Table of Contents


	PART I

	~~PART I~~































Item 1.	Business	4

Item 1A.	Risk Factors	1719

Item 1B.	Unresolved Staff Comments	2225

Item 2.	Properties	2225

Item 3.	Legal Proceedings	2225

Item 4.	Mine Safety Disclosures	2225

	PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2326

Item 6.	Selected Financial Data	2427

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2528

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7577

Item 8.	Financial Statements and Supplementary Data

	Financial Statements for the Years Ended 2020, 2019, ~~2018,~~ and ~~2017~~2018	7677

	Notes to Financial Statements	8486

	Supplemental Financial Data	~~135~~141

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~136~~141

Item 9A.	Controls and Procedures	~~136~~141

Item 9B.	Other Information	~~136~~142

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	~~137~~142

Item 11.	Executive Compensation	~~142~~147

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~158~~161

Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~158~~162

Item 14.	Principal Accountant Fees and Services	~~160~~163

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	~~161~~164

Item 16.	Form 10-K Summary	~~162~~166

Signatures		~~163~~166

PART I

Special Cautionary Notice Regarding Forward Looking Information

This document contains forward-looking statements that describe the objectives, expectations, estimates, and assessments of the Federal Home Loan Bank of Cincinnati (the FHLB). These statements use words such as “anticipates,” “expects,” “believes,” “could,” “estimates,” “may,” and “should.” By their nature, forward-looking statements relate to matters involving risks or uncertainties, some of which we may not be able to know, control, or completely manage. Actual future results could differ materially from those expressed or implied in forward-looking statements or could affect the extent to which we are able to realize an objective, expectation, estimate, or assessment. Some of the risks and uncertainties that could affect our forward-looking statements include the following:

▪

the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions, inflation and deflation, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, and members' mergers and consolidations, deposit flows, liquidity needs, and loan demand;

▪the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions, inflation and deflation, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, and members' mergers and consolidations, deposit flows, liquidity needs, and loan demand;

▪

political, national or world events, including acts of war, terrorism, natural disasters, pandemics, or other catastrophic events, and legislative, regulatory, government, judicial or other developments that could affect us, our members, our counterparties, other Federal Home Loan Banks (FHLBanks) and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System or System) unsecured debt securities, which are called Consolidated Obligations (or Obligations);

▪political, national or world events, including acts of war, civil unrest, terrorism, natural disasters, climate change, pandemics, including the current COVID-19 pandemic, or other catastrophic events, and legislative, regulatory, government, judicial or other developments that could affect us, our members, our counterparties, other Federal Home Loan Banks (FHLBanks) and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System or System) unsecured debt securities, which are called Consolidated Obligations (or Obligations);


▪	~~competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;~~

▪competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;


▪	the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on favorable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;

▪the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on favorable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;


▪	~~changes in investor demand for Consolidated Obligations;~~

▪changes in investor demand for Consolidated Obligations;


▪	the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;

▪the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;


▪	uncertainties related to the expected phasing out of London InterBank Offered Rate (LIBOR) that could impact our mortgage-backed security (MBS) investments, Advances, Consolidated Obligations, derivatives, and collateral;

▪uncertainties related to the expected phasing out of London InterBank Offered Rate (LIBOR) that could impact our mortgage-backed security (MBS) investments, Advances, Consolidated Obligations, derivatives, and collateral;


▪	~~the ability to attract and retain skilled management and other key employees;~~

▪the ability to attract and retain skilled management and other key employees;


▪	~~the ability to develop, secure and support technology and information systems that effectively manage the risks we face (including cybersecurity risks);~~

▪the ability to develop, secure and support technology and information systems that effectively manage the risks we face (including cybersecurity risks);


▪	~~the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;~~

▪the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;


▪	~~the ability to successfully manage new products and services; and~~

▪the ability to successfully manage new products and services; and


▪	~~the risk of loss arising from litigation filed against us or one or more other FHLBanks.~~

▪the risk of loss arising from litigation filed against us or one or more other FHLBanks.

We do not undertake any obligation to update any forward-looking statements made in this document.


~~Item 1.~~	~~Business~~.

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Item 1.Business.

COMPANY INFORMATION

Company Background

The FHLB is a regional wholesale bank that serves the public interest by providing financial products and services to our members to fulfill a public-policy mission of supporting housing finance and community investment. We are part of the FHLBank System. Each of the 11 FHLBanks operates as a separate entity with its own stockholders, employees, Board of Directors, and business model. Our region, known as the Fifth District, comprises Kentucky, Ohio and Tennessee.

The U.S. Congress chartered the FHLBank System in the Federal Home Loan Bank Act of 1932 (the FHLBank Act) as a GSE to help provide liquidity and credit to the U.S. housing market and support home ownership. Promoting home ownership is a long-standing central theme of U.S. government policy. The System has a critical public-policy role as important national liquidity providers to mortgage lenders, particularly during stressful conditions when private-sector liquidity often proves unreliable.

The FHLBanks are not government agencies and the U.S. government does not guarantee, directly or indirectly, the debt securities or other obligations of the FHLBank System. Rather, the FHLBanks are GSEs, which combine private sector ownership with public sector sponsorship. In addition, the FHLBanks are cooperative institutions, privately and wholly owned by stockholders who are also the primary customers.

The FHLBank System also includes the Federal Housing Finance Agency (Finance Agency) and the Office of Finance. The Finance Agency is an independent agency in the executive branch of the U.S. government that regulates the FHLBanks, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Office of Finance. The Office of Finance is a joint office of the FHLBanks that facilitates the issuance and servicing of the FHLBank System's Consolidated Obligations.

All federally insured depository institutions, certain insurance companies, and community development financial institutions chartered in the Fifth District may voluntarily apply for membership in our FHLB. Applicants must satisfy membership requirements in accordance with statutes and Finance Agency regulations. These requirements deal primarily with home financing activities, satisfactory financial condition such that Advances may be made safely, and matters related to the regulatory, supervisory and management oversight of the applicant. By law, an institution is permitted to apply for membership in only one FHLBank, although a holding company may have memberships in more than one FHLBank through its subsidiaries. At December 31, 2020, we had 628 members.

The combination of public sponsorship and private ownership that drives our business model is reflected in the composition of our ~~18-member~~17-member Board of Directors, all of whom members elect. Ten directors are officers and/or directors of our member institutions, while the remaining directors are Independent directors who represent the public interest.

At December 31, 2019, we had 640 members, 233 full-time employees, and one part-time employee. Our employees are not represented by a collective bargaining unit. We consider our relationship with our employees to be good.

Our internet address is www.fhlbcin.com. Information on our website is not incorporated by reference into this report.

Mission and Corporate Objectives

Our mission is to provide member-stockholders with financial services and a competitive return on their capital investment to help them facilitate and expand housing finance and community investment and achieve their objectives for liquidity and asset liability management.

How We Achieve the Mission

We achieve our mission through a cooperative business model. We raise private-sector capital from member stockholders and issue low-cost high-quality debt in the global capital markets jointly with other FHLBanks. The capital and proceeds from debt issuance enable us to provide members services—primarily, access to liquidity via reliable, readily available, and low-cost sources of funding to support their business activities including affordable housing and community investment. Another

important member service is that we offer a program to purchase certain mortgage loans, which provides members liquidity and helps them reduce market risk. Additionally, we provide a competitive return on members' capital investment in our company.

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Our ability to best perform our mission depends on having a membership base that is an essential component of the nation’s housing and mortgage finance systems. We focus closely on fulfilling our mission for members who are community financial institutions, who we believe typically rely more on us for access to liquidity and mortgage markets compared with larger members. At the same time, we value having large members who are active borrowers because they provide the System the ability to consistently issue large amounts of debt, which helps ensure the debt has a relatively low cost, benefiting all members.

The primary products we offer, which we call Mission Assets, are readily available low-cost loans called Advances, purchases of certain whole mortgage loans sold by qualifying members through the Mortgage Purchase Program (MPP), and Letters of Credit. We also offer affordable housing programs and related activities to support members in their efforts to assist very low-, low- and moderate-income households and their local communities. To a more limited extent, we also have several correspondent services that assist members in operational administration.

The primary way we obtain funding is through participation in the issuance of the FHLBank System's Consolidated Obligations in the global capital markets. Secondary sources of funding are capital and deposits we accept from our members. A critical component of the success of the FHLBank System is its ability to maintain a comparative advantage in funding, which due to its GSE status, confers an implied guarantee from the U.S. federal government, low risk operations, and joint and several liability across the 11 FHLBanks. We regularly issue Obligations with a wide range of maturities, structures, and amounts, and at relatively favorable spreads to benchmark market interest rates (such as U.S. Treasury securities, LIBOR, Federal funds effective, and the Secured Overnight Financing Rate (SOFR)) compared with many other financial institutions.

Because we are a cooperative organization with some members using our products more heavily than others and members having different percentages of capital stock, we must achieve a balance in generating membership value from product prices and characteristics and paying a competitive dividend rate. We attempt to achieve this balance by pricing Mission ~~Asset Activity~~Assets at relatively narrow spreads over funding costs, compared with other financial institutions, while still achieving acceptable profitability. Our cooperative ownership structure and deep access to debt markets allow our business to be scalable and self-capitalizing without taking undue risks, diminishing capital adequacy, or jeopardizing profitability.

Our franchise value is derived from the synergies brought by the various components of our business model, including the public-policy mandate, GSE status, cooperative ownership structure, consistent ability to issue large amounts of debt at favorable funding costs, and mechanisms of providing housing finance liquidity through products and services to financial institutions rather than directly to homeowners.

Corporate Objectives

Our corporate objectives, listed below, are intended to promote housing finance among members and ensure our operations and governance are effective and efficient.

▪

▪Mission Asset Activity: Implement strategies and tactics and effectively manage operations to promote members’ usage of Mission Assets and stand ready at all times to provide liquidity to members.

▪Stock Return: Earn adequate profitability so that members receive a competitive long-term dividend on their capital stock investment.

▪Housing and Community Investment Programs: Maintain effective housing and community investment programs and offer targeted voluntary assistance programs.

▪Safe and Sound Operations:Optimize our counterparty and deposit ratings, achieve an acceptable rating on annual examinations, and have an adequate amount and composition of capital.

▪Risk Management: Employ effective risk optimization management practices and maintain risk exposures at low to moderate levels.

▪Governance: Operate in accordance with effective corporate governance processes that emphasize compliance and consider the interest of all stakeholders (members, stockholders, employees, creditors, housing partners, and regulators).

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▪	~~Stock Return:~~ ~~Earn adequate profitability so that members receive a competitive long-term dividend on their capital stock investment.~~


▪	~~Housing and Community Investment Programs:~~ ~~Maintain effective housing and community investment programs and offer targeted voluntary assistance programs.~~


▪	~~Safe and Sound Operations:Optimize our counterparty and deposit ratings, achieve an acceptable rating on annual examinations, and have an adequate amount and composition of capital.~~


▪	~~Risk Management:~~ ~~Employ effective risk optimization management practices and maintain risk exposures at low to moderate levels.~~


▪	~~Governance:~~ Operate in accordance with effective corporate governance processes that emphasize compliance and consider the interest of all stakeholders (members, stockholders, employees, creditors, housing partners, and regulators).

Business Activities

Mission Asset Activity

The following are our principal business activities with members:


▪	~~We lend readily-available, competitively-priced, and fully-collateralized Advances.~~

▪We lend readily-available, competitively-priced, and fully-collateralized Advances.


▪	~~We issue collateralized Letters of Credit.~~

▪We issue collateralized Letters of Credit.


▪	~~We purchase qualifying residential mortgage loans through the MPP and hold them on our balance sheet.~~

▪We purchase qualifying residential mortgage loans through the MPP and hold them on our balance sheet.

Together, these product offerings constitute “Mission Asset Activity.” We refer to Advances and Letters of Credit as Credit Services.

Affordable Housing and Community Investment

In addition, through various Housing and Community Investment programs, we assist members in serving very low-, low-, and moderate-income households and community economic development. These programs provide Advances at below-market rates of interest, as well as direct grants.

Investments

To help us achieve our mission and corporate objectives, we invest in highly-rated debt instruments of financial institutions and the U.S. government and in mortgage-related securities. In practice, these investments normally include liquidity instruments and longer-term MBS, as permitted by Finance Agency regulation. Investments provide liquidity, help us manage market risk exposure, enhance earnings, and through the purchase of mortgage-related securities, support the housing market.

Sources of Earnings

Our major source of revenue is interest income earned on Advances, MPP loans, and investments.

Major items of expense are:


▪	~~interest paid on Consolidated Obligations and deposits to fund assets;~~

▪interest paid on Consolidated Obligations and deposits to fund assets;


▪	~~costs of providing below-market-cost Advances and direct grants and subsidies under the Affordable Housing Program; and~~

▪costs of providing below-market-cost Advances and direct grants and subsidies under the Affordable Housing Program; and


▪	~~non-interest expenses.~~

▪non-interest expenses.

The largest component of earnings is net interest income, which equals interest income minus interest expense. We derive net interest income from the interest rate spread earned on assets versus funding costs and the ~~use of financial leverage.~~earnings from funding assets with capital. Each of these can vary over time with changes in market conditions, including most importantly interest rates, business conditions and our risk management activities.

We believe members' capital investment is comparable to investing in adjustable-rate preferred equity instruments. Therefore, we structure our balance sheet risk exposures so that earnings tend to move in the same direction as changes in short-term market rates, which can help provide a degree of predictability for dividend returns.

Capital

Due to our cooperative structure, we obtain capital from members. Each member must own capital stock as a condition of membership and normally must acquire additional stock above the membership stock amount in order to gain access to Mission Assets. Acquiring capital in connection with growth in Mission Assets ensures that these assets are self-capitalizing. We issue, redeem, and repurchase capital stock only at its stated par value of $100 per share. By law, our stock is not publicly traded.

We also maintain an amount of capital to ensure we meet all of our regulatory and business requirements relating to capital adequacy and protection of creditors against losses. We hold retained earnings to protect members' stock investment against impairment risk and to help stabilize dividend payments when earnings may be volatile.

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Tax Status

We are exempt from all federal, state, and local taxation other than real property taxes. Any cash dividends we issue are taxable to members and do not benefit from the corporate dividends received exclusion. Notes 1 and 1410 of the Notes to Financial Statements provide additional details regarding the assessment for the Affordable Housing Program.

Ratings of Nationally Recognized Statistical Rating Organizations

The FHLBank System's comparative advantage in funding is acknowledged in its excellent credit ratings from nationally recognized statistical rating organizations (NRSROs). Moody's Investors Service (Moody's) currently assigns, and historically has assigned, the System's Consolidated Obligations the highest ratings available: long-term debt is rated Aaa and short-term debt is rated P-1. It also assigns a Prime-1 short-term bond rating on each FHLBank. It affirmed these ratings in ~~2019~~2020 and maintained a stable outlook. In ~~2019,~~2020, Standard & Poor's affirmed its issuer credit ratings on each FHLBank and its AA+ ratings on the System's senior debt and also maintained a stable outlook. The ratings closely follow the U.S. sovereign ratings from both agencies.

The agencies' rationales for their ratings of the System and our FHLB include the System's status as a GSE; the joint and several liability for Obligations; excellent overall asset quality; extremely strong capacity to meet commitments to pay timely principal and interest on debt; strong liquidity; conservative use of derivatives; adequate capitalization relative to our risk profile; a stable capital structure; and the fact that no FHLBank has ever defaulted on repayment of, or delayed return of principal or interest on, any Obligation.

A credit rating is not a recommendation to buy, sell or hold securities. A rating organization may revise or withdraw its ratings at any time, and each rating should be evaluated independently of any other rating. We cannot predict what future actions, if any, a rating organization may take regarding the System's or our ratings.

Regulatory Oversight

Our business is subject to extensive regulation and supervision. The laws and regulations to which we are subject cover all key aspects of our business, and directly and indirectly affect our product and service offerings, pricing, competitive position and strategic plan, relationship with members and third parties, capital structure, cash needs and uses, and information security. As discussed throughout this document, such laws and regulations can have a significant effect on key drivers of our results of operations, including, for example, our capital and liquidity, product and service offerings, risk management, and costs of compliance.

The Finance Agency ~~is headed by a Director who~~ has regulatory authority ~~to promulgate regulations~~over the FHLBanks and ~~to make other decisions. The Finance Agency~~ is charged with ensuring that each FHLBank carries out its housing and community development finance mission, remains adequately capitalized, operates in a safe and sound manner, and complies with Finance Agency regulations. The Finance Agency is headed by a Director who has authority to promulgate regulations and to make other decisions.

To carry out these responsibilities, the Finance Agency conducts ~~on-site~~ examinations of each FHLBank at least annually, as well as periodic ~~on- and off-site~~ reviews, and receives monthly information on each FHLBank's financial condition and operating results. While an individual FHLBank has substantial discretion in governance and operational structure, the Finance Agency maintains broad supervisory and regulatory authority. In addition, the Comptroller General has authority to audit or examine the Finance Agency and the FHLBanks, to decide the extent to which the FHLBanks fairly and effectively fulfill the purposes of the FHLBank Act, and to review any audit, or conduct its own audit, of the financial statements of an FHLBank.

BUSINESS SEGMENTS

We manage the development, resource allocation, product delivery, pricing, credit risk management, and operational administration of our Mission Asset Activity in two business segments: Traditional Member Finance and the MPP. Traditional Member Finance includes Credit Services, Housing and Community Investment, Investments, some correspondent and deposit services, and other financial products of the FHLB. See the “Segment Information” section of “Results of Operations” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1814 of the Notes to Financial Statements for more information on our business segments, including their results of operations.

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Traditional Member Finance

Credit Services

Advances. Advances are competitively priced sources of funds available for members to help manage their asset/liability and liquidity needs. Advances can both complement and be alternatives to retail deposits, other wholesale funding sources, and corporate debt issuance. We strive to facilitate efficient, fast, and continuous member access to funds. In most cases, members can access funds on a same-day basis.

We price a variety of standard Advance programs every business day and several other standard programs on demand. We also offer customized, non-standard Advances. Having diverse programs gives members the flexibility to choose and customize their borrowings according to size, maturity, interest rate, interest rate index (for adjustable-rate coupons), interest rate options, and other features.

Repurchase based (REPO) Advances are short-term, fixed-rate instruments structured similarly to repurchase agreements from investment banks, with one principal difference. Members collateralize their REPO Advances through our normal collateralization process, instead of being required to pledge specific securities as would be required in a typical repurchase agreement. A majority of REPO Advances outstanding have overnight maturities.

Adjustable-rate Advances have interest rates typically priced off benchmark rate indices such as ~~LIBOR~~SOFR, or ~~SOFR.~~historically LIBOR. Adjustable-rate Advances may be structured at the member's option as either prepayable with a fee or prepayable without a fee if the prepayment is made on a repricing date.

Regular Fixed-Rate Advances have terms of 3 months to 30 years, with interest normally paid monthly and principal repayment normally at maturity. Members may choose to purchase call options on these Advances, although in the last several years, balances with call options have been at or close to zero.

Putable Advances are fixed-rate Advances that provide us an option to terminate the Advance, usually after an initial “lockout” period. Most have long-term original maturities. Selling us these options enables members to secure lower rates on Putable Advances compared to Regular Fixed-Rate Advances with the same final maturity.

Mortgage-Related Advances are fixed-rate, amortizing Advances with final maturities of 5 to 30 years. Some of these Advances, at the choice of the member, provide members with prepayment options without fees.

We also offer various other Advance programs that have smaller outstanding balances.

Letters of Credit. Letters of Credit are collateralized contractual commitments we issue on a member's behalf to guarantee its performance to third parties. A Letter of Credit may obligate us to make direct payments to a third party, in which case it is treated as an Advance to the member. The most popular use of Letters of Credit is as collateral supporting public unit deposits, which are deposits held by governmental units at financial institutions. We normally earn fees on Letters of Credit based on the actual average amount of the Letters utilized, which generally is less than the notional amount issued.

How We Manage Risks of Credit Services. We manage market risk from Advances by funding them with Consolidated Obligations and interest rate swaps that have similar interest rate risk characteristics as the Advances. The net effect is that in practice we mitigate nearly all of the market risk exposure associated with Advances.

In addition, for many, but not all, Advance programs, Finance Agency regulations require us to charge members prepayment fees for early termination of principal when the early termination results in an economic loss to us. We determine prepayment fees using standard present-value calculations that make us economically indifferent to the prepayment. The prepayment fee equals the present value of the estimated profit that we would have earned over the remaining life of the prepaid Advance. If a member prepays principal on an Advance that we have hedged with an interest rate swap, we may also assess the member a fee to compensate us for the cost we incur in terminating the swap before its stated final maturity. Some Advance programs are structured as non-prepayable and may have additional restrictions in order to terminate.

We manage credit risk on Advances by requiring each member to supply us with a security interest in eligible collateral that in the aggregate has estimated value in excess of the total Advances and Letters of Credit. Collateral is comprised mostly of ~~single-family loans,~~single- and multi-family residential loans, commercial real estate loans, home equity loans, government guaranteed loans and bond securities. The combination of conservative collateral policies and risk-based credit underwriting activities mitigates virtually all potential credit risk associated with Advances and Letters of Credit. We have never experienced a credit loss on

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Advances, nor have we ever determined it necessary to establish a loan loss reserve for Advances. "Quantitative and Qualitative Disclosures About Risk Management” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and ~~Notes 8 and 10~~Note 5 of the Notes to Financial Statements ~~have~~provide more detail on our credit risk management of member borrowings.

Housing and Community Investment

accrual equal to 10 percent of our previous year's net earnings, mandated by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. See Note 1410 of the Notes to Financial Statements for a complete description of the Affordable Housing Program calculation.

The Affordable Housing Program provides funding for the development of affordable housing. The Program consists of a Competitive Program and a homeownership program called Welcome Home, which assists homebuyers with down payments and closing costs. Under the Competitive Program, we currently distribute funds in the form of grants to members that apply and successfully compete in an annual offering. Under Welcome Home, we make funds available beginning in March until they have been fully committed. For both programs, the income of qualifying individuals or households must be 80 percent or less of the area median income. We set aside up to 35 percent of the Affordable Housing Program accrual for Welcome Home and allocate the remainder to the Competitive Program.

Our Board of Directors also may allocate funds to voluntary housing programs. In ~~2019,~~2020, the Board re-authorized an additional ~~$2.1~~$2.0 million to the Carol M. Peterson Housing Fund for use during the year. ~~In January 2020, the Board authorized $2.0 million to this fund for use in 2020.~~ These funds are primarily used as grants to pay for accessibility rehabilitation and emergency repairs for special needs and elderly homeowners. In 2012, the Board of Directors also established the Disaster Reconstruction Program, a voluntary housing program that provides grants for purchase or rehabilitation of a home within the Fifth District for residents that have suffered loss or damage to their primary residence as a result of a state or federally declared disaster. Since the program's inception, we have disbursed over ~~$3.9~~$4.7 million to assist ~~275~~378 households. Furthermore, in support of our members during the COVID-19 pandemic, we created a new Advance program that offered Advances with terms up to six months at zero percent interest to members between May 1, 2020 and September 30, 2020. These Advances supported COVID-19 related assistance made by all Fifth District members. In 2020, we issued a total of $183 million of these Advances of which $34 million remained outstanding at December 31, 2020.

Two other housing programs that fall outside the auspices of the Affordable Housing Program are the Community Investment Program and the Economic Development Program. Advances under the former program have rates equal to our cost of funds, while Advances under the latter program have rates equal to our cost of funds plus ~~three basis points.~~reasonable administrative costs. Members use the Community Investment Program to serve housing needs of low- and moderate-income households and, under certain conditions, community economic development projects. The Economic Development Program is a discounted Advance program used to promote economic development and job creation and retention.

Investments

Types of Investments. A primary reason we hold investments is to carry sufficient asset liquidity. Permissible liquidity investments include Federal funds, certificates of deposit, bank notes, bankers' acceptances, commercial paper, securities purchased under agreements to resell, and debt securities issued by the U.S. government, its agencies, or other GSE's. The first five categories represent unsecured lending to private counterparties. We also may place deposits with the Federal Reserve Bank. We are prohibited by Finance Agency regulations from investing (secured or unsecured) in financial investments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. Many liquidity investments have short-term maturities.

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Subject to regulatory limitations on purchases of new LIBOR-based investments, we are also permitted by regulation to purchase the following other investments, which have longer original maturities than liquidity investments:


▪	~~MBS and collateralized mortgage obligations (together, referred to as MBS) issued by GSEs or private issuers;~~

▪MBS and collateralized mortgage obligations (together, referred to as MBS) issued by GSEs, other U.S. government agencies or private issuers;


▪	~~asset-backed securities collateralized by manufactured housing loans or home equity loans issued by GSEs or private issuers; and~~

▪asset-backed securities collateralized by manufactured housing loans or home equity loans issued by GSEs or private issuers; and


▪	marketable direct obligations of certain government units and agencies (such as state housing finance agencies) that supply needed funding for housing or community lending and that do not exceed 20 percent of our regulatory capital.

▪marketable direct obligations of certain government units and agencies (such as state housing finance agencies) that supply needed funding for housing or community lending and that do not exceed 20 percent of our regulatory capital.

We have never purchased asset-backed securities and do not own any privately-issued MBS.

Per Finance Agency regulations, the total investment in MBS and asset-backed securities may not exceed ~~on a book value basis,~~ 300 percent of previous month-end regulatory capital on the day we purchase the securities. See the “Capital Resources” section below for the definition of regulatory capital.

Purposes of Having Investments. The investments portfolio helps achieve corporate objectives in the following ways:

▪

▪Liquidity management. Liquidity investments support the ability to fund assets on a timely basis, especially Advances, and when it may be more difficult to issue new debt. These investments supply liquidity because we normally fund them with longer-term debt than asset maturities. We also may be able to obtain liquidity by selling certain investments for cash without a significant loss of value.

▪Earnings enhancement. The investments portfolio, especially MBS, assists with earning a competitive return on capital, and increasing funding for Housing and Community Investment programs. In addition, liquidity investments help stabilize earnings because they typically earn a relatively stable spread to the cost of debt issued to fund them.

▪Management of debt issuance. Maintaining a short-term liquidity investment portfolio can help us participate in attractively priced debt issuances, on an opportunistic basis. We can temporarily invest proceeds from debt issuances in short-term liquid assets and quickly access them to fund demand for Mission Asset Activity, rather than having debt issuances dictated solely by the timing of member demand.

▪Support of housing market. Investment in MBS and state housing finance agency bonds directly supports the residential mortgage market by providing capital and financing for mortgages.

. Liquidity investments support the ability to fund assets on a timely basis, especially Advances, and when it may be more difficult to issue new debt. These investments supply liquidity because we normally fund them with longer-term debt than asset maturities. We also may be able to obtain liquidity by selling certain investments for cash without a significant loss of value.


▪	~~Earnings enhancement~~. The investments portfolio, especially MBS, assists with earning a competitive return on capital, and increasing funding for Housing and Community Investment programs. In addition, liquidity investments help stabilize earnings because they typically earn a relatively stable spread to the cost of debt issued to fund them.

▪

~~Management of debt issuance~~. Maintaining a short-term liquidity investment portfolio can help us participate in attractively priced debt issuances, on an opportunistic basis. We can temporarily invest proceeds from debt issuances in short-term liquid assets and quickly access them to fund demand for Mission Asset Activity, rather than having debt issuances dictated solely by the timing of member demand.


▪	~~Support of housing market. Investment in MBS and state housing finance agency bonds directly supports the residential mortgage market by providing capital and financing for mortgages.~~

How We Manage Risks of Investments. We strive to ensure our investment holdings have a moderate degree of market risk and limited credit risk, which tends to lower the returns we can expect to earn on these securities. We believe that a philosophy of purchasing investments with a high amount of market or credit risk would be inconsistent with our GSE status and corporate objectives.

Market risk associated with short-term investments tends to be minimal because of their short maturities and because we typically fund them with short-term Consolidated Obligations having similar maturities. We mitigate much of the market risk of MBS, which exists primarily from changes in mortgage prepayment speeds, by limiting their balances to 300 percent of regulatory capital and by funding them with a portfolio of long-term fixed-rate callable and non-callable ~~Obligations,~~Obligations. Additionally, we mitigate much of the market risk of longer-term non-MBS securities, and a portion of our MBS, by ~~managing~~using interest rate swaps to effectively convert the fixed rate investments to adjustable-rate investments. We also manage the market risk exposure of the entire balance sheet within prudent policy limits.

Finance Agency regulations and internal policies also provide controls on market risk exposure by restricting the types of mortgage loans, MBS and other investments we can hold. These restrictions prohibit, among others, the purchase of interest only or principal only stripped MBS and MBS whose average life varies more than six years under a 300 basis points interest rate shock.

Our internal policies specify guidelines for, and relatively tight constraints on, the types and amounts of short-term investments we are permitted to hold and the maximum amount of credit risk exposure we are permitted to have with eligible counterparties. We are permitted to invest only in the instruments of counterparties with high credit ratings, and because of our conservative

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investment policies and practices, we believe all of our investments have high credit quality. We have never had a credit loss or credit-related write down of any investment security.

Deposits

We provide a variety of deposit programs, including demand, overnight, term and Federal funds, which enable depositors to invest funds in short-term liquid assets. We accept deposits from members, other FHLBanks, any institution to which we offer correspondent services, and other government instrumentalities. The rates of interest we pay on deposits are subject to change daily based on comparable money market interest rates. The balances in deposit programs tend to vary positively with the amount of idle funds members have available to invest, as well as the level of short-term interest rates. Deposits have typically represented ~~less than~~ one to two percent of our funding sources in recent years.

Mortgage Purchase Program (MPP or Mortgage Loans Held for Portfolio)

Description of the MPP

Types of Loans and Benefits. Finance Agency regulations permit FHLBanks to purchase and hold specified whole mortgage loans from their members, which offers members a competitive alternative to the traditional secondary mortgage market and directly supports housing finance. We account for MPP loans as mortgage loans held for portfolio. By selling mortgage loans to us, members can increase their balance sheet liquidity and lower interest rate and mortgage prepayment risks. The MPP particularly enables small- and medium-sized community-based financial institutions to use their existing relationship with us to participate more effectively in the secondary mortgage market.

We purchase two types of mortgage loans: qualifying conforming fixed-rate conventional 1-4 family residential mortgages and residential mortgages fully insured by the Federal Housing Administration (FHA). Members approved to sell us these loans are referred to as Participating Financial Institutions (PFIs).

A “conventional” mortgage refers to a non-government-guaranteed mortgage. A “conforming” mortgage refers to the maximum amount permissible to be lent as a regular prime (i.e., non-jumbo, non-subprime) mortgage. For ~~2020,~~2021, the Finance Agency established the conforming limit at ~~$510,400~~$548,250 with loans originated in a limited number of high-cost cities and counties receiving higher conforming limits. We have elected not to purchase mortgages subject to these higher conforming limits.

Loan Purchase Process. A Master Commitment Contract is negotiated with each PFI, in which the PFI agrees to make a best efforts attempt to sell us a specific dollar amount of mortgage loans generally over a period of up to 12 months. We purchase loans pursuant to a Mandatory Delivery Contract, which is a legal commitment we make to purchase, and a PFI makes to deliver, a specified dollar amount of mortgage loans, with a forward settlement date, at a specified range of note rates and prices.

Shortly before delivering the loans that will fill the Mandatory Delivery Contract, the PFI must submit loan level detail including underwriting information. We apply procedures through an automated system designed to screen loans that do not comply with our policies. Our underwriting guidelines generally mirror those of Fannie Mae and Freddie Mac for conforming conventional loans, although our guidelines and pool composition requirements are more conservative in a number of ways in order to further limit credit risk exposure. PFIs are required to make certain representations and warranties against our underwriting guidelines on the loans they sell to us. If a PFI sells us a loan in breach of those representations and warranties, we have the contractual right to require the PFI to repurchase the loan.

How We Manage Risks of the MPP

Market Risk. We mitigate the MPP's market risk similarly to how we mitigate market risk from MBS.

Credit Risk - Conventional Mortgage Loans. A unique feature of the MPP is that it separates the various activities and risks associated with residential mortgage lending for conventional loans and allows these risks and activities to be taken on by different entities. We manage the market risk (including interest rate risk and prepayment risk) and liquidity risk. PFIs manage marketing, originating and, in most cases, servicing the loans. PFIs may either retain servicing or sell it to a qualified and approved third-party servicer (also referred to as a PFI). Because PFIs manage and bear most of the credit risk, they do not pay us a guarantee fee to transfer credit risk.

We manage credit risk exposure for conventional loans primarily through underwriting and pool composition requirements and by applying layered credit enhancements. These enhancements, which apply after a homeowner's equity is exhausted, include available primary mortgage insurance, the Lender Risk Account (discussed below), and Supplemental Mortgage Insurance. Supplemental Mortgage Insurance is applicable to loans acquired before February 2011 and was purchased by the PFI from one

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of our approved third-party providers naming us as the beneficiary. These credit enhancements are designed to protect us against credit losses in scenarios of severe downward movements in housing prices and unfavorable changes in other factors that can affect loan delinquencies and defaults.

The Lender Risk Account is a key component of how we manage residual credit risk. It is a holdback of a portion of the initial purchase price. Starting after five years from the loan purchase date, we may return the holdback to PFIs if they manage credit risk to pre-defined acceptable levels of exposure on the loan pools they sell to us. Actual loan losses are deducted from the amount of the purchase-price holdback we return to the PFI. The Lender Risk Account provides PFIs with a strong incentive to sell us high quality performing mortgage loans.

Credit Risk - FHA Mortgage Loans. Because the FHA makes an explicit guarantee on FHA loans, we do not require any credit enhancements on these loans beyond primary mortgage insurance.

"Quantitative and Qualitative Disclosures About Risk Management” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations provides more detail on how we manage market and credit risks for the MPP.

Earnings from the MPP

The MPP enhances long-term profitability on a risk-adjusted basis and augments the return on member stockholders' capital investment. We generate earnings in the MPP from monthly interest payments minus the cost of funding and the cost of hedging the MPP's interest rate risk. Interest income on each loan is computed as the mortgage note rate multiplied by the loan's principal balance:


▪	~~minus servicing costs (0.25 percent for conventional loans and 0.44 percent for FHA loans);~~


▪	~~minus the cost of Supplemental Mortgage Insurance (for applicable loans); and~~


▪	adjusted for the amortization of purchase premiums or the accretion of purchase discounts and for the amortization or accretion of fair value adjustments on loans initially classified as mortgage loan commitments.

▪minus servicing costs (0.25 percent for conventional loans and 0.44 percent for FHA loans);

▪minus the cost of Supplemental Mortgage Insurance (for applicable loans); and

▪adjusted for the amortization of purchase premiums or the accretion of purchase discounts and for the amortization or accretion of fair value adjustments on loans initially classified as mortgage loan commitments.

For new loan purchases, we consider the cost of the Lender Risk Account when we set conventional loan prices and evaluate the MPP's potential return on investment. The pricing of each structure depends on a number of factors and is specific to the PFI and to the loan pool. We do not receive fees or income for retaining the risk of losses in excess of any credit enhancements.

FUNDING - CONSOLIDATED OBLIGATIONS

Our primary source of funding and hedging market risk exposure is through participation in the sale of Consolidated Obligation debt securities to global investors. Obligations are the joint and several obligations of all the FHLBanks, backed only by the financial resources of these institutions.

There are two types of Consolidated Obligations: Consolidated Bonds (Bonds) and Consolidated Discount Notes (Discount Notes).

We participate in the issuance of Bonds for three purposes:


▪	~~to finance and hedge intermediate- and long-term fixed-rate Advances and mortgage assets;~~


▪	to finance and hedge short-term, adjustable-rate Advances, and swapped Advances, typically by synthetically transforming fixed-rate Bonds to adjustable-rate funding through the execution of interest rate swaps; and


▪	~~to acquire liquidity investments.~~

▪to finance and hedge intermediate- and long-term fixed-rate Advances and mortgage assets;

▪to finance and hedge short-term, adjustable-rate Advances, and swapped Advances, typically by synthetically transforming fixed-rate Bonds to adjustable-rate funding through the execution of interest rate swaps; and

▪to acquire liquidity investments.

Bonds may have fixed or adjustable rates of interest. Fixed-rate Bonds are either non-callable or callable. A callable Bond is one that we are able to redeem in whole or in part at our discretion on one or more predetermined call dates according to the Bond's offering notice. The maturity of Bonds typically ranges from ~~one~~1 year to 20 years. Adjustable-rate Bonds use a benchmark market interest rate, typically ~~LIBOR or~~ SOFR, for interest rate resets. We do not participate in the issuance of range Bonds, zero coupon Bonds, or indexed principal redemption Bonds.

We use fixed-rate Bonds to fund longer-term fixed-rate Advances and longer-term fixed-rate mortgage assets, and use adjustable-rate Bonds to fund adjustable-rate Advances and certain longer-term fixed rate investments that have been swapped to an adjustable-rate.

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We transact in interest rate swaps to synthetically convert some fixed-rate Bonds to adjustable-rate terms. These are used to hedge adjustable-rate Advances.

We participate in the issuance of Discount Notes to fund short-term Advances, adjustable-rate Advances, putable Advances (which we normally swap to an adjustable-rate), liquidity investments, and a portion of longer-term fixed-rate assets. Discount Notes have maturities from one day to one year, with most of ours normally maturing within three months.

The mix of Obligations fluctuates in response to relative changes in short-term versus long-term assets, relative changes in fixed-rate versus adjustable-rate assets, decisions on market risk management (particularly the amount of funding of longer-term assets with short-term Obligations), and differences in relative costs of various Obligations.

Interest rates on Obligations are affected by a multitude of factors such as: overall economic and credit conditions; credit ratings of the FHLBank System; investor demand and preferences for our debt securities; the level of interest rates and the shape of the U.S. Treasury curve, ~~and~~ the SOFR swap curve or LIBOR swap curve; and the supply, volume, timing, and characteristics of debt issuances by the FHLBanks, other GSEs, and other highly rated issuers.

Finance Agency regulations govern the issuance of Obligations. An FHLBank may not issue individual debt securities without Finance Agency approval, and we have never done so. The Office of Finance services Obligations, prepares the FHLBank System's quarterly and annual combined financial statements, and serves as a source of information for the FHLBanks on capital market developments.

We have the primary liability for our portion of Obligations, i.e., those issued on our behalf for which we received the proceeds. However, we also are jointly and severally liable with the other FHLBanks for the payment of principal and interest on all Obligations. If we do not pay the principal or interest in full when due on any Obligation issued on our FHLB's behalf, we are prohibited from paying dividends or redeeming or repurchasing shares of capital stock. If another FHLBank were unable to repay its participation in an Obligation for which it is the primary obligor, the Finance Agency could call on each of the other FHLBanks to repay all or part of the Obligation. The Finance Agency has never invoked this authority.

LIQUIDITY

Our business requires a substantial and continual amount of liquidity to satisfy financial obligations (primarily maturing Consolidated Obligations) in a timely and cost-efficient manner and to provide members access to timely Advance funding and mortgage loan sales in all financial environments. We obtain liquidity by issuing debt, holding short-term assets that mature before their associated funding, and having the ability to sell certain investments without significant accounting or economic consequences. Sources of asset liquidity include cash, maturing Advances, maturing investments, principal paydowns of mortgage assets, the ability to sell certain investments, and interest payments received. Uses of liquidity primarily include repayments of Obligations, issuances of new Advances, purchases of loans under the MPP, purchases of investments, and payments of interest.

Liquidity requirements are significant because Advance balances can be volatile, many have short-term maturities, and we strive to allow members to borrow Advances on the same day they request them. We regularly monitor liquidity risks and the investment and cash resources available to meet liquidity needs, as well as statutory and regulatory liquidity requirements.

Because Obligations have favorable credit ratings and because the FHLBank System is one of the largest sellers of debt in the worldwide capital markets, the System historically has been able to satisfy its liquidity needs through debt issuance across a wide range of structures at relatively favorable spreads to benchmark market interest rates, such as U.S. Treasury securities.

CAPITAL RESOURCES

Capital Requirements

Statutory and Regulatory Requirements

Under Finance Agency regulations, regulatory capital is composed of all capital stock (including stock classified as mandatorily redeemable), retained earnings, general loss allowances, and other amounts from sources the Finance Agency determines are available to absorb losses. Under the Gramm-Leach-Bliley Act of 1999 (GLB Act), permanent capital equals Class B stock plus retained earnings and is available to absorb financial losses.

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Finance Agency regulations stipulate that we must comply with three limits on capital leverage and risk-based capital. These ensure a low amount of capital risk while providing for competitive profitability. We have always complied with these regulatory capital requirements.


▪	~~We must maintain at least a four percent minimum regulatory capital-to-assets ratio. This requirement historically has been closest to affecting our operations.~~


▪	We must maintain at least a five percent minimum leverage ratio of capital divided by total assets, which includes a 1.5 weighting factor applicable to permanent capital. Because all of our Class B stock is permanent capital, this requirement is met automatically if we satisfy the four percent unweighted capital requirement.


▪	We are subject to a risk-based capital rule in which we must hold an amount of "permanent" capital that exceeds the amount of exposure to market risk, credit risk, and operational risk. How we determine the amount of these risk exposures is stipulated by Finance Agency regulation. Permanent capital includes retained earnings and the regulatory amount of Class B capital stock.

▪We must maintain at least a four percent minimum regulatory capital-to-assets ratio. This requirement historically has been closest to affecting our operations.

▪We must maintain at least a five percent minimum leverage ratio of capital divided by total assets, which includes a 1.5 weighting factor applicable to permanent capital. Because all of our Class B stock is permanent capital, this requirement is met automatically if we satisfy the four percent unweighted capital requirement.

▪We are subject to a risk-based capital rule in which we must hold an amount of "permanent" capital that exceeds the amount of exposure to market risk, credit risk, and operational risk. How we determine the amount of these risk exposures is stipulated by Finance Agency regulation. Permanent capital includes retained earnings and the regulatory amount of Class B capital stock.

In addition to the minimum capital requirements, the GLB Act and our Capital Plan promote the adequacy of our capital to absorb financial losses in three ways. These combine to give member stockholders a clear incentive to require us to minimize our risk profile:


▪	~~the five-year redemption period for Class B stock;~~


▪	~~the option we have to call on members to purchase additional capital if required to preserve safety and soundness; and~~


▪	~~the limitations, described below, on our ability to honor requested redemptions of capital if we are at risk of not maintaining safe and sound operations.~~

▪the five-year redemption period for Class B stock;

▪the option we have to call on members to purchase additional capital if required to preserve safety and soundness; and

▪the limitations, described below, on our ability to honor requested redemptions of capital if we are at risk of not maintaining safe and sound operations.

In accordance with the GLB Act, our stock is also putable by members. There are statutory and regulatory restrictions on our obligation or right to redeem or repurchase outstanding stock, including, but not limited to, the following:


▪	~~We may not redeem any capital stock if, following the redemption, we would fail to satisfy any regulatory capital requirements. By law, we may not redeem any stock if we become undercapitalized.~~

▪We may not redeem any capital stock if, following the redemption, we would fail to satisfy any regulatory capital requirements. By law, we may not redeem any stock if we become undercapitalized.


▪	We may not redeem any capital stock without approval of the Finance Agency if either our Board of Directors or the Finance Agency determines that we have incurred or are likely to incur losses resulting or expected to result in a charge against capital.

▪We may not redeem any capital stock without approval of the Finance Agency if either our Board of Directors or the Finance Agency determines that we have incurred or are likely to incur losses resulting or expected to result in a charge against capital.

If we were to be liquidated, stockholders would be entitled to receive the par value of their capital stock after payment in full to our creditors. In addition, each stockholder would be entitled to any retained earnings in an amount proportional to the stockholder's share of the total shares of capital stock. In the event of a merger or consolidation of the FHLB, the Board of Directors would determine the rights and preferences of the FHLB's stockholders, subject to any terms and conditions imposed by the Finance Agency.

Capital Plan

Our Capital Plan ties the amount of each member's required capital stock to the amount of the member's assets and the amount and type of its Mission Asset Activity with us. The Capital Plan has the following basic characteristics:

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▪	We offer only one class of capital stock, Class B, which is generally redeemable upon a member's five-year advance written notice. We strive to manage capital risks to be able to safely and soundly satisfy redemption requests sooner than five years, although we may elect to wait up to five years (or longer under certain conditions).

▪We offer only one class of capital stock, Class B, which is generally redeemable upon a member's five-year advance written notice. We strive to manage capital risks to be able to safely and soundly satisfy redemption requests sooner than five years, although we may elect to wait up to five years (or longer under certain conditions).


▪	We issue shares of capital stock as required for an institution to become a member or maintain membership (membership stock), as required for members to capitalize Mission Asset Activity (activity stock), and if we pay dividends in the form of additional shares of stock.

▪We issue shares of capital stock as required for an institution to become a member or maintain membership (membership stock), as required for members to capitalize Mission Asset Activity (activity stock), and if we pay dividends in the form of additional shares of stock.


▪	~~We may, subject to the restrictions described above, repurchase certain capital stock (i.e., "excess" capital stock).~~

▪We may, subject to the restrictions described above, repurchase certain capital stock (i.e., "excess" capital stock).


▪	The concept of “cooperative capital,” explained below, better aligns the interests of heavy users of our products with light users by enhancing the dividend return and providing a more stable base of capital.

We believe the Capital Plan enables us to efficiently increase and decrease capital stock needed to capitalize assets in response to changes in the membership base and demand for Mission Asset Activity. This enables us to maintain a prudent amount of financial leverage and consistently generate a competitive dividend return.

At December 31, ~~2019,~~2020, the amount of membership stock required for each member ranged from a minimum of $1,000 to a maximum of $30 million, with the amount within that range determined as a percentage of member assets. Separate from its membership stock, each member is required to purchase and hold activity stock to capitalize its Mission Asset Activity. For purposes of the Capital Plan, Mission Asset Activity includes the principal balance of Advances, guaranteed funds and rate Advance commitments, ~~and~~ the principal balance of loans and commitments in the ~~MPP.~~MPP, and beginning January 1, 2021, the notional balance of Letters of Credit.

The FHLB must capitalize ~~all Mission Asset Activity with capital stock~~its total assets at a rate of at least four percent. ~~However, each~~The Capital Plan supports the memberships' stock component towards this overall requirement. Each member is ~~permitted~~required to maintain an amount of activity stock within ~~the~~a range of a minimum and maximum ~~percentages~~percentage for each type of Mission Asset Activity. The Capital Plan amendment that went into effect on January 1, 2021 changed the activity percentages and set these minimums and maximums to be equal. As a result, the current percentages are as follows:


Mission Asset Activity	Minimum Activity Percentage	Maximum Activity Percentage	Mission Asset Activity	Minimum Activity Percentage	Maximum Activity Percentage
Advances	2%	4%	Advances	4.50%	4.50%
Advance Commitments	2	4	Advance Commitments	4.50	4.50
MPP	0	4	MPP	3.00	3.00
Letters of Credit			Letters of Credit	0.10	0.10

If a member owns more stock than is needed to satisfy both its membership stock requirement and the maximum activity stock percentages for its Mission Asset Activity, we designate the remaining stock as the member's excess capital stock. The member may utilize its excess stock to capitalize additional Mission Asset Activity.

IfPrior to 2021, if an individual member's excess stock ~~reaches~~reached zero, the Capital Plan ~~normally permits~~had permitted us, with certain limits, to capitalize additional Mission Asset Activity of that member with excess stock owned by other members at the maximum percentage rate. This feature, called “cooperative capital,” ~~enables~~enabled us to ~~more~~ effectively utilize our excess capital ~~stock. The limit~~stock holdings. However, with the most recently amended Capital Plan, by setting the minimum and maximum activity requirements to ~~how much~~be equal, members are no longer able to utilize this cooperative capital ~~a member may use is currently set at $100 million. A member's use of cooperative capital reduces the ratio of its activity stock to its Mission Asset Activity~~ for each type of Mission Asset Activity. When a member's ratio of activity stock to its Mission Asset Activity reaches the minimum activity stock percentage for all types of Mission Asset Activity, the member must capitalize additional Mission Asset Activity of a given type by purchasing capital stock at that asset type's minimum percentage rate, assuming availability of cooperative capital.marginal new business.

Retained Earnings

Purposes and Amount of Retained Earnings

Retained earnings are important to protect members' capital stock investment against the risk of impairment and to enhance our ability to pay stable and competitive dividends when earnings may be volatile. Impairment risk is the risk that members would have to write down the par value of their capital stock investment in our FHLB as a result of their analysis of ultimate recoverability. An extreme situation of earnings instability, in which other-than-temporary losses were experienced and expected for a period of time, could result in members determining that the value of their capital stock investment was impaired.

We have a policy that sets forth a ~~range for the~~minimum amount of retained earnings we believe is needed to mitigate impairment risk and facilitate dividend stability in light of the risks we face. At December 31, ~~2019,~~2020, the minimum retained earnings requirement ~~ranges from $200 million to $375~~was approximately $290 million, based on mitigating quantifiable risks under very stressed business and market scenarios to a 99

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percent confidence level. At the end of ~~2019,~~2020, our retained earnings totaled ~~$1,094 million.~~$1.3 billion. We believe the current amount of retained earnings is fully sufficient to protect our capital stock against impairment risk and to provide for dividend stability.

Joint Capital Agreement to Augment Retained Earnings

The FHLBanks entered into a Joint Capital Enhancement Agreement (the “Capital Agreement”) in February 2011. The Capital Agreement provides that each FHLBank will, on a quarterly basis, allocate ~~quarterly~~ at least 20 percent of its net income to a restricted retained earnings account (the “Account”). until the balance of the Account, calculated as of the last day of each calendar quarter, equals at least one percent of that FHLBank's average balance of outstanding Consolidated Obligations for the calendar quarter. The Account is not available to be distributed as dividends except under certain limited circumstances. The Capital Agreement does not limit our ability to use retained earnings held outside of the Account to pay dividends. Although we have always maintained compliance with our capital requirements, we believe the Capital Agreement enhances risk mitigation by building a larger capital buffer over time to absorb unexpected losses, if any, that we may experience.

USE OF DERIVATIVES

Finance Agency regulations and our policies establish guidelines for the execution and use of derivative transactions. We are prohibited from trading in, or the speculative use of, derivatives and have limits on the amount of credit risk to which we may be exposed. Most of our derivatives activity involves interest rate swaps, some of which may include options. We account for all derivatives at fair value.

Similar to our participation in debt issuances, use of derivatives is integral to hedging market risk created by Advances, certain longer-term fixed-rate investments and mortgage assets, including commitments. Derivatives related to Advances most commonly hedge either:


▪	~~below-market rates and/or the market risk exposure on Putable Advances, and certain other Advances, for which members have sold us options embedded within the Advances; or~~

▪below-market rates and/or the market risk exposure on Putable Advances, and certain other Advances, for which members have sold us options embedded within the Advances; or


▪	~~Regular Fixed-Rate Advances when it may not be as advantageous to issue Obligations or when it may improve our market risk management.~~

▪Regular Fixed-Rate Advances when it may not be as advantageous to issue Obligations or when it may improve our market risk management.

The derivatives we transact related to investments hedge market risk exposure by effectively converting the fixed-rate investment to an adjustable-rate investment. The derivatives we transact related to mortgage assets primarily hedge interest rate risk and prepayment risk. Such derivatives include options on interest rates swaps (swaptions) and sales of to-be-announced MBS for forward settlement.

Derivatives transactions related to Bonds help us intermediate between the preference of capital market investors for intermediate- and long-term fixed-rate debt securities and the preference of our members for shorter-term or adjustable-rate Advances. We can satisfy the preferences of both groups by issuing long-term fixed-rate Bonds and entering into an interest rate swap that synthetically converts the Bonds to an adjustable-rate funding basis that matches up with the short-term and adjustable-rate Advances, thereby preserving a favorable interest rate spread.

We may also transact derivatives to reduce the repricing risk of Discount Notes that fund certain overnight and shorter-term assets.

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Use of derivatives can result in a substantial amount of volatility of accounting and economic earnings. We strive to maintain a low amount of earnings volatility from realized gains and losses on derivatives. We accept a higher amount of earnings volatility from unrealized gains and losses on recording derivatives at fair values, to the extent our use of derivatives effectively hedge market risk exposure.

COMPETITION

Advances

Members' demand for our Advances is affected by, among other things, the cost of other sources of funding available, including our members' customer deposits. We compete with other suppliers of wholesale funding, both secured and unsecured, including the federal government, commercial banks, investment banking divisions of commercial banks, brokered deposits and other FHLBanks when our members' affiliated institutions are members of other FHLBanks. In addition, competition is often more significant when originating Advances to larger members, which have greater access to the national and global capital markets.

Our ability to compete successfully with other suppliers of wholesale funding, including other FHLBanks, depends primarily on the total cost of our products to members, which include the rates we charge, earnings and dividend performance, collateral policies, capital stock requirements, product features and members' perceptions of our relative safety and soundness. In addition, our competitive environment continues to be impacted by the Federal Reserve's low interest-rate ~~environment.~~environment and actions to provide liquidity in the financial markets. See Item 1A. Risk Factors below for further discussion.

Mortgage Purchase Program

The primary competitors for mortgage loans we purchase in the MPP are Fannie Mae and Freddie Mac, government agencies such as the Government National Mortgage Association (Ginnie Mae), and other secondary mortgage market conduits. Fannie Mae and Freddie Mac, in particular, have long-established and efficient programs and are the dominant purchasers of fixed-rate conventional mortgages. In addition, a number of private financial institutions have well-established securitization programs, although they may not currently be as active as they were historically. The MPP also competes with the Federal Reserve to the extent it purchases MBS and affects market prices and the availability of supply.

Debt Issuance

The FHLBank System primarily competes with the U.S. government and other GSEs for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs.

HUMAN CAPITAL RESOURCES

Our human capital is a significant contributor to the success of our strategic business objectives. As such, we are committed to the health, safety and wellness of our employees. In response to the COVID-19 pandemic, we implemented significant operating environment changes, safety protocols and procedures that we determined were in the best interest of our employees and members, and which comply with government regulations. This includes having nearly all employees work remotely, while implementing additional safety measures for employees continuing any on-site work.

In managing human capital, we focus on our workforce profile and the various programs and philosophies described below.

Workforce Profile

Our workforce is primarily comprised of corporate employees, with one location of principal operations. As of December 31, 2020, we had 241 employees. As of December 31, 2020, approximately 37 percent of our workforce was female, 63 percent male, 85 percent non-minority and 15 percent minority. Our workforce is leanly staffed, and historically has included a number of longer-tenured employees. As of December 31, 2020, the average tenure of our employees was 10 years. We strive to both develop talent from within the organization and supplement with external hires. We believe that developing talent internally results in institutional strength and continuity and promotes loyalty and commitment in our employee base, which furthers our success. However, adding new employees contributes to new ideas, continuous improvement, and our goals of a diverse and inclusive workforce. Our employees are not represented by a collective bargaining unit.

Total Rewards

We seek to attract, develop and retain talented employees to achieve our strategic business initiatives, enhance business performance and provide members with financial services and a competitive return on their capital investment. We strive to

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achieve this objective through a combination of development programs, benefits and employee wellness programs, and recognizing and rewarding performance. Specifically, our programs include:

▪Cash compensation – provides competitive salary, transportation and other cash subsidies, and performance based incentives.

▪Benefits – offers health insurance with a health savings account contribution, dental and vision insurance, life and AD&D insurance, supplemental life insurance, long-term disability insurance, employee assistance program, 401(k) retirement savings plan with employer match, and defined benefit pension benefits.

▪Recognition programs – sponsors peer-to-peer recognition program, department recognition program and company-wide recognition.

▪Work / life balance – provides flexible scheduling and time off programs for vacation, illness, personal, holiday, bereavement, jury duty, and paid leave programs for times when caring for a sick family member, bonding with a newborn or recovering from childbirth.

▪Culture – promotes the five core values of dependable, customer focused, inclusive, change oriented and results driven and encourages employee resource groups and other culture and inclusion initiatives.

▪Development programs and training – offers tuition assistance programs, internal educational and development opportunities, and fee reimbursement for external educational and development programs.

▪Management succession planning – assesses talent annually with our leadership and Board of Directors with, at a minimum, a defined plan for positions at Vice President and above.

Diversity and Inclusion Program

Diversity and inclusion is a strategic business priority. Our diversity and inclusion officer reports to the President and Chief Executive Officer, serves as a liaison to the Board of Directors, and is a member of the senior management strategy council. We recognize that diversity increases capacity for innovation and creativity and that inclusion allows us to leverage the unique perspectives of all employees and strengthen retention efforts. We operationalize our commitment through the development and execution of a three-year diversity and inclusion strategic plan that includes quantifiable metrics to measure its success. Our diversity and inclusion officer and team reports regularly on performance against the strategic plan to management and the Board of Directors. We offer a range of opportunities for our employees to connect, and grow personally and professionally through employee resource groups and community outreach. We consider learning an important component of our diversity and inclusion strategic plan and regularly offer educational opportunities to our employees. Employee job descriptions contain inclusive behavior expectations that increase with increasing responsibilities in the organization, and also are included as part of our annual performance management process.

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Item 1A. Risk Factors.

The following ~~are the most important~~discussion summarizes risks and uncertainties we currently face. The realization of one or more of the risks could negatively affect our results of operations, financial condition, safety and soundness, and, at the extreme, the viability of our business franchise. The effects could include reductions in Mission Asset Activity, lower earnings and dividends, and, at the extreme, impairment of our capital or an inability to participate in issuances of Consolidated Obligations. The risks identified below are not the only risks we face. Other risks not presently known or which we deem to be currently immaterial may also impact our business. Additionally, the risks identified may adversely affect our business in ways we do not expect or anticipate.

~~Economy.~~

BUSINESS AND REGULATORY RISK

A prolonged economic downturn could further lower Mission Asset Activity and profitability.

Member demand for Mission Asset Activity depends in large part on the general health of the economy and overall business conditions. Numerous external factors can affect our Mission Asset Activity and earnings including:


▪	~~the general state and trends of the economy and financial institutions, especially in the Fifth District;~~


▪	~~conditions in the financial, credit, mortgage, and housing markets;~~


▪	~~interest rates;~~


▪	~~competitive alternatives to our products, such as retail deposits and other sources of wholesale funding;~~


▪	~~regulations affecting our members' liquidity requirements;~~


▪	~~actions of the Federal Reserve to affect liquidity reserves of financial institutions and the money supply; and~~


▪	~~the willingness and ability of financial institutions to expand lending.~~

~~A recessionary~~▪the general state and trends of the economy and financial institutions, especially in the Fifth District;

▪conditions in the financial, credit, mortgage, and housing markets;

▪interest rates;

▪actions of the Federal Reserve to affect liquidity reserves of financial institutions and the money supply;

▪competitive alternatives to our products, such as retail deposits and other sources of wholesale funding;

▪regulations affecting our members' liquidity requirements;

▪the willingness and ability of financial institutions to expand lending; and

▪natural disasters, pandemics or other widespread health emergencies (see the separate Risk Factor on the COVID-19 pandemic), terrorist attacks, civil unrest, or other unanticipated or catastrophic events could create economic and financial disruptions and uncertainties.

These external factors, some of which were experienced in 2020, are likely to have a more severe impact if a prolonged economic downturn is accompanied by significant changes in interest rates, stresses in the housing market, elevated competitive forces, or actual or potential changes in the legislative and regulatory environment. Any of these factors, or a combination of factors, could adversely affect our business activities and results of operations and may ~~lower the demand for Mission Asset Activity, decrease profitability, and~~ultimately cause stockholders to request redemption of a portion of their capital or request withdrawal from membership (both referred to in this document as “request withdrawal of capital”). These unfavorable effects are more likely to occur and be more severe if a weak economy is accompanied by significant changes in interest rates, stresses in the housing market, elevated competitive forces, or actual or potential changes in the legislative and regulatory environment.

~~In addition,~~For example, we believe overall Advance demand has been and continues to be unfavorably affected by the substantial amount of deposit-based liquidity provided to financial institutions through the monetary actions of the Federal Reserve and changes in our members' ability to manage their regulatory liquidity requirements. ~~See the "Competition" risk factor for further discussion.~~

As noted above, our business and results of operations may be affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve, which regulates the supply of money and credit in the United States. The Federal Reserve’s policies ~~directly~~facilitate liquidity and indirectly influence the financial markets. For example, the Federal Open Market Committee (FOMC) approved emergency reductions to the target range for the Federal funds rate in March 2020, in response to the coronavirus pandemic (COVID-19) and the potential negative impact on the U.S. economy. In addition, U.S. Treasury yields have declined in 2020, with the 10-year U.S. Treasury yield and fixed mortgage rates reaching record lows in March. Further adverse changessupport stability in the fixed-income markets, ~~or further action~~which in ~~response~~turn has generally led to ~~this widespread health emergency could adversely affect~~substantial deposit growth for our ~~financial condition, results of operations,~~members and ~~ability to pay dividends. Refer to~~decreases in their demand for Advances. See "Executive Overview" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information on recent market activity.

~~Competition.~~The competitive environment for our products could adversely affect business activities, including decreasing the level and utilization rates of Mission Asset Activity, earnings, and capitalization.

Our primary business is providing liquidity to our members by making Advances to, and purchasing mortgage loans from, our members. Members have access to alternative funding sources, including their customers' deposits and wholesale funding, which may offer more favorable terms than we offer, such as lower rates or more flexible credit or collateral standards. Some of our competitors are not subject to the same body of regulations applicable to us, which enables those competitors to offer products and terms that we are not able to offer. In addition, state and federal regulators’ perception of the stability and reliability of our Advances can also directly impact the amount of Advances used by members.

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In connection with purchasing mortgage loans from our members, we face competition in the areas of customer service, purchase prices for the MPP loans and ancillary services such as automated underwriting and loan servicing options. Our primary competitors are Fannie Mae, Freddie Mac, government agencies such as Ginnie Mae, and other secondary mortgage market conduits. In addition, our members continue to face increased competition in mortgage origination ~~competition~~ from ~~originators~~non-bank financial institutions that are not eligible for FHLBank membership, which could reduce the amount of mortgage loans that members can make available to us to purchase.

Increased competition could decrease the amount of Advances and mortgage loans and narrow profitability, ~~on those products,~~ both of which could cause stockholders to request withdrawals of ~~capital.~~capital and ultimately result in a failure to meet our capital adequacy requirements.

In addition, the FHLBank System's offerings of debt compete with the U.S. Treasury, Fannie Mae, Freddie Mac, other GSEs, and corporate, state, and sovereign entities, among others. Increases in the supply and types of competing debt products or other regulatory factors could adversely affect the System's ability to access funding or increase the cost of our debt issuance. Either of these effects could in turn adversely affect our financial condition and results of operations and the value of FHLB membership.

~~Business Concentration and Consolidation and Composition of the Financial Industry.~~Sharp reductions in Mission Asset Activity resulting from lower usage by large members, consolidation of large members, or continued shift in mortgage lending activities towards entities not eligible for FHLB membership could adversely impact our net income and dividends.

The amount of Mission Asset Activity and capital is concentrated among a small number of our large members. Additionally, the financial industry continues to consolidate and in recent years there has been a systemic trend of financial institutions that are currently ineligible for FHLB membership gaining an increasing market share, especially related to mortgage finance. However, the legislative and regulatory environment faced by the FHLBanks has not changed in response to this trend. Our members could decrease their Mission Asset Activity and the amount of their capital stock as a result of merger and acquisition activity or continued loss of market share to ineligible entities. At December 31, ~~2019,~~2020, one member, U.S. Bank, N.A., held ~~nearly 30~~over 15 percent of our Advances and one member PFI, Union Savings Bank, accounted for over 30 percent of the outstanding MPP principal balance. Our business model is structured to be able to absorb sharp changes in Mission Asset Activity because we can undertake commensurate reductions in liability balances and capital and because of our relatively modest operating expenses. However, an extremely large and sustained reduction in Mission Asset Activity could affect our profitability and ability to pay competitive dividends, as well as, at the FHLBank System level, raise policy questions about the relevance of the FHLBank System in its traditional mission of supporting housing finance.

Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.

~~GSE Reform.~~

In July 2017, the United Kingdom's Financial Conduct Authority (FCA), which regulates LIBOR, announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings. In response, the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (ARRC) to 1) develop a robust alternative to U.S. dollar LIBOR and 2) develop a plan to encourage its use in derivatives and other transactions as appropriate. The ARRC has settled on the establishment of SOFR as its recommended alternative to U.S. dollar LIBOR. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR in April 2018 and since then, the market activity in SOFR-linked financial instruments has continued to develop and we have offered SOFR-linked Consolidated Obligations and SOFR-linked Advances on an ongoing basis. In addition, a SOFR-based derivatives market has begun to emerge and we have begun to use SOFR-based derivatives to manage interest-rate risk. As many of our assets and derivatives are indexed to LIBOR, we have developed and implemented a LIBOR transition plan, which addresses considerations such as LIBOR exposure, fallback language, operational preparedness, and balance sheet management.

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referenced financial assets, liabilities and derivatives with maturities beyond December 31, 2021. Except for investments and option embedded products, the ability to enter into new LIBOR referenced transactions was extended to June 30, 2020. As a result of the limitations introduced by the Finance Agency, we may experience less flexibility in our access to funding, higher funding costs, increased basis risk, lower overall demand or increased costs of Advances, and a lack of suitable investment alternatives. Accordingly, the composition of our balance sheet, capital stock level, primary mission assets ratio and net income may be negatively impacted. Additionally, the limitations within the supervisory letter may impact our ability to manage interest-rate risk, which may have a negative effect on our financial condition and results of operations.

During the market transition away from LIBOR, LIBOR may experience increased volatility, and the overnight Treasury repurchase market underlying SOFR may also experience disruptions from time to time, which may result in unexpected fluctuations in SOFR. While market activity in SOFR-linked financial instruments has continued to develop, the progress has been uneven and there can be no guarantee that SOFR will become widely accepted and used across market segments and financial products in a timely manner or that any other alternative reference rate will be developed. Any disruption in the market transition away from LIBOR towards SOFR or another alternate reference rate could result in increased financial, operational, legal, reputational or compliance risks. We are not currently able to predict the ultimate impact the market transition away from LIBOR towards SOFR may have on our business, financial condition, and results of operations. See "Executive Overview" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information about the replacement of LIBOR.

The COVID-19 pandemic and related developments have created substantial economic and financial disruptions and uncertainties as well as significant operational changes, which could increase many of the risks we face and adversely affect our business, financial condition, and results of operations.

The COVID-19 pandemic, and governmental and public actions taken in response (such as stay-at-home or similar orders, travel restrictions, and business closures), have reduced economic activity and created substantial uncertainty about the future economic environment. There are no comparable recent events that provide guidance as to the long-term effect that the COVID-19 pandemic may have and, as a result, the ultimate impact of the pandemic, including the depth of the economic downturn and the timing and shape of the economic recovery, is highly uncertain. This could increase many of the risks we face and adversely affect our business, financial condition, and results of operations.

Prolonged periods of significant economic and financial disruptions and uncertainties resulting from the COVID-19 pandemic, may lead to an increased risk of credit losses, in particular due to decreases in the value of our mortgage loans held for portfolio or collateral securing our Advances or due to member financial difficulties or member failures, and may lead to an increased risk of counterparty defaults. The risk of credit losses may be exacerbated by a prolonged downturn in the residential and commercial real estate markets, including higher mortgage defaults or delinquencies due to rising unemployment and the effect of mortgage forbearance and other relief as well as financial difficulties or failures of mortgage servicers.

Additionally, a prolonged economic downturn resulting from the COVID-19 pandemic may lead to further reduced demand for Advances. Beginning in the second quarter of 2020, demand for Advances decreased significantly as a number of emergency actions taken by the Federal Reserve helped facilitate liquidity and support stability in the fixed-income markets and as members experienced substantial deposit growth. We believe that reduced demand for Advances from many of our members will, or is likely to, continue in the near future.

Overall, the effects of the COVID-19 pandemic have contributed to, and may continue to cause, compression in our net interest income and net interest margin. To the extent interest rates continue to be low, or negative interest rates arise, our business and profitability may be further adversely affected.

Furthermore, stay-at-home or similar orders, travel restrictions, and business shutdowns as a result of the COVID-19 pandemic have led to substantial changes in normal business practices, such as the implementation of widespread work-from-home arrangements for us, as well as many of our members, dealers, investors, and third-party service providers. These changes have increased the risk of operational errors, disruptions and failures, and cybersecurity breaches. It is uncertain when and in what manner normal business operations may return, which could adversely affect our ability to conduct and manage our business.

The extent to which the COVID-19 pandemic may continue to impact our business, financial condition, and results of operations will depend on many factors that remain highly uncertain and difficult to predict, including, but not limited to:

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the duration, spread, and severity of the pandemic; additional fiscal stimulus and other measures taken in response to the pandemic; the actions taken to contain the pandemic, including the effectiveness of related vaccines and therapeutics; and how quickly and to what extent normal economic and operating conditions can resume.

Potential GSE reform could unfavorably affect our business model, financial condition, and results of operations.

Due to our GSE status, the ultimate resolution to the conservatorship of Fannie Mae and Freddie Mac could affect the FHLBanks. While there appears to be consensus that a permanent financial and political solution to the current conservatorship status should be implemented, which could include maintaining the current structure, no consensus has evolved to date around any of the various legislative proposals. Some policy proposals directed towards Fannie Mae and Freddie Mac have included provisions applicable to the FHLBank System, such as limitations on Advances and portfolio investments. Other proposals have included broader changes in GSE mortgage finance, such as the FHLBank System being a greater participant in the secondary mortgage market, which could affect the FHLBank System's long-standing business model.

There are significant differences between the FHLBank System and Fannie Mae and Freddie Mac, including the System's focus on lending as opposed to guaranteeing mortgages and its distinctive cooperative business model. GSE legislation could inadequately account for these differences. This could jeopardize the ability of the FHLBank System to continue operating effectively within its current business model, including by adversely changing the perceptions of the capital markets about the risk associated with the debt of housing GSEs. We cannot predict the effects on the System if GSE reform were to be enacted.

~~FHLB Regulatory Environment.~~Changes in the regulatory and legislative environment could unfavorably affect our business model, financial condition, and results of operations.

In addition to potential GSE reform, the legislative and regulatory environment in which the System operates continues to undergo change. Recently-promulgated and future legislative and regulatory actions could significantly affect our business model, financial condition, or results of operations. Legislative and regulatory actions have also raised our operating costs and imparted added uncertainty regarding the business model and membership base under which the FHLBanks may operate in the future. We are unable at this time to predict the ultimate effects the regulatory environment could have on the FHLBank System's business model, our members' view on the value of the FHLBank membership, or on our financial condition and results of operations.

Failure to meet capital adequacy requirements mandated by Finance Agency regulations and supervisory guidance and by our internal policies, or not being able to pay dividends or repurchase or redeem capital stock, may lower demand for Mission Asset Activity, harm results of operations, and lower membership value.

~~Liquidity~~

To ensure safe and sound operations, we must hold a minimum amount of capital relative to our asset levels. We must also hold a sufficient amount of retained earnings to help protect members' capital stock investment against impairment risk. If our capital levels fall significantly, we may be unable to pay dividends or redeem and repurchase capital stock in a timely manner (or at all). Such events could adversely affect the value of membership including causing impairment in the value of members' capital investment in our company. Outcomes could be: reduced demand for Mission Asset Activity, decreased profitability, requests from members to redeem a portion of their capital or to withdraw from membership, or increased investors' perception of the riskiness of our FHLB.

MARKET AND LIQUIDITY RISK

Changes in interest rates and mortgage prepayment speeds (together referred to as market risk exposure or interest rate risk exposure) could significantly affect our financial condition and results of operations.

Exposure of earnings to unhedged changes in interest rates and mortgage prepayment speeds is one of our largest ongoing residual risks. We derive most of our income from the interest earned on assets less the interest paid on Consolidated Obligations and deposits used to fund the assets. Spreads on our assets tend to be narrow compared to those of many other financial institutions due to our cooperative business model. Market ~~Access.~~conditions, yield curve shape, competitive forces, and market risk exposure could cause these already narrow asset spreads to decline, which could substantially reduce our

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profitability. A key spread relationship is that we tend to utilize Consolidated Discount Notes to fund a significant amount of assets that have adjustable-rates tied to a benchmark interest rate, such as LIBOR or SOFR. Because rates on Discount Notes do not perfectly correlate with other adjustable benchmark interest rates, a narrowing of this spread, for example from investors changing perceptions about the quality of our debt, could lower income and reduce balances of Mission Asset Activity.

We hedge mortgage assets with a combination of Consolidated Obligations and derivatives transactions. Interest rate movements can lower profitability in two primary ways: 1) directly due to their impact on earnings from cash flow mismatches between assets and liabilities; and 2) indirectly via their impact on prepayment speeds on our MBS investments and mortgages purchased under our MPP, which can unfavorably affect the cash flow mismatches. The effects on income can also include acceleration in the amortization of purchased premiums on mortgage assets.

Because it is normally cost-prohibitive to completely mitigate market risk exposure, a residual amount of market risk normally remains after incorporating risk management activities. Sharp increases or decreases in interest rates could adversely affect us and our stockholders by making dividend rates less competitive relative to the returns available to members on alternative investments.

In some extremely stressful scenarios, changes in interest rates and prepayment speeds could result in dividends being below stockholders' expectations for an extended period of time and/or market capitalization ratios falling below par which could indicate potential impairment of member stock. In such a situation, members could engage in less Mission Asset Activity and could request a withdrawal of capital. See "Quantitative and Qualitative Disclosures About Risk Management" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information about market risk exposure.

Impaired access to the capital markets for debt issuance could decrease the amount of Mission Asset Activity, lower earnings by raising debt costs and, at the extreme, prevent the System from meeting its financial obligations.

Our principal long-term source of funding, liquidity, and market risk management is through access on favorable terms to the capital markets for participation in the issuances of debt securities and execution of derivative transactions at prices and yields that are adequate to support our business model. Our ability to obtain funds through the sale of Consolidated Obligations depends in part on prevailing conditions in the capital markets, particularly the short-term capital markets, because we and the System normally have a large reliance on short-term funding. The System's strong debt ratings, the implicit U.S. government backing of our debt, strong investor demand for FHLBank System debt, and effective funding management are instrumental in ensuring satisfactory access to the capital markets.

We are exposed to liquidity risk if significant disruptions in the capital markets occur. Although the System was able to maintain access to the capital markets for debt issuances on acceptable terms during ~~2019,~~2020, there is no assurance this will continue to be the case. Future ability to effectively access the capital markets on acceptable terms could be adversely affected by external events (such as general economic and financial instabilities, political instability, wars, natural disasters, pandemics or other widespread health ~~emergencies)~~emergencies, civil unrest or other unanticipated or catastrophic events), deterioration in the perception of financial market participants about the financial strength of Consolidated Obligations, or downgrades to the System's credit ratings. The System could also be affected by the continued changes in the capital markets in response to financial regulations and by the joint and several liability for Consolidated Obligations, which exposes the System as a whole to events at individual FHLBanks. If access to capital markets were to be impaired for an extended period, the effect on our financial condition and results of operations could be material. At the extreme, the System's ability to achieve its mission and satisfy its financial obligations could be threatened.

~~Credit and Counterparty Risk.~~

CREDIT RISK

We are exposed to credit risk that, if realized, could materially affect our financial condition and results of operations.

We believe we have a de minimis overall amount of residual credit risk exposure related to Credit Services, purchases of investments, and transactions in derivatives, and a minimal amount of credit risk exposure related to the MPP. However, we can make no assurances that credit losses could not materially affect our financial condition or results of operations in all scenarios. An extremely severe and prolonged economic downturn, especially if combined with continued significant disruptions in housing or mortgage markets, could result in credit losses on assets that could impair our financial condition or results

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The FHLB is an asset-based lender for Advances and Letters of Credit. Advances and Letters of Credit are over-collateralized and we have a perfected first lien position on collateral. However, we do not have full information on the characteristics of, nor do we estimate current market values on, a large portion of collateral. This results in a degree of uncertainty as to the precise amount of over-collateralization.

Our MPP consists of mortgage loans considered to have high credit quality and conservative underwriting and loan characteristics with additional credit enhancements in place designed to protect us against credit losses. The result has been a minimal amount of credit losses historically.

Although Advances and Letters of Credit are over-collateralized and mortgage loans in the MPP are of high credit quality with various credit enhancements, credit risk could increase under a number adverse scenarios, such as damage or destruction of collateral that members pledge to secure Advances or mortgages that we hold in the MPP as a result of natural disasters, which may be caused by the effects of climate change or other catastrophic events. Significant declines in the value of collateral pledged to secure Advances could lead to greater exposure to credit losses in the ~~MPP have historically been minimal, they could increase under adverse economic scenarios involving~~event of a member default. Additionally, significant and sustained reductions in home prices and sustained elevated levels of unemployment and other factors that influence delinquencies and ~~defaults.~~defaults could increase the risk of credit losses in the MPP.

Some of our liquidity investments are unsecured, as are uncollateralized portions of certain derivatives. We make unsecured liquidity investments in and transact derivatives with highly rated, investment-grade institutions, have conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices. Failure of an investment or derivative counterparty with which we have a large unsecured position could have a material adverse effect on our financial conditions and results of operations. To the extent we engage in derivative transactions

required to be cleared under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), we may be exposed to nonperformance from central clearinghouses and Futures Commission Merchants.

Financial institutions are increasingly inter-related as a result of trading, clearing, counterparty, and other relationships. As a result, actual or potential defaults of one or more financial institutions could lead to market-wide disruptions making it difficult for us to find qualified counterparties for transactions.

~~Market Risk.~~ Changes in interest rates and mortgage prepayment speeds (together referred to as market risk exposure or interest rate risk exposure) could significantly affect our financial condition and results of operations.

Exposure of earnings to unhedged changes in interest rates and mortgage prepayment speeds is one of our largest ongoing residual risks. We derive most of our income from the interest earned on assets less the interest paid on Consolidated Obligations and deposits used to fund the assets. We hedge mortgage assets with a combination of Consolidated Obligations and derivatives transactions. Interest rate movements can lower profitability in two primary ways: 1) directly due to their impact on earnings from cash flow mismatches between assets and liabilities; and 2) indirectly via their impact on prepayment speeds on our MBS investments and mortgages purchased under our MPP, which can unfavorably affect the cash flow mismatches. The effects on income can also include acceleration in the amortization of purchased premiums on mortgage assets.

~~Asset Profitability.~~ ~~Spreads on assets to funding costs may narrow because of changes in other risk factors such as the economy, interest rates, and competition, resulting in lower profitability.~~

Spreads on our assets tend to be narrow compared to those of many other financial institutions due to our cooperative business model. Market conditions, yield curve shape, competitive forces, and, as discussed above, market risk exposure could cause these already narrow asset spreads to decline, which could substantially reduce our profitability. A key spread relationship is that we tend to utilize Consolidated Discount Notes to fund a significant amount of assets that have adjustable-rates tied to a benchmark interest rate, such as LIBOR or SOFR. Because rates on Discount Notes do not perfectly correlate with other adjustable benchmark interest rates, a narrowing of this spread, for example from investors changing perceptions about the quality of our debt, could lower income and reduce balances of Mission Asset Activity.

~~Capital Adequacy.~~ Failure to meet capital adequacy requirements mandated by Finance Agency regulations and supervisory guidance and by our internal policies, or not being able to pay dividends or repurchase or redeem capital stock, may lower demand for Mission Asset Activity, harm results of operations, and lower membership value.

To ensure safe and sound operations, we must hold a minimum amount of capital relative to our asset levels. We must also hold a sufficient amount of retained earnings to help protect members' capital stock investment against impairment risk. If our capital levels fall significantly, we may be unable to pay dividends or redeem and repurchase capital stock in a timely manner (or at all). Such events could adversely affect the value of membership including causing impairment in the value of members' capital investment in our company. Outcomes could be reduced demand for Mission Asset Activity, decreased profitability, requests from members to redeem a portion of their capital or to withdraw from membership, or increased investors' perception of the riskiness of our FHLB.

~~LIBOR Replacement.~~ ~~Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.~~

In July 2017, the United Kingdom's Financial Conduct Authority (FCA), which regulates LIBOR, announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. In response, the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (ARRC) to 1) develop a robust alternative to U.S. dollar LIBOR and 2) develop a plan to encourage its use in derivatives and other transactions as appropriate. The ARRC has settled on the establishment of SOFR as its recommended alternative to U.S. dollar LIBOR. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR in April 2018. As of December 31, 2019, a portion of our assets and liabilities remain indexed to LIBOR. There is no assurance that LIBOR will continue to be generally accepted or used by the financial markets through 2021, even if LIBOR continues to be available.

In September 2019, the Finance Agency issued a supervisory letter providing LIBOR transition guidance. Under the supervisory letter, the FHLBanks were directed, by December 31, 2019, to cease purchasing investments that reference LIBOR and mature after December 31, 2021, and, by March 31, 2020, to no longer enter into any other new LIBOR referenced financial assets, liabilities and derivatives with maturities beyond December 31, 2021. Except for investments and option embedded products, the ability to enter into new LIBOR referenced transactions has been extended to June 30, 2020. As a result of the limitations introduced by the Finance Agency, we may experience less flexibility in our access to funding, higher funding costs, lower overall demand or increased costs of Advances, and a lack of suitable investment alternatives. Accordingly, the composition of our balance sheet, capital stock level, primary mission assets ratio and net income may be negatively impacted. Additionally, the limitations within the supervisory letter may impact our ability to manage interest-rate risk, which may have a negative effect on our financial condition and results of operations.

During the market transition away from LIBOR, LIBOR may experience increased volatility, and the overnight Treasury repurchase market underlying SOFR may also experience disruptions from time to time, which may result in unexpected fluctuations in SOFR. While market activity in SOFR-linked financial instruments has continued to develop, there can be no guarantee that SOFR will become widely accepted and used across market segments and financial products in a timely manner or that any other alternative reference rate will be developed. Any disruption in the market transition away from LIBOR towards SOFR or another alternate reference rate could result in increased financial, operational, legal, reputational or compliance risks. We are not currently able to predict the ultimate impact the market transition away from LIBOR towards SOFR may have on our business, financial condition, and results of operations. See "Executive Overview" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information about the replacement of LIBOR.

~~Exposure to Other FHLBanks.~~Financial difficulties at other FHLBanks could require us to provide financial assistance to another FHLBank, which could adversely affect our results of operations or our financial condition.

Each FHLBank has a joint and several liability for principal and interest payments on Consolidated Obligations, which are backed only by the financial resources of the FHLBanks. Although no FHLBank has ever defaulted on its principal or interest share of an Obligation, there can be no assurance that this will continue to be the case. Financial performance issues could require our FHLB to provide financial assistance to one or more other FHLBanks, for example, by making a payment on an Obligation on behalf of another FHLBank. Such assistance could adversely affect our financial condition, earnings, ability to pay dividends, or ability to redeem or repurchase capital stock.

~~Exposure to the Office of Finance.~~

OPERATIONAL RISK

Failures of the Office of Finance could disrupt the ability to conduct and manage our business.

The Office of Finance is a joint office of the FHLBanks established to facilitate the issuance and servicing of Consolidated Obligations, among other things. Pursuant to Finance Agency regulations, the Office of Finance, often in conjunction with the FHLBanks, has adopted policies and procedures for the purposes of facilitating and approving the issuance of Consolidation Obligations. A failure or interruption of the Office of Finance's services as a result of breaches, cyberattacks, or technological risks could negatively affect the business operations of each FHLBank, including disruptions to the FHLBanks' access to funding through the sale of Consolidated Obligations. Although the Office of Finance has business continuity and security incident response plans in place, our business operations could be constrained, disrupted or otherwise negatively affected if the Office of Finance was not able to perform its functions for a period of time.

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Failures or interruptions in our ~~internal controls, compliance activities,~~ information systems and other technologies, financial and business models, and third-party vendors could harm our financial condition, results of operations, reputation, and relations with members.

~~Control failures, including failures in our internal controls over~~As a financial reporting as well as business interruptions with members and counterparties, could occur from human error, fraud, breakdowns in information and computer systems, errors or misuse of financial and business models and servicesinstitution, we employ (including third-party vendor services), lapses in operating processes, or natural or man-made disasters. If a significant control failure or business interruption were to occur, it could materially damage our financial condition and results of operations. We may not be able to foresee, prevent, mitigate, reverse or repair the negative effects of such failures or interruptions.

We rely heavily on internal and third-party information systems and other technology to manage our business, including the secure processing, storage and transmission of confidential borrower and ~~other~~financial information in computer systems and networks. For instance, due to our reliance on the book-entry system of the Federal Reserve Banks for debt issuance and servicing operations, we depend on them and their fiscal agent, the Federal Reserve Bank of New York, and one or more settlement agents to issue and make payments of principal and interest on Consolidated Obligations. Failures in information systems and other technologies could occur from human error, fraud, cyberattacks, errors or misuse of models and services we employ, lapses in operating processes, or natural or man-made disasters.

Computer systems, software and networks ~~can~~may be increasingly vulnerable to failures and interruptions ~~including~~from cyberattacks, which may include breaches, unauthorized access, misuse, computer viruses or other malicious or destructive code (such as ransomware) and other events against information owned by our company and customers. These failures and interruptions could jeopardize the confidentiality or integrity of information, or otherwise cause interruptions or malfunctions in operations. Additionally, threats of cyber terrorism, external extremist parties, including state-sponsored actors, result in heightened risk exposure. The techniques used in cyber attacks change frequently and have grown increasingly sophisticated, and these attacks or ensuing security breaches could persist for an extended period of time before being detected. It could take considerable additional time for us to determine the scope, extent, amount, and type of information compromised. We can make no assurance that we will be able to prevent, timely and adequately address, or mitigate failures, interruptions, or cyberattacks in information systems and other technology. If we experience a failure, interruption, or cyberattack in any of these systems, we may be unable to effectively conduct or manage business activities, operating processes, and risk management, which could significantly harm customer relations, our reputation, and operating costs, potentially resulting in material adverse effects on our financial condition and results of operations.

We may not be able to foresee, prevent, mitigate, reverse or repair the negative effects of such failures, interruptions, cyberattacks, or cyber terrorism.

~~Personnel Risk.~~

Our financial condition and results of operations could suffer if we are unable to hire and retain skilled key personnel.

We rely on key personnel for many of our functions and have a relatively small workforce, given the size and complexity of our business. The success of our mission depends, in large part, on the ability to attract and retain key personnel. We must continue to recruit, retain and motivate a qualified and diverse pool of employees, both to maintain our current business, and to execute strategic initiatives. Competition for qualified people or ineffective succession planning could affect the ability to hire or retain effective key personnel, thereby harming our financial condition and results of operations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our primary offices are located in approximately 79,000 square feet of leased space in downtown Cincinnati, Ohio. We also maintain a leased, fully functioning, back-up facility in suburban Cincinnati. We believe that our facilities are in good condition, well maintained, and adequate for our current needs.

Item 3. Legal Proceedings.

From time to time, we are subject to various legal proceedings arising in the normal course of business. Management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II


~~Item 5.~~	~~Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.~~

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

By law our stock is not publicly traded, and only our members (and former members with a withdrawal notice pending) may own our stock. The par value of our capital stock is $100 per share. As of December 31, ~~2019,~~2020, we had ~~666~~649 member and former member stockholders and approximately 3427 million shares of capital stock outstanding, all of which were Class B Stock.

We ~~paid~~declared quarterly cash dividends in 2020 and 2019 ~~and 2018~~ as ~~outlined~~shown in the table below.

(Dollars in millions)
2019 2018
Annualized Annualized
Quarter Amount Rate Form Quarter Amount Rate Form
First $ 65
6.00 % Cash First $ 61
5.75 % Cash
Second 58
5.50
Cash Second 62
5.75
Cash
Third 45
4.50
Cash Third 68
6.00
Cash
Fourth 37
4.00
Cash Fourth 65
6.00
Cash
Total $ 205
5.05
Total $ 256
5.88


(Dollars in millions)
	2020		2019
	Annualized		Annualized
Quarter	Rate		Rate
First	2.50	%	6.00	%
Second	2.50		5.50
Third	2.00		4.50
Fourth	2.00		4.00
Total	2.23		5.05

Generally, the Board of Directors has discretion to declare or not declare dividends and to determine the rate of any dividend declared. Our policy states that dividends for a quarter are declared and paid from retained earnings after the close of a calendar quarter and are based on average stock balances for the then closed quarter. The Board of Directors' decision to declare dividends is influenced by the financial condition, overall financial performance and retained earnings of the FHLB, and actual and anticipated developments in the overall economic and financial environment including interest rates and the mortgage and credit markets. The dividend rate is generally referenced as a spread to average short-term interest rates experienced during the quarter to help assess a competitive level for our stockholders.

A Finance Agency rule prohibits us from issuing new excess capital stock to members, either by paying stock dividends or otherwise, if before or after the issuance the amount of member excess capital stock exceeds or would exceed one percent of the FHLB's assets. Excess capital stock for this regulatory purpose is calculated as the aggregate of capital stock owned that is in excess of all membership and Mission Asset Activity requirements (as defined in our Capital Plan). At December 31, 2019, we had excess capital stock outstanding totaling less than one percent of total assets.

We may not declare a dividend if, at the time, we are not in compliance with all of our capital requirements. We also may not declare or pay a dividend if, after distributing the dividend, we would fail to meet any of our capital requirements or if we determine that the dividend would create a safety and soundness issue for the FHLB. See Note 1511 of the Notes to the Financial Statements for additional information regarding our capital stock.

RECENT SALES OF UNREGISTERED SECURITIES

~~From time to time, we~~We provide Letters of Credit in the ordinary course of business to support members' obligations issued in support of unaffiliated, third-party offerings of notes, bonds or other securities. We provided $3$1 million and ~~$12~~$3 million of such credit support during ~~2019~~2020 and ~~2017.~~2019. We did not provide such credit support during 2018. To the extent that these Letters of Credit are securities for purposes of the Securities Act of 1933, their issuance is exempt from registration pursuant to section 3(a)(2) thereof.


~~Item 6.~~	~~Selected Financial Data.~~

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Item 6. Selected Financial Data.

The following table presents selected Statement of Condition data, Statement of Income data and financial ratios for the five years ended December 31, ~~2019.~~2020.


	Year Ended December 31,
(Dollars in millions)	2020			2019			2018			2017			2016
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets	$	65,296		$	93,492		$	99,203		$	106,895		$	104,635
Advances	25,362			47,370			54,822			69,918			69,882
Mortgage loans held for portfolio	9,549			11,236			10,502			9,682			9,150
Allowance for credit losses on mortgage loans (1)	—			1			1			1			1
Investments (2)	27,041			34,389			33,614			27,058			25,334
Consolidated Obligations, net:
Discount Notes	27,500			49,084			46,944			46,211			44,690
Bonds	31,997			38,440			45,659			54,163			53,191
Total Consolidated Obligations, net	59,497			87,524			92,603			100,374			97,881
Mandatorily redeemable capital stock	19			22			23			30			35
Capital:
Capital stock - putable	2,641			3,367			4,320			4,241			4,157
Retained earnings	1,304			1,094			1,023			940			834
Accumulated other comprehensive loss	(15)			(16)			(13)			(16)			(13)
Total capital	3,930			4,445			5,330			5,165			4,978
STATEMENT OF INCOME DATA:
Net interest income	$	406		$	406		$	499		$	429		$	363

Non-interest income (loss)	(7)			(10)			(37)			(1)			46
Non-interest expense	92			89			85			79			111
Affordable Housing Program assessments	31			31			38			35			30
Net income	$	276		$	276		$	339		$	314		$	268
FINANCIAL RATIOS:
Dividend payout ratio (3)	30.3		%	74.1		%	75.6		%	66.3		%	63.9		%
Weighted average dividend rate (4)	2.23			5.05			5.88			5.00			4.00
Return on average equity	5.78			5.65			6.29			6.15			5.35
Return on average assets	0.31			0.28			0.32			0.31			0.25
Net interest margin (5)	0.46			0.42			0.47			0.42			0.35
Average equity to average assets	5.39			5.04			5.11			5.00			4.76
Regulatory capital ratio (6)	6.07			4.79			5.41			4.88			4.80
Operating expenses to average assets (7)	0.080			0.070			0.063			0.060			0.061

(1)The methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of new accounting guidance on the measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior periods have not been revised to conform to the new basis of accounting.

(2)Investments include interest-bearing deposits in banks, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.

(3)Dividend payout ratio is dividends declared in the period as a percentage of net income.

(4)Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.

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

(6)Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.

(7)Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.

Year Ended December 31,
(Dollars in millions) 2019 2018 2017 2016 2015
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets $ 93,492
$ 99,203
$ 106,895
$ 104,635
$ 118,756
Advances 47,370
54,822
69,918
69,882
73,292
Mortgage loans held for portfolio 11,236
10,502
9,682
9,150
7,954
Allowance for credit losses on mortgage loans 1
1
1
1
2
Investments ⁽¹⁾
34,389
33,614
27,058
25,334
37,356
Consolidated Obligations, net:
Discount Notes 49,084
46,944
46,211
44,690
77,199
Bonds 38,440
45,659
54,163
53,191
35,092
Total Consolidated Obligations, net 87,524
92,603
100,374
97,881
112,291
Mandatorily redeemable capital stock 22
23
30
35
38
Capital:
Capital stock - putable 3,367
4,320
4,241
4,157
4,429
Retained earnings 1,094
1,023
940
834
737
Accumulated other comprehensive loss (16 ) (13 ) (16 ) (13 ) (13 )
Total capital 4,445
5,330
5,165
4,978
5,153
STATEMENT OF INCOME DATA:
Net interest income $ 406
$ 499
$ 429
$ 363
$ 327
Non-interest income (loss) (10 ) (37 ) (1 ) 46
30
Non-interest expense 89
85
79
111
75
Affordable Housing Program assessments 31
38
35
30
28
Net income $ 276
$ 339
$ 314
$ 268
$ 254
FINANCIAL RATIOS:
Dividend payout ratio ⁽²⁾
74.1 % 75.6 % 66.3 % 63.9 % 67.7 %
Weighted average dividend rate ⁽³⁾
5.05
5.88
5.00
4.00
4.00
Return on average equity 5.65
6.29
6.15
5.35
5.04
Return on average assets 0.28
0.32
0.31
0.25
0.24
Net interest margin ⁽⁴⁾
0.42
0.47
0.42
0.35
0.31
Average equity to average assets 5.04
5.11
5.00
4.76
4.78
Regulatory capital ratio ⁽⁵⁾
4.79
5.41
4.88
4.80
4.38
Operating expenses to average assets ⁽⁶⁾
0.070
0.063
0.060
0.061
0.054


~~(1)~~	Investments include interest-bearing deposits in banks, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.


~~(2)~~	~~Dividend payout ratio is dividends declared in the period as a percentage of net income.~~


~~(3)~~	~~Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.~~


~~(4)~~	~~Net interest margin is net interest income before provision/(reversal) for credit losses as a percentage of average earning assets.~~


~~(5)~~	~~Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.~~


~~(6)~~	~~Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.~~

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.


~~Item 7.~~	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~ .

This discussion and analysis of the FHLB's financial condition and results of operations should be read in conjunction with the Financial Statements and related Notes to Financial Statements contained in this Form 10-K.

EXECUTIVE OVERVIEW

~~Financial Condition~~

~~Mission Asset Activity~~Recent Developments

In
~~2019~~,

COVID-19 Pandemic

The global outbreak of COVID-19 has impacted communities and businesses worldwide, including those in the ~~FHLB fulfilled its~~Fifth District. The effects of COVID-19 continue to evolve, and the full impact and duration of the virus are unknown. Despite the uncertainties created by the COVID-19 pandemic, we continued to fulfill our mission byof providing robust access to a key source of readily available and competitively priced wholesale funding to ~~its~~ member financial institutions and supporting ~~its~~our commitment to affordable housing and community investment, while maintaining strong capital and ~~paying stockholders a competitive dividend return on their capital investment.~~liquidity positions.

We have remained focused on the health and safety of our employees while maintaining full business operations. Employees are working from home with only a limited number of employees voluntarily working from our downtown Cincinnati location. Although there is no definitive date on when employees will return to the office, we have prepared health and safety policies and procedures to ensure our employees are able to return safely.

At this time, we cannot predict the ultimate impact of COVID-19 on our members, counterparties, vendors, and other third parties we rely upon to conduct our business. However, we continue to monitor the progression of COVID-19 and are committed to assisting members and their communities as impacts related to the pandemic continue to unfold.

Financial Condition

Mission Asset Activity

Mission Assets, which we define as Advances, Letters of Credit, and total MPP are the primary means by which we fulfill our mission with direct connections to members. We regularly monitor our balance sheet concentration of Mission Asset Activity. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In ~~2019,~~2020, the Primary Mission Asset ratio averaged ~~slightly over 69~~75 percent, ~~just below~~which exceeded the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity, the most significant of which is Letters of Credit issued to members.

The following table summarizes our Mission Asset Activity.


	Year Ended December 31,
	Ending Balances				Average Balances

(In millions)	2020		2019		2020		2019
Mission Asset Activity:
Advances (principal)	$	25,007	$	47,264	$	42,917	$	47,894
MPP:
Mortgage loans held for portfolio (principal)	9,316		10,981		10,995		10,499
Mandatory Delivery Contracts (notional)	137		936		338		516
Total MPP	9,453		11,917		11,333		11,015
Letters of Credit (notional)	28,812		16,205		20,141		15,150
Total Mission Asset Activity	$	63,272	$	75,386	$	74,391	$	74,059

Year Ended December 31,
Ending Balances Average Balances
(In millions) 2019 2018 2019 2018
Mission Asset Activity:
Advances (principal) $ 47,264
$ 54,872
$ 47,894
$ 65,593
Mortgage Purchase Program (MPP):
Mortgage loans held for portfolio (principal) 10,981
10,272
10,499
9,743
Mandatory Delivery Contracts (notional) 936
146
516
287
Total MPP 11,917
10,418
11,015
10,030
Letters of Credit (notional) 16,205
14,847
15,150
14,619
Total Mission Asset Activity $ 75,386
$ 80,137
$ 74,059
$ 90,242

At December 31, 2020, 64 percent of members held Mission Asset Activity, which was relatively stable compared to prior periods. The balance of Mission Asset Activity was ~~$75.4~~$63.3 billion at December 31, ~~2019,~~2020, a decrease of ~~$4.8~~$12.1 billion ~~(six~~(16 percent) from year-end ~~2018,~~2019, which was primarily driven by lower Advance balances. Advance principal balances decreased ~~$7.6~~ $22.3

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billion ~~(14~~(47 percent) from year-end ~~2018. Average Advance principal balances for~~ 2019 ~~declined $17.7 billion compared to 2018~~ primarily due to ~~a reduction~~reduced borrowings by large-asset members as these members generally experienced an inflow of deposits on their balance sheets and increased access to other sources of liquidity in ~~borrowings~~the financial markets. The decrease in the balance of Mission Asset Activity was partially offset by an increase of $12.6 billion (78 percent) in Letters of Credit balances from ~~a few large-asset members.~~year-end 2019. The increase in Letters of Credit was due in part to members using Letters of Credit rather than securities to secure increased deposits from states and municipalities during the pandemic. We normally earn fees on Letters of Credit based on the actual average amount of the Letters utilized, which generally is less than the notional amount issued.

Average principal Advance balances for 2020 decreased only $5.0 billion (10 percent) compared to 2019 as Advances spiked across our membership at the end of the first quarter as the financial markets reacted to the pandemic. Most of these Advances matured or prepaid by the end of the third quarter of 2020. Advance balances are often volatile due to members' ability to quickly, normally on the same day, increase or decrease their amount of Advances. We believe providing members flexibility in their funding levels helps support their asset-liability management needs and is a key benefit of membership. ~~At December 31, 2019, 67 percent of members held Mission Asset Activity, which was relatively stable compared to prior periods.~~

~~As in recent years, most members continued to have modest~~We believe that reduced demand for ~~Advance borrowings. Based on~~Advances from many of our members will, or is likely to, continue in the ~~most-recently available figures, members funded an average of 2.7 percent of their assets~~near future. Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that our Capital Plan provides for additional capital when Advances grow and the opportunity for us to retire capital when Advances decline, thereby acting, along with ~~Advances.~~our efficient operating expenses, to preserve competitive profitability.

The MPP principal balance ~~rose $0.7~~fell $1.7 billion ~~(seven~~(15 percent) from year-end ~~2018.~~2019. During ~~2019,~~2020, we purchased $2.6 billion of mortgage loans, while principal reductions ~~totaled $1.9 billion.~~

of $4.3 billion reflected the significant increase in mortgage loan refinance activity in 2020.

Based on earnings in ~~2019~~,2020, we accrued $31 million for the Affordable Housing Program (AHP) pool of funds to be available to members in ~~2020.~~2021. In addition to the required AHP assessment, we ~~continued our~~provided voluntary sponsorship of ~~two~~three other housing

programs ~~which provide resources~~during 2020. These programs provided funds to ~~pay for~~cover accessibility ~~rehabilitation~~ and emergency repairs for special needs and elderly homeowners, funds for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District, and ~~to help members aid their communities following natural disasters.~~Advances at zero percent interest for COVID-19 related assistance.

Investments

The balance of investments at December 31, ~~2019~~2020 was ~~$34.4~~$27.0 billion, ~~an increase~~a decrease of ~~$0.8~~$7.3 billion ~~(two percent)~~ from year-end ~~2018.~~2019. At December 31, ~~2019,~~2020, investments included ~~$13.5~~$9.7 billion of MBS and ~~$20.9~~$17.3 billion of other investments, which consisted primarily of highly-rated short-term instruments and longer-term U.S. Treasury and GSE obligations held for liquidity. All of our MBS held at December 31, ~~2019~~2020 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency. The decline in the balance of investments at the end of 2020 was due to decreases in both MBS and liquidity investments. MBS balances declined due to an increase in prepayments of the underlying mortgages as a result of the low interest rate environment. Due to regulatory limitations regarding the purchase of MBS that reference LIBOR, we have not been able to fully replace the prepaid MBS with suitable alternatives. Liquidity investments decreased as we decided to hold more of our liquidity portfolio as deposits at the Federal Reserve at the end of 2020 in anticipation of volatile market conditions. At December 31, 2020, we held $3.0 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements of Condition.

Investments averaged ~~$37.8~~$32.9 billion in ~~2019, an increase~~2020, a decrease of ~~$8.0~~$4.9 billion ~~(27~~(13 percent) from year-end 2019. The decrease in average investments was primarily driven by the ~~average balance during 2018. We increased investments~~decrease in order to hold more asset liquidity, which we obtained primarily by purchasing U.S. Treasury obligations as part of our plan to manage the implementation of the Finance Agency's Advisory Bulletin on the maintenance of sufficient liquidity. In addition, liquidityMBS balances described above. Liquidity investments can vary significantly on a daily basis during times of volatility in Advance balances. We maintained a robust amount of asset liquidity throughout ~~2019~~2020 across a variety of liquidity measures, as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

Capital

Capital adequacy surpassed all minimum regulatory capital requirements in ~~2019.~~2020. The GAAP capital-to-assets ratio at December 31, ~~2019~~2020 was ~~4.75~~6.02 percent, while the regulatory capital-to-assets ratio was ~~4.79~~6.07 percent. Both ratios exceeded the regulatory required minimum of four percent. Regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under GAAP. ~~Both~~ GAAP and regulatory capital both decreased ~~$0.9~~$0.5 billion in ~~2019,~~2020, primarily due to ~~our~~the repurchase of ~~over $1.5~~$2.3 billion inof excess stock ~~from members. These repurchases~~and members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were ~~in response~~partially offset by members' purchases of capital stock to support Advance growth at the ~~decrease in Advances in 2019.~~end of the first quarter. Retained earnings totaled ~~$1.1~~$1.3 billion at December 31, ~~2019,~~2020, an increase of ~~seven percent~~$0.2 billion (19 percent) from year-end ~~2018.~~2019, which is a higher growth rate relative to recent years. The ~~decreases~~increase in ~~GAAP and regulatory capital were partially offset by purchases~~retained earnings was due in part to the lower weighted average dividend rate in 2020.

Table of ~~capital stock associated with new Advance activity from certain members.~~Contents

Results of Operations

Overall Results

~~The table below summarizes our results of operations.~~

Year Ended December 31,
(Dollars in millions) 2019 2018 2017
Net income $ 276
$ 339
$ 314
Affordable Housing Program assessments 31
38
35
Return on average equity (ROE) 5.65 % 6.29 % 6.15 %
Return on average assets 0.28
0.32
0.31
Weighted average dividend rate 5.05
5.88
5.00
Average 3-month LIBOR 2.33
2.31
1.26
ROE spread to 3-month LIBOR 3.32
3.98
4.89
Dividend rate spread to 3-month LIBOR 2.72
3.57
3.74

Net income in 2019 decreased $63 million (19 percent) compared to 2018. Net income was lower primarily due to a decline in spreads earned on Advances and a decrease in Advance balances. However, the lower net income was partially offset by increases in the fair values of certain derivatives and other financial instruments carried at fair value.

~~Despite the reduction in net income,~~Our earnings levels continued to represent competitive returns on stockholders' capital investment. ROE was higher than short-term rates in the periods presented above, while we maintained risk exposures in line with our appetite for a moderate risk profile. The spread between ROE and short-term rates, such as 3-month LIBOR, is a market benchmark we believe member stockholders actively use to assess the competitiveness of the return on their capital investment.

In December 2019, we paid stockholders a quarterly 4.00 percent annualized dividend rate on their capital investment in our company. The lower weighted average dividend rate in 2019 compared to 2018 was in part due to the decline in the interest rate environment over the last several quarters.

~~We believe that our operations and financial condition will continue to generate competitive profitability over time, reflecting~~reflect the combination of a stable business model and conservative management of risk. ~~Our business model is structured to be able to absorb sharp changes in Mission Asset Activity because we can execute commensurate changes in liability and capital stock balances.~~ Key factors that can cause significant periodic volatility in our profitability are changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization due to accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. The table below summarizes our results of operations.



	Year Ended December 31,
(Dollars in millions)	2020			2019			2018
Net income	$	276		$	276		$	339
Affordable Housing Program assessments	31			31			38
Return on average equity (ROE)	5.78		%	5.65		%	6.29		%
Return on average assets	0.31			0.28			0.32
Weighted average dividend rate	2.23			5.05			5.88
Average short-term interest rates (1)	0.51			2.24			2.07

ROE spread to average short-term interest rates	5.27			3.41			4.22
Dividend rate spread to average short-term interest rates	1.72			2.81			3.81

(1) Average short-term interest rates consist of 3-month LIBOR and the Federal funds effective rate.

The historically low interest rate environment in 2020 had a significant impact on earnings. Low long-term interest rates resulted in a higher volume of mortgage refinance activity, which led to elevated levels of mortgage loan repayments and related premium amortization. Additionally, short-term interest rates declined sharply in early 2020 and continued at low levels for the remainder of the year, which lowered the earnings generated from investing our capital. Despite these declines, 2020 net income benefited from gains on the sale of interest rate swaptions during the first quarter of 2020 as well as higher prepayment fees on Advances in 2020. We use swaptions to hedge market risk exposure associated with holding fixed-rate mortgage assets and may sell swaptions as interest rates change in order to offset actual and anticipated risks.

Earnings levels continued to represent competitive returns on stockholders' capital investment. Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. ROE was higher than average short-term rates in the periods presented above, while we maintained risk exposures in line with our appetite for a moderate risk profile. The spread between ROE and average short-term rates, which we compute using 3-month LIBOR and the Federal funds effective rate, is a market benchmark we believe member stockholders actively use to assess the competitiveness of the return on their capital investment.

In December 2020, we paid stockholders a quarterly dividend at a 2.00 percent annualized rate on their capital investment in our company, which is 1.84 percentage points above fourth quarter average short-term interest rates. The lower weighted average dividend rate in 2020 was due to the uncertainty surrounding the economic effects from the COVID-19 pandemic and its ultimate impact on our business and profitability, and to grow retained earnings to bolster the capital position going forward.

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Effect of Interest Rate Environment

Trends in market interest rates and the resulting shapes of the market yield curves strongly influence the results of operations and profitability because of how they affect members' demand for Mission Asset Activity, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).


														Year 2020				Year 2019				Year 2018

	Year 2019				Year 2018				Year 2017					Ending		Average		Ending		Average		Ending		Average
	Ending		Average		Ending		Average		Ending		Average
Federal funds effective	1.55	%	2.16	%	2.40	%	1.83	%	1.33	%	1.00	%	Federal funds effective	0.09	%	0.37	%	1.55	%	2.16	%	2.40	%	1.83	%
SOFR	1.55		2.20		3.00		1.85		1.47		0.90
Secured Overnight Financing Rate (SOFR)													Secured Overnight Financing Rate (SOFR)	0.09		0.37		1.55		2.20		3.00		1.85
3-month LIBOR	1.91		2.33		2.81		2.31		1.69		1.26		3-month LIBOR	0.24		0.65		1.91		2.33		2.81		2.31
2-year LIBOR	1.70		2.03		2.66		2.75		2.08		1.65		2-year LIBOR	0.20		0.49		1.70		2.03		2.66		2.75
10-year LIBOR	1.90		2.09		2.71		2.95		2.40		2.29		10-year LIBOR	0.93		0.88		1.90		2.09		2.71		2.95
2-year U.S. Treasury	1.57		1.97		2.49		2.52		1.89		1.39		2-year U.S. Treasury	0.12		0.39		1.57		1.97		2.49		2.52
10-year U.S. Treasury	1.92		2.14		2.69		2.91		2.41		2.33		10-year U.S. Treasury	0.92		0.89		1.92		2.14		2.69		2.91
15-year mortgage current coupon ⁽¹⁾	2.28		2.52		3.06		3.20		2.52		2.40		15-year mortgage current coupon (1)	0.65		1.17		2.28		2.52		3.06		3.20
30-year mortgage current coupon ⁽¹⁾	2.71		2.95		3.51		3.65		3.00		3.03		30-year mortgage current coupon (1)	1.28		1.64		2.71		2.95		3.51		3.65



	Year 2020 by Quarter - Average
	Quarter 1		Quarter 2		Quarter 3		Quarter 4

Federal funds effective	1.25	%	0.06	%	0.09	%	0.09	%
SOFR	1.25		0.05		0.09		0.09
3-month LIBOR	1.54		0.61		0.25		0.22
2-year LIBOR	1.18		0.32		0.22		0.23
10-year LIBOR	1.34		0.69		0.65		0.87
2-year U.S. Treasury	1.10		0.19		0.14		0.15
10-year U.S. Treasury	1.38		0.68		0.65		0.86
15-year mortgage current coupon (1)	1.86		1.09		0.86		0.88
30-year mortgage current coupon (1)	2.31		1.58		1.32		1.37

(1) Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.

Year 2019 by Quarter - Average
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Federal funds effective 2.40 % 2.40 % 2.19 % 1.65 %
SOFR 2.44
2.43
2.26
1.66
3-month LIBOR 2.69
2.51
2.20
1.93
2-year LIBOR 2.62
2.20
1.70
1.63
10-year LIBOR 2.67
2.30
1.70
1.72
2-year U.S. Treasury 2.49
2.13
1.69
1.59
10-year U.S. Treasury 2.65
2.33
1.79
1.79
15-year mortgage current coupon ⁽¹⁾
2.97
2.63
2.22
2.27
30-year mortgage current coupon ⁽¹⁾
3.41
3.07
2.62
2.70


~~(1)~~	~~Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.~~

The target overnight Federal funds rate was in the range of zero to 0.25 percent at December 31, 2020, a decrease from the range of 1.50 to 1.75 percent at December 31, ~~2019, a decrease from the range of 2.25 to 2.50 percent at December 31, 2018. In March 2020, the Federal Reserve first decreased the target Federal funds~~2019. The low interest rate ~~to a range of 1.00 to 1.25 percent and then subsequently decreased the target to a range of zero to 0.25 percent due to~~environment reflects the evolving risks to economic activity from the ~~coronavirus pandemic (COVID-19).~~COVID-19 pandemic.

Average ~~overnight~~short-term rates ~~(i.e., federal funds effective and SOFR)~~ were ~~still~~ approximately ~~0.35 percentage~~170 to 180 basis points ~~higher~~lower in ~~2019~~2020 compared to ~~2018, while average 3-month LIBOR was relatively flat~~2019 and average long-term rates decreased by approximately ~~0.65~~125 to ~~0.85 percentage~~135 basis points during that same period. The ~~higher~~decline in interest rates ~~on overnight assets continued to benefit~~negatively impacted income in ~~2019~~2020 primarily because of the lower earnings generated ~~by funding assets with interest-free capital. Both short-term~~from investing capital and ~~long-term interest rates trended downward throughout~~ the ~~second half~~increased mortgage asset prepayments resulting in higher net amortization of 2019. By the end of 2019, the trend of higher short-term interest rates with lower long-term rates experienced in the first three quarters no longer existed. In addition, for much of 2019, the market yield curves were relatively flat, and at certain maturity points inverted, which lowered profitability.premiums on those assets.

Business Outlook and Risk Management

This section summarizes the business outlook and what we believe are our current major risk exposures. See Item 1A. Risk Factors for a detailed discussion of certain factors that could affect our corporate objectives, financial condition, and results of operations. "Quantitative and Qualitative Disclosures About Risk Management" provides details on current risk exposures.

~~Recent Developments~~

~~Coronavirus Pandemic (COVID-19):~~The recent outbreak of COVID-19, which has now spread globally, including within the United States, has resulted in the declaration of the COVID-19 pandemic. The effects of COVID-19 are rapidly evolving, and the full impact and duration of the virus are unknown. Managing COVID-19 has strained and is expected to severely tax healthcare systems and businesses worldwide. The effects of COVID-19 and the response to the virus have negatively impacted financial markets and overall economic conditions. We have employees who are not operationally critical working remotely, and have implemented a split location model for critical staff in our downtown Cincinnati location and our back-up facility.

Strategic/Business Risk

Advances: Our business is cyclical and Mission Asset Activity normally ~~grows slowly or stabilizes~~declines in periods of ~~moderate macro-economic growth,~~economic contraction, when financial institutions have ample liquidity, or when there is significant growth in the money supply. Other factors that constrain widespread demand for Advances are the low levels of interest rates and competitiveness of Advances relative to deposits and other sources of wholesale funding.

In the last several years, the percentage of assets that members funded with Advances has shown little variation, in the range of two to four percent. We may see a broad-based increase in Advance demand if one or more of the following occur: aggregate

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loan portfolios of our members grow quicker than aggregate deposits, interest rates begin to increase over time, or changes in Federal Reserve policy reduce other sources of liquidity available to members.

MPP: MPP balances are influenced by conditions in the housing and mortgage markets, the ~~competitiveness~~competitiveness of prices we offer to purchase loans as well as program features, and activity from our largest sellers.

Our ongoing strategy for the MPP has two components: 1) increase the number of regular sellers and participants in the program; and 2) manage purchases and balances at a prudent level relative to capital and total assets to effectively manage market and credit risks consistent with our risk appetite.

Market Risk

During ~~2019,~~2020, as in ~~2018,~~2019, the market risk exposure to changing interest rates was moderate overall and well within policy limits. We believe that longer-term profitability would not become uncompetitive unless interest rates were to change quickly and significantly. In the short-term, profitability could become uncompetitive if long-term interest rates decrease ~~more than 100~~in excess of 50 basis points leading to faster prepayments of mortgage assets, which would further accelerate the recognition of purchased premiums.

Capital Adequacy

We believe members place a high value on their capital investment in our company. Capital ratios at December 31, ~~2019,~~2020, and all throughout the year, exceeded the regulatory required minimum of four percent. We believe the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment in the FHLB and to provide the opportunity to stabilize or increase future dividends. Our capital policies and Capital Plan also have safeguards to ensure we meet regulatory and prudential capital requirements.

Credit Risk

In ~~2019,~~2020, we continued to maintain a de minimis level of overall residual credit risk exposure from our Credit Services, investments, and derivative transactions. We believe policies and procedures related to credit underwriting, Advance collateral management, and transactions with investment and derivative counterparties continue to mitigate these risks. We have never experienced any credit losses, and we continue to have no loan loss reserves or impairment recorded for these instruments. Residual credit risk exposure in the mortgage loan portfolio was minimal. ~~The allowance for credit losses in the MPP was stable during the year and was $1 million at December 31, 2019.~~

Liquidity Risk

Our liquidity position remained strong during ~~2019,~~2020, as did our overall ability to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. Investor demand for FHLBank System debt continued to be robust. There

were no substantive stresses on market access or liquidity from external market and political events. Although we can make no assurances, we believe there is only a remote possibility of a liquidity or funding crisis in the System that could impair our ability to participate, on a cost-effective basis, in issuances of new debt, service outstanding debt, maintain adequate capital levels, or pay competitive dividends.

Regulatory and Legislative Risk and Significant Developments

General: The FHLBank System is subject to legislative and regulatory oversight. Legislative and regulatory actions applicable, directly or indirectly, to the FHLBank System in the last decade have increased uncertainty regarding the business model and membership base under which the FHLBanks may operate in the future. This is due primarily to the uncertainty around potential future GSE reform, and the evolution of mortgage financing moving towards financial institutions currently not eligible for FHLBank membership. See Item 1A. Risk Factors for more discussion. We cannot predict the ultimate outcome of GSE reform and whether our membership base will be legislatively and regulatorily permitted to evolve in concert with the housing finance market.

~~LIBOR Replacement;~~ Federal Deposit Insurance Corporation (FDIC) Brokered Deposits Restrictions:On January 22, 2021, the FDIC published a final rule, effective April 1, 2021, that amends its brokered deposits regulations that apply to less than well-capitalized insured depository institutions. The FDIC stated that the amendments are intended to modernize and clarify the FDIC’s brokered deposit regulations and they establish a new framework for analyzing the deposit broker definition, which determines whether deposits placed through deposit placement arrangements qualify as brokered deposits. These deposit placement arrangements include those between insured depository institutions and third parties, such as financial technology companies, for a variety of business purposes, including access to deposits. The amendments to the FDIC's brokered deposit regulations, among other things, clarify what it means to be engaged in the business of facilitating the placement of deposits and expand the scope of the primary purpose exception. The rule amendments are expected to have the effect of narrowing the definition of deposit broker and excluding more deposits from treatment as brokered deposits. The amendments also establish an application and reporting

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process with respect to the primary purpose exception for businesses that do not meet one of several bright-line tests, and they affirm the FDIC’s position that the brokering of certificates of deposit constitutes deposit brokering.

This rule may have an effect on member demand for certain Advances, but we cannot predict the extent of the impact. We do not expect this rule to materially affect our financial condition or results of operations.

Finance Agency Final Rule on FHLBank Housing Goals Amendments:On June 25, 2020, the Finance Agency published a final rule, effective August 24, 2020, amending the FHLBank housing goals regulation. Enforcement of the final rule will phase in over three years. The final rule eliminated the existing $2.5 billion volume threshold, such that all FHLBanks are subject to a new housing goal, regardless of their mortgage purchase volume. The new housing goal establishes one overall target level requiring 20 percent of an FHLBank's total mortgage purchases to be home-purchase mortgages for low- and very-low income families and low-income areas as well as refinancing mortgages for low-income families. The final rule also establishes a separate small member participation housing goal with a target level of 50 percent. The final rule provides that an FHLBank may request Finance Agency approval of alternative target levels for either or both of the goals. We do not believe these changes will have a material effect on our financial condition or results of operations.

Finance Agency Supervisory ~~Letter:~~Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances:On April 23, 2020, the Finance Agency issued a Supervisory Letter (PPP Supervisory Letter) permitting the FHLBanks to accept PPP loans as collateral for Advances as “Agency Securities,” given the Small Business Administration’s (SBA) 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA's third interim final rule related to PPP loans was published. The rule explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral that focus on the financial condition of members, collateral discounts, and pledge dollar limits. On December 27, 2020, the President signed into law an extension of the PPP until March 21, 2021. The April 23, 2020 Supervisory Letter from the Finance Agency allowing us to accept PPP loans as collateral remains in effect.

Coronavirus Aid, Relief, and Economic Security (CARES) Act:The CARES Act was signed into law on March 27, 2020. The $2.2 trillion package was the largest stimulus bill in United States history. The CARES Act is in addition to previous relief legislation passed by Congress in March 2020. The legislation provides the following:

▪Assistance to businesses, states, and municipalities.

▪A loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives.

▪Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act.

▪Direct payments to eligible taxpayers and their families.

▪Expanded eligibility for unemployment insurance and payment amounts.

▪Mortgage forbearance provisions and a foreclosure moratorium.

Funding for the PPP, which was created by the CARES Act, was increased with the enactment of subsequent laws, most recently by the Consolidated Appropriations Act, 2021, on December 27, 2020. Additional phases of the CARES Act or other COVID-19 pandemic relief legislation may be enacted by Congress or other actions by the President, state governments, and governmental agencies. In connection with the foreclosure moratorium noted above, we have asked servicers of the mortgage loans we own to temporarily suspend all foreclosure sales and evictions, unless a home is vacant, in order to allow homeowners to stay in their homes during this period. We continue to monitor these actions and guidance as they evolve and to evaluate the potential impact to the U.S. economy; the impacts to mortgages held or serviced by our members that we accept as collateral; the impacts on our MPP portfolio; and the impacts to our overall business.

LIBOR Transition: We are planning for the replacement of LIBOR given ~~the announcement~~ that the ~~LIBOR index is expected~~FCA will no longer persuade or compel banks to ~~be phased out by no later than~~submit rates for the ~~end~~calculation of ~~2021~~LIBOR and the Federal Reserve Bank of New ~~York's establishment of~~York has established SOFR as its recommended alternative to LIBOR. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar ~~LIBOR. In 2019, we~~LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings. The market activity in SOFR-linked financial instruments has continued to ~~participate in the FHLBank System's issuances of~~develop and we have offered SOFR-linked Consolidated ~~Bonds. At December 31, 2019, $10.9 billion (99 percent)~~Obligations and SOFR-linked Advances on an ongoing basis. In addition, a SOFR-based derivatives market has begun to emerge and we have begun to use SOFR-based derivatives to manage interest-rate risk.

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As many of our ~~adjustable-rate Consolidated Bonds were~~assets and derivatives are still indexed to ~~SOFR. We also continued to offer SOFR-linked Advances~~LIBOR, we have developed and ~~began swapping certain instruments to adjustable-rates tied to SOFR~~implemented a LIBOR transition plan, which addresses considerations such as LIBOR exposure, fallback language, operational preparedness, and the overnight Federal funds effective rate in 2019. However, the majority of our variable-rate assets still remain indexed to LIBOR. Therefore, we are continuing to plan for the eventual replacement of our LIBOR-indexed instruments away from the LIBOR benchmark interest rate.balance sheet management. Part of our LIBOR transition plan includes ~~having~~our previously implemented fallback language for ~~our~~ LIBOR-indexed Advances and Consolidated Bonds in new and legacy contracts. As for our ~~derivatives and~~ investments that are tied to LIBOR, we are monitoring market-wide efforts to enhance fallback language for new activity and develop frameworks to address existing transactions. ~~We are also evaluating the transition relief provided by the Financial Accounting Standards Board (FASB) concerning the accounting for contract modifications during the replacement of LIBOR.~~

On ~~September 27, 2019,~~October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA), published a Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol). Both the Supplement and the Protocol were effective on January 25, 2021. As of that date, all legacy bilateral derivatives transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered Interbank Offered Rate (IBOR), including U.S. dollar LIBOR, were effectively amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. We have adhered to the Protocol and have worked with our counterparties, as necessary, to address over-the-counter derivative agreements referencing U.S. dollar LIBOR as a part of our LIBOR transition efforts.

The Finance Agency has also issued ~~a Supervisory Letter - Planning for LIBOR Phase-Out (Supervisory Letter) to the FHLBanks that the Finance Agency stated is~~supervisory letters designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. ~~The Supervisory Letter provided that~~As of June 30, 2020, the FHLBanks ~~should, by March 31, 2020,~~were required to cease entering into new ~~LIBOR referenced~~LIBOR-based financial ~~assets, liabilities, and derivatives with maturities beyond~~instruments that mature after December 31, 2021, except for ~~all product types except investments.~~investments and option embedded products. With respect to investments, the ~~Supervisory Letter~~Finance Agency required the FHLBanks, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates dodid not apply to collateral accepted by the FHLBanks. ~~The Supervisory Letter also~~As directed by the Finance Agency, the FHLBanks ~~to update~~began requiring their ~~pledged collateral certification reporting requirements by March 31, 2020 in an effort to encourage~~ members to ~~identify~~report levels of LIBOR-linked collateral maturing after December 31, 2021. The Finance Agency may permit certain exceptions to its Supervisory Letter because there may be LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes for the FHLBanks that do not currently have readily available alternatives.

~~As a result of the recent market conditions triggered in part by COVID-19, the FHLBanks' ability to enter into LIBOR-based instruments~~ that mature after December 31, ~~2021 has been extended from March 31, 2020~~2021. This will assist the FHLBanks in determining the level of member reliance on these assets to ~~June 30, 2020, except for investments~~support borrowings, make decisions about their future eligibility and ~~option embedded products.~~the impact of any incremental haircuts and asset value deterioration on borrowing capacity.

We have Advances, investment securities ~~Consolidated Bonds~~ and derivatives with interest rates indexed to LIBOR. Each of these instruments are indexed to LIBOR settings that will no longer be provided after June 30, 2023, as noted above. The following table presents LIBOR-indexed Advances, investment securities ~~Consolidated Bonds~~ and derivatives by contractual maturity at December 31, ~~2019.~~2020.


(In millions)	Maturing on or before June 30, 2023		Maturing after June 30, 2023
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term	$	2,599	$	3,012
MBS by contractual maturity (1)	—		5,929

Total principal amount	$	2,599	$	8,941
Derivatives, notional amount by termination date	$	9,339	$	4,680

(In millions) Maturing in 2020-2021 Maturing after 2021
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term $ 6,906
$ 3,524
MBS by contractual maturity ⁽¹⁾
266
7,759
Consolidated Bonds by contractual maturity 65
—
Total principal amount $ 7,237
$ 11,283
Derivatives, notional amount by termination date $ 12,198
$ 7,467
(1)MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.


~~(1)~~	MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

The market transition away from LIBOR towards SOFR is ~~expected to be~~ gradual and complicated, including the possible development of term structures and credit adjustments to accommodate differences between LIBOR and SOFR. As such, we are not currently able to predict the ultimate impact of such a transition on our business, financial condition, and results of operations.

~~Acquired Member Assets Advisory Bulletin:Advisory Bulletin 2020-01 - Federal Home Loan Bank Risk Management of Acquired Member Assets (AMA).~~ On January 31, 2020, the Finance Agency issued an Advisory Bulletin providing guidance on the risk management of acquired member assets, such as the MPP. The guidance includes expectations that an FHLBank will have Board-established limits on AMA portfolios and management-established thresholds to serve as monitoring tools to manage AMA-related risk exposure. The guidance provides that the board of an FHLBank should ensure that it serves as a liquidity source for members, while ensuring its portfolio limits do not result in the FHLBank’s acquisition of mortgages from smaller members being “crowded out” by the acquisition of mortgages from larger members. The Advisory Bulletin contains the expectation that the board of an FHLBank should set limits on the size and growth of portfolios and on acquisitions from a single participating financial institution. In addition, the guidance sets forth that the board of an FHLBank should consider concentration risk in the areas of geographic area, high-balance loans, and in third-party loan originations. We continue to evaluate the potential impact of this guidance, but currently do not expect it to materially affect our financial condition or results of operations.

~~Capital Stock Management Advisory Bulletin:Advisory Bulletin 2019-03 - Capital Stock Management.~~ On August 14, 2019, the Finance Agency issued an Advisory Bulletin providing guidance that augments existing statutory and regulatory capital requirements to require each FHLBank to maintain at least a two percent ratioTable of capital stock to total assets. In February 2020, the Finance Agency began to consider the proportion of capital stock to assets, measured on a daily average basis at month end, when assessing each FHLBank’s capital management practices. We do not expect this guidance to have a material impact on our capital management practices, financial condition, or results of operation.Contents

~~Final Rule on FHLBank Capital Requirements:~~ On February 20, 2019, the Finance Agency published a final rule, effective January 1, 2020, that adopts, with amendments, the regulations of the Federal Housing Finance Board (predecessor to the Finance Agency) (the Finance Board) pertaining to the capital requirements for the FHLBanks. The final rule carries over most of the prior Finance Board regulations without material change, but substantively revises the credit risk component of the risk-based capital requirement, as well as the limitations on extensions of unsecured credit. The main revisions remove requirements that we calculate credit risk capital charges and unsecured credit limits based on ratings issued by a NRSRO, and instead require that we establish and use our own internal rating methodology (which may include, but not solely rely on, NRSRO ratings). In addition, the rule imposes a new credit risk capital charge for cleared derivatives, revises the percentages used in the regulation’s tables to calculate credit risk capital charges for Advances and for non-mortgage assets and rescinds certain contingency liquidity requirements, as these requirements are now addressed in an Advisory Bulletin on FHLBank Liquidity Guidance issued by the Finance Agency in 2018. We do not expect this rule to materially affect our financial condition or results of operations.

ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition

The ~~tables~~table below ~~show~~shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.


(Dollars in millions)	December 31, 2019				December 31, 2018				(Dollars in millions)	December 31, 2020				December 31, 2019
	Balance		Percent⁽¹⁾		Balance		Percent⁽¹⁾			Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable Rate-Indexed:									Adjustable/Variable Rate-Indexed:
LIBOR	$	10,430	22	%	$	28,740	52	%	LIBOR	$	5,611	22	%	$	10,430	22	%
SOFR	500		1		1,400		3		SOFR	118		1		500		1
Other	221		1		744		1		Other	82		—		221		1
Total	11,151		24		30,884		56		Total	5,811		23		11,151		24
Fixed-Rate:									Fixed-Rate:
Repurchase based (REPO)	19,386		41		7,003		13		Repurchase based (REPO)	3,780		15		19,386		41
Regular Fixed-Rate	11,476		24		10,972		20		Regular Fixed-Rate	9,587		38		11,476		24
Putable ⁽²⁾	1,444		3		460		1		Putable (2)	2,657		11		1,444		3
Amortizing/Mortgage Matched	2,358		5		2,702		5		Amortizing/Mortgage Matched	2,021		8		2,358		5
Other	1,449		3		2,851		5		Other	1,151		5		1,449		3
Total	36,113		76		23,988		44		Total	19,196		77		36,113		76

Total Advances Principal	$	47,264	100	%	$	54,872	100	%	Total Advances Principal	$	25,007	100	%	$	47,264	100	%

Letters of Credit (notional)	$	16,205			$	14,847			Letters of Credit (notional)	$	28,812			$	16,205


(Dollars in millions)	December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
	Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable-Rate Indexed:
LIBOR	$	5,611	22	%	$	5,846	22	%	$	21,071	44	%	$	28,889	36	%
SOFR	118		1		116		—		116		—		2,000		3
Other	82		—		123		1		83		—		247		—
Total	5,811		23		6,085		23		21,270		44		31,136		39
Fixed-Rate:
Repurchase based (REPO)	3,780		15		3,896		15		8,978		18		28,058		35
Regular Fixed-Rate	9,587		38		10,207		38		11,445		24		14,452		18
Putable (2)	2,657		11		3,107		12		3,164		6		3,164		4
Amortizing/Mortgage Matched	2,021		8		2,195		8		2,309		5		2,439		3
Other	1,151		5		1,158		4		1,241		3		680		1
Total	19,196		77		20,563		77		27,137		56		48,793		61

Total Advances Principal	$	25,007	100	%	$	26,648	100	%	$	48,407	100	%	$	79,929	100	%

Letters of Credit (notional)	$	28,812			$	23,011			$	22,381			$	15,785

(Dollars in millions) December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019
Balance
Percent⁽¹⁾
Balance
Percent⁽¹⁾
Balance
Percent⁽¹⁾
Balance
Percent⁽¹⁾
Adjustable/Variable-Rate Indexed:
LIBOR $ 10,430
22 % $ 13,604
29 % $ 16,127
37 % $ 20,462
38 %
SOFR 500
1
1,050
2
1,050
3
1,400
2
Other 221
1
379
1
416
1
394
1
Total 11,151
24
15,033
32
17,593
41
22,256
41
Fixed-Rate:
REPO 19,386
41
13,399
29
7,520
17
15,187
28
Regular Fixed-Rate 11,476
24
12,364
27
11,486
27
10,991
20
Putable ⁽²⁾
1,444
3
1,414
3
1,020
3
885
1
Amortizing/Mortgage Matched 2,358
5
2,583
6
2,646
6
2,753
5
Other 1,449
3
1,393
3
2,490
6
2,806
5
Total 36,113
76
31,153
68
25,162
59
32,622
59
Total Advances Principal $ 47,264
100 % $ 46,186
100 % $ 42,755
100 % $ 54,878
100 %

Letters of Credit (notional) $ 16,205
$ 16,090
$ 15,697
$ 13,812

(1)As a percentage of total Advances principal.


~~(1)~~	~~As a percentage of total Advances principal.~~


~~(2)~~	~~Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.~~

(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.

Advance balances at December 31, ~~2019~~2020 decreased 1447 percent compared to year-end ~~2018. Although a number of~~2019. Advance balances declined in 2020 as large-asset members ~~increased~~reduced their ~~borrowings in 2019, a~~borrowings. The reduction in borrowings ~~from one~~was primarily driven by these members generally experiencing an inflow of ~~our largest borrowers led~~deposits on their balance sheets, while also having access to other liquidity sources as a result of certain government actions related to the ~~net decrease~~pandemic. Despite the overall decline, Advances spiked across our membership at the end of the first quarter of 2020 as the financial markets reacted to the COVID-19 pandemic, and members

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turned to us for liquidity, primarily in the form of LIBOR and REPO Advances. Most of these Advances matured or prepaid by the end of 2020.

Advances. REPOs, which traditionally have the most volatile balances because a majority of them have overnight maturities, allow our members the most flexibility as their liquidity needs may change daily.

Housing and Community Investment

Our Housing and Community Investment Programs include the Affordable Housing Program and various housing and community economic development-related Advance ~~Usage~~and grant programs. We fund the Affordable Housing Program with an accrual equal to 10 percent of our previous year's net earnings, mandated by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. See Note 10 of the Notes to Financial Statements for a complete description of the Affordable Housing Program calculation.

Our Board of Directors also may allocate funds to voluntary housing programs. In 2020, the Board re-authorized an additional $2.0 million to the Carol M. Peterson Housing Fund for use during the year. These funds are primarily used as grants to pay for accessibility rehabilitation and emergency repairs for special needs and elderly homeowners. In 2012, the Board of Directors also established the Disaster Reconstruction Program, a voluntary housing program that provides grants for purchase or rehabilitation of a home within the Fifth District for residents that have suffered loss or damage to their primary residence as a result of a state or federally declared disaster. Since the program's inception, we have disbursed over $4.7 million to assist 378 households. Furthermore, in support of our members during the COVID-19 pandemic, we created a new Advance program that offered Advances with terms up to six months at zero percent interest to members between May 1, 2020 and September 30, 2020. These Advances supported COVID-19 related assistance made by all Fifth District members. In 2020, we issued a total of $183 million of these Advances of which $34 million remained outstanding at December 31, 2020.

Two other housing programs that fall outside the auspices of the Affordable Housing Program are the Community Investment Program and the Economic Development Program. Advances under the former program have rates equal to our cost of funds, while Advances under the latter program have rates equal to our cost of funds plus reasonable administrative costs. Members use the Community Investment Program to serve housing needs of low- and moderate-income households and, under certain conditions, community economic development projects. The Economic Development Program is a discounted Advance program used to promote economic development and job creation and retention.

Investments

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▪MBS and collateralized mortgage obligations (together, referred to as MBS) issued by GSEs, other U.S. government agencies or private issuers;

▪asset-backed securities collateralized by manufactured housing loans or home equity loans issued by GSEs or private issuers; and

We have never purchased asset-backed securities and do not own any privately-issued MBS.

Per Finance Agency regulations, the total investment in MBS and asset-backed securities may not exceed 300 percent of previous month-end regulatory capital on the day we purchase the securities. See the “Capital Resources” section below for the definition of regulatory capital.

Purposes of Having Investments. The investments portfolio helps achieve corporate objectives in the following ways:

▪Support of housing market. Investment in MBS and state housing finance agency bonds directly supports the residential mortgage market by providing capital and financing for mortgages.

Market risk associated with short-term investments tends to be minimal because of their short maturities and because we typically fund them with short-term Consolidated Obligations having similar maturities. We mitigate much of the market risk of MBS, which exists primarily from changes in mortgage prepayment speeds, by limiting their balances to 300 percent of regulatory capital and by funding them with a portfolio of long-term fixed-rate callable and non-callable Obligations. Additionally, we mitigate much of the market risk of longer-term non-MBS securities, and a portion of our MBS, by using interest rate swaps to effectively convert the fixed rate investments to adjustable-rate investments. We also manage the market risk exposure of the entire balance sheet within prudent policy limits.

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investment policies and practices, we believe all of our investments have high credit quality. We have never had a credit loss or credit-related write down of any investment security.

Deposits

We provide a variety of deposit programs, including demand, overnight, term and Federal funds, which enable depositors to invest funds in short-term liquid assets. We accept deposits from members, other FHLBanks, any institution to which we offer correspondent services, and other government instrumentalities. The rates of interest we pay on deposits are subject to change daily based on comparable money market interest rates. The balances in deposit programs tend to vary positively with the amount of idle funds members have available to invest, as well as the level of short-term interest rates. Deposits have typically represented one to two percent of our funding sources in recent years.

Mortgage Purchase Program (MPP or Mortgage Loans Held for Portfolio)

Description of the MPP

A “conventional” mortgage refers to a non-government-guaranteed mortgage. A “conforming” mortgage refers to the maximum amount permissible to be lent as a regular prime (i.e., non-jumbo, non-subprime) mortgage. For 2021, the Finance Agency established the conforming limit at $548,250 with loans originated in a limited number of high-cost cities and counties receiving higher conforming limits. We have elected not to purchase mortgages subject to these higher conforming limits.

How We Manage Risks of the MPP

Market Risk. We mitigate the MPP's market risk similarly to how we mitigate market risk from MBS.

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Credit Risk - FHA Mortgage Loans. Because the FHA makes an explicit guarantee on FHA loans, we do not require any credit enhancements on these loans beyond primary mortgage insurance.

Earnings from the MPP

▪minus servicing costs (0.25 percent for conventional loans and 0.44 percent for FHA loans);

▪minus the cost of Supplemental Mortgage Insurance (for applicable loans); and

FUNDING - CONSOLIDATED OBLIGATIONS

We participate in the issuance of Bonds for three purposes:

▪to finance and hedge intermediate- and long-term fixed-rate Advances and mortgage assets;

▪to acquire liquidity investments.

Bonds may have fixed or adjustable rates of interest. Fixed-rate Bonds are either non-callable or callable. A callable Bond is one that we are able to redeem in whole or in part at our discretion on one or more predetermined call dates according to the Bond's offering notice. The maturity of Bonds typically ranges from 1 year to 20 years. Adjustable-rate Bonds use a benchmark market interest rate, typically SOFR, for interest rate resets. We do not participate in the issuance of range Bonds, zero coupon Bonds, or indexed principal redemption Bonds.

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We transact in interest rate swaps to synthetically convert some fixed-rate Bonds to adjustable-rate terms. These are used to hedge adjustable-rate Advances.

Interest rates on Obligations are affected by a multitude of factors such as: overall economic and credit conditions; credit ratings of the FHLBank System; investor demand and preferences for our debt securities; the level of interest rates and the shape of the U.S. Treasury curve, the SOFR swap curve or LIBOR swap curve; and the supply, volume, timing, and characteristics of debt issuances by the FHLBanks, other GSEs, and other highly rated issuers.

LIQUIDITY

CAPITAL RESOURCES

Capital Requirements

Statutory and Regulatory Requirements

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▪We must maintain at least a four percent minimum regulatory capital-to-assets ratio. This requirement historically has been closest to affecting our operations.

In addition to ~~analyzing Advance balances~~the minimum capital requirements, the GLB Act and our Capital Plan promote the adequacy of our capital to absorb financial losses in three ways. These combine to give member stockholders a clear incentive to require us to minimize our risk profile:

▪the five-year redemption period for Class B stock;

▪the option we have to call on members to purchase additional capital if required to preserve safety and soundness; and

▪the limitations, described below, on our ability to honor requested redemptions of capital if we are at risk of not maintaining safe and sound operations.

In accordance with the GLB Act, our stock is also putable by ~~dollar trends,~~members. There are statutory and regulatory restrictions on our obligation or right to redeem or repurchase outstanding stock, including, but not limited to, the following:

▪We may not redeem any capital stock if, following the redemption, we ~~monitor~~would fail to satisfy any regulatory capital requirements. By law, we may not redeem any stock if we become undercapitalized.

▪We may not redeem any capital stock without approval of the ~~degree~~Finance Agency if either our Board of Directors or the Finance Agency determines that we have incurred or are likely to ~~which members use Advances~~incur losses resulting or expected to ~~fund~~result in a charge against capital.

If we were to be liquidated, stockholders would be entitled to receive the par value of their ~~balance sheets. The following table shows~~capital stock after payment in full to our creditors. In addition, each stockholder would be entitled to any retained earnings in an amount proportional to the ~~unweighted, average ratio~~stockholder's share of the total shares of capital stock. In the event of a merger or consolidation of the FHLB, the Board of Directors would determine the rights and preferences of the FHLB's stockholders, subject to any terms and conditions imposed by the Finance Agency.

Capital Plan

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▪We may, subject to the restrictions described above, repurchase certain capital stock (i.e., "excess" capital stock).

At December 31, 2020, the amount of membership stock required for each member ranged from a minimum of $1,000 to a maximum of $30 million, with the amount within that range determined as a percentage of member assets. Separate from its membership stock, each member is required to purchase and hold activity stock to capitalize its Mission Asset Activity. For purposes of the Capital Plan, Mission Asset Activity includes the principal balance of Advances, guaranteed funds and rate Advance commitments, the principal balance of loans and commitments in the MPP, and beginning January 1, 2021, the notional balance of Letters of Credit.

The FHLB must capitalize its total assets at a rate of at least four percent. The Capital Plan supports the memberships' stock component towards this overall requirement. Each member is required to maintain an amount of activity stock within a range of a minimum and maximum percentage for each type of Mission Asset Activity. The Capital Plan amendment that went into effect on January 1, 2021 changed the activity percentages and set these minimums and maximums to be equal. As a result, the current percentages are as follows:


Mission Asset Activity	Minimum Activity Percentage	Maximum Activity Percentage
Advances	4.50%	4.50%
Advance Commitments	4.50	4.50
MPP	3.00	3.00
Letters of Credit	0.10	0.10

If a member owns more stock than is needed to satisfy both its ~~most-recently~~membership stock requirement and the maximum activity stock percentages for its Mission Asset Activity, we designate the remaining stock as the member's excess capital stock. The member may utilize its excess stock to capitalize additional Mission Asset Activity.

Prior to 2021, if an individual member's excess stock reached zero, the Capital Plan had permitted us, with certain limits, to capitalize additional Mission Asset Activity of that member with excess stock owned by other members at the maximum percentage rate. This feature, called “cooperative capital,” enabled us to effectively utilize our excess capital stock holdings. However, with the most recently amended Capital Plan, by setting the minimum and maximum activity requirements to be equal, members are no longer able to utilize this cooperative capital for marginal new business.

Retained Earnings

Purposes and Amount of Retained Earnings

We have a policy that sets forth a minimum amount of retained earnings we believe is needed to mitigate impairment risk and facilitate dividend stability in light of the risks we face. At December 31, 2020, the minimum retained earnings requirement was approximately $290 million, based on mitigating quantifiable risks under very stressed business and market scenarios to a 99

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percent confidence level. At the end of 2020, our retained earnings totaled $1.3 billion. We believe the current amount of retained earnings is fully sufficient to protect our capital stock against impairment risk and to provide for dividend stability.

Joint Capital Agreement to Augment Retained Earnings

The FHLBanks entered into a Joint Capital Enhancement Agreement (the “Capital Agreement”) in February 2011. The Capital Agreement provides that each FHLBank will, on a quarterly basis, allocate at least 20 percent of its net income to a restricted retained earnings account (the “Account”) until the balance of the Account, calculated as of the last day of each calendar quarter, equals at least one percent of that FHLBank's average balance of outstanding Consolidated Obligations for the calendar quarter. The Account is not available ~~figures~~to be distributed as dividends except under certain limited circumstances. The Capital Agreement does not limit our ability to use retained earnings held outside of the Account to pay dividends. Although we have always maintained compliance with our capital requirements, we believe the Capital Agreement enhances risk mitigation by building a larger capital buffer over time to absorb unexpected losses, if any, that we may experience.

USE OF DERIVATIVES

Finance Agency regulations and our policies establish guidelines for ~~total~~the execution and use of derivative transactions. We are prohibited from trading in, or the speculative use of, derivatives and have limits on the amount of credit risk to which we may be exposed. Most of our derivatives activity involves interest rate swaps, some of which may include options. We account for all derivatives at fair value.

▪below-market rates and/or the market risk exposure on Putable Advances, and certain other Advances, for which members have sold us options embedded within the Advances; or

▪Regular Fixed-Rate Advances when it may not be as advantageous to issue Obligations or when it may improve our market risk management.

We may also transact derivatives to reduce the repricing risk of Discount Notes that fund certain overnight and shorter-term assets.

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December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018
Average Advances-to-assets for members
Assets less than $1.0 billion (542 members) 2.55 % 2.71 % 2.67 % 2.82 % 3.05 %
Assets over $1.0 billion (98 members) 3.31
3.87
3.65
3.67
4.26
All members 2.67
2.88
2.81
2.94
3.22
Use of derivatives can result in a substantial amount of volatility of accounting and economic earnings. We strive to maintain a low amount of earnings volatility from realized gains and losses on derivatives. We accept a higher amount of earnings volatility from unrealized gains and losses on recording derivatives at fair values, to the extent our use of derivatives effectively hedge market risk exposure.

COMPETITION

Advances

Our ability to compete successfully with other suppliers of wholesale funding, including other FHLBanks, depends primarily on the total cost of our products to members, which include the rates we charge, earnings and dividend performance, collateral policies, capital stock requirements, product features and members' perceptions of our relative safety and soundness. In addition, our competitive environment continues to be impacted by the Federal Reserve's low interest-rate environment and actions to provide liquidity in the financial markets. See Item 1A. Risk Factors below for further discussion.

Mortgage Purchase Program

Debt Issuance

HUMAN CAPITAL RESOURCES

In managing human capital, we focus on our workforce profile and the various programs and philosophies described below.

Workforce Profile

Total Rewards

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achieve this objective through a combination of development programs, benefits and employee wellness programs, and recognizing and rewarding performance. Specifically, our programs include:

▪Cash compensation – provides competitive salary, transportation and other cash subsidies, and performance based incentives.

▪Recognition programs – sponsors peer-to-peer recognition program, department recognition program and company-wide recognition.

▪Management succession planning – assesses talent annually with our leadership and Board of Directors with, at a minimum, a defined plan for positions at Vice President and above.

Diversity and Inclusion Program

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Item 1A.Risk Factors.

The following discussion summarizes risks and uncertainties we currently face. The realization of one or more of the risks could negatively affect our results of operations, financial condition, safety and soundness, and, at the extreme, the viability of our business franchise. The effects could include reductions in Mission Asset Activity, lower earnings and dividends, and, at the extreme, impairment of our capital or an inability to participate in issuances of Consolidated Obligations. The risks identified below are not the only risks we face. Other risks not presently known or which we deem to be currently immaterial may also impact our business. Additionally, the risks identified may adversely affect our business in ways we do not expect or anticipate.

BUSINESS AND REGULATORY RISK

A prolonged economic downturn could further lower Mission Asset Activity and profitability.

▪the general state and trends of the economy and financial institutions, especially in the Fifth District;

▪conditions in the financial, credit, mortgage, and housing markets;

▪interest rates;

▪actions of the Federal Reserve to affect liquidity reserves of financial institutions and the money supply;

▪competitive alternatives to our products, such as retail deposits and other sources of wholesale funding;

▪regulations affecting our members' liquidity requirements;

▪the willingness and ability of financial institutions to expand lending; and

For example, we believe overall Advance demand has been and continues to be unfavorably affected by the substantial amount of deposit-based liquidity provided to financial institutions through the monetary actions of the Federal Reserve and changes in our members' ability to manage their regulatory liquidity requirements. The Federal Reserve’s policies facilitate liquidity and support stability in the fixed-income markets, which in turn has generally led to substantial deposit growth for our members and decreases in their demand for Advances. See "Executive Overview" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information on recent market activity.

The competitive environment for our products could adversely affect business activities, including decreasing the level and utilization rates of Mission Asset Activity, earnings, and capitalization.

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In connection with purchasing mortgage loans from our members, we face competition in the areas of customer service, purchase prices for the MPP loans and ancillary services such as automated underwriting and loan servicing options. Our primary competitors are Fannie Mae, Freddie Mac, government agencies such as Ginnie Mae, and other secondary mortgage market conduits. In addition, our members continue to face increased competition in mortgage origination from non-bank financial institutions that are not eligible for FHLBank membership, which could reduce the amount of mortgage loans that members can make available to us to purchase.

Increased competition could decrease the amount of Advances and mortgage loans and narrow profitability, both of which could cause stockholders to request withdrawals of capital and ultimately result in a failure to meet our capital adequacy requirements.

Sharp reductions in Mission Asset Activity resulting from lower usage by large members, consolidation of large members, or continued shift in mortgage lending activities towards entities not eligible for FHLB membership could adversely impact our net income and dividends.

The amount of Mission Asset Activity and capital is concentrated among a small number of our large members. Additionally, the financial industry continues to consolidate and in recent years there has been a systemic trend of financial institutions that are currently ineligible for FHLB membership gaining an increasing market share, especially related to mortgage finance. However, the legislative and regulatory environment faced by the FHLBanks has not changed in response to this trend. Our members could decrease their Mission Asset Activity and the amount of their capital stock as a result of merger and acquisition activity or continued loss of market share to ineligible entities. At December 31, 2020, one member, U.S. Bank, N.A., held over 15 percent of our Advances and one member PFI, Union Savings Bank, accounted for over 30 percent of the outstanding MPP principal balance. Our business model is structured to be able to absorb sharp changes in Mission Asset Activity because we can undertake commensurate reductions in liability balances and capital and because of our relatively modest operating expenses. However, an extremely large and sustained reduction in Mission Asset Activity could affect our profitability and ability to pay competitive dividends, as well as, at the FHLBank System level, raise policy questions about the relevance of the FHLBank System in its traditional mission of supporting housing finance.

Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.

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Potential GSE reform could unfavorably affect our business model, financial condition, and results of operations.

Changes in the regulatory and legislative environment could unfavorably affect our business model, financial condition, and results of operations.

MARKET AND LIQUIDITY RISK

Exposure of earnings to unhedged changes in interest rates and mortgage prepayment speeds is one of our largest ongoing residual risks. We derive most of our income from the interest earned on assets less the interest paid on Consolidated Obligations and deposits used to fund the assets. Spreads on our assets tend to be narrow compared to those of many other financial institutions due to our cooperative business model. Market conditions, yield curve shape, competitive forces, and market risk exposure could cause these already narrow asset spreads to decline, which could substantially reduce our

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We are exposed to liquidity risk if significant disruptions in the capital markets occur. Although the System was able to maintain access to the capital markets for debt issuances on acceptable terms during 2020, there is no assurance this will continue to be the case. Future ability to effectively access the capital markets on acceptable terms could be adversely affected by external events (such as general economic and financial instabilities, political instability, wars, natural disasters, pandemics or other widespread health emergencies, civil unrest or other unanticipated or catastrophic events), deterioration in the perception of financial market participants about the financial strength of Consolidated Obligations, or downgrades to the System's credit ratings. The System could also be affected by the continued changes in the capital markets in response to financial regulations and by the joint and several liability for Consolidated Obligations, which exposes the System as a whole to events at individual FHLBanks. If access to capital markets were to be impaired for an extended period, the effect on our financial condition and results of operations could be material. At the extreme, the System's ability to achieve its mission and satisfy its financial obligations could be threatened.

CREDIT RISK

We are exposed to credit risk that, if realized, could materially affect our financial condition and results of operations.

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Although Advances and Letters of Credit are over-collateralized and mortgage loans in the MPP are of high credit quality with various credit enhancements, credit risk could increase under a number adverse scenarios, such as damage or destruction of collateral that members pledge to secure Advances or mortgages that we hold in the MPP as a result of natural disasters, which may be caused by the effects of climate change or other catastrophic events. Significant declines in the value of collateral pledged to secure Advances could lead to greater exposure to credit losses in the event of a member default. Additionally, significant and sustained reductions in home prices and sustained elevated levels of unemployment and other factors that influence delinquencies and defaults could increase the risk of credit losses in the MPP.

Financial difficulties at other FHLBanks could require us to provide financial assistance to another FHLBank, which could adversely affect our results of operations or our financial condition.

OPERATIONAL RISK

Failures of the Office of Finance could disrupt the ability to conduct and manage our business.

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Failures or interruptions in our information systems and other technologies, financial and business models, and third-party vendors could harm our financial condition, results of operations, reputation, and relations with members.

As a financial institution, we rely heavily on internal and third-party information systems and other technology to manage our business, including the secure processing, storage and transmission of confidential borrower and financial information in computer systems and networks. For instance, due to our reliance on the book-entry system of the Federal Reserve Banks for debt issuance and servicing operations, we depend on them and their fiscal agent, the Federal Reserve Bank of New York, and one or more settlement agents to issue and make payments of principal and interest on Consolidated Obligations. Failures in information systems and other technologies could occur from human error, fraud, cyberattacks, errors or misuse of models and services we employ, lapses in operating processes, or natural or man-made disasters.

Computer systems, software and networks may be increasingly vulnerable to failures and interruptions from cyberattacks, which may include breaches, unauthorized access, misuse, computer viruses or other malicious or destructive code (such as ransomware) and other events against information owned by our company and customers. These failures and interruptions could jeopardize the confidentiality or integrity of information, or otherwise cause interruptions or malfunctions in operations. Additionally, threats of cyber terrorism, external extremist parties, including state-sponsored actors, result in heightened risk exposure. The techniques used in cyber attacks change frequently and have grown increasingly sophisticated, and these attacks or ensuing security breaches could persist for an extended period of time before being detected. It could take considerable additional time for us to determine the scope, extent, amount, and type of information compromised. We can make no assurance that we will be able to prevent, timely and adequately address, or mitigate failures, interruptions, or cyberattacks in information systems and other technology. If we experience a failure, interruption, or cyberattack in any of these systems, we may be unable to effectively conduct or manage business activities, operating processes, and risk management, which could significantly harm customer relations, our reputation, and operating costs, potentially resulting in material adverse effects on our financial condition and results of operations. We may not be able to foresee, prevent, mitigate, reverse or repair the negative effects of such failures, interruptions, cyberattacks, or cyber terrorism.

Our financial condition and results of operations could suffer if we are unable to hire and retain skilled key personnel.

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

Item 3.Legal Proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

By law our stock is not publicly traded, and only our members (and former members with a withdrawal notice pending) may own our stock. The par value of our capital stock is $100 per share. As of December 31, 2020, we had 649 member and former member stockholders and approximately 27 million shares of capital stock outstanding, all of which were Class B Stock.

We declared quarterly cash dividends in 2020 and 2019 as shown in the table below.


(Dollars in millions)
	2020		2019
	Annualized		Annualized
Quarter	Rate		Rate
First	2.50	%	6.00	%
Second	2.50		5.50
Third	2.00		4.50
Fourth	2.00		4.00
Total	2.23		5.05

We may not declare a dividend if, at the time, we are not in compliance with all of our capital requirements. We also may not declare or pay a dividend if, after distributing the dividend, we would fail to meet any of our capital requirements or if we determine that the dividend would create a safety and soundness issue for the FHLB. See Note 11 of the Notes to the Financial Statements for additional information regarding our capital stock.

RECENT SALES OF UNREGISTERED SECURITIES

We provide Letters of Credit in the ordinary course of business to support members' obligations issued in support of unaffiliated, third-party offerings of notes, bonds or other securities. We provided $1 million and $3 million of such credit support during 2020 and 2019. We did not provide such credit support during 2018. To the extent that these Letters of Credit are securities for purposes of the Securities Act of 1933, their issuance is exempt from registration pursuant to section 3(a)(2) thereof.

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Item 6. Selected Financial Data.

The following table ~~shows Advance usage~~presents selected Statement of ~~members by charter type.~~

(Dollars in millions) December 31, 2019 December 31, 2018
Principal Amount of Advances Percent of Total Principal Amount of Advances Principal Amount of Advances Percent of Total Principal Amount of Advances
Commercial Banks $ 31,590
67 % $ 39,195
71 %
Savings Institutions 5,689
12
5,424
10
Credit Unions 1,307
3
1,564
3
Insurance Companies 8,629
18
8,676
16
Community Development Financial Institutions 1
—
1
—
Total member Advances 47,216
100
54,860
100
Former member borrowings 48
—
12
—
Total principal amount of Advances $ 47,264
100 % $ 54,872
100 %

~~The following tables present principal balances~~Condition data, Statement of Income data and financial ratios for the five ~~members~~years ended December 31, 2020.


	Year Ended December 31,
(Dollars in millions)	2020			2019			2018			2017			2016
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets	$	65,296		$	93,492		$	99,203		$	106,895		$	104,635
Advances	25,362			47,370			54,822			69,918			69,882
Mortgage loans held for portfolio	9,549			11,236			10,502			9,682			9,150
Allowance for credit losses on mortgage loans (1)	—			1			1			1			1
Investments (2)	27,041			34,389			33,614			27,058			25,334
Consolidated Obligations, net:
Discount Notes	27,500			49,084			46,944			46,211			44,690
Bonds	31,997			38,440			45,659			54,163			53,191
Total Consolidated Obligations, net	59,497			87,524			92,603			100,374			97,881
Mandatorily redeemable capital stock	19			22			23			30			35
Capital:
Capital stock - putable	2,641			3,367			4,320			4,241			4,157
Retained earnings	1,304			1,094			1,023			940			834
Accumulated other comprehensive loss	(15)			(16)			(13)			(16)			(13)
Total capital	3,930			4,445			5,330			5,165			4,978
STATEMENT OF INCOME DATA:
Net interest income	$	406		$	406		$	499		$	429		$	363

Non-interest income (loss)	(7)			(10)			(37)			(1)			46
Non-interest expense	92			89			85			79			111
Affordable Housing Program assessments	31			31			38			35			30
Net income	$	276		$	276		$	339		$	314		$	268
FINANCIAL RATIOS:
Dividend payout ratio (3)	30.3		%	74.1		%	75.6		%	66.3		%	63.9		%
Weighted average dividend rate (4)	2.23			5.05			5.88			5.00			4.00
Return on average equity	5.78			5.65			6.29			6.15			5.35
Return on average assets	0.31			0.28			0.32			0.31			0.25
Net interest margin (5)	0.46			0.42			0.47			0.42			0.35
Average equity to average assets	5.39			5.04			5.11			5.00			4.76
Regulatory capital ratio (6)	6.07			4.79			5.41			4.88			4.80
Operating expenses to average assets (7)	0.080			0.070			0.063			0.060			0.061

(1)The methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the ~~largest Advance borrowings.~~adoption of new accounting guidance on the measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior periods have not been revised to conform to the new basis of accounting.

(3)Dividend payout ratio is dividends declared in the period as a percentage of net income.

(4)Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.

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

(6)Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.

(7)Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.

(Dollars in millions)
December 31, 2019 December 31, 2018
Name Principal Amount of Advances Percent of Total Principal Amount of Advances Name Principal Amount of Advances Percent of Total Principal Amount of Advances
U.S. Bank, N.A. $ 13,874
29 % JPMorgan Chase Bank, N.A. $ 23,400
43 %
JPMorgan Chase Bank, N.A. 4,500
10
U.S. Bank, N.A. 4,574
8
Third Federal Savings and Loan Association 3,883
8
Third Federal Savings and Loan Association 3,727
7
First Horizon Bank 2,200
5
Nationwide Life Insurance Company 2,510
5
Pinnacle Bank 2,063
4
Pinnacle Bank 1,444
3
Total of Top 5 $ 26,520
56 % Total of Top 5 $ 35,655
66 %

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

~~Advance concentration ratios~~

EXECUTIVE OVERVIEW

Recent Developments

COVID-19 Pandemic

The global outbreak of COVID-19 has impacted communities and businesses worldwide, including those in the Fifth District. The effects of COVID-19 continue to evolve, and the full impact and duration of the virus are ~~influenced~~unknown. Despite the uncertainties created by the COVID-19 pandemic, we continued to fulfill our mission of providing robust access to a key source of readily available and ~~generally similar~~competitively priced wholesale funding to ~~concentration ratios of financial activity among our Fifth District financial institutions. We believe that having large~~member financial institutions ~~that actively use~~and supporting our ~~Mission Assets augments the value of membership~~commitment to ~~all members. For example, such activity improves our operating efficiency, increases our earnings and thereby contributions to~~affordable housing and community investment, ~~programs. This activity may enable~~while maintaining strong capital and liquidity positions.

Financial Condition

Mission Asset Activity

Mission Assets, which we define as Advances, Letters of Credit, and total MPP are the primary means by which we fulfill our mission with direct connections to members. We regularly monitor our balance sheet concentration of Mission Asset Activity. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In 2020, the Primary Mission Asset ratio averaged 75 percent, which exceeded the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity, the most significant of which is Letters of Credit issued to members.

The following table summarizes our Mission Asset Activity.


	Year Ended December 31,
	Ending Balances				Average Balances

(In millions)	2020		2019		2020		2019
Mission Asset Activity:
Advances (principal)	$	25,007	$	47,264	$	42,917	$	47,894
MPP:
Mortgage loans held for portfolio (principal)	9,316		10,981		10,995		10,499
Mandatory Delivery Contracts (notional)	137		936		338		516
Total MPP	9,453		11,917		11,333		11,015
Letters of Credit (notional)	28,812		16,205		20,141		15,150
Total Mission Asset Activity	$	63,272	$	75,386	$	74,391	$	74,059

At December 31, 2020, 64 percent of members held Mission Asset Activity, which was relatively stable compared to prior periods. The balance of Mission Asset Activity was $63.3 billion at December 31, 2020, a decrease of $12.1 billion (16 percent) from year-end 2019, which was primarily driven by lower Advance balances. Advance principal balances decreased $22.3

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billion (47 percent) from year-end 2019 primarily due to reduced borrowings by large-asset members as these members generally experienced an inflow of deposits on their balance sheets and increased access to other sources of liquidity in the financial markets. The decrease in the balance of Mission Asset Activity was partially offset by an increase of $12.6 billion (78 percent) in Letters of Credit balances from year-end 2019. The increase in Letters of Credit was due in part to members using Letters of Credit rather than securities to secure increased deposits from states and municipalities during the pandemic. We normally earn fees on Letters of Credit based on the actual average amount of the Letters utilized, which generally is less than the notional amount issued.

We believe that reduced demand for Advances from many of our members will, or is likely to, continue in the near future. Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that our Capital Plan provides for additional capital when Advances grow and the opportunity for us to ~~obtain~~retire capital when Advances decline, thereby acting, along with our efficient operating expenses, to preserve competitive profitability.

The MPP principal balance fell $1.7 billion (15 percent) from year-end 2019. During 2020, we purchased $2.6 billion of mortgage loans, while principal reductions of $4.3 billion reflected the significant increase in mortgage loan refinance activity in 2020.

Based on earnings in 2020, we accrued $31 million for the Affordable Housing Program (AHP) pool of funds to be available to members in 2021. In addition to the required AHP assessment, we provided voluntary sponsorship of three other housing programs during 2020. These programs provided funds to cover accessibility and emergency repairs for special needs and elderly homeowners, funds for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District, and Advances at zero percent interest for COVID-19 related assistance.

Investments

The balance of investments at December 31, 2020 was $27.0 billion, a decrease of $7.3 billion from year-end 2019. At December 31, 2020, investments included $9.7 billion of MBS and $17.3 billion of other investments, which consisted primarily of highly-rated short-term instruments and longer-term U.S. Treasury and GSE obligations held for liquidity. All of our MBS held at December 31, 2020 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency. The decline in the balance of investments at the end of 2020 was due to decreases in both MBS and liquidity investments. MBS balances declined due to an increase in prepayments of the underlying mortgages as a result of the low interest rate environment. Due to regulatory limitations regarding the purchase of MBS that reference LIBOR, we have not been able to fully replace the prepaid MBS with suitable alternatives. Liquidity investments decreased as we decided to hold more ~~favorable~~of our liquidity portfolio as deposits at the Federal Reserve at the end of 2020 in anticipation of volatile market conditions. At December 31, 2020, we held $3.0 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements of Condition.

Investments averaged $32.9 billion in 2020, a decrease of $4.9 billion (13 percent) from year-end 2019. The decrease in average investments was primarily driven by the decrease in MBS balances described above. Liquidity investments can vary significantly on a daily basis during times of volatility in Advance balances. We maintained a robust amount of asset liquidity throughout 2020 across a variety of liquidity measures, as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

Capital

Capital adequacy surpassed all minimum regulatory capital requirements in 2020. The GAAP capital-to-assets ratio at December 31, 2020 was 6.02 percent, while the regulatory capital-to-assets ratio was 6.07 percent. Both ratios exceeded the regulatory required minimum of four percent. Regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under GAAP. GAAP and regulatory capital both decreased $0.5 billion in 2020, primarily due to the repurchase of $2.3 billion of excess stock and members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were partially offset by members' purchases of capital stock to support Advance growth at the end of the first quarter. Retained earnings totaled $1.3 billion at December 31, 2020, an increase of $0.2 billion (19 percent) from year-end 2019, which is a higher growth rate relative to recent years. The increase in retained earnings was due in part to the lower weighted average dividend rate in 2020.

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Results of Operations

Overall Results

Our earnings reflect the combination of a stable business model and conservative management of risk. Key factors that can cause significant periodic volatility in our profitability are changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization due to accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. The table below summarizes our results of operations.



	Year Ended December 31,
(Dollars in millions)	2020			2019			2018
Net income	$	276		$	276		$	339
Affordable Housing Program assessments	31			31			38
Return on average equity (ROE)	5.78		%	5.65		%	6.29		%
Return on average assets	0.31			0.28			0.32
Weighted average dividend rate	2.23			5.05			5.88
Average short-term interest rates (1)	0.51			2.24			2.07

ROE spread to average short-term interest rates	5.27			3.41			4.22
Dividend rate spread to average short-term interest rates	1.72			2.81			3.81

(1) Average short-term interest rates consist of 3-month LIBOR and the Federal funds effective rate.

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Effect of Interest Rate Environment

Trends in market interest rates and the resulting shapes of the market yield curves strongly influence the results of operations and profitability because of how they affect members' demand for Mission Asset Activity, spreads on assets, funding costs and ~~helps~~decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).


	Year 2020				Year 2019				Year 2018


	Ending		Average		Ending		Average		Ending		Average

Federal funds effective	0.09	%	0.37	%	1.55	%	2.16	%	2.40	%	1.83	%
Secured Overnight Financing Rate (SOFR)	0.09		0.37		1.55		2.20		3.00		1.85
3-month LIBOR	0.24		0.65		1.91		2.33		2.81		2.31
2-year LIBOR	0.20		0.49		1.70		2.03		2.66		2.75
10-year LIBOR	0.93		0.88		1.90		2.09		2.71		2.95
2-year U.S. Treasury	0.12		0.39		1.57		1.97		2.49		2.52
10-year U.S. Treasury	0.92		0.89		1.92		2.14		2.69		2.91
15-year mortgage current coupon (1)	0.65		1.17		2.28		2.52		3.06		3.20
30-year mortgage current coupon (1)	1.28		1.64		2.71		2.95		3.51		3.65



	Year 2020 by Quarter - Average
	Quarter 1		Quarter 2		Quarter 3		Quarter 4

Federal funds effective	1.25	%	0.06	%	0.09	%	0.09	%
SOFR	1.25		0.05		0.09		0.09
3-month LIBOR	1.54		0.61		0.25		0.22
2-year LIBOR	1.18		0.32		0.22		0.23
10-year LIBOR	1.34		0.69		0.65		0.87
2-year U.S. Treasury	1.10		0.19		0.14		0.15
10-year U.S. Treasury	1.38		0.68		0.65		0.86
15-year mortgage current coupon (1)	1.86		1.09		0.86		0.88
30-year mortgage current coupon (1)	2.31		1.58		1.32		1.37

(1) Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.

The target overnight Federal funds rate was in the range of zero to 0.25 percent at December 31, 2020, a decrease from the range of 1.50 to 1.75 percent at December 31, 2019. The low interest rate environment reflects the evolving risks to economic activity from the COVID-19 pandemic.

Average short-term rates were approximately 170 to 180 basis points lower in 2020 compared to 2019 and average long-term rates decreased by approximately 125 to 135 basis points during that same period. The decline in interest rates negatively impacted income in 2020 primarily because of the lower earnings generated from investing capital and the increased mortgage asset prepayments resulting in higher net amortization of premiums on those assets.

Business Outlook and Risk Management

Strategic/Business Risk

Advances: Our business is cyclical and Mission Asset Activity normally declines in periods of economic contraction, when financial institutions have ample liquidity, or when there is significant growth in the money supply. Other factors that constrain widespread demand for Advances are the low levels of interest rates and competitiveness of Advances relative to deposits and other sources of wholesale funding.

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MPP: MPP balances are influenced by conditions in the housing and mortgage markets, the competitiveness of prices we offer to purchase loans as well as program features, and activity from our largest sellers.

Market Risk

During 2020, as in 2019, the market risk exposure to changing interest rates was moderate overall and well within policy limits. We believe that longer-term profitability would not become uncompetitive unless interest rates were to change quickly and significantly. In the short-term, profitability could become uncompetitive if long-term interest rates decrease in excess of 50 basis points leading to faster prepayments of mortgage assets, which would further accelerate the recognition of purchased premiums.

Capital Adequacy

We believe members place a high value on their capital investment in our company. Capital ratios at December 31, 2020, and all throughout the year, exceeded the regulatory required minimum of four percent. We believe the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment in the FHLB and to provide the opportunity to stabilize or increase future dividends. Our capital policies and Capital Plan also have safeguards to ensure we meet regulatory and prudential capital requirements.

Credit Risk

In 2020, we continued to maintain a de minimis level of overall residual credit risk exposure from our Credit Services, investments, and derivative transactions. We believe policies and procedures related to credit underwriting, Advance collateral management, and transactions with investment and derivative counterparties continue to mitigate these risks. We have never experienced any credit losses, and we continue to have no loan loss reserves or impairment recorded for these instruments. Residual credit risk exposure in the mortgage loan portfolio was minimal.

Liquidity Risk

Our liquidity position remained strong during 2020, as did our overall ability to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. Investor demand for FHLBank System debt continued to be robust. There were no substantive stresses on market access or liquidity from external market and political events. Although we can make no assurances, we believe there is only a remote possibility of a liquidity or funding crisis in the System that could impair our ability to participate, on a cost-effective basis, in issuances of new debt, service outstanding debt, maintain adequate capital levels, or pay competitive dividends.

Regulatory and Legislative Risk and Significant Developments

Federal Deposit Insurance Corporation (FDIC) Brokered Deposits Restrictions:On January 22, 2021, the FDIC published a final rule, effective April 1, 2021, that amends its brokered deposits regulations that apply to less than well-capitalized insured depository institutions. The FDIC stated that the amendments are intended to modernize and clarify the FDIC’s brokered deposit regulations and they establish a new framework for analyzing the deposit broker definition, which determines whether deposits placed through deposit placement arrangements qualify as brokered deposits. These deposit placement arrangements include those between insured depository institutions and third parties, such as financial technology companies, for a variety of business purposes, including access to deposits. The amendments to the FDIC's brokered deposit regulations, among other things, clarify what it means to be engaged in the business of facilitating the placement of deposits and expand the scope of the primary purpose exception. The rule amendments are expected to have the effect of narrowing the definition of deposit broker and excluding more deposits from treatment as brokered deposits. The amendments also establish an application and reporting

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Finance Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances:On April 23, 2020, the Finance Agency issued a Supervisory Letter (PPP Supervisory Letter) permitting the FHLBanks to accept PPP loans as collateral for Advances as “Agency Securities,” given the Small Business Administration’s (SBA) 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA's third interim final rule related to PPP loans was published. The rule explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral that focus on the financial condition of members, collateral discounts, and pledge dollar limits. On December 27, 2020, the President signed into law an extension of the PPP until March 21, 2021. The April 23, 2020 Supervisory Letter from the Finance Agency allowing us ~~maintain competitively priced Mission Assets.~~to accept PPP loans as collateral remains in effect.

▪Assistance to businesses, states, and municipalities.

▪A loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives.

▪Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act.

▪Direct payments to eligible taxpayers and their families.

▪Expanded eligibility for unemployment insurance and payment amounts.

▪Mortgage ~~Loans Held~~forbearance provisions and a foreclosure moratorium.

Funding for ~~Portfolio (Mortgage Purchase Program,~~the PPP, which was created by the CARES Act, was increased with the enactment of subsequent laws, most recently by the Consolidated Appropriations Act, 2021, on December 27, 2020. Additional phases of the CARES Act or ~~MPP)~~other COVID-19 pandemic relief legislation may be enacted by Congress or other actions by the President, state governments, and governmental agencies. In connection with the foreclosure moratorium noted above, we have asked servicers of the mortgage loans we own to temporarily suspend all foreclosure sales and evictions, unless a home is vacant, in order to allow homeowners to stay in their homes during this period. We continue to monitor these actions and guidance as they evolve and to evaluate the potential impact to the U.S. economy; the impacts to mortgages held or serviced by our members that we accept as collateral; the impacts on our MPP portfolio; and the impacts to our overall business.

LIBOR Transition:We are planning for the replacement of LIBOR given that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR and the Federal Reserve Bank of New York has established SOFR as its recommended alternative to LIBOR. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings. The market activity in SOFR-linked financial instruments has continued to develop and we have offered SOFR-linked Consolidated Obligations and SOFR-linked Advances on an ongoing basis. In addition, a SOFR-based derivatives market has begun to emerge and we have begun to use SOFR-based derivatives to manage interest-rate risk.

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As many of our assets and derivatives are still indexed to LIBOR, we have developed and implemented a LIBOR transition plan, which addresses considerations such as LIBOR exposure, fallback language, operational preparedness, and balance sheet management. Part of our LIBOR transition plan includes our previously implemented fallback language for LIBOR-indexed Advances and Consolidated Bonds in new and legacy contracts. As for our investments that are tied to LIBOR, we are monitoring market-wide efforts to enhance fallback language for new activity and develop frameworks to address existing transactions.

On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA), published a Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol). Both the Supplement and the Protocol were effective on January 25, 2021. As of that date, all legacy bilateral derivatives transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered Interbank Offered Rate (IBOR), including U.S. dollar LIBOR, were effectively amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. We have adhered to the Protocol and have worked with our counterparties, as necessary, to address over-the-counter derivative agreements referencing U.S. dollar LIBOR as a part of our LIBOR transition efforts.

The Finance Agency has also issued supervisory letters designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. As of June 30, 2020, the FHLBanks were required to cease entering into new LIBOR-based financial instruments that mature after December 31, 2021, except for investments and option embedded products. With respect to investments, the Finance Agency required the FHLBanks, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates did not apply to collateral accepted by the FHLBanks. As directed by the Finance Agency, the FHLBanks began requiring their members to report levels of LIBOR-linked collateral that mature after December 31, 2021. This will assist the FHLBanks in determining the level of member reliance on these assets to support borrowings, make decisions about their future eligibility and the impact of any incremental haircuts and asset value deterioration on borrowing capacity.

We have Advances, investment securities and derivatives with interest rates indexed to LIBOR. Each of these instruments are indexed to LIBOR settings that will no longer be provided after June 30, 2023, as noted above. The following table presents LIBOR-indexed Advances, investment securities and derivatives by contractual maturity at December 31, 2020.


(In millions)	Maturing on or before June 30, 2023		Maturing after June 30, 2023
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term	$	2,599	$	3,012
MBS by contractual maturity (1)	—		5,929

Total principal amount	$	2,599	$	8,941
Derivatives, notional amount by termination date	$	9,339	$	4,680

(1)MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

The market transition away from LIBOR towards SOFR is gradual and complicated, including the possible development of term structures and credit adjustments to accommodate differences between LIBOR and SOFR. As such, we are not currently able to predict the ultimate impact of such a transition on our business, financial condition, and results of operations.

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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition

The table below shows ~~principal purchases~~trends in Advance balances by major programs and ~~reductions of loans~~ in the ~~MPP for each~~notional amount of Letters of Credit.



(Dollars in millions)	December 31, 2020				December 31, 2019
	Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable Rate-Indexed:
LIBOR	$	5,611	22	%	$	10,430	22	%
SOFR	118		1		500		1
Other	82		—		221		1
Total	5,811		23		11,151		24
Fixed-Rate:
Repurchase based (REPO)	3,780		15		19,386		41
Regular Fixed-Rate	9,587		38		11,476		24
Putable (2)	2,657		11		1,444		3
Amortizing/Mortgage Matched	2,021		8		2,358		5
Other	1,151		5		1,449		3
Total	19,196		77		36,113		76

Total Advances Principal	$	25,007	100	%	$	47,264	100	%

Letters of Credit (notional)	$	28,812			$	16,205


(Dollars in millions)	December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
	Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable-Rate Indexed:
LIBOR	$	5,611	22	%	$	5,846	22	%	$	21,071	44	%	$	28,889	36	%
SOFR	118		1		116		—		116		—		2,000		3
Other	82		—		123		1		83		—		247		—
Total	5,811		23		6,085		23		21,270		44		31,136		39
Fixed-Rate:
Repurchase based (REPO)	3,780		15		3,896		15		8,978		18		28,058		35
Regular Fixed-Rate	9,587		38		10,207		38		11,445		24		14,452		18
Putable (2)	2,657		11		3,107		12		3,164		6		3,164		4
Amortizing/Mortgage Matched	2,021		8		2,195		8		2,309		5		2,439		3
Other	1,151		5		1,158		4		1,241		3		680		1
Total	19,196		77		20,563		77		27,137		56		48,793		61

Total Advances Principal	$	25,007	100	%	$	26,648	100	%	$	48,407	100	%	$	79,929	100	%

Letters of Credit (notional)	$	28,812			$	23,011			$	22,381			$	15,785

(1)As a percentage of total Advances principal.

(2)Excludes Putable Advances where the ~~last two years.~~related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.

(In millions) 2019 2018
Balance, beginning of year $ 10,272
$ 9,454
Principal purchases 2,631
1,936
Principal reductions (1,922 ) (1,118 )
Balance, end of year $ 10,981
$ 10,272

~~Although there were 78 active members participating in the MPP~~Advance balances at December 31, ~~2019, approximately 62~~2020 decreased 47 percent compared to year-end 2019. Advance balances declined in 2020 as large-asset members reduced their borrowings. The reduction in borrowings was primarily driven by these members generally experiencing an inflow of deposits on their balance sheets, while also having access to other liquidity sources as a result of certain government actions related to the pandemic. Despite the overall decline, Advances spiked across our membership at the end of the ~~principal purchases in 2019 resulted from activity~~first quarter of ~~our four largest sellers. All loans acquired in 2019 were conventional loans.~~

~~The following tables show~~2020 as the ~~percentage of principal balances from Participating Financial Institutions (PFIs) supplying five percent or more of total principal~~financial markets reacted to the COVID-19 pandemic, and ~~the percentage of principal balances from all other PFIs. As shown below, MPP activity is concentrated amongst a few members.~~members

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(Dollars in millions) December 31, 2019 December 31, 2018
Principal % of Total Principal % of Total
Union Savings Bank $ 3,574
33 % Union Savings Bank $ 3,449
34 %
Guardian Savings Bank FSB 1,004
9
Guardian Savings Bank FSB 987
10
Firstbank 714
7
All others 5,836
56
All others 5,689
51
Total $ 10,272
100 %
Total $ 10,981
100 %

~~We closely track the refinancing incentives of our mortgage assets (including loans~~turned to us for liquidity, primarily in the ~~MPP~~form of LIBOR and ~~MBS) because~~REPO Advances. Most of these Advances matured or prepaid by the ~~option for homeowners to change their principal payments normally represents the largest portion~~end of our market risk exposure and can affect MPP balances. MPP principal paydowns in 2019 equated to a 14 percent annual constant prepayment rate, up from the eight percent rate for all of 2018. The reductions in mortgage rates that occurred in the first nine months of 2019 accelerated prepayment speeds in the second half of 2019. In the fourth quarter of 2019, mortgage rates were steady, remaining at historical low levels. As such, we expect the recent trend of faster prepayments to continue in 2020 unless mortgage rates rise.2020.

The MPP's composition of balances by loan type, original final maturity, and weighted-average mortgage note rate did not change materially in 2019. MPP yields earned in 2019, after consideration of funding and hedging costs, continued to offer favorable returns relative to their market and credit risk exposure.

Housing and Community Investment

Our Housing and Community Investment Programs include the Affordable Housing Program and various housing and community economic development-related Advance and grant programs. We fund the Affordable Housing Program with an accrual equal to 10 percent of our previous year's net earnings, mandated by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. See Note 10 of the Notes to Financial Statements for a complete description of the Affordable Housing Program calculation.

Two other housing programs that fall outside the auspices of the Affordable Housing Program are the Community Investment Program and the Economic Development Program. Advances under the former program have rates equal to our cost of funds, while Advances under the latter program have rates equal to our cost of funds plus reasonable administrative costs. Members use the Community Investment Program to serve housing needs of low- and moderate-income households and, under certain conditions, community economic development projects. The Economic Development Program is a discounted Advance program used to promote economic development and job creation and retention.

Investments

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▪MBS and collateralized mortgage obligations (together, referred to as MBS) issued by GSEs, other U.S. government agencies or private issuers;

▪asset-backed securities collateralized by manufactured housing loans or home equity loans issued by GSEs or private issuers; and

We have never purchased asset-backed securities and do not own any privately-issued MBS.

Purposes of Having Investments. The investments portfolio helps achieve corporate objectives in the following ways:

▪Support of housing market. Investment in MBS and state housing finance agency bonds directly supports the residential mortgage market by providing capital and financing for mortgages.

Market risk associated with short-term investments tends to be minimal because of their short maturities and because we typically fund them with short-term Consolidated Obligations having similar maturities. We mitigate much of the market risk of MBS, which exists primarily from changes in mortgage prepayment speeds, by limiting their balances to 300 percent of regulatory capital and by funding them with a portfolio of long-term fixed-rate callable and non-callable Obligations. Additionally, we mitigate much of the market risk of longer-term non-MBS securities, and a portion of our MBS, by using interest rate swaps to effectively convert the fixed rate investments to adjustable-rate investments. We also manage the market risk exposure of the entire balance sheet within prudent policy limits.

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investment policies and practices, we believe all of our investments have high credit quality. We have never had a credit loss or credit-related write down of any investment security.

Deposits

We provide a variety of deposit programs, including demand, overnight, term and Federal funds, which enable depositors to invest funds in short-term liquid assets. We accept deposits from members, other FHLBanks, any institution to which we offer correspondent services, and other government instrumentalities. The rates of interest we pay on deposits are subject to change daily based on comparable money market interest rates. The balances in deposit programs tend to vary positively with the amount of idle funds members have available to invest, as well as the level of short-term interest rates. Deposits have typically represented one to two percent of our funding sources in recent years.

Mortgage Purchase Program (MPP or Mortgage Loans Held for Portfolio)

Description of the MPP

A “conventional” mortgage refers to a non-government-guaranteed mortgage. A “conforming” mortgage refers to the maximum amount permissible to be lent as a regular prime (i.e., non-jumbo, non-subprime) mortgage. For 2021, the Finance Agency established the conforming limit at $548,250 with loans originated in a limited number of high-cost cities and counties receiving higher conforming limits. We have elected not to purchase mortgages subject to these higher conforming limits.

How We Manage Risks of the MPP

Market Risk. We mitigate the MPP's market risk similarly to how we mitigate market risk from MBS.

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Credit Risk - FHA Mortgage Loans. Because the FHA makes an explicit guarantee on FHA loans, we do not require any credit enhancements on these loans beyond primary mortgage insurance.

Earnings from the MPP

▪minus servicing costs (0.25 percent for conventional loans and 0.44 percent for FHA loans);

▪minus the cost of Supplemental Mortgage Insurance (for applicable loans); and

FUNDING - CONSOLIDATED OBLIGATIONS

We participate in the issuance of Bonds for three purposes:

▪to finance and hedge intermediate- and long-term fixed-rate Advances and mortgage assets;

▪to acquire liquidity investments.

Bonds may have fixed or adjustable rates of interest. Fixed-rate Bonds are either non-callable or callable. A callable Bond is one that we are able to redeem in whole or in part at our discretion on one or more predetermined call dates according to the Bond's offering notice. The maturity of Bonds typically ranges from 1 year to 20 years. Adjustable-rate Bonds use a benchmark market interest rate, typically SOFR, for interest rate resets. We do not participate in the issuance of range Bonds, zero coupon Bonds, or indexed principal redemption Bonds.

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We transact in interest rate swaps to synthetically convert some fixed-rate Bonds to adjustable-rate terms. These are used to hedge adjustable-rate Advances.

Interest rates on Obligations are affected by a multitude of factors such as: overall economic and credit conditions; credit ratings of the FHLBank System; investor demand and preferences for our debt securities; the level of interest rates and the shape of the U.S. Treasury curve, the SOFR swap curve or LIBOR swap curve; and the supply, volume, timing, and characteristics of debt issuances by the FHLBanks, other GSEs, and other highly rated issuers.

LIQUIDITY

CAPITAL RESOURCES

Capital Requirements

Statutory and Regulatory Requirements

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▪We must maintain at least a four percent minimum regulatory capital-to-assets ratio. This requirement historically has been closest to affecting our operations.

▪the five-year redemption period for Class B stock;

▪the option we have to call on members to purchase additional capital if required to preserve safety and soundness; and

▪the limitations, described below, on our ability to honor requested redemptions of capital if we are at risk of not maintaining safe and sound operations.

▪We may not redeem any capital stock if, following the redemption, we would fail to satisfy any regulatory capital requirements. By law, we may not redeem any stock if we become undercapitalized.

Capital Plan

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▪We may, subject to the restrictions described above, repurchase certain capital stock (i.e., "excess" capital stock).


Mission Asset Activity	Minimum Activity Percentage	Maximum Activity Percentage
Advances	4.50%	4.50%
Advance Commitments	4.50	4.50
MPP	3.00	3.00
Letters of Credit	0.10	0.10

Retained Earnings

Purposes and Amount of Retained Earnings

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Joint Capital Agreement to Augment Retained Earnings

The FHLBanks entered into a Joint Capital Enhancement Agreement (the “Capital Agreement”) in February 2011. The Capital Agreement provides that each FHLBank will, on a quarterly basis, allocate at least 20 percent of its net income to a restricted retained earnings account (the “Account”) until the balance of the Account, calculated as of the last day of each calendar quarter, equals at least one percent of that FHLBank's average balance of outstanding Consolidated Obligations for the calendar quarter. The Account is not available to be distributed as dividends except under certain limited circumstances. The Capital Agreement does not limit our ability to use retained earnings held outside of the Account to pay dividends. Although we have always maintained compliance with our capital requirements, we believe the Capital Agreement enhances risk mitigation by building a larger capital buffer over time to absorb unexpected losses, if any, that we may experience.

USE OF DERIVATIVES

▪below-market rates and/or the market risk exposure on Putable Advances, and certain other Advances, for which members have sold us options embedded within the Advances; or

▪Regular Fixed-Rate Advances when it may not be as advantageous to issue Obligations or when it may improve our market risk management.

We may also transact derivatives to reduce the repricing risk of Discount Notes that fund certain overnight and shorter-term assets.

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COMPETITION

Advances

Our ability to compete successfully with other suppliers of wholesale funding, including other FHLBanks, depends primarily on the total cost of our products to members, which include the rates we charge, earnings and dividend performance, collateral policies, capital stock requirements, product features and members' perceptions of our relative safety and soundness. In addition, our competitive environment continues to be impacted by the Federal Reserve's low interest-rate environment and actions to provide liquidity in the financial markets. See Item 1A. Risk Factors below for further discussion.

Mortgage Purchase Program

Debt Issuance

HUMAN CAPITAL RESOURCES

In managing human capital, we focus on our workforce profile and the various programs and philosophies described below.

Workforce Profile

Total Rewards

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achieve this objective through a combination of development programs, benefits and employee wellness programs, and recognizing and rewarding performance. Specifically, our programs include:

▪Cash compensation – provides competitive salary, transportation and other cash subsidies, and performance based incentives.

▪Recognition programs – sponsors peer-to-peer recognition program, department recognition program and company-wide recognition.

▪Management succession planning – assesses talent annually with our leadership and Board of Directors with, at a minimum, a defined plan for positions at Vice President and above.

Diversity and Inclusion Program

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Item 1A.Risk Factors.

BUSINESS AND REGULATORY RISK

A prolonged economic downturn could further lower Mission Asset Activity and profitability.

▪the general state and trends of the economy and financial institutions, especially in the Fifth District;

▪conditions in the financial, credit, mortgage, and housing markets;

▪interest rates;

▪actions of the Federal Reserve to affect liquidity reserves of financial institutions and the money supply;

▪competitive alternatives to our products, such as retail deposits and other sources of wholesale funding;

▪regulations affecting our members' liquidity requirements;

▪the willingness and ability of financial institutions to expand lending; and

The competitive environment for our products could adversely affect business activities, including decreasing the level and utilization rates of Mission Asset Activity, earnings, and capitalization.

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In connection with purchasing mortgage loans from our members, we face competition in the areas of customer service, purchase prices for the MPP loans and ancillary services such as automated underwriting and loan servicing options. Our primary competitors are Fannie Mae, Freddie Mac, government agencies such as Ginnie Mae, and other secondary mortgage market conduits. In addition, our members continue to face increased competition in mortgage origination from non-bank financial institutions that are not eligible for FHLBank membership, which could reduce the amount of mortgage loans that members can make available to us to purchase.

The amount of Mission Asset Activity and capital is concentrated among a small number of our large members. Additionally, the financial industry continues to consolidate and in recent years there has been a systemic trend of financial institutions that are currently ineligible for FHLB membership gaining an increasing market share, especially related to mortgage finance. However, the legislative and regulatory environment faced by the FHLBanks has not changed in response to this trend. Our members could decrease their Mission Asset Activity and the amount of their capital stock as a result of merger and acquisition activity or continued loss of market share to ineligible entities. At December 31, 2020, one member, U.S. Bank, N.A., held over 15 percent of our Advances and one member PFI, Union Savings Bank, accounted for over 30 percent of the outstanding MPP principal balance. Our business model is structured to be able to absorb sharp changes in Mission Asset Activity because we can undertake commensurate reductions in liability balances and capital and because of our relatively modest operating expenses. However, an extremely large and sustained reduction in Mission Asset Activity could affect our profitability and ability to pay competitive dividends, as well as, at the FHLBank System level, raise policy questions about the relevance of the FHLBank System in its traditional mission of supporting housing finance.

Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.

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Potential GSE reform could unfavorably affect our business model, financial condition, and results of operations.

Changes in the regulatory and legislative environment could unfavorably affect our business model, financial condition, and results of operations.

MARKET AND LIQUIDITY RISK

Exposure of earnings to unhedged changes in interest rates and mortgage prepayment speeds is one of our largest ongoing residual risks. We derive most of our income from the interest earned on assets less the interest paid on Consolidated Obligations and deposits used to fund the assets. Spreads on our assets tend to be narrow compared to those of many other financial institutions due to our cooperative business model. Market conditions, yield curve shape, competitive forces, and market risk exposure could cause these already narrow asset spreads to decline, which could substantially reduce our

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We are exposed to liquidity risk if significant disruptions in the capital markets occur. Although the System was able to maintain access to the capital markets for debt issuances on acceptable terms during 2020, there is no assurance this will continue to be the case. Future ability to effectively access the capital markets on acceptable terms could be adversely affected by external events (such as general economic and financial instabilities, political instability, wars, natural disasters, pandemics or other widespread health emergencies, civil unrest or other unanticipated or catastrophic events), deterioration in the perception of financial market participants about the financial strength of Consolidated Obligations, or downgrades to the System's credit ratings. The System could also be affected by the continued changes in the capital markets in response to financial regulations and by the joint and several liability for Consolidated Obligations, which exposes the System as a whole to events at individual FHLBanks. If access to capital markets were to be impaired for an extended period, the effect on our financial condition and results of operations could be material. At the extreme, the System's ability to achieve its mission and satisfy its financial obligations could be threatened.

CREDIT RISK

We are exposed to credit risk that, if realized, could materially affect our financial condition and results of operations.

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Although Advances and Letters of Credit are over-collateralized and mortgage loans in the MPP are of high credit quality with various credit enhancements, credit risk could increase under a number adverse scenarios, such as damage or destruction of collateral that members pledge to secure Advances or mortgages that we hold in the MPP as a result of natural disasters, which may be caused by the effects of climate change or other catastrophic events. Significant declines in the value of collateral pledged to secure Advances could lead to greater exposure to credit losses in the event of a member default. Additionally, significant and sustained reductions in home prices and sustained elevated levels of unemployment and other factors that influence delinquencies and defaults could increase the risk of credit losses in the MPP.

Financial difficulties at other FHLBanks could require us to provide financial assistance to another FHLBank, which could adversely affect our results of operations or our financial condition.

OPERATIONAL RISK

Failures of the Office of Finance could disrupt the ability to conduct and manage our business.

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Our financial condition and results of operations could suffer if we are unable to hire and retain skilled key personnel.

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

Item 3.Legal Proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

By law our stock is not publicly traded, and only our members (and former members with a withdrawal notice pending) may own our stock. The par value of our capital stock is $100 per share. As of December 31, 2020, we had 649 member and former member stockholders and approximately 27 million shares of capital stock outstanding, all of which were Class B Stock.

We declared quarterly cash dividends in 2020 and 2019 as shown in the table below.


(Dollars in millions)
	2020		2019
	Annualized		Annualized
Quarter	Rate		Rate
First	2.50	%	6.00	%
Second	2.50		5.50
Third	2.00		4.50
Fourth	2.00		4.00
Total	2.23		5.05

We may not declare a dividend if, at the time, we are not in compliance with all of our capital requirements. We also may not declare or pay a dividend if, after distributing the dividend, we would fail to meet any of our capital requirements or if we determine that the dividend would create a safety and soundness issue for the FHLB. See Note 11 of the Notes to the Financial Statements for additional information regarding our capital stock.

RECENT SALES OF UNREGISTERED SECURITIES

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Item 6. Selected Financial Data.

The following table presents selected Statement of Condition data, Statement of Income data and financial ratios for the five years ended December 31, 2020.


	Year Ended December 31,
(Dollars in millions)	2020			2019			2018			2017			2016
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets	$	65,296		$	93,492		$	99,203		$	106,895		$	104,635
Advances	25,362			47,370			54,822			69,918			69,882
Mortgage loans held for portfolio	9,549			11,236			10,502			9,682			9,150
Allowance for credit losses on mortgage loans (1)	—			1			1			1			1
Investments (2)	27,041			34,389			33,614			27,058			25,334
Consolidated Obligations, net:
Discount Notes	27,500			49,084			46,944			46,211			44,690
Bonds	31,997			38,440			45,659			54,163			53,191
Total Consolidated Obligations, net	59,497			87,524			92,603			100,374			97,881
Mandatorily redeemable capital stock	19			22			23			30			35
Capital:
Capital stock - putable	2,641			3,367			4,320			4,241			4,157
Retained earnings	1,304			1,094			1,023			940			834
Accumulated other comprehensive loss	(15)			(16)			(13)			(16)			(13)
Total capital	3,930			4,445			5,330			5,165			4,978
STATEMENT OF INCOME DATA:
Net interest income	$	406		$	406		$	499		$	429		$	363

Non-interest income (loss)	(7)			(10)			(37)			(1)			46
Non-interest expense	92			89			85			79			111
Affordable Housing Program assessments	31			31			38			35			30
Net income	$	276		$	276		$	339		$	314		$	268
FINANCIAL RATIOS:
Dividend payout ratio (3)	30.3		%	74.1		%	75.6		%	66.3		%	63.9		%
Weighted average dividend rate (4)	2.23			5.05			5.88			5.00			4.00
Return on average equity	5.78			5.65			6.29			6.15			5.35
Return on average assets	0.31			0.28			0.32			0.31			0.25
Net interest margin (5)	0.46			0.42			0.47			0.42			0.35
Average equity to average assets	5.39			5.04			5.11			5.00			4.76
Regulatory capital ratio (6)	6.07			4.79			5.41			4.88			4.80
Operating expenses to average assets (7)	0.080			0.070			0.063			0.060			0.061

(3)Dividend payout ratio is dividends declared in the period as a percentage of net income.

(4)Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.

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

(6)Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.

(7)Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

EXECUTIVE OVERVIEW

Recent Developments

COVID-19 Pandemic

Financial Condition

Mission Asset Activity

Mission Assets, which we define as Advances, Letters of Credit, and total MPP are the primary means by which we fulfill our mission with direct connections to members. We regularly monitor our balance sheet concentration of Mission Asset Activity. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In 2020, the Primary Mission Asset ratio averaged 75 percent, which exceeded the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity, the most significant of which is Letters of Credit issued to members.

The following table summarizes our Mission Asset Activity.


	Year Ended December 31,
	Ending Balances				Average Balances

(In millions)	2020		2019		2020		2019
Mission Asset Activity:
Advances (principal)	$	25,007	$	47,264	$	42,917	$	47,894
MPP:
Mortgage loans held for portfolio (principal)	9,316		10,981		10,995		10,499
Mandatory Delivery Contracts (notional)	137		936		338		516
Total MPP	9,453		11,917		11,333		11,015
Letters of Credit (notional)	28,812		16,205		20,141		15,150
Total Mission Asset Activity	$	63,272	$	75,386	$	74,391	$	74,059

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We believe that reduced demand for Advances from many of our members will, or is likely to, continue in the near future. Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that our Capital Plan provides for additional capital when Advances grow and the opportunity for us to retire capital when Advances decline, thereby acting, along with our efficient operating expenses, to preserve competitive profitability.

Investments

The balance of investments at December 31, 2020 was $27.0 billion, a decrease of $7.3 billion from year-end 2019. At December 31, 2020, investments included $9.7 billion of MBS and $17.3 billion of other investments, which consisted primarily of highly-rated short-term instruments and longer-term U.S. Treasury and GSE obligations held for liquidity. All of our MBS held at December 31, 2020 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency. The decline in the balance of investments at the end of 2020 was due to decreases in both MBS and liquidity investments. MBS balances declined due to an increase in prepayments of the underlying mortgages as a result of the low interest rate environment. Due to regulatory limitations regarding the purchase of MBS that reference LIBOR, we have not been able to fully replace the prepaid MBS with suitable alternatives. Liquidity investments decreased as we decided to hold more of our liquidity portfolio as deposits at the Federal Reserve at the end of 2020 in anticipation of volatile market conditions. At December 31, 2020, we held $3.0 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements of Condition.

Capital

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Results of Operations

Overall Results



	Year Ended December 31,
(Dollars in millions)	2020			2019			2018
Net income	$	276		$	276		$	339
Affordable Housing Program assessments	31			31			38
Return on average equity (ROE)	5.78		%	5.65		%	6.29		%
Return on average assets	0.31			0.28			0.32
Weighted average dividend rate	2.23			5.05			5.88
Average short-term interest rates (1)	0.51			2.24			2.07

ROE spread to average short-term interest rates	5.27			3.41			4.22
Dividend rate spread to average short-term interest rates	1.72			2.81			3.81

(1) Average short-term interest rates consist of 3-month LIBOR and the Federal funds effective rate.

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Effect of Interest Rate Environment


	Year 2020				Year 2019				Year 2018


	Ending		Average		Ending		Average		Ending		Average

Federal funds effective	0.09	%	0.37	%	1.55	%	2.16	%	2.40	%	1.83	%
Secured Overnight Financing Rate (SOFR)	0.09		0.37		1.55		2.20		3.00		1.85
3-month LIBOR	0.24		0.65		1.91		2.33		2.81		2.31
2-year LIBOR	0.20		0.49		1.70		2.03		2.66		2.75
10-year LIBOR	0.93		0.88		1.90		2.09		2.71		2.95
2-year U.S. Treasury	0.12		0.39		1.57		1.97		2.49		2.52
10-year U.S. Treasury	0.92		0.89		1.92		2.14		2.69		2.91
15-year mortgage current coupon (1)	0.65		1.17		2.28		2.52		3.06		3.20
30-year mortgage current coupon (1)	1.28		1.64		2.71		2.95		3.51		3.65



	Year 2020 by Quarter - Average
	Quarter 1		Quarter 2		Quarter 3		Quarter 4

Federal funds effective	1.25	%	0.06	%	0.09	%	0.09	%
SOFR	1.25		0.05		0.09		0.09
3-month LIBOR	1.54		0.61		0.25		0.22
2-year LIBOR	1.18		0.32		0.22		0.23
10-year LIBOR	1.34		0.69		0.65		0.87
2-year U.S. Treasury	1.10		0.19		0.14		0.15
10-year U.S. Treasury	1.38		0.68		0.65		0.86
15-year mortgage current coupon (1)	1.86		1.09		0.86		0.88
30-year mortgage current coupon (1)	2.31		1.58		1.32		1.37

(1) Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.

Business Outlook and Risk Management

Strategic/Business Risk

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Market Risk

Capital Adequacy

Credit Risk

Liquidity Risk

Regulatory and Legislative Risk and Significant Developments

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Finance Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances:On April 23, 2020, the Finance Agency issued a Supervisory Letter (PPP Supervisory Letter) permitting the FHLBanks to accept PPP loans as collateral for Advances as “Agency Securities,” given the Small Business Administration’s (SBA) 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA's third interim final rule related to PPP loans was published. The rule explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral that focus on the financial condition of members, collateral discounts, and pledge dollar limits. On December 27, 2020, the President signed into law an extension of the PPP until March 21, 2021. The April 23, 2020 Supervisory Letter from the Finance Agency allowing us to accept PPP loans as collateral remains in effect.

▪Assistance to businesses, states, and municipalities.

▪A loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives.

▪Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act.

▪Direct payments to eligible taxpayers and their families.

▪Expanded eligibility for unemployment insurance and payment amounts.

▪Mortgage forbearance provisions and a foreclosure moratorium.

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(In millions)	Maturing on or before June 30, 2023		Maturing after June 30, 2023
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term	$	2,599	$	3,012
MBS by contractual maturity (1)	—		5,929

Total principal amount	$	2,599	$	8,941
Derivatives, notional amount by termination date	$	9,339	$	4,680

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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition

The table below shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.



(Dollars in millions)	December 31, 2020				December 31, 2019
	Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable Rate-Indexed:
LIBOR	$	5,611	22	%	$	10,430	22	%
SOFR	118		1		500		1
Other	82		—		221		1
Total	5,811		23		11,151		24
Fixed-Rate:
Repurchase based (REPO)	3,780		15		19,386		41
Regular Fixed-Rate	9,587		38		11,476		24
Putable (2)	2,657		11		1,444		3
Amortizing/Mortgage Matched	2,021		8		2,358		5
Other	1,151		5		1,449		3
Total	19,196		77		36,113		76

Total Advances Principal	$	25,007	100	%	$	47,264	100	%

Letters of Credit (notional)	$	28,812			$	16,205


(Dollars in millions)	December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
	Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable-Rate Indexed:
LIBOR	$	5,611	22	%	$	5,846	22	%	$	21,071	44	%	$	28,889	36	%
SOFR	118		1		116		—		116		—		2,000		3
Other	82		—		123		1		83		—		247		—
Total	5,811		23		6,085		23		21,270		44		31,136		39
Fixed-Rate:
Repurchase based (REPO)	3,780		15		3,896		15		8,978		18		28,058		35
Regular Fixed-Rate	9,587		38		10,207		38		11,445		24		14,452		18
Putable (2)	2,657		11		3,107		12		3,164		6		3,164		4
Amortizing/Mortgage Matched	2,021		8		2,195		8		2,309		5		2,439		3
Other	1,151		5		1,158		4		1,241		3		680		1
Total	19,196		77		20,563		77		27,137		56		48,793		61

Total Advances Principal	$	25,007	100	%	$	26,648	100	%	$	48,407	100	%	$	79,929	100	%

Letters of Credit (notional)	$	28,812			$	23,011			$	22,381			$	15,785

(1)As a percentage of total Advances principal.

(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.

Advance balances at December 31, 2020 decreased 47 percent compared to year-end 2019. Advance balances declined in 2020 as large-asset members reduced their borrowings. The reduction in borrowings was primarily driven by these members generally experiencing an inflow of deposits on their balance sheets, while also having access to other liquidity sources as a result of certain government actions related to the pandemic. Despite the overall decline, Advances spiked across our membership at the end of the first quarter of 2020 as the financial markets reacted to the COVID-19 pandemic, and members

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turned to us for liquidity, primarily in the form of LIBOR and REPO Advances. Most of these Advances matured or prepaid by the end of 2020.

Advance Usage

In addition to analyzing Advance balances by dollar trends, we monitor the degree to which members use Advances to fund their balance sheets. The following table shows the unweighted, average ratio of each member's Advance balance to its most-recently available figures for total assets.


	December 31, 2020		December 31, 2019
Average Advances-to-assets for members
Assets less than $1.0 billion (514 members)	1.99	%	2.55	%
Assets over $1.0 billion (114 members)	2.11		3.31
All members	2.01		2.67

The following table shows Advance usage of members by charter type.



(Dollars in millions)	December 31, 2020				December 31, 2019
	Principal Amount of Advances		Percent of Total Principal Amount of Advances		Principal Amount of Advances		Percent of Total Principal Amount of Advances
Commercial Banks	$	9,530	38	%	$	31,590	67	%
Savings Institutions	4,922		20		5,689		12
Credit Unions	1,344		5		1,307		3
Insurance Companies	9,201		37		8,629		18
Community Development Financial Institutions	—		—		1		—
Total member Advances	24,997		100		47,216		100
Former member borrowings	10		—		48		—
Total principal amount of Advances	$	25,007	100	%	$	47,264	100	%

The following tables present principal balances for the five members with the largest Advance borrowings.


(Dollars in millions)
December 31, 2020					December 31, 2019
Name	Principal Amount of Advances		Percent of Total Principal Amount of Advances		Name	Principal Amount of Advances		Percent of Total Principal Amount of Advances
U.S. Bank, N.A.	$	4,273	17	%	U.S. Bank, N.A.	$	13,874	29	%
Third Federal Savings and Loan Association	3,443		14		JPMorgan Chase Bank, N.A.	4,500		10
Nationwide Life Insurance Company	2,062		8		Third Federal Savings and Loan Association	3,883		8
Protective Life Insurance Company	1,955		8		First Horizon Bank	2,200		5
Western-Southern Life Assurance Co.	1,344		5		Pinnacle Bank	2,063		4
Total of Top 5	$	13,077	52	%	Total of Top 5	$	26,520	56	%

Advance concentration ratios are influenced by, and generally similar to, concentration ratios of financial activity among our Fifth District financial institutions. We believe that having large financial institutions that actively use our Mission Assets augments the value of membership to all members. For example, such activity improves our operating efficiency, increases our earnings and thereby contributions to housing and community investment programs. This activity may enable us to obtain more favorable funding costs, and helps us maintain competitively priced Mission Assets.

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Mortgage Loans Held for Portfolio (Mortgage Purchase Program, or MPP)

The table below shows principal purchases and reductions of loans in the MPP for each of the last two years.



(In millions)	2020		2019
Balance, beginning of year	$	10,981	$	10,272
Principal purchases	2,626		2,631
Principal reductions	(4,291)		(1,922)
Balance, end of year	$	9,316	$	10,981

Although there were 82 active members participating in the MPP during 2020, approximately 50 percent of the principal purchases in 2020 resulted from activity of our seven largest sellers. All loans acquired in 2020 were conventional loans.

The following tables show the percentage of principal balances from Participating Financial Institutions (PFIs) supplying five percent or more of total principal and the percentage of principal balances from all other PFIs. As shown below, MPP activity is concentrated amongst a few members.



(Dollars in millions)	December 31, 2020					December 31, 2019
	Principal		% of Total			Principal		% of Total
Union Savings Bank	$	2,826	30	%	Union Savings Bank	$	3,574	33	%
Guardian Savings Bank FSB	796		9		Guardian Savings Bank FSB	1,004		9
All others	5,694		61		FirstBank	714		7
Total	$	9,316	100	%	All others	5,689		51
					Total	$	10,981	100	%

We closely track the refinancing incentives of our mortgage assets (including loans in the MPP and MBS) because the option for homeowners to change their principal payments normally represents the largest portion of our market risk exposure and can affect MPP balances. MPP principal paydowns increased in 2020 to a 30 percent annual constant prepayment rate, compared to the 14 percent rate for all of 2019, driven by reductions in mortgage rates. MPP yields on purchases in 2020, after consideration of funding and hedging costs, continued to offer favorable returns. However, MPP yields on existing portfolio balances, net of funding and hedging costs, have declined and are expected to remain at lower levels in the short-term due to the increased prepayment speeds noted above. Despite the lower yields on existing MPP balances, the metrics of portfolio return relative to their market and credit risks continue to indicate that the MPP has generated, and can be expected to continue to generate, a profitable long-term, risk-adjusted return.

Housing and Community Investment

In 2020, we accrued $31 million of earnings for the Affordable Housing Program, which will be awarded to members in ~~2020~~2021 through either our competitive or Welcome Home programs. ~~This amount represents a decrease of $7 million from 2018 due to the lower earnings in 2019.~~

Including funds available in ~~2019~~2020 from previous years, we had ~~$32~~$28 million available for the competitive Affordable Housing Program in ~~2019,~~2020, which we awarded to 5349 projects through a single competitive offering. In addition, we disbursed ~~nearly $13~~over $11 million to ~~189~~178 members on behalf of ~~2,519~~2,206 homebuyers through the Welcome Home Program, which assists homebuyers with down payments and closing costs. In total, ~~more than one-third~~approximately 40 percent of members applied for funding under the two Affordable Housing Programs.

Additionally, in ~~2019,~~2020, our Board committed ~~$2.1~~$2.0 million to the Carol M. Peterson Housing Fund, which helped ~~303~~332 homeowners, and continued its commitment to the ~~$5 million~~ Disaster Reconstruction Program. ~~Both~~Furthermore, in support of our members during the COVID-19 pandemic, we created a new Advance program that offered Advances with terms up to six months at zero percent interest to members between May 1, 2020 and September 30, 2020. These Advances supported COVID-19 related assistance made by all Fifth District members. In 2020, we issued a total of $183 million of these Advances of which $34 million remained outstanding at December 31, 2020. The Carol M. Peterson Housing Fund, Disaster Reconstruction Program and COVID-19 related Advances are all voluntary programs beyond the 10 percent of earnings that we are required by law to set aside for the Affordable Housing Program.

Table of Contents

Our activities to support affordable housing and economic development also include offering Advances through the Affordable Housing Program, Community Investment Program and Economic Development Program with below-market interest rates at or near funding costs. At the end of ~~2019,~~2020, Advance balances under these programs totaled ~~$360~~$302 million.

Investments

The table below presents the ending and average balances of our investment portfolio.



(In millions)	2020				2019
	Ending Balance		Average Balance		Ending Balance		Average Balance
Liquidity investments	$	17,285	$	20,548	$	20,924	$	22,525
MBS	9,756		11,864		13,465		15,029
Other investments (1)	—		459		—		232
Total investments	$	27,041	$	32,871	$	34,389	$	37,786

(In millions) 2019 2018
Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments $ 20,924
$ 22,525
$ 17,858
$ 13,989
MBS 13,465
15,029
15,756
15,741
Other investments ⁽¹⁾
—
232
—
64
Total investments $ 34,389
$ 37,786
$ 33,614
$ 29,794
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.


~~(1)~~	The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

Liquidity investments are either short-term (primarily overnight), or longer-term, but can be easily sold and converted to cash. It is normal for liquidity investments to vary by up to several billion dollars on a daily basis. Liquidity investment levels can vary significantly based on changes in the amount of actual Advances, anticipated demand for Advances, liquidity needs, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria.

The ~~increase~~balance of liquidity investments was lower at December 31, 2020 compared to year-end 2019 as we decided to hold more of our liquidity portfolio as deposits at the Federal Reserve in anticipation of volatile market conditions. At December 31, 2020, we held $3.0 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements of Condition. The average balance of liquidity investments in 2020 and 2019 ~~was driven by volatility in short-term~~were ample and ~~variable-rate Advance borrowings and the purchases of~~relatively stable as we continued to hold U.S. Treasury obligations to help meet ~~new~~ regulatory liquidity ~~requirements that went into effect on March 31, 2019.~~requirements. Under the ~~new~~ regulatory requirements, liquidity includes certain high-quality liquid assets, which are defined as U.S. Treasury obligations with remaining maturities of 10 years or less held as trading securities or available-for-sale securities.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory ~~maximum, subject to the availability of securities that we believe provide acceptable risk/return tradeoffs.~~maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was ~~3.00~~2.46 at December 31, ~~2019~~2020. The MBS ratio was lower than normal primarily due to the decline in MBS balances given paydowns in the low interest rate environment and the regulatory limitations regarding the purchase of investments that reference LIBOR. Given these limitations, we have not been able to fully replace the prepaid MBS with suitable alternatives that we believe provide an acceptable risk/return tradeoff.

The balance of MBS at December 31, ~~2019~~2020 consisted of ~~$11.8~~$8.7 billion of securities issued by Fannie Mae or Freddie Mac (of which ~~$7.8~~$5.9 billion were floating-rate securities), ~~$0.3 billion of floating-rate securities issued by the National Credit Union Administration (NCUA),~~ and ~~$1.4~~$1.0 billion of securities issued by Ginnie Mae (which are primarily fixed rate). At December 31, 2019, the floating-rate MBS issued by Fannie Mae, Freddie Mac and the NCUA were indexed to LIBOR. As noted in the "Business Outlook and Risk Management" section of the "Executive Overview," on December 31, 2019, we stopped purchasing investments that reference LIBOR and mature after December 31, 2021.

The table below shows principal purchases and paydowns of our MBS for each of the last two years.


(In millions)	MBS Principal
	2020		2019
Balance, beginning of year	$	13,447	$	15,734
Principal purchases	149		1,205
Principal paydowns	(3,851)		(3,492)

Balance, end of year	$	9,745	$	13,447

(In millions) MBS Principal
2019 2018
Balance, beginning of year $ 15,734
$ 14,746
Principal purchases 1,205
3,839
Principal paydowns (3,492 ) (2,851 )
Balance, end of year $ 13,447
$ 15,734

MBS principal paydowns in ~~2019~~2020 equated to a 2027 percent annual constant prepayment rate, up from the 1620 percent rate experienced in ~~2018.~~2019. The higher prepayment rate experienced in ~~2019~~2020 is a result of the ~~decline in~~historically low mortgage ~~rates throughout the first three quarters~~rate environment.

Table of ~~2019.~~Contents

Consolidated Obligations

We fund variable-rate assets with Discount Notes (a portion of which ~~are~~may be swapped), adjustable-rate Bonds, and swapped fixed-rate Bonds because they give us the ability to effectively match the underlying rate reset periods embedded in these assets. The balances and composition of our Consolidated Obligations tend to fluctuate with changes in the balances and composition of our assets. In addition, changes in the amount and composition of our funding may be necessary from time to time to meet the days positive liquidity and asset/liability maturity funding gap requirements ~~under the new regulatory liquidity guidance~~ discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

The table below presents the ending and average balances of our participations in Consolidated Obligations.



(In millions)	2020				2019
	Ending Balance		Average Balance		Ending Balance		Average Balance
Discount Notes:
Unswapped	$	27,503	$	39,478	$	36,776	$	39,286
Swapped	—		3,843		12,401		5,291
Total par Discount Notes	27,503		43,321		49,177		44,577
Other items (1)	(3)		(37)		(93)		(95)
Total Discount Notes	27,500		43,284		49,084		44,482
Bonds:
Unswapped fixed-rate	18,940		21,288		22,420		24,423
Unswapped adjustable-rate (2)	10,639		13,394		11,012		16,132
Swapped fixed-rate	2,372		3,547		4,949		5,310
Total par Bonds	31,951		38,229		38,381		45,865
Other items (1)	46		68		59		44
Total Bonds	31,997		38,297		38,440		45,909
Total Consolidated Obligations (3)	$	59,497	$	81,581	$	87,524	$	90,391

(In millions) 2019 2018
Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:
Unswapped $ 36,776
$ 39,286
$ 47,071
$ 49,273
Swapped 12,401
5,291
—
—
Total par Discount Notes 49,177
44,577
47,071
49,273
Other items ⁽¹⁾
(93 ) (95 ) (127 ) (88 )
Total Discount Notes 49,084
44,482
46,944
49,185
Bonds:
Unswapped fixed-rate 22,420
24,423
25,982
26,566
Unswapped adjustable-rate ⁽²⁾
11,012
16,132
15,470
16,967
Swapped fixed-rate 4,949
5,310
4,195
5,982
Total par Bonds 38,381
45,865
45,647
49,515
Other items ⁽¹⁾
59
44
12
(13 )
Total Bonds 38,440
45,909
45,659
49,502
Total Consolidated Obligations⁽³⁾
$ 87,524
$ 90,391
$ 92,603
$ 98,687
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.


~~(1)~~	~~Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.~~


~~(2)~~	Unswapped adjustable-rate Bonds are indexed to either LIBOR or SOFR. At December 31, 2019, 1 percent were indexed to LIBOR and 99 percent were indexed to SOFR. At December 31, 2018, 69 percent were indexed to LIBOR and 31 percent were indexed to SOFR.

~~(3)~~

(2)Unswapped adjustable-rate Bonds are indexed to either LIBOR or SOFR. At December 31, 2020, 100 percent were indexed to SOFR. At December 31, 2019, 1 percent were indexed to LIBOR and 99 percent were indexed to SOFR.

(3)The 11 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amount of the outstanding Consolidated Obligations for all of the FHLBanks was (in millions) $746,772 and $1,025,895 at December 31, 2020 and 2019, respectively.

~~$1,025,895~~ ~~and~~ ~~$1,031,617~~ at ~~December 31, 2019~~ ~~and December 31, 2018, respectively.~~

The balances of Consolidated Obligations were relatively stable in the periods shown above with fluctuations resulting from changes in the balances of our assets. Beginning in the third quarter of 2019, we began swapping term Discount Notes to adjustable-rates tied to the overnight Federal funds effective rate in order to reduce the repricing riskending balance of Discount Notes ~~being used~~was lower at December 31, 2020 compared to ~~fund certain overnight~~year-end 2019 due to the reduction in short-term and ~~shorter-term assets.~~variable-rate Advances in the last three quarters of 2020. Additionally, given our preference to use unswapped Discount Notes and unswapped adjustable-rate Bonds in the current market environment, we had no swapped Discount Notes outstanding at December 31, 2020. The average balance of Discount Notes in 2020 was significantly higher compared to the balance at the end of 2020 due to the growth in short-term and variable-rate Advances across our membership at the end of the first quarter of 2020 as the financial markets reacted to the COVID-19 pandemic.

The average balance of unswapped fixed-rate Bonds, which typically have initial maturities greater than one year, declined in ~~2019~~2020 compared to ~~2018 driven~~the average balance in ~~part by the continued run-off and replacement~~2019 due to terminating higher coupon fixed-rate Bonds with embedded options as interest rates fell.

Table of fixed rate MBS with adjustable rate products that require adjustable rate funding along with expanded use of derivatives to mitigate the interest rate exposure associated with existing fixed rate mortgage assets.Contents

The following table shows the allocation on December 31, ~~2019~~2020 of unswapped fixed-rate Bonds according to their final remaining maturity and next call date (for callable Bonds). We believe that the allocations of Bonds among these classifications provide effective mitigation of market risk exposure to both higher and lower interest rates.



(In millions)	Year of Maturity						Year of Next Call
	Callable		Noncallable		Total			Callable
Due in 1 year or less	$	—	$	5,797	$	5,797		$	4,292
Due after 1 year through 2 years	25		2,662		2,687			120
Due after 2 years through 3 years	936		2,363		3,299			—
Due after 3 years through 4 years	540		1,253		1,793			—
Due after 4 years through 5 years	1,182		728		1,910			—
Thereafter	1,729		1,725		3,454			—
Total	$	4,412	$	14,528	$	18,940		$	4,412

(In millions) Year of Maturity Year of Next Call
Callable Noncallable Total Callable
Due in 1 year or less $ 876
$ 5,387
$ 6,263
$ 5,038
Due after 1 year through 2 years 1,203
3,247
4,450
130
Due after 2 years through 3 years 261
2,644
2,905
19
Due after 3 years through 4 years 780
2,343
3,123
—
Due after 4 years through 5 years 287
1,253
1,540
—
Thereafter 1,780
2,359
4,139
—
Total $ 5,187
$ 17,233
$ 22,420
$ 5,187

Deposits

Total deposits with us are normally a relatively minor source of low-cost funding. Total interest-bearing deposits at December 31, ~~2019~~2020 were ~~$0.9~~$1.3 billion, an increase of ~~$0.3~~$0.4 billion from year-end ~~2018.~~2019.

Derivatives Hedging Activity and Liquidity

Our use of derivatives is discussed in the "Effect of the Use of Derivatives on Net Interest Income" ~~section~~and "Non-Interest Income (Loss)" sections in "Results of Operations." Liquidity is discussed in the "Liquidity Risk" section in “Quantitative and Qualitative Disclosures About Risk Management.”

Capital Resources

The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same manner as GAAP capital stock and retained earnings.


	Year Ended December 31,

(In millions)	2020				2019
	Period End		Average		Period End		Average
GAAP and Regulatory Capital
GAAP Capital Stock	$	2,641	$	3,567	$	3,367	$	3,827
Mandatorily Redeemable Capital Stock	19		55		22		25
Regulatory Capital Stock	2,660		3,622		3,389		3,852
Retained Earnings	1,304		1,228		1,094		1,069
Regulatory Capital	$	3,964	$	4,850	$	4,483	$	4,921

Year Ended December 31,
(In millions) 2019 2018
Period End Average Period End Average
GAAP and Regulatory Capital
GAAP Capital Stock $ 3,367
$ 3,827
$ 4,320
$ 4,387
Mandatorily Redeemable Capital Stock 22
25
23
30
Regulatory Capital Stock 3,389
3,852
4,343
4,417
Retained Earnings 1,094
1,069
1,023
1,025
Regulatory Capital $ 4,483
$ 4,921
$ 5,366
$ 5,442



	2020				2019
	Period End		Average		Period End		Average
GAAP and Regulatory Capital-to-Assets Ratio
GAAP	6.02	%	5.39	%	4.75	%	5.04	%
Regulatory (1)	6.07		5.47		4.79		5.08

(1) At all times, the FHLBanks must maintain at least a four percent minimum regulatory capital-to-assets ratio.

2019 2018
Period End Average Period End Average
GAAP and Regulatory Capital-to-Assets Ratio
GAAP 4.75 % 5.04 % 5.37 % 5.11 %
Regulatory ⁽¹⁾
4.79
5.08
5.41
5.16

Table of Contents


~~(1)~~	~~At all times, the FHLBanks must maintain at least a four percent minimum regulatory capital-to-assets ratio.~~

The following table presents the sources of change in regulatory capital stock balances in ~~2019~~2020 and ~~2018.~~2019.


(In millions)	2019			2018			(In millions)	2020		2019
Regulatory stock balance at beginning of year	$	4,343		$	4,271		Regulatory stock balance at beginning of year	$	3,389	$	4,343
Stock purchases:							Stock purchases:
Membership stock	157			25			Membership stock	25		157
Activity stock	435			413			Activity stock	2,110		435
Stock repurchases/redemptions:							Stock repurchases/redemptions:
Redemption of member excess	—			(40		)	Redemption of member excess	(558)		—
Repurchase of member excess	(1,538		)	(297		)	Repurchase of member excess	(2,300)		(1,538)
Withdrawals	(8		)	(29		)	Withdrawals	(6)		(8)
Regulatory stock balance at the end of the year	$	3,389		$	4,343		Regulatory stock balance at the end of the year	$	2,660	$	3,389

Members' purchases of capital stock in 2020 were primarily to support Advance growth at the end of the first quarter. However, the decrease in GAAP and regulatory capital balances was primarily due to our repurchase of excess capital stock as Advance balances subsequently declined.

The table below shows the amount of excess capital stock.


(In millions)	December 31, 2019		December 31, 2018		(In millions)	December 31, 2020		December 31, 2019
Excess capital stock (Capital Plan definition)	$	37	$	1,015	Excess capital stock (Capital Plan definition)	$	228	$	37
Cooperative utilization of capital stock	$	781	$	558	Cooperative utilization of capital stock	$	380	$	781
Mission Asset Activity capitalized with cooperative capital stock	$	19,536	$	13,950	Mission Asset Activity capitalized with cooperative capital stock	$	9,499	$	19,536

A portion of our capital stock is excess, meaning it is not required as a condition to being a member and is not currently capitalizing Mission Asset Activity. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used to capitalize a portion of growth in Mission Assets. ~~Throughout 2019,~~At December 31, 2020, the amount of excess stock, as defined by our Capital Plan, was $228 million, an increase of $191 million from year-end 2019. The balance of excess stock grew as ~~Advance balances decreased. In order~~many Advances matured or prepaid in the second and third quarters of 2020.

Prior to ~~help manage~~January 1, 2021, if an individual member's excess stock reached zero, our ~~capital and financial performance, we repurchased over $1.5 billion~~Capital Plan had permitted us, with certain limits, to capitalize additional Mission Asset Activity of that member with excess stock owned by other members, which is reflected as cooperative utilization of capital stock in ~~2019. As a result, excess stock decreased $978 million from year-end 2018. The repurchase of excess stock also resulted in decreases~~the table above. Effective with the most recently amended Capital Plan, members are no longer able to ~~GAAP and regulatory~~use this cooperative capital ~~balances and the related capital-to-assets ratios.~~for marginal new business.

See the "Capital Adequacy" section in “Quantitative and Qualitative Disclosures About Risk Management” for discussion of our retained earnings.

Membership and Stockholders

In ~~2019,~~2020, we added 11seven new member stockholders and lost 1719 member stockholders, ending the year at ~~640~~628 member stockholders. The decline in membership during ~~2019~~2020 was primarily attributable to intra-district merger activity.

In ~~2019,~~2020, there were no material changes in the allocation of membership by state, charter type, or asset size. At the end of ~~2019,~~2020, the composition of membership by state was Ohio with 301, Kentucky with ~~171,~~165, and Tennessee with ~~168.~~162.

Table of Contents

The following table provides the number of member stockholders by charter type.


	December 31,			December 31,
	2019	2018		2020	2019
Commercial Banks	365	374	Commercial Banks	351	365
Savings Institutions	81	83	Savings Institutions	78	81
Credit Unions	136	134	Credit Unions	140	136
Insurance Companies	52	48	Insurance Companies	53	52
Community Development Financial Institutions	6	7	Community Development Financial Institutions	6	6
Total	640	646	Total	628	640

The following table provides the ownership of capital stock by charter type.


(In millions)	December 31,				(In millions)	December 31,
	2019		2018			2020		2019
Commercial Banks	$	2,296	$	3,353	Commercial Banks	$	1,459	$	2,296
Savings Institutions	365		353		Savings Institutions	398		365
Credit Unions	175		176		Credit Unions	179		175
Insurance Companies	530		437		Insurance Companies	604		530
Community Development Financial Institutions	1		1		Community Development Financial Institutions	1		1
Total GAAP Capital Stock	3,367		4,320		Total GAAP Capital Stock	2,641		3,367
Mandatorily Redeemable Capital Stock	22		23		Mandatorily Redeemable Capital Stock	19		22
Total Regulatory Capital Stock	$	3,389	$	4,343	Total Regulatory Capital Stock	$	2,660	$	3,389

2018
(In millions)
4^th  Quarter

3^rd  Quarter

2^nd  Quarter

1^st  Quarter
Interest income $ 665
$ 598
$ 594
$ 524
Interest expense 543
468
465
406
Net interest income 122
130
129
118
Non-interest income (loss) (11 ) (9 ) (13 ) (4 )
Non-interest expense 31
30
31
31
Net income $ 80
$ 91
$ 85
$ 83

Table of Contents

Investments

Data on investments for the years ended December 31, 2020, 2019 ~~2018~~ and ~~2017~~2018 are provided in the tables below.


(In millions)	Carrying Value at December 31,
	2020		2019		2018
Interest-bearing deposits	$	555	$	550	$	—
Securities purchased under agreements to resell	1,818		2,349		4,402
Federal funds sold	4,240		4,833		10,793
Trading securities:
U.S. Treasury obligations	8,362		9,627		—
GSE obligations	2,126		1,988		224
MBS:
U.S. obligation single-family MBS	—		1		—
Total trading securities	10,488		11,616		224
Available-for-sale securities:
Certificates of deposit	—		1,410		2,350
GSE obligations	142		132		53
MBS:
GSE multi-family MBS	150		—		—
Total available-for-sale securities	292		1,542		2,403
Held-to-maturity securities:
U.S. Treasury obligations	42		35		36



MBS:
U.S. obligation single-family MBS	986		1,671		2,041
GSE single-family MBS	3,013		4,500		5,544
GSE multi-family MBS	5,607		7,293		8,171

Total held-to-maturity securities	9,648		13,499		15,792
Total securities	20,428		26,657		18,419
Total investments	$	27,041	$	34,389	$	33,614

(In millions) Carrying Value at December 31,
2019 2018 2017
Interest-bearing deposits $ 550
$ —
$ —
Securities purchased under agreements to resell 2,349
4,402
7,702
Federal funds sold 4,833
10,793
3,650
Trading securities:
U.S. Treasury obligations 9,627
—
—
GSE obligations 1,988
224
—
MBS:
U.S. obligation single-family MBS 1
—
1
Total trading securities 11,616
224
1
Available-for-sale securities:
Certificates of deposit 1,410
2,350
900
GSE obligations 132
53
—
Total available-for-sale securities 1,542
2,403
900
Held-to-maturity securities:
U.S. Treasury obligations 35
36
34
MBS:
U.S. obligation single-family MBS 1,671
2,041
2,484
GSE single-family MBS 4,500
5,544
6,703
GSE multi-family MBS 7,293
8,171
5,584
Total held-to-maturity securities 13,499
15,792
14,805
Total securities 26,657
18,419
15,706
Total investments $ 34,389
$ 33,614
$ 27,058

Table of Contents

As of December 31, ~~2019,~~2020, investments had the following maturity and yield characteristics.


(Dollars in millions)	Due in one year or less			Due after one year through five years			Due after five through 10 years			Due after 10 years			Carrying Value
Interest-bearing deposits	$	555		$	—		$	—		$	—		$	555
Securities purchased under agreements to resell	1,818			—			—			—			1,818
Federal funds sold	4,240			—			—			—			4,240
Trading securities:
U.S. Treasury obligations	2,205			6,157			—			—			8,362
GSE obligations	—			162			1,674			290			2,126


Total trading securities	2,205			6,319			1,674			290			10,488
Yield on trading securities	1.95		%	2.30		%	2.59		%	2.68		%
Available-for-sale securities:

GSE obligations	$	—		$	11		$	117		$	14		$	142
MBS(1):
GSE multi-family MBS	—			—			150			—			150
Total available-for-sale securities	—			11			267			14			292
Yield on available-for sale securities	—		%	3.28		%	2.00		%	3.09		%
Held-to-maturity securities:
U.S. Treasury obligations	$	42		$	—		$	—		$	—		$	42


MBS(1):
U.S. obligation single-family MBS	—			—			—			986			986
GSE single-family MBS	—			15			4			2,994			3,013
GSE multi-family MBS	—			1,041			4,392			174			5,607

Total held-to-maturity securities	42			1,056			4,396			4,154			9,648
Yield on held-to-maturity securities	0.15		%	0.47		%	0.62		%	2.20		%
Total securities	$	2,247		$	7,386		$	6,337		$	4,458		$	20,428
Total investments	$	8,860		$	7,386		$	6,337		$	4,458		$	27,041

(Dollars in millions) Due in one year or less Due after one year through five years Due after five through 10 years Due after 10 years Carrying Value
Interest-bearing deposits $ 550
$ —
$ —
$ —
$ 550
Securities purchased under agreements to resell 2,349
—
—
—
2,349
Federal funds sold 4,833
—
—
—
4,833
Trading securities:
U.S. Treasury obligations 1,396
8,231
—
—
9,627
GSE obligations —
137
943
908
1,988
MBS⁽¹⁾:

U.S. obligation single-family MBS —
1
—
—
1
Total trading securities 1,396
8,369
943
908
11,616
Yield on trading securities 1.82 % 2.21 % 2.67 % 2.53 %
Available-for-sale securities:
Certificates of deposit $ 1,410
$ —
$ —
$ —
$ 1,410
GSE obligations —
—
120
12
132
Total available-for-sale securities 1,410
—
120
12
1,542
Yield on available-for sale securities 1.99 % — % 3.03 % 3.10 %
Held-to-maturity securities:
U.S. Treasury obligations $ 35
$ —
$ —
$ —
$ 35
MBS⁽¹⁾:

U.S. obligation single-family MBS 266
—
—
1,405
1,671
GSE single-family MBS —
14
16
4,470
4,500
GSE multi-family MBS —
480
6,636
177
7,293
Total held-to-maturity securities 301
494
6,652
6,052
13,499
Yield on held-to-maturity securities 2.15 % 2.08 % 2.13 % 2.41 %
Total securities $ 3,107
$ 8,863
$ 7,715
$ 6,972
$ 26,657
Total investments $ 10,839
$ 8,863
$ 7,715
$ 6,972
$ 34,389
(1)MBS allocated based on contractual principal maturities assuming no prepayments.


~~(1)~~	~~MBS allocated based on contractual principal maturities assuming no prepayments.~~

As of December 31, ~~2019,~~2020, the FHLB held securities of the following issuers with a carrying value greater than 10 percent of FHLB capital. The table includes GSEs, securities of the U.S. government, and government agencies and ~~corporations, and privately issued certificates~~corporations.


(In millions)	Total		Total
Name of Issuer	Carrying Value		Fair Value
United States Treasury	$	8,404	$	8,404
Fannie Mae	6,291		6,352
Freddie Mac	3,988		4,030
Government National Mortgage Association	987		1,028
Federal Farm Credit Banks	660		660



Other (1)	98		98
Total investment securities	$	20,428	$	20,572

(1) Includes issuers of ~~deposit.~~securities that have a carrying value that is less than 10 percent of FHLB capital.

(In millions) Total Total
Name of Issuer Carrying Value Fair Value
United States Treasury $ 9,662
$ 9,662
Fannie Mae 7,710
7,710
Freddie Mac 5,504
5,493
Government National Mortgage Association 1,405
1,418
Federal Farm Credit Banks 610
610
The Toronto-Dominion Bank 500
500
Other ⁽¹⁾
1,266
1,266
Total investment securities $ 26,657
$ 26,659

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~~(1)~~	~~Includes issuers of securities that have a carrying value that is less than 10 percent of FHLB capital.~~

Loan Portfolio Analysis

The FHLB's outstanding loans, loans 90 days or more past due and accruing interest, and allowance for credit loss information for the five years ended December 31 are shown below. The FHLB's interest and related shortfall on non-accrual loans and loans modified in troubled debt restructurings was not material during the years presented below.


(Dollars in millions)	2020			2019			2018			2017			2016
Domestic:
Advances	$	25,362		$	47,370		$	54,822		$	69,918		$	69,882
Real estate mortgages	$	9,549		$	11,236		$	10,502		$	9,682		$	9,150
Real estate mortgages past due 90 days or more (including those in process of foreclosure) and still accruing interest, unpaid principal balance	$	64		$	17		$	19		$	26		$	33
Non-accrual loans, unpaid principal balance (1)	$	7		$	2		$	3		$	3		$	4
Troubled debt restructurings, unpaid principal balance (not included above)	$	17		$	12		$	9		$	9		$	8
Allowance for credit losses on mortgage loans, beginning of year	$	1		$	1		$	1		$	1		$	2
Adjustment for cumulative effect of accounting change	(1)			—			—			—			—
Net charge-offs	—			—			—			—			(1)

Allowance for credit losses on mortgage loans, end of year	$	—		$	1		$	1		$	1		$	1
Ratio of net charge-offs during the period to average loans outstanding during the period	—		%	—		%	—		%	—		%	0.01		%

(Dollars in millions) 2019 2018 2017 2016 2015
Domestic:
Advances $ 47,370
$ 54,822
$ 69,918
$ 69,882
$ 73,292
Real estate mortgages $ 11,236
$ 10,502
$ 9,682
$ 9,150
$ 7,954
Real estate mortgages past due 90 days
   or more (including those in process of foreclosure)
   and still accruing interest, unpaid principal balance
$ 17
$ 19
$ 26
$ 33
$ 42
Non-accrual loans, unpaid principal balance ⁽¹⁾
$ 2
$ 3
$ 3
$ 4
$ 7
Troubled debt restructurings, unpaid principal balance (not included above) $ 12
$ 9
$ 9
$ 8
$ 8
Allowance for credit losses on mortgage loans,
   beginning of year
$ 1
$ 1
$ 1
$ 2
$ 5
Net charge-offs —
—
—
(1 ) (3 )
Provision (reversal) for credit losses —
—
—
—
—
Allowance for credit losses on mortgage loans,
   end of year
$ 1
$ 1
$ 1
$ 1
$ 2
Ratio of net charge-offs during the period to
   average loans outstanding during the period
— % — % — % 0.01 % 0.04 %
(1)    See Note 1 of the Notes to Financial Statements for an explanation of the FHLB's non-accrual policy.


~~(1)~~	~~See Note 1 of the Notes to Financial Statements for an explanation of the FHLB's non-accrual policy.~~

Other Borrowings

Borrowings with original maturities of one year or less are classified as short-term. The following is a summary of short-term borrowings exceeding 30 percent of total capital for the years ended December 31:


(Dollars in millions)	2020			2019			2018
Discount Notes
Outstanding at year-end (book value)	$	27,500		$	49,084		$	46,944
Weighted average rate at year-end (1) (2)	0.11		%	1.56		%	2.35		%
Daily average outstanding for the year (book value)	$	43,284		$	44,482		$	49,185
Weighted average rate for the year (2)	0.68		%	2.22		%	1.86		%
Highest outstanding at any month-end (book value)	$	79,660		$	62,567		$	64,045
Bonds (short-term)
Outstanding at year-end (principal amount)	$	11,676		$	11,101		$	14,728
Weighted average rate at year-end (2) (3)	0.14		%	1.60		%	2.38		%
Daily average outstanding for the year (principal amount)	$	16,065		$	15,595		$	14,937
Weighted average rate for the year (2) (3)	0.40		%	2.27		%	1.87		%
Highest outstanding at any month-end (principal amount)	$	23,649		$	21,270		$	19,438

(1) Represents an implied rate without consideration of concessions.

(2) Amounts used to calculate weighted average rates for the year are based on dollars in thousands. Accordingly, recalculations based upon amounts in millions may not produce the same results.

(3) Represents the effective coupon rate.

(Dollars in millions) 2019 2018 2017
Discount Notes
Outstanding at year-end (book value) $ 49,084
$ 46,944
$ 46,211
Weighted average rate at year-end ^{(1) (2)}
1.56 % 2.35 % 1.23 %
Daily average outstanding for the year (book value) $ 44,482
$ 49,185
$ 43,124
Weighted average rate for the year ⁽²⁾
2.22 % 1.86 % 0.89 %
Highest outstanding at any month-end (book value) $ 62,567
$ 64,045
$ 51,762
Bonds (short-term)
Outstanding at year-end (principal amount) $ 11,101
$ 14,728
$ 14,405
Weighted average rate at year-end ^{(2) (3)}
1.60 % 2.38 % 1.35 %
Daily average outstanding for the year (principal amount) $ 15,595
$ 14,937
$ 10,359
Weighted average rate for the year ^{(2) (3)}
2.27 % 1.87 % 0.93 %
Highest outstanding at any month-end (principal amount) $ 21,270
$ 19,438
$ 14,405

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~~(1)~~	~~Represents an implied rate without consideration of concessions.~~


~~(2)~~	~~Amounts used to calculate weighted average rates for the year are based on dollars in thousands. Accordingly, recalculations based upon amounts in millions may not produce the same results.~~


~~(3)~~	~~Represents the effective coupon rate.~~

Term Deposits

At December 31, ~~2019,~~2020, term deposits in denominations of $100,000 or more totaled ~~$27,800,000.~~$123,675,000. The table below presents the maturities for term deposits in denominations of $100,000 or more:

(In millions)
By remaining maturity at December 31, 2019
3 months or less Over 3 months but within 6 months Over 6 months but within 12 months Over 12 months but within 24 months Total
Time certificates of deposit $ 13
$ 1
$ 2
$ 12
$ 28


(In millions) By remaining maturity at December 31, 2020	3 months or less		Over 3 months but within 6 months		Over 6 months but within 12 months		Over 12 months but within 24 months		Total
Time certificates of deposit	$	65	$	38	$	19	$	2	$	124

Ratios


	2020		2019		2018
Return on average assets	0.31	%	0.28	%	0.32	%
Return on average equity	5.78		5.65		6.29
Average equity to average assets	5.39		5.04		5.11
Dividend payout ratio	30.27	%	74.06	%	75.60	%

2019 2018 2017
Return on average assets 0.28 % 0.32 % 0.31 %
Return on average equity 5.65
6.29
6.15
Average equity to average assets 5.04
5.11
5.00
Dividend payout ratio 74.06 % 75.60 % 66.31 %

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information required under this Item is set forth in the “Quantitative and Qualitative Disclosures About Risk Management” caption at Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of this filing.


~~Item 8.~~	~~Financial Statements and Supplementary Data.~~

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of the

Federal Home Loan Bank of Cincinnati

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying statements of condition of the Federal Home Loan Bank of Cincinnati ~~(the~~(the “FHLB”) as of December 31, ~~2019~~ 2020and ~~2018,~~ 2019,and the related statements of income, comprehensive income, capital and cash flows for each of the three years in the period ended December 31, ~~2019,~~2020 including the related notes (collectively referred to as the “financial statements”).We also have audited the ~~FHLB’s~~FHLB's internal control over financial reporting as of December 31, ~~2019,~~2020, based on criteria established in Internal Control - Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, thefinancial statements referred to above present fairly, in all material respects, the financial position of the FHLB as of December 31, ~~2019~~ 2020and ~~2018,~~ 2019, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, ~~2019~~ 2020in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the FHLB maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2019,~~2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The ~~FHLB’s~~FHLB's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in ~~Management's~~Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the FHLB’sfinancial statements and on the ~~FHLB’s~~FHLB's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~("PCAOB")~~(PCAOB) and are required to be independent with respect to the FHLB in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of thefinancial statements included performing procedures to assess the risks of material misstatement of thefinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in thefinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of thefinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Interest-Rate Derivatives and Hedged Items

As described in Notes 7 and 15 to the financial statements, the FHLB uses derivatives to manage interest-rate risk and reduce funding costs, among other risk management objectives. The total notional amount of derivatives as of December 31, 2020 was $26 billion, of which 40% were designated as hedging instruments, and the fair value of derivative assets and liabilities as of December 31, 2020 was $216 million and $4 million, respectively. The fair values of interest-rate derivatives and hedged items are determined using the standard valuation technique of discounted cash flow analysis, which uses market-observable inputs, such as discount rate, forward interest rate, and volatility assumptions.

The principal considerations for our determination that performing procedures relating to the valuation of interest-rate derivatives and hedged items is a critical audit matter are the significant audit effort in evaluating the discount rate, forward interest rate, and volatility assumptions used to fair value these derivatives and hedged items, and the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to the valuation of interest-rate derivatives and hedged items, including controls over the method, data and assumptions. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of interest rate derivatives and hedged items and comparison of management’s estimate to the independently developed ranges. Developing the independent range of prices involved testing the completeness

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and accuracy of data provided by management and independently developing the discount rate, forward interest rate, and volatility assumptions.

Cincinnati, Ohio

March ~~19, 2020~~18, 2021

We have served as the FHLB’s auditor since 1990.

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CONDITION


(In thousands, except par value)	December 31,						(In thousands, except par value)	December 31,
	2019			2018				2020		2019
ASSETS							ASSETS
Cash and due from banks (Note 3)	$	20,608		$	10,037		Cash and due from banks (Note 3)	$	2,984,073	$	20,608
Interest-bearing deposits	550,160			122			Interest-bearing deposits	555,104		550,160
Securities purchased under agreements to resell	2,348,584			4,402,208			Securities purchased under agreements to resell	1,818,268		2,348,584
Federal funds sold	4,833,000			10,793,000			Federal funds sold	4,240,000		4,833,000
Investment securities:
Trading securities (Note 4)	11,615,693			223,980
Available-for-sale securities (Note 5)	1,542,185			2,402,897
Held-to-maturity securities (includes $0 and $0 pledged as collateral at December 31, 2019 and 2018, respectively, that may be repledged) ^(a)(Note 6)	13,499,319			15,791,222
Investment securities: (Note 4)							Investment securities: (Note 4)
Trading securities							Trading securities	10,488,124		11,615,693
Available-for-sale securities (amortized cost of $286,869 and $1,541,815 at December 31, 2020 and 2019, respectively)							Available-for-sale securities (amortized cost of $286,869 and $1,541,815 at December 31, 2020 and 2019, respectively)	291,587		1,542,185
Held-to-maturity securities (includes $0 and $0 pledged as collateral at December 31, 2020 and 2019, respectively, that may be repledged) (a)							Held-to-maturity securities (includes $0 and $0 pledged as collateral at December 31, 2020 and 2019, respectively, that may be repledged) (a)	9,648,171		13,499,319
Total investment securities	26,657,197			18,418,099			Total investment securities	20,427,882		26,657,197
Advances (includes $5,238 and $10,008 at fair value under fair value option at December 31, 2019 and 2018, respectively) (Note 8)	47,369,573			54,822,252
Mortgage loans held for portfolio, net of allowance for credit losses of $711 and $840 at December 31, 2019 and 2018, respectively (Note 9 and Note 10)	11,235,353			10,500,917
Advances (includes $27,202 and $5,238 at fair value under fair value option at December 31, 2020 and 2019, respectively) (Note 5)							Advances (includes $27,202 and $5,238 at fair value under fair value option at December 31, 2020 and 2019, respectively) (Note 5)	25,362,003		47,369,573
Mortgage loans held for portfolio, net of allowance for credit losses of $248 and $711 at December 31, 2020 and 2019, respectively (Note 6)							Mortgage loans held for portfolio, net of allowance for credit losses of $248 and $711 at December 31, 2020 and 2019, respectively (Note 6)	9,548,506		11,235,353
Accrued interest receivable	182,252			169,982			Accrued interest receivable	113,701		182,252
Derivative assets (Note 11)	267,165			65,765
Other assets	27,667			20,191
Derivative assets (Note 7)							Derivative assets (Note 7)	215,888		267,165
Other assets, net							Other assets, net	30,814		27,667
TOTAL ASSETS	$	93,491,559		$	99,202,573		TOTAL ASSETS	$	65,296,239	$	93,491,559
LIABILITIES							LIABILITIES
Deposits (Note 12)	$	951,296		$	669,016
Consolidated Obligations: (Note 13)
Discount Notes (includes $12,386,974 and $0 at fair value under fair value option at December 31, 2019 and 2018, respectively)	49,084,219			46,943,632
Bonds (includes $4,757,177 and $3,906,610 at fair value under fair value option at December 31, 2019 and 2018, respectively)	38,439,724			45,659,138
Deposits (Note 8)							Deposits (Note 8)	$	1,327,202	$	951,296

Consolidated Obligations: (Note 9)							Consolidated Obligations: (Note 9)
Discount Notes (includes $0 and $12,386,974 at fair value under fair value option at December 31, 2020 and 2019, respectively)							Discount Notes (includes $0 and $12,386,974 at fair value under fair value option at December 31, 2020 and 2019, respectively)	27,500,244		49,084,219
Bonds (includes $2,262,388 and $4,757,177 at fair value under fair value option at December 31, 2020 and 2019, respectively)							Bonds (includes $2,262,388 and $4,757,177 at fair value under fair value option at December 31, 2020 and 2019, respectively)	31,996,311		38,439,724
Total Consolidated Obligations	87,523,943			92,602,770			Total Consolidated Obligations	59,496,555		87,523,943
Mandatorily redeemable capital stock (Note 15)	21,669			23,184
Mandatorily redeemable capital stock (Note 11)							Mandatorily redeemable capital stock (Note 11)	19,454		21,669
Accrued interest payable	126,091			147,337			Accrued interest payable	77,521		126,091
Affordable Housing Program payable (Note 14)	115,295			117,336
Derivative liabilities (Note 11)	1,310			4,586
Affordable Housing Program payable (Note 10)							Affordable Housing Program payable (Note 10)	110,772		115,295
Derivative liabilities (Note 7)							Derivative liabilities (Note 7)	3,813		1,310
Other liabilities	307,499			308,128			Other liabilities	331,008		307,499
Total liabilities	89,047,103			93,872,357			Total liabilities	61,366,325		89,047,103
Commitments and contingencies (Note 20)
CAPITAL (Note 15)
Capital stock Class B putable ($100 par value); issued and outstanding shares: 33,664 shares at December 31, 2019 and 43,205 shares at December 31, 2018	3,366,428			4,320,459
Commitments and contingencies (Note 16)							Commitments and contingencies (Note 16)	0		0
CAPITAL (Note 11)							CAPITAL (Note 11)
Capital stock Class B putable ($100 par value); issued and outstanding shares: 26,409 shares at December 31, 2020 and 33,664 shares at December 31, 2019							Capital stock Class B putable ($100 par value); issued and outstanding shares: 26,409 shares at December 31, 2020 and 33,664 shares at December 31, 2019	2,640,863		3,366,428
Retained earnings:							Retained earnings:
Unrestricted	648,374			631,971			Unrestricted	802,715		648,374
Restricted	446,048			390,829			Restricted	501,321		446,048
Total retained earnings	1,094,422			1,022,800			Total retained earnings	1,304,036		1,094,422
Accumulated other comprehensive loss (Note 16)	(16,394		)	(13,043		)
Accumulated other comprehensive loss (Note 12)							Accumulated other comprehensive loss (Note 12)	(14,985)		(16,394)
Total capital	4,444,456			5,330,216			Total capital	3,929,914		4,444,456
TOTAL LIABILITIES AND CAPITAL	$	93,491,559		$	99,202,573		TOTAL LIABILITIES AND CAPITAL	$	65,296,239	$	93,491,559


~~(a)~~	~~Fair values: $13,501,207~~ (a)Fair values: $9,792,136 and $13,501,207 at December 31, 2020 and 2019, respectively. ~~$15,575,368~~ at ~~December 31, 2019~~ ~~and 2018, respectively.~~

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF INCOME


(In thousands)	For the Years Ended December 31,									(In thousands)	For the Years Ended December 31,
	2019			2018			2017				2020		2019		2018
INTEREST INCOME:										INTEREST INCOME:
Advances	$	1,195,128		$	1,407,702		$	903,620		Advances	$	434,815	$	1,195,128	$	1,407,702
Prepayment fees on Advances, net	8,421			679			1,351			Prepayment fees on Advances, net	34,583		8,421		679
Interest-bearing deposits	13,453			704			181			Interest-bearing deposits	4,467		13,453		704
Securities purchased under agreements to resell	64,336			48,454			23,340			Securities purchased under agreements to resell	11,124		64,336		48,454
Federal funds sold	228,761			179,552			70,287			Federal funds sold	32,051		228,761		179,552
Investment securities:										Investment securities:
Trading securities	180,506			1,535			19			Trading securities	263,847		180,506		1,535
Available-for-sale securities	27,691			40,444			6,228			Available-for-sale securities	4,782		27,691		40,444
Held-to-maturity securities	386,526			380,304			306,204			Held-to-maturity securities	186,363		386,526		380,304
Total investment securities	594,723			422,283			312,451			Total investment securities	454,992		594,723		422,283
Mortgage loans held for portfolio	340,025			321,328			297,075			Mortgage loans held for portfolio	275,600		340,025		321,328
Loans to other FHLBanks	70			20			—			Loans to other FHLBanks	60		70		20
Total interest income	2,444,917			2,380,722			1,608,305			Total interest income	1,247,692		2,444,917		2,380,722
INTEREST EXPENSE:										INTEREST EXPENSE:
Consolidated Obligations:										Consolidated Obligations:
Discount Notes	988,600			915,032			384,976			Discount Notes	294,573		988,600		915,032
Bonds	1,033,508			951,298			786,922			Bonds	541,996		1,033,508		951,298
Total Consolidated Obligations	2,022,108			1,866,330			1,171,898			Total Consolidated Obligations	836,569		2,022,108		1,866,330
Deposits	15,861			14,009			4,738			Deposits	3,525		15,861		14,009
Loans from other FHLBanks	3			5			10			Loans from other FHLBanks	0		3		5
Mandatorily redeemable capital stock	1,113			1,806			2,514			Mandatorily redeemable capital stock	1,068		1,113		1,806
Other borrowings	—			—			2

Total interest expense	2,039,085			1,882,150			1,179,162			Total interest expense	841,162		2,039,085		1,882,150
NET INTEREST INCOME	405,832			498,572			429,143			NET INTEREST INCOME	406,530		405,832		498,572
Provision for credit losses	—			—			500
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	405,832			498,572			428,643

NON-INTEREST INCOME (LOSS):										NON-INTEREST INCOME (LOSS):
Net gains (losses) on investment securities	210,207			7,086			(6		)	Net gains (losses) on investment securities	257,566		210,207		7,086
Net gains (losses) on financial instruments held under fair value option	(53,852		)	(14,184		)	10,409			Net gains (losses) on financial instruments held under fair value option	(7,293)		(53,852)		(14,184)
Net gains (losses) on derivatives and hedging activities	(177,912		)	(40,398		)	(24,464		)	Net gains (losses) on derivatives and hedging activities	(273,253)		(177,912)		(40,398)
Standby Letters of Credit fees										Standby Letters of Credit fees	13,936		9,429		8,753
Other, net	11,338			10,678			12,824			Other, net	1,976		1,909		1,925
Total non-interest income (loss)	(10,219		)	(36,818		)	(1,237		)	Total non-interest income (loss)	(7,068)		(10,219)		(36,818)
NON-INTEREST EXPENSE:										NON-INTEREST EXPENSE:
Compensation and benefits	46,077			46,317			42,272			Compensation and benefits	50,242		46,077		46,317
Other operating expenses	21,629			20,019			18,880			Other operating expenses	20,901		21,629		20,019
Finance Agency	6,715			6,389			6,598			Finance Agency	6,765		6,715		6,389
Office of Finance	4,930			4,984			4,484			Office of Finance	5,119		4,930		4,984

Other	9,367			7,010			6,484			Other	9,246		9,367		7,010
Total non-interest expense	88,718			84,719			78,718			Total non-interest expense	92,273		88,718		84,719
INCOME BEFORE ASSESSMENTS	306,895			377,035			348,688			INCOME BEFORE ASSESSMENTS	307,189		306,895		377,035
Affordable Housing Program assessments	30,801			37,884			35,120			Affordable Housing Program assessments	30,826		30,801		37,884

NET INCOME	$	276,094		$	339,151		$	313,568		NET INCOME	$	276,363	$	276,094	$	339,151

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF COMPREHENSIVE INCOME


(In thousands)	For the Years Ended December 31,
	2020		2019		2018
Net income	$	276,363	$	276,094	$	339,151
Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities	4,348		480		14
Pension and postretirement benefits	(2,939)		(3,831)		3,603
Total other comprehensive income (loss) adjustments	1,409		(3,351)		3,617
Comprehensive income	$	277,772	$	272,743	$	342,768

(In thousands) For the Years Ended December 31,
2019 2018 2017
Net income $ 276,094
$ 339,151
$ 313,568
Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities 480
14
(147 )
Pension and postretirement benefits (3,831 ) 3,603
(3,257 )
Total other comprehensive income (loss) adjustments (3,351 ) 3,617
(3,404 )
Comprehensive income $ 272,743
$ 342,768
$ 310,164

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CAPITAL



(In thousands)	Capital Stock Class B - Putable			Retained Earnings						Accumulated Other Comprehensive		Total
	Shares	Par Value		Unrestricted		Restricted		Total		Loss		Capital
BALANCE, DECEMBER 31, 2017	42,411	$	4,241,140	$	617,034	$	322,999	$	940,033	$	(16,660)	$	5,164,513

Comprehensive income (loss)				271,321		67,830		339,151		3,617		342,768
Proceeds from sale of capital stock	4,392	439,157										439,157
Repurchase of capital stock	(2,972)	(297,252)										(297,252)
Net shares reclassified to mandatorily redeemable capital stock	(626)	(62,586)										(62,586)


Cash dividends on capital stock				(256,384)				(256,384)				(256,384)
BALANCE, DECEMBER 31, 2018	43,205	4,320,459		631,971		390,829		1,022,800		(13,043)		5,330,216
Comprehensive income (loss)				220,875		55,219		276,094		(3,351)		272,743
Proceeds from sale of capital stock	5,918	591,762										591,762
Repurchase of capital stock	(15,386)	(1,538,544)										(1,538,544)
Net shares reclassified to mandatorily redeemable capital stock	(73)	(7,249)										(7,249)


Cash dividends on capital stock				(204,472)				(204,472)				(204,472)



BALANCE, DECEMBER 31, 2019	33,664	3,366,428		648,374		446,048		1,094,422		(16,394)		4,444,456
Adjustment for cumulative effect of accounting change				366				366				366
Comprehensive income (loss)				221,090		55,273		276,363		1,409		277,772
Proceeds from sale of capital stock	21,351	2,135,091										2,135,091
Repurchase of capital stock	(23,000)	(2,300,000)										(2,300,000)
Net shares reclassified to mandatorily redeemable capital stock	(5,606)	(560,656)										(560,656)
Partial recovery of prior capital distribution to Financing Corporation				16,533				16,533				16,533
Cash dividends on capital stock				(83,648)				(83,648)				(83,648)
BALANCE, DECEMBER 31, 2020	26,409	$	2,640,863	$	802,715	$	501,321	$	1,304,036	$	(14,985)	$	3,929,914

(In thousands)
Capital Stock
Class B - Putable
Retained Earnings Accumulated Other Comprehensive Total
Shares Par Value Unrestricted Restricted Total Loss Capital
BALANCE, DECEMBER 31, 2016 41,569
$ 4,156,944
$ 574,122
$ 260,285
$ 834,407
$ (13,256 ) $ 4,978,095
Comprehensive income (loss) 250,854
62,714
313,568
(3,404 ) 310,164
Proceeds from sale of capital stock 3,547
354,654
354,654
Net shares reclassified to mandatorily
   redeemable capital stock
(2,705 ) (270,458 ) (270,458 )
Cash dividends on capital stock (207,942 ) (207,942 ) (207,942 )
BALANCE, DECEMBER 31, 2017 42,411
4,241,140
617,034
322,999
940,033
(16,660 ) 5,164,513
Comprehensive income (loss) 271,321
67,830
339,151
3,617
342,768
Proceeds from sale of capital stock 4,392
439,157
439,157
Repurchase of capital stock (2,972 ) (297,252 ) (297,252 )
Net shares reclassified to mandatorily
   redeemable capital stock
(626 ) (62,586 ) (62,586 )
Cash dividends on capital stock (256,384 ) (256,384 ) (256,384 )
BALANCE, DECEMBER 31, 2018 43,205
4,320,459
631,971
390,829
1,022,800
(13,043 ) 5,330,216
Comprehensive income (loss)

220,875
55,219
276,094
(3,351 ) 272,743
Proceeds from sale of capital stock 5,918
591,762
591,762
Repurchase of capital stock (15,386 ) (1,538,544 ) (1,538,544 )
Net shares reclassified to mandatorily
   redeemable capital stock
(73 ) (7,249 ) (7,249 )
Cash dividends on capital stock (204,472 ) (204,472 ) (204,472 )
BALANCE, DECEMBER 31, 2019 33,664
$ 3,366,428
$ 648,374
$ 446,048
$ 1,094,422
$ (16,394 ) $ 4,444,456

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CASH FLOWS


(In thousands)	For the Years Ended December 31,
	2020		2019		2018
OPERATING ACTIVITIES:
Net income	$	276,363	$	276,094	$	339,151
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	64,208		4,914		59,577
Net change in derivative and hedging activities	(123,345)		(147,582)		(4,706)
Net change in fair value adjustments on trading securities	(257,566)		(210,207)		(7,086)
Net change in fair value adjustments on financial instruments held under fair value option	7,293		53,852		14,184
Other adjustments, net	1,014		757		(10)
Net change in:
Accrued interest receivable	68,750		(12,408)		(41,482)
Other assets	(4,476)		(1,517)		1,651
Accrued interest payable	(54,159)		(21,224)		18,077
Other liabilities	16,062		19,520		25,792
Total adjustments	(282,219)		(313,895)		65,997
Net cash provided by (used in) operating activities	(5,856)		(37,801)		405,148

INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits	(87,411)		(771,791)		(7,089)
Securities purchased under agreements to resell	530,316		2,053,624		3,299,721
Federal funds sold	593,000		5,960,000		(7,143,000)
Premises, software, and equipment	(1,861)		(2,460)		(2,173)
Trading securities:

Proceeds from maturities	5,885,074		139		164
Purchases	(4,499,938)		(11,181,646)		(216,277)
Available-for-sale securities:
Proceeds from maturities	1,810,000		6,525,000		6,850,000
Purchases	(550,267)		(5,673,500)		(8,336,000)
Held-to-maturity securities:

Proceeds from maturities	3,919,706		3,561,188		2,917,912

Purchases	(75,604)		(1,290,195)		(4,065,023)
Advances:
Repaid	512,521,226		1,343,898,413		2,889,037,056
Originated	(490,263,028)		(1,336,290,080)		(2,873,930,828)
Mortgage loans held for portfolio:
Principal collected	4,291,048		1,922,162		1,117,727
Purchases	(2,691,664)		(2,691,654)		(1,978,111)
Net cash provided by (used in) investing activities	31,380,597		6,019,200		7,544,079



The accompanying notes are an integral part of these financial statements.

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(In thousands) For the Years Ended December 31,
2019 2018 2017
OPERATING ACTIVITIES:
Net income $ 276,094
$ 339,151
$ 313,568
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 4,914
59,577
57,973
Net change in derivative and hedging activities (147,582 ) (4,706 ) 6,927
Net change in fair value adjustments on trading securities (210,207 ) (7,086 ) 6
Net change in fair value adjustments on financial instruments held under fair value option 53,852
14,184
(10,409 )
Other adjustments 757
(10 ) 489
Net change in:
Accrued interest receivable (12,408 ) (41,482 ) (18,701 )
Other assets (1,517 ) 1,651
23,686
Accrued interest payable (21,224 ) 18,077
4,743
Other liabilities 19,520
25,792
15,456
Total adjustments (313,895 ) 65,997
80,170
Net cash provided by (used in) operating activities (37,801 ) 405,148
393,738

INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits (771,791 ) (7,089 ) 46,981
Securities purchased under agreements to resell 2,053,624
3,299,721
(2,472,442 )
Federal funds sold 5,960,000
(7,143,000 ) 607,000
Premises, software, and equipment (2,460 ) (2,173 ) (2,647 )
Trading securities:
Proceeds from maturities 139
164
182
Purchases (11,181,646 ) (216,277 ) —
Available-for-sale securities:
Proceeds from maturities 6,525,000
6,850,000
2,350,000
Purchases (5,673,500 ) (8,336,000 ) (1,950,000 )
Held-to-maturity securities:
Proceeds from maturities 3,561,188
2,917,912
2,484,142
Purchases (1,290,195 ) (4,065,023 ) (3,058,634 )
Advances:
Repaid 1,343,898,413
2,889,037,056
2,366,633,884
Originated (1,336,290,080 ) (2,873,930,828 ) (2,366,705,248 )
Mortgage loans held for portfolio:
Principal collected 1,922,162
1,117,727
1,218,035
Purchases (2,691,654 ) (1,978,111 ) (1,788,156 )
Net cash provided by (used in) investing activities 6,019,200
7,544,079
(2,636,903 )

The accompanying notes are an integral part of these financial statements.



(continued from previous page)
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS


(In thousands)	For the Years Ended December 31,
	2020		2019		2018
FINANCING ACTIVITIES:
Net change in deposits and pass-through reserves	$	371,585	$	274,910	$	28,225
Net proceeds (payments) on derivative contracts with financing elements	(10,764)		(619)		(1,107)
Net proceeds from issuance of Consolidated Obligations:
Discount Notes	275,314,658		823,242,543		552,603,900
Bonds	37,753,386		27,927,333		29,071,856
Bonds transferred from other FHLBanks	0		12,697		0
Payments for maturing and retiring Consolidated Obligations:
Discount Notes	(296,851,576)		(821,075,874)		(551,919,437)
Bonds	(44,193,670)		(35,191,800)		(37,565,265)
Proceeds from issuance of capital stock	2,135,091		591,762		439,157
Payments for repurchase of capital stock	(2,300,000)		(1,538,544)		(297,252)
Payments for repurchase/redemption of mandatorily redeemable capital stock	(562,871)		(8,764)		(69,433)
Cash dividends paid	(83,648)		(204,472)		(256,384)
Partial recovery of prior capital distribution to Financing Corporation	16,533		0		0
Net cash provided by (used in) financing activities	(28,411,276)		(5,970,828)		(7,965,740)
Net increase (decrease) in cash and due from banks	2,963,465		10,571		(16,513)
Cash and due from banks at beginning of the period	20,608		10,037		26,550
Cash and due from banks at end of the period	$	2,984,073	$	20,608	$	10,037
Supplemental Disclosures:
Interest paid	$	955,423	$	2,116,628	$	1,851,838
Affordable Housing Program payments, net	$	35,349	$	32,842	$	30,425

(continued from previous page)
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS

(In thousands) For the Years Ended December 31,
2019 2018 2017
FINANCING ACTIVITIES:
Net change in deposits and pass-through reserves $ 274,910
$ 28,225
$ (99,633 )
Net proceeds (payments) on derivative contracts with financing elements (619 ) (1,107 ) (4,210 )
Net proceeds from issuance of Consolidated Obligations:
Discount Notes 823,242,543
552,603,900
449,775,543
Bonds 27,927,333
29,071,856
27,080,080
Bonds transferred from other FHLBanks 12,697
—
—
Payments for maturing and retiring Consolidated Obligations:
Discount Notes (821,075,874 ) (551,919,437 ) (448,296,555 )
Bonds (35,191,800 ) (37,565,265 ) (26,065,750 )
Proceeds from issuance of capital stock 591,762
439,157
354,654
Payments for repurchase of capital stock (1,538,544 ) (297,252 ) —
Payments for repurchase/redemption of mandatorily redeemable capital stock (8,764 ) (69,433 ) (275,209 )
Cash dividends paid (204,472 ) (256,384 ) (207,942 )
Net cash provided by (used in) financing activities (5,970,828 ) (7,965,740 ) 2,260,978
Net increase (decrease) in cash and due from banks 10,571
(16,513 ) 17,813
Cash and due from banks at beginning of the period 10,037
26,550
8,737
Cash and due from banks at end of the period $ 20,608
$ 10,037
$ 26,550
Supplemental Disclosures:
Interest paid $ 2,116,628
$ 1,851,838
$ 1,157,662
Affordable Housing Program payments, net $ 32,842
$ 30,425
$ 30,126

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Cincinnati (the FHLB), a federally chartered corporation, is one of 11 District Federal Home Loan Banks (FHLBanks). The FHLBanks are government-sponsored enterprises (GSEs) that serve the public by enhancing the availability of credit for residential mortgages and targeted community development. The FHLB provides a readily available, competitively-priced source of funds to its member institutions. The FHLB is a cooperative whose member institutions own nearly all of the capital stock of the FHLB and may receive dividends on their investment to the extent declared by the FHLB's Board of Directors. Former members own the remaining capital stock to support business transactions still carried on the FHLB's Statements of Condition. Regulated financial depositories and insurance companies engaged in residential housing finance may apply for membership. Housing associates, including state and local housing authorities, may also borrow from the FHLB; while eligible to borrow, housing authorities are not members of the FHLB and, therefore, are not allowed to hold capital stock. A housing authority is eligible to utilize the Advance programs of the FHLB if it meets applicable statutory requirements. It must be a U.S. Department of Housing and Urban Development approved mortgagee and must also meet applicable mortgage lending, financial condition, as well as charter, inspection and supervision requirements.

All members must purchase stock in the FHLB. Members must own capital stock in the FHLB based on the amount of their total assets. Each member also may be required to purchase activity-based capital stock as it engages in certain business activities with the FHLB. As a result of these requirements, the FHLB conducts business with stockholders in the normal course of business. For financial statement purposes, the FHLB defines related parties as those members with more than 10 percent of the voting interests of the FHLB's outstanding capital stock. See Note 2218 for more information relating to transactions with stockholders.

The Federal Housing Finance Agency (Finance Agency) is the independent Federal regulator of the FHLBanks, Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae). The Finance Agency's stated mission is to ensure that the housing government-sponsored enterprises 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.

Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The FHLB does not have any special purpose entities or any other type of off-balance sheet conduits.

The Office of Finance is a joint office of the FHLBanks established to facilitate the issuance and servicing of the debt instruments of the FHLBanks, known as Consolidated Obligations, and to prepare combined quarterly and annual financial reports of all FHLBanks. As provided by the Federal Home Loan Bank Act of 1932, as amended (the FHLBank Act), or by Finance Agency regulation, the FHLBanks' Consolidated Obligations are backed only by the financial resources of the FHLBanks and are the primary source of funds for the FHLBanks. Deposits, other borrowings, and capital stock issued to members provide other funds. The FHLB primarily uses its funds to provide Advances to members and to purchase loans from members through its Mortgage Purchase Program (MPP). The FHLB also provides member institutions with correspondent services, such as wire transfer, security safekeeping, and settlement services.

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The FHLB's accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (GAAP).

Significant Accounting Policies

Beginning January 1, 2020, the FHLB adopted new accounting guidance related to the measurement of credit losses on financial instruments (the CECL accounting guidance), which requires a financial asset or group of financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new guidance also requires credit losses relating to these financial instruments and available-for-sale securities to be recorded through the allowance for credit losses. Consistent with the modified retrospective method of adoption, the FHLB recorded an immaterial cumulative adjustment to the opening

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balance of retained earnings as of January 1, 2020, and the prior periods were not revised to conform to the new basis of accounting. Key changes from prior accounting guidance are detailed below.

Cash Flows. In the Statements of Cash Flows, the FHLB considers non-interest bearing cash and due from banks as cash and cash equivalents. Federal funds sold are not treated as cash equivalents for purposes of the Statements of Cash Flows, but are instead treated as short-term investments and are reflected in the investing activities section of the Statements of Cash Flows.

~~Reclassifications.~~ Certain amounts in the 2018 and 2017 financial statements have been reclassified to conform to the presentation as of December 31, 2019. Specifically, certain cash flow amounts in the prior period Statement of Cash Flows have been reclassified to reflect short-term investment securities purchases and proceeds on a gross, rather than net, basis.

Subsequent Events. The FHLB has evaluated subsequent events for potential recognition or disclosure through the issuance of these financial statements and believes there have been no material subsequent events requiring additional disclosure or recognition in these financial statements.

Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make subjective assumptions and estimates. These assumptions and estimates affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates.

Fair Values. Some of the FHLB's financial instruments lack an available trading market with prices characterized as those that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Therefore, the FHLB uses pricing services and/or internal models employing significant estimates and present value calculations when disclosing fair values. See Note 1915 for more information.

Interest-Bearing Deposits, Securities Purchased Under Agreements to Resell, and Federal Funds Sold. These investments provide short-term liquidity and are carried at ~~cost.~~amortized cost; however, accrued interest receivable is recorded separately on the Statement of Condition. Interest-bearing deposits include certificates of deposits ~~(CDs)~~ not meeting the definition of an investment security. The FHLB treats securities purchased under agreements to resell as short-term collateralized loans. Federal funds sold are unsecured loans that are generally transacted on an overnight term.

Interest-bearing deposits and federal funds sold are evaluated quarterly for expected credit losses if they are not expected to be repaid according to the relevant contractual terms. If applicable, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses.

Securities purchased under agreements to resell are evaluated quarterly for expected credit losses.The FHLB applies the collateral maintenance provision practical expedient, which ~~are classified as assets~~allows expected credit losses to be measured based on the ~~Statements of Condition. If~~difference between the ~~market~~fair value of the ~~underlying~~collateral and the investment's amortized cost, for securities ~~decrease below~~purchased under agreements to resell. The credit loss would be limited to the ~~market~~difference between the fair value ~~required as~~of the collateral and the investment’s amortized cost.

Prior to January 1, 2020, securities purchased under agreements to resell were evaluated for credit losses if there was a collateral shortfall which the FHLB did not believe the counterparty ~~has~~would replenish in accordance with the option to (1) place an equivalent amount of additional securities in safekeeping in the name of the FHLB or (2) remit an equivalent amount of cash. Federal funds sold consist of short-term, unsecured loans generally transacted with counterparties that are considered by the FHLB to be of investment quality.relevant contractual terms.

~~Investment~~Debt Securities. The FHLB classifies investment securities as trading, available-for-sale and held-to-maturity at the date of acquisition. Purchases and sales of securities are recorded on a trade date basis.

Trading. Securities classified as trading are acquired for liquidity purposes and asset/liability management and carried at fair value. The FHLB records changes in the fair value of these securities through ~~other~~non-interest income (loss) as a net gain or loss on trading securities. ~~However,~~Finance Agency regulations and the ~~FHLB does not participate in~~FHLB's risk management policies prohibit the speculative trading ~~practices~~of these instruments and ~~holds these investments indefinitely as management periodically evaluates its liquidity needs.~~limit credit risk arising from them.

Available-for-Sale. Securities that are not classified as held-to-maturity or trading are classified as available-for-sale and are carried at fair value. ~~Generally, the~~The change in fair value of available-for-sale securities is recorded in other comprehensive income as net unrealized gains (losses) on available-for-sale securities. Beginning January 1, 2019, the FHLB adopted new hedge accounting guidance, which, among other things, impacts the income statement presentation of gains (losses) on derivatives and hedging activities for qualifying hedges, including hedges on available-for-sale securities. For available-for-sale securities that have been hedged and qualify as a fair value hedge, the FHLB records the portion of the change in the fair value of the investment related to the risk being hedged in interest income on available-for-sale securities together with the related change in the fair value of the derivative, and records the remainder of the change in the fair value of the investment in other comprehensive income as net unrealized gains (losses) on available-for-sale securities.

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Prior to January 1, 2019, for available-for-sale securities that had been hedged and qualified as a fair value hedge, the FHLB recorded the portion of the change in the fair value of the investment related to the risk being hedged in non-interest income (loss) as net gains (losses) on derivatives and hedging activities together with the related change in the fair value of the derivative, and recorded the remainder of the change in the fair value of the investment in other comprehensive income as net unrealized gains (losses) on available-for-sale securities.

Additionally, beginning January 1, 2020, the FHLB adopted the CECL accounting guidance.For securities classified as available-for-sale, the FHLB evaluates an individual security for impairment on a quarterly basis by comparing the security’s fair value to its amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition. Impairment exists when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, the FHLB considers whether there would be a shortfall in receiving all cash flows contractually due. When a shortfall is considered possible, the FHLB compares the present value of cash flows to be collected from the security with the amortized cost basis of the security. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance is limited by the amount of the unrealized loss. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately.

If management intends to sell an impaired security classified as available-for-sale, or more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in earnings as net gains (losses) on investment securities. If management does not intend to sell an impaired security classified as available-for-sale and it is not more likely than not that management will be required to sell the debt security, then the credit portion of the difference is recognized as an allowance for credit losses and any remaining difference between the security’s fair value and amortized cost is recorded to net unrealized gains (losses) on available-for-sale securities within other comprehensive income (loss).

Prior to January 1, 2020, credit losses were recorded as a direct write-down of the available-for-sale security carrying value. As of December 31, 2019, the FHLB had not recorded any direct write-downs to the carrying value of its available-for-sale securities.

Held-to-Maturity. Securities that the FHLB has both the ability and intent to hold to maturity are classified as held-to-maturity and are carried at amortized cost, ~~representing the amount at~~ which ~~an investment~~ is ~~acquired adjusted for~~original cost net of periodic principal repayments and amortization of premiums and accretion of discounts. Accrued interest receivable is recorded separately on the Statements of Condition.

Certain changes in circumstances may cause the FHLB to change its intent to hold a security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to certain changes in circumstances, such as evidence of significant deterioration in the issuer's creditworthiness or changes in regulatory requirements, is not considered to be inconsistent with its original classification. Other events that are isolated,

nonrecurring, and unusual for the FHLB that could not have been reasonably anticipated may cause the FHLB to sell or transfer a held-to-maturity security without necessarily calling into question its intent to hold other debt securities to maturity.

In addition, sales of held-to-maturity debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to the security's maturity date (for example, within three months of maturity), or call date if exercise of the call is probable, that interest rate risk is substantially eliminated as a pricing factor and changes in market interest rates would not have a significant effect on the security's fair value, or (2) the sale of the security occurs after the FHLB has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the security or to scheduled payments on the security payable in equal installments (both principal and interest) over its term.

Beginning January 1, 2020, the FHLB adopted the CECL accounting guidance. Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. Prior to January 1, 2020, credit losses were recorded as a direct write-down of the held-to-maturity security carrying value. As of December 31, 2019, the FHLB had not recorded any direct write-downs to the carrying value of its held-to-maturity securities.

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Premiums and Discounts. The FHLB amortizes purchased premiums and accretes purchased discounts on mortgage-backed securities (MBS) classified as available-for-sale or held-to-maturity using the retrospective interest method (retrospective method). The retrospective method requires that the FHLB estimate prepayments over the estimated life of the securities and make a retrospective adjustment of the effective yield each time that the FHLB changes the estimated life as if the new estimate had been known since the original acquisition date of the securities. The FHLB uses nationally recognized third-party prepayment models to project estimated cash flows. Due to their short term nature, the FHLB amortizes premiums and accretes discounts on other investment categories with a term of one year or less using a straight-line methodology based on the contractual maturity of the securities. Analyses of the straight-line compared to the interest, or level-yield, methodology have been performed by the FHLB, and it has determined that the impact of the difference on the financial statements for each period reported, taken individually and as a whole, is not material.

Gains and Losses on Sales. The FHLB computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in other income.

~~Investment~~Debt Securities - Other-than-Temporary Impairment. ~~The~~Beginning January 1, 2020, the FHLB ~~evaluates~~adopted the CECL accounting guidance. As a result, the accounting guidance related to other-than-temporary impairment accounting for investments was superseded as of that date.

Prior to January 1, 2020, the FHLB evaluated its individual available-for-sale and held-to-maturity securities in an unrealized loss position for other-than-temporary impairment on a quarterly basis. A security iswas considered impaired when its fair value iswas less than its amortized cost. The FHLB ~~considers~~considered an other-than-temporary impairment to have occurred under any of the following conditions:


▪	~~if the FHLB has an intent to sell the impaired debt security;~~


▪	~~if, based on available evidence, the FHLB believes it is more likely than not that it will be required to sell the impaired debt security before the recovery of its amortized cost basis; or~~


▪	~~if the FHLB does not expect to recover the entire amortized cost basis of the debt security.~~

▪if the FHLB had an intent to sell the impaired debt security;

~~Recognition~~▪if, based on available evidence, the FHLB believed it was more likely than not that it would be required to sell the impaired debt security before the recovery of ~~Other-than-Temporary Impairment.~~its amortized cost basis; or

▪if the FHLB did not expect to recover the entire amortized cost basis of the debt security.

If either of the first two conditions above iswas met, the FHLB ~~recognizes~~would have recognized an other-than-temporary impairment charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value as of the Statement of Condition date. For securities in an unrealized loss position that dodid not meet either of the first two conditions, the entire loss position, or total other-than-temporary impairment, iswas evaluated to determine the extent and amount of credit loss.

Advances. The FHLB ~~reports~~records Advances (loans to members, former members or housing associates) either at amortized cost or at fair value when the fair value option ishas been elected. Advances ~~carried~~recorded at amortized cost are ~~reported~~carried at original cost net of periodic principal repayments and amortization of premiums and accretion of discounts (including discounts ~~on Advances~~ related to the Affordable Housing ~~Program (AHP), as discussed below)~~Program), unearned commitment fees, and ~~hedging~~fair value hedge adjustments. The FHLB amortizes or accretes premiums and discounts, and recognizes unearned commitment fees and hedging adjustments on Advances to interest income using a level-yield methodology. ~~Refundable fees are deferred until~~For Advances recorded at amortized cost, accrued interest receivable is recorded separately on the ~~commitment expires or until~~Statements of Condition.

Beginning January 1, 2020, the ~~Advance is made.~~FHLB adopted the CECL accounting guidance. The ~~FHLB records interest on Advances to income as earned. For~~ Advances carried at ~~fair value, interest income~~amortized cost are evaluated quarterly for expected credit losses. If deemed necessary, an allowance for credit losses is ~~recognized based on~~recorded with a corresponding adjustment to the ~~contractual interest rate.~~provision (reversal) for credit losses. Prior to January 1, 2020, the FHLB evaluated Advances to determine if an allowance for credit losses was necessary if it was probable an impairment occurred in the FHLB’s Advance portfolio as of the Statement of Condition date and the amount of loss could be reasonably estimated.

Advance Modifications. In cases in which the FHLB funds a new Advance concurrent with or within a short period of time before or after the prepayment of an existing Advance by the same borrower, the FHLB evaluates whether the new Advance meets the accounting criteria to qualify as a modification of an existing Advance or whether it constitutes a new Advance. The FHLB compares the present value of cash flows on the new Advance to the present value of cash flows remaining on the existing Advance. If there is at least a 10 percent difference in the cash flows, or if the FHLB concludes the differences between the Advances are more than minor based on qualitative factors, the Advance is accounted for as a new Advance. In all other instances, the new Advance is accounted for as a modification.

Prepayment Fees. The FHLB charges a borrower a prepayment fee when the borrower prepays certain Advances before the original maturity. The recognition of prepayment fees is dependent on whether a new Advance was funded. If there were no new Advances funded, the FHLB records prepayment fees, net of basis adjustments related to hedging activities included in the

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carrying value of the Advances, as “Prepayment fees on Advances, net” in the interest income section of the Statements of Income.

If a new Advance was funded, but does not qualify as a modification of a prepaid Advance, the prepaid Advance is treated as an Advance termination with subsequent funding of a new Advance and the fees on the prepaid Advance, net of related hedging adjustments, are recorded in interest income as “Prepayment fees on Advances, net.”

If a new Advance is funded and qualifies as a modification of the original Advance, the net prepayment fee is deferred, recorded in the basis of the modified Advance, and amortized/accreted using a level-yield methodology over the life of the modified Advance to Advance interest income. If the modified Advance is hedged and meets the hedge accounting requirements, the associated fair value gains or losses of the Advance and the prepayment fees are included in the basis of the modified Advance. Such gains or losses and prepayment fees are then amortized in interest income over the life of the modified Advance using a level-yield methodology.

Mortgage Loans Held for Portfolio. ~~The FHLB classifies mortgage~~Mortgage loans as held for portfolio ~~and, accordingly, reports them~~are recorded at ~~their principal amount outstanding~~amortized cost, which is original cost, net of ~~unamortized~~periodic principal repayments and amortization of premiums and accretion of discounts, ~~and~~ hedging basis adjustments on loans initially classified as mortgage loan ~~commitments.~~commitments, and direct write-downs. The FHLB has the intent and ability to hold these mortgage loans to maturity. Accrued interest receivable is recorded separately on the Statements of Condition. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The FHLB does not purchase mortgage loans with credit deterioration present at the time of purchase.

Beginning January 1, 2020, the FHLB adopted the CECL accounting guidance. The FHLB performs a quarterly assessment of its mortgage loans held for portfolio to estimate expected credit losses. The FHLB measures expected credit losses on mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a mortgage loan no longer shares risk characteristics with other loans, it is removed from the pool and evaluated for expected credit losses on an individual basis.

When developing the allowance for credit losses, the FHLB measures the expected loss over the estimated remaining life of a mortgage loan, which also considers how the FHLB’s credit enhancements mitigate credit losses. If a loan is purchased at a discount, the discount does not offset the allowance for credit losses. The FHLB includes estimates of expected recoveries within the allowance for credit losses.

The allowance excludes uncollectible accrued interest receivable, as the FHLB writes off accrued interest receivable by reversing interest income if a mortgage loan is placed on non-accrual status.

Prior to January 1, 2020, the FHLB recorded an allowance for credit losses on mortgage loans if it was probable an impairment occurred in the FHLB’s mortgage loans held for portfolio as of the Statement of Condition date and the amount of loss could be reasonably estimated. A loan was considered impaired when, based on current information and events, it was probable that an FHLB would be unable to collect all amounts due according to the contractual terms of the loan agreement.

Premiums and Discounts. The FHLB defers and amortizes premiums and accretes discounts paid to and received by the FHLB's participating members (Participating Financial Institutions, or PFIs) and hedging basis adjustments, as interest income using the contractual interest method (contractual method).

Other Fees. The FHLB may receive non-origination fees, called pair-off fees. Pair-off fees represent a make-whole provision and are assessed when a member fails to deliver the quantity of loans committed to in a Mandatory Delivery Contract. Pair-off fees are recorded in ~~other income.~~non-interest income (loss). A Mandatory Delivery Contract is a legal commitment the FHLB makes to purchase, and a PFI makes to deliver, a specified dollar amount of mortgage loans, with a forward settlement date, at a specified range of mortgage note rates and prices.

~~Allowance for Credit Losses.~~An allowance for credit losses is separately established for each identified portfolio segment, if it is probable that a loss triggering event has occurred in the FHLB's portfolio as of the Statements of Condition date and the amount of loss can be reasonably estimated. A loan is considered impaired when, based on current information and events, it is probable that the FHLB will be unable to collect all amounts due according to the contractual terms of the loan agreement. To the extent necessary, an allowance for credit losses for off-balance sheet credit exposures is recorded as a liability. See Note 10 for details on each allowance methodology.

~~Portfolio Segments.~~ A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology for determining its allowance for credit losses. The FHLB has developed and documented a systematic methodology for determining an allowance for credit losses, where applicable, for (1) credit products (Advances, Letters of Credit and other extensions of credit to members) (2) Federal Housing Administration (FHA) mortgage loans held for portfolio; and (3) conventional mortgage loans held for portfolio.

~~Classes of Financing Receivables.~~ Classes of financing receivables generally are a disaggregation of a portfolio segment to the extent needed to understand the exposure to credit risk arising from these financing receivables. The FHLB determined that no further disaggregation of the portfolio segments identified above is needed as the credit risk arising from these financing receivables is assessed and measured by the FHLB at the portfolio segment level.

Collateral-dependent Loans. An impaired loan is considered collateral-dependent if repayment is expected to be provided solely by the sale of the underlying property; that is, there is no other available and reliable source of repayment. A loan that is considered collateral-dependent is measured for impairment based on the fair value of the underlying property less estimated selling costs, with any shortfall recognized as an allowance for loan loss or charged-off. Interest income on impaired loans is recognized in the same manner as non-accrual loans noted below.

Non-accrual Loans. The FHLB places a conventional mortgage loan on non-accrual status if it is determined that either (1) the collection of interest or principal is doubtful (e.g., when a related ~~allowance for credit losses~~charge-off is recorded on a ~~loan considered to be a troubled debt restructuring as a result of the individual evaluation for impairment)~~loan), or (2) interest or principal is past due for 90 days or more, except when the loan is well-secured and in the process of collection (e.g., through credit ~~enhancements~~

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enhancements and with monthly remittances on a schedule/scheduled basis). Past due loans are those where the borrower has failed to make a full payment of principal and interest within one month of its due date. Loans with remittances on a schedule/scheduled basis means the FHLB receives monthly principal and interest payments from the servicer regardless of whether the mortgagee is making payments to the servicer. Loans with monthly remittances on an actual/actual basis are considered well-secured; however, servicers of actual/actual ~~loan~~remittance types contractually do not advance principal and interest regardless of borrower creditworthiness. As a result, these loans are placed on non-accrual status once they become 90 days delinquent.

For those mortgage loans placed on non-accrual status, accrued but uncollected interest is reversed against interest income. The FHLB records cash payments received on non-accrual loans first as interest income and then as a reduction of principal as specified in the contractual agreement, unless the collection of the remaining principal amount due is considered doubtful. If the collection of the remaining principal amount due is considered doubtful, cash payments received are applied first solely to principal until the remaining principal amount due is expected to be collected and then as a recovery of any charge-off, if applicable, followed by recording interest income. A loan on non-accrual status may be restored to accrual status when (1) none of its contractual principal and interest is due and unpaid, and the FHLB expects repayment of the remaining contractual interest and principal, or (2) it otherwise becomes well secured and in the process of collection.

Charge-off Policy. A charge-off is recorded if it is estimated that the ~~recorded investment~~amortized cost and any applicable accrued interest in a loan will not be recovered. The FHLB evaluates whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event, such as notification of a claim against any of the credit enhancements. The FHLB also charges off the portion of outstanding conventional mortgage loan balances in excess of fair value of the underlying property, less cost to sell and adjusted for any available credit enhancements, for loans that are 180 days or more delinquent and/or certain loans ~~that~~where the borrower has filed for bankruptcy.

Premises, Software and Equipment, Net. Premises, software and equipment are included in other assets on the Statements of Condition. The FHLB records premises, software and equipment at cost less accumulated depreciation and amortization. The FHLB computes depreciation on a straight-line methodology over the estimated useful lives of assets ranging from three to ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The FHLB capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred. The FHLB capitalizes and amortizes the cost of computer software developed or obtained for internal use over future periods. In addition, the FHLB includes gains and losses on the disposal of premises, software and equipment in other non-interest income (loss) in the Statements of Income.

Premises, software and equipment were ~~$8,399,000~~$7,905,000 and ~~$8,190,000,~~$8,399,000, which was net of accumulated depreciation and amortization of ~~$31,106,000~~$33,439,000 and ~~$29,007,000~~$31,106,000 as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. For the years ended December 31, 2020, 2019, ~~2018,~~ and ~~2017,~~2018, the depreciation and amortization expense for premises, software and equipment was $2,367,000, $2,257,000, ~~$2,889,000,~~ and ~~$2,949,000,~~$2,889,000, respectively.

Leases. The FHLB leases office space and office equipment to run its business operations. Beginning January 1, 2019, the FHLB adopted new lease accounting guidance. At December 31, 2020 and 2019, the FHLB included in the Statement of Condition $4,980,000 and $5,816,000 of operating lease right-of-use assets in other assets, ~~as well as~~net, and $5,500,000 and $6,417,000 of operating lease liabilities in other liabilities. The FHLB recognized operating lease costs in the other operating expenses line of the Statement of Income of $1,832,000 and $1,842,000 for the ~~year~~years ended December 31, 2020 and 2019.

Derivatives and Hedging Activities. All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral, and accrued interest from counterparties. The fair values of derivatives are netted by counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Cash flows associated with ~~derivatives~~a derivative are reflected as cash flows from operating activities in the Statement of Cash Flows unless the derivative meets the criteria to be a financing derivative.

The FHLB utilizes two Derivative Clearing Organizations (Clearinghouses), for all cleared derivative transactions, LCH Ltd. and CME Clearing. At both Clearinghouses, variation margin is characterized as daily settlement payments and initial margin is considered cash collateral.

Derivative Designations. Each derivative is designated as one of the following:


1.	~~a qualifying hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a "fair value" hedge); or~~

a.a qualifying hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a "fair value" hedge); or


2.	~~a non-qualifying hedge (“economic hedge”) for asset/liability management purposes.~~

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b.a non-qualifying hedge (“economic hedge”) for asset/liability management purposes.

Accounting for Fair Value Hedges. If hedging relationships meet certain criteria including, but not limited to, formal documentation of the hedging relationship and an expectation to be highly effective, they are eligible for fair value hedge accounting and the offsetting changes in fair value of the hedged items attributable to the hedged risk may be recorded in earnings. The application of fair value hedge accounting generally requires the FHLB to evaluate the effectiveness of the hedging relationships at inception and on an ongoing basis and to calculate the changes in fair value of the derivatives and related hedged items independently. This is known as the “long-haul” method of accounting. Transactions that meet more stringent criteria qualify for the “shortcut” method of hedge accounting in which an assumption can be made that the change in fair value of a hedged item exactly offsets the change in value of the related derivative.

Derivatives are typically executed at the same time as the hedged item, and the FHLB designates the hedged item in a qualifying hedge relationship as of the trade date. In many hedging relationships, the FHLB may designate the hedging relationship upon its commitment to disburse an Advance, trade a Consolidated Obligation or purchase an investment security in which settlement occurs within the shortest period of time possible for the type of instrument based on market settlement conventions. The FHLB records the changes in fair value of the derivative and the hedged item beginning on the trade date.

Beginning January 1, 2019, the FHLB adopted new hedge accounting guidance, which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item.

Prior to January 1, 2019, changes in the fair value of a derivative that was designated and qualified as a fair value hedge, along with changes in the fair value of the hedged asset or liability that were attributable to the hedged risk, were recorded in non-interest income (loss) as “Net gains (losses) on derivatives and hedging activities.”

Accounting for Economic Hedges. An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that does not qualify, or was not designated, for hedge accounting, but is an acceptable hedging strategy under the FHLB's risk management program. These economic hedging strategies also comply with Finance Agency regulatory requirements prohibiting speculative hedge transactions. An economic hedge introduces the potential for earnings variability caused by the changes in fair value of the derivatives that are recorded in the FHLB's income but that are not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments. ~~As a result, the~~The FHLB recognizes the net interest and the change in fair value of these derivatives in non-interest income (loss) as “Net gains (losses) on derivatives and hedging ~~activities” with no offsetting fair value adjustments for the assets, liabilities, or firm commitments.~~activities.”

Accrued Interest Receivables and Payables.The difference between accruals of interest receivables and payables on derivatives that are designated as fair value hedge relationships is recognized as adjustments to the interest income or expense of the designated hedged item. The difference between accruals of interest receivables and payables on economic hedges are recognized in non-interest income (loss) as “Net gains (losses) on derivatives and hedging activities.”

Discontinuance of Hedge Accounting. The FHLB discontinues hedge accounting prospectively when: (1) it determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item attributable to the hedged risk; (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; or (3) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued because the FHLB determines that the derivative no longer qualifies as an effective fair value hedge of an existing hedged item, the FHLB continues to carry the derivative on the Statements of Condition at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using a level-yield methodology.

Embedded Derivatives. The FHLB may issue debt, make Advances, or purchase financial instruments in which a derivative instrument is “embedded.” Upon execution of these transactions, the FHLB assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the debt, Advance, ~~debt,~~ or purchased financial instrument (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When the FHLB determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative

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instrument pursuant to an economic hedge. However, the entire contract is carried at fair value and no portion of the contract is designated as a hedging instrument if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current-period earnings (such as an investment security classified as “trading” as well as hybrid financial instruments ~~that are selected~~ for which the fair value ~~option)~~option is elected), or if the FHLB cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract.

Consolidated Obligations. Consolidated Obligations are recorded at amortized cost unless the FHLB has elected the fair value option, in which case the Consolidated Obligations are carried at fair value.

Concessions. Dealers receive concessions in connection with the issuance of certain Consolidated Obligations. The Office of Finance prorates the amount of the concession to the FHLB based upon the percentage of the debt issued that is assumed by the FHLB. Concessions paid on Consolidated Obligations designated under the fair value option are expensed as incurred in other non-interest expense. The FHLB records concessions paid on Consolidated Obligation Bonds not designated under the fair value option as a direct deduction from their carrying amounts, consistent with the presentation of discounts on Consolidated Obligations. The concessions are amortized, using a level-yield methodology, over the terms to maturity or the expected lives of the Consolidated Obligation Bonds. The amortization of those concessions is included in Consolidated Obligation Bond interest expense.

The FHLB charges to expense as incurred the concessions applicable to Consolidated Obligation Discount Notes because of the short maturities of these Notes. Analyses of expensing concessions as incurred compared to a level-yield methodology have been performed by the FHLB, and it has determined that the impact of the difference on the financial statements for each period reported, taken individually and as a whole, is not material.

Discounts and Premiums. The FHLB accretes the discounts and amortizes the premiums on Consolidated Obligation Bonds to interest expense using a level-yield methodology over the terms to maturity or estimated lives of the corresponding Consolidated Obligation Bonds. Due to their short-term nature, the FHLB expenses the discounts on Consolidated Obligation Discount Notes using a straight-line methodology over the term of the Discount Notes. Analyses of a straight-line compared to a level-yield methodology have been performed by the FHLB, and the FHLB has determined that the impact of the difference on the financial statements for each period reported, taken individually and as a whole, is not material.

Off-Balance Sheet Credit Exposures. The FHLB evaluates its off-balance sheet credit exposures on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses on these off-balance sheet exposures is recorded in other liabilities with a corresponding adjustment to the provision (reversal) for credit losses.

Mandatorily Redeemable Capital Stock. The FHLB reclassifies stock subject to redemption from equity to liability upon expiration of the “grace period” after a member provides written notice of redemption, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or involuntary termination from membership, because the member's shares then meet the definition of a mandatorily redeemable financial instrument. Shares meeting this definition are reclassified to a liability at fair value. Dividends declared on shares classified as a liability are accrued at the expected dividend rate and reflected as interest expense in the Statements of Income. The repurchase or redemption of mandatorily redeemable capital stock is reflected as a cash outflow in the financing activities section of the Statements of Cash Flows.

If a member cancels its written notice of redemption or notice of withdrawal, the FHLB reclassifies the mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock are no longer classified as interest expense.

Restricted Retained Earnings. ~~Under the~~The Joint Capital Enhancement Agreement, as amended (Capital Agreement), provides that the FHLB ~~contributes~~will, on a quarterly basis, allocate 20 percent of its quarterly net income to a separate restricted retained earnings account until the balance of that account,~~balance~~ calculated as of the last day of each calendar quarter, equals at least one percent of the FHLB's average balance of outstanding Consolidated Obligations for the ~~previous~~calendar quarter. These restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.

Standby Letters of Credit. The FHLB records commitment fees for Standby Letters of Credit as deferred income when it receives the fees and accretes them using a straight-line methodology over the term of the Standby Letter of Credit. Based upon past experience, the FHLB's management believes that the likelihood of Standby Letters of Credit being drawn upon is remote.

Finance Agency Expenses. The FHLB funds its proportionate share of the costs of operating the Finance Agency. The portion of the Finance Agency's expenses and working capital fund paid by each FHLBank has been allocated based on each

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FHLBank's pro rata share of total annual assessments (which are based on the ratio between each FHLBank's minimum required regulatory capital and the aggregate minimum required regulatory capital of every FHLBank).

Office of Finance Expenses. The FHLB is assessed for its proportionate share of the costs of operating the Office of Finance. Each FHLBank's proportionate share of Office of Finance operating and capital expenditures is calculated using a formula that is based upon the following components: (1) two-thirds based upon each FHLBank's share of total Consolidated Obligations outstanding and (2) one-third based upon an equal pro rata allocation.

Voluntary Housing Programs. The FHLB classifies amounts awarded under its voluntary housing programs as other non-interest expenses.

Affordable Housing Program (AHP). Assessments. The FHLBank Act requires each FHLBank to establish and fund an AHP. The FHLB charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The FHLB also issues AHP Advances at interest rates below the customary interest rate for non-subsidized Advances. When the FHLB makes an AHP Advance, the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP Advance rate and the FHLB's related cost of funds for comparable maturity funding is charged against the AHP liability and recorded as a discount on the AHP Advance. As an alternative, the FHLB also has the authority to make the AHP subsidy available to members as a grant. The discount on AHP Advances is accreted to interest income on Advances using a level-yield methodology over the life of the Advance.

Note 2 - Recently Issued and Adopted Accounting ~~Standards and Interpretations~~Guidance

Troubled Debt Restructuring Relief. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs) was signed into law. Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of the coronavirus pandemic (COVID-19) granted to borrowers that were current as of December 31, 2019. TDR relief, as amended by the Consolidated Appropriations Act, 2021, applies to COVID-19 related modifications made from March 1, 2020, until the earlier of January 1, 2022, or 60 days following the termination of the national emergency declared on March 13, 2020. The FHLB elected to apply the TDR relief provided by the CARES Act.

Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting.~~Reporting, as amended. On March 12, 2020, the Financial Accounting Standards Board (FASB) issued temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale and/or transfer of debt securities classified as held-to-maturity. This guidance isbecame effective immediately for the FHLB, and the amendments may be applied prospectively through December 31, 2022. The FHLB ~~is in~~either elected or plans to elect the ~~process~~majority of ~~evaluating~~ the ~~guidance,~~optional expedients and ~~its~~exceptions provided; however, the full effect on the FHLB's financial condition, results of operations and cash flows has not yet been determined.

~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ ~~On August 29, 2018,~~ In particular, during the FASB issued amended guidance that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance became effective forfourth quarter of 2020, the FHLB ~~for~~elected optional practical expedients specific to the ~~interim and annual periods beginning~~discounting transition on ~~January 1, 2020. The guidance~~a retrospective basis, which did not have a material ~~impact on the FHLB’s financial condition, results of operations, and cash flows.~~effect.

Changes to the Disclosure Requirements for Defined Benefit Plans. On August 28, 2018, the FASB issued amended guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to improve disclosure effectiveness. This guidance ~~becomes~~became effective for the annual ~~periods~~period ending after December 15, 2020 (December 31, 2020 for the FHLB) and will be applied retrospectively for all comparative periods presented. ~~Early adoption is permitted.~~ The FHLB ~~does not intend to adopt~~adopted this guidance ~~early.~~for the year ending December 31, 2020. The adoption of this guidance ~~will affect~~affected the FHLB's disclosures, but ~~will~~did not have any effect on the FHLB's financial condition, results of operations, or cash flows.

~~Changes to the Disclosure Requirements for Fair Value Measurement.~~ On August 28, 2018, the FASB issued amended guidance that modifies the disclosure requirements for fair value measurements to improve disclosure effectiveness. This guidance became effective for the FHLB for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance ~~will affect the FHLB's disclosures, but will not have any effect on the FHLB's financial condition, results of operations, or cash flows.~~

~~Measurement of Credit Losses on Financial Instruments.~~ On June 16, 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to immediately record the full amount of expected credit losses in their loan portfolios. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance also requires, among other things, credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses and expanded disclosure requirements. The guidance became effective for the FHLB for the interim and annual periods beginning on January 1, 2020. The guidance was applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective. The adoption of this guidance did not result in an allowance for

credit losses for certain financial instruments including Advances, U.S. obligation/GSE investments, securities purchased under agreement to resell and other short-term investments given the specific terms, issuer guarantees, and/or collateralized/secured nature of the instruments. For mortgage loans held for portfolio, the adoption of this guidance did not have a material impact on the FHLB's financial condition, results of operations, or cash flows.

Note 3 - Cash and Due from Banks

Cash and due from banks on the Statement of Condition includes cash on hand, cash items in the process of collection, compensating balances, and amounts due from correspondent banks and the Federal Reserve Bank.

Compensating Balances. The FHLB maintains collected cash balances with commercial banks in return for certain services. These agreements contain no legal restrictions on the withdrawal of funds. The average collected cash balances for the years ended December 31, ~~2019~~2020 and ~~2018~~2019 were approximately ~~$133,000~~$260,000 and ~~$118,000.~~$133,000.

Table of Contents

Pass-through Deposit Reserves. The FHLB acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. There were 0 pass-through deposit reserves as of December 31, 2020. The amount shown as “Cash and due from banks” includes pass-through reserves deposited with Federal Reserve Banks of approximately $10,239,000 ~~and $6,478,000~~ as of December 31, ~~2019 and 2018.~~2019.

Note 4 - Investments

The FHLB makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold and may make other investments in debt securities, which are classified as either trading, available-for-sale, or held-to-maturity.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold

The FHLB invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are transacted with counterparties that have received a credit rating of single-A or greater by a nationally recognized statistical rating organization (NRSRO). The FHLB’s internal ratings of these counterparties may differ from those issued by an NRSRO.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the FHLB may extend to a counterparty. At December 31, 2020 and 2019, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. NaN allowance for credit losses was recorded for these assets at December 31, 2020 and 2019. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of (in thousands) $72 and $10 as of December 31, 2020, and $1,162 and $210 as of December 31, 2019.

Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with counterparties, the FHLB determined that 0 allowance for credit losses was needed for its securities purchased under agreements to resell at December 31, 2020 and 2019. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of (in thousands) $13 and $3,503 as of December 31, 2020 and 2019.

Debt Securities

The FHLB invests in debt securities, which are classified as either trading, available-for-sale, or held-to-maturity. The FHLB is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities and instruments that experienced credit deterioration after their purchase by the FHLB.

Table of Contents

Trading Securities

Table 4.1 - Trading Securities by Major Security Types (in thousands)


Fair Value	December 31, 2019		December 31, 2018		Fair Value	December 31, 2020		December 31, 2019
Non-MBS:
Non-mortgage-backed securities (non-MBS):					Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligations	$	9,626,964	$	—	U.S. Treasury obligations	$	8,362,211	$	9,626,964
GSE obligations	1,988,259		223,368		GSE obligations	2,125,580		1,988,259
Total non-MBS	11,615,223		223,368		Total non-MBS	10,487,791		11,615,223
MBS:
Mortgage-backed securities (MBS):					Mortgage-backed securities (MBS):
U.S. obligation single-family MBS	470		612		U.S. obligation single-family MBS	333		470
Total	$	11,615,693	$	223,980	Total	$	10,488,124	$	11,615,693

Table 4.2 - Net Gains (Losses) on Trading Securities (in thousands)


	For the Years Ended December 31,
		2020		2019		2018
Net gains (losses) on trading securities held at period end		$	268,392	$	210,207	$	7,086
Net gains (losses) on trading securities matured during the period		(10,826)		0		0
Net gains (losses) on trading securities		$	257,566	$	210,207	$	7,086

For the Years Ended December 31,
2019 2018 2017
Net gains (losses) on trading securities held at period end $ 210,207
$ 7,086
$ (6 )
Net gains (losses) on trading securities $ 210,207
$ 7,086
$ (6 )



Federally chartered corporation		31-6000228
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
600 Atrium Two, P.O. Box 598,
Cincinnati,	OH	45201-0598
(Address of principal executive offices)		(Zip Code)



Large accelerated Filer ☐		Accelerated Filer ☐
Non-accelerated Filer	☒	Smaller reporting company	☐
		Emerging growth company	☐



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



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



	Year 2019 by Quarter - Average
	Quarter 1		Quarter 2		Quarter 3		Quarter 4
Federal funds effective	2.40	%	2.40	%	2.19	%	1.65	%
SOFR	2.44		2.43		2.26		1.66
3-month LIBOR	2.69		2.51		2.20		1.93
2-year LIBOR	2.62		2.20		1.70		1.63
10-year LIBOR	2.67		2.30		1.70		1.72
2-year U.S. Treasury	2.49		2.13		1.69		1.59
10-year U.S. Treasury	2.65		2.33		1.79		1.79
15-year mortgage current coupon ⁽¹⁾	2.97		2.63		2.22		2.27
30-year mortgage current coupon ⁽¹⁾	3.41		3.07		2.62		2.70



(In millions)	Maturing in 2020-2021		Maturing after 2021
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term	$	6,906	$	3,524
MBS by contractual maturity ⁽¹⁾	266		7,759
Consolidated Bonds by contractual maturity	65		—
Total principal amount	$	7,237	$	11,283
Derivatives, notional amount by termination date	$	12,198	$	7,467



(Dollars in millions)	December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019
	Balance		Percent⁽¹⁾		Balance		Percent⁽¹⁾		Balance		Percent⁽¹⁾		Balance		Percent⁽¹⁾
Adjustable/Variable-Rate Indexed:
LIBOR	$	10,430	22	%	$	13,604	29	%	$	16,127	37	%	$	20,462	38	%
SOFR	500		1		1,050		2		1,050		3		1,400		2
Other	221		1		379		1		416		1		394		1
Total	11,151		24		15,033		32		17,593		41		22,256		41
Fixed-Rate:
REPO	19,386		41		13,399		29		7,520		17		15,187		28
Regular Fixed-Rate	11,476		24		12,364		27		11,486		27		10,991		20
Putable ⁽²⁾	1,444		3		1,414		3		1,020		3		885		1
Amortizing/Mortgage Matched	2,358		5		2,583		6		2,646		6		2,753		5
Other	1,449		3		1,393		3		2,490		6		2,806		5
Total	36,113		76		31,153		68		25,162		59		32,622		59
Total Advances Principal	$	47,264	100	%	$	46,186	100	%	$	42,755	100	%	$	54,878	100	%

Letters of Credit (notional)	$	16,205			$	16,090			$	15,697			$	13,812


	December 31,			December 31,
Member Asset Size ⁽¹⁾	2019	2018	Member Asset Size (1)	2020	2019
Up to $100 million	162	166	Up to $100 million	147	162
> $100 up to $500 million	307	319	> $100 up to $500 million	297	307
> $500 million up to $1 billion	74	72	> $500 million up to $1 billion	70	74
> $1 billion	97	89	> $1 billion	114	97
Total Member Stockholders	640	646	Total Member Stockholders	628	640


~~(1)~~	~~The December 31 membership composition reflects members' assets as of the most-recently available figures for total assets.~~


~~(1)~~	~~The ROE amounts have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may produce nominally different results.~~


~~(1)~~	~~Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.~~


~~(2)~~	~~This component of net interest rate spread has been segregated to display its relative impact.~~



Page 1 of			~~164~~167


▪	~~Lower average Advance balances-Unfavorable~~: The $17.5 billion decline in average Advance balances decreased net interest income by an estimated $37 million. The decline in average Advance balances was primarily due to the reduction in borrowings by a few large-asset members.


▪	~~Lower spreads on mortgage assets balances-Unfavorable~~: ~~Lower spreads on mortgage assets decreased net interest income by an estimated $10 million due to the falling interest rate environment.~~


▪	~~Growth in average MPP balances-Favorable~~: ~~The $0.8 billion increase in the average balance of mortgage loans held for portfolio improved net interest income by an estimated $9 million.~~


▪	~~Growth in average liquidity investment balances-Favorable~~: ~~The $8.7 billion increase in the average balance of non-mortgage investments improved net interest income by an estimated $8 million.~~


~~(1)~~			~~Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.~~


~~(2)~~	~~Non-accrual loans are included in average balances used to determine average rate.~~


~~(3)~~	~~Includes certificates of deposit that are classified as available-for-sale securities.~~


~~(4)~~	Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.


~~(5)~~	The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.



(In millions)	2020 over 2019						2019 over 2018
	Volume (1)(3)		Rate (2)(3)		Total		Volume (1)(3)		Rate (2)(3)		Total
Increase (decrease) in interest income
Advances	$	(107)	$	(628)	$	(735)	$	(416)	$	211	$	(205)
Mortgage loans held for portfolio	16		(80)		(64)		25		(6)		19
Federal funds sold and securities purchased under resale agreements	(88)		(162)		(250)		20		45		65
Interest-bearing deposits in banks	(6)		(24)		(30)		(3)		—		(3)
MBS	(70)		(130)		(200)		(18)		24		6
Other investments	88		(7)		81		182		—		182
Loans to other FHLBanks	—		—		—		—		—		—
Total	(167)		(1,031)		(1,198)		(210)		274		64
Increase (decrease) in interest expense
Term deposits	—		(1)		(1)		(1)		1		—
Other interest-bearing deposits	5		(17)		(12)		—		2		2
Discount Notes	(26)		(668)		(694)		(93)		167		74
Unswapped fixed-rate Bonds	(67)		(59)		(126)		(47)		51		4
Unswapped adjustable-rate Bonds	(54)		(264)		(318)		(16)		70		54
Swapped Bonds	(29)		(18)		(47)		(9)		33		24
Mandatorily redeemable capital stock	1		(1)		—		—		(1)		(1)
Other borrowings	—		—		—		—		—		—
Total	(170)		(1,028)		(1,198)		(166)		323		157
Increase (decrease) in net interest income	$	3	$	(3)	$	—	$	(44)	$	(49)	$	(93)



(In millions)	2019 over 2018									2018 over 2017
	Volume ⁽¹⁾⁽³⁾			Rate ⁽²⁾⁽³⁾			Total			Volume ⁽¹⁾⁽³⁾			Rate ⁽²⁾⁽³⁾		Total
Increase (decrease) in interest income
Advances	$	(416	)	$	211		$	(205	)	$	(30	)	$	534	$	504
Mortgage loans held for portfolio	25			(6		)	19			16			8		24
Federal funds sold and securities purchased under resale agreements	20			45			65			37			97		134
Interest-bearing deposits in banks	(3		)	—			(3		)	22			13		35
MBS	(18		)	24			6			23			51		74
Other investments	182			—			182			1			1		2
Loans to other FHLBanks	—			—			—			—			—		—
Total	(210		)	274			64			69			704		773
Increase (decrease) in interest expense
Term deposits	(1		)	1			—			—			—		—
Other interest-bearing deposits	—			2			2			1			8		9
Discount Notes	(93		)	167			74			61			469		530
Unswapped fixed-rate Bonds	(47		)	51			4			(3		)	30		27
Unswapped adjustable-rate Bonds	(16		)	70			54			(17		)	149		132
Swapped Bonds	(9		)	33			24			(14		)	19		5
Mandatorily redeemable capital stock	—			(1		)	(1		)	—			—		—
Other borrowings	—			—			—			—			—		—
Total	(166		)	323			157			28			675		703
Increase (decrease) in net interest income	$	(44	)	$	(49	)	$	(93	)	$	41		$	29	$	70


~~(1)~~	~~Volume changes are calculated as the change in volume multiplied by the prior year rate.~~


~~(2)~~	~~Rate changes are calculated as the change in rate multiplied by the prior year average balance.~~


~~(3)~~	Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.


~~(1)~~	~~Balance sheet includes swaptions, which are not designated as hedging a specific financial instrument.~~


~~(2)~~	~~Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statement of Income.~~


~~(3)~~	~~Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."~~


~~(1)~~	~~Amounts used to calculate percentages are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.~~



	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total
Components of 2020 ROE:
Net interest income:
Other net interest income	8.69	%	11.74	%	9.68	%	10.33	%	10.19	%
Net amortization	(1.91)		(1.98)		(2.67)		(3.22)		(2.40)
Prepayment fees	0.37		0.95		0.62		0.94		0.72
Total net interest income	7.15		10.71		7.63		8.05		8.51


Net gains (losses) on derivatives and hedging activities	(25.60)		(2.43)		1.61		3.45		(5.72)
Other non-interest income (loss)	28.27		1.36		(2.23)		(4.95)		5.57
Total non-interest income (loss)	2.67		(1.07)		(0.62)		(1.50)		(0.15)
Total income	9.82		9.64		7.01		6.55		8.36
Total non-interest expense	2.11		1.72		1.79		2.18		1.93
Affordable Housing Program assessments	0.77		0.80		0.52		0.44		0.65
2020 ROE	6.94	%	7.12	%	4.70	%	3.93	%	5.78	%

2019 ROE	5.59	%	5.09	%	5.36	%	6.64	%	5.65	%

2018 ROE	6.23	%	6.15	%	6.87	%	5.90	%	6.29	%



	1^st Quarter		2^nd Quarter		3^rd Quarter		4^th Quarter		Total
Components of 2019 ROE:
Net interest income:
Other net interest income	9.59	%	8.32	%	8.39	%	9.21	%	8.89	%
Net amortization	(0.27	)	(0.61	)	(0.99	)	(1.21	)	(0.75	)
Prepayment fees	—		0.01		0.06		0.66		0.17
Total net interest income	9.32		7.72		7.46		8.66		8.31
Net gains (losses) on derivatives and hedging activities	(1.98	)	(12.06	)	(5.15	)	5.29		(3.64	)
Other non-interest income (loss)	0.58		11.85		5.52		(4.72	)	3.43
Total non-interest income (loss)	(1.40	)	(0.21	)	0.37		0.57		(0.21	)
Total income	7.92		7.51		7.83		9.23		8.10
Total non-interest expense	1.71		1.85		1.87		1.85		1.82
Affordable Housing Program assessments	0.62		0.57		0.60		0.74		0.63
2019 ROE	5.59	%	5.09	%	5.36	%	6.64	%	5.65	%

2018 ROE	6.23	%	6.15	%	6.87	%	5.90	%	6.29	%

2017 ROE	5.25	%	6.94	%	5.97	%	6.42	%	6.15	%