHLBanks, the issuance terms for consolidated obligations are established by the Office of Finance, subject to policies established by its board of directors and the regulations of the Finance Agency. In addition, the Government Corporation Control Act provides that, before a government corporation issues and offers obligations to the public, the U.S. Secretary of the Treasury shall prescribe the form, denomination, maturity, interest rate, and conditions of the obligations, the way and time issued, and the selling price.

Consolidated obligation bonds generally satisfy long-term funding needs. Typically, the maturities of these securities range from 1 to 20 years, but their maturities are not subject to any statutory or regulatory limit. Consolidated obligation bonds can be fixed-rate or variable-rate and may be callable or non-callable.

Consolidated obligation bonds are issued and distributed through negotiated or competitively bid transactions with underwriters or bidding group members. The Bank receives 100 percent of the proceeds of bonds issued through direct negotiation with underwriters of System debt when it is the sole primary obligor on consolidated obligation bonds. When the Bank and one or more other FHLBanks jointly agree to the issuance of bonds directly negotiated with underwriters, the Bank receives the portion of the proceeds of the bonds agreed upon with the other FHLBanks; in those cases, the Bank is the primary obligor for a pro rata portion of the bonds based on the proceeds it receives. In these cases, the Bank records on its balance sheet only that portion of the bonds for which it is the primary obligor. The majority of the Bank’s consolidated obligation bond issuance has been conducted through direct negotiation with underwriters of System debt, and a majority of that issuance has been without participation by the other FHLBanks.

The Bank may also request that specific amounts of specific bonds be offered by the Office of Finance for sale through competitive auction conducted with underwriters that are bidding group members. One or more other FHLBanks may also request that amounts of these same bonds be offered for sale for their benefit through the same auction. The Bank may receive

12

from zero to 100 percent of the proceeds of the bonds issued through competitive auction depending on the amounts and costs for the bonds bid by underwriters, the maximum costs the Bank or other FHLBanks, if any, participating in the same issue are willing to pay for the bonds, and Office of Finance guidelines for allocation of bond proceeds among multiple participating FHLBanks.

Consolidated obligation discount notes are a significant funding source for money market instruments and for advances with short-term maturities or repricing frequencies of less than one year, or advances for which the interest rate is indexed to discount notes. Discount notes are sold at a discount and mature at par, and are offered daily through a consolidated obligation discount notes selling group and through other authorized securities dealers.

On a daily basis, the Bank may request that specific amounts of consolidated obligation discount notes with specific maturity dates be offered by the Office of Finance at a specific cost for sale to securities dealers in the discount note selling group. One or more other FHLBanks may also request that amounts of discount notes with the same maturities be offered for sale for their benefit on the same day. The Office of Finance commits to issue discount notes on behalf of the participating FHLBanks when securities dealers in the selling group submit orders for the specific discount notes offered for sale. The Bank may receive from zero to 100 percent of the proceeds of the discount notes issued through this sales process depending on the maximum costs the Bank or other FHLBanks, if any, participating in the same discount notes are willing to pay for the discount notes, the amounts of orders for the discount notes submitted by securities dealers, and Office of Finance guidelines for allocation of discount note proceeds among multiple participating FHLBanks. Under the Office of Finance guidelines, FHLBanks generally receive funding on a first-come-first-served basis subject to threshold limits within each category of discount notes. For overnight discount notes, sales are allocated to the FHLBanks in lots of $250 million for identical commitments. For all other discount note maturities, sales are allocated in lots of $50 million. Within each category of discount notes, the allocation process is repeated until all orders are filled or canceled.

Twice weekly, the Bank may also request that specific amounts of consolidated obligation discount notes with fixed maturity dates ranging from 4 to 26 weeks be offered by the Office of Finance through competitive auctions conducted through securities dealers in the discount note selling group. One or more other FHLBanks may also request that amounts of those same discount notes be offered for sale for their benefit through the same auction. The discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. The FHLBanks receive funding at a single price based on a Dutch auction format. If the bids submitted are less than the total of the FHLBanks’ requests, the Bank receives funding based on the ratio of the Bank’s regulatory capital (defined on page 40 of this report) relative to the regulatory capital of the other FHLBanks offering discount notes. The majority of the Bank’s discount note issuance in maturities of 4 weeks or longer is conducted through the auction process. Regardless of the method of issuance, as with consolidated obligation bonds, the Bank is the primary obligor for the portion of discount notes issued for which it has received the proceeds.

On occasion, and as an alternative to issuing new debt, the Bank may assume the outstanding consolidated obligations for which other FHLBanks are the original primary obligors. This occurs in cases where the original primary obligor may have participated in a large consolidated obligation issue to an extent that exceeded its immediate funding needs in order to facilitate better market execution for the issue. The original primary obligor might then warehouse the funds until they were needed, or make the funds available to other FHLBanks. Transfers may also occur when the original primary obligor’s funding needs change, and that FHLBank offers to transfer debt that is no longer needed to other FHLBanks. Transferred debt is typically fixed-rate, fixed-term, non-callable debt, and may be in the form of discount notes or bonds. In connection with these transactions, the Bank becomes the primary obligor for the transferred debt.

The Bank participates in such transfers of funding from other FHLBanks when the transfer represents favorable pricing relative to a new issue of consolidated obligations with similar features. During the first quarter of 2023, the Bank assumed one SOFR-indexed consolidated obligation bond with a par value of $1.0 billion from the FHLBank of Topeka. The bond matured and was repaid during the second quarter of 2023. The Bank did not assume any other consolidated obligations from other FHLBanks during the years ended December 31, 2023, 2022 or 2021.

In addition, the Bank occasionally transfers debt that it no longer needs to other FHLBanks. The Bank did not transfer any consolidated obligations to other FHLBanks during the years ended December 31, 2023, 2022 or 2021.

Joint and Several Liability. Although the Bank is primarily liable only for its portion of consolidated obligations (i.e., those consolidated obligations issued on its behalf and those that have been assumed from other FHLBanks), it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks. The Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, regardless of whether there has been a default by a FHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the FHLBank with primary liability. The FHLBank with primary liability would have a corresponding liability to reimburse the FHLBank providing assistance to the extent of such payment and other associated costs

13

(including interest to be determined by the Finance Agency). However, if the Finance Agency determines that the primarily liable FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever failed to make any payment on a consolidated obligation for which it was the primary obligor; as a result, the regulatory provisions for directing other FHLBanks to make payments on behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked. Consequently, the Bank has no means to determine how the Finance Agency might allocate the obligations of a FHLBank that is unable to pay consolidated obligations for which such FHLBank is primarily liable. If principal of or interest on any consolidated obligation issued by the FHLBank System is not paid in full when due, the Bank may not pay dividends to, or repurchase shares of stock from, any shareholder of the Bank.

The FHLBanks and the Office of Finance are parties to the Amended and Restated Federal Home Loan Banks P&I Funding and Contingency Plan Agreement which is designed to facilitate the timely funding of principal and interest payments on FHLBank System consolidated obligations in the event that a FHLBank is not able to meet its funding obligations in a timely manner. For additional information regarding this agreement, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

According to the Office of Finance, the 11 FHLBanks had (at par value) approximately $1.204 trillion and $1.182 trillion in consolidated obligations outstanding at December 31, 2023 and 2022, respectively. The Bank was the primary obligor on $119.8 billion and $109.1 billion (at par value), respectively, of these consolidated obligations.

Certification and Reporting Obligations. Under Finance Agency regulations, before the end of each calendar quarter and before paying any dividends for that quarter, the President and Chief Executive Officer of the Bank must certify to the Finance Agency that, based upon known current facts and financial information, the Bank will remain in compliance with its depository and liquidity requirements and will remain capable of making full and timely payment of all current obligations (which includes the Bank’s obligation to pay principal of and interest on consolidated obligations) coming due during the next quarter. The Bank is required to provide notice to the Finance Agency if it (i) is unable to provide the required certification, (ii) projects at any time that it will fail to comply with its liquidity requirements or will be unable to meet all of its current obligations due during the quarter, (iii) actually fails to comply with its liquidity requirements or to meet all of its current obligations due during the quarter, or (iv) negotiates to enter into or enters into an agreement with one or more other FHLBanks to obtain financial assistance to meet its current obligations due during the quarter. The Bank has been in compliance with the applicable reporting requirements at all times since they became effective in 1999.

A FHLBank must file a consolidated obligation payment plan for the Finance Agency’s approval if (i) the FHLBank becomes a non-complying FHLBank as a result of failing to provide the required certification, (ii) the FHLBank becomes a non-complying FHLBank as a result of being required to provide the notice described above to the Finance Agency, except in the case of a failure to make a payment on a consolidated obligation caused solely by an external event such as a power failure, or (iii) the Finance Agency determines that the FHLBank will cease to be in compliance with its liquidity requirements or will lack the capacity to meet all of its current obligations due during the quarter.

A non-complying FHLBank is permitted to continue to incur and pay normal operating expenses in the regular course of business, but may not incur or pay any extraordinary expenses, or declare or pay dividends, or redeem any capital stock, until such time as the Finance Agency has approved the FHLBank’s consolidated obligation payment plan or inter-FHLBank assistance agreement, or ordered another remedy, and all of the non-complying FHLBank’s direct obligations have been paid.

Negative Pledge Requirements. Each FHLBank must maintain specified assets free from any lien or pledge in an amount at least equal to its participation in outstanding consolidated obligations. Eligible assets for this purpose include (i) cash; (ii) obligations of, or fully guaranteed by, the U.S. government; (iii) secured advances; (iv) mortgages having any guaranty, insurance, or commitment from the U.S. government or any related agency; and (v) investments described in Section 16(a) of the FHLB Act, which, among other items, include securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located. At December 31, 2023 and 2022, the Bank had eligible assets free from pledge of $127.2 billion and $113.8 billion, respectively, compared to its participation in outstanding consolidated obligations of $119.8 billion and $109.1 billion, respectively. In addition, the Bank was in compliance with its negative pledge requirements at all times during the years ended December 31, 2023, 2022 and 2021.

Office of Finance. The Office of Finance (“OF”) is a joint office of the 11 FHLBanks that executes the issuance of consolidated obligations, as agent, on behalf of the FHLBanks. The OF also services all outstanding consolidated obligation debt, serves as a source of information for the FHLBanks on capital market developments, manages the FHLBank System’s relationship with rating agencies as it pertains to the consolidated obligations, and prepares and distributes the annual and quarterly combined financial reports for the FHLBanks.

The OF’s board of directors is comprised of 16 directors: the 11 FHLBank presidents, who serve ex officio, and 5 independent directors, who each serve five-year terms that are staggered so that not more than one independent directorship is scheduled to

14

become vacant in any one year. Independent directors are limited to two consecutive full terms. Independent directors must be United States citizens. As a group, the independent directors must have substantial experience in financial and accounting matters and they must not have any material relationship with any FHLBank or the OF.

One of the responsibilities of the board of directors of the OF is to establish policies regarding consolidated obligations to ensure that, among other things, such obligations are issued efficiently and at the lowest all-in funding costs for the FHLBanks over time consistent with prudent risk management practices and other market and regulatory factors.

The Finance Agency has regulatory oversight and enforcement authority over the OF and its directors and officers generally to the same extent as it has such authority over a FHLBank and its respective directors and officers. The FHLBanks are responsible for jointly funding the monthly expenses of the OF, which, since July 1, 2023, are shared on a pro rata basis with two-thirds based on each FHLBank’s total consolidated obligations outstanding (calculated as an average of the prior 12 month-end balances) and one-third divided equally among all of the FHLBanks. Prior to July 1, 2023, two-thirds of the OF's monthly expenses were shared on a pro rata basis based on each FHLBank’s total consolidated obligations outstanding as of the prior month-end and one-third was divided equally among all of the FHLBanks.

Use of Interest Rate Exchange Agreements

Finance Agency regulations authorize and establish general guidelines for the FHLBanks’ use of derivative instruments, and the Bank’s Enterprise Market Risk Management Policy establishes specific guidelines for their use. The Bank can use interest rate swaps, swaptions, cap and floor agreements, calls, puts, and futures and forward contracts as part of its interest rate risk management and funding strategies. Regulations prohibit derivative instruments that do not qualify as hedging instruments pursuant to U.S. GAAP unless a non-speculative use is documented.

In general, the Bank uses interest rate exchange agreements in three ways: (1) by designating the agreement as a fair value hedge of a specific financial instrument or firm commitment; (2) by designating the agreement as a cash flow hedge of a forecasted transaction; or (3) by designating the agreement as a hedge of some defined risk in the course of its balance sheet management. For example, the Bank uses interest rate exchange agreements in its overall interest rate risk management activities to adjust the interest rate sensitivity of consolidated obligations to approximate more closely the interest rate sensitivity of its assets, including advances and investments, and/or to adjust the interest rate sensitivity of advances and investments to approximate more closely the interest rate sensitivity of its liabilities. In addition to using interest rate exchange agreements to manage mismatches between the coupon features of its assets and liabilities, the Bank uses interest rate exchange agreements to manage embedded options in assets and liabilities, to preserve the market value of existing assets and liabilities and to reduce funding costs.

The Bank frequently enters into interest rate exchange agreements concurrently with the issuance of consolidated obligation bonds and it simultaneously designates the agreement as a fair value hedge. This strategy of issuing bonds while simultaneously entering into interest rate exchange agreements enables the Bank to offer a wider range of attractively priced advances to its members. The attractiveness of such debt generally depends on yield relationships between the consolidated obligation bond and interest rate exchange markets. As conditions in these markets change, the Bank may alter the types or terms of the consolidated obligations that it issues.

To a lesser extent, the Bank uses interest rate exchange agreements to hedge the variability of cash flows associated with the forecasted issuances of consolidated obligation discount notes.

For further discussion of interest rate exchange agreements, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Derivatives and Hedging Activities and the audited financial statements accompanying this report.

Competition

Demand for the Bank’s advances is affected by, among other things, the cost of other available sources of funds for its members, including deposits. The Bank competes with other suppliers of wholesale funding, both secured and unsecured, including investment banking concerns, commercial banks, the Federal Reserve and, in certain circumstances, other FHLBanks. Historically, sources of wholesale funds for its members have included unsecured long-term debt, unsecured short-term debt such as federal funds, repurchase agreements and deposits issued into the brokered certificate of deposit market. The availability of funds through these wholesale funding sources can vary from time to time as a result of a variety of factors including, among others, market conditions, members’ creditworthiness and availability of collateral. The availability of these alternative private funding sources could significantly influence the demand for the Bank’s advances. The Bank competes against other financing sources on the basis of cost, the relative ease by which the members can access the various sources of funds, collateral requirements, and the flexibility desired by the member when structuring the liability.

As a debt issuer, the Bank competes with Fannie Mae, Freddie Mac and other GSEs, as well as corporate, sovereign and supranational entities for funds raised in the national and global debt markets. Increases in the supply of competing debt

15

products could, in the absence of increases in demand, result in higher debt costs for the FHLBanks. Although investor demand for FHLBank debt has historically been sufficient to meet the Bank’s funding needs, there can be no assurance that this will always be the case.

Capital

The Bank’s capital consists of capital stock owned by its members (and, in some cases, non-member borrowers or former members as described below), plus retained earnings and accumulated other comprehensive income (loss). Consistent with the FHLB Act and the Finance Agency's regulations, the Bank’s Capital Plan requires each member to own Class B stock (redeemable with five years’ written notice subject to certain restrictions) in an amount equal to the sum of a membership investment requirement and an activity-based investment requirement. Specifically, the Bank’s Capital Plan requires members to hold capital stock in proportion to their total asset size and borrowing activity with the Bank. Members are also required to hold capital stock for letters of credit that are issued or renewed on and after April 19, 2021.

The Bank’s capital stock is not publicly traded and it may be issued, repurchased, redeemed and, with the prior approval of the Bank, transferred only at its par value. In addition, the Bank’s capital stock may only be held by members of the Bank, by non-member institutions that acquire stock by virtue of acquiring member institutions, by a federal or state agency or insurer acting as a receiver of a closed institution, or by former members of the Bank that retain capital stock to support advances or other obligations that remain outstanding or until any applicable stock redemption or withdrawal notice period expires.

The Bank has two sub-classes of Class B Stock. Class B-1 Stock is used to meet the membership investment requirement and Class B-2 Stock is used to meet the activity-based investment requirement. Subject to the limitations in the Capital Plan, the Bank converts shares of one sub-class of Class B Stock to the other sub-class of Class B Stock under the following circumstances: (i) shares of Class B-2 Stock held by a shareholder in excess of its activity-based investment requirement are converted into Class B-1 Stock, if necessary, to meet that shareholder’s membership investment requirement and (ii) shares of Class B-1 Stock held by a shareholder in excess of the amount required to meet its membership investment requirement are converted into Class B-2 Stock as needed in order to satisfy that shareholder’s activity-based investment requirement. All excess stock is held as Class B-1 Stock at all times.

For more information about the Bank’s minimum capital requirements, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk-Based Capital Rules and Other Capital Requirements.

Retained Earnings. The Bank has a retained earnings policy that calls for the Bank to maintain retained earnings in an amount at least sufficient to protect the par value of the Bank's capital stock against potential economic losses that could arise from a variety of designated risk factors. The Bank updates its retained earnings target calculations quarterly under an analytic framework that takes into account the potential losses for each risk factor generally at the 99 percent confidence stress level, or a stress scenario that approximates the 99th percentile. The Board of Directors reviews the Bank's retained earnings policy annually and revises the methodology as appropriate. The Bank’s current retained earnings policy target is described in Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

On February 28, 2011, the Bank entered into a Joint Capital Enhancement Agreement (the “JCE Agreement”) with the other FHLBanks. Effective August 5, 2011, the FHLBanks amended the JCE Agreement (the "Amended JCE Agreement"), and the Finance Agency approved an amendment to the Bank's Capital Plan to incorporate its provisions on that same date. The Amended JCE Agreement provides that the Bank (and each of the other FHLBanks) will, on a quarterly basis, allocate at least 20 percent of its net income to a separate restricted retained earnings account (“RRE Account”). Pursuant to the provisions of the Amended JCE Agreement, the Bank is required to build its RRE Account to an amount equal to one percent of its total outstanding consolidated obligations, which for this purpose is based on the most recent quarter’s average carrying value of all consolidated obligations, excluding hedging adjustments (“Total Consolidated Obligations”).

The Amended JCE Agreement provides that any quarterly net losses incurred by the Bank may be netted against its net income, if any, for other quarters during the same calendar year to determine the minimum required year-to-date or annual allocation to its RRE Account. In the event the Bank incurs a net loss for a cumulative year-to-date or annual period, the Bank may decrease the amount of its RRE Account such that the cumulative year-to-date or annual addition to its RRE Account is zero and the Bank shall apply any remaining portion of the net loss first to reduce retained earnings that are not restricted retained earnings until such retained earnings are reduced to zero, and thereafter may apply any remaining portion of the net loss to reduce its RRE Account. For any subsequent calendar quarter in the same calendar year, the Bank may decrease the amount of its quarterly allocation to its RRE Account in that subsequent calendar quarter such that the cumulative year-to-date addition to the RRE Account is equal to 20 percent of the amount of such cumulative year-to-date net income. In the event the Bank sustains a net loss for a calendar year, any such net loss first shall be applied to reduce retained earnings that are not restricted retained earnings until such retained earnings are reduced to zero, and thereafter any remaining portion of the net loss for the calendar year may be applied to reduce the Bank’s RRE Account. If during a period in which the Bank’s RRE Account is less than one percent of its Total Consolidated Obligations, the Bank incurs a net loss for a cumulative year-to-date or annual period that results in a decrease to the balance of its RRE Account as of the beginning of that calendar year, the Bank’s quarterly allocation

16

requirement shall thereafter increase to 50 percent of quarterly net income until the cumulative difference between the allocations made at the 50 percent rate and the allocations that would have been made at the regular 20 percent rate is equal to the amount of the decrease to the balance of its RRE Account at the beginning of that calendar year.

The Amended JCE Agreement provides that if the Bank’s RRE Account exceeds 1.5 percent of its Total Consolidated Obligations, the Bank may transfer amounts from its RRE Account to its unrestricted retained earnings account, but only to the extent that the balance of its RRE Account remains at least equal to 1.5 percent of the Bank’s Total Consolidated Obligations immediately following such transfer.

The Amended JCE Agreement further provides that the Bank may not pay dividends out of its RRE Account, nor may it reallocate or transfer amounts out of its RRE Account except as described above. In addition, during periods in which the Bank’s RRE Account is less than one percent of its Total Consolidated Obligations, the Bank may not pay dividends out of the amount of its quarterly net income that is required to be allocated to its RRE Account.

Dividends. Subject to the FHLB Act, Finance Agency regulations and other Finance Agency directives, the Bank pays dividends to holders of its capital stock quarterly or as otherwise determined by its Board of Directors. The Board of Directors may declare dividends at the same rate for all shares of Class B Stock, or at different rates for Class B-1 Stock and Class B-2 Stock, provided that in no event can the dividend rate on Class B-2 Stock be lower than the dividend rate on Class B-1 Stock. Dividends may be paid in the form of cash, additional shares of either, or both, sub-classes of Class B Stock, or a combination thereof as determined by the Bank’s Board of Directors. The dividend rates on Class B-1 Stock and Class B-2 Stock are paid on all shares of Class B-1 Stock and Class B-2 Stock, respectively, regardless of their classification for accounting purposes. The Bank is permitted by statute and regulation to pay dividends only from previously retained earnings or current net earnings, and the payment of dividends is also subject to the terms of the Amended JCE Agreement.

Because the Bank’s returns from net interest income generally track short-term interest rates, the Bank benchmarks the dividend rate that it pays on capital stock to a short-term index. Until recently, the index used for this purpose was one-month LIBOR. In anticipation of the discontinuance of one-month LIBOR after June 30, 2023, the Bank’s Board of Directors adopted new dividend target ranges for Class B-1 and Class B-2 Stock that became effective beginning with the dividends that were paid in the second quarter of 2023, such that they are indexed to the average overnight SOFR rate. While there can be no assurances about future dividends or future dividend rates, the target range for quarterly dividends on Class B-1 Stock is an annualized rate that approximates the average overnight SOFR rate plus 0 – 0.5 percent and the target range for quarterly dividends on Class B-2 Stock is an annualized rate that approximates the average overnight SOFR rate plus 1.0 – 1.5 percent.

The Bank generally pays dividends in the form of capital stock. When dividends are paid, capital stock is issued in full shares and any fractional shares are paid in cash. For a more detailed discussion of the Bank’s dividend policy and the restrictions relating to its payment of dividends, see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

AHP Assessments

Although the Bank is exempt from all federal, state, and local income taxes, the FHLB Act requires each FHLBank to establish and fund an AHP. Annually, the FHLBanks must collectively set aside for the AHP the greater of $100 million or 10 percent of their current year’s income before AHP expenses. Interest expense on capital stock that is classified as a liability (i.e., mandatorily redeemable capital stock) is added back to income for purposes of computing the Bank’s AHP assessment.

Regulatory Oversight

As discussed above, the Finance Agency supervises and regulates the FHLBanks and the OF. The Finance Agency has a statutory responsibility and corresponding authority to ensure that the FHLBanks operate in a safe and sound manner. Consistent with that duty, the Finance Agency has an additional responsibility to ensure the FHLBanks carry out their housing and community development finance mission. In order to carry out those responsibilities, the Finance Agency establishes regulations governing the entire range of operations of the FHLBanks, conducts ongoing off-site monitoring and supervisory reviews, performs annual on-site examinations and periodic interim on-site reviews, and requires the FHLBanks to submit daily, monthly and quarterly information including, but not limited to, information regarding their financial condition, results of operations, advances activity, liquidity and risk metrics.

The Comptroller General of the United States (the “Comptroller General”) has authority under the FHLB Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLB Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of a FHLBank’s financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General may also conduct his or her own audit of the financial statements of any FHLBank.

17

As an SEC registrant, the Bank is subject to the periodic reporting and disclosure regime as administered and interpreted by the SEC. The Bank must also submit annual management reports to Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General; these reports are required to include a statement of financial condition, a statement of operations, a statement of cash flows, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on the financial statements. In addition, the Treasury receives the Finance Agency’s annual report to Congress and other reports reflecting the operations of the FHLBanks.

Legislative and Regulatory Developments

Finance Agency Proposed Rule on Fair Lending, Fair Housing, and Equitable Housing Finance Plans

On April 26, 2023, the Finance Agency published a proposed rule that, if adopted, would specify requirements related to FHLBank compliance with fair housing and fair lending laws and prohibitions on unfair or deceptive acts or practices. The fair housing and fair lending laws referenced in the proposed rule are the Fair Housing Act, the Equal Credit Opportunity Act, and the regulations that implement those acts. Further, the proposed rule would outline the Finance Agency's enforcement authority. The proposed rule was open for public comment through June 26, 2023. The Bank is currently evaluating the potential impact that the proposed rule could have on its business and operations.

Finance Agency’s Review and Analysis of the FHLBank System

In August 2022, the Finance Agency launched a comprehensive review and analysis of the FHLBank System. As part of its review and analysis, the Finance Agency solicited written input from stakeholders and held a series of public listening sessions and regional roundtable discussions. The review covered such areas as the FHLBanks’ mission and purpose in a changing marketplace; their organization, operational efficiency, and effectiveness; their role and level of support in promoting affordable, sustainable, equitable, and resilient housing and community investment; their role in addressing the unique needs of rural and financially vulnerable communities; member products, services, and collateral requirements; and membership eligibility and requirements.

On November 7, 2023, the Finance Agency issued a written report which sets forth the actions it intends to take or consider based on its review and analysis. The report, entitled FHLBank System at 100: Focusing on the Future, categorizes these actions under four broad themes: (1) mission of the FHLBank System; (2) stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure, and governance. Among other things, the Finance Agency indicated that it will likely pursue actions related to:

a.Requiring that certain members have at least 10 percent of their assets in residential mortgage loans or equivalent mission assets (including assets that qualify as CFI collateral where appropriate) on an ongoing basis to remain eligible for FHLBank financing;

b.Preserving the benefits of FHLBank debt issuance for all members by limiting debt issuances that unduly raise debt clearing costs or debt issuance activity;

c.Considering whether FHLBank mergers or district realignment are necessary to meet the Finance Agency’s safety and soundness objectives;

d.Expanding the FHLBanks’ housing and community development focus, including a recommendation that Congress consider amending the FHLBank Act to at least double the minimum required annual AHP contributions by the FHLBanks; and

e.Recommending that Congress amend the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to eliminate the restrictions on the Finance Agency’s authority to prescribe levels or ranges for the compensation of FHLBank executive officers.

The report also notes that the role of the FHLBanks in providing secured advances must be distinguished from the Federal Reserve’s financing facilities, which are set up to provide emergency funding for troubled financial institutions that are faced with immediate liquidity challenges. Due to operational and financing limitations of the market intermediation process, the FHLBanks cannot, in the Finance Agency’s view, functionally serve as the lender of last resort, particularly for large, troubled members that can have significant borrowing needs over a short period of time. To address this, the report notes that the FHLBanks should coordinate with their members’ primary regulators and the regional Federal Reserve Banks to ensure financial institutions’ borrowing needs continue to be met when they no longer meet a FHLBank’s credit criteria.

According to the report, the Finance Agency seeks to position the FHLBank System to continue serving as a source of stable and reliable liquidity, while increasing support for housing and community development, in a safe and sound manner. The Finance Agency characterized the report as a blueprint for innovative and prudent steps to bolster and improve the FHLBank System and its publication as the beginning of a multi-year, collaborative effort with stakeholders to address the recommended

18

actions in the report. Under its existing authorities, the Finance Agency can implement some of the recommendations through ongoing supervision, guidance, or rulemaking, while some of the other recommendations will require Congressional action.

The Bank is unable at this time to predict what actions will ultimately result from the Finance Agency’s recommendations or the extent to which any of those actions could impact the Bank’s future business prospects, financial condition, or results of operations.

Banking Regulatory Proposals

Following the bank failures and banking industry turmoil that occurred in March 2023, the following rules have been proposed by federal banking regulators:

On September 18, 2023, the Office of the Comptroller of the Currency (the “OCC”), the Board of Governors of the Federal Reserve System (the “FRB”), and the FDIC published a joint notice of proposed rulemaking that would amend the capital requirements applicable to certain large banking organizations and banking organizations with significant trading activity, by amending the calculation of risk-based capital requirements to better reflect the risks of these banking organizations’ exposures; reducing the complexity of the framework; enhancing the consistency of requirements across these banking organizations; and facilitating more effective supervisory and market assessments of capital adequacy (the “Proposed Capital Rule”). This proposed rule was open to public comment through January 16, 2024.

On September 19, 2023, the OCC, the FRB, and the FDIC published a joint notice of proposed rulemaking that would require certain large banking organizations to issue and maintain outstanding a minimum amount of long-term debt in order to: promote more orderly resolutions in the event of such organizations’ failure; reduce costs to the Deposit Insurance Fund; and mitigate financial stability and contagion risks by reducing the risk of loss to uninsured depositors (the “Proposed Long-Term Debt Rule”). This proposed rule was open to public comment through November 30, 2023.

On September 19, 2023, the FDIC published proposed amendments to its existing resolution plan requirements for insured depository institutions (“IDIs”) with $50 billion or more in total assets, which would require additional detail on covered IDIs’ strategies for their orderly and efficient resolutions and enhance the FDIC’s expectations for resolution plan testing. For resolutions involving a bridge depository institution, the proposed rule provides that a resolution strategy may assume continuation of FHLBank advances, provided the strategy contemplates timely repayment of those advances. This proposed rule was open to public comment through November 30, 2023.

The Bank is evaluating the extent to which these proposed rules, if adopted in their current form, may impact some of its members’ business activities with the Bank and/or the demand for, and liquidity of, the FHLBank's consolidated obligations.

Amendment to FINRA Rule 4210: Margining of Covered Agency Transactions

On July 27, 2023, the Financial Industry Regulatory Authority, Inc. (“FINRA”) extended, to May 22, 2024, the implementation date of its amendments to FINRA Rule 4210 which establish margin requirements for forward-settling transactions in the to be announced (“TBA”) market. When the margining requirements become effective, the Bank may be required to collateralize transactions that occur in the TBA market. In any event, the costs associated with those transactions are likely to increase.

Final Rule on Climate-related Disclosures

On March 6, 2024, the SEC adopted a final rule that mandates and standardizes climate-related disclosures in annual reports that are filed with the SEC. Among other things, the final rule requires registrants to disclose climate-related risks that have had or are reasonably likely to have a material impact on its business strategy, results of operations or financial condition. In addition, the rule requires certain disclosures in a registrant's audited financial statements related to severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures and sea level rise, subject to specified thresholds. The Bank is currently evaluating the disclosures that are applicable to non-accelerated filers, which, in a departure from the proposed rule, are less in scope than the disclosures that apply to large accelerated filers and accelerated filers.

19

Human Capital Resources

The Bank’s human capital is a significant contributor to the success of its strategic business objectives. In managing its human capital, the Bank focuses on its workforce profile and the various programs and philosophies described below.

Workforce Profile. The Bank’s workforce is comprised almost entirely of corporate employees, substantially all of whom are located in one office in Irving, Texas. The following table provides information regarding the Bank's workforce as of December 31, 2023, 2022 and 2021. The percentages in the table may not add to 100 percent because some employees chose not to specify ethnicity.

Date	Number of Full-time Employees	Number of Part-time Employees	Percent Male	Percent Female	Percent Minority	Percent Non-minority
December 31, 2023	202	2	61%	39%	58%	41%
December 31, 2022	200	1	60%	40%	56%	42%
December 31, 2021	196	1	59%	41%	54%	46%

In 2023, 2022 and 2021, the Bank's turnover rate approximated 12 percent, 13 percent and 15 percent, respectively. The Bank is leanly staffed and its workforce has historically included a number of longer-tenured employees. The Bank strives to develop talent from within the organization and to supplement those efforts with external hires. The Bank believes that developing talent internally contributes to institutional strength and continuity and promotes loyalty and commitment among its employees, which furthers the Bank’s success. At the same time, adding new employees contributes to new ideas, continuous improvement, and the Bank’s goal of having a diverse and inclusive workforce. As of both December 31, 2023 and 2022, the average tenure of the Bank’s employees was 9 years. None of the Bank’s employees are subject to a collective bargaining agreement.

Total Rewards. The Bank seeks to attract, develop and retain talented employees to achieve its strategic business initiatives, enhance business performance and increase shareholder value. The Bank effects these objectives through a combination of benefits and employee wellness and development programs and by recognizing and rewarding performance. Specifically, the Bank’s programs include:

•Cash compensation that includes competitive salary and performance-based incentives

•Benefits – health insurance (including medical, dental, vision and prescription drug benefits), Teladoc Health services, health and dependent care flexible spending accounts, healthcare savings accounts with employer contribution, life and accidental death and dismemberment insurance, supplemental life insurance, short- and long-term disability, 401(k) retirement savings plan with employer match, deferred compensation program for highly compensated employees and, for a group of eligible employees, defined benefit pension benefits

•Wellness program – employee assistance program, exercise classes, onsite gym, smoothie and coffee bars

•Time away from work – time off for vacation, illness, personal, holiday, volunteer opportunities and, provided certain eligibility criteria are met, sabbatical leave

•Culture – various employee resource/affinity groups, multiple cultural and inclusion initiatives, employee lounge with small meeting rooms, and outdoor meeting space with recreation activities

•Work/life balance – time off with full pay for bereavement, jury duty, court appearances and maternity and paternity leave; limited tuition reimbursement assistance for employees and their dependents

•Development programs and training – focused on leadership development, employee engagement, employee knowledge sharing, English as a Second Language, competency-based training and personal development programs, as well as a mentoring program, summer internship program, and fee reimbursement for external training programs.

The Bank’s Performance Management Program includes the use of Objectives and Key Results (“OKRs”) as well as annual performance reviews and quarterly discussions between managers and employees. The focus of the Performance Management Program is to encourage open dialogue between managers and employees to ensure that employees have the tools and training needed to do their best work.

In 2023, the Bank employed a hybrid work model. Employees worked in the office at least three days per week and remotely the remaining days. For 2024, the Bank expects that employees will continue to work in the office at least three days per week and remotely the remaining days. Days that are designated as "office days" are the same for all employees.

Diversity, Equity and Inclusion Program. Diversity, equity and inclusion is a strategic business priority for the Bank. The Bank’s diversity, equity and inclusion officer is a member of the executive management team who reports to the President and Chief Executive Officer and serves as a liaison to the Board of Directors. The Bank recognizes that diversity increases the

20

capacity for innovation and creativity and that inclusion allows the Bank to: (i) leverage the unique perspectives of all employees and (ii) strengthen the Bank’s retention efforts. The Bank operationalizes its commitment to diversity, equity and inclusion through the development and execution of a 3-year diversity, equity and inclusion strategic plan that includes quantifiable metrics that are used to measure its performance. These performance metrics are regularly reported to executive management and the Board of Directors. The Bank offers various opportunities for its employees to connect and grow personally and professionally through its employee resource/affinity groups and it annually holds one or more events which, through various means, focus attention on diversity, equity and inclusion topics. The Bank considers learning to be an important component of its diversity, equity and inclusion strategy and, as such, it regularly offers related educational opportunities to its employees. Further, the Bank evaluates inclusive behaviors as part of its annual employee performance reviews.

Business Strategy and Outlook

The Bank maintains a Strategic Business Plan that provides the framework for its future business direction. The goals and strategies for the Bank’s major business activities are encompassed in this plan, which is updated and approved by the Board of Directors at least annually and at any other time that revisions are deemed necessary.

As described in its Strategic Business Plan, the Bank operates under a cooperative business model that is intended to maximize the overall value of membership in the Bank. This business model envisions that the Bank will limit and carefully manage its risk profile while generating sufficient profitability to maintain an appropriate level of retained earnings, to pay dividends on members' capital stock at rates at least sufficient to make members financially indifferent to holding the Bank's capital stock, and to absorb periodic earnings volatility related to hedging and derivatives or other external shocks. Consistent with this business model, the Bank places the highest priority on being able to meet its members’ liquidity and funding needs in all market environments.

The Bank intends to continue to operate under its cooperative business model for the foreseeable future. All other things being equal, the Bank’s earnings are typically expected to rise and fall with the general level of market interest rates, particularly short-term money market rates, and the Bank's total capital and asset size. Other factors that could have an effect on the Bank’s future earnings include the level, volatility of and relationships between short-term money market rates such as federal funds and SOFR; the availability and cost of the Bank’s short- and long-term debt relative to benchmark rates such as federal funds, SOFR, and long-term fixed mortgage rates; the availability of interest rate exchange agreements at competitive prices; whether the Bank’s larger borrowers continue to be members of the Bank and the level at which they maintain their borrowing activity; the extent to which the Bank's members continue to sell mortgage loans to the Bank; and the impact of economic conditions and possible regulatory changes on the demand for the Bank’s credit products.

During 2023, economic growth in the United States was to some extent negatively impacted by the higher level of interest rates and concerns about inflation and the possibility of a near-term recession. In addition, in March 2023, several out-of-district U.S. banks experienced significant deposit outflows and financial difficulties, creating stress for the banking industry and the financial markets, much of which had dissipated by the end of the year. The extent to which any of these concerns affect the Bank's future business will depend on many factors that remain uncertain and difficult to predict.

Notwithstanding the ongoing economic uncertainty, sustained long-term growth in both advances and mortgage loans held for portfolio continue to be strategic priorities for the Bank as these assets contribute to the value the Bank provides its members, as well as the Bank's earnings (and, correspondingly, the level of support for its AHP and voluntary programs), core mission assets and, similarly, its CMA ratio. As previously discussed in this report, the Bank also intends to further increase its support for affordable housing and community development in 2024 and subsequent years by way of its voluntary program offerings and has targeted a minimum level of annual support that will be tied to the Bank's prior year operating results.

While the Bank's primary focus will continue to be ensuring its ability to meet the liquidity and funding needs of its members, in order to become a more valuable resource to its members, the Bank will also continue to consider ways in which it can enhance its product and/or service offerings. The FHLB Act and Finance Agency regulations limit the products and services that the Bank can offer to its members and govern many of the terms of the products and services that the Bank offers. The Bank is also required by regulation to file New Business Activity notices with the Finance Agency for any new products or services that would constitute new business activities under the regulation and, therefore, with certain limited exceptions discussed in the next paragraph, it will have to assess any potential new products or services offerings in light of these statutory and regulatory restrictions.

On November 9, 2023, the Finance Agency issued an Advisory Bulletin ("AB 2023-06") that provides guidance for the FHLBanks regarding the establishment of pilot and voluntary programs and which generally affords the FHLBanks greater flexibility in offering such programs provided they are developed and administered in a safe and sound manner and in accordance with board-established prudential parameters. A pilot program or voluntary program must be permissible under applicable statutory, regulatory, or other legal authorities, and may not be used to circumvent existing statutory or regulatory requirements or Finance Agency guidance. As noted in AB 2023-06, pilot programs generally would be new business activities implemented with a small size and defined time frame and with the expectation that, after a given time period, careful analysis

21

of the benefits and drawbacks will be conducted and considered. AB 2023-06 also notes that pilot programs and voluntary programs typically should not present material risks to a FHLBank but in those cases where specific programs may present material risks, they would be subject to the requirements of the New Business Activity Regulation. Further, depending upon the facts and circumstances, converting a pilot program to a permanent program may require the submission of a New Business Activity notice.

ITEM 1A. RISK FACTORS

General Economic Conditions

A prolonged downturn in the economy, including the U.S. housing market, and related U.S. government monetary policies, could adversely affect our business activities and results of operations.

Our business and results of operations are sensitive to the U.S. economy and the U.S. housing market. A prolonged period of slow growth in the U.S. economy, deterioration in general economic conditions, or a downturn in the housing markets could adversely affect our borrowers, particularly those whose businesses are concentrated in the mortgage industry. For example, if home prices decline or the unemployment rate increases, the value of collateral securing member credit may decline, which could in turn increase the possibility of under-collateralization and the risk of loss if a member defaults. Deterioration in the residential mortgage markets could also affect the value of collateral securing our mortgage loan portfolio, increasing the risk of loss due to credit impairment, as well as possible realized losses if we were forced to liquidate the collateral.

Unfavorable economic and market conditions can be caused by many factors. Volatility and uncertainty in global economic and political conditions and/or concerns about financial institutions' sources of and access to liquidity can significantly affect U.S. economic conditions and financial markets. Furthermore, natural disasters, pandemics or other widespread health emergencies, terrorist attacks, cyberattacks, civil unrest, geopolitical instability or conflicts, trade disruptions, economic or other sanctions, or other unanticipated or catastrophic events could create economic and financial disruptions and uncertainties, which may lead to reduced demand for advances and an increased risk of credit losses and may adversely affect our cost of or access to funding. These events may also lead to operational difficulties that could adversely affect our ability to conduct and manage our business. Any of these factors could adversely affect our business activities and results of operations.

In addition, our business and results of operations are significantly affected by the monetary policies of the U.S. government and its agencies, including the Federal Reserve. The Federal Reserve Board’s policies directly and indirectly influence interest rates on our assets and liabilities and could adversely affect the demand for advances and/or consolidated obligations as well as our financial condition and results of operations. Efforts by the Federal Reserve to reduce inflation, including multiple increases in the federal funds target rate during 2022 and 2023, and financial difficulties experienced by some depository institutions have contributed to significant volatility in the financial markets and uncertainties about the economic outlook, including concerns about a possible recession.

Interest Rate Risk

Our profitability is vulnerable to interest rate fluctuations.

We are subject to significant risks from changes in interest rates because most of our assets and liabilities are financial instruments. Our profitability depends significantly on our net interest income and is impacted by changes in the fair value of interest rate derivatives and any associated hedged items. Changes in interest rates can impact our net interest income as well as the values of our derivatives and certain other assets and liabilities. Changes in overall market interest rates, changes in the relationships between short-term and long-term market interest rates, changes in the relationship between different interest rate indices, or differences in the timing of rate resets for assets and liabilities or related interest rate derivatives with interest rates tied to those indices, can affect the interest rates received from our interest-earning assets differently than those paid on our interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income, which would result in a decrease in our net interest spread, or a net decrease in earnings related to the relationship between changes in the valuation of our derivatives and any associated hedged items.

Our profitability may be adversely affected if we are not successful in managing our interest rate risk.

Like most financial institutions, our results of operations are significantly affected by our ability to manage interest rate risk. We use a number of tools to monitor and manage interest rate risk, including income simulations and duration/market value sensitivity analyses. Given the unpredictability of the financial markets, capturing all potential outcomes in these analyses is extremely difficult. Key assumptions used in our market value sensitivity analyses include interest rate volatility, mortgage prepayment projections and the future direction of interest rates, among other factors. Key assumptions used in our income simulations include projections of advances volumes and pricing, MPF volumes and pricing, market conditions for our debt, prepayment speeds and cash flows on mortgage-related assets, the level of short-term interest rates, and other factors. These assumptions are inherently uncertain and, as a result, the measures cannot precisely estimate net interest income or the market

22

value of our equity nor can they precisely predict the effect of higher or lower interest rates or changes in other market factors on net interest income or the market value of our equity. Actual results will most likely differ from simulated results due to the timing, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. Our ability to maintain a positive spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities may be affected by the unpredictability of changes in interest rates.

Credit Risk

Exposure to credit risk from our customers could have a negative impact on our profitability and financial condition.

We are subject to credit risk from advances and other extensions of credit to members, non-member borrowers and housing associates (collectively, our customers). Other extensions of credit include letters of credit issued or confirmed on behalf of customers, customers’ credit enhancement obligations associated with MPF loans held in portfolio, and interest rate exchange agreements we have entered into with our customers. For this purpose, other extensions of credit exclude a de minimis amount of unsecured loans that have been made to members under our SBB program, which is a voluntary program that is designed to promote small businesses.

We require that all outstanding advances and other extensions of credit to our customers be fully collateralized. We evaluate the types of collateral pledged by our customers and assign a borrowing capacity to the collateral, generally based on either a percentage of its book value or estimated market value. The vast majority of the collateral is assigned a borrowing capacity based on its estimated market value. During economic downturns, the number of our member institutions exhibiting significant financial stress generally increases. In addition, at any time, changes in the perceived financial strength of some or all of our member institutions could occur which, in turn, could cause the institutions to incur financial losses and/or funding challenges, or worse, to fail. Further, some of our members could experience financial stress as a result of the current challenges in the commercial real estate sector which, in turn, could increase the possibility that those member institutions might fail. If member institutions fail, and if the FDIC (or other receiver, conservator or acquiror) does not promptly repay all of the failed institution’s obligations to us or assume the outstanding extensions of credit, we might be required to liquidate the collateral pledged by the failed institution in order to satisfy its obligations to us. A devaluation of or our inability to liquidate collateral in a timely manner in the event of a default by the obligor could cause us to incur a credit loss and adversely affect our financial condition or results of operations.

Exposure to credit risk on our investments and MPF loans could have a negative impact on our profitability and financial condition.

We are exposed to credit risk from our MPF loans held in portfolio and our secured and unsecured investment portfolio. A deterioration of economic conditions, declines in residential real estate values, changes in monetary policy or other events that could negatively impact the economy and the markets as a whole could lead to borrower defaults, which in turn could cause us to incur losses on our MPF loans and/or our investment portfolio. If delinquencies, default rates and loss severities on residential mortgage loans increase, and/or there is a decline in residential real estate values, we could experience losses on our MPF loans held in portfolio. Further, we could experience losses on our agency mortgage-backed securities if, following a default, the guarantor elects to repurchase the security at its par value. In this instance, the Bank could incur a loss if the amortized cost basis of the investment exceeds its par value.

Defaults by or the insolvency of one or more of our derivative counterparties could adversely affect our profitability and financial condition.

We regularly enter into derivative transactions with major financial institutions and third-party clearinghouses. Our financial condition and results of operations could be adversely affected if derivative counterparties to whom we have exposure fail.

Cleared trades are subject to initial and variation margin requirements established by the clearinghouse and its clearing members. Currently, all of our cleared derivatives are settled daily and these daily settlements are not subject to any maximum unsecured credit exposure thresholds. With cleared transactions, we are exposed to credit risk in the event that the clearinghouse or the clearing member fails to meet its obligations to us.

We have entered into master agreements with all of our non-member bilateral derivative counterparties that require the delivery (or return) of collateral (variation margin) consisting of cash or very liquid, highly rated securities if credit risk exposures rise above certain minimum amounts (generally ranging from $50,000 to $500,000). Upon a request made by the unsecured counterparty, the party that has the unsecured obligation to the counterparty bearing the risk of the unsecured credit exposure must deliver sufficient collateral to reduce the unsecured credit exposure to zero. In addition, excess collateral must be returned by a party in an oversecured position. Delivery or return of the collateral generally occurs within one business day and, until such delivery or return, we may be in an undersecured position, which could result in a loss in the event of a default by the counterparty, or we may be due excess collateral, which could result in a loss in the event that the counterparty is unable or unwilling to return the collateral. Our bilateral derivatives that are transacted on and after September 1, 2022 are subject to initial margin requirements when the unmargined exposure, on a counterparty-by-counterparty basis, exceeds $50 million.

23

Because derivative valuations are determined based on market conditions at particular points in time, they can change quickly. Even after the settlement of a derivative or the delivery or return of collateral, as the case may be, we may be in an undersecured position (or be entitled to the return of excess collateral) as the values upon which the settlement, delivery or return was based may have changed since the valuation was performed. In addition, we may incur additional losses if any non-cash collateral held by us cannot be readily liquidated at prices that are sufficient to fully recover the value of the derivatives. Further, the initial margin and any excess variation margin that we post with our derivative counterparties is over and above the amount that is needed to fully settle the value of our derivative positions and therefore exposes us to additional credit risk in the event that a bilateral or clearinghouse counterparty (or clearing member of a clearinghouse) fails.

Credit Market Conditions and Funding Risk

Changes in overall credit market conditions and/or competition for funding may adversely affect our cost of funds and our access to the capital markets.

The cost of our consolidated obligations depends in part on prevailing conditions in the capital markets at the time of issuance, which are generally beyond our control. For instance, a decline in overall investor demand for debt issued by the FHLBanks and similar issuers could adversely affect our ability to issue consolidated obligations on favorable terms or in amounts that are sufficient to meet our funding needs. Investor demand is influenced by many factors including changes or perceived changes in general economic conditions, changes in investors’ risk tolerances or balance sheet capacity, or, in the case of overseas investors, changes in preferences for holding dollar-denominated assets. Credit market disruptions tend to dampen investor demand for longer-term debt, including longer-term FHLBank consolidated obligations, making it more difficult for us to match the maturities of our assets and liabilities. In addition, changes in the relationships between the cost of our consolidated obligations and interest rate swaps could increase our net cost of funds, which could negatively impact our results of operations. Further, higher long-term debt costs and/or lack of demand for our long-term debt at attractive prices (or at all) could cause us to fund some long-term assets with short-term debt, creating mismatches between the maturities of our assets and liabilities. Such mismatches expose us to refinancing risk, which is the risk that we may have difficulty rolling over our short-term obligations if market conditions change and/or investor demand for our debt is suddenly insufficient to satisfy our funding needs.

We compete with Fannie Mae, Freddie Mac and other GSEs, as well as commercial banking, corporate, sovereign and supranational entities for funds raised through the issuance of unsecured debt in the global debt markets. Increases in the supply of competing debt products may, in the absence of increased investor demand, result in higher debt costs, which could negatively affect our financial condition and results of operations. Further, if investors limit their demand for our debt, our ability to fund our operations and to meet the credit and liquidity needs of our members by accessing the capital markets could eventually be compromised.

Our inability to issue consolidated obligations for a relatively short period of time could jeopardize our ability to continue operating.

We typically issue consolidated obligations almost every day. We also maintain access to other sources of contingent liquidity. As more fully described in the Liquidity and Capital Resources section of this report, we currently manage our liquidity to ensure that, at a minimum, we maintain 20 calendar days or more of positive daily cash balances (or such higher or lower number of days as the Finance Agency may from time to time require us to maintain) assuming no access to the market for consolidated obligations or other unsecured funding sources and the renewal of all advances that are scheduled to mature during the measurement period. However, if we were unable to issue consolidated obligations for a relatively short period of time and our other sources of contingent liquidity were either not available or were not available in sufficient quantities, our ability to meet our obligations and otherwise conduct our operations would be compromised.

An interruption in our access to the capital markets would limit our ability to obtain funds.

We conduct our business and fulfill our public purpose primarily by acting as an intermediary between our members and the capital markets. Certain events, such as a natural disaster, terrorist act or global pandemic, could limit or prevent us from accessing the capital markets in order to issue consolidated obligations for some period of time. An event that precludes us from accessing the capital markets may also limit our ability to enter into transactions to obtain funds from other sources. External forces are difficult to predict or prevent, but can have a significant impact on our ability to manage our financial needs and to meet the credit and liquidity needs of our members.

Changes in investors’ perceptions of the creditworthiness of the FHLBanks may adversely affect our ability to issue consolidated obligations on favorable terms.

We, and the other ten FHLBanks, currently have the highest credit rating from Moody’s and are rated AA+/A-1+ by S&P. The consolidated obligations issued by the FHLBanks are rated Aaa/P-1 by Moody’s and AA+/A-1+ by S&P. S&P has assigned a stable outlook to its long-term credit rating on the FHLBank System's consolidated obligations and to its long-term rating of each of the FHLBanks. Moody’s has assigned a negative outlook to its long-term credit rating on the FHLBank System's

24

consolidated obligations and to its long-term rating of each of the FHLBanks, reflecting Moody's negative outlook on the U.S. sovereign credit rating.

Pursuant to criteria used by S&P and Moody's, the FHLBank System's debt rating and the credit ratings of the individual FHLBanks are linked closely to the U.S. sovereign credit rating because of the FHLBanks' GSE status. The U.S. government's fiscal challenges could negatively impact the credit rating of the U.S. government, which could in turn result in a downgrade of the rating assigned to us and/or the consolidated obligations of the FHLBank System.

With increasing frequency, the United States will from time to time reach its statutory debt limit and the U.S. Treasury will then take extraordinary measures to prevent the United States from defaulting on its obligations. The failure by the U.S. government to adequately address its statutory debt limit in a timely manner, or uncertainty relating to the debt limit, could result in downgrades to the U.S. sovereign credit rating or outlook (and a downgrade to our rating or outlook and/or the rating or outlook assigned to the FHLBank System's consolidated obligations) and cause significant harm to the U.S. economy and global financial stability.

Because the FHLBanks have joint and several liability for all of the FHLBanks' consolidated obligations, negative developments at any FHLBank could also adversely affect S&P's and/or Moody's credit ratings on us and/or the FHLBanks' consolidated obligations or result in one or both of these NRSROs issuing a negative credit report on the FHLBank System.

Our primary source of liquidity is the issuance of consolidated obligations. Historically, the FHLBank System’s status as a GSE and its favorable credit ratings have provided us with excellent access to the capital markets. Any downgrades of the FHLBank System’s consolidated obligations by S&P and/or Moody’s, negative guidance from the rating agencies, or negative announcements by one or more of the FHLBanks could result in higher funding costs and/or disruptions in our access to the capital markets. To the extent that we cannot access funding when needed on acceptable terms, our financial condition and results of operations could be adversely impacted.

Derivatives and Hedging Activities

Changes in our access to the interest rate derivatives market on acceptable terms may adversely affect our ability to maintain our current hedging strategies.

We actively use derivative instruments to manage interest rate risk. The effectiveness of our interest rate risk management strategy depends to a significant extent upon our ability to enter into these instruments with acceptable counterparties in the necessary quantities and under satisfactory terms to hedge our corresponding assets and liabilities. We currently enjoy ready access in the over-the-counter ("OTC") derivatives market for uncleared interest rate derivatives through a diverse group of investment grade rated counterparties. Several factors could have an adverse impact on our access to the OTC derivatives market, including changes in our credit rating, changes in the current counterparties’ credit ratings, reductions in our counterparties’ allocation of resources to the interest rate derivatives business, and changes in the liquidity of that market created by a variety of regulatory or market factors. If mergers involving our financial institution counterparties were to occur, it could increase our concentration risk with respect to counterparties in the industry. Further, defaults by, or even negative rumors or questions about, one or more financial services institutions, or the financial services industry in general, could lead to market-wide disruptions in which it may be difficult for us to find acceptable counterparties for such transactions. If changes in our access to the derivatives market result in our inability to manage our hedging activities efficiently and economically, we may be unable to find economical alternative means to manage our interest rate risk effectively, which could adversely affect our financial condition and results of operations.

Many of the derivative transactions that we enter into are required to be cleared through a third-party clearinghouse, which exposes us to credit risk to other parties that we do not have when transacting in the OTC market. In addition, many of the other derivatives that we continue to trade in the OTC market could eventually be subject to central clearing.

Business Volume

Loss of members or borrowers could adversely affect our earnings, which could result in lower investment returns and/or higher borrowing rates for remaining members.

One or more members or borrowers could withdraw their membership or decrease their business levels as a result of a merger with an institution that is not one of our members, or for other reasons, which could lead to a decrease in our total assets and capital.

As the financial services industry has consolidated, acquisitions involving some of our members have resulted in membership withdrawals or business level decreases. Additional acquisitions that lead to similar results are possible, including acquisitions in which the acquired institutions are merged into institutions located outside our district with which we cannot do business. We could also be adversely impacted by the reduction in business volume that would arise from the failure of one or more of our members.

25

As discussed in Item 1. Business — Legislative and Regulatory Developments, the Finance Agency has indicated that it will likely pursue actions to require that certain members have at least 10 percent of their assets in residential mortgage loans or equivalent mission assets (including assets that qualify as CFI collateral where appropriate) on an ongoing basis to remain eligible for FHLBank financing. These actions, if taken, could result in a loss of borrowers or a decrease in borrowings by members impacted by these restrictions.

The loss of one or more borrowers that represent a significant proportion of our business, or a significant reduction in the borrowing levels of one or more of these borrowers, could, depending on the magnitude of the impact, cause us to lower dividend rates, raise advances rates, attempt to reduce operating expenses (which could cause a reduction in service levels), or undertake some combination of these actions. The magnitude of the impact would depend, in part, on our size and profitability at the time such institution repays its advances to us.

Members’ funding needs may decline, which could reduce loan demand and adversely affect our earnings.

Market factors or regulatory changes could reduce loan demand from our member institutions, which could adversely affect our earnings. Since 2005, our quarter-end advances balances (at par value) have ranged from a low of $15.2 billion at March 31, 2014 to a high of $125.1 billion at March 31, 2023. High deposit levels and/or low demand for loans at member institutions could limit members’ needs for funding. A decline in the demand for advances, if significant, could negatively affect our results of operations.

We face competition for loan demand, which could adversely affect our earnings.

Our primary business is making advances to our members. We compete with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks, the Federal Reserve and, in certain circumstances, other FHLBanks. Our members have access to alternative funding sources, which may provide more favorable terms than we do on our advances, including more flexible credit or collateral standards.

The availability to our members of alternative funding sources that are more attractive than the funding products offered by us may significantly decrease the demand for our advances. Any change made by us in the pricing of our advances in an effort to compete more effectively with these competitive funding sources may reduce the profitability on advances. A decrease in the demand for advances or a decrease in our profitability on advances would negatively affect our financial condition and results of operations.

Alternatively, if we were to increase the pricing of our advances due to an increase in our debt costs or for any other reason, demand for our advances could decline, which would negatively affect our financial condition and results of operations.

Regulation

Changes in the regulatory environment could negatively impact our operations and financial results and condition.

We could be materially adversely affected by the adoption of new laws, policies, regulations or directives or changes in existing laws, policies, regulations or directives, including, but not limited to, changes in the interpretations or applications by the Finance Agency or as the result of judicial reviews that modify the present regulatory environment. For instance, since 2013, several housing reform proposals have been introduced by members of the U.S. Congress. It is not possible to determine if or when legislation regarding housing reform will be enacted, nor are the ultimate provisions of any such legislation determinable at this time. To the extent that legislation is enacted, it is possible that the FHLBanks could be impacted. Further, in recent years, the Finance Agency has taken a number of actions through regulations and other directives that have restricted or otherwise constrained how we manage and operate our business and it is possible that additional restrictions and/or constraints could be imposed upon us in the future. Among other things, these restrictions and constraints have limited our product offerings and investment activities.

On November 7, 2023, the Finance Agency issued a written report which sets forth the actions it intends to take or consider based on a review and analysis of the FHLBank System. The report, entitled FHLBank System at 100: Focusing on the Future, categorizes these actions under four broad themes: (1) mission of the FHLBank System; (2) stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure, and governance. The report set forth several actions that the Finance Agency will likely pursue, some of which could have a negative impact on our future business prospects, financial condition or results of operation. At this time, we are unable to predict what actions will ultimately result from the Finance Agency’s recommendations.

In addition, the regulatory environment affecting our members could change in a manner that could have a negative impact on their ability to own our stock or take advantage of our products and services.

For a discussion of recent legislative and regulatory developments, see Item 1. Business — Legislative and Regulatory Developments beginning on page 18 of this report.

26

Finance Agency authority to approve changes to our capital plan and to impose other restrictions and limitations on us and our capital management may adversely affect members.

Under Finance Agency regulations and our capital plan, amendments to the capital plan must be approved by the Finance Agency. However, amendments to our capital plan are not subject to member consent or approval. While amendments to our capital plan must be consistent with the FHLB Act and Finance Agency regulations, it is possible that they could result in changes to the capital plan that could adversely affect the rights and obligations of members.

Moreover, the Finance Agency has significant supervisory authority over us and may impose various limitations and restrictions on us, our operations, and our capital management as it deems appropriate to ensure our safety and soundness, and the safety and soundness of the FHLBank System. Among other things, the Finance Agency may impose higher capital requirements on us that might include, but not be limited to, the imposition of a minimum retained earnings requirement, and may suspend or otherwise limit stock repurchases, redemptions and/or dividends.

Limitations on our ability to pay dividends could result in lower investment returns for members.

Under Finance Agency regulations and our capital plan, we may pay dividends on our stock only out of unrestricted retained earnings or a portion of our current net earnings. However, if we are not in compliance with our minimum capital requirements or if the payment of dividends would make us noncompliant, we are precluded from paying dividends. In addition, we may not declare or pay a dividend if the par value of our stock is impaired or is projected to become impaired after paying such dividend. Further, we may not declare or pay any dividends in the form of capital stock if our excess stock is greater than one percent of our total assets or if, after the issuance of such shares, our outstanding excess stock would be greater than one percent of our total assets. Payment of dividends would also be suspended if the principal and interest due on any consolidated obligations issued on behalf of any FHLBank through the Office of Finance have not been paid in full or if we become unable to comply with regulatory liquidity requirements or satisfy our current obligations. In addition to these explicit limitations, it is also possible that the Finance Agency could restrict our ability to pay a dividend even if we have sufficient retained earnings to make the payment and are otherwise in compliance with the requirements for the payment of dividends.

Lack of a public market and restrictions on transferring our stock could result in an illiquid investment for the holder.

Under the Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), Finance Agency regulations, and our capital plan, our stock may be redeemed upon the expiration of a five-year redemption period following a redemption request. Only stock in excess of a member’s minimum investment requirement, stock held by a member that has submitted a notice to withdraw from membership, or stock held by a member whose membership has been terminated may be redeemed at the end of the redemption period. Further, we may elect to repurchase excess stock of a member at any time at our sole discretion.

There is no guarantee, however, that we will be able to redeem stock held by a shareholder even at the end of the redemption period. If the redemption or repurchase of the stock would cause us to fail to meet our minimum capital requirements, then the redemption or repurchase is prohibited by Finance Agency regulations and our capital plan. Likewise, under such regulations and the terms of our capital plan, we could not honor a member’s capital stock redemption notice if the redemption would cause the member to fail to maintain its minimum investment requirement. Moreover, because our stock may only be owned by our members (or, under certain circumstances, former members and certain successor institutions), and our capital plan requires our approval before a member may transfer any of its stock to another member, there can be no assurance that a member would be allowed to sell or transfer any excess stock to another member at any point in time.

We may also suspend the redemption of stock if we reasonably believe that the redemption would prevent us from maintaining adequate capital against a potential risk, or would otherwise prevent us from operating in a safe and sound manner. In addition, approval from the Finance Agency for redemptions or repurchases would be required if the Finance Agency or our Board of Directors were to determine that we have incurred, or are likely to incur, losses that result in, or are likely to result in, charges against our capital. Under such circumstances, there can be no assurance that the Finance Agency would grant such approval or, if it did, upon what terms it might do so. Redemption and repurchase of our stock would also be prohibited if the principal and interest due on any consolidated obligations issued on behalf of any FHLBank through the Office of Finance have not been paid in full or if we become unable to comply with regulatory liquidity requirements or satisfy our current obligations.

Accordingly, there are a variety of circumstances that would preclude us from redeeming or repurchasing our stock that is held by a member. Because there is no public market for our stock and transfers require our approval, there can be no assurance that a member’s purchase of our stock would not effectively become an illiquid investment.

Failure by a member to comply with our minimum investment requirement could result in substantial penalties to that member and could cause us to fail to meet our capital requirements.

Members must comply with our minimum investment requirement at all times. Our Board of Directors may increase the members’ minimum investment requirement within certain ranges specified in our capital plan. The minimum investment requirement may also be increased beyond such ranges pursuant to an amendment to the capital plan, which would have to be

27

adopted by our Board of Directors and approved by the Finance Agency. We would provide members with 30 days’ notice prior to the effective date of any increase in their minimum investment requirement. Under the capital plan, members are required to purchase an additional amount of our stock as necessary to comply with any new requirements or, alternatively, they may reduce their business activity with us (subject to any prepayment fees applicable to the reduction in activity) on or prior to the effective date of the increase. To facilitate the purchase of additional stock to satisfy an increase in the minimum investment requirement, the capital plan authorizes us to issue stock in the name of the member and to correspondingly debit the member’s demand deposit account maintained with us.

The GLB Act requires members to “comply promptly” with any increase in the minimum investment requirement to ensure that we continue to satisfy our minimum capital requirements. However, the Finance Agency's predecessor stated, when it published the final regulation implementing this provision of the GLB Act, that it did not believe this provision provides the FHLBanks with an unlimited call on the assets of their members. As a result, it is not clear whether we or our regulator would have the legal authority to compel a member to invest additional amounts in our capital stock.

Thus, while the GLB Act and our capital plan contemplate that members would be required to purchase whatever amounts of stock are necessary to ensure that we continue to satisfy our capital requirements, and while we may seek to enforce this aspect of the capital plan, our ability ultimately to compel a member, either through automatic deductions from a member’s demand deposit account or otherwise, to purchase an additional amount of our stock is not free from doubt.

Nevertheless, even if a member could not be compelled to make additional stock purchases, the failure by a member to comply with the stock purchase requirements of our capital plan could subject it to substantial penalties, including the possible termination of its membership. In the event of termination for this reason, we may call any outstanding advances to the member prior to their maturity and the member would be subject to any fees applicable to the prepayment.

Furthermore, if our members fail to comply with the minimum investment requirement, we may not be able to satisfy our capital requirements, which could adversely affect our operations and financial condition.

Our joint and several liability for all consolidated obligations may adversely impact our earnings, our ability to pay dividends, and our ability to redeem or repurchase capital stock.

Under the FHLB Act and Finance Agency regulations, we are jointly and severally liable with the other FHLBanks for the consolidated obligations issued by the FHLBanks through the Office of Finance regardless of whether we receive all or any portion of the proceeds from any particular issuance of consolidated obligations.

If another FHLBank were to default on its obligation to pay principal of or interest on any consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. In addition, the Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. Accordingly, we could incur significant liability beyond our primary obligation under consolidated obligations due to the failure of other FHLBanks to meet their payment obligations, which could negatively affect our financial condition and results of operations.

Further, the FHLBanks may not pay any dividends to members or redeem or repurchase any shares of stock unless the principal and interest due on all consolidated obligations has been paid in full. Accordingly, our ability to pay dividends or to redeem or repurchase stock could be affected not only by our own financial condition but also by the financial condition of one or more of the other FHLBanks.

An increase in our AHP contribution rate could adversely affect our ability to grow our retained earnings and/or pay dividends to our shareholders.

The FHLB Act requires each FHLBank to establish and fund an AHP. Annually, the FHLBanks are required to set aside, in the aggregate, the greater of $100 million or 10 percent of their current year’s income (before charges for AHP, as adjusted for interest expense on mandatorily redeemable capital stock) for their AHPs. If the FHLBanks’ combined income does not result in an aggregate AHP contribution of at least $100 million in a given year, we could be required to contribute more than 10 percent of our income to the AHP. As discussed in Item 1. Business — Legislative and Regulatory Developments, the Finance Agency has indicated that it will likely recommend that Congress consider amending the FHLBank Act to at least double the minimum required annual AHP contributions by the FHLBanks. A significant increase in our AHP contribution for any reason would reduce our net income and could limit our ability to grow our retained earnings and/or adversely affect our ability to pay dividends to our shareholders.

The terms of any liquidation, merger or consolidation involving us may have an adverse impact on members’ investments in us.

Under the GLB Act, holders of Class B Stock own our retained earnings, if any. With respect to liquidation, our capital plan provides that, after payment of creditors, all Class B Stock will be redeemed at par, or pro rata if liquidation proceeds are

28

insufficient to redeem all of the stock in full. Any remaining assets will be distributed to the shareholders in proportion to their stock holdings relative to the total outstanding Class B Stock.

Our capital plan also stipulates that its provisions governing liquidation are subject to the Finance Agency’s statutory authority to prescribe regulations or orders governing liquidations of a FHLBank, and that consolidations and mergers may be subject to any lawful order of the Finance Agency. We cannot predict how the Finance Agency might exercise its authority with respect to liquidations or reorganizations or whether any actions taken by the Finance Agency in this regard would be inconsistent with the provisions of our capital plan or the rights of holders of our Class B Stock. Consequently, there can be no assurance that any liquidation, merger or consolidation involving us will be consummated on terms that do not adversely affect our members’ investment in us.

General Risk Factors

A failure or interruption in our information systems or other technology may adversely affect our ability to conduct and manage our business effectively.

We rely heavily upon information systems and other technology to conduct and manage our business and deliver a very large portion of our services to members on an automated basis. Our operations rely on the secure processing, storage and transmission of confidential and other information in computer systems and networks. Computer systems, software and networks can be vulnerable to failures and interruptions, including "cyberattacks" (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) that could jeopardize the confidentiality or integrity of information, or otherwise cause interruptions or malfunctions in operations. Over time, cyberattacks have become more frequent, sophisticated, and increasingly difficult to detect or prevent. During periods of geopolitical conflict, the threat of cyberattacks may increase. To the extent that we experience a failure or interruption in any of our information systems or other technology, we may be unable to conduct and manage our business effectively, including, without limitation, our hedging and advances activities. We can make no assurance that we will be able to prevent or timely and adequately address any such failure or interruption. Any failure or interruption could significantly harm our customer relations, reputation, risk management, and profitability, which could negatively affect our financial condition and results of operations.

Failures of critical vendors or other third parties could disrupt our ability to conduct and manage our business

We rely on vendors and other third parties to perform certain critical services for us. A failure or interruption of one or more of these services, including as a result of human failings, failure to follow established protocols, breaches, cyberattacks, system malfunctions or failures, or other technological issues, could negatively affect our business operations. If one or more of these key external parties were not able to perform their functions for a period of time or at an acceptable service level, our operations could be constrained, disrupted, or otherwise negatively affected. Further, our use of vendors and other third parties also exposes us to the risk of a loss of data, intellectual property, or other confidential information, or other harm.

Our inability to attract and retain skilled labor could adversely affect our business and operations

We rely on key personnel to manage our business and conduct our operations. Competition for skilled labor from within and outside the financial services industry, including the technology sector, has often been intense. In addition, we experience competition for independent contractors, whom we currently rely on for software development projects. Further, as discussed in Item 1. Business - Legislative and Regulatory Developments, the Finance Agency has indicated that it will likely recommend the elimination of restrictions on its authority to prescribe levels or ranges for the compensation of FHLBank executive officers which, if enacted by Congress, could make it more difficult for us to attract and retain qualified executive officers. Our failure to attract and retain skilled personnel and/or independent contractors, or our failure to maintain effective succession plans for key positions, could adversely affect our business and operations.

A natural or man-made disaster or a pandemic, especially one affecting our region, could adversely affect our profitability and/or financial condition.

Portions of our district are subject to risks from hurricanes, tornadoes, floods and other natural disasters and the impact of climate change could increase the frequency of these events. Further, the entire district is subject to the risk of a pandemic. In addition to natural disasters, our business could also be negatively impacted by man-made disasters.

Natural or man-made disasters that occur within or outside our district may damage or dislocate our members’ facilities, may damage or destroy collateral pledged to secure advances or other extensions of credit, may adversely affect the livelihood of MPF borrowers or members’ customers or otherwise cause significant economic dislocation in the affected areas. If this were to occur, our business could be negatively impacted.

In the aftermath of a natural or man-made disaster or during or after a pandemic, significant borrower defaults on loans made by our members could occur and these defaults could cause members to fail. If one or more member institutions fail, and if the value of the collateral pledged to secure advances and/or other extensions of credit from us has declined below the amount borrowed, we could incur a credit loss that would adversely affect our financial condition and results of operations. A decline in

29

the local economies in which our members operate could reduce members’ needs for funding, which could reduce demand for our advances. We could be adversely impacted by the reduction in business volume that would arise either from the failure of one or more of our members or from a decline in member funding needs. In addition, it is possible that the protections we have in place for our MPF loans including, but not limited to, borrowers' equity, PMI, hazard insurance and, if applicable, flood insurance, along with MPF credit enhancements, may not be sufficient to prevent us from incurring losses on loans that are secured by properties located in areas that are affected by a natural or man-made disaster. Similarly, the protections we have in place for our MPF loans may not be sufficient to prevent us from incurring losses on loans to borrowers who are no longer able to make payments due to a decline in or loss of income as a result of the economic fallout from a disaster or pandemic.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 1C. CYBERSECURITY

The Bank relies heavily on its information systems and other technology to conduct and manage its business and, as a result, it is subject to cybersecurity threat risk. Cybersecurity threats include potential unauthorized occurrences on or conducted through the Bank’s information systems that may result in adverse effects on the confidentiality, integrity, or availability of its information systems or any information residing therein. Cybersecurity threat risks include, but are not limited to, malicious software or the exploitation of vulnerabilities, social engineering (e.g., phishing), denial-of-service attacks, viruses, and/or malware. As further described below, the Bank has implemented processes for assessing, identifying, and managing material risks from cybersecurity threats that are designed to protect the confidentiality, integrity, and availability of its information technology assets and data.

Cybersecurity Risk Management and Strategy

The Bank’s approach to cybersecurity risk management relies upon having the right people, processes, and technology in place to identify, protect, detect, respond, and recover from cybersecurity threats/incidents. The Bank’s cybersecurity program aligns with industry standards, specifically the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework and the NIST 800-53 control framework. The effectiveness of the Bank’s cybersecurity program is measured through internal and external audits, Finance Agency regulatory oversight and other third-party control and compromise assessments such as periodic penetration tests and various security assessments. In addition, the Bank’s cybersecurity program includes processes and technologies that enhance its ability to detect and respond to cybersecurity threats, including the use of automation, threat intelligence feeds, robust incident response procedures and frequent vulnerability scans and remediation. The Bank’s Vulnerability Management Group, which is comprised of members from Information Technology (“IT”) Security, IT Infrastructure and Operational Risk Management, meets regularly to discuss details of the Bank’s vulnerability management program including, but not limited to, current threats and vulnerabilities, patching status, upcoming technology changes, and current issues or concerns, if any.

The Bank’s IT Security Program and policies establish safeguards to protect data and information that is used by the Bank’s employees, independent contractors, and vendors. The goal of the Bank’s cybersecurity risk management processes is to maintain and safeguard the confidentiality and integrity of the Bank’s data, and to ensure system availability to protect against cybersecurity threats and vulnerabilities. The Bank maintains IT security policies that are reviewed at least annually and approved by the Bank’s Chief Information Officer (“CIO”), appropriate management committees and, for its critical policies, the Bank’s Board of Directors. To help ensure the effectiveness of the Bank’s IT security policies, all employees are required to participate in annual IT security training and to review and acknowledge the Bank’s IT security policies.

The Bank maintains an Enterprise Risk Management Framework which is updated and approved at least annually by its Board of Directors. The framework outlines the methodology and elements that are used to manage Bank-wide risks, including cybersecurity risks, and it assigns responsibilities for the Bank’s enterprise risk management. The Bank’s IT Security department measures cybersecurity risks by way of risk assessments that utilize a scale which includes both the likelihood and impact of risk occurrence. The scale used to measure likelihood and impact is tied to the criteria contained in the Bank’s Enterprise Risk Management Framework.

The Bank also maintains Incident Response policies and procedures that are invoked in the event of a security breach or incident and which provide, among other things, guidance for the purpose of managing and executing the appropriate level of communication to executive management, the Board of Directors, government agencies, and/or the Finance Agency.

The Bank has a Business Continuity Program that sets forth the actions that would be taken to recover business processes in a timely manner in the event of a disruption. The Bank regularly tests its Business Continuity Plan to ensure its relevance and viability. Representatives from the Bank’s Business Continuity team work closely with the Bank’s business units and IT to help ensure that critical resources are available in the event of an interruption. To ensure its preparedness, the Bank updates its

30

Business Continuity Plan semiannually. In addition, the Bank evaluates and analyzes threat scenarios, and it conducts periodic exercises to demonstrate the Bank’s ability to run production systems from an alternate location and to seamlessly return to using production systems at its primary operations centers.

The Bank’s vendors are subject to a formal vendor management process which includes an assessment of vendor risks (including cybersecurity risks) and ongoing monitoring. When warranted, the Bank seeks independent third-party reports related to the performance of its vendors, such as System and Organization Controls ("SOC") reports that are issued in accordance with Statement on Standards for Attestation Engagements No. 18.

While risks from cybersecurity threats have not materially affected nor are they currently expected to materially affect the Bank’s business strategy, financial condition or results of operations, the Bank has invested and expects to continue to invest significant resources to maintain and enhance its cybersecurity program.

Cybersecurity Governance

The Bank’s cybersecurity program is managed by its Chief Information Security Officer (“CISO”) with oversight from executive management and the Bank’s Board of Directors. The CISO reports to both the Bank’s CIO and its Chief Risk Officer (“CRO”).

The Bank’s CISO has over 20 years of experience serving in various IT roles, and he maintains a number of technology and cloud certifications, including the Certified Information Systems Security Professional certification.

The Bank’s IT Infrastructure team, led by the Director of Cloud Infrastructure, is responsible for the hands-on configuration and patch management of the Bank’s information systems to ensure the security, reliability, and availability of those systems. The team is comprised of information system and cloud professionals that hold various certifications in systems administration and cloud computing.

The Bank’s Operational Risk Oversight Committee (“OROC”), led by the CRO, provides oversight of the Bank’s operational risk, including cybersecurity risk. OROC meets quarterly and is comprised of senior leaders from the IT (including Security), Legal, Accounting, and Operational Risk Management departments, among others. In addition, matters of cybersecurity importance relating to specific IT projects are discussed and addressed in the Bank’s Information Technology Steering Committee, which is led by the CIO and is comprised of senior leaders from across the Bank.

The Bank’s CISO provides quarterly reports to OROC which include vulnerability management and security incident metrics, the status of security awareness training (including phish-testing results), and the status of any risk-accepted items and remediations. The quarterly reports also include any significant findings from audits, third-party security assessments, and penetration tests. Monthly, the CISO briefs the CRO, CIO, and the Bank’s Chief Executive Officer regarding any significant IT security items.

The Bank’s CISO periodically updates the Board of Directors regarding the Bank’s cybersecurity program, including current risks and metrics, the evolving external threat landscape and the results of the Bank’s security awareness training. The Risk Management Committee of the Board of Directors, the Board committee that is primarily responsible for the oversight of risks from cybersecurity threats, is briefed quarterly on cybersecurity risks and receives information and metrics that are similar to the information and metrics provided to OROC. In addition, the Board’s Strategic Planning, Operations and Technology Committee is briefed, as needed, on security matters relating to specific IT projects.

Monthly, the Board of Directors receives an IT status dashboard which includes, among other things, IT security metrics regarding phish-training and vulnerability management.

Annually, the CISO prepares the Bank’s Annual State of Security report which is provided to executive management, OROC, and the Board of Directors. The report provides data on, and insights into, the top security concerns facing the Bank, such as shifts in the threat landscape, high-priority threats, and trends affecting the banking industry, in addition to security-specific technology changes which have occurred during the current year that could impact the overall risk to the Bank. The report also includes an assessment of the upcoming threats that the Bank could potentially face over the course of the next year and includes recommendations designed to mitigate those threats.

ITEM 2. PROPERTIES

The Bank owns a 157,000 square foot office building located at 8500 Freeport Parkway South, Irving, Texas. The Bank occupies approximately 87,000 square feet of space in this building.

The Bank also maintains leased off-site business resumption, storage and co-location facilities comprising approximately 12,000, 5,000 and 500 square feet of space, respectively.

31

ITEM 3. LEGAL PROCEEDINGS

The Bank is not a party to any material pending legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

32

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Bank is a cooperative and all of its outstanding capital stock, which is known as Class B Stock, is owned by its members or, in some cases, by non-member institutions that acquire stock by virtue of acquiring member institutions, by a federal or state agency or insurer acting as a receiver of a closed institution, or by former members of the Bank that retain capital stock to support advances or other extensions of credit that remain outstanding or until any applicable stock redemption or withdrawal notice period expires. All members must hold stock in the Bank. All of the Bank’s shareholders are financial institutions; no individual may own any of the Bank’s capital stock. The Bank’s capital stock is not publicly traded, nor is there an established market for the stock. The Bank’s capital stock has a par value of $100 per share and it may be purchased, redeemed, repurchased and transferred only at its par value. By regulation, the parties to a transaction involving the Bank’s stock can include only the Bank and its member institutions (or non-member institutions or former members, as described above). While a member could transfer stock to another member of the Bank, such transfer could occur only upon approval of the Bank and then only at par value. Members may redeem excess stock, or withdraw from membership and redeem all outstanding capital stock, with five years' written notice to the Bank. The Bank does not issue options, warrants or rights relating to its capital stock, nor does it provide any type of equity compensation plan. As of March 12, 2024, the Bank had 795 shareholders and 46,461,235 shares of capital stock outstanding.

The Bank has two sub-classes of Class B stock. Class B-1 Stock is used to meet the membership investment requirement and Class B-2 Stock is used to meet the activity-based investment requirement. Daily, subject to the limitations in the Bank's Capital Plan, the Bank converts shares of one sub-class of Class B Stock to the other sub-class of Class B Stock under the following circumstances: (i) shares of Class B-2 Stock held by a shareholder in excess of its activity-based investment requirement are converted into Class B-1 Stock, if necessary, to meet that shareholder’s membership investment requirement and (ii) shares of Class B-1 Stock held by a shareholder in excess of the amount required to meet its membership investment requirement are converted into Class B-2 Stock as needed in order to satisfy that shareholder’s activity-based investment requirement. All excess stock is held as Class B-1 Stock at all times.

Subject to Finance Agency directives and the terms of the Amended JCE Agreement described below, the Bank is permitted by statute and regulation to pay dividends on members’ capital stock in either cash or capital stock only from previously retained earnings or a portion of current net earnings. The Bank’s Board of Directors may not declare or pay a dividend based on projected or anticipated earnings, nor may it declare or pay a dividend if the Bank is not in compliance with its minimum capital requirements or if the Bank would fail to meet its minimum capital requirements after paying such dividend (for a discussion of the Bank’s minimum capital requirements, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk-Based Capital Rules and Other Capital Requirements). Further, the Bank may not declare or pay any dividends in the form of capital stock if excess stock held by its shareholders is greater than one percent of the Bank’s total assets or if, after the issuance of such shares, excess stock held by its shareholders would be greater than one percent of the Bank’s total assets. Shares of capital stock issued as dividend payments have the same rights, obligations, and restrictions as all other shares of capital stock, including rights, privileges, and restrictions related to the repurchase and redemption of capital stock. To the extent such shares represent excess stock, they may be repurchased or redeemed by the Bank in accordance with the provisions of the Bank’s Capital Plan.

The Bank, and the other FHLBanks, are parties to the Amended JCE Agreement, which provides that the Bank (and each of the other FHLBanks) will, on a quarterly basis, allocate at least 20 percent of its net income to an RRE Account. Pursuant to the provisions of the Amended JCE Agreement, the Bank is required to build its RRE Account to an amount equal to one percent of its total outstanding consolidated obligations, which for this purpose is based on the most recent quarter’s average carrying value of all outstanding consolidated obligations, excluding hedging adjustments. The Amended JCE Agreement provides that during periods in which the Bank’s RRE Account is less than the amount prescribed in the preceding sentence, it may pay dividends only from unrestricted retained earnings or from the portion of its quarterly net income that exceeds the amount required to be allocated to its RRE Account. The allocations to, and restrictions associated with, its RRE Account have not had, nor are they currently expected to have, an effect on the Bank’s dividend payment practices. For additional information regarding the Amended JCE Agreement, see Item 1. Business — Capital — Retained Earnings.

The Bank has had a long-standing practice of paying quarterly dividends in the form of capital stock. During the years ended December 31, 2022 and 2021 and the three months ended March 31, 2023, quarterly dividends on Class B-1 Stock were paid at annualized rates that equaled average one-month LIBOR for the preceding quarters (the then current target dividend rate for Class B-1 Stock) while quarterly dividends on Class B-2 Stock were paid at annualized rates that equaled average one-month LIBOR for the preceding quarters plus 1.0 percent (the upper end of the Bank's then current target range for dividends on Class B-2 Stock). In anticipation of the discontinuance of one-month LIBOR after June 30, 2023, the Bank’s Board of Directors adopted new dividend target ranges for Class B-1 and Class B-2 Stock that became effective beginning with the dividends that

33

were paid in the second quarter of 2023, such that they are indexed to the average overnight SOFR rate. While there can be no assurances about future dividends or future dividend rates, the target range for quarterly dividends on Class B-1 Stock is an annualized rate that approximates the average overnight SOFR rate plus 0 – 0.5 percent and the target range for quarterly dividends on Class B-2 Stock is an annualized rate that approximates the average overnight SOFR rate plus 1.0 – 1.5 percent. Dividends are based upon shareholders' average capital stock holdings and the average benchmark index rate for the preceding quarter.

When stock dividends are paid, capital stock is issued in full shares and any fractional shares are paid in cash. Dividends are typically paid during the last week of each calendar quarter and are based upon the Bank’s operating results, shareholders’ average capital stock holdings and the applicable rate for the preceding quarter. All capital stock dividends are paid in the form of Class B-1 shares.

By way of example, the Bank’s fourth quarter 2023 dividends on Class B-1 Stock and Class B-2 Stock were paid at annualized rates of 5.34 percent (a rate equal to average overnight SOFR for the third quarter of 2023 plus 0.1 percent) and 6.34 percent (a rate equal to average overnight SOFR for the third quarter of 2023 plus 1.1 percent), respectively. The annualized dividend rates of 5.34 percent and 6.34 percent were applied to shareholders' average balances of Class B-1 Stock and Class B-2 Stock, respectively, which were held during the period from July 1, 2023 through September 30, 2023.

The following table sets forth certain information regarding the quarterly dividends that were declared and paid by the Bank during the years ended December 31, 2023 and 2022.

DIVIDENDS PAID

(dollars in thousands)

	2023				2022
	Amount(1)		Annualized Rate(3)		Amount(2)		Annualized Rate(3)
First Quarter	$	43,231	4.595	%	$	3,693	0.665	%
Second Quarter	65,837		5.372	%	4,368		0.794	%
Third Quarter	98,532		5.848	%	10,568		1.618	%
Fourth Quarter	88,314		6.096	%	22,587		3.068	%
Total Dividends Paid During the Period	$	295,914			$	41,216

____________________________________

(1)Amounts exclude (in thousands) $134, $86, $102 and $85 of dividends paid on mandatorily redeemable capital stock for the first, second, third and fourth quarters of 2023, respectively. For financial reporting purposes, these dividends were classified as interest expense.

(2)Amounts exclude (in thousands) $3, $6, $58 and $100 of dividends paid on mandatorily redeemable capital stock for the first, second, third and fourth quarters of 2022, respectively. For financial reporting purposes, these dividends were classified as interest expense.

(3)Reflects the annualized rate paid on all of the Bank’s average capital stock outstanding regardless of its classification for financial reporting purposes as either capital stock or mandatorily redeemable capital stock. Rates represent the blended rates paid on Class B-1 and Class B-2 stock (computed as the total dividend paid divided by the aggregate average balance of both classes of stock).

The following table sets forth the annualized dividend rates that were paid on Class B-1 and Class B-2 Stock during the years ended December 31, 2023 and 2022.

	2023		2022
	Class B-1	Class B-2	Class B-1	Class B-2
First Quarter	3.89%	4.89%	0.09%	1.09%
Second Quarter	4.60%	5.60%	0.23%	1.23%
Third Quarter	5.07%	6.07%	1.02%	2.02%
Fourth Quarter	5.34%	6.34%	2.47%	3.47%

On March 20, 2024, the Bank’s Board of Directors approved dividends on Class B-1 and Class B-2 Stock in the form of additional shares of Class B-1 Stock for the first quarter of 2024 at annualized rates of 5.42 percent (a rate equal to average overnight SOFR for the fourth quarter of 2023 plus 0.1 percent) and 6.42 percent (a rate equal to average overnight SOFR for the fourth quarter of 2023 plus 1.1 percent), respectively. The first quarter 2024 dividends, to be applied to average Class B-1

34

Stock and Class B-2 Stock held during the period from October 1, 2023 through December 31, 2023, will be paid on March 27, 2024.

The Bank has a retained earnings policy that calls for the Bank to maintain retained earnings in an amount at least sufficient to protect the par value of the Bank's capital stock against potential economic losses that could arise from a variety of designated risk factors, including those related to potential permanent losses, potential earnings shortfalls or losses in periodic earnings, and potential reductions in the Bank's estimated market value of equity. With certain exceptions, the Bank’s policy calls for the Bank to maintain its total retained earnings balance at or above its policy target when determining the amount of funds available to pay dividends. The Bank’s current retained earnings policy target, which was last updated as of December 31, 2023, calls for the Bank to maintain a total retained earnings balance of at least $642.7 million to protect against the risks identified in the policy. Notwithstanding the fact that the Bank’s December 31, 2023 retained earnings balance of $2.413 billion exceeds the policy target balance, the Bank currently expects to continue to build its retained earnings in keeping with its long-term strategic objectives and the provisions of the Amended JCE Agreement.

Pursuant to the terms of an SEC no-action letter dated September 13, 2005, the Bank is exempt from the requirements to report: (1) sales of its equity securities under Item 701 of Regulation S-K and (2) repurchases of its equity securities under Item 703 of Regulation S-K. In addition, the HER Act specifically exempts the Bank from periodic reporting requirements under the securities laws pertaining to the disclosure of unregistered sales of equity securities.

ITEM 6. RESERVED

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the annual audited financial statements and notes thereto for the years ended December 31, 2023, 2022 and 2021 beginning on page F-1 of this Annual Report on Form 10-K.

Forward-Looking Information

This annual report contains forward-looking statements that reflect current beliefs and expectations of the Bank about its future results, performance, liquidity, financial condition, prospects and opportunities. These statements are identified by the use of forward-looking terminology, such as “anticipates,” “plans,” “believes,” “could,” “estimates,” “may,” “should,” “would,” “will,” “might,” “expects,” “intends” or their negatives or other similar terms. The Bank cautions that forward-looking statements involve risks or uncertainties that could cause the Bank’s actual future results to differ materially from those expressed or implied in these forward-looking statements, or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, undue reliance should not be placed on such statements.

These risks and uncertainties include, without limitation, evolving economic and market conditions, political events, and the impact of competitive business forces. The risks and uncertainties related to evolving economic and market conditions include, but are not limited to, changes in interest rates, changes in the Bank’s access to the capital markets, changes in the cost of the Bank’s debt, changes in the ratings on the Bank's debt, adverse consequences resulting from a significant regional, national or global economic downturn (including, but not limited to, reduced demand for the Bank's products and services), credit and prepayment risks and changes in the financial health of the Bank’s members or non-member borrowers. Among other things, political events could possibly lead to changes in the Bank’s regulatory environment or its status as a GSE, or to changes in the regulatory environment for the Bank’s members or non-member borrowers. Risks and uncertainties related to competitive business forces include, but are not limited to, the potential loss of a significant amount of member borrowings through acquisitions or other means or changes in the relative competitiveness of the Bank’s products and services for member institutions. For a more detailed discussion of the risk factors applicable to the Bank, see Item 1A. Risk Factors. The Bank undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason.

Overview

The Bank serves eligible financial institutions in Arkansas, Louisiana, Mississippi, New Mexico and Texas (collectively, the Ninth District of the FHLBank System). The Bank’s primary business is lending relatively low cost funds (known as advances) to its member institutions, which include commercial banks, savings institutions, insurance companies and credit unions. Community Development Financial Institutions that are certified under the Community Development Banking and Financial Institutions Act of 1994 are also eligible for membership in the Bank. While not members of the Bank, housing associates, including state and local housing authorities, that meet certain statutory criteria may also borrow from the Bank. The Bank also maintains a portfolio of highly rated investments for liquidity purposes and to provide additional earnings. Additionally, the

35

Bank holds interests in a portfolio of mortgage loans that have been acquired through the MPF Program administered by the FHLBank of Chicago. Substantially all of the loans were acquired during the period from 2016 to 2023 and all of those loans are conventional loans. The remainder of the portfolio (less than 0.2 percent of the unpaid principal balance) is comprised of government-guaranteed/insured and conventional mortgage loans that were acquired during the period from 1998 to mid-2003. Shareholders’ return on their investment includes the value derived from access to the Bank’s products and services and, to a lesser extent, dividends (which are typically paid quarterly in the form of capital stock). Historically, the Bank has balanced the financial rewards to shareholders by seeking to pay a dividend that meets or exceeds the return on alternative short-term money market investments available to shareholders, while lending funds at the lowest rates expected to be compatible with that objective and its objective to build retained earnings over time.

The Bank's principal source of funds is debt issued in the capital markets. All 11 FHLBanks issue debt in the form of consolidated obligations through the Office of Finance as their agent and all 11 FHLBanks are jointly and severally liable for the repayment of all consolidated obligations.

The Bank conducts its business and fulfills its public purpose primarily by acting as a financial intermediary between its members and the capital markets. The intermediation of the timing, structure, and amount of its members’ credit needs with the investment requirements of the Bank’s creditors is made possible by the extensive use of interest rate exchange agreements, including interest rate swaps, swaptions and caps. For a discussion of the Bank's accounting policies for derivatives and hedging, see the sections below entitled “Financial Condition — Derivatives and Hedging Activities” and “Critical Accounting Policies and Estimates.”

Financial Market Conditions

In March 2020, the President of the United States declared the COVID-19 pandemic a national emergency. The extraordinary governmental response to the pandemic in 2020 resulted in significantly higher financial market liquidity and lower interest rates during 2020 and 2021, as compared to levels before the pandemic. Many factors, some of which have been attributed to the pandemic, led to significant inflation in the U.S. beginning in 2021. In order to combat higher inflation, the Federal Reserve changed its monetary policy in 2022 by significantly increasing short-term interest rates and beginning to reduce its holdings of Treasury securities, agency debt and agency MBS, as further discussed below. These policy actions continued into 2023. Economic growth was modest during 2023, but was to some extent negatively impacted by the higher level of interest rates and concerns about inflation and the possibility of a near-term recession. In addition, in March 2023, several U.S. banks experienced significant deposit outflows and financial difficulties, creating stress for the banking industry and the financial markets. The extent to which these concerns affect the Bank's business will depend on many factors that remain uncertain and difficult to predict.

The gross domestic product increased at an annual rate of 2.5 percent during 2023 according to the second estimate reported by the Bureau of Economic Analysis, after increasing at annual rates of 1.9 percent during the year ended December 31, 2022 and 5.8 percent during the year ended December 31, 2021. In January 2024, the Bureau of Labor Statistics reported that the U.S. unemployment rate was 3.7 percent at the end of 2023 compared to 3.5 percent at the end of 2022 and 3.9 percent at the end of 2021. The Bureau of Labor Statistics also reported that the unadjusted U.S. consumer price index ("CPI") increased 3.4 percent for the year ended December 31, 2023, compared to an increase of 6.5 percent for the year ended December 31, 2022 and an increase of 7.0 percent for the year ended December 31, 2021. The CPI is one of the primary measures of inflation in the U.S., and the peak CPI rate of 9.1 percent for the 12 months ended June 30, 2022 was the highest such measure in the preceding 40 years.

Throughout 2021, the Federal Open Market Committee ("FOMC") maintained the target for the federal funds rate at a range between 0 percent and 0.25 percent. In an effort to combat inflation, the FOMC increased its target for the federal funds rate in increments of 0.25 percent to 0.75 percent at each of its scheduled meetings from March 2022 through May 2023. In July 2023, the FOMC further raised its target for the federal funds rate to a current range between 5.25 percent and 5.50 percent. At its March 19/20, 2024 meeting, the FOMC noted that it will continue to monitor the implications of incoming information for the economic outlook. In considering any adjustments to the target range for the federal funds rate, the FOMC will carefully assess incoming data, the evolving outlook, and the balance of risks.

In 2020, in response to the instability caused by the COVID-19 pandemic, the FOMC stated that, to support the smooth functioning of markets for Treasury securities and agency MBS that are central to the flow of credit to households and businesses, it would increase its holdings of Treasury securities by at least $500 billion and its holdings of agency MBS by at least $200 billion and would reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. In March 2021, the FOMC further stated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency MBS by at least $40 billion per month until substantial further progress had been made toward the Committee’s maximum employment and price stability goals. At its scheduled meeting on November 2/3, 2021, the FOMC stated that, in light of the substantial further progress the economy had made toward the FOMC's goals since December 2020, it would begin reducing the monthly pace of its net asset purchases by $10 billion for

36

Treasury securities and $5 billion for agency MBS. Beginning in November 2021, the FOMC stated it would increase its holdings of Treasury securities by at least $70 billion per month (down from $80 billion per month) and of agency MBS by at least $35 billion per month (down from $40 billion per month). Beginning in December 2021, the FOMC would increase its holdings of Treasury securities by at least $60 billion per month and of agency MBS by at least $30 billion per month. On January 26, 2022, the FOMC announced that it would continue to reduce the monthly pace of its net asset purchases, bringing them to an end in March 2022. At its May 3/4, 2022 meeting, the FOMC announced that it would begin reducing its holdings of Treasury securities and agency debt and agency MBS on June 1, 2022. Beginning on that date, principal payments from its holdings of Treasury securities and agency debt and agency MBS are reinvested to the extent that they exceed monthly caps. For Treasury securities, the cap was initially set at $30 billion per month and after three months it was increased to $60 billion per month. For agency debt and agency MBS, the cap was initially set at $17.5 billion per month and after three months it was increased to $35 billion per month. At its March 19/20, 2024 meeting, the FOMC stated that these reductions would continue.

Due to the dramatic increase in volatility across the global capital markets that occurred in response to the COVID-19 pandemic, the Federal Reserve also undertook a number of other emergency actions. Notably, the Federal Reserve increased substantially its provision of liquidity to the repo and U.S. Treasury markets via open market operations while also providing liquidity to related markets, such as the commercial paper market, via an array of new programs, many of which expired on March 31, 2021. On July 28, 2021, the FOMC announced the establishment of two standing repurchase agreement facilities (a domestic facility and a repo facility for foreign and international monetary authorities), which are intended to support the effective implementation of monetary policy and smooth market functioning.

In response to the disruptions in the banking industry and financial markets, the Federal Reserve, on March 12, 2023, announced a plan to make available additional funding to eligible depository institutions to help ensure that they have the ability to meet the needs of all their depositors, through easier access to the discount window and the creation of a new Bank Term Funding Program. The Bank Term Funding Program ceased making new loans on March 11, 2024.

The following table presents information on various market interest rates at December 31, 2023 and 2022 and various average market interest rates for the years ended December 31, 2023, 2022 and 2021.

	Ending Rate		Average Rate
	December 31,	December 31,	For the Year Ended December 31,
	2023	2022	2023	2022	2021
Federal Funds Target (1)	5.50%	4.50%	5.20%	1.89%	0.25%
Average Effective Federal Funds Rate (2)	5.33%	4.33%	5.03%	1.69%	0.08%
Overnight SOFR (3)	5.38%	4.30%	5.01%	1.64%	0.04%
1-month SOFR (3)	5.34%	4.06%	4.97%	1.46%	0.04%
3-month SOFR (3)	5.36%	3.62%	4.86%	1.17%	0.04%
2-year SOFR (3)	4.07%	4.45%	4.53%	3.01%	0.23%
5-year SOFR (3)	3.53%	3.75%	3.83%	2.79%	0.73%
10-year SOFR (3)	3.47%	3.56%	3.66%	2.72%	1.21%
3-month U.S. Treasury (3)	5.40%	4.42%	5.28%	2.09%	0.04%
2-year U.S. Treasury (3)	4.23%	4.41%	4.58%	2.99%	0.27%
5-year U.S. Treasury (3)	3.84%	3.99%	4.06%	3.00%	0.86%
10-year U.S. Treasury (3)	3.88%	3.88%	3.96%	2.95%	1.45%

____________________________________

(1)Source: Bloomberg (reflects upper end of target range)

(2)Source: Federal Reserve Statistical Release

(3)Source: Bloomberg

2023 In Summary

•The Bank ended 2023 with total assets of $128.3 billion compared with $114.3 billion at the end of 2022. The $14.0 billion increase in total assets was attributable primarily to increases in the Bank's advances ($11.1 billion), long-term securities portfolio ($2.5 billion) and mortgage loans held for portfolio ($0.7 billion), partially offset by a decrease in its short-term liquidity portfolio ($0.5 billion)

•Total advances at December 31, 2023 were $80.0 billion, compared to $68.9 billion at the end of 2022.

37

•Mortgage loans held for portfolio increased from $4.4 billion at December 31, 2022 to $5.1 billion at December 31, 2023.

•The Bank’s net income for 2023 was $874.5 million, which represented a return on average capital stock of 15.42 percent. In comparison, the Bank's net income for 2022 was $317.2 million, which represented a return on average capital stock of 11.02 percent for that year. For discussion and analysis of the increase in net income, see the section entitled "Results of Operations" beginning on page 60 of this report.

•At all times during 2023, the Bank was in compliance with all of its regulatory capital requirements. In addition, the Bank’s total retained earnings increased to $2.413 billion at December 31, 2023 from $1.834 billion at December 31, 2022. Retained earnings represented 1.9 percent and 1.6 percent of total assets at December 31, 2023 and 2022, respectively. At December 31, 2023, the balance of the Bank's restricted retained earnings account was $505.1 million, representing 0.42 percent of the carrying value of its consolidated obligations (excluding hedging adjustments) at that date.

•In 2023, the Bank paid dividends totaling $295.9 million which, based on the applicable average capital stock balances, equated to an overall blended rate of 5.58 percent for the year. Based on its net income for the year, the dividend payout ratio was 33.84 percent.

38

Selected Financial Data

SELECTED FINANCIAL DATA

(dollars in thousands)

	Year Ended December 31,
	2023			2022			2021		2020			2019
Balance sheet (at year end)
Advances	$	79,951,855		$	68,921,869		$	24,637,464	$	32,478,944		$	37,117,455
Investments (1)	42,631,192			40,613,512			34,653,202		25,660,696			33,918,055
Mortgage loans	5,096,410			4,400,040			3,494,389		3,426,611			4,076,613
Allowance for credit losses on mortgage loans	7,768			4,865			3,124		3,925			1,149
Total assets	128,264,612			114,348,556			63,488,376		64,912,526			75,381,605
Consolidated obligations — discount notes	8,598,022			46,270,265			11,003,026		22,171,296			34,327,886
Consolidated obligations — bonds	109,536,207			59,946,458			44,514,220		37,112,721			35,745,827
Total consolidated obligations(2)	118,134,229			106,216,723			55,517,246		59,284,017			70,073,713
Mandatorily redeemable capital stock(3)	506			7,453			6,657		13,864			7,140
Capital stock — putable	4,737,388			3,984,105			2,192,504		2,101,380			2,466,242
Unrestricted retained earnings	1,907,882			1,504,236			1,291,656		1,174,359			1,038,533
Restricted retained earnings	505,101			330,210			266,761		233,886			194,144
Total retained earnings	2,412,983			1,834,446			1,558,417		1,408,245			1,232,677
Accumulated other comprehensive income	108,849			182,526			182,770		47,260			99,049
Total capital	7,259,220			6,001,077			3,933,691		3,556,885			3,797,968
Dividends paid(3)	295,914			41,216			14,205		38,589			75,923
Income statement
Net interest income after provision/reversal for mortgage loan losses(4)	$	1,017,913		$	479,672		$	277,547	$	309,979		$	293,175
Other income (loss)(4)	91,718			(25,446)			10,243		32,159			56,320
Other expense	137,974			101,713			105,147		121,342			96,965
AHP assessment	97,206			35,268			18,266		22,087			25,272
Net income	874,451			317,245			164,377		198,709			227,258
Performance ratios
Net interest margin(4)(5)	0.66		%	0.63		%	0.46%		0.43		%	0.41		%
Net interest spread (4)(6)	0.33		%	0.45		%	0.45%		0.39		%	0.28		%
Return on average assets	0.57		%	0.41		%	0.27%		0.28		%	0.32		%
Return on average equity	10.94		%	6.69		%	4.31%		5.41		%	5.96		%
Return on average capital stock (7)	15.42		%	11.02		%	7.72%		8.17		%	8.90		%
Total average equity to average assets	5.17		%	6.17		%	6.37%		5.11		%	5.35		%
Regulatory capital ratio(8)	5.58		%	5.09		%	5.92%		5.43		%	4.92		%
Dividend payout ratio (3)(9)	33.84		%	12.99		%	8.64%		19.42		%	33.41		%

39

____________________________________

(1)Investments consist of interest-bearing deposits, federal funds sold, securities purchased under agreements to resell and securities classified as held-to-maturity, available-for-sale and trading.

(2)The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all of the FHLBanks. At December 31, 2023, 2022, 2021, 2020 and 2019, the outstanding consolidated obligations (at par value) of all of the FHLBanks totaled approximately $1.204 trillion, $1.182 trillion, $0.653 trillion, $0.747 trillion and $1.026 trillion, respectively. As of those dates, the Bank’s outstanding consolidated obligations (at par value) were $119.8 billion, $109.1 billion, $55.8 billion, $59.2 billion and $70.1 billion, respectively. The Bank records on its statement of condition only that portion of the consolidated obligations for which it has received the proceeds.

(3)Mandatorily redeemable capital stock represents capital stock that is classified as a liability under U.S. GAAP. Dividends on mandatorily redeemable capital stock are recorded as interest expense and excluded from dividends paid. Dividends paid on mandatorily redeemable capital stock totaled $407 thousand, $167 thousand, $25 thousand, $110 thousand and $201 thousand for the years ended December 31, 2023, 2022, 2021, 2020 and 2019, respectively.

(4)Under U.S. GAAP, changes in the fair value of a derivative in a qualifying fair value hedge along with changes in the fair value of the hedged asset or liability attributable to the hedged risk (the net amount of which is referred to as fair value hedge ineffectiveness) are recorded in net interest income. Fair value hedge ineffectiveness increased (reduced) net interest income by ($83.1 million), ($5.7 million), $23.8 million, ($15.0 million) and ($17.9 million) for the years ended December 31, 2023, 2022, 2021, 2020 and 2019, respectively. Included in the fair value ineffectiveness amounts are price alignment amounts on cleared derivatives totaling ($73.7 million), ($15.8 million), $0.4 million, $3.9 million and $6.8 million for the years ended December 31, 2023, 2022, 2021, 2020 and 2019, respectively. For additional discussion, see the section entitled "Results of Operations" beginning on page 60 of this report.

(5)Net interest margin is net interest income as a percentage of average earning assets.

(6)Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(7)Return on average capital stock is derived by dividing net income by average capital stock balances excluding mandatorily redeemable capital stock.

(8)The regulatory capital ratio is computed by dividing regulatory capital (the sum of capital stock — putable, mandatorily redeemable capital stock and retained earnings) by total assets at each year-end.

(9)Dividend payout ratio is computed by dividing dividends paid by net income for the year.

(10)Rates obtained from the Federal Reserve Statistical Release.

(11)Rates obtained from Bloomberg.

Financial Condition

The following table provides selected period-end balances as of December 31, 2023, 2022 and 2021, as well as selected average balances for the years ended December 31, 2023, 2022 and 2021. As shown in the table, the Bank’s total assets increased by 12.2 percent (or $13.9 billion) during the year ended December 31, 2023 after increasing by 80.1 percent (or $50.9 billion) during the year ended December 31, 2022. The increase in total assets during the year ended December 31, 2023 was attributable primarily to increases in the Bank's advances ($11.0 billion), long-term securities portfolio ($2.5 billion) and mortgage loans held for portfolio ($0.7 billion), partially offset by a decrease in its short-term liquidity portfolio ($0.5 billion). As the Bank’s assets increased, the funding for those assets also increased. During the year ended December 31, 2023, total consolidated obligations increased by $11.9 billion, as consolidated obligation bonds increased by $49.6 billion and consolidated obligation discount notes decreased by $37.7 billion.

The increase in total assets during the year ended December 31, 2022 was attributable primarily to increases in the Bank's advances ($44.3 billion), short-term liquidity portfolio ($5.9 billion) and mortgage loans held for portfolio ($0.9 billion), partially offset by a decrease in the Bank's long-term securities portfolio ($0.5 billion). As the Bank’s assets increased, the funding for those assets also increased. During the year ended December 31, 2022, total consolidated obligations increased by $50.7 billion, as consolidated obligation discount notes increased by $35.3 billion and consolidated obligation bonds increased by $15.4 billion.

The activity in each of the major balance sheet captions is discussed in the sections following the table. Activity for the year ended December 31, 2021 is discussed in the Bank's Annual Report on Form 10-K for the year ended December 31, 2022 which was filed with the SEC on March 22, 2023 (the "2022 10-K").

40

SUMMARY OF CHANGES IN FINANCIAL CONDITION

(dollars in millions)

	December 31, 2023						December 31, 2022						Balance at December 31, 2021
			Increase (Decrease)						Increase (Decrease)
	Balance		Amount		Percentage		Balance		Amount		Percentage
Advances	$	79,952	$	11,030	16.0	%	$	68,922	$	44,285	179.7	%	$	24,637
Short-term liquidity holdings
Non-interest bearing excess cash balances (1)	—		—		—		—		(515)		(100.0)		515
Interest-bearing deposits	2,297		(723)		(23.9)		3,020		2,134		240.9		886
Securities purchased under agreements to resell	14,750		2,550		20.9		12,200		1,550		14.6		10,650
Federal funds sold	6,368		(3,416)		(34.9)		9,784		5,003		104.6		4,781
Trading securities
U.S. Treasury Notes	1,171		1,082		1,215.7		89		(8)		(8.2)		97
U.S. Treasury Bills	—		—		—		—		(2,250)		(100.0)		2,250
Total short-term liquidity holdings	24,586		(507)		(2.0)		25,093		5,914		30.8		19,179
Long-term investments
Trading securities (U.S. Treasury Note)	101		2		2.0		99		(9)		(8.3)		108
Available-for-sale securities	17,691		2,585		17.1		15,106		(182)		(1.2)		15,288
Held-to-maturity securities	253		(62)		(19.7)		315		(279)		(47.0)		594
Total long-term investments	18,045		2,525		16.3		15,520		(470)		(2.9)		15,990
Mortgage loans held for portfolio, net	5,089		694		15.8		4,395		904		25.9		3,491
Total assets	128,265		13,916		12.2		114,349		50,861		80.1		63,488
Consolidated obligations
Consolidated obligations — bonds	109,536		49,590		82.7		59,946		15,432		34.7		44,514
Consolidated obligations — discount notes	8,598		(37,672)		(81.4)		46,270		35,267		320.5		11,003
Total consolidated obligations	118,134		11,918		11.2		106,216		50,699		91.3		55,517
Mandatorily redeemable capital stock	1		(6)		(85.7)		7		—		—		7
Capital stock	4,737		753		18.9		3,984		1,791		81.7		2,193
Retained earnings	2,413		579		31.6		1,834		276		17.7		1,558
Average total assets	154,439		77,607		101.0		76,832		16,987		28.4		59,845
Average capital stock	5,672		2,794		97.1		2,878		748		35.1		2,130
Average mandatorily redeemable capital stock	6		(6)		(50.0)		12		4		50.0		8

____________________________________

(1)     Represents excess cash held at the Federal Reserve Bank of Dallas. These amounts are classified as "Cash and Due From Banks" in the Bank's statements of condition

41

Advances

The following table presents advances outstanding, by type of institution, as of December 31, 2023, 2022 and 2021.

ADVANCES OUTSTANDING BY BORROWER TYPE

(par value, dollars in millions)

	December 31,
	2023				2022				2021
	Amount		Percent		Amount		Percent		Amount		Percent
Savings institutions	$	36,893	46	%	$	20,105	29	%	$	1,880	8	%
Commercial banks	26,654		33		33,026		48		13,181		54
Insurance companies	8,952		11		7,882		11		6,814		28
Credit unions	7,599		10		8,273		12		2,396		10
Community Development Financial Institutions	28		—		24		—		25		—
Total member advances	80,126		100		69,310		100		24,296		100
Housing associates	117		—		106		—		116		—
Non-member borrowers	18		—		21		—		—		—
Total par value of advances	$	80,261	100	%	$	69,437	100	%	$	24,412	100	%
Total par value of advances outstanding to CFIs (1)	$	5,675	7	%	$	6,370	9	%	$	3,153	13	%

____________________________________

(1)The figures presented above reflect the advances outstanding to CFIs as of December 31, 2023, 2022 and 2021 based upon the definitions of CFIs that applied as of those dates.

The Bank's advances balances (at par value) increased by $10.8 billion (16 percent) during the year ended December 31, 2023. Demand for the Bank's advances was extraordinary during the first quarter of 2023, particularly during the five-day period from March 13, 2023 through March 17, 2023 in response to the turmoil in the banking industry and financial markets that was sparked by the financial difficulties experienced by some out-of-district depository institutions. The increase in the Bank's advances during this period was driven largely by demand from savings institutions and commercial banks as they sought to increase their liquidity levels. At March 31, 2023, advances outstanding totaled $125.1 billion. As market liquidity began to normalize in the second quarter, member demand moderated and, correspondingly, advances balances began to decline toward the end of that period (at June 30, 2023, advances outstanding totaled $109.9 billion) and this trend continued in the second half of 2023 with outstanding advances further declining to $80.3 billion by year end. Members with more than a $2.0 billion net increase in advances during 2023 were Charles Schwab Bank SSB ($14.0 billion), Comerica Bank ($4.4 billion) and USAA Federal Savings Bank ($2.5 billion). While advances demand is difficult to predict, the Bank currently expects that advances will likely continue to decline in 2024 in the absence of some type of destabilizing event.

The Bank's advances balances (at par value) increased by $45.0 billion (184 percent) during the year ended December 31, 2022. The increase in advances was spread broadly across the Bank's membership with demand particularly robust from commercial banks (increase of $19.8 billion or 151 percent), savings institutions (increase of $18.2 billion or 969 percent) and credit unions (increase of $5.9 billion or 245 percent). The Bank believes the increase in advances was due in part to a decline in members' liquidity levels and healthy demand for loans at member institutions. Some of the Bank's larger members also used advances to fund investment activities. Members with more than a $2.0 billion net increase in advances during 2022 were Charles Schwab Bank SSB ($10.0 billion), USAA Federal Savings Bank ($3.5 billion), Beal Bank USA ($3.4 billion), Comerica Bank ($3.2 billion), Cadence Bank ($3.1 billion) and Charles Schwab Premier Bank ($2.4 billion).

At December 31, 2023, advances outstanding to the Bank’s five largest borrowers totaled $45.4 billion, representing 56.6 percent of the Bank’s total outstanding advances as of that date.

42

The following table presents the Bank’s five largest borrowers as of December 31, 2023.

FIVE LARGEST BORROWERS AS OF DECEMBER 31, 2023

(par value, dollars in millions)

Name	Par Value of Advances		Percent of Total Par Value of Advances
Charles Schwab Bank, SSB	$	24,000	29.9	%
Comerica Bank	7,550		9.4
USAA Federal Savings Bank	6,000		7.5
American General Life Insurance Company	4,475		5.6
Beal Bank USA	3,400		4.2
	$	45,425	56.6	%

With outstanding advances of $2.4 billion as of December 31, 2023 (representing 3.0 percent of the Bank's total outstanding advances as of that date), Charles Schwab Premier Bank, SSB, an affiliate of Charles Schwab Bank, SSB, was the Bank's seventh largest borrower at year end 2023.

As of December 31, 2022 and 2021, advances outstanding to the Bank's five largest borrowers comprised $23.5 billion (33.9 percent) and $10.1 billion (41.4 percent), respectively, of the total advances portfolio at those dates.

The following table presents information regarding the composition of the Bank’s advances by product type as of December 31, 2023 and 2022.

ADVANCES OUTSTANDING BY PRODUCT TYPE

(par value, dollars in millions)

	December 31, 2023				December 31, 2022
	Balance		Percentage of Total		Balance		Percentage of Total
Fixed-rate	$	69,559	86.7	%	$	53,056	76.4	%
Adjustable/variable-rate indexed	9,685		12.1		15,480		22.3
Amortizing	1,017		1.2		901		1.3
Total par value	$	80,261	100.0	%	$	69,437	100.0	%

The Bank is required by statute and regulation to obtain sufficient collateral from members/borrowers to fully secure all advances and other extensions of credit. The Bank’s collateral arrangements with its members/borrowers and the types of collateral it accepts to secure advances are described in Item 1. Business. To ensure the value of collateral pledged to the Bank is sufficient to secure its advances, the Bank applies various haircuts, or discounts, to determine the value of the collateral against which borrowers may borrow. From time to time, the Bank reevaluates the adequacy of its collateral haircuts under a range of stress scenarios to ensure that its collateral haircuts are sufficient to protect the Bank from credit losses on advances and other extensions of credit.

In addition, as described in Item 1. Business, the Bank reviews the financial condition of its depository institution borrowers on at least a quarterly basis to identify any borrowers whose financial condition indicates they might pose an increased credit risk and, as needed, takes appropriate action. The Bank has not experienced any credit losses on advances since it was founded in 1932 and, based on its credit extension and collateral policies, management currently does not anticipate any credit losses on advances. Accordingly, the Bank has not provided any allowance for losses on advances.

Short-Term Liquidity Holdings

At December 31, 2023, the Bank’s short-term liquidity holdings were comprised of $14.7 billion of overnight reverse repurchase agreements (of which $11.1 billion was transacted with the Federal Reserve Bank of New York), $6.4 billion of overnight federal funds sold, $2.3 billion of overnight interest-bearing deposits and $1.2 billion of U.S. Treasury Notes. At December 31, 2022, the Bank’s short-term liquidity holdings were comprised of a $12.2 billion overnight reverse repurchase agreement transacted with the Federal Reserve Bank of New York, $9.8 billion of overnight federal funds sold, $3.0 billion of overnight interest-bearing deposits and a $0.1 billion U.S. Treasury Note. All of the Bank's federal funds sold during 2023 and 2022 were transacted with domestic bank counterparties, U.S. subsidiaries of foreign holding companies or U.S. branches of foreign financial institutions on an overnight basis. All of the Bank's interest-bearing deposits were transacted on an overnight basis with domestic bank counterparties or U.S. subsidiaries of foreign holding companies.

43

As of December 31, 2023, the Bank’s overnight federal funds sold consisted of $3.6 billion of funds sold to counterparties rated double-A and $2.8 billion of funds sold to counterparties rated single-A. At that same date, substantially all of the Bank's overnight interest-bearing deposits were held in single-A rated banks. The credit ratings presented in the two preceding sentences represent the lowest long-term rating assigned to the counterparty by Moody’s or S&P.

The amount of the Bank’s short-term liquidity holdings fluctuates in response to several factors, including the anticipated demand for advances, the timing and extent of advance prepayments, changes in the Bank’s deposit balances, the Bank’s pre-funding activities, prevailing conditions (or anticipated changes in conditions) in the short-term debt markets, the level of liquidity needed to satisfy Finance Agency requirements and the Finance Agency's expectations with regard to the Bank's core mission achievement. For a discussion of the Finance Agency’s liquidity requirements, see the section below entitled “Liquidity and Capital Resources.” For a discussion of the Finance Agency's guidance regarding core mission achievement, see Item 1. Business (specifically, the section entitled Core Mission Achievement beginning on page 11 of this report).

Finance Agency regulations and Bank policies govern the Bank’s investments in unsecured money market instruments, such as overnight and term federal funds and commercial paper. Those regulations and policies establish limits on the amount of unsecured credit that may be extended to borrowers or to affiliated groups of borrowers, and require the Bank to base its investment limits on the creditworthiness of its counterparties.

44

Long-Term Investments

The composition of the Bank's long-term investment portfolio at December 31, 2023 and 2022 is set forth in the table below.

COMPOSITION OF LONG-TERM INVESTMENT PORTFOLIO

(in millions)

	Balance Sheet Classification						Total Long-Term Investments (at carrying value)
December 31, 2023	Held-to-Maturity  (at carrying value)		Available-for-Sale (at fair value)		Trading (at fair value)				Held-to-Maturity (at fair value)
Debentures
U.S. government-guaranteed obligations	$	—	$	264	$	101	$	365	$	—
GSE obligations	—		3,115		—		3,115		—
Total debentures	—		3,379		101		3,480		—
MBS portfolio
GSE residential MBS	253		—		—		253		247
GSE commercial MBS	—		14,312		—		14,312		—
Total MBS	253		14,312		—		14,565		247
Total long-term investments	$	253	$	17,691	$	101	$	18,045	$	247
	Balance Sheet Classification						Total Long-Term Investments (at carrying value)
	Held-to-Maturity  (at carrying value)		Available-for-Sale  (at fair value)		Trading (at fair value)				Held-to-Maturity  (at fair value)
December 31, 2022
Debentures
U.S. government-guaranteed obligations	$	1	$	277	$	99	$	377	$	1
GSE obligations	—		3,169		—		3,169		—
Total debentures	1		3,446		99		3,546		1
MBS portfolio
GSE residential MBS	288		—		—		288		283
GSE commercial MBS	—		11,660		—		11,660		—
Non-agency residential MBS	26		—		—		26		30
Total MBS	314		11,660		—		11,974		313
Total long-term investments	$	315	$	15,106	$	99	$	15,520	$	314

45

The following table presents supplemental information regarding the maturities and yields of the Bank’s investments (at carrying value) as of December 31, 2023. Maturities are based on the contractual maturities of the securities. All of the Bank's available-for-sale securities are fixed rate securities, substantially all of which have been swapped to a variable rate. The yields presented in the table for available-for-sale securities reflect their contractual fixed rates. The weighted average yields are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the effect of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable portfolio.

AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES MATURITIES AND YIELDS

(dollars in thousands)

	Due In One Year Or Less		Due After One Year Through Five Years	Due After Five Years Through Ten Years	Due After Ten Years	Total
Maturities
Available-for-sale securities
U.S. government-guaranteed debentures	$	180,201	$