UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended ~~March 31,~~September 30, 2021

☐

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

Commission File Number: 000-51999

FEDERAL HOME LOAN BANK OF DES MOINES

(Exact name of registrant as specified in its charter)

Federally chartered corporation of the United States

42-6000149

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification number)

909 Locust Street

Des Moines, IA

(Address of principal executive offices)

50309

(Zip code)

Registrant’s telephone number, including area code: (515) 412-2100

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


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

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 (section 232.405 of this chapter) 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


						Shares outstanding as of ~~April 30,~~October 31, 2021
Class B Stock, par value $100						~~35,757,492~~34,328,826


Table of Contents

Part I - Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Statements of Condition	3

	Statements of Income	4

	Statements of Comprehensive Income	5

	Statements of Capital	6

	Statements of Cash Flows	7

	Condensed Notes to the Unaudited Financial Statements	9

	Background Information	9

	Note 1 - Basis of Presentation	9

	Note 2 - Recently Adopted and Issued Accounting Guidance	10

	Note 3 - Investments	10

	Note 4 - Advances	15

	Note 5 - Mortgage Loans Held for Portfolio	18

	Note 6 - Derivatives and Hedging Activities	21

	Note 7 - Consolidated Obligations	2728

	Note 8 - Capital	2930

	Note 9 - Fair Value	3233

	Note 10 - Commitments and Contingencies	3941

	Note 11 - Activities with Stockholders	4042

	Note 12 - Activities with Other FHLBanks	4143

	Note 13 - Subsequent Events	4143

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4244

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7781

Item 4.	Controls and Procedures	7781

Part II - Other Information

Item 1.	Legal Proceedings	7882

Item 1A.	Risk Factors	7882

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7882

Item 3.	Defaults Upon Senior Securities	7882

Item 4.	Mine Safety Disclosures	7882

Item 5.	Other Information	7882

Item 6.	Exhibits	7983

Signatures		8084

~~Table~~T a b le of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CONDITION

(dollars and shares in millions, except capital stock par value)

(Unaudited)


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	255	$	978	Cash and due from banks	$	50	$	978
Interest-bearing deposits (Note 3)	Interest-bearing deposits (Note 3)	401		401		Interest-bearing deposits (Note 3)	411		401
Securities purchased under agreements to resell (Note 3)	Securities purchased under agreements to resell (Note 3)	3,500		4,800		Securities purchased under agreements to resell (Note 3)	7,450		4,800
Federal funds sold (Note 3)	Federal funds sold (Note 3)	7,095		3,695		Federal funds sold (Note 3)	4,885		3,695
Investment securities (Note 3)	Investment securities (Note 3)					Investment securities (Note 3)
Trading securities	Trading securities	3,348		4,875		Trading securities	1,191		4,875
Available-for-sale securities (amortized cost of $15,074 and $15,858)		15,179		15,910
Held-to-maturity securities (fair value of $1,767 and $1,921)		1,679		1,816
Available-for-sale securities (amortized cost of $13,763 and $15,858)						Available-for-sale securities (amortized cost of $13,763 and $15,858)	13,849		15,910
Held-to-maturity securities (fair value of $1,509 and $1,921)						Held-to-maturity securities (fair value of $1,509 and $1,921)	1,425		1,816
Total investment securities	Total investment securities	20,206		22,601		Total investment securities	16,465		22,601
Advances (Note 4)	Advances (Note 4)	47,514		46,530		Advances (Note 4)	44,076		46,530
Mortgage loans held for portfolio, net of allowance for credit losses of $0 and $1 (Note 5)		7,906		8,242
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1 (Note 5)						Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1 (Note 5)	7,566		8,242
Accrued interest receivable	Accrued interest receivable	104		97		Accrued interest receivable	87		97
Derivative assets, net (Note 6)	Derivative assets, net (Note 6)	249		227		Derivative assets, net (Note 6)	191		227
Other assets, net	Other assets, net	123		120		Other assets, net	237		120
TOTAL ASSETS	TOTAL ASSETS	$	87,353	$	87,691	TOTAL ASSETS	$	81,418	$	87,691
LIABILITIES	LIABILITIES					LIABILITIES
Deposits	Deposits					Deposits
Interest-bearing	Interest-bearing	1,686		1,635		Interest-bearing	$	1,687	$	1,635
Non-interest-bearing	Non-interest-bearing	282		273		Non-interest-bearing	159		273
Total deposits	Total deposits	1,968		1,908		Total deposits	1,846		1,908
Consolidated obligations (Note 7)	Consolidated obligations (Note 7)					Consolidated obligations (Note 7)
Discount notes		23,898		27,345
Discount notes (includes $5,149 and $0 at fair value held under fair value option)						Discount notes (includes $5,149 and $0 at fair value held under fair value option)	10,749		27,345
Bonds	Bonds	55,066		52,254		Bonds	62,595		52,254
Total consolidated obligations	Total consolidated obligations	78,964		79,599		Total consolidated obligations	73,344		79,599

Mandatorily redeemable capital stock (Note 8)	Mandatorily redeemable capital stock (Note 8)	36		52		Mandatorily redeemable capital stock (Note 8)	30		52
Accrued interest payable	Accrued interest payable	153		145		Accrued interest payable	129		145
Affordable Housing Program payable	Affordable Housing Program payable	160		162		Affordable Housing Program payable	140		162
Derivative liabilities, net (Note 6)	Derivative liabilities, net (Note 6)	1		4		Derivative liabilities, net (Note 6)	2		4
Other liabilities	Other liabilities	59		81		Other liabilities	79		81
TOTAL LIABILITIES	TOTAL LIABILITIES	81,341		81,951		TOTAL LIABILITIES	75,570		81,951
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)	0		0		Commitments and contingencies (Note 10)	0		0
CAPITAL (Note 8)	CAPITAL (Note 8)					CAPITAL (Note 8)
Capital stock - Class B putable ($100 par value); 35 and 34 issued and outstanding shares		3,535		3,341
Capital stock - Class B putable ($100 par value); 34 and 34 issued and outstanding shares						Capital stock - Class B putable ($100 par value); 34 and 34 issued and outstanding shares	3,379		3,341
Retained earnings	Retained earnings					Retained earnings
Unrestricted	Unrestricted	1,788		1,775		Unrestricted	1,779		1,775
Restricted	Restricted	589		576		Restricted	608		576
Total retained earnings	Total retained earnings	2,377		2,351		Total retained earnings	2,387		2,351
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	100		48		Accumulated other comprehensive income (loss)	82		48
TOTAL CAPITAL	TOTAL CAPITAL	6,012		5,740		TOTAL CAPITAL	5,848		5,740
TOTAL LIABILITIES AND CAPITAL	TOTAL LIABILITIES AND CAPITAL	$	87,353	$	87,691	TOTAL LIABILITIES AND CAPITAL	$	81,418	$	87,691


The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF INCOME

(dollars in millions)

(Unaudited)


		For the Three Months Ended				For the Three Months Ended				For the Nine Months Ended
		March 31,				September 30,				September 30,
		2021		2020				2021		2020		2021		2020
INTEREST INCOME	INTEREST INCOME						INTEREST INCOME
Advances	Advances	$	131	$	399		Advances	$	107	$	185	$	359	$	815
Interest-bearing deposits	Interest-bearing deposits	0		1			Interest-bearing deposits	—		—		1		1
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1		30			Securities purchased under agreements to resell	1		1		2		32
Federal funds sold	Federal funds sold	1		27			Federal funds sold	2		2		5		30
Trading securities	Trading securities	12		9			Trading securities	7		13		29		36
Available-for-sale securities	Available-for-sale securities	36		75			Available-for-sale securities	25		33		83		170
Held-to-maturity securities	Held-to-maturity securities	7		14			Held-to-maturity securities	6		7		19		31
Mortgage loans held for portfolio	Mortgage loans held for portfolio	53		78			Mortgage loans held for portfolio	51		58		154		203

Total interest income	Total interest income	241		633			Total interest income	199		299		652		1,318
INTEREST EXPENSE	INTEREST EXPENSE						INTEREST EXPENSE
Consolidated obligations - Discount notes	Consolidated obligations - Discount notes	5		110			Consolidated obligations - Discount notes	2		10		10		163
Consolidated obligations - Bonds	Consolidated obligations - Bonds	126		410			Consolidated obligations - Bonds	108		147		351		780
Deposits	Deposits	0		1			Deposits	—		—		—		1

Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	0		3			Mandatorily redeemable capital stock	—		1		1		5
Total interest expense	Total interest expense	131		524			Total interest expense	110		158		362		949
NET INTEREST INCOME	NET INTEREST INCOME	110		109			NET INTEREST INCOME	89		141		290		369
Provision (reversal) for credit losses on mortgage loans	Provision (reversal) for credit losses on mortgage loans	(1)		0			Provision (reversal) for credit losses on mortgage loans	—		2		—		2
NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES	NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES	111		109			NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES	89		139		290		367
OTHER INCOME (LOSS)	OTHER INCOME (LOSS)						OTHER INCOME (LOSS)
Net gains (losses) on trading securities	Net gains (losses) on trading securities	(22)		26			Net gains (losses) on trading securities	(6)		(10)		(30)		26
Net gains (losses) on derivatives	Net gains (losses) on derivatives	17		(48)			Net gains (losses) on derivatives	1		1		10		(52)
Gains on litigation settlements, net	Gains on litigation settlements, net	0		56			Gains on litigation settlements, net	—		64		—		120
Standby letter of credit fees	Standby letter of credit fees	3		3			Standby letter of credit fees	3		3		8		9
Other, net	Other, net	4		(1)			Other, net	2		7		13		13
Total other income (loss)	Total other income (loss)	2		36			Total other income (loss)	—		65		1		116
OTHER EXPENSE	OTHER EXPENSE						OTHER EXPENSE
Compensation and benefits	Compensation and benefits	21		18			Compensation and benefits	18		18		57		53
Contractual services	Contractual services	4		4			Contractual services	5		4		14		12
Professional fees	Professional fees	4		8			Professional fees	3		4		10		20
Other operating expenses	Other operating expenses	5		6			Other operating expenses	5		5		15		16
Federal Housing Finance Agency	Federal Housing Finance Agency	2		3			Federal Housing Finance Agency	2		3		6		8
Office of Finance	Office of Finance	2		2			Office of Finance	2		2		6		5
Other, net	Other, net	2		2			Other, net	2		1		5		5
Total other expense	Total other expense	40		43			Total other expense	37		37		113		119
NET INCOME BEFORE ASSESSMENTS	NET INCOME BEFORE ASSESSMENTS	73		102			NET INCOME BEFORE ASSESSMENTS	52		167		178		364
Affordable Housing Program assessments	Affordable Housing Program assessments	7		10			Affordable Housing Program assessments	5		16		18		36
NET INCOME	NET INCOME	$	66	$	92		NET INCOME	$	47	$	151	$	160	$	328


The accompanying notes are an integral part of these financial statements.

~~Table~~T a b le of Contents

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

(Unaudited)


		For the Three Months Ended				For the Three Months Ended				For the Nine Months Ended
		March 31,				September 30,				September 30,
		2021		2020				2021		2020		2021		2020
Net income	Net income	$	66	$	92		Net income	$	47	$	151	$	160	$	328
Other comprehensive income (loss)	Other comprehensive income (loss)						Other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities	Net unrealized gains (losses) on available-for-sale securities	52		(164)			Net unrealized gains (losses) on available-for-sale securities	(16)		64		34		(40)
Pension and postretirement benefits	Pension and postretirement benefits	0		1			Pension and postretirement benefits	—		1		—		1
Total other comprehensive income (loss)	Total other comprehensive income (loss)	52		(163)			Total other comprehensive income (loss)	(16)		65		34		(39)
TOTAL COMPREHENSIVE INCOME (LOSS)	TOTAL COMPREHENSIVE INCOME (LOSS)	$	118	$	(71)		TOTAL COMPREHENSIVE INCOME (LOSS)	$	31	$	216	$	194	$	289


The accompanying notes are an integral part of these financial statements.

~~Table~~T a b le of Contents

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CAPITAL

(dollars and shares in millions)

(Unaudited)


		Capital Stock Class B (putable)			Retained Earnings						Accumulated Other Comprehensive Income (Loss)				Total Capital					Capital Stock Class B (putable)						Retained Earnings									Accumulated Other Comprehensive Income (Loss)			Total Capital
		Shares	Par Value		Unrestricted		Restricted		Total								Shares				Par Value			Unrestricted			Restricted			Total

BALANCE, JUNE 30, 2020																	BALANCE, JUNE 30, 2020			38			$	3,802		$	1,718		$	539		$	2,257		$	(60)		$	5,999
Comprehensive income (loss)																	Comprehensive income (loss)			—			—			121			30			151			65			216
Proceeds from issuance of capital stock																	Proceeds from issuance of capital stock			3			294			—			—			—			—			294
Repurchases/redemptions of capital stock																	Repurchases/redemptions of capital stock			(7)			(664)			—			—			—			—			(664)

Cash dividends on capital stock																	Cash dividends on capital stock			—			—			(49)			—			(49)			—			(49)
BALANCE, SEPTEMBER 30, 2020																	BALANCE, SEPTEMBER 30, 2020			34			$	3,432		$	1,790		$	569		$	2,359		$	5		$	5,796

BALANCE, JUNE 30, 2021																	BALANCE, JUNE 30, 2021			35			$	3,429		$	1,785		$	598		$	2,383		$	98		$	5,910
Comprehensive income (loss)																	Comprehensive income (loss)			—			—			37			10			47			(16)			31
Proceeds from issuance of capital stock																	Proceeds from issuance of capital stock			5			512			—			—			—			—			512
Repurchases/redemptions of capital stock																	Repurchases/redemptions of capital stock			(6)			(561)			—			—			—			—			(561)
Net shares reclassified (to) from mandatorily redeemable capital stock																	Net shares reclassified (to) from mandatorily redeemable capital stock			—			(1)			—			—			—			—			(1)

Cash dividends on capital stock																	Cash dividends on capital stock			—			—			(43)			—			(43)			—			(43)
BALANCE, SEPTEMBER 30, 2021																	BALANCE, SEPTEMBER 30, 2021			34			$	3,379		$	1,779		$	608		$	2,387		$	82		$	5,848

BALANCE, DECEMBER 31, 2019	BALANCE, DECEMBER 31, 2019	45	$	4,517	$	1,661	$	504	$	2,165			$	44				$	6,726	BALANCE, DECEMBER 31, 2019		45			$	4,517		$	1,661		$	504		$	2,165		$	44		$	6,726
Adjustment for cumulative effect of accounting change	Adjustment for cumulative effect of accounting change	—	—		1		—		1		—				1		Adjustment for cumulative effect of accounting change			—			—			1			—			1			—			1
Comprehensive income (loss)	Comprehensive income (loss)	—	—		74		18		92		(163)				(71)		Comprehensive income (loss)			—			—			263			65			328			(39)			289
Proceeds from issuance of capital stock	Proceeds from issuance of capital stock	21	2,074		—		—		—		—				2,074		Proceeds from issuance of capital stock			29			2,915			—			—			—			—			2,915
Repurchases/redemptions of capital stock	Repurchases/redemptions of capital stock	(19)	(1,932)		—		—		—		—				(1,932)		Repurchases/redemptions of capital stock			(40)			(3,994)			—			—			—			—			(3,994)
Net shares reclassified (to) from mandatorily redeemable capital stock	Net shares reclassified (to) from mandatorily redeemable capital stock	0	(6)		—		—		—		—				(6)		Net shares reclassified (to) from mandatorily redeemable capital stock			—			(6)			—			—			—			—			(6)

Partial recovery of prior capital distribution to Financing Corporation																	Partial recovery of prior capital distribution to Financing Corporation			—			—			26			—			26			—			26
Cash dividends on capital stock	Cash dividends on capital stock	—	—		(59)		—		(59)		—				(59)		Cash dividends on capital stock			—			—			(161)			—			(161)			—			(161)
BALANCE, MARCH 31, 2020		47	$	4,653	$	1,677	$	522	$	2,199	$	(119)			$	6,733
BALANCE, SEPTEMBER 30, 2020																	BALANCE, SEPTEMBER 30, 2020			34			$	3,432		$	1,790		$	569		$	2,359		$	5		$	5,796

BALANCE, DECEMBER 31, 2020	BALANCE, DECEMBER 31, 2020	34	$	3,341	$	1,775	$	576	$	2,351	$	48			$	5,740	BALANCE, DECEMBER 31, 2020			34			$	3,341		$	1,775		$	576		$	2,351		$	48		$	5,740

Comprehensive income (loss)	Comprehensive income (loss)	—	—		53		13		66		52				118		Comprehensive income (loss)			—			—			128			32			160			34			194
Proceeds from issuance of capital stock	Proceeds from issuance of capital stock	7	719		—		—		—		—				719		Proceeds from issuance of capital stock			20			2,013			—			—			—			—			2,013
Repurchases/redemptions of capital stock	Repurchases/redemptions of capital stock	(6)	(525)		—		—		—		—				(525)		Repurchases/redemptions of capital stock			(19)			(1,894)			—			—			—			—			(1,894)
Net shares reclassified (to) from mandatorily redeemable capital stock	Net shares reclassified (to) from mandatorily redeemable capital stock	—	—		—		—		—		—				0		Net shares reclassified (to) from mandatorily redeemable capital stock			(1)			(81)			—			—			—			—			(81)

Cash dividends on capital stock	Cash dividends on capital stock	—	—		(40)		—		(40)		—				(40)		Cash dividends on capital stock			—			—			(124)			—			(124)			—			(124)
BALANCE, MARCH 31, 2021		35	$	3,535	$	1,788	$	589	$	2,377	$	100			$	6,012
BALANCE, SEPTEMBER 30, 2021																	BALANCE, SEPTEMBER 30, 2021			34			$	3,379		$	1,779		$	608		$	2,387		$	82		$	5,848

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS

(dollars in millions)

(Unaudited)


		For the Three Months Ended					For the Nine Months Ended
		March 31,					September 30,
		2021		2020			2021		2020
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	66	$	92	Net income	$	160	$	328
Adjustments to reconcile net income to net cash provided by (used in) operating activities	Adjustments to reconcile net income to net cash provided by (used in) operating activities					Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	Depreciation and amortization	18		(6)		Depreciation and amortization	32		(21)
Net (gains) losses on trading securities	Net (gains) losses on trading securities	22		(26)		Net (gains) losses on trading securities	30		(26)
Net change in derivatives and hedging activities	Net change in derivatives and hedging activities	248		(262)		Net change in derivatives and hedging activities	238		(329)
Other adjustments, net	Other adjustments, net	13		6		Other adjustments, net	15		8
Net change in:	Net change in:					Net change in:
Accrued interest receivable	Accrued interest receivable	(12)		(7)		Accrued interest receivable	(6)		37
Other assets	Other assets	(4)		10		Other assets	(10)		3
Accrued interest payable	Accrued interest payable	8		5		Accrued interest payable	(16)		(71)
Other liabilities	Other liabilities	(5)		2		Other liabilities	(5)		17
Total adjustments	Total adjustments	288		(278)		Total adjustments	278		(382)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	354		(186)		Net cash provided by (used in) operating activities	438		(54)
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Net change in:	Net change in:					Net change in:
Interest-bearing deposits	Interest-bearing deposits	108		(346)		Interest-bearing deposits	144		(727)
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,300		7,400		Securities purchased under agreements to resell	(2,650)		10,650
Federal funds sold	Federal funds sold	(3,400)		(4,330)		Federal funds sold	(1,190)		(995)

Trading securities	Trading securities					Trading securities

Proceeds from sales						Proceeds from sales	—		2,949
Proceeds from maturities and paydowns	Proceeds from maturities and paydowns	2,105		57		Proceeds from maturities and paydowns	4,752		493
Purchases	Purchases	(600)		(871)		Purchases	(1,098)		(7,568)
Available-for-sale securities	Available-for-sale securities					Available-for-sale securities
Proceeds from maturities and paydowns	Proceeds from maturities and paydowns	585		772		Proceeds from maturities and paydowns	1,793		1,822
Purchases	Purchases	(18)		0		Purchases	(18)		(1,280)
Held-to-maturity securities	Held-to-maturity securities					Held-to-maturity securities
Proceeds from maturities and paydowns	Proceeds from maturities and paydowns	135		113		Proceeds from maturities and paydowns	383		392
Advances	Advances					Advances
Repaid	Repaid	24,171		79,358		Repaid	99,336		156,489
Originated	Originated	(25,419)		(78,332)		Originated	(97,191)		(124,219)
Mortgage loans held for portfolio	Mortgage loans held for portfolio					Mortgage loans held for portfolio
Principal collected	Principal collected	811		357		Principal collected	2,029		2,326
Purchased	Purchased	(489)		(571)		Purchased	(1,386)		(1,753)
Other investing activities, net	Other investing activities, net	0		(2)		Other investing activities, net	(1)		(4)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(711)		3,605		Net cash provided by (used in) investing activities	4,903		38,575


The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS (continued from previous page)

(dollars in millions)

(Unaudited)


		For the Three Months Ended					For the Nine Months Ended
		March 31,					September 30,
		2021		2020			2021		2020
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Net change in deposits	Net change in deposits	75		155		Net change in deposits	(53)		503

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	67,278		32,197		Discount notes	209,630		129,774
Bonds	Bonds	15,897		17,706		Bonds	52,058		28,638
Payments for maturing and retiring consolidated obligations	Payments for maturing and retiring consolidated obligations					Payments for maturing and retiring consolidated obligations
Discount notes	Discount notes	(70,724)		(28,645)		Discount notes	(226,221)		(128,303)
Bonds	Bonds	(13,030)		(25,217)		Bonds	(41,575)		(68,002)
Proceeds from issuance of capital stock	Proceeds from issuance of capital stock	719		2,074		Proceeds from issuance of capital stock	2,013		2,915
Proceeds from issuance of mandatorily redeemable capital stock	Proceeds from issuance of mandatorily redeemable capital stock	0		19		Proceeds from issuance of mandatorily redeemable capital stock	—		18
Payments for repurchases/redemptions of capital stock	Payments for repurchases/redemptions of capital stock	(525)		(1,932)		Payments for repurchases/redemptions of capital stock	(1,894)		(3,994)
Payments for repurchases/redemptions of mandatorily redeemable capital stock	Payments for repurchases/redemptions of mandatorily redeemable capital stock	(16)		(135)		Payments for repurchases/redemptions of mandatorily redeemable capital stock	(103)		(176)

Partial recovery of prior capital distribution to Financing Corporation						Partial recovery of prior capital distribution to Financing Corporation	—		26
Cash dividends paid	Cash dividends paid	(40)		(59)		Cash dividends paid	(124)		(161)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(366)		(3,837)		Net cash provided by (used in) financing activities	(6,269)		(38,762)
Net increase (decrease) in cash and due from banks	Net increase (decrease) in cash and due from banks	(723)		(418)		Net increase (decrease) in cash and due from banks	(928)		(241)
Cash and due from banks at beginning of the period	Cash and due from banks at beginning of the period	978		1,029		Cash and due from banks at beginning of the period	978		1,029
Cash and due from banks at end of the period	Cash and due from banks at end of the period	$	255	$	611	Cash and due from banks at end of the period	$	50	$	788

SUPPLEMENTAL DISCLOSURES	SUPPLEMENTAL DISCLOSURES					SUPPLEMENTAL DISCLOSURES
Cash Transactions:	Cash Transactions:					Cash Transactions:
Interest paid	Interest paid	$	154	$	569	Interest paid	$	420	$	1,151
Affordable Housing Program payments	Affordable Housing Program payments	9		6		Affordable Housing Program payments	40		24
Non-Cash Transactions:	Non-Cash Transactions:					Non-Cash Transactions:
Capitalized interest on reverse mortgage investment securities	Capitalized interest on reverse mortgage investment securities	6		22		Capitalized interest on reverse mortgage investment securities	15		45

Traded but not yet settled investment security purchases		0		139
Traded but not yet settled investment security payments/calls						Traded but not yet settled investment security payments/calls	113		1

Capital stock reclassified to (from) mandatorily redeemable capital stock, net	Capital stock reclassified to (from) mandatorily redeemable capital stock, net	0		6		Capital stock reclassified to (from) mandatorily redeemable capital stock, net	81		6


The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DES MOINES

CONDENSED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation that is exempt from all federal, state, and local taxation (except real property taxes and certain employer payroll taxes) and is one of 11 district Federal Home Loan Banks (FHLBanks). The FHLBanks are government-sponsored enterprises (GSEs) and were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act) in order to serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank is regulated by the Federal Housing Finance Agency (Finance Agency).

The Bank is a cooperative, meaning it is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain capital stock to support business activities with the Bank. In return, the Bank provides a readily available source of funding and liquidity to its member institutions and eligible housing associates in Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank’s Board of Directors.

Note 1 — Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements for the year ended December 31, 2020, which are contained in the Bank’s 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 10, 2021 (2020 Form 10-K).

In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.

Reclassifications

Certain amounts in the Bank’s 2020 financial statements have been reclassified to conform to the presentation for the three and nine months ended ~~March 31,~~September 30, 2021. These amounts were not deemed to be material.

SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Bank’s significant accounting policies during the ~~three~~nine months ended September 30, 2021. ~~March 31, 2021.~~ Descriptions of all significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” in the 2020 Form 10-K.

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Note 2 — Recently Adopted and Issued Accounting Guidance

Reference Rate Reform (ASU 2020-04)

On March 12, 2020, the Financial Accounting Standards Board issued guidance to provide temporary optional expedients and exceptions to GAAP on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can elect to not apply certain modification accounting requirements to contracts affected by rate reform, if certain criteria are met. Additionally, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform. Lastly, entities can make a one-time election to sell and/or transfer to available-for-sale (AFS) or trading classification any held-to-maturity (HTM) debt securities that refer to an interest rate affected by reference rate reform and were classified as HTM before January 1, 2020.

This guidance becomes effective for the Bank upon election of any of the amendments and will be applied prospectively from the date elected until December 31, 2022. For certain hedge accounting optional expedients, they will be applied through the end of the hedging relationship, which could extend beyond December 31, 2022. The Bank continues to evaluate this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.

Note 3 — Investments

The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold and makes other investments in debt securities, which are classified as either trading, AFS, or HTM.

INTEREST-BEARING DEPOSITS, SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL, AND FEDERAL FUNDS SOLD

The Bank invests in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by a nationally recognized statistical rating organization (NRSRO). At ~~March 31,~~September 30, 2021 and December 31, 2020, ~~NaN~~none of these investments were with counterparties rated below triple-B; however, as of December 31, 2020, approximately ~~five percent and~~ 21 percent were secured securities purchased under agreements to resell with unrated counterparties. At September 30, 2021, the Bank held no unrated investments. These NRSRO ratings may differ from any internal ratings of the investments by the Bank.

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 Bank may extend to a counterparty. At ~~March 31,~~September 30, 2021 and December 31, 2020, no allowance for credit losses was recorded for interest-bearing deposits and federal funds sold, as all assets were repaid or expected to be repaid according to their contractual terms. The carrying values of interest-bearing deposits and federal funds sold exclude accrued interest receivable of less than $1 million at ~~March 31,~~September 30, 2021 and December 31, 2020.

Securities purchased under agreements to resell are secured, 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 its counterparties, the Bank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at ~~March 31,~~September 30, 2021 and December 31, 2020. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of less than $1 million at ~~March 31,~~September 30, 2021 and December 31, 2020.

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DEBT SECURITIES

The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. The Bank is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality. Exceptions are allowed for certain investments targeted at low-income persons or communities, and instruments that experience credit deterioration after their purchase by the Bank.

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Trading Securities

Trading securities by major security type were as follows (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Non-mortgage-backed securities	Non-mortgage-backed securities					Non-mortgage-backed securities
U.S. Treasury obligations1	U.S. Treasury obligations1	$	2,565	$	4,069	U.S. Treasury obligations1	$	499	$	4,069
Other U.S. obligations1	Other U.S. obligations1	106		114		Other U.S. obligations1	102		114
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	61		64		GSE and Tennessee Valley Authority obligations	60		64
Other2	Other2	238		246		Other2	215		246
Total non-mortgage-backed securities	Total non-mortgage-backed securities	2,970		4,493		Total non-mortgage-backed securities	876		4,493
Mortgage-backed securities	Mortgage-backed securities					Mortgage-backed securities
GSE multifamily	GSE multifamily	378		382		GSE multifamily	315		382
Total fair value	Total fair value	$	3,348	$	4,875	Total fair value	$	1,191	$	4,875

1 Represents investment securities backed by the full faith and credit of the U.S. Government.

2 Consists of taxable municipal bonds.

Net Gains (Losses) on Trading Securities

The ~~Bank did not sell any~~following table summarizes the components of “Net gains (losses) on trading ~~securities during~~securities” as presented on the ~~three months ended March 31, 2021 and 2020. During the three months ended March 31, 2021, the Bank recorded net unrealized losses~~Statements of ~~$22 million on its trading securities held at period end compared to net unrealized gains of $26 million for the same period~~Income (dollars in ~~2020.~~millions):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net unrealized gains (losses) on trading securities held at period-end	$	(2)	$	(10)	$	(20)	$	26
Net gains (losses) on trading securities sold/matured during the period	(4)		—		(10)		—
Net gains (losses) on trading securities	$	(6)	$	(10)	$	(30)	$	26

AFS Securities

AFS securities by major security type were as follows (dollars in millions):


		March 31, 2021									September 30, 2021
		Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities	Non-mortgage-backed securities									Non-mortgage-backed securities
Other U.S. obligations2	Other U.S. obligations2	$	1,558	$	7	$	(1)	$	1,564	Other U.S. obligations2	$	1,311	$	5	$	(1)	$	1,315
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	949		31		0		980		GSE and Tennessee Valley Authority obligations	957		29		—		986
State or local housing agency obligations	State or local housing agency obligations	711		0		(17)		694		State or local housing agency obligations	576		—		(11)		565
Other3	Other3	282		12		0		294		Other3	281		11		—		292
Total non-mortgage-backed securities	Total non-mortgage-backed securities	3,500		50		(18)		3,532		Total non-mortgage-backed securities	3,125		45		(12)		3,158
Mortgage-backed securities	Mortgage-backed securities									Mortgage-backed securities
U.S. obligations single-family2	U.S. obligations single-family2	3,393		25		0		3,418		U.S. obligations single-family2	3,061		22		—		3,083
GSE single-family	GSE single-family	386		5		0		391		GSE single-family	304		5		—		309
GSE multifamily	GSE multifamily	7,795		68		(25)		7,838		GSE multifamily	7,273		50		(24)		7,299
Total mortgage-backed securities	Total mortgage-backed securities	11,574		98		(25)		11,647		Total mortgage-backed securities	10,638		77		(24)		10,691
Total	Total	$	15,074	$	148	$	(43)	$	15,179	Total	$	13,763	$	122	$	(36)	$	13,849

1 Amortized cost 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 ~~$25~~$23 million at ~~March 31,~~September 30, 2021.

2 Represents investment securities backed by the full faith and credit of the U.S. Government.

3 Consists of taxable municipal bonds and/or Private Export Funding Corporation (PEFCO) bonds.

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AFS securities by major security type were as follows (dollars in millions):


		December 31, 2020									December 31, 2020
		Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities	Non-mortgage-backed securities									Non-mortgage-backed securities
Other U.S. obligations2	Other U.S. obligations2	$	1,670	$	4	$	(2)	$	1,672	Other U.S. obligations2	$	1,670	$	4	$	(2)	$	1,672
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	1,000		22		0		1,022		GSE and Tennessee Valley Authority obligations	1,000		22		—		1,022
State or local housing agency obligations	State or local housing agency obligations	712		0		(19)		693		State or local housing agency obligations	712		—		(19)		693
Other3	Other3	290		12		0		302		Other3	290		12		—		302
Total non-mortgage-backed securities	Total non-mortgage-backed securities	3,672		38		(21)		3,689		Total non-mortgage-backed securities	3,672		38		(21)		3,689
Mortgage-backed securities	Mortgage-backed securities									Mortgage-backed securities
U.S. obligations single-family2	U.S. obligations single-family2	3,527		18		(1)		3,544		U.S. obligations single-family2	3,527		18		(1)		3,544
GSE single-family	GSE single-family	442		4		0		446		GSE single-family	442		4		—		446
GSE multifamily	GSE multifamily	8,217		47		(33)		8,231		GSE multifamily	8,217		47		(33)		8,231
Total mortgage-backed securities	Total mortgage-backed securities	12,186		69		(34)		12,221		Total mortgage-backed securities	12,186		69		(34)		12,221
Total	Total	$	15,858	$	107	$	(55)	$	15,910	Total	$	15,858	$	107	$	(55)	$	15,910

2 Represents investment securities backed by the full faith and credit of the U.S. Government.

3 Consists of taxable municipal bonds and/or PEFCO bonds.

Unrealized Losses

The following table summarizes AFS securities with unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.


		March 31, 2021													September 30, 2021
		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Non-mortgage-backed securities	Non-mortgage-backed securities													Non-mortgage-backed securities
Other U.S. obligations1	Other U.S. obligations1	$	31	$	0	$	525	$	(1)	$	556	$	(1)	Other U.S. obligations1	$	78	$	(1)	$	135	$	—	$	213	$	(1)

State or local housing agency obligations	State or local housing agency obligations	136		(4)		489		(13)		625		(17)		State or local housing agency obligations	52		—		503		(11)		555		(11)

Total non-mortgage-backed securities	Total non-mortgage-backed securities	167		(4)		1,014		(14)		1,181		(18)		Total non-mortgage-backed securities	130		(1)		638		(11)		768		(12)
Mortgage-backed securities	Mortgage-backed securities													Mortgage-backed securities

U.S. obligations single-family1	U.S. obligations single-family1	0		0		279		0		279		0		U.S. obligations single-family1	86		—		94		—		180		—
GSE single-family	GSE single-family	0		0		9		0		9		0		GSE single-family	10		—		—		—		10		—
GSE multifamily	GSE multifamily	29		0		3,612		(25)		3,641		(25)		GSE multifamily	1,626		(4)		3,034		(20)		4,660		(24)

Total mortgage-backed securities	Total mortgage-backed securities	29		0		3,900		(25)		3,929		(25)		Total mortgage-backed securities	1,722		(4)		3,128		(20)		4,850		(24)
Total	Total	$	196	$	(4)	$	4,914	$	(39)	$	5,110	$	(43)	Total	$	1,852	$	(5)	$	3,766	$	(31)	$	5,618	$	(36)

1 Represents investment securities backed by the full faith and credit of the U.S. Government.

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		December 31, 2020													December 31, 2020
		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Non-mortgage-backed securities	Non-mortgage-backed securities													Non-mortgage-backed securities
Other U.S. obligations1	Other U.S. obligations1	$	348	$	0	$	698	$	(2)	$	1,046	$	(2)	Other U.S. obligations1	$	348	$	—	$	698	$	(2)	$	1,046	$	(2)

State or local housing agency obligations	State or local housing agency obligations	336		(15)		288		(4)		624		(19)		State or local housing agency obligations	336		(15)		288		(4)		624		(19)
Total non-mortgage-backed securities	Total non-mortgage-backed securities	684		(15)		986		(6)		1,670		(21)		Total non-mortgage-backed securities	684		(15)		986		(6)		1,670		(21)
Mortgage-backed securities	Mortgage-backed securities													Mortgage-backed securities
U.S. obligations single-family1	U.S. obligations single-family1	0		0		593		(1)		593		(1)		U.S. obligations single-family1	—		—		593		(1)		593		(1)
GSE single-family	GSE single-family	0		0		14		0		14		0		GSE single-family	—		—		14		—		14		—
GSE multifamily	GSE multifamily	662		(8)		3,561		(25)		4,223		(33)		GSE multifamily	662		(8)		3,561		(25)		4,223		(33)
Total mortgage-backed securities	Total mortgage-backed securities	662		(8)		4,168		(26)		4,830		(34)		Total mortgage-backed securities	662		(8)		4,168		(26)		4,830		(34)
Total	Total	$	1,346	$	(23)	$	5,154	$	(32)	$	6,500	$	(55)	Total	$	1,346	$	(23)	$	5,154	$	(32)	$	6,500	$	(55)

1 Represents investment securities backed by the full faith and credit of the U.S. Government.

Contractual Maturity

The following table summarizes AFS securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):

March 31, 2021 December 31, 2020
Year of Contractual Maturity Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Non-mortgage-backed securities
Due in one year or less $ 363 $ 364 $ 4 $ 4
Due after one year through five years 2,038 2,050 2,430 2,438
Due after five years through ten years 401 406 494 498
Due after ten years 698 712 744 749
Total non-mortgage-backed securities 3,500 3,532 3,672 3,689
Mortgage-backed securities 11,574 11,647 12,186 12,221
Total $ 15,074 $ 15,179 $ 15,858 $ 15,910




	September 30, 2021				December 31, 2020
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due in one year or less	$	415	$	415	$	4	$	4
Due after one year through five years	1,764		1,773		2,430		2,438
Due after five years through ten years	374		380		494		498
Due after ten years	572		590		744		749
Total non-mortgage-backed securities	3,125		3,158		3,672		3,689
Mortgage-backed securities	10,638		10,691		12,186		12,221
Total	$	13,763	$	13,849	$	15,858	$	15,910

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HTM Securities

HTM securities by major security type were as follows (dollars in millions):


		March 31, 2021									September 30, 2021
		Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities	Non-mortgage-backed securities									Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	$	378	$	79	$	0	$	457	GSE and Tennessee Valley Authority obligations	$	375	$	76	$	—	$	451
State or local housing agency obligations	State or local housing agency obligations	199		1		(1)		199		State or local housing agency obligations	191		1		(1)		191
Total non-mortgage-backed securities	Total non-mortgage-backed securities	577		80		(1)		656		Total non-mortgage-backed securities	566		77		(1)		642
Mortgage-backed securities	Mortgage-backed securities									Mortgage-backed securities
U.S. obligations single-family2	U.S. obligations single-family2	3		0		0		3		U.S. obligations single-family2	2		—		—		2

GSE single-family	GSE single-family	1,094		10		(1)		1,103		GSE single-family	852		8		—		860
Private-label	Private-label	5		0		0		5		Private-label	5		—		—		5
Total mortgage-backed securities	Total mortgage-backed securities	1,102		10		(1)		1,111		Total mortgage-backed securities	859		8		—		867
Total	Total	$	1,679	$	90	$	(2)	$	1,767	Total	$	1,425	$	85	$	(1)	$	1,509


		December 31, 2020									December 31, 2020
		Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities	Non-mortgage-backed securities									Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	$	379	$	97	$	0	$	476	GSE and Tennessee Valley Authority obligations	$	379	$	97	$	—	$	476
State or local housing agency obligations	State or local housing agency obligations	203		2		(1)		204		State or local housing agency obligations	203		2		(1)		204
Total non-mortgage-backed securities	Total non-mortgage-backed securities	582		99		(1)		680		Total non-mortgage-backed securities	582		99		(1)		680
Mortgage-backed securities	Mortgage-backed securities									Mortgage-backed securities
U.S. obligations single-family2	U.S. obligations single-family2	3		0		0		3		U.S. obligations single-family2	3		—		—		3

GSE single-family	GSE single-family	1,225		9		(2)		1,232		GSE single-family	1,225		9		(2)		1,232
Private-label	Private-label	6		0		0		6		Private-label	6		—		—		6
Total mortgage-backed securities	Total mortgage-backed securities	1,234		9		(2)		1,241		Total mortgage-backed securities	1,234		9		(2)		1,241
Total	Total	$	1,816	$	108	$	(3)	$	1,921	Total	$	1,816	$	108	$	(3)	$	1,921

1 Amortized cost includes adjustments made to the cost basis of an investment for accretion or amortization and excludes accrued interest receivable of ~~$11~~$10 million and $5 million at ~~March 31,~~September 30, 2021 and December 31, 2020.

2 Represents investment securities backed by the full faith and credit of the U.S. Government.

Contractual Maturity

The following table summarizes HTM securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
Year of Contractual Maturity	Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities	Non-mortgage-backed securities									Non-mortgage-backed securities

Due after one year through five years	Due after one year through five years	$	261	$	299	$	252	$	297	Due after one year through five years	$	258	$	293	$	252	$	297
Due after five years through ten years	Due after five years through ten years	186		190		198		203		Due after five years through ten years	188		193		198		203
Due after ten years	Due after ten years	130		167		132		180		Due after ten years	120		156		132		180
Total non-mortgage-backed securities	Total non-mortgage-backed securities	577		656		582		680		Total non-mortgage-backed securities	566		642		582		680
Mortgage-backed securities	Mortgage-backed securities	1,102		1,111		1,234		1,241		Mortgage-backed securities	859		867		1,234		1,241
Total	Total	$	1,679	$	1,767	$	1,816	$	1,921	Total	$	1,425	$	1,509	$	1,816	$	1,921

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ALLOWANCE FOR CREDIT LOSSES ON AFS AND HTM SECURITIES

The Bank evaluates AFS and HTM investment securities for credit losses on a quarterly basis.

AFS and HTM Securities

The Bank’s AFS and HTM securities may include, but are not limited to, certificates of deposit, commercial paper, U.S. obligations, GSE and Tennessee Valley Authority (TVA) obligations, state or local housing agency obligations, taxable municipal bonds, and ~~mortgage-backed securities~~mortgage-backed-securities (MBS). The Bank only purchases securities considered investment quality. At ~~March 31,~~September 30, 2021 and December 31, 2020, , over 99 percent of the Bank’s AFS ~~securities~~ and HTM securities, based on amortized cost, were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security. These NRSRO ratings may differ from any internal ratings of the securities by the Bank.

The Bank evaluates its individual AFS 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 ~~March 31,~~September 30, 2021 and December 31, 2020,, certain AFS securities held by the Bank were in an unrealized loss position. These losses ~~were~~are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. In addition, substantially all of these securities carry an implicit or explicit government guarantee. As a result, 0no allowance for credit losses was recorded on these AFS securities at ~~March 31,~~September 30, 2021 and December 31, ~~2020~~.2020.

The Bank evaluates its HTM 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. At ~~March 31,~~September 30, 2021 and December 31, 2020,, the Bank had 0no allowance for credit losses recorded on its HTM securities because the securities: (i) were all highly-rated, (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of U.S. obligations and GSE and TVA obligations, carry an implicit or explicit government guarantee such that the Bank considers the risk of nonpayment to be zero.

Note 4 — Advances

REDEMPTION TERM

The following table summarizes the Bank’s advances outstanding by redemption term (dollars in millions):


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
Redemption Term	Redemption Term	Amount1		Weighted Average Interest Rate		Amount1		Weighted Average Interest Rate		Redemption Term	Amount1		Weighted Average Interest Rate		Amount1		Weighted Average Interest Rate
Overdrawn demand deposit accounts2	Overdrawn demand deposit accounts2	$	0	1.28	%	$	3	1.29	%	Overdrawn demand deposit accounts2	$	—	1.30	%	$	3	1.29	%
Due in one year or less3		14,155		1.09		12,499		1.16
Due in one year or less										Due in one year or less	13,752		1.26		12,499		1.16
Due after one year through two years	Due after one year through two years	8,894		1.65		8,265		1.69		Due after one year through two years	6,710		1.72		8,265		1.69
Due after two years through three years	Due after two years through three years	9,426		1.34		10,550		1.42		Due after two years through three years	10,820		1.19		10,550		1.42
Due after three years through four years	Due after three years through four years	8,146		1.22		7,011		1.38		Due after three years through four years	4,992		1.00		7,011		1.38
Due after four years through five years	Due after four years through five years	3,310		0.80		4,106		1.12		Due after four years through five years	4,520		0.85		4,106		1.12
Thereafter	Thereafter	3,405		2.07		3,654		2.10		Thereafter	3,149		2.05		3,654		2.10
Total par value	Total par value	47,336		1.32	%	46,088		1.42	%	Total par value	43,943		1.30	%	46,088		1.42	%
Premiums	Premiums	18				18				Premiums	15				18
Discounts	Discounts	(14)				(3)				Discounts	(2)				(3)
Fair value hedging adjustments	Fair value hedging adjustments	174				427				Fair value hedging adjustments	120				427

Total	Total	$	47,514			$	46,530			Total	$	44,076			$	46,530

1 Excludes accrued interest receivable of ~~$15 million and~~ $13 million at ~~March 31,~~both September 30, 2021 and December 31, 2020.

2 The Bank’s overdrawn demand deposit accounts were less than $1 million at ~~March 31,~~September 30, 2021.

3 Includes $8 million of advances that have passed their original contractual redemption date as of March 31, 2021 due to a member bank default event. Refer to the “Allowance for Credit Losses” section of this footnote for additional details.

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The following table summarizes advances by year of redemption term or next call date for callable advances, and by year of redemption term or next put date for putable advances (dollars in millions):


		Redemption Term or Next Call Date				Redemption Term or Next Put Date					Redemption Term or Next Call Date				Redemption Term or Next Put Date
		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Overdrawn demand deposit accounts1	Overdrawn demand deposit accounts1	$	0	$	3	$	0	$	3	Overdrawn demand deposit accounts1	$	—	$	3	$	—	$	3
Due in one year or less2		26,522		23,622		15,144		13,486
Due in one year or less										Due in one year or less	25,723		23,622		14,777		13,486
Due after one year through two years	Due after one year through two years	6,730		6,276		8,966		8,319		Due after one year through two years	5,722		6,276		6,736		8,319
Due after two years through three years	Due after two years through three years	5,074		6,436		9,219		10,464		Due after two years through three years	5,432		6,436		9,895		10,464
Due after three years through four years	Due after three years through four years	4,604		4,053		7,303		6,116		Due after three years through four years	2,306		4,053		4,877		6,116
Due after four years through five years	Due after four years through five years	1,047		2,169		3,310		4,057		Due after four years through five years	1,589		2,169		4,520		4,057
Thereafter	Thereafter	3,359		3,529		3,394		3,643		Thereafter	3,171		3,529		3,138		3,643
Total par value	Total par value	$	47,336	$	46,088	$	47,336	$	46,088	Total par value	$	43,943	$	46,088	$	43,943	$	46,088

1 The Bank’s overdrawn demand deposit accounts were less than $1 million at ~~March 31,~~September 30, 2021.

2 Includes $8 million of advances that have passed their original contractual redemption date as of March 31, 2021 due to a member bank default event. Refer to the “Allowance for Credit Losses” section of this footnote for additional details.

The Bank offers advances to members and eligible housing associates that may be prepaid on pertinent dates (call dates) prior to maturity without incurring prepayment fees (callable advances). Other advances may require a prepayment fee or credit that makes the Bank financially indifferent to the prepayment of the advance. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank had callable advances outstanding totaling ~~$13.2~~$13.3 billion and $11.7 billion.

The Bank also holds putable advances. With a putable advance, the Bank has the right to terminate the advance from the borrower on predetermined exercise dates. Generally, these put options are exercised when interest rates increase relative to contractual rates. At both ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank had putable advances outstanding totaling $1.4 billion.

PREPAYMENT FEES

The Bank generally charges a prepayment fee for advances that a borrower elects to terminate prior to the stated maturity or outside of a predetermined call or put date. The fees charged are priced to make the Bank financially indifferent to the prepayment of the advance. For certain advances with symmetrical prepayment features, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Prepayment fees and credits are recorded net of the hedged item fair value hedging adjustments in advance interest income on the Statements of Income. ~~The~~During the three and nine months ended September 30, 2021, the Bank recorded net prepayment fees on advances of ~~$17~~$4 million and $3$34 million compared to $45 million and $58 million for the ~~three months ended March 31, 2021 and~~same periods in 2020.

ADVANCE CONCENTRATIONS

The Bank’s advances are primarily concentrated in commercial banks and insurance companies. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank did not have any members who individually held 10 percent or more of the Bank’s advances.

ALLOWANCE FOR CREDIT LOSSES

The Bank evaluates advances for credit losses on a quarterly basis and manages its credit exposure to advances through an approach that includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower’s financial condition in conjunction with the Bank’s collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, the Bank lends to eligible borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

The Bank is required by regulation to obtain sufficient collateral to fully secure its advances. The estimated value of the collateral required to secure each borrower’s advances is calculated by applying collateral discounts, or haircuts, to the unpaid principal balance or market value, as applicable, of the collateral. The Bank also has policies and procedures for validating the reasonableness of the Bank’s collateral valuations. In addition, collateral verifications and on-site reviews are performed by the Bank based on the risk profile of the borrower. Management believes that these policies effectively manage the Bank’s credit risk from advances.

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Eligible collateral includes:

•fully disbursed whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages;

•loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association;

•cash deposited with the Bank; and

•other real estate-related collateral acceptable to the Bank, such as second lien mortgages, home equity lines of credit, tax-exempt municipal securities, and commercial real estate mortgages, provided such collateral has a readily ascertainable value and the Bank can perfect a security interest in it.

Community financial institutions may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that the Bank has a lien on each member’s capital stock investment; however, capital stock cannot be pledged as collateral to secure advances.

Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower. The Bank can also require additional or substitute collateral to protect its security interest. The Bank periodically evaluates and makes changes to its collateral guidelines and collateral haircuts.

Borrowers may pledge collateral to the Bank by executing a blanket pledge agreement, specifically assigning collateral, or placing physical possession of collateral with the Bank or its custodians. The Bank perfects its security interest in all pledged collateral by filing Uniform Commercial Code financing statements or by taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to the Bank by its members, or any affiliates of its members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket pledge agreement, the Bank is granted a security interest in all financial assets of the borrower to fully secure the borrower’s obligation. Other than securities and cash deposits, the Bank does not initially take delivery of collateral from blanket agreement borrowers. In the event of a default or a deterioration in the financial condition of a blanket pledge agreement borrower, the Bank has the ability to require delivery of pledged collateral sufficient to secure the borrower’s obligation. With respect to non-blanket pledge agreement borrowers that are federally insured, the Bank generally requires collateral to be specifically assigned. With respect to non-blanket pledge agreement borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), the Bank generally takes control of collateral through the delivery of cash, securities, or loans to the Bank or its custodians.

Using a risk-based approach and taking into consideration each borrower’s financial strength, the Bank considers the types and level of collateral to be the primary indicator of credit quality on its advances. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank had rights to collateral on a borrower-by-borrower basis with an unpaid principal balance or market value, as applicable, in excess of its outstanding advances. ~~The Bank has never experienced a credit loss~~

At September 30, 2021 and December 31, 2020, none of the Bank’s advances were past due, on ~~its advances.~~non-accrual status, or considered impaired. The Bank considers an advance past due for financial reporting purposes if a default of contractual principal or interest exists for a period of 30 days or more. In addition, there were no troubled debt restructurings (TDRs) related to advances during the nine months ended September 30, 2021 and 2020.

In December 2020, the Bank declared a member bank in default under its contractual terms and demanded all of ~~their~~its outstanding advances to be repaid in full. As of March 31, 2021, ~~the Bank had~~all advances ~~outstanding~~ with ~~a par value of $365 million from~~ this member bank ~~all of which are considered~~were deemed past due ~~by the Bank~~ based on ~~their~~outstanding interest being in default for 30 days or more. In addition, the par value outstanding includes $8 million of advances that have passed their original contractual redemption date as of March 31, 2021. All of these past due advances continue to remain on accrual status and are not considered impaired, as they are well-secured with underlying collateral and in the process of collection. At December 31, 2020, none of the Bank’s advances were past due, on non-accrual status, or considered impaired. In addition, there were no troubled debt restructurings (TDRs) related to advancesHowever, during the ~~three months ended March 31,~~second quarter of 2021, ~~and 2020.~~all outstanding advance balances were repaid in full.

~~Table of Contents~~

~~In light of the above member event, the~~The Bank ~~individually assessed the related advances for expected~~has never experienced a credit losses as of March 31, 2021 and December 31, 2020, and concluded that no allowance for credit losses was necessary due to the advances being well-secured with underlying collateral. Refer to “Note 10 — Commitments and Contingencies” for additional information.

~~All other advances were evaluated~~loss on ~~a collective basis as of March 31, 2021 and December 31, 2020, and based~~its advances. Based upon the Bank’s collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no expected credit losses on ~~those advances.~~its advances as of September 30, 2021 and December 31, 2020.

T a b le of Contents

Note 5 — Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio includes conventional mortgage loans and government-guaranteed or -insured mortgage loans obtained primarily through the Mortgage Partnership Finance (MPF) program (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago). The Bank’s mortgage loan program involves investment by the Bank in single-family mortgage loans held for portfolio that are purchased from participating financial institutions (PFIs). Mortgage loans may also be acquired through participations in pools of eligible mortgage loans purchased from other FHLBanks. The Bank’s PFIs generally originate, service, and credit enhance mortgage loans that are sold to the Bank. PFIs participating in the servicing release program do not service the loans owned by the Bank. The servicing on these loans is sold concurrently by the PFI to a designated mortgage service provider.

The following table presents information on the Bank’s mortgage loans held for portfolio (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Fixed rate, long-term single-family mortgage loans	Fixed rate, long-term single-family mortgage loans	$	6,555	$	6,945	Fixed rate, long-term single-family mortgage loans	$	6,250	$	6,945
Fixed rate, medium-term1 single-family mortgage loans	Fixed rate, medium-term1 single-family mortgage loans	1,242		1,182		Fixed rate, medium-term1 single-family mortgage loans	1,214		1,182
Total unpaid principal balance	Total unpaid principal balance	7,797		8,127		Total unpaid principal balance	7,464		8,127
Premiums	Premiums	102		107		Premiums	97		107
Discounts	Discounts	(3)		(3)		Discounts	(3)		(3)
Basis adjustments from mortgage loan purchase commitments	Basis adjustments from mortgage loan purchase commitments	10		12		Basis adjustments from mortgage loan purchase commitments	9		12
Total mortgage loans held for portfolio2	Total mortgage loans held for portfolio2	7,906		8,243		Total mortgage loans held for portfolio2	7,567		8,243
Allowance for credit losses3		0		(1)
Allowance for credit losses						Allowance for credit losses	(1)		(1)
Total mortgage loans held for portfolio, net	Total mortgage loans held for portfolio, net	$	7,906	$	8,242	Total mortgage loans held for portfolio, net	$	7,566	$	8,242

1 Medium-term is defined as a term of 15 years or less.

2 Excludes accrued interest receivable of ~~$38~~$34 million and $40 million at ~~March 31,~~September 30, 2021 and December 31, 2020.

~~3 The Bank’s allowance for credit losses was less than $1 million at March 31, 2021.~~

The following table presents the Bank’s mortgage loans held for portfolio by collateral or guarantee type (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Conventional mortgage loans	Conventional mortgage loans	$	7,336	$	7,646	Conventional mortgage loans	$	7,034	$	7,646
Government-insured mortgage loans	Government-insured mortgage loans	461		481		Government-insured mortgage loans	430		481
Total unpaid principal balance	Total unpaid principal balance	$	7,797	$	8,127	Total unpaid principal balance	$	7,464	$	8,127

~~Table of Contents~~

PAYMENT STATUS OF MORTGAGE LOANS

Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make ~~timely payments of~~contractual principal and/or interest ~~in accordance with the terms~~payments for a period of ~~the loan.~~30 days or more. Other delinquency statistics include non-accrual loans and loans in process of foreclosure.

T a b le of Contents

The following tables present the payment status for conventional mortgage loans (dollars in millions):


		March 31, 2021							September 30, 2021
		Origination Year							Origination Year
		Prior to 2017		2017 to 2021		Total			Prior to 2017		2017 to 2021		Total
Past due 30 - 59 days	Past due 30 - 59 days	$	26	$	20	$	46	Past due 30 - 59 days	$	16	$	17	$	33
Past due 60 - 89 days	Past due 60 - 89 days	9		7		16		Past due 60 - 89 days	5		3		8
Past due 90 - 179 days	Past due 90 - 179 days	15		11		26		Past due 90 - 179 days	9		3		12
Past due 180 days or more	Past due 180 days or more	30		13		43		Past due 180 days or more	21		7		28
Total past due mortgage loans	Total past due mortgage loans	80		51		131		Total past due mortgage loans	51		30		81
Total current mortgage loans	Total current mortgage loans	2,384		4,921		7,305		Total current mortgage loans	1,977		5,071		7,048
Total amortized cost of mortgage loans1	Total amortized cost of mortgage loans1	$	2,464	$	4,972	$	7,436	Total amortized cost of mortgage loans1	$	2,028	$	5,101	$	7,129


	December 31, 2020
	Origination Year
	Prior to 2016		2016 to 2020		Total
Past due 30 - 59 days	$	19	$	18	$	37
Past due 60 - 89 days	9		9		18
Past due 90 - 179 days	21		21		42
Past due 180 days or more	25		17		42
Total past due mortgage loans	74		65		139
Total current mortgage loans	1,952		5,661		7,613
Total amortized cost of mortgage loans1	$	2,026	$	5,726	$	7,752

1 Amortized cost represents the unpaid principal balance adjusted for unamortized premiums, discounts, price adjustment fees, basis adjustments, and direct write-downs. Amortized cost excludes accrued interest receivable.

Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides temporary relief from the accounting and reporting requirements for TDRs for certain loan modifications related to the coronavirus pandemic (COVID-19). The modifications that would qualify for this relief include any COVID-19 modification involving a conventional mortgage loan, including a forbearance arrangement, an interest rate modification, a repayment plan, or any similar arrangement that defers or delays payment of principal or interest. To be eligible under the CARES Act, the conventional loan ~~must be~~could not have been more than 30 days past due as of December 31, 2019 ~~and~~with the modification ~~must occur~~occurring between March 1, 2020 and the earlier of January 1, 2022, or 60 days following the termination of the national emergency declared by the President of the United States.

In the second quarter of 2020, the Bank elected to apply the TDR relief provided by the CARES Act on its conventional mortgage loan portfolio. As such, all COVID-19 modifications meeting the provisions of the CARES Act ~~will be~~are excluded from TDR classification and accounting. The Bank had $5$13 million and $1 million of these modifications outstanding as of ~~March 31,~~September 30, 2021 and December 31, 2020. COVID-19 modifications that do not meet the provisions of the CARES Act ~~will~~ continue to be assessed for TDR classification.

The Bank’s servicers may grant a forbearance period to borrowers who have requested forbearance based on COVID-19 related difficulties regardless of the status of the loan at the time of the request. The Bank continues to apply its accounting policy for past due loans and charge-offs to loans during the forbearance period. The accrual status for loans under forbearance will be driven by the past due status of the loan as the legal terms of the contractual arrangement have not been modified.

~~Table of Contents~~

The following table presents the unpaid principal balance of conventional mortgage loans in a forbearance plan as a result of COVID-19 (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Past due 30 - 59 days	Past due 30 - 59 days	$	4	$	3	Past due 30 - 59 days	$	1	$	3
Past due 60 - 89 days	Past due 60 - 89 days	5		6		Past due 60 - 89 days	1		6
Past due 90 days or more and in non-accrual status	Past due 90 days or more and in non-accrual status	31		42		Past due 90 days or more and in non-accrual status	13		42

Current mortgage loans	Current mortgage loans	3		2		Current mortgage loans	2		2
Total unpaid principal balance1	Total unpaid principal balance1	$	43	$	53	Total unpaid principal balance1	$	17	$	53

1 These conventional loans in forbearance represent less than one percent of the Bank’s mortgage loans held for portfolio at ~~March 31,~~September 30, 2021 and December 31, 2020.

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The following tables present other delinquency statistics for mortgage loans (dollars in millions):


		March 31, 2021										September 30, 2021
Amortized Cost	Amortized Cost	Conventional			Government-Insured			Total			Amortized Cost	Conventional			Government-Insured			Total
In process of foreclosure1	In process of foreclosure1	$	8		$	1		$	9		In process of foreclosure1	$	6		$	1		$	7
Serious delinquency rate2	Serious delinquency rate2	1		%	3		%	1		%	Serious delinquency rate2	1		%	2		%	1		%
Past due 90 days or more and still accruing interest3	Past due 90 days or more and still accruing interest3	$	0		$	13		$	13		Past due 90 days or more and still accruing interest3	$	—		$	10		$	10
Non-accrual mortgage loans4	Non-accrual mortgage loans4	$	76		$	0		$	76		Non-accrual mortgage loans4	$	90		$	—		$	90


		December 31, 2020										December 31, 2020
Amortized Cost	Amortized Cost	Conventional			Government- Insured			Total			Amortized Cost	Conventional			Government- Insured			Total
In process of foreclosure1	In process of foreclosure1	$	8		$	1		$	9		In process of foreclosure1	$	8		$	1		$	9
Serious delinquency rate2	Serious delinquency rate2	1		%	3		%	1		%	Serious delinquency rate2	1		%	3		%	1		%
Past due 90 days or more and still accruing interest3	Past due 90 days or more and still accruing interest3	$	0		$	13		$	13		Past due 90 days or more and still accruing interest3	$	—		$	13		$	13
Non-accrual mortgage loans4	Non-accrual mortgage loans4	$	93		$	0		$	93		Non-accrual mortgage loans4	$	93		$	—		$	93

1 Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported.

2 Represents mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total mortgage loans.

3 Represents government-insured mortgage loans that are 90 days or more past due.

4 Represents conventional mortgage loans that are 90 days or more past due or ~~TDRs.~~for which the collection of interest or principal is doubtful. At ~~March 31,~~September 30, 2021 and December 31, 2020, none of these conventional mortgage loans on non-accrual status had an associated allowance for expected credit losses.

ALLOWANCE FOR CREDIT LOSSES

The Bank evaluates mortgage loans for credit losses on a quarterly basis.

Conventional Mortgage Loans

Conventional mortgage loans are evaluated collectively when similar risk characteristics ~~exists.~~exist. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. The Bank determines its allowances for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. At both September 30, 2021 and December 31, 2020, the Bank’s allowance for credit losses on conventional mortgage loans was $1 million.

For collectively evaluated loans, the Bank uses a projected cash flow model to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as current and projected property values and interest rates, as well as historical borrower behavior experience. The Bank also incorporates associated credit enhancements when determining its estimate of expected credit losses. The Bank may incorporate a management adjustment in the allowance for credit losses for conventional mortgage loans due to changes in economic and business conditions or other factors that may not be fully captured in its model.

~~Table of Contents~~

For individually evaluated loans, the Bank uses the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The Bank estimates the fair value of this collateral 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 Bank records a direct charge-off of the loan balance if certain triggering criteria are met. Expected recoveries of prior charge-offs are included in the allowance for credit losses.

~~At March 31, 2021, the Bank had an allowance for credit losses~~

T a b le of less than $1 million on its conventional mortgage loans. During the three months ended March 31, 2021, the Bank’s cash flow model for collectively evaluated loans projected a decrease in expected credit losses due primarily to decreased loan delinquencies and an acceleration in forecasted regional home price appreciation. These lower expected credit losses were offset in part by expected recoveries of prior charge-offs on individually evaluated loans, stemming from improved property values. At December 31, 2020, the Bank’s allowance for credit losses on conventional mortgage loans totaled $1 million.Contents

Government-Insured Mortgage Loans

The Bank invests in government-insured fixed rate mortgage loans portfolios that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, the Bank only has credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance.

The Bank has never experienced a credit loss on its government-insured mortgage loans. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank assessed its servicers and determined there was no expectation that a servicer would fail to remit payments due until paid in full. As a result, the Bank did not establish an allowance for credit losses for its government-insured mortgage loans at ~~March 31,~~September 30, 2021 and December 31, 2020. Furthermore, none of these mortgage loans have been placed on non-accrual status because of the U.S. Government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

Note 6 — Derivatives and Hedging Activities

NATURE OF BUSINESS ACTIVITY

The Bank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and its related funding sources. The goal of the Bank’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 Bank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept.

The Bank enters into derivative contracts to manage the interest rate risk exposures inherent in its otherwise unhedged assets and funding positions. Finance Agency regulations and the Bank’s risk management policies establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.

Derivative financial instruments are used by the Bank to achieve its financial and risk management objectives. The Bank reevaluates its hedging strategies periodically and may change the hedging techniques it uses or may adopt new strategies. The most common ways in which the Bank uses derivatives are to:

•reduce the interest rate sensitivity and repricing gaps of assets and liabilities;

•preserve an interest rate spread between the yield of an asset and the cost of the related liability. Without the use of derivatives, this interest rate spread could be reduced or eliminated when a change in the interest rate on the asset does not match a change in the interest rate on the liability;

•mitigate the adverse earnings effects of the shortening or extension of certain assets and liabilities;

•manage embedded options in assets and liabilities; and

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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.

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TYPES OF DERIVATIVES AND HEDGED ITEMS

The Bank may use the following derivative instruments:

•interest rate swaps;

•options;

•swaptions;

•interest rate caps and floors; and

•futures/forwards contracts.

The Bank may have the following types of hedged items:

•investment securities;

•advances;

•mortgage loans;

•consolidated obligations; and

•firm commitments.

For additional information on the Bank’s derivative and hedging accounting policies, see “Note 1 — Summary of Significant Accounting Policies” in the 2020 Form 10-K.

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FINANCIAL STATEMENT EFFECT AND ADDITIONAL FINANCIAL INFORMATION

The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk. The risks of derivatives 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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The following table summarizes the Bank’s 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 (dollars in millions):


		March 31, 2021						December 31, 2020							September 30, 2021						December 31, 2020
		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments (fair value hedges)	Derivatives designated as hedging instruments (fair value hedges)													Derivatives designated as hedging instruments (fair value hedges)
Interest rate swaps	Interest rate swaps	$	33,636	$	103	$	185	$	33,552	$	46	$	262	Interest rate swaps	$	65,127	$	71	$	173	$	33,552	$	46	$	262
Derivatives not designated as hedging instruments (economic hedges)	Derivatives not designated as hedging instruments (economic hedges)													Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	Interest rate swaps	1,759		9		54		1,817		12		73		Interest rate swaps	8,874		8		51		1,817		12		73

Forward settlement agreements (TBAs)	Forward settlement agreements (TBAs)	105		0		0		169		0		1		Forward settlement agreements (TBAs)	179		—		—		169		—		1
Mortgage loan purchase commitments	Mortgage loan purchase commitments	113		0		1		177		1		0		Mortgage loan purchase commitments	189		—		1		177		1		—
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	1,977		9		55		2,163		13		74		Total derivatives not designated as hedging instruments	9,242		8		52		2,163		13		74
Total derivatives before netting and collateral adjustments	Total derivatives before netting and collateral adjustments	$	35,613	112		240		$	35,715	59		336		Total derivatives before netting and collateral adjustments	$	74,369	79		225		$	35,715	59		336
Netting adjustments and cash collateral1	Netting adjustments and cash collateral1			137		(239)				168		(332)		Netting adjustments and cash collateral1			112		(223)				168		(332)

Total derivative assets and derivative liabilities	Total derivative assets and derivative liabilities			$	249	$	1			$	227	$	4	Total derivative assets and derivative liabilities			$	191	$	2			$	227	$	4

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral, including accrued interest, held or placed with the same clearing agent and/or counterparty. At ~~March 31,~~September 30, 2021 and December 31, 2020, cash collateral, including accrued interest, posted by the Bank was ~~$398~~$352 million and $507 million. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank held cash collateral, including accrued interest, from clearing agents or counterparties of ~~$22~~$16 million and $7 million.

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The following tables summarize the income effect from fair value hedging relationships recorded in net interest income as well as total income (expense) by product recorded on the Statements of Income (dollars in millions):


		For the Three Months Ended March 31, 2021							For the Three Months Ended September 30, 2021
		Interest Income (Expense)							Interest Income (Expense)
		Advances		Available-for-Sale Securities		Consolidated Obligation Bonds			Advances		Available-for-Sale Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	Total interest income (expense) recorded on the Statements of Income1	$	131	$	36	$	(126)	Total interest income (expense) recorded on the Statements of Income1	$	107	$	25	$	(108)
Gains (losses) on fair value hedging relationships	Gains (losses) on fair value hedging relationships							Gains (losses) on fair value hedging relationships
Interest rate contracts	Interest rate contracts							Interest rate contracts
Derivatives2	Derivatives2	$	199	$	173	$	(7)	Derivatives2	$	12	$	9	$	1
Hedged items3	Hedged items3	(253)		(203)		43		Hedged items3	(62)		(43)		29
Net gains (losses) on fair value hedging relationships	Net gains (losses) on fair value hedging relationships	$	(54)	$	(30)	$	36	Net gains (losses) on fair value hedging relationships	$	(50)	$	(34)	$	30

For the Three Months Ended March 31, 2020
Interest Income (Expense)
Advances Available-for-Sale Securities Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1
$ 399 $ 75 $ (410)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2
$ (435) $ (316) $ 237
Hedged items3
423 290 (233)
Net gains (losses) on fair value hedging relationships $ (12) $ (26) $ 4


	For the Three Months Ended September 30, 2020
	Interest Income (Expense)
	Advances		Available-for-Sale Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	185	$	33	$	(147)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	15	$	21	$	—
Hedged items3	(82)		(55)		42
Net gains (losses) on fair value hedging relationships	$	(67)	$	(34)	$	42

1 Amounts shown to give context to the disclosure and include total interest income (expense) of the products indicated, including coupon, prepayment fees, amortization, and derivative net interest settlements. Interest income (expense) amounts also include gains and losses on derivatives and hedged items in fair value hedging relationships.

2 Includes changes in fair value and net interest settlements on derivatives.

3 Includes changes in fair value and amortization/accretion of basis adjustments on closed hedge relationships.

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	For the Nine Months Ended September 30, 2021
	Interest Income (Expense)
	Advances		Available-for-Sale Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	359	$	83	$	(351)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	145	$	104	$	(5)
Hedged items3	(306)		(203)		107
Net gains (losses) on fair value hedging relationships	$	(161)	$	(99)	$	102


	For the Nine Months Ended September 30, 2020
	Interest Income (Expense)
	Advances		Available-for-Sale Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	815	$	170	$	(780)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	(486)	$	(329)	$	261
Hedged items3	374		248		(185)
Net gains (losses) on fair value hedging relationships	$	(112)	$	(81)	$	76

2 Includes changes in fair value and net interest settlements on derivatives.

3 Includes changes in fair value and amortization/accretion of basis adjustments on closed hedge relationships.

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The following tables summarize cumulative fair value hedging adjustments and the related amortized cost of the hedged items (dollars in millions):
March 31, 2021
Advances Available-for-Sale Securities Consolidated Obligation Bonds
Amortized cost of hedged asset/liability1
$ 17,421 $ 6,709 $ 11,872
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost $ 146 $ 137 $ 117
Basis adjustments for discontinued hedging relationships included in amortized cost 28 0 (9)
Total amount of fair value hedging adjustments $ 174 $ 137 $ 108


		December 31, 2020						September 30, 2021
		Advances		Available-for-Sale Securities		Consolidated Obligation Bonds				Advances		Available-for-Sale Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/liability1		$	17,875	$	7,137	$	12,163
Amortized cost of hedged asset/ liability1									Amortized cost of hedged asset/ liability1	$	17,409	$	6,493	$	41,593
Fair value hedging adjustments	Fair value hedging adjustments								Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	Changes in fair value for active hedging relationships included in amortized cost	$	406	$	340	$	161		Changes in fair value for active hedging relationships included in amortized cost	$	104	$	137	$	51
Basis adjustments for discontinued hedging relationships included in amortized cost	Basis adjustments for discontinued hedging relationships included in amortized cost	21		0		(10)			Basis adjustments for discontinued hedging relationships included in amortized cost	16		—		(7)
Total amount of fair value hedging adjustments	Total amount of fair value hedging adjustments	$	427	$	340	$	151		Total amount of fair value hedging adjustments	$	120	$	137	$	44


	December 31, 2020
	Advances		Available-for-Sale Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/ liability1	$	17,875	$	7,137	$	12,163
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	406	$	340	$	161
Basis adjustments for discontinued hedging relationships included in amortized cost	21		—		(10)
Total amount of fair value hedging adjustments	$	427	$	340	$	151

1 Represents the portion of amortized cost designated as a hedged item in a fair value hedging relationship.

The following table summarizes the components of “Net gains (losses) on derivatives” as presented on the Statements of Income (dollars in millions):


		For the Three Months Ended			For the Three Months Ended						For the Nine Months Ended
		March 31,			September 30,						September 30,
			2021			2020			2021		2020		2021		2020

Derivatives not designated as hedging instruments (economic hedges)	Derivatives not designated as hedging instruments (economic hedges)							Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	Interest rate swaps		$	21		$	(45)	Interest rate swaps	$	5	$	6	$	23	$	(40)
Forward settlement agreements (TBAs)	Forward settlement agreements (TBAs)		3			(8)		Forward settlement agreements (TBAs)	(1)		(1)		2		(11)
Mortgage loan purchase commitments	Mortgage loan purchase commitments		(3)			7		Mortgage loan purchase commitments	1		1		(2)		9
Net interest settlements	Net interest settlements		(4)			(2)		Net interest settlements	(4)		(5)		(13)		(10)

Net gains (losses) on derivatives	Net gains (losses) on derivatives		$	17		$	(48)	Net gains (losses) on derivatives	$	1	$	1	$	10	$	(52)

MANAGING CREDIT RISK ON DERIVATIVES

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative contracts. The Bank manages credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in the Bank’s policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.

The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly 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 derivative transaction is novated and the executing counterparty is replaced with the Clearinghouse. The Bank is not a derivative dealer and does not trade derivatives for short-term profit.

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For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in the derivative contracts to mitigate the risk. The Bank requires collateral agreements on its uncleared derivatives.

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Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by aan NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions, unless the collateral delivery threshold is set to zero. The Bank had no uncleared derivative instruments with credit-risk related contingent features that were in a net liability position (before cash collateral and related accrued interest) at ~~March 31,~~September 30, 2021. As such, the Bank was not required to post collateral in the normal course of business. If the Bank’s credit rating had been lowered from its current rating to the next lower rating, the Bank would not have been required to deliver additional collateral to its uncleared derivative counterparties at March 31, 2021.

For cleared derivatives, the Clearinghouse is the Bank’s counterparty. The Bank utilizes one Clearinghouse, CME Clearing, for all cleared derivative transactions. CME Clearing notifies the clearing agent of the required initial margin and daily variation margin requirements, and the clearing agent in turn notifies the Bank.

The Clearinghouse determines initial margin requirements which are considered cash collateral. 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. The Bank was not required to post additional initial margin by its clearing agent, based on credit considerations, at ~~March 31,~~September 30, 2021. Variation margin requirements with CME Clearing are based on changes in the fair value of cleared derivatives and are legally characterized as daily settlement payments, rather than cash collateral.

The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional 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 fair value of cleared derivatives is posted daily through a clearing agent.

OFFSETTING OF DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES

The Bank 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. Additional information regarding these agreements is provided in “Note 1 — Summary of Significant Accounting Policies” in the 2020 Form 10-K.

The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and has determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default, including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the clearing agent, or both. Based on this analysis, the Bank 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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The following tables present the fair value of derivative instruments meeting or not meeting the netting requirements and the related collateral received from or pledged to counterparties (dollars in millions):


		March 31, 2021									September 30, 2021
		Derivative Instruments Meeting Netting Requirements									Derivative Instruments Meeting Netting Requirements
		Gross Amount Recognized1		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities			Gross Amount Recognized1		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets	Derivative Assets									Derivative Assets
Uncleared derivatives	Uncleared derivatives	$	105	$	(99)	$	0	$	6	Uncleared derivatives	$	78	$	(77)	$	—	$	1
Cleared derivatives	Cleared derivatives	7		236		0		243		Cleared derivatives	1		189		—		190
Total	Total	$	112	$	137	$	0	$	249	Total	$	79	$	112	$	—	$	191
Derivative Liabilities	Derivative Liabilities									Derivative Liabilities
Uncleared derivatives	Uncleared derivatives	$	237	$	(237)	$	1	$	1	Uncleared derivatives	$	213	$	(212)	$	1	$	2
Cleared derivatives	Cleared derivatives	2		(2)		0		0		Cleared derivatives	11		(11)		—		—
Total	Total	$	239	$	(239)	$	1	$	1	Total	$	224	$	(223)	$	1	$	2

December 31, 2020
Derivative Instruments Meeting Netting Requirements
Gross Amount Recognized1
Gross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements2
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
   Uncleared derivatives $ 58 $ (58) $ 1 $ 1
   Cleared derivatives 0 226 0 226
Total $ 58 $ 168 $ 1 $ 227
Derivative Liabilities
   Uncleared derivatives $ 328 $ (324) $ 0 $ 4
   Cleared derivatives 8 (8) 0 0
Total $ 336 $ (332) $ 0 $ 4


	December 31, 2020
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized1		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives	$	58	$	(58)	$	1	$	1
Cleared derivatives	—		226		—		226
Total	$	58	$	168	$	1	$	227
Derivative Liabilities
Uncleared derivatives	$	328	$	(324)	$	—	$	4
Cleared derivatives	8		(8)		—		—
Total	$	336	$	(332)	$	—	$	4

1 Represents derivative assets and derivative liabilities prior to netting adjustments and cash collateral, including accrued interest.

2 Represents mortgage loan purchase commitments not subject to enforceable master netting requirements.

Note 7 — Consolidated Obligations

Consolidated obligations consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. Bonds are issued primarily to raise ~~short-,~~ intermediate-, and long-term funds for the Bank and are not subject to any statutory or regulatory limits on their maturity. Discount notes are issued primarily to raise short-term funds for the Bank and have original maturities of up to one year. Discount notes ~~generally~~ sell at or below their face amount and are redeemed at par value when they mature.

Although the Bank is primarily liable for the portion of consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all FHLBank System consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority. At ~~March 31,~~September 30, 2021 and December 31, 2020, the total par value of outstanding consolidated obligations of the FHLBanks was ~~$696.4~~$641.4 billion and $746.8 billion.

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DISCOUNT NOTES

The following table summarizes the Bank’s discount notes (dollars in millions):


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate			Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Par value	Par value	$	23,900	0.06	%	$	27,350	0.10	%	Par value	$	10,750	0.04	%	$	27,350	0.10	%
Discounts and concessions1	Discounts and concessions1	(2)				(5)				Discounts and concessions1	(1)				(5)
Total	Total	$	23,898			$	27,345			Total	$	10,749			$	27,345

1 Concessions represent fees paid to dealers in connections with the issuance of certain consolidated obligation discount notes.

BONDS

The following table summarizes the Bank’s bonds outstanding by contractual maturity (dollars in millions):


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
Year of Contractual Maturity	Year of Contractual Maturity	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Year of Contractual Maturity	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Due in one year or less	Due in one year or less	$	32,580	0.78	%	$	29,224	0.88	%	Due in one year or less	$	42,801	0.52	%	$	29,224	0.88	%
Due after one year through two years	Due after one year through two years	9,547		1.02		9,398		1.10		Due after one year through two years	9,164		0.93		9,398		1.10
Due after two years through three years	Due after two years through three years	3,014		2.52		3,296		2.42		Due after two years through three years	3,693		2.97		3,296		2.42
Due after three years through four years	Due after three years through four years	3,404		2.94		3,548		3.00		Due after three years through four years	1,188		2.31		3,548		3.00
Due after four years through five years	Due after four years through five years	872		2.11		1,058		2.19		Due after four years through five years	843		2.24		1,058		2.19
Thereafter	Thereafter	5,381		2.45		5,406		2.50		Thereafter	4,727		2.37		5,406		2.50

Total par value	Total par value	54,798		1.24	%	51,930		1.36	%	Total par value	62,416		0.92	%	51,930		1.36	%
Premiums	Premiums	183				199				Premiums	153				199
Discounts and concessions1	Discounts and concessions1	(23)				(26)				Discounts and concessions1	(18)				(26)
Fair value hedging adjustments	Fair value hedging adjustments	108				151				Fair value hedging adjustments	44				151

Total	Total	$	55,066			$	52,254			Total	$	62,595			$	52,254

1 Concessions represent fees paid to dealers in connections with the issuance of certain consolidated obligation bonds.

The following table summarizes the Bank’s bonds outstanding by call features (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Non-callable or non-putable	Non-callable or non-putable	$	51,412	$	48,610	Non-callable or non-putable	$	59,396	$	48,610
Callable	Callable	3,386		3,320		Callable	3,020		3,320
Total par value	Total par value	$	54,798	$	51,930	Total par value	$	62,416	$	51,930

The following table summarizes the Bank’s bonds outstanding by year of contractual maturity or next call date (dollars in millions):


Year of Contractual Maturity or Next Call Date	Year of Contractual Maturity or Next Call Date	March 31, 2021		December 31, 2020		Year of Contractual Maturity or Next Call Date	September 30, 2021		December 31, 2020
Due in one year or less	Due in one year or less	$	35,284	$	31,749	Due in one year or less	$	45,405	$	31,749
Due after one year through two years	Due after one year through two years	10,054		10,038		Due after one year through two years	9,412		10,038
Due after two years through three years	Due after two years through three years	3,064		3,326		Due after two years through three years	3,811		3,326
Due after three years through four years	Due after three years through four years	3,454		3,648		Due after three years through four years	1,143		3,648
Due after four years through five years	Due after four years through five years	657		805		Due after four years through five years	748		805
Thereafter	Thereafter	2,285		2,364		Thereafter	1,897		2,364
Total par value	Total par value	$	54,798	$	51,930	Total par value	$	62,416	$	51,930

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Note 8 — Capital

CAPITAL STOCK

The Bank’s capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. The Bank issues a single class of capital stock (Class B capital stock) and has 2 subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding on the Bank’s Statements of ~~Condition. In addition, each member is required to purchase~~Condition and ~~hold activity-based stock in an amount equal to~~ 0.10 percent of its standby letters of credit. All capital stock issued is subject to a notice of redemption period of five years.

The capital stock requirements established in the Bank’s Capital Plan are designed so that the Bank can remain adequately capitalized as member activity changes. The Bank’s Board of Directors may make adjustments to the capital stock requirements within ranges established in the Capital Plan.

EXCESS STOCK

Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under its Capital Plan, the Bank, at its discretion and upon 15 ~~days’~~days written notice, may repurchase excess membership capital stock. The Bank, at its discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank’s excess capital stock outstanding was less than $1 million.

MANDATORILY REDEEMABLE CAPITAL STOCK

The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock or MRCS) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Dividends on MRCS are classified as interest expense on the Statements of Income.

~~At March 31, 2021 and December 31, 2020, the Bank’s MRCS totaled $36 million and $52 million. During the three~~ ~~months ended~~ ~~March 31, 2021,~~ ~~interest expense on MRCS was less than $1 million.~~ ~~During the three~~ ~~months ended March 31, 2020, interest expense on MRCS was $3 million.~~

As a result of the final rule on membership issued by the Finance Agency effective February 19, 2016, the eligibility requirements for FHLBank members were changed, rendering captive insurance companies ineligible for FHLBank membership. On the effective date of the final rule, the Bank reclassified the total outstanding capital stock held by all of the captive insurance companies that were Bank members, to MRCS. On February 19, 2021, all remaining captive insurance companies that were admitted as members prior to September 12, 2014 had their membership terminated. The Bank immediately redeemed all membership stock from these captive insurance companies; however, the remaining activity-based stock ~~will become~~is subject to the five year redemption period.

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The following tables summarize changes in MRCS (dollars in millions):


		For the Three Months Ended March 31,					For the Three Months Ended September 30,
		2021		2020			2021		2020
Balance, beginning of period	Balance, beginning of period	$	52	$	206	Balance, beginning of period	$	35	$	81

Capital stock reclassified to (from) MRCS, net	Capital stock reclassified to (from) MRCS, net	0		6		Capital stock reclassified to (from) MRCS, net	1		—
Net payments for repurchases/redemptions of MRCS	Net payments for repurchases/redemptions of MRCS	(16)		(116)		Net payments for repurchases/redemptions of MRCS	(6)		(27)
Balance, end of period	Balance, end of period	$	36	$	96	Balance, end of period	$	30	$	54


	For the Nine Months Ended September 30,
	2021		2020
Balance, beginning of period	$	52	$	206

Capital stock reclassified to (from) MRCS, net	81		6
Net payments for repurchases/redemptions of MRCS	(103)		(158)
Balance, end of period	$	30	$	54

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The following table summarizes the Bank’s MRCS by year of contractual redemption (dollars in millions):


Year of Contractual Redemption1	Year of Contractual Redemption1	March 31, 2021		December 31, 2020		Year of Contractual Redemption1	September 30, 2021		December 31, 2020
Due in one year or less	Due in one year or less	$	10	$	0	Due in one year or less	$	11	$	—
Due after one year through two years	Due after one year through two years	1		11		Due after one year through two years	—		11
Due after two years through three years	Due after two years through three years	3		2		Due after two years through three years	1		2
Due after three years through four years		1		0

Due after four years through five years	Due after four years through five years	10		0		Due after four years through five years	10		—
Thereafter2	Thereafter2	0		27		Thereafter2	—		27
Past contractual redemption date due to outstanding activity with the Bank	Past contractual redemption date due to outstanding activity with the Bank	11		12		Past contractual redemption date due to outstanding activity with the Bank	8		12
Total	Total	$	36	$	52	Total	$	30	$	52

1 At the Bank’s election, ~~the~~ MRCS may be redeemed prior to the expiration of the five year redemption period that commences on the date of the notice of redemption, or in the case of captive insurance company members, on the date of the membership termination.

2 Represents MRCS with certain captive insurance companies whose membership terminated on February 19, 2021. As their five year redemption period did not start until the membership termination date, all associated MRCS was reported in this line item as of December 31, 2020.

RESTRICTED RETAINED EARNINGS

The Bank entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other FHLBanks in 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the Bank over time. Under the JCE Agreement, each FHLBank is required to 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 its average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank’s restricted retained earnings account totaled ~~$589~~$608 million and $576 million.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes changes in accumulated other comprehensive income (loss) (AOCI) (dollars in millions):


		Net unrealized gains (losses) on AFS securities (Note 3)		Pension and postretirement benefits		Total AOCI			Net unrealized gains (losses) on AFS securities (Note 3)		Pension and postretirement benefits		Total AOCI
Balance, December 31, 2019		$	48	$	(4)	$	44
Balance, June 30, 2020								Balance, June 30, 2020	$	(56)	$	(4)	$	(60)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications							Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	Net unrealized gains (losses) on AFS securities	(164)		0		(164)		Net unrealized gains (losses) on AFS securities	64		—		64
Reclassifications from AOCI to net income	Reclassifications from AOCI to net income							Reclassifications from AOCI to net income

Amortization - pension and postretirement	Amortization - pension and postretirement	0		1		1		Amortization - pension and postretirement	—		1		1
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	(164)		1		(163)		Net current period other comprehensive income (loss)	64		1		65
Balance, March 31, 2020		$	(116)	$	(3)	$	(119)
Balance, September 30, 2020								Balance, September 30, 2020	$	8	$	(3)	$	5

Balance, June 30, 2021								Balance, June 30, 2021	$	102	$	(4)	$	98
Other comprehensive income (loss) before reclassifications								Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities								Net unrealized gains (losses) on AFS securities	(16)		—		(16)

Balance, September 30, 2021								Balance, September 30, 2021	$	86	$	(4)	$	82

Balance, December 31, 2019								Balance, December 31, 2019	$	48	$	(4)	$	44
Other comprehensive income (loss) before reclassifications								Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities								Net unrealized gains (losses) on AFS securities	(40)		—		(40)
Reclassifications from AOCI to net income								Reclassifications from AOCI to net income
Amortization - pension and postretirement								Amortization - pension and postretirement	—		1		1
Net current period other comprehensive income (loss)								Net current period other comprehensive income (loss)	(40)		1		(39)
Balance, September 30, 2020								Balance, September 30, 2020	$	8	$	(3)	$	5

Balance, December 31, 2020	Balance, December 31, 2020	$	52	$	(4)	$	48	Balance, December 31, 2020	$	52	$	(4)	$	48
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications							Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	Net unrealized gains (losses) on AFS securities	52		0		52		Net unrealized gains (losses) on AFS securities	34		—		34
Reclassifications from AOCI to net income

Amortization - pension and postretirement		0		0		0
Net current period other comprehensive income (loss)		52		0		52
Balance, March 31, 2021		$	104	$	(4)	$	100

Balance, September 30, 2021								Balance, September 30, 2021	$	86	$	(4)	$	82

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REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to 3 regulatory capital requirements:

•Risk-based capital. The Bank must maintain at all times permanent capital greater than or equal to the sum of its credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock (including MRCS), and retained earnings can satisfy this risk-based capital requirement.

•Regulatory capital. The Bank is required to maintain a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B capital stock (including MRCS) and retained earnings. It does not include AOCI.

•Leverage capital. The Bank is required to maintain a minimum five percent leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. The Bank did not hold any nonpermanent capital at ~~March 31,~~September 30, 2021 and December 31, 2020.

If the Bank’s capital falls below the required levels, the Finance Agency has authority to take actions necessary to return it to levels that it deems to be consistent with safe and sound business operations.

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The following table shows the Bank’s compliance with the Finance Agency’s regulatory capital requirements (dollars in millions):
March 31, 2021 December 31, 2020
Required Actual Required Actual
Regulatory capital requirements
Risk-based capital $ 839 $ 5,948 $ 704 $ 5,744
Regulatory capital $ 3,494 $ 5,948 $ 3,508 $ 5,744
Leverage capital $ 4,368 $ 8,921 $ 4,385 $ 8,616
Capital-to-assets ratio 4.00 % 6.81 % 4.00 % 6.55 %
Capital stock-to-assets ratio 2.00 % 3.89 % 2.00 % 3.78 %
Leverage ratio 5.00 % 10.21 % 5.00 % 9.83 %




	September 30, 2021						December 31, 2020
	Required			Actual			Required			Actual
Regulatory capital requirements
Risk-based capital	$	573		$	5,796		$	704		$	5,744
Regulatory capital	$	3,257		$	5,796		$	3,508		$	5,744
Leverage capital	$	4,071		$	8,695		$	4,385		$	8,616
Capital-to-assets ratio	4.00		%	7.12		%	4.00		%	6.55		%
Capital stock-to-assets ratio	2.00		%	4.06		%	2.00		%	3.78		%
Leverage ratio	5.00		%	10.68		%	5.00		%	9.83		%

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Note 9 — Fair Value

Fair value amounts are determined by the Bank using available market information and reflect the Bank’s best judgment of appropriate valuation methods. 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., exit price). The fair value hierarchy requires an entity to maximize the use of significant observable inputs and minimize the use of significant unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability.

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 Bank can access on the measurement date. An active market for an 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: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) 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 (iv) market-corroborated inputs.

•Level 3 Inputs. Unobservable inputs for the asset or liability.

The Bank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. The Bank had no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020.

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The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments (dollars in millions). The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, financial instruments held under the fair value option, and certain other assets at fair value on a recurring basis, and on occasion certain impaired mortgage loans held for portfolio on a non-recurring basis. The Bank records all other financial assets and liabilities at amortized cost. The fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.


		March 31, 2021													September 30, 2021
				Fair Value													Fair Value
Financial Instruments	Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total		Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets	Assets													Assets
Cash and due from banks	Cash and due from banks	$	255	$	255	$	0	$	0	$	—	$	255	Cash and due from banks	$	50	$	50	$	—	$	—	$	—	$	50
Interest-bearing deposits	Interest-bearing deposits	401		0		401		0		—		401		Interest-bearing deposits	411		—		411		—		—		411
Securities purchased under agreements to resell	Securities purchased under agreements to resell	3,500		0		3,500		0		—		3,500		Securities purchased under agreements to resell	7,450		—		7,450		—		—		7,450
Federal funds sold	Federal funds sold	7,095		0		7,095		0		—		7,095		Federal funds sold	4,885		—		4,885		—		—		4,885
Trading securities	Trading securities	3,348		0		3,348		0		—		3,348		Trading securities	1,191		—		1,191		—		—		1,191
Available-for-sale securities	Available-for-sale securities	15,179		0		15,179		0		—		15,179		Available-for-sale securities	13,849		—		13,849		—		—		13,849
Held-to-maturity securities	Held-to-maturity securities	1,679		0		1,762		5		—		1,767		Held-to-maturity securities	1,425		—		1,504		5		—		1,509
Advances	Advances	47,514		0		48,015		0		—		48,015		Advances	44,076		—		44,492		—		—		44,492
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	7,906		0		8,059		83		—		8,142		Mortgage loans held for portfolio, net	7,566		—		7,713		85		—		7,798
Accrued interest receivable	Accrued interest receivable	104		0		104		0		—		104		Accrued interest receivable	87		—		87		—		—		87
Derivative assets, net	Derivative assets, net	249		0		112		0		137		249		Derivative assets, net	191		—		79		—		112		191
Other assets	Other assets	40		40		0		0		—		40		Other assets	42		42		—		—		—		42
Liabilities	Liabilities													Liabilities
Deposits	Deposits	(1,968)		0		(1,968)		0		—		(1,968)		Deposits	(1,846)		—		(1,846)		—		—		(1,846)
Consolidated obligations	Consolidated obligations													Consolidated obligations
Discount notes	Discount notes	(23,898)		0		(23,899)		0		—		(23,899)		Discount notes	(10,749)		—		(10,749)		—		—		(10,749)
Bonds	Bonds	(55,066)		0		(55,734)		0		—		(55,734)		Bonds	(62,595)		—		(63,166)		—		—		(63,166)
Total consolidated obligations	Total consolidated obligations	(78,964)		0		(79,633)		0		—		(79,633)		Total consolidated obligations	(73,344)		—		(73,915)		—		—		(73,915)
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	(36)		(36)		0		0		—		(36)		Mandatorily redeemable capital stock	(30)		(30)		—		—		—		(30)
Accrued interest payable	Accrued interest payable	(153)		0		(153)		0		—		(153)		Accrued interest payable	(129)		—		(129)		—		—		(129)
Derivative liabilities, net	Derivative liabilities, net	(1)		0		(240)		0		239		(1)		Derivative liabilities, net	(2)		—		(225)		—		223		(2)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

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The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments (dollars in millions):


		December 31, 2020													December 31, 2020
				Fair Value													Fair Value
Financial Instruments	Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total		Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets	Assets													Assets
Cash and due from banks	Cash and due from banks	$	978	$	978	$	0	$	0	$	—	$	978	Cash and due from banks	$	978	$	978	$	—	$	—	$	—	$	978
Interest-bearing deposits	Interest-bearing deposits	401		0		401		0		—		401		Interest-bearing deposits	401		—		401		—		—		401
Securities purchased under agreements to resell	Securities purchased under agreements to resell	4,800		0		4,800		0		—		4,800		Securities purchased under agreements to resell	4,800		—		4,800		—		—		4,800
Federal funds sold	Federal funds sold	3,695		0		3,695		0		—		3,695		Federal funds sold	3,695		—		3,695		—		—		3,695
Trading securities	Trading securities	4,875		0		4,875		0		—		4,875		Trading securities	4,875		—		4,875		—		—		4,875
Available-for-sale securities	Available-for-sale securities	15,910		0		15,910		0		—		15,910		Available-for-sale securities	15,910		—		15,910		—		—		15,910
Held-to-maturity securities	Held-to-maturity securities	1,816		0		1,915		6		—		1,921		Held-to-maturity securities	1,816		—		1,915		6		—		1,921
Advances	Advances	46,530		0		47,146		0		—		47,146		Advances	46,530		—		47,146		—		—		47,146
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	8,242		0		8,443		75		—		8,518		Mortgage loans held for portfolio, net	8,242		—		8,443		75		—		8,518

Accrued interest receivable	Accrued interest receivable	97		0		97		0		—		97		Accrued interest receivable	97		—		97		—		—		97
Derivative assets, net	Derivative assets, net	227		0		59		0		168		227		Derivative assets, net	227		—		59		—		168		227
Other assets	Other assets	39		39		0		0		—		39		Other assets	39		39		—		—		—		39
Liabilities	Liabilities													Liabilities
Deposits	Deposits	(1,908)		0		(1,908)		0		—		(1,908)		Deposits	(1,908)		—		(1,908)		—		—		(1,908)

Consolidated obligations	Consolidated obligations													Consolidated obligations
Discount notes	Discount notes	(27,345)		0		(27,346)		0		—		(27,346)		Discount notes	(27,345)		—		(27,346)		—		—		(27,346)
Bonds	Bonds	(52,254)		0		(53,246)		0		—		(53,246)		Bonds	(52,254)		—		(53,246)		—		—		(53,246)
Total consolidated obligations	Total consolidated obligations	(79,599)		0		(80,592)		0		—		(80,592)		Total consolidated obligations	(79,599)		—		(80,592)		—		—		(80,592)
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	(52)		(52)		0		0		—		(52)		Mandatorily redeemable capital stock	(52)		(52)		—		—		—		(52)
Accrued interest payable	Accrued interest payable	(145)		0		(145)		0		—		(145)		Accrued interest payable	(145)		—		(145)		—		—		(145)
Derivative liabilities, net	Derivative liabilities, net	(4)		0		(336)		0		332		(4)		Derivative liabilities, net	(4)		—		(336)		—		332		(4)

SUMMARY OF VALUATION TECHNIQUES AND PRIMARY INPUTS

The valuation techniques 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 non-recurring basis on the Statements of Condition are outlined below.

Trading and AFS Investment Securities. The Bank’s valuation technique incorporates prices from multiple designated third-party pricing vendors, when available. The pricing vendors generally use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, benchmark securities and yields, reported trades, dealer estimates, issuer spreads, bids, offers, and other market-related data. Since many investment securities 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 securities. Each pricing vendor has an established process in place to challenge investment valuations, which facilitates resolution of questionable prices identified by the Bank. Annually, the Bank conducts reviews of its pricing vendors to confirm and further augment its understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities.

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The Bank’s valuation technique for estimating the fair values of its investment securities first requires the establishment of a median price for each security. All prices that are within a specified tolerance threshold of the median price are included in the cluster of prices that are averaged to compute a default price. 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, and/or non-binding dealer estimates) 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 (or outliers) is (are) 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. In limited instances, when no prices are available from one of the designated pricing services, the Bank obtains prices from dealers.

As of ~~March 31,~~September 30, 2021 and December 31, 2020, multiple prices were received for the majority of the Bank’s trading and AFS investment securities. Based on the Bank’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 Bank believes its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further, that the fair value measurements are classified appropriately in the fair value hierarchy.

Impaired Mortgage Loans Held for Portfolio. The fair value of impaired mortgage loans held for portfolio is estimated by obtaining property values from an external pricing vendor. This vendor utilizes multiple pricing models that generally factor in market observable inputs, including actual sales transactions and home price indices. The Bank applies an adjustment to these values to capture certain limitations in the estimation process and takes into consideration estimated selling costs and expected primary mortgage insurance proceeds. In limited instances, the Bank may estimate the fair value of an impaired mortgage loan by calculating the present value of expected future cash flows discounted at the loan’s effective interest rate.

Derivative Assets and Liabilities and the Related Hedged Items. The fair value of derivatives is generally estimated using standard valuation techniques such as discounted cash flow analyses and comparisons to similar instruments, and includes variation margin payments for daily settled contracts. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data. The Bank is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. To mitigate credit risk on uncleared derivatives, the Bank enters into master netting agreements with its counterparties as well as collateral agreements that have collateral delivery thresholds. The Bank has evaluated the potential for the fair value of its derivatives to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.

The fair values of the Bank’s derivative assets and derivative liabilities 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. The fair values of derivatives are netted by clearing agent and/or counterparty if the netting requirements are met. If these netted amounts result in a receivable to the Bank, they are classified as an asset and, if classified as a payable to the clearing agent or counterparty, they are classified as a liability.

The Bank’s discounted cash flow model utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). The Bank uses the following inputs for measuring the fair value of interest-related derivatives:

•Discount rate assumption. The Bank utilizes the federal funds overnight index swap (OIS) or SOFR OIS curve depending on the terms of the derivative agreement.

•Forward interest rate assumption. The Bank utilizes the swap curve of the instrument’s index rate.

•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

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For forward settlement agreements (TBAs), the Bank utilizes TBA securities prices that are determined by coupon class and expected term until settlement. For mortgage loan purchase commitments, the Bank utilizes TBA securities prices adjusted for factors such as credit risk and servicing spreads.

For the related hedged items, the fair value is estimated using a discounted cash flow ~~analyses~~analysis which typically considers the following inputs:

•Discount rate assumption. The Bank utilizes the designated benchmark interest rate curve.

•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

Other Assets. These represent grantor trust assets, which are carried at estimated fair value based on quoted market prices as of the last business day of the reporting period.

Consolidated Obligation Discount Notes Recorded under the Fair Value Option. The fair value of consolidated obligation discount notes recorded under the fair value option is determined by calculating the present value of the expected future cash flows. The discount rates used in the present value calculations are for consolidated obligations with similar terms. The Bank uses the consolidated obligation curve for measuring the fair value of these consolidated obligations, which is a market-observable curve constructed by the Office of Finance. This curve is constructed using the U.S. Treasury curve as a base curve which is then adjusted by adding indicative spreads obtained largely from market-observable sources.

Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods previously described are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.

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FAIR VALUE ON A RECURRING BASIS

The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition (dollars in millions):


		March 31, 2021											September 30, 2021
Recurring Fair Value Measurements	Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total		Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets	Assets											Assets
Trading securities	Trading securities											Trading securities
U.S. Treasury obligations	U.S. Treasury obligations	$	0	$	2,565	$	0	$	—	$	2,565	U.S. Treasury obligations	$	—	$	499	$	—	$	—	$	499
Other U.S. obligations	Other U.S. obligations	0		106		0		—		106		Other U.S. obligations	—		102		—		—		102
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	0		61		0		—		61		GSE and Tennessee Valley Authority obligations	—		60		—		—		60
Other non-MBS	Other non-MBS	0		238		0		—		238		Other non-MBS	—		215		—		—		215
GSE multifamily MBS	GSE multifamily MBS	0		378		0		—		378		GSE multifamily MBS	—		315		—		—		315
Total trading securities	Total trading securities	0		3,348		0		—		3,348		Total trading securities	—		1,191		—		—		1,191
Available-for-sale securities	Available-for-sale securities											Available-for-sale securities
Other U.S. obligations	Other U.S. obligations	0		1,564		0		—		1,564		Other U.S. obligations	—		1,315		—		—		1,315
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	0		980		0		—		980		GSE and Tennessee Valley Authority obligations	—		986		—		—		986
State or local housing agency obligations	State or local housing agency obligations	0		694		0		—		694		State or local housing agency obligations	—		565		—		—		565
Other non-MBS	Other non-MBS	0		294		0		—		294		Other non-MBS	—		292		—		—		292
U.S. obligations single-family MBS	U.S. obligations single-family MBS	0		3,418		0		—		3,418		U.S. obligations single-family MBS	—		3,083		—		—		3,083
GSE single-family MBS	GSE single-family MBS	0		391		0		—		391		GSE single-family MBS	—		309		—		—		309
GSE multifamily MBS	GSE multifamily MBS	0		7,838		0		—		7,838		GSE multifamily MBS	—		7,299		—		—		7,299
Total available-for-sale securities	Total available-for-sale securities	0		15,179		0		—		15,179		Total available-for-sale securities	—		13,849		—		—		13,849
Derivative assets, net	Derivative assets, net											Derivative assets, net
Interest-rate related	Interest-rate related	0		112		0		137		249		Interest-rate related	—		79		—		112		191

Other assets	Other assets	40		0		0		—		40		Other assets	42		—		—		—		42
Total recurring assets at fair value	Total recurring assets at fair value	$	40	$	18,639	$	0	$	137	$	18,816	Total recurring assets at fair value	$	42	$	15,119	$	—	$	112	$	15,273
Liabilities	Liabilities											Liabilities

Discount notes2												Discount notes2	$	—	$	(5,149)	$	—	$	—	$	(5,149)
Derivative liabilities, net	Derivative liabilities, net											Derivative liabilities, net
Interest-rate related	Interest-rate related	$	0	$	(239)	$	0	$	239	$	0	Interest-rate related	—		(224)		—		223		(1)
Mortgage loan purchase commitments	Mortgage loan purchase commitments	0		(1)		0		0		(1)		Mortgage loan purchase commitments	—		(1)		—		—		(1)

Total derivative liabilities, net	Total derivative liabilities, net	0		(240)		0		239		(1)		Total derivative liabilities, net	—		(225)		—		223		(2)
Total recurring liabilities at fair value	Total recurring liabilities at fair value	$	0	$	(240)	$	0	$	239	$	(1)	Total recurring liabilities at fair value	$	—	$	(5,374)	$	—	$	223	$	(5,151)

2 Represents financial instruments recorded under the fair value option.

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The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition (dollars in millions):


		December 31, 2020											December 31, 2020
Recurring Fair Value Measurements	Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total		Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets	Assets											Assets
Trading securities	Trading securities											Trading securities
U.S. Treasury obligations	U.S. Treasury obligations	$	0	$	4,069	$	0	$	—	$	4,069	U.S. Treasury obligations	$	—	$	4,069	$	—	$	—	$	4,069
Other U.S. obligations	Other U.S. obligations	0		114		0		—		114		Other U.S. obligations	—		114		—		—		114
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	0		64		0		—		64		GSE and Tennessee Valley Authority obligations	—		64		—		—		64
Other non-MBS	Other non-MBS	0		246		0		—		246		Other non-MBS	—		246		—		—		246
GSE multifamily MBS	GSE multifamily MBS	0		382		0		—		382		GSE multifamily MBS	—		382		—		—		382
Total trading securities	Total trading securities	0		4,875		0		—		4,875		Total trading securities	—		4,875		—		—		4,875
Available-for-sale securities	Available-for-sale securities											Available-for-sale securities
Other U.S. obligations	Other U.S. obligations	0		1,672		0		—		1,672		Other U.S. obligations	—		1,672		—		—		1,672
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	0		1,022		0		—		1,022		GSE and Tennessee Valley Authority obligations	—		1,022		—		—		1,022
State or local housing agency obligations	State or local housing agency obligations	0		693		0		—		693		State or local housing agency obligations	—		693		—		—		693
Other non-MBS	Other non-MBS	0		302		0		—		302		Other non-MBS	—		302		—		—		302
U.S. obligations single-family MBS	U.S. obligations single-family MBS	0		3,544		0		—		3,544		U.S. obligations single-family MBS	—		3,544		—		—		3,544
GSE single-family MBS	GSE single-family MBS	0		446		0		—		446		GSE single-family MBS	—		446		—		—		446
GSE multifamily MBS	GSE multifamily MBS	0		8,231		0		—		8,231		GSE multifamily MBS	—		8,231		—		—		8,231
Total available-for-sale securities	Total available-for-sale securities	0		15,910		0		—		15,910		Total available-for-sale securities	—		15,910		—		—		15,910
Derivative assets, net	Derivative assets, net											Derivative assets, net
Interest-rate related	Interest-rate related	0		58		0		168		226		Interest-rate related	—		58		—		168		226

Mortgage loan purchase commitments	Mortgage loan purchase commitments	0		1		0		—		1		Mortgage loan purchase commitments	—		1		—		—		1
Total derivative assets, net	Total derivative assets, net	0		59		0		168		227		Total derivative assets, net	—		59		—		168		227
Other assets	Other assets	39		0		0		—		39		Other assets	39		—		—		—		39
Total recurring assets at fair value	Total recurring assets at fair value	$	39	$	20,844	$	0	$	168	$	21,051	Total recurring assets at fair value	$	39	$	20,844	$	—	$	168	$	21,051
Liabilities	Liabilities											Liabilities
Derivative liabilities, net	Derivative liabilities, net											Derivative liabilities, net
Interest-rate related	Interest-rate related	$	0	$	(335)	$	0	$	332	$	(3)	Interest-rate related	$	—	$	(335)	$	—	$	332	$	(3)
Forward settlement agreements (TBAs)	Forward settlement agreements (TBAs)	0		(1)		0		—		(1)		Forward settlement agreements (TBAs)	—		(1)		—		—		(1)

Total derivative liabilities, net	Total derivative liabilities, net	0		(336)		0		332		(4)		Total derivative liabilities, net	—		(336)		—		332		(4)
Total recurring liabilities at fair value	Total recurring liabilities at fair value	$	0	$	(336)	$	0	$	332	$	(4)	Total recurring liabilities at fair value	$	—	$	(336)	$	—	$	332	$	(4)

FAIR VALUE ON A NON-RECURRING BASIS

The Bank measures certain impaired mortgage loans held for portfolio at Level 3 fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances. At ~~March 31,~~September 30, 2021 and December 31, 2020, impaired mortgage loans held for portfolio recorded at fair value as a result of a non-recurring change in fair value were $2$3 million and $7 million. These fair values were as of the date the fair value adjustment was recorded during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and year ended December 31, 2020.

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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 entities 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.

The Bank elects the fair value option for certain financial instruments when a hedge relationship does not qualify for hedge accounting. These fair value elections are made primarily in an effort to mitigate the potential income statement volatility that can arise when an economic derivative is adjusted for changes in fair value but the related hedged item is not.

For financial instruments recorded under the fair value option, the related contractual interest income, interest expense, and the discount amortization on fair value option discount notes are recorded as part of net interest income on the Statements of Income. The remaining changes are recorded as “Net gains (losses) on financial instruments held at fair value” on the Statements of Income.

For the three and nine months ended September 30, 2021, net losses on financial instruments held at fair value (i.e., discount notes) were less than $1 million. At September 30, 2021, the Bank determined no credit risk adjustments for nonperformance were necessary to the instruments recorded under the fair value option. The Bank did not have any fair value option financial instruments outstanding during the three and nine months ended September 30, 2020.

The following table summarizes the difference between the unpaid principal balance and fair value of outstanding instruments for which the fair value option has been elected as of September 30, 2021 (dollars in millions):


	September 30, 2021
	Unpaid Principal Balance		Fair Value		Fair Value Over (Under) Unpaid Principal
Discount Notes	$	5,150	$	5,149	$	(1)

The Bank did not have any fair value option financial instruments outstanding as of December 31, 2020.

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Note 10 — Commitments and Contingencies

Joint and Several Liability. The FHLBanks have joint and several liability for all consolidated obligations issued. Accordingly, if an FHLBank were unable to repay any consolidated obligation for which it is the primary obligor, each of the other FHLBanks could be called upon by the Finance Agency to repay all or part of such obligations. No FHLBank has ever been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank. At ~~March 31,~~September 30, 2021 and December 31, 2020,, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which the Bank is jointly and severally liable was ~~approximately $617.7~~$568.3 billion and $667.5 billion.

The following table summarizes additional off-balance sheet commitments for the Bank (dollars in millions):


		March 31, 2021						December 31, 2020			September 30, 2021						December 31, 2020
		Expire within one year		Expire after one year		Total		Total			Expire within one year		Expire after one year		Total		Total
Standby letters of credit1,2	Standby letters of credit1,2	$	8,220	$	50	$	8,270	$	9,361	Standby letters of credit1,2	$	7,366	$	61	$	7,427	$	9,361
Standby bond purchase agreements2	Standby bond purchase agreements2	385		403		788		797		Standby bond purchase agreements2	191		358		549		797
Commitments to purchase mortgage loans	Commitments to purchase mortgage loans	113		0		113		177		Commitments to purchase mortgage loans	189		—		189		177
Commitments to issue bonds	Commitments to issue bonds	36		0		36		0		Commitments to issue bonds	200		—		200		—

Commitments to issue discount notes										Commitments to issue discount notes	2,400		—		2,400		—
Commitments to fund advances2	Commitments to fund advances2	898		0		898		252		Commitments to fund advances2	2,624		2		2,626		252

1 Excludes commitments to issue standby letters of credit, ~~of $858 million at March 31, 2021.~~when applicable. At both September 30, 2021 and December 31, 2020, the Bank had 0no commitments to issue standby letters of ~~credit outstanding.~~credit.

2 The Bank has deemed it unnecessary to record any liability for credit losses on these agreements at ~~March 31,~~September 30, 2021 and December 31, 2020.

Standby Letters of Credit. The Bank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. Standby letters of credit may be offered to assist members 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 with members for a fee. If the Bank is required to make payment for a beneficiary’s draw, the member either reimburses the Bank for the amount drawn or, subject to the Bank’s discretion, the amount drawn may be converted into a collateralized advance to the member. The original terms of standby letters of credit outstanding at ~~March 31,~~September 30, 2021 range from less than one month to 10seven years, currently no later than ~~2025.~~2028. The carrying value of guarantees related to standby letters of credit are recorded in “Other liabilities” on the Statements of Condition and amounted to $2 million at both ~~March 31,~~September 30, 2021 and December 31, ~~2020~~.2020.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of its borrowers. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit. All standby letters of credit, similar to advances, are fully collateralized at the time of issuance and subject to member borrowing limits as established by the Bank.

Standby Bond Purchase Agreements. The Bank has entered into standby bond purchase agreements with state housing associates within its district whereby, for a fee, it agrees to serve as a standby liquidity provider if required, to purchase and hold the housing associate’s bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which the Bank would be required to purchase the bonds and typically allows the Bank to terminate the agreement upon the occurrence of a default event of the issuer. At ~~March 31,~~September 30, 2021, the Bank had standby bond purchase agreements with 7 housing associates. The standby bond purchase commitments entered into by the Bank have original expiration periods of up to seven years, currently no later than 2026. During both the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, the Bank was not required to purchase any bonds under these agreements.

Commitments to Purchase Mortgage Loans. The Bank enters into commitments that unconditionally obligate it to purchase mortgage loans from its members. These commitments are considered derivatives and their estimated fair value at ~~March 31,~~September 30, 2021 and December 31, 2020 is reported in “Note 6 — Derivatives and Hedging Activities” as mortgage loan purchase commitments.

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Commitments to Issue ~~Bonds.~~Consolidated Obligations. The Bank enters into commitments to issue consolidated ~~obligation bonds~~obligations in the normal course of its ~~business.~~ business, generally that settle within 30 calendar days. At ~~March 31,~~September 30, 2021, the Bank had commitments to issue ~~$36~~$200 million and $2.4 billion of consolidated obligation ~~bonds.~~bonds and discount notes. At December 31, 2020, the Bank had no commitments to issue consolidated obligation ~~bonds.~~bonds and discount notes.

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Commitments to Fund Advances. The Bank enters into commitments to fund additional advances up to 24 months in the future. At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank had commitments to fund advances of ~~$898 million~~$2.6 billion and $252 million.

Other Commitments. For each MPF master commitment, the Bank’s potential loss exposure prior to the PFI’s credit enhancement obligation is estimated and tracked in a memorandum account called the first loss account (FLA). For absorbing certain losses in excess of the FLA, PFIs are paid a credit enhancement fee, a portion of which may be performance-based. To the extent the Bank experiences losses under the FLA, it may be able to recapture performance-based credit enhancement fees paid to the PFI to offset these losses. The FLA balance for all MPF master commitments with a PFI credit enhancement obligation was ~~$157~~$161 million and $154 million at ~~March 31,~~September 30, 2021 and December 31, 2020.

Legal Proceedings. The Bank is subject to various pending legal proceedings arising in the normal course of business. ~~Certain~~As previously noted in the Bank’s 2020 Form 10-K, certain of these legal proceedings ~~involve~~involved pending litigation with a current member of the Bank stemming from alleged breaches by the member under the Bank’s MPF program and the member’s failure to repay its outstanding advances owed to the Bank. ~~See “Note 4 — Advances” for additional information.~~During the second quarter of 2021, all litigation related to this member’s failure to repay its outstanding advances was resolved. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of ~~these matters~~the remaining MPF litigation with this member bank will have a material adverse effect on the Bank’s financial condition or results of operations.

The Bank records legal expenses related to litigation settlements as incurred in other ~~expense~~expenses on the Statements of Income with the exception of certain legal expenses related to litigation settlement awards that are ~~contingent based~~contingent-based fees for the attorneys representing the Bank. The Bank incurs and recognizes these ~~contingent based~~contingent-based legal fees only when litigation settlement awards are realized, at which time these fees are netted against the gains recognized on the litigation settlement. During the three and nine months ended ~~March 31,~~September 30, 2021, the Bank did not ~~recognize~~have any ~~gains on~~ litigation settlements. During the three and nine months ended ~~March 31,~~September 30, 2020, the Bank recognized ~~$56~~$64 million and $120 million in net gains on litigation settlements through other income (loss), due to the settlement of ~~one of the Bank’s~~certain private-label MBS claims, as previously discussed in the Bank’s 2020 Form 10-K.

The Bank is not currently aware of any pending or threatened legal proceedings to which it is a party that it believes could have a material impact on its financial condition, results of operations, or cash flows.

Note 11 — Activities with Stockholders

The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank. All transactions with stockholders are entered into in the ordinary course of business.

TRANSACTIONS WITH DIRECTORS’ FINANCIAL INSTITUTIONS

In the normal course of business, the Bank extends credit to its members whose directors and officers serve as Bank directors (Directors’ Financial Institutions). Finance Agency regulations require that transactions with Directors’ Financial Institutions be made on the same terms and conditions as those with any other member.

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The following table summarizes the Bank’s outstanding transactions with Directors’ Financial Institutions (dollars in millions):


		March 31, 2021			December 31, 2020				September 30, 2021			December 31, 2020
		Amount		% of Total	Amount		% of Total		Amount		% of Total	Amount		% of Total

Advances	Advances	$	42	0	$	1,526	3	Advances	$	35	—	$	1,526	3
Mortgage loans	Mortgage loans	136		2	154		2	Mortgage loans	122		2	154		2
Deposits	Deposits	15		1	17		1	Deposits	29		2	17		1
Capital stock	Capital stock	45		1	110		3	Capital stock	44		1	110		3

BUSINESS CONCENTRATIONS

The Bank considers itself to have business concentrations with stockholders owning 10 percent or more of its total capital stock outstanding (including MRCS). At ~~March 31,~~September 30, 2021 and December 31, 2020, the Bank did not have any stockholders owning 10 percent or more of its total capital stock outstanding.

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Note 12 — Activities with Other FHLBanks

Overnight Funds. The Bank may lend or borrow unsecured overnight funds to or from other FHLBanks. All such transactions are at current market rates. The following table summarizes loan activity to other FHLBanks during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 (dollars in millions):


Other FHLBank	Other FHLBank	Beginning Balance		Loans		Principal Repayment		Ending Balance		Other FHLBank	Beginning Balance		Loans		Principal Repayment		Ending Balance
2021	2021									2021

Chicago	Chicago	$	0	$	301	$	(301)	$	0	Chicago	$	—	$	301	$	(301)	$	—

2020	2020									2020
Boston	Boston	$	0	$	250	$	(250)	$	0	Boston	$	—	$	250	$	(250)	$	—

The following table summarizes borrowing activity from other FHLBanks during the nine months ended September 30, 2021 (dollars in millions):


Other FHLBank	Beginning Balance		Borrowing		Principal Payment		Ending Balance
2021



Chicago	$	—	$	5	$	(5)	$	—

During the ~~three~~nine months ended ~~March 31, 2021 and~~September 30, 2020, the Bank did not borrow funds from other FHLBanks.

Note 13 — Subsequent Events

Subsequent events have been evaluated from ~~April~~October 1, 2021, through the time of the Form 10-Q filing with the SEC. No material subsequent events requiring disclosure were identified.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations should be read in conjunction with our financial statements and condensed notes at the beginning of this Form 10-Q and in conjunction with our MD&A and Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (SEC) on March 10, 2021 (2020 Form 10-K). Our MD&A is designed to provide information that will help the reader develop a better understanding of our financial statements, key financial statement changes from quarter to quarter, and the primary factors driving those changes. Our MD&A is organized as follows:

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FORWARD-LOOKING INFORMATION

Statements contained in this report, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should, may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements. These risks and uncertainties include, but are not limited to, the following:

•political or economic events, including legislative, regulatory, monetary, judicial, or other developments that affect us, our members, our counterparties, and/or our investors in the consolidated obligations of the 11 Federal Home Loan Banks (FHLBanks);

•the ability to meet capital and other regulatory requirements;

•competitive forces, including without limitation, other sources of funding available to our borrowers that could impact the demand for our advances, other entities purchasing mortgage loans in the secondary mortgage market, and other entities borrowing funds in the capital markets;

•reliance on a relatively small number of member institutions for a large portion of our advance business;

•replacement of the London Interbank Offered Rate (LIBOR) benchmark interest rate and transition to the Secured Overnight Financing Rate (SOFR) or an alternative benchmark;

•member consolidations and failures;

•disruptions in the credit and debt markets and the effect on future funding costs, sources, and availability;

•general economic and market conditions that could impact the business we do with our members, including, but not limited to, the timing and volatility of market activity, negative interest rates, the continued impact of the coronavirus pandemic (COVID-19), inflation/deflation, employment rates, housing ~~prices, the condition of the mortgage~~market activity and housing ~~markets on our mortgage-related assets,~~prices, including the effect of mortgage forbearance, the level of mortgage prepayments, the valuation of pledged collateral, and the condition of the capital markets on our consolidated obligations;

•ineffective use of hedging strategies or the availability of derivative instruments in the types and quantities needed for risk management purposes from acceptable counterparties;

•the volatility of reported results due to changes in the fair value of certain assets, liabilities, and derivative instruments;

•risks related to the other FHLBanks that could trigger our joint and several liability for debt issued by the other FHLBanks;

•changes in the relative attractiveness of consolidated obligations due to actual or perceived changes in the FHLBanks’ credit ratings as well as the U.S. Government’s long-term credit rating;

•increases in delinquency or loss estimates on mortgage loans;

•the ability to develop and support internal controls, business processes, information systems, and other operating technologies that effectively manage the risks we face, including but not limited to, cyber-attacks, widespread health emergencies such as COVID-19, and other business interruptions;

•significant business interruptions resulting from third party failures;

•the volatility of credit quality, market prices, interest rates, and other indices that could affect the value of collateral held by us as security for borrower and counterparty obligations; and

•the ability to attract and retain key personnel.

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For additional information regarding these and other risks and uncertainties that could cause our actual results to differ materially from the expectations reflected in our forward-looking statements, see “Item 1A. Risk Factors” in this quarterly report and in our 2020 Form 10-K. Forward-looking statements apply only as of the date they are made, and we undertake no obligation to update or revise any forward-looking statement.

EXECUTIVE OVERVIEW

Our Bank is a member-owned cooperative serving shareholder members in our district. Our mission is to be a reliable provider of funding, liquidity, and services for our members so that they can meet the housing, business, and economic development needs of the communities they serve. Our operating model balances the trade-off between attractively priced products, reasonable returns on capital stock, maintaining an adequate level of capital to meet regulatory capital requirements, and maintaining adequate retained earnings to preserve the par value of member-owned capital stock. Our members include commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs).

Financial Results

For the three and nine months ended ~~March 31,~~September 30, 2021, we reported net income of ~~$66~~$47 million and $160 million compared to ~~$92~~$151 million and $328 million for the same ~~period~~periods in 2020. Our change in net income was primarily driven by net gains on litigation settlements of ~~$56~~$64 million and $120 million recorded during the three and nine months ended ~~March 31,~~September 30, 2020, and a decline in net interest income, as discussed further below. Our net income is calculated in accordance with accounting principles generally accepted in the United States of America (GAAP).

Net interest income ~~totaled $110~~declined $52 million ~~for~~and $79 million during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to ~~$109 million for~~ the same ~~period~~periods last ~~year. Net interest income was impacted by an increase in net gains on fair value hedge relationships of $23 million and an increase in advance prepayment fee income of $14 million, offset by~~year due primarily to lower average advance balances ~~and~~coupled with the lower interest rate ~~environment. Our net interest margin increased to 0.51 percent~~environment and reduced advance prepayment activity. Advance prepayment fee income declined $41 million and $24 million during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to ~~0.35 percent for~~ the same ~~period in 2020 due to these factors.~~periods last year.

~~During~~Other income declined $65 million and $115 million during the three and nine months ended ~~March 31,~~September 30, 2021 ~~we recorded other income (loss) of $2 million~~when compared to ~~$36 million in~~ the same ~~period~~periods last ~~year. During the three months ended March 31, 2020, other income (loss) was~~year due primarily ~~impacted by~~to net gains on litigation settlements of ~~$56~~$64 million and $120 million recorded in 2020 as a result of ~~a settlement~~settlements with ~~a defendant~~defendants in our private-label ~~mortgage-backed securities (MBS)~~MBS litigation. During 2020, all of our remaining private-label MBS litigation cases initially filed were settled. ~~As such, we did not record any litigation settlements during the three months ended March 31, 2021.~~ Other factors impacting other income (loss) included net gains (losses) on trading securities and net gains (losses) on derivatives not qualifying for hedge accounting treatment (economic derivatives), as described below.

During the three and nine months ended ~~March 31,~~September 30, 2021, we recorded net combined losses of $5 million and $20 million on our trading securities and ~~associated~~ economic derivatives compared to net ~~combined~~ losses of ~~$22~~$9 million and $26 million for the same ~~period~~periods in 2020. These changes in fair value were primarily driven by market volatility ~~caused in part by COVID-19~~ and the impact it had on interest rates, as well as credit spreads on our fixed rate trading securities.

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for additional discussion on our results of operations.

Our total assets ~~were $87.4~~decreased to $81.4 billion at ~~March 31,~~September 30, 2021, compared to $87.7 billion at December 31, ~~2020.~~2020, driven by a decrease in advances and investments. Advances ~~at March 31, 2021 increased by $1.0~~decreased $2.5 billion ~~from December 31, 2020~~ due primarily to ~~an increase in borrowings by insurance company members. This increase was partially offset by decreased~~lower demand for advances ~~across other institution types,~~by depository members resulting mainly ~~due to~~from increased liquidity in the financial markets and higher member deposit levels. This decrease was partially offset by an increase in borrowings by insurance company members. Investments declined $2.3 billion due primarily to paydowns and/or maturities of U.S. Treasury obligations and MBS. The decline was offset in part by an increase in money market investments, which are primarily held for liquidity purposes.

Total capital increased to ~~$6.0~~$5.8 billion at ~~March 31,~~September 30, 2021 from $5.7 billion at December 31, 2020. Our regulatory capital ratio increased to ~~6.81~~7.12 percent at ~~March 31,~~September 30, 2021, from 6.55 percent at December 31, 2020, and was above the required regulatory limit at each period end. Regulatory capital includes all capital stock, mandatorily redeemable capital stock, and retained earnings.

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition” for additional discussion on our financial condition.

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Adjusted Earnings

As part of evaluating our financial performance, we adjust GAAP net interest income and GAAP net income before assessments for the impact of (i) market adjustments relating to derivative and hedging activities and instruments held at fair value, (ii) realized gains (losses) on investment securities, and (iii) other non-routine and unpredictable items, including, but not limited to, net asset prepayment fee income, mandatorily redeemable capital stock interest expense, discretionary pension contributions, and net gains on litigation settlements, if applicable. The resulting non-GAAP measure, referred to as our adjusted earnings, reflects both adjusted net interest income and adjusted net income.

Because our business model is primarily one of holding assets and liabilities to maturity, management believes that the adjusted earnings measure is helpful in understanding our operating results and provides a meaningful period-to-period comparison of our economic performance in contrast to GAAP results, which can be impacted by fair value changes driven by market volatility on financial instruments recorded at fair value or transactions that are considered to be unpredictable or not routine. As a result, management uses the adjusted earnings measure to assess performance under our incentive compensation plans. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. While these non-GAAP measures can be used to assist in understanding the components of our earnings, they should not be considered a substitute for results reported under GAAP.

The adjusted net income methodology is calculated on a ~~post Affordable~~post-Affordable Housing Program (AHP) assessment basis. Management believes AHP assessments are a fundamental component of our business and believes this assessment should be included in our adjusted net income calculation. In addition, this treatment aligns the adjusted net income results to our strategic business plan which is calculated on a ~~post AHP~~post-AHP assessment basis.

As indicated in the tables that follow, our adjusted net interest income and adjusted net income decreased during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to the same ~~period~~periods in 2020. The ~~decline was~~declines were driven ~~by lower adjusted net interest income due~~ primarily toby lower average advance balances and the lower interest rate environment.

The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):


		For the Three Months Ended							For the Three Months Ended					For the Nine Months Ended
		March 31,							September 30,					September 30,
			2021			2020					2021			2020			2021			2020
GAAP net interest income	GAAP net interest income		$	110		$	109			GAAP net interest income	$	89		$	141		$	290		$	369
Exclude:	Exclude:									Exclude:
Prepayment fees on advances, net1	Prepayment fees on advances, net1		17			4				Prepayment fees on advances, net1	5			45			35			59

Prepayment fees on investments, net2	Prepayment fees on investments, net2		—			1				Prepayment fees on investments, net2	1			(4)			2			(2)
Mandatorily redeemable capital stock interest expense	Mandatorily redeemable capital stock interest expense		—			(3)				Mandatorily redeemable capital stock interest expense	—			(1)			(1)			(5)

Market value adjustments on fair value hedges3	Market value adjustments on fair value hedges3		12			(12)				Market value adjustments on fair value hedges3	1			5			8			3
Total adjustments	Total adjustments		29			(10)				Total adjustments	7			45			44			55
Include items reclassified from other income (loss):	Include items reclassified from other income (loss):									Include items reclassified from other income (loss):
Net interest expense on economic hedges	Net interest expense on economic hedges		(4)			(1)				Net interest expense on economic hedges	(4)			(5)			(13)			(10)
Adjusted net interest income	Adjusted net interest income		$	77		$	118			Adjusted net interest income	$	78		$	91		$	233		$	304
Adjusted net interest margin	Adjusted net interest margin		0.36		%	0.37		%		Adjusted net interest margin	0.36		%	0.37		%	0.35		%	0.36		%

1 Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.

2 Prepayment fees on investments, net includes basis adjustment amortization and premium and/or discount amortization.

3 Represents market value gains (losses) on derivatives and hedged items in qualifying hedging relationships.

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The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income (dollars in millions):


		For the Three Months Ended					For the Three Months Ended				For the Nine Months Ended
		March 31,					September 30,				September 30,
			2021		2020				2021		2020		2021		2020
GAAP net income before assessments	GAAP net income before assessments		$	73	$	102		GAAP net income before assessments	$	52	$	167	$	178	$	364
Exclude:	Exclude:							Exclude:
Prepayment fees on advances, net1	Prepayment fees on advances, net1		17		4			Prepayment fees on advances, net1	5		45		35		59

Prepayment fees on investments, net2	Prepayment fees on investments, net2		—		1			Prepayment fees on investments, net2	1		(4)		2		(2)
Mandatorily redeemable capital stock interest expense	Mandatorily redeemable capital stock interest expense		—		(3)			Mandatorily redeemable capital stock interest expense	—		(1)		(1)		(5)
Market value adjustments on fair value hedges3	Market value adjustments on fair value hedges3		12		(12)			Market value adjustments on fair value hedges3	1		5		8		3
Net gains (losses) on trading securities	Net gains (losses) on trading securities		(22)		26			Net gains (losses) on trading securities	(6)		(10)		(30)		26

Net gains (losses) on derivatives	Net gains (losses) on derivatives		17		(48)			Net gains (losses) on derivatives	1		1		10		(52)

Gains on litigation settlements, net	Gains on litigation settlements, net		—		56			Gains on litigation settlements, net	—		64		—		120

Include:	Include:							Include:
Net interest expense on economic hedges	Net interest expense on economic hedges		(4)		(1)			Net interest expense on economic hedges	(4)		(5)		(13)		(10)
Adjusted net income before assessments	Adjusted net income before assessments		45		77			Adjusted net income before assessments	46		62		141		205
Adjusted AHP assessments4	Adjusted AHP assessments4		4		8			Adjusted AHP assessments4	4		7		14		21
Adjusted net income	Adjusted net income		$	41	$	69		Adjusted net income	$	42	$	55	$	127	$	184

1 Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.

2 Prepayment fees on investments, net includes basis adjustment amortization and premium and/or discount amortization.

3 Represents market value gains (losses) on derivatives and hedged items in qualifying hedging relationships.

4 Adjusted AHP assessments for this non-GAAP measure are calculated as 10 percent of adjusted net income before assessments. For additional discussion on AHP assessments, refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Affordable Housing Program” in our 2020 Form 10-K.

For additional discussion on items impacting our GAAP earnings, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

Replacement of the LIBOR Benchmark Interest Rate

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it will no longer compel banks to submit rates for the calculation of LIBOR. In response, the Alternative Reference Rates Committee proposed SOFR as its recommended alternative to U.S. dollar LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in the second quarter of 2018.

In March 2021, the Financial Conduct Authority further announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 (or, in the case of some more frequently used LIBOR settings, immediately after June 30, 2023). Although the Financial Conduct Authority does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date. The Financial Conduct Authority’s announcement constitutes an index cessation event under the 2006 International Swaps and Derivatives Association, Inc. (ISDA) Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol), which we adhered to in October 2020. As a result, the fallback spread adjustment for each tenor is fixed as of the date of the announcement.

As ~~previously~~ discussed in our 2020 Form 10-K, many of our advances, investments, consolidated obligation bonds, derivatives, and related collateral are indexed to LIBOR. We are preparing for a transition away from LIBOR as a benchmark interest rate and plan to utilize SOFR as the dominant replacement rate on an ongoing basis. We ceased purchasing investments that reference LIBOR in 2018. In addition, we ceased execution of new LIBOR indexed transactions with maturities beyond December 31, 2021 as of June 30, 2020. We continue to monitor fallback language on our products and are in the process of ensuring we are operationally ready for these fallback activities, including updating our processes and information technology systems to support the transition from LIBOR to an alternative reference rate.

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Market activity in SOFR-indexed financial instruments continues to increase and we continue to offer SOFR-indexed advances and issue SOFR-indexed debt. We are also utilizing interest rate swaps based on the federal funds or SOFR overnight index swap (OIS) rates as an alternative to using LIBOR when entering into new derivative transactions.

~~Table of Contents~~

The following tables summarize our variable rate advances, investments, consolidated obligation bonds, and derivatives by interest-rate index ~~at March 31, 2021 and December 31, 2020~~ (in millions):


		March 31, 2021											September 30, 2021
		LIBOR		SOFR OIS		Federal Funds OIS		Other		Total			LIBOR		SOFR OIS		Federal Funds OIS		Other1		Total
Advances, principal amount	Advances, principal amount	$	1,106	$	175	$	—	$	12,603	$	13,884	Advances, principal amount	$	946	$	175	$	—	$	12,844	$	13,965
Investment securities	Investment securities											Investment securities
Non-mortgage-backed securities, principal amount	Non-mortgage-backed securities, principal amount	1,754		—		—		—		1,754		Non-mortgage-backed securities, principal amount	1,449		—		—		—		1,449
Mortgage-backed securities, principal amount	Mortgage-backed securities, principal amount	7,379		—		—		—		7,379		Mortgage-backed securities, principal amount	6,466		—		—		—		6,466
Total investment securities	Total investment securities	9,133		—		—		—		9,133		Total investment securities	7,915		—		—		—		7,915
Consolidated obligation bonds, principal amount	Consolidated obligation bonds, principal amount	1,450		5,963		—		—		7,413		Consolidated obligation bonds, principal amount	—		7,796		—		—		7,796
Total variable rate financial instruments amount	Total variable rate financial instruments amount	$	11,689	$	6,138	$	—	$	12,603	$	30,430	Total variable rate financial instruments amount	$	8,861	$	7,971	$	—	$	12,844	$	29,676

Derivatives	Derivatives											Derivatives
Pay leg, notional amount	Pay leg, notional amount	$	10,197	$	—	$	192	$	—	$	10,389	Pay leg, notional amount	$	6,924	$	40,477	$	432	$	—	$	47,833
Receive leg, notional amount	Receive leg, notional amount	14,731		5		10,270		—		25,006		Receive leg, notional amount	13,300		5		12,863		—		26,168


	December 31, 2020
	LIBOR		SOFR OIS		Federal Funds OIS		Other1		Total
Advances, principal amount	$	1,157	$	175	$	—	$	11,267	$	12,599
Investment securities
Non-mortgage-backed securities, principal amount	1,819		—		—		—		1,819
Mortgage-backed securities, principal amount	7,726		—		—		—		7,726
Total investment securities	9,545		—		—		—		9,545
Consolidated obligation bonds, principal amount	4,940		7,983		—		—		12,923
Total variable rate financial instruments amount	$	15,642	$	8,158	$	—	$	11,267	$	35,067

Derivatives
Pay leg, notional amount	$	10,412	$	—	$	76	$	—	$	10,488
Receive leg, notional amount	15,761		5		9,115		—		24,881

December 31, 2020
LIBOR SOFR OIS Federal Funds OIS Other Total
Advances, principal amount $ 1,157 $ 175 $ — $ 11,267 $ 12,599
Investment securities
Non-mortgage-backed securities, principal amount 1,819 — — — 1,819
Mortgage-backed securities, principal amount 7,726 — — — 7,726
Total investment securities 9,545 — — — 9,545
Consolidated obligation bonds, principal amount 4,940 7,983 — — 12,923
Total variable rate financial instruments amount $ 15,642 $ 8,158 $ — $ 11,267 $ 35,067
Derivatives
Pay leg, notional amount $ 10,412 $ — $ 76 $ — $ 10,488
Receive leg, notional amount 15,761 5 9,115 — 24,881
1 Consists primarily of advances indexed to consolidated obligation yields.

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The following tables present our exposure to LIBOR-indexed advances, investments, consolidated obligation bonds, and derivatives ~~at March 31, 2021 and December 31, 2020~~ (in millions):
March 31, 2021
LIBOR Tenors That Cease or Will no Longer be Representative Immediately After June 30, 2023
Due/Terminates in 2021 Due/Terminates in 2022 Due/Terminates through June 30, 2023 Due/Terminates Thereafter Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term $ 243 $ 221 $ 50 $ 592 $ 1,106
Investment securities, by contractual maturity1
Non-mortgage-backed securities, principal amount — — 133 1,621 1,754
Mortgage-backed securities, principal amount 12 70 205 7,092 7,379
Derivatives, receive leg
Cleared, notional amount 1,735 1,891 1,896 4,420 9,942
Uncleared, notional amount 482 1,054 946 2,307 4,789
Total Principal/Notional Amount $ 2,472 $ 3,236 $ 3,230 $ 16,032 $ 24,970
Liabilities Indexed to LIBOR
Consolidated obligation bonds, principal amount by contractual maturity $ 1,450 $ — $ — $ — $ 1,450
Derivatives, pay leg
Cleared, notional amount 8,637 80 265 660 9,642
Uncleared, notional amount 152 103 50 250 555
Total Principal/Notional Amount $ 10,239 $ 183 $ 315 $ 910 $ 11,647


	September 30, 2021
	LIBOR Tenors That Cease or Will no Longer be Representative Immediately After June 30, 2023
	Due/Terminates in 2021		Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates Thereafter		Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term	$	98	$	206	$	50	$	592	$	946
Investment securities, by contractual maturity1
Non-mortgage-backed securities, principal amount	—		—		105		1,344		1,449
Mortgage-backed securities, principal amount	3		69		91		6,303		6,466
Derivatives, receive leg
Cleared, notional amount	1,162		1,850		1,864		4,196		9,072
Uncleared, notional amount	67		996		938		2,227		4,228
Total Principal/Notional Amount	$	1,330	$	3,121	$	3,048	$	14,662	$	22,161

Liabilities Indexed to LIBOR

Derivatives, pay leg
Cleared, notional amount	$	5,462	$	80	$	264	$	660	$	6,466
Uncleared, notional amount	55		103		50		250		458
Total Principal/Notional Amount	$	5,517	$	183	$	314	$	910	$	6,924


	December 31, 2020
	LIBOR Tenors That Cease or Will no Longer be Representative Immediately After June 30, 2023
	Due/Terminates in 2021		Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates Thereafter		Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term	$	293	$	221	$	50	$	593	$	1,157
Investment securities, by contractual maturity1
Non-mortgage-backed securities, principal amount	—		—		141		1,678		1,819
Mortgage-backed securities, principal amount	12		70		214		7,430		7,726
Derivatives, receive leg
Cleared, notional amount	2,304		1,895		1,928		4,755		10,882
Uncleared, notional amount	482		1,056		1,001		2,340		4,879
Total Principal/Notional Amount	$	3,091	$	3,242	$	3,334	$	16,796	$	26,463

Liabilities Indexed to LIBOR
Consolidated obligation bonds, principal amount by contractual maturity	$	4,940	$	—	$	—	$	—	$	4,940
Derivatives, pay leg
Cleared, notional amount	8,837		80		264		660		9,841
Uncleared, notional amount	168		103		50		250		571
Total Principal/Notional Amount	$	13,945	$	183	$	314	$	910	$	15,352

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.

~~Table of Contents~~

For a summary of our risks on the replacement of the LIBOR benchmark interest rate, refer to “Item 1A. Risk Factors” in our 2020 Form 10-K.

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CONDITIONS IN THE FINANCIAL MARKETS

Economy and Financial Markets

~~The COVID-19 outbreak continues to cause human~~With progress on vaccinations and ~~economic hardship across the U.S. Following a moderation in the pace of the recovery toward the end of 2020,~~strong policy support, indicators of economic activity and employment have ~~turned up recently, although~~continued to strengthen. Throughout 2021, gross domestic product increased due primarily to increases in personal consumption expenditures, nonresidential fixed investment, exports, and state and local government spending. Additionally, the national unemployment rate continued to decline throughout 2021; however, it continues to remain higher than pre-pandemic levels. The sectors most adversely affected by the pandemic ~~remain weak.~~have improved in recent months, but the rise in COVID-19 cases has slowed their recovery. Inflation ~~continues to run below two percent.~~is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy ~~will~~continues to depend ~~significantly~~ on the course of the virus, including ~~progress~~the emergence of additional virus variants. Progress on ~~vaccinations. The~~vaccinations will likely continue to reduce the effects of the ongoing public health crisis ~~continues to weigh~~ on ~~economic activity, employment, and inflation, and poses considerable~~the economy, but risks to the economic ~~outlook.~~outlook remain. In its ~~March 17,~~September 22, 2021 statement, the Federal Open Market Committee (FOMC or Committee) stated that it decided to keep the target range for the federal funds rate at zero to 0.25 percent. The Committee stated that it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to two percent and is on track to moderately exceed two percent for some time. The Committee also stated that ~~the~~its assessment will take into account a wide range of information, including readings on public health, labor market conditions, indicators of inflation pressures, inflation expectations, and financial and international developments.

In response to COVID-19, the Federal Reserve and Congress implemented a multitude of programs to help stabilize market conditions. The Federal Reserve previously indicated that it will continue to increase its holdings of U.S. Treasuries and agency MBS until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee stated that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster ~~smooth market functioning and~~ accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

Mortgage Markets

The impact of COVID-19 significantly affected the U.S. housing markets and resulted in declines in interest rates ~~home inventory~~ and home ~~sales. In the first quarter of~~inventory. Throughout 2021, the housing market ~~began~~continued to show signs of ~~recovery and home~~recovery. Existing housing inventory remains low, while new housing inventory has increased. Home sales ~~increased to~~decreased from levels ~~above~~experienced in the ~~first~~third quarter of 2020, ~~while housing inventory remained low, resulting in higher~~but remain strong and home ~~prices.~~prices remain high. During the ~~first~~third quarter of 2021, mortgage rates increased slightly from the prior year end, however, they remained lower, on average, compared to the same ~~period~~periods last year. Refinancing activity remained the primary driver of mortgage activity.

The federal government programs to assist homeowners affected by the pandemic, including temporary mortgage payment forbearance and a temporary moratorium on foreclosures and evictions, ~~remained~~expired in ~~place during~~ the ~~first~~third quarter of 2021. Forbearances and delinquencies of mortgage loans continued to trend down in the ~~first~~third quarter of 2021, consistent with a decline in the rate of unemployment. The expiration of the federal government programs ~~are set to expire on June 30, 2021, which~~ could result in an increase in delinquencies and foreclosures in ~~2021~~2022 and beyond.

T a b le of Contents

Interest Rates

The following table shows information on key market interest rates1:


		First Quarter 2021 3-Month Average		First Quarter 2020 3-Month Average		March 31, 2021 Ending Rate		December 31, 2020 Ending Rate			Third Quarter 2021 3-Month Average		Third Quarter 2020 3-Month Average		Third Quarter 2021 9-Month Average		Third Quarter 2020 9-Month Average		September 30, 2021 Ending Rate		December 31, 2020 Ending Rate
Federal funds	Federal funds	0.08	%	1.23	%	0.06	%	0.09	%	Federal funds	0.09	%	0.09	%	0.08	%	0.45	%	0.06	%	0.09	%
Three-month LIBOR	Three-month LIBOR	0.20		1.52		0.19		0.24		Three-month LIBOR	0.13		0.25		0.16		0.79		0.13		0.24
SOFR	SOFR	0.04		1.23		0.01		0.07		SOFR	0.05		0.09		0.04		0.45		0.05		0.07
2-year U.S. Treasury	2-year U.S. Treasury	0.13		1.09		0.16		0.12		2-year U.S. Treasury	0.22		0.14		0.18		0.47		0.28		0.12
10-year U.S. Treasury	10-year U.S. Treasury	1.33		1.37		1.74		0.92		10-year U.S. Treasury	1.32		0.65		1.41		0.89		1.49		0.92
30-year residential mortgage note	30-year residential mortgage note	2.87		3.52		3.17		2.67		30-year residential mortgage note	2.86		2.96		2.91		3.24		3.01		2.67

1 Source: Bloomberg.

~~Table of Contents~~

In March 2020, the FOMC lowered the Federal Reserve’s key target interest rate, the federal funds rate, to a range of zero to 0.25 percent and maintained that range throughout 2020 and the first quarter of 2021.

The global concerns related to COVID-19 and the resulting impact on economic activity led to lower short-term interest rates, on average, in the ~~first quarter of~~three and nine months ended September 30, 2021 when compared to the same ~~period~~periods last year. However, as vaccination efforts continue to progress, economic activity has turned up and longer-term U.S. Treasury interest rates increased during the ~~first quarter of~~three and nine months ended September 30, 2021 when compared to the prior year end.

Funding Spreads

The following table reflects our funding spreads to SOFR (basis points)1:


		First Quarter 2021 3-Month Average	First Quarter 2020 3-Month Average	March 31, 2021 Ending Spread	December 31, 2020 Ending Spread		Third Quarter 2021 3-Month Average	Third Quarter 2020 3-Month Average	Third Quarter 2021 9-Month Average	Third Quarter 2020 9-Month Average	September 30, 2021 Ending Spread	December 31, 2020 Ending Spread
3-month	3-month	2.1	5.1	1.2	3.8	3-month	0.7	4.7	1.1	6.5	0.0	3.8
2-year	2-year	6.4	27.3	5.9	6.6	2-year	5.3	17.5	6.0	23.0	5.2	6.6
5-year	5-year	13.4	38.7	14.2	16.6	5-year	15.0	34.6	14.6	39.1	14.8	16.6
10-year	10-year	30.4	70.3	29.6	38.2	10-year	37.2	63.0	34.0	72.5	37.1	38.2

1 Source: The Office of Finance.

The following table reflects our funding spreads to U.S. Treasuries (basis points)1:


		First Quarter 2021 3-Month Average	First Quarter 2020 3-Month Average	March 31, 2021 Ending Spread	December 31, 2020 Ending Spread		Third Quarter 2021 3-Month Average	Third Quarter 2020 3-Month Average	Third Quarter 2021 9-Month Average	Third Quarter 2020 9-Month Average	September 30, 2021 Ending Spread	December 31, 2020 Ending Spread
3-month	3-month	1.8	8.4	0.7	2.3	3-month	1.1	1.7	1.5	4.3	1.7	2.3
2-year	2-year	1.4	12.4	1.2	1.0	2-year	1.2	5.9	1.4	9.4	0.0	1.0
5-year	5-year	3.3	20.4	2.0	5.3	5-year	2.5	17.5	2.7	21.0	1.5	5.3
10-year	10-year	11.8	44.4	9.0	18.5	10-year	14.6	39.5	11.9	48.0	15.5	18.5

1 Source: The Office of Finance.

As a result of our credit quality and government-sponsored enterprise (GSE) status, we generally have ready access to funding at relatively competitive interest rates. During ~~the first quarter of~~ 2021, our funding spreads to SOFR and U.S. Treasuries ~~generally~~ improved when compared to the prior year end and the same ~~period~~periods last year. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, we utilized discount notes and short-term ~~floating rate~~ consolidated obligation bonds in an effort to capture attractive funding, match the repricing structures on assets, and/or meet our liquidity requirements.

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SELECTED FINANCIAL DATA

The following tables present selected financial data for the periods indicated (dollars in millions):


Statements of Condition	Statements of Condition	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020		Statements of Condition	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Cash and due from banks	Cash and due from banks	$	255	$	978	$	788	$	483	$	611	Cash and due from banks	$	50	$	52	$	255	$	978	$	788
Investments1	Investments1	31,202		31,497		32,705		34,315		35,634		Investments1	29,211		29,712		31,202		31,497		32,705
Advances	Advances	47,514		46,530		48,462		57,942		79,757		Advances	44,076		45,560		47,514		46,530		48,462
Mortgage loans held for portfolio, net2	Mortgage loans held for portfolio, net2	7,906		8,242		8,733		9,246		9,546		Mortgage loans held for portfolio, net2	7,566		7,545		7,906		8,242		8,733

Total assets	Total assets	87,353		87,691		91,154		102,485		126,068		Total assets	81,418		83,285		87,353		87,691		91,154
Consolidated obligations	Consolidated obligations											Consolidated obligations
Discount notes	Discount notes	23,898		27,345		30,928		21,364		33,071		Discount notes	10,749		23,098		23,898		27,345		30,928
Bonds	Bonds	55,066		52,254		52,343		72,748		84,266		Bonds	62,595		52,081		55,066		52,254		52,343
Total consolidated obligations3	Total consolidated obligations3	78,964		79,599		83,271		94,112		117,337		Total consolidated obligations3	73,344		75,179		78,964		79,599		83,271
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	36		52		54		81		96		Mandatorily redeemable capital stock	30		35		36		52		54
Total liabilities	Total liabilities	81,341		81,951		85,358		96,486		119,335		Total liabilities	75,570		77,375		81,341		81,951		85,358
Capital stock — Class B putable	Capital stock — Class B putable	3,535		3,341		3,432		3,802		4,653		Capital stock — Class B putable	3,379		3,429		3,535		3,341		3,432
Retained earnings	Retained earnings	2,377		2,351		2,359		2,257		2,199		Retained earnings	2,387		2,383		2,377		2,351		2,359
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	100		48		5		(60)		(119)		Accumulated other comprehensive income (loss)	82		98		100		48		5
Total capital	Total capital	6,012		5,740		5,796		5,999		6,733		Total capital	5,848		5,910		6,012		5,740		5,796
Regulatory capital ratio4	Regulatory capital ratio4	6.81		6.55		6.41		5.99		5.51		Regulatory capital ratio4	7.12		7.02		6.81		6.55		6.41


		For the Three Months Ended																For the Three Months Ended
Statements of Income	Statements of Income	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020			Statements of Income	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Net interest income	Net interest income	$	110		$	103		$	141		$	119		$	109		Net interest income	$	89		$	91		$	110		$	103		$	141
Provision (reversal) for credit losses on mortgage loans	Provision (reversal) for credit losses on mortgage loans	(1)			(1)			2			—			—			Provision (reversal) for credit losses on mortgage loans	—			1			(1)			(1)			2
Other income (loss)5	Other income (loss)5	2			5			65			15			36			Other income (loss)5	—			(1)			2			5			65
Other expense6	Other expense6	40			70			37			39			43			Other expense6	37			36			40			70			37
AHP assessments	AHP assessments	7			5			16			10			10			AHP assessments	5			6			7			5			16

Net income	Net income	66			34			151			85			92			Net income	47			47			66			34			151
Selected Financial Ratios7	Selected Financial Ratios7																Selected Financial Ratios7
Net interest spread8	Net interest spread8	0.46		%	0.40		%	0.53		%	0.37		%	0.25		%	Net interest spread8	0.37		%	0.36		%	0.46		%	0.40		%	0.53		%
Net interest margin9	Net interest margin9	0.51			0.46			0.57			0.43			0.35			Net interest margin9	0.41			0.41			0.51			0.46			0.57
Return on average equity (annualized)	Return on average equity (annualized)	4.60			2.37			9.94			5.58			5.51			Return on average equity (annualized)	3.13			3.14			4.60			2.37			9.94
Return on average capital stock (annualized)	Return on average capital stock (annualized)	7.88			4.02			16.43			8.53			8.26			Return on average capital stock (annualized)	5.34			5.32			7.88			4.02			16.43
Return on average assets (annualized)	Return on average assets (annualized)	0.30			0.15			0.60			0.31			0.29			Return on average assets (annualized)	0.22			0.21			0.30			0.15			0.60
Average equity to average assets	Average equity to average assets	6.48			6.34			6.05			5.48			5.27			Average equity to average assets	6.87			6.73			6.48			6.34			6.05
Dividend payout ratio10	Dividend payout ratio10	59.69			125.75			31.82			63.14			63.50			Dividend payout ratio10	92.45			86.32			59.69			125.75			31.82

1 Investments include interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, trading securities, available-for-sale (AFS) securities, and held-to-maturity (HTM) securities.

2 Includes an allowance for credit losses of $1 million at both September 30, 2021 and June 30, 2021, less than $1 million at March 31, 2021, $1 million at December 31, 2020, and $3 million at September 30, ~~2020, and $1 million at both June 30, 2020 and March 31,~~ 2020.

3 The total par value of outstanding consolidated obligations of the 11 FHLBanks was $641.4 billion, $666.7 billion, $696.4 billion, $746.8 billion, and $819.9 billion ~~$915.8 billion, and $1,174.7 billion~~ at September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, and September 30, ~~2020, June 30, 2020, and March 31,~~ 2020.

4 Represents period-end regulatory capital expressed as a percentage of period-end total assets. Regulatory capital includes Class B capital stock (including mandatorily redeemable capital stock) and retained earnings.

5 Other income (loss) includes, among other things, net gains (losses) on investment securities and net gains (losses) on derivatives. During the three months ended September 30, 2020, ~~and March 31, 2020,~~ other income (loss) was also impacted by net gains on litigation settlements. The Bank did not record any litigation settlements during the three months ended September 30, 2021, June 30, 2021, March 31, 2021, and December 31, ~~2020, and June 30,~~ 2020.

6 Other expense includes, among other things, compensation and benefits, professional fees, and contractual services.

7 Amounts used to calculate selected financial ratios are based on numbers in actuals. Accordingly, recalculations using numbers in millions may not produce the same results.

8 Represents annualized yield on total interest-earning assets minus annualized cost of total interest-bearing liabilities.

9 Represents net interest income expressed as a percentage of average interest-earning assets.

10 Represents dividends declared and paid in the stated period expressed as a percentage of net income in the stated period. Amount excludes cash dividends paid on mandatorily redeemable capital stock. For financial reporting purposes, these dividends were recorded as interest expense on our Statements of Income.

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RESULTS OF OPERATIONS

Net Income

The following table presents comparative highlights of our net income for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (dollars in millions). See further discussion of these items in the sections that follow.


		For the Three Months Ended									For the Three Months Ended				For the Nine Months Ended
		March 31,									September 30,				September 30
			2021		2020		$ Change		% Change				2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Net interest income	Net interest income		$	110	$	109	$	1	1	%		Net interest income	$	89	$	141	$	(52)	(37)	%	$	290	$	369	$	(79)	(21)	%
Provision (reversal) for credit losses on mortgage loans	Provision (reversal) for credit losses on mortgage loans		(1)		—		(1)		(100)			Provision (reversal) for credit losses on mortgage loans	—		2		(2)		(100)		—		2		(2)		(100)
Other income (loss)	Other income (loss)		2		36		(34)		(94)			Other income (loss)	—		65		(65)		(100)		1		116		(115)		(99)
Other expense	Other expense		40		43		(3)		(7)			Other expense	37		37		—		—		113		119		(6)		(5)
AHP assessments	AHP assessments		7		10		(3)		(30)			AHP assessments	5		16		(11)		(69)		18		36		(18)		(50)
Net income	Net income		$	66	$	92	$	(26)	(28)	%		Net income	$	47	$	151	$	(104)	(69)	%	$	160	$	328	$	(168)	(51)	%

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Net Interest Income

Our net interest income is impacted by changes in average interest-earning asset and interest-bearing liability balances, and the related yields and costs. The following table presents average balances and annualized yields/costs of major asset and liability categories (dollars in millions):


		For the Three Months Ended March 31,												For the Three Months Ended September 30,
		2021						2020							2021				2020
		Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2					Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2
Interest-earning assets	Interest-earning assets															Interest-earning assets
Interest-bearing deposits	Interest-bearing deposits	$	863	0.10	%	$	—	$	384	0.84	%	$	1			Interest-bearing deposits	$	814	0.12	%	$	—	$	1,038	0.11	%	$	—
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2,880		0.06		1		8,709		1.41		30				Securities purchased under agreements to resell	3,521		0.08		1		3,091		0.10		1
Federal funds sold	Federal funds sold	7,634		0.08		1		8,718		1.25		27				Federal funds sold	9,604		0.08		2		7,312		0.09		2
Mortgage-backed securities3,4	Mortgage-backed securities3,4	13,373		0.89		29		14,396		2.00		72				Mortgage-backed securities3,4	12,248		0.74		23		14,597		0.74		27
Other investments3,4,5	Other investments3,4,5	8,022		1.30		26		5,447		1.92		26				Other investments3,4,5	4,839		1.22		15		9,083		1.12		26
Advances4	Advances4	47,287		1.13		131		78,875		2.04		399				Advances4	47,330		0.90		107		53,821		1.37		185
Mortgage loans6	Mortgage loans6	8,069		2.65		53		9,403		3.33		78				Mortgage loans6	7,526		2.68		51		8,979		2.60		58
Loans to other FHLBanks		3		0.12		—		8		1.61		—

Total interest-earning assets	Total interest-earning assets	88,131		1.11		241		125,940		2.02		633				Total interest-earning assets	85,882		0.92		199		97,921		1.22		299
Non-interest-earning assets	Non-interest-earning assets	1,003		—		—		1,053		—		—				Non-interest-earning assets	916		—		—		1,622		—		—
Total assets	Total assets	$	89,134	1.10	%	$	241	$	126,993	2.01	%	$	633			Total assets	$	86,798	0.91	%	$	199	$	99,543	1.20	%	$	299
Interest-bearing liabilities	Interest-bearing liabilities															Interest-bearing liabilities
Deposits	Deposits	$	1,870	0.01	%	$	—	$	969	0.44	%	$	1			Deposits	$	1,995	0.01	%	$	—	$	1,419	0.01	%	$	—
Consolidated obligations	Consolidated obligations															Consolidated obligations
Discount notes		23,620		0.09		5		28,695		1.54		110
Discount notes4																Discount notes4	20,513		0.04		2		26,850		0.15		10
Bonds4	Bonds4	56,300		0.90		126		89,139		1.85		410				Bonds4	57,134		0.75		108		63,121		0.93		147
Other interest-bearing liabilities7	Other interest-bearing liabilities7	45		4.46		—		200		5.54		3				Other interest-bearing liabilities7	31		4.98		—		64		4.51		1
Total interest-bearing liabilities	Total interest-bearing liabilities	81,835		0.65		131		119,003		1.77		524				Total interest-bearing liabilities	79,673		0.55		110		91,454		0.69		158
Non-interest-bearing liabilities	Non-interest-bearing liabilities	1,527		—		—		1,304		—		—				Non-interest-bearing liabilities	1,166		—		—		2,069		—		—
Total liabilities	Total liabilities	83,362		0.64		131		120,307		1.75		524				Total liabilities	80,839		0.54		110		93,523		0.67		158
Capital	Capital	5,772		—		—		6,686		—		—				Capital	5,959		—		—		6,020		—		—
Total liabilities and capital	Total liabilities and capital	$	89,134	0.60	%	$	131	$	126,993	1.66	%	$	524			Total liabilities and capital	$	86,798	0.50	%	$	110	$	99,543	0.63	%	$	158
Net interest income and spread8	Net interest income and spread8			0.46	%	$	110			0.25	%	$	109			Net interest income and spread8			0.37	%	$	89			0.53	%	$	141
Net interest margin9	Net interest margin9			0.51	%					0.35	%					Net interest margin9			0.41	%					0.57	%
Average interest-earning assets to interest-bearing liabilities	Average interest-earning assets to interest-bearing liabilities			107.69	%					105.83	%					Average interest-earning assets to interest-bearing liabilities			107.79	%					107.07	%

1 Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.

2 Interest income and expense amounts reported for advances, MBS, other investments, and consolidated obligation bonds include gains (losses) on hedged items and derivatives in qualifying hedge relationships.

3 The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.

4 Average balances reflect the impact of fair value hedging adjustments and/or fair value option adjustments.

5 Other investments primarily include U.S. Treasury obligations, other U.S. obligations, GSE obligations and Tennessee Valley Authority obligations, state or local housing agency obligations, taxable municipal bonds, and Private Export Funding Corporation (PEFCO) bonds.

6 Non-accrual loans are included in the average balance used to determine the average yield.

7 Other interest-bearing liabilities consists primarily of mandatorily redeemable capital stock.

8 Represents annualized yield on total interest-earning assets minus annualized yield on total interest-bearing liabilities.

9 Represents net interest income expressed as a percentage of average interest-earning assets.

~~Table~~T a b le of Contents

The following table presents average balances and annualized yields/costs of major asset and liability categories (dollars in millions):


	For the Nine Months Ended September 30,
	2021						2020
	Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2
Interest-earning assets
Interest-bearing deposits	$	826	0.11	%	$	1	$	686	0.22	%	$	1
Securities purchased under agreements to resell	3,303		0.07		2		5,987		0.72		32
Federal funds sold	8,977		0.07		5		7,732		0.51		30
Mortgage-backed securities3,4	12,804		0.78		75		14,591		1.39		151
Other investments3,4,5	6,152		1.22		56		7,799		1.46		86
Advances4	47,940		1.00		359		65,501		1.66		815
Mortgage loans6	7,755		2.66		154		9,292		2.92		203
Loans to other FHLBanks	1		0.12		—		3		1.61		—
Total interest-earning assets	87,758		0.99		652		111,591		1.58		1,318
Non-interest-earning assets	943		—		—		1,347		—		—
Total assets	$	88,701	0.98	%	$	652	$	112,938	1.56	%	$	1,318
Interest-bearing liabilities
Deposits	$	1,863	0.01	%	$	—	$	1,231	0.13	%	$	1
Consolidated obligations
Discount notes4	23,028		0.06		10		26,531		0.82		163
Bonds4	56,547		0.83		351		76,824		1.36		780
Other interest-bearing liabilities7	38		4.97		1		117		5.02		5
Total interest-bearing liabilities	81,476		0.59		362		104,703		1.21		949
Non-interest-bearing liabilities	1,290		—		—		1,946		—		—
Total liabilities	82,766		0.59		362		106,649		1.19		949
Capital	5,935		—		—		6,289		—		—
Total liabilities and capital	$	88,701	0.55	%	$	362	$	112,938	1.12	%	$	949
Net interest income and spread8			0.40	%	$	290			0.37	%	$	369
Net interest margin9			0.44	%					0.44	%
Average interest-earning assets to interest-bearing liabilities			107.71	%					106.58	%

1 Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.

3 The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.

4 Average balances reflect the impact of fair value hedging adjustments and/or fair value option adjustments.

5 Other investments primarily include U.S. obligations, GSE obligations and Tennessee Valley Authority obligations, state or local housing agency obligations, taxable municipal bonds, and PEFCO bonds.

6 Non-accrual loans are included in the average balance used to determine the average yield.

7 Other interest-bearing liabilities consists primarily of mandatorily redeemable capital stock.

8 Represents annualized yield on total interest-earning assets minus annualized yield on total interest-bearing liabilities.

9 Represents net interest income expressed as a percentage of average interest-earning assets.

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The following table presents changes in interest income and interest expense. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather ~~equally~~ attributable to both volume and rate changes, are allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes (dollars in millions).


		Three Months Ended						Three Months Ended							Nine Months Ended
		March 31, 2021 vs. March 31 2020						September 30, 2021 vs. September 30, 2020							September 30, 2021 vs. September 30, 2020
		Total Increase (Decrease) Due to				Total Increase (Decrease)			Total Increase (Decrease) Due to						Total Increase (Decrease)			Total Increase (Decrease) Due to								Total Increase (Decrease)
		Volume		Rate						Volume				Rate			Total Increase (Decrease)			Volume				Rate				Total Increase (Decrease)
Interest income	Interest income										Interest income
Interest-bearing deposits	Interest-bearing deposits	$	—	$	(1)	$	(1)				Interest-bearing deposits	$	—		$	—				$	—			$	—			$	—			$	—
Securities purchased under agreements to resell	Securities purchased under agreements to resell	(12)		(17)		(29)					Securities purchased under agreements to resell	—			—			—				(10)				(20)				(30)
Federal funds sold	Federal funds sold	(3)		(23)		(26)					Federal funds sold	—			—			—				4				(29)				(25)

Mortgage-backed securities	Mortgage-backed securities	(5)		(38)		(43)					Mortgage-backed securities	(4)			—			(4)				(17)				(59)				(76)
Other investments	Other investments	10		(10)		—					Other investments	(13)			2			(11)				(17)				(13)				(30)
Advances	Advances	(127)		(141)		(268)					Advances	(20)			(58)			(78)				(184)				(272)				(456)
Mortgage loans	Mortgage loans	(10)		(15)		(25)					Mortgage loans	(9)			2			(7)				(32)				(17)				(49)
Total interest income	Total interest income	(147)		(245)		(392)					Total interest income	(46)			(54)			(100)				(256)				(410)				(666)
Interest expense	Interest expense										Interest expense

Deposits	Deposits	1		(2)		(1)					Deposits	—			—			—				—				(1)				(1)
Consolidated obligations	Consolidated obligations										Consolidated obligations
Discount notes	Discount notes	(17)		(88)		(105)					Discount notes	(2)			(6)			(8)				(19)				(134)				(153)
Bonds	Bonds	(119)		(165)		(284)					Bonds	(13)			(26)			(39)				(173)				(256)				(429)
Other interest-bearing liabilities	Other interest-bearing liabilities	(2)		(1)		(3)					Other interest-bearing liabilities	(1)			—			(1)				(4)				—				(4)

Total interest expense	Total interest expense	(137)		(256)		(393)					Total interest expense	(16)			(32)			(48)				(196)				(391)				(587)
Net interest income	Net interest income	$	(10)	$	11	$	1				Net interest income	$	(30)		$	(22)		$	(52)			$	(60)			$	(19)			$	(79)

NET INTEREST SPREAD

Net interest spread represents the annualized yield on total interest-earning assets minus the annualized cost of total interest-bearing liabilities. Our net interest spread declined 0.16 percent during the three months ended September 30, 2021 when compared to the same period last year due primarily to a decrease in advance prepayment fee income of $41 million and lower asset yields, offset in part by improved funding costs resulting from the low interest rate environment. Our net interest spread improved slightly during the nine months ended September 30, 2021 when compared to the same period last year due primarily to improved funding costs resulting from the low interest rate environment, offset in part by lower asset yields and a decrease in advance prepayment fee income of $24 million.

NET INTEREST MARGIN

Net interest margin equals net interest income expressed as a percentage of average interest-earning assets. Our net interest income was impacted by an increase in net gains on fair value hedge relationships of $23 million and an increase in advance prepayment fee income of $14 million, offset by lower average advance balances and the lower interest rate environmentmargin declined 0.16 percent during the three months ended ~~March 31,~~September 30, 2021 when compared to the same period last ~~year. These factors were the primary reason our~~year due to lower net interest spread, as discussed above. Our net interest margin ~~increased to 0.51 percent~~remained stable during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 when compared to ~~0.35 percent for~~ the same period ~~in 2020.~~ last year.

The primary components of our interest income and interest expense are discussed further below.

Advances

Interest income on advances decreased during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to the same periods in 2020 due primarily to the lower interest rate environment and lower average advance balances. In addition, advance prepayment fee income declined $41 million and $24 million during the three and nine months ended September 30, 2021 when compared to the same periods last year. The decrease in average advance balances was primarily a result of lower demand for advances across the majority of our institution types, driven primarily by increased liquidity in the financial markets and higher member deposit levels, offset in part by an increase in borrowings by insurance companies.

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Investments

Interest income on investments decreased during the three months ended September 30, 2021 when compared to the same period in 2020 primarily due to lower average MBS and other investment balances resulting from paydowns and/or maturities. Interest income on investments declined during the nine months ended September 30, 2021 when compared to the same period in 2020 due primarily to the lower interest rate environment ~~and~~coupled with lower average advance balances, partially offset by an increase of $14 million in advance prepayment fee income. The decrease in average advance balances from the same period in the prior year was primarily a result of a decline in advances from Wells Fargo, Bank N.A. and decreased demand for advances across other institution types, driven primarily by increased liquidity in the financial markets and higher member deposit levels.balances.

~~Investments~~Mortgage Loans

Interest income on ~~investments~~mortgage loans decreased during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to the same ~~period~~periods in 2020 primarily due ~~primarily~~ to ~~the lower interest rate environment. The~~a decline ~~was partially offset by an increase of $24 million~~ in ~~net gains on our investment fair value hedge relationships compared to the same period in 2020.~~average volumes resulting from paydowns exceeding new purchases.

~~Table of Contents~~

~~Bonds~~Consolidated Obligations

Interest expense on bonds and discount notes decreased during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to the same ~~period~~periods in 2020 due primarily to the lower interest rate environment and our utilization of lower-cost discount notes and short-term consolidated obligation bonds in an effort to capture attractive funding, match the repricing structures on assets, and/or meet our liquidity requirements. The decline was also due to lower average ~~bond~~ balances, largely driven by a decrease in the amount of consolidated obligations needed to fund our assets.

~~Discount Notes~~

~~Interest expense on discount notes decreased during the three months ended March 31, 2021 when compared to the same period in 2020 primarily due to the lower interest rate environment.~~

Other Income (Loss)

The following table summarizes the components of other income (loss) (dollars in millions):


		For the Three Months Ended					For the Three Months Ended				For the Nine Months Ended
		March 31,					September 30,				September 30,
			2021		2020				2021		2020		2021		2020

Net gains (losses) on trading securities	Net gains (losses) on trading securities		$	(22)	$	26		Net gains (losses) on trading securities	$	(6)	$	(10)	$	(30)	$	26

Net gains (losses) on derivatives	Net gains (losses) on derivatives		17		(48)			Net gains (losses) on derivatives	1		1		10		(52)

Gains on litigation settlements, net	Gains on litigation settlements, net		—		56			Gains on litigation settlements, net	—		64		—		120
Standby letter of credit fees	Standby letter of credit fees		3		3			Standby letter of credit fees	3		3		8		9
Other, net	Other, net		4		(1)			Other, net	2		7		13		13
Total other income (loss)	Total other income (loss)		$	2	$	36		Total other income (loss)	$	—	$	65	$	1	$	116

~~We recorded other~~Other income ~~(loss) of $2~~declined $65 million and $115 million during the three and nine months ended ~~March 31,~~September 30, 2021 when compared to ~~$36 million during~~ the same ~~period~~periods in 2020. ~~During the three months ended March 31, 2020, other income (loss)~~The decline was primarily ~~impacted by~~due to net gains on litigation settlements of ~~$56~~$64 million and $120 million recorded during the three and nine months ended September 30, 2020 as a result of ~~a settlement~~settlements with ~~a defendant~~defendants in our private-label MBS litigation. ~~During 2020, all~~All of our remaining private-label MBS litigation cases initially filed were ~~settled. As such, we did not record any litigation settlements~~settled during ~~the three months ended March 31, 2021.~~2020. Other factors impacting other income (loss) included net gains (losses) on economic derivatives and net gains (losses) on trading securities, as described below.

During the three and nine months ended ~~March 31,~~September 30, 2021, we recorded net ~~gains~~combined losses of ~~$17~~$5 million and $20 million on our trading securities and economic derivatives ~~through other income (loss)~~ compared to net losses of ~~$48~~$9 million ~~during~~and $26 million for the same ~~period~~periods in 2020. ~~The changes were primarily driven by~~These changes in ~~the~~ fair value ~~of interest rate swaps used to economically hedge our investment securities portfolio. The fair value changes~~ were primarily driven by market volatility ~~caused in part by COVID-19~~ and the impact it had on interest ~~rates. Accounting rules require all derivatives to be recorded at fair value and therefore we may be subject to income statement volatility.~~rates, as well as credit spreads on our fixed rate trading securities. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities” for additional discussion on our economic derivatives.

During the three months ended March 31, 2021, we recorded net losses on trading securities of $22 million compared to net gains of $26 million during the same period in 2020. These changes in fair value were primarily due to the impact of changes in interest rates and credit spreads on our fixed rate trading securities which stemmed from market volatility, caused in part by COVID-19. Trading securities are recorded at fair value with changes in fair value reflected through other income (loss).

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Hedging Activities

We use derivatives to manage interest rate risk. Accounting rules affect the timing and recognition of income and expense on derivatives and therefore we may be subject to income statement volatility.

If a hedging activity qualifies for hedge accounting treatment (fair value hedge), the net interest settlements of interest receivables or payables related to the derivative are recognized as interest income or expense in the relevant income statement caption consistent with the hedged asset or liability. The net fair value gains and losses of derivatives and hedged items designated in fair value hedge relationships are also recognized as interest income or expense. Amortization of basis adjustments from terminated hedges is also recorded in interest income or expense.

If a hedging activity does not qualify for hedge accounting treatment (economic hedge), the net interest settlements of interest receivables or payables related to the derivative as well as the fair value gains and losses on the derivative are recorded as a component of other income (loss) in “Net gains (losses) on derivatives;” however, there is no fair value adjustment for the corresponding asset or liability being hedged unless changes in the fair value of the asset or liability are normally marked to fair value through earnings (i.e., trading securities and fair value option instruments).

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


		For the Three Months Ended March 31, 2021								For the Three Months Ended September 30, 2021
Net Effect of Hedging Activities	Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds			Total		Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:	Net interest income:												Net interest income:
Net amortization/accretion1	Net amortization/accretion1	$	(8)	$	(9)	$	(1)	$	(1)		$	(19)	Net amortization/accretion1	$	(4)	$	(4)	$	(1)	$	(2)	$	(11)
Net gains (losses) on derivatives and hedged items	Net gains (losses) on derivatives and hedged items	2		11		—		(1)			12		Net gains (losses) on derivatives and hedged items	1		3		—		(1)		3
Net interest settlements on derivatives2	Net interest settlements on derivatives2	(48)		(32)		—		38			(42)		Net interest settlements on derivatives2	(47)		(33)		—		33		(47)
Total impact to net interest income	Total impact to net interest income	(54)		(30)		(1)		36			(49)		Total impact to net interest income	(50)		(34)		(1)		30		(55)
Other income (loss):	Other income (loss):												Other income (loss):
Net gains (losses) on derivatives3	Net gains (losses) on derivatives3	—		17		—		—			17		Net gains (losses) on derivatives3	—		1		—		—		1

Net gains (losses) on trading securities4	Net gains (losses) on trading securities4	—		(22)		—		—			(22)		Net gains (losses) on trading securities4	—		(6)		—		—		(6)

Total impact to other income (loss)	Total impact to other income (loss)	—		(5)		—		—			(5)		Total impact to other income (loss)	—		(5)		—		—		(5)
Total net effect of hedging activities5	Total net effect of hedging activities5	$	(54)	$	(35)	$	(1)	$	36		$	(54)	Total net effect of hedging activities5	$	(50)	$	(39)	$	(1)	$	30	$	(60)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

4 Represents the net gains (losses) on those trading securities in which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value. As a result, this line item may not agree to the Statements of Income.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

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The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


		For the Three Months Ended March 31, 2020										For the Three Months Ended September 30, 2020
Net Effect of Hedging Activities	Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total			Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:	Net interest income:												Net interest income:
Net amortization/accretion1	Net amortization/accretion1	$	(6)	$	(1)	$	—	$	(1)	$	(8)		Net amortization/accretion1	$	(15)	$	(7)	$	(1)	$	(1)	$	(24)
Net gains (losses) on derivatives and hedged items	Net gains (losses) on derivatives and hedged items	1		(13)		—		1		(11)			Net gains (losses) on derivatives and hedged items	1		7		—		(2)		6
Net interest settlements on derivatives2	Net interest settlements on derivatives2	(7)		(12)		—		4		(15)			Net interest settlements on derivatives2	(53)		(34)		—		45		(42)
Total impact to net interest income	Total impact to net interest income	(12)		(26)		—		4		(34)			Total impact to net interest income	(67)		(34)		(1)		42		(60)
Other income (loss):	Other income (loss):												Other income (loss):
Net gains (losses) on derivatives3	Net gains (losses) on derivatives3	—		(47)		(1)		—		(48)			Net gains (losses) on derivatives3	—		1		—		—		1

Net gains (losses) on trading securities4	Net gains (losses) on trading securities4	—		26		—		—		26			Net gains (losses) on trading securities4	—		(10)		—		—		(10)

Total impact to other income (loss)	Total impact to other income (loss)	—		(21)		(1)		—		(22)			Total impact to other income (loss)	—		(9)		—		—		(9)
Total net effect of hedging activities5	Total net effect of hedging activities5	$	(12)	$	(47)	$	(1)	$	4	$	(56)		Total net effect of hedging activities5	$	(67)	$	(43)	$	(1)	$	42	$	(69)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

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The following tables categorize the net effect of hedging activities on net income by product (dollars in millions):


	For the Nine Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(22)	$	(14)	$	(3)	$	(4)	$	(43)
Net gains (losses) on derivatives and hedged items	3		13		—		(3)		13
Net interest settlements on derivatives2	(142)		(98)		—		109		(131)
Total impact to net interest income	(161)		(99)		(3)		102		(161)
Other income (loss):
Net gains (losses) on derivatives3	—		10		—		—		10


Net gains (losses) on trading securities4	—		(30)		—		—		(30)

Total impact to other income (loss)	—		(20)		—		—		(20)
Total net effect of hedging activities5	$	(161)	$	(119)	$	(3)	$	102	$	(181)


	For the Nine Months Ended September 30, 2020
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(24)	$	(13)	$	(3)	$	(3)	$	(43)
Net gains (losses) on derivatives and hedged items	6		5		—		(3)		8
Net interest settlements on derivatives2	(94)		(73)		—		82		(85)
Total impact to net interest income	(112)		(81)		(3)		76		(120)
Other income (loss):
Net gains (losses) on derivatives3	—		(50)		(2)		—		(52)


Net gains (losses) on trading securities4	—		26		—		—		26

Total impact to other income (loss)	—		(24)		(2)		—		(26)
Total net effect of hedging activities5	$	(112)	$	(105)	$	(5)	$	76	$	(146)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

NET AMORTIZATION/ACCRETION

Amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships. During the three months ended ~~March 31,~~September 30, 2021, we experienced ~~increased~~decreased amortization activity when compared to the same period last year, primarily due to ~~an increase~~a decrease in prepayments of advances and investments that were previously in a hedge relationship. During the nine months ended September 30, 2021, our amortization activity was relatively stable compared to the same period in 2020.

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NET GAINS (LOSSES) ON DERIVATIVES AND HEDGED ITEMS

The net gains and losses on derivatives and hedged items designated in fair value hedge relationships are recorded in net interest income. Gains (losses) on derivatives and hedged items are primarily driven by changes in the benchmark interest ~~rate, volatility,~~rates and ~~the divergence in the valuation curves used to value our assets, liabilities, and derivatives.~~volatility. During the three and nine months ended ~~March 31,~~September 30, 2021, we recorded ~~net~~ gains of ~~$12~~$3 million and $13 million on our fair value hedge relationships compared to ~~losses~~gains of ~~$11~~$6 million and $8 million in the same ~~period of the prior~~periods last year, which primarily stemmed from market volatility ~~caused in part by COVID-19~~ and the impact it had on interest rates.

NET INTEREST SETTLEMENTS ON DERIVATIVES

Net interest settlements represent the interest component on derivatives that qualify for fair value hedge accounting. These amounts vary from period to period depending on our hedging activities and interest rates and are partially offset by the interest component on the related hedged item within net interest income. The hedging activity tables do not include the impact of the interest component on the related hedged item.

NET GAINS (LOSSES) ON DERIVATIVES

We utilize economic derivatives to manage certain risks on our Statements of Condition. Gains and losses on economic derivatives are driven by changes in interest rates and volatility and include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. During the three and nine months ended ~~March 31,~~September 30, 2021, we recorded net gains of ~~$17~~$1 million and $10 million on our economic derivatives, compared to net gains of $1 million and net losses of ~~$48~~$52 million during the same ~~period~~periods last year. The changes were primarily driven by changes in the fair value of interest rate swaps used to economically hedge our investment securities portfolio as highlighted in the table below. These fair value changes were primarily driven by market volatility ~~caused in part by COVID-19~~ and the impact it had on interest rates.

~~Table of Contents~~

Investments

Gains and losses on our trading securities are ~~also~~ due primarily to changes in interest rates and credit spreads. The following table summarizes gains and losses on these economic derivatives as well as the related trading securities (dollars in millions):


		For the Three Months Ended			For the Three Months Ended						For the Nine Months Ended
		March 31,			September 30,						September 30,
			2021			2020			2021		2020		2021		2020
Gains (losses) on interest rate swaps economically hedging our investments	Gains (losses) on interest rate swaps economically hedging our investments		$	21		$	(45)	Gains (losses) on interest rate swaps economically hedging our investments	$	5	$	6	$	23	$	(40)

Interest settlements	Interest settlements		(4)			(2)		Interest settlements	(4)		(5)		(13)		(10)
Net gains (losses) on investment derivatives	Net gains (losses) on investment derivatives		17			(47)		Net gains (losses) on investment derivatives	1		1		10		(50)
Net gains (losses) on related trading securities	Net gains (losses) on related trading securities		(22)			26		Net gains (losses) on related trading securities	(6)		(10)		(30)		26
Net gains (losses) on economic investment hedge relationships	Net gains (losses) on economic investment hedge relationships		$	(5)		$	(21)	Net gains (losses) on economic investment hedge relationships	$	(5)	$	(9)	$	(20)	$	(24)

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Other Expense

The following table shows the components of other expense (dollars in millions):


		For the Three Months Ended March 31,			For the Three Months Ended September 30,						For the Nine Months Ended September 30,
			2021			2020			2021		2020		2021		2020
Compensation and benefits	Compensation and benefits		$	21		$	18	Compensation and benefits	$	18	$	18	$	57	$	53
Contractual services	Contractual services		4			4		Contractual services	5		4		14		12
Professional fees	Professional fees		4			8		Professional fees	3		4		10		20

Other operating expenses	Other operating expenses		5			6		Other operating expenses	5		5		15		16
Total operating expenses	Total operating expenses		34			36		Total operating expenses	31		31		96		101
Federal Housing Finance Agency	Federal Housing Finance Agency		2			3		Federal Housing Finance Agency	2		3		6		8
Office of Finance	Office of Finance		2			2		Office of Finance	2		2		6		5
Other, net	Other, net		2			2		Other, net	2		1		5		5
Total other expense	Total other expense		$	40		$	43	Total other expense	$	37	$	37	$	113	$	119

Other expense ~~decreased~~remained relatively stable for the three months ended ~~March 31,~~September 30, 2021 and decreased for the nine months ended September 30, 2021, compared to the same ~~period~~periods last year. The decrease was driven primarily by a decline in professional fees resulting from fewer external resources to assist with our technology and operational ~~initiatives,~~objectives, and was offset in part by an increase in compensation and benefits.

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STATEMENTS OF CONDITION

~~Financial Highlights~~Mortgage Loans

~~Our total assets~~Interest income on mortgage loans decreased to $87.4 billion at March 31, 2021 from $87.7 billion at December 31, 2020. Our total liabilities decreased to $81.3 billion at March 31, 2021 from $82.0 billion at December 31, 2020. Total capital increased to $6.0 billion at March 31, 2021 from $5.7 billion at December 31, 2020. See further discussion of changes in our financial condition induring the ~~appropriate sections that follow.~~

~~Cash~~three and ~~Due from Banks~~

At March 31, 2021, our total cash balance was $255 million compared to $978 million at December 31, 2020, a decrease of $723 million. Our cash balance is influenced by our liquidity needs, member advance activity, market conditions, and the availability of attractive investment opportunities.

~~Advances~~

~~The following table summarizes our advances by type of institution (dollars in millions):~~

March 31,
2021 December 31,
2020
Commercial banks $ 13,121 $ 14,267
Savings institutions 667 702
Credit unions 4,407 4,787
Insurance companies 28,891 26,074
CDFIs 18 20
Total member advances 47,104 45,850
Housing associates 47 50
Non-member borrowers 185 188
Total par value $ 47,336 $ 46,088

~~Our total advance par value increased $1.2 billion or three percent at March 31,~~nine months ended September 30, 2021 when compared to ~~December 31,~~the same periods in 2020 primarily due to ~~an increase~~a decline in borrowings by insurance companies. This increase was partially offset by decreased demand for advances across other institution types mainly due to increased liquidity in the financial markets and higher member deposit levels.average volumes resulting from paydowns exceeding new purchases.

~~The following table summarizes our advances by product type (dollars in millions):~~

March 31, 2021 December 31, 2020
Amount % of Total Amount % of Total
Variable rate $ 13,884 29 $ 12,599 27
Fixed rate 31,858 67 31,546 69
Amortizing 1,594 4 1,943 4
Total par value 47,336 100 46,088 100
Premiums 18 18
Discounts (14) (3)
Fair value hedging adjustments 174 427
Total advances $ 47,514 $ 46,530
Consolidated Obligations

~~Fair value hedging adjustments changed $253 million at March 31,~~Interest expense on bonds and discount notes decreased during the three and nine months ended September 30, 2021 when compared to ~~December 31,~~the same periods in 2020 due primarily to the ~~impact~~lower interest rate environment and our utilization of ~~interest rates~~lower-cost discount notes and short-term consolidated obligation bonds in an effort to capture attractive funding, match the repricing structures on assets, and/or meet our ~~cumulative fair value adjustments on advances~~liquidity requirements. The decline was also due to lower average balances, largely driven by a decrease in ~~hedge relationships.~~the amount of consolidated obligations needed to fund our assets.

Other Income (Loss)

~~Table~~ The following table summarizes the components of ~~Contents~~

other income (loss) (dollars in millions):

~~At March 31,~~



	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Net gains (losses) on trading securities	$	(6)	$	(10)	$	(30)	$	26

Net gains (losses) on derivatives	1		1		10		(52)


Gains on litigation settlements, net	—		64		—		120
Standby letter of credit fees	3		3		8		9
Other, net	2		7		13		13
Total other income (loss)	$	—	$	65	$	1	$	116

Other income declined $65 million and $115 million during the three and nine months ended September 30, 2021 when compared to the same periods in 2020. The decline was primarily due to net gains on litigation settlements of $64 million and ~~December 31,~~$120 million recorded during the three and nine months ended September 30, 2020 ~~28 percent and 25 percent~~as a result of settlements with defendants in our private-label MBS litigation. All of our ~~advances~~remaining private-label MBS litigation cases initially filed were ~~variable rate callable advances. Callable advances may be prepaid by borrowers~~settled during 2020. Other factors impacting other income (loss) included net gains (losses) on ~~pertinent dates (call dates)~~economic derivatives and ~~therefore provide borrowers a source~~net gains (losses) on trading securities, as described below.

During the three and nine months ended September 30, 2021, we recorded net combined losses of ~~long-term financing with prepayment flexibility. Interest rates~~$5 million and $20 million on our ~~variable rate callable advances reset at each call date~~trading securities and economic derivatives compared to ~~be consistent with either~~net losses of $9 million and $26 million for the underlying index or our current underlying cost of funds rate. We generally fund our variable rate callable advances with either discount notes or short-term floating rate debt. For additional discussionsame periods in 2020. These changes in fair value were primarily driven by market volatility and the impact it had on interest rates, as well as credit spreads on our ~~funding strategies, refer~~fixed rate trading securities. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — ~~Liquidity and Capital Resources~~Results of Operations — ~~Liquidity — Sources of Liquidity.”~~Hedging Activities” for additional discussion on our economic derivatives.

~~At March 31,~~

T a b le of Contents

Hedging Activities

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


	For the Three Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(4)	$	(4)	$	(1)	$	(2)	$	(11)
Net gains (losses) on derivatives and hedged items	1		3		—		(1)		3
Net interest settlements on derivatives2	(47)		(33)		—		33		(47)
Total impact to net interest income	(50)		(34)		(1)		30		(55)
Other income (loss):
Net gains (losses) on derivatives3	—		1		—		—		1

Net gains (losses) on trading securities4	—		(6)		—		—		(6)

Total impact to other income (loss)	—		(5)		—		—		(5)
Total net effect of hedging activities5	$	(50)	$	(39)	$	(1)	$	30	$	(60)

1Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

T a b le of Contents

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


	For the Three Months Ended September 30, 2020
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(15)	$	(7)	$	(1)	$	(1)	$	(24)
Net gains (losses) on derivatives and hedged items	1		7		—		(2)		6
Net interest settlements on derivatives2	(53)		(34)		—		45		(42)
Total impact to net interest income	(67)		(34)		(1)		42		(60)
Other income (loss):
Net gains (losses) on derivatives3	—		1		—		—		1


Net gains (losses) on trading securities4	—		(10)		—		—		(10)

Total impact to other income (loss)	—		(9)		—		—		(9)
Total net effect of hedging activities5	$	(67)	$	(43)	$	(1)	$	42	$	(69)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

T a b le of Contents

The following tables categorize the net effect of hedging activities on net income by product (dollars in millions):


	For the Nine Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(22)	$	(14)	$	(3)	$	(4)	$	(43)
Net gains (losses) on derivatives and hedged items	3		13		—		(3)		13
Net interest settlements on derivatives2	(142)		(98)		—		109		(131)
Total impact to net interest income	(161)		(99)		(3)		102		(161)
Other income (loss):
Net gains (losses) on derivatives3	—		10		—		—		10


Net gains (losses) on trading securities4	—		(30)		—		—		(30)

Total impact to other income (loss)	—		(20)		—		—		(20)
Total net effect of hedging activities5	$	(161)	$	(119)	$	(3)	$	102	$	(181)


	For the Nine Months Ended September 30, 2020
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(24)	$	(13)	$	(3)	$	(3)	$	(43)
Net gains (losses) on derivatives and hedged items	6		5		—		(3)		8
Net interest settlements on derivatives2	(94)		(73)		—		82		(85)
Total impact to net interest income	(112)		(81)		(3)		76		(120)
Other income (loss):
Net gains (losses) on derivatives3	—		(50)		(2)		—		(52)


Net gains (losses) on trading securities4	—		26		—		—		26

Total impact to other income (loss)	—		(24)		(2)		—		(26)
Total net effect of hedging activities5	$	(112)	$	(105)	$	(5)	$	76	$	(146)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

NET AMORTIZATION/ACCRETION

Amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships. During the three months ended September 30, 2021, we experienced decreased amortization activity when compared to the same period last year, primarily due to a decrease in prepayments of advances and ~~December 31, 2020, advances outstanding~~investments that were previously in a hedge relationship. During the nine months ended September 30, 2021, our amortization activity was relatively stable compared to the same period in 2020.

T a b le of Contents

NET GAINS (LOSSES) ON DERIVATIVES AND HEDGED ITEMS

The net gains and losses on derivatives and hedged items designated in fair value hedge relationships are recorded in net interest income. Gains (losses) on derivatives and hedged items are primarily driven by changes in the benchmark interest rates and volatility. During the three and nine months ended September 30, 2021, we recorded gains of $3 million and $13 million on our ~~five largest member borrowers totaled $16.8 billion~~fair value hedge relationships compared to gains of $6 million and ~~$15.5 billion, representing 35 percent~~$8 million in the same periods last year, which primarily stemmed from market volatility and ~~34 percent~~the impact it had on interest rates.

NET INTEREST SETTLEMENTS ON DERIVATIVES

NET GAINS (LOSSES) ON DERIVATIVES

We utilize economic derivatives to manage certain risks on our ~~total advances outstanding.~~Statements of Condition. Gains and losses on economic derivatives are driven by changes in interest rates and volatility and include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. During the three and nine months ended September 30, 2021, we recorded net gains of $1 million and $10 million on our economic derivatives, compared to net gains of $1 million and net losses of $52 million during the same periods last year. The changes were primarily driven by changes in the fair value of interest rate swaps used to economically hedge our investment securities portfolio as highlighted in the table below. These fair value changes were primarily driven by market volatility and the impact it had on interest rates.

Investments

Gains and losses on our trading securities are due primarily to changes in interest rates and credit spreads. The following table summarizes ~~advances outstanding to our five largest member borrowers at March 31, 2021~~gains and losses on these economic derivatives as well as the related trading securities (dollars in millions):

Amount % of Total
Principal Life Insurance Company $ 4,250 9
Allianz Life Insurance Company of North America 3,600 8
EquiTrust Life Insurance Company 3,100 6
Midland National Life Insurance Company1
3,073 6
Transamerica Life Insurance Company 2,755 6
Total par value $ 16,778 35


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Gains (losses) on interest rate swaps economically hedging our investments	$	5	$	6	$	23	$	(40)

Interest settlements	(4)		(5)		(13)		(10)
Net gains (losses) on investment derivatives	1		1		10		(50)
Net gains (losses) on related trading securities	(6)		(10)		(30)		26
Net gains (losses) on economic investment hedge relationships	$	(5)	$	(9)	$	(20)	$	(24)

~~1 Excludes $1.5 billion~~

T a b le of ~~advances with North American Company for Life and Health Insurance, an affiliate~~Contents

Other Expense

The following table shows the components of ~~Midland National Life Insurance Company.~~ other expense (dollars in millions):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Compensation and benefits	$	18	$	18	$	57	$	53
Contractual services	5		4		14		12
Professional fees	3		4		10		20

Other operating expenses	5		5		15		16
Total operating expenses	31		31		96		101
Federal Housing Finance Agency	2		3		6		8
Office of Finance	2		2		6		5
Other, net	2		1		5		5
Total other expense	$	37	$	37	$	113	$	119

~~We evaluate advances~~Other expense remained relatively stable for ~~credit losses on~~the three months ended September 30, 2021 and decreased for the nine months ended September 30, 2021, compared to the same periods last year. The decrease was driven primarily by a ~~quarterly basis~~decline in professional fees resulting from fewer external resources to assist with our technology and ~~have never experienced a credit loss on our advances. For additional discussion on our advance credit risk, refer to “Item 2. Management’s Discussion~~operational objectives, and ~~Analysis~~was offset in part by an increase in compensation and benefits.

T a b le of ~~Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”~~Contents

STATEMENTS OF CONDITION

Mortgage Loans

~~The following tables summarize information~~Interest income on ~~our mortgage loans held for portfolio (dollars in millions):~~

March 31,
2021 December 31, 2020
Fixed rate conventional loans $ 7,336 $ 7,646
Fixed rate government-insured loans 461 481
Total unpaid principal balance 7,797 8,127
Premiums 102 107
Discounts (3) (3)
Basis adjustments from mortgage loan purchase commitments 10 12
Total mortgage loans held for portfolio 7,906 8,243
Allowance for credit losses1
— (1)
Total mortgage loans held for portfolio, net $ 7,906 $ 8,242

~~1 Our allowance for credit losses was less than $1 million at March 31, 2021.~~

~~Our total~~ mortgage loans decreased ~~$0.3 billion or four percent at March 31,~~during the three and nine months ended September 30, 2021 when compared to ~~December 31, 2020. The decrease was~~the same periods in 2020 primarily due to ~~principal~~a decline in average volumes resulting from paydowns exceeding ~~loan purchases as a result of continued refinancing activity driven by lower rates.~~new purchases.

We evaluate mortgage loans for credit losses on a quarterly basis. For additional discussion on our mortgage loan credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Mortgage Assets.”

~~Table of Contents~~

~~Investments~~

~~The following table summarizes the carrying value of our investments (dollars in millions):~~

March 31, 2021 December 31, 2020
Amount % of Total Amount % of Total
Short-term investments1
Interest-bearing deposits $ 401 1 $ 401 1
Securities purchased under agreements to resell 3,500 11 4,800 15
Federal funds sold 7,095 23 3,695 12
U.S. Treasury obligations2
1,712 6 3,211 10
Total short-term investments 12,708 41 12,107 38
Long-term investments3
Mortgage-backed securities
GSE single-family 1,485 5 1,671 5
GSE multifamily 8,216 26 8,613 28
U.S. obligations single-family2
3,421 11 3,547 11
Private-label residential 5 — 6 —
Total mortgage-backed securities 13,127 42 13,837 44
Non-mortgage-backed securities
U.S. Treasury obligations2
853 3 858 3
Other U.S. obligations2
1,670 5 1,786 6
GSE and Tennessee Valley Authority obligations 1,419 4 1,465 4
State or local housing agency obligations 893 3 896 3
Other 532 2 548 2
Total non-mortgage-backed securities 5,367 17 5,553 18
Total long-term investments 18,494 59 19,390 62
Total investments $ 31,202 100 $ 31,497 100

~~1 Short-term investments have original maturities equal to or less than one year.~~

~~2 Represents investment securities backed by the full faith and credit of the U.S. Government.~~

~~3 Long-term investments have original maturities of greater than one year.~~

Our investments decreased $0.3 billion or one percent at March 31, 2021 when compared to December 31, 2020 due primarily to paydowns and/or maturities of U.S. Treasury obligations and MBS. The decline was offset in part by an increase in money market investments, which are primarily held for liquidity purposes.

The Finance Agency limits our investments in MBS by requiring that the balance of our MBS not exceed three times regulatory capital at the time of purchase. Our ratio of MBS to regulatory capital was 2.18 and 2.40 at March 31, 2021 and December 31, 2020.

We evaluate investments for credit losses on a quarterly basis. For additional discussion on our investment credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Investments.”

~~Table of Contents~~

Consolidated Obligations

Interest expense on bonds and discount notes decreased during the three and nine months ended September 30, 2021 when compared to the same periods in 2020 due primarily to the lower interest rate environment and our utilization of lower-cost discount notes and short-term consolidated obligation bonds in an effort to capture attractive funding, match the repricing structures on assets, and/or meet our liquidity requirements. The decline was also due to lower average balances, largely driven by a decrease in the amount of consolidated obligations needed to fund our assets.

Other Income (Loss)

The following table summarizes the components of other income (loss) (dollars in millions):



	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Net gains (losses) on trading securities	$	(6)	$	(10)	$	(30)	$	26

Net gains (losses) on derivatives	1		1		10		(52)


Gains on litigation settlements, net	—		64		—		120
Standby letter of credit fees	3		3		8		9
Other, net	2		7		13		13
Total other income (loss)	$	—	$	65	$	1	$	116

Other income declined $65 million and $115 million during the three and nine months ended September 30, 2021 when compared to the same periods in 2020. The decline was primarily due to net gains on litigation settlements of $64 million and $120 million recorded during the three and nine months ended September 30, 2020 as a result of settlements with defendants in our private-label MBS litigation. All of our remaining private-label MBS litigation cases initially filed were settled during 2020. Other factors impacting other income (loss) included net gains (losses) on economic derivatives and net gains (losses) on trading securities, as described below.

During the three and nine months ended September 30, 2021, we recorded net combined losses of $5 million and $20 million on our trading securities and economic derivatives compared to net losses of $9 million and $26 million for the same periods in 2020. These changes in fair value were primarily driven by market volatility and the impact it had on interest rates, as well as credit spreads on our fixed rate trading securities. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities” for additional discussion on our economic derivatives.

T a b le of Contents

Hedging Activities

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


	For the Three Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(4)	$	(4)	$	(1)	$	(2)	$	(11)
Net gains (losses) on derivatives and hedged items	1		3		—		(1)		3
Net interest settlements on derivatives2	(47)		(33)		—		33		(47)
Total impact to net interest income	(50)		(34)		(1)		30		(55)
Other income (loss):
Net gains (losses) on derivatives3	—		1		—		—		1

Net gains (losses) on trading securities4	—		(6)		—		—		(6)

Total impact to other income (loss)	—		(5)		—		—		(5)
Total net effect of hedging activities5	$	(50)	$	(39)	$	(1)	$	30	$	(60)

1Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

T a b le of Contents

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


	For the Three Months Ended September 30, 2020
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(15)	$	(7)	$	(1)	$	(1)	$	(24)
Net gains (losses) on derivatives and hedged items	1		7		—		(2)		6
Net interest settlements on derivatives2	(53)		(34)		—		45		(42)
Total impact to net interest income	(67)		(34)		(1)		42		(60)
Other income (loss):
Net gains (losses) on derivatives3	—		1		—		—		1


Net gains (losses) on trading securities4	—		(10)		—		—		(10)

Total impact to other income (loss)	—		(9)		—		—		(9)
Total net effect of hedging activities5	$	(67)	$	(43)	$	(1)	$	42	$	(69)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

T a b le of Contents

The following tables categorize the net effect of hedging activities on net income by product (dollars in millions):


	For the Nine Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(22)	$	(14)	$	(3)	$	(4)	$	(43)
Net gains (losses) on derivatives and hedged items	3		13		—		(3)		13
Net interest settlements on derivatives2	(142)		(98)		—		109		(131)
Total impact to net interest income	(161)		(99)		(3)		102		(161)
Other income (loss):
Net gains (losses) on derivatives3	—		10		—		—		10


Net gains (losses) on trading securities4	—		(30)		—		—		(30)

Total impact to other income (loss)	—		(20)		—		—		(20)
Total net effect of hedging activities5	$	(161)	$	(119)	$	(3)	$	102	$	(181)


	For the Nine Months Ended September 30, 2020
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(24)	$	(13)	$	(3)	$	(3)	$	(43)
Net gains (losses) on derivatives and hedged items	6		5		—		(3)		8
Net interest settlements on derivatives2	(94)		(73)		—		82		(85)
Total impact to net interest income	(112)		(81)		(3)		76		(120)
Other income (loss):
Net gains (losses) on derivatives3	—		(50)		(2)		—		(52)


Net gains (losses) on trading securities4	—		26		—		—		26

Total impact to other income (loss)	—		(24)		(2)		—		(26)
Total net effect of hedging activities5	$	(112)	$	(105)	$	(5)	$	76	$	(146)

1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2 Represents the interest component on derivatives that qualify for fair value hedge accounting.

3 Represents net gains (losses) on economic derivatives and the related interest settlements.

5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

NET AMORTIZATION/ACCRETION

Amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships. During the three months ended September 30, 2021, we experienced decreased amortization activity when compared to the same period last year, primarily due to a decrease in prepayments of advances and investments that were previously in a hedge relationship. During the nine months ended September 30, 2021, our amortization activity was relatively stable compared to the same period in 2020.

T a b le of Contents

NET GAINS (LOSSES) ON DERIVATIVES AND HEDGED ITEMS

The net gains and losses on derivatives and hedged items designated in fair value hedge relationships are recorded in net interest income. Gains (losses) on derivatives and hedged items are primarily driven by changes in the benchmark interest rates and volatility. During the three and nine months ended September 30, 2021, we recorded gains of $3 million and $13 million on our fair value hedge relationships compared to gains of $6 million and $8 million in the same periods last year, which primarily stemmed from market volatility and the impact it had on interest rates.

NET INTEREST SETTLEMENTS ON DERIVATIVES

NET GAINS (LOSSES) ON DERIVATIVES

We utilize economic derivatives to manage certain risks on our Statements of Condition. Gains and losses on economic derivatives are driven by changes in interest rates and volatility and include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. During the three and nine months ended September 30, 2021, we recorded net gains of $1 million and $10 million on our economic derivatives, compared to net gains of $1 million and net losses of $52 million during the same periods last year. The changes were primarily driven by changes in the fair value of interest rate swaps used to economically hedge our investment securities portfolio as highlighted in the table below. These fair value changes were primarily driven by market volatility and the impact it had on interest rates.

Investments

Gains and losses on our trading securities are due primarily to changes in interest rates and credit spreads. The following table summarizes gains and losses on these economic derivatives as well as the related trading securities (dollars in millions):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Gains (losses) on interest rate swaps economically hedging our investments	$	5	$	6	$	23	$	(40)

Interest settlements	(4)		(5)		(13)		(10)
Net gains (losses) on investment derivatives	1		1		10		(50)
Net gains (losses) on related trading securities	(6)		(10)		(30)		26
Net gains (losses) on economic investment hedge relationships	$	(5)	$	(9)	$	(20)	$	(24)

T a b le of Contents

Other Expense

The following table shows the components of other expense (dollars in millions):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Compensation and benefits	$	18	$	18	$	57	$	53
Contractual services	5		4		14		12
Professional fees	3		4		10		20

Other operating expenses	5		5		15		16
Total operating expenses	31		31		96		101
Federal Housing Finance Agency	2		3		6		8
Office of Finance	2		2		6		5
Other, net	2		1		5		5
Total other expense	$	37	$	37	$	113	$	119

Other expense remained relatively stable for the three months ended September 30, 2021 and decreased for the nine months ended September 30, 2021, compared to the same periods last year. The decrease was driven primarily by a decline in professional fees resulting from fewer external resources to assist with our technology and operational objectives, and was offset in part by an increase in compensation and benefits.

T a b le of Contents

STATEMENTS OF CONDITION

Financial Highlights

Our total assets decreased to $81.4 billion at September 30, 2021 from $87.7 billion at December 31, 2020. Our total liabilities decreased to $75.6 billion at September 30, 2021 from $82.0 billion at December 31, 2020. Total capital increased to $5.8 billion at September 30, 2021 from $5.7 billion at December 31, 2020. See further discussion of changes in our financial condition in the appropriate sections that follow.

Cash and Due from Banks

At September 30, 2021, our total cash balance was $50 million compared to $978 million at December 31, 2020, a decrease of $928 million. Our cash balance is influenced by our liquidity needs, member advance activity, market conditions, and the availability of attractive investment opportunities.

Advances

The following table summarizes our advances by type of institution (dollars in millions):




	September 30, 2021		December 31, 2020
Commercial banks	$	9,544	$	14,267
Savings institutions	783		702
Credit unions	4,377		4,787
Insurance companies	28,854		26,074

CDFIs	18		20
Total member advances	43,576		45,850
Housing associates	258		50
Non-member borrowers	109		188
Total par value	$	43,943	$	46,088

Our total advance par value decreased $2.1 billion or five percent at September 30, 2021 when compared to December 31, 2020, primarily due to lower demand for advances by depository members resulting mainly from increased liquidity in the financial markets and higher member deposit levels. The decrease was offset in part by an increase in borrowings by insurance companies.

The following table summarizes our advances by product type (dollars in millions):




	September 30, 2021			December 31, 2020
	Amount		% of Total	Amount		% of Total
Variable rate	$	13,965	32	$	12,599	27
Fixed rate	28,496		65	31,546		69
Amortizing	1,482		3	1,943		4
Total par value	43,943		100	46,088		100
Premiums	15			18
Discounts	(2)			(3)
Fair value hedging adjustments	120			427

Total advances	$	44,076		$	46,530

Fair value hedging adjustments changed $307 million at September 30, 2021 when compared to December 31, 2020 due primarily to the impact of interest rates on our cumulative fair value adjustments on advances in hedge relationships.

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At September 30, 2021 and December 31, 2020, advances outstanding to our five largest member borrowers totaled $16.3 billion and $15.5 billion, representing 37 percent and 34 percent of our total advances outstanding. The following table summarizes advances outstanding to our five largest member borrowers at September 30, 2021 (dollars in millions):


	Amount		% of Total
Principal Life Insurance Company	$	4,250	10
EquiTrust Life Insurance Company	3,600		8
Midland National Life Insurance Company1	3,073		7
Transamerica Life Insurance Company	2,995		7
Allianz Life Insurance Company of North America	2,400		5
Total par value	$	16,318	37

1 Excludes $1.5 billion of advances with North American Company for Life and Health Insurance, an affiliate of Midland National Life Insurance Company.

We evaluate advances for credit losses on a quarterly basis and have never experienced a credit loss on our advances. For additional discussion on our advance credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”

Mortgage Loans

The following table summarizes information on our mortgage loans held for portfolio (dollars in millions):


	September 30, 2021		December 31, 2020
Fixed rate conventional loans	$	7,034	$	7,646
Fixed rate government-insured loans	430		481
Total unpaid principal balance	7,464		8,127
Premiums	97		107
Discounts	(3)		(3)
Basis adjustments from mortgage loan purchase commitments	9		12
Total mortgage loans held for portfolio	7,567		8,243
Allowance for credit losses	(1)		(1)
Total mortgage loans held for portfolio, net	$	7,566	$	8,242

Our total mortgage loans decreased $0.7 billion or eight percent at September 30, 2021 when compared to December 31, 2020. The decrease was primarily due to principal paydowns exceeding loan purchases as a result of continued refinancing activity driven by the low interest rate environment.

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Investments

The following table summarizes the carrying value of our investments (dollars in millions):




	September 30, 2021			December 31, 2020
	Amount		% of Total	Amount		% of Total
Short-term investments1
Interest-bearing deposits	$	411	1	$	401	1
Securities purchased under agreements to resell	7,450		26	4,800		15
Federal funds sold	4,885		17	3,695		12
U.S. Treasury obligations2	—		—	3,211		10

Total short-term investments	12,746		44	12,107		38
Long-term investments3

Mortgage-backed securities
GSE single-family	1,161		4	1,671		5
GSE multifamily	7,614		26	8,613		28
U.S. obligations single-family2	3,085		10	3,547		11

Private-label residential	5		—	6		—
Total mortgage-backed securities	11,865		40	13,837		44
Non-mortgage-backed securities
U.S. Treasury obligations2	499		2	858		3
Other U.S. obligations2	1,417		5	1,786		6
GSE and Tennessee Valley Authority obligations	1,421		5	1,465		4
State or local housing agency obligations	756		2	896		3
Other	507		2	548		2
Total non-mortgage-backed securities	4,600		16	5,553		18
Total long-term investments	16,465		56	19,390		62
Total investments	$	29,211	100	$	31,497	100

1 Short-term investments have original maturities equal to or less than one year.

2 Represents investment securities backed by the full faith and credit of the U.S. Government.

3 Long-term investments have original maturities of greater than one year.

Our investments decreased $2.3 billion or seven percent at September 30, 2021 when compared to December 31, 2020 due primarily to paydowns and/or maturities of U.S. Treasury obligations and MBS. The decline was offset in part by an increase in money market investments, which are primarily held for liquidity purposes.

The Finance Agency limits our investments in MBS by requiring that the balance of our MBS not exceed three times regulatory capital at the time of purchase. Our ratio of MBS to regulatory capital was 2.03 and 2.40 at September 30, 2021 and December 31, 2020.

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Consolidated Obligations

Consolidated obligations, which include bonds and discount notes, are the primary source of funds to support our advances, mortgage loans, and investments. At ~~March 31,~~September 30, 2021 and December 31, 2020, the carrying value of consolidated obligations for which we are primarily liable totaled ~~$79.0~~$73.3 billion and $79.6 billion.

DISCOUNT NOTES

The following table summarizes our discount notes, all of which are due within one year (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Par value	Par value	$	23,900	$	27,350	Par value	$	10,750	$	27,350
Discounts and concession fees1	Discounts and concession fees1	(2)		(5)		Discounts and concession fees1	(1)		(5)
Total	Total	$	23,898	$	27,345	Total	$	10,749	$	27,345

1 Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation discount notes.

Our discount notes decreased ~~$3.4~~$16.6 billion or 1361 percent at ~~March 31,~~September 30, 2021 when compared to December 31, 2020. Although we continued to issue discount notes during the nine months ended September 30, 2021, the balance declined from prior year end ~~during the three months ended March 31, 2021,~~as we ~~continued to utilize discount notes~~increased our utilization of short-term consolidated obligation bonds in an effort to capture attractive funding, ~~and~~match the repricing structures on assets, and/or meet our liquidity requirements.

BONDS

The following table summarizes information on our bonds (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Total par value	Total par value	$	54,798	$	51,930	Total par value	$	62,416	$	51,930
Premiums	Premiums	183		199		Premiums	153		199
Discounts and concession fees1	Discounts and concession fees1	(23)		(26)		Discounts and concession fees1	(18)		(26)
Fair value hedging adjustments	Fair value hedging adjustments	108		151		Fair value hedging adjustments	44		151

Total bonds	Total bonds	$	55,066	$	52,254	Total bonds	$	62,595	$	52,254

1 Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation bonds.

Our bonds increased ~~$2.8~~$10.3 billion or ~~five~~20 percent at ~~March 31,~~September 30, 2021 when compared to December 31, 2020. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, we increased our utilization of short-term ~~floating rate~~ consolidated obligation bonds in an effort to capture attractive funding, ~~and~~ match the repricing structures on ~~assets.~~assets, and/or meet our liquidity requirements. Fair value hedging adjustments also changed ~~$43~~$107 million at ~~March 31,~~September 30, 2021 when compared to December 31, 2020 due primarily to the impact of interest rates on our cumulative fair value adjustments on bonds in hedge relationships.

For additional information on our consolidated obligations, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

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Capital

The following table summarizes information on our capital (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Capital stock	Capital stock	$	3,535	$	3,341	Capital stock	$	3,379	$	3,341
Retained earnings	Retained earnings	2,377		2,351		Retained earnings	2,387		2,351
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	100		48		Accumulated other comprehensive income (loss)	82		48
Total capital	Total capital	$	6,012	$	5,740	Total capital	$	5,848	$	5,740

Our capital ~~increased $0.3 billion or five percent~~remained relatively stable at ~~March 31,~~September 30, 2021 when compared to December 31, ~~2020, due primarily to an increase in required membership capital stock.~~2020. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — ~~Capital”~~Capital — Capital Stock” for additional information on our capital.

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Derivatives

We use derivatives to manage interest rate risk. The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor our overall exposure to credit and market risk.

The following table categorizes the notional amount of our derivatives by type (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Interest rate swaps	Interest rate swaps					Interest rate swaps
Noncallable	Noncallable	$	33,891	$	33,848	Noncallable	$	72,616	$	33,848
Callable by counterparty	Callable by counterparty	1,378		1,383		Callable by counterparty	1,350		1,383
Callable by the Bank	Callable by the Bank	126		138		Callable by the Bank	35		138
Total interest rate swaps	Total interest rate swaps	35,395		35,369		Total interest rate swaps	74,001		35,369

Forward settlement agreements (TBAs)	Forward settlement agreements (TBAs)	105		169		Forward settlement agreements (TBAs)	179		169
Mortgage loan purchase commitments	Mortgage loan purchase commitments	113		177		Mortgage loan purchase commitments	189		177
Total notional amount	Total notional amount	$	35,613	$	35,715	Total notional amount	$	74,369	$	35,715

The notional amount of our derivative contracts ~~remained relatively stable~~increased $38.7 billion or 108 percent at ~~March 31,~~September 30, 2021 when compared to December 31, 2020. During 2021, we swapped additional consolidated obligation bonds and discount notes in an effort to capture attractive funding, match repricing structures on assets, and/or manage our projected income risk. For additional discussion regarding our use of derivatives, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Derivatives.”

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LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital positions are actively managed in an effort to preserve stable, reliable, and cost-effective sources of funds to meet current and projected future operating financial commitments, as well as regulatory, liquidity, and capital requirements.

Liquidity

SOURCES OF LIQUIDITY

We utilize several sources of liquidity to carry out our business activities. These include, but are not limited to, proceeds from the issuance of consolidated obligations, payments collected on advances and mortgage loans, proceeds from investment securities, member deposits, the issuance of capital stock, and current period earnings.

Our primary source of liquidity is proceeds from the issuance of consolidated obligations (bonds and discount notes) in the capital markets. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, proceeds from the issuance of bonds and discount notes were ~~$15.9~~$52.1 billion and ~~$67.3~~$209.6 billion compared to ~~$17.7~~$28.6 billion and ~~$32.2~~$129.8 billion for the same period in 2020. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, we increased our utilization of discount notes and short-term ~~floating rate~~ consolidated obligation bonds compared to the ~~first quarter~~same period of 2020 in an effort to capture attractive funding, match the repricing structures on assets, and/or meet our liquidity requirements.

Access to debt markets has been reliable because investors, driven by increased liquidity preference and our government affiliation, have sought the FHLBanks’ debt as an asset of choice. However, due to the short-term maturity of the debt, we may be exposed to additional risks associated with refinancing and our ability to access the capital markets.

We are focused on maintaining an adequate liquidity balance and a funding balance between our financial assets and financial liabilities and work collectively with the other FHLBanks to manage the system-wide liquidity and funding needs. We monitor our debt refinancing risk and liquidity position primarily by tracking the maturities of financial assets and financial liabilities. In managing and monitoring the amounts of assets that require refunding, we consider contractual maturities of our financial assets and liabilities, as well as certain assumptions regarding expected cash flows (i.e. estimated prepayments). External factors, including member borrowing needs, supply and demand in the debt markets, and other factors may affect liquidity balances and the funding balances between financial assets and financial liabilities. Refer to “Item 1. Financial Statements” for additional information regarding the contractual maturities of certain of our financial assets and liabilities.

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Our ability to raise funds in the capital markets as well as our cost of borrowing may be affected by our credit ratings. As of ~~April 30,~~October 31, 2021, our consolidated obligations were rated AA+/A-1+ by Standard and Poor’s and Aaa/P-1 by Moody’s and both ratings had a stable outlook. As of ~~April 30,~~October 31, 2021, our consolidated obligations were rated AAA with a negative outlook by Fitch Ratings, consistent with the U.S. sovereign AAA rating and negative outlook. For further discussion of how credit rating changes and our ability to access the capital markets may impact us in the future, refer to “Item 1A. Risk Factors” in our 2020 Form 10-K.

Although we are primarily liable for the portion of consolidated obligations that are issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations issued by the FHLBank System. At ~~March 31,~~September 30, 2021 and December 31, 2020, the total par value of outstanding consolidated obligations for which we are primarily liable was ~~$78.7~~$73.1 billion and $79.3 billion. At ~~March 31,~~September 30, 2021 and December 31, 2020, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which we are jointly and severally liable was ~~$617.7~~$568.3 billion and $667.5 billion.

The Office of Finance and FHLBanks have contingency plans in place that prioritize the allocation of proceeds from the issuance of consolidated obligations during periods of financial distress if consolidated obligations cannot be issued in sufficient amounts to satisfy all FHLBank demand. In the event of significant market disruptions or local disasters, our President or designee is authorized to establish interim borrowing relationships with other FHLBanks. To provide further access to funding, the FHLBank Act also authorizes the U.S. Treasury to directly purchase new issue consolidated obligations of the GSEs, including FHLBanks, up to an aggregate principal amount of $4.0 billion. As of ~~April 30,~~October 31, 2021, no purchases had been made by the U.S. Treasury under this authorization.

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USES OF LIQUIDITY

We use our available liquidity, including proceeds from the issuance of consolidated obligations, primarily to repay consolidated obligations, fund advances, and purchase investments. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, repayments of consolidated obligations totaled ~~$83.8~~$267.8 billion compared to ~~$53.9~~$196.3 billion for the same period in 2020.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, advance disbursements totaled ~~$25.4~~$97.2 billion compared to ~~$78.3~~$124.2 billion for the same period in 2020. Advance disbursements will vary from period to period depending on member needs and declined during 2021 mainly due to increased liquidity in the financial markets and higher member deposit levels. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, investment purchases (excluding overnight investments) totaled ~~$0.6~~$8.8 billion compared to ~~$7.8~~$15.7 billion for the same period in 2020. Investment purchases during each period were primarily driven by the purchase of money market investments, including secured resale agreements, or U.S. Treasury securities in an effort to manage our liquidity position. However, we have seen a decline in investment purchases throughout 2021 due to limited investment opportunities.

We also use liquidity to purchase mortgage loans, redeem member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, pay expenses, and pay dividends.

LIQUIDITY REQUIREMENTS

We are subject to certain liquidity requirements set forth by the Finance Agency and maintain a liquidity contingency funding plan designed to enable us to meet our obligations and the liquidity needs of our members in the event of short-term capital market disruptions, or operational disruptions at our Bank and/or the Office of Finance. For additional details on these liquidity requirements, refer to our 2020 Form 10-K. Our primary liquidity requirement is discussed further below.

Finance Agency Advisory Bulletin on FHLBank Liquidity (the Liquidity Guidance AB) – This guidance requires us to maintain sufficient liquidity for a period of 10 to 30 calendar days. The base case scenario requires 20 days of positive daily cash balances and assumes that we cannot access the capital markets to issue debt, and during that time we will automatically renew maturing and called advances for all members, including very large highly-rated members, and we hold additional liquid assets equal to one percent of our letters of credit balances. At ~~March 31,~~September 30, 2021 and December 31, 2020, we were in compliance with this base case liquidity guidance.

~~This~~The Liquidity Guidance AB also specifies appropriate funding gap limits to address the risks associated with a FHLBank having too large a mismatch between the contractual maturities of its assets and liabilities. A funding gap measures the difference between assets and liabilities that are scheduled to mature during a specified period and is expressed as a percentage of total assets. The guidance provides funding gap limits within the range of negative 10 percent to negative 20 percent for a three-month horizon and negative 25 percent to negative 35 percent for a one-year horizon. At ~~March 31,~~September 30, 2021 and December 31, 2020, we adhered to these funding gap requirements.

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Capital

CAPITAL REQUIREMENTS

We are subject to certain regulatory capital requirements. First, the FHLBank Act requires that we maintain at all times permanent capital greater than or equal to the sum of our credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock (including mandatorily redeemable capital stock), and retained earnings, can satisfy this risk-based capital requirement. Second, the FHLBank Act requires a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B capital stock (including mandatorily redeemable capital stock) and retained earnings. It does not include accumulated other comprehensive income (loss) (AOCI). Third, the FHLBank Act imposes a five percent minimum leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. At ~~March 31,~~September 30, 2021 and December 31, 2020, we did not hold any nonpermanent capital. At ~~March 31,~~September 30, 2021 and December 31, 2020, we were in compliance with all three of the Finance Agency’s regulatory capital requirements.

In addition to the requirements previously discussed, the Finance Agency Advisory Bulletin on capital stock (the Capital Stock AB) requires each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets. For purposes of the Capital Stock AB, capital stock includes mandatorily redeemable capital stock. The capital stock to total assets ratio is measured on a daily average basis at month end. At ~~March 31,~~September 30, 2021 and December 31, 2020, we were in compliance with the Capital Stock AB. Refer to “Item 1. Financial Statements — Note 8 — Capital” for additional information on our regulatory capital requirements.

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CAPITAL STOCK

Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. We issue a single class of capital stock (Class B capital stock) and have two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans ~~outstanding. In addition, we require each member to purchase~~outstanding and ~~hold activity-based stock in an amount equal to~~ 0.10 percent of its standby letters of credit. All capital stock issued is subject to a notice of redemption period of five years.

The capital stock requirements established in our Capital Plan are designed so that we can remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan.

The following table summarizes our regulatory capital stock by type of member (dollars in millions):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Commercial banks	Commercial banks	$	1,491	$	1,446	Commercial banks	$	1,336	$	1,446
Savings institutions	Savings institutions	85		77		Savings institutions	90		77
Credit unions	Credit unions	536		514		Credit unions	532		514
Insurance companies	Insurance companies	1,422		1,303		Insurance companies	1,420		1,303

CDFIs	CDFIs	1		1		CDFIs	1		1
Total GAAP capital stock	Total GAAP capital stock	3,535		3,341		Total GAAP capital stock	3,379		3,341
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	36		52		Mandatorily redeemable capital stock	30		52
Total regulatory capital stock	Total regulatory capital stock	$	3,571	$	3,393	Total regulatory capital stock	$	3,409	$	3,393

~~The increase in~~Our regulatory capital stock ~~held~~remained relatively stable at ~~March 31,~~September 30, 2021 when compared to December 31, ~~2020 was primarily due to an increase in required membership capital stock.~~2020. For additional information on our capital stock, refer to Item 1. Financial Statements — Note 8 — Capital.”

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Retained Earnings

Our risk management policies include a target level of retained earnings based on the amount we believe necessary to help protect the redemption value of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend. We monitor our achievement of this target and may utilize tools such as restructuring our balance sheet, generating additional income, reducing our risk exposures, increasing capital stock requirements, or reducing our dividends to achieve our targeted level of retained earnings. At ~~March 31,~~September 30, 2021 and December 31, 2020, our actual retained earnings exceeded our retained earnings target.

We entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other Federal Home Loan Banks in 2011. Under the JCE Agreement, we are required to allocate 20 percent of our 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 our average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends and are presented separately on our Statements of Condition. At ~~March 31,~~September 30, 2021 and December 31, 2020, our restricted retained earnings ~~account~~balance totaled ~~$589~~$608 million and $576 million. One percent of our average balance of outstanding consolidated obligations for the three months ended ~~March 31,~~September 30, 2021 was ~~$798~~$776 million.

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Dividends

Our current dividend philosophy is to pay a membership capital stock dividend similar to a reference rate of interest, such as SOFR, and an activity-based capital stock dividend, when possible, at a level above the membership capital stock dividend. Prior to the second quarter of 2020 dividend, we used average three-month LIBOR as our reference rate. Beginning with the second quarter dividend paid in the third quarter of 2020, we used SOFR as our reference rate.

Our dividend rates seek to strike a balance between providing reasonable and consistent returns to members while preserving our financial position, flexibility, and ability to serve as a long-term liquidity provider. Our actual dividend is determined quarterly by our Board of Directors, based on policies, regulatory requirements, actual performance, and other considerations that the Board determines to be appropriate.

The following table summarizes dividend-related information (dollars in millions):


		For the Three Months Ended							For the Three Months Ended					For the Nine Months Ended
		March 31,							September 30,					September 30,
			2021			2020					2021			2020			2021			2020
Aggregate cash dividends paid1	Aggregate cash dividends paid1		$	40		$	59			Aggregate cash dividends paid1	$	43		$	49		$	124		$	161
Effective combined annualized dividend rate paid on capital stock2	Effective combined annualized dividend rate paid on capital stock2		4.61		%	5.14		%		Effective combined annualized dividend rate paid on capital stock2	4.88		%	4.76		%	4.81		%	4.93		%
Annualized dividend rate paid on membership capital stock	Annualized dividend rate paid on membership capital stock		3.00		%	3.25		%		Annualized dividend rate paid on membership capital stock	3.00		%	3.00		%	3.00		%	3.08		%
Annualized dividend rate paid on activity-based capital stock	Annualized dividend rate paid on activity-based capital stock		5.50		%	5.75		%		Annualized dividend rate paid on activity-based capital stock	6.00		%	5.50		%	5.84		%	5.58		%
Average three-month LIBOR	Average three-month LIBOR		0.20		%	1.52		%		Average three-month LIBOR	0.13		%	0.25		%	0.16		%	0.79		%
Average SOFR	Average SOFR		0.04		%	1.23		%		Average SOFR	0.05		%	0.09		%	0.04		%	0.45		%

1 Includes aggregate cash dividends paid during the period. Amount excludes cash dividends paid on mandatorily redeemable capital stock. For financial reporting purposes, these dividends were recorded as interest expense on our Statements of Income.

2 Effective combined annualized dividend rate is paid on total capital stock, including mandatorily redeemable capital stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our critical accounting policies and estimates, refer to our 2020 Form 10-K. There have been no material changes to our critical accounting policies and estimates during the ~~three~~nine months ended ~~March 31,~~September 30, 2021.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

FHLBank Membership

On September 9, 2021, the Finance Agency published a Supervisory Letter on FHLBank Membership Issues (Supervisory Letter) covering five issues, including (1) Requirements for De Novo Community Development Financial Institutions, (2) Automatic Transfer of Membership, (3) Large Non-Member Institution Merging with a Small Member, (4) Applicant’s Compliance with “Financial Condition” Requirement, and (5) Definition of Insurance Company. The Supervisory Letter is intended to provide uniform guidance to the FHLBanks in the event they encounter similar circumstances. We continue to evaluate the Supervisory Letter and its expected effect on our membership.

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~~LEGISLATIVE AND REGULATORY DEVELOPMENTS~~Regulatory Interpretation on Eligibility of Mortgage Participations as Collateral for FHLBank Advances

~~LIBOR Transition~~On October 4, 2021, the Finance Agency published a Regulatory Interpretation on Eligibility of Mortgage Loan Participations as Collateral for FHLBank Advances (Regulatory Interpretation). The Regulatory Interpretation addresses whether an FHLBank can accept as collateral to secure advances mortgage loan participations that cannot be readily liquidated in the form in which they are to be pledged. The Regulatory Interpretation concludes that mortgage loan participations must meet the requirements of Finance Agency regulation 12 CFR 1266.7(a)(4), including the requirement that the collateral can be “liquidated in due course” in order to be eligible to secure FHLBank advances. It further concludes that participations for which there would be a known impediment to liquidation do not meet such requirement and therefore are not eligible collateral for advances. Finally, the Regulatory Interpretation rescinds prior guidance from FHLBank System regulators that provide mortgage loan participations may be eligible as collateral under regulatory provisions other than 12 CFR 1266.7(a)(4). The Regulatory Interpretation becomes effective on December 13, 2021.

InAlthough we do not currently expect the Regulatory Interpretation to have a material impact on our financial condition or results of operations, this restriction on collateral may negatively impact future borrowing by certain members.

Fair Housing and Fair Lending Enforcement

On July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. On March 5,9, 2021, the ~~Financial Conduct Authority further announced that LIBOR will either cease~~Finance Agency published a Policy Statement on Fair Lending (Policy Statement) to ~~be provided by any administrator or no longer be representative immediately after December 31, 2021, in~~communicate the ~~case of 1-week~~Finance Agency’s general position on monitoring and ~~2-month U.S. dollar LIBOR,~~information gathering, supervisory examinations, and ~~immediately after June 30, 2023, in~~administrative enforcement related to the ~~case of~~Equal Credit Opportunity Act, the remaining U.S. dollar LIBOR settings. Although the Financial Conduct Authority does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date. The Financial Conduct Authority’s announcement constitutes an index cessation event under the 2006 International Swaps and Derivatives Association, Inc. (ISDA) Definitions (Supplement)Fair Housing Act, and the ~~ISDA 2020 IBOR Fallbacks Protocol (Protocol). As a result, the fallback spread adjustment for each tenor is fixed as of~~Federal Housing Enterprises Financial Safety and Soundness Act. The Policy Statement became effective on the date of ~~the announcement.~~publication.

~~For~~On August 12, 2021, the Finance Agency and the U.S. Department of Housing and Urban Development announced they had entered into a ~~discussion~~Memorandum of Understanding (Memorandum) regarding fair housing and fair lending enforcement. Under the Memorandum, the two agencies will focus on enhancing their enforcement of the ~~potential impact~~Fair Housing Act, and their oversight of Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation, and the ~~LIBOR transition, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview.”~~FHLBanks.

We continue to monitor these actions and guidance as they evolve and to evaluate their potential impact on us.

COVID-19 Developments

~~AMERICAN RESCUE PLAN ACT OF 2021~~

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which provided an additional $1.9 trillion dollars for COVID-19 pandemic relief. Among other appropriations, the legislation allocated $7.25 billion in additional funds to support the Paycheck Protection Program (PPP) loan program. Also, as part of the legislation, eligibility for PPP was expanded to include certain nonprofits and digital news services. Since the legislation did not expand the PPP application deadline beyond March 31, 2021, the PPP Extension Act of 2021 was signed into law on March 30, 2021, which extended the application deadline to May 31, 2021.

~~FEDERAL RESERVE BOARD EXTENDS PPP LIQUIDITY FACILITY~~

On March 8, 2021, the Federal Reserve Board issued a press release announcing it will extend the PPP Liquidity Facility (PPPLF), which was set to expire on March 31, 2021 to June 30, 2021. The Commercial Paper Funding Facility, Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility expired on March 31, 2021, since such facilities had not received significant usage. The PPPLF provides collateralized PPP loan liquidity to eligible Federal Reserve member financial institutions in order to facilitate PPP loan originations at such financial institutions.

~~FINANCE AGENCY EXTENSION OF LOAN ORIGINATION FLEXIBILITIES~~

On March 31, 2020, the Finance Agency announced authorization of loan processing flexibilities for Fannie Mae and Freddie Mac customers. Origination flexibilities included allowing desktop appraisals on new construction loans; allowing flexibility on demonstrating construction has been completed; allowing flexibility for borrowers to provide certain documentation; and expanding the use of power of attorney and remote online notarizations. On March 11, 2021, the Finance Agency extended previously authorized COVID-related loan flexibilities to April 30, 2021; all such flexibilities were set to expire on March 31, 2021. The flexibilities extended to April 30, 2021 include alternative appraisals on purchase and rate term refinance loans; alternative methods for documenting income and verifying employment before loan closing; and expanding the use of power of attorney to assist with loan closings. On April 21, 2021, the Finance Agency announced that some temporary loan origination flexibilities have been extended until May 31, 2021, which includes flexibilities for alternative appraisals on purchase and rate-term refinance loans. Temporary flexibilities related to employment verification, condominium project reviews, and expanded power of attorney are being allowed to expire on April 30, 2021.

While some provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) have expired, others have been extended by regulatory and legislative action. Additional phases of the CARES Act, American Rescue Plan Act of 2021, or other COVID-19 pandemic relief legislation may be enacted by Congress. We continue to evaluate the potential impact of such legislation on our business, including its continued impact to the U.S. economy, impacts to mortgages held or serviced by our members and that we accept as collateral, and the impacts on our MPF program.

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ADDITIONAL COVID-19 PRESIDENTIAL, LEGISLATIVE AND REGULATORY DEVELOPMENTS

In light of the COVID-19 pandemic, the ~~former and current Presidents~~President of the United States, through executive orders, governmental agencies, including the SEC, ~~OCC,~~Office of the Comptroller of the Currency, Federal Reserve, ~~FDIC,~~Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration, ~~CFTC~~Commodity Futures Trading Commission and the Finance Agency, as well as state governments and agencies, ~~have~~has taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, and Congress has enacted, and may continue to enact, pandemic relief legislation, some of which may have a direct or indirect impact on usthe Bank or ~~our~~its members. Many of these actions are temporary in nature. We continue to monitor these actions and guidance as they evolve and to evaluate their potential impact on us.

U.S. Treasury and Fannie Mae Preferred Stock Purchase Agreement

On January 14, 2021, the U.S. Treasury and Fannie Mae entered into a letter agreement amending the terms of their Preferred Stock Purchase Agreement (PSPA), which could impact participating financial institutions (PFIs) that participate in the MPF Program’s MPF Xtra product (where MPF loans acquired are concurrently sold to Fannie Mae). Under the PSPA, the U.S. Treasury provides liquidity to Fannie Mae in exchange for senior preferred stock. Under the Preferred Stock Purchase Agreement amendment, which was to take effect January 1, 2022, the Finance Agency (acting as conservator for Fannie Mae) and the U.S. Treasury agreed to limit the dollar volume of loans Fannie Mae could purchase from a single seller through Fannie Mae’s cash window to $1.5 billion per year. As administrator of the MPF Program, the FHLBank of Chicago purchases MPF Xtra loans from PFIs and sells them to Fannie Mae via the cash window process. Based on volumes for the MPF Xtra product program, the PSPA amendment would significantly curtail MPF Xtra cash window sales. On September 14, 2021, the Finance Agency and the U.S. Treasury temporarily suspended certain provisions of the PSPA, including limits on Fannie Mae’s cash window limits, until at least September 14, 2022.

Although we do not currently expect the cash window limits to have a material impact on our financial condition or results of operations, they may negatively impact the volume of loans that PFIs are able to sell through the MPF Program.

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Other Legislative Matters

AFFORDABLE HOUSING

As previously disclosed, Congress is considering legislation, currently in the budget reconciliation process, that would require that the FHLBanks set aside higher percentages of their earnings for their affordable housing and community investment programs than is currently required by law. We continue to actively monitor any such potential legislation and developments.

RISK MANAGEMENT

We have risk management policies, established by our Board of Directors, that allow us to monitor and control our exposure to market, income, liquidity, credit, operational, model, information security, compliance, diversity and inclusion, and strategic risk, as well as capital adequacy. Our primary risk management objective is to manage our assets and liabilities in ways that ensure liquidity is available to our members and protect the par redemption value of our capital stock. We periodically evaluate our risk management policies in order to respond to changes in our financial position and general market conditions.

Market and Income Risk

We define market risk as the risk that the market value of our portfolio will decline as a result of changes in ~~market prices may adversely affect~~interest rates or adverse changes in values of either assets or liabilities. We define income risk as the risk that our ~~financial condition and performance.~~income will drop below acceptable tolerances. Interest rate risk is the principal type of ~~market~~market/income risk to which we are exposed, as our cash flows, and therefore earnings and equity value can change significantly as interest rates change. Our general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets, liabilities, and derivatives which, taken together, limit our expected exposure to interest rate risk. Management regularly reviews our sensitivity to interest rate changes by monitoring our market and income risk measures in parallel and non-parallel interest rate changes and spread and volatility movements.

Our key risk measures are Market Value of Capital Stock (MVCS) Sensitivity and Projected Income Sensitivity.

MARKET VALUE OF CAPITAL STOCK SENSITIVITY

~~We define~~ MVCS ~~as an estimate~~represents our market value of equity (MVE), which is the market value of our assets minus the market value of our liabilities (excluding mandatorily redeemable capital stock), divided by the total shares of our capital stock (including mandatorily redeemable capital stock) ~~outstanding.~~. It represents ~~an estimation of~~ the estimated “liquidation value” of one share of our capital stock if all assets and liabilities were liquidated at current market prices. MVE and MVCS ~~does~~do not represent our long-term value, as ~~it takes~~they take into account short-term market price fluctuations. These fluctuations are often unrelated to the long-term value of the cash flows from our assets and liabilities.

We monitor and manage to ~~MVCS~~MVE policy limits in an effort to ensure the stability of the Bank’s value. Our policy limits are based on declines from the base case in parallel and non-parallel interest rate change scenarios. Any policy limit breach must be reported to the Enterprise Risk Committee of the Bank and the Risk and Compliance Committee of the Board of Directors and be remediated in a timely manner.

Prior to March 1, 2021, our down 200 basis point parallel policy limit was suspended when the 10-year swap rate was below 2.50 percent and remained so for five consecutive days. At December 31, 2020, the 10-year swap rate was below 2.50 percent for five consecutive days, and therefore the associated policy limit was suspended. ~~As of~~Effective March 1, 2021, our down 200 basis point parallel policy limit is suspended when the 10-year swap rate is below 1.50 percent and remains so for five consecutive days. At ~~March 31,~~September 30, 2021, the 10-year swap rate was ~~1.78~~below 1.50 percent for five consecutive days, and therefore the associated policy limit was ~~in effect.~~suspended. We were in compliance with the ~~MVCS~~MVE policy limits in effect at ~~March 31,~~September 30, 2021 and December 31, 2020. Our base case MVCS remained relatively stable and was ~~$172.5~~$175.4 at ~~March 31,~~September 30, 2021 compared to $171.0 at December 31, 2020.

For more information on ~~our MVCS,~~this risk measure, including policy limits, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market Risk — Market Value of Capital Stock Sensitivity” in our 2020 Form 10-K.

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PROJECTED INCOME SENSITIVITY

Projected income ~~sensitivity~~risk is measured as the ~~change in~~ spread between projected 24-month return on average capital stock (ROACS) and average projected SOFR. We monitor and manage projected 24-month income ~~sensitivity in an effort~~ to ~~limit~~reduce the ~~short-term earnings volatility of the Bank.~~likelihood that our income falls below acceptable tolerances. The projected 24-month income ~~sensitivity~~ is based on forward interest rates, which allows for negative rates, business, and risk management assumptions.

We monitor and manage to policy limits, which are based on declines in 24-month projected ROACS spread to average projected SOFR from base spread for the up and down 100 and 200 basis points parallel interest rate change scenarios as well as the up and down 100 basis points non-parallel interest rate change scenarios. Additionally, there is a limit on the decline in ROACS from base ROACS for certain basis shock scenarios to limit basis risk exposure. Any policy limit breach must be reported to the Enterprise Risk Committee of the Bank and the Risk and Compliance Committee of the Board of Directors and be remediated in a timely manner.

Effective March 1, 2021, our policy limits for the up and down 100 and 200 basis points parallel interest rate change scenarios, as well as the up and down 100 basis points non-parallel interest rate change scenarios, were updated to SOFR plus 250 basis points over 24-month horizons. In addition, as of March 1, 2021, our down 200 basis point parallel policy limit iswas suspended when the 10-year swap rate iswas below 1.50 percent and ~~remains~~remained so for five consecutive days. ~~At March 31, 2021, the 10-year swap rate was 1.78 percent and the associated policy limit was in effect.~~

AsDuring the first half of ~~March 31,~~ 2021, we breached our policy ~~limit~~limits for certain down interest rate scenarios. As a result, we swapped certain fixed rate consolidated obligations to a floating rate to decrease our projected income risk, particularly in the down ~~200 basis point~~ interest rate ~~change scenario. We may continue~~scenarios. In October 2021, our Board of Directors approved an exception to be out of compliance with this policy limit in the near term; however, we are working to expand our hedging strategies in an effort to provide additional tools to manage our income. We were in compliance with all ~~other~~ projected ~~24-month~~ income ~~sensitivity~~ policy limits effective September 30, 2021 through February 28, 2022, due primarily to the low probability of our modeled changes in ~~effect as of March 31, 2021 and December 31, 2020.~~mortgage rates occurring.

For more information on ~~our Projected Income Sensitivity,~~this risk measure, including our compliance with policy limits in effect as of the prior year end, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market Risk — Projected Income Sensitivity” in our 2020 Form 10-K.

CAPITAL ADEQUACY

An adequate capital position is necessary for providing safe and sound operations of the Bank. Our key capital adequacy measures are MVCS and regulatory capital in order to maintain capital levels in accordance with Finance Agency regulations. In addition, we maintain a targeted level of retained earnings to protect the redemption ~~value~~ of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend.

For a discussion of our key capital adequacy measure, MVCS, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market and Income Risk — Market Value of Capital Stock Sensitivity.”

For additional information on our compliance with regulatory capital requirements as well as our targeted retained earnings, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital.”

Liquidity Risk

We define liquidity risk as the risk that we will be unable to meet our financial obligations as they come due or meet the credit needs of our members in a timely and cost efficient manner. To manage this risk, we maintain liquidity in accordance with Finance Agency regulations. For additional information on our compliance with these requirements, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Liquidity Requirements.”

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Credit Risk

We define credit risk as the potential that ~~our borrowers~~a member or ~~counterparties~~counterparty will fail to meet ~~their obligations in accordance with agreed upon terms.~~its financial obligations. Our primary credit risks arise from our ongoing lending, investing, and hedging activities. Our overall objective in managing credit risk is to operate a sound credit granting process and to maintain appropriate credit administration, measurement, and monitoring practices.

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ADVANCES

We manage our credit exposure to advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower’s financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

We are required by regulation to obtain sufficient collateral to fully secure our advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products). The estimated value of the collateral required to secure each borrower’s credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal or market value, as applicable, of the collateral. We also have policies and procedures for validating the reasonableness of our collateral valuations. In addition, we perform collateral verifications and on-site reviews based on the risk profile of the borrower. Management believes that these policies effectively manage our credit risk from advances.

At ~~March 31,~~September 30, 2021 and December 31, 2020, borrowers pledged ~~$285.0~~$287.3 billion and $280.5 billion of collateral (net of applicable discounts) to support activity with us, including advances. At ~~March 31,~~September 30, 2021 and December 31, 2020, all of our advances met the requirement to be collateralized at a minimum of 100 percent, net of applicable discounts. Borrowers pledge collateral in excess of their collateral requirement mainly to demonstrate available liquidity and to borrow additional amounts in the future.

We evaluate advances for credit losses on a quarterly basis. We have never experienced a credit loss on our advances. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no expected credit losses on our advances as of ~~March 31,~~September 30, 2021 and December 31, 2020. Refer to “Item 1. Financial Statements — Note 4 — Advances” for additional information.

MORTGAGE LOANS

Mortgage loan credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage loans is affected by a number of factors, including loan type, borrower’s credit history, and other factors such as home price fluctuations, unemployment levels, and other economic factors in the local market or nationwide.

The following table presents the unpaid principal balance of our mortgage loans by product type (dollars in millions):


Product Type	Product Type	March 31, 2021		December 31, 2020		Product Type	September 30, 2021		December 31, 2020
Conventional	Conventional	$	7,336	$	7,646	Conventional	$	7,034	$	7,646

Government	Government	461		481		Government	430		481
Total mortgage loan unpaid principal balance	Total mortgage loan unpaid principal balance	$	7,797	$	8,127	Total mortgage loan unpaid principal balance	$	7,464	$	8,127

We manage the credit risk on mortgage loans by (i) adhering to our underwriting standards, (ii) using agreements to establish credit risk sharing responsibilities with our PFIs, and (iii) monitoring the performance of the mortgage loan portfolio and creditworthiness of PFIs.

We evaluate mortgage loans for credit losses on a quarterly basis and establish an allowance for credit losses to reflect management’s estimate of expected credit losses inherent in the portfolio. At ~~March~~both September 30, 2021 and December 31, ~~2021,~~2020, we had an allowance for credit losses of ~~less than~~ $1 million on our conventional mortgage loans due to expected credit losses on collectively evaluated loans being offset in part by expected recoveries of prior charge-offs on individually evaluated loans during the quarter. At December 31, 2020, the Bank’s allowance for credit losses on conventional mortgage loans totaled $1 million.loans. We have never experienced a credit loss on our government-insured mortgage loans. At ~~March 31,~~September 30, 2021 and December 31, 2020, we determined no allowance for credit losses was necessary on our government-insured mortgage loans.

Refer to “Item 1. Financial Statements — Note 5 — Mortgage Loans Held for Portfolio” for additional information on our allowance for credit losses and the payment status of our conventional mortgage loans.

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INVESTMENTS

We maintain an investment portfolio primarily to provide investment income and liquidity. Our primary credit risk on investments is the counterparties’ ability to meet repayment terms. We mitigate this credit risk by purchasing investment quality securities. We define investment quality as a security with adequate financial ~~backings~~backing so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. We consider a variety of credit quality factors when analyzing potential investments, including collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, nationally recognized statistical rating organization (NRSRO) credit ratings, and/or the financial health of the underlying issuer.

Finance Agency regulations limit the type of investments we may purchase. We are prohibited from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks, unless otherwise approved by the Finance Agency. Our unsecured credit exposures to U.S. branches and agency offices of foreign commercial banks include the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual repayment obligations. Our unsecured credit exposures to domestic counterparties and U.S. subsidiaries of foreign commercial banks include the risk that these counterparties have extended credit to foreign counterparties. At ~~March 31,~~September 30, 2021, we were in compliance with the above regulation and did not own any financial instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks, and those approved by the Finance Agency.

Finance Agency regulations also include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties. These limits are based on a percentage of ~~eligible~~ regulatory capital and the counterparty’s overall credit rating. Under these regulations, the level of ~~eligible~~ regulatory capital is determined as the lesser of our total regulatory capital or the ~~eligible~~ amount of regulatory capital of the counterparty. The ~~eligible~~ amount of regulatory capital is then multiplied by a stated percentage. The percentage that we may offer for extensions of unsecured credit, excluding overnight federal funds sold, ranges from ~~three~~one to 15 percent based on the counterparty’s credit rating. Our total unsecured exposure to a counterparty, including overnight federal funds sold, may not exceed twice that amount, or a total of ~~six~~two to 30 percent of the ~~eligible~~ amount of regulatory capital, based on the counterparty’s credit rating. At ~~March 31,~~September 30, 2021, we were in compliance with the regulatory limits established for unsecured credit.

Our short-term portfolio may include, but is not limited to, interest-bearing deposits, federal funds sold, securities purchased under agreements to resell, certificates of deposit, commercial paper, and U.S. Treasury obligations. Our long-term portfolio may include, but is not limited to, U.S. Treasury obligations, other U.S. obligations, GSE and Tennessee Valley Authority obligations, state or local housing agency obligations, taxable municipal bonds, and MBS. We consider our long-term investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the FDIC to be of the highest credit quality and therefore those exposures are not monitored with other unsecured investments. Given the credit quality of our unsecured long-term investments, our unsecured credit risk is primarily in the short-term portfolio.

We ~~primarily~~ limit short-term unsecured credit exposure primarily to the following overnight investment types:

•Interest-bearing deposits. Primarily consists of unsecured deposits that earn interest.

•Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions.

•Commercial paper. Unsecured debt issued by corporations, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.

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At ~~March 31,~~September 30, 2021, our unsecured short-term investment exposure consisted of overnight interest-bearing deposits and federal funds sold. The following table presents our unsecured short-term investment exposure by counterparty credit rating and domicile (excluding accrued interest receivable) (dollars in millions):


		March 31, 2021						September 30, 2021
		Credit Rating1,2						Credit Rating1,2
Domicile of Counterparty	Domicile of Counterparty	AA		A		Total			Domicile of Counterparty	AA		A		Total
Domestic	Domestic	$	—	$	400	$	400		Domestic	$	—	$	410	$	410

U.S. branches and agency offices of foreign commercial banks	U.S. branches and agency offices of foreign commercial banks								U.S. branches and agency offices of foreign commercial banks
Australia	Australia	800		—		800			Australia	865		—		865

Canada	Canada	—		1,140		1,140			Canada	—		1,150		1,150
Finland	Finland	800		—		800			Finland	355		—		355
France		—		350		350

Germany	Germany	695		—		695			Germany	865		—		865

Netherlands	Netherlands	—		570		570			Netherlands	—		575		575
Norway	Norway	300		—		300			Norway	500		—		500
Sweden	Sweden	800		1,140		1,940			Sweden	—		575		575
Switzerland		—		500		500
Total U.S. branches and agency offices of foreign commercial banks	Total U.S. branches and agency offices of foreign commercial banks	3,395		3,700		7,095			Total U.S. branches and agency offices of foreign commercial banks	2,585		2,300		4,885
Total unsecured short-term investment exposure	Total unsecured short-term investment exposure	$	3,395	$	4,100	$	7,495		Total unsecured short-term investment exposure	$	2,585	$	2,710	$	5,295

1 Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.

2 Table excludes investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the FDIC.

Investment Ratings

The following table summarizes the carrying value of our investments by credit rating (dollars in millions):


		March 31, 2021										September 30, 2021
		Credit Rating1										Credit Rating1
		AAA		AA		A		BBB		Unrated2			Total			AAA		AA		A		BBB		Total
Interest-bearing deposits	Interest-bearing deposits	$	—	$	1	$	400	$	—	$	—		$	401	Interest-bearing deposits	$	—	$	1	$	410	$	—	$	411
Securities purchased under agreements to resell	Securities purchased under agreements to resell	—		—		3,000		—		500			3,500		Securities purchased under agreements to resell	—		2,000		5,450		—		7,450
Federal funds sold	Federal funds sold	—		3,395		3,700		—		—			7,095		Federal funds sold	—		2,585		2,300		—		4,885
Investment securities:	Investment securities:														Investment securities:
Mortgage-backed securities	Mortgage-backed securities														Mortgage-backed securities
GSE single-family	GSE single-family	—		1,485		—		—		—			1,485		GSE single-family	—		1,161		—		—		1,161
GSE multifamily	GSE multifamily	—		8,216		—		—		—			8,216		GSE multifamily	—		7,614		—		—		7,614
U.S. obligations single-family3		—		3,421		—		—		—			3,421
U.S. obligations single-family2															U.S. obligations single-family2	—		3,085		—		—		3,085

Private-label residential4		—		3		1		1		—			5
Private-label residential															Private-label residential	—		1		2		2		5
Total mortgage-backed securities	Total mortgage-backed securities	—		13,125		1		1		—			13,127		Total mortgage-backed securities	—		11,861		2		2		11,865
Non-mortgage-backed securities	Non-mortgage-backed securities														Non-mortgage-backed securities
U.S. Treasury obligations3		—		2,565		—		—		—			2,565
Other U.S. obligations3		—		1,670		—		—		—			1,670
U.S. Treasury obligations2															U.S. Treasury obligations2	—		499		—		—		499
Other U.S. obligations2															Other U.S. obligations2	—		1,417		—		—		1,417
GSE and Tennessee Valley Authority obligations	GSE and Tennessee Valley Authority obligations	—		1,419		—		—		—			1,419		GSE and Tennessee Valley Authority obligations	—		1,421		—		—		1,421
State or local housing agency obligations	State or local housing agency obligations	700		193		—		—		—			893		State or local housing agency obligations	571		185		—		—		756
Other	Other	443		89		—		—		—			532		Other	440		67		—		—		507
Total non-mortgage-backed securities	Total non-mortgage-backed securities	1,143		5,936		—		—		—			7,079		Total non-mortgage-backed securities	1,011		3,589		—		—		4,600
Total investments	Total investments	$	1,143	$	22,457	$	7,101	$	1	$	500		$	31,202	Total investments	$	1,011	$	20,036	$	8,162	$	2	$	29,211

1 Represents either the lowest credit rating available for each investment based on an NRSRO, or the guarantor credit rating, if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.

2 Represents ~~secured securities purchased under agreements to resell with no NRSRO or guarantor rating.~~

~~3 Represents investment securities backed by the full faith and credit of the U.S. Government.~~

~~4 On April 26, 2021, Standard and Poor’s downgraded the credit rating on a private-label MBS from double-A to single-A.~~

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~~The following table summarizes the carrying value of our investments by credit rating (dollars in millions):~~

December 31, 2020
Credit Rating1
AAA AA A BBB
Unrated2
Total
Interest-bearing deposits $ — $ 1 $ 400 $ — $ — $ 401
Securities purchased under agreements to resell — 2,400 500 — 1,900 4,800
Federal funds sold — 1,895 1,800 — — 3,695
Investment securities:
Mortgage-backed securities
GSE single-family — 1,671 — — — 1,671
GSE multifamily — 8,613 — — — 8,613
U.S. obligations single-family3
— 3,547 — — — 3,547
Private-label residential — 3 1 2 — 6
Total mortgage-backed securities — 13,834 1 2 — 13,837
Non-mortgage-backed securities
U.S. Treasury obligations3
— 4,069 — — — 4,069
Other U.S. obligations3
— 1,786 — — — 1,786
GSE and Tennessee Valley Authority obligations — 1,465 — — — 1,465
State or local housing agency obligations 700 196 — — — 896
Other 456 92 — — — 548
Total non-mortgage-backed securities 1,156 7,608 — — — 8,764
Total investments $ 1,156 $ 25,738 $ 2,701 $ 2 $ 1,900 $ 31,497

~~2 Represents secured securities purchased under agreements to resell with no NRSRO or guarantor rating.~~

~~3 Represents~~ investment securities backed by the full faith and credit of the U.S. Government.

We evaluate investments for credit losses on a quarterly basis. At ~~March 31,~~September 30, 2021 and December 31, 2020, we determined no allowance for credit losses was necessary on our investments. Refer to “Item 1. Financial Statements — Note 3 — Investments” for additional information on our allowance for credit losses.

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Mortgage-Backed Securities

We are exposed to mortgage asset credit risk through our investments in MBS. Mortgage asset credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage assets is affected by a number of factors, including the strength and ability to guarantee the payments from the agency that created the structure, underlying loan performance, and other economic factors in the local market or nationwide. We limit our purchases of MBS to those guaranteed by the U.S. Government or issued by a GSE. Our risk management policies prohibit new purchases of private-label MBS. We perform ongoing analysis on these investments to determine potential credit issues.

DERIVATIVES

We execute most of our derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may either be ~~either~~ executed directly with a counterparty (uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent) with a Derivative Clearing Organization (cleared derivatives).

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in our policies and Finance Agency regulations.

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Uncleared Derivatives. Due to risk of nonperformance by the counterparties to our derivative agreements, we generally require collateral on uncleared derivative agreements. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty or a contractually established threshold level. A counterparty generally must deliver collateral to us if the total market value of our exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, we do not anticipate any credit losses on our uncleared derivative agreements.

Cleared Derivatives. For cleared derivatives, the Derivative Clearing Organization (Clearinghouse) is our counterparty. We are subject to risk of nonperformance by the Clearinghouse and clearing agent. The requirement that we post initial and variation margin through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. However, the use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments isare posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. We do not anticipate any credit losses on our cleared derivatives.

The contractual or notional amount of derivatives reflects our involvement in the various classes of financial instruments. Our maximum credit risk is the estimated cost of replacing derivatives if there is a default, minus the value of any related collateral. In determining maximum credit risk, we consider accrued interest receivables and payables as well as our ability to net settle positive and negative positions with the same counterparty and/or clearing agent when netting requirements are met.

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The following table shows our derivative counterparty credit exposure (dollars in millions):


		March 31, 2021									September 30, 2021
Credit Rating1	Credit Rating1	Notional Amount		Net Derivatives Fair Value Before Collateral		Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure to Counterparties		Credit Rating1	Notional Amount		Net Derivatives Fair Value Before Collateral		Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure to Counterparties
Non-member counterparties:	Non-member counterparties:									Non-member counterparties:
Asset positions with credit exposure	Asset positions with credit exposure									Asset positions with credit exposure
Uncleared derivatives	Uncleared derivatives									Uncleared derivatives
AA2		$	201	$	19	$	(19)	$	—
A		747		2		(1)		1

A2										A2	$	179	$	—	$	—	$	—
BBB2	BBB2	29		2		(2)		—		BBB2	29		2		(2)		—
Cleared derivatives3		29,212		5		238		243

Liability positions with credit exposure	Liability positions with credit exposure									Liability positions with credit exposure
Uncleared derivatives	Uncleared derivatives									Uncleared derivatives

A	A	3,622		(87)		90		3		A	1,068		(62)		63		1
BBB		1,689		(68)		70		2

BBB2										BBB2	961		(21)		21		—
Cleared derivatives3										Cleared derivatives3	68,478		(10)		200		190
Total derivative positions with credit exposure to non-member counterparties	Total derivative positions with credit exposure to non-member counterparties	35,500		(127)		376		249		Total derivative positions with credit exposure to non-member counterparties	70,715		(91)		282		191
Member institutions2,4	Member institutions2,4	10		—		—		—		Member institutions2,4	57		—		—		—
Total	Total	35,510		$	(127)	$	376	$	249	Total	70,772		$	(91)	$	282	$	191
Derivative positions without credit exposure	Derivative positions without credit exposure	103								Derivative positions without credit exposure	3,597
Total notional	Total notional	$	35,613							Total notional	$	74,369

1 Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable.

2 Net credit exposure is less than $1 million.

3 Represents derivative transactions cleared with CME Clearing, our clearinghouse, who is not rated. CME Clearing's parent, CME Group Inc. was rated Aa3 by Moody's and AA- by Standard and Poor's at ~~March 31,~~September 30, 2021.

~~4 Represents mortgage loan purchase commitments with our member institutions.~~

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~~The following table shows our derivative counterparty credit exposure (dollars in millions):~~

December 31, 2020
Credit Rating1
Notional Amount Net Derivatives
Fair Value Before Collateral Cash Collateral Pledged
To (From) Counterparty Net Credit Exposure
to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives
BBB2
$ 29 $ 1 $ (1) $ —
Liability positions with credit exposure
Uncleared derivatives
A2
1,141 (35) 35 —
BBB2
966 (34) 34 —
Cleared derivatives3
29,094 (8) 234 226
Total derivative positions with credit exposure to non-member counterparties 31,230 (76) 302 226
Member institutions4
175 1 — 1
Total 31,405 $ (75) $ 302 $ 227
Derivative positions without credit exposure 4,310
Total notional $ 35,715

~~1 Represents either the lowest credit rating available for counterparty based on an NRSRO, or the guarantor, credit rating, if applicable.~~

~~2 Net credit exposure is less than $1 million.~~

4 Represents mortgage loan purchase commitments with our member institutions.

Operational Risk

We define operational risk as the risk arising from inadequate or failed processes, people, and/or systems, including those emanating from external sources. All of our activities and processes generate operational risk, including legal risk. Management has established policies, procedures, and controls to reduce the ~~likelihood~~level of operational risk. We perform annual risk assessments to identify, assess, mitigate, and report on operational risks outside of the Board’s risk appetite. Due to the manual nature of many of our processes, our operational risk exposure is closely monitored.

In response to COVID-19, throughout the ~~majority~~first half of 2021 a number of our employees ~~continue~~continued to work remotely, with ~~a limited number~~approximately one-third of our employees voluntarily working from our ~~headquarters.~~headquarters two days or more a week. Beginning in late September, we adopted a hybrid working model, with most employees working from our headquarters three days or more a week. Many of our members, vendors, and regulators continue to work remotely. While our operations have changed as a result of the global pandemic, we currently do not believe the current working arrangement creates additional operational risk. Refer to “Item 1A. Risk Factors” in our 2020 Form 10-K for additional information.

Model Risk

We define model risk as the risk of adverse consequences from decisions based on incorrect and misused model outputs. Throughout the course of our day-to-day activities, we utilize external and internal pricing and financial models as important inputs into business and risk management decision-making processes.

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Information Security Risk

We define information security risk as the risk arising from unauthorized access, use, disclosure, disruption, modification, or destruction of information or information systems. Importantly, this definition includes the security of both digital and non-digital information as well as associated information systems and processes.

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Information security risk includes the risk that cyber incidents could result in a failure or interruption of our business operations. We have not experienced any such disruption with a material adverse impact. However, we do rely heavily on internal and third-party information systems and other technology to conduct and manage our business and any disruptions to those items could have a material adverse impact on our financial condition and results of operations. We mitigate cybersecurity risk utilizing the concept of defense in depth, where multiple layers of security controls are implemented. Administrative, physical, and logical controls are in place for identifying, monitoring, and controlling system access, sensitive data, and system changes. In addition, we employ thorough security testing and training that includes regular third party facilitated penetration testing, as well as mandatory staff training on cyber risks. Given the importance of cybersecurity and ever-increasing sophistication of potential cyber-attacks, we ~~have recently strengthened our cyber-defenses and expect to~~will continue to ~~do so.~~invest in and strengthen our cyber-defenses.

Compliance Risk

We define compliance risk as the risk of violations of laws, rules, regulations, regulatory and supervisory guidance, and internal ~~policies and procedures.~~enterprise governing documents. Our legal and compliance departments are responsible for coordinating with our various business units in connection with its identification, evaluation, and mitigation of our compliance risks.

Diversity and Inclusion Risk

We define diversity and inclusion risk as the risk of not achieving the key objectives in our Diversity and Inclusion Plan. We actively monitor progress against the goals established.

Strategic Risk

We define strategic risk as the risk arising from adverse strategic business decisions, poor implementation and/or execution of strategic plans, or a disproportionate response to changes in the industry and operating environment. We consider legislative and reputational risks to be components of strategic risk. From time to time, proposals are made, or legislative and regulatory changes are considered, which could affect our cost of doing business or other aspects of our business. We mitigate strategic risk through strategic business planning and monitoring of our external and internal environment. For additional information on some of the more important risks we face, refer to “Item 1A. Risk Factors” in our 2020 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market and Income Risk” and the sections referenced therein for quantitative and qualitative disclosures about market risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our President and chief executive officer (CEO), and chief financial officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

Management, with the participation of our President and CEO, and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this report. Based on that evaluation, our President and CEO, and CFO have concluded that our disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2021.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~March 31,~~September 30, 2021, ~~there~~we implemented a mortgage loan accounting system which impacted accounting and financial reporting processes for our mortgage loans. Our internal controls were updated to reflect these changes. There have been no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to “Item 1. Financial Statements — Note 10 — Commitments and Contingencies” for information regarding legal proceedings.

ITEM 1A. RISK FACTORS

For a discussion of our risk factors, refer to our 2020 Form 10-K. There have been no material changes to our risk factors during the ~~three~~nine months ended ~~March 31,~~September 30, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~Executive Changes~~None.

Effective April 8, 2021, William R. Bemis, Senior Vice President and Chief Capital Markets Officer, resigned from the Bank. As a result, William W. Osborn, Executive Vice President and Chief Business Officer expanded his current role to include capital markets beginning April 9, 2021. Mr. Osborn’s additional responsibilities include overseeing the treasury and portfolio strategy functions of the Bank. Prior to joining the Bank in August 2020, Mr. Osborn served as senior vice president and chief financial officer at the Federal Home Loan Bank of Topeka, a role in which included capital markets responsibilities and leadership.

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ITEM 6. EXHIBITS


3.1			Organization Certificate of the Federal Home Loan Bank of Des Moines, as amended and restated effective May 31, 20151
3.2			Bylaws of the Federal Home Loan Bank of Des Moines, as amended and restated effective December 13, 20182
4.1			Federal Home Loan Bank of Des Moines Capital Plan, as amended and approved by the Federal Housing Finance Agency on May 31, 20153

~~10.1~~			~~2021 Director Fee Policy, effective January 1, 2021~~4
~~10.2~~			~~Federal Home Loan Bank of Des Moines Seventh Amended and Restated Benefit Equalization Plan, effective January 1, 2021~~4
31.1			Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
104			Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

1 Incorporated by reference from our Form 8-K filed with the SEC on June 1, 2015 (Commission File No. 000-51999).

2 Incorporated by reference from our Form 8-K filed with the SEC on December 17, 2018 (Commission File No. 000-51999).

3 Incorporated by reference from our Form 10-Q filed with the SEC on November 10, 2020 (Commission File No. 000-51999).

~~4 Incorporated by reference from our Form 10-K filed with the SEC on March 10, 2021 (Commission File No. 000-51999).~~

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SIGNATURES

Pursuant to the requirements 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.

FEDERAL HOME LOAN BANK OF DES MOINES

(Registrant)

Date:

~~May 10,~~November 9, 2021

By:

/s/ Kristina K. Williams

Kristina K. Williams
President and Chief Executive Officer

By:

/s/ Joelyn R. Jensen-Marren

Joelyn R. Jensen-Marren
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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CONTENTS

Forward-Looking Information						4345

Executive Overview						4446

Conditions in the Financial Markets						4951

Selected Financial Data						5153

Results of Operations						5254

Net Income						5254

Net Interest Income						5355

Other Income (Loss)						5558

Hedging Activities						5659

Other Expense						5863

Statements of Condition						5964

Financial Highlights						5964

Cash and Due from Banks						5964

Advances						5964

Mortgage Loans						6065

Investments						6166



Consolidated Obligations						6267





Capital						6268

Derivatives						6368

Liquidity and Capital Resources						6369

Critical Accounting Policies and Estimates						6672

Legislative and Regulatory Developments						6772





Risk Management						6974