UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 000-51399
FEDERAL HOME LOAN BANK OF CINCINNATI
(Exact name of registrant as specified in its charter)
Federally chartered corporation of the United States31-6000228
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
600 Atrium Two, P.O. Box 598, Cincinnati, Ohio
Cincinnati,OH45201-0598
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
(513) 852-7500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class B Stock, par value $100 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes   ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d).
☐ Yes ☒ No of the Act.
☐ Yes   ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes   ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒ Yes   ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer ☐
Accelerated Filer ☐
Non-accelerated Filer☒Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes   ☒ No
The capital stock of the registrant is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share. At June 30, 2020,2023, the aggregate par value of all Class B stock held by members and former members was $3,832,160,000.$5,864,380,100. As of February 28, 2021,29, 2024, the registrant had 24,788,05847,211,628 shares of capital stock outstanding, which included stock classified as mandatorily redeemable.
Documents Incorporated by Reference: None
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PART I
Item 1.Business
45
Item 1A.Risk Factors
1920
Item 1B.Unresolved Staff Comments
2526
Item 1C.Cybersecurity
26
Item 2.Properties
2527
Item 3.Legal Proceedings
2527
Item 4.Mine Safety Disclosures
2527
PART II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
2628
Item 6.Selected Financial Data[Reserved]
2728
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
7772
Item 8.Financial Statements and Supplementary Data
Financial Statements for the Years Ended 2020, 2019,2023, 2022, and 20182021
7773
Notes to Financial Statements
8681
Supplemental Financial Data
141133
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
141133
Item 9A.Controls and Procedures
141133
Item 9B.Other Information
142134
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
134
PART III
Item 10.Directors, Executive Officers and Corporate Governance
142135
Item 11.Executive Compensation
147140
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
161154
Item 13.Certain Relationships and Related Transactions, and Director Independence
162155
Item 14.Principal Accountant Fees and Services
163156
PART IV
Item 15.Exhibits and Financial Statement Schedules
164158
Item 16.Form 10-K Summary
166159
Signatures
166160
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PART I


Special Cautionary Notice Regarding Forward Looking Information

This documentreport 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 theThese risks and uncertainties that could affect our forward-looking statements include, among others, the following:

▪the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions, 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, civil unrest, terrorism, natural disasters, climate change, pandemics, including the current COVID-19 pandemic, or other unanticipated or catastrophic events;

▪political events, andincluding 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), such as any government-sponsored enterprise (GSE) reforms, any changes resulting from the Federal Housing Finance Agency's (Finance Agency) review and analysis of the FHLBank System, including recommendations published in its "FHLBank System at 100: Focusing on the Future" report, changes in the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), changes in applicable sections of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or changes in other statutes or regulations applicable to the Federal Home Loan Banks (FHLBanks);

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

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

▪changes in ratings assigned to FHLBank System Obligations or the FHLB that could raise our funding cost;

▪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;

▪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 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 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.

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

Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under Item 1A. Risk Factors.
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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 BankFHLBank 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,the financial system through our member stockholders, 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 depositoryThrift institutions, commercial banks, credit unions, certain insurance companies, and certified 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, 2020,2023, we had 628609 members.

The combinationWe 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 10 of public sponsorship and private ownership that drives our business model is reflected in the composition of our 17-member Board of Directors, all of whom members elect. Ten directors are officers and/or directors of our member institutions, whileNotes to Financial Statements provide additional details regarding the remaining directors are Independent directors who representassessment for the public interest.Affordable Housing Program.

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 investmentreliable funding to help them facilitate and expandsupport housing finance, affordable housing and community investment, and achieveassist with their objectives for liquidity and asset liabilitybalance sheet 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
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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 togiven 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 percentagesamounts 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 Assetsour products at relatively narrow spreads over funding costs, compared with other financial institutions, while still achieving acceptable profitability. Our cooperative ownership structure and deepextensive 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 favorableacceptable 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:Assets and Activities (as defined below): Implement strategies and tactics and effectively manage operations to promote members’ usage of Primary Mission Assets and Supplemental Mission Activities 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.
▪Stock Return: Earn adequate profitability so that members receive a competitive long-term dividend on their capital stock investment.
▪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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Business Activities

Mission Asset ActivityAssets and Activities
The following are our principal business activities with members:

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

▪We issue collateralizedfully-collateralized Letters of Credit.

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

We also may execute standby bond purchase agreements with state housing authorities, which is a minor source of business activity. Together, these product offerings constitute “Mission Asset Activity.Assets and Activities.” 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 provideinclude 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,mortgage-backed securities (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;

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

▪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 earnings from funding assets with capital.use of financial leverage. 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.Assets and Activities. Acquiring capital in connection with growth in Mission Assets and Activities 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.

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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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Governance

Tax StatusBoard of Directors
Our Board of Directors is responsible for the overall oversight and management of the FHLBank pursuant to the Federal Home Loan Bank Act. The combination of public sponsorship and private ownership that drives our business model is reflected in the composition of our 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. When nominating Independent director candidates, our Board values diversity across a number of categories, including diversity of gender, race, and ethnicity, as well as professional backgrounds. The professional backgrounds of our Independent directors cover a wide range of industries and expertise in areas such as financial markets and economics, affordable housing organizations, and technology, including cybersecurity.

Culture of Ethical Behavior
We are exempt fromcommitted to the highest possible standards of honesty, integrity and conduct. These standards are essential to our business and foster confidence in our FHLBank and the FHLB System. To promote these standards with our employees and our vendors, we maintain a Whistleblower Policy, Standards of Conduct that apply to all federal, state,employees, and local taxation other than real property taxes. Any cash dividends we issue are taxablea Code of Ethics for Senior Financial Officers. The Standards of Conduct outline employees’ responsibilities to members“promptly raise compliance and do not benefit from the corporate dividends received exclusion. Notes 1ethics questions and 10concerns” and provide a description of the Notes to Financial Statements provide additional details regarding the assessment for the Affordable Housing Program.

Ratingstypes 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,questions and historically has assigned, the System's Consolidated Obligations the highest ratings available: long-term debt is rated Aaaconcerns that should be raised. Each employee receives training on 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 2020certifies understanding and maintained a stable outlook. In 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 ratingsacceptance of the SystemStandards of Conduct at the inception of their employment and, our FHLB includethereafter, must certify their compliance with 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 useStandards 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 ratingsConduct at any time, andleast once 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.year.

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,report, 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 has regulatory authority over the FHLBanks and 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 examinations of each FHLBank at least annually, as well as periodic reviews, and receives monthly information on a daily or monthly basis relating to each FHLBank's activities, 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.

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 2023 but changed the outlook on the ratings from stable to negative, consistent with its ratings action taken with respect to the United States. In 2023, Standard & Poor's affirmed its issuer credit ratings on each FHLBank and its AA+ ratings on the System's senior debt and 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
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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.


BUSINESS SEGMENTS

We manage the development, resource allocation, product delivery, pricing, credit risk management, and operational administration of our Mission Asset ActivityAssets and Activities in two business segments: Traditional Member Finance and the MPP. Traditional Member Finance includes Credit Services, Housinghousing and Community Investment, Investments, somecommunity investment, investments, 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 14 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 SOFR, or historically LIBOR.primarily SOFR. 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 Lettersletters utilized, which generally is less than the notional amount issued.
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How We Manage Risks of Credit Services. We manage market risk from Advances by funding them with Consolidated Obligations and hedging them with 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. The net effect is that in practice we mitigate market risk exposure associated with Advances sufficiently and within our risk tolerance.

We manageThe objective of our credit risk on Advances by requiringmanagement activities for Credit Services is to equalize risk exposure across members and counterparties to a zero level of expected losses. We require 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- 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 sufficiently mitigates virtually all potential credit risk associated with Advances and Letters of Credit. We have never experiencedAs a result, at December 31, 2023, we did not expect any credit losslosses on
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Advances nor have we ever determined it necessary to establish a loan loss reserveand, therefore, no allowance for Advances.credit losses on Advances was recorded. "Quantitative and Qualitative Disclosures About Risk Management” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5 of the Notes to Financial Statements provide more detail on our credit risk management of member borrowings.

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.

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 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
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, demand deposits, 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, weWe 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, 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

▪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 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 alsoLiquidity investments are either short-term (primarily overnight), or longer-term investments (such as U.S. Treasuries) that may be ablepledged or sold and converted to obtain liquidity by selling certain investments for cash without a significant loss of value.cash.

▪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.
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▪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,Assets and Activities, 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.Obligations. 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.

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 hadquality because of our conservative investment policies and practices. As a result, at December 31, 2023, we did not expect any credit loss or credit-related write down of any investment security.losses on our investments and, therefore, no allowance for credit losses on investments was recorded.

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 percentare a minor source of our funding sources in recent years.funding.

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 a loan that meets the maximum amountdollar limit permissible to be lent as a regular prime (i.e., non-jumbo, non-subprime) mortgage.mortgage and other funding criteria of Fannie Mae and Freddie Mac. For 2021,2024, the Finance Agency established the conforming limit for mortgages that
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finance single-family one-unit properties at $548,250 with$766,550. Additionally, the Finance Agency allows higher conforming limits on loans originated in a limited number of high-cost cities and counties receiving higher conforming limits.areas. We have elected not to only purchase mortgages subjectup to these higherthe $766,550 conforming limits.limit.

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 from PFIs 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, currently include available primary mortgage insurance and 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-definedpredefined 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 generally 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.

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.


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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 obligationsliabilities of all the FHLBanks, backed only by the financial resources of these institutions.the FHLBanks. Consolidated Obligations are the principal funding source used to make Advances and to purchase mortgage loans and investments. 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.

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 are typically ranges from 1 yearup 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.

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 are issued primarily to fundraise short-term Advances, adjustable-rate Advances, putable Advances (which we normally swap to an adjustable-rate), liquidity investments,funds and a portion of longer-term fixed-rate assets. Discount Notes have original maturities from one day to one year, with most of ours normally maturing within three months.year. Discount Notes generally sell at less than their face amount and are redeemed at par value when they mature.

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 and shape of market interest rates and the shape of the(e.g., U.S. Treasury curve, the SOFR swap curve or LIBOR swap curve;rates); and the supply, volume, timing, and characteristics of debt issuances by the FHLBanks, other GSEs, and other highly ratedhighly-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 ofany 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 anotherany FHLBank werewas financially 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.rates.
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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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earnings.

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.

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.

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 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 Activityactivity 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 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 certain Mission Asset ActivityAssets and Activities (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 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.Assets and Activities. This enables us to maintain a prudent amount of financial leverage and consistently generate a competitive dividend return.

At December 31, 2020,2023, the amount of membership stock required for each member ranged from a minimum of $1,000 to a maximum of $30$20 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 AssetAssets and Activities. Activity includesstock is required to capitalize 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'membership's stock component towards this overall requirement. EachAs specified within the Capital Plan, each member is required to maintain an amounta percentage of activity stock within a range of a minimum and maximum percentage for eachdepending on the type of Mission Asset Activity. The Capital Plan amendment that went into effect on January 1, 2021 changedtransaction. Currently, the activity percentages and set these minimums and maximums to be equal. As a result, the current percentages are as follows:
    
Mission Asset ActivityMinimum Activity PercentageMaximum Activity Percentage
Advances4.50%4.50%
Advance Commitments4.504.50
MPP3.003.00
Letters of Credit0.100.10
Transaction TypeActivity Percentage
Advances4.50%
Advance Commitments4.50
MPP3.00
Letters of Credit0.10
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,requirements, we designate the remaining stock as the member's excess capital stock. The member may utilizeutilizes its excess stock to capitalize additional Mission Asset Activity.Assets and Activities, before purchasing activity stock.

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
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, for example, in which other-than-temporarysubstantial credit 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.

WeConsistent with Finance Agency requirements, 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, 2020,2023, the minimum retained earnings requirement was approximately $290 million,$1.0 billion, 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 2020,2023, our retained earnings totaled $1.3$1.7 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”)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”)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.
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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

▪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 investmentsWe hedge market risk exposure related to investments by entering into interest rate swaps, which effectively converting theconverts fixed-rate investmentinvestments to an adjustable-rate investment. investments.

The derivatives we transact related to mortgage assets primarilyloans are designed to hedge interest rate risk and prepaymentrepayment 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 maintainOverall, in a stable market environment, we target a low amount of earnings volatility from realized gains and losses on derivatives. WeHowever, 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 hedgehedges 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 productsAdvances 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.

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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.


COMMUNITY IMPACT

Housing and Community Investment Programs
We support affordable housing, necessary housing repairs, disaster reconstruction and home ownership for very low- to moderate-income individuals through multiple programs across Kentucky, Ohio and Tennessee. By using our programs individually or in combination, our members and their community partners can create economically competitive solutions that contribute to the quality of life in the communities they serve. We have an Affordable Housing Advisory Council that advises the Board of Directors and management on affordable housing and economic development needs within our district and other related issues as requested.

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. In addition to the mandated 10 percent accrual, the Board of Directors may elect to make voluntary contributions to the Affordable Housing Program. See Note 10 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, from large rental complexes that provide homes to seniors to individual homes for first-time homebuyers. 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 may distribute funds in the form of grants or below-market rate Advances to members that apply and successfully compete in an annual offering. Under Welcome Home, we make funds available beginning in the first quarter of each year 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.

Two other housing programs that fall outside 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.

Our Board of Directors also allocates additional funds to voluntary housing programs. Currently, we offer three voluntary housing programs, the Carol M. Peterson (CMP) Housing Fund, the Disaster Reconstruction Program and the Zero Interest Fund. In 2023, the FHLB disbursed $6.4 million through the CMP Housing Fund. In January 2024, the Board authorized $10.6 million for the CMP Housing Fund for use in 2024. These funds are primarily offered as grants to low-income homeowners to pay for accessibility rehabilitation and emergency repairs for those who have special needs or are over age 60. The Disaster Reconstruction Program helps very low- to moderate-income families whose homes were impacted by fires, tornadoes, flooding, landslides or other state or federally declared natural disasters in the Fifth District. The program offers up to $20,000 to help repair and rebuild homes affected by disasters and $5,000 for displaced renters to purchase homes. Since the program's inception, we have disbursed $7.9 million to assist more than 600 households. The Zero Interest Fund, a $2 million revolving loan fund, provides loans with a zero percent interest rate to support upfront infrastructure costs on residential and economic development projects.
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Serving the Community
Our employees participate in various programs, such as fundraising campaigns or volunteer opportunities, which support and give back to our local communities. Examples of these programs included the United Way Campaign, the Cincinnati Wish Tree Program, the Annual Heart Mini-Marathon and Walk, Arts Wave, Adopt-A Class, Habitat for Humanity builds and various volunteer opportunities supporting local schools and families. Through participation in multiple homebuilding and other employee volunteer events, our employees’ efforts helped advocate for safe, decent and affordable housing and play an active role in serving the needs of our local community.

Diversity, Equity and Inclusion Program
Diversity, equity and inclusion is a strategic business priority. Our diversity, equity 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 our senior management enterprise strategy committee. 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, equity and inclusion strategic plan that includes quantifiable metrics to measure its success. Our diversity, equity and inclusion officer and team reports regularly on performance against the strategic plan to management and the Board of Directors. Additionally, 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.

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, equity and inclusion strategic plan and regularly offer educational opportunities to our employees. Examples of these opportunities include consultant-led diversity, equity and inclusion training about employee experiences as they relate to race, ethnicity and gender, listening to panel discussions about issues affecting race in the United States, as well as a series of lunch and learns to help raise awareness and engage employees in conversations about diversity, equity and inclusion. Our commitment to diversity, equity and inclusion has led us to join local and national movements, such as The Hamilton County (Ohio) Gender Parity Initiative and Shine A Light on Antisemitism, that support gender equity and shine a light on hate. In addition, we have made a commitment to be part of the national dialogue and solution to end systemic racism through our sponsorship of the YWCA Racial and Justice Inclusion Initiative.


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, 2020,2023, we had 241 employees. As of December 31, 2020,259 employees, approximately 3739 percent of our workforce waswhich were female, 6361 percent male, 8581 percent non-minority and 1519 percent minority. Our workforce is leanly staffed, and historically has included a number of longer-tenured employees. As of December 31, 2020,2023, the average tenure of our employees was 10nine years. We strive to both develop talent from within the organization and supplement with external hires. We believe that developingDeveloping 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, equitable and inclusive workforce. We encourage feedback from employees in our efforts to be an inclusive organization through third party surveys, internal surveys and a dedicated email address to send in questions or comments for review by the Chief Executive Officer. 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.employees. 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, short-term disability, long-term disability insurance, dependent care and transportation reimbursement programs, employee assistance program, 401(k) retirement savings plan with
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employer match, and defined benefit pension benefits. Beginning January 1, 2024, the 401(k) retirement savings plan includes non-elective retirement contributions and the defined benefit pension plan was closed to new entrants.
▪Recognition programs – sponsors peer-to-peer recognition program, department recognition program and company-wide recognition.
▪Work / life balance –Time off programs - provides flexible scheduling andpaid time off for any reason (vacation, illness, personal) and other paid leave 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.
▪Work / life balance – provides flexible work arrangements and scheduling including allowing a hybrid work arrangement where employees may work up to three days per week from home and two days in the office. Additional flexibility is provided through our "Work from Anywhere" weeks, which allow employees to work fully remote for a limited number of weeks in the year.
▪Culture – promotes the five core values of dependable, customer focused, inclusive, change oriented and results driven and encourages employee resource groups and other culturevarious cultural 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 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,Assets and Activities, lower earnings and dividends, and, at the extreme, impairment ofimpair our capital or an inabilityhinder our ability 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 in the economy, including the U.S. housing market, and related U.S. government monetary policy responses, could further lower Mission Asset ActivityAssets and Activities and profitability.

Member demand for Mission Asset ActivityAssets and Activities depends in large part on the general health of the economy and overall business conditions. Numerous external factors can affect our Mission Asset ActivityAssets and Activities 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;
▪actions of the Federal Reserve actions to affect liquidity reserves ofinfluence the Fed funds rate or use its balance sheet to influence financial institutionsmarkets and the money supply;economic conditions;
▪competitive alternatives to our products, such as retail deposits and other sources of wholesale funding;
▪inflation;
▪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, cyberattacks, civil unrest, geopolitical instability or conflicts, trade disruptions, economic or other sanctions, or other unanticipated or catastrophic events could create economic and financial disruptions and uncertainties.

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 ultimately cause stockholders to request redemption of a portion of their capital or request withdrawal from membership (both referred to in this documentreport as “request withdrawal of capital”).

For example, we believeHistorically, overall Advance demand has been and continues to be unfavorably affected by thewhen a substantial amount of deposit-based liquidity is provided to financial institutions through the monetary actionsand fiscal policies of the U.S. government and its agencies, including the Federal Reserve and changes in our members' ability to manage their regulatory liquidity requirements.Reserve. The Federal Reserve’s policies facilitate liquiditydirectly and support stability inindirectly influence interest rates on our assets and liabilities and could adversely affect the fixed-income markets, which in turn has generally led to substantial deposit growth for our members and decreases in their demand for Advances.Advances and Consolidated Obligations as well as our 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 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,Assets and Activities, earnings, and capitalization.

Our primary business is providingWe provide 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.and other liquidity programs of the Federal Reserve. Some of our competitors are not subject to the same body of regulations applicable to us, which enablesmay enable those competitors to offer products andwith more favorable terms thatthan we are not able to offer.offer, such as
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lower rates or more flexible credit or collateral standards. 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 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.

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.

Sharp reductions in Mission Asset ActivityAssets and Activities 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 ActivityAssets and Activities and capital is concentrated among a small number of our large members. Additionally,As the financial industry continues to consolidate into a smaller number of institutions, this could lead to further concentration of Advances to and capital with large members and a decrease in our number of members. If Advances are concentrated in a smaller number of members, our risk of loss resulting from a single event could become greater. Loss of members or decreased business activities with large members due to withdrawal from membership, acquisition by a non-member, or failure could also result in a reduction of our Mission Assets and Activities, capital, and net income. Our business model is structured to be able to absorb sharp changes in Mission Assets and Activities 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 Assets and Activities 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. Ultimately, our ongoing viability and that of the FHLBank System is subject to the ability to provide sufficient membership value through the combination of products, services and return on investment of capital stock.

Additionally, 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. OurAs non-bank financial institutions that are currently ineligible for membership continue to play an increasing role in mortgage origination, we could experience a decrease in demand for Advances or a decrease in volume of mortgage loans available for purchase from our members, which 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 couldnegatively affect our profitabilityfinancial condition and ability to pay competitive dividends, as well as, at the FHLBank System level, raise policy questions about the relevanceresults of the FHLBank System in its traditional mission of supporting housing finance.operations.

Replacement ofChanges in the LIBOR benchmark interest rateregulatory and legislative environment could adverselyunfavorably affect our business model, financial condition, and results of operations.

In July 2017,addition to potential GSE reform, the United Kingdom's Financial Conduct Authority (FCA),legislative and regulatory environment in which regulates LIBOR, announced that after 2021 itthe System operates continues to undergo change. We cannot predict when or what regulations will no longer persuadebe issued or compel banksrevised or what legislation will be enacted or repealed, and we cannot predict the effect of any such regulations or legislation on our business operations and/or financial condition. Recently-promulgated and future legislative and regulatory actions could result in, among other things: an increase in our cost of funding and regulatory compliance; a change in membership or permissible business activities; additional capital and liquidity requirements; additional contributions under our Affordable Housing Program; reduced demand for Advances or limitation on Advances made 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 administratormembers; or no longer be representative immediately after December 31, 2021,a change in the casesize, scope, or nature of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023,our lending, investment, or mortgage financing activities. Furthermore, since we are reliant upon a voluntary membership base, a member’s willingness to maintain the required level of capital stock investment may be influenced by changes 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 LIBORlegislative 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.regulatory environment.

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
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referenced financial assets, liabilitiesFor example, following a comprehensive review that began in the fall of 2022, the Finance Agency issued the “FHLBank System at 100: Focusing on the Future” report on November 7, 2023, presenting its review 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 resultanalysis of the limitations introducedFHLBank System and the actions and recommendations that it plans to pursue over a multi-year effort, in service of its vision for the FHLBank System. The report focused on four broad themes: (1) the mission of the FHLBank System; (2) the FHLBank System as a stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure, and governance. Many of the recommendations from the report may be implemented by the Finance Agency wethrough ongoing supervision, guidance, or rulemaking within its existing statutory authority, while other recommendations may experience less flexibilityrequire legislative action or further study.

We are not able to predict what actions will ultimately result from the Finance Agency’s recommendations, the timing of any actions, the extent of any changes to us or the FHLBank System, or the ultimate effect on us or the FHLBank System in the future. Potential changes resulting from the Finance Agency’s recommendations (including changes relating to the FHLBanks’ mission, liquidity role, membership and lending requirements, affordable housing contributions and support for community investment, or operations, structure, and governance) could increase our accessoperational costs and expenses, result in heightened scrutiny of the FHLBanks and their mission and activities, and impact our business, which may affect our financial condition, or results of operations, or the value of membership in the FHLBanks. The extent to funding, higher funding costs, increased basis risk, lower overall demandwhich the report ultimately results in changes to regulatory requirements or increased costs of Advances, and a lack of suitable investment alternatives. Accordingly,supervisory expectations that impact or limit the compositionuse 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 impactAdvances by members or our ability to manage interest-rate risk, whichlend to members may have a significant negative effectimpact 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 the "Regulatory and Legislative Developments" section of the "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.information.

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.

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 minimum capital adequacy requirements mandated by Finance Agency regulations and supervisory guidance and bycould affect our internal policies, or not being ableability to pay dividends or repurchase or redeem members' capital stock, which may lowercause a decrease in demand for Mission Asset Activity, harm results of operations,Advances or difficulties in retaining existing members and lower membership value.attracting new members.

To ensure safe and sound operations, we must hold a minimum amount of capital relative to our asset levels. WeAdditionally, we must also hold a sufficient amount of retained earnings to help protect members' capital stock investment against impairment risk. If we are unable to satisfy our minimum capital requirements, we would be subject to capital restoration requirements. Until the minimum capital levels fall significantly,have been restored, we maywould also be unable to payprohibited from paying dividends and redeeming or redeem and repurchaserepurchasing capital stock in a timely manner (or at all). Such eventswithout prior approval from the Finance Agency, which could adversely affect the value of membership including causing impairment in the value of members' capital investment in our company. Outcomes could be:For example, the competitiveness of our Advances depends on the total cost to members, which includes the rates we charge, dividends paid, and members' perceptions of our relative safety and soundness, among other things. Therefore, outcomes of failing to meet capital adequacy requirements may include reduced demand for Mission Asset Activity,Advances, decreased profitability, requests fromor difficulty in retaining members to redeem a portionor attracting new members.
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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 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.Assets and Activities.

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 completelyAlthough we mitigate a large portion of our 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 ActivityAssets and Activities 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,Assets and Activities, 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 favorableacceptable 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 washas been able to maintain access to the capital markets for debt issuances on acceptable terms during 2020,in its history, there is no assurance this will continue to be the case. In August 2023, Fitch Ratings downgraded the ratings of the United States and, in November 2023, Moody’s changed the outlook on the ratings of the United States to negative from stable. Accordingly, Moody's changed the outlook of our rating as well as the FHLBank System's rating from stable to negative consistent with the actions taken with respect to the United States. 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 further downgrades to the System's credit ratings.ratings or the U.S. sovereign credit rating or outlook. For
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example, a failure by the U.S. Congress to adequately address its statutory debt limit in a timely manner, or uncertainty relating to the debt limit, could result in additional downgrades to the U.S. sovereign credit rating or outlook and cause significant disruptions in the capital markets. 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.

We believe we have a de minimis overall amount of residualare exposed to credit risk exposure related toas part of our normal business operations through funding Advances, purchasing mortgage loans and investments, extending other credit products, such as Letters of 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.
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transacting derivatives.

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 positionsecurity interest on all pledged 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.non-securities collateral subject to a blanket pledge. 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 AdvancesCredit Services 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 AdvancesCredit Services 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.

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 makingthat could impact our financial condition or results of operations and make it difficult for us to find qualified counterparties for transactions.

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.

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OPERATIONAL RISK

Failures or interruptions of the Office of FinanceFinance's services 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,which are the principal source of funding for the FHLBanks. The Office of Finance often in conjunction with the FHLBanks, has adopted policiesrelies heavily on its information systems and procedurestechnology for the purposes of facilitating and approving the issuance of Consolidation Obligations.its operations. A failure or interruption of the Office of Finance's services as a result of breaches, cyberattacks, system malfunctions, disruptions or failures (including those associated with implementing technology initiatives), natural disasters, or other 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 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 beare increasingly more 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. Cyberattacks, in particular those on financial institutions and financial market infrastructures, have become more frequent, sophisticated, and increasingly difficult to detect or prevent, including as a result of the increased capabilities of artificial intelligence and other emerging technologies that may be used maliciously. It could take considerable time for us to determine the scope, extent, amount, and type of information compromised. 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 periodThese threats may increase as a result of time before being detected. It could take considerable additional time for us to determine the scope, extent, amount, and type of information compromised.geopolitical conflicts. 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.

Natural disasters, including those resulting from significant climate change, could adversely affect our business and our members’ businesses.

Natural disasters, such as hurricanes, tornadoes, floods, wild fire, and drought may impact our operations or our members’ businesses. Climate change is increasing the frequency, intensity and duration of these weather events. These natural disasters, including those resulting from significant climate change, could destroy or damage facilities or other properties (such as collateral that members have pledged to secure Advances or mortgages), disrupt business, increase the probability of power or other outages, or otherwise cause significant economic dislocation in the affected regions. Any of these situations may adversely affect our financial condition and results of operations.

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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 peopleFailure to attract and retain skilled key personnel or ineffective succession planning could affect the abilityrelated to hire or retain effective key personnel thereby harmingcould adversely affect our financial condition and results of operations.


Item 1B.    Unresolved Staff Comments.

None.

Item 1C.Cybersecurity.

CYBERSECURITY RISK MANAGEMENT AND STRATEGY

We are subject to cybersecurity risk, which includes intentional and unintentional acts that may jeopardize the confidentiality, integrity, or availability of our information technology assets and data under our control. Cybersecurity risk can take the form of a variety of circumstances that cause harm to us, our members, our service providers, and the economy in general. These circumstances include malicious software or exploited vulnerabilities, social engineering, such as phishing, denial-of-service attacks, viruses, malware, and natural or other disasters. See Item 1A. Risk Factors for additional description of cybersecurity and other operational risks.

In alignment with industry standards, such as the National Institute of Standards and Technology (NIST) Cybersecurity Framework, and Finance Agency regulatory guidance, we have implemented processes for assessing, identifying, and managing cybersecurity risk through a layered approach throughout our environment and in our service provider arrangements, including software-as-a-service and infrastructure-as-a-service engagements. We continuously evaluate and update our policies and practices to mitigate our exposure to cybersecurity risks given, among other things, the evolving natures of these risks, the involvement of uncontrollable circumstances, such as fires or flooding, and our role in the financial services industry and the broader economy.Our cybersecurity risk-mitigating processes include the implementation of firewalls, anti-virus software, real-time network monitoring, various forms of testing, and the deployment of software updates to address security vulnerabilities, as well as annual and periodic employee training to educate employees on how to identify and avoid various forms of social engineering.

Our security incident response plan determines how cybersecurity threats and incidents are identified, classified, and escalated, including for the purposes of reporting and providing relevant information to senior management and the Board of Directors. The security incident response plan also requires management to assess materiality of the threat or incident for the purposes of public disclosure.

We also maintain a business continuity program designed to ensure that resources and plans are in place to protect us from potential loss during a disruption, which includes the unavailability of our information technology assets due to unintentional events like fire, power loss, and other technical incidents such as hardware failures.These business continuity resources and plans include maintaining business continuity sites to ensure continued operations, regular backing up of data and systems on offsite facilities, testing our ability to operate on disaster recovery systems, and annually reviewing department level business continuity procedures.

We regularly engage third parties to test, maintain, and enhance our cybersecurity risk management practices and threat monitoring.These engagements include incident response exercises, penetration testing, constant managed detection and response services, and intrusion prevention and detection applications.Our vendor risk management program includes regular reviews and oversight of these third parties, including performance and technological reviews and escalation of any unsatisfactory performance, in order to identify, prioritize, assess, mitigate and remediate third party risks. However, we rely on the third parties we use to implement security programs commensurate with their risk, and we cannot ensure in all circumstances that their efforts will be successful.

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During the period covered by this report, the risk from cybersecurity threats or incidents did not have a material impact on our strategy, results of operations, or financial condition. We expect that cybersecurity threats and incidents will continue to occur and any such cybersecurity incident impacting us could result in significantly harmful consequences to us, our members, and their customers. We assess the materiality of any such cybersecurity incident from several perspectives including our ability to continue to service our members, any loss of or unauthorized access to data, lost revenue, increased operating costs, litigation, and reputational harm.

CYBERSECURITY GOVERNANCE

Our chief information officer and chief information security officer provide regular reports (at least quarterly) to the Risk Committee of our Board and management committees on topics such as threat intelligence, major cybersecurity risk areas and threats, technologies and best practices, and any cybersecurity incidents that may have impacted us, and more frequently if there was an ongoing cybersecurity incident. Our Board oversees our information security program through regular review of policies, including our information security policy designed to establish clear management direction and commitment to preserve the confidentiality, integrity, and availability of all information technology assets and data.

Our Enterprise Risk Management Committee – a management level committee, including senior management and other leadership representatives from our operational risk, information security, information technology, legal, operations, and other departments – is responsible for approving policies to support the management and implementation of the cybersecurity program and recommending the annual information technology strategic plan to senior management prior to Board review and approval. This committee receives regular reporting from our chief information security officer similar to what is provided to the Board, and more detailed reporting regarding the availability of information technology assets and cybersecurity threats being monitored.

Our chief information security officer, who reports both to our chief risk officer and our chief information officer, manages the cybersecurity governance framework designed to protect the confidentiality, integrity, and availability of our information technology assets and data under our control. Our chief information security officer and assistant chief information security officer collectively have approximately 20 years of experience with the FHLB in successively more responsible roles and have led teams to design, secure, implement, and audit numerous technology solutions. Our information security group is responsible for developing, documenting, and approving our information security control standards, guidelines, and procedures, in line with the policies and standards set forth by the Board and management committee. They are experienced and knowledgeable in both technology and cybersecurity and maintain industry recognized security certifications.

The business continuity program is overseen by the Business and Operations Committee of the Board and includes business impact analysis for developing effective plans and a disaster recovery plan to respond, recover, resume, and restore technology assets critical for us to operate. Our Enterprise Risk Management Committee is responsible for oversight of operational risk and oversees the implementation of the business continuity program as approved by the Board.

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.

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,February 29, 2024, we had 649620 member and former member stockholders and approximately 2747 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)
20202019
AnnualizedAnnualized
QuarterRateRate
First2.50 %6.00 %
Second2.50 5.50 
Third2.00 4.50 
Fourth2.00 4.00 
Total2.23 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. In 2023, 2022, and 2021 we declared quarterly cash dividends.

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$92 million, $11 million and $3$2 million of such credit support during 20202023, 2022 and 2019. We did not provide such credit support during 2018.2021. 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 sectionSection 3(a)(2) thereof.

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Item 6.     Selected Financial Data.[Reserved].

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)20202019201820172016
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets$65,296 $93,492 $99,203 $106,895 $104,635 
Advances25,362 47,370 54,822 69,918 69,882 
Mortgage loans held for portfolio9,549 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 Notes27,500 49,084 46,944 46,211 44,690 
Bonds31,997 38,440 45,659 54,163 53,191 
Total Consolidated Obligations, net59,497 87,524 92,603 100,374 97,881 
Mandatorily redeemable capital stock19 22 23 30 35 
Capital:
Capital stock - putable2,641 3,367 4,320 4,241 4,157 
Retained earnings1,304 1,094 1,023 940 834 
Accumulated other comprehensive loss(15)(16)(13)(16)(13)
Total capital3,930 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 expense92 89 85 79 111 
Affordable Housing Program assessments31 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 equity5.78 5.65 6.29 6.15 5.35 
Return on average assets0.31 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 assets5.39 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.

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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.

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EXECUTIVE OVERVIEW
Recent Developments

COVID-19 PandemicBusiness Environment
The global outbreak of COVID-19 has impacted communities and businesses worldwide, including those inDuring 2023, concerns about inflation, uncertainties regarding the Fifth District. The effects of COVID-19 continue to evolve, andU.S. government's debt ceiling, the full impact and durationhealth of the virus are unknown. Despite the uncertainties createdbanking industry following significant deposit outflows experienced by several U.S. banks, and interest rate hikes by the COVID-19 pandemic,Federal Reserve were dominant themes causing market stress and volatility. Throughout these challenges, we have continued to fulfilldeliver on our dual mission of providing robust access to a key source of readily available and competitively priced wholesalecritical liquidity funding to member financial institutions and supporting our commitment toexpanding support for affordable housing and community investment, while maintaining strong capital and liquidity positions.

Weinvestment. Although some of the challenges experienced in 2023 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,subsided, we continue to monitor the progression of COVID-19changing economic landscape and are committed to assisting members andin meeting their communities as impacts related to the pandemic continue to unfold.funding needs.

We recognize that funding in addition to the required 10 percent statutory Affordable Housing Program (AHP) assessments is beneficial to support affordable housing and community investment needs. In 2023, we approved voluntary housing contributions of $15 million, more than five percent of our prior year income before assessments. For 2024, in addition to the 10 percent required AHP assessments, we plan to continue to commit approximately five percent of prior year income before assessments to voluntary housing contributions. For example, in January 2024, we continued our commitment to affordable housing with a voluntary contribution of $10.6 million to the Carol M. Peterson (CMP) Housing Fund.

The 2023 voluntary housing contributions that were in addition to the required AHP contributions were allocated as follows:
▪The CMP Housing Fund received contributions of nearly $7 million to provide grants to cover accessibility rehabilitation and emergency repairs for special needs and elderly homeowners within the Fifth District.
▪The Welcome Home Program was funded with over $7 million of voluntary contributions to assist homebuyers with down payments and closing costs.
▪The Disaster Reconstruction Program disbursed over $1 million for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District.

Our capital and liquidity positions continue to remain strong, as has our overall ability to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. Additionally, overall residual credit risk exposure from our Credit Services, mortgage loan portfolio, investments, and derivative transactions has remained de minimis. Likewise, our market risk measures continue to be within our risk appetite.

Financial Condition

Mission Asset ActivityAssets and Activities
Primary Mission Assets which we define as(i.e., principal balances of Advances and mortgage loans held for portfolio) and Supplemental Mission Activities (i.e., Letters of Credit, Mandatory Delivery Contracts and total MPPstandby bond purchase agreements) are the primary meansprincipal business activities by which we fulfill our mission with direct connections to members.members and what we refer to as Mission Assets and Activities. We regularly monitor our balance sheet concentrationlevel of Mission Asset Activity.Assets and Activities. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In 2020,2023, the Primary Mission Asset ratio averaged 7576 percent, which exceededabove the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity,Assets and Activities, the most significant of which is Letters of Credit issued tofor the benefit of members.

The following table summarizes our Mission Asset Activity.
Year Ended December 31,
 Ending BalancesAverage Balances
(In millions)2020201920202019
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 MPP9,453 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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The following table summarizes our Mission Assets and Activities.
Year Ended December 31,
 Ending BalancesAverage Balances
(In millions)20232022 20232022
Primary Mission Assets (1):
Advances$73,638 $67,428 $83,678 $52,367 
Mortgage loans held for portfolio6,960 7,006 6,917 7,263 
Total Primary Mission Assets$80,598 $74,434 $90,595 $59,630 
Supplemental Mission Activities (2):
Letters of Credit (notional)$47,098 $41,345 $43,775 $36,887 
Mandatory Delivery Contracts (notional)101 14 62 45 
Standby bond purchase agreements (notional)— 11 1 15 
Total Supplemental Mission Activities$47,199 $41,370 $43,838 $36,947 
(1)Amounts represent principal balances.
(2)Amounts represent off-balance sheet commitments.

Advance principal balances increased $6.2 billion (47(nine 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 actual2022. Additionally, average amount of the Letters utilized, which generally is less than the notional amount issued.

Average principal Advance balances for 2020 decreased only $5.02023 increased $31.3 billion (10(60 percent) compared to 20192022. Advances increased substantially over the course of 2022 and have remained elevated in 2023 driven by depository members' demand for liquidity due to such factors as Advances spiked across our membership atdeclining deposit balances, loan growth and the endeffects of the first quarterhigher interest rates. Average Advance balances were significantly higher as the financial markets reactedmember demand increased in March 2023 in response to the pandemic.turmoil in the banking industry and financial markets. Most of these Advances had matured or were prepaid by the end of the third quarter of 2020. 2023.

Advance balances are often volatile due togiven our members' ability to quickly, normally on the same day, increase or decrease theirthe amount of their Advances. We believe providingthat a key benefit of membership comes from our business model as a wholesale lender GSE, which provides members flexibility in their Advance funding levels and helps support their asset-liability management needs and isneeds. We act as a key benefitreliable source of membership.

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

The MPP principal balance fell $1.7 billion (15 percent)declined one percent from the year-end 2019.2022 balance. During 2020,2023, we purchased $2.6$0.6 billion of mortgage loans, while principal reductions of $4.3 billion reflectedwere $0.6 billion. Principal purchases and reductions trended lower in 2023 due in large part to the significant increase inelevated mortgage loan refinance activity in 2020.rate environment.

BasedLetters of Credit increased $5.8 billion (14 percent) from year-end 2022. Letters of Credit balances are primarily used by members to secure public unit deposits. We normally earn fees on earnings in 2020, we accrued $31 million forLetters of Credit based on the Affordable Housing Program (AHP) poolactual average amount 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 forLetters utilized, which generally is less than 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.notional amount issued.

Investments
The balance of investments at December 31, 20202023 was $27.0$42.6 billion, a decreasean increase of $7.3$9.0 billion (27 percent) from year-end 2019.2022. At December 31, 2020,2023, investments included $9.7$19.2 billion of MBSmortgage-backed securities (MBS) and $17.3$23.4 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, 20202023 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency.Ginnie Mae. The declineincrease in the balance ofinvestments was primarily driven by higher liquidity investments. We held more liquidity investments at the end of 20202023 to support members' Advance demand, which 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 $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.somewhat volatile. 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 20202023 across a variety of liquidity measures, as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

Investments averaged $45.0 billion in 2023, an increase of $6.3 billion (16 percent) compared to 2022's average, which was primarily driven by higher MBS. We target to hold MBS balances near the regulatory maximum of three times regulatory capital. As a result, we grew our MBS portfolio by purchasing over $4.6 billion of MBS in 2023.
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Capital
Capital adequacy surpassed all minimum regulatory capital requirements in 2020. The GAAP and regulatory capital-to-assets ratioratios at December 31, 2020 was 6.022023 were 5.18 percent while the regulatory capital-to-assets ratio was 6.07 percent.and 5.26 percent, respectively. 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 $0.5one percent from year-end 2022. Given the increased Advance demand in 2023, we issued $5.5 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 byprimarily to support members' purchasesAdvance borrowings. However, we repurchased a significant amount of excess capital stock throughout 2023 because the Advance demand was volatile and most of the Advances borrowed in response to support Advance growth atthe turmoil in the banking industry and financial markets had matured or were prepaid by the end of the first quarter.2023. Retained earnings totaled $1.3$1.7 billion at December 31, 2020,2023, an increase of $0.2 billion (19 percent)18 percent from year-end 2019, which is a higher growth rate relative2022 due to recent years. The increaseour strong earnings in 2023. We believe the amount of retained earnings was dueis sufficient to protect against members' impairment risk of their capital stock investment in partthe FHLB and to provide the lower weighted average dividend rate in 2020.
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opportunity to stabilize or increase future dividends.

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,
Year Ended December 31,
Year Ended December 31,
Year Ended December 31,
(Dollars in millions)(Dollars in millions)202020192018
Net incomeNet income$276 $276 $339 
Net income
Net income
Affordable Housing Program assessments
Affordable Housing Program assessments
Affordable Housing Program assessmentsAffordable Housing Program assessments31 31 38 
Return on average equity (ROE)Return on average equity (ROE)5.78 %5.65 %6.29 %
Return on average equity (ROE)
Return on average equity (ROE)
Return on average assets
Return on average assets
Return on average assetsReturn on average assets0.31 0.28 0.32 
Weighted average dividend rateWeighted average dividend rate2.23 5.05 5.88 
Average short-term interest rates (1)
0.51 2.24 2.07 
Weighted average dividend rate
Weighted average dividend rate
Dividend payout ratio (1)
Dividend payout ratio (1)
Dividend payout ratio (1)
Average overnight interest rates (2)
Average overnight interest rates (2)
Average overnight interest rates (2)
ROE spread to average short-term interest rates5.27 3.41 4.22 
Dividend rate spread to average short-term interest rates1.72 2.81 3.81 
ROE spread to average overnight interest rates
ROE spread to average overnight interest rates
ROE spread to average overnight interest rates
Dividend rate spread to average overnight interest rates
Dividend rate spread to average overnight interest rates
Dividend rate spread to average overnight interest rates
(1)Dividend payout ratio is dividends declared in the period as a percentage of net income.
(2)Average short-termovernight interest rates consist of 3-month LIBORthe Secured Overnight Financing Rate (SOFR) and the Federal funds effective rate.

Net income increased $416 million in 2023. The historically low interest rate environmentincrease in 2020 hadnet income was primarily a significant impact on earnings. Low long-termresult of higher interest rates resulted in aand average Advance balances. In particular, during 2023, higher volume of mortgage refinance activity, which led to elevated levels of mortgage loan repayments and related premium amortization. Additionally, short-termaverage interest rates declined sharply in early 2020 and continued at low levels for the remainder of the year, which loweredincreased the earnings generated from investing our capital. Despite these declines, 2020 net income benefitedthe FHLB's capital and contributed to improved spreads earned on mortgage loans held for portfolio. Average Advance balances were higher primarily from gains ondepository members' greater demand for liquidity and increased member demand in March 2023 given 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 ratesturmoil in the periods presented above, while we maintained risk exposures in line with our appetite for a moderate risk profile. The spread between ROEbanking industry 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 competitivenessfinancial markets. Most of the return on their capital investment.Advances related to the March 2023 turmoil had matured or were prepaid by the end of 2023.

In 2023, we accrued $74 million for the AHP available to members. In addition to the required AHP assessment, we may elect to make voluntary contributions to our AHP or other community investment programs. For example, we approved voluntary housing contributions of $15 million in 2023.

We strive to provide a competitive return on members' capital investment in our company through quarterly dividend payments. In December 2020,2023, we paid stockholders a quarterly dividend at a 2.009.00 percent annualized rate on their capital investment in our company, which is 1.84was 3.67 percentage points above fourth quarter average short-termovernight 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 theour results of operations and profitability because of how they affect members' demand for Mission Asset Activity,Assets and Activities, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).
Year 2020Year 2019Year 2018
EndingAverageEndingAverageEndingAverage
Federal funds effectiveFederal funds effective0.09 %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 LIBOR0.24 0.65 1.91 2.33 2.81 2.31 
2-year LIBOR0.20 0.49 1.70 2.03 2.66 2.75 
10-year LIBOR0.93 0.88 1.90 2.09 2.71 2.95 
Federal funds effective
Federal funds effective
SOFR
SOFR
SOFR
2-year U.S. Treasury
2-year U.S. Treasury
2-year U.S. Treasury2-year U.S. Treasury0.12 0.39 1.57 1.97 2.49 2.52 
10-year U.S. Treasury10-year U.S. Treasury0.92 0.89 1.92 2.14 2.69 2.91 
10-year U.S. Treasury
10-year U.S. Treasury
15-year mortgage current coupon (1)
15-year mortgage current coupon (1)
15-year mortgage current coupon (1)
15-year mortgage current coupon (1)
0.65 1.17 2.28 2.52 3.06 3.20 
30-year mortgage current coupon (1)
30-year mortgage current coupon (1)
1.28 1.64 2.71 2.95 3.51 3.65 
30-year mortgage current coupon (1)
30-year mortgage current coupon (1)
Year 2020 by Quarter - AverageYear 2023 by Quarter - Average
Quarter 1Quarter 2Quarter 3Quarter 4 Quarter 1Quarter 2Quarter 3Quarter 4
Federal funds effectiveFederal funds effective1.25 %0.06 %0.09 %0.09 %
Federal funds effective
Federal funds effective4.51 %4.99 %5.26 %5.33 %
SOFRSOFR1.25 0.05 0.09 0.09 
3-month LIBOR1.54 0.61 0.25 0.22 
2-year LIBOR1.18 0.32 0.22 0.23 
10-year LIBOR1.34 0.69 0.65 0.87 
2-year U.S. Treasury
2-year U.S. Treasury
2-year U.S. Treasury2-year U.S. Treasury1.10 0.19 0.14 0.15 
10-year U.S. Treasury10-year U.S. Treasury1.38 0.68 0.65 0.86 
15-year mortgage current coupon (1)
15-year mortgage current coupon (1)
1.86 1.09 0.86 0.88 
30-year mortgage current coupon (1)
30-year mortgage current coupon (1)
2.31 1.58 1.32 1.37 
(1)     Simple average of currentCurrent coupon ratesrate of Fannie Mae and Freddie Mac par MBS indications.

TheAt December 31, 2023, the target overnight Federal funds rate was in the range of zero5.25 to 0.255.50 percent, an increase from the range of 4.25 to 4.50 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.2022.

Average short-termovernight rates were approximately 170 to 180335 basis points lowerhigher in 20202023 compared to 20192022, while average mortgage rates increased approximately 140 basis points. The increase in short-term rates improved our earnings from capital, which increased by $230 million in 2023 compared to 2022. Additionally, the substantial increase in average rates in 2023 compared to 2022 benefited net income as it improved the spreads earned on our mortgage assets 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.Advances.

Business OutlookDuring 2023, as in 2022, the market risk exposure to changing interest rates was moderate and Risk Managementwithin policy limits. We believe that longer-term profitability will be competitive, unless interest rates were to further increase significantly for a sustained period of time.

This section summarizesRegulatory and Legislative Developments

General
The FHLBank System is subject to legislative and regulatory oversight. Legislative and regulatory actions applicable, directly or indirectly, to the FHLBank System have increased uncertainty regarding the business outlookmodel and what we believe aremembership base under which the FHLBanks may operate in the future. This is due primarily to the uncertainty around potential actions related to the Finance Agency's review of the FHLBank System, future GSE reform, and the evolution of mortgage financing moving towards financial institutions currently not eligible for FHLBank membership. We cannot predict the ultimate outcome of the FHLBank System review, GSE reform and whether our current major risk exposures.membership base will be legislatively and regulatorily permitted to evolve in concert with the housing finance market. 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.more discussion.

Strategic/Business RiskFinance Agency’s Review and Analysis of the FHLBank System
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 growthCommencing in the money supply. Other factors that constrain widespread demand for Advances arefall of 2022, and over a period of several months, the low levels of interest ratesFinance Agency undertook a review 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 moreanalysis of the following occur: aggregateFHLBank System, in part through a series of public listening sessions, regional roundtable discussions, and receipt of comments from stakeholders and the public. This review covered such areas as the FHLBanks’ mission and purpose in a changing marketplace; their organization, operational efficiency, and effectiveness; their role in promoting affordable, sustainable, equitable, and resilient housing and community investment; their role in addressing the unique needs of rural and financially vulnerable communities; member products, services, collateral requirements; and membership eligibility and requirements.
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loan portfolios
On November 7, 2023, the Finance Agency issued a written report titled “FHLBank System at 100 – Focusing on the Future,” presenting its review and analysis of the FHLBank System and the actions and recommendations that it plans to pursue in service of its vision for the future of the FHLBank System. The report focused on four broad themes: (1) the mission of the FHLBank System; (2) the FHLBank system as a stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure, and governance. The Finance Agency expects its initiative to continue as a multi-year, collaborative effort with the FHLBanks, their member institutions, and other stakeholders to address the recommended actions in the report and has stated that it can implement some of the recommendations from the report through ongoing supervision, guidance, or rulemaking, as well as through statutory changes by proposing specific requests for Congressional action.

Among other things, the Finance Agency has indicated that it plans to:
•Update and clarify its regulatory statement of the FHLBanks’ mission to explicitly incorporate its view of the core objectives of the FHLBanks’ mission, which are (1) providing stable and reliable liquidity to members, and (2) supporting housing and community development;
•Clarify the FHLBanks’ liquidity role and take steps that the Finance Agency believes will better position the FHLBanks to perform their liquidity function, including enhancing Finance Agency oversight of FHLBank credit risk evaluation of their members and establishing protocols for large depository members to borrow from the Federal Reserve discount window;
•Expand the FHLBanks’ housing and community development focus by requiring the establishment of mission-oriented collateral programs, re-evaluating the definition of long-term Advances, exploring revisions to the Community Support Requirements, and reviewing the AHP, Community Investment Programs, and Community Investment Cash Advance Programs to encourage greater use in a safe and sound manner. The Finance Agency will also recommend that Congress consider amending the FHLBank Act to at least double the statutory minimum required annual AHP contributions by the FHLBanks; and
•Review the FHLBanks’ operational efficiencies through encouraging collaboration among the FHLBanks, evaluating the size and structure of FHLBank boards, considering the structure of FHLBank districts and composition of their membership, and studying whether realignment or consolidation is necessary for the efficiency of the FHLBank System.

We are continuing to evaluate the report and are not able to predict what actions will ultimately result from the Finance Agency’s recommendations in the report, the timing of these actions, the extent of any changes, or the ultimate effect on our FHLB or the FHLBank System in the future. We plan to continue to engage with the Finance Agency and other stakeholders to ensure that the FHLBank System remains well positioned to serve 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.and their communities.

MPP:Federal Reserve Bank Term Funding Program
On March 12, 2023, in response to prevailing concerns about the ability of banks to meet the needs of all their depositors, the Federal Reserve announced the implementation of a Bank Term Funding Program (BTFP), as an additional source of liquidity for eligible borrowers, including any U.S. federally insured depository institution or U.S. branch or agency of a foreign bank that is eligible for primary credit with the Federal Reserve. The BTFP offers up to one-year term loans to be secured by eligible collateral owned by eligible borrowers as of March 12, 2023. Such loans can be requested until March 11, 2024. The BTFP is subject to $25 billion in credit protection by the U.S. Department of Treasury. On January 24, 2024, the Federal Reserve announced that the BTFP will cease making new loans as scheduled on March 11, 2024.

Consumer Financial Protection Bureau (CFPB) Final Rule
On March 30, 2023, the CFPB issued a final rule requiring certain covered financial institutions to collect and report small business lending data. Small businesses are businesses with $5 million or less in gross annual revenue in the preceding fiscal year. We will be subject to data collection and reporting obligations if we have originated a minimum of 100 “covered credit transactions” to small businesses in each of the two preceding calendar years. The final rule implements phased-in compliance dates, beginning on October 1, 2024, based on the number of originations the covered financial institution makes to small businesses within a specified timeframe. We are assessing to what extent the obligations will be triggered for us and what operational changes will be necessary for compliance. While we are still analyzing the impact of the final rule, we do not believe these changes will have a material effect on our financial condition or results of operations. Under a federal court order in a related litigation, the CFPB has been enjoined from implementing and enforcing the final rule against covered financial institutions nationwide and all deadlines for compliance with the final rule have been stayed.

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Finance Agency Proposed Rule on Fair Lending, Fair Housing, and Equitable Housing Finance Plans
On April 26, 2023, the Finance Agency published a proposed rule that specifies requirements related to FHLBank compliance with fair housing and fair lending laws and prohibitions on unfair or deceptive acts or practices. The fair housing and fair lending laws would be the Fair Housing Act, the Equal Credit Opportunity Act, and those acts’ implementing regulations. Further, the proposed rule would outline the Finance Agency’s enforcement authority. We are evaluating the potential impact of the proposed rule on our operations.

Office of the Comptroller of the Currency, Federal Reserve, and Federal Deposit Insurance Corporation Joint Proposed Rule to Revise Capital Requirements for Certain Large Banking Organizations
On September 18, 2023, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation published a joint notice of proposed rulemaking that would substantially revise the regulatory capital requirements applicable to certain large banking organizations and banking organizations with significant trading activity (Covered Banks), generally consistent with changes to international capital standards issued by the Basel Committee on Banking Supervision, known as Basel III. The proposed rulemaking will amend the calculation of risk-based capital requirements in an attempt to better reflect the risks of these banking organizations' exposures, reduce the complexity of the framework, enhance the consistency of requirements across these banking organizations, and facilitate more effective supervisory and market assessments of capital adequacy. For certain collateralized transactions under existing capital requirements, debt securities issued by a GSE such as the FHLBanks are afforded a lower market price volatility haircut than higher risk non-GSE investment-grade securities. The proposed rules would increase the market price volatility haircuts applicable to debt securities of the GSEs (including the FHLBanks) by applying to these debt securities the same haircuts as non-GSE investment-grade securities. We continue to evaluate the potential impact of the proposed rulemaking on our financial condition and results of operation. The proposed change to market price volatility haircuts applicable to our debt securities may harm liquidity for our debt securities in the market, impact general demand for our debt securities, and increase our cost of funding due to potential higher interest rates as a result of the foregoing. The proposal was open for public comment through January 16, 2024, and the FHLBank System submitted a comment letter.

SEC Final Rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors
On March 6, 2024, the SEC adopted a final rule that will require registrants to disclose certain climate-related information in annual reports. The final rule requires disclosure of, among things: material climate-related risks; activities to mitigate or adapt to such risks; information about a registrant’s board of directors’ oversight of climate-related risks and management’s role in managing such risks; and information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition. We will be subject to the requirements of the rule applicable to us for our annual report for fiscal year 2027. We continue to review the final rule and its impact on our financial condition and results of operations.
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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition
The tables below show trends in Advance balances by major programs and in the notional amount of Letters of Credit.
(Dollars in millions)December 31, 2023December 31, 2022
 Balance
Percent(1)
Balance
Percent(1)
Adjustable/Variable Rate-Indexed:    
London InterBank Offered Rate (LIBOR)$— — %$3,012 4 %
SOFR30,306 41 10,170 15 
Other1,217 2 2,785 4 
Total31,523 43 15,967 23 
Fixed-Rate:    
REPO7,232 10 26,436 39 
Regular Fixed-Rate30,805 42 19,505 29 
Putable (2)
565 1 1,020 2 
Amortizing/Mortgage Matched1,210 1 1,358 2 
Other2,303 3 3,142 5 
Total42,115 57 51,461 77 
Total Advances Principal$73,638 100 %$67,428 100 %
Letters of Credit (notional) (3)
$47,098 $41,345 
(1)As a percentage of total Advances principal.    
(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.
(3)Represents the amount of an off-balance sheet commitment.

Advance principal balances at December 31, 2023 increased nine percent compared to year-end 2022. The increase in Advances resulted primarily from depository members' greater demand for liquidity due to such factors as declining deposit balances, member loan growth and the effects of higher interest rates. The future levels of Advance balances are difficult to predict and depend on many factors, including but not limited to, changes in the level of liquidity in the financial markets, changes in our members' deposit levels compared to loan growth and whether an economic downturn occurs.

Letters of Credit are issued on behalf of members to support certain obligations of members (or members' customers) to third-party beneficiaries. Letters of Credit increased $5.8 billion (14 percent) in 2023 as members continue to use them primarily to secure higher levels of public unit deposits. Letters of Credit usually expire without being drawn upon.

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The following table shows Advance usage of members by charter type.
(Dollars in millions)December 31, 2023December 31, 2022
Principal Amount of AdvancesPercent of Total Principal Amount of AdvancesPrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
Commercial Banks$49,885 68 %$44,334 66 %
Savings Institutions8,022 11 7,637 11 
Credit Unions3,302 4 3,933 6 
Insurance Companies12,420 17 11,501 17 
Total member Advances73,629 100 67,405 100 
Former member borrowings9 — 23 — 
Total principal amount of Advances$73,638 100 %$67,428 100 %

The following tables present principal balances for the five members with the largest Advance borrowings.
(Dollars in millions)
December 31, 2023 December 31, 2022
NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
JPMorgan Chase Bank, N.A.$14,000 19 % U.S. Bank, N.A.$19,000 28 %
U.S. Bank, N.A.10,000 14  Keybank, N.A.11,344 17 
Keybank, N.A.9,836 13  Third Federal Savings and Loan Association4,826 7 
Third Federal Savings and Loan Association5,008 7  Fifth Third Bank4,301 6 
Fifth Third Bank4,001 5  Nationwide Life Insurance Company3,136 5 
Total of Top 5$42,845 58 % Total of Top 5$42,607 63 %

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

MPP balances are influenced by conditions in the housing and mortgage markets, the competitivenesscompetitiveness 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) We manage purchases and balances at a prudent level relative to capital and total assets to effectively manage market and credit risks consistent with our risk appetite.

The table below shows principal purchases and reductions of loans in the MPP for each of the last two years. All loans acquired in 2023 and 2022 were conventional loans.
(In millions)20232022
Balance, beginning of year$7,006 $7,402 
Principal purchases568 714 
Principal reductions(614)(1,110)
Balance, end of year$6,960 $7,006 

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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 decreased in 2023 to a five percent annual constant prepayment rate, compared to the 11 percent rate during 2022, driven by the elevated mortgage rate environment that has persisted over the last several quarters. Likewise, elevated mortgage rates and low housing inventories have substantially eliminated borrower incentive to refinance and have slowed mortgage purchase originations, which in turn contributed to the slow pace of our purchases of new MPP loans in 2023.

Overall, MPP yields on new purchases and existing portfolio balances, relative to their market and credit risks, are expected to continue to generate a profitable long-term return.

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, 2023 December 31, 2022
 Principal% of Total Principal% of Total
Union Savings Bank$1,513  22 % Union Savings Bank$1,651  24 %
FirstBank725  10  FirstBank730  10 
Guardian Savings Bank FSB405 6 Guardian Savings Bank FSB438 6 
The Huntington National Bank404 6 All others4,187 60 
All others3,913 56        Total$7,006 100 %
Total$6,960 100 %

Housing and Community Investment

Our Housing and Community Investment programs include the AHP and various housing and community economic development-related Advance and grant programs. The AHP, which is required by the FHLBank Act, includes funding with an accrual equal to 10 percent of our previous year's net earnings. Since 2003, we have also offered a number of voluntary programs and additional voluntary contributions to the AHP, both in excess of the 10 percent set aside.

In 2023, we accrued $74 million of earnings for the AHP pool of funds. The AHP consists of a Competitive Program and a homeownership program called Welcome Home, which assists homebuyers with down payments and closing costs. In 2023, the Board also made a separate voluntary contribution of $7 million to the Welcome Home Program.

Including funds available in 2023 from previous and future years, we had $36.4 million available for the Competitive Program in 2023, which we awarded to 67 projects through a single competitive offering. In addition, we disbursed $16.3 million to 185 members on behalf of 1,662 homebuyers through the Welcome Home Program, which assists homebuyers with down payments and closing costs.

Additionally, in 2023, we disbursed $6.4 million through the CMP Housing Fund, which helped 529 homeowners, and disbursed $1.3 million through the Disaster Reconstruction Program. Both are voluntary programs beyond the 10 percent of earnings that we are required by law to set aside for the AHP. The CMP Housing Fund provides grants to fund accessibility rehabilitation and emergency repairs for low-income homeowners who have special needs or are over age 60. The Disaster Reconstruction Program helps very low- to moderate-income families whose homes were impacted by fires, tornadoes, flooding, landslides or other state or federally declared natural disasters in the Fifth District.

Our activities to support affordable housing and economic development also include offering Advances and loans through the AHP, Community Investment Program, Economic Development Program and Zero Interest Rate Fund with below-market interest rates and, in some cases, rates as low as zero percent. At the end of 2023, Advance balances under these programs totaled $242 million.

In 2023, approximately 36 percent of members applied for funding under our Housing and Community Investment programs.

For 2024, the Board has committed to a minimum of $37 million, or approximately five percent of prior year income before assessments, in voluntary housing contributions to support its Housing and Community Investment programs. In January 2024,
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our Board approved a $10.6 million contribution to the CMP Housing Fund. Additional contributions will be announced over the course of 2024.

Investments

The table below presents the ending and average balances of our investment portfolio.
(In millions)2023 2022
 Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments$23,418  $26,346  $17,028  $24,608 
MBS19,223  18,106  16,577  13,678 
Other investments (1)
— 532 —444 
Total investments$42,641 $44,984 $33,605 $38,730 
(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 investments that may be pledged or 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, regulatory liquidity requirements, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria. The 2023 ending and average balances of liquidity investments increased compared to 2022's balances primarily because of the increased level and volatility of Advance demand.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was 2.98 at December 31, 2023. The balance of MBS at December 31, 2023 consisted of $18.1 billion of securities issued by Fannie Mae or Freddie Mac (of which $12.7 billion were floating-rate securities), and $1.1 billion of securities issued by Ginnie Mae (which are primarily fixed rate).
The table below shows principal purchases and paydowns of our MBS for each of the last two years.
(In millions)MBS Principal
20232022
Balance, beginning of year$16,798 $10,795 
Principal purchases4,597 7,726 
Principal paydowns(1,986)(1,723)
Balance, end of year$19,409 $16,798 

As mortgage rates remained elevated in 2023, MBS principal paydowns decreased to a 10 percent annual constant prepayment rate from the 12 percent rate experienced in all of 2022.

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Consolidated Obligations

We generally fund variable-rate assets with Discount Notes (a portion of which 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 of positive liquidity and asset/liability maturity funding gap requirements 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 Consolidated Obligations.
(In millions)2023 2022
 Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:       
Unswapped$9,644  $24,796  $19,825  $24,931 
Swapped14,194 18,678 21,183 21,692 
Total par Discount Notes23,838 43,474 41,008 46,623 
Other items (1)
(147) (424) (317) (173)
Total Discount Notes23,691  43,050  40,691  46,450 
Bonds:       
Unswapped fixed-rate10,929  12,149  13,280  14,078 
Unswapped adjustable-rate57,886  54,974  39,621  22,834 
Swapped fixed-rate22,757  16,506  6,842  7,062 
Total par Bonds91,572  83,629  59,743  43,974 
Other items (1)
184  60  (75) (34)
Total Bonds91,756  83,689  59,668  43,940 
Total Consolidated Obligations (2)
$115,447  $126,739  $100,359  $90,390 
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(2)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) $1,204,316 and $1,181,743 at December 31, 2023 and 2022, respectively.

The ending balance of Discount Notes at December 31, 2023 decreased because most of the short-term Advances borrowed in March 2023 in response to the turmoil in the banking industry and financial markets had matured or were prepaid.

During 2023, the composition of Consolidated Obligations shifted to unswapped adjustable-rate Bonds and swapped fixed-rate Bonds as members began borrowing more longer-term, floating rate Advances and the market environment generally favored swapped debt. We swap term Discount Notes and fixed-rate Bonds to adjustable-rates in order to effectively match the underlying rate reset periods to the assets the Discount Notes and Bonds are funding.
Deposits

Total deposits with us are normally a relatively minor source of funding. All deposits with us are uninsured. Total interest-bearing deposits at December 31, 2023 were $1.1 billion, an increase of $0.1 billion compared to the balance at year-end 2022.

Derivatives Hedging Activity and Liquidity

Our use of derivatives is discussed in the "Effect of the Use of Derivatives on Net Interest Income" 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.”

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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)2023 2022
Period End Average Period End Average
GAAP and Regulatory Capital
GAAP Capital Stock$4,846  $5,397  $5,151  $3,961 
Mandatorily Redeemable Capital Stock17  34  17  115 
Regulatory Capital Stock4,863  5,431  5,168  4,076 
Retained Earnings1,658  1,586  1,401  1,339 
Regulatory Capital$6,521  $7,017  $6,569  $5,415 
2023 2022
 Period EndAverage Period EndAverage
GAAP and Regulatory Capital-to-Assets Ratio
GAAP5.18 % 5.07 % 5.99 % 5.33 %
Regulatory (1)
5.26  5.14  6.05  5.47 
(1)    At all times, the FHLB 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 2023 and 2022
(In millions)20232022
Regulatory stock balance at beginning of year$5,168 $2,511 
Stock purchases:
Membership stock12 1 
Activity stock5,464 5,533 
Stock repurchases/redemptions:
Redemption of member excess(570)(2,650)
Repurchase of member excess(5,207)(208)
Withdrawals(4)(19)
Regulatory stock balance at the end of the year$4,863 $5,168 

Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in 2023, we issued $5.5 billion of capital stock to members primarily in support of Advance borrowings, while repurchasing $5.2 billion of excess capital stock no longer supporting Mission Assets and Activities.

Excess capital stock is the amount of stock held by a member (or former member) in excess of that institution's minimum stock ownership requirement. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used by a member to capitalize additional Mission Assets and Activities, before purchasing activity stock. At December 31, 2023, the amount of excess stock, as defined by our Capital Plan, was $0.6 billion, a decrease of $0.6 billion compared to the balance at year-end 2022 due to the repurchase of excess stock noted above.

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

In 2023, we added two new member stockholders and lost nine member stockholders, ending the year at 609 member stockholders. Of the nine members lost, seven merged with other Fifth District members, one merged out of district, and one withdrew from membership.

In 2023, there were no material changes in the allocation of membership by state, charter type, or asset size. At the end of 2023, the composition of membership by state was Ohio with 298, Kentucky with 156, and Tennessee with 155.

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

 December 31,
 20232022
Commercial Banks329 335 
Savings Institutions73 75 
Credit Unions146 144 
Insurance Companies54 55 
Community Development Financial Institutions7 7 
Total609 616 

The following table provides the ownership of capital stock by charter type.
(In millions)December 31,
 20232022
Commercial Banks$3,247 $3,542 
Savings Institutions522 518 
Credit Unions280 305 
Insurance Companies796 785 
Community Development Financial Institutions1 1 
Total GAAP Capital Stock4,846 5,151 
Mandatorily Redeemable Capital Stock17 17 
Total Regulatory Capital Stock$4,863 $5,168 

Credit union members hold relatively less stock than their membership proportion because they tend to be smaller than the average member and borrow less. Insurance company members hold relatively more stock than their membership proportion because they tend to be larger than the average member and borrow more.

The following table provides a summary of member stockholders by asset size.
 December 31,
Member Asset Size (1)
20232022
Up to $100 million111 111 
> $100 up to $500 million288 301 
> $500 million up to $1 billion82 75 
> $1 billion128 129 
Total Member Stockholders609 616 
(1)    The December 31 membership composition reflects members' assets as of the most-recently available figures for total assets.

Most members are smaller community financial institutions, with 66 percent having assets up to $500 million. Having larger members is important to help achieve our mission objectives, including providing valuable products and services to all members.
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RESULTS OF OPERATIONS

Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key market driven factors that can cause significant periodic volatility in our profitability include changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization from accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. Our profitability may also be affected by our members' overall Advance demand, which is largely influenced by the monetary policies of the U.S. government and its agencies, including the Federal Reserve, and general economic conditions.

The following tables provide information for the years ended December 31, 2023, 2022 and 2021 and a comparison of the results between 2023 and 2022. For a comparison of the results between 2022 and 2021, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2022 Annual Report on Form 10-K.

Components of Earnings and Return on Equity

The following table is a summary income statement for the last three years. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period.

(Dollars in millions)202320222021
 Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Net interest income$864 12.47 %$487 9.25 %$277 7.12 %
Non-interest income (loss):
Net gains (losses) on trading securities16 0.23 (337)(6.39)(257)(6.63)
Net gains (losses) on derivatives(2)(0.03)131 2.48 82 2.12 
Net gains (losses) on financial instruments held under fair value option(40)(0.57)75 1.42 10 0.26 
Other non-interest income, net30 0.43 28 0.53 27 0.69 
Total non-interest income (loss)4 0.06 (103)(1.96)(138)(3.56)
Total income868 12.53 384 7.29 139 3.56 
Non-interest expense126 1.82 103 1.97 92 2.36 
Affordable Housing Program assessments74 1.08 29 0.54 5 0.12 
Net income$668 9.63 %$252 4.78 %$42 1.08 %
(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.

Details on the individual factors contributing to the level and changes in profitability are explained in the sections below.

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Net Interest Income

The largest component of net income is net interest income. Our principal goal in managing net interest income is to balance the trade-offs between maintaining a moderate market risk profile and ensuring profitability remains competitive. Effective risk/return management requires us to focus principally on the relationships among assets and liabilities that affect net interest income, rather than individual balance sheet and income statement accounts in isolation.

Our ROE normally is lower than that of many other financial institutions because of the cooperative wholesale business model that results in narrow spreads earned on our assets, the moderate overall risk profile, and the strategic objective to have a positive correlation of earnings to short-term interest rates.

Components of Net Interest Income
We generate net interest income from the following two components:

▪Net interest rate spread. This component equals the balance of total earning assets multiplied by the difference between the book yield on interest-earning assets and the book cost of interest-bearing liabilities. It is composed of net (amortization)/accretion, prepayment fees on Advances, and all other earnings from interest-earning assets net of funding costs.
▪Earnings from funding assets with capital (or earnings from capital). Because of our relatively low net interest rate spread compared to other financial institutions, we have historically derived a substantial portion of net interest income from deploying interest-free capital in interest-earning assets. We deploy much of the capital in short-term and adjustable-rate assets in order to help ensure that ROE moves in the same direction as short-term interest rates and to help control market risk exposure.

The following table shows selected components of net interest income. Reasons for the variance in net interest income between the 2023 and 2022 periods are discussed below.
(Dollars in millions)202320222021
 Amount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning Assets
Components of net interest rate spread:
Net (amortization)/accretion (1) (2)
$(24)(0.02)%$(31)(0.03)%$(87)(0.15)%
Prepayment fees on Advances, net (2)
3 — 3 — 13 0.02 
Other components of net interest rate spread533 0.40 393 0.40 324 0.54 
Total net interest rate spread512 0.38 365 0.37 250 0.41 
Earnings from funding assets with interest-free capital352 0.26 122 0.13 27 0.05 
Total net interest income/net interest margin (3)
$864 0.64 %$487 0.50 %$277 0.46 %
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Net Amortization/Accretion (generally referred to as amortization): Net amortization can become substantial and volatile with changes in interest rates. When mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. However, in 2023, mortgage rates remained elevated, keeping mortgage refinance activity along with net amortization low.

Prepayment Fees on Advances: Fees for members' early repayment of certain Advances, which are included in net interest income, are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. Advance prepayment fees were minimal in 2023 and 2022.

Other Components of Net Interest Rate Spread: The total other components of net interest rate spread increased $140 million in 2023 compared to 2022. The net increase was primarily due to the factors below.

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2023 Versus 2022
▪Higher average Advance balances-Favorable: The $31.1 billion increase in the average balance of Advances improved net interest income by an estimated $124 million.
▪Higher spreads earned on mortgage loans held for portfolio-Favorable: Higher spreads on mortgage loans held for portfolio increased net interest income by an estimated $67 million. Spreads improved primarily because of the rise in interest rates.
▪Higher spreads earned on MBS-Favorable: Higher spreads earned on MBS increased net interest income by an estimated $28 million. The higher spreads were driven by widening market spreads, which benefited new MBS purchases.
▪Higher spreads earned on Advances-Favorable: Net interest income earned on Advances increased by an estimated $26 million primarily driven by a shift in the composition of Advance balances from overnight to longer-term, floating rate, Advance products.
▪Higher average MBS balances-Favorable: Increases of $4.4 billion in average MBS improved net interest income by an estimated $17 million.
▪Lower spreads earned on liquidity investments-Unfavorable: Lower spreads earned on liquidity investments decreased net interest income by an estimated $115 million. However, the decrease in net interest income was partially offset by a decline in the net interest settlements paid on related derivatives not receiving hedge accounting, as discussed below.
▪Lower net unrealized gains on designated fair value hedges-Unfavorable: Net unrealized gains on hedged items and derivatives in qualifying fair value hedge relationships were lower by $8 million.

Earnings from Capital: Earnings from capital increased $230 million in 2023 compared to 2022 because of the higher average short-term interest rates and higher average capital balances.

Average Balance Sheet and Rates
The following table provides average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. Interest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.

In addition, the net interest settlements of interest receivables or payables and the price alignment amount associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. The price alignment amount approximates the amount of interest that we would receive or pay if the variation margin payments were characterized as collateral pledged to secure outstanding credit exposure on the derivative contracts. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables and the price alignment amount are recorded in “Non-interest income (loss)” as “Net gains (losses) on derivatives” and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
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(Dollars in millions)202320222021
 Average BalanceInterest
Average Rate (1)
Average BalanceInterest
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:      
Advances (2)
$83,237 $4,450 5.35 %$52,167 $1,211 2.32 %$23,943 $147 0.62 %
Mortgage loans held for portfolio (3)
7,067 214 3.02 7,431 204 2.75 8,130 169 2.07 
Securities purchased under agreements to resell2,898 147 5.08 2,354 49 2.09 545 1 0.07 
Federal funds sold12,193 627 5.14 11,183 204 1.82 6,891 5 0.08 
Interest-bearing deposits in banks (4)
2,414 121 5.00 1,298 25 1.94 736 1 0.09 
MBS (5)
18,160 923 5.08 13,702 288 2.11 9,182 107 1.17 
Other investments (5)
9,369 475 5.07 10,209 238 2.33 10,733 205 1.91 
Loans to other FHLBanks22 1 4.93 25 1 2.77 — — — 
Total interest-earning assets135,360 6,958 5.14 98,369 2,220 2.26 60,160 635 1.05 
Other assets1,226 578  526   
Total assets$136,586 $98,947   $60,686   
Liabilities and Capital:      
Term deposits$91 4 4.31 $77 1 1.03 $79 — 0.23 
Other interest-bearing deposits (4)
1,100 50 4.57 1,329 16 1.21 1,434 — 0.02 
Discount Notes43,050 2,105 4.89 46,450 775 1.67 26,088 14 0.05 
Unswapped fixed-rate Bonds12,162 271 2.23 14,087 282 2.00 18,857 327 1.74 
Unswapped adjustable-rate Bonds54,973 2,847 5.18 22,833 539 2.36 6,710 5 0.07 
Swapped Bonds16,554 814 4.92 7,020 114 1.62 2,744 12 0.42 
Mandatorily redeemable capital stock34 3 8.31 115 6 4.77 19 — 2.01 
Total interest-bearing liabilities127,964 6,094 4.76 91,911 1,733 1.89 55,931 358 0.64 
Other liabilities1,691 1,765   869   
Total capital6,931 5,271   3,886   
Total liabilities and capital$136,586 $98,947   $60,686   
Net interest rate spread0.38 % 0.37 %  0.41 %
Net interest income and net interest margin (6)
$864 0.64 % $487 0.50 % $277 0.46 %
Average interest-earning assets to interest-bearing liabilities105.78 %  107.03 %  107.56 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Interest on Advances includes prepayment fees of (in millions) $3, $3, and $13 for the years ended December 31, 2023, 2022, and 2021, respectively.
(3)Non-accrual loans are included in average balances used to determine average rate.
(4)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(5)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Rates and corresponding levels of interest income and expense on all of our interest-bearing assets and liabilities increased in 2023 compared to 2022, as these assets and liabilities have repriced to the higher interest rates.

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Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
(In millions)2023 over 20222022 over 2021
 
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Increase (decrease) in interest income   
Advances$1,016 $2,223 $3,239 $317 $747 $1,064 
Mortgage loans held for portfolio(10)20 10 (16)51 35 
Securities purchased under agreements to resell13 85 98 5 43 48 
Federal funds sold20 403 423 5 194 199 
Interest-bearing deposits in banks34 62 96 1 23 24 
MBS119 516 635 69 112 181 
Other investments(21)258 237 (10)43 33 
Loans to other FHLBanks— — — 1 — 1 
Total1,171 3,567 4,738 372 1,213 1,585 
Increase (decrease) in interest expense    
Term deposits— 3 3 — 1 1 
Other interest-bearing deposits(3)37 34 — 16 16 
Discount Notes(60)1,390 1,330 18 743 761 
Unswapped fixed-rate Bonds(41)30 (11)(90)45 (45)
Unswapped adjustable-rate Bonds1,249 1,059 2,308 37 497 534 
Swapped Bonds280 420 700 36 66 102 
Mandatorily redeemable capital stock(5)2 (3)4 2 6 
Total1,420 2,941 4,361 5 1,370 1,375 
Increase (decrease) in net interest income$(249)$626 $377 $367 $(157)$210 
(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.

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Effect of the Use of Derivatives on Net Interest Income
The following table shows the impact on net interest income from the effect of derivatives and hedging activities. As noted above, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables and the price alignment amount related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the “Non-Interest Income (Loss)” section below.

(In millions)202320222021
Advances:
Amortization of hedging activities in net interest income$— $— $(1)
Gains (losses) on designated fair value hedges— 17 1 
Net interest settlements included in net interest income344 12 (110)
Price alignment amount (1)
(23)(6)— 
Investment securities:
Amortization of hedging activities in net interest income(2)(1)— 
Gains (losses) on designated fair value hedges8 (1)— 
Net interest settlements included in net interest income351 39 (20)
Price alignment amount (1)
(53)(14)— 
Mortgage loans:
Amortization of derivative fair value adjustments in net interest income(1)(2)(12)
Consolidated Obligation Bonds:
Net interest settlements included in net interest income(33)(4)1 
Increase (decrease) to net interest income$591 $40 $(141)
(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.

We primarily use derivatives to more closely match actual cash flows between assets and liabilities by synthetically converting the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., the Federal funds effective rate or SOFR). The sharp increases in short-term interest rates primarily benefited net interest income in 2023 as the conversion of certain Advances' and investments' fixed interest rates to adjustable-coupon rates resulted in a significant amount of net interest settlements being received. The fluctuation in net interest income from the use of derivatives was acceptable because it enabled us to lower market risk exposure.
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Non-Interest Income (Loss)

Non-interest income (loss) consists of certain gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). The effects of derivatives and hedging activities on non-interest income (loss) relate only to derivatives not qualifying for fair value hedge accounting.

2023
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount NotesBalance SheetOtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(2)$(34)$(6)$35 $14 $— $— $7 
Net interest settlements on derivatives not receiving hedge accounting2 51 — (32)(24)— — (3)
Price alignment amount (2)
— — — — — — (6)(6)
Net gains (losses) on derivatives— 17 (6)3 (10)— (6)(2)
Gains (losses) on trading securities (3)
— 16 — — — — — 16 
Gains (losses) on financial instruments held under fair value option (4)
4 — — (32)(12)— — (40)
Total net effect on non-interest income$4 $33 $(6)$(29)$(22)$— $(6)$(26)
2022
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(1)$291 $(9)$(57)$(12)$10 $— $222 
Net interest settlements on derivatives not receiving hedge accounting— (42)— (14)(34)— — (90)
Price alignment amount (2)
— — — — — — (1)(1)
Net gains (losses) on derivatives(1)249 (9)(71)(46)10 (1)131 
Gains (losses) on trading securities (3)
— (337)— — — — — (337)
Gains (losses) on financial instruments held under fair value option (4)
1 — — 69 5 — — 75 
Total net effect on non-interest income$— $(88)$(9)$(2)$(41)$10 $(1)$(131)
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2021
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$1 $252 $3 $(9)$(1)$— $— $246 
Net interest settlements on derivatives not receiving hedge accounting— (172)— 8 — — — (164)
Price alignment amount (2)
— — — — — — — — 
Net gains (losses) on derivatives1 80 3 (1)(1)— — 82 
Gains (losses) on trading securities (3)
— (257)— — — — — (257)
Gains (losses) on financial instruments held under fair value option (4)
(1)— — 10 1 — — 10 
Total net effect on non-interest income$— $(177)$3 $9 $— $— $— $(165)
(1)For the years ended December 31, 2022 and 2021, "Balance Sheet" included swaptions, which were not designated as hedging a specific financial instrument.
(2)This amount is for derivatives for which variation margin is characterized as a daily settled contract.
(3)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statements of Income.
(4)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."

The effect of derivatives and hedging activities on non-interest income in 2023 improved primarily because of the increase in short-term rates, which resulted in net interest settlements being received on derivatives related to investments where the fixed interest rates were converted to adjustable-coupon rates. Some of this benefit was offset as the increase in short-term rates also resulted in a higher amount of net interest settlements being paid on derivatives related to Bonds. Additionally, a portion of the improvement in the effect of derivatives and hedging activities on earnings was driven by a net favorable impact from changes in market values on certain derivatives and related financial instruments carried at fair value. Because we intend to hold these derivatives and the related financial instruments to maturity, any unrealized gains or losses are expected to reverse in future periods. As noted above, the fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure.

In the table above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations that have been swapped to a variable rate. Trading securities are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, such as changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the gains or losses on the associated interest rate swaps.

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Non-Interest Expense

The following table presents non-interest expense for each of the last three years.

(In millions)2023 20222021
Non-interest expense  
Compensation and benefits$54 $51 $48 
Other operating expense33 25 23 
Finance Agency11 8 7 
Office of Finance6 6 5 
Voluntary housing contributions15 5 2 
Other7 8 7 
Total non-interest expense$126 $103 $92 

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. Total non-interest expense increased in 2023 primarily as a result of making voluntary housing contributions of $15 million to address affordable housing needs and community investment in the Fifth District. These voluntary housing contributions are in addition to the 10 percent of earnings that are required to be set aside for the AHP.

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Segment Information

Note 14 of the Notes to Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.
(Dollars in millions)Traditional Member Finance MPP Total
2023     
Net interest income (loss)$730  $134  $864 
Net income (loss)$564  $104  $668 
Average assets$128,019  $8,567  $136,586 
Assumed average capital allocation$6,495  $436  $6,931 
Return on average assets (1)
0.44 % 1.21 % 0.49 %
Return on average equity (1)
8.69 % 23.74 % 9.63 %
      
2022     
Net interest income (loss)$421  $66  $487 
Net income (loss)$202 $50 $252 
Average assets$89,202  $9,745  $98,947 
Assumed average capital allocation$4,747  $524  $5,271 
Return on average assets (1)
0.23 % 0.51 % 0.25 %
Return on average equity (1)
4.26 % 9.46 % 4.78 %
2021
Net interest income (loss)$318  $(41) $277 
Net income (loss)$85 $(43)$42 
Average assets$49,258  $11,428  $60,686 
Assumed average capital allocation$3,154  $732  $3,886 
Return on average assets (1)
0.17 % (0.38)% 0.07 %
Return on average equity (1)
2.70 % (5.92)% 1.08 %
(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.

Traditional Member Finance Segment
Net income improved in 2023 compared to 2022 largely because of higher net interest income. The increase in net interest income was driven by higher interest rates, which benefited this segment as it resulted in higher earnings from capital. Additionally, net interest income improved because of higher average balances and spreads on Advances and MBS. However, the increase in net interest income was partially offset by lower spreads earned on liquidity investments. The increase in net income in 2023 compared to 2022 was also driven by favorable net market value changes on interest rate swaps and related financial instruments carried at fair value.

MPP Segment
Earnings from the MPP segment improved in 2023 compared to 2022 because of higher net interest income, which resulted primarily from the increase in interest rates. Higher average interest rates improved the spreads earned on MPP and increased the earnings generated from capital. Additionally, higher mortgage rates resulted in a lower volume of mortgage refinance activity, which reduced premium amortization. The increase in net income in 2023 compared to 2022 was partially offset by net unrealized losses on derivatives related to the MPP segment.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Overview

We face various risks that could affect the ability to achieve our mission and corporate objectives. We generally categorize risks as: 1) business/strategic risk, 2) compliance, 3) market risk (also referred to as interest rate or prepayment risk), 4) credit risk, 5) funding/liquidity risk, and 6) operational risk (which includes cyber risks). Our Board of Directors establishes objectives regarding risk philosophy, risk appetite, risk tolerances, and financial performance expectations. Market, capital adequacy, credit, liquidity, concentration, and operational risks are discussed below. Other risks are discussed throughout this report.

We strive to maintain a risk profile that ensures we operate safely and soundly, promotes prudent growth in Mission Assets and Activities, consistently generates competitive earnings, and protects the par value of members' capital stock investment. We believe our business is financially sound and adequately capitalized on a risk-adjusted basis.

We practice this conservative risk philosophy in many ways:

▪We operate with moderate market risk and limited residual credit risk, liquidity risk, operational risk, and capital impairment risk.

▪We have a business objective to ensure competitive and relatively stable profitability.

▪We make conservative investment choices in terms of the types of investments we purchase and counterparties with which we engage.

▪We use derivatives to hedge assets and liabilities and to help reduce market risk exposure.

▪We maintain a prudent amount of financial leverage.

▪We are judicious in instituting regular, district-wide repurchases of excess stock.

▪We hold an amount of retained earnings that we believe will protect the par value of capital stock and provide for dividend stabilization.

▪We create a working and operating environment that emphasizes a stable employee base.

We have numerous Board-adopted policies and processes that address risk management including risk appetite, tolerances, limits, guidelines, and regulatory compliance. Our cooperative business model, corporate objectives, capital structure, and regulatory oversight provide us clear incentives to minimize risk exposures. Our policies and operating practices are designed to limit risk exposures from ongoing operations in the following broad ways:

▪by anticipating potential business risks and developing appropriate responses;

▪by defining permissible lines of business;

▪by limiting the kinds of assets we are permitted to hold in terms of their credit risk exposure and the kinds of hedging and financing arrangements we are permitted to use;

▪by limiting the amount of market risk to which we are permitted to be exposed;

▪by specifying very conservative tolerances for credit risk posed by Advances;

▪by specifying capital adequacy minimums; and

▪by requiring strict adherence to internal controls and operating procedures, adequate insurance coverage, and comprehensive Human Resources policies, procedures, and strategies.

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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.ANALYSIS OF FINANCIAL CONDITION

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 RiskCredit Activity and Advance Composition
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 marketThe tables below show trends in Advance balances by major programs 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 abilitynotional amount of Letters of Credit.
(Dollars in millions)December 31, 2023December 31, 2022
 Balance
Percent(1)
Balance
Percent(1)
Adjustable/Variable Rate-Indexed:    
London InterBank Offered Rate (LIBOR)$— — %$3,012 4 %
SOFR30,306 41 10,170 15 
Other1,217 2 2,785 4 
Total31,523 43 15,967 23 
Fixed-Rate:    
REPO7,232 10 26,436 39 
Regular Fixed-Rate30,805 42 19,505 29 
Putable (2)
565 1 1,020 2 
Amortizing/Mortgage Matched1,210 1 1,358 2 
Other2,303 3 3,142 5 
Total42,115 57 51,461 77 
Total Advances Principal$73,638 100 %$67,428 100 %
Letters of Credit (notional) (3)
$47,098 $41,345 
(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 participate,a variable-rate. These Advances are classified based on a cost-effective basis, in issuancestheir current terms.
(3)Represents the amount 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.an off-balance sheet commitment.

Federal Deposit Insurance Corporation (FDIC) Brokered Deposits Restrictions:On January 22, 2021,Advance principal balances at December 31, 2023 increased nine percent compared to year-end 2022. The increase in Advances resulted primarily from depository members' greater demand for liquidity due to such factors as declining deposit balances, member loan growth and the FDIC published a final rule, effective April 1, 2021, that amends its brokered deposits regulations that applyeffects of higher interest rates. The future levels of Advance balances are difficult to less than well-capitalized insured depository institutions. The FDIC stated that the amendments are intendedpredict and depend on many factors, including but not limited 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 engagedchanges in the businesslevel of facilitatingliquidity in the placementfinancial markets, changes in our members' deposit levels compared to loan growth and whether an economic downturn occurs.

Letters of deposits and expand the scopeCredit are issued on behalf of the primary purpose exception. The rule amendments are expectedmembers to have the effectsupport certain obligations of narrowing the definitionmembers (or members' customers) to third-party beneficiaries. Letters of deposit broker and excluding more deposits from treatmentCredit increased $5.8 billion (14 percent) in 2023 as brokeredmembers continue to use them primarily to secure higher levels of public unit deposits. The amendments also establish an application and reportingLetters of Credit usually expire without being drawn upon.

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process with respect to the primary purpose exception for businesses that do not meet oneThe following table shows Advance usage of several bright-line tests, and they affirm the FDIC’s position that the brokering of certificates of deposit constitutes deposit brokering.members by charter type.
(Dollars in millions)December 31, 2023December 31, 2022
Principal Amount of AdvancesPercent of Total Principal Amount of AdvancesPrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
Commercial Banks$49,885 68 %$44,334 66 %
Savings Institutions8,022 11 7,637 11 
Credit Unions3,302 4 3,933 6 
Insurance Companies12,420 17 11,501 17 
Total member Advances73,629 100 67,405 100 
Former member borrowings9 — 23 — 
Total principal amount of Advances$73,638 100 %$67,428 100 %

This rule may have an effect on member demandThe following tables present principal balances for certain Advances, but we cannot predict the extent offive members with the impact. We do not expect this rule to materially affect our financial condition or results of operations.largest Advance borrowings.
(Dollars in millions)
December 31, 2023 December 31, 2022
NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
JPMorgan Chase Bank, N.A.$14,000 19 % U.S. Bank, N.A.$19,000 28 %
U.S. Bank, N.A.10,000 14  Keybank, N.A.11,344 17 
Keybank, N.A.9,836 13  Third Federal Savings and Loan Association4,826 7 
Third Federal Savings and Loan Association5,008 7  Fifth Third Bank4,301 6 
Fifth Third Bank4,001 5  Nationwide Life Insurance Company3,136 5 
Total of Top 5$42,845 58 % Total of Top 5$42,607 63 %

Mortgage Loans Held for Portfolio (Mortgage Purchase Program, or MPP)
Finance Agency Final Rule on FHLBank Housing Goals Amendments:
On June 25, 2020,
MPP balances are influenced by conditions in the Finance Agency published a final rule, effective August 24, 2020, amendinghousing and mortgage markets, the FHLBank housing goals regulation. Enforcementcompetitiveness 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 subjectprices we offer 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 areasloans, as well as refinancing mortgages for low-income families. The final rule also establishesprogram features and activity from our largest sellers. We manage purchases and balances at a separate small member participation housing goalprudent level relative to capital and total assets to effectively manage market and credit risks consistent 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.risk appetite.

Finance Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as CollateralThe table below shows principal purchases and reductions of loans in the MPP 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 guaranteeeach of the unpaid principal balance. On April 20, 2020, the SBA's third interim final rule related to PPPlast two years. All 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,acquired in 2023 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.2022 were conventional loans.

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 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.
(In millions)20232022
Balance, beginning of year$7,006 $7,402 
Principal purchases568 714 
Principal reductions(614)(1,110)
Balance, end of year$6,960 $7,006 

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As manyWe closely track the refinancing incentives of our mortgage assets (including loans in the MPP and derivatives are still indexedMBS) because the option for homeowners 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. Partchange their principal payments normally represents the largest portion of our LIBOR transition plan includesmarket risk exposure and can affect MPP balances. MPP principal paydowns decreased in 2023 to a five percent annual constant prepayment rate, compared to the 11 percent rate during 2022, driven by the elevated mortgage rate environment that has persisted over the last several quarters. Likewise, elevated mortgage rates and low housing inventories have substantially eliminated borrower incentive to refinance and have slowed mortgage purchase originations, which in turn contributed to the slow pace of our previously implemented fallback language for LIBOR-indexed Advances and Consolidated Bondspurchases of new MPP loans 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.2023.

On October 23, 2020, the International SwapsOverall, MPP yields on new purchases and Derivatives Association, Inc. (ISDA), publishedexisting portfolio balances, relative to their market and credit risks, are expected to continue to generate 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.profitable long-term return.

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, 2023 December 31, 2022
 Principal% of Total Principal% of Total
Union Savings Bank$1,513  22 % Union Savings Bank$1,651  24 %
FirstBank725  10  FirstBank730  10 
Guardian Savings Bank FSB405 6 Guardian Savings Bank FSB438 6 
The Huntington National Bank404 6 All others4,187 60 
All others3,913 56        Total$7,006 100 %
Total$6,960 100 %

Housing and Community Investment

Our Housing and Community Investment programs include the AHP and various housing and community economic development-related Advance and grant programs. The AHP, which is required by the FHLBank Act, includes funding with an accrual equal to 10 percent of our previous year's net earnings. Since 2003, we have also offered a number of voluntary programs and additional voluntary contributions to the AHP, both in excess of the 10 percent set aside.

In 2023, we accrued $74 million of earnings for the AHP pool of funds. The AHP consists of a Competitive Program and a homeownership program called Welcome Home, which assists homebuyers with down payments and closing costs. In 2023, the Board also made a separate voluntary contribution of $7 million to the Welcome Home Program.

Including funds available in 2023 from previous and future years, we had $36.4 million available for the Competitive Program in 2023, which we awarded to 67 projects through a single competitive offering. In addition, we disbursed $16.3 million to 185 members on behalf of 1,662 homebuyers through the Welcome Home Program, which assists homebuyers with down payments and closing costs.

Additionally, in 2023, we disbursed $6.4 million through the CMP Housing Fund, which helped 529 homeowners, and disbursed $1.3 million through the Disaster Reconstruction Program. Both are voluntary programs beyond the 10 percent of earnings that we are required by law to set aside for the AHP. The CMP Housing Fund provides grants to fund accessibility rehabilitation and emergency repairs for low-income homeowners who have special needs or are over age 60. The Disaster Reconstruction Program helps very low- to moderate-income families whose homes were impacted by fires, tornadoes, flooding, landslides or other state or federally declared natural disasters in the Fifth District.

Our activities to support affordable housing and economic development also include offering Advances and loans through the AHP, Community Investment Program, Economic Development Program and Zero Interest Rate Fund with below-market interest rates and, in some cases, rates as low as zero percent. At the end of 2023, Advance balances under these programs totaled $242 million.

In 2023, approximately 36 percent of members applied for funding under our Housing and Community Investment programs.

For 2024, the Board has committed to a minimum of $37 million, or approximately five percent of prior year income before assessments, in voluntary housing contributions to support its Housing and Community Investment programs. In January 2024,
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our Board approved a $10.6 million contribution to the CMP Housing Fund. Additional contributions will be announced over the course of 2024.

Investments

The table below presents the ending and average balances of our investment portfolio.
(In millions)2023 2022
 Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments$23,418  $26,346  $17,028  $24,608 
MBS19,223  18,106  16,577  13,678 
Other investments (1)
— 532 —444 
Total investments$42,641 $44,984 $33,605 $38,730 
(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 investments that may be pledged or 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, regulatory liquidity requirements, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria. The 2023 ending and average balances of liquidity investments increased compared to 2022's balances primarily because of the increased level and volatility of Advance demand.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum. Finance Agency has also issued supervisory letters designedregulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to ensurepurchase the FHLBanks will be ablesecurities. The ratio of MBS 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 afterregulatory capital was 2.98 at December 31, 2021, except for investments and option embedded products. With respect to investments, the Finance Agency required the FHLBanks, by2023. The balance of MBS at December 31, 2019,2023 consisted of $18.1 billion of securities issued by Fannie Mae or Freddie Mac (of which $12.7 billion were floating-rate securities), and $1.1 billion of securities issued by Ginnie Mae (which are primarily fixed rate).
The table below shows principal purchases and paydowns of our MBS for each of the last two years.
(In millions)MBS Principal
20232022
Balance, beginning of year$16,798 $10,795 
Principal purchases4,597 7,726 
Principal paydowns(1,986)(1,723)
Balance, end of year$19,409 $16,798 

As mortgage rates remained elevated in 2023, MBS principal paydowns decreased to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates did not apply to collateral accepted bya 10 percent annual constant prepayment rate from the FHLBanks. As directed by the Finance Agency, the FHLBanks began requiring their members to report levels12 percent rate experienced in all of LIBOR-linked collateral that mature after December 31, 2021. This will assist the FHLBanks in determining the level2022.

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Table 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.Contents
Consolidated Obligations

We generally fund variable-rate assets with Discount Notes (a portion of which 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 of positive liquidity and asset/liability maturity funding gap requirements 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 Consolidated Obligations.
(In millions)2023 2022
 Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:       
Unswapped$9,644  $24,796  $19,825  $24,931 
Swapped14,194 18,678 21,183 21,692 
Total par Discount Notes23,838 43,474 41,008 46,623 
Other items (1)
(147) (424) (317) (173)
Total Discount Notes23,691  43,050  40,691  46,450 
Bonds:       
Unswapped fixed-rate10,929  12,149  13,280  14,078 
Unswapped adjustable-rate57,886  54,974  39,621  22,834 
Swapped fixed-rate22,757  16,506  6,842  7,062 
Total par Bonds91,572  83,629  59,743  43,974 
Other items (1)
184  60  (75) (34)
Total Bonds91,756  83,689  59,668  43,940 
Total Consolidated Obligations (2)
$115,447  $126,739  $100,359  $90,390 
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(2)The 11 FHLBanks have Advances, investment securitiesjoint and derivatives with interest rates indexed to LIBOR. Eachseveral liability for the par amount of these instruments are indexed to LIBOR settings that will no longer be provided after June 30, 2023, as noted above.all of the Consolidated Obligations issued on their behalves. The following table presents LIBOR-indexed Advances, investment securitiespar amount of the outstanding Consolidated Obligations for all of the FHLBanks was (in millions) $1,204,316 and derivatives by contractual maturity$1,181,743 at December 31, 2020.
(In millions)Maturing on or before June 30, 2023Maturing 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.2023 and 2022, respectively.

The ending balance of Discount Notes at December 31, 2023 decreased because most of the short-term Advances borrowed in March 2023 in response to the turmoil in the banking industry and financial markets had matured or were prepaid.

During 2023, the composition of Consolidated Obligations shifted to unswapped adjustable-rate Bonds and swapped fixed-rate Bonds as members began borrowing more longer-term, floating rate Advances and the market transition away from LIBOR towards SOFRenvironment generally favored swapped debt. We swap term Discount Notes and fixed-rate Bonds to adjustable-rates in order to effectively match the underlying rate reset periods to the assets the Discount Notes and Bonds are funding.
Deposits

Total deposits with us are normally a relatively minor source of funding. All deposits with us are uninsured. Total interest-bearing deposits at December 31, 2023 were $1.1 billion, an increase of $0.1 billion compared to the balance at year-end 2022.

Derivatives Hedging Activity and Liquidity

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

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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)2023 2022
Period End Average Period End Average
GAAP and Regulatory Capital
GAAP Capital Stock$4,846  $5,397  $5,151  $3,961 
Mandatorily Redeemable Capital Stock17  34  17  115 
Regulatory Capital Stock4,863  5,431  5,168  4,076 
Retained Earnings1,658  1,586  1,401  1,339 
Regulatory Capital$6,521  $7,017  $6,569  $5,415 
2023 2022
 Period EndAverage Period EndAverage
GAAP and Regulatory Capital-to-Assets Ratio
GAAP5.18 % 5.07 % 5.99 % 5.33 %
Regulatory (1)
5.26  5.14  6.05  5.47 
(1)    At all times, the FHLB 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 2023 and 2022
(In millions)20232022
Regulatory stock balance at beginning of year$5,168 $2,511 
Stock purchases:
Membership stock12 1 
Activity stock5,464 5,533 
Stock repurchases/redemptions:
Redemption of member excess(570)(2,650)
Repurchase of member excess(5,207)(208)
Withdrawals(4)(19)
Regulatory stock balance at the end of the year$4,863 $5,168 

Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in 2023, we issued $5.5 billion of capital stock to members primarily in support of Advance borrowings, while repurchasing $5.2 billion of excess capital stock no longer supporting Mission Assets and Activities.

Excess capital stock is the amount of stock held by a member (or former member) in excess of that institution's minimum stock ownership requirement. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used by a member to capitalize additional Mission Assets and Activities, before purchasing activity stock. At December 31, 2023, the amount of excess stock, as defined by our Capital Plan, was $0.6 billion, a decrease of $0.6 billion compared to the balance at year-end 2022 due to the repurchase of excess stock noted above.

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

In 2023, we added two new member stockholders and lost nine member stockholders, ending the year at 609 member stockholders. Of the nine members lost, seven merged with other Fifth District members, one merged out of district, and one withdrew from membership.

In 2023, there were no material changes in the allocation of membership by state, charter type, or asset size. At the end of 2023, the composition of membership by state was Ohio with 298, Kentucky with 156, and Tennessee with 155.

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

 December 31,
 20232022
Commercial Banks329 335 
Savings Institutions73 75 
Credit Unions146 144 
Insurance Companies54 55 
Community Development Financial Institutions7 7 
Total609 616 

The following table provides the ownership of capital stock by charter type.
(In millions)December 31,
 20232022
Commercial Banks$3,247 $3,542 
Savings Institutions522 518 
Credit Unions280 305 
Insurance Companies796 785 
Community Development Financial Institutions1 1 
Total GAAP Capital Stock4,846 5,151 
Mandatorily Redeemable Capital Stock17 17 
Total Regulatory Capital Stock$4,863 $5,168 

Credit union members hold relatively less stock than their membership proportion because they tend to be smaller than the average member and borrow less. Insurance company members hold relatively more stock than their membership proportion because they tend to be larger than the average member and borrow more.

The following table provides a summary of member stockholders by asset size.
 December 31,
Member Asset Size (1)
20232022
Up to $100 million111 111 
> $100 up to $500 million288 301 
> $500 million up to $1 billion82 75 
> $1 billion128 129 
Total Member Stockholders609 616 
(1)    The December 31 membership composition reflects members' assets as of the most-recently available figures for total assets.

Most members are smaller community financial institutions, with 66 percent having assets up to $500 million. Having larger members is important to help achieve our mission objectives, including providing valuable products and services to all members.
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RESULTS OF OPERATIONS

Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key market driven factors that can cause significant periodic volatility in our profitability include changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization from accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. Our profitability may also be affected by our members' overall Advance demand, which is largely influenced by the monetary policies of the U.S. government and its agencies, including the Federal Reserve, and general economic conditions.

The following tables provide information for the years ended December 31, 2023, 2022 and 2021 and a comparison of the results between 2023 and 2022. For a comparison of the results between 2022 and 2021, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2022 Annual Report on Form 10-K.

Components of Earnings and Return on Equity

The following table is a summary income statement for the last three years. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period.

(Dollars in millions)202320222021
 Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Net interest income$864 12.47 %$487 9.25 %$277 7.12 %
Non-interest income (loss):
Net gains (losses) on trading securities16 0.23 (337)(6.39)(257)(6.63)
Net gains (losses) on derivatives(2)(0.03)131 2.48 82 2.12 
Net gains (losses) on financial instruments held under fair value option(40)(0.57)75 1.42 10 0.26 
Other non-interest income, net30 0.43 28 0.53 27 0.69 
Total non-interest income (loss)4 0.06 (103)(1.96)(138)(3.56)
Total income868 12.53 384 7.29 139 3.56 
Non-interest expense126 1.82 103 1.97 92 2.36 
Affordable Housing Program assessments74 1.08 29 0.54 5 0.12 
Net income$668 9.63 %$252 4.78 %$42 1.08 %
(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.

Details on the individual factors contributing to the level and changes in profitability are explained in the sections below.

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Net Interest Income

The largest component of net income is net interest income. Our principal goal in managing net interest income is to balance the trade-offs between maintaining a moderate market risk profile and ensuring profitability remains competitive. Effective risk/return management requires us to focus principally on the relationships among assets and liabilities that affect net interest income, rather than individual balance sheet and income statement accounts in isolation.

Our ROE normally is lower than that of many other financial institutions because of the cooperative wholesale business model that results in narrow spreads earned on our assets, the moderate overall risk profile, and the strategic objective to have a positive correlation of earnings to short-term interest rates.

Components of Net Interest Income
We generate net interest income from the following two components:

▪Net interest rate spread. This component equals the balance of total earning assets multiplied by the difference between the book yield on interest-earning assets and the book cost of interest-bearing liabilities. It is composed of net (amortization)/accretion, prepayment fees on Advances, and all other earnings from interest-earning assets net of funding costs.
▪Earnings from funding assets with capital (or earnings from capital). Because of our relatively low net interest rate spread compared to other financial institutions, we have historically derived a substantial portion of net interest income from deploying interest-free capital in interest-earning assets. We deploy much of the capital in short-term and adjustable-rate assets in order to help ensure that ROE moves in the same direction as short-term interest rates and to help control market risk exposure.

The following table shows selected components of net interest income. Reasons for the variance in net interest income between the 2023 and 2022 periods are discussed below.
(Dollars in millions)202320222021
 Amount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning Assets
Components of net interest rate spread:
Net (amortization)/accretion (1) (2)
$(24)(0.02)%$(31)(0.03)%$(87)(0.15)%
Prepayment fees on Advances, net (2)
3 — 3 — 13 0.02 
Other components of net interest rate spread533 0.40 393 0.40 324 0.54 
Total net interest rate spread512 0.38 365 0.37 250 0.41 
Earnings from funding assets with interest-free capital352 0.26 122 0.13 27 0.05 
Total net interest income/net interest margin (3)
$864 0.64 %$487 0.50 %$277 0.46 %
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Net Amortization/Accretion (generally referred to as amortization): Net amortization can become substantial and volatile with changes in interest rates. When mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. However, in 2023, mortgage rates remained elevated, keeping mortgage refinance activity along with net amortization low.

Prepayment Fees on Advances: Fees for members' early repayment of certain Advances, which are included in net interest income, are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. Advance prepayment fees were minimal in 2023 and 2022.

Other Components of Net Interest Rate Spread: The total other components of net interest rate spread increased $140 million in 2023 compared to 2022. The net increase was primarily due to the factors below.

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2023 Versus 2022
▪Higher average Advance balances-Favorable: The $31.1 billion increase in the average balance of Advances improved net interest income by an estimated $124 million.
▪Higher spreads earned on mortgage loans held for portfolio-Favorable: Higher spreads on mortgage loans held for portfolio increased net interest income by an estimated $67 million. Spreads improved primarily because of the rise in interest rates.
▪Higher spreads earned on MBS-Favorable: Higher spreads earned on MBS increased net interest income by an estimated $28 million. The higher spreads were driven by widening market spreads, which benefited new MBS purchases.
▪Higher spreads earned on Advances-Favorable: Net interest income earned on Advances increased by an estimated $26 million primarily driven by a shift in the composition of Advance balances from overnight to longer-term, floating rate, Advance products.
▪Higher average MBS balances-Favorable: Increases of $4.4 billion in average MBS improved net interest income by an estimated $17 million.
▪Lower spreads earned on liquidity investments-Unfavorable: Lower spreads earned on liquidity investments decreased net interest income by an estimated $115 million. However, the decrease in net interest income was partially offset by a decline in the net interest settlements paid on related derivatives not receiving hedge accounting, as discussed below.
▪Lower net unrealized gains on designated fair value hedges-Unfavorable: Net unrealized gains on hedged items and derivatives in qualifying fair value hedge relationships were lower by $8 million.

Earnings from Capital: Earnings from capital increased $230 million in 2023 compared to 2022 because of the higher average short-term interest rates and higher average capital balances.

Average Balance Sheet and Rates
The following table provides average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. Interest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.

In addition, the net interest settlements of interest receivables or payables and the price alignment amount associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. The price alignment amount approximates the amount of interest that we would receive or pay if the variation margin payments were characterized as collateral pledged to secure outstanding credit exposure on the derivative contracts. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables and the price alignment amount are recorded in “Non-interest income (loss)” as “Net gains (losses) on derivatives” and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
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(Dollars in millions)202320222021
 Average BalanceInterest
Average Rate (1)
Average BalanceInterest
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:      
Advances (2)
$83,237 $4,450 5.35 %$52,167 $1,211 2.32 %$23,943 $147 0.62 %
Mortgage loans held for portfolio (3)
7,067 214 3.02 7,431 204 2.75 8,130 169 2.07 
Securities purchased under agreements to resell2,898 147 5.08 2,354 49 2.09 545 1 0.07 
Federal funds sold12,193 627 5.14 11,183 204 1.82 6,891 5 0.08 
Interest-bearing deposits in banks (4)
2,414 121 5.00 1,298 25 1.94 736 1 0.09 
MBS (5)
18,160 923 5.08 13,702 288 2.11 9,182 107 1.17 
Other investments (5)
9,369 475 5.07 10,209 238 2.33 10,733 205 1.91 
Loans to other FHLBanks22 1 4.93 25 1 2.77 — — — 
Total interest-earning assets135,360 6,958 5.14 98,369 2,220 2.26 60,160 635 1.05 
Other assets1,226 578  526   
Total assets$136,586 $98,947   $60,686   
Liabilities and Capital:      
Term deposits$91 4 4.31 $77 1 1.03 $79 — 0.23 
Other interest-bearing deposits (4)
1,100 50 4.57 1,329 16 1.21 1,434 — 0.02 
Discount Notes43,050 2,105 4.89 46,450 775 1.67 26,088 14 0.05 
Unswapped fixed-rate Bonds12,162 271 2.23 14,087 282 2.00 18,857 327 1.74 
Unswapped adjustable-rate Bonds54,973 2,847 5.18 22,833 539 2.36 6,710 5 0.07 
Swapped Bonds16,554 814 4.92 7,020 114 1.62 2,744 12 0.42 
Mandatorily redeemable capital stock34 3 8.31 115 6 4.77 19 — 2.01 
Total interest-bearing liabilities127,964 6,094 4.76 91,911 1,733 1.89 55,931 358 0.64 
Other liabilities1,691 1,765   869   
Total capital6,931 5,271   3,886   
Total liabilities and capital$136,586 $98,947   $60,686   
Net interest rate spread0.38 % 0.37 %  0.41 %
Net interest income and net interest margin (6)
$864 0.64 % $487 0.50 % $277 0.46 %
Average interest-earning assets to interest-bearing liabilities105.78 %  107.03 %  107.56 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Interest on Advances includes prepayment fees of (in millions) $3, $3, and $13 for the years ended December 31, 2023, 2022, and 2021, respectively.
(3)Non-accrual loans are included in average balances used to determine average rate.
(4)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(5)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Rates and corresponding levels of interest income and expense on all of our interest-bearing assets and liabilities increased in 2023 compared to 2022, as these assets and liabilities have repriced to the higher interest rates.

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Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
(In millions)2023 over 20222022 over 2021
 
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Increase (decrease) in interest income   
Advances$1,016 $2,223 $3,239 $317 $747 $1,064 
Mortgage loans held for portfolio(10)20 10 (16)51 35 
Securities purchased under agreements to resell13 85 98 5 43 48 
Federal funds sold20 403 423 5 194 199 
Interest-bearing deposits in banks34 62 96 1 23 24 
MBS119 516 635 69 112 181 
Other investments(21)258 237 (10)43 33 
Loans to other FHLBanks— — — 1 — 1 
Total1,171 3,567 4,738 372 1,213 1,585 
Increase (decrease) in interest expense    
Term deposits— 3 3 — 1 1 
Other interest-bearing deposits(3)37 34 — 16 16 
Discount Notes(60)1,390 1,330 18 743 761 
Unswapped fixed-rate Bonds(41)30 (11)(90)45 (45)
Unswapped adjustable-rate Bonds1,249 1,059 2,308 37 497 534 
Swapped Bonds280 420 700 36 66 102 
Mandatorily redeemable capital stock(5)2 (3)4 2 6 
Total1,420 2,941 4,361 5 1,370 1,375 
Increase (decrease) in net interest income$(249)$626 $377 $367 $(157)$210 
(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.

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Effect of the Use of Derivatives on Net Interest Income
The following table shows the impact on net interest income from the effect of derivatives and hedging activities. As noted above, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables and the price alignment amount related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the “Non-Interest Income (Loss)” section below.

(In millions)202320222021
Advances:
Amortization of hedging activities in net interest income$— $— $(1)
Gains (losses) on designated fair value hedges— 17 1 
Net interest settlements included in net interest income344 12 (110)
Price alignment amount (1)
(23)(6)— 
Investment securities:
Amortization of hedging activities in net interest income(2)(1)— 
Gains (losses) on designated fair value hedges8 (1)— 
Net interest settlements included in net interest income351 39 (20)
Price alignment amount (1)
(53)(14)— 
Mortgage loans:
Amortization of derivative fair value adjustments in net interest income(1)(2)(12)
Consolidated Obligation Bonds:
Net interest settlements included in net interest income(33)(4)1 
Increase (decrease) to net interest income$591 $40 $(141)
(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.

We primarily use derivatives to more closely match actual cash flows between assets and liabilities by synthetically converting the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., the Federal funds effective rate or SOFR). The sharp increases in short-term interest rates primarily benefited net interest income in 2023 as the conversion of certain Advances' and investments' fixed interest rates to adjustable-coupon rates resulted in a significant amount of net interest settlements being received. The fluctuation in net interest income from the use of derivatives was acceptable because it enabled us to lower market risk exposure.
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Non-Interest Income (Loss)

Non-interest income (loss) consists of certain gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). The effects of derivatives and hedging activities on non-interest income (loss) relate only to derivatives not qualifying for fair value hedge accounting.

2023
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount NotesBalance SheetOtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(2)$(34)$(6)$35 $14 $— $— $7 
Net interest settlements on derivatives not receiving hedge accounting2 51 — (32)(24)— — (3)
Price alignment amount (2)
— — — — — — (6)(6)
Net gains (losses) on derivatives— 17 (6)3 (10)— (6)(2)
Gains (losses) on trading securities (3)
— 16 — — — — — 16 
Gains (losses) on financial instruments held under fair value option (4)
4 — — (32)(12)— — (40)
Total net effect on non-interest income$4 $33 $(6)$(29)$(22)$— $(6)$(26)
2022
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(1)$291 $(9)$(57)$(12)$10 $— $222 
Net interest settlements on derivatives not receiving hedge accounting— (42)— (14)(34)— — (90)
Price alignment amount (2)
— — — — — — (1)(1)
Net gains (losses) on derivatives(1)249 (9)(71)(46)10 (1)131 
Gains (losses) on trading securities (3)
— (337)— — — — — (337)
Gains (losses) on financial instruments held under fair value option (4)
1 — — 69 5 — — 75 
Total net effect on non-interest income$— $(88)$(9)$(2)$(41)$10 $(1)$(131)
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2021
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$1 $252 $3 $(9)$(1)$— $— $246 
Net interest settlements on derivatives not receiving hedge accounting— (172)— 8 — — — (164)
Price alignment amount (2)
— — — — — — — — 
Net gains (losses) on derivatives1 80 3 (1)(1)— — 82 
Gains (losses) on trading securities (3)
— (257)— — — — — (257)
Gains (losses) on financial instruments held under fair value option (4)
(1)— — 10 1 — — 10 
Total net effect on non-interest income$— $(177)$3 $9 $— $— $— $(165)
(1)For the years ended December 31, 2022 and 2021, "Balance Sheet" included swaptions, which were not designated as hedging a specific financial instrument.
(2)This amount is for derivatives for which variation margin is characterized as a daily settled contract.
(3)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statements of Income.
(4)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."

The effect of derivatives and hedging activities on non-interest income in 2023 improved primarily because of the increase in short-term rates, which resulted in net interest settlements being received on derivatives related to investments where the fixed interest rates were converted to adjustable-coupon rates. Some of this benefit was offset as the increase in short-term rates also resulted in a higher amount of net interest settlements being paid on derivatives related to Bonds. Additionally, a portion of the improvement in the effect of derivatives and hedging activities on earnings was driven by a net favorable impact from changes in market values on certain derivatives and related financial instruments carried at fair value. Because we intend to hold these derivatives and the related financial instruments to maturity, any unrealized gains or losses are expected to reverse in future periods. As noted above, the fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure.

In the table above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations that have been swapped to a variable rate. Trading securities are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, such as changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the gains or losses on the associated interest rate swaps.

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Non-Interest Expense

The following table presents non-interest expense for each of the last three years.

(In millions)2023 20222021
Non-interest expense  
Compensation and benefits$54 $51 $48 
Other operating expense33 25 23 
Finance Agency11 8 7 
Office of Finance6 6 5 
Voluntary housing contributions15 5 2 
Other7 8 7 
Total non-interest expense$126 $103 $92 

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. Total non-interest expense increased in 2023 primarily as a result of making voluntary housing contributions of $15 million to address affordable housing needs and community investment in the Fifth District. These voluntary housing contributions are in addition to the 10 percent of earnings that are required to be set aside for the AHP.

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Segment Information

Note 14 of the Notes to Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.
(Dollars in millions)Traditional Member Finance MPP Total
2023     
Net interest income (loss)$730  $134  $864 
Net income (loss)$564  $104  $668 
Average assets$128,019  $8,567  $136,586 
Assumed average capital allocation$6,495  $436  $6,931 
Return on average assets (1)
0.44 % 1.21 % 0.49 %
Return on average equity (1)
8.69 % 23.74 % 9.63 %
      
2022     
Net interest income (loss)$421  $66  $487 
Net income (loss)$202 $50 $252 
Average assets$89,202  $9,745  $98,947 
Assumed average capital allocation$4,747  $524  $5,271 
Return on average assets (1)
0.23 % 0.51 % 0.25 %
Return on average equity (1)
4.26 % 9.46 % 4.78 %
2021
Net interest income (loss)$318  $(41) $277 
Net income (loss)$85 $(43)$42 
Average assets$49,258  $11,428  $60,686 
Assumed average capital allocation$3,154  $732  $3,886 
Return on average assets (1)
0.17 % (0.38)% 0.07 %
Return on average equity (1)
2.70 % (5.92)% 1.08 %
(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.

Traditional Member Finance Segment
Net income improved in 2023 compared to 2022 largely because of higher net interest income. The increase in net interest income was driven by higher interest rates, which benefited this segment as it resulted in higher earnings from capital. Additionally, net interest income improved because of higher average balances and spreads on Advances and MBS. However, the increase in net interest income was partially offset by lower spreads earned on liquidity investments. The increase in net income in 2023 compared to 2022 was also driven by favorable net market value changes on interest rate swaps and related financial instruments carried at fair value.

MPP Segment
Earnings from the MPP segment improved in 2023 compared to 2022 because of higher net interest income, which resulted primarily from the increase in interest rates. Higher average interest rates improved the spreads earned on MPP and increased the earnings generated from capital. Additionally, higher mortgage rates resulted in a lower volume of mortgage refinance activity, which reduced premium amortization. The increase in net income in 2023 compared to 2022 was partially offset by net unrealized losses on derivatives related to the MPP segment.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Overview

We face various risks that could affect the ability to achieve our mission and corporate objectives. We generally categorize risks as: 1) business/strategic risk, 2) compliance, 3) market risk (also referred to as interest rate or prepayment risk), 4) credit risk, 5) funding/liquidity risk, and 6) operational risk (which includes cyber risks). Our Board of Directors establishes objectives regarding risk philosophy, risk appetite, risk tolerances, and financial performance expectations. Market, capital adequacy, credit, liquidity, concentration, and operational risks are discussed below. Other risks are discussed throughout this report.

We strive to maintain a risk profile that ensures we operate safely and soundly, promotes prudent growth in Mission Assets and Activities, consistently generates competitive earnings, and protects the par value of members' capital stock investment. We believe our business is financially sound and adequately capitalized on a risk-adjusted basis.

We practice this conservative risk philosophy in many ways:

▪We operate with moderate market risk and limited residual credit risk, liquidity risk, operational risk, and capital impairment risk.

▪We have a business objective to ensure competitive and relatively stable profitability.

▪We make conservative investment choices in terms of the types of investments we purchase and counterparties with which we engage.

▪We use derivatives to hedge assets and liabilities and to help reduce market risk exposure.

▪We maintain a prudent amount of financial leverage.

▪We are judicious in instituting regular, district-wide repurchases of excess stock.

▪We hold an amount of retained earnings that we believe will protect the par value of capital stock and provide for dividend stabilization.

▪We create a working and operating environment that emphasizes a stable employee base.

We have numerous Board-adopted policies and processes that address risk management including risk appetite, tolerances, limits, guidelines, and regulatory compliance. Our cooperative business model, corporate objectives, capital structure, and regulatory oversight provide us clear incentives to minimize risk exposures. Our policies and operating practices are designed to limit risk exposures from ongoing operations in the following broad ways:

▪by anticipating potential business risks and developing appropriate responses;

▪by defining permissible lines of business;

▪by limiting the kinds of assets we are permitted to hold in terms of their credit risk exposure and the kinds of hedging and financing arrangements we are permitted to use;

▪by limiting the amount of market risk to which we are permitted to be exposed;

▪by specifying very conservative tolerances for credit risk posed by Advances;

▪by specifying capital adequacy minimums; and

▪by requiring strict adherence to internal controls and operating procedures, adequate insurance coverage, and comprehensive Human Resources policies, procedures, and strategies.

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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition
The tabletables below showsshow trends in Advance balances by major programs and in the notional amount of Letters of Credit.
(Dollars in millions)(Dollars in millions)December 31, 2020December 31, 2019
(Dollars in millions)
(Dollars in millions)December 31, 2023December 31, 2022
Balance
Percent(1)
Balance
Percent(1)
 Balance
Percent(1)
Balance
Percent(1)
Adjustable/Variable Rate-Indexed:Adjustable/Variable Rate-Indexed:    Adjustable/Variable Rate-Indexed:  
LIBOR$5,611 22 %$10,430 22 %
London InterBank Offered Rate (LIBOR)London InterBank Offered Rate (LIBOR)$— — %$3,012 4 %
SOFRSOFR118 1 500 1 
OtherOther82 — 221 1 
TotalTotal5,811 23 11,151 24 
Fixed-Rate:Fixed-Rate:    Fixed-Rate:  
Repurchase based (REPO)3,780 15 19,386 41 
REPO
Regular Fixed-RateRegular Fixed-Rate9,587 38 11,476 24 
Putable (2)
Putable (2)
2,657 11 1,444 3 
Amortizing/Mortgage MatchedAmortizing/Mortgage Matched2,021 8 2,358 5 
OtherOther1,151 5 1,449 3 
TotalTotal19,196 77 36,113 76 
Total Advances PrincipalTotal Advances Principal$25,007 100 %$47,264 100 %
Total Advances Principal
Total Advances Principal$73,638 100 %$67,428 100 %
Letters of Credit (notional)$28,812 $16,205 
Letters of Credit (notional) (3)
Letters of Credit (notional) (3)
Letters of Credit (notional) (3)
(Dollars in millions)December 31, 2020September 30, 2020June 30, 2020March 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 %
SOFR118 1 116 — 116 — 2,000 3 
Other82 — 123 1 83 — 247 — 
Total5,811 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-Rate9,587 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 Matched2,021 8 2,195 8 2,309 5 2,439 3 
Other1,151 5 1,158 4 1,241 3 680 1 
Total19,196 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.
(3)Represents the amount of an off-balance sheet commitment.

Advance principal balances at December 31, 2020 decreased 472023 increased nine percent compared to year-end 2019.2022. The increase in Advances resulted primarily from depository members' greater demand for liquidity due to such factors as declining deposit balances, member loan growth and the effects of higher interest rates. The future levels of Advance balances declinedare difficult to predict and depend on many factors, including but not limited to, changes in 2020 as large-asset members reduced their borrowings. The reductionthe level of liquidity 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, reactedchanges in our members' deposit levels compared to the COVID-19 pandemic,loan growth and whether an economic downturn occurs.

Letters of Credit are issued on behalf of members to support certain obligations of members (or members' customers) to third-party beneficiaries. Letters of Credit increased $5.8 billion (14 percent) in 2023 as members continue to use them primarily to secure higher levels of public unit deposits. Letters of Credit usually expire without being drawn upon.

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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, 2020December 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 members2.01 2.67 

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

(Dollars in millions)(Dollars in millions)December 31, 2020December 31, 2019
Principal Amount of AdvancesPercent of Total Principal Amount of AdvancesPrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
(Dollars in millions)
(Dollars in millions)December 31, 2023December 31, 2022
Principal Amount of AdvancesPrincipal Amount of AdvancesPercent of Total Principal Amount of AdvancesPrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
Commercial BanksCommercial Banks$9,530 38 %$31,590 67 %Commercial Banks$49,885 68 68 %$44,334 66 66 %
Savings InstitutionsSavings Institutions4,922 20 5,689 12 
Credit UnionsCredit Unions1,344 5 1,307 3 
Insurance CompaniesInsurance Companies9,201 37 8,629 18 
Community Development Financial Institutions— — 1 — 
Total member Advances
Total member Advances
Total member AdvancesTotal member Advances24,997 100 47,216 100 
Former member borrowingsFormer member borrowings10 — 48 — 
Total principal amount of AdvancesTotal principal amount of Advances$25,007 100 %$47,264 100 %Total principal amount of Advances$73,638 100 100 %$67,428 100 100 %

The following tables present principal balances for the five members with the largest Advance borrowings.
(Dollars in millions)(Dollars in millions)
December 31, 2020 December 31, 2019
December 31, 2023
December 31, 2023
December 31, 2023 December 31, 2022
NameNamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances NamePrincipal Amount of AdvancesPercent of Total Principal Amount of AdvancesNamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
JPMorgan Chase Bank, N.A.JPMorgan Chase Bank, N.A.$14,000 19 % U.S. Bank, N.A.$19,000 28 %
U.S. Bank, N.A.U.S. Bank, N.A.$4,273 17 % U.S. Bank, N.A.$13,874 29 %
Keybank, N.A.
Third Federal Savings and Loan AssociationThird Federal Savings and Loan Association3,443 14  JPMorgan Chase Bank, N.A.4,500 10 
Nationwide Life Insurance Company2,062 8  Third Federal Savings and Loan Association3,883 8 
Protective Life Insurance Company1,955 8  First Horizon Bank2,200 5 
Western-Southern Life Assurance Co.1,344 5  Pinnacle Bank2,063 4 
Fifth Third Bank
Total of Top 5Total of Top 5$13,077 52 % Total of Top 5$26,520 56 %Total of Top 5$42,845 58 58 % Total of Top 5$42,607 63 63 %

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)

MPP balances are influenced by conditions in the housing and mortgage markets, the competitiveness of prices we offer to purchase loans, as well as program features and activity from our largest sellers. We manage purchases and balances at a prudent level relative to capital and total assets to effectively manage market and credit risks consistent with our risk appetite.

The table below shows principal purchases and reductions of loans in the MPP for each of the last two years.
(In millions)20202019
Balance, beginning of year$10,981 $10,272 
Principal purchases2,626 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 20202023 and 2022 were conventional loans.
(In millions)20232022
Balance, beginning of year$7,006 $7,402 
Principal purchases568 714 
Principal reductions(614)(1,110)
Balance, end of year$6,960 $7,006 

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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 decreased in 2023 to a five percent annual constant prepayment rate, compared to the 11 percent rate during 2022, driven by the elevated mortgage rate environment that has persisted over the last several quarters. Likewise, elevated mortgage rates and low housing inventories have substantially eliminated borrower incentive to refinance and have slowed mortgage purchase originations, which in turn contributed to the slow pace of our purchases of new MPP loans in 2023.

Overall, MPP yields on new purchases and existing portfolio balances, relative to their market and credit risks, are expected to continue to generate a profitable long-term return.

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 FSB796  9  Guardian Savings Bank FSB1,004  9 
All others5,694 61 FirstBank714 7 
Total$9,316 100 %All others5,689 51 
Total$10,981 100 %

(Dollars in millions)December 31, 2023 December 31, 2022
 Principal% of Total Principal% of Total
Union Savings Bank$1,513  22 % Union Savings Bank$1,651  24 %
FirstBank725  10  FirstBank730  10 
Guardian Savings Bank FSB405 6 Guardian Savings Bank FSB438 6 
The Huntington National Bank404 6 All others4,187 60 
All others3,913 56        Total$7,006 100 %
Total$6,960 100 %

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

Our Housing and Community Investment programs include the AHP and various housing and community economic development-related Advance and grant programs. The AHP, which is required by the FHLBank Act, includes funding with an accrual equal to 10 percent of our previous year's net earnings. Since 2003, we have also offered a number of voluntary programs and additional voluntary contributions to the AHP, both in excess of the 10 percent set aside.

In 2020,2023, we accrued $31$74 million of earnings for the Affordable HousingAHP pool of funds. The AHP consists of a Competitive Program which will be awarded to members in 2021 through either our competitive orand a homeownership program called Welcome Home, programs.which assists homebuyers with down payments and closing costs. In 2023, the Board also made a separate voluntary contribution of $7 million to the Welcome Home Program.

Including funds available in 20202023 from previous and future years, we had $28$36.4 million available for the competitive Affordable HousingCompetitive Program in 2020,2023, which we awarded to 4967 projects through a single competitive offering. In addition, we disbursed over $11$16.3 million to 178185 members on behalf of 2,2061,662 homebuyers through the Welcome Home Program, which assists homebuyers with down payments and closing costs. In total, approximately 40 percent of members applied for funding under the two Affordable Housing Programs.

Additionally, in 2020, our Board committed $2.02023, we disbursed $6.4 million tothrough the Carol M. PetersonCMP Housing Fund, which helped 332529 homeowners, and continued its commitment todisbursed $1.3 million through the Disaster Reconstruction Program. 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 AdvancesBoth are all voluntary programs beyond the 10 percent of earnings that we are required by law to set aside for the AffordableAHP. The CMP Housing Program.Fund provides grants to fund accessibility rehabilitation and emergency repairs for low-income homeowners who have special needs or are over age 60. The Disaster Reconstruction Program helps very low- to moderate-income families whose homes were impacted by fires, tornadoes, flooding, landslides or other state or federally declared natural disasters in the Fifth District.

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Our activities to support affordable housing and economic development also include offering Advances and loans through the Affordable Housing Program,AHP, Community Investment Program, and Economic Development Program and Zero Interest Rate Fund with below-market interest rates at or near funding costs.and, in some cases, rates as low as zero percent. At the end of 2020,2023, Advance balances under these programs totaled $302$242 million.

In 2023, approximately 36 percent of members applied for funding under our Housing and Community Investment programs.

For 2024, the Board has committed to a minimum of $37 million, or approximately five percent of prior year income before assessments, in voluntary housing contributions to support its Housing and Community Investment programs. In January 2024,
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our Board approved a $10.6 million contribution to the CMP Housing Fund. Additional contributions will be announced over the course of 2024.

Investments

The table below presents the ending and average balances of our investment portfolio.
(In millions)
(In millions)
(In millions)(In millions)2020 20192023 2022
Ending Balance Average Balance Ending Balance Average Balance Ending Balance Average Balance Ending Balance Average Balance
Liquidity investmentsLiquidity investments$17,285  $20,548  $20,924  $22,525 
MBSMBS9,756  11,864  13,465  15,029 
Other investments (1)
Other investments (1)
— 459 —232 
Total investmentsTotal investments$27,041 $32,871 $34,389 $37,786 
(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 caninvestments that may be easilypledged or 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, regulatory liquidity needs,requirements, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria.

The balance2023 ending and average balances of liquidity investments was lower at December 31, 2020increased compared to year-end 2019 as we decided to hold more2022's balances primarily because of our liquidity portfolio as deposits at the Federal Reserve in anticipationincreased level and volatility 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 were ample and relatively stable as we continued to hold U.S. Treasury obligations to help meet regulatory liquidity requirements. Under the 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.Advance demand.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was 2.462.98 at December 31, 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.

2023. The balance of MBS at December 31, 20202023 consisted of $8.7$18.1 billion of securities issued by Fannie Mae or Freddie Mac (of which $5.9$12.7 billion were floating-rate securities), and $1.0$1.1 billion of securities issued by Ginnie Mae (which are primarily fixed rate).
The table below shows principal purchases and paydowns of our MBS for each of the last two years.
(In millions)(In millions)MBS Principal(In millions)MBS Principal
20202019
202320232022
Balance, beginning of yearBalance, beginning of year$13,447 $15,734 
Principal purchasesPrincipal purchases149 1,205 
Principal paydownsPrincipal paydowns(3,851)(3,492)
Balance, end of yearBalance, end of year$9,745 $13,447 
Balance, end of year
Balance, end of year

As mortgage rates remained elevated in 2023, MBS principal paydowns in 2020 equateddecreased to a 2710 percent annual constant prepayment rate up from the 2012 percent rate experienced in 2019. The higher prepayment rate experienced in 2020 is a resultall of the historically low mortgage rate environment.2022.

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Consolidated Obligations

We generally fund variable-rate assets with Discount Notes (a portion of which 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 of positive liquidity and asset/liability maturity funding gap requirements 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)
(In millions)
(In millions)(In millions)2020 20192023 2022
Ending Balance Average Balance Ending Balance Average Balance Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:Discount Notes:       Discount Notes:       
UnswappedUnswapped$27,503  $39,478  $36,776  $39,286 
SwappedSwapped— 3,843 12,401 5,291 
Total par Discount NotesTotal par Discount Notes27,503 43,321 49,177 44,577 
Other items (1)
Other items (1)
(3) (37) (93) (95)
Total Discount NotesTotal Discount Notes27,500  43,284  49,084  44,482 
Bonds:Bonds:       Bonds:       
Unswapped fixed-rateUnswapped fixed-rate18,940  21,288  22,420  24,423 
Unswapped adjustable-rate (2)
10,639  13,394  11,012  16,132 
Unswapped adjustable-rate
Swapped fixed-rateSwapped fixed-rate2,372  3,547  4,949  5,310 
Total par BondsTotal par Bonds31,951  38,229  38,381  45,865 
Other items (1)
Other items (1)
46  68  59  44 
Total BondsTotal Bonds31,997  38,297  38,440  45,909 
Total Consolidated Obligations (3)
$59,497  $81,581  $87,524  $90,391 
Total Consolidated Obligations (2)
(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, 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$1,204,316 and $1,025,895$1,181,743 at December 31, 20202023 and 2019,2022, respectively.

The ending balance of Discount Notes was lower at December 31, 2020 compared to year-end 2019 due2023 decreased because most of the short-term Advances borrowed in March 2023 in response to the reduction in short-term and variable-rate Advancesturmoil in the last three quarters of 2020. Additionally, given our preference to use unswapped Discount Notesbanking industry 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.had matured or were prepaid.

The average balanceDuring 2023, the composition of Consolidated Obligations shifted to unswapped adjustable-rate Bonds and swapped fixed-rate Bonds which typically have initial maturities greater than one year, declinedas members began borrowing more longer-term, floating rate Advances and the market environment generally favored swapped debt. We swap term Discount Notes and fixed-rate Bonds to adjustable-rates in 2020 comparedorder to effectively match the underlying rate reset periods to the average balance in 2019 due to terminating higher coupon fixed-rateassets the Discount Notes and Bonds with embedded options as interest rates fell.are funding.

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The following table shows the allocation on December 31, 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 MaturityYear of Next Call
 CallableNoncallableTotalCallable
Due in 1 year or less$— $5,797 $5,797 $4,292 
Due after 1 year through 2 years25 2,662 2,687 120 
Due after 2 years through 3 years936 2,363 3,299 — 
Due after 3 years through 4 years540 1,253 1,793 — 
Due after 4 years through 5 years1,182 728 1,910 — 
Thereafter1,729 1,725 3,454 — 
Total$4,412 $14,528 $18,940 $4,412 

Deposits

Total deposits with us are normally a relatively minor source of low-cost funding. All deposits with us are uninsured. Total interest-bearing deposits at December 31, 20202023 were $1.3$1.1 billion, an increase of $0.4$0.1 billion fromcompared to the balance at year-end 2019.2022.

Derivatives Hedging Activity and Liquidity

Our use of derivatives is discussed in the "Effect of the Use of Derivatives on Net Interest Income" 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.”

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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,
Year Ended December 31,Year Ended December 31,
(In millions)(In millions)2020 2019
Period End Average Period End Average
(In millions)
(In millions)2023 2022
Period EndPeriod End Average Period End Average
GAAP and Regulatory CapitalGAAP and Regulatory Capital
GAAP Capital Stock
GAAP Capital Stock
GAAP Capital StockGAAP Capital Stock$2,641  $3,567  $3,367  $3,827 
Mandatorily Redeemable Capital StockMandatorily Redeemable Capital Stock19  55  22  25 
Regulatory Capital StockRegulatory Capital Stock2,660  3,622  3,389  3,852 
Retained EarningsRetained Earnings1,304  1,228  1,094  1,069 
Regulatory CapitalRegulatory Capital$3,964  $4,850  $4,483  $4,921 
2020 2019
2023
2023
2023 2022
Period EndAverage Period EndAverage Period EndAverage Period EndAverage
GAAP and Regulatory Capital-to-Assets RatioGAAP and Regulatory Capital-to-Assets Ratio
GAAPGAAP6.02 % 5.39 % 4.75 % 5.04 %
GAAP
GAAP5.18 % 5.07 % 5.99 % 5.33 %
Regulatory (1)
Regulatory (1)
6.07  5.47  4.79  5.08 
(1)    At all times, the FHLBanksFHLB must maintain at least a four percent minimum regulatory capital-to-assets ratio.

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The following table presents the sources of change in regulatory capital stock balances in 20202023 and 2019.2022
(In millions)20232022
Regulatory stock balance at beginning of year$5,168 $2,511 
Stock purchases:
Membership stock12 1 
Activity stock5,464 5,533 
Stock repurchases/redemptions:
Redemption of member excess(570)(2,650)
Repurchase of member excess(5,207)(208)
Withdrawals(4)(19)
Regulatory stock balance at the end of the year$4,863 $5,168 

(In millions)20202019
Regulatory stock balance at beginning of year$3,389 $4,343 
Stock purchases:
Membership stock25 157 
Activity stock2,110 435 
Stock repurchases/redemptions:
Redemption of member excess(558)— 
Repurchase of member excess(2,300)(1,538)
Withdrawals(6)(8)
Regulatory stock balance at the end of the year$2,660 $3,389 

Members' purchasesOur business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in 2023, we issued $5.5 billion of capital stock to members primarily in 2020 were primarily to support of Advance growth at the end of the first quarter. However, the decrease in GAAP and regulatory capital balances was primarily due to our repurchaseborrowings, while repurchasing $5.2 billion of excess capital stock as Advance balances subsequently declined.no longer supporting Mission Assets and Activities.

The table below showsExcess capital stock is the amount of excess capital stock.

(In millions)December 31, 2020December 31, 2019
Excess capital stock (Capital Plan definition)$228  $37 
Cooperative utilization of capital stock$380  $781 
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 beingheld by a member and is not currently capitalizing Mission Asset Activity.(or former member) in excess of that institution's minimum stock ownership requirement. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used by a member to capitalize a portion of growth inadditional Mission Assets.Assets and Activities, before purchasing activity stock. At December 31, 2020,2023, the amount of excess stock, as defined by our Capital Plan, was $228 million, an increase$0.6 billion, a decrease of $191 million from$0.6 billion compared to the balance at year-end 2019. The balance2022 due to the repurchase of excess stock grew as many Advances matured or prepaid in the second and third quarters of 2020.

Prior to January 1, 2021, if an individual member's excess stock reached zero, our 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 the tablenoted above. Effective with the most recently amended Capital Plan, members are no longer able to use this cooperative capital for marginal new business.

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

In 2020,2023, we added seventwo new member stockholders and lost 19nine member stockholders, ending the year at 628609 member stockholders. The decline in membership during 2020 was primarily attributable to intra-district merger activity.Of the nine members lost, seven merged with other Fifth District members, one merged out of district, and one withdrew from membership.

In 2020,2023, there were no material changes in the allocation of membership by state, charter type, or asset size. At the end of 2020,2023, the composition of membership by state was Ohio with 301,298, Kentucky with 165,156, and Tennessee with 162.155.

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

December 31,December 31,
20202019 20232022
Commercial BanksCommercial Banks351 365 
Savings InstitutionsSavings Institutions78 81 
Credit UnionsCredit Unions140 136 
Insurance CompaniesInsurance Companies53 52 
Community Development Financial InstitutionsCommunity Development Financial Institutions6 6 
TotalTotal628 640 

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

(In millions)
(In millions)
(In millions)(In millions)December 31,December 31,
20202019 20232022
Commercial BanksCommercial Banks$1,459 $2,296 
Savings InstitutionsSavings Institutions398 365 
Credit UnionsCredit Unions179 175 
Insurance CompaniesInsurance Companies604 530 
Community Development Financial InstitutionsCommunity Development Financial Institutions1 1 
Total GAAP Capital StockTotal GAAP Capital Stock2,641 3,367 
Mandatorily Redeemable Capital StockMandatorily Redeemable Capital Stock19 22 
Total Regulatory Capital StockTotal Regulatory Capital Stock$2,660 $3,389 

Credit union members hold relatively less stock than their membership proportion because they tend to be smaller than the average member and borrow less. Insurance company members hold relatively more stock than their membership proportion because they tend to be larger than the average member and borrow more.

The following table provides a summary of member stockholders by asset size.

December 31,December 31,
Member Asset Size (1)
Member Asset Size (1)
20202019
Member Asset Size (1)
20232022
Up to $100 millionUp to $100 million147 162 
> $100 up to $500 million> $100 up to $500 million297 307 
> $500 million up to $1 billion> $500 million up to $1 billion70 74 
> $1 billion> $1 billion114 97 
Total Member StockholdersTotal Member Stockholders628 640 
(1)    The December 31 membership composition reflects members' assets as of the most-recently available figures for total assets.

Most members are smaller community financial institutions, with 7166 percent having assets up to $500 million. As noted elsewhere, havingHaving larger members is important to help achieve our mission objectives, including providing valuable products and services to all members.
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RESULTS OF OPERATIONS

Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key market driven factors that can cause significant periodic volatility in our profitability include changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization from accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. Our profitability may also be affected by our members' overall Advance demand, which is largely influenced by the monetary policies of the U.S. government and its agencies, including the Federal Reserve, and general economic conditions.

The following tables and discussion provide information for the years ended December 31, 2020, 20192023, 2022 and 20182021 and a comparison of the results between 20202023 and 2019.2022. For a comparison of the results between 20192022 and 2018,2021, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 20192022 Annual Report on Form 10-K.

Components of Earnings and Return on Equity

The following table is a summary income statement for the last three years. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period.

(Dollars in millions)
(Dollars in millions)
(Dollars in millions)(Dollars in millions)202020192018202320222021
Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
 Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Net interest incomeNet interest income$406 8.51 %$406 8.31 %$499 9.24 %Net interest income$864 12.47 12.47 %$487 9.25 9.25 %$277 7.12 7.12 %
Non-interest income (loss):Non-interest income (loss):
Net gains (losses) on investment securities257 5.39 210 4.30 7 0.13 
Net gains (losses) on derivatives and hedging activities(273)(5.72)(178)(3.64)(41)(0.75)
Non-interest income (loss):
Non-interest income (loss):
Net gains (losses) on trading securities
Net gains (losses) on trading securities
Net gains (losses) on trading securities
Net gains (losses) on derivatives
Net gains (losses) on financial instruments held under fair value optionNet gains (losses) on financial instruments held under fair value option(7)(0.15)(54)(1.10)(14)(0.26)
Other non-interest income, netOther non-interest income, net16 0.33 12 0.23 11 0.20 
Total non-interest income (loss)Total non-interest income (loss)(7)(0.15)(10)(0.21)(37)(0.68)
Total incomeTotal income399 8.36 396 8.10 462 8.56 
Non-interest expenseNon-interest expense92 1.93 89 1.82 85 1.57 
Affordable Housing Program assessmentsAffordable Housing Program assessments31 0.65 31 0.63 38 0.70 
Net incomeNet income$276 5.78 %$276 5.65 %$339 6.29 %Net income$668 9.63 9.63 %$252 4.78 4.78 %$42 1.08 1.08 %
(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.

Details on the individual factors contributing to the level and changes in profitability are explained in the sections below.

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Net Interest Income

The largest component of net income is net interest income. Our principal goal in managing net interest income is to balance the trade-offs between maintaining a moderate market risk profile and ensuring profitability remains competitive. Effective risk/return management requires us to focus principally on the relationships among assets and liabilities that affect net interest income, rather than individual balance sheet and income statement accounts in isolation.

Our ROE normally is lower than that of many other financial institutions because of the cooperative wholesale business model that results in narrow spreads earned on our assets, the moderate overall risk profile, and the strategic objective to have a positive correlation of earnings to short-term interest rates.

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Components of Net Interest Income
We generate net interest income from the following two components:

▪Net interest rate spread. This component equals the balance of total earning assets multiplied by the difference between the book yield on interest-earning assets and the book cost of interest-bearing liabilities. It is composed of net (amortization)/accretion, prepayment fees on Advances, and all other earnings from interest-earning assets net of funding costs. The latter is the largest component and represents the coupon yields of interest-earning assets net of the coupon costs of interest-bearing liabilities.
▪Earnings from funding assets with capital (“(or earnings from capital”)capital). Because of our relatively low net interest rate spread compared to other financial institutions, we have historically derived a substantial portion of net interest income from deploying interest-free capital in interest-earning assets. We deploy much of the capital in short-term and adjustable-rate assets in order to help ensure that ROE moves in the same direction as short-term interest rates and to help control market risk exposure.

The following table shows selected components of net interest income. Reasons for the variance in net interest income between the 2023 and 2022 periods are discussed below.

(Dollars in millions)(Dollars in millions)202020192018
Amount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning Assets
(Dollars in millions)
(Dollars in millions)202320222021
Amount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning Assets
Components of net interest rate spread:Components of net interest rate spread:
Net (amortization)/accretion (1) (2)
Net (amortization)/accretion (1) (2)
Net (amortization)/accretion (1) (2)
Net (amortization)/accretion (1) (2)
$(115)(0.13)%$(37)(0.04)%$(17)(0.02)%$(24)(0.02)(0.02)%$(31)(0.03)(0.03)%$(87)(0.15)(0.15)%
Prepayment fees on Advances, net (2)
Prepayment fees on Advances, net (2)
34 0.04 8 0.01 1 — 
Other components of net interest rate spreadOther components of net interest rate spread441 0.50 317 0.33 407 0.39 
Total net interest rate spreadTotal net interest rate spread360 0.41 288 0.30 391 0.37 
Earnings from funding assets with interest-free capitalEarnings from funding assets with interest-free capital46 0.05 118 0.12 108 0.10 
Total net interest income/net interest margin (3)
Total net interest income/net interest margin (3)
$406 0.46 %$406 0.42 %$499 0.47 %
Total net interest income/net interest margin (3)
$864 0.64 0.64 %$487 0.50 0.50 %$277 0.46 0.46 %
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Net Amortization/Accretion (generally referred to as "amortization")amortization): While netNet amortization has been moderate over the past few years, it can become substantial and volatile.volatile with changes in interest rates. When mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. AmortizationHowever, in 2020 increased significantly compared to 2019 primarily due to a decline in2023, mortgage rates which led to accelerated prepayments ofremained elevated, keeping mortgage assets in 2020.refinance activity along with net amortization low.

Prepayment Fees on Advances: Fees for members' early repayment of certain Advances, which are included in net interest income, are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. Although Advance prepayment fees have beenwere minimal in recent years, they grew in 2020. The growth in Advance prepayment fees was due to the decline in interest rates2023 and the U.S. government's actions to provide liquidity to support the economy.2022.

Other Components of Net Interest Rate Spread: The total other components of net interest rate spread increased $124$140 million in 20202023 compared to 2019.2022. The net increases wereincrease was primarily due to the factors below.

2020 Versus 2019
▪Higher spreads on shorter-term and floating-rate asset balances-Favorable: Higher spreads on shorter-term and floating-rate assets improved net interest income by an estimated $175 million as the rates on the debt funding these assets declined. However, the increase in net interest income was substantially offset by lower non-interest income (loss) primarily due to an increase of $103 million in the net interest settlements being paid on related derivatives not receiving hedge accounting.
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2023 Versus 2022
▪Higher average Advance balances-Favorable: The $31.1 billion increase in the average balance of Advances improved net interest income by an estimated $124 million.
▪Higher spreads earned on mortgage loans held for portfolio-Favorable: Higher spreads on mortgage loans held for portfolio increased net interest income by an estimated $67 million. Spreads improved primarily because of the rise in interest rates.
▪Higher spreads earned on MBS-Favorable: Higher spreads earned on MBS increased net interest income by an estimated $28 million. The higher spreads were driven by widening market spreads, which benefited new MBS purchases.
▪Higher spreads earned on Advances-Favorable: Net interest income earned on Advances increased by an estimated $26 million primarily driven by a shift in the composition of Advance balances from overnight to longer-term, floating rate, Advance products.
▪Higher average MBS balances-Favorable: Increases of $4.4 billion in average MBS improved net interest income by an estimated $17 million.
▪Lower spreads earned on MPPliquidity investments--UnfavorableUnfavorable:Lower spreads earned on mortgage assetsliquidity investments decreased net interest income by an estimated $17$115 million. The lower spreads were drivenHowever, the decrease in net interest income was partially offset by thea decline in long-termthe net interest rates, which accelerated the prepayments of higher-yielding mortgages.settlements paid on related derivatives not receiving hedge accounting, as discussed below.
▪Lower average balances of mortgage-backed securities-Unfavorable: The $3.2 billion decrease in the average balance of mortgage-backed securities lowered net interest income by an estimated $13 million.
▪Lower average Advance balances-Unfavorable: The $4.6 billion decrease in the average balance of Advances lowered net interest income by an estimated $10 million.
▪Unrealized lossesunrealized gains on designated fair value hedges-Unfavorable: Net unrealized lossesgains on hedged items and derivatives in qualifying fair value hedge relationships lowered net interest incomewere lower by $10$8 million.

Earnings from Capital: Earnings from capital decreased $72increased $230 million in 20202023 compared to 2019 primarily due to2022 because of the higher average short-term interest rates declining more than 170 basis points as the Federal Reserve responded to the evolving risks to economic activity from the COVID-19 pandemic.and higher average capital balances.

Average Balance Sheet and Rates
The following tables providetable provides average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. In connection with the January 1, 2019, prospective adoption of the FASB's Targeted Improvements to Accounting for Hedging Activities standard, interestInterest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships for the years ended December 31, 2020 and 2019.relationships.

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In addition, the net interest settlements of interest receivables or payables and the price alignment amount associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. The price alignment amount approximates the amount of interest that we would receive or pay if the variation margin payments were characterized as collateral pledged to secure outstanding credit exposure on the derivative contracts. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables and the price alignment amount are recorded in “Non-interest income (loss)” as “Net gains (losses) on derivatives and hedging activities”derivatives” and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
(Dollars in millions)202020192018
 Average BalanceInterest
Average Rate (1)
Average BalanceInterest
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:      
Advances$43,323 $469 1.08 %$47,968 $1,204 2.51 %$65,491 $1,409 2.15 %
Mortgage loans held for portfolio (2)
11,264 276 2.45 10,739 340 3.17 9,967 321 3.22 
Federal funds sold and securities purchased under resale agreements7,784 43 0.55 13,142 293 2.23 12,122 228 1.88 
Interest-bearing deposits in banks (3) (4) (5)
1,390 8 0.55 1,701 38 2.25 1,843 41 2.22 
MBS (4)
11,864 186 1.57 15,029 386 2.57 15,741 380 2.41 
Other investments (4)
11,832 265 2.24 7,914 184 2.33 88 2 2.69 
Loans to other FHLBanks5 — 1.22 3 — 2.43 1 — 1.46 
Total interest-earning assets87,462 1,247 1.43 96,496 2,445 2.54 105,253 2,381 2.26 
Less: allowance for credit losses on mortgage loans— 1  1   
Other assets1,248 442  288   
Total assets$88,710 $96,937   $105,540   
Liabilities and Capital:      
Term deposits$78 — 0.67 $49 1 2.41 $77 1 1.78 
Other interest-bearing deposits (5)
1,208 3 0.25 768 15 1.91 747 13 1.69 
Discount Notes43,284 295 0.68 44,482 989 2.22 49,185 915 1.86 
Unswapped fixed-rate Bonds21,319 432 2.03 24,467 558 2.28 26,618 554 2.08 
Unswapped adjustable-rate Bonds13,394 53 0.40 16,131 371 2.30 16,967 317 1.87 
Swapped Bonds3,584 57 1.58 5,311 104 1.96 5,917 80 1.36 
Mandatorily redeemable capital stock55 1 1.93 25 1 4.50 30 2 6.00 
Other borrowings1 — — — — 2.14 — — 1.81 
Total interest-bearing liabilities82,923 841 1.02 91,233 2,039 2.24 99,541 1,882 1.89 
Non-interest bearing deposits2 9   4   
Other liabilities1,006 811   599   
Total capital4,779 4,884   5,396   
Total liabilities and capital$88,710 $96,937   $105,540   
Net interest rate spread0.41 % 0.30 %  0.37 %
Net interest income and net interest margin (6)
$406 0.46 % $406 0.42 % $499 0.47 %
Average interest-earning assets to interest-bearing liabilities105.48 %  105.77 %  105.74 %
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(Dollars in millions)202320222021
 Average BalanceInterest
Average Rate (1)
Average BalanceInterest
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:      
Advances (2)
$83,237 $4,450 5.35 %$52,167 $1,211 2.32 %$23,943 $147 0.62 %
Mortgage loans held for portfolio (3)
7,067 214 3.02 7,431 204 2.75 8,130 169 2.07 
Securities purchased under agreements to resell2,898 147 5.08 2,354 49 2.09 545 1 0.07 
Federal funds sold12,193 627 5.14 11,183 204 1.82 6,891 5 0.08 
Interest-bearing deposits in banks (4)
2,414 121 5.00 1,298 25 1.94 736 1 0.09 
MBS (5)
18,160 923 5.08 13,702 288 2.11 9,182 107 1.17 
Other investments (5)
9,369 475 5.07 10,209 238 2.33 10,733 205 1.91 
Loans to other FHLBanks22 1 4.93 25 1 2.77 — — — 
Total interest-earning assets135,360 6,958 5.14 98,369 2,220 2.26 60,160 635 1.05 
Other assets1,226 578  526   
Total assets$136,586 $98,947   $60,686   
Liabilities and Capital:      
Term deposits$91 4 4.31 $77 1 1.03 $79 — 0.23 
Other interest-bearing deposits (4)
1,100 50 4.57 1,329 16 1.21 1,434 — 0.02 
Discount Notes43,050 2,105 4.89 46,450 775 1.67 26,088 14 0.05 
Unswapped fixed-rate Bonds12,162 271 2.23 14,087 282 2.00 18,857 327 1.74 
Unswapped adjustable-rate Bonds54,973 2,847 5.18 22,833 539 2.36 6,710 5 0.07 
Swapped Bonds16,554 814 4.92 7,020 114 1.62 2,744 12 0.42 
Mandatorily redeemable capital stock34 3 8.31 115 6 4.77 19 — 2.01 
Total interest-bearing liabilities127,964 6,094 4.76 91,911 1,733 1.89 55,931 358 0.64 
Other liabilities1,691 1,765   869   
Total capital6,931 5,271   3,886   
Total liabilities and capital$136,586 $98,947   $60,686   
Net interest rate spread0.38 % 0.37 %  0.41 %
Net interest income and net interest margin (6)
$864 0.64 % $487 0.50 % $277 0.46 %
Average interest-earning assets to interest-bearing liabilities105.78 %  107.03 %  107.56 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Interest on Advances includes prepayment fees of (in millions) $3, $3, and $13 for the years ended December 31, 2023, 2022, and 2021, respectively.
(3)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.
(5)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Rates and corresponding levels of interest income and expense on all of our interest-bearing assets and liabilities decreasedincreased in 20202023 compared to 2019 due to the decline in interest rates. Average rates on short-term2022, as these assets and liabilities declined more notably as theyhave repriced quicker to lowerthe higher interest rates.

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Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
(In millions)
(In millions)
(In millions)(In millions)2020 over 20192019 over 20182023 over 20222022 over 2021
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Increase (decrease) in interest incomeIncrease (decrease) in interest income   
AdvancesAdvances$(107)$(628)$(735)$(416)$211 $(205)
Advances
Advances
Mortgage loans held for portfolioMortgage loans held for portfolio16 (80)(64)25 (6)19 
Federal funds sold and securities purchased under resale agreements(88)(162)(250)20 45 65 
Securities purchased under agreements to resell
Federal funds sold
Interest-bearing deposits in banksInterest-bearing deposits in banks(6)(24)(30)(3)— (3)
MBSMBS(70)(130)(200)(18)24 6 
Other investmentsOther investments88 (7)81 182 — 182 
Loans to other FHLBanksLoans to other FHLBanks— — — — — — 
TotalTotal(167)(1,031)(1,198)(210)274 64 
Increase (decrease) in interest expenseIncrease (decrease) in interest expense    Increase (decrease) in interest expense   
Term depositsTerm deposits— (1)(1)(1)1 — 
Other interest-bearing depositsOther interest-bearing deposits5 (17)(12)— 2 2 
Discount NotesDiscount Notes(26)(668)(694)(93)167 74 
Unswapped fixed-rate BondsUnswapped fixed-rate Bonds(67)(59)(126)(47)51 4 
Unswapped adjustable-rate BondsUnswapped adjustable-rate Bonds(54)(264)(318)(16)70 54 
Swapped BondsSwapped Bonds(29)(18)(47)(9)33 24 
Mandatorily redeemable capital stockMandatorily redeemable capital stock1 (1)— — (1)(1)
Other borrowings— — — — — — 
Total
Total
TotalTotal(170)(1,028)(1,198)(166)323 157 
Increase (decrease) in net interest incomeIncrease (decrease) in net interest income$3 $(3)$— $(44)$(49)$(93)
(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.

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Effect of the Use of Derivatives on Net Interest Income
The following table shows the impact on net interest income from the effect of derivatives and hedging activities. As noted above, for the years ended December 31, 2020 and 2019, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense as a result of the January 1, 2019 prospective adoption of hedge accounting guidance.expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables and the price alignment amount related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, beginning in 2019, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge are reflectedaccounting is provided in non-interest income (loss). The following table shows the impact on net interest income from the effect of derivatives and hedging activities.“Non-Interest Income (Loss)” section below.

(In millions)
(In millions)
(In millions)(In millions)202020192018202320222021
Advances:Advances:
Advances:
Advances:
Amortization of hedging activities in net interest income
Amortization of hedging activities in net interest income
Amortization of hedging activities in net interest incomeAmortization of hedging activities in net interest income$(1)$(1)$(1)
Gains (losses) on designated fair value hedgesGains (losses) on designated fair value hedges(16)(6)N/A
Net interest settlements included in net interest incomeNet interest settlements included in net interest income(91)36 24 
Price alignment amount (1)
Investment securities:Investment securities:
Amortization of hedging activities in net interest income
Amortization of hedging activities in net interest income
Amortization of hedging activities in net interest income
Gains (losses) on designated fair value hedges
Net interest settlements included in net interest incomeNet interest settlements included in net interest income(2)—— 
Price alignment amount (1)
Mortgage loans:Mortgage loans:
Amortization of derivative fair value adjustments in net interest income
Amortization of derivative fair value adjustments in net interest income
Amortization of derivative fair value adjustments in net interest incomeAmortization of derivative fair value adjustments in net interest income(12)(3)(1)
Consolidated Obligation Bonds:Consolidated Obligation Bonds:
Net interest settlements included in net interest incomeNet interest settlements included in net interest income2 2 (3)
Net interest settlements included in net interest income
Net interest settlements included in net interest income
Increase (decrease) to net interest incomeIncrease (decrease) to net interest income$(120)$28 $19 
Increase (decrease) to net interest income
Increase (decrease) to net interest income
(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.

Most of ourWe primarily use of derivatives is to more closely match actual cash flows between assets and liabilities by synthetically convertconverting the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., LIBOR, the Federal funds effective rate or SOFR). The negative net effect of derivatives onsharp increases in short-term interest rates primarily benefited net interest income in 2020 was primarily due to lower short-term benchmark2023 as the conversion of certain Advances' and investments' fixed interest rates in 2020 compared to 2019, whichadjustable-coupon rates resulted in a significant amount of net interest settlements being paid, rather than received, on certain Advances where the fixed interest rates were converted to adjustable-coupon rates.received. The fluctuation in earningsnet interest income from the use of derivatives was acceptable because it enabled us to lower market risk exposure by matching actual cash flows between assets and liabilities more closely than would otherwise occur.exposure.
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Non-Interest Income (Loss)

Non-interest income (loss) consists of certain realized and unrealized gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). In connection with the January 1, 2019 prospective adoption of hedge accounting guidance, gains (losses) on hedged items and derivatives in a qualifying fair value hedge relationship are no longer recorded in non-interest income (loss) for the years ended December 31, 2020 and 2019. As such, beginning in 2019, theThe effects of derivatives and hedging activities on non-interest income (loss) relate only to derivatives not qualifying for fair value hedge accounting.

2020
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$— $(242)$(10)$14 $— $91 $— $(147)
Net interest settlements on derivatives not receiving hedge accounting— (172)— 23 22 — — (127)
Price alignment amount— — — — — — 1 1 
Net gains (losses) on derivatives and hedging activities— (414)(10)37 22 91 1 (273)
Gains (losses) on trading securities (2)
— 257 — — — — — 257 
Gains (losses) on financial instruments held under fair value option (3)
1 — — (9)1 — — (7)
Total net effect on non-interest income$1 $(157)$(10)$28 $23 $91 $1 $(23)
20232023
2019
(In millions)(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
(In millions)
(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount NotesBalance SheetOtherTotal
Net effect of derivatives and hedging activitiesNet effect of derivatives and hedging activities
Net effect of derivatives and hedging activities
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
Gains (losses) on derivatives not receiving hedge accounting
Gains (losses) on derivatives not receiving hedge accountingGains (losses) on derivatives not receiving hedge accounting$(2)$(194)$4 $54 $— $(19)$— $(157)
Net interest settlements on derivatives not receiving hedge accountingNet interest settlements on derivatives not receiving hedge accounting2 — — (26)— — — (24)
Price alignment amount— — — — — — 3 3 
Net gains (losses) on derivatives and hedging activities— (194)4 28 — (19)3 (178)
Gains (losses) on trading securities (2)
— 210 — — — — — 210 
Gains (losses) on financial instruments held under fair value option (3)
— — — (53)(1)— — (54)
Price alignment amount (2)
Net gains (losses) on derivatives
Gains (losses) on trading securities (3)
Gains (losses) on financial instruments held under fair value option (4)
Total net effect on non-interest incomeTotal net effect on non-interest income$— $16 $4 $(25)$(1)$(19)$3 $(22)
2022
2022
2022
(In millions)(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Net effect of derivatives and hedging activities
Net effect of derivatives and hedging activities
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
Gains (losses) on derivatives not receiving hedge accounting
Gains (losses) on derivatives not receiving hedge accounting
Net interest settlements on derivatives not receiving hedge accounting
Price alignment amount (2)
Net gains (losses) on derivatives
Gains (losses) on trading securities (3)
Gains (losses) on financial instruments held under fair value option (4)
Total net effect on non-interest income
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2021
2021
2021
(In millions)(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
2018
(In millions)AdvancesInvestment SecuritiesMortgage LoansBonds
Balance Sheet (1)
Total
Net effect of derivatives and hedging activitiesNet effect of derivatives and hedging activities
Gains (losses) on fair value hedges$2 $— $— $— $— $2 
Net effect of derivatives and hedging activities
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
Gains (losses) on derivatives not receiving hedge accounting
Gains (losses) on derivatives not receiving hedge accountingGains (losses) on derivatives not receiving hedge accounting1 (9)(1)18 (6)3 
Net interest settlements on derivatives not receiving hedge accountingNet interest settlements on derivatives not receiving hedge accounting— — — (46)— (46)
Net gains (losses) on derivatives and hedging activities3 (9)(1)(28)(6)(41)
Gains (losses) on trading securities (2)
— 7 — — — 7 
Gains (losses) on financial instruments held under fair value option (3)
— — — (14)— (14)
Price alignment amount (2)
Net gains (losses) on derivatives
Gains (losses) on trading securities (3)
Gains (losses) on financial instruments held under fair value option (4)
Total net effect on non-interest incomeTotal net effect on non-interest income$3 $(2)$(1)$(42)$(6)$(48)
(1)Balance sheet includes synthetic basis swapsFor the years ended December 31, 2022 and 2021, "Balance Sheet" included swaptions, which arewere not designated as hedging a specific financial instrument.
(2)This amount is for derivatives for which variation margin is characterized as a daily settled contract.
(3)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the StatementStatements of Income.
(3)(4)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."

The net amounteffect of income volatility in derivatives and hedging activities was moderate and consistent with the close hedging relationships of our derivative transactions. Moston non-interest income in 2023 improved primarily because of the volatilityincrease in short-term rates, which resulted in net interest settlements being received on derivatives related to investments where the fixed interest rates were converted to adjustable-coupon rates. Some of this benefit was offset as the increase in short-term rates also resulted in a resulthigher amount of both unrealizednet interest settlements being paid on derivatives related to Bonds. Additionally, a portion of the improvement in the effect of derivatives and hedging activities on earnings was driven by a net favorable impact from changes in market values on certain derivatives and related financial instruments carried at fair value gains and losses on instrumentsvalue. Because we expectintend to hold these derivatives and the related financial instruments to maturity, andany unrealized gains or losses are expected to reverse in future periods. As noted above, the salefluctuation in earnings from the use of interest rate swaptions as interest rates fellderivatives was acceptable because it enabled us to historically low levels during the first quarter of 2020. We use swaptions to hedgelower market risk exposure associated with fixed-rate mortgage assets and may sell swaptions as interest rates change in order to offset actual and anticipated risks associated with holding fixed-rate mortgage assets.exposure.

At December 31, 2020, we held $10.5 billionIn the table above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations andthat have been swapped them to a variable rate. These investments are classified as tradingTrading securities and are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, includingsuch as changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the gains or losses on the associated interest rate swaps.

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Non-Interest Expense

The following table presents non-interest expense and related financial ratios for each of the last three years.

(Dollars in millions)2020 20192018
(In millions)
(In millions)
(In millions)2023 20222021
Non-interest expenseNon-interest expense  
Non-interest expense
Non-interest expense
Compensation and benefits
Compensation and benefits
Compensation and benefitsCompensation and benefits$50 $46 $46 
Other operating expenseOther operating expense21 22 20 
Finance AgencyFinance Agency7 7 7 
Office of FinanceOffice of Finance5 5 5 
Voluntary housing contributions
Voluntary housing contributions
Voluntary housing contributions
OtherOther9 9 7 
Total non-interest expenseTotal non-interest expense$92 $89 $85 

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. Accordingly, totalTotal non-interest expenses have remained stable with only minimal increases overexpense increased in 2023 primarily as a result of making voluntary housing contributions of $15 million to address affordable housing needs and community investment in the past several years.Fifth District. These voluntary housing contributions are in addition to the 10 percent of earnings that are required to be set aside for the AHP.

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Analysis of Quarterly ROE

The following table summarizes the components of 2020's quarterly ROE and provides quarterly ROE for 2019 and 2018.
 
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
Components of 2020 ROE:     
Net interest income:     
Other net interest income8.69 %11.74 %9.68 %10.33 %10.19 %
Net amortization(1.91)(1.98)(2.67)(3.22)(2.40)
Prepayment fees0.37 0.95 0.62 0.94 0.72 
Total net interest income7.15 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 income9.82 9.64 7.01 6.55 8.36 
Total non-interest expense2.11 1.72 1.79 2.18 1.93 
Affordable Housing Program assessments0.77 0.80 0.52 0.44 0.65 
2020 ROE6.94 %7.12 %4.70 %3.93 %5.78 %
2019 ROE5.59 %5.09 %5.36 %6.64 %5.65 %
2018 ROE6.23 %6.15 %6.87 %5.90 %6.29 %

The volatility in quarterly ROE during 2020 was primarily driven by the impacts of the COVID-19 pandemic and the low interest rate environment. For example, ROE in the first two quarters of 2020 was elevated given the sale of interest rate swaptions during the first quarter of 2020 and given the increase in Advance activity at the end of the first quarter as the financial markets reacted to the COVID-19 pandemic, and members turned to us for liquidity. However, ROE decreased significantly in the last two quarters of 2020 as a result of the higher volume of mortgage refinance activity, which led to elevated levels of mortgage loan repayments and related premium amortization. Additionally, the historically low short-term interest rates throughout 2020 lowered the earnings generated from investing our capital.

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Segment Information

Note 14 of the Notes to Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.
(Dollars in millions)(Dollars in millions)Traditional Member Finance MPP Total
2020     
Net interest income$385  $21  $406 
Net income$221  $55  $276 
(Dollars in millions)
(Dollars in millions)Traditional Member Finance MPP Total
20232023     
Net interest income (loss)
Net income (loss)
Average assetsAverage assets$77,090  $11,620  $88,710 
Assumed average capital allocationAssumed average capital allocation$4,149  $630  $4,779 
Return on average assets (1)
Return on average assets (1)
0.29 % 0.48 % 0.31 %
Return on average assets (1)
0.44 % 1.21 % 0.49 %
Return on average equity (1)
Return on average equity (1)
5.33 % 8.76 % 5.78 %
Return on average equity (1)
8.69 % 23.74 % 9.63 %
           
2019 
Net interest income$309  $97  $406 
Net income$206 $70 $276 
20222022 
Net interest income (loss)
Net income (loss)
Average assetsAverage assets$83,867  $13,070  $96,937 
Assumed average capital allocationAssumed average capital allocation$4,226  $658  $4,884 
Return on average assets (1)
Return on average assets (1)
0.25 % 0.54 % 0.28 %
Return on average assets (1)
0.23 % 0.51 % 0.25 %
Return on average equity (1)
Return on average equity (1)
4.87 % 10.71 % 5.65 %
Return on average equity (1)
4.26 % 9.46 % 4.78 %
2018
Net interest income$390  $109  $499 
Net income$255 $84 $339 
2021
2021
2021
Net interest income (loss)
Net interest income (loss)
Net interest income (loss)
Net income (loss)
Average assetsAverage assets$93,531  $12,009  $105,540 
Assumed average capital allocationAssumed average capital allocation$4,781  $615  $5,396 
Return on average assets (1)
Return on average assets (1)
0.27 % 0.70 % 0.32 %
Return on average assets (1)
0.17 % (0.38)% 0.07 %
Return on average equity (1)
Return on average equity (1)
5.34 % 13.65 % 6.29 %
Return on average equity (1)
2.70 % (5.92)% 1.08 %
(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.

Traditional Member Finance Segment
Net income improved in 2023 compared to 2022 largely because of higher net interest income. The increase in net interest income increasedwas driven by higher interest rates, which benefited this segment as it resulted in 2020 compared to 2019 primarily due to higher earnings from capital. Additionally, net interest income improved because of higher average balances and spreads on Advances and MBS. However, the increase in net interest income was partially offset by lower spreads earned on liquidity investments as well as an increase in prepayment fees on Advances. However, these favorable factors were partially offset by lower earnings from funding assets with interest-free capital and the decline in average MBS balances. Much of the benefits to net interest income were offset by aninvestments. The increase in net income in 2023 compared to 2022 was also driven by favorable net market value changes on interest settlements paid on derivatives not receiving hedge accounting, which are recorded in non-interest income (loss).rate swaps and related financial instruments carried at fair value.

MPP Segment
Compared to the Traditional Member Finance segment,Earnings from the MPP segment can exhibit more earnings volatility relativeimproved in 2023 compared to short-term2022 because of higher net interest income, which resulted primarily from the increase in interest rates. Higher average interest rates improved the spreads earned on MPP and more credit risk exposure. However,increased the earnings generated from capital. Additionally, higher mortgage rates resulted in a lower volume of mortgage refinance activity, which reduced premium amortization. The increase in net income in 2023 compared to 2022 was partially offset by net unrealized losses on derivatives related to the MPP segment also provides the opportunity to enhance risk-adjusted returns, which normally augments earnings. Although mortgage assets are the largest source of our market risk, we believe that we have historically managed this risk prudently and consistently with our risk appetite and corporate objectives. We also believe that these assets do not excessively elevate the balance sheet's overall market risk exposure.segment.

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Net income decreased in 2020 compared to 2019 due to higher net amortization and lower spreads earned on MPP driven by the low interest rate environment. We expect the trend of higher net amortization to continue in the near future unless mortgage rates rise. The negative factors were partially offset in 2020 by the sale of interest rate swaptions as rates fell to historically low levels in the first quarter of 2020.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Overview

We face various risks that could affect the ability to achieve our mission and corporate objectives. We generally categorize risks as: 1) business/strategic risk, 2) regulatory/legal risk,compliance, 3) market risk (also referred to as interest rate or prepayment risk), 4) credit risk, 5) funding/liquidity risk, and 6) operational risk.risk (which includes cyber risks). Our Board of Directors establishes objectives regarding risk philosophy, risk appetite, risk tolerances, and financial performance expectations. Market, capital adequacy, credit, liquidity, concentration, and operational risks are discussed below. Other risks are discussed throughout this report.

We strive to maintain a risk profile that ensures we operate safely and soundly, promotes prudent growth in Mission Asset Activity,Assets and Activities, consistently generates competitive earnings, and protects the par value of members' capital stock investment. We believe our business is financially sound and adequately capitalized on a risk-adjusted basis.

We practice this conservative risk philosophy in many ways:

▪We operate with moderate market risk and limited residual credit risk, liquidity risk, operational risk, and capital impairment risk.

▪We have a business objective to ensure competitive and relatively stable profitability.

▪We make conservative investment choices in terms of the types of investments we purchase and counterparties with which we engage.

▪We use derivatives to hedge assets and liabilities and to help reduce market risk exposure.

▪We maintain a prudent amount of financial leverage.

▪We are judicious in instituting regular, district-wide repurchases of excess stock.

▪We hold an amount of retained earnings that we believe will protect the par value of capital stock and provide for dividend stabilization.

▪We create a working and operating environment that emphasizes a stable employee base.

We have numerous Board-adopted policies and processes that address risk management including risk appetite, tolerances, limits, guidelines, and regulatory compliance. Our cooperative business model, corporate objectives, capital structure, and regulatory oversight provide us clear incentives to minimize risk exposures. Our policies and operating practices are designed to limit risk exposures from ongoing operations in the following broad ways:

▪by anticipating potential business risks and developing appropriate responses;

▪by defining permissible lines of business;

▪by limiting the kinds of assets we are permitted to hold in terms of their credit risk exposure and the kinds of hedging and financing arrangements we are permitted to use;

▪by limiting the amount of market risk to which we are permitted to be exposed;

▪by specifying very conservative tolerances for credit risk posed by Advances;

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▪by specifying capital adequacy minimums; and

▪by requiring strict adherence to internal controls and operating procedures, adequate insurance coverage, and comprehensive Human Resources policies, procedures, and strategies.

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Market Risk

Overview
Market risk exposure is the risk that profitability and the value of stockholders' capital investment may decrease and that profitability may become uncompetitive for an extended period as a result of changes and volatility in the market environment and economy. Along with business/strategic risk, market risk is normally our largest residual risk.

Our risk appetite is to maintain market risk exposure in a low to moderate range while earning a competitive return on members' capital stock investment. There is normally a tradeoff between long-term market risk exposure and shorter-term exposure. Effective management of each component is important in order to attract and retain members and capital and to support Mission Asset Activity.Assets and Activities.

The primary challenges in managing market risk exposure arise from 1) the tradeoff between earning a competitive return and correlating profitability with short-term interest rates and 2) the market risk exposure of owning fixed-rate mortgage assets. Mortgage assets grant homeowners prepayment options that could adversely affect our financial performance when interest rates increase or decrease. We mitigate the market risk of mortgage assets primarily by funding them principally with a portfolio of long-term fixed-rate callable and non-callable Bonds. We may also hedge a portion of our MBS by using interest rate swaps to effectively convert the fixed rate investments to adjustable-rate investments. Secondarily, we use swaptionsswaption derivative transactions to a limited extent to mitigate the market risk of mortgage assets.loans. The Bonds and swaptionsuse of derivatives can provide expected cash flows that are similar to the cash flows expected from mortgage assets under a wide range of interest rate and prepayment environments. Because it is normally cost-prohibitive to completely mitigate mortgage prepayment risk, a residual amount of market risk remains after funding and hedging activities.

We analyze market risk using numerous analytical measures under a variety of interest rate and business scenarios, including stressed scenarios, and perform sensitivity analyses on the many variables that can affect market risk, using several market risk models from third-party software companies. These models employ rigorous valuation techniques for the optionality that exists in mortgage prepayments, call and put options, and caps/floors. We regularly assess the effects of different assumptions, techniques and methodologies on the measurements of market risk exposure, including comparisons to alternative models and information from brokers/dealers.

Policy Limits on Market RiskRisk Exposure
We have six sets of policy limits regarding market risk exposure, which primarily measure long-term market risk exposure. We determine compliance with our policy limits at every month end or more frequently if market or business conditions change significantly or are volatile.

▪Market Value of Equity Sensitivity. The market value of equity for the entire balance sheet in two hypothetical interest rate scenarios (up 200 basis points and down 100 to 200 basis points from the currentapplicable interest rate environment) must be between positive and negative 10 percent of the current balance sheet's market value of equity. The interest rate movements are “shocks,” defined as instantaneous, permanent, and parallel changes in interest rates in which every point on the yield curve is changed by the same amount. The size of the down shock varies with the level of long-term interest rates observed when measuring the risk.

▪Duration of Equity. The duration of equity for the entire balance sheet in the current (“base case”) interest rate environment must be between positive and negative five years and in the two interest rate shock scenarios (up 200 basis points and down 100 to 200 basis points from the currentapplicable interest rate environment) must be between positive and negative six years.

▪Mortgage Assets Portfolio. The change in net market value of the mortgage assets portfolio as a percentage of the book value of portfolio assets must be between positive and negative three percent in each of the two interest rate shock scenarios. Net market value is defined as the market value of assets minus the market value of liabilities, with no assumed capital allocation.

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▪Market Capitalization. The market capitalization ratio (defined as the ratio of the market value of equity to the par value of regulatory stock) must be above 100 percent in the current rate environment and must be above 95 percent in each of the two interest rate shock scenarios.

▪Fixed Rate Mortgage Assets as a Multiple of Regulatory Capital. The amount of fixed mortgage assets must be less than five times the amount of regulatory capital.
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▪MPP Assets as a Multiple of Regulatory Capital. The amount of MPP assets must be less than four times the amount of regulatory capital.

In addition, Finance Agency regulations and an internal policy provide controls on market risk exposure by restricting the types of mortgage loans, mortgage-backed securities and other investments we can hold. We also manage market risk exposure by charging members prepayment fees on many Advance programs where an early termination of an Advance would result in an economic loss to us.

In practice we carry a substantially smaller amount of market risk exposure by establishing a strategic management range that is well within policy limits.

Market Value of Equity and Duration of Equity - Entire Balance Sheet
Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables, as presented in the following tables for various instantaneous and permanent interest rate shocks (in basis points). Market value of equity represents the difference between the market value of total assets and the market value of total liabilities, including off-balance sheet items. The duration of equity provides an estimate of the change in market value of equity to further changes in interest rates. We compiled average results using data for each month end. Given the current level of rates at certain time periods, some down rate shocks are nonparallel scenarios, with short-term rates decreasing less than long-term rates such that no rate falls below zero.

Market Value of Equity
(Dollars in millions)(Dollars in millions)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300(Dollars in millions)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average ResultsAverage Results       Average Results  
2020 Full Year       
2023 Full Year2023 Full Year  
Market Value of EquityMarket Value of Equity$4,541 $4,541 $4,547 $4,624 $4,723 $4,608 $4,466 
% Change from Flat Case% Change from Flat Case(1.8)%(1.8)%(1.7)%— 2.1 %(0.3)%(3.4)%% Change from Flat Case5.2 %3.2 %1.7 %— (1.8)(1.8)%(3.5)%(5.1)%
2019 Full Year       
2022 Full Year2022 Full Year  
Market Value of EquityMarket Value of Equity$4,545 $4,580 $4,652 $4,729 $4,674 $4,586 $4,528 
% Change from Flat Case% Change from Flat Case(3.9)%(3.1)%(1.6)%— (1.1)%(3.0)%(4.3)%% Change from Flat Case6.1 %3.4 %1.7 %— (2.1)(2.1)%(4.1)%(5.7)%
Month-End ResultsMonth-End Results
December 31, 2020
December 31, 2023
December 31, 2023
December 31, 2023
Market Value of Equity
Market Value of Equity
Market Value of EquityMarket Value of Equity$3,765 $3,765 $3,791 $3,835 $3,893 $3,777 $3,676 
% Change from Flat Case% Change from Flat Case(1.8)%(1.8)%(1.1)%— 1.5 %(1.5)%(4.2)%% Change from Flat Case4.6 %3.4 %1.9 %— (2.1)(2.1)%(4.2)%(6.2)%
December 31, 2019
December 31, 2022
Market Value of Equity
Market Value of Equity
Market Value of EquityMarket Value of Equity$4,257 $4,262 $4,236 $4,372 $4,313 $4,213 $4,144 
% Change from Flat Case% Change from Flat Case(2.6)%(2.5)%(3.1)%— (1.3)%(3.6)%(5.2)%% Change from Flat Case5.8 %3.9 %2.0 %— (1.9)(1.9)%(3.6)%(5.1)%
Duration of Equity
 
(In years)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2020 Full Year— — (0.9)(2.6)1.0 3.4 2.0 
2019 Full Year(0.8)(1.4)(1.7)(0.8)1.7 1.4 1.1 
Month-End Results       
December 31, 2020— (0.1)(1.4)(2.3)1.8 3.2 1.2 
December 31, 2019(0.1)0.6 (2.1)(1.2)2.0 1.7 1.4 
(In years)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2023 Full Year1.8 1.4 1.8 1.8 1.8 1.7 1.5 
2022 Full Year2.6 1.9 1.5 2.0 2.2 2.0 1.7 
Month-End Results       
December 31, 20231.2 1.5 1.8 2.0 2.2 2.1 1.9 
December 31, 20221.8 2.0 2.1 2.1 2.0 1.8 1.6 

The overall market risk exposure to changing interest rates was within policy limits during the periods presented. At December 31, 2020, exposure to falling interest rates in the down shock scenarios was muted as some rates become floored at near zero rate levels. Exposure to moderate rising rate shocks decreased due to the reduction in all market rates that occurred during the first quarter of 2020. The duration of equity provides an estimate of the change in market value of equity for a 1.00 percentage point further change in interest rates from the rate shock level.
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Based on the totality of our risk analysis, we expect that profitability, defined as the level of ROE compared with short-term market rates, will remain competitive over the long term unless interest rates change by large amounts in a short period of time. Further declines in long-term interest rates could substantially decrease income in the near term (one to two years) before reverting over time to average levels. This temporary reduction in income would be driven by additional recognition of mortgage asset premiums as the further incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets.

Market Risk Exposure of the Mortgage Assets Portfolio
The mortgage assets portfolio normally accounts for almost all market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining sufficient net spreads. Sensitivities ofThe overall market risk exposure to changing interest rates was well within policy limits during the periods presented. At December 31, 2023, market value of equity allocatedrisk exposure to the mortgage assets portfolio under interestfalling and rising rate shocks (in basis points) are shown below. The average mortgage assets portfolio had an assumed capital allocation of $1.3 billion in 2020 based on the entire balance sheet's average regulatory capital-to-assets ratio. Average results shown in the table below are compiled using data for each month end. The market value sensitivities are one measure we use to analyze the portfolio's estimated market risk exposure.remained stable.

% ChangeBased on the totality of our risk analysis, we expect that overall profitability, defined as the level of ROE compared with short-term market rates, will be competitive over the long term unless interest rates increase further by large amounts in Market Valuea short period of Equity-Mortgage Assets Portfoliotime. Substantial declines in long-term interest rates could decrease income temporarily before reverting to average levels.
 Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2020 Full Year(15.9)%(15.9)%(14.6)%— 11.9 %2.4 %(10.3)%
2019 Full Year(28.6)%(24.1)%(10.4)%— (2.4)%(8.3)%(11.7)%
Month-End Results       
December 31, 2020(15.3)%(15.3)%(11.3)%— 10.6 %3.9 %(1.7)%
December 31, 2019(17.7)%(17.2)%(12.5)%— (5.6)%(14.6)%(20.5)%
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The average risk exposureThis temporary reduction in income would be driven by additional recognition of mortgage asset premiums as the incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets. However, we believe the mortgage assets portfolio in 2020 remained aligned with our preference to keep our exposure to market risk at a low to moderate level. The variances between periods primarily reflect the impact of lower long-term interest rates observed in 2020. These lower long-term interest rates resulted in reduced exposure to moderate rising rate shocks and muted exposure to falling rate shocks as they become floored when they reach near zero rate levels. We believe the mortgage asset portfolio will continue to provide an acceptable risk adjustedrisk-adjusted return consistent with our risk appetite philosophy.

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Use of Derivatives in Market Risk Management
A key component of hedgingThe FHLB enters into derivatives to manage the market risk exposure isexposures inherent in otherwise unhedged assets and funding positions. However, Finance Agency regulations and the FHLB's financial management policy prohibit trading in, or the speculative use of, derivative transactions.instruments. The following table presents the notional amounts of the derivatives classified by how we designate the hedging relationship. The notional amount of derivatives at December 31, 2020 decreased2023 increased by $19.5$27.7 billion from the end of 2019,2022, primarily due to our use of unswapped Discount Notes and unswapped adjustable-rate Bonds rather than swapping Discount Notes in the current market environment.driven by increased Advance demand.
(In millions)
(In millions)
(In millions)(In millions) December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Hedged Item/Hedging InstrumentHedged Item/Hedging InstrumentHedging ObjectiveFair Value HedgeEconomic HedgeFair Value HedgeEconomic HedgeHedged Item/Hedging InstrumentHedging ObjectiveFair Value HedgeEconomic HedgeFair Value HedgeEconomic Hedge
Advances:Advances:
Pay-fixed, receive-float interest rate swap (without options)Pay-fixed, receive-float interest rate swap (without options)Converts the Advance's fixed rate to a variable-rate index.$7,409 $5 $7,449 $5 
Pay-fixed, receive-float interest rate swap (without options)
Pay-fixed, receive-float interest rate swap (without options)
Pay-fixed, receive-float interest rate swap (with options)Pay-fixed, receive-float interest rate swap (with options)Converts the Advance's fixed rate to a variable-rate index and offsets option risk in the Advance.2,664 27 1,327 155 
Pay-float with embedded features, receive-float interest rate swap (callable)Reduces interest-rate sensitivity and repricing gaps by offsetting embedded option risk in the Advance.— — 200 — 
Total Advances
Total Advances
Total AdvancesTotal Advances10,073 32 8,976 160 
Investment securities:Investment securities:
Pay-fixed, receive-float interest rate swap (without options)Pay-fixed, receive-float interest rate swap (without options)Converts the investment security's fixed rate to a variable-rate index.274 9,817 124 11,202 
Pay-fixed, receive-float interest rate swap (without options)
Pay-fixed, receive-float interest rate swap (without options)
Mortgage Loans:Mortgage Loans:
Forward settlement agreementProtects against changes in market value of fixed-rate Mandatory Delivery Contracts resulting from changes in interest rates.— — — 849 
Interest rate swaptions
Interest rate swaptions
Interest rate swaptions
Consolidated Obligations Bonds:Consolidated Obligations Bonds:
Consolidated Obligations Bonds:
Consolidated Obligations Bonds:
Receive-fixed, pay-float interest rate swap (without options)
Receive-fixed, pay-float interest rate swap (without options)
Receive-fixed, pay-float interest rate swap (without options)Receive-fixed, pay-float interest rate swap (without options)Converts the Bond's fixed rate to a variable-rate index.131 2,241 — 4,709 
Receive-fixed, pay-float interest rate swap (with options)Receive-fixed, pay-float interest rate swap (with options)Converts the Bond's fixed rate to a variable-rate index and offsets option risk in the Bond.— — 210 30 
Total Consolidated Obligations
Bonds		Total Consolidated Obligations
Bonds		131 2,241 210 4,739 
Consolidated Discount Notes:Consolidated Discount Notes:
Receive-fixed, pay-float interest rate swap (without options)Receive-fixed, pay-float interest rate swap (without options)Converts the Discount Note's fixed rate to a variable-rate index.— — — 12,401 
Receive-fixed, pay-float interest rate swap (without options)
Receive-fixed, pay-float interest rate swap (without options)
Balance Sheet:Balance Sheet:
Pay-float, receive-fixed interest-rate swapInterest-rate swap not linked to a specific asset, liability or forecasted transaction.— 589 — — 
Pay-fixed, receive-float interest-rate swapInterest-rate swap not linked to a specific asset, liability or forecasted transaction.— 589 — — 
Interest rate swaptionsInterest rate swaptionsProvides the option to enter into an interest rate swap to offset interest-rate or prepayment risk.— 2,175 — 6,000 
Total Balance Sheet— 3,353 — 6,000 
Interest rate swaptions
Interest rate swaptions
Stand-Alone Derivatives:
Stand-Alone Derivatives:
Stand-Alone Derivatives:Stand-Alone Derivatives:
Mandatory Delivery ContractsMandatory Delivery ContractsExposure to fair-value risk associated with fixed rate mortgage purchase commitments.— 137 — 936 
Mandatory Delivery Contracts
Mandatory Delivery Contracts
TotalTotal $10,478 $15,580 $9,310 $36,287 
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See Note 7 of the Notes to Financial Statements for additional information on how we use derivatives and the types of assets and liabilities hedged with derivatives.

Capital Adequacy

Retained Earnings
We must hold sufficient capital to protect against exposure to various risks, including market, credit, and operational.operational risks. We regularly conduct a variety of measurements and assessments for capital adequacy. At December 31, 2020,2023, our capital management policy set forth approximately $290 million$1.0 billion as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk.

The following table presents retained earnings.
(In millions)December 31, 2020December 31, 2019
Unrestricted retained earnings$803 $648 
Restricted retained earnings (1)
501 446 
Total retained earnings$1,304 $1,094 

(In millions)December 31, 2023December 31, 2022
Unrestricted retained earnings$964 $841 
Restricted retained earnings (1)
694 560 
Total retained earnings$1,658 $1,401 
(1)     Pursuant to the FHLBank System's Joint Capital Enhancement Agreement we are not permitted to distribute as dividends.

As indicated in the table above, our current balance of retained earnings exceeds the policy minimum, which we expect will continue to be the case as we bolster capital adequacy over time by allocating a portion of earnings to the restricted retained earnings account.

Risk-Based Capital
The following table shows the amount of risk-based capital required based on Finance Agency prescribed measurements. By regulation, we are required to hold permanent capital at least equal to the amount of risk-based capital.
(Dollars in millions)December 31, 2020December 31, 2019
Market risk-based capital$211 $264 
Credit risk-based capital204 367 
Operational risk-based capital124 190 
Total risk-based capital requirement539 821 
Total permanent capital3,964 4,483 
Excess permanent capital$3,425 $3,662 
Risk-based capital as a percent of permanent capital14 %18 %

(Dollars in millions)December 31, 2023December 31, 2022
Market risk-based capital$545 $470 
Credit risk-based capital511 238 
Operational risk-based capital317 212 
Total risk-based capital requirement1,373 920 
Total permanent capital6,521 6,569 
Excess permanent capital$5,148 $5,649 
Risk-based capital as a percent of permanent capital21 %14 %

The risk-based capital requirement has historically not been a constraint on operations, and we do not use it to actively manage any of our risks. It has normally ranged from 10 to 2025 percent of permanent capital.

Market Capitalization Ratios
We measure two sets of market capitalization ratios. One measures the market value of equity (i.e., total capital) relative to the par value of regulatory capital stock (which is GAAP capital stock and mandatorily redeemable capital stock). The other measures the market value of total capital relative to the book value of total capital, which includes all components of capital, and mandatorily redeemable capital stock. The measures provide a point-in-time indication of the FHLB's liquidation or franchise value and can also serve as a measure of realized or potential market risk exposure.

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The following table presents the market value of equity to regulatory capital stock (excluding retained earnings) for several interest rate environments.
December 31, 2020December 31, 2019
December 31, 2023
December 31, 2023
December 31, 2023December 31, 2022
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) ScenarioMarket Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario144 %129 %Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario123 %119 %
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)
143 125 
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)
142 124 
(1)    Represents a down shock of 100200 basis points.
(2)    Represents an up shock of 200 basis points.

A base case value below 100 percent could indicate that, in the remote event of an immediate liquidation scenario involving redemption of all capital stock, capital stock may be returned to stockholders at a value below par. This could be due to experiencing risks that lower the market value of capital and/or to having an insufficient amount of retained earnings. In 2020,2023, the market capitalization ratios in the scenarios presented continued to be above our policy requirements. The base case ratio at December 31, 20202023 was still well above 100 percent and increased relative to year-end 2019. The increase was driven primarily by the growth inbecause retained earnings which rose to 49were 34 percent of regulatory capital stock combined with declining stock balances and we maintained stable market risk exposure.

The following table presents the market value of equity to the book value of total capital and mandatorily redeemable capital stock.
December 31, 2020December 31, 2019
December 31, 2023
December 31, 2023
December 31, 2023December 31, 2022
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
97 %98 %
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
93 %94 %
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
96 95 
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
96 94 
(1)    Capital includes total capital and mandatorily redeemable capital stock.
(2)    Represents a down shock of 100200 basis points.
(3)    Represents an up shock of 200 basis points.

A base-case value below 100 percent indicatescan indicate that we have realized or could realize risks (especially market risk), such that the market value of total capital owned by stockholders is below the book value of total capital. The base-case ratio of 97 percent at December 31, 20202023 indicates that the market value of total capital is $114$476 million below the book value of total capital. In a scenario in which interest rates increase 200 basis points, the market value of total capital would be $172$726 million below the book value of total capital. This indicates that in a liquidation scenario, stockholders would not receive the full sum of their total equity ownership in the FHLB. We believe the likelihood of a liquidation scenario is extremely remote; and therefore, we accept the risk of diluting equity ownership in such a scenario.remote.

Credit Risk

Overview
Our business entails a significant amount of inherent credit risk exposure. We believe our risk management practices, discussed below, minimize residual credit risk levels. We haveAt December 31, 2023, we had no loan loss reserves or impairment recorded for Credit Services, investments, or derivatives. We havederivatives and had a minimal amount of legacy credit risk exposure in the MPP.

Credit Services
Overview: We have policies and practices to manage credit risk exposure from our secured lending activities, which include Advances and Letters of Credit. The objective of our credit risk management activities is to equalize risk exposure across members and counterparties to a zero level of expected losses. This approach is consistent with our conservative risk management principles and desire to have no residual credit risk related to Advances and Letters of Credit.

Collateral: We require each member to provide a security interest in eligible collateral before it can undertake any secured borrowing. Eligible loan collateral types include the following: single- and multi-family residential, home equity, commercial real estate, government guaranteed and farm real estate. Eligible security types include those that are government or agency backed, along withhighly-rated municipal securities, and highly-rated private-label residential and commercial mortgage-backed securities. We have conservative
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eligibility criteria within each of the above asset types. The estimated value of pledged collateral is discounted in order to offset market, credit, and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. At December 31, 2020,2023, total eligible pledged collateral pledged of $399.0$518.6 billion resulted in total borrowing
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capacity of $315.9$398.0 billion of which $53.8$120.7 billion was used to support outstanding Advances and Letters of Credit. Borrowers often pledge collateral in excess of their collateral requirement to demonstrate access to liquidity and to have the ability to borrow additional amounts in the future. Over-collateralization by one member is not applied to another member. As noted in the "Regulatory and Legislative Risk and Significant Developments" section of the "Executive Overview," in 2020, we began accepting government guaranteed loans as collateral in the form of Small Business Administration (SBA) Paycheck Protection Program loans. Otherwise,The collateral composition remained relatively stable compared to the end of 2019.2022.

The table below shows total collateral pledged by type.

December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
(Dollars in billions)(Dollars in billions)Percent of TotalPercent of Total(Dollars in billions)Percent of TotalPercent of Total
Collateral AmountPledged CollateralCollateral AmountPledged Collateral Eligible CollateralPledged CollateralEligible CollateralPledged Collateral
Single family loans$226.6 57 %$208.9 57 %
Single-family loansSingle-family loans$346.7 67 %$298.7 62 %
Multi-family loansMulti-family loans60.0 15 68.4 19 
Commercial real estate loansCommercial real estate loans48.0 12 46.3 13 
Bond SecuritiesBond Securities26.1 7 11.3 3 
Home equity loans/lines of creditHome equity loans/lines of credit25.2 6 29.2 8 
Farm real estate loans
Government guaranteed loansGovernment guaranteed loans12.4 3 — — 
Farm real estate loans0.7 — 0.7 — 
TotalTotal$399.0 100 %$364.8 100 %Total$518.6 100 100 %$478.4 100 100 %

At December 31, 2020, 632023, 71 percent of collateral was related to residential mortgage lending in single-family loans and home equity loans/lines of credit.

Our management of credit risk related to Advances and Letters of Credit includes risk-based variations in collateral requirements, including discounts or haircuts, eligibility criteria, form of valuation, custody arrangements, the level of detail in periodic reporting, and in blanket versus specific pledges,asset pledge requirements, as discussed below.

▪Haircuts. We discount collateral values for purposes of determining borrowing capacity. These haircuts result in lendable values that are less than the amount of pledged collateral. In general, higher discounts are applied to more risky forms of collateral and to collateral pledged by higher risk members.
▪Eligibility. The balances of loans and securities we lend against are subject to conservative eligibility criteria such that Advances and Letters of Credit are supported by high quality assets within each collateral type.
▪Custody. All pledged securities and loans pledged by higher risk members must be delivered into our custody or that of a third-party custodian that we have engaged.
▪Blanket versus Specific Pledge.Security Interest. Except under limited circumstances,Generally, we require members to grant us a member pledging loans under a blanket agreement to pledge all of their loans for a givensecurity interest in approved assets by specific collateral type.
▪Valuation. All members' securities collateral and individually listed loans are subject to a market valuation process to establish the borrowing base. For loan collateral, this involves submission of extensive loan level information, (on "Listings")or Detailed (Listing) Reporting, to facilitate the valuation process. Any member allowed to make a specific instead of a blanketasset pledge (non-depositories and certain highly-rated commercial banks) is required to submit this level of reporting.

We use third-party services and internally run models to regularly estimate market values of individually listed loan collateral. Third-party services use various proprietary models to estimate market values. Assumptions may be made on factors that affect collateral value, such as market liquidity, discount rates, prepayments, liquidation and servicing costs in the event of a default and economic and market conditions. We have policies and procedures for evaluating the reasonableness of collateral valuations.

Borrowing Capacity/Lendable Value: Lendable Value Rates (LVRs) represent the percent of collateral value net of the haircut. LVRs are determined byderived using scenario analysis, statistical analysis and management assumptions relating to historical price volatility, inherent credit risks, liquidation costs, and the current credit and economic environment. We apply LVR results to the estimated values
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of pledged assets. LVRs vary among pledged assets and members based on the member institution type, the financial strength of the member institution, the form of valuation, lien position, the issuer of bond collateral or the quality of securitized assets, the quality of the loan collateral as reflected in the manner in which it was underwritten, and the marketability of the pledged assets.
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The table below indicates the range of LVRs forapplied at December 31, 2023 to each major collateral type pledged at December 31, 2020.type.

Lendable Value Rates Applied to Collateral
Blanket Status:Summary (Blanket) Reporting:
Prime 1-4 family loans69-78%65-71%
Multi-family loans73-83%64-74%
Prime home equity loans/lines of credit44-74%56-72%
Commercial real estate loans73-83%64-75%
Farm real estate loans70-81%66-73%
Listing Status/Detailed (Listing) Reporting/Physical Delivery:
Cash/U.S. Government/U.S. Treasury/U.S. agency securities87-100%
U.S. agency residential MBS/collateralized mortgage obligations88-96%87-95%
U.S. agency commercial MBS/collateralized mortgage obligations78-91%78-90%
Private-label residential MBS62-89%
Private-label commercial MBS49-85%
Municipal securities75-94%77-94%
SBA certificates87-93%87-92%
Prime 1-4 family loans72-85%71-84%
Multi-family loans74-87%69-86%
Prime home equity loans/lines of credit64-85%
Commercial real estate loans80-91%77-89%
Farm real estate loans67-88%70-83%
SBA Paycheck Protection Program loans10-90%

The ranges of lendable values exclude subprime residential loan collateral. Loans pledged by lower risk members for which we require only high level, summary reporting of eligible balances are generally discounted more heavily than loans on which we have detailed loan structure and underwriting information. For any form of loan collateral, additional credit risk based adjustments may be made to an individual member’s collateral that results in a lower lendable value than that indicated in the above table.

Subprime Loan Collateral: We have policies and processes to identify subprime residential mortgage loans pledged by members. We perform collateral reviews to estimate the volume of subprime loans pledged by members in blanket status.members. Depending on the quality of underwriting and administration, we may subject these loans to lower LVRs.
 
Internal Credit Ratings: We perform credit underwriting of our members and nonmember institutions and assign them an internal credit rating on a scale of one to seven, with a higher number representing a less favorable assessment of the institution's financial condition. These credit ratings are based on internal and third-party ratings models, credit analyses and consideration of credit ratings from independent credit rating organizations. Credit ratings are used in conjunction with other measures of credit risk in managing secured credit risk exposure.

A less favorable credit rating can cause us to 1) decrease the institution's borrowing capacity via lower LVRs, 2) require the institution to provide an increased level of detail on pledged collateral, 3) require it to deliver collateral into our custody, 4) prompt us to more closely and/or frequently monitor the institution, and/or 5) limit the institution's exposure through borrowing restrictions (e.g., maturity restrictions on new Advances or restrictions on borrowing capacity from higher risk collateral sources).

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The following tables show the distribution of internal credit ratings we assigned to member and nonmember institutions, which we use to help manage credit risk exposure.
(Dollars in billions)(Dollars in billions)  (Dollars in billions)   
December 31, 2023December 31, 2023 December 31, 2022
December 31, 2020 December 31, 2019
 Number Collateral-Based Number Collateral-Based Number Collateral-Based  Number Collateral-Based
CreditCredit of BorrowingCredit of BorrowingCredit of BorrowingCredit of Borrowing
RatingRating InstitutionsCapacityRating InstitutionsCapacityRating InstitutionsCapacityRating InstitutionsCapacity
1-31-3 441  $282.6  1-3 485  $276.3 
44 141  31.7  4 119  12.6 
55 36  1.3  5 37  1.1 
66 13  0.3  6 6  0.1 
77 5  —  7 5  — 
TotalTotal 636  $315.9  Total 652  $290.1 

We consider institutions with credit ratings of "1" through "4" to be financially sound. At December 31, 2020,2023, only 5455 institutions (eight(nine percent of the total) had credit ratings of "5" through "7,"7." an increase of six compared to the end of 2019. These institutions had $1.6 billion of borrowing capacity at December 31, 2020.2023. We believe the credit ratingratings distribution continues to show a financially sound membership base.

Member Failures, Closures, and Receiverships: There were no member failures in 2020.2023.

MPP
Overview: The residual amount of credit risk exposure to loans in the MPP is minimal, based on the following factors:

▪various credit enhancements for conventional loans, which are designed to protect us against credit losses;
▪conservative underwriting and loan characteristics consistent with favorable expected credit performance;
▪a small overall amount of delinquencies and defaults when compared to national averages;
▪a de minimis amount of credit losses totaling $0.1 million in 20202023 and $19.3 million since the introduction of the program in 2000, which represent an immaterial percentage of conventional loans' current unpaid principal balances at December 31, 2020 and of total purchases-to-date for the entire MPP; and
▪in addition to the low program-to-dateno credit losses based on financial analysis, we believe that future credit losses will not harm capital adequacy and will not significantly affect profitability except under the most extreme and unlikely credit conditions.in 2022.

Portfolio Loan Characteristics: The following table shows FICO® credit scores of homeowners at origination dates for the conventional loan portfolio.
FICO® Score (1)
FICO® Score (1)
FICO® Score (1)
FICO® Score (1)
December 31, 2020 December 31, 2019December 31, 2023 December 31, 2022
< 620< 620— % — %< 620— % — %
620 to < 660620 to < 660—  — 
660 to < 700660 to < 7006  6 
700 to < 740700 to < 74017  17 
>= 740>= 74077  77 
Weighted AverageWeighted Average765  765 
Weighted Average
Weighted Average
(1)Represents the FICO® score at origination.

There was no change in theThe distribution of FICO® scores at origination in 2020 compared to 2019.as of December 31, 2023 was the same as that at year-end 2022. The distribution of FICO® scores at origination is one indication of the portfolio's overall favorable credit quality. At December 31, 2020, 772023, 74 percent of the portfolio had scores at an excellent level of 740 or above and 9492 percent had scores above 700, which is a threshold generally considered indicative of homeowners with good credit quality.

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The following tables show loan-to-value ratios for conventional loans based on values estimated at the origination dates and current values estimated at the noted periods. The estimated current ratios are based on original loan values, principal paydowns that have occurred since origination, and a third-party estimate of changes in historical home prices for the zip code in which each loan resides. Both measures are weighted by current unpaid principal.

Based on Estimated Origination Value Based On Estimated Current Value Based on Estimated Origination Value Based On Estimated Current Value
Loan-to-ValueLoan-to-ValueDecember 31, 2020 December 31, 2019 Loan-to-ValueDecember 31, 2020December 31, 2019Loan-to-ValueDecember 31, 2023 December 31, 2022 Loan-to-ValueDecember 31, 2023December 31, 2022
<= 60%<= 60%15 % 13 % <= 60% 60 % 48 %<= 60%16 % 16 % <= 60% 77 % 76 %
> 60% to 70%> 60% to 70%16  15  > 60% to 70% 28  26 
> 70% to 80%> 70% to 80%55  58  > 70% to 80% 11  23 
> 80% to 90%> 80% to 90%9  9  > 80% to 90% 1  3 
> 90%> 90%5  5  > 90% to 100% —  — 
 > 100% —  — 
Weighted AverageWeighted Average73 % 74 % Weighted Average 55 % 59 %Weighted Average73 % 73 % Weighted Average 48 % 49 %

The levels of loan-to-value ratios are consistent with the portfolio's excellent credit quality. At December 31, 2020, we estimated that oneThe percent of loans havewith current loan-to-value ratios above 80of 60 percent compared to three percentand below at December 31, 2023 remained consistent with those at year-end 2022, as the end of 2019. The improvementchanges in the 2020 current loan-to-value ratios reflected the approximately six percent average increase in housing prices nationwide during the year.home values have been relatively stable.

Based on the available data, we believe we have minimal exposure to loans in the MPP considered to have characteristics of “subprime” or “alternative/nontraditional” loans. Further, we do not knowingly purchase any loan that violates the terms of our Anti-Predatory Lending Policy.

The following table presents the geographical allocation based on the unpaid principal balance of conventional loans in the MPP.
December 31, 2020December 31, 2019December 31, 2023December 31, 2022
OhioOhio63 %Ohio60 %Ohio62 %Ohio62 %
KentuckyKentucky13 Kentucky13 
IndianaIndiana10 Indiana11 
TennesseeTennessee3 Tennessee3 
Michigan1 Michigan1 
Alabama
All othersAll others10 All others12 
TotalTotal100 %Total100 %Total100 %Total100 %

Credit Enhancements: Conventional mortgage loans are primarily supported against credit losses by various combinationssome combination of primarycredit enhancements (primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) (for loans purchased before February 2011), and the Lender Risk Account (LRA)). The LRA is a hold back of a portion of the initial purchase price to cover expectedpotential credit losses for a specific pool of loans.losses. Starting after five years from the loan purchase date, we may return the hold back to PFIs if they manage credit risk to predefined acceptable levels of exposure on the loan pools of loans they sell to us. As a result, some pools of loans may have sufficient credit enhancements to recapture all losses while other pools of loans may not. The LRA had balances of $246$239 million and $233$244 million at December 31, 20202023 and 2019,2022, respectively. For more information, see Note 6 of the Notes to Financial Statements.

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Credit Performance: The table below provides an analysis of conventional loans delinquent or in the process of foreclosure, along with the national average serious delinquency rate.
Conventional Loan Delinquencies
Conventional Loan DelinquenciesConventional Loan Delinquencies
(Dollars in millions)(Dollars in millions)December 31, 2020 December 31, 2019(Dollars in millions)December 31, 2023 December 31, 2022
Early stage delinquencies - unpaid principal balance (1)
Early stage delinquencies - unpaid principal balance (1)
$49  $40 
Serious delinquencies - unpaid principal balance (2)
Serious delinquencies - unpaid principal balance (2)
$64  $12 
Early stage delinquency rate (3)
Early stage delinquency rate (3)
0.5 %0.4 %
Early stage delinquency rate (3)
0.5 %0.5 %
Serious delinquency rate (4)
Serious delinquency rate (4)
0.7 % 0.1 %
Serious delinquency rate (4)
0.1 % 0.2 %
National average serious delinquency rate (5)
National average serious delinquency rate (5)
3.7 % 1.3 %
National average serious delinquency rate (5)
1.1 % 1.4 %
(1)Includes conventional loans 30 to 89 days delinquent and not in foreclosure.
(2)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(3)Early stage delinquencies expressed as a percentage of the total conventional loan portfolio.
(4)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.
(5)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The December 31, 20202023 rate is based on September 30, 20202023 data.

In response to the COVID-19 pandemic, our mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related hardships such as illness, unemployment or loss of income when homeowners meet certain eligibility requirements. These forbearances do not alter the underlying terms of the loans, and loans not paid timely are considered past due. As a result, early stage and serious delinquencies increased in 2020. At December 31, 2020, $15 million and $51 million of conventional loans with an early stage and serious delinquency, respectively, were under a forbearance plan. Overall, the MPP has experienced a minimal amount of delinquencies, with delinquency rates continuing to be well below national averages.

We consider a high risk loan as having a current loan-to-value ratio above 100 percent. At December 31, 2020, we2023, none of our loans had a de minimis number of loans with a current loan-to-value ratio above 100 percent and none of them were seriously delinquent. Historically, high risk loans have experienced a minimal amount of serious delinquencies.percent. We believe these data further support our view that the overall portfolio is comprised of high-quality, well-performing loans.

Credit Losses: The following table showsResidual credit risk exposure depends on the effectsactual and potential credit performance of the loans in each pool compared to the pool's equity (on individual loans) and credit enhancements. Our available credit enhancements onat December 31, 2023 were ample and able to cover nearly all of the estimation ofestimated gross credit losses. As a result, estimated credit losses at the noted periods.December 31, 2023 were less than $1 million. Estimated credit losses, after credit enhancements, are accounted for in the allowance for credit losses or as a charge off (i.e., a reduction to the principal of mortgage loans held for portfolio). Our 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 period has not been revised to conform to the new basis of accounting.

(In millions)December 31, 2020December 31, 2019
Estimated credit losses, before credit enhancements$8 $4 
Estimated amounts deemed recoverable by:
Primary mortgage insurance(1)— 
Supplemental mortgage insurance(1)(2)
Lender Risk Account(6)(1)
Estimated credit losses, after credit enhancements$— $1 
The minimal amount of estimated credit losses provides further evidence of the overall health of the portfolio. As a result of adopting new accounting guidance, the estimated credit losses before credit enhancements increased at December 31, 2020 as our estimate now includes a forecast of housing prices, including the potential impact of the COVID-19 pandemic. Residual credit risk exposure depends on the actual and potential credit performance of the loans in each pool compared to the pool's equity (on individual loans) and credit enhancements, including PMI, the LRA, and SMI. Our available credit enhancements at December 31, 2020 were ample and able to cover the increase in estimated gross credit losses. In addition, we have assessed that we do not have any credit risk exposure to our PMI providers, and our estimation of credit exposure to SMI providers was not material at December 31, 2020 or 2019.

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Separate from our allowance for credit losses analysis, we regularly analyze potential adverse scenarios of lifetime credit risk exposure for the loans in the MPP. Even under severely adverse macroeconomic scenarios, including the increased delinquencies as a result of COVID-19 related forbearances, we expect that further credit losses would not significantly decrease profitability.to remain low.

Investments
Liquidity Investments: We purchasehold liquidity investments from counterparties that have a strong ability to repay principal and interest. These investments can be easily converted to cash and may be unsecured, guaranteed or supported by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the debt securitiesinstruments of highlyinvestment-grade rated investment-grade institutions, have appropriate and conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices, including active monitoring of credit quality of our counterparties and of the environment in which they operate.

Our unsecured liquidity investments to a counterparty or group of affiliated counterparties are limited by Finance Agency regulations to maturities of no more than nine months and limited to a dollar amount based on a percentage of eligible regulatory capital (defined as the lessor of our regulatory capital or the eligible amount of a counterparty's Tier 1 capital). The permissible percentage ranges from 1 percent to 15 percent. Through December 31, 2019, the range was based on the counterparty's lowest long-term credit rating of its debt from an NRSRO. In addition, pursuant to a Finance Agency regulation, we complemented reliance on NRSRO ratings for unsecured investment activity by also considering internal credit risk analytics on unsecured counterparties. Effective January 1, 2020, theThe permissible range is solely based on consideration of the internal credit risk ratings of unsecured counterparties as required by the Finance Agency's final rule issued in 2019. The dollar amount limits to our unsecured liquidity investment counterparties did not change materially as a result of this new rule.Agency regulations.
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The lowest long-term credit rating for a counterparty to which we are permitted to extend credit on an unsecured basis is double-B. However, we have generally only invested funds only in thoseon an unsecured basis with eligible institutions withthat have long-term credit ratings of at least single-A. In addition, we restrict maturities, reduce dollar exposure, and avoid new investments with counterparties we deem to represent elevated credit risk. Furthermore, a portion of our total liquidity investments are with counterparties for which the investments are secured with collateral (secured resale agreements). We believe these investments present no credit risk exposure to us.

The following table presents the carrying value of liquidity investments outstanding in relation to the counterparties' lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services. For resale agreements, the ratings shown are based on ratings of the associated collateral. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.

(In millions)(In millions)December 31, 2020
Long-Term Rating
AAATotal
(In millions)
(In millions)December 31, 2023
Long-Term RatingLong-Term Rating
AAAAAUnratedTotal
Unsecured Liquidity InvestmentsUnsecured Liquidity Investments
Interest-bearing deposits
Interest-bearing deposits
Interest-bearing depositsInterest-bearing deposits$— $555 $555 
Federal funds soldFederal funds sold500 3,740 4,240 
Total unsecured liquidity investmentsTotal unsecured liquidity investments500 4,295 4,795 
Total unsecured liquidity investments
Total unsecured liquidity investments
Guaranteed/Secured Liquidity InvestmentsGuaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell
Securities purchased under agreements to resell
Securities purchased under agreements to resellSecurities purchased under agreements to resell1,818 — 1,818 
U.S. Treasury obligationsU.S. Treasury obligations8,404 — 8,404 
GSE obligationsGSE obligations2,268 — 2,268 
Total guaranteed/secured liquidity investmentsTotal guaranteed/secured liquidity investments12,490 — 12,490 
Total guaranteed/secured liquidity investments
Total guaranteed/secured liquidity investments
Total liquidity investmentsTotal liquidity investments$12,990 $4,295 $17,285 
December 31, 2019
Long-Term Rating
AAATotal
Unsecured Liquidity Investments
Interest-bearing deposits$— $550 $550 
Federal funds sold1,023 3,810 4,833 
Certificates of deposit500 910 1,410 
Total unsecured liquidity investments1,523 5,270 6,793 
Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell2,349 — 2,349 
U.S. Treasury obligations9,662 — 9,662 
GSE obligations2,120 — 2,120 
Total guaranteed/secured liquidity investments14,131 — 14,131 
Total liquidity investments$15,654 $5,270 $20,924 
Some counterparties used to transact our securities purchased under agreements to resell are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. However, each of the counterparties are considered to have the equivalent of at least an investment grade rating based on our internal ratings resulting from a fundamental credit analysis. Securities purchased under agreements to resell are secured by the following types of collateral: U.S. Treasury obligations, U.S. agency/GSE obligations, or U.S. agency/GSE MBS. At December 31, 2023, the collateral received had long-term credit ratings of AA, based on the lowest long-term credit ratings of the issuer as provided by Standard & Poor’s, Moody’s, and/or Fitch Advisory Services. The terms of our securities purchased under agreements to resell are structured such that if the fair value of the underlying securities decreases below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. Additionally, these investments primarily mature overnight. All overnight investments in securities purchased under agreements to resell outstanding at December 31, 2023 were repaid according to their respective contractual terms.

At the end of 2020, our balance of liquidity investments decreased 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.
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The following table presents the lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services of our unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty's immediate parent for U.S. branches and agency offices of foreign commercial banks. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.

(In millions)(In millions)December 31, 2020(In millions)December 31, 2023
Counterparty Rating
Counterparty Rating
Domicile of Counterparty
Domicile of Counterparty
Domicile of CounterpartyDomicile of CounterpartyAAATotalAAATotal
DomesticDomestic$— $755 $755 
U.S. branches and agency offices of foreign commercial banks:U.S. branches and agency offices of foreign commercial banks:
CanadaCanada250 1,920 2,170 
Canada
Canada
France
United Kingdom
Finland
AustraliaAustralia— 710 710 
NetherlandsNetherlands— 710 710 
Finland250 — 250 
France— 200 200 
Germany
Total U.S. branches and agency offices of foreign commercial banksTotal U.S. branches and agency offices of foreign commercial banks500 3,540 4,040 
Total U.S. branches and agency offices of foreign commercial banks
Total U.S. branches and agency offices of foreign commercial banks
Total unsecured investment credit exposureTotal unsecured investment credit exposure$500 $4,295 $4,795 

The following table presents the remaining contractual maturity of our unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty's immediate parent for U.S. branches and agency offices of foreign commercial banks.

(In millions)December 31, 2020
Domicile of CounterpartyOvernightTotal
Domestic$755 $755 
U.S. branches and agency offices of foreign commercial banks:
Canada2,170 2,170 
Australia710 710 
Netherlands710 710 
Finland250 250 
France200 200 
Total U.S. branches and agency offices of foreign commercial banks4,040 4,040 
Total unsecured investment credit exposure$4,795 $4,795 

At December 31, 2020, all of the $4.8 billion of unsecured investment exposure was to counterparties with holding companies domiciled in countries receiving either AAA or AA long-term sovereign ratings. Furthermore, weWe restrict a significant portion of unsecured lending to overnight maturities, which further limits risk exposure to these counterparties. By Finance Agency regulation, all counterparties exposed to non-U.S. countries are required to be domestic U.S. branches of foreign counterparties.

MBS:

GSE MBS
At December 31, 2020, $8.72023, $18.1 billion of MBS held were GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest. We believe that the conservatorships of Fannie Mae and Freddie Mac lower the chance that they would not be able to fulfill their credit guarantees and that the securities issued by these two GSEs are effectively government guaranteed. In addition, based on the data available to us and our purchase practices, we believe that most of the mortgage loans backing our GSE MBS are of high quality with acceptable credit performance.guarantees.

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MBS Issued by Other Government Agencies
We also invest in MBS issued and guaranteed by Ginnie Mae. These investments totaled $1.0$1.1 billion at December 31, 2020.2023. We believe that the strength of Ginnie Mae's guarantee and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.

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Derivatives
Credit Risk Exposure: We mitigate most of the credit risk exposure resulting from derivative transactions through collateralization or use of daily settled contracts. The table below presents the lowest long-term counterparty credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services for derivative positions to which we had credit risk exposure at December 31, 2020.2023. The ratings displayed in this table should not be taken as an indication of future ratings.

(In millions)(In millions) (In millions)Total NotionalNet Derivatives Fair Value Before CollateralCash Collateral Pledged to (from) CounterpartiesNon-cash Collateral Pledged to (from) CounterpartiesNet Credit Exposure to Counterparties
Total NotionalNet Derivatives Fair Value Before CollateralCash Collateral Pledged to (from) CounterpartiesNet Credit Exposure to Counterparties
Nonmember counterparties:Nonmember counterparties:
Asset positions with credit exposure:Asset positions with credit exposure:
Asset positions with credit exposure:
Asset positions with credit exposure:
Uncleared derivatives:
Uncleared derivatives:
Uncleared derivatives:
AA-rated
AA-rated
AA-rated
A-rated
BBB-rated
Total uncleared derivatives
Liability positions with credit exposure:
Liability positions with credit exposure:
Liability positions with credit exposure:
Uncleared derivatives:
Uncleared derivatives:
Uncleared derivatives:
A-rated
A-rated
A-rated
Total uncleared derivatives
Total uncleared derivatives
Total uncleared derivatives
Cleared derivatives (1)
Cleared derivatives (1)
$464 $— $2 $2 
Liability positions with credit exposure:
Cleared derivatives (1)
20,591 (3)216 213 
Total derivative positions with credit exposure to nonmember counterparties21,055 (3)218 215 
Member institutions (2)
Member institutions (2)
Member institutions (2)
Member institutions (2)
137 1 — 1 
TotalTotal$21,192 $(2)$218 $216 
(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated Aa3 by Moody's and AA- by Standard & Poor's.
(2)Represents Mandatory Delivery Contracts.

Our exposure to cleared derivatives is primarily associated with the requirement to post initial margin through the clearing agent to the Derivatives Clearing Organizations. We may pledge both cash and non-cash (i.e., securities) as collateral to satisfy this initial margin requirement. However, the use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties.

At December 31, 2020,2023, the net exposure of uncleared derivatives had nowith residual credit risk exposure.exposure was $11 million. If interest rates rise or the composition of our derivatives change resulting in an increase to our gross exposure to uncleared derivatives, the contractual collateral provisions in these derivatives would limit our net exposure to acceptable levels.

Although we cannot predict if we will realize credit risk losses from any of our derivatives counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and, more generally, to continue to satisfy the terms and conditions of their derivative contracts with us. As of December 31, 2020,2023, we had $0.4$0.1 billion of notional principalamount of interest rate swaps with onea subsidiary of our member, JPMorgan Chase Bank, N.A., which also had outstanding credit services with us. Due to the amount of market value collateralization, weWe had no outstanding credit exposure to this counterparty related to interest rate swaps outstanding.outstanding given the collateral exchanged.

Liquidity Risk

Liquidity Overview
We strive to be in a liquidity position at all times to meet the borrowing needs of our members and to meet all current and future financial commitments. This objective is achieved by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of assets and liabilities. OurAt December 31, 2023, our liquidity position compliescomplied with the FHLBank Act, Finance Agency regulations, and internal policies.
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The FHLBank System's primary source of funds is the sale of Consolidated Obligations in the capital markets. Our ability to obtain funds through the sale of Consolidated Obligations at acceptable interest costs depends on the financial market's perception of the riskiness of the Obligations and on prevailing conditions in the capital markets, particularly the short-term
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capital markets. The System's favorable debt ratings, the implicit U.S. government backing ofwhich takes into account our debt,status as a GSE, and our effective risk management practices are instrumental in ensuring stable and satisfactory access to the capital markets.

We believe our liquidity position, as well as that of the System, continued to be strong during 2020, even in light of the temporary market disruptions earlier in the year caused by the COVID-19 pandemic.2023. Our overall ability to effectively fund our operations through debt issuances remained sufficient. Investor demand for System debt was robust in 2020,2023, as investors preferredcontinued to prefer short-term, high-quality money market instruments amid the uncertainty in the financial markets due to the COVID-19 pandemic.instruments. We believe the possibilitythere is a low probability of a liquidity or funding crisis in the System that would impair our ability to participate, on a cost-effective basis, in issuances of debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends is remote.dividends.

The System works collectively to manage and monitor the System-wide liquidity and funding risks. Liquidity risk includes the risk that the System could have difficulty rolling over short-term Obligations when market conditions change, also called refinancing risk. The System has a large reliance on short-term funding; therefore, it has a sharp focus on managing liquidity risk to very low levels. As shown on the Statements of Cash Flows, in 2020,2023, our portion of the System's debt issuances totaled $275.3$171.5 billion for Discount Notes and $37.8$137.5 billion for Bonds. Access to short-term debt markets has been reliable because investors, driven by liquidity preferences and risk aversion, have sought the System’s short-term debt, which has resulted in strong demand for debt maturing in one year or less.

See the Notes to Financial Statements for more detailed information regarding maturities of certain financial assets and liabilities which are instrumental in determining the amount of liquidity risk. In addition to contractual maturities, other assumptions regarding cash flows such as estimated prepayments, embedded call optionality, and scheduled amortization are considered when managing liquidity risks.

Liquidity Management and Regulatory Requirements
We manage liquidity risk by ensuring compliance with our regulatory liquidity requirements and regularly monitoring other metrics.

The Finance Agency establishes the expectations with respect to the maintenance of sufficient liquidity without access to the capital markets for a specified number of days, which was set as a period of between 10 to 30 calendar days in the base case. Under these expectations, all Advance maturities are assumed to renew, unless the Advances relate to former members who are ineligible to borrow new Advances. The maintenance of sufficient liquidity each day is intended to provide additional assurance that we can continue to provide Advances and Letters of Credit to members over an extended period without access to the capital markets. AsWith one exception, we were in compliance with these liquidity requirements at all times during 2023. On one day in the first quarter of December 31, 2020,2023, our regulatory liquidity balances fell below 10 calendar days because of positive daily cash balances were within these expectations.unusually large and unforeseen Advance demand in connection with the stress placed on the banking industry and financial markets in March 2023.

The Finance Agency also provides guidance related to asset/liability maturity funding gap limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. Although subject to change depending on conditions in the financial markets, the current regulatory requirement for funding gaps is between -10 percent to -20 percent for the three-month maturity horizon and is between -25 percent to -35 percent for the one-year maturity horizon. As of December 31, 2020,During 2023, we were operatingoperated within those limits.

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To support our member deposits, we also must meet a statutory deposit reserve requirement. The sum of our investments in obligations of the United States, deposits in eligible banks or trust companies, and Advances with a final maturity not exceeding five years must equal or exceed the current amount of member deposits. The following table presents the components of this liquidity requirement.

(In millions)December 31, 2020December 31, 2019
Deposit Reserve Requirement
Total Eligible Deposit Reserves$37,185 $61,590 
Total Member Deposits(1,327)(942)
Excess Deposit Reserves$35,858 $60,648 
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Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2020. We believe that, as in the past, we will continue to have sufficient liquidity, including from access to the debt markets to issue Consolidated Obligations, to satisfy these obligations on a timely basis.
(In millions)< 1 year1 < 3 years3 < 5 years> 5 yearsTotal
Contractual Obligations     
Long-term debt (Bonds) - par (1)
$18,677 $6,117 $3,703 $3,454 $31,951 
Operating leases1 2 2 1 6 
Mandatorily redeemable capital stock12 3 3 1 19 
Commitments to fund mortgage loans137 — — — 137 
Pension and other postretirement benefit obligations3 5 4 43 55 
Total Contractual Obligations$18,830 $6,127 $3,712 $3,499 $32,168 
(1)Does not include Discount Notes and contractual interest payments related to Bonds. Total is based on contractual maturities; the actual timing of payments could be affected by factors affecting redemptions.

Off-Balance Sheet Arrangements
The following table summarizes our off-balance sheet items at December 31, 2020. For more information, see Note 16 of the Notes to Financial Statements.
(In millions)< 1 year1 < 3 years3 < 5 years> 5 yearsTotal
Off-balance sheet items (1)
     
Standby Letters of Credit$27,741 $984 $86 $1 $28,812 
Standby bond purchase agreements— 35 — — 35 
Consolidated Obligations traded, not yet settled322 — — — 322 
Total off-balance sheet items$28,063 $1,019 $86 $1 $29,169 
(1)Represents notional amount of off-balance sheet obligations.
(In millions)December 31, 2023December 31, 2022
Deposit Reserve Requirement
Total Eligible Deposit Reserves$88,988 $80,428 
Total Member Deposits(1,120)(1,043)
Excess Deposit Reserves$87,868 $79,385 

Member Concentration Risk

We regularly assess concentration risks from business activity. We believe that the concentration of Advance activity is consistent with our risk management philosophy, and the impact of borrower concentration on market risk, credit risk, and operational risk, after considering mitigating controls, is minimal.

We believe the effect on credit risk exposure from borrower concentration is minimal because of our application of credit risk mitigations, the most important of which is over-collateralization of borrowings. In the remote possibility of failure of a member to whom we lent a large amount of Advances, combined with the Federal Deposit Insurance Corporation's decision not to repay Advances, we would implement our member failure plan. Our member failure plan, which we test periodically, would liquidate collateral to recover losses from losing principal and interest on the Advance balances.

Advance concentration has a minimal effect on market risk exposure because Advances are largely funded by Consolidated Obligations and interest rate swaps that have similar interest rate characteristics. Furthermore, additional increases in Advance concentration would not materially affect capital adequacy because Advance growth is supported by new purchases of capital stock as required by the Capital Plan.

Operational Risks

Operational risk is defined as the risk of an unexpected loss resulting from human error, fraud, inability to enforce legal contracts, or deficiencies in internal controls or information systems. We mitigate operational risks through adherence to internal policies, conformance with entity level controls, and through an emphasis on the importance of risk management, as further discussed below. In addition, the Internal Audit Department, which reports directly to the Audit Committee of the Board of Directors, regularly monitors and tests compliance with our policies, procedures and applicable regulatory requirements.

Internal Department Procedures and Controls
Each of our departments maintains and regularly reviews and enhances, as needed, a system of internal procedures and controls, including those that address proper segregation of duties. Each system is designed to prevent any one individual from
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processing the entirety of a transaction that affects member accounts, correspondent FHLB accounts or third-party servicers providing support to us. We review daily and periodic transaction activity reports in a timely manner to detect erroneous or fraudulent activity. Procedures and controls also are assessed on an enterprise-wide basis, independently from the business unit departments. We also are in compliance with Sarbanes-Oxley Sections 302 and 404, which focus on the control environment over financial reporting.

Information Systems
We rely heavily upon internal and third-party information systems and other technology to conduct and manage our business. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Our computer systems, software and networks may be subjected to cyberattacks (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) that could jeopardize the confidentiality or integrity of such information, or otherwise cause interruptions or malfunctions in our operations.

We mitigate the risk associated with cyberattacks through the implementation of multiple layers of security controls. Administrative, physical, and logical controls are in place for establishing, administering and actively monitoring system access, sensitive data, and system change. Additionally, separate groups within our organization and/or third parties test the strength of our security controls and responses, and recommend changes as needed to bolster resilience to security risks. See Item 1C. Cybersecurity for further discussion.

Disaster Recovery Provisions
We have a Business Resiliency Management Plan that provides us with the ability to maintain operations in various scenarios of business disruption. We review and update this plan periodically to ensure that it serves our changing operational needs and those of our members. In case of business disruptions, we have an off-site facility in a suburb of Cincinnati, Ohio, which is kept ready for use and tested at least annually, and employees are set up to work from home. We also have a back-up agreement in place with another FHLBank in the event that both of our Cincinnati-based facilities are inoperable.
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Insurance Coverage
We have insurance coverage for cyber risks, employee fraud, forgery and wrongdoing, and Directors' and Officers' liability. This coverage primarily provides protection for claims alleging breach of duty, misappropriation of funds, neglect, acts of omission, employment practices, and fiduciary liability. We also have property, casualty, computer equipment, automobile, and various other types of coverage.

Human Resources Policies and Procedures
The risks associated with our Human Resources function are categorized as either Employment Practices Risk or Human Capital Risk. Employment Practices Risk is the potential failure to properly administer our policies regarding employment practices and compensation and benefit programs for eligible staff and retirees, and the potential failure to observe and properly comply with federal, state and municipal laws and regulations. Human Capital Risk is the potential inability to attract and retain appropriate levels of qualified human resources to maintain efficient operations.

Comprehensive policies and procedures are in place to limit Employment Practices Risk. These are supported by an established internal control system that is routinely monitored and audited.

Human Capital Risk is the potential inability to attract and retain appropriate levels of qualified human resources to maintain efficient operations. With respect to Human Capital Risk, we strive to maintain a competitive salary and benefit structure, which is regularly reviewed and updated as appropriate to attract and retain qualified staff. In addition, we have a management succession plan that is reviewed and approved by our Board of Directors. See "Human Capital Resources" in Item 1. Business for further discussion.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Introduction

The preparation of financial statements in accordance with GAAP requires management to make a number of significant judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expenses during the reported periods. Although management believes its judgments, estimates, and assumptions are reasonable, actual results may differ and other parties could arrive at different conclusions.

WeGiven the assumptions and judgment used, we have identified the followingfair value measurement of interest rate derivatives and hedged items as our critical accounting policies that require management to make subjective or complex judgments about inherently uncertain matters.estimate. Our financial condition and results of operations could be materially affected under different conditions or different assumptions related to thesethis accounting policies.
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estimate.

Accounting forFair Value Measurement of Interest Rate Derivatives and Hedging Activity

Hedged Items
In accordance with Finance Agency regulations, we execute all derivatives to manage market risk exposure, not for speculation or solely for earnings enhancement. We record derivative instruments at their fair values on the Statements of Condition, and we record changes in these fair values in current period earnings. We strive to ensure that our use of derivatives maximizes the probability that they are highly effective in offsetting changes in the market values of the designated balance sheet instruments.

Fair Value Hedges
As indicated ininstruments, as applicable. The judgments and assumptions that are most critical to the "Useapplication of Derivatives in Market Risk Management" sectionthis accounting policy are those affecting the estimation of "Quantitative and Qualitative Disclosures About Risk Management," we designate a portion of our derivatives as fair value hedges. Fair value hedge accounting permits the changes in fair values of derivative instruments and the related hedged risk initems, which may have a significant impact on the hedged instruments to be recorded in the current period, thus offsetting the change in fair valueresults reported. At December 31, 2023, our derivatives portfolio included notional amounts of the derivatives. For derivatives$41.4 billion accounted for as fair value hedges generallyand $37.1 billion accounted for as economic hedges and the fair value of derivative assets and liabilities was $102.0 million and $9.8 million, respectively.

Our interest rate related derivatives (swaps and swaptions) are traded in the over-the-counter market. Therefore, we determine the fair value of each individual instrument using market value models that use readily observable market inputs as their basis (inputs that are actively quoted and can be validated to external sources). The fair value determination uses the standard valuation technique of discounted cash flow analysis, which uses observable market inputs, such as discount rate, forward interest rate, and volatility assumptions. Observable market inputs are those that are actively quoted and can be validated to external sources.

For derivatives accounted for as fair value hedges, the hedged risk is generally designated to be changes in the eligible benchmark interest rate. The result is that there has been a relatively small amount of unrealized earnings volatility from hedging market risk with derivatives.

In order to determine if a derivative qualifies for fair value hedge accounting, we must assess how effective the derivative has been, and is expected to be, in hedging changes in the fair values of the risk being hedged. EachHowever, each month, we perform effectiveness testing using a consistently applied standard statistical methodology, regression analysis, which measures the degree of correlation and relationship between the changes in fair values of the derivative and hedged instrument. The results of the statistical measures must pass predefined threshold values to enable us to conclude that the changes in fair values of the derivative transaction have a close correlation with the changes in fair values of the hedged instrument. If any measure is outside of its respective tolerance, the hedge would no longer qualify for fair value hedge accounting. This means we must then record the fair value change of the derivative in current earnings without any offset in the fair value change of the related hedged instrument. Due to the intentional matching of terms between the derivative and the hedged instrument, we expect that failing an effectiveness test will be infrequent, which has been the case historically.

If a derivative/hedged instrument transaction fails effectiveness testing, it does not mean that the hedge relationship is no longer successful in achieving its intended economic purpose. For example, a Consolidated Obligation hedged with an interest rate swap creates adjustable-rate funding, which is used to match fund adjustable-rate and other short-term Advances. The hedge achieves the desired result (matching the net funding with the asset) because, economically, the Advance is part of the overall hedging strategy and the reason for engaging in the derivative transaction.

Each month, wealso compute fair values on all derivatives and related hedged instruments across a range of interest rate scenarios.scenarios to understand the sensitivity to interest rate changes. For derivatives
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receiving long-haul fair value hedge accounting, the additional amount of earnings volatility under an assumption of stressed interest rate environments as of year-end 20202023 was in a range of negative $1$5 million to negativepositive $8 million. This range is minimal compared to the notional principal amount.

Fair Value Option—Economic Hedge
We account forIn addition to fair value hedges, a portion of Advance and Consolidated Obligation-relatedour derivatives using an accounting election called "fair value option," which is included in theare considered economic hedge category. An economic hedge under the fair value option does not require passing effectiveness testinghedges. In order to permithelp offset the derivative's fair market value to be offset with the market value of the hedged instrument, we hold related investments as is required under a fairtrading securities or make an accounting election called "fair value hedge. However, it recordsoption" for other instruments, as applicable. Under these elections, we record the fair market value of the hedged instrumentinstruments (e.g., certain Advances, investment securities, Bonds and Discount Notes) at itstheir full fair value instead of only the value related to the benchmark interest rate. See Note 15 of the Notes to Financial Statements for discussion of the valuation methodologies and primary inputs used to develop the fair value measurement for these instruments. The effect of electing full fair value is that the hedged instrument's market value includes the impact of changes in spreads between the designated benchmark interest rate and the interest rate index related to the hedged instrument, as well as other risk components, such as liquidity. Therefore, full fair value results in a different kind of unrealized earnings volatility, which could be higher or lower, compared to accounting under fair value hedge treatment.

Fair Values

We carry certain assets and liabilities on However, the Statement of Conditions at estimated fair value, including allvalues of the derivatives investments classified as available-for-sale and trading, and any financial instruments where we electedhedged items in the fair value option. Fair value is defined as the price 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. Because our financial instruments generallyeconomic hedge category do not have available quoted market prices, we determineany cumulative economic effect if the derivative and the hedged item are held to maturity, or contain mutual optional termination provisions at par. Since these fair values based on 1) our valuation modelsfluctuate throughout the hedge period and eventually return to zero (derivative) or 2) dealer indications, which may be basedpar value (hedged item) on the dealers' own valuation models and/maturity or pricesoption exercise date, the earnings impact of similar instruments.

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Valuation models and their underlying assumptions are based on the best estimates of management with respect to discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, and the income and expense related thereto. The use of different assumptions or changes in the models and assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings.

We have control processes designed to ensure that fair value measurements are appropriate and reliable,changes is only a timing issue for hedging relationships that they are based on observable inputs wherever possible and that our valuation approaches and assumptions are reasonable and consistently applied. Where applicable, valuations are also comparedremain outstanding to alternative external market data (e.g., quoted market prices, brokermaturity or dealer indications, pricing services and comparative analyses to similar instruments). For further discussion regarding how we measure financial assets and financial liabilities at fair value, see Note 15 of the Notes to Financial Statements.

call termination date.
We categorize each of our financial instruments carried at fair value into one of three levels in accordance with the fair value hierarchy. The hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources (Levels 1 and 2), while unobservable inputs reflect our assumptions of market variables (Level 3). Management utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Because items classified as Level 3 are valued using significant unobservable inputs, the process for determining the fair value of these items is generally more subjective and involves a high degree of management judgment and use of assumptions. As of December 31, 2020 and 2019, all of our assets and liabilities measured at fair value on a recurring basis were classified as Level 2 within the fair value hierarchy.


RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS

See Note 2 of the Notes to Financial Statements for a discussion of recently issued accounting standards and interpretations.


OTHER FINANCIAL INFORMATION

Income Statements (Quarter amounts are unaudited)

Summary income statements for each quarter within the last two years are provided in the tables below.
 2020
(In millions)
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Interest income$197 $239 $363 $447 
Interest expense116 146 214 365 
Net interest income81 93 149 82 
Non-interest income (loss)(15)(7)(15)31 
Non-interest expense26 29 35 33 
Net income$40 $57 $99 $80 
 2019
(In millions)
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Interest income$507 $591 $646 $701 
Interest expense408 504 549 579 
Net interest income99 87 97 122 
Non-interest income (loss)6 5 (3)(18)
Non-interest expense29 29 30 31 
Net income$76 $63 $64 $73 
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Investments

Data on investments for the years ended December 31, 2020, 20192023, 2022 and 20182021 are provided in the tables below.
(In millions)Carrying Value at December 31,
202020192018
Interest-bearing deposits$555 $550 $— 
Securities purchased under agreements to resell1,818 2,349 4,402 
Federal funds sold4,240 4,833 10,793 
Trading securities:
U.S. Treasury obligations8,362 9,627 — 
GSE obligations2,126 1,988 224 
MBS:
U.S. obligation single-family MBS— 1 — 
Total trading securities10,488 11,616 224 
Available-for-sale securities:
Certificates of deposit— 1,410 2,350 
GSE obligations142 132 53 
MBS:
GSE multi-family MBS150 — — 
Total available-for-sale securities292 1,542 2,403 
Held-to-maturity securities:
U.S. Treasury obligations42 35 36 
MBS:   
U.S. obligation single-family MBS986 1,671 2,041 
GSE single-family MBS3,013 4,500 5,544 
GSE multi-family MBS5,607 7,293 8,171 
Total held-to-maturity securities9,648 13,499 15,792 
Total securities20,428 26,657 18,419 
Total investments$27,041 $34,389 $33,614 

(In millions)Carrying Value at December 31,
202320222021
Interest-bearing deposits$1,875 $1,770 $340 
Securities purchased under agreements to resell5,242 520 1,282 
Federal funds sold6,774 5,399 5,505 
Trading securities:
U.S. Treasury obligations249 492 5,031 
GSE obligations1,497 1,488 1,750 
Total trading securities1,746 1,980 6,781 
Available-for-sale securities:
U.S. Treasury obligations7,612 7,194 4,499 
GSE obligations120 118 135 
MBS:
GSE multi-family2,440 1,320 633 
Total available-for-sale securities10,172 8,632 5,267 
Held-to-maturity securities:
U.S. Treasury obligations49 47 47 
MBS:   
U.S. obligation single-family1,109 1,232 1,057 
GSE single-family3,147 1,632 1,860 
GSE multi-family12,527 12,393 7,253 
Total held-to-maturity securities16,832 15,304 10,217 
Total securities28,750 25,916 22,265 
Total investments$42,641 $33,605 $29,392 
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As of December 31, 2020, investments2023, available-for-sale and held-to-maturity securities had the following maturity and yield characteristics.
(Dollars in millions)Due in one year or lessDue after one year through five yearsDue after five through 10 yearsDue after 10 yearsCarrying Value
Interest-bearing deposits$555 $— $— $— $555 
Securities purchased under agreements to resell1,818 — — — 1,818 
Federal funds sold4,240 — — — 4,240 
Trading securities:
U.S. Treasury obligations2,205 6,157 — — 8,362 
GSE obligations— 162 1,674 290 2,126 
Total trading securities2,205 6,319 1,674 290 10,488 
Yield on trading securities1.95 %2.30 %2.59 %2.68 %
Available-for-sale securities:
GSE obligations$— $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 securities42 1,056 4,396 4,154 9,648 
Yield on held-to-maturity securities0.15 %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 $27,041 
(Dollars in millions)Due in one year or lessDue after one year through five yearsDue after five through 10 yearsDue after 10 yearsCarrying Value
Available-for-sale securities:
U.S. Treasury obligations$— $6,894 $718 $— $7,612 
GSE obligations— 100 10 10 120 
MBS (1):
GSE multi-family— — 2,440 — 2,440 
Total available-for-sale securities$— $6,994 $3,168 $10 $10,172 
Yield on available-for sale securities (2)
— %1.72 %3.24 %3.07 %
Held-to-maturity securities:
U.S. Treasury obligations$49 $— $— $— $49 
MBS (1):
U.S. obligation single-family— — — 1,109 1,109 
GSE single-family— 1 858 2,288 3,147 
GSE multi-family40 1,695 10,792 — 12,527 
Total held-to-maturity securities$89 $1,696 $11,650 $3,397 $16,832 
Yield on held-to-maturity securities (2)
5.52 %5.78 %5.62 %4.43 %
(1)MBS allocated based on contractual principal maturities assuming no prepayments.

(2)
As of December 31, 2020, the FHLB heldThe yields on available-for-sale and held-to-maturity securities represent weighted averages of the following issuers with a carrying value greater than 10 percentcoupon rates adjusted by the impact of FHLB capital. The table includes GSEs,amortization and accretion of premiums and discounts for the total debt securities ofin the U.S. government, and government agencies and corporations.
(In millions)TotalTotal
Name of IssuerCarrying ValueFair Value
United States Treasury$8,404 $8,404 
Fannie Mae6,291 6,352 
Freddie Mac3,988 4,030 
Government National Mortgage Association987 1,028 
Federal Farm Credit Banks660 660 
Other (1)
98 98 
Total investment securities$20,428 $20,572 
(1)     Includes issuers of securities that have a carrying value that is less than 10 percent of FHLB capital.applicable portfolio.

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Loan Portfolio Analysis

Advances
The FHLB's outstanding loans, loans 90 daysfollowing table presents Advances by product type and redemption term, including index-amortizing Advances, which are presented according to their predetermined amortization schedules.
(In millions)December 31,
Types of Advances by Redemption Term20232022
Fixed-rate:
Due in 1 year or less$18,309 $42,188 
Due after 1 year through 3 years13,183 3,034 
Due after 3 years through 5 years7,908 2,957 
Due after 5 years through 15 years852 858 
Thereafter3 4 
Total par value40,255 49,041 
Fixed-rate, callable or prepayable (1):
Due in 1 year or less— — 
Due after 1 year through 3 years— — 
Due after 3 years through 5 years33 — 
Due after 5 years through 15 years— — 
Thereafter— — 
Total par value33 — 
Fixed-rate, putable:
Due in 1 year or less— — 
Due after 1 year through 3 years60 5 
Due after 3 years through 5 years100 80 
Due after 5 years through 15 years405 935 
Thereafter— — 
Total par value565 1,020 
Variable-rate:
Due in 1 year or less11,762 6,254 
Due after 1 year through 3 years5,495 3,912 
Due after 3 years through 5 years50 50 
Due after 5 years through 15 years— — 
Thereafter— — 
Total par value17,307 10,216 
Variable-rate, callable or prepayable (1):
Due in 1 year or less1,216 2,745 
Due after 1 year through 3 years9,000 1,506 
Due after 3 years through 5 years4,000 1,500 
Due after 5 years through 15 years— — 
Thereafter— — 
Total par value14,216 5,751 
Other (2) :
Due in 1 year or less273 304 
Due after 1 year through 3 years426 416 
Due after 3 years through 5 years255 294 
Due after 5 years through 15 years303 374 
Thereafter5 12 
Total par value1,262 1,400 
Total par value Advances$73,638 $67,428 
(1)Prepayable Advances are those Advances that may be contractually prepaid by the borrower on specified dates without incurring prepayment 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)20202019201820172016
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 %
(1)    See Note 1 of the Notes to Financial Statements for an explanation of the FHLB's non-accrual policy.termination fees.

(2)
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)202020192018
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.

Includes fixed-rate amortizing/mortgage matched and other fixed-rate Advances.
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Mortgage Loans

The following table presents mortgage loan redemptions according to their predetermined amortization schedules. All of our mortgage loans have fixed rates.
(In millions)December 31,
Redemption Term20232022
Due in 1 year or less$254 $255 
Due after 1 year through 5 years1,038 1,052 
Due after 5 years through 15 years2,642 2,630 
Thereafter3,026 3,069 
   Total unpaid principal balance$6,960 $7,006 

The following table presents certain credit risk related balances and ratios for mortgage loans.
(Dollars in millions)December 31, 2023December 31, 2022
Unpaid Principal Balance
Mortgage loans held for portfolio$6,960 $7,006 
Average loans outstanding during the period6,917 7,263 
Non-accrual loans1 1 
Allowance for credit losses on mortgage loans held for portfolio— — 
Net charge-offs— — 
Ratios (1)
Net charge-offs to average loans outstanding during the period— %— %
Allowance for credit losses to mortgage loans held for portfolio— — 
Non-accrual loans to mortgage loans held for portfolio0.02 0.02 
Allowance for credit losses to non-accrual loans24.73 21.44 
(1)The ratios have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may produce nominally different results.

Uninsured Term Deposits

At December 31, 2020, term deposits in denominations of $100,000 or more totaled $123,675,000. The table below presents the maturities for uninsured term deposits in denominations of $100,000 or more:deposits:
(In millions)
By remaining maturity at December 31, 2020
3 months or lessOver 3 months but within 6 monthsOver 6 months but within 12 monthsOver 12 months but within 24 monthsTotal
Time certificates of deposit$65 $38 $19 $2 $124 
(In millions)
By remaining maturity at December 31, 2023
3 months or lessOver 3 months but within 6 monthsOver 6 months but within 12 monthsOver 12 months but within 24 monthsTotal
Uninsured term deposits$58 $17 $45 $1 $121 
Ratios
 202020192018
Return on average assets0.31 %0.28 %0.32 %
Return on average equity5.78 5.65 6.29 
Average equity to average assets5.39 5.04 5.11 
Dividend payout ratio30.27 %74.06 %75.60 %


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.report.

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Item 8.     Financial Statements and Supplementary Data.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

To theBoard 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, 20202023 and 2019,December 31, 2022, and the related statements of income, of comprehensive income (loss), of capital and of cash flows for each of the three years in the period ended December 31, 20202023, including the related notes (collectively referred to as the “financial statements”).We also have audited the FHLB's internal control over financial reporting as of December 31, 2020,2023, 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, 20202023 and 2019, December 31, 2022, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 20202023 in 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, 2020,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Basis for Opinions

The 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 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 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) 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.

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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, 20202023 was $26$78.5 billion, of which 40%53% were designated as hedging instruments, and the fair value of derivative assets and liabilities as of December 31, 20202023 was $216$102.0 million and $4$9.8 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.

fhlbcin-20201231_g1.jpg
/s/ PricewaterhouseCoopers LLP

Cincinnati, Ohio
March 18, 202121, 2024


We have served as the FHLB’s auditor since 1990.


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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CONDITION

(In thousands, except par value)December 31,
 2020 2019
ASSETS   
Cash and due from banks (Note 3)$2,984,073  $20,608 
Interest-bearing deposits555,104  550,160 
Securities purchased under agreements to resell1,818,268  2,348,584 
Federal funds sold4,240,000  4,833,000 
Investment securities: (Note 4)
Trading securities10,488,124  11,615,693 
Available-for-sale securities (amortized cost of $286,869 and $1,541,815 at December 31, 2020 and 2019, respectively)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)
9,648,171  13,499,319 
Total investment securities20,427,882 26,657,197 
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)9,548,506  11,235,353 
Accrued interest receivable113,701  182,252 
Derivative assets (Note 7)215,888  267,165 
Other assets, net30,814  27,667 
TOTAL ASSETS$65,296,239  $93,491,559 
LIABILITIES   
Deposits (Note 8)$1,327,202  $951,296 
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)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)31,996,311  38,439,724 
Total Consolidated Obligations59,496,555  87,523,943 
Mandatorily redeemable capital stock (Note 11)19,454  21,669 
Accrued interest payable77,521  126,091 
Affordable Housing Program payable (Note 10)110,772  115,295 
Derivative liabilities (Note 7)3,813  1,310 
Other liabilities331,008  307,499 
Total liabilities61,366,325  89,047,103 
Commitments and contingencies (Note 16)00
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, 20192,640,863  3,366,428 
Retained earnings:
Unrestricted802,715 648,374 
Restricted501,321 446,048 
Total retained earnings1,304,036  1,094,422 
Accumulated other comprehensive loss (Note 12)(14,985) (16,394)
Total capital3,929,914  4,444,456 
TOTAL LIABILITIES AND CAPITAL$65,296,239  $93,491,559 

(a)Fair values: $9,792,136 and $13,501,207 at December 31, 2020 and 2019, respectively.
(In thousands, except par value)December 31,
 2023 2022
ASSETS   
Cash and due from banks (Note 3)$20,824  $19,604 
Interest-bearing deposits1,875,037  1,770,194 
Securities purchased under agreements to resell5,242,480  519,540 
Federal funds sold6,774,000  5,399,000 
Investment securities: (Note 4)
Trading securities1,745,742  1,979,816 
Available-for-sale securities (amortized cost of $10,247,585 and $8,680,491 and includes $819,794 and $0 pledged as collateral that may be repledged)10,171,588  8,631,765 
Held-to-maturity securities (fair value of $16,576,613 and $14,983,043)16,832,133  15,304,359 
Total investment securities28,749,463 25,915,940 
Advances (includes $214,035 and $4,954 at fair value under fair value option) (Note 5)73,553,162  67,019,555 
Mortgage loans held for portfolio, net of allowance for credit losses of $316 and $301 (Note 6)7,108,334  7,162,509 
Accrued interest receivable535,564  283,132 
Derivative assets (Note 7)101,991  490,560 
Other assets, net34,883  29,470 
TOTAL ASSETS$123,995,738  $108,609,504 
LIABILITIES   
Deposits (Note 8)$1,113,704  $1,039,427 
Consolidated Obligations: (Note 9)   
Discount Notes (includes $14,085,003 and $21,010,746 at fair value under fair value option)23,690,526  40,691,180 
Bonds (includes $20,657,254 and $5,469,583 at fair value under fair value option)91,756,430  59,667,745 
Total Consolidated Obligations115,446,956  100,358,925 
Mandatorily redeemable capital stock (Note 11)17,314  17,453 
Accrued interest payable422,886  290,194 
Affordable Housing Program payable (Note 10)139,807  87,923 
Derivative liabilities9,831  460 
Other liabilities418,557  312,891 
Total liabilities117,569,055  102,107,273 
Commitments and contingencies (Note 16)
CAPITAL (Note 11)   
Capital stock Class B putable ($100 par value); issued and outstanding shares: 48,459 and 51,5074,845,902  5,150,679 
Retained earnings:
Unrestricted964,436 840,774 
Restricted693,682 560,118 
Total retained earnings1,658,118  1,400,892 
Accumulated other comprehensive income (loss) (Note 12)(77,337) (49,340)
Total capital6,426,683  6,502,231 
TOTAL LIABILITIES AND CAPITAL$123,995,738  $108,609,504 

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,
 2020 20192018
INTEREST INCOME:   
Advances$434,815  $1,195,128 $1,407,702 
Prepayment fees on Advances, net34,583  8,421 679 
Interest-bearing deposits4,467  13,453 704 
Securities purchased under agreements to resell11,124  64,336 48,454 
Federal funds sold32,051  228,761 179,552 
Investment securities:
Trading securities263,847  180,506 1,535 
Available-for-sale securities4,782  27,691 40,444 
Held-to-maturity securities186,363 386,526 380,304 
Total investment securities454,992 594,723 422,283 
Mortgage loans held for portfolio275,600  340,025 321,328 
Loans to other FHLBanks60  70 20 
Total interest income1,247,692  2,444,917 2,380,722 
INTEREST EXPENSE:   
Consolidated Obligations:
Discount Notes294,573  988,600 915,032 
Bonds541,996  1,033,508 951,298 
Total Consolidated Obligations836,569 2,022,108 1,866,330 
Deposits3,525  15,861 14,009 
Loans from other FHLBanks0 3 5 
Mandatorily redeemable capital stock1,068  1,113 1,806 
Total interest expense841,162  2,039,085 1,882,150 
NET INTEREST INCOME406,530  405,832 498,572 
NON-INTEREST INCOME (LOSS):   
Net gains (losses) on investment securities257,566 210,207 7,086 
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(273,253) (177,912)(40,398)
Standby Letters of Credit fees13,936 9,429 8,753 
Other, net1,976  1,909 1,925 
Total non-interest income (loss)(7,068) (10,219)(36,818)
NON-INTEREST EXPENSE:   
Compensation and benefits50,242  46,077 46,317 
Other operating expenses20,901  21,629 20,019 
Finance Agency6,765  6,715 6,389 
Office of Finance5,119  4,930 4,984 
Other9,246  9,367 7,010 
Total non-interest expense92,273  88,718 84,719 
INCOME BEFORE ASSESSMENTS307,189  306,895 377,035 
Affordable Housing Program assessments30,826  30,801 37,884 
NET INCOME$276,363  $276,094 $339,151 

(In thousands)For the Years Ended December 31,
 2023 20222021
INTEREST INCOME:   
Advances$4,447,281  $1,208,130 $134,600 
Prepayment fees on Advances, net2,984  3,114 12,654 
Interest-bearing deposits120,733  25,192 663 
Securities purchased under agreements to resell147,325  49,132 400 
Federal funds sold626,682  203,630 5,265 
Investment securities:
Trading securities69,288  105,247 198,547 
Available-for-sale securities522,793  162,394 7,228 
Held-to-maturity securities805,862 258,682 106,498 
Total investment securities1,397,943 526,323 312,273 
Mortgage loans held for portfolio213,545  204,011 168,482 
Loans to other FHLBanks1,075  687 — 
Total interest income6,957,568  2,220,219 634,337 
INTEREST EXPENSE:   
Consolidated Obligations:
Discount Notes2,104,787  775,421 13,460 
Bonds3,931,630  935,003 343,495 
Total Consolidated Obligations6,036,417 1,710,424 356,955 
Deposits54,192  16,838 439 
Loans from other FHLBanks1 1 — 
Mandatorily redeemable capital stock2,885  5,522 383 
Other borrowings1 — — 
Total interest expense6,093,496  1,732,785 357,777 
NET INTEREST INCOME864,072  487,434 276,560 
NON-INTEREST INCOME (LOSS):   
Net gains (losses) on trading securities15,999 (336,889)(257,497)
Net gains (losses) on financial instruments held under fair value option(39,713)74,712 10,135 
Net gains (losses) on derivatives(2,065) 130,991 82,264 
Other, net30,240  27,919 26,826 
Total non-interest income (loss)4,461  (103,267)(138,272)
NON-INTEREST EXPENSE:   
Compensation and benefits53,666  51,122 47,794 
Other operating expenses32,853  25,107 22,616 
Finance Agency11,073  7,842 7,434 
Office of Finance6,410  6,373 5,157 
Voluntary housing contributions15,081 5,025 2,036 
Other7,110  8,089 6,552 
Total non-interest expense126,193  103,558 91,589 
INCOME BEFORE ASSESSMENTS742,340  280,609 46,699 
Affordable Housing Program assessments74,522  28,613 4,708 
NET INCOME$667,818  $251,996 $41,991 
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 (LOSS)

(In thousands)(In thousands)For the Years Ended December 31,
202020192018
(In thousands)
(In thousands)For the Years Ended December 31,
2023202320222021
Net incomeNet income$276,363 $276,094 $339,151 
Other comprehensive income adjustments:
Other comprehensive income (loss) adjustments:
Net unrealized gains (losses) on available-for-sale securities
Net unrealized gains (losses) on available-for-sale securities
Net unrealized gains (losses) on available-for-sale securitiesNet unrealized gains (losses) on available-for-sale securities4,348 480 14 
Pension and postretirement benefitsPension and postretirement benefits(2,939)(3,831)3,603 
Total other comprehensive income (loss) adjustmentsTotal other comprehensive income (loss) adjustments1,409 (3,351)3,617 
Comprehensive income$277,772 $272,743 $342,768 
Comprehensive income (loss)

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)(In thousands)Capital Stock
Class B - Putable		Retained EarningsAccumulated Other ComprehensiveTotal
(In thousands)
(In thousands)Capital Stock
Class B - Putable		Retained EarningsAccumulated Other Comprehensive Income (Loss)Total
SharesPar ValueUnrestrictedRestrictedTotalLossCapital SharesPar ValueUnrestrictedRestrictedTotalCapital
BALANCE, DECEMBER 31, 201742,411 $4,241,140 $617,034 $322,999 $940,033 $(16,660)$5,164,513 
BALANCE, DECEMBER 31, 2020
Comprehensive income (loss)Comprehensive income (loss)271,321 67,830 339,151 3,617 342,768 
Proceeds from sale of capital stock4,392 439,157 439,157 
Comprehensive income (loss)
Comprehensive income (loss)
Proceeds from issuance of capital stock
Repurchase of capital stockRepurchase of capital stock(2,972)(297,252)(297,252)
Net shares reclassified to mandatorily redeemable capital stock(626)(62,586)(62,586)
Net stock reclassified to mandatorily redeemable capital stock
Cash dividends on capital stockCash dividends on capital stock(256,384)(256,384)(256,384)
BALANCE, DECEMBER 31, 201843,205 4,320,459 631,971 390,829 1,022,800 (13,043)5,330,216 
Cash dividends on capital stock
Cash dividends on capital stock
BALANCE, DECEMBER 31, 2021
Comprehensive income (loss)Comprehensive income (loss)220,875 55,219 276,094 (3,351)272,743 
Proceeds from sale of capital stock5,918 591,762 591,762 
Comprehensive income (loss)
Comprehensive income (loss)
Proceeds from issuance of capital stock
Repurchase of capital stockRepurchase of capital stock(15,386)(1,538,544)(1,538,544)
Net shares reclassified to mandatorily redeemable capital stock(73)(7,249)(7,249)
Net stock reclassified to mandatorily redeemable capital stock
Cash dividends on capital stock
Cash dividends on capital stock
Cash dividends on capital stockCash dividends on capital stock(204,472)(204,472)(204,472)
BALANCE, DECEMBER 31, 201933,664 3,366,428 648,374 446,048 1,094,422 (16,394)4,444,456 
Adjustment for cumulative effect of accounting change366 366 366 
BALANCE, DECEMBER 31, 2022
BALANCE, DECEMBER 31, 2022
BALANCE, DECEMBER 31, 2022
Comprehensive income (loss)Comprehensive income (loss)  221,090 55,273 276,363 1,409 277,772 
Proceeds from sale of capital stock21,351 2,135,091  2,135,091 
Comprehensive income (loss)
Comprehensive income (loss)
Proceeds from issuance of capital stock
Repurchase of capital stockRepurchase 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 Corporation16,533 16,533 16,533 
Net stock reclassified to mandatorily redeemable capital stock
Cash dividends on capital stockCash dividends on capital stock  (83,648)(83,648) (83,648)
BALANCE, DECEMBER 31, 202026,409 $2,640,863 $802,715 $501,321 $1,304,036 $(14,985)$3,929,914 
Cash dividends on capital stock
Cash dividends on capital stock
BALANCE, DECEMBER 31, 2023

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 20192018
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 amortization64,208  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 option7,293 53,852 14,184 
Other adjustments, net1,014  757 (10)
Net change in:  
Accrued interest receivable68,750  (12,408)(41,482)
Other assets(4,476) (1,517)1,651 
Accrued interest payable(54,159) (21,224)18,077 
Other liabilities16,062  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 resell530,316  2,053,624 3,299,721 
Federal funds sold593,000  5,960,000 (7,143,000)
Premises, software, and equipment(1,861) (2,460)(2,173)
Trading securities:   
Proceeds from maturities5,885,074  139 164 
Purchases(4,499,938)(11,181,646)(216,277)
Available-for-sale securities:   
Proceeds from maturities1,810,000  6,525,000 6,850,000 
Purchases(550,267)(5,673,500)(8,336,000)
Held-to-maturity securities:   
Proceeds from maturities3,919,706  3,561,188 2,917,912 
Purchases(75,604) (1,290,195)(4,065,023)
Advances:   
Repaid512,521,226  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 collected4,291,048  1,922,162 1,117,727 
Purchases(2,691,664) (2,691,654)(1,978,111)
Net cash provided by (used in) investing activities31,380,597  6,019,200 7,544,079 
The accompanying notes are an integral part of these financial statements.

(In thousands)For the Years Ended December 31,
 2023 20222021
OPERATING ACTIVITIES:   
Net income$667,818  $251,996 $41,991 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Depreciation and amortization/(accretion)33  304,480 81,444 
Net change in derivative and hedging activities(631,889) 1,356,601 228,896 
Net change in fair value adjustments on trading securities(15,999) 336,889 257,497 
Net change in fair value adjustments on financial instruments held under fair value option39,713 (74,712)(10,135)
Other adjustments, net1,470  754 884 
Net change in:  
Accrued interest receivable(251,893) (196,020)25,036 
Other assets(1,830) (2,695)804 
Accrued interest payable321,176  254,707 (27,971)
Other liabilities51,197  (2,106)(20,069)
Total adjustments(488,022) 1,977,898 536,386 
Net cash provided by (used in) operating activities179,796  2,229,894 578,377 
INVESTING ACTIVITIES:   
Net change in:   
Interest-bearing deposits328,821  (1,590,953)219,561 
Securities purchased under agreements to resell(4,722,940) 762,900 535,828 
Federal funds sold(1,375,000) 106,000 (1,265,000)
Advances(6,209,773)(44,473,600)2,053,414 
Premises, software, and equipment(6,990) (1,512)(1,411)
Trading securities:   
Proceeds from maturities and paydowns250,073  2,975,089 1,275,119 
Proceeds from sales— 1,489,023 2,174,690 
Available-for-sale securities:   
Purchases(1,240,419)(4,505,274)(4,872,885)
Held-to-maturity securities:   
Proceeds from maturities and paydowns2,078,730  1,815,470 2,868,790 
Purchases(3,608,759) (7,218,330)(3,121,145)
Mortgage loans held for portfolio:   
Principal collected614,451  1,110,219 3,585,322 
Purchases(579,560) (724,885)(1,715,689)
Net cash provided by (used in) investing activities(14,471,366) (50,255,853)1,736,594 
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF CINCINNATI
FEDERAL HOME LOAN BANK OF CINCINNATI
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWSSTATEMENTS OF CASH FLOWSSTATEMENTS OF CASH FLOWS
(In thousands)(In thousands)For the Years Ended December 31,
2020 20192018
(In thousands)
(In thousands)For the Years Ended December 31,
20232023 20222021
FINANCING ACTIVITIES:FINANCING ACTIVITIES:   
Net change in deposits and pass-through reservesNet 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 change in deposits and pass-through reserves
Net change in deposits and pass-through reserves
Net proceeds from issuance of Consolidated Obligations:Net proceeds from issuance of Consolidated Obligations: 
Net proceeds from issuance of Consolidated Obligations:
Net proceeds from issuance of Consolidated Obligations:
Discount Notes
Discount Notes
Discount NotesDiscount Notes275,314,658  823,242,543 552,603,900 
BondsBonds37,753,386  27,927,333 29,071,856 
Bonds transferred from other FHLBanksBonds transferred from other FHLBanks0 12,697 0 
Payments for maturing and retiring Consolidated Obligations:Payments for maturing and retiring Consolidated Obligations: 
Discount Notes
Discount Notes
Discount NotesDiscount Notes(296,851,576) (821,075,874)(551,919,437)
BondsBonds(44,193,670) (35,191,800)(37,565,265)
Proceeds from issuance of capital stockProceeds from issuance of capital stock2,135,091  591,762 439,157 
Payments for repurchase of capital stockPayments for repurchase of capital stock(2,300,000)(1,538,544)(297,252)
Payments for repurchase/redemption of mandatorily redeemable capital stockPayments for repurchase/redemption of mandatorily redeemable capital stock(562,871) (8,764)(69,433)
Cash dividends paidCash dividends paid(83,648) (204,472)(256,384)
Partial recovery of prior capital distribution to Financing Corporation16,533 0 0 
Net cash provided by (used in) financing activities
Net cash provided by (used in) financing activities
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(28,411,276) (5,970,828)(7,965,740)
Net increase (decrease) in cash and due from banksNet increase (decrease) in cash and due from banks2,963,465  10,571 (16,513)
Cash and due from banks at beginning of the periodCash and due from banks at beginning of the period20,608  10,037 26,550 
Cash and due from banks at end of the periodCash and due from banks at end of the period$2,984,073  $20,608 $10,037 
Supplemental Disclosures:Supplemental Disclosures:   
Interest paidInterest paid$955,423  $2,116,628 $1,851,838 
Interest paid
Interest paid
Affordable Housing Program payments, netAffordable Housing Program payments, net$35,349  $32,842 $30,425 


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 18 for more information relating to transactions with stockholders.

The Federal Housing Finance Agency (Finance Agency) is, an independent agency in the independent Federal regulatorexecutive branch of the U.S. government, supervises and regulates the FHLBanks, Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae). The Finance Agency's stated mission, with respect to the FHLBanks, is to ensure that the housing government-sponsored enterprises operateFHLBanks fulfill their mission by operating in a safe and sound manner so that theyto serve as a reliable source of liquidity and funding for the housing finance and community investment.market throughout the economic cycle.

Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The FHLB does not havesponsor 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.

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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 15 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 amortized cost; however, accrued interest receivable is recorded separately on the Statement of Condition. Interest-bearing deposits include certificates of deposits 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 allows expected credit losses to be measured based on the difference between the fair value of the collateral and the investment's amortized cost, for securities purchased under agreements to resell. The credit loss would be limited to the difference between the fair value 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 would replenish in accordance with the relevant contractual terms.

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 are carried at fair value. The FHLB records changes in the fair value of these securities through non-interest income (loss) as a net gain or loss on trading securities. Finance Agency regulations and the FHLB's risk management policies prohibit the speculative trading of these instruments and 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. 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 in hedging relationships that have been hedged and qualify as a fair value hedge,hedges, 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
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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, which is 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 on a quarterly basis for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. AnIf applicable, 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. TheFor mortgage-backed securities (MBS) with multiple underlying loans classified as available-for-sale or held-to-maturity, the FHLB amortizes the related purchased premiums and accretes the related 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. For MBS with single or few underlying loans classified as available-for-sale or held-to-maturity, the FHLB amortizes the related purchased premiums and accretes the related purchased discounts using the contractual interest method (contractual method). 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.non-interest income (loss).

Debt Securities - Other-than-Temporary Impairment. Beginning January 1, 2020, the FHLB 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 was considered impaired when its fair value was less than its amortized cost. The FHLB considered an other-than-temporary impairment to have occurred under any of the following conditions:

▪if the FHLB had an intent to sell the impaired debt security;
▪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 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 was met, the FHLB 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 did not meet either of the first two conditions, the entire loss position, or total other-than-temporary impairment, was evaluated to determine the extent and amount of credit loss.

Advances. The FHLB records Advances (loans to members, former members or housing associates) either at amortized cost or at fair value when the fair value option has been elected. Advances recorded at amortized cost are carried at original cost net of periodic principal repayments and amortization of premiums and accretion of discounts (including discounts related to the Affordable Housing Program), unearned commitment fees, and fair value hedge adjustments. The FHLB amortizes or accretes premiums and discounts, and recognizes unearned commitment fees and fair value hedging adjustments on Advances to interest income using a level-yield methodology. For Advances recorded at amortized cost, accrued interest receivable is recorded separately on the Statements of Condition.

Beginning January 1, 2020, the FHLB adopted the CECL accounting guidance. The Advances carried at amortized cost are evaluated quarterly for expected credit losses. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the 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
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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 fair value 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. Mortgage loans held for portfolio are recorded at amortized cost, which is original cost, net of periodic principal repayments and amortization of premiums and accretion of discounts, hedging basis adjustments on loans initially classified as mortgage loan 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. AnIf deemed necessary, 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 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.

Modifications. Generally, the FHLB only grants mortgage loan modifications to borrowers experiencing financial difficulty. If the terms of the modified loan are at least as favorable to the lender as the terms offered to borrowers with similar collection risks for comparable loans and the modification to the terms of the loan is more than minor, the loan meets the accounting criteria for a new loan. Generally, a modification would not result in a new loan because the modified terms are not as favorable to the lender as terms for comparable loans that would be offered to similar borrowers.

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Collateral-dependent Loans. An impaired loan is considered collateral-dependent ifwhen the borrower is experiencing financial difficulty and repayment is expected to be provided solely bysubstantially through the sale of the underlying property; that is, there is no other available and reliable source of repayment.collateral. 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 charge-off is recorded on a 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
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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 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 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 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 $7,905,000$10,589,000 and $8,399,000,$6,212,000, which was net of accumulated depreciation and amortization of $33,439,000$39,774,000 and $31,106,000$37,971,000 as of December 31, 20202023 and 2019,2022, respectively. For the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, the depreciation and amortization expense for premises, software and equipment was $2,367,000, $2,257,000,$2,135,000, $2,256,000, and $2,889,000,$2,396,000, 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, 20202023 and 2019,2022, the FHLB included in the StatementStatements of Condition $4,980,000$2,644,000 and $5,816,000$3,439,000 of operating lease right-of-use assets in other assets, net, and $5,500,000$2,801,000 and $6,417,000$3,739,000 of operating lease liabilities in other liabilities. The FHLB recognized operating lease costs in the other operating expenses line of the StatementStatements of Income of $1,832,000$1,921,000, $1,840,000 and $1,842,000$1,848,000 for the years ended December 31, 20202023, 2022 and 2019.2021.

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 a derivative are reflected as cash flows from operating activities in the StatementStatements of Cash Flows unless the derivative meets the criteria to be a financing derivative.

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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.Types of Qualifying and Non-Qualifying Hedges. Each derivative is designated as oneThe FHLB has the following types of the following:hedges qualifying for hedge accounting treatment (fair value hedges) and hedges that do not qualify for hedge accounting treatment (economic hedges):

a.a qualifying hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a "fair value" hedge); or

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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 hedgehedging 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. 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.derivatives.”

Accrued Interest Receivables and Payables. The difference between accruals of interest receivables and payables on derivatives that are designated as fair value hedgehedging 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.derivatives.”

Discontinuance of Hedge Accounting. The FHLB discontinues hedge accounting prospectively when: (1) it determines that the derivative is no longer highly 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 fair value 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, theThe 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, or purchased financial instrument (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded
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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 for which the fair value 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 equitycapital stock to a 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.capital. After the reclassification, dividends on the capital stock are no longer classified as interest expense.

Restricted Retained Earnings. The Joint Capital Enhancement Agreement, as amended (Capital Agreement), provides that the FHLB 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, 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 calendar quarter. TheseAdditionally, the Capital Agreement provides that amounts in restricted retained earnings in excess of 150 percent of the FHLB's restricted retained earnings minimum (i.e., one percent of the FHLB's average balance of outstanding Consolidated Obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. Restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.
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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. Currently, the FHLB makes subsidies available to members in the form of grants. The FHLB also issuesprovides subsidies in the form of AHP Advances, which are issued at interest rates below the customary interest rate for non-subsidized Advances. When the FHLB makesFor 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 Guidance

Troubled Debt Restructuring ReliefImprovements to Reportable Segment Disclosures. . On March 27, 2020,In November 2023, 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. UnderFinancial Accounting Standards Board (FASB) issued guidance that improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Among other things, the CARES Act, TDR relief is available to banks for loan modifications relatednew guidance requires disclosure of significant segment expenses that are regularly provided to the adverse effectschief operating decision maker and included within each reported measure of segment profit or loss, requires segment disclosures for entities with a single reportable segment, and expands interim disclosure requirements. The guidance becomes effective for the coronavirus pandemic (COVID-19) granted to borrowers that were current as ofFHLB for the annual period ending December 31, 2019. TDR relief, as amended by2024 and 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.interim periods thereafter. Early adoption is permitted. The FHLB electeddoes not intend to applyadopt this guidance early. At this time, the TDR relief provided by the CARES Act.FHLB expects this new guidance will impact its disclosures, but will not have a material impact on its financial condition, results of operations, and cash flows.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. OnIn March 12, 2020, the Financial Accounting Standards Board (FASB)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 became effective immediately for the FHLB beginning March 12, 2020 and the amendments may be applied prospectively through December 31, 2022.2024. The FHLB either elected or plansoptional practical expedients specific to electfair value hedging relationships and contract modifications, and after June 30, 2023, the majority of the optional expedients and exceptions provided; however, the fullFHLB had no further variable-rate exposure to U.S. dollar London Interbank Offered Rate settings. These elections did not have a material effect on the FHLB's financial condition, results of operations, and cash flows has not yet been determined. In particular, during the fourth quarter of 2020, the FHLB elected optional practical expedients specific to the discounting transition on a retrospective basis, which did not have a material 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 became effective for the annual period ending after December 15, 2020 (December 31, 2020 for the FHLB) and will be applied retrospectively for all comparative periods presented. The FHLB adopted this guidance for the year ending December 31, 2020. The adoption of this guidance affected the FHLB's disclosures, but did not have any effect 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 StatementStatements 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.

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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, 20202023 and 20192022 were approximately $260,000$764,000 and $133,000.
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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 as of December 31, 2019.$408,000, respectively.


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

At December 31, 2023 and 2022, interest-bearing deposits and Federal funds sold were 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, 20202023 and 2019,2022, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to thetheir respective contractual terms. NaNNo allowance for credit losses was recorded for these assets at December 31, 20202023 and 2019.2022. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of (in thousands) $72$8,627 and $10$3,006 as of December 31, 2020,2023, and $1,162$5,524 and $210$1,299 as of December 31, 2019.2022.

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 0no allowance for credit losses was needed for its securities purchased under agreements to resell at December 31, 20202023 and 2019.2022. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of (in thousands) $13$2,373 and $3,503$232 as of December 31, 20202023 and 2019.2022, respectively.

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 andcommunities. The FHLB is not required to divest instruments that experiencedexperience credit deterioration after their purchase by the FHLB.purchase.

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Trading Securities

Table 4.1 - Trading Securities by Major Security Types (in thousands)
Fair ValueFair ValueDecember 31, 2020 December 31, 2019Fair ValueDecember 31, 2023 December 31, 2022
Non-mortgage-backed securities (non-MBS):Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligationsU.S. Treasury obligations$8,362,211 $9,626,964 
U.S. Treasury obligations
U.S. Treasury obligations
GSE obligationsGSE obligations2,125,580  1,988,259 
Total non-MBSTotal non-MBS10,487,791 11,615,223 
Mortgage-backed securities (MBS):Mortgage-backed securities (MBS):   Mortgage-backed securities (MBS):   
U.S. obligation single-family MBS333  470 
U.S. obligation single-family
Total MBS
TotalTotal$10,488,124  $11,615,693 

Table 4.2 - Net Gains (Losses) on Trading Securities (in thousands)
For the Years Ended December 31,
 202020192018
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,
 202320222021
Net unrealized gains (losses) on trading securities held at period end$14,592 $(284,575)$(211,450)
Net gains (losses) on trading securities sold/matured during the period1,407 (52,314)(46,047)
Net gains (losses) on trading securities$15,999 $(336,889)$(257,497)

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Available-for-Sale Securities

Table 4.3 - Available-for-Sale Securities by Major Security Types (in thousands)
December 31, 2020 December 31, 2023
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Non-MBS:Non-MBS:
U.S. Treasury obligations
U.S. Treasury obligations
U.S. Treasury obligations
GSE obligationsGSE obligations$140,600 $1,802 $0 $142,402 
Total non-MBSTotal non-MBS140,600 1,802 0 142,402 
MBS:MBS:
GSE multi-family MBS146,269 2,916 0 149,185 
GSE multi-family
GSE multi-family
GSE multi-family
Total MBSTotal MBS146,269 2,916 0 149,185 
TotalTotal$286,869 $4,718 $0 $291,587 
December 31, 2019
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Certificates of deposit$1,410,000  $111  $0 $1,410,111 
December 31, 2022
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Non-MBS:
U.S. Treasury obligations
U.S. Treasury obligations
U.S. Treasury obligations
GSE obligationsGSE obligations131,815 601 (342)132,074 
Total non-MBS
MBS:
GSE multi-family
GSE multi-family
GSE multi-family
Total MBS
TotalTotal$1,541,815 $712 $(342)$1,542,185 
(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of (in thousands) $1,242$47,969 and $5,149$40,246 at December 31, 20202023 and 2019.2022, respectively.

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Table 4.4 summarizes the available-for-sale securities with gross unrealized losses, which are aggregated by major security type and length of time that individual securities have been in a continuous gross unrealized loss position. All securities outstanding at December 31, 2020 had gross unrealized gains.

Table 4.4 - Available-for-Sale Securities in a Continuous Gross Unrealized Loss Position (in thousands)
December 31, 2023
December 31, 2023
December 31, 2023
Less than 12 MonthsLess than 12 Months12 Months or moreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Non-MBS:
U.S. Treasury obligations
U.S. Treasury obligations
U.S. Treasury obligations
GSE obligations
Total non-MBS
MBS:
GSE multi-family MBS
GSE multi-family MBS
GSE multi-family MBS
Total MBS
Total
December 31, 2019
Less than 12 Months12 Months or moreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
December 31, 2022
December 31, 2022
December 31, 2022
Less than 12 MonthsLess than 12 Months12 Months or moreTotal
Fair ValueFair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Non-MBS:
U.S. Treasury obligations
U.S. Treasury obligations
U.S. Treasury obligations
GSE obligationsGSE obligations$17,071 $(126)$21,574 $(216)$38,645 $(342)
Total non-MBS
MBS:
GSE multi-family MBS
GSE multi-family MBS
GSE multi-family MBS
Total MBS
TotalTotal$17,071 $(126)$21,574 $(216)$38,645 $(342)

Table 4.5 - Available-for-Sale Securities by Contractual Maturity (in thousands)
December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Year of MaturityYear of MaturityAmortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value		Year of MaturityAmortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
Non-MBS:Non-MBS:
Due in 1 year or less
Due in 1 year or less
Due in 1 year or lessDue in 1 year or less$0  $0  $1,410,000  $1,410,111 
Due after 1 year through 5 yearsDue after 1 year through 5 years11,248 11,309 0 0 
Due after 5 years through 10 yearsDue after 5 years through 10 years116,096 117,507 119,771 119,870 
Due after 10 yearsDue after 10 years13,256 13,586 12,044 12,204 
Total non-MBSTotal non-MBS140,600 142,402 1,541,815 1,542,185 
MBS (1)
MBS (1)
146,269 149,185 0 0 
TotalTotal$286,869 $291,587 $1,541,815 $1,542,185 
(1)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
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Table 4.6 - Interest Rate Payment Terms of Available-for-Sale Securities (in thousands)
December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Amortized cost of non-MBS:Amortized cost of non-MBS:   Amortized cost of non-MBS:   
Fixed-rateFixed-rate$140,600  $1,541,815 
Total amortized cost of non-MBSTotal amortized cost of non-MBS140,600 1,541,815 
Amortized cost of MBS:Amortized cost of MBS:
Fixed-rateFixed-rate146,269 0 
Fixed-rate
Fixed-rate
Total amortized cost of MBSTotal amortized cost of MBS146,269 0 
TotalTotal$286,869 $1,541,815 

The FHLB had 0no sales of securities out of its available-for-sale portfolio for the years ended December 31, 2020, 20192023, 2022 or 2018.2021.

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Held-to-Maturity Securities

Table 4.7 - Held-to-Maturity Securities by Major Security Types (in thousands)
December 31, 2020
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
December 31, 2023December 31, 2023
Amortized Cost (1)
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:Non-MBS:
U.S. Treasury obligationsU.S. Treasury obligations$41,398 $1 $0 $41,399 
U.S. Treasury obligations
U.S. Treasury obligations
Total non-MBS
Total non-MBS
Total non-MBSTotal non-MBS41,398 1 0 41,399 
MBS:MBS:    MBS:  
U.S. obligation single-family MBS986,399 41,218 0 1,027,617 
GSE single-family MBS3,013,326 105,657 (2)3,118,981 
GSE multi-family MBS5,607,048 5,146 (8,055)5,604,139 
U.S. obligation single-family
GSE single-family
GSE multi-family
Total MBS
Total MBS
Total MBSTotal MBS9,606,773 152,021 (8,057)9,750,737 
TotalTotal$9,648,171 $152,022 $(8,057)$9,792,136 
December 31, 2019
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
December 31, 2022
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:Non-MBS:
U.S. Treasury obligations
U.S. Treasury obligations
U.S. Treasury obligationsU.S. Treasury obligations$35,171 $5 $0 $35,176 
Total non-MBSTotal non-MBS35,171 5 0 35,176 
Total non-MBS
Total non-MBS
MBS:MBS:   
U.S. obligation single-family MBS1,670,783 13,499 (239)1,684,043 
GSE single-family MBS4,500,471 40,386 (24,072)4,516,785 
GSE multi-family MBS7,292,894 54 (27,745)7,265,203 
U.S. obligation single-family
U.S. obligation single-family
U.S. obligation single-family
GSE single-family
GSE multi-family
Total MBSTotal MBS13,464,148 53,939 (52,056)13,466,031 
Total MBS
Total MBS
TotalTotal$13,499,319 $53,944 $(52,056)$13,501,207 
 
(1)Carrying value equals amortized cost. Amortized cost of held-to-maturity securities includes adjustments made to the cost basis of an investment for accretion and amortization and excludes accrued interest receivable of (in thousands) $9,609$68,866 and $20,365 as of$48,937 at December 31, 20202023 and 2019.2022, respectively.

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Table 4.8 - Net Purchased Premiums Included in the Amortized Cost of MBS Classified as Held-to-Maturity (in thousands)
December 31, 2020December 31, 2019
Premiums$18,299 $32,071 
Discounts(7,269)(13,996)
Net purchased premiums$11,030 $18,075 

As required prior to adoption of the CECL accounting standard, Table 4.9 presents the HTM securities with unrealized losses, which are aggregated by major security type and length of time that individual securities had been in a continuous unrealized loss position as of December 31, 2019.

Table 4.9 - Held-to-Maturity Securities in a Continuous Unrealized Loss Position (in thousands)
December 31, 2019
Less than 12 Months12 Months or moreTotal
 Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
MBS:  
U.S. obligation single-family MBS$148,586 $(239)$0 $0 $148,586 $(239)
GSE single-family MBS702,730 (2,682)1,921,576 (21,390)2,624,306 (24,072)
GSE multi-family MBS3,385,731 (7,704)3,735,950 (20,041)7,121,681 (27,745)
Total MBS$4,237,047 $(10,625)$5,657,526 $(41,431)$9,894,573 $(52,056)

Table 4.10 - Held-to-Maturity Securities by Contractual Maturity (in thousands)
December 31, 2020December 31, 2019
December 31, 2023December 31, 2023December 31, 2022
Year of MaturityYear of Maturity
Amortized Cost (1)
Fair Value
Amortized Cost (1)
Fair ValueYear of Maturity
Amortized Cost (1)
Fair Value
Amortized Cost (1)
Fair Value
Non-MBS:Non-MBS:    Non-MBS:  
Due in 1 year or lessDue in 1 year or less$41,398 $41,399 $35,171 $35,176 
Due after 1 year through 5 yearsDue after 1 year through 5 years0 0 0 0 
Due after 5 years through 10 yearsDue after 5 years through 10 years0 0 0 0 
Due after 10 yearsDue after 10 years0 0 0 0 
Total non-MBSTotal non-MBS41,398 41,399 35,171 35,176 
MBS (2)
MBS (2)
9,606,773 9,750,737 13,464,148 13,466,031 
TotalTotal$9,648,171 $9,792,136 $13,499,319 $13,501,207 
(1)Carrying value equals amortized cost.
(2)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 4.114.9 - Interest Rate Payment Terms of Held-to-Maturity Securities (in thousands)
December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
Amortized cost of non-MBS:Amortized cost of non-MBS:   Amortized cost of non-MBS:   
Fixed-rateFixed-rate$41,398  $35,171 
Total amortized cost of non-MBSTotal amortized cost of non-MBS41,398  35,171 
Total amortized cost of non-MBS
Total amortized cost of non-MBS
Amortized cost of MBS:Amortized cost of MBS:   Amortized cost of MBS:   
Fixed-rateFixed-rate3,677,199  5,438,532 
Variable-rateVariable-rate5,929,574  8,025,616 
Total amortized cost of MBSTotal amortized cost of MBS9,606,773  13,464,148 
TotalTotal$9,648,171  $13,499,319 

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From time to time the FHLB may sell securities out of its held-to-maturity portfolio. These securities, generally, have less than 15 percent of the acquired principal outstanding at the time of the sale. These sales are considered maturities for the purposes of security classification. For the years ended December 31, 2020, 20192023, 2022 and 2018,2021, the FHLB did 0tnot sell any held-to-maturity securities.
Allowance for Credit Losses and Other-than-Temporary Impairment on Available-for-Sale and Held-to-Maturity Securities

The FHLB evaluates available-for-sale and held-to-maturity investment securities for credit losses on a quarterly basis. The FHLB adopted new accounting guidance for the measurement of credit losses on financial instruments on January 1, 2020. Prior to the adoption of CECL accounting guidance, the FHLB evaluated these securities for other-than-temporary impairment. See Note 1 - Summary of Significant Accounting Policies for additional information.

The FHLB’s available-for-sale and held-to-maturity securities are certificates of deposit, U.S. Treasury obligations, GSE obligations, and MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae and the National Credit Union Administration (NCUA) that are backed by single-family or multi-family mortgage loans. The FHLB only purchases securities considered investment quality. At December 31, 2020,2023 and 2022, all available-for-sale and held-to-maturity securities were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security usedowned by the FHLB. The FHLB’s internal ratings of these securities may differ from those obtained from an NRSRO.

The FHLB evaluates individual available-for-sale securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). At December 31, 2020, 02023 and 2022, certain available-for-sale securities were in an unrealized loss position. These losses are considered temporary as the FHLB expects to recover the entire amortized cost basis on these available-for-sale investment securities and does not intend to sell these securities nor considers it more likely than not that it will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. Further, the FHLB has not experienced any payment defaults on the instruments at December 31, 2023 or 2022 and all of these securities are highly-rated. In the case of U.S. obligations, they carry an explicit government guarantee. In the case of GSE securities, they are purchased under the assumption that the issuers' obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs. As a result, 0no allowance for credit losses was recorded on these available-for-sale securities at December 31, 2020,2023 and the FHLB did not consider any of these available-for-sale securities to be other-than-temporarily impaired at December 31, 2019.2022.

The FHLB evaluates its held-to-maturity securities for impairment on a collective, or pooled basis, unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. As of December 31, 2020,2023 and 2022, the FHLB had 0tnot established an allowance for credit loss on any held-to-maturity securities because the securities: (1) were all highly-rated and/or had short remaining terms to maturity, (2) had not experienced, nor did the FHLB expect, any payment default on the instruments, and (3) in the case of U.S., GSE, or other agency obligations, the securities carry an implicit or explicit government guarantee
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such that the FHLB considered the risk of nonpayment to be zero. Usingzero, and (4) in the prior accounting methodologycase of other-than-temporary impairment for credit impairment, none ofGSE securities, they are purchased under an assumption that the FHLB's held-to-maturityissuers' obligation to pay principal and interest on those securities were other-than-temporarily impaired at December 31, 2019.will be honored, taking into account their status as GSEs.


Note 5 - Advances

The FHLB offers a wide range of fixed- and variable-rate Advance products with different maturities, interest rates, payment characteristics and optionality. Fixed-rate Advances generally have maturities ranging from one day to 30 years. Variable-rate Advances generally have maturities ranging from less than 30 days to 10 years, where the interest rates reset periodically at a fixed spread to a specified index. The following table presents Advance redemptions by contractual maturity, including index-amortizing Advances, which are presented according to their predetermined amortization schedules.

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Table 5.1 - Advances by Redemption Term (dollars in thousands)
December 31, 2020December 31, 2019
December 31, 2023December 31, 2023December 31, 2022
Redemption TermRedemption TermAmountWeighted Average Interest
Rate		AmountWeighted Average Interest
Rate		Redemption TermAmountWeighted Average Interest
Rate		AmountWeighted Average Interest
Rate
Overdrawn demand deposit accountsOverdrawn demand deposit accounts$458 5.54 %$— — %
Due in 1 year or lessDue in 1 year or less$12,064,753 0.75 %$32,342,198 1.78 %
Due after 1 year through 2 yearsDue after 1 year through 2 years1,986,446 1.88 4,477,497 2.19 
Due after 2 years through 3 yearsDue after 2 years through 3 years1,445,139 2.15 1,996,647 2.30 
Due after 3 years through 4 yearsDue after 3 years through 4 years1,809,523 1.97 1,408,948 2.50 
Due after 4 years through 5 yearsDue after 4 years through 5 years2,361,604 1.02 1,765,323 2.08 
ThereafterThereafter5,339,932 1.34 5,273,531 2.35 
Total principal amountTotal principal amount25,007,397 1.16 47,264,144 1.94 
Commitment feesCommitment fees(170) (281) Commitment fees(81)  (90)  
Discount on Affordable Housing Program (AHP) Advances(2,053) (3,148) 
Premiums0  1,221  
DiscountsDiscounts(2,046) (2,530) 
Hedging adjustments358,173  109,929  
Discounts
Discounts(1,463) (2,073) 
Fair value hedging adjustmentsFair value hedging adjustments(87,501) (406,255) 
Fair value option valuation adjustments and accrued interestFair value option valuation adjustments and accrued interest702 238 
Total (1)
Total (1)
$25,362,003  $47,369,573  
Total (1)
Total (1)
$73,553,162  $67,019,555  
(1)Carrying values exclude accrued interest receivable of (in thousands) $26,426$366,930 and $60,682 as of$149,255 at December 31, 20202023 and 2019.2022, respectively.

The FHLB offers certain fixedfixed- and variable-rate Advances to members that may be prepaid on specified dates (call dates) without incurring prepayment or termination fees (callable Advances). If the call option is exercised, replacement funding may be available to members. Other Advances may only be prepaid subject to a prepayment fee paid to the FHLB that makes the FHLB financially indifferent to the prepayment of the Advance.

Table 5.2 - Advances by Redemption Term or Next Call Date (in thousands)
Redemption Term or Next Call DateRedemption Term or Next Call DateDecember 31, 2020December 31, 2019Redemption Term or Next Call DateDecember 31, 2023December 31, 2022
Overdrawn demand deposit accounts
Due in 1 year or lessDue in 1 year or less$15,375,354 $35,366,608 
Due after 1 year through 2 yearsDue after 1 year through 2 years1,716,058 4,982,222 
Due after 2 years through 3 yearsDue after 2 years through 3 years1,434,377 1,724,647 
Due after 3 years through 4 yearsDue after 3 years through 4 years1,785,672 1,381,718 
Due after 4 years through 5 yearsDue after 4 years through 5 years877,504 1,535,418 
ThereafterThereafter3,818,432 2,273,531 
Total principal amountTotal principal amount$25,007,397 $47,264,144 

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The FHLB also offers putable Advances. With a putable Advance, the FHLB effectively purchases put options from the member that allows the FHLB to terminate the Advance at predetermined dates. The FHLB normally would exercise its put option when interest rates increase relative to contractual rates.

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Table 5.3 - Advances by Redemption Term or Next Put Date for Putable Advances (in thousands)
Redemption Term or Next Put DateRedemption Term or Next Put DateDecember 31, 2020December 31, 2019Redemption Term or Next Put DateDecember 31, 2023December 31, 2022
Overdrawn demand deposit accounts
Due in 1 year or lessDue in 1 year or less$14,407,003 $33,451,448 
Due after 1 year through 2 yearsDue after 1 year through 2 years2,146,446 4,777,497 
Due after 2 years through 3 yearsDue after 2 years through 3 years1,485,139 2,129,647 
Due after 3 years through 4 yearsDue after 3 years through 4 years1,855,273 1,238,948 
Due after 4 years through 5 yearsDue after 4 years through 5 years2,346,604 1,611,073 
ThereafterThereafter2,766,932 4,055,531 
Total principal amountTotal principal amount$25,007,397 $47,264,144 

Table 5.4 - Advances by Interest Rate Payment Terms (in thousands)                    
December 31, 2020December 31, 2019
December 31, 2023December 31, 2023December 31, 2022
Fixed-rate (1)
Fixed-rate (1)
Due in one year or less
Due in one year or less
Due in one year or lessDue in one year or less$9,681,997 $25,918,472 
Due after one yearDue after one year9,513,793 10,194,636 
Total fixed-rate (1)
Total fixed-rate (1)
19,195,790 36,113,108 
Variable-rate (1)
Variable-rate (1)
Due in one year or lessDue in one year or less2,382,756 6,423,726 
Due in one year or less
Due in one year or less
Due after one yearDue after one year3,428,851 4,727,310 
Total variable-rate (1)
Total variable-rate (1)
5,811,607 11,151,036 
Total principal amountTotal principal amount$25,007,397 $47,264,144 
(1)Payment terms based on current interest rate terms, which reflect any option exercises or rate conversions that have occurred subsequent to the related Advance issuance.

Credit Risk Exposure and Security Terms

The FHLB's Advances are made to member financial institutions. The FHLB manages its credit exposure to Advances through an integrated approach that includes establishing a credit limit for each borrower and ongoing review of each borrower's financial condition, coupled with collateral and lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding.

In addition, the FHLB lends to eligible borrowers in accordance with federal law and Finance Agency regulations, which require the FHLB to obtain sufficient collateral to fully secure credit products. CollateralUnder these regulations, collateral eligible to secure new or renewed Advances includes:

▪one-to-four family mortgage loans (delinquent for no more than 60 days) and multi-family mortgage loans (delinquent for no more than 9030 days) and securities representing such mortgages;
▪loans and securities issued and insured, or guaranteed by the U.S. government or any U.S. government agency (for example, mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);
▪cash or deposits in the FHLB;
▪certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value, can be reliably discounted to account for liquidation and thatother risks, can be liquidated in due course and the FHLB can perfect a security interest in it; and
▪certain qualifying securities representing undivided equity interests in eligible Advance collateral.

Residential mortgage loans are the principal form of collateral for Advances. The estimated value of the collateral required to secure each member's credit products is calculated by applying collateral discounts, or haircuts, to the value of the collateral. In addition, community financial institutions are eligible to utilize expanded statutory collateral provisions for small business and agribusiness loans. The FHLB's capital stock owned by its member borrowers is also pledged as collateral. Collateral
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arrangements and a member’s borrowing capacity vary based on the financial condition and performance of the institution, the types of collateral pledged and the overall quality of those assets. The FHLB can also require additional or substitute collateral to protect its security interest. The FHLB also has policies and procedures for validating the reasonableness of its collateral valuations and makes changes to its collateral guidelines, as necessary, based on current market conditions. In addition, collateral verifications and reviews are performed by the FHLB based on the risk profile of the borrower. Management of the FHLB believes that these policies effectively manage the FHLB's credit risk from Advances.
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Members experiencing financial difficulties are subject to FHLB-performed “stress tests” ofto evaluate the impact of poorly performing assets on the member’s capital and loss reserve positions. Depending on the results of these tests, and the level of over-collateralization, a member may be allowed to maintain pledged loan assets in its custody, may be required to deliver those loans into the custody of the FHLB or its agent, or may be required to provide details on those loans to facilitate an estimate of their fair value. The FHLB perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the FHLB by a member priority over the claims or rights of any other party except for claims or rights of a third party that would otherwise be entitled to priority under applicable law and that are held by a bona fide purchaser for value or by a secured party holding a prior perfected security interest.

Using a risk-based approach, the FHLB considers the payment status, collateralization levels, and borrower's financial condition to be indicators of credit quality for its credit products. At December 31, 20202023 and 2019,2022, the FHLB did 0tnot have any Advances that were past due, in non-accrual status or considered impaired. In addition, there were 0 troubled debt restructurings related tono modifications of Advances of the FHLBwith borrowers experiencing financial difficulty during 20202023 or 2019.2022. At December 31, 20202023 and 2019,2022, the FHLB had rights to collateral on a member-by-member basis with an estimated value in excess of its outstanding extensions of credit.

Based upon the collateral held as security, its credit extension and collateral policies and the repayment history on Advances, the FHLB did not expect any credit losses on Advances as of December 31, 20202023 and, therefore, 0no allowance for credit losses on Advances was recorded. For the same reasons, the FHLB did 0tnot record any allowance for credit losses on Advances at December 31, 2019.2022.

Advance Concentrations

The FHLB's Advances are concentrated in commercial banks, savings institutions, and insurance companies. Advance borrower concentrations can change significantly due to members' ability to quickly increase or decrease their amount of Advances based on their current funding needs.

Table 5.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLB (dollars in millions)
December 31, 2020 December 31, 2019
 Principal% of Total Principal Amount of Advances  Principal% 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 Association3,443 14 JPMorgan Chase Bank, N.A.4,500 10 
Nationwide Life Insurance Company2,062 8 Third Federal Savings and Loan Association3,883 8 
Protective Life Insurance Company1,955 8 Total$22,257 47 %
Western-Southern Life Assurance Co.1,344 5 
Total$13,077 52 %
December 31, 2023 December 31, 2022
 Principal% of Total Principal Amount of Advances  Principal% of Total Principal Amount of Advances
JPMorgan Chase Bank, N.A.$14,000 19 %U.S. Bank, N.A.$19,000 28 %
U.S. Bank, N.A.10,000 14 Keybank, N.A.11,344 17 
Keybank, N.A.9,836 13 Third Federal Savings and Loan Association4,826 7 
Third Federal Savings and Loan Association5,008 7 Fifth Third Bank4,301 6 
Fifth Third Bank4,001 5 Nationwide Life Insurance Company3,136 5 
Total$42,845 58 %Total$42,607 63 %


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Note 6 - Mortgage Loans

Total mortgage loans held for portfolio represent residential mortgage loans under the Mortgage Purchase Program (MPP) that the FHLB's members originate, credit enhance, and then sell to the FHLB. The FHLB does not service any of these loans. The FHLB plans to retain its existing portfolio of mortgage loans.
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Table 6.1 - Mortgage Loans Held for Portfolio (in thousands)
December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
Fixed rate medium-term single-family mortgage loans (1)
Fixed rate medium-term single-family mortgage loans (1)
$731,756 $773,575 
Fixed rate long-term single-family mortgage loans8,584,239 10,207,367 
Fixed rate long-term single-family mortgage loans (2)
Total unpaid principal balanceTotal unpaid principal balance9,315,995 10,980,942 
PremiumsPremiums208,281 241,356 
DiscountsDiscounts(1,636)(2,166)
Hedging basis adjustments (2)
26,114 15,932 
Total mortgage loans held for portfolio (3)
9,548,754 11,236,064 
Hedging basis adjustments (3)
Total mortgage loans held for portfolio (4)
Allowance for credit losses on mortgage loansAllowance for credit losses on mortgage loans(248)(711)
Mortgage loans held for portfolio, netMortgage loans held for portfolio, net$9,548,506 $11,235,353 
(1)Medium-term is defined as aan original term of 15 years or less.
(2)Long-term is defined as an original term of greater than 15 years up to 30 years.
(3)Represents the unamortized balance of the mortgage purchase commitments' market values at the time of settlement. The market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.
(3)(4)Excludes accrued interest receivable of (in thousands) $30,109$23,193 and $36,739$21,846 at December 31, 20202023 and 2019.2022, respectively.

Table 6.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)
December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
Conventional mortgage loansConventional mortgage loans$9,133,942 $10,750,526 
FHA mortgage loans182,053 230,416 
Federal Housing Administration (FHA) mortgage loans
Total unpaid principal balanceTotal unpaid principal balance$9,315,995 $10,980,942 

Table 6.3 - Members, Including Any Known Affiliates that are Members of the FHLB, and Former Members Selling Five Percent or more of Total Unpaid Principal (dollars in millions)
December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Principal% of Total Principal% of Total Principal% of Total Principal% of Total
Union Savings BankUnion Savings Bank$2,826 30 %Union Savings Bank$3,574 33 %Union Savings Bank$1,513 22 22 %Union Savings Bank$1,651 24 24 %
FirstBank
Guardian Savings Bank FSBGuardian Savings Bank FSB796 9 Guardian Savings Bank FSB1,004 9 
FirstBank714 7 
The Huntington National Bank

Credit Risk Exposure

The FHLB manages credit risk exposure for conventional mortgage loans primarily though conservative underwriting and purchasing loans with characteristics consistent with favorable expected credit performance and by applying various credit enhancements.

Credit Enhancements. The conventional mortgage loans under the MPP are primarily supported by some combination of credit enhancements (primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) and the Lender Risk Account (LRA), including pooled LRA for those members participating in an aggregated MPP pool). These credit enhancements apply after a homeowner’s equity is exhausted. Beginning in February 2011, the FHLB discontinued the use of SMI for all new loan purchases and replaced it with expanded use of the LRA. The LRA is funded by the FHLB upfront as a portion of the purchase proceeds.proceeds to cover potential credit losses. The LRA is recorded in other liabilities in the StatementStatements of Condition. Excess funds from the LRA are released to the member in accordance with the terms of the Master Commitment Contract, which is typically after five years, subject to performance of the related loan pool. The LRA established for a pool of loans is limited to only covering losses of that specific pool of loans. Because the FHA makes an explicit guarantee on FHA mortgage loans, the FHLB does not require any credit enhancements on these loans beyond primary mortgage insurance.

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Table 6.4 - Changes in the LRA (in thousands)
For the Years Ended December 31,
202020192018
LRA at beginning of year$233,476 $213,260 $200,745 
Additions28,795 29,558 24,784 
Claims(101)(113)(492)
Scheduled distributions(15,735)(9,229)(11,777)
LRA at end of period$246,435 $233,476 $213,260 

Mortgage Loans Forbearance Plans. In response to the COVID-19 pandemic, which has caused economic strain on many home loan borrowers, the FHLB’s mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related hardships regardless of the payment status of the loan at the time of the request. Based on the most recent information received from mortgage servicers, as of December 31, 2020, there was approximately (in thousands) $77,207 in unpaid principal balance of conventional mortgage loans under a forbearance plan as a result of COVID-19, which represented one percent of conventional mortgage loans held for portfolio.
For the Years Ended December 31,
202320222021
LRA at beginning of year$244,254 $252,310 $246,435 
Additions8,248 7,476 20,181 
Claims(219)(25)(3)
Scheduled distributions(13,232)(15,507)(14,303)
LRA at end of period$239,051 $244,254 $252,310 

Payment Status of Mortgage Loans. The key credit quality indicator for conventional mortgage loans is payment status, which allows the FHLB to monitor the migration of past due loans.borrower performance. 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. Although certain loans have been granted a forbearance period as noted above, there has been no change in the terms of the loan. Accordingly, when a borrower fails to make timely payments of principal and/or interest for loans under forbearance, they are considered past due. Table 6.5 presents the payment status of conventional mortgage loans. As of December 31, 2020, (in thousands) $11,381 in unpaid principal balance of conventional loans under forbearance had a current payment status, (in thousands) $5,933 was 30 to 59 days past due, (in thousands) $9,190 was 60 to 89 days past due, and (in thousands) $50,703 was greater than 90 days past due.

Table 6.5 - Credit Quality Indicator of Conventional Mortgage Loans (in thousands)
December 31, 2020
Origination Year
Payment status, at amortized cost (1):
Prior to 20162016 to 2020Total
Past due 30-59 days$16,812 $19,036 $35,848 
Past due 60-89 days7,245 7,553 14,798 
Past due 90 days or more24,651 39,921 64,572 
Total past due mortgage loans48,708 66,510 115,218 
Current mortgage loans2,555,139 6,694,837 9,249,976 
Total conventional mortgage loans$2,603,847 $6,761,347 $9,365,194 
December 31, 2019
Payment status, at recorded investment (1):
Conventional Loans
Past due 30-59 days$35,416 
Past due 60-89 days5,572 
Past due 90 days or more12,421 
Total past due mortgage loans53,409 
Current mortgage loans10,985,818 
Total conventional mortgage loans$11,039,227 
(1)The recorded investment at December 31, 2019 includes accrued interest receivable whereas the amortized cost at December 31, 2020 excludes accrued interest receivable.
December 31, 2023
Origination Year
Payment status, at amortized cost:Prior to 20192019 to 2023Total
Past due 30-59 days$15,870 $13,220 $29,090 
Past due 60-89 days2,989 821 3,810 
Past due 90 days or more7,379 2,568 9,947 
Total past due mortgage loans26,238 16,609 42,847 
Current mortgage loans2,316,368 4,651,660 6,968,028 
Total conventional mortgage loans$2,342,606 $4,668,269 $7,010,875 
December 31, 2022
Origination Year
Payment status, at amortized cost:Prior to 20182018 to 2022Total
Past due 30-59 days$12,643 $14,440 $27,083 
Past due 60-89 days3,303 1,751 5,054 
Past due 90 days or more8,251 3,682 11,933 
Total past due mortgage loans24,197 19,873 44,070 
Current mortgage loans2,404,090 4,600,889 7,004,979 
Total conventional mortgage loans$2,428,287 $4,620,762 $7,049,049 

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Other delinquency statistics include loans in process of foreclosure, serious delinquency rates, loans past due 90 days or more and still accruing interest, and non-accrual loans. Table 6.6 presents other delinquency statistics of mortgage loans.

Table 6.6 - Other Delinquency Statistics (dollars in thousands)
December 31, 2020
December 31, 2023December 31, 2023
Amortized Cost:Amortized Cost:Conventional MPP LoansFHA LoansTotalAmortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
In process of foreclosure (1)
$5,031 $617 $5,648 
Serious delinquency rate (2)
Serious delinquency rate (2)
0.69 %3.28 %0.74 %
Serious delinquency rate (2)
0.14 %0.98 %0.16 %
Past due 90 days or more still accruing interest (3)
Past due 90 days or more still accruing interest (3)
$58,881 $5,961 $64,842 
Loans on non-accrual status$6,721 $0 $6,721 
Loans on non-accrual status (4)
December 31, 2019
Recorded Investment:Conventional MPP LoansFHA LoansTotal
December 31, 2022
December 31, 2022
December 31, 2022
Amortized Cost:Amortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
In process of foreclosure (1)
$8,311 $2,515 $10,826 
Serious delinquency rate (2)
Serious delinquency rate (2)
0.11 %2.49 %0.16 %
Serious delinquency rate (2)
0.18 %1.32 %0.19 %
Past due 90 days or more still accruing interest (3)
Past due 90 days or more still accruing interest (3)
$11,935 $5,805 $17,740 
Loans on non-accrual status$1,902 $0 $1,902 
Loans on non-accrual status (4)
(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported. During the year ended December 31, 2020, there were foreclosure moratoriums enacted in response to the COVID-19 pandemic.
(2)Loans that are 90 days or more past due or in the process of foreclosure (including past due or current loans in the process of foreclosure) expressed as a percentage of the total loan portfolio class.
(3)Each conventional loan past due 90 days or more still accruing interest is on a schedule/scheduled monthly settlement basis and contains one or more credit enhancements. Loans that are well secured and in the process of collection as a result of remaining credit enhancements and schedule/scheduled settlement are not placed on non-accrual status.
(4)At December 31, 2023 and 2022, (in thousands) $1,162 and $971, respectively, of conventional MPP loans on non-accrual status do not have a related allowance because these loans were either previously charged off to their expected recoverable value and/or the fair value of the underlying collateral, including any credit enhancements, is greater than the amortized cost of the loans.

The FHLB did 0tnot have any real estate owned at December 31, 20202023 or 2019.2022.

Troubled Debt RestructuringsMortgage Loan Modifications. A troubled debt restructuring is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related toUnder certain circumstances, the borrower's financial difficulties and that concession would not have been considered otherwise. The FHLB's troubled debt restructurings primarily involve loans where an agreement permits the recapitalizationFHLB offers loan modifications within its MPP. Most commonly, loan modifications consist of capitalization of any past due amounts up tointerest with a corresponding increase in unpaid principal and a recast of the originalmonthly principal and interest payment. Less frequently, loan amount and certain loans discharged in Chapter 7 bankruptcy.modifications may include interest rate reductions, term extensions, balloon payments, or a combination of these types. The FHLB's amortized cost inbasis of mortgage loans modified loans considered troubled debt restructuringswith borrowers experiencing financial difficulty during the year ended December 31, 2023 was (in thousands) $18,888 at December 31, 2020.$5,278. The FHLB's recorded investment in loans considered troubled debt restructuringsfinancial effect of the modifications was (in thousands) $13,514 at December 31, 2019. As noted above, amortized cost excludes accrued interest receivable whereas recorded investment includes accrued interest receivable. The amount of troubled debt restructurings is not considered material to the FHLB'sFHLB’s financial condition or results of operations, or cash flows.operations.

Evaluation of Current Expected Credit Losses

The current methodology used to develop the allowance for credit losses on mortgage loans is described below.

Mortgage Loans - FHA. The FHLB invests in fixed-rate mortgage loans secured by one-to-four familyone-to-four-family residential properties insured by the FHA. The FHLB expects to recover any losses from such loans from the FHA. Any losses from these loans that are not recovered from the FHA would be due tocaused by a claim rejection by the FHA and, as such, would be recoverable from the selling participating financial institutions. Therefore, the FHLB only has credit risk for these loans if the seller or servicer fails to pay for losses not covered by the FHA insurance.insurance, but in such instance, the FHLB would have recourse against the servicer for such failure. As a result, the FHLB did not record an allowance for credit losses on its FHA insured mortgage loans at December 31, 2020.loans. Furthermore, due to the insurance, none of these mortgage loans have been placed on non-accrual status.

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Mortgage Loans - Conventional MPP. Conventional loans are evaluated collectively when similar risk characteristics exist; loans that do not share risk characteristics with other pools are removed from the collective evaluation and evaluated for expected credit losses on an individual basis. For loans with similar risk characteristics, the FHLB determines the allowance for credit losses through analyses that include consideration ofconsidering various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. The FHLB uses a model that employs a variety of methods, such as projected cash flows to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as both current and forecasted property values and interest rates, as well as historical borrower behavior experience. The FHLB’s calculation of expected credit losses includes a forecast of home prices over the entire contractual terms of its conventional loans rather than a reversion to historical home price trends after an initial forecast period. The FHLB also incorporates associated credit enhancements to determine estimated expected credit losses.

If a loan is required to be evaluated on an individual basis, the FHLB estimates the present value of expected cash flows, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent.

Certain conventional loans may be evaluated for credit losses by using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent ifwhen the borrower is experiencing financial difficulty and repayment is expected to be provided bysubstantially through the sale of the underlying property, that is, if it is considered likely that the borrower will default.collateral. The FHLB may estimate the fair value of this collateral by either applying an appropriate loss severity rate, using third-party estimates, or using a property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The FHLB will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.

The FHLB also assesses other qualitative factors in its estimation of loan losses for the collectively evaluated population. This amount represents a subjective management judgment, based on facts and circumstances that exist as of the reporting date, which is intended to cover other expected losses that may not otherwise be captured in the methodology described above.

Prior to the adoption of the CECL accounting guidance, the methodology used to develop the allowance for credit losses for mortgage loans is described below.

Mortgage Loans Held for Portfolio - FHA. The FHLB's prior methodology for evaluating FHA loans for credit losses is consistent with the FHLB's current methodology described above. As a result, the FHLB did not establish an allowance for credit losses on its FHA insured mortgage loans at December 31, 2019.

Mortgage Loans Held for Portfolio - Conventional MPP. The FHLB determined the allowance for conventional loans through analyses that included consideration of various data observations such as past performance, current performance, loan portfolio characteristics, collateral-related characteristics, industry data, and prevailing economic conditions. The measurement of the allowance for credit losses consisted of: (1) collectively evaluating homogeneous pools of residential mortgage loans; (2) reviewing specifically identified loans for impairment; and (3) considering other relevant qualitative factors.

Collectively Evaluated Mortgage Loans: The credit risk analysis of conventional loans evaluated collectively for impairment considered historical delinquency migration, applied estimated loss severities, and incorporated the associated credit enhancements in order to determine the FHLB's best estimate of probable incurred losses at the reporting date. Migration analysis is a methodology for determining, through the FHLB's experience over a historical period, the rate of default on loans. The FHLB applied migration analysis to loans based on payment status categories such as current, 30, 60, and 90 days past due. The FHLB then estimated how many loans in these categories may migrate to a loss realization event and applied a current loss severity to estimate losses. The estimated losses were then reduced by the probable cash flows resulting from available credit enhancements. To properly determine the credit enhancements available to recover estimated losses, the FHLB performed the credit risk analysis of all conventional mortgage loans at the individual Master Commitment Contract level. The Master Commitment Contract is an agreement with a member in which the member agrees to make a best efforts attempt to sell a specific dollar amount of loans to the FHLB, generally over a one-year period. Any credit enhancement cash flows that were projected and assessed as not probable of receipt did not reduce estimated losses.

Individually Evaluated Mortgage Loans: Conventional mortgage loans that were considered troubled debt restructurings were specifically identified for purposes of calculating the allowance for credit losses. The FHLB measured impairment of these specifically identified loans by either estimating the present value of expected cash flows, estimating the loan's observable market price, or estimating the fair value of the collateral if the loan is collateral dependent. The FHLB removed specifically identified loans evaluated for impairment from the collectively evaluated mortgage loan population.

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Qualitative Factors: The FHLB also assessed other qualitative factors in its estimation of loan losses for the collectively evaluated population. This amount represented a subjective management judgment, based on facts and circumstances that existed as of the reporting date, which was intended to cover other incurred losses that may not otherwise have been captured in the methodology described above.

Allowance for Credit Losses on Conventional Mortgage Loans. The FHLB established anAt December 31, 2023 and 2022 the FHLB's allowance for credit losses on its conventional mortgage loans held for portfolio.portfolio was (in thousands) $316 and $301, respectively.The following table presents a rollforward of the allowance for credit losses on conventional mortgage loans.

Table 6.7 - Allowance for Credit Losses on Conventional Mortgage Loans (in thousands)
For the Years Ended December 31,
202020192018
Balance, beginning of period$711 $840 $1,190 
Adjustment for cumulative effect of accounting change(366)0 0 
Net charge offs(97)(129)(350)
Balance, end of period$248 $711 $840 

As required by prior accounting guidance for determining the allowance for credit losses on mortgage loans, Table 6.8 presents the recorded investment in mortgage loans by impairment methodology at December 31, 2019. The recorded investment in a loan is the unpaid principal balance of the loan adjusted for accrued interest, unamortized premiums or discounts, hedging basis adjustments and direct write-downs. The recorded investment is not net of any allowance.

Table 6.8 - Allowance for Credit Losses and Recorded Investment on Conventional Mortgage Loans by Impairment Methodology (in thousands)
December 31, 2019
Allowance for credit losses:
Collectively evaluated for impairment$711 
Individually evaluated for impairment0 
Total allowance for credit losses$711 
Recorded investment:
Collectively evaluated for impairment$11,025,713 
Individually evaluated for impairment13,514 
Total recorded investment$11,039,227 


Note 7 - Derivatives and Hedging Activities

Nature of Business Activity

The FHLB is exposed to interest rate risk primarily from the effect of changes in interest rate changes on its interest-earning assets and on the interest-bearing liabilities that finance these assets.rates. The goal of the FHLB's interest-rate risk management strategy is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the FHLB has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the FHLB monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities. The FHLB uses derivatives when they are considered to be the most cost-effective alternative to achieve the FHLB's financial and risk management objectives.

The FHLB transacts its derivatives with counterparties that are large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute Consolidated Obligations. Derivative transactions may be executed either with a counterparty, referred to as uncleared derivatives, or cleared through a Futures Commission Merchant (i.e., clearing agent) with a Derivative Clearing Organization, referred to as cleared derivatives. Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearinghouse), the executing counterparty is replaced with the Clearinghouse. The FHLB is not a derivative dealer and does not trade derivatives for short-term profit.

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Consistent with Finance Agency regulations, the FHLB enters into derivatives to manage the interest rate risk exposures inherent in otherwise unhedged assets and funding positions, to achieve the FHLB's risk management objectives and to act as an intermediary between its members and counterparties. The use of derivatives is an integral part of the FHLB's financial management strategy. However, Finance Agency regulations and the FHLB's financial management policy prohibit trading in, or the speculative use of, derivative instruments and limit credit risk arising from them.

The most common ways in which the FHLB uses derivatives are to:
▪reduce the interest rate sensitivity and repricing gaps of assets and liabilities;
▪preserve a favorable interest rate spread between the yield of an asset (e.g., an Advance) and the cost of the related liability (e.g., the Consolidated Obligation used to fund the Advance);
▪manage embedded options in assets and liabilities;
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▪reduce funding costs by combining a derivative with a Consolidated Obligation, as the cost of a combined funding structure can be lower than the cost of a comparable Consolidated Obligation; and
▪protect the value of existing asset or liability positions.

Types of Derivatives

The FHLB primarily uses the following derivative instruments:

Interest rate swaps - An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be exchanged and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable-rate index for the same period of time. As of December 31, 2020,2023, the variable-rates transactedreceived or paid by the FHLB in its derivatives includederivative transactions were based on the Federal Funds Overnight Index Swap (OIS), and Secured Overnight Financing Rate (SOFR), and London InterBank Offering Rate (LIBOR).

Swaptions - A swaption is an option on a swap that gives the buyer the right to enter into a specified interest rate swap at a certain time in the future. The FHLB may enter into both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

Forwards Contracts - Forwards contracts gives the buyer the right to buy or sell a specific type of asset at a specific time at a given price. For example, certain mortgage purchasedelivery commitments entered into by the FHLB are considered derivatives. The FHLB may hedge these commitments by selling to-be-announced (TBA) mortgage-backed securities for forward settlement. A TBA represents a forward contract for the sale of mortgage-backed securities at a future agreed upon date for an established price.

Application of Derivatives

The FHLB documents at inception all relationships between derivatives designated as hedging instruments and the hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing hedge effectiveness. This process includes linking all derivatives that are designated as fair value hedges to assets and liabilities on the Statements of Condition.

The FHLB may use certain derivatives as fair value hedges of associated financial instruments. However, because the FHLB uses derivatives when they are considered to be the most cost-effective alternative to achieve the FHLB's financial and risk management objectives, it may enter into derivatives that do not necessarily qualify for hedge accounting (economic hedges). The FHLB re-evaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.

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Types of Hedged Items

The types of assets and liabilities currently hedged with derivatives are:

Investments - The interest rate and prepayment risks associated with the FHLB's investment securities are managed through a combination of debt issuance and derivatives. The FHLB may manage the prepayment and interest rate risk by funding investment securities with Consolidated Obligations that have call features or by hedging these risks with interest rate swaps caps or floors, or swaptions. The FHLB may also manage the risk arising from changing market prices and volatility of investment securities by entering into economic derivatives that generally offset the changes in fair value of the securities. Derivatives held by the FHLB that are associated with trading and held-to-maturity securities are designated as economic hedges, and derivatives specifically linked to individual available-for-sale securities may qualify as fair value hedges or be designated as economic hedges.

Advances - The FHLB offers a wide range of fixed- and variable-rate Advance products with different maturities, interest rates, payment characteristics, and optionality. The FHLB may use derivatives to manage the repricing and/or option characteristics of Advances in order to more closely match the characteristics of the FHLB's funding liabilities. In general, whenever a member executes a fixed-rate Advance or a variable-rate Advance with embedded options, the FHLB may simultaneously execute a derivative with terms that offset the terms and embedded options in the Advance. For example, the FHLB may hedge
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a fixed-rate Advance with an interest rate swap where the FHLB pays a fixed-rate and receives a variable-rate, effectively converting the fixed-rate Advance to a variable-rate Advance. These types of hedges are typically treated as fair value hedges.

When issuing a putable Advance, the FHLB effectively purchases a put option from the member that allows the FHLB to put or extinguish the fixed-rate Advance, which the FHLB normally would exercise when interest rates increase. The FHLB may hedge these Advances by entering into a cancelable derivative.

Mortgage Loans - The FHLB invests in fixed-rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in actual and estimated prepayment speeds. The FHLB may manage the interest rate and prepayment risks associated with mortgage loans through a combination of debt issuance and derivatives. The FHLB issues both callable and non-callable debt and prepayment linked Consolidated Obligations to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The FHLB may purchase swaptions to minimize the prepayment risk embedded in mortgage loans. Although these derivatives are valid economic hedges against the prepayment risk of the loans, they are not specifically linked to individual loans and therefore do not receive fair value hedge accounting. These derivatives are marked-to-market through earnings.

Consolidated Obligations - The FHLB may enter into derivatives to hedge the interest rate risk associated with its debt issuances. The FHLB manages the risk arising from changing market prices and volatility of a Consolidated Obligation by matching the cash inflow on a derivative with the cash outflow on the Consolidated Obligation.

For example, fixed-rate Consolidated Obligations are issued and the FHLB may simultaneously enter into a matching interest rate swap in which the counterparty pays fixed cash flows to the FHLB designed to mirror in timing and amount the cash outflows the FHLB pays on the Consolidated Obligation. The FHLB pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate Advances. These transactions are treated as fair value hedges.

This strategy of issuing Consolidated Obligations while simultaneously entering into derivatives enables the FHLB to offer a wider range of attractively priced Advances to its members and may allow the FHLB to reduce its funding costs. The continued attractiveness of such debt depends on yield relationships between the FHLB's Consolidated Obligations and the derivative markets. If conditions in these markets change, the FHLB may alter the types or terms of the Consolidated Obligations.

Firm Commitments - Certain mortgage loan purchase commitments, such as mortgage delivery commitments, are considered derivatives. The FHLB may hedge these commitments by selling TBA mortgage-backed securities for forward settlement. The mortgage loan purchase commitment and the TBA used in the firm commitment hedging strategy are treated as an economic hedge and are marked-to-market through earnings. When the mortgage loan purchase commitment derivative settles, the current market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.

Financial Statement Effect and Additional Financial Information

The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. The notional amount reflects the FHLB's involvement in the various classes of financial instruments and represents neither the actual amounts exchanged nor the overall exposure of the FHLB to credit and market risk; the overall risk is much smaller.risk. The
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risks of derivatives only can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged and any offsets between the derivatives and the items being hedged.

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Table 7.1 summarizes the notional amount and fair value of derivative instruments and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.

Table 7.1 - Fair Value of Derivative Instruments (in thousands)
December 31, 2020 December 31, 2023
Notional Amount of DerivativesDerivative AssetsDerivative Liabilities Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:Derivatives designated as fair value hedging instruments:   Derivatives designated as fair value hedging instruments:  
Interest rate swapsInterest rate swaps$10,477,703 $272 $163,174 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:   Derivatives not designated as hedging instruments:  
Interest rate swapsInterest rate swaps13,267,539 691 2,563 
Interest rate swaptionsInterest rate swaptions2,175,000 713 0 
Mortgage delivery commitmentsMortgage delivery commitments137,352 1,056 0 
Mortgage delivery commitments
Mortgage delivery commitments
Total derivatives not designated as hedging instrumentsTotal derivatives not designated as hedging instruments15,579,891 2,460 2,563 
Total derivatives before adjustmentsTotal derivatives before adjustments$26,057,594 2,732 165,737 
Netting adjustments and cash collateral (1)
Netting adjustments and cash collateral (1)
 213,156 (161,924)
Total derivative assets and total derivative liabilitiesTotal derivative assets and total derivative liabilities $215,888 $3,813 
December 31, 2019
Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
December 31, 2022
Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:Derivatives designated as fair value hedging instruments:   Derivatives designated as fair value hedging instruments:  
Interest rate swapsInterest rate swaps$9,310,089 $7,227 $53,641 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:
Interest rate swapsInterest rate swaps28,501,469 9,685 363 
Interest rate swaps
Interest rate swaps
Interest rate swaptionsInterest rate swaptions6,000,000 12,464 0 
Forward rate agreements849,000 21 782 
Mortgage delivery commitments
Mortgage delivery commitments
Mortgage delivery commitmentsMortgage delivery commitments936,269 2,798 64 
Total derivatives not designated as hedging instrumentsTotal derivatives not designated as hedging instruments36,286,738 24,968 1,209 
Total derivatives before adjustmentsTotal derivatives before adjustments$45,596,827 32,195 54,850 
Netting adjustments and cash collateral (1)
Netting adjustments and cash collateral (1)
 234,970 (53,540)
Total derivative assets and total derivative liabilitiesTotal derivative assets and total derivative liabilities $267,165 $1,310 
 
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed by the FHLB with the same clearing agent and/or counterparty. Cash collateral posted, including accrued interest, was (in thousands) $375,390$98,438 and $293,148$533,270 at December 31, 20202023 and 2019.2022, respectively. Cash collateral received, including accrued interest, was (in thousands) $310$103,483 and $4,638$5,917 at December 31, 20202023 and 2019.2022, respectively.

With the adoption of the hedge accounting guidance on January 1, 2019, changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item. Prior to January 1, 2019, for designated fair value hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedge item) was recorded in non-interest income (loss) as net gains (losses) on derivatives and hedging activities.
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Table 7.2 presents the impact of qualifying fair value hedging relationships on the Statements of Incomenet interest income as well as the total interest income (expense) by product.

Table 7.2 - Impact of Fair Value Hedging Relationships on the Statements ofNet Interest Income (in thousands)
For the Year Ended December 31, 2020 For the Year Ended December 31, 2023
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
AdvancesAdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of IncomeTotal interest income (expense) recorded in the Statements of Income$434,815 $4,782 $(541,996)
Impact of Fair Value Hedging Relationships (1)
Interest income/expense:
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Interest rate swaps:
Interest rate swaps:
Net interest settlements
Net interest settlements
Net interest settlementsNet interest settlements$(90,959)$(2,484)$1,652 
Gain (loss) on derivativesGain (loss) on derivatives(263,046)(5,209)1,477 
Gain (loss) on hedged itemsGain (loss) on hedged items247,059 4,826 (1,377)
Price alignment amount (1)
Effect on net interest incomeEffect on net interest income$(106,946)$(2,867)$1,752 

For the Year Ended December 31, 2019
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
For the Year Ended December 31, 2022For the Year Ended December 31, 2022
AdvancesAdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of IncomeTotal interest income (expense) recorded in the Statements of Income$1,195,128 $27,691 $(1,033,508)
Impact of Fair Value Hedging Relationships (1)
Interest income/expense:
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Interest rate swaps:
Interest rate swaps:
Net interest settlements
Net interest settlements
Net interest settlementsNet interest settlements$36,052 $(311)$1,637 
Gain (loss) on derivativesGain (loss) on derivatives(160,006)(6,402)945 
Gain (loss) on hedged itemsGain (loss) on hedged items153,435 6,307 (905)
Price alignment amount (1)
Effect on net interest incomeEffect on net interest income$29,481 $(406)$1,677 

 
For the Year Ended December 31, 2018 (2)
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Impact of Fair Value Hedging Relationships (1)
Interest income/expense:
Net interest settlements (3)
$24,006 $(44)$(3,215)
Effect on net interest income$24,006 $(44)$(3,215)
Non-interest income (loss):
Gain (loss) on derivatives$(6,443)$(1,015)$2,758 
Gain (loss) on hedged items8,517 1,008 (2,950)
Effect on non-interest income (loss)$2,074 $(7)$(192)
 For the Year Ended December 31, 2021
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income$134,600 $7,228 $(343,495)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(109,824)$(20,521)$1,137 
Gain (loss) on derivatives254,102 71,733 (3,216)
Gain (loss) on hedged items(254,112)(71,331)3,190 
Price alignment amount (1)
49 (1)(1)
Effect on net interest income$(109,785)$(20,120)$1,110 
(1)    Includes interest rate swaps.
(2)    Prior period amounts were not conformed to new hedge accounting guidance adopted January 1, 2019.
(3)    Excludes (amortization)/accretion on closed fair value hedge relationships of (in thousands) $(602)This amount is for the year ended December 31, 2018.derivatives for which variation margin is characterized as a daily settled contract.

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Table 7.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items.

Table 7.3 - Cumulative Basis Adjustments for Fair Value Hedges (in thousands)
December 31, 2020
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
December 31, 2023December 31, 2023
AdvancesAdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Amortized cost of hedged asset or liability (1)
Amortized cost of hedged asset or liability (1)
$10,483,218 $286,869 $132,852 
Fair value hedging adjustmentsFair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost
Basis adjustments for active hedging relationships included in amortized cost
Basis adjustments for active hedging relationships included in amortized costBasis adjustments for active hedging relationships included in amortized cost$356,624 $11,751 $2,086 
Basis adjustments for discontinued hedging relationships included in amortized costBasis adjustments for discontinued hedging relationships included in amortized cost1,549 389 0 
Total amount of fair value hedging basis adjustmentsTotal amount of fair value hedging basis adjustments$358,173 $12,140 $2,086 
December 31, 2019
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
December 31, 2022
December 31, 2022
December 31, 2022
AdvancesAdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Amortized cost of hedged asset or liability (1)
Amortized cost of hedged asset or liability (1)
$9,160,841 $131,814 $210,696 
Fair value hedging adjustmentsFair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized costBasis adjustments for active hedging relationships included in amortized cost$109,078 $7,314 $708 
Basis adjustments for active hedging relationships included in amortized cost
Basis adjustments for active hedging relationships included in amortized cost
Basis adjustments for discontinued hedging relationships included in amortized costBasis adjustments for discontinued hedging relationships included in amortized cost851 0 0 
Total amount of fair value hedging basis adjustmentsTotal amount of fair value hedging basis adjustments$109,929 $7,314 $708 
(1)     Includes only the portion of amortized cost representing the hedged items in active or discontinued fair value hedging relationships. Amortized cost includes fair value hedging adjustments.

Table 7.4 presents net gains (losses) recorded in non-interest income (loss) on derivatives not designated as hedging instruments. For fair value hedging relationships, the portion of net gains (losses) representing hedge ineffectiveness were recorded in non-interest income (loss) for periods prior to January 1, 2019.

Table 7.4 - Net Gains (Losses) on Derivatives and Hedging Activities Recorded in Non-interest Income (Loss) on Derivatives Not Designated as Hedging Instruments (in thousands)
For the Years Ended December 31,
202020192018
Derivatives designated as fair value hedging relationships:
Interest rate swapsN/AN/A$1,875 
For the Years Ended December 31,For the Years Ended December 31,
2023202320222021
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:
Economic hedges:Economic hedges:
Economic hedges:
Economic hedges:
Interest rate swaps
Interest rate swaps
Interest rate swapsInterest rate swaps$(227,781)$(142,193)10,722 
Interest rate swaptionsInterest rate swaptions90,594 (19,019)(5,725)
Forward rate agreements(31,935)(10,619)4,446 
Net interest settlements
Net interest settlements
Net interest settlementsNet interest settlements(127,098)(24,363)(46,093)
Mortgage delivery commitmentsMortgage delivery commitments21,549 14,904 (5,349)
Total net gains (losses) related to derivatives not designated as hedging instrumentsTotal net gains (losses) related to derivatives not designated as hedging instruments(274,671)(181,290)(41,999)
Price alignment amount (1)
Price alignment amount (1)
1,418 3,378 (274)
Net gains (losses) on derivatives and hedging activities$(273,253)$(177,912)$(40,398)
Net gains (losses) on derivatives
(1)    This amount is for derivatives for which variation margin is characterized as a daily settled contract.

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Credit Risk on Derivatives

The FHLB is subject to credit risk due togiven the risk of non-performance by counterparties to its derivative transactions and manages credit risk through credit analysis,analyses of derivative counterparties, collateral requirements and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.

For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in these contracts to mitigate thethis risk. The FHLB requires collateral agreements on its uncleared derivatives with the collateral delivery threshold set to zero.

For cleared derivatives, the Clearinghouse is the FHLB's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent in turn notifies the FHLB. The FHLB utilizes two Clearinghouses for all cleared derivative transactions, LCH Ltd. and CME Clearing. At both Clearinghouses, variation margin is characterized as daily settlement payments, while initial margin is considered to be collateral. The requirement that the FHLB post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the FHLB to credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the value of cleared derivatives is posted daily through a clearing agent. On the Statements of Cash Flows, the variation margin cash payments, or daily settlement payments, are included in net change in derivative and hedging activities, as an operating activity.

For cleared derivatives, the Clearinghouse determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. At December 31, 2020,2023, the FHLB was not required to post additional initial margin by its clearing agents based on credit considerations.

Offsetting of Derivative Assets and Derivative Liabilities

The FHLB presents derivative instruments, related cash collateral received or pledged, and associated accrued interest, on a net basis by clearing agent and/or by counterparty when it has met the netting requirements.

The FHLB has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions, and it expects that the exercise of those offsetting rights by a non-defaulting party under these transactions would be upheld under applicable law upon an event of default, including bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the FHLB's clearing agent, or both. Based on this analysis, the FHLB presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

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Table 7.5 presents separately the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral. At December 31, 2020 and 2019, the FHLB did not receive or pledge any non-cash collateral. Any over-collateralization under an individual clearing agent and/or counterparty level is not included in the determination of the net unsecured amount.

Table 7.5 - Offsetting of Derivative Assets and Derivative Liabilities (in thousands)
December 31, 2020
Derivative Instruments Meeting Netting Requirements
Gross Recognized AmountGross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements (1)
Total Derivative Assets and Total Derivative Liabilities
December 31, 2023
December 31, 2023
December 31, 2023
Derivative Instruments Meeting Netting Requirements
Gross Recognized Amount
Gross Recognized Amount
Gross Recognized Amount
Derivative Assets:
Derivative Assets:
Derivative Assets:Derivative Assets:
UnclearedUncleared$1,047 $(1,047)$1,056 $1,056 
Uncleared
Uncleared
Cleared
Cleared
ClearedCleared629 214,203 0 214,832 
TotalTotal$215,888 
Total
Total
Derivative Liabilities:
Derivative Liabilities:
Derivative Liabilities:Derivative Liabilities:
UnclearedUncleared$161,633 $(157,820)$0 $3,813 
Uncleared
Uncleared
Cleared
Cleared
ClearedCleared4,104 (4,104)0 0 
TotalTotal$3,813 
Total
Total
December 31, 2022
December 31, 2019
December 31, 2022
Derivative Instruments Meeting Netting Requirements
Gross Recognized AmountGross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements (1)
Total Derivative Assets and Total Derivative Liabilities
December 31, 2022
Derivative Instruments Meeting Netting Requirements
Gross Recognized Amount
Gross Recognized Amount
Gross Recognized Amount
Derivative Assets:
Derivative Assets:
Derivative Assets:Derivative Assets:
UnclearedUncleared$16,637 $(13,903)$2,819 $5,553 
Uncleared
Uncleared
Cleared
Cleared
ClearedCleared12,739 248,873 0 261,612 
TotalTotal$267,165 
Total
Total
Derivative Liabilities:
Derivative Liabilities:
Derivative Liabilities:Derivative Liabilities:
UnclearedUncleared$53,533 $(53,069)$846 $1,310 
Uncleared
Uncleared
Cleared
Cleared
ClearedCleared471 (471)0 0 
TotalTotal$1,310 
Total
Total
(1)    RepresentsIncludes mortgage delivery commitments and forward rate agreements that are not subject to an enforceable netting agreement.
(2)    Any over-collateralization at the individual clearing agent and/or counterparty level is not included in the determination of the net amount. At December 31, 2023, the FHLB had additional net credit exposure of (in thousands) $810,559 due to instances where the FHLB's non-cash collateral to a counterparty exceeded the FHLB's net derivative position.

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Note 8 - Deposits

The FHLB offers demand and overnight deposits to members and to qualifying nonmembers. In addition, the FHLB offers short-term interest-bearing deposit programs to members, and in certain cases, to qualifying nonmembers. A member that services mortgage loans may deposit funds collected in connection with the mortgage loans at the FHLB, pending disbursement of such funds to the owners of the mortgage loans.funds. The FHLB classifies these funds as other interest-bearing deposits. Deposits classified as demand, overnight, and other pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit.

Certain financial institutions have agreed to maintain compensating balances in consideration for correspondent and other non-credit services. These balances are included in interest-bearing deposits on the accompanying financial statements. The compensating balances required to be held by the FHLB averaged (in thousands) $271,195 and $6,178 during 2020 and 2019.
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Non-interest bearing deposits represent funds for which the FHLB acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks.

Table 8.1 - Deposits (in thousands)
December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
Interest-bearing:Interest-bearing:   Interest-bearing:   
Demand and overnightDemand and overnight$1,190,508  $906,028 
TermTerm123,675  27,850 
OtherOther13,019  7,179 
Total interest-bearing1,327,202  941,057 
Total interest-bearing deposits
Non-interest bearing: 
Other0  10,239 
Total non-interest bearing0  10,239 
Total deposits$1,327,202  $951,296 


Note 9 - Consolidated Obligations

Consolidated Obligations consist of Consolidated Bonds and Discount Notes. The FHLBanks issue Consolidated Obligations through the Office of Finance as their agent. In connection with each debt issuance, each FHLBank specifies the amount of debt it wants issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the FHLBank records as a liability its specific portion of Consolidated Obligations for which it is the primary obligor.

The Finance Agency and the U.S. Secretary of the Treasury oversee the issuance of FHLBank debt through the Office of Finance. Consolidated Bonds may be issued to raise short-, intermediate-, and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated Discount Notes are issued primarily to raise short-term funds and have original maturities up to one year. These notes generally sell at less than their face amount and are redeemed at par value when they mature.

Although the FHLB is primarily liable for its portion of Consolidated Obligations, the FHLB is also jointly and severally liable with the other 10 FHLBanks for the payment of principal and interest on all Consolidated Obligations of each of the other FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any Consolidated Obligation whether or not the Consolidated Obligation represents a primary liability of such FHLBank. Although an FHLBank has never paid the principal or interest payments due on a Consolidated Obligation on behalf of another FHLBank, if that event should occur, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement from the FHLBank that is primarily liable for that Consolidated Obligation for any payments and other associated costs, including interest to be determined by the Finance Agency. If, however, that FHLBank is unable to satisfy its repayment obligations, the Finance Agency may allocate the outstanding liabilities of that FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all Consolidated Obligations outstanding or in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner.

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The par values of the 11 FHLBanks' outstanding Consolidated Obligations were approximately $746.8$1,204.3 billion and $1,025.9$1,181.7 billion at December 31, 20202023 and 2019.2022, respectively. Finance Agency regulations require the FHLB to maintain unpledged qualifying assets equal to its participation in the Consolidated Obligations outstanding. Qualifying assets are defined as cash; secured Advances; obligations of or fully guaranteed by the United States; and investments (i.e., obligations, participations or other instruments of or issued by Fannie Mae or Ginnie Mae; mortgage, obligations, or other securities which are or ever have been sold by Freddie Mac; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLB is located). Any assets subject to a lien or pledge for the benefit of holders of any issue of Consolidated Obligations are treated as if they were free from lien or pledge for purposes of compliance with these regulations.

Table 9.1 - Consolidated Discount Notes Outstanding (dollars in thousands)
 Book Value Principal Amount 
Weighted Average Interest Rate (1)
December 31, 2020$27,500,244  $27,502,730  0.11 %
December 31, 2019$49,084,219  $49,176,985  1.56 %
 Carrying Value Principal Amount 
Weighted Average Interest Rate (1)
December 31, 2023$23,690,526  $23,837,675  5.22 %
December 31, 2022$40,691,180  $41,007,526  3.95 %
(1)Represents an implied rate without consideration of concessions.

Table 9.2 - Consolidated Bonds Outstanding by Original Contractual Maturity (dollars in thousands)
December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Year of Original Contractual MaturityYear of Original Contractual MaturityAmountWeighted Average Interest Rate AmountWeighted Average Interest RateYear of Original Contractual MaturityAmountWeighted Average Interest Rate AmountWeighted Average Interest Rate
Due in 1 year or lessDue in 1 year or less$18,676,595 0.72 % $18,259,565 1.77 %Due in 1 year or less$59,008,905 5.30 5.30 % $48,105,620 4.00 4.00 %
Due after 1 year through 2 yearsDue after 1 year through 2 years2,728,885 2.38  8,293,595 1.96 
Due after 2 years through 3 yearsDue after 2 years through 3 years3,388,120 2.09  3,024,885 2.41 
Due after 3 years through 4 yearsDue after 3 years through 4 years1,793,405 2.21  3,123,120 2.62 
Due after 4 years through 5 yearsDue after 4 years through 5 years1,910,000 1.45  1,540,405 2.73 
ThereafterThereafter3,454,000 2.39  4,139,000 2.97 
Total principal amountTotal principal amount31,951,005 1.32  38,380,570 2.10 
Total principal amount
Total principal amount
PremiumsPremiums43,235  64,604  Premiums37,559    28,958   
DiscountsDiscounts(21,403) (24,335) Discounts(27,194)   (18,716)  
Hedging adjustments2,086  708  
Fair value hedging adjustmentsFair value hedging adjustments(2,234)  (41,745) 
Fair value option valuation adjustment and accrued interestFair value option valuation adjustment and accrued interest21,388 18,177 
TotalTotal$31,996,311  $38,439,724  
Total
Total$91,756,430   $59,667,745  

Consolidated Bonds outstanding were issued with either fixed-rate coupon payment terms or variable-rate coupon payment terms that are indexed to either the SOFR or LIBOR.SOFR. To meet the expected specific needs of certain investors in Consolidated Obligations, both fixed-rate Bonds and variable-rate Bonds may contain features that result in complex coupon payment terms and call options. When these Consolidated Bonds are issued, the FHLB may enter into derivatives containing features that offset the terms and embedded options, if any, of the Consolidated Bonds.

Table 9.3 - Consolidated Bonds Outstanding by Call Features (in thousands)
December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Principal Amount of Consolidated Bonds:Principal Amount of Consolidated Bonds:   Principal Amount of Consolidated Bonds:   
Non-callableNon-callable$26,539,005  $32,953,570 
CallableCallable5,412,000  5,427,000 
Total principal amountTotal principal amount$31,951,005  $38,380,570 

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Table 9.4 - Consolidated Bonds Outstanding by Original Contractual Maturity or Next Call Date (in thousands)
Year of Original Contractual Maturity or Next Call DateDecember 31, 2020 December 31, 2019
Due in 1 year or less$22,968,595  $22,631,565 
Due after 1 year through 2 years2,823,885  7,130,595 
Due after 2 years through 3 years2,452,120  2,662,885 
Due after 3 years through 4 years1,253,405  2,343,120 
Due after 4 years through 5 years728,000  1,253,405 
Thereafter1,725,000  2,359,000 
Total principal amount$31,951,005  $38,380,570 

Year of Original Contractual Maturity or Next Call DateDecember 31, 2023 December 31, 2022
Due in 1 year or less$69,410,905  $54,465,620 
Due after 1 year through 2 years16,402,000  1,543,405 
Due after 2 years through 3 years1,648,000  803,000 
Due after 3 years through 4 years326,500  571,000 
Due after 4 years through 5 years1,081,500  258,000 
Thereafter2,703,140  2,102,140 
Total principal amount$91,572,045  $59,743,165 

Table 9.5 - Consolidated Bonds by Interest-rate Payment Type (in thousands)
December 31, 2020 December 31, 2019 December 31, 2023 December 31, 2022
Principal Amount of Consolidated Bonds:Principal Amount of Consolidated Bonds:   Principal Amount of Consolidated Bonds:   
Fixed-rateFixed-rate$21,312,005  $27,368,570 
Variable-rateVariable-rate10,639,000 11,012,000 
Step-up
Total principal amountTotal principal amount$31,951,005 $38,380,570 


Note 10 - Affordable Housing Program (AHP)

The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidies in the form of direct grants andor below-market interest rate AHPrates on Advances to members who useprovide the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Each FHLBank is requiredrecognizes AHP assessment expense equal to contribute to its AHP the greater of 10 percent of its previous year'sannual income subject to assessment or the prorated sum required to ensure the aggregate contribution by the FHLBanks is no less than $100 million for each year. For purposes of the statutory AHP calculation, income subject to assessment is defined as net income before AHP assessments, plus interest expense related to mandatorily redeemable capital stock. The FHLB accrues AHP expense monthly based on its income subject to assessment. The FHLB reduces the AHP liability as members use subsidies. In addition to the required AHP assessment, the Board of Directors may elect to make voluntary contributions to the AHP.

If the FHLB experienced a net loss during a quarter, but still had income subject to AHP assessment for the year, the FHLB's obligation to the AHP would be calculated based on the FHLB's year-to-date income subject to assessment. If the FHLB had income subject to assessment in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLB experienced a net loss for a full year, the FHLB would have no obligation to the AHP for the year, because each FHLBank's required annual AHP contribution is limited to its annual income subject to assessment. If the aggregate 10 percent calculation described above was less than $100 million for the FHLBanks, each FHLBank would be required to contribute a prorated sum to ensure that the aggregate contributions by the FHLBanks equaled $100 million. The proration would be made on the basis of an FHLBank's income in relation to the income of all FHLBanks for the previous year.

There was no shortfall, as described above, in 2020, 2019,2023, 2022, or 2018.2021. If an FHLBank finds that its required AHP obligations are contributing to its financial instability, it may apply to the Finance Agency for a temporary suspension of its contributions.contributions under the FHLBank Act. The FHLB has never made such an application.

Table 10.1 - AnalysisRollforward of the AHP Liability (in thousands)
20202019
202320232022
Balance at beginning of yearBalance at beginning of year$115,295 $117,336 
Assessments (current year additions)Assessments (current year additions)30,826 30,801 
Subsidy uses, net(35,349)(32,842)
Voluntary contribution
Subsidy uses, net of recaptured amounts
Balance at end of yearBalance at end of year$110,772 $115,295 
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Note 11 - Capital

The FHLB is subject to three capital requirements under its Capital Plan and the Finance Agency rules and regulations. Regulatory capital does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock.

1.     Risk-based capital. The FHLB must maintain at all times permanent capital, defined as Class B stock and retained earnings, in an amount at least equal to the sum of its credit risk, market risk, and operationsoperational risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency.

2.     Total regulatory capital. The FHLB must maintain at all times a total regulatory capital-to-assets ratio of at least four percent. Total regulatory capital is the sum of permanent capital, the amounts paid-in for Class A stock, any general loss allowance, if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the Finance Agency as available to absorb losses.

3.     Leverage capital. The FHLB must maintain at all times a leverage capital-to-assets ratio of at least five percent. Leverage capital is defined as the sum of permanent capital weighted 1.5 times and all other capital without a weighting factor.components of total capital.

The Finance Agency may require the FHLB to maintain greater permanent capital than is required based on Finance Agency rules and regulations.

At December 31, 20202023 and 2019,2022, the FHLB was in compliance with each of these capital requirements.

Table 11.1 - Capital Requirements (dollars in thousands)
December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
Minimum RequirementActualMinimum RequirementActual Minimum RequirementActualMinimum RequirementActual
Risk-based capitalRisk-based capital$539,321 $3,964,353 $820,635 $4,482,519 
Capital-to-assets ratio (regulatory)Capital-to-assets ratio (regulatory)4.00 %6.07 %4.00 %4.79 %Capital-to-assets ratio (regulatory)4.00 %5.26 %4.00 %6.05 %
Regulatory capitalRegulatory capital$2,611,850 $3,964,353 $3,739,662 $4,482,519 
Leverage capital-to-assets ratio (regulatory)Leverage capital-to-assets ratio (regulatory)5.00 %9.11 %5.00 %7.19 %Leverage capital-to-assets ratio (regulatory)5.00 %7.89 %5.00 %9.07 %
Leverage capitalLeverage capital$3,264,812 $5,946,530 $4,674,578 $6,723,779 

The FHLB currently offers only Class B stock, which is issued and redeemed at a par value of $100 per share. Class B stock may be issued to meet membership and activity stock purchase requirements, to pay dividends, and to pay interest on mandatorily redeemable capital stock. Membership stock is required to become a member of and maintain membership in the FHLB. The membership stock requirement is based upon a percentage of the member's total assets. At December 31, 2020,2023, the membership stock requirement was determined within a declining range from 0.160.08 percent to 0.050.02 percent of each member's total assets, with a minimum of $1 thousand and a maximum of $30$20 million for each member.

In addition to membership stock, a member may be required to hold activity stock to capitalize its Mission Asset Activitycertain transactions with the FHLB.

Mission Asset Activity includesFHLB, including Advances, certain funds and rate Advance commitments, Letters of Credit, and MPP activity that occurred after implementation of the Capital Plan on December 30, 2002. Members mustwere required to maintain an activity stock balance within a range of minimum and maximum activity stock capitalization percentages which were set to equal each other as of January 1, 2021follows for 2023 and are as follows: 3.00 percent for MPP,2022: 4.50 percent for Advances and Advance commitments, and 0.10 percent for Letters of Credit. During 2020Credit, and 2019, members were required to maintain minimum and maximum activity stock capitalization percentages of 0 percent and 4.003.00 percent for MPP and 2.00 percent and 4.00 percent for Advances and Advance commitments. Prior to January 1, 2021, members were not required to capitalize Letters of Credit.MPP. If a member owns more than its required activity stock, percentage, the additional stock is that member'sclassified as excess stock. The FHLB's unrestricted excess stock is defined as total Class B stock minus membership stock, activity stock calculated at the maximum allocation percentage, shares reserved for exclusive use after a stock dividend, and shares subject to redemption and withdrawal notices. The FHLB's excess stock may normally be used by members to support a portion of their activity stock requirement as long as those members maintain at least their minimum activity stock allocation percentage.

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A member may request redemption of all or part of its Class B stock or may withdraw from membership by giving five years' advance written notice. When the FHLB repurchases capital stock, it must first repurchase shares for which a redemption or withdrawal notice's five-year redemption period or withdrawal period has expired. Since its Capital Plan was implemented,Typically, the FHLB has repurchased, at its discretion, allrepurchases member shares subject to outstanding redemption notices prior to the expiration of the five-year redemption period.

Any member that has withdrawn from membership, or otherwise has had its membership terminated, may not be readmitted to membership in any FHLBank until five years from the divestiture date for all capital stock that was held as a condition of
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membership, unless the institution has canceled its notice of withdrawal prior to the divestiture date. This restriction does not apply if the member is transferring its membership from one FHLBank to another on an uninterrupted basis.

Each class of FHLB stock is considered putable by the member and the FHLB may repurchase, in its sole discretion, any member's stock investments that exceed the required minimum amount. However, there are significant statutory and regulatory restrictions on the obligation to redeem, or right to repurchase, the outstanding stock. As a result, whether or not a member may have its capital stock in the FHLB repurchased (at the FHLB's discretion at any time before the end of the redemption period) or redeemed (at a member's request, completed at the end of a redemption period) will depend on whether the FHLB is in compliance with those restrictions.

The FHLB's retained earnings are owned proportionately by the current holders of Class B stock. The holders' interest in the retained earnings is realized at the time the FHLB periodically declares dividends or at such time as the FHLB is liquidated. The FHLB's Board of Directors may declare and pay dividends in either cash or capital stock, assuming the FHLB is in compliance with Finance Agency rules and regulations.

Restricted Retained Earnings. The Capital Agreement is intended to enhance the capital position of each FHLBank. The Capital Agreement provides that each FHLBank will, on a quarterly basis, allocate 20 percent of its net income to a separate restricted retained earnings account until the balance of that 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. These restricted retained earnings are not available to pay dividends but are available to absorb unexpected losses, if any, that an FHLBank may experience. At December 31, 20202023 and 20192022 the FHLB had (in thousands) $501,321$693,682 and $446,048$560,118, respectively, in restricted retained earnings. Additionally, the Capital Agreement provides that amounts in restricted retained earnings in excess of 150 percent of the FHLB's restricted retained earnings minimum (i.e., one percent of the FHLB's average balance of outstanding Consolidated Obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings.

Mandatorily Redeemable Capital Stock. The FHLB is a cooperative whose members own most of the FHLB's capital stock. Former members (including certain nonmembers that own the FHLB's capital stock as a result of a merger or acquisition, relocation, charter termination, or involuntary termination of an FHLB member) own the remaining capital stock to support business transactions still carried on the FHLB's Statements of Condition. Member shares cannot be purchased or sold except between the FHLB and its members at its $100 per share par value, as mandated by the FHLB's Capital Plan. The FHLB reclassifies stock subject to redemption from equity to liability upon expiration of the “grace period” after a member submits a written redemption request or withdrawal notice, or when the member attains nonmember status by merger or acquisition, relocation, charter termination, or involuntary termination of membership. A member may cancel or revoke its written redemption request or its withdrawal notice prior to the end of the five-year redemption period. Under the FHLB's Capital Plan, there is a five calendar day “grace period” for revocation of a redemption request and a 30 calendar day “grace period” for revocation of a withdrawal notice during which the member may cancel the redemption request or withdrawal notice without a penalty or fee. The cancellation fee after the “grace period” is currently two percent of the requested amount in the first year and increases one percent a year until it reaches a maximum of six percent in the fifth year. The cancellation fee can be waived by the FHLB's Board of Directors for a bona fide business purpose.

Stock subject to a redemption or withdrawal notice that is within the “grace period” continues to be considered equity because there is no penalty or fee to retract these notices. Expiration of the “grace period” triggers the reclassification from equity to a liability (mandatorily redeemable capital stock) at fair value because after the “grace period” the penalty to retract these notices is considered substantive. If a member cancels its written notice of redemption or notice of withdrawal, the FHLB will reclassify mandatorily redeemable capital stock from a liability to equity. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense in the Statements of Income. For the years ended December 31, 2020, 2019,2023, 2022, and 20182021 dividends on mandatorily redeemable capital stock (in thousands) of $1,068, $1,113$2,885, $5,522 and $1,806$383, respectively, were recorded as interest expense.


Table 11.2 - Rollforward of Mandatorily Redeemable Capital Stock (in thousands)
202320222021
Balance, beginning of year$17,453 $21,211 $19,454 
Capital stock subject to mandatory redemption reclassified from equity573,291 2,664,846 73,491 
Repurchase/redemption of mandatorily redeemable capital stock(573,430)(2,668,604)(71,734)
Balance, end of year$17,314 $17,453 $21,211 
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Table 11.2 - Mandatorily Redeemable Capital Stock Rollforward (in thousands)
202020192018
Balance, beginning of year$21,669 $23,184 $30,031 
Capital stock subject to mandatory redemption reclassified from equity560,779 8,269 68,185 
Capital stock previously subject to mandatory redemption reclassified to capital(123)(1,020)(5,599)
Repurchase/redemption of mandatorily redeemable capital stock(562,871)(8,764)(69,433)
Balance, end of year$19,454 $21,669 $23,184 

The number of stockholders holding the mandatorily redeemable capital stock was 24, 2815, 16 and 2517 at December 31, 2020, 2019,2023, 2022, and 2018.2021.

As of December 31, 20202023 there were no members or former members that had requested redemptions of capital stock whose stock had not been reclassified as mandatorily redeemable capital stock because the “grace periods” had not yet expired on these requests.

Table 11.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption. The year of redemption in the table is the end of the five-year redemption period. Consistent with the Capital Plan currently in effect, the FHLB is not required to redeem membership stock until five years after either (i) the membership is terminated or (ii) the FHLB receives notice of withdrawal. The FHLB is not required to redeem activity-based stock until the later of the expiration of the notice of redemption or until the activity to which the capital stock relates no longer remains outstanding. If activity-based stock becomes excess stock as a result of an activity no longer remaining outstanding, the FHLB may repurchase such shares, in its sole discretion, subject to the statutory and regulatory restrictions on capital stock redemption.

Table 11.3 - Mandatorily Redeemable Capital Stock by Contractual Year of Redemption (in thousands)

Contractual Year of RedemptionContractual Year of RedemptionDecember 31, 2020 December 31, 2019Contractual Year of RedemptionDecember 31, 2023 December 31, 2022
Year 1Year 1$156  $371 
Year 2 Year 2 1,124  298 
Year 3Year 32,167  1,129 
Year 4 Year 4 391  2,955 
Year 5 Year 5 3,142  1,931 
Thereafter (1)
650 650 
Past contractual redemption date due to remaining activity (2)
11,824 14,335 
Past contractual redemption date due to remaining activity (1)
TotalTotal$19,454  $21,669 
(1)Represents mandatorily redeemable capital stock resulting from a Finance Agency rule effective February 19, 2016, that made captive insurance companies ineligible for FHLB membership. Captive insurance companies that were admitted as FHLB members prior to September 12, 2014, had their membership terminated no later than February 19, 2021. The related mandatorily redeemable capital stock is not required to be redeemed until five years after the member's termination.
(2)Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.
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Excess Capital Stock. Excess capital stock is the amount of stock held by a member (or former member) in excess of that institution's minimum stock ownership requirement. Finance Agency regulationsrules limit the ability of an FHLBank to create member excess stock under certain circumstances. The FHLB may not pay dividends in the form of capital stock or issue new excess stock to members if its excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause the FHLB's excess stock to exceed one percent of its total assets. At December 31, 2020,2023, the FHLB had excess capital stock outstanding totaling less than one percent of its total assets. At December 31, 2020,2023, the FHLB was in compliance with the Finance Agency's excess stock rules.

Partial recovery of prior capital distribution to Financing Corporation. The Competitive Equality Banking Act of 1987 was enacted in August 1987, which, among other things, provided for the recapitalization of the Federal Savings and Loan Insurance Corporation through a newly-chartered entity, the Financing Corporation (FICO). The capitalization of FICO was provided by capital distributions from the FHLBanks to FICO in exchange for FICO nonvoting capital stock. Capital distributions were made by the FHLBanks in 1987, 1988 and 1989 that aggregated to $680 million. Upon passage of Financial Institutions Reform, Recovery and Enforcement Act of 1989, the FHLBanks’ previous investment in capital stock of FICO was determined to be non-redeemable and the FHLBanks charged their prior capital distributions to FICO directly against retained earnings.

In accordance with the dissolution of FICO in 2020, FICO determined that excess funds aggregating to $200 million were available for distribution to its stockholders, the FHLBanks. Specifically, the FHLB’s partial recovery of prior capital distribution was $16.5 million, which was determined based on its share of the $680 million originally contributed. The FHLB treated the receipt of these funds as a return of the investment in FICO capital stock, and therefore as a partial recovery of the prior capital distributions made by the FHLBanks to FICO in 1987, 1988, and 1989. These funds have been credited to unrestricted retained earnings.
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Note 12 - Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in accumulated other comprehensive income (loss) for the years ended December 31, 2020, 20192023, 2022, and 2018.2021.

Table 12.1 - Accumulated Other Comprehensive Income (Loss) (in thousands)
Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, DECEMBER 31, 2017$(124)$(16,536)$(16,660)
Net unrealized gains (losses) on available-for-sale securities
Net unrealized gains (losses) on available-for-sale securities
Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, DECEMBER 31, 2020
Other comprehensive income before reclassification:Other comprehensive income before reclassification:
Net unrealized gains (losses)Net unrealized gains (losses)14 0 14 
Net unrealized gains (losses)
Net unrealized gains (losses)
Net actuarial gains (losses)Net actuarial gains (losses)0 1,403 1,403 
Prior service benefit
Reclassifications from other comprehensive income (loss) to net income:Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits0 2,200 2,200 
Amortization - pension and postretirement benefits (1)
Amortization - pension and postretirement benefits (1)
Amortization - pension and postretirement benefits (1)
Net current period other comprehensive income (loss)Net current period other comprehensive income (loss)14 3,603 3,617 
BALANCE, DECEMBER 31, 2018(110)(12,933)(13,043)
BALANCE, DECEMBER 31, 2021
Other comprehensive income before reclassification:Other comprehensive income before reclassification:
Net unrealized gains (losses)Net unrealized gains (losses)480 0480 
Net unrealized gains (losses)
Net unrealized gains (losses)
Net actuarial gains (losses)Net actuarial gains (losses)0(5,665)(5,665)
Reclassifications from other comprehensive income (loss) to net income:
Reclassifications from other comprehensive income (loss) to net income:
Reclassifications from other comprehensive income (loss) to net income:Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits01,834 1,834 
Amortization - pension and postretirement benefits (1)
Amortization - pension and postretirement benefits (1)
Amortization - pension and postretirement benefits (1)
Net current period other comprehensive income (loss)Net current period other comprehensive income (loss)480 (3,831)(3,351)
BALANCE, DECEMBER 31, 2019370 (16,764)(16,394)
BALANCE, DECEMBER 31, 2022
BALANCE, DECEMBER 31, 2022
BALANCE, DECEMBER 31, 2022
Other comprehensive income before reclassification:Other comprehensive income before reclassification:
Net unrealized gains (losses)Net unrealized gains (losses)4,348 0 4,348 
Net unrealized gains (losses)
Net unrealized gains (losses)
Net actuarial gains (losses)Net actuarial gains (losses)0 (5,227)(5,227)
Reclassifications from other comprehensive income (loss) to net income:
Reclassifications from other comprehensive income (loss) to net income:
Reclassifications from other comprehensive income (loss) to net income:Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits0 2,288 2,288 
Amortization - pension and postretirement benefits (1)
Amortization - pension and postretirement benefits (1)
Amortization - pension and postretirement benefits (1)
Net current period other comprehensive income (loss)Net current period other comprehensive income (loss)4,348 (2,939)1,409 
BALANCE, DECEMBER 31, 2020$4,718 $(19,703)$(14,985)
BALANCE, DECEMBER 31, 2023
(1)Included in Non-Interest Expense - Other in the Statements of Income.



Note 13 - Pension and Postretirement Benefit Plans

Qualified Defined Benefit Multi-employer Plan. The FHLB participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Defined Benefit Plan), a tax-qualified defined benefit pension plan. The Pentegra Defined Benefit Plan is treated as a multi-employer plan for accounting purposes, but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multi-employer plan disclosures, including the certified zone status, are not applicable to the Pentegra Defined Benefit Plan. Under the Pentegra Defined Benefit Plan, contributions made by one participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The
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Pentegra Defined Benefit Plan covers all officers and employees of the FHLB hired prior to January 1, 2024 and who meet certain eligibility requirements.

The Pentegra Defined Benefit Plan operates on a plan year from July 1 through June 30. The Pentegra Defined Benefit Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333. There are no collective bargaining agreements in place at the FHLB.
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The Pentegra Defined Benefit Plan's annual valuation process includes calculating the plan's funded status and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra Defined Benefit Plan accepts contributions for the prior plan year up to eight and a half months after the end of the prior plan year. As a result, the market value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.

The most recent Form 5500 available for the Pentegra Defined Benefit Plan is for the year ended June 30, 2019.2022. The FHLB did not contribute more than five percent of the total contributions to the Pentegra Defined Benefit Plan for the plan years ended June 30, 2019, 20182022, 2021 and 2017.2020.

Table 13.1 - Pentegra Defined Benefit Plan Net Pension Cost and Funded Status (dollars in thousands)
202020192018
2023202320222021
Net pension cost charged to compensation and benefit expense for the year ended December 31Net pension cost charged to compensation and benefit expense for the year ended December 31$6,429 $6,973 $8,988 
Pentegra Defined Benefit Plan funded status as of July 1Pentegra Defined Benefit Plan funded status as of July 1108.20 %(a)108.62 %(b)110.96 %Pentegra Defined Benefit Plan funded status as of July 1113.64 %(a)119.09 %(b)130.59 %
FHLB's funded status as of July 1FHLB's funded status as of July 1122.36 %125.76 %124.65 %FHLB's funded status as of July 1130.76 %135.80 %146.44 %
(a)    The Pentegra Defined Benefit Plan's funded status as of July 1, 20202023 is preliminary and may increase because the plan's participants were permitted to make contributions for the plan year ended June 30, 20202023 through March 15, 2021.2024. Contributions made on or before March 15, 2021,2024, and designated for the plan year ended June 30, 2020,2023, will be included in the final valuation as of July 1, 2020.2023. The final funded status as of July 1, 20202023 will not be available until the Form 5500 for the plan year July 1, 20202023 through June 30, 20212024 is filed (this Form 5500 is due to be filed no later than April 2022)2025).
(b)    The Pentegra Defined Benefit Plan's funded status as of July 1, 20192022 is preliminary and may increase because the plan's participants were permitted to make contributions for the plan year ended June 30, 20192022 through March 15, 2020.2023. Contributions made on or before March 15, 2020,2023, and designated for the plan year ended June 30, 2019,2022, will be included in the final valuation as of July 1, 2019.2022. The final funded status as of July 1, 20192022 will not be available until the Form 5500 for the plan year July 1, 20192022 through June 30, 20202023 is filed (this Form 5500 is due to be filed no later than April 2021)2024).

Qualified Defined Contribution Plan. The FHLB also participates in the Fidelity Defined Contribution Plan,maintains a tax-qualified, defined contribution pension plan.plan for its employees. The FHLB contributes a percentage of the participants' compensation by making a matching contribution equal to a certain percentage of voluntary employee contributions, subject to certain IRS limitations. Additionally, for employees who were hired after January 1, 2024, the FHLB makes an annual six percent non-elective retirement contribution. The FHLB contributed $1,437,000, $1,333,000,$2,475,000, $2,336,000, and $1,249,000$1,520,000 in the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively. The FHLB's contributions are recorded as compensation and benefits expense in the Statements of Income.

Non-qualified Supplemental Executive Retirement Plan (SERP). In 2023, the FHLB established a non-qualified, unfunded supplemental defined contribution plan for executive officers and certain other highly compensated employees. The SERP ensures that participants receive the full amount of benefits to which they would have been entitled under the qualified defined contribution plan in the absence of limits on benefit levels imposed by the IRS. For executives hired after January 1, 2024 and approved for participation, the SERP also restores non-elective retirement contributions on pay in excess of the IRS limits and includes an additional six percent contribution on all eligible pay. The unfunded liability associated with the SERP was $411,000 at December 31, 2023. The FHLB recorded $411,000 as compensation and benefits expense in the Statements of Income in the year ended December 31, 2023 for costs associated with the SERP.

Non-qualified Supplemental Defined Benefit Retirement Plan (Defined Benefit Retirement Plan). The FHLB maintains a non-qualified, unfunded defined benefit plan.plan for its employees. The plan ensures that participants receive the full amount of benefits to which they would have been entitled under the qualified defined benefit plan in the absence of limits on benefit levels imposed by the IRS. There are no funded plan assets. The FHLB has established a grantor trust, which is included in held-to-maturity securities on the Statements of Condition, to meet future benefit obligations and current payments to beneficiaries.

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Postretirement Benefits Plan. The FHLB also sponsors a Postretirement Benefits Plan that includes health care and life insurance benefits for eligible retirees. Future retirees are eligible for the postretirement benefits plan if they were hired prior to August 1, 1990, are age 55 or older, and their age plus years of continuous service at retirement are greater than or equal to 80. Spouses are covered subject to required contributions. There are no funded plan assets that have been designated to provide postretirement benefits.

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Table 13.2 presents the obligations and funding status of the Defined Benefit Retirement Plan and Postretirement Benefits Plan. The benefit obligation represents projected benefit obligation for the Defined Benefit Retirement Plan and accumulated postretirement benefit obligation for the Postretirement Benefits Plan.

Table 13.2 - Benefit Obligation, Fair Value of Plan Assets and Funded Status (in thousands)
Defined Benefit Retirement PlanPostretirement Benefits Plan Defined Benefit Retirement PlanPostretirement Benefits Plan
Change in benefit obligation:Change in benefit obligation:2020201920202019Change in benefit obligation:2023202220232022
Benefit obligation at beginning of yearBenefit obligation at beginning of year$44,246 $38,687 $4,638 $4,481 
Service costService cost1,129 902 9 14 
Interest costInterest cost1,324 1,550 141 181 
Actuarial loss (gain)Actuarial loss (gain)4,749 5,496 478 169 
Benefits paid
Benefits paid
Benefits paidBenefits paid(1,910)(2,389)(220)(207)
Benefit obligation at end of yearBenefit obligation at end of year49,538 44,246 5,046 4,638 
Change in plan assets:Change in plan assets:  Change in plan assets:   
Fair value of plan assets at beginning of yearFair value of plan assets at beginning of year0 0 0 0 
Employer contributionEmployer contribution1,910 2,389 220 207 
Benefits paidBenefits paid(1,910)(2,389)(220)(207)
Fair value of plan assets at end of yearFair value of plan assets at end of year0 0 0 0 
Funded status at end of yearFunded status at end of year$(49,538)$(44,246)$(5,046)$(4,638)

Amounts recognized in “Other liabilities” on the Statements of Condition for the Defined Benefit Retirement Plan and Postretirement Benefits Plan as of December 31, 20202023 and 20192022 were (in thousands) $54,584$39,619 and $48,884.$38,902, respectively.

Table 13.3 - Amounts Recognized in Accumulated Other Comprehensive Income (in thousands)
 Defined Benefit Retirement PlanPostretirement
Benefits Plan
 2020201920202019
Net actuarial loss$18,901 $16,440 $802 $324 
 Defined Benefit Retirement PlanPostretirement
Benefits Plan
 2023202220232022
Net actuarial loss (gain)$2,609 $2,449 $(290)$(495)
Prior service benefit(979)(1,340)— — 
Total$1,630 $1,109 $(290)$(495)
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Table 13.4 - Net Periodic Benefit Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income (in thousands)
For the Years Ended December 31, For the Years Ended December 31,
Defined Benefit
Retirement Plan		 Postretirement Benefits Plan Defined Benefit
Retirement Plan		 Postretirement Benefits Plan
202020192018 202020192018 202320222021 202320222021
Net Periodic Benefit CostNet Periodic Benefit Cost     
Service costService cost$1,129 $902 $1,129  $9 $14 $19 
Service cost
Service cost
Interest costInterest cost1,324 1,550 1,353  141 181 166 
Amortization of prior service benefit
Amortization of net lossAmortization of net loss2,288 1,834 2,200  0 0 0 
Net periodic benefit costNet periodic benefit cost$4,741 $4,286 $4,682  $150 $195 $185 
Other Changes in Benefit Obligations Recognized in Other Comprehensive IncomeOther Changes in Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain)Net loss (gain)$4,749 $5,496 $(1,127)$478 $169 $(276)
Net loss (gain)
Net loss (gain)
Prior service benefit
Amortization of net lossAmortization of net loss(2,288)(1,834)(2,200)0 0 0 
Amortization of prior service benefit
Total recognized in other comprehensive incomeTotal recognized in other comprehensive income2,461 3,662 (3,327)478 169 (276)
Total recognized in net periodic benefit cost and other comprehensive incomeTotal recognized in net periodic benefit cost and other comprehensive income$7,202 $7,948 $1,355 $628 $364 $(91)

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For the Defined Benefit Retirement Plan and the Postretirement Benefits Plan, the related service cost is recorded as part of Non-Interest Expense - Compensation and Benefits on the Statements of Income. The non-service related components of interest cost, amortization of prior service benefit and amortization of net loss are recorded as Non-Interest Expense - Other in the Statements of Income.

Table 13.5 presents the key assumptions used for the actuarial calculations to determine benefit obligations for the Defined Benefit Retirement Plan and Postretirement Benefits Plan.

Table 13.5 - Benefit Obligation Key Assumptions
Defined Benefit Retirement PlanPostretirement Benefits Plan
Defined Benefit Retirement PlanDefined Benefit Retirement PlanPostretirement Benefits Plan
2020201920202019 2023202220232022
Discount rateDiscount rate2.26 %3.06 %2.33 %3.12 %Discount rate4.76 %4.96 %4.79 %4.99 %
Salary increasesSalary increases5.00 %5.00 %N/AN/ASalary increases5.00 %5.00 %N/A

Table 13.6 presents the key assumptions used for the actuarial calculations to determine net periodic benefit cost for the Defined Benefit Retirement Plan and Postretirement Benefit Plan.

Table 13.6 - Net Periodic Benefit Cost Key Assumptions
Defined Benefit Retirement PlanDefined Benefit Retirement PlanPostretirement Benefits Plan
Defined Benefit Retirement PlanPostretirement Benefits Plan 202320222021202320222021
202020192018202020192018
Discount rate3.06 %4.10 %3.45 %3.12 %4.15 %3.53 %
Discount rate (1)
Discount rate (1)
4.96 %2.64 %2.26/2.61%4.99 %2.69 %2.33 %
Salary increasesSalary increases5.00 %5.00 %5.00 %N/AN/AN/ASalary increases5.00 %5.00 %5.00 %N/A
(1)    For the Defined Benefit Retirement Plan in 2021, a rate of 2.26% was used for the first six months of 2021 while a rate of 2.61% was used for the second six months of 2021 resulting from an interim actuarial valuation at June 30, 2021, due to the Defined Benefit Retirement Plan amendment.

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Table 13.7 - Postretirement Benefits Plan Assumed Health Care Cost Trend Rates
20202019
Assumed for next yearAssumed for next year5.50 %6.00 %
Assumed for next year
Assumed for next year
Ultimate rate
Ultimate rate
Ultimate rateUltimate rate5.00 %5.00 %
Year that ultimate rate is reachedYear that ultimate rate is reached20212021
Year that ultimate rate is reached
Year that ultimate rate is reached

The discount rates for the disclosures as of December 31, 20202023 were determined by using a discounted cash flow approach, which incorporates the timing of each expected future benefit payment. Estimated future benefit payments are based on each plan's census data, benefit formulas and provisions, and valuation assumptions reflecting the probability of decrement and survival. The present value of the future benefit payments is determined by using weighted average duration based interest rate yields from a variety of highly rated relevant corporate bond indices as of December 31, 2020,2023, and solving for the single discount rate that produces the same present value.

Table 13.8 presents the estimated future benefits payments reflecting expected future services for the years ended after December 31, 2020.2023.

Table 13.8 - Estimated Future Benefit Payments (in thousands)
YearsDefined Benefit Retirement PlanPostretirement Benefit Plan
2021$2,171 $237 
20222,316 239 
20231,839 241 
20241,861 240 
20252,012 246 
2026 - 203012,447 1,264 
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YearsDefined Benefit Retirement PlanPostretirement Benefit Plan
2024$1,685 $286 
20251,877 284 
20262,025 280 
20272,457 266 
20282,564 263 
2029 - 203312,761 1,342 


Note 14 - Segment Information

The FHLB has identified 2two primary operating segments based on its method of internal reporting: Traditional Member Finance and the MPP. These segments reflect the FHLB's two primary Mission Asset Activities and the manner in which they are managed from the perspective of development, resource allocation, product delivery, pricing, credit risk and operational administration. The segments identify the principal ways the FHLB provides services to member stockholders. The FHLB, as an interest rate spread manager, considers a segment's net interest income, net interest rate spread and, ultimately, net income as the key factors in allocating resources. Resource allocation decisions are made by considering these profitability measures in the context of the historical, current and expected risk profile of each segment and the entire balance sheet, as well as current incremental profitability measures relative to the incremental market risk profile.

Overall financial performance and risk management are dynamically managed primarily at the level of, and within the context of, the entire balance sheet rather than at the level of individual business segments or product lines. Also, the FHLB hedges specific asset purchases and specific subportfolios in the context of the entire mortgage asset portfolio and the entire balance sheet. Under this holistic approach, the market risk/return profile of each business segment does not correspond, in general, to the performance that each segment would generate if it were completely managed on a separate basis, and it is not possible to accurately determine what the performance would be if the two business segments were managed on a stand-alone basis. Further, because financial and risk management is a dynamic process, the performance of a segment over a single identified period may not reflect the long-term expected or actual future trends for the segment.

The Traditional Member Finance segment includes products such as Advances and investments and the borrowing costs related to those assets. The FHLB assigns its investments to this segment primarily because they historically have been used to provide liquidity for Advances and to support the level and volatility of earnings from Advances. All interest rate swaps, and a portion of swaptions, including their market value adjustments, are allocated to the Traditional Member Finance segment. The FHLB executed all of its interest rate swaps in its management of market risk for the Traditional Member Finance segment. TheFor the years ended 2022 and 2021, the FHLB entersentered into swaptions to minimize the prepayment risk in its overall mortgage asset portfolio.portfolio and a portion of the related market value adjustments were allocated to the Traditional Member Finance Segment.

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Income from the MPP is derived primarily from the difference, or spread, between the yield on mortgage loans and the borrowing cost of Consolidated Obligations outstanding allocated to this segment at the time debt is issued. MPP income also includes the gains (losses) on derivatives associated with the MPP segment, comprising all mortgage delivery commitments and forward rate agreements and a portion of swaptions. Beginning in 2023, the FHLB entered into swaptions to minimize the prepayment risk in the mortgage loans portfolio and, as such, all of the related market value adjustments were allocated to the MPP segment.

Both segments also earn income from investment of interest-free capital. Capital is allocated proportionate to each segment's average assets based on the total balance sheet's average capital-to-assets ratio. Expenses are allocated based on cost accounting techniques that includesuch as direct usage, time allocations and square footage of space used. AHP assessments are calculated using the current assessment rates based on the income before assessments for each segment.

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The following tables set forth the FHLB's financial performance by operating segment for the years ended December 31.

Table 14.1 - Financial Performance by Operating Segment (in thousands)
 For the Years Ended December 31,
 Traditional Member
Finance		MPPTotal
2020   
Net interest income$385,127 $21,403 $406,530 
Non-interest income (loss)(58,701)51,633 (7,068)
Non-interest expense80,569 11,704 92,273 
Income before assessments245,857 61,332 307,189 
Affordable Housing Program assessments24,693 6,133 30,826 
Net income$221,164 $55,199 $276,363 
2019   
Net interest income$308,585 $97,247 $405,832 
Non-interest income (loss)(2,252)(7,967)(10,219)
Non-interest expense77,751 10,967 88,718 
Income before assessments228,582 78,313 306,895 
Affordable Housing Program assessments22,969 7,832 30,801 
Net income$205,613 $70,481 $276,094 
2018   
Net interest income$389,615 $108,957 $498,572 
Non-interest income (loss)(32,415)(4,403)(36,818)
Non-interest expense73,441 11,278 84,719 
Income before assessments283,759 93,276 377,035 
Affordable Housing Program assessments28,556 9,328 37,884 
Net income$255,203 $83,948 $339,151 
 For the Years Ended December 31,
 Traditional Member
Finance		MPPTotal
2023   
Net interest income (loss)$730,513 $133,559 $864,072 
Non-interest income (loss)10,286 (5,825)4,461 
Non-interest expense113,466 12,727 126,193 
Income (loss) before assessments627,333 115,007 742,340 
Affordable Housing Program assessments63,021 11,501 74,522 
Net income (loss)$564,312 $103,506 $667,818 
2022   
Net interest income (loss)$421,251 $66,183 $487,434 
Non-interest income (loss)(102,696)(571)(103,267)
Non-interest expense93,046 10,512 103,558 
Income (loss) before assessments225,509 55,100 280,609 
Affordable Housing Program assessments23,103 5,510 28,613 
Net income (loss)$202,406 $49,590 $251,996 
2021   
Net interest income (loss)$317,432 $(40,872)$276,560 
Non-interest income (loss)(141,250)2,978 (138,272)
Non-interest expense81,363 10,226 91,589 
Income (loss) before assessments94,819 (48,120)46,699 
Affordable Housing Program assessments9,520 (4,812)4,708 
Net income (loss)$85,299 $(43,308)$41,991 
Table 14.2 - Asset Balances by Operating Segment (in thousands)
Assets
Traditional Member
Finance		MPPTotal
December 31, 2020$53,356,209 $11,940,030 $65,296,239 
December 31, 201981,064,206 12,427,353 93,491,559 
Assets
Traditional Member
Finance		MPPTotal
December 31, 2023$116,828,245 $7,167,493 $123,995,738 
December 31, 202299,649,867 8,959,637 108,609,504 


Note 15 - Fair Value Disclosures

The fair value amounts recorded on the Statements of Condition and presented in the related note disclosures have been determined by the FHLB using available market information and the FHLB's best judgment of appropriate valuation methods.
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GAAP defines fair value as the price 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 (i.e., an exit price). The fair values reflect the FHLB's judgment of how a market participant would estimate the fair values.

Fair Value Hierarchy. GAAP establishes a fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the measurement is determined. This overall level is an indication of how market observable the fair value measurement is. An entity must disclose the level within the fair value hierarchy in which the measurements are classified.

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The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

Level 1 Inputs - Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Inputs - Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for the asset or liability, which are supported by limited to no market activity and reflect the FHLB's own assumptions.

The FHLB reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain financial assets or liabilities. The FHLB did not have any transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the years ended December 31, 20202023 or 2019.2022.

Table 15.1 presents the net carrying value/carrying value, fair value, and fair value hierarchy of financial assets and liabilities of the FHLB. The FHLB records trading securities, available-for-sale securities, derivative assets, derivative liabilities, certain Advances and certain Consolidated Obligations at fair value on a recurring basis, and on occasion, certain mortgage loans held for portfolio on a nonrecurring basis. The FHLB records all other financial assets and liabilities at amortized cost. Refer to Table 15.2 for further details about the financial assets and liabilities held at fair value on either a recurring or nonrecurring basis.

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Table 15.1 - Fair Value Summary (in thousands)
December 31, 2020
Fair Value
December 31, 2023December 31, 2023
Fair ValueFair Value
Financial InstrumentsFinancial InstrumentsNet Carrying ValueTotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Financial Instruments
Carrying Value (1)
TotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (2)
Assets:Assets:  
Cash and due from banks
Cash and due from banks
Cash and due from banksCash and due from banks$2,984,073 $2,984,073 $2,984,073 $0 $0 $— 
Interest-bearing depositsInterest-bearing deposits555,104 555,104 0 555,104 0 — 
Securities purchased under agreements to resellSecurities purchased under agreements to resell1,818,268 1,818,268 0 1,818,268 0 — 
Federal funds soldFederal funds sold4,240,000 4,240,000 0 4,240,000 0 — 
Trading securitiesTrading securities10,488,124 10,488,124 0 10,488,124 0 — 
Available-for-sale securitiesAvailable-for-sale securities291,587 291,587 0 291,587 0 — 
Held-to-maturity securitiesHeld-to-maturity securities9,648,171 9,792,136 0 9,792,136 0 — 
Advances (2)
25,362,003 25,573,785 0 25,573,785 0 — 
Advances (3)
Mortgage loans held for portfolioMortgage loans held for portfolio9,548,506 9,861,802 0 9,798,019 63,783 — 
Accrued interest receivable
Accrued interest receivable
Accrued interest receivableAccrued interest receivable113,701 113,701 0 113,701 0 — 
Derivative assetsDerivative assets215,888 215,888 0 2,732 0 213,156 
Liabilities:Liabilities:  
DepositsDeposits1,327,202 1,327,267 0 1,327,267 0 — 
Deposits
Deposits
Consolidated Obligations:Consolidated Obligations: 
Discount Notes27,500,244 27,501,296 0 27,501,296 0 — 
Bonds (3)
31,996,311 32,785,647 0 32,785,647 0 — 
Discount Notes (4)
Discount Notes (4)
Discount Notes (4)
Bonds (5)
Mandatorily redeemable capital stockMandatorily redeemable capital stock19,454 19,454 19,454 0 0 — 
Accrued interest payableAccrued interest payable77,521 77,521 0 77,521 0 — 
Derivative liabilitiesDerivative liabilities3,813 3,813 0 165,737 0 (161,924)
(1)For certain financial instruments, the amounts represent net carrying value, which include an allowance for credit losses.
(2)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)(3)Includes (in thousands) $27,202$214,035 of Advances recorded under the fair value option at December 31, 2020.2023.
(3)(4)Includes (in thousands) $2,262,388$14,085,003 of Consolidated Obligation Discount Notes recorded under the fair value option at December 31, 2023.
(5)Includes (in thousands) $20,657,254 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2020.2023.

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December 31, 2019
Fair Value
December 31, 2022December 31, 2022
Fair ValueFair Value
Financial InstrumentsFinancial InstrumentsCarrying ValueTotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Financial Instruments
Carrying Value (1)
TotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (2)
Assets:Assets:  
Cash and due from banks
Cash and due from banks
Cash and due from banksCash and due from banks$20,608 $20,608 $20,608 $0 $0 $— 
Interest-bearing depositsInterest-bearing deposits550,160 550,160 0 550,160 0 — 
Securities purchased under agreements to resellSecurities purchased under agreements to resell2,348,584 2,348,607 0 2,348,607 0 — 
Federal funds soldFederal funds sold4,833,000 4,833,000 0 4,833,000 0 — 
Trading securitiesTrading securities11,615,693 11,615,693 0 11,615,693 0 — 
Available-for-sale securitiesAvailable-for-sale securities1,542,185 1,542,185 0 1,542,185 0 — 
Held-to-maturity securitiesHeld-to-maturity securities13,499,319 13,501,207 0 13,501,207 0 — 
Advances (2)
47,369,573 47,458,028 0 47,458,028 0 — 
Advances (3)
Mortgage loans held for portfolioMortgage loans held for portfolio11,235,353 11,437,180 0 11,424,857 12,323 — 
Accrued interest receivableAccrued interest receivable182,252 182,252 0 182,252 0 — 
Derivative assetsDerivative assets267,165 267,165 0 32,195 0 234,970 
Liabilities:Liabilities:  
DepositsDeposits951,296 951,343 0 951,343 0 — 
Deposits
Deposits
Consolidated Obligations:Consolidated Obligations:  
Discount Notes (3)
49,084,219 49,086,723 0 49,086,723 0 — 
Bonds (4)
38,439,724 38,832,230 0 38,832,230 0 — 
Discount Notes (4)
Discount Notes (4)
Discount Notes (4)
Bonds (5)
Mandatorily redeemable capital stockMandatorily redeemable capital stock21,669 21,669 21,669 0 0 — 
Accrued interest payableAccrued interest payable126,091 126,091 0 126,091 0 — 
Derivative liabilitiesDerivative liabilities1,310 1,310 0 54,850 0 (53,540)
(1)For certain financial instruments, the amounts represent net carrying value, which include an allowance for credit losses.
(2)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)(3)Includes (in thousands) $5,238$4,954 of Advances recorded under the fair value option at December 31, 2019.2022.
(3)(4)Includes (in thousands) $12,386,974$21,010,746 of Consolidated Obligation Discount Notes recorded under the fair value option at December 31, 2019.2022.
(4)(5)Includes (in thousands) $4,757,177$5,469,583 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2019.2022.

Summary of Valuation Methodologies and Primary Inputs.

The valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the StatementStatements of Condition are listed below. The fair values and level within the fair value hierarchy of these assets and liabilities are reported in Table 15.2.

Investment securities – MBS: To value MBS holdings, the FHLB incorporates prices from multiple designated third-party pricing vendors, when available. The pricing vendors use various proprietary models to price MBS. The inputs to those models are derived from various sources including, but not limited to: benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers and other market-related data. As many MBS do not trade on a daily basis, the pricing vendors use available information such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established challenge process in place for all MBS valuations, which facilitates resolution of potentially erroneous prices identified by the FHLB. ThePeriodically, the FHLB has conductedconducts reviews of multiple pricing vendors to confirm and further augment its understanding of the vendors' pricing processes, methodologies and control procedures for specific instruments.

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The FHLB's valuation technique for estimating the fair values of MBS first requires the establishment of a “median” price for each security. All prices that are outside the threshold (“outliers”) are subject to further analysis (including, but not limited to,
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comparison to prices provided by an additional third-party valuation service, prices for similar securities, non-binding dealer estimates, and/or use of an internal model that is deemed most appropriate) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier is in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security.

If all prices received for a security are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.

Multiple prices were received for substantially all of the FHLB's MBS holdings and the final prices for those securities were computed by averaging the prices received. Based on the FHLB's review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the FHLB believes its final prices result in reasonable estimates of fair value and further that the fair value measurements are classified appropriately in the fair value hierarchy.

Investment securities – Non-MBS: To determine the estimated fair values of non-MBS investment securities, the FHLB can use either (a) an income approach based on a market-observable interest rate curve that may be adjusted for a spread, or (b) prices received from third-party pricing vendors. For its U.S. Treasury obligations, the FHLB determines the fair value using the income approach. The income approach uses indicative fair values derived from a discounted cash flow methodology. The FHLB uses the Treasury curve as the market-observable interest rate curve. For GSE obligations, and certificates of deposit, the fair value is determined using prices received from third-party pricing vendors. For GSE obligations, the FHLB uses prices from multiple third-party pricing vendors. The pricing vendors' methodology and the FHLB's validation process is consistent with the MBS process described above. For certificates of deposit, the fair value is determined based on each security’s indicative fair value obtained from a third-party vendor. The FHLB performs several validation steps in order to verify the accuracy and reasonableness of the fair values obtained for certificates of deposit. These steps may include, but are not limited to, a detailed review of instruments with significant periodic price changes and a derived fair value from an option-adjusted discounted cash flow methodology using market-observed inputs for the interest rate environment and similar instruments.

Advances recorded under the fair value option: The FHLB determines the fair values of Advances recorded under the fair value option by calculating the present value of expected future cash flows from these Advances. The discount rates used in these calculations are the replacement rates for Advances with similar terms, as approximated either by adding an estimated current spread to the SOFR or LIBOR Swap Curve or by using current indicative market yields, as indicated by the FHLB's pricing methodologies for Advances with similar current terms. Advance pricing is determined based on the FHLB's rates on Consolidated Obligations. To determine the estimated fair value for Advances with optionality, market-based expectations of future interest rate volatility implied from current prices for similar options are also used. In accordance with Finance Agency regulations, Advances with a maturity and repricing period greater than six months require a prepayment fee sufficient to make the FHLB financially indifferent to the borrower's decision to prepay the Advances. Therefore, the fair value of Advances does not assume prepayment risk.

Impaired mortgage loans held for portfolio: The estimated fair values of impaired mortgage loans held for portfolio on a non-recurring basis are based on property values obtained from a third-party pricing vendor.

Derivative assets/liabilities: The FHLB's derivative assets/liabilities generally consist of interest rate swaps, interest rate swaptions, TBA MBS (forward rate agreements), and mortgage delivery commitments.

The FHLB's interest rate related derivatives (swaps and swaptions) are traded in the over-the-counter market. Therefore, the FHLB determines the fair value of each individual instrument using market value models that use readily observable market inputs as their basis (inputs that are actively quoted and can be validated to external sources). The FHLB uses a mid-market pricing convention as a practical expedient for fair value measurements within a bid-ask spread. These models reflect the contractual terms, including the period to maturity, as well as the significant inputs noted below. The fair value determination uses the standard valuation technique of discounted cash flow analysis. The FHLB performs several validation steps to verify the reasonableness of the fair value output generated by the primary market value model. In addition to an annual model validation, the FHLB prepares a monthly reconciliation of the model's fair values to estimates of fair values provided by the derivative counterparties. The FHLB believes these processes provide a reasonable basis for it to place continued reliance on the derivative fair values generated by the model.

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The fair value of TBA MBS is based on independent indicative and/or quoted prices generated by market transactions involving comparable instruments. The FHLB determines the fair value of mortgage delivery commitments using market prices from the TBA/mortgage-backed security market or TBA/Ginnie Mae market and adjustments noted below.

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The FHLB's discounted cash flow analysis uses market-observable inputs. Inputs, by class of derivative, are as follows:

Interest rate swaps and interest rate swaptions:
▪Discount rate assumption. OIS or SOFR Swap Curve;
▪Forward interest rate assumption. OIS SOFR, or LIBORSOFR Swap Curve; and
▪Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

TBA MBS:
▪Market-based prices by coupon class and expected term until settlement.

Mortgage delivery commitments:
▪TBA securities prices. Market-based prices by coupon class and expected term until settlement, adjusted to reflect the contractual terms of the mortgage delivery commitments. The adjustments to the market prices are market observable, or can be corroborated with observable market data.

The FHLB is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in these contracts to mitigate the risk. The FHLB has evaluated the potential for the fair value of the instruments to be impacted by counterparty credit risk and has determined that no adjustments were significant or necessary to the overall fair value measurements.

The fair values of the FHLB's derivatives include accrued interest receivable/payable and related cash collateral. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. Derivatives are presented on a net basis by counterparty when it has met the netting requirements. If these netted amounts are positive, they are classified as an asset and if negative, they are classified as a liability.

Consolidated Obligations recorded under the fair value option: The FHLB determines the fair values of non-option-based Consolidated Obligation Bonds and all Consolidated Obligation Discount Notes recorded under the fair value option by calculating the present value of scheduled future cash flows. Inputs used to determine the fair value of these Consolidated Obligation Bonds and Discount Notes are the discount rates, which are estimated current market yields. For non-option-based Bonds and all Discount Notes, the market yields are either indicated by the Office of Finance for Consolidated Obligations with similar current terms or the SOFR swap curve for SOFR indexed Consolidated Obligations.

The FHLB determines the fair values of option-based Consolidated Obligation Bonds recorded under the fair value option based on pricing received from designated third-party pricing vendors. The pricing vendors used apply various proprietary models to price these Consolidated Obligation Bonds. The inputs to those models are derived from various sources including, but not limited to, benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many Consolidated Obligation Bonds do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to determine the prices for individual Consolidated Obligation Bonds. Each pricing vendor has an established challenge process in place for all valuations, which facilitates resolution of potentially erroneous prices identified by the FHLB.

When pricing vendors are used, the FHLB's valuation technique first requires the establishment of a “median” price for each Consolidated Obligation Bond. All prices that are outside the threshold (“outliers”) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, non-binding dealer estimates, and/or use of an internal model that is deemed most appropriate) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier is in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security.
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If all prices received for a Consolidated Obligation Bond are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.

Multiple vendor prices were received for the FHLB's Consolidated Obligation Bonds and the final prices for those bonds were computed by averaging the prices received. Based on the FHLB's review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the FHLB believes its final prices result in reasonable estimates of fair value and that the fair value measurements are classified appropriately in the fair value hierarchy.

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The FHLB has conducted reviews of its pricing vendors to confirm and further augment its understanding of the vendors' pricing processes, methodologies and control procedures for Consolidated Obligation Bonds.

Adjustments may be necessary to reflect the 11 FHLBanks' credit quality when valuing Consolidated Obligation Bonds recorded under the fair value option. Due to the joint and several liability for Consolidated Obligations, the FHLB monitors its own creditworthiness and the creditworthiness of the other FHLBanks to determine whether any credit adjustments are necessary in its fair value measurement of Consolidated Obligation Bonds. No adjustments were considered necessary at December 31, 20202023 or 2019.2022.

Subjectivity of estimates. Estimates of the fair values of financial assets and liabilities using the methods described above and other methods are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speeds, interest rate volatility, distributions of future interest rates used to value options, and discount rates that appropriately reflect market and credit risks. The judgments also include the parameters, methods, and assumptions used in models to value the options. The use of different assumptions could have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near term changes.
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Fair Value Measurements.

Table 15.2 presents the fair value of financial assets and liabilities that are recorded on a recurring or nonrecurring basis at December 31, 20202023 and 2019,2022, by level within the fair value hierarchy. The FHLB records nonrecurring fair value adjustments to reflect partial write-downs on certain mortgage loans.

Table 15.2 - Fair Value Measurements (in thousands)
Fair Value Measurements at December 31, 2020
Fair Value Measurements at December 31, 2023Fair Value Measurements at December 31, 2023
Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
 Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - AssetsRecurring fair value measurements - Assets     Recurring fair value measurements - Assets  
Trading securities:Trading securities:     Trading securities:  
U.S. Treasury obligationsU.S. Treasury obligations$8,362,211 $0 $8,362,211 $0 $— 
GSE obligationsGSE obligations2,125,580 0 2,125,580 0 — 
U.S. obligation single-family MBSU.S. obligation single-family MBS333 0 333 0 — 
Total trading securitiesTotal trading securities10,488,124 0 10,488,124 0 — 
Available-for-sale securities:Available-for-sale securities:     Available-for-sale securities:  
U.S. Treasury obligations
GSE obligations
GSE obligations
GSE obligationsGSE obligations142,402 0 142,402 0 — 
GSE multi-family MBSGSE multi-family MBS149,185 0 149,185 0 — 
Total available-for-sale securitiesTotal available-for-sale securities291,587 0 291,587 0 — 
AdvancesAdvances27,202 0 27,202 0 — 
Derivative assets:Derivative assets:     Derivative assets:  
Interest rate relatedInterest rate related214,832 0 1,676 0 213,156 
Mortgage delivery commitmentsMortgage delivery commitments1,056 0 1,056 0 — 
Mortgage delivery commitments
Mortgage delivery commitments
Total derivative assetsTotal derivative assets215,888 0 2,732 0 213,156 
Total assets at fair valueTotal assets at fair value$11,022,801 $0 $10,809,645 $0 $213,156 
Recurring fair value measurements - LiabilitiesRecurring fair value measurements - Liabilities     
Consolidated Obligation Bonds$2,262,388 $0 $2,262,388 $0 $— 
Recurring fair value measurements - Liabilities
Recurring fair value measurements - Liabilities  
Consolidated Obligations:
Discount Notes
Discount Notes
Discount Notes
Bonds
Total Consolidated Obligations
Derivative liabilities:Derivative liabilities:     Derivative liabilities:  
Interest rate relatedInterest rate related3,813 0 165,737 0 (161,924)
Mortgage delivery commitments
Mortgage delivery commitments
Mortgage delivery commitments
Total derivative liabilitiesTotal derivative liabilities3,813 0 165,737 0 (161,924)
Total liabilities at fair valueTotal liabilities at fair value$2,266,201 $0 $2,428,125 $0 $(161,924)
Nonrecurring fair value measurements - Assets (2)
Mortgage loans held for portfolio$108 $0 $0 $108 
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)The fair value information presented is as of the date the fair value adjustment was recorded during the year ended December 31, 2020.

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Fair Value Measurements at December 31, 2019
Fair Value Measurements at December 31, 2022Fair Value Measurements at December 31, 2022
Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
 Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - AssetsRecurring fair value measurements - Assets     Recurring fair value measurements - Assets  
Trading securities:Trading securities:     Trading securities:  
U.S. Treasury obligationsU.S. Treasury obligations$9,626,964 $0 $9,626,964 $0 $— 
GSE obligationsGSE obligations1,988,259 0 1,988,259 0 — 
U.S. obligation single-family MBSU.S. obligation single-family MBS470 0 470 0 — 
Total trading securitiesTotal trading securities11,615,693 0 11,615,693 0 — 
Available-for-sale securities:Available-for-sale securities:     Available-for-sale securities:  
Certificates of deposit1,410,111 0 1,410,111 0 — 
U.S. Treasury obligations
GSE obligationsGSE obligations132,074 0 132,074 0 — 
GSE multi-family MBS
Total available-for-sale securitiesTotal available-for-sale securities1,542,185 0 1,542,185 0 — 
AdvancesAdvances5,238 0 5,238 0 — 
Derivative assets:Derivative assets:     Derivative assets:  
Interest rate relatedInterest rate related264,346 0 29,376 0 234,970 
Forward rate agreements21 0 21 0 — 
Mortgage delivery commitments
Mortgage delivery commitments
Mortgage delivery commitmentsMortgage delivery commitments2,798 0 2,798 0 — 
Total derivative assetsTotal derivative assets267,165 0 32,195 0 234,970 
Total assets at fair valueTotal assets at fair value$13,430,281 $0 $13,195,311 $0 $234,970 
Recurring fair value measurements - LiabilitiesRecurring fair value measurements - Liabilities     
Recurring fair value measurements - Liabilities
Recurring fair value measurements - Liabilities  
Consolidated Obligations:Consolidated Obligations:
Discount Notes
Discount Notes
Discount NotesDiscount Notes$12,386,974 $0 $12,386,974 $0 $— 
BondsBonds4,757,177 0 4,757,177 0 — 
Total Consolidated ObligationsTotal Consolidated Obligations17,144,151 0 17,144,151 0 — 
Derivative liabilities:Derivative liabilities:     Derivative liabilities:  
Interest rate relatedInterest rate related464 0 54,004 0 (53,540)
Forward rate agreements782 0 782 0 — 
Mortgage delivery commitments
Mortgage delivery commitments
Mortgage delivery commitmentsMortgage delivery commitments64 0 64 0 — 
Total derivative liabilitiesTotal derivative liabilities1,310 0 54,850 0 (53,540)
Total liabilities at fair valueTotal liabilities at fair value$17,145,461 $0 $17,199,001 $0 $(53,540)
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.

Fair Value Option. The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires a company to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities and commitments, with the changes in fair value recognized in net income. If elected, interest income and interest expense on Advances and Consolidated Obligations carried at fair value are recognized based solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized into other non-interest income or other non-interest expense.

The FHLB has elected the fair value option for certain financial instruments that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements. These fair value elections were made primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value.

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Table 15.3 presents net gains (losses) recognized in earnings related to financial assets and liabilities in which the fair value option was elected during the years ended December 31, 2020, 20192023, 2022 and 2018.2021.

Table 15.3 – Fair Value Option - Financial Assets and Liabilities (in thousands)
For the Years Ended December 31,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings202020192018
Advances$439 $238 $(4)
Consolidated Discount Notes1,060 (1,060)0 
Consolidated Bonds(8,792)(53,030)(14,180)
Total net gains (losses)$(7,293)$(53,852)$(14,184)
For the Years Ended December 31,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings202320222021
Advances$3,832 $674 $(1,397)
Consolidated Discount Notes(11,541)4,884 1,336 
Consolidated Bonds(32,004)69,154 10,196 
Total net gains (losses)$(39,713)$74,712 $10,135 

For instruments recorded under the fair value option, the related contractual interest income, and contractual interest expense and the discount amortization on Discount Notes are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments in which the fair value option has been elected are recorded as “Net gains (losses) on financial instruments held under fair value option” in the Statements of Income, except for changes in fair value related to instrument specific credit risk, which are recorded in accumulated other comprehensive income (loss) in the StatementStatements of Condition. The FHLB has determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the years ended December 31, 20202023 or 2019.2022. In determining that there has been 0no change in instrument-specific credit risk period to period, the FHLB primarily considered the following factors:

▪The FHLB is a federally chartered GSE, and as a result of this status, the FHLB’s Consolidated Obligations have historically received the same credit ratings as the government bond credit rating of the United States, even though they are not obligations of the United States and are not guaranteed by the United States.

▪The FHLB is jointly and severally liable with the other 10 FHLBanks for the payment of principal and interest on all Consolidated Obligations of each of the other FHLBanks.

The following table reflects the difference between the aggregate unpaid principal balance outstanding and the aggregate fair value for Advances and Consolidated Obligations for which the fair value option has been elected.

Table 15.4 – Aggregate Unpaid Balance and Aggregate Fair Value (in thousands)
December 31, 2020December 31, 2019
Aggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal BalanceAggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
December 31, 2023December 31, 2023December 31, 2022
Aggregate Unpaid Principal BalanceAggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal BalanceAggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
AdvancesAdvances$26,500 $27,202 $702 $5,000 $5,238 $238 
Consolidated Discount NotesConsolidated Discount Notes0 0 0 12,400,865 12,386,974 (13,891)
Consolidated BondsConsolidated Bonds2,241,000 2,262,388 21,388 4,739,000 4,757,177 18,177 

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Note 16 - Commitments and Contingencies

Off-Balance Sheet Commitments. Table 16.1 represents off-balance sheet commitments at December 31, 20202023 and 2019.2022. The FHLB has deemed it unnecessary to record any liabilities for credit losses on these commitments at December 31, 20202023 and 2019.2022, based on its credit extension and collateral policies.

Table 16.1 - Off-Balance Sheet Commitments (in thousands)
December 31, 2020December 31, 2019
December 31, 2023December 31, 2023December 31, 2022
Notional AmountNotional AmountExpire within one yearExpire after one yearTotalExpire within one yearExpire after one yearTotalNotional AmountExpire within one yearExpire after one yearTotalExpire within one yearExpire after one yearTotal
Standby Letters of Credit$27,741,220 $1,071,029 $28,812,249 $15,143,075 $1,062,105 $16,205,180 
Letters of Credit
Commitments for standby bond purchasesCommitments for standby bond purchases0 35,030 35,030 20,360 55,150 75,510 
Commitments to purchase mortgage loansCommitments to purchase mortgage loans137,352 0 137,352 936,269 0 936,269 
Commitments to purchase mortgage loans
Commitments to purchase mortgage loans
Unsettled Consolidated Bonds, principal amount (1)
Unsettled Consolidated Discount Notes, principal amount (1)
Unsettled Consolidated Discount Notes, principal amount (1)
321,551 0 321,551 0 0 0 
(1)Expiration is based on settlement period rather than underlying contractual maturity of Consolidated Obligations.

Standby Letters of Credit: The FHLB issues Standby Letters of Credit on behalf of its members to support certain obligations of the members (or member's customer) to third-party beneficiaries. Standby Letters of Credit may be offered to assist members and non-member housing associates in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use Standby Letters of Credit as collateral for deposits from federal and state government agencies. Standby Letters of Credit are executed for members for a fee. If the FHLB is required to make payment for a beneficiary's draw, the member either reimburses the FHLB for the amount drawn or, subject to the FHLB's discretion, the amount drawn may be converted into a collateralized Advance to the member. However, Standby Letters of Credit usually expire without being drawn upon. Standby Letters of Credit have original expiration periods of up to 18 years, currently expiringissued by the FHLB expire no later than 2034. The carrying value of guarantees related to Standby Letters of Credit are recorded in other liabilities and were (in thousands) $8,675$11,775 and $5,170$9,691 at December 31, 20202023 and 2019.2022.

The FHLB monitors the creditworthiness of its members that have Standby Letters of Credit. In addition, Standby Letters of Credit are subject to the same collateralization and borrowing limits that apply to Advances and are fully collateralized at the time of issuance.

Standby Bond Purchase Agreements: TheAt December 31, 2022, the FHLB hashad executed standby bond purchase agreements with 1one state housing authority whereby the FHLB, for a fee, agreesagreed as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent cancould find a suitable investor or the housing authority repurchasesrepurchased the bonds according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the FHLB to purchase the bonds and typically allows the FHLB to terminate the agreement upon the occurrence of a default event of the issuer. The bond purchase commitments entered into by the FHLB have original expiration periods up to 6 years, currently no later thanexpired in 2023. During 2023 although some are renewable at the option of the FHLB. During 2020 and 2019,2022, the FHLB was not required to purchase any bonds under these agreements.

Commitments to Purchase Mortgage Loans: The FHLB enters into commitments that unconditionally obligate the FHLB to purchase mortgage loans. Commitments are generally for periods not to exceed 90 days. The delivery commitments are recorded as derivatives at their fair values.

Consolidated Obligations: As previously described, Consolidated Obligations are backed only by the financial resources of the FHLBanks. The joint and several liability Finance Agency regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal and interest on Consolidated Obligations for which another FHLBank is the primary obligor. No FHLBank has ever been asked or required to repay the principal or interest on any Consolidated Obligation on behalf of another FHLBank and as ofduring the years ended December 31, 2020,2023, 2022, or 2021, and through the filing date of this report, the FHLB does not believe that it is probable that it will be asked to do so.so through the filing date of this report.

The FHLB determined that it was not necessary to recognize a liability for the fair values of its joint and several obligation related to other FHLBanks' Consolidated Obligations at December 31, 2020, 2019,2023, 2022, or 2018.2021. The joint and several obligations are mandated by Finance Agency regulations and are not the result of arms-length transactions among the FHLBanks. The
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FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligation.

Pledged Collateral. Collateral. The FHLB may pledgepledged securities, as collateral, related to derivatives. See Note 7 - Derivatives and Hedging Activities for additional information about the FHLB'sFHLB’s pledged collateral and other credit-risk-related contingent features.collateral.
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Legal Proceedings. From time to time, the FHLB is subject to legal proceedings arising in the normal course of business. The FHLB would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount could be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability and the range of reasonably possible losses, if any, arising out of any matters will have a material effect on the FHLB's financial condition or results of operations.


Note 17 - Transactions with Other FHLBanks

The FHLB notes all transactions with other FHLBanks on the face of its financial statements. Occasionally, the FHLB loans short-term funds to and borrows short-term funds from other FHLBanks. These loans and borrowings are transacted at then current market rates when traded. There were no such loans or borrowings outstanding at December 31, 2020, 20192023, 2022 or 2018.2021. The following table details the average daily balance of lending and borrowing between the FHLB and other FHLBanks for the years ended December 31.

Table 17.1 - Lending and Borrowing Between the FHLB and Other FHLBanks (in thousands)
Average Daily Balances for the Years Ended December 31,Average Daily Balances for the Years Ended December 31,
Average Daily Balances for the Years Ended December 31,
2020 201920182023 20222021
Loans to other FHLBanksLoans to other FHLBanks$4,918  $2,877 $1,370 
Borrowings from other FHLBanksBorrowings from other FHLBanks137  137 274 

In addition, the FHLB may, from time to time, assume the outstanding primary liability for Consolidated Obligations of another FHLBank (at then current market rates on the day when the transfer is traded) rather than issuing new debt for which the FHLB is the primary obligor. The FHLB then becomes the primary obligor on the transferred debt. There are no formal arrangements governing the transfer of Consolidated Obligations between the FHLBanks, and these transfers are not investments of one FHLBank in another FHLBank. Transferring debt at current market rates enables the FHLBank System to satisfy the debt issuance needs of individual FHLBanks without incurring the additional selling expenses (concession fees) associated with new debt. It also provides the transferring FHLBanks with outlets for extinguishing debt structures no longer required for their balance sheet management strategies.

There were 0 Consolidated Obligations transferred to the FHLB during the year ended December 31, 2020. During the year ended December 31, 20192023, the par amount of the liability on Consolidated Obligations transferred to the FHLB totaled (in thousands) $10,000. All such transfers were from the FHLBank of Boston.$250,000. The net premiumsdiscount associated with these transactions were (in thousands) $2,697 in 2019.this transaction was immaterial and the Consolidated Obligation matured prior to December 31, 2023. There were 0no Consolidated Obligations transferred to the FHLB during the yearyears ended December 31, 2018.2022 or 2021. The FHLB had 0no Consolidated Obligations transferred to other FHLBanks during these periods.

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Note 18 - Transactions with Stockholders

As a cooperative, the FHLB's capital stock is owned by its members, by former members that retain the stock as provided in the FHLB's Capital Plan and by nonmember institutions that have acquired members and must retain the stock to support Advances or other capital-requiring activities with the FHLB. All Advances arewere issued to members and all mortgage loans held for portfolio arewere purchased from members.members during the years ended December 31, 2023, 2022 and 2021. The FHLB also maintains demand deposit accounts for members, primarily to facilitate settlement activities that are directly related to Advances and mortgage loan purchases. Additionally, the FHLB may enter into interest rate swaps with its stockholders. The FHLB may not invest in any equity securities issued by its stockholdersstockholders. At December 31, 2023 and it has2022, the FHLB did not purchasedown any MBS securitized by, or other direct long-term investments in,issued by its stockholders.

For financial statement purposes, the FHLB defines related parties as those members with more than 10 percent of the voting interests of the FHLB capital stock outstanding. Federal statute prescribes the voting rights of members in the election of both Member and Independent directors. For Member directorships, the Finance Agency designates the number of Member directorships in a given year and an eligible voting member may vote only for candidates seeking election in its respective state. For Independent directors, the FHLB's Board of Directors nominates candidates to be placed on the ballot in an at-large election. For both Member and Independent director elections, a member is entitled to vote one share of required capital stock, subject to a statutory limitation, for each applicable directorship. Under this limitation, the total number of votes that a member may cast is limited to the average number of shares of the FHLB's capital stock that were required to be held by all members in that state as of the record date for voting. Nonmember stockholders are not eligible to vote in director elections. Due toGiven these statutory limitations, no member owned more than 10 percent of the voting interests of the FHLB at December 31, 20202023 or 2019.2022.

All transactions with stockholders are entered into in the ordinary course of business. Finance Agency regulations require the FHLB to offer the same pricing for Advances and other services to all members regardless of asset or transaction size, charter type, or geographic location. However, the FHLB may, in pricing its Advances, distinguish among members based upon its assessment of the credit and other risks to the FHLB of lending to any particular member or upon other reasonable criteria that may be applied equally to all members. The FHLB's policies and procedures require that such standards and criteria be applied consistently and without discrimination to all members applying for Advances.Advances and other services.

Transactions with Directors' Financial Institutions. In the ordinary course of its business, the FHLB provides products and services to members whose officers or directors serve as directors of the FHLB (Directors' Financial Institutions). Finance Agency regulations require that transactions with Directors' Financial Institutions be made on the same terms as those with any other member. The following table reflects balances with Directors' Financial Institutions for the items indicated below. The FHLB had no MBS or derivatives transactions with Directors' Financial Institutions at December 31, 20202023 or 2019.2022.
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Table 18.1 - Transactions with Directors' Financial Institutions (dollars in millions)
December 31, 2020December 31, 2019 December 31, 2023December 31, 2022
Balance
% of Total (1)
Balance
% of Total (1)
 Balance
% of Total (1)
Balance
% of Total (1)
AdvancesAdvances$7,048 28.2 %$3,428 7.3 %Advances$7,309 9.9 9.9 %$22,009 32.6 32.6 %
MPPMPP159 1.7 122 1.1 
Regulatory capital stockRegulatory capital stock467 17.6 176 5.2 
Regulatory capital stock
Regulatory capital stock
(1)Percentage of total principal (Advances), unpaid principal balance (MPP), and regulatory capital stock.

Concentrations. The following table shows regulatory capital stock balances, outstanding Advance principal balances, and unpaid principal balances of mortgage loans held for portfolio of stockholders holding five percent or more of regulatory capital stock and includes any known affiliates that are members of the FHLB.

Table 18.2 - Stockholders Holding Five Percent or more of Regulatory Capital Stock (dollars in millions)
Regulatory Capital StockAdvanceMPP Unpaid
December 31, 2020Balance% of Total PrincipalPrincipal Balance
Regulatory Capital StockRegulatory Capital StockAdvanceMPP Unpaid
December 31, 2023December 31, 2023Balance% of Total PrincipalPrincipal Balance
U.S. Bank, N.A.U.S. Bank, N.A.$288 11 %$4,273 $13 
JPMorgan Chase Bank, N.A.JPMorgan Chase Bank, N.A.163 6 0 0 
Keybank, N.A.
Third Federal Savings & Loan AssociationThird Federal Savings & Loan Association137 5 3,443 42 
Regulatory Capital StockAdvanceMPP Unpaid
December 31, 2019Balance% of TotalPrincipalPrincipal Balance
JPMorgan Chase Bank, N.A.$675 20 %$4,500 $0 
U.S. Bank, N.A.485 14 13,874 17 
Regulatory Capital StockAdvanceMPP Unpaid
December 31, 2022Balance% of TotalPrincipalPrincipal Balance
U.S. Bank, N.A.$1,293 25 %$19,000 $8 
Keybank, N.A.670 13 11,344 — 
Fifth Third Bank381 7 4,301 — 
The Huntington National Bank303 6 1,702 348 

Nonmember Affiliates.Housing Associates. The FHLB has relationships with 3three nonmember affiliates,housing associates, the Kentucky Housing Corporation, the Ohio Housing Finance Agency and the Tennessee Housing Development Agency. The FHLB had no investments in or borrowings to any of these nonmember affiliateshousing associates at December 31, 20202023 or 2019. The FHLB has executed standby bond purchase agreements with the Ohio Housing Finance Agency whereby the FHLB, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. For the years ended December 31, 2020 and 2019, the FHLB was not required to purchase any bonds under these agreements.

2022.

SUPPLEMENTAL FINANCIAL DATA

Supplemental financial data required is set forth in the “Other Financial Information” caption at Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this report.

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

There were no changes in or disagreements with our accountants on accounting and financial disclosure during the two most recent fiscal years.

Item 9A.    Controls and Procedures.


DISCLOSURE CONTROLS AND PROCEDURES

As of December 31, 2020,2023, the FHLB's management, including its principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, these two officers each concluded that, as of
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December 31, 2020,2023, the FHLB maintained effective disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files under the Exchange Act is (1) accumulated and communicated to management
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as appropriate to allow timely decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.Commission (SEC).


MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the FHLB is responsible for establishing and maintaining adequate internal control over financial reporting. The FHLB's internal control over financial reporting is designed by, or under the supervision of, the FHLB's management, including its principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

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.

The FHLB's management assessed the effectiveness of the FHLB's internal control over financial reporting as of December 31, 2020.2023. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment, management of the FHLB determined that, as of December 31, 2020,2023, the FHLB's internal control over financial reporting was effective based on those criteria.

The effectiveness of the FHLB's internal control over financial reporting as of December 31, 20202023 has been audited by PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, as stated in their report which is included in Item 8. Financial Statements and Supplementary Data.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the FHLB's internal control over financial reporting that occurred during the fourth quarter ended December 31, 20202023 that materially affected, or are reasonably likely to materially affect, the FHLB's internal control over financial reporting.

Item 9B.    Other Information.

None.

Item 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.



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PART III


Item 10.    Directors, Executive Officers and Corporate Governance.


NOMINATION AND ELECTION OF DIRECTORS

For 2021, theThe Finance Agency authorized us to have a total of 17 directors: 10 Member directors and seven Independent directors. For 2020, an additional Independent director had been authorized. TwoThree of our Independent directors are designated as Public Interest directors and all 17 directors are elected by our members.

For both Member and Independent directorship elections, a member institution may cast one vote per seat or directorship up for election for each share of stock that the member was required to hold as of December 31 of the calendar year immediately preceding the election year. However, the number of votes that any member may cast for any one directorship cannot exceed the average number of shares of FHLB stock that were required to be held by all members located in its state. The election process is conducted electronically. Our Board of Directors does not solicit proxies nor is any member institution permitted to solicit proxies in an election.

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Finance Agency regulations also provide for two separate selection processes for Member and Independent director candidates.

Member director candidates are nominated by any officer or director of a member institution eligible to vote in the respective statewide election, including the candidate's own institution. After the FHLB determines that the candidate meets all Member director eligibility requirements per Finance Agency regulations, the candidate may run for election and the candidate's name is placed on the ballot.

Independent director candidates are self-nominated. Any individual may submit an Independent director application form to the FHLB and request to be considered for election. The FHLB reviews all application forms to determine that the individual satisfies the appropriate public interest or non-public interest Independent director eligibility requirements per Finance Agency regulations before forwarding the application form to the Board for review of the candidate's qualifications and skills. The Board then nominates an individual whose name will appear on the ballot after consultation with the Affordable Housing Advisory Council and after the nominee information has been submitted to the Finance Agency for review. As part of the nomination process, the Board may consider several factors including the individual's contributions and service on the Board, if a former or incumbent director, and the specific experience and qualifications of the candidate. The Board also considers diversity in nominating Independent directors and how the attributes of the candidate may add to the overall strength and skill set of the Board. These same factors are considered when the Board fills a Member or Independent director vacancy.

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DIRECTORS

The following table sets forth certain information (ages as of March 1, 2021)2024) regarding each of our current directors.
NameNameAgeDirector SinceExpiration of Term as a DirectorIndependent or Member (State)NameAgeDirector SinceExpiration of Term as a DirectorIndependent or Member (State)
J. Lynn Anderson, ChairJ. Lynn Anderson, Chair57
2017 (1)
12/31/24Independent (OH)J. Lynn Anderson, Chair60
2017 (1)
12/31/24Independent (OH)
Grady P. Appleton73200712/31/21Independent (OH)
April Miller Boise52201912/31/22Independent (OH)
J. Wade BerryJ. Wade Berry54202212/31/25Member (KY)
Brady T. BurtBrady T. Burt48201712/31/24Member (OH)Brady T. Burt51201712/31/24Member (OH)
Greg W. CaudillGreg W. Caudill62201412/31/21Member (KY)Greg W. Caudill65201412/31/25Member (KY)
Kristin H. DarbyKristin H. Darby46202112/31/24Independent (TN)Kristin H. Darby49202112/31/24Independent (TN)
James A. England, Vice Chair69201112/31/22Member (TN)
Lewis DiazLewis Diaz45202212/31/27Independent (KY)
Roy Molitor Ford, Jr.Roy Molitor Ford, Jr.58202312/31/26Member (TN)
Danny J. HerronDanny J. Herron66202212/31/25Independent (TN)
Robert T. LameierRobert T. Lameier68201612/31/23Member (OH)Robert T. Lameier71201612/31/27Member (OH)
Donald J. Mullineaux75201012/31/23Independent (KY)
Michael P. PellMichael P. Pell57201912/31/22Member (OH)Michael P. Pell60201912/31/26Member (OH)
Kathleen A. Rogers (2)
Kathleen A. Rogers (2)
55202012/31/21Member (OH)
Kathleen A. Rogers (2)
58202012/31/25Member (OH)
Charles J. Ruma79(2002-2004) 200712/31/23Independent (OH)
David E. Sartore60201412/31/21Member (KY)
William S. Stuard, Jr.66201112/31/22Member (TN)
Leslie Scott SpiveyLeslie Scott Spivey66202212/31/26Independent (OH)
Steven E. StiversSteven E. Stivers58202412/31/27Independent (OH)
Nancy E. UridilNancy E. Uridil69201512/31/22Independent (OH)Nancy E. Uridil72201512/31/26Independent (OH)
James J. Vance59201712/31/24Member (OH)
James J. Vance, Vice ChairJames J. Vance, Vice Chair62201712/31/24Member (OH)
Jonathan D. WeltyJonathan D. Welty51202012/31/23Member (OH)Jonathan D. Welty54202012/31/27Member (OH)
H. McCall Wilson, Jr.H. McCall Wilson, Jr.58202312/31/26Member (TN)
(1)Ms. Anderson, an Independent director beginning in 2017, also served as a Member director from 2012-2016.
(2)Ms. Rogers was elected by the Board on November 21, 20192023 to fill ana vacant Ohio Member director vacancy.Director position, which is the position she previously held prior to her retirement as an officer at another Ohio member bank. Ms. Rogers'Rogers will complete the remainder of the vacant term, commenced on January 1, 2020 and will end onending December 31, 2021 (what would have been the end of the unexpired term).2025.

Member Directors

Finance Agency regulations govern the eligibility requirements for our Member directors. Each Member director, and each nominee to a Member directorship, must be a U.S. citizen and an officer or director of a member that: is located in the voting state to be represented by the Member directorship, was a member of the FHLB as of the record date, and meets all minimum capital requirements established by its appropriate Federal banking agency or state regulator.

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Generally, each Member director is nominated and elected by our members through an annual voting process administered by us. Any member that is entitled to vote in the election may nominate an eligible individual to fill each available Member directorship for its voting state, and all eligible nominees must be presented to the membership in the voting state. Our directors are not permitted to nominate or elect Member directors, except to fill a vacancy for the remainder of an unexpired term or to fill a vacancy for which no nominations were received. In accordance with Finance Agency regulations, except when acting in a personal capacity, no director, officer, attorney, employee or agent of the FHLB may communicate in any manner that he or she directly or indirectly, supports or opposes the nomination or election of a particular individual for a Member directorship or take any other action to influence the voting with respect to a particular individual. As a result, the FHLB is not in a position to know which factors its member institutions considered in nominating candidates for Member directorships or in voting to elect Member directors. However, if the Board takes action to fill a vacant Member directorship, facts considered in electing such director may be communicated toby the FHLB.

The business experiences of our current Member directors are as follows:

Mr. Berry has been the President and Chief Executive Officer of Farmers Bank & Trust Company, Marion, Kentucky, since 2011.

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Mr. Burt has been the Senior Vice President and Chief Financial Officer of The Park National Bank, Newark, Ohio, a subsidiary of Park National Corporation, since December 2012. He also serves as the Secretary, Treasurer, and Chief Financial Officer of Park National Corporation.

Mr. Caudill has served on the Board of Directors of Farmers National Bank, Danville, Kentucky since 1996. Previously, Mr. Caudill was the Chief Executive Officer of Farmers National Bank from December 2002 to December 2020. He also served as the President of Farmers National Bank from December 2002 until April 2016.

Mr. EnglandFord has been the Chairman of Decatur CountyCommercial Bank Decaturville,and Trust Company, Memphis, Tennessee, since 1990. He also served asMay 2019 and the Chief Executive Officer of Decatur CountyCommercial Bank from 1990 to 2013.and Trust Company since 1998.

Mr. Lameier has been President, Chief Executive Officer, and a director of Miami Savings Bank, Miamitown, Ohio since 1993. He also served as the Chief Executive Officer of Miami Savings Bank from 1993 to December 2022 as well as President from 1993 to February 2022.

Mr. Pell has been the President and Chief Executive Officer of First State Bank, Winchester, Ohio since March 2006.

Ms. Rogers has been Executive Vice President, Directorserved on the Board of Capital Stress Testing and Financial SystemsDirectors of U.S.Fifth Third Bank, N.A., Cincinnati, Ohio since August 2016. She also2023. Previously, she served asin various executive financial positions at U.S. Bancorp and U.S. Bank, NA including Vice Chairman and Chief Financial Officer of U.S. Bancorp from January 2015 to August 2016.

Mr. Sartore became Executive Vice President2016, Director of Business Line Reporting, Planning and Financial Systems from 1998 to December 2014, Director of Stress Testing from 2009 to December 2014 and again from September 2016 to August 2021, finishing her career in June 2023 as the Chief Financial Officer of Field & Main Bank, Henderson, Kentucky in January 2015 when Ohio Valley Financial GroupFinance Administration, Data and BankTrust Financial merged to form Field & Main Bank. Previously, Mr. Sartore was Senior Vice President and Chief Financial Officer of Ohio Valley Financial Group since 1992.

Mr. Stuard has been Chairman of F&M Bank, Clarksville, Tennessee, since January 2016 and President and Chief Executive Officer of F&M Bank since January 1991.Transformation Officer.

Mr. Vance has been the Senior Vice President of Western-Southern Life Assurance Company and related subsidiaries (Cincinnati, Ohio) since January 2024. Previously, he served as Senior Vice President and Co-Chief Investment Officer of Western-Southern Life Assurance Company and related subsidiaries (Cincinnati, Ohio) sincefrom October 2020. Previously, he served2020 to January 2024, and as the Senior Vice President and Treasurer of Western-Southern Life Assurance Company and related subsidiaries from March 2016 to October 2020 and as Vice President and Treasurer from 1999 to March 2016.2020.

Mr. Welty has been the President of Ohio Capital Finance Corporation (OCFC), Columbus, Ohio since August 2019 and the Executive Vice President of Ohio Capital Corporation for Housing (OCCH), an affiliate of OCFC, since November 2020. Prior to serving as the President of OCFC, Mr. Welty served as an Executive Director from January 2010 to August 20192019.

Mr. Wilson has been the President and as Vice PresidentChief Executive Officer of OCCH from May 2000 until November 2020.The Bank of Fayette County, Collierville, Tennessee since June 2001.

Independent Directors

Finance Agency regulations also govern the eligibility requirements of our Independent directors. Each Independent director, and each nominee to an Independent directorship, must be a U.S. citizen and bona fide resident of our District. At least two of our Independent directors must be designated by our Board as public interest directors. Public interest Independent directors must have more than four yearsyears' experience representing consumer or community interest in banking services, credit needs, housing, or consumer financial protections. All other Independent directors must have knowledge of or experience in one or more of the following areas: auditing and accounting; derivatives; financial management; organizational management; project development; risk management practices; and the law. Our Board of Directors nominates candidates for Independent
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directorships. Directors, officers, employees, attorneys, or agents of the FHLB are permitted to support directly or indirectly the nomination or election of a particular individual for an Independent directorship.

The business experiences of our current Independent directors are as follows:

Ms. Anderson served as the President of Nationwide Bank from November 2009 to March 2016. Prior to retiring, she served as the Senior Vice President-Member Solutions Integration for Nationwide Mutual Insurance Company from March 2016 to December 2016. Ms. Anderson is a Certified Public Accountant and hasCertified Internal Auditor. She served over 10 years of experience serving on the board of National Church Residences, a leading national non-profitwhich is the nation's largest not-for-profit provider of affordable senior housing.housing with over 400 communities serviced. Ms. Anderson is a member of Women Corporate Directors and Women for Economic Leadership Development. Ms. Anderson's leadership positions within the banking and insurance industries contribute skills to the Board in the areas of auditing and accounting, operations and corporate governance. In addition, her non-profitnot-for-profit housing experience provides public interest viewpoints that connect to the FHLB's mission.

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Mr. Appleton is retired from East Akron Neighborhood Development Corporation (EANDC), where he served as President and Chief Executive Officer from January 2014 to January 2018. He also served as Executive DirectorTable of EANDC for more than 30 years. EANDC improves communities by providing quality and affordable housing, comprehensive homeownership services and economic development opportunities. Mr. Appleton's years of experience with EANDC bring insight to the Board that contributes to the FHLB's corporate objective of maximizing the effectiveness of contributions to Housing and Community Investment programs. Mr. Appleton also served as a member of the FHLB's Affordable Housing Advisory Council from 1997 until 2006.Contents

Ms. Boise has been Executive Vice President and General Counsel of Eaton Corporation since January 2020. She was formerly the Senior Vice President, Chief Legal Officer, and Corporate Secretary of Meritor Incorporated from August 2016 to December 2019. Previously, Ms. Boise served as Senior Vice President, General Counsel, Head of Global Mergers and Acquisitions and Corporate Secretary of Avintiv Incorporated from March 2015 to December 2015. She also served as Vice President, General Counsel, Corporate Secretary and Chief Privacy Officer of Veyance Technologies Incorporated from January 2011 to January 2015. Ms. Boise has over 25 years of legal experience and expertise leading corporate development and implementing strategic growth plans, while mitigating related risks. Her knowledge and background offers the Board valuable insight on the FHLB’s governance and risk management corporate objectives.

Ms. Darby has been the Chief Information Officer at HarmonyCares since January 2022, and a Strategic Technology Advisor at KHD Consulting since August 2021. Prior to that, Ms. Darby served as the Chief Information Officer of Envision Healthcare sincefrom November 2018. Previously, she2018 to July 2021, and was the Chief Information Officer of Cancer Treatment Centers of America from April 2014 to November 2018. Ms. Darby is a Certified Public Accountant and Certified Fraud Examiner and serves as the Chair of the Nominating Committee on the Nashville Technology Council. ServingExaminer. Having served as a technology leader at a large public organization, Ms. Darby offers the Board comprehensive knowledge on technology strategy and operations, and digital and cyber security.

Dr. Mullineaux is the Emeritus duPont Endowed Chair in Banking and Financial Services in the Gatton College of Business and Economics at the University of Kentucky. He was the duPont Endowed Chair from 1984 until 2014. Previously, he was on the staff of the Federal Reserve Bank of Philadelphia, where he served as Senior Vice President and Director of Research from 1979 until 1984. He also served as a director of Farmers Capital Bank Corporation from 2005 until 2009. He has published numerous articles and lectured on a variety of banking topics, including risk management, financial markets and economics. He served as the Curriculum Director for the ABA's Stonier Graduate School of Banking from 2001 to 2016. Dr. Mullineaux brings knowledge and experience to the Board in areas vital to the operation of financial institutions in today's economy.cybersecurity.

Mr. RumaDiaz has been a Partner at the law firm of Dinsmore & Shohl, LLP since April 2014 where he concentrates his practice on affordable housing and traditional governmental finance. Mr. Diaz also served from 2002 to 2008 in multiple capacities, including Program Counsel and interim Chief Council, at the Kentucky Housing Corporation, the state’s housing finance agency. Mr. Diaz contributes a diverse skill set to the Board including public interest representation, public and private housing development, legal expertise and complex financing structures to support affordable housing.

Mr. Herron has been the President and Chief Executive Officer of Davidson Phillips, Inc.,Habitat for Humanity of Greater Nashville since 2010. Previously, he was the President and Chief Executive Officer of Cumberland Bank, Franklin, Tennessee from 1993 to 2007. He also served as a homebuilder, since 1975. He served on the boardmember of the Ohio Housing Finance Agency (OHFA), the state's housing agency,FHLB’s Advisory Council from 20042014 to 2009. OHFA helps Ohio's first-time homebuyers, renters, senior citizens,2021 and others find quality, affordable housing that meets their needs. OHFA's programs also support developers and property managers of affordable housing throughout the state.was Council Chair from 2019 to 2020. Mr. Ruma'sHerron’s years of experience in the home building industrynon-profit housing development and with the OHFA bringcommunity banking brings insight to the Board that contributes to the FHLB'sFHLB’s vision of helping members achieve business success and enhance communities.

Mr. Spivey is retired from First Student, Inc., where he served as the Senior Vice President, Chief Financial Officer from January 2015 to October 2022. Mr. Spivey also served as the Senior Vice President of Finance of CHEP Global Pallets from 2013 to 2014 and as Senior Vice President, Chief Financial Officer of CHEP Americas from 2008 to 2013. Mr. Spivey has extensive experience in financial operations across multiple industries ranging from transportation and logistics to telecommunications and packaged goods. Mr. Spivey contributes private sector strategic financial leadership and diversity of perspective to the Board.

Mr. Stivers has been the President and Chief Executive Officer of the Ohio Chamber of Commerce since May 2021. Previously, he served as Congressman of Ohio’s 15th Congressional District from January 2011 until May 2021, where he served on the Rules and Financial Services Committees and was a Ranking Member on the Housing, Community Development, and Insurance Subcommittee. Mr. Stivers also served as an Ohio State Senator from 2003 to 2008, where he served as Chairman of the Insurance, Commerce and Labor Committee as well as Vice Chairman of the Finance and Financial Institutions Committee. Additionally, Mr. Stivers served over 30 years in the Ohio Army National Guard and holds the rank of Major General. Mr. Stivers brings extensive government and private sector experience to the Board that contributes to the FHLB’s mission to promote affordable housing and corporate objectives.economic development.

Ms. Uridil ishas more than 18 years of experience as a retiredSenior Vice President of $1 billion to $6 billion global consumerbusinesses (consumer packaged goods, executive. Shecosmetics, durables) creating and delivering corporate and functional strategies. Specifically, she was the Senior Vice President of Global OperationOperations for Moen Incorporated from September 2005 until March 2014.to her retirement in 2014, Senior Vice President at Estée Lauder Cos from 2000 to 2005 and Senior Vice President at Mary Kay, Inc. from 1996 to 2000. Ms. Uridil served on the Board of Directors of Flexsteel Industries, Inc. (Nasdaq: FLXS) from December 2010 to December 2019, where she served on the Compensation Committee and chairedled the Nominations and Governance Committee. Ms. Uridil also served as a Senior Vice President of Estée Lauder Companies, from 2000 to 2005. In addition, Ms. Uridil served as a Senior Vice President of Mary Kay, Incorporated, from 1996 to 2000. Serving on executive teams for global businesses for more than 18 years, Ms. Uridil has extensive experience in strategy, expense and capital management, merger and acquisition integration and sourcing. Ms. Uridil's qualifications and insight provide valuable skills to the Board in the important areas of personnel, compensation, information technology and operations.


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EXECUTIVE OFFICERS

The following table sets forth certain information (ages as of March 1, 2021)2024) regarding our executive officers.
NameNameAgePositionEmployee of the FHLB SinceNameAgePositionEmployee of the FHLB Since
Andrew S. HowellAndrew S. Howell59President and Chief Executive Officer1989Andrew S. Howell62President and Chief Executive Officer1989
Stephen J. SponaugleStephen J. Sponaugle58Executive Vice President, Chief Financial Officer1992Stephen J. Sponaugle61Executive Vice President, Chief Financial Officer1992
R. Kyle Lawler63Executive Vice President, Chief Business Officer2000
Roger B. BatselRoger B. Batsel49Executive Vice President, Chief Operating Officer2014Roger B. Batsel52Executive Vice President, Chief Operating Officer2014
Damon v. AllenDamon v. Allen50Senior Vice President, Housing and Community Investment Officer1999Damon v. Allen53Senior Vice President, Chief Marketing and Community Investment Officer1999
J. Christopher BatesJ. Christopher Bates45Senior Vice President, Chief Accounting Officer2005J. Christopher Bates48Senior Vice President, Chief Accounting Officer2005
David C. Eastland63Senior Vice President, Chief Credit Officer1999
James C. FrondorfJames C. Frondorf43Senior Vice President, Assistant Chief Credit Officer2001James C. Frondorf46Senior Vice President, Chief Credit Officer2001
Tami L. HendricksonTami L. Hendrickson60Senior Vice President, Treasurer2006Tami L. Hendrickson63Senior Vice President, Treasurer2006
Bridget C. HoffmanBridget C. Hoffman44Senior Vice President, General Counsel2018Bridget C. Hoffman47Senior Vice President, General Counsel2018
Amy L. KonowAmy L. Konow46Senior Vice President, Chief Audit Executive2020Amy L. Konow49Senior Vice President, Chief Audit Executive2020
Karla M. RussoKarla M. Russo55Senior Vice President, Chief Human Resources and Inclusion Officer2014
Daniel A. TullyDaniel A. Tully43Senior Vice President, Chief Risk and Compliance Officer2006Daniel A. Tully46Senior Vice President, Chief Risk and Compliance Officer2006

The business experiences of our current executive officers are as follows:
                            
Mr. Howell became the President and Chief Executive Officer in June 2012. Previously, he served as the Executive Vice President, Chief Operating Officer since January 2008. His career with the FHLB also included multiple years in the roles of Senior Vice President, Chief Credit Officer and Executive Vice President, Chief Business Officer.

Mr. Sponaugle became the Executive Vice President, Chief Financial Officer in January 2018. Previously, he served as the Executive Vice President, Chief Risk and Compliance Officer since January 2017. Mr. Sponaugle also served as the FHLB's Senior Vice President, Chief Risk and Compliance Officer from November 2015 to December 2016.

Mr. Lawler became Executive Vice President, Chief Business Officer in August 2012. Previously, he served as the Senior Vice President, Chief Credit Officer since May 2007.

Mr. Batsel became the Executive Vice President, Chief Operating Officer in January 2020. Previously, he served as the FHLB's Senior Vice President, Chief Information and Operations Officer since July 2018. Mr. Batsel also served as the FHLB's Senior Vice President, Chief Information Officer since January 2014.

Mr. Allen became the Senior Vice President, Chief Marketing and Community Investment Officer in January 2023. Previously, he served as the FHLB's Senior Vice President, Housing and Community Investment Officer insince January 2012. Previously, he served as the FHLB's Vice President and Community Investment Officer since July 2011.

Mr. Bates became the Senior Vice President, Chief Accounting Officer in January 2015. Previously, he served as the FHLB's Vice President, Controller since January 2013.

Mr. EastlandFrondorf became the Senior Vice President, Chief Credit Officer in January 2015. Prior to that, he servedJune 2021 after serving as the FHLB's Vice President, Credit Risk Management since January 2002.

Mr. Frondorf became Senior Vice President, Assistant Chief Credit Officer insince January 2021. Previously,Prior to that, he served as the FHLB’s First Vice President, Credit Services since January 2018. Mr. Frondorf also served as the FHLB’s Vice President, Credit Services since January 2014.

Ms. Hendrickson became the Senior Vice President, Treasurer in January 2015. Previously, she served as the FHLB's Vice President, Treasurer since January 2010.

Ms. Hoffman became the Senior Vice President, General Counsel in May 2018. Previously, she was a partner of the law firm Taft Stettinius & Hollister LLP from January 2011 to May 2018.

Ms. Konow became the Senior Vice President, Chief Audit Executive in July 2020. Previously, she was the Chief Financial Officer at Landrum & Brown, Inc. from November 2019 to June 2020 and the Vice President, Accounting and Finance from April 2018 to November 2019. Prior to that,

Ms. Russo became the Senior Vice President, Chief Human Resources and Inclusion Officer in January 2022. Previously, she served as the FHLB's First Vice President, Operations - Financial Institutions Division at American Modern Insurance Group from November 2013 to FebruaryHuman Resources and Office of Minority and Woman Inclusion (OMWI) Officer since January 2018.

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Mr. Tully became the Senior Vice President, Chief Risk and Compliance Officer in April 2020. Previously, he served as the Senior Vice President, Assistant Chief Risk and Compliance Officer since January 2020. Prior to that, he served as the FHLB's First Vice President, Assistant Chief Risk and Compliance Officer since July 2018. Mr. Tully also served as the FHLB's First Vice President, Financial and Market Risk Analysis since January 2018 and as Vice President, Financial and Market Risk Analysis since 2014.

All officers are appointed annually by our Board of Directors.


AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined (1) that Mr. Brady T. Burt, Chair of the Audit Committee, and Committee member Mr. David E. Sartore,Leslie Scott Spivey, have the relevant accounting and related financial management expertise, and therefore are qualified, to serve as the Audit Committee financial experts within the meaning of the regulations of the SEC and (2) that each is independent under SEC Rule 10A-3(b)(1). Mr. Burt is a Certified Public Accountant and his experience has principally been in the accounting and finance disciplines within the financial industry, and has included managing various accounting functions. Mr. Sartore'sSpivey's experience has principally been in the accounting and finance disciplines within the financial industry and he is a Certified Public Accountant.crossing multiple industries. For additional information regarding the independence of the directors of the FHLB, see Item 13. Certain Relationships and Related Transactions, and Director Independence.

CODES OF ETHICS

The Board of Directors has adopted a “Code of Ethics for Senior Financial Officers” that applies to the principal executive officer and the principal financial officer, as well as all other executive officers. This policy serves to promote honest and ethical conduct, full, fair and accurate disclosure in the FHLB's reports to regulatory authorities and other public communications, and compliance with applicable laws, rules and regulations. The Code is posted on the FHLB's website (www.fhlbcin.com). If a waiver of any provision of the Code is granted to a covered officer, or if any amendment is made to the Code, information concerning the waiver or amendment will be posted on our website.

The Board of Directors has also adopted a “Standards of Conduct” policy that applies to all employees. The purpose of this policy is to promote a strong ethical climate that protects the FHLB against fraudulent activities and fosters an environment in which open communication is expected and protected.

Item 11.     Executive Compensation.
 

20202023 COMPENSATION DISCUSSION AND ANALYSIS
 
The following provides discussion and analysis regarding our 2023 compensation program for our executive officers, for 2020, and in particular our Named Executive Officers. NamedOur named Executive Officers for 20202023 were: Andrew S. Howell, President and Chief Executive Officer (CEO); Stephen J. Sponaugle, Executive Vice President, Chief Financial Officer; R. Kyle Lawler, Executive Vice President, Chief Business Officer; Roger B. Batsel, Executive Vice President, Chief Operating OfficerOfficer; Bridget C. Hoffman, Senior Vice President, General Counsel and Tami L. Hendrickson, Senior Vice President, Treasurer.
 
Compensation Program Overview (Philosophy and Objectives)
 
Our Board of Directors (the Board) is responsible for determining the philosophy and objectives of the compensation program. The philosophy of the program is to provide a flexible and market-based approach to compensation that attracts, retains and motivates high performing, accomplished financial services executives who, by their individual and collective performance, achieve strategic business initiatives to fulfill our mission. The program is primarily designed to focus executives on increasing business with member institutions within established profitability and risk tolerance levels, while also encouraging teamwork.
 
We compensate executive officers using a combination of base salary, short-term and deferred incentive-based cash compensation, retirement benefits and modest fringe benefits. We believe the compensation program communicates short and long-term goals and standards of performance for our mission and key business objectives and appropriately motivates and rewards executives commensurate with their contributions and achievements. The combination of base salary and short-term
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and deferred incentive pay creates a total compensation opportunity for executives who contribute to and influence strategic plans and who are primarily responsible for the strategic business plan, execution, and performance.

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Oversight of the compensation program is the responsibility of the Board's Human Resources, Compensation and Inclusion Committee (the Committee). The Committee annually reviews the components of the compensation program to ensure it is consistent with and supports our mission, strategic business objectives, and short and long-term goals. In carrying out its responsibilities, the Committee may engage executive compensation consultants to assist in evaluating the effectiveness of the program and in determining the appropriate mix of compensation provided to executive officers. Because individuals are not permitted to own our capital stock, all compensation is paid in cash, and we have no equity compensation plans or arrangements.
 
The Committee recommends the CEO's annual compensation package to the Board, which is responsible for approving all compensation provided to the CEO. Additionally, the Committee is responsible for reviewing and approving the compensation program's budget for all officers, including the other Named Executive Officers, and submitting its recommendations to the Board for final approval.
 
Management Involvement - Executive Compensation
 
While the Board is ultimately responsible for determining the compensation of the CEO and all other executive officers, the CEO and the Human Resources department periodically advise the Committee regarding competitive and administrative issues affecting the compensation program. The CEO and the Human Resources department also present recommendations to the Committee regarding the compensation of all other executive officers, and administer programs approved by the Committee and the Board.
 
Finance Agency Oversight - Executive Compensation
 
The Director of the Finance Agency is required by regulation to prohibit an FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. Finance Agency rules direct the FHLBanks to provide all compensation actions affecting their Named Executive Officers to the Finance Agency for review. Accordingly, following our Board's November 2020 and January 2021 meetings,approval, we submitted the 20212024 base salaries as well as incentive payments earned for 20202023 for the Named Executive Officers to the Finance Agency. At this time, we do not expect the regulatory requirements to have a material impact on our executive compensation programs. However, in the “FHLBank System at 100 – Focusing on the Future” report, the Finance Agency has stated it plans to recommend that Congress amend the FHLBank Act to eliminate the restrictions on the Finance Agency’s authority to prescribe levels or ranges for the compensation of executive officers of the FHLBanks.
 
Use of Comparative Compensation Data
 
The compensation program aims to provide a market competitive compensation package when recruiting and retaining highly talented executives seeking stable, long-term employment. To this end, we gather compensation data from a wide variety of sources, including broad-based national and regional surveys, information on compensation programs at other FHLBanks, and formal and informal interactions with our compensation consultant. Our consultant, McLagan (an Aon company), is a nationally recognized compensation consulting firm specializing in the financial services industry. We also participate in multiple surveys including the annual McLagan Federal Home Loan Bank Custom Survey and the annual Federal Home Loan Bank System Key Position Compensation Survey. Bothother national Human Resources consulting firms' surveys. All surveys contain executive and non-executive compensation information for various key positions across all FHLBanks. When determining the compensation program, the Committee and the CEO use compensation data collected from these sources to inform themselves regarding trends in compensation practices and as a comparison check against general market data (market check).
 
In setting 20202023 and 20212024 compensation, we primarily relied upon information from the McLagan Custom Survey. It encompasses information relating to the prior year's compensation from mortgage banks, commercial financial institutions that typically hadhave assets of less than $20 billion, and other FHLBanks. However, we believe the positions at other FHLBanks generally are more directly comparable to ours given the unique nature of the FHLBank System. The FHLBanks share the same public policy mission, interact routinely with each other, and share a common regulator and regulatory constraints, including the need for Finance Agency review of all compensation actions affecting executive officers. However, there are significant differences across the FHLBank System, including the sizes of the various FHLBanks, the complexity of their operations, their organizational and cost structures, their locations and the cost of living in those locations, and the types of compensation packages offered. Thus, we do not and, as a practical matter could not,typically calculate compensation packages for our Named Executive Officers based solely on comparisons to the other FHLBanks.

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Compensation Program Approach
 
The Committee utilizes a balanced approach for delivering base salary, short-term incentive and deferred pay with our compensation program. The annual (short-term) incentive compensation component rewards all officers and staff for the achievement of the annual strategic business goals. The deferred compensation component is providedpayable to certain officers, including the Named Executive Officers, for maintainingafter a three-year deferral period if the value of our members' capital stock is maintained above a minimum threshold over a three-yearthe period. The Committee has not established or assigned specific percentages to each element of the compensation program. Instead, the Committee strives to create a program that generally delivers a total compensation opportunity, i.e., base salary, annual and deferred incentive compensation and other benefits, (including a retirement plan), to each executive officer that, when target performance goals are met, is at or near the median of the other FHLBanks and is generally consistent with the market check. However, individual elements of compensation as well as total compensation for individual executives may vary from the median due to an executive's tenure, experience and responsibilities.
 
While the competitiveness of the compensation program is an important factor for attracting and retaining executives, the Committee also reviews all elements of the program to ensure it is well designed and fiscally responsible from both a regulatory and corporate governance perspective.

Impact of Risk-Taking on Compensation Program
 
The Committee reviews the overall program to ensure the compensation of executive officers does not encourage unnecessary or excessive risk-taking that could threaten our long-term value. Strong risk management is an integral part of our culture. The Committee believes that base salary is a sufficient percentage of total compensation to discourage excessive risk-taking by executive officers. The Committee also believes the mix of incentive goals, which include risk-related metrics, does not encourage unnecessary or excessive risk-taking and achieves an appropriate balance of incentiveincentives for meeting short and long-term organizational goals. Moreover, the Committee and the Board retain the discretion to reduce or withhold incentive compensation payments if a determination is made that an executive has caused us to incur such a risk that could threaten our long-term value.
 

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Elements of Total Compensation Program
 
The following table summarizes all compensation to our Named Executive Officers for the years ended December 31, 2020, 20192023, 2022 and 2018.2021. Discussion of each component follows the table.
Summary Compensation Table
Name and Principal Position
Name and Principal Position
Name and Principal PositionName and Principal PositionYear
Salary(1)
Non-Equity Incentive Plan Compensation(2)
Change in Pension Value & Non-Qualified Deferred Compensation Earnings(3)
All Other Compensation(4)
TotalYear
Salary(1)
Non-Equity Incentive Plan Compensation(2)
Change in Pension Value & Non-Qualified Deferred Compensation Earnings(3)
All Other Compensation(4)
Total
Andrew S. HowellAndrew S. Howell2020$947,115 $785,578 $3,225,000 $36,097 $4,993,790 
President and CEOPresident and CEO2019939,615 779,698 3,457,000 37,044 5,213,357 
2021
2018901,538 722,867 192,000 34,233 1,850,638 
Stephen J. Sponaugle
Stephen J. Sponaugle
Stephen J. SponaugleStephen J. Sponaugle2020442,475 292,190 1,435,000 17,100 2,186,765 
Executive Vice President-Executive Vice President-2019419,250 259,314 1,377,000 16,800 2,072,364 
Chief Financial OfficerChief Financial Officer2018405,231 245,058 193,000 16,500 859,789 
R. Kyle Lawler2020467,423 304,168 994,000 17,100 1,782,691 
Executive Vice President-2019440,577 303,275 994,000 16,800 1,754,652 
Chief Business Officer2018424,250 284,925 170,000 16,500 895,675 
Roger B. Batsel
Roger B. Batsel
Roger B. BatselRoger B. Batsel2020368,000 230,116 131,000 17,100 746,216 
Executive Vice President-Executive Vice President-2019341,000 205,659 88,000 16,406 651,065 
Chief Operating OfficerChief Operating Officer2018316,635 190,309 26,000 12,375 545,319 
Bridget C. Hoffman
Bridget C. Hoffman
Bridget C. Hoffman
Senior Vice President-
General Counsel
Tami L. Hendrickson (5)
Tami L. Hendrickson (5)
Tami L. Hendrickson (5)
Tami L. Hendrickson (5)
2020322,500 182,224 254,000 10,224 768,948 
Senior Vice President-Senior Vice President-
TreasurerTreasurer
(1)IncludesFor 2022 and 2021, includes excess accrued vacation benefits automatically paid in accordance with established policy (applicable to all employees), which for 2020 were as follows: Mr. Howell, $47,115; Mr. Sponaugle, $20,475; Mr. Lawler, $29,423 and Ms. Hendrickson, $7,500..
(2)Amounts shown for 20202023 reflect total payments pursuant to the current portion of the 20202023 Incentive Plan and the deferred portion of the 20172020 Incentive Plan (2018(2021 - 20202023 performance period), as follows.
NameName2020 Incentive Plan (current incentive)2017 Incentive Plan
(three-year deferred incentive)		TotalName2023 Incentive Plan (current incentive)
2020 Incentive Plan
 (three-year deferred incentive)
Total
Andrew S. HowellAndrew S. Howell$397,057 $388,521 $785,578 
Stephen J. SponaugleStephen J. Sponaugle148,941 143,249 292,190 
R. Kyle Lawler154,588 149,580 304,168 
Roger B. BatselRoger B. Batsel129,882 100,234 230,116 
Bridget C. Hoffman
Tami L. HendricksonTami L. Hendrickson97,280 84,944 182,224 
(3)    Represents change in the actuarial present value of accumulated pension benefits only, which is primarily dependent on changes in interest rates, years of benefit service and salary. Decreases in pension values are reported in the table as $0. No above-market or preferential earnings are paid on any deferred compensation under any plan or agreement. See "Retirement Benefits" and "2020"2023 Pension Benefits" for additional information.
(4)    Amounts represent matching contributions toFor 2023, all other compensation included the qualified defined contribution pension plan in 2020. following:    
FHLB Contributions to Vested Defined Contribution Plans (a)
NameQualified Defined Contribution PlanNon-qualified Supplemental Executive Retirement Plan
Perquisites (b)
Total
Andrew S. Howell$52,800 $277,552 $19,142 $349,494 
Stephen J. Sponaugle52,800 74,410 — 127,210 
Roger B. Batsel19,800 13,382 — 33,182 
Bridget C. Hoffman15,880 11,925 — 27,805 
Tami L. Hendrickson12,919 8,073 — 20,992 
(a)For Mr. Howell 2020 alsoand Mr. Sponaugle, includes a transitional service credit in the form of an annual contribution to offset future losses due to adjusting the benefit formula under the defined benefit pension plan.
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(b)For Mr. Howell, perquisites totaling $18,997, which consisted of personal use of an FHLB-owned vehicle, premiums for an Executive long-term disability plan, guest travel expenses and an airline program membership. The value of perquisites are based on thetheir actual cash cost.
(5)    Ms. Hendrickson's 2018 and 20192021 compensation amounts areamount is not included as she was not a Named Executive Officer in those years.that year.

Salary
Base salary is both a key component of the total compensation program and a key factor when attracting and retaining executive talent. While base salaries for the Named Executive Officers are influenced by a number of factors, including the employee salary increase pool, market conditions, business trends and uncertainties, the Board generally targets the median of the competitive market. Other factors affecting an executive's base salary include length of time in position, relevant experience, individual achievement, and the size and scope of assigned responsibilities as compared to the responsibilities of other executives. Base salary increases traditionally take effect at the beginning of each calendar year and are granted after a review of the individual's performance and leadership contributions to the achievement of our annual business plan goals and strategic objectives.
 
Each of the current Named Executive Officers received a base salary increase at the beginning of 2020.2023. For each of the current Named Executive Officers other than the CEO, total salary increases, including merit, market, and promotional adjustments,
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ranged from 3.056.85 percent to 7.929.09 percent. These increases were based on the CEO's recommendation for each executive, which took into consideration market data, expected business and an evaluation of each executive's annual performance.industry trends with consideration for the low unemployment level and higher inflation environment, and the minimal increases Named Executive Officers received for 2021 and 2022. For Mr. Howell, directors provided feedback to the Chair, and the Committee recommended, and the Board subsequently approved a salary increase of 2.866.99 percent. In recommending and approving Mr. Howell's 20202023 increase, the Committee and Board took into consideration competitive market analysis and the directors'Committee's appraisals of his performance during the year.

In October 2020,2023, the Committee recommended and the Board approved a 3.005.25 percent salary increase pool for 20212024 for all employees, comprised of 1.753.75 percent for merit increases and 1.251.50 percent for market and promotional adjustments. AlthoughUsing the same process as described above was used, the CEO recommended smaller percentage increases for the other Named Executive Officers and other members of senior management in light ofconsidering the current economic conditionslabor market environment and expected business trends for 2021. As a result,the recent total rewards analysis, in November 2020,2023, the Committee recommended, and the Board approved, the following 20212024 base salaries and percent increases for the Named Executive Officers: Mr. Sponaugle, $426,000 (0.95Howell, $1,025,000 (3.02 percent); Mr. Lawler, $442,000 (0.91Sponaugle, $486,000 (3.85 percent); Mr. Batsel, $373,000 (1.36$431,000 (4.11 percent); Ms. Hoffman, $425,000 (3.91 percent); and Ms. Hendrickson, $320,000 (1.59$374,000 (3.89 percent). Mr. Howell declined the salary increase approved by the Committee. In December 2020,2023, we were informed that the Finance Agency had completed its review and did not object to the Board-approved compensation actions affecting the Named Executive Officers in 2021.2024.
 
Non-Equity Incentive Compensation Plan (Incentive Plan)
The Incentive Plan is a cash-based total incentive award that is divided into two equal parts: (1) a current incentive award, and (2) a three-year deferred incentive award. The current component of the Incentive Plan is awarded annually and designed to promote and reward higher levels of performance for accomplishing Board-approved annual goals. The long-term component of the Incentive Plan is a three-year deferred incentive award that is designed to promote safety and soundness and serve as an employment retention tool for executive officers, including the Named Executive Officers.

The Incentive Plan annual goals reflect desired financial, operational, risk and public mission objectives for the current and future fiscal years. Each goal is weighted reflecting its relative importance and potential impact on our mission and annual strategic business plan. Each goal is assigned a quantitative threshold, target and maximum level of performance. Each Named Executive Officer's award opportunity is based entirely on bank-wide performance.
 
When establishing the Incentive Plan goals and corresponding performance levels, the Board anticipates that we will successfully achieve a threshold level of performance nearly every year. The target level is aligned with expected performance and is anticipated to be reasonably achievable in a majority of plan years. The maximum level of performance reflects a graduated level of difficulty from the target performance level and is designed to require superior performance to achieve.
 
Each Named Executive Officer is assigned a total incentive award opportunity, stated as a percentage of base salary, which corresponds to the individual's level of organizational responsibility and ability to contribute to and influence overall performance. The total incentive award opportunity established for executives is designed to be comparable to incentive opportunities for executives with similar duties and responsibilities at other financial institutions, primarily other FHLBanks, and generally consistent with our market check. The Board believes the total incentive opportunity and plan design provide an appropriate, competitive reward to all officers, including the Named Executive Officers, commensurate with the achievement levels expected for the incentive goals.
 
The total incentive award earned is determined based on the actual achievement level for each goal in comparison with the performance levels established for that goal.
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The total incentive award opportunities for the 20202023 plan year stated as a percentage of base salary were as follows:
Incentive Opportunity
Incentive OpportunityIncentive Opportunity
NameNameThresholdTargetMaximumNameThresholdTargetMaximum
Andrew S. HowellAndrew S. Howell50.0 %75.0 %100.0 %Andrew S. Howell50.0 %75.0 %100.0 %
Stephen J. SponaugleStephen J. Sponaugle40.0 60.0 80.0 
R. Kyle Lawler40.0 60.0 80.0 
Roger B. BatselRoger B. Batsel40.0 60.0 80.0 
Bridget C. Hoffman
Tami L. HendricksonTami L. Hendrickson35.0 52.5 70.0 
 
If actual performance falls below the threshold level of performance, no payment is made for that goal. If actual performance exceeds the maximum level, only the value assigned as the performance maximum is paid. When actual performance falls between the assigned threshold, target and maximum performance levels, an interpolated achievement is calculated for that
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goal. The achievement for each goal is then multiplied by the corresponding incentive weight assigned to that goal and the results for each goal are summed to arrive at the final incentive award payable to the executive. No final awards (or payments) will be made to executives under the Incentive Plan if we receive the lowest "Composite Rating" during the most recent examination by the Finance Agency. Such a rating would indicate that we have been found to be operating in an unacceptable manner, that we exhibit serious deficiencies in corporate governance, risk management or financial condition and performance, or that we are in substantial noncompliance with laws, Finance Agency regulations or supervisory guidance.

Fifty percent of the total opportunity for the Incentive Plan is awarded in cash following the plan year (current incentive award) and 50 percent is mandatorily deferred for three years after the end of the Plan year (deferred incentive award). The deferred incentive awards earned from 20182021 - 20202023 were calculated based on the actual performance or achievement level for each deferred plan goal at the end of the three-year performance period, with interpolations made for results between achievement levels. The achievement level for each goal was then multiplied by the corresponding incentive weight assigned to that goal. The final value of the deferred award was adjusted based on the goal achievement level determined using separate performance measures over the 2018 - 2020 deferral period. For all Named Executive Officers, the final value of the deferred award was 75 percent for a Threshold level of achievement, 100 percent for a Target level of achievement, or 125 percent for a Maximum level of achievement. If a goal achievement level over the three-year deferral period was below the threshold, no payment would be made for that deferred goal.

In 2018, the Board established a new safety and soundness metric, to determine if the deferred portion of the 2018 Incentive Plan and future plans will be awarded rather than using the calculation described above. The safety and soundness metricwhich is tied to our market capitalization ratio defined as the market value of total capital divided by the par value of capital stock. The market capitalization ratio is measured as the simple average at 36 month ends in the three-year performance period using the base-case interest rate and business environment used in reports to the Board at each month end. If our market capitalization ratio is greater than 100 percent during the deferred performance period, the final value will be 100 percent of the deferred award plus interest based on the annual interest rates applicable to the qualified defined benefit plan. No payment would be made for the deferred incentive award if the market capitalization ratio, calculated as noted above, was less than 100 percent for the three-year deferral period.

Except as noted above with respect to exam ratings, the Board has ultimate authority over the Incentive Plan and may modify or terminate the Plan at any time or for any reason. The Board also has discretion to increase or decrease any Incentive Plan awards. In addition, payments under the Plan are subject to certain claw backclawback provisions that allow us to recover any incentive paid to a participant based on achievement of financial or operational goals that subsequently are deemed to be inaccurate, misstated or misleading. The Board believes these claw backclawback requirements serve as a deterrent to any manipulation of financial statements or performance metrics in a manner that would assure and/or increase an incentive payment.

20202023 Incentive Plan. For calendar year 2020,2023, the Board approved a total of six performance measures in the functional areas of Franchise Value Promotion, Mission Asset ActivityAssets and Activities and Stockholder Risk/Return. The mix of financial and non-financial goals measures performance across our mission and corporate objectives and is intended to discourage unnecessary or excessive risk-taking. Because we consider risk management to be an essential component in the achievement of our mission and corporate objectives, the goals below include a separate risk-related metric.

At its January 20212024 meeting, following certification of the 20202023 performance results and in accordance with those results, the Board authorized the distribution to the Named Executive Officers of the current awards shown in Note 2 to the Summary Compensation Table. For the 20202023 plan year, we cumulatively achieved approximately 88 percent of the available maximum incentive opportunity. This was higherlower than the 8691 percent overall performance achieved for 20192022, primarily due to exceeding the target performance level for fivebecause one of the six goals in 2020.2023 only met threshold performance.
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The following table presents the incentive weights, threshold, target and maximum performance levels, and the actual results achieved for the 20202023 Incentive Plan performance measures for all Named Executive Officers.

20202023 Incentive Plan Performance Levels and Results
(Dollars in thousands)   
Incentive WeightThreshold PerformanceTarget PerformanceMaximum PerformanceResults Achieved
Franchise Value Promotion
1) Mission Outreach10.0 %90100120107
2) Mission Asset Participation15.0 65 %72 %80 %76 %
Mission Asset Activity 
3) Average Advance Balances for Members with Assets of $50 billion or Less15.0 $19,500,000 $21,500,000 $23,500,000 $20,230,778 
4) Mortgage Purchase Program New Mandatory Delivery Commitments15.0 1,500,000 1,800,000 2,200,000 1,972,266 
Stockholder Risk/Return   
5) Decline in Market Value of Equity20.0 < 7%< 5%3% or less2.3 %
6) Profitability-Available Earnings vs. Average Short-term Rates (3-month LIBOR and Federal funds effective)25.0 15 bps125 bps225 bps356 bps
   
Incentive WeightThreshold PerformanceTarget PerformanceMaximum PerformanceResults Achieved
Franchise Value Promotion
1) Diversity and Inclusion Strategic Plan Achievement10.0 %Pass 8 of 16 metricsPass 11 of 16 metricsPass all 16 metrics13 pass
2) Strategic Initiatives15.0 Pass 3 of 5 objectivesPass 4 of 5 objectivesPass all 5 objectivesPass 3 of 5 objectives
Mission Assets and Activities 
3) Mission Assets and Activities Participation15.0 60 %70 %80 %82 %
4) Core Mission Assets and Activities Ratio20.0 70 %80 %85 %83 %
Stockholder Risk/Return   
5) Change in Market Value of Equity20.0 
+200 bps(7)%(6)%(4)%(3.6)%
'-200 bps
(2)%— %2 %3.2 %
6) Profitability-Available Earnings vs. Average Overnight Rates (SOFR and Federal funds effective)20.0 350 bps425 bps525 bps512 bps
 
During 2020,2023, the Board, the Committee and the CEO periodically reviewed the Incentive Plan goals presented above to determine progress toward the goals. Although the Board and the CEO discussed various external factors that were affecting achievement of the performance measures, the Board did not take any actions to revise or change the Incentive Plan goals.

20212024 Incentive Plan. At its November and December 2020 meeting,2023 and March 2024 meetings, the Board established the 2021considered and approved 2024 Incentive Plan goals, the incentive weights, and the performance measures corresponding to each Incentive Plan goal and award opportunityopportunities for the 2021 Incentive Plan.Named Executive Officers and eligible employees. After that meeting,each of those meetings, the 2021 Incentive Planplan was sent to the Finance Agency and we received notificationfor its review. As of the completiondate of their reviewthis filing, the Finance Agency has not yet provided its non-objection, and non-objection in January 2021. The 2021 Incentive Plan goals for our executives are set forth below.therefore, the plan is subject to change. We intend to file a Form 8-K of the final plan structure after the Finance Agency provides non-objection.

2021 Incentive Plan Goals
Franchise Value Promotion
Mission OutreachWeight:    10.0%
Mission Asset ParticipationWeight:    15.0%
Diversity and Inclusion Strategic Plan AchievementWeight:    5.0%
Mission Asset Activity
Average Advances Balances for Members with Assets of $50 billion or LessWeight:    15.0%
Community Financial Institutions Participation in the Mortgage Purchase ProgramWeight:    15.0%
Stockholder Risk/Return
Decline in Market Value of EquityWeight:    20.0%
Profitability - Available Earnings vs. Average Short-term Rates (3-month LIBOR and Federal funds effective)Weight:    20.0%
As reflected above, the Board decided to keep five of the 2021 goals the same as those in 2020 although the weighting of one goal and some of the performance metric calculations have been adjusted. Within the Franchise Value Promotion category, a new goal was added related to the achievement of the diversity and inclusion strategic plan. Additionally, the Mission Asset Activity goal related to the MPP changed the focus to the volume of Mandatory Delivery Contracts from Community Financial Institution participants rather than all MPP participants. Finally, the Decline in Market Value of Equity goal will be calculated separately based on two interest rate shock scenarios, with each scenario weighted equally. In setting the performance measures for the 2021 Incentive Plan, the Board reviewed the results against target for 2020 and considered relevant aspects of our financial outlook for 2021 including the impact of the anticipated low interest rate environment, market volatility and reduction in member funding needs and changes in the mortgage market that continue to affect Mission Asset Activity and
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profitability. The Board also considered opportunities to increase mission asset participation by members that are a focus for strategic initiatives.

Three-Year Deferred Incentive Awards. During 2020,2023, the Board, the Committee and the CEO periodically reviewed progress toward the deferred plan goalssafety and soundness metric for each ongoing performance period. At its January 20212024 meeting, following certification of the performance results for the deferred portion of the 20172020 Incentive Plan (2018(2021 - 20202023 performance period) and in accordance with those results, the Board authorized the distribution of payments to eligible officers including the Named Executive Officers. Cumulatively, we achieved approximately 92our market capitalization ratio was greater than 100 percent during the 2021 - 2023 performance period. As a result, the final value was 100 percent of the available maximum incentive opportunity.deferred award plus interest based on the annual interest rates applicable to the qualified defined benefit plan. The deferred payments for the 20182021 - 20202023 performance period are shown in Note 2 to the Summary Compensation Table.

The following table presents, for all Named Executive Officers, the incentive weights, threshold, target and maximum performance levels, and the actual results achieved for each of the goals in the deferred portion of the 2017 Incentive Plan (2018 - 2020 performance period):
 Incentive WeightThreshold PerformanceTarget PerformanceMaximum PerformanceResults Achieved
Operating Efficiency:   
Ranking of Operating Efficiency Ratio in comparison to other FHLBanks25%
6th
4th
1st
1st
Market Capitalization Ratio:
Ratio of Market Value of Equity to Par Value of Regulatory Capital Stock25%100%105%110%121%
Advance Utilization Ratio:  
Ranking of average of each member's Advances-to-assets ratio multiplied by the average member borrower penetration ratio in comparison to other FHLBanks25%
7th
4th
1st
5th
Strategic Business Plan Achievement:
Percentage of Strategic Business Plan strategies achieved25%70%80%100%94%

As described above, the deferred portion of the 20202023 Incentive Plan (2021(2024 - 20232026 performance period) is payable based on the result of a safety and soundness metric tied to the market capitalization ratio as defined in the 20212024 Incentive Plan. If our market capitalization ratio is greater than 100 percent during the 20212024 - 20232026 performance period, the final value will be 100 percent of the deferred award plus interest based on the annual interest rates applicable to the qualified defined benefit plan.

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Non-Equity Incentive Plan Compensation Grants
The following table provides information on grants made under our Incentive Plans.Plan.
 
Grants of Plan-Based Awards
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards		 Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
NameName
Grant Date (1)
ThresholdTargetMaximumName
Grant Date (1)
ThresholdTargetMaximum
Andrew S. HowellAndrew S. HowellDecember 17, 2020$450,000 $675,000 $900,000 
Stephen J. SponaugleStephen J. SponaugleDecember 17, 2020170,400 255,600 340,800 
R. Kyle LawlerDecember 17, 2020176,800 265,200 353,600 
Roger B. BatselRoger B. BatselDecember 17, 2020149,200 223,800 298,400 
Bridget C. Hoffman
Tami L. HendricksonTami L. HendricksonDecember 17, 2020112,000 168,000 224,000 
(1)Awards granted on this date are for the 20212024 Incentive Plan.

Under the awards shown above, 50 percent of the estimated future payout will be awarded in cash following the Plan year. The other 50 percent of the estimated future payout will be mandatorily deferred for three years after the end of the Plan year. If we operate in a safe and sound manner according to the market capitalization ratio metric during the deferred performance period, the final value will be 100 percent of the deferred award plus interest based on the annual interest rates applicable to the qualified defined benefit plan. See the "Non-Equity Incentive Compensation Plan (Incentive Plan)" section above for further detail.

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Retirement Benefits
We maintain a comprehensive retirement program for executive officers comprised of two qualified retirement plans (a defined benefit plan and a defined contribution plan) and atwo non-qualified pension plan.plans. For our qualified plans, we participate in the Pentegra Defined Benefit Plan for Financial Institutions and the Fidelitya Defined Contribution Plan.Plan administered by Fidelity. The non-qualified plan,plans, the Benefit Equalization Plan (BEP) and the Supplemental Executive Retirement Plan (SERP), restoreswere designed to restore benefits that eligible highly compensated employees would have received were it not for Internal Revenue Service limitationslimitations. The BEP restores benefits related to the limits on benefits from the defined benefit plan. Benefits under the BEPplan and benefits vest and are payable according to the corresponding provisions of the qualified plans.plan. The SERP restores benefits related to the limitations within the defined contribution plan while also providing the Board another compensation option to consider when determining the market competitiveness of executive compensation.
 
The plans provide benefits based on a combination of an employee's tenure and annual compensation. As such, the benefits provided by the plans are one component of the total compensation opportunity for executive officers and, the Board believes, serve as valuable retention tools since retirement benefits increase as executives' tenure and compensation grow.
 
Qualified Defined Benefit Pension Plan. The Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB) is a funded tax-qualified plan that is maintained on a non-contributory basis, meaning, employee contributions are not required. The pension benefit applies to employees who were hired prior to January 1, 2024. Participants' pension benefits vest upon completion of five years of service. The pension benefits payable under the Pentegra DB plan are determined using a pre-established formula that provides a single life annuity payable monthly at age 65 or normal retirement.

ThePrior to July 1, 2021, the benefit formula for employees hired prior tobefore January 1, 2006, which includes Messrs. Howell and Sponaugle, and Lawler, iswas 2.50 percent for each year of benefit service multiplied by the highest three-year average compensation. Compensation iswas defined as base salary excess accrued vacation benefits and annual incentive compensation, and excludes any deferred incentive payments. In the event of retirement prior to attainment of age 65, a reduced pension benefit iswas payable under the plan, with payments commencing as early as age 45.

For employees who were hired after January 1, 2006, which includes Mr. Batsel and Ms.Mses. Hoffman and Hendrickson, the current benefit formula iswas 1.25 percent for each year of benefit service multiplied by the highest five-year average compensation. Beginning in 2006 through the end of 2017, compensation was defined as base salary only and excluded all other forms of compensation. Beginning January 1, 2018, compensationCompensation is defined as base salary excess accrued vacation benefits and annual incentive compensation, and excludes any deferred incentive payments. In addition, the current plan providesprovided for a reduced pension benefit in the event of retirement prior to attainment of age 65 with payment commencing as early as age 55 if the participant hashad 10 years or more of service.

Effective July 1, 2021, the Pentegra DB plan design that applies to future benefits for all employees will behired before January 1, 2024 was adjusted. The revised benefit formula is 1.25 percent for each year of benefit service multiplied by the highest five-year average compensation. The plan maintains the reduced benefit for those retiring before age 65 and extends early retirement
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eligibility for all employees to as early as age 45 with 10 years of service. To offset future benefit losses, employees hired prior to January 1, 2006 will receive a transitional service credit beginning in 2022 and concluding in 2026 in the form of aan annual contribution to their Defined Contribution account (up to the IRS maximum) or their SERP account. The annual contribution will beis equal to 10 percent of their eligible pension income up to the IRS maximum. The contribution will continue for five years.income. Employees must remainbe employed for the entirefull plan year to receive each contribution.the transition contribution for that year.

Lastly, the Pentegra DB plan provides certain actuarially equivalent forms of benefit payments other than a single life annuity, including a limited lump sum distribution option, which is available only to employees hiredfor those benefits accrued prior to January 1, 2006.
 
Non-Qualified Defined Benefit Pension Plan. Executive officers and other employees whose pay or pension benefit exceeds IRS pension limitations are eligible to participate in the Defined Benefit component of the Benefit Equalization Plan (DB/BEP), an unfunded, non-qualified pension plan that mirrors the Pentegra DB plan in all material respects. In determining whether a restoration of retirement benefits is due an eligible employee, the DB/BEP utilizes the identical benefit formula applicable to the Pentegra DB plan. In the event that the benefits payable from the Pentegra DB plan have been reduced or otherwise limited, the executive's lost benefits are payable under the terms of the DB/BEP. Because the DB/BEP is a non-qualified plan, the benefits received from this plan do not receive the same tax treatment and funding protection associated with the qualified plan.
 
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The following table provides the present value of benefits payable to the Named Executive Officers upon retirement at age 65 from the Pentegra DB plan and the DB/BEP, and is calculated in accordance with the formula currently in effect for specified years-of-service and remuneration for participating in both plans. Our pension benefits do not include any reduction for a participant's Social Security benefits.
 
20202023 Pension Benefits
NameName Plan Name
Number of Years Credited Service (1)
Present Value (2) of Accumulated Benefits
Name
Name
Andrew S. HowellAndrew S. HowellPentegra DB30.50 $2,991,000 
Andrew S. Howell
Andrew S. Howell
DB/BEP30.50 13,771,000 
Stephen J. SponaugleStephen J. SponauglePentegra DB27.33 2,936,000 
DB/BEP27.33 3,281,000 
Stephen J. Sponaugle
R. Kyle LawlerPentegra DB19.50 2,439,000 
Stephen J. Sponaugle
DB/BEP19.50 2,743,000 
Roger B. BatselRoger B. BatselPentegra DB5.92 234,000 
DB/BEP5.92 92,000 
Roger B. Batsel
Roger B. Batsel
Bridget C. Hoffman
Bridget C. Hoffman
Bridget C. Hoffman
Tami L. HendricksonTami L. HendricksonPentegra DB13.92 703,000 
DB/BEP13.92 176,000 
Tami L. Hendrickson
Tami L. Hendrickson
DB/BEP
DB/BEP
DB/BEP
(1)For pension plan purposes, the calculation of credited service begins upon completion of a required waiting period following the date of employment. Accordingly, the years shown are less than the executive's actual years of employment. Because IRS regulations generally prohibit the crediting of additional years of service under the qualified plan, such additional service also is precluded under the DB/BEP, which only restores those benefits lost under the qualified plan.
(2)    See Note 13 of the Notes to Financial Statements for details regarding valuation assumptions.
 
Qualified Defined Contribution (DC) Plan. Our Defined Contribution Plan (DC)DC plan is a tax-qualified defined contribution plan to which we make tenure-based matching contributions.contributions for all employees, and non-elective retirement contributions for employees hired after January 1, 2024. Matching contributions begin immediately and subsequently increase based on length of employment to a maximum of six percent of eligible compensation. Additionally, employees hired after January 1, 2024 receive a non-elective retirement contribution equal to six percent of eligible compensation. Eligible compensation in the DC plan is defined as base salary and annual bonus (current incentive award)compensation, and excludes any deferred incentive awards.
 
Under the DC plan, a participant may elect to contribute up to 75 percent of eligible compensation on either a before-tax or after-tax basis. The plan permits participants to self-direct investment elections into one or more investment funds. All returns are at the market rate of the related fund. Investment fund elections may be changed daily by the participants. A participant may withdraw vested account balances while employed, subject to certain plan limitations, which include those under IRS
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regulations. Participants also are permitted to revise their contribution/deferral election once each pay period. However, the revised election is only applicable to future earnings and may also be limited by IRS regulations.

SERP.Effective in 2023, executive officers and other highly compensated employees whose pay exceeds the IRS limit on pension eligible earnings may be approved by the Board to participate in the SERP. For executives approved for participation, the SERP restores match contributions on pay in excess of the IRS limits if the executive has contributed a minimum of three percent of eligible pay to the qualified defined contribution plan. For executives hired after January 1, 2024 and approved for participation, the SERP also restores non-elective retirement contributions on pay in excess of the IRS limits and includes an additional six percent contribution on all eligible pay.

For executives eligible to receive a transitional service credit due to the Defined Benefit Pension Plan revised benefit formula, the portion of the transitional credit attributed to the earnings in excess of the IRS limit on pension eligible earnings, will receive a contribution to the SERP.

Contributions will typically be allocated to accounts annually. The plan permits participants to self-direct investment elections into one or more investments funds, which will begin to take place in 2024. All returns are the market rate of the related fund. Plan benefits are paid out of an investment account established for each participant under a grantor trust. Because the SERP is a non-qualified plan, the benefits under this plan do not receive the same tax treatment and funding protection associated with the qualified plan.

2023 Non-Qualified Deferred Compensation
Name
Registrant Contributions in Last Fiscal Year (1)
Aggregate Earnings in Last Fiscal Year (2)
Aggregate Balance at Last Fiscal Year-End
Andrew S. Howell$277,552 $— $277,552 
Stephen J. Sponaugle74,410 — 74,410 
Roger B. Batsel13,382 — 13,382 
Bridget C. Hoffman11,925 — 11,925 
Tami L. Hendrickson8,073 — 8,073 
(1)These amounts are included as a component of "All Other Compensation" in the Summary Compensation Table.
(2)There were no aggregate earnings in 2023, as contributions to the SERP have not yet been invested.

Fringe Benefits and Perquisites
Executive officers are eligible to participate in the traditional fringe benefit plans made available to all other employees, including participation in the retirement plans, medical, dental and vision insurance program and group term life and standard long term disability (LTD) insurance plans, as well as annual leave (i.e., vacation)short-term disability coverage and sick leave policies.paid time off. Executives participate in our subsidized medical, dental and vision insurance and group term life and standard LTD insurance programs on the same basis and terms as all of our employees. However, executives are required to pay higher premiums for medical coverage. Executive officers also receive on-site parking at our expense.

During 2020,2023, the CEO was also provided with an FHLB-owned vehicle for his business and personal use, along with the operating expenses associated with the vehicle. An executive officer's personal use of an FHLB-owned vehicle, including use for the daily commute to and from work, is reported as a taxable fringe benefit. In addition to the standard LTD insurance plan provided to all employees, Named Executive Officers may elect to receive additional LTD coverage. The premiums the FHLB pays for the additional LTD coverage are considered a taxable fringe benefit. Additionally, with prior approval, our current Travel Policy permits a guest to accompany an executive officer on authorized business trips. Executive officers are reimbursed for transportation and other related expenses associated with their guest's travel. Such reimbursements are reported as a taxable fringe benefit.

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The perquisites provided to an executive officer represent a small fraction of annual compensation. During 2020,2023, perquisites totaled $18,997$19,142 for Mr. Howell, as shown in the Summary Compensation Table. Perquisites did not individually or collectively exceed $10,000 for any other Named Executive Officers and are therefore excluded from the Summary Compensation Table.

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Employment Arrangements and Severance Benefits
 
Pursuant to the FHLBank Act, all employees of the FHLB are “at will” employees. Accordingly, an employee may resign employment at any time and an employee's employment may be terminated at any time for any reason, with or without cause and with or without notice.

We have no employment agreements with any Named Executive Officer. Other than normal pension benefits and eligibility to participate in our retiree medical and life insurance programs (if hired prior to August 1, 1990), no perquisites, tax gross-ups or other special benefits are provided to our executive officers in the event of a resignation, retirement or other termination of employment. However, Named Executive Officers may receive certain benefits under our severance policy and Change in Control Plan, described below.
 
Severance Policy. We have a severance policy under which all employees may receive benefits in the event of termination of employment resulting from job elimination, substantial job modification, job relocation, or a planned reduction in staff. Under this policy, an executive officer is entitled to one month's pay for each year of continuous employment, rounded to the next whole year for partial years, with a minimum of one month and a maximum of six months' severance pay, as well as payment for all unused, accrued vacation benefits.paid time off. At our discretion, executive officers and employees receiving benefits under this policy may also receive outplacement assistance as well as continuation of health insurance coverage on a limited basis.

Executive Change in Control Plan (Change in Control Plan). We have a Change in Control Plan that provides certain payments and benefits in the event of a qualifying termination within 24 months following a change in control. The purpose of the Change in Control Plan is to facilitate the hiring and retention of senior executives by providing them with certain protection and benefits in the event of a qualifying termination following a defined change in control. Change in control benefit payments are in lieu of, not in addition to, the severance benefit payments described above. The Change in Control Plan applies to officers as designated by the Board. Current designees are the CEO, all Executive Vice Presidents, and all Senior Vice Presidents.

Under the Change in Control Plan, a “qualifying termination” is defined as any separation, termination or other discontinuation of the employment relationship between the FHLB and a participant, (a) by the FHLB, other than for “cause” (as defined in the Change in Control Plan), death or disability; or (b) by the participant, for “good reason” (as defined in the Change in Control Plan).
“Change in Control” is defined under the Change in Control Plan as:
▪the merger, reorganization, or consolidation of the FHLB with or into, or acquisition of the FHLB by, another Federal Home Loan Bank or other entity;
▪the sale or transfer of all or substantially all of the business or assets of the FHLB to another Federal Home Loan Bank or other entity;
▪a change in the composition of the board that causes the combined number of Member directors from the jurisdictions of Kentucky, Ohio and Tennessee to cease to constitute a majority of the Bank’s directors; or
▪liquidation or dissolution.
“Cause” is defined in the Change in Control Plan to include:
▪the participant’s failure to perform substantially his/her duties;
▪the participant’s engagement in illegal conduct or willful misconduct injurious to the FHLB;
▪the participant’s material violation of law or regulation or of the FHLB’s written policies or guidelines;
▪a written request from the Finance Agency requesting that the FHLB terminate the participant’s employment;
▪crimes involving a felony, fraud or other dishonest acts;
▪certain other notices from or actions by the Finance Agency;
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▪the participant’s breach of fiduciary duty or breach of certain covenants in the Change in Control Plan; or
▪the participant’s refusal to comply with a lawful directive from the CEO or the Board of Directors.
“Good Reason” is defined in the Change in Control Plan to include:
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▪a material diminution in the participant’s base salary or in his/her duties or authority;
▪the FHLB requiring the participant to be based at any office or location more than 100 miles from Cincinnati, Ohio; or
▪a material breach of the Change in Control Plan by the FHLB.
In the event of a qualifying termination, the participant will receive a severance payment equal to a compensation multiplier times the sum of the participant's base salary plus target annual incentive amount for the year in which the Change in Control occurs. The CEO (Tier 1) is subject to a compensation multiplier of 2.50, Executive Vice Presidents (Tier 2) are subject to a compensation multiplier of 1.75 and Senior Vice Presidents (Tier 3) are subject to a compensation multiplier of 1.50. Participants will also receive a lump sum cash payment equal to accrued vacation benefitsand unused paid time off and the amount that would have been payable pursuant to the participant’s annual incentive compensation award for the year in which the date of a qualifying termination occurs based on actual performance, prorated based on the number of days the participant was employed that year. In addition, participants will receive a cash payment for outplacement assistance of $7,500 for Tier 1, $4,500 for Tier 2 and $2,500 for Tier 3, as well as the continuation of health care coverage for 24 months for Tier 1, 18 months for Tier 2 and 12 months for Tier 3.
The following table presents the total amounts that would be payable to our Named Executive Officers if their employment had terminated as of December 31, 2020.2023.

Total Potential Payment Upon Termination (1)
Separation EventSeparation EventAndrew S.
Howell		Stephen J. SponaugleR. Kyle
Lawler		Roger B.
Batsel		Tami L.
Hendrickson		Separation EventAndrew S.
Howell		Stephen J. SponaugleRoger B.
Batsel		Bridget C. HoffmanTami L. Hendrickson
Involuntary termination for CauseInvoluntary termination for Cause$— $— $— $— $— 
Voluntary resignation not due to a Change in Control or resignation without Good Reason due to a Change in Control (2)
Voluntary resignation not due to a Change in Control or resignation without Good Reason due to a Change in Control (2)
83,077 42,200 55,592 11,128 36,346 
Involuntary termination without Cause not due to a Change in Control (3)
Involuntary termination without Cause not due to a Change in Control (3)
533,077 253,200 274,592 195,128 193,846 
Involuntary termination without Cause due to a Change in Control or resignation for Good Reason due to a Change in Control (4)
Involuntary termination without Cause due to a Change in Control or resignation for Good Reason due to a Change in Control (4)
4,724,479 1,497,552 1,565,344 1,291,502 929,903 
(1)Due to the number of factors that affect the nature and amounts of compensation and benefits provided upon the potential termination events, the actual amounts paid may be different than the estimates presented.
(2)Named Executive Officers would only receive payment for unused, accrued vacation.paid time off.
(3)Named Executive Officers would receive payment for one month's pay for each year of continuous employment, rounded to the next whole year for partial years, subject to a six months' pay maximum, plus unused, accrued vacation.paid time off.
(4)Named Executive Officers would receive payment as follows:
ComponentComponentAndrew S. HowellStephen J. SponaugleR. Kyle
Lawler		Roger B.
Batsel		Tami L.
Hendrickson		ComponentAndrew S. HowellStephen J. SponaugleRoger B.
Batsel		Bridget C. HoffmanTami L. Hendrickson
SalarySalary$2,250,000 $738,500 $766,500 $644,000 $472,500 
Incentive compensationIncentive compensation1,687,500 443,100 459,900 386,400 248,062 
Other (a)
Other (a)
786,979 315,952 338,944 261,102 209,341 
TotalTotal$4,724,479 $1,497,552 $1,565,344 $1,291,502 $929,903 
(a)    Includes accrued annual incentive compensation from the current year, accrued vacation benefits,and unused paid time off, outplacement assistance and health care coverage.

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COMPENSATION COMMITTEE REPORT
 
The Committee has furnished the following report for inclusion in this Annual Report on Form 10-K:
The Committee has reviewed and discussed the 20202023 Compensation Discussion and Analysis set forth above with the FHLB's management. Based on such review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
Donald J. Mullineaux (Chair)
Grady P. Appleton
James A. England
Robert T. Lameier (Chair)
J. Lynn Anderson
Lewis Diaz
Danny J. Herron
Kathleen A. Rogers
Nancy E. Uridil


COMPENSATION OF DIRECTORS
 
As required by Finance Agency regulations and the FHLBank Act, we have established a formal policy governing the compensation and travel reimbursement provided to our directors. The goal of the policy is to compensate Board members for work performed. Under our policy, compensation is comprised of per meeting fees, subject to an annual cap,a maximum base fee, paid in 1/6th increments, and reimbursement for reasonable travel-related expenses. The fees are intended to compensate directors for time spent reviewing materials sent to them, preparing for meetings, participating in other activities and attending the meetings of the Board of Directors and its committees.

The annual maximum base fee did not changeincreased from 20202023 to 2021.2024. The following table sets forth the maximum base fees, which are subject to certain attendance requirements, for 20202023 and 2021:2024:
20202021
Maximum Base FeesMaximum Base Fees
2023
2023
20232024
Maximum Base FeesMaximum Base Fees
ChairChair$145,000 $145,000 
Vice ChairVice Chair125,500 125,500 
Other members110,000 110,000 
Audit Committee Chair
Human Resources, Compensation and Inclusion Committee Chair
Risk Committee Chair
Other Committee Chairs
Other Directors

In addition to the base fees, annual fees are paid tounder the 2023 and 2024 policies, Audit Committee members other than the Audit Committee Chair, and Other Committee ChairsChair or Vice Chair of $15,500 and $12,500, respectively. These fees are subject to certain attendance requirements.the Board receive an annual fee of $5,000.

During 2020,2023, total directors' fees and travel expenses incurred were $2,096,000$2,114,866 and $18,259,$199,832, respectively. For 2020, travel expenses were significantly lower than prior years given the travel restrictions due to the COVID-19 pandemic and decision to hold most board meetings virtually.
 
With prior approval, our Travel Policy permits a guest to accompany a director on authorized business trips. We reimburse the transportation and other related expenses associated with the guest's travel, subject to certain limitations, which are reported as a taxable fringe benefit. Given our shift to virtual meetings due to COVID-19,During 2023, there was only one directorwere 11 directors that received reimbursement for guest travel expenses in 2020.expenses. These expenses did not exceed $10,000 for any director and, therefore, are excluded from the Directors Compensation Table below.
 
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The following table sets forth the fees earned by each director for the year ended December 31, 2020.2023.
 
20202023 Directors Compensation Table
NameFees Earned or Paid in Cash
J. Lynn Anderson, Chair$125,500155,000 
Grady P. AppletonJ. Wade Berry110,000118,690 
April Miller Boise110,000 
Brady T. Burt110,000133,030 
Greg W. Caudill110,000118,690 
Leslie D. DunnKristin H. Darby110,000130,210 
James A. England, Vice ChairLewis Diaz125,500118,690 
Roy Molitor Ford, Jr.123,690 
Danny J. Herron118,690 
Robert T. Lameier110,000118,690 
Donald J. Mullineaux Chair145,000135,210 
Alvin J. Nance110,000 
Michael P. Pell110,000118,690 
Kathleen A. Rogers (1)
110,00079,128 
Charles J. RumaLeslie Scott Spivey122,500123,690 
David E. Sartore122,500 
William S. Stuard, Jr.122,500 
Nancy E. Uridil122,500135,210 
James J. Vance, Vice Chair110,000133,658 
Jonathan D. Welty110,000130,210 
H. McCall Wilson, Jr.123,690 
Total$2,096,0002,114,866 
(1)     Ms. Rogers served as a member director during 2023 until her June 30th retirement, and was subsequently reappointed effective November 16, 2023.

The following table summarizes the total number of board meetings and meetings of its designated committees held in 20192022 and 2020.2023.
 Number of Meetings Held
Meeting Type20192020
Board Meeting99
Audit Committee1011
Risk Committee86
Business and Operations Committee55
Governance66
Housing and Community Development Committee34
Human Resources, Compensation and Inclusion Committee76

 Number of Meetings Held
Meeting Type20222023
Board Meeting98
Audit Committee1111
Risk Committee66
Business and Operations Committee55
Governance67
Housing and Community Development Committee45
Human Resources, Compensation and Inclusion Committee76

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
The Committee is charged with responsibility for the FHLB's compensation policies and programs. None of the 20202023 or 20212024 Committee members are or previously were officers or employees of the FHLB. Additionally, none of the FHLB's executive officers served or serve on the board of directors or the compensation committee of any entity whose executive officers served on the Committee or Board of Directors. This Committee was and is composed of the following members:
20202021
Donald J. Mullineaux (Chair)Donald J. Mullineaux (Chair)
Grady P. AppletonGrady P. Appleton
Leslie D. DunnJames A. England
James A. EnglandRobert T. Lameier
Robert T. LameierNancy E. Uridil
Nancy E. Uridil

20232024
J. Lynn Anderson (Chair)Robert T. Lameier (Chair)
Lewis DiazJ. Lynn Anderson
Danny J. HerronLewis Diaz
Robert T. LameierDanny J. Herron
Donald J. MullineauxKathleen A. Rogers
Nancy E. UridilNancy E. Uridil

PAY RATIO

As required by the Dodd-Frank Act, information about the 20202023 total compensation for our median employee and the President and CEO, Mr. Howell, is as follows:

▪the median of the annual total compensation of all of our employees (other than the CEO) was $127,947;$145,654; and
▪the annual total compensation of the CEO, as reported in the Summary Compensation Table, was $4,993,790$3,552,592.

Based on this information, for 2020,2023, the ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 3924 to 1.

The median employee was identified in 2022. To identify the median employee, we compared the compensation of all full-time and part-time employees who were employed as of December 15, 2020.2022. We annualized the compensation of employees who were hired in 20202022 but did not work for us the entire fiscal year. This compensation measure, which was consistently applied to all employees, included base salary, overtime pay and incentive compensation that was all payable in cash.
After we identified ourThe median employee, we combined all of the elements of such employee's compensation in 2020, whichfor 2023 includes base salary, excess accrued vacation benefits, incentive compensation, matching contributions to the qualified defined contribution pension plan, and the value of such employee’s pension benefits.benefits (if applicable). The value of the median employee's pension benefits represents only the change in the actuarial present value of accumulated pension benefits, which is primarily dependent on changes in interest rates, years of benefit service and salary. With respect to the annual total compensation of the CEO, we used the amount reported in the “Total” column of our 20202023 Summary Compensation Table.

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

We have one class of capital stock, Class B Stock, all of which is owned by our current and former member institutions. Individuals, including directors and officers of the FHLB, are not permitted to own our capital stock. Therefore, we have no equity compensation plans.

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The following table lists institutions holding five percent or more of outstanding capital stock at February 28, 202129, 2024 and includes any known affiliates that are members of the FHLB:
(Dollars in thousands)    
  CapitalPercent of TotalNumber
NameAddressStockCapital Stockof Shares
U.S. Bank, N.A.425 Walnut Street Cincinnati, OH 45202$227,143 9 %2,271,432 
Third Federal Savings & Loan Association7007 Broadway Avenue Cleveland, OH 44105162,783 7 1,627,826 
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(Dollars in thousands)    
  CapitalPercent of TotalNumber
NameAddressStockCapital Stockof Shares
JPMorgan Chase Bank, N.A.1111 Polaris Parkway Columbus, OH 43240$673,165 14 %6,731,648 
U.S. Bank, N.A.425 Walnut Street Cincinnati, OH 45202609,090 13 6,090,902 
Keybank, N.A.127 Public Square Cleveland, OH 44114507,452 11 5,074,518 
Fifth Third Bank38 Fountain Square Plaza Cincinnati, OH 45202300,927 6 3,009,266 
Third Federal Savings and Loan Association7007 Broadway Avenue Cleveland, OH 44105242,670 5 2,426,697 
The following table lists capital stock outstanding as of February 28, 202129, 2024 held by member institutions that have an officer or director who serves as a director of the FHLB:     
(Dollars in thousands)(Dollars in thousands) (Dollars in thousands) 
 CapitalPercent of Total  CapitalPercent of Total
NameNameAddressStockCapital StockNameAddressStockCapital Stock
U.S. Bank, N.A.425 Walnut Street
Cincinnati, OH 45202		$227,143 9.2 %
Fifth Third BankFifth Third Bank38 Fountain Square Plaza Cincinnati, OH 45202$300,927 6.4 %
Western & Southern Financial Group (1)
Western & Southern Financial Group (1)
400 Broadway Street
Cincinnati, OH 45202		178,743 7.2 
The Park National BankThe Park National Bank50 North Third Street
Newark, OH 43058		17,807 0.7 
F&M Bank50 Franklin Street
Clarksville, TN 37040		4,998 0.2 
Farmers National Bank304 West Main Street
Danville, KY 40422		2,274 0.1 
Field & Main Bank140 North Main Street
Henderson, KY 42420		2,258 0.1 
The Bank of Fayette County
First State BankFirst State Bank19230 State Route 136
Winchester, OH 45697		1,617 0.1 
Miami Savings BankMiami Savings Bank8008 Ferry Street
Miamitown, OH 45041		876 0.0 
Decatur County Bank56 North Pleasant Street
Decaturville, TN 38329		646 0.0 
Farmers Bank & Trust Company
Commercial Bank & Trust Company
Farmers National Bank
Ohio Capital Finance CorporationOhio Capital Finance Corporation88 East Broad Street, Suite 1800
Columbus, OH 43215		155 0.0 
(1)    Includes five subsidiaries (Western-Southern Life Assurance Co., Integrity Life Insurance Company, Lafayette Life Insurance Company, Columbus Life Insurance Company and National Integrity Life Insurance Company), which are FHLB members.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.


DIRECTOR INDEPENDENCE

Because we are a cooperative, capital stock ownership is a prerequisite to transacting any business with us. Transactions with our stockholders are part of the ordinary course of - and are essential to the purpose of - our business.

Our capital stock is not permitted to be publicly traded and is not listed on any stock exchange. Therefore, we are not governed by stock exchange rules relating to director independence. If we were so governed, arguably none of our industry directors, who are elected by our members, would be deemed independent because all are directors and/or officers of members that do business with us. Messrs. Appleton, MullineauxDiaz, Herron, Spivey and RumaStivers and Mses. Anderson, Boise, Darby and Uridil, our seven non-industry
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directors, have no material transactions, relationships or arrangements with the FHLB other than in their capacity as directors. Therefore, our Board of Directors has determined that each of them is independent under the independence standards of the New York Stock Exchange.

The Finance Agency director independence standards specify independence criteria for members of our Audit Committee. Under these criteria, all of our directors serving on the Audit Committee are independent.


TRANSACTIONS WITH RELATED PERSONS

See Note 18 of the Notes to Financial Statements for information on transactions with stockholders, including information on transactions with Directors' Financial Institutions and concentrations of business, and transactions with nonmember affiliates, which information is incorporated herein by reference.

See also “Compensation Committee Interlocks and Insider Participation” in Item 11. Executive Compensation.

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Review and Approval of Related Persons Transactions. Ordinary course transactions with Directors' Financial Institutions and with members holding five percent or more of our capital stock are reviewed and approved by our management in the normal course of events so as to assure compliance with Finance Agency regulations.

As required by Finance Agency regulations, we have a written conflict of interest policy. This policy requires directors (1) to disclose to the Board of Directors any known personal financial interests that they, their immediate family members or their business associates have in any matter to be considered by the Board and in any other matter in which another person or entity does or proposes to do business with the FHLB and (2) to recuse themselves from considering or voting on any such matter. The scope of the Finance Agency's conflict of interest regulation (available at www.fhfa.gov) and our conflict of interest policy (posted on our website at www.fhlbcin.com) is similar, although not identical, to the scope of the SEC's requirements governing transactions with related persons. In 2007, our Board of Directors adopted a written related person transaction policy that is intended to close any gaps between Finance Agency and SEC requirements. The policy includes procedures for identifying, approving and reporting related person transactions as defined by the SEC. One of the tools that we used to monitor non-ordinary course transactions and other relationships with our directors and executive officers is an annual questionnaire that uses the New York Stock Exchange criteria for independence. Finally, our Insider Trading Policypolicy covering insider trading provides that any request for redemption of excess stock (except for de minimis amounts)unrelated to Mission Assets and Activities volatility held by a Director's Financial Institution must be approved by the Board of Directors or by the Executive Committee of the Board.

We believe these policies are effective in bringing to the attention of management and the Board any non-ordinary course transactions that require Board review and approval and that all such transactions since January 1, 20202023 have been so reviewed and approved.


Item 14.    Principal Accountant Fees and Services.

The following table sets forth the aggregate fees billed to the FHLB for the years ended December 31, 20202023 and 20192022 by its independent registered public accounting firm, PwC:
    
For the Years Ended For the Years Ended
(In thousands)(In thousands)December 31,(In thousands)December 31,
20202019 20232022
Audit feesAudit fees$745 $733 
Audit-related feesAudit-related fees98 89 
Tax feesTax fees— — 
All other feesAll other fees2 2 
Total feesTotal fees$845 $824 
Audit fees were for professional services rendered for the audits of the FHLB's financial statements.

Audit-related fees were for assurance and services related to the performance of the audit and review of the FHLB's financial statements and primarily consisted of accounting consultations and fees related to participation in and presentations at conferences.
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The FHLB is exempt from all federal, state and local income taxation. Therefore, no fees were paid for tax services during the years presented.

All other fees were for the annual license of accounting research software and a disclosure compliance checklist.

The Audit Committee approves the annual engagement letter for the FHLB's audit. In evaluating the performance of the independent registered public accounting firm, the Audit Committee considers a number of factors, such as:
▪PwC's independence and process for maintaining independence;
▪PwC's historical and recent performance on the FHLB's audit, including the results of an internal survey of PwC service and quality with the FHLB and the FHLBank System;
▪external data related to audit quality and performance, including recent Public Company Accounting Oversight Board audit quality inspection reports on PwC; and
▪the appropriateness of PwC's audit fees.
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The Audit Committee also establishes a fixed dollar limit for other recurring annual accounting related consultations, which include the FHLB's share of FHLBank System-related accounting issues. The status of these services is periodically reviewed by the Audit Committee throughout the year with any increase in these services requiring pre-approval. All other services provided by the independent accounting firm are specifically approved by the Audit Committee in advance of commitment.

The FHLB paid additional fees to PwC in the form of assessments paid to the Office of Finance. The FHLB is assessed its proportionate share of the costs of operating the Office of Finance, which includes the expenses associated with the annual audits of the combined financial statements of the FHLBanks. These assessments, which totaled $49,000$59,000 and $48,000$61,000 in 20202023 and 2019,2022, respectively, are not included in the table above.


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PART IV


Item 15.    Exhibits and Financial Statement Schedules.

(a)Financial Statements. The following financial statements of the Federal Home Loan Bank of Cincinnati, set forth in Item 8. Financial Statements and Supplementary Data above, are filed as a part of this registration statement.

Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Statements of Condition as of December 31, 20202023 and 20192022
Statements of Income for the years ended December 31, 2020, 20192023, 2022 and 20182021
Statements of Comprehensive Income for the years ended December 31, 2020, 20192023, 2022 and 20182021
Statements of Capital for the years ended December 31, 2020, 20192023, 2022 and 20182021
Statements of Cash Flows for the years ended December 31, 2020, 20192023, 2022 and 20182021
Notes to Financial Statements

(b)Exhibits.
Exhibit
Number (1)
 Description of exhibit Document filed or
furnished, as indicated below
    
3.1Form 10, filed
December 5, 2005
3.2Form 10-K,8-K, filed March 21, 2019January 23, 2024
4.1Form 8-K,10-Q, filed November 20, 2020May 5, 2022
4.2Form 10-K, filed March 19, 202017, 2022
10.1Form 10, filed
December 5, 2005
10.2Form 10, filed
December 5, 2005
10.3Form 10, filed
December 5, 2005
10.4Form 10-K, filed March 16, 2017
10.5Form 8-K, filed August 5, 2011
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10.6 (2)
Form 10-K, filed March 21, 201917, 2022
10.7 (2)
Form 10-K, filed March 19, 202016, 2023
10.8 (2)
Filed Herewith
10.9 (2)
Form 10-K, filed
March 18, 2010
10.1010.9 (2)
Form 10-K, filed
March 18, 2010
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10.11
10.10Form 8-K, filed
July 30, 2009
10.1210.11Form 10-K, filed March 16, 2017
10.1310.12Form 10-K, filed March 21, 2019
10.1410.13Form 10-Q, filed November 9, 2017
10.14Filed Herewith
24Filed Herewith
31.1  Filed Herewith
31.2  Filed Herewith
32  Furnished Herewith
99.1Furnished Herewith
99.2Furnished Herewith
101.INSXBRL Instance DocumentThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCHXBRL Taxonomy Extension Schema DocumentFiled Herewith
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled Herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled Herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled Herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled Herewith
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)Filed Herewith
(1)Numbers coincide with Item 601 of Regulation S-K.
(2)Indicates management compensation plan or arrangement.
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Item 16.    Form 10-K Summary.

None.
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 18th21st day of March 2021.2024.

FEDERAL HOME LOAN BANK OF CINCINNATI
(Registrant)
By: /s/ Andrew S. Howell
Andrew S. Howell
President and Chief Executive Officer

SIGNATURES AND POWER OF ATTORNEY

We, the undersigned directors of the Federal Home Loan Bank of Cincinnati, hereby appoint Andrew S. Howell and Stephen J. Sponaugle, or either of them, our true and lawful attorneys and agents to do any and all acts and things in our names and on our behalves, in our capacities indicated below, which said attorneys and agents, or either of them, may deem necessary or advisable to enable said registrant to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2023, including, without limitation, power and authority to sign for us, or any of us, in our names in the capacities indicated below, the Report and any and all amendments to the Report, and we hereby ratify and confirm all that said attorneys and agents, or each of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the 18th21st day of March 2021.2024.

Signatures Title
 /s/ Andrew S. HowellPresident and Chief Executive Officer
Andrew S. Howell(principal executive officer)
 /s/ Stephen J. SponaugleExecutive Vice President, Chief Financial Officer
Stephen J. Sponaugle(principal financial officer)
 /s/ J. Christopher BatesSenior Vice President, Chief Accounting Officer
J. Christopher Bates(principal accounting officer)
 /s/ J. Lynn AndersonDirector (Chair)
J. Lynn Anderson, Chair
 /s/ Grady P. AppletonJ. Wade Berry Director
Grady P. AppletonJ. Wade Berry  
 /s/ April Miller BoiseDirector
April Miller Boise
 /s/ Brady T. BurtDirector
Brady T. Burt
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SignaturesTitle
 /s/ Greg W. Caudill Director
Greg W. Caudill  
/s/ /s/ Kristin H. DarbyDirector
Kristin H. Darby
/s/ James A. EnglandLewis DiazDirector (Vice Chair)
James A. EnglandLewis Diaz
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/s/ Roy Molitor Ford, Jr.Director
Roy Molitor Ford, Jr.
/s/ Danny J. HerronDirector
Danny J. Herron
/s/ Robert T. LameierDirector
Robert T. Lameier
/s/ Donald J. MullineauxDirector
Donald J. Mullineaux
/s/ Michael P. PellDirector
Michael P. Pell
/s/ Kathleen A. RogersDirector
Kathleen A. Rogers
/s/ Charles J. RumaLeslie Scott SpiveyDirector
Charles J. RumaLeslie Scott Spivey
/s/ DavidSteven E. SartoreStiversDirector
DavidSteven E. SartoreStivers
/s/ William S. Stuard, Jr.Director
William S. Stuard, Jr.
/s/ Nancy E. UridilDirector
Nancy E. Uridil
/s/ James J. VanceDirector (Vice Chair)
James J. Vance, Vice Chair
/s/ Jonathan D. WeltyDirector
Jonathan D. Welty
/s/ H. McCall Wilson, Jr.Director
H. McCall Wilson, Jr.


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