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 September 30, 20192020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 000-51399
FEDERAL HOME LOAN BANK OF CINCINNATI
(Exact name of registrant as specified in its charter)
Federally chartered corporation31-6000228
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
600 Atrium Two, P.O. Box 598, 
Cincinnati,OH45201-0598
(Address of principal executive offices)
(Zip Code)

(513) (513) 852-7500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer ☐
Accelerated Filer ☐
Non-accelerated Filer☒Smaller reporting company☐
Emerging growth company☐

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

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

The capital stock of the registrant is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share. As of October 31, 2019,2020, the registrant had 35,282,27228,023,930 shares of capital stock outstanding, which included stock classified as mandatorily redeemable.

Page 1 of


Table of Contents
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited):
Statements of Condition - September 30, 20192020 and December 31, 20182019
3
Statements of Income - Three and nine months ended September 30, 20192020 and 20182019
4
Statements of Comprehensive Income - Three and nine months ended September 30, 20192020 and 20182019
5
Statements of Capital - Three and nine months ended September 30, 20192020 and 20182019
6
Statements of Cash Flows - Nine months ended September 30, 20192020 and 20182019
7
Notes to Unaudited Financial Statements
9
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
4344
Item 3.Quantitative and Qualitative Disclosures About Market Risk
7678
Item 4.Controls and Procedures
7678
PART II - OTHER INFORMATION
Item 1A.Risk Factors
7778
Item 2.6.Unregistered Sales of Equity Securities and Use of ProceedsExhibits
7779
Item 6.SignaturesExhibits
7780
Signatures
77

2
Table of Contents

PART I – FINANCIAL INFORMATION


Item 1.     Financial Statements.

FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CONDITION
(Unaudited)

(In thousands, except par value)
 September 30, 2020 December 31, 2019
ASSETS   
Cash and due from banks$1,363,958  $20,608 
Interest-bearing deposits630,161  550,160 
Securities purchased under agreements to resell2,453,694  2,348,584 
Federal funds sold8,705,000  4,833,000 
Investment securities:
Trading securities11,300,464  11,615,693 
Available-for-sale securities294,496  1,542,185 
Held-to-maturity securities (includes $0 and $0 pledged as collateral at September 30, 2020 and December 31, 2019, respectively, that may be repledged) (a)
11,130,599  13,499,319 
Total investment securities22,725,559 26,657,197 
Advances (includes $27,464 and $5,238 at fair value under fair value option at September 30, 2020 and December 31, 2019, respectively)27,100,957  47,369,573 
Mortgage loans held for portfolio, net of allowance for credit losses of $242 and $711 at September 30, 2020 and December 31, 2019, respectively10,671,179  11,235,353 
Accrued interest receivable144,310  182,252 
Derivative assets259,170  267,165 
Other assets, net23,420  27,667 
TOTAL ASSETS$74,077,408  $93,491,559 
LIABILITIES   
Deposits$1,239,198  $951,296 
Consolidated Obligations:   
Discount Notes (includes $0 and $12,386,974 at fair value under fair value option at September 30, 2020 and December 31, 2019, respectively)26,667,698  49,084,219 
Bonds (includes $2,447,759 and $4,757,177 at fair value under fair value option at September 30, 2020 and December 31, 2019, respectively)41,432,178  38,439,724 
Total Consolidated Obligations68,099,876  87,523,943 
Mandatorily redeemable capital stock17,661  21,669 
Accrued interest payable77,746  126,091 
Affordable Housing Program payable115,755  115,295 
Derivative liabilities81  1,310 
Other liabilities322,358  307,499 
Total liabilities69,872,675  89,047,103 
Commitments and contingencies
CAPITAL   
Capital stock Class B putable ($100 par value); issued and outstanding shares: 29,345 shares at September 30, 2020 and 33,664 shares at December 31, 20192,934,499  3,366,428 
Retained earnings:
Unrestricted788,951 648,374 
Restricted493,340 446,048 
Total retained earnings1,282,291  1,094,422 
Accumulated other comprehensive loss(12,057) (16,394)
Total capital4,204,733  4,444,456 
TOTAL LIABILITIES AND CAPITAL$74,077,408  $93,491,559 
 September 30, 2019 December 31, 2018
ASSETS   
Cash and due from banks$15,417
 $10,037
Interest-bearing deposits599,201
 122
Securities purchased under agreements to resell1,839,576
 4,402,208
Federal funds sold14,082,000
 10,793,000
Investment securities:   
Trading securities11,416,483
 223,980
Available-for-sale securities434,177
 2,402,897
Held-to-maturity securities (includes $0 and $0 pledged as collateral at September 30, 2019 and December 31, 2018, respectively, that may be repledged) (a)
14,070,879
 15,791,222
Total investment securities25,921,539
 18,418,099
Advances (includes $10,267 and $10,008 at fair value under fair value option at September 30, 2019 and December 31, 2018, respectively)46,358,204
 54,822,252
Mortgage loans held for portfolio, net of allowance for credit losses of $740 and $840 at September 30, 2019 and December 31, 2018, respectively10,883,590
 10,500,917
Accrued interest receivable204,910
 169,982
Derivative assets279,554
 65,765
Other assets27,051
 20,191
TOTAL ASSETS$100,211,042
 $99,202,573
LIABILITIES   
Deposits$847,020
 $669,016
Consolidated Obligations:   
Discount Notes (includes $13,914,315 and $0 at fair value under fair value option at September 30, 2019 and December 31, 2018, respectively)49,553,251
 46,943,632
Bonds (includes $5,436,423 and $3,906,610 at fair value under fair value option at September 30, 2019 and December 31, 2018, respectively)44,590,325
 45,659,138
Total Consolidated Obligations94,143,576
 92,602,770
Mandatorily redeemable capital stock25,612
 23,184
Accrued interest payable144,699
 147,337
Affordable Housing Program payable114,288
 117,336
Derivative liabilities4,076
 4,586
Other liabilities291,685
 308,128
Total liabilities95,570,956
 93,872,357
Commitments and contingencies

 

CAPITAL   
Capital stock Class B putable ($100 par value); issued and outstanding shares: 35,975 shares at September 30, 2019 and 43,205 shares at December 31, 20183,597,501
 4,320,459
Retained earnings:   
Unrestricted623,830
 631,971
Restricted430,864
 390,829
Total retained earnings1,054,694
 1,022,800
Accumulated other comprehensive loss(12,109) (13,043)
Total capital4,640,086
 5,330,216
TOTAL LIABILITIES AND CAPITAL$100,211,042
 $99,202,573
(a)Fair values: $11,275,891 and $13,501,207 at September 30, 2020 and December 31, 2019, respectively.
(a)
Fair values: $14,082,525 and

$15,575,368 at September 30, 2019 and December 31, 2018, respectively.

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

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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF INCOME
(Unaudited)
(In thousands)Three Months Ended September 30, Nine Months Ended September 30,(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020 201920202019
INTEREST INCOME:       INTEREST INCOME:   
Advances$267,537
 $342,138
 $991,077
 $1,009,613
Advances$63,974  $267,537 $394,578 $991,077 
Prepayment fees on Advances, net724
 27
 904
 488
Prepayment fees on Advances, net7,509  724 25,103 904 
Interest-bearing deposits3,823
 194
 9,104
 449
Interest-bearing deposits442  3,823 4,202 9,104 
Securities purchased under agreements to resell13,271
 15,808
 54,319
 33,075
Securities purchased under agreements to resell290  13,271 10,680 54,319 
Federal funds sold62,322
 44,203
 185,343
 130,216
Federal funds sold1,541  62,322 30,621 185,343 
Investment securities:       Investment securities:
Trading securities61,653
 35
 112,213
 45
Trading securities66,281  61,653 201,876 112,213 
Available-for-sale securities3,284
 14,222
 21,697
 27,677
Available-for-sale securities271  3,284 4,286 21,697 
Held-to-maturity securities94,740
 101,174
 305,192
 278,951
Held-to-maturity securities36,516 94,740 153,199 305,192 
Total investment securities159,677
 115,431
 439,102
 306,673
Total investment securities103,068 159,677 359,361 439,102 
Mortgage loans held for portfolio83,506
 80,188
 257,758
 235,609
Mortgage loans held for portfolio62,429  83,506 225,837 257,758 
Loans to other FHLBanks—
 —
 70
 20
Loans to other FHLBanks0  0 60 70 
Total interest income590,860
 597,989
 1,937,677
 1,716,143
Total interest income239,253  590,860 1,050,442 1,937,677 
INTEREST EXPENSE:       INTEREST EXPENSE:   
Consolidated Obligations:       Consolidated Obligations:
Discount Notes238,574
 207,947
 794,469
 604,387
Discount Notes26,299  238,574 285,755 794,469 
Bonds260,453
 256,014
 823,376
 725,221
Bonds119,748  260,453 435,543 823,376 
Total Consolidated Obligations499,027
 463,961
 1,617,845
 1,329,608
Total Consolidated Obligations146,047 499,027 721,298 1,617,845 
Deposits4,337
 3,455
 12,008
 7,906
Deposits174  4,337 3,348 12,008 
Loans from other FHLBanks3
 —
 3
 5
Loans from other FHLBanks0 3 0 3 
Mandatorily redeemable capital stock254
 413
 896
 1,213
Mandatorily redeemable capital stock(76) 254 978 896 
Total interest expense503,621
 467,829
 1,630,752
 1,338,732
Total interest expense146,145  503,621 725,624 1,630,752 
NET INTEREST INCOME87,239
 130,160
 306,925
 377,411
NET INTEREST INCOME93,108  87,239 324,818 306,925 
NON-INTEREST INCOME (LOSS):       NON-INTEREST INCOME (LOSS):   
Net gains (losses) on investment securities70,146
 805
 263,733
 800
Net gains (losses) on investment securities(42,136)70,146 319,866 263,733 
Net gains (losses) on financial instruments held under fair value option(8,681) (3,607) (50,615) 12,224
Net gains (losses) on financial instruments held under fair value option10,687 (8,681)(14,402)(50,615)
Net gains (losses) on derivatives and hedging activities(60,254) (8,804) (238,339) (46,769)Net gains (losses) on derivatives and hedging activities19,708  (60,254)(308,230)(238,339)
Standby Letters of Credit feesStandby Letters of Credit fees3,726 2,496 9,430 6,950 
Other, net3,083
 2,683
 8,457
 8,156
Other, net544  587 1,529 1,507 
Total non-interest income (loss)4,294
 (8,923) (16,764) (25,589)Total non-interest income (loss)(7,471) 4,294 8,193 (16,764)
NON-INTEREST EXPENSE:       NON-INTEREST EXPENSE:   
Compensation and benefits11,173
 10,315
 35,208
 34,465
Compensation and benefits12,356  11,173 37,647 35,208 
Other operating expenses5,498
 4,987
 16,443
 15,082
Other operating expenses4,789  5,498 15,860 16,443 
Finance Agency1,695
 1,565
 5,086
 4,694
Finance Agency1,629  1,695 4,886 5,086 
Office of Finance1,204
 1,219
 3,684
 3,653
Office of Finance1,331  1,204 4,034 3,684 
Other2,273
 1,322
 7,223
 5,779
Other1,766  2,273 7,742 7,223 
Total non-interest expense21,843
 19,408
 67,644
 63,673
Total non-interest expense21,871  21,843 70,169 67,644 
INCOME BEFORE ASSESSMENTS69,690
 101,829
 222,517
 288,149
INCOME BEFORE ASSESSMENTS63,766  69,690 262,842 222,517 
Affordable Housing Program assessments6,995
 10,224
 22,342
 28,936
Affordable Housing Program assessments6,369  6,995 26,382 22,342 
NET INCOME$62,695
 $91,605
 $200,175
 $259,213
NET INCOME$57,397  $62,695 $236,460 $200,175 
The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

(In thousands)Three Months Ended September 30, Nine Months Ended September 30,(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020201920202019
Net income$62,695
 $91,605
 $200,175
 $259,213
Net income$57,397 $62,695 $236,460 $200,175 
Other comprehensive income adjustments:       Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities(192) (101) (442) 243
Net unrealized gains (losses) on available-for-sale securities3,504 (192)2,621 (442)
Pension and postretirement benefits459
 677
 1,376
 1,650
Pension and postretirement benefits572 459 1,716 1,376 
Total other comprehensive income (loss) adjustments267
 576
 934
 1,893
Total other comprehensive income (loss) adjustments4,076 267 4,337 934 
Comprehensive income$62,962
 $92,181
 $201,109
 $261,106
Comprehensive income$61,473 $62,962 $240,797 $201,109 

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


5
Table of Contents
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CAPITAL
(Unaudited)
(In thousands)Capital Stock
Class B - Putable		Retained EarningsAccumulated Other ComprehensiveTotal
 SharesPar ValueUnrestrictedRestrictedTotalLossCapital
BALANCE, JUNE 30, 201938,065 $3,806,530 $618,634 $418,325 $1,036,959 $(12,376)$4,831,113 
Comprehensive income (loss)50,156 12,539 62,695 267 62,962 
Proceeds from sale of capital stock1,475 147,464 147,464 
Repurchase of capital stock(3,500)(350,000)(350,000)
Net shares reclassified to mandatorily redeemable capital stock(65)(6,493)(6,493)
Cash dividends on capital stock(44,960)(44,960)(44,960)
BALANCE, SEPTEMBER 30, 201935,975 $3,597,501 $623,830 $430,864 $1,054,694 $(12,109)$4,640,086 
BALANCE, JUNE 30, 202038,131 $3,813,110 $765,084 $481,861 $1,246,945 $(16,133)$5,043,922 
Comprehensive income (loss)  45,918 11,479 57,397 4,076 61,473 
Proceeds from sale of capital stock214 21,389  21,389 
Repurchase of capital stock(9,000)(900,000)(900,000)
Cash dividends on capital stock  (22,051)(22,051) (22,051)
BALANCE, SEPTEMBER 30, 202029,345 $2,934,499 $788,951 $493,340 $1,282,291 $(12,057)$4,204,733 
(In thousands)
Capital Stock
Class B - Putable
 Retained Earnings Accumulated Other Comprehensive Total(In thousands)Capital Stock
Class B - Putable		Retained EarningsAccumulated Other ComprehensiveTotal
Shares Par Value Unrestricted Restricted Total Loss Capital SharesPar ValueUnrestrictedRestrictedTotalLossCapital
BALANCE, JUNE 30, 201845,391
 $4,539,115
 $627,182
 $356,521
 $983,703
 $(15,343) $5,507,475
BALANCE, DECEMBER 31, 2018BALANCE, DECEMBER 31, 201843,205 $4,320,459 $631,971 $390,829 $1,022,800 $(13,043)$5,330,216 
Comprehensive income (loss)    73,284
 18,321
 91,605
 576
 92,181
Comprehensive income (loss)160,140 40,035 200,175 934 201,109 
Proceeds from sale of capital stock77
 7,656
         7,656
Proceeds from sale of capital stock5,233 523,257 523,257 
Repurchase of capital stock(2,973) (297,252)         (297,252)Repurchase of capital stock(12,386)(1,238,544)(1,238,544)
Net shares reclassified to mandatorily
redeemable capital stock
(76) (7,592)         (7,592)Net shares reclassified to mandatorily redeemable capital stock(77)(7,671)(7,671)
Cash dividends on capital stock    (67,829)   (67,829)   (67,829)
BALANCE, SEPTEMBER 30, 201842,419
 $4,241,927
 $632,637
 $374,842
 $1,007,479
 $(14,767) $5,234,639
             
             
BALANCE, JUNE 30, 201938,065
 $3,806,530
 $618,634
 $418,325
 $1,036,959
 $(12,376) $4,831,113
Cash dividends on capital stockCash dividends on capital stock(168,281)(168,281)(168,281)
BALANCE, SEPTEMBER 30, 2019BALANCE, SEPTEMBER 30, 201935,975 $3,597,501 $623,830 $430,864 $1,054,694 $(12,109)$4,640,086 
BALANCE, DECEMBER 31, 2019BALANCE, DECEMBER 31, 201933,664 $3,366,428 $648,374 $446,048 $1,094,422 $(16,394)$4,444,456 
Adjustment for cumulative effect of accounting changeAdjustment for cumulative effect of accounting change366 366 366 
Comprehensive income (loss) 
  
 50,156
 12,539
 62,695
 267
 62,962
Comprehensive income (loss)  189,168 47,292 236,460 4,337 240,797 
Proceeds from sale of capital stock1,475
 147,464
         147,464
Proceeds from sale of capital stock21,256 2,125,590  2,125,590 
Repurchase of capital stock(3,500) (350,000)         (350,000)Repurchase of capital stock(20,000)(2,000,000)(2,000,000)
Net shares reclassified to mandatorily
redeemable capital stock
(65) (6,493)         (6,493)Net shares reclassified to mandatorily redeemable capital stock(5,575)(557,519) (557,519)
Partial recovery of prior capital distribution to Financing CorporationPartial recovery of prior capital distribution to Financing Corporation16,533 16,533 16,533 
Cash dividends on capital stock    (44,960)   (44,960)   (44,960)Cash dividends on capital stock  (65,490)(65,490) (65,490)
BALANCE, SEPTEMBER 30, 201935,975
 $3,597,501
 $623,830
 $430,864
 $1,054,694
 $(12,109) $4,640,086
BALANCE, SEPTEMBER 30, 2020BALANCE, SEPTEMBER 30, 202029,345 $2,934,499 $788,951 $493,340 $1,282,291 $(12,057)$4,204,733 

(In thousands)
Capital Stock
Class B - Putable
 Retained Earnings Accumulated Other Comprehensive Total
 Shares Par Value Unrestricted Restricted Total Loss Capital
BALANCE, DECEMBER 31, 201742,411
 $4,241,140
 $617,034
 $322,999
 $940,033
 $(16,660) $5,164,513
Comprehensive income (loss)    207,370
 51,843
 259,213
 1,893
 261,106
Proceeds from sale of capital stock3,035
 303,488
         303,488
Repurchase of capital stock(2,973) (297,252)         (297,252)
Net shares reclassified to mandatorily
   redeemable capital stock
(54) (5,449)         (5,449)
Cash dividends on capital stock    (191,767)   (191,767)   (191,767)
BALANCE, SEPTEMBER 30, 201842,419
 $4,241,927
 $632,637
 $374,842
 $1,007,479
 $(14,767) $5,234,639
              
              
BALANCE, DECEMBER 31, 201843,205
 $4,320,459
 $631,971
 $390,829
 $1,022,800
 $(13,043) $5,330,216
Comprehensive income (loss) 
  
 160,140
 40,035
 200,175
 934
 201,109
Proceeds from sale of capital stock5,233
 523,257
         523,257
Repurchase of capital stock(12,386) (1,238,544)         (1,238,544)
Net shares reclassified to mandatorily
   redeemable capital stock
(77) (7,671)         (7,671)
Cash dividends on capital stock    (168,281)   (168,281)   (168,281)
BALANCE, SEPTEMBER 30, 201935,975
 $3,597,501
 $623,830
 $430,864
 $1,054,694
 $(12,109) $4,640,086

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

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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)Nine Months Ended September 30,
 2020 2019
OPERATING ACTIVITIES:   
Net income$236,460  $200,175 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Depreciation and amortization37,313  8,900 
Net change in derivative and hedging activities(183,733) (198,494)
Net change in fair value adjustments on trading securities(319,866) (263,733)
Net change in fair value adjustments on financial instruments held under fair value option14,402 50,615 
Other adjustments, net798  596 
Net change in:  
Accrued interest receivable38,140  (35,226)
Other assets3,135  (994)
Accrued interest payable(56,937) 5,917 
Other liabilities17,125  8,005 
Total adjustments(449,623) (424,414)
Net cash provided by (used in) operating activities(213,163) (224,239)
INVESTING ACTIVITIES:   
Net change in:   
Interest-bearing deposits(260,047) (858,712)
Securities purchased under agreements to resell(105,110) 2,562,632 
Federal funds sold(3,872,000) (3,289,000)
Premises, software, and equipment(1,265) (1,753)
Trading securities:   
Proceeds from maturities5,135,034  113 
Purchases(4,499,939)(10,928,882)
Available-for-sale securities:   
Proceeds from maturities1,810,000  5,090,000 
Purchases(550,267)(3,128,500)
Held-to-maturity securities:   
Proceeds from maturities2,437,476  2,694,458 
Purchases(75,604) (994,810)
Advances:   
Repaid470,292,647  1,147,441,338 
Originated(449,675,012) (1,138,754,813)
Mortgage loans held for portfolio:   
Principal collected2,942,372  1,221,970 
Purchases(2,432,823) (1,622,397)
Net cash provided by (used in) investing activities21,145,462  (568,356)
The accompanying notes are an integral part of these financial statements.
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(In thousands)Nine Months Ended September 30,
 2019 2018
OPERATING ACTIVITIES:   
Net income$200,175
 $259,213
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization8,900
 22,308
Net change in derivative and hedging activities(198,494) 39,727
Net change in fair value adjustments on trading securities(263,733) (800)
Net change in fair value adjustments on financial instruments held under fair value option50,615
 (12,224)
Other adjustments596
 —
Net change in:   
Accrued interest receivable(35,226) (43,441)
Other assets(994) 7,977
Accrued interest payable5,917
 19,033
Other liabilities8,005
 14,600
Total adjustments(424,414) 47,180
Net cash provided by (used in) operating activities(224,239) 306,393
    
INVESTING ACTIVITIES:   
Net change in:   
Interest-bearing deposits(858,712) (1,928)
Securities purchased under agreements to resell2,562,632
 3,210,500
Federal funds sold(3,289,000) (5,260,000)
Premises, software, and equipment(1,753) (1,531)
Trading securities:   
Proceeds from maturities113
 125
Purchases(10,928,882) (71,935)
Available-for-sale securities:   
Proceeds from maturities5,090,000
 4,600,000
Purchases(3,128,500) (5,774,000)
Held-to-maturity securities:   
Proceeds from maturities2,694,458
 2,018,495
Purchases(994,810) (3,411,173)
Advances:   
Repaid1,147,441,338
 2,336,379,163
Originated(1,138,754,813) (2,324,286,546)
Mortgage loans held for portfolio:   
Principal collected1,221,970
 859,958
Purchases(1,622,397) (1,391,681)
Net cash provided by (used in) investing activities(568,356) 6,869,447
    
    
    
The accompanying notes are an integral part of these financial statements.  
    
    
    
(continued from previous page)
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)Nine Months Ended September 30,
2020 2019
FINANCING ACTIVITIES:   
Net change in deposits and pass-through reserves$284,032  $179,964 
Net proceeds (payments) on derivative contracts with financing elements(1,394) (373)
Net proceeds from issuance of Consolidated Obligations:   
Discount Notes232,873,177  605,292,074 
Bonds35,649,162  24,021,342 
Payments for maturing and retiring Consolidated Obligations:   
Discount Notes(255,247,967) (602,674,421)
Bonds(32,661,065) (25,131,800)
Proceeds from issuance of capital stock2,125,590  523,257 
Payments for repurchase of capital stock(2,000,000)(1,238,544)
Payments for repurchase/redemption of mandatorily redeemable capital stock(561,527) (5,243)
Cash dividends paid(65,490) (168,281)
Partial recovery of prior capital distribution to Financing Corporation16,533 0 
Net cash provided by (used in) financing activities(19,588,949) 797,975 
Net increase (decrease) in cash and due from banks1,343,350  5,380 
Cash and due from banks at beginning of the period20,608  10,037 
Cash and due from banks at end of the period$1,363,958  $15,417 
Supplemental Disclosures:   
Interest paid$830,682  $1,649,854 
Affordable Housing Program payments, net$25,922  $25,390 


(continued from previous page)   
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(Unaudited)
 
(In thousands)Nine Months Ended September 30,
 2019 2018
FINANCING ACTIVITIES:   
Net change in deposits and pass-through reserves$179,964
 $1,144,681
Net proceeds (payments) on derivative contracts with financing elements(373) (908)
Net proceeds from issuance of Consolidated Obligations:   
Discount Notes605,292,074
 424,259,455
Bonds24,021,342
 19,549,736
Payments for maturing and retiring Consolidated Obligations:   
Discount Notes(602,674,421) (425,170,844)
Bonds(25,131,800) (26,773,265)
Proceeds from issuance of capital stock523,257
 303,488
Payments for repurchase of capital stock(1,238,544) (297,252)
Payments for repurchase/redemption of mandatorily redeemable capital stock(5,243) (13,106)
Cash dividends paid(168,281) (191,767)
Net cash provided by (used in) financing activities797,975
 (7,189,782)
Net increase (decrease) in cash and due from banks5,380
 (13,942)
Cash and due from banks at beginning of the period10,037
 26,550
Cash and due from banks at end of the period$15,417
 $12,608
Supplemental Disclosures:   
Interest paid$1,649,854
 $1,325,065
Affordable Housing Program payments, net$25,390
 $25,365



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


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FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO UNAUDITED FINANCIAL STATEMENTS


Background Information    

The Federal Home Loan Bank of Cincinnati (the FHLB), a federally chartered corporation, is one of 11 District Federal Home Loan Banks (FHLBanks). The FHLBanks are government-sponsored enterprises (GSEs) that serve the public by enhancing the availability of credit for residential mortgages and targeted community development. The FHLB is regulated by the Federal Housing Finance Agency (Finance Agency).

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates. These assumptions and estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates. The interim financial statements presented are unaudited, but they include all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, and cash flows for such periods. These financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the audited financial statements and notes included in the FHLB's Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (SEC). Results for the nine months ended September 30, 20192020 are not necessarily indicative of operating results for the full year.

The FHLB presents certain financial instruments, including derivative instruments and securities purchased under agreements to resell, on a net basis when it has a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). For these instruments, the FHLB has elected to offset its asset and liability positions, as well as cash collateral received or pledged, when it has met the netting requirements. The FHLB did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the requirements for netting, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in Note 10.6. Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented. For more information about the FHLB's investments in securities purchased under agreements to resell, see “Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies” in the FHLB's 20182019 Annual Report on Form 10-K.

The FHLB did not hold any equity securities as of September 30, 2019 and December 31, 2018.

Subsequent Events
Reclassifications.Certain amounts in the 2018 financial statements have been reclassified to conform to the presentation as of September 30, 2019. Specifically, certain cash flow amounts in the prior period Statement of Cash Flows have been reclassified to reflect short-term investment securities purchases and proceeds on a gross, rather than net, basis.

Subsequent Events.The FHLB has evaluated subsequent events for potential recognition or disclosure through the issuance of these financial statements and believes there have been no material subsequent events requiring additional disclosure or recognition in these financial statements.


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Significant Accounting Policies

Beginning January 1, 2020, the FHLB adopted new accounting guidance related to the measurement of credit losses on financial instruments, which requires a financial asset or group of financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new guidance also requires credit losses relating to these financial instruments and available-for-sale securities to be recorded through the allowance for credit losses. Key changes from prior accounting guidance are detailed below. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting. See “Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies” in the FHLB's 2019 Annual Report on Form 10-K for information on the prior accounting treatment.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold.These investments provide short-term liquidity and are carried at amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition.

These investments are evaluated quarterly for expected credit losses. If applicable, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The FHLB applies the collateral maintenance provision practical expedient, which allows expected credit losses to be measured based on the difference between the fair value of the collateral and the investment's amortized cost, for securities purchased under agreements to resell. Consequently, a credit loss would be recognized if there is a collateral shortfall which the FHLB does not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the fair value of the collateral and the investment’s amortized cost.

See Note 3 - Investments for details on the allowance methodologies relating to these investments.

Investment Securities.

Available for Sale. For securities classified as available-for-sale, the FHLB evaluates an individual security for impairment on a quarterly basis by comparing the security’s fair value to its amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition. Impairment exists when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, the FHLB considers whether there would be a shortfall in receiving all cash flows contractually due. When a shortfall is considered possible, the FHLB compares the present value of cash flows to be collected from the security with the amortized cost basis of the security. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance is limited by the amount of the unrealized loss. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately.

If management intends to sell an impaired security classified as available-for-sale, or more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in earnings as net gains (losses) on investment securities. If management does not intend to sell an impaired security classified as available-for-sale and it is not more likely than not that management will be required to sell the debt security, then the credit portion of the difference is recognized as an allowance for credit losses and any remaining difference between the security’s fair value and amortized cost is recorded to net unrealized gains (losses) on available-for-sale securities within other comprehensive income (loss).

Prior to January 1, 2020, credit losses were recorded as a direct write-down of the available-for-sale security carrying value. As of December 31, 2019, the FHLB had not recorded any direct write-downs to the carrying value of its available-for-sale securities.

Held-to-Maturity. Securities that the FHLB has both the ability and intent to hold to maturity are classified as held-to-maturity and are carried at amortized cost, which is original cost net of periodic principal repayments and amortization of premiums and accretion of discounts. Accrued interest receivable is recorded separately on the Statements of Condition.

Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. Prior to January 1, 2020, credit losses were recorded as
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a direct write-down of the held-to-maturity security carrying value. As of December 31, 2019, the FHLB had not recorded any direct write-downs to the carrying value of its held-to-maturity securities.

See Note 3 - Investments for details on the allowance methodologies relating to available-for-sale and held-to-maturity securities.

Advances. Advances (loans to members, former members, or housing associates) are carried at amortized cost, or at fair value, when the fair value option has been elected. Advances recorded at amortized cost are carried at original cost net of periodic principal repayments and amortization of premiums and accretion of discounts (including discounts related to the Affordable Housing Program), unearned commitment fees, and fair value hedge adjustments. Accrued interest receivable is recorded separately on the Statements of Condition. The Advances carried at amortized cost are evaluated quarterly for expected credit losses. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. See Note 4 - Advances for details on the allowance methodology relating to Advances.

Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio are recorded at amortized cost, which is original cost, net of periodic principal repayments and amortization of premiums and accretion of discounts, hedging basis adjustments on loans initially classified as mortgage loan commitments, and direct write-downs. The FHLB has the intent and ability to hold these mortgage loans to maturity. Accrued interest receivable is recorded separately on the Statements of Condition. The FHLB performs a quarterly assessment of its mortgage loans held for portfolio to estimate expected credit losses. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses.

The FHLB measures expected credit losses on mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a mortgage loan no longer shares risk characteristics with other loans, it is removed from the pool and evaluated for expected credit losses on an individual basis.

When developing the allowance for credit losses, the FHLB measures the expected loss over the estimated remaining life of a mortgage loan, which also considers how the FHLB’s credit enhancements mitigate credit losses. If a loan is purchased at a discount, the discount does not offset the allowance for credit losses. The FHLB’s measurement of expected credit losses takes into consideration any accrued interest that may be lost as a result of a default.

The FHLB does not purchase mortgage loans with credit deterioration present at the time of purchase. The FHLB includes estimates of expected recoveries within the allowance for credit losses. See Note 5 - Mortgage Loans for details on the allowance methodologies relating to mortgage loans.

Off-Balance Sheet Credit Exposures. The FHLB evaluates its off-balance sheet credit exposures on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses on these off-balance sheet exposures is recorded in other liabilities with a corresponding adjustment to the provision (reversal) for credit losses.


Note 2 - Recently Issued Accounting Standards and Interpretations

InclusionTroubled Debt Restructuring Relief. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs) was signed into law. Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of the Secured Overnight Financingcoronavirus pandemic (COVID-19) granted to borrowers that were current as of December 31, 2019. TDR relief applies to COVID-19 related modifications made from March 1, 2020, until the earlier of December 31, 2020, or 60 days following the termination of the national emergency declared by the President of the United States. The FHLB elected to apply the TDR relief provided by the CARES Act.

Facilitation of the Effects of Reference Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.Reform on Financial Reporting. On October 25, 2018,March 12, 2020, the Financial Accounting Standards Board (FASB) issued temporary, optional guidance that permitsto ease the OISpotential burden in accounting for reference rate based on SOFRreform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale and/or transfer of debt securities classified as an eligible U.S. benchmark interest rate for hedge accounting purposes, to facilitate the London InterBank Offered Rate (LIBOR) to SOFR transition.held-to-maturity. This guidance becameis effective immediately for the FHLB, for

and the interim and annual periods beginning on January 1, 2019 (concurrent withamendments may be applied prospectively through December 31, 2022. The FHLB plans to elect the adoptionmajority of the hedging standard mentioned below). This guidance was adopted prospectively for qualifying new or re-designated hedging relationships entered into on or after January 1, 2019. Upon adoption, this guidance did not have an impactoptional expedients and exceptions provided; however, the effect on the FHLB’sFHLB's financial condition, results of operations orand cash flows.flows has not yet been determined.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. On August 29, 2018, the FASB issued amended guidance that aligns the requirements for capitalizing implementation costs
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incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance becomesbecame effective for the FHLB for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted. The FHLB does not intend to adopt this guidance early. The guidance willdid not have a material impact on the FHLB’s financial condition, results of operations, and cash flows.

Changes to the Disclosure Requirements for Defined Benefit Plans. On August 28, 2018, the FASB issued amended guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to improve disclosure effectiveness. This guidance becomes effective for annual periods ending after December 15, 2020 (December 31, 2020 for the FHLB) and will be applied retrospectively for all comparative periods presented. Early adoption is permitted. The FHLB does not intend towill adopt this guidance early.for the year ending December 31, 2020. The adoption of this guidance will affect the FHLB's disclosures, but will not have any effect on the FHLB's financial condition, results of operations, or cash flows.

Changes to the Disclosure Requirements for Fair Value Measurement. On August 28, 2018, the FASB issued amended guidance that modifies the disclosure requirements for fair value measurements to improve disclosure effectiveness. This guidance becomesbecame effective for the FHLB for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted. The FHLB does not intend to adopt this guidance early. The adoption of this guidance will affectaffected the FHLB's disclosures, but willdid not have any effect on the FHLB's financial condition, results of operations, or cash flows.
Targeted Improvements to Accounting for Hedging Activities. On August 28, 2017, the FASB issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness. This guidance became effective for the FHLB for the interim and annual periods beginning on January 1, 2019 and was applied to all existing hedging relationships as of that date. On January 1, 2019, the FHLB modified the presentation of fair value hedge results on its Statements of Income, as well as relevant disclosures, prospectively. However, the adoption of this guidance did not have a material effect on the FHLB's financial condition, results of operations, or cash flows.
Premium Amortization on Purchased Callable Debt Securities. On March 30, 2017, the FASB issued amended guidance to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance was adopted on January 1, 2019, and is applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The guidance did not have an impact on the FHLB’s financial condition, results of operations, or cash flows.

Measurement of Credit Losses on Financial Instruments. On June 16, 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to immediately record the full amount of expected credit losses in their loan portfolios. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance also requires, among other things, credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses and expanded disclosure requirements. The guidance becomesbecame effective for the FHLB for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted. The FHLB does not intend to adopt the new guidance early. The guidance should bewas applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance iswas effective. In addition, entities are required to use a prospective transition approach for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Based on its preliminary assessments, the FHLB doesThe adoption of this guidance did not expect the guidance to result in an allowance for credit losses for certain financial instruments including Advances, U.S. obligation/GSE investments, securities purchased under agreement to resell and other short-term investments given the specific terms, issuer guarantees, and/or collateralized/secured nature of the instruments. For mortgage loans held for

portfolio, the FHLB expects theadoption of this guidance todid not have an immaterial impact. However, the guidance's ultimatea material impact on the FHLB's financial condition, results of operations, and cash flows may change depending upon the composition of the FHLB’s financial assets at the adoption date and the economic conditions and forecasts at that time.
Leases. On February 25, 2016, the FASB issued guidance that requires recognition of lease assets and lease liabilities on the Statement of Condition and disclosure of key information about leasing arrangements. In particular, this guidance requires a lessee, of operating or finance leases, to recognize on the Statement of Condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. This guidance became effective for the FHLB for the interim and annual periods beginning on January 1, 2019. The FHLB elected to adopt this guidance using the modified retrospective method, and therefore, did not restate prior periods. On January 1, 2019, the FHLB recognized a right-of-use asset of $5,473,000 in other assets and a lease liability of $6,141,000 in other liabilities on its Statement of Condition for its operating leases. As permitted, the FHLB elected to not recognize a right-of-use asset or lease liability for its leases with terms of 12 months or less. The FHLB has determined that its leasing activities are not material to its financial condition, results of operations, or cash flows.


Note 3 - Investments

The FHLB makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold and may make other investments in debt securities, which are classified as either trading, available-for-sale, or held-to-maturity.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold

The FHLB invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are transacted with counterparties that have received a credit rating of single-A or greater by a nationally recognized statistical rating organization (NRSRO). The FHLB’s internal ratings of these counterparties may differ from those issued by an NRSRO.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the FHLB may extend to a counterparty. At September 30, 2020 and December 31, 2019, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. NaN allowance for credit losses was recorded for these assets at September 30, 2020 and December 31, 2019. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of (in thousands) $107 and $20 as of September 30, 2020, and $1,162 and $210 as of December 31, 2019.

Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with counterparties, the FHLB determined that 0 allowance for credit losses was needed for its securities purchased under agreements to resell at September 30, 2020 and December 31, 2019. The carrying value of
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securities purchased under agreements to resell excludes accrued interest receivable of (in thousands) $15 and $3,503 as of September 30, 2020 and December 31, 2019.

Debt Securities

The FHLB invests in debt securities, which are classified as either trading, available-for-sale, or held-to-maturity. The FHLB is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities and instruments that experienced credit deterioration after their purchase by the FHLB.

Trading Securities

Table 3.1 - Trading Securities by Major Security Types (in thousands)
Fair ValueSeptember 30, 2019 December 31, 2018Fair ValueSeptember 30, 2020 December 31, 2019
Non-mortgage-backed securities (non-MBS):   Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligations$9,386,559
 $—
U.S. Treasury obligations$9,152,799 $9,626,964 
GSE obligations2,029,426
 223,368
GSE obligations2,147,291  1,988,259 
Total non-MBS11,415,985
 223,368
Total non-MBS11,300,090 11,615,223 
Mortgage-backed securities (MBS):   Mortgage-backed securities (MBS):   
U.S. obligation single-family MBS498
 612
U.S. obligation single-family MBS374  470 
Total$11,416,483
 $223,980
Total$11,300,464  $11,615,693 


Table 3.2 - Net Gains (Losses) on Trading Securities (in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net gains (losses) on trading securities held at period end$(38,866)$70,146 $323,136  $263,733 
Net gains (losses) on securities matured during the period(3,270)0 (3,270) 0 
Net gains (losses) on trading securities$(42,136)$70,146 $319,866  $263,733 
 Nine Months Ended September 30,
 2019 2018
Net gains (losses) on trading securities held at period end$263,733
 $800
Net gains (losses) on trading securities$263,733
 $800


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Note 4 - Available-for-Sale Securities

Table 4.13.3 - Available-for-Sale Securities by Major Security Types (in thousands)
 September 30, 2019
 
Amortized
Cost (1)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Certificates of deposit$300,000
 $3
 $—
 $300,003
GSE obligations134,729
 200
 (755) 134,174
Total$434,729
 $203
 $(755) $434,177
        
 December 31, 2018
 
Amortized
Cost (1)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Certificates of deposit$2,350,000
 $71
 $(69) $2,350,002
GSE obligations53,007
 16
 (128) 52,895
Total$2,403,007
 $87
 $(197) $2,402,897

(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments.

 September 30, 2020
 
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Non-MBS:
GSE obligations$142,362 $1,217 $0 $143,579 
Total non-MBS142,362 1,217 0 143,579 
MBS:
GSE multi-family MBS149,143 1,774 0 150,917 
Total MBS149,143 1,774 0 150,917 
Total$291,505 $2,991 $0 $294,496 
 December 31, 2019
 
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Certificates of deposit$1,410,000  $111  $0 $1,410,111 
GSE obligations131,815 601 (342)132,074 
Total$1,541,815 $712 $(342)$1,542,185 
All(1)Amortized cost of available-for-sale securities outstanding with gross unrealized lossesincludes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of (in thousands) $647 and $5,149 at September 30, 20192020 and December 31, 2018 were in a continuous unrealized loss position for less than 12 months.2019.

Table 4.2 - Available-for-Sale Securities by Contractual Maturity (in thousands)
 September 30, 2019 December 31, 2018
Year of Maturity
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in 1 year or less$300,000
 $300,003
 $2,350,000
 $2,350,002
Due after 1 year through 5 years—
 —
 —
 —
Due after 5 years through 10 years122,166
 121,648
 48,999
 48,904
Due after 10 years12,563
 12,526
 4,008
 3,991
Total$434,729
 $434,177
 $2,403,007
 $2,402,897


Table 4.3 - Interest Rate Payment Terms of Available-for-Sale Securities (in thousands)
 September 30, 2019 December 31, 2018
Amortized cost of available-for-sale securities:   
Fixed-rate$434,729
 $2,403,007


Realized Gains and Losses. The FHLB had 0 sales of securities out of its available-for-sale portfolio for the nine months ended September 30, 2019 or 2018.


Note 5 - Held-to-Maturity Securities

Table 5.1 - Held-to-Maturity Securities by Major Security Types (in thousands)
 September 30, 2019
 
Amortized Cost (1)
 
Gross Unrecognized Holding
Gains
 Gross Unrecognized Holding Losses Fair Value
Non-MBS:       
U.S. Treasury obligations$34,991
 $23
 $—
 $35,014
Total non-MBS34,991
 23
 —
 35,014
MBS:       
U.S. obligation single-family MBS1,767,788
 15,786
 (26) 1,783,548
GSE single-family MBS4,790,602
 43,214
 (24,923) 4,808,893
GSE multi-family MBS7,477,498
 87
 (22,515) 7,455,070
Total MBS14,035,888
 59,087
 (47,464) 14,047,511
Total$14,070,879
 $59,110
 $(47,464) $14,082,525
        
 December 31, 2018
 
Amortized Cost (1)
 
Gross Unrecognized Holding
Gains
 Gross Unrecognized Holding Losses Fair Value
Non-MBS:       
U.S. Treasury obligations$35,667
 $—
 $(6) $35,661
Total non-MBS35,667
 —
 (6) 35,661
MBS:       
U.S. obligation single-family MBS2,040,642
 540
 (47,463) 1,993,719
GSE single-family MBS5,543,524
 9,891
 (162,097) 5,391,318
GSE multi-family MBS8,171,389
 1,739
 (18,458) 8,154,670
Total MBS15,755,555
 12,170
 (228,018) 15,539,707
Total$15,791,222
 $12,170
 $(228,024) $15,575,368
(1)Carrying value equals amortized cost.

Table 5.2 - Net Purchased Premiums Included in the Amortized Cost of MBS Classified as Held-to-Maturity (in thousands)
 September 30, 2019 December 31, 2018
Premiums$32,794
 $42,299
Discounts(14,397) (19,730)
Net purchased premiums$18,397
 $22,569



Table 5.33.4 summarizes the held-to-maturityavailable-for-sale securities with unrealized losses, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position. All securities outstanding at September 30, 2020 had gross unrealized gains.

Table 5.33.4 - Held-to-MaturityAvailable-for-Sale Securities in a Continuous Unrealized Loss Position (in thousands)
December 31, 2019
Less than 12 Months12 Months or moreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
GSE obligations$17,071 $(126)$21,574 $(216)$38,645 $(342)
Total$17,071 $(126)$21,574 $(216)$38,645 $(342)
 September 30, 2019
 Less than 12 Months 12 Months or more Total
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
MBS:           
U.S. obligation single-family MBS$40,500
 $(26) $—
 $—
 $40,500
 $(26)
GSE single-family MBS426,932
 (1,788) 2,182,778
 (23,135) 2,609,710
 (24,923)
GSE multi-family MBS4,395,597
 (10,474) 2,725,621
 (12,041) 7,121,218
 (22,515)
Total$4,863,029
 $(12,288) $4,908,399
 $(35,176) $9,771,428
 $(47,464)
            
 December 31, 2018
 Less than 12 Months 12 Months or more Total
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
Non-MBS:           
U.S. Treasury obligations$35,661
 $(6) $—
 $—
 $35,661
 $(6)
Total non-MBS35,661
 (6) —
 —
 35,661
 (6)
MBS:           
U.S. obligation single-family MBS175,663
 (1,571) 1,526,835
 (45,892) 1,702,498
 (47,463)
GSE single-family MBS401,509
 (1,581) 3,859,608
 (160,516) 4,261,117
 (162,097)
GSE multi-family MBS5,976,323
 (18,185) 229,739
 (273) 6,206,062
 (18,458)
Total MBS6,553,495
 (21,337) 5,616,182
 (206,681) 12,169,677
 (228,018)
Total$6,589,156
 $(21,343) $5,616,182
 $(206,681) $12,205,338
 $(228,024)

Table 3.5 - Available-for-Sale Securities by Contractual Maturity (in thousands)
 September 30, 2020 December 31, 2019
Year of MaturityAmortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
Non-MBS:
Due in 1 year or less$0  $0  $1,410,000  $1,410,111 
Due after 1 year through 5 years11,341 11,377 0 0 
Due after 5 years through 10 years117,375 118,374 119,771 119,870 
Due after 10 years13,646 13,828 12,044 12,204 
Total non-MBS142,362 143,579 1,541,815 1,542,185 
MBS (1)
149,143 150,917 0 0 
Total$291,505 $294,496 $1,541,815 $1,542,185 
(1)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
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Table 5.43.6 - Interest Rate Payment Terms of Available-for-Sale Securities (in thousands)
 September 30, 2020 December 31, 2019
Amortized cost of non-MBS:   
Fixed-rate$142,362  $1,541,815 
Total amortized cost of non-MBS142,362 1,541,815 
Amortized cost of MBS:
Fixed-rate149,143 0 
Total amortized cost of MBS149,143 0 
Total$291,505 $1,541,815 

The FHLB had 0 sales of securities out of its available-for-sale portfolio for the nine months ended September 30, 2020 or 2019.

Held-to-Maturity Securities

Table 3.7 - Held-to-Maturity Securities by Major Security Types (in thousands)
September 30, 2020
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:
U.S. Treasury obligations$41,382 $6 $0 $41,388 
Total non-MBS41,382 6 0 41,388 
MBS:    
U.S. obligation single-family MBS1,253,606 42,523 (70)1,296,059 
GSE single-family MBS3,461,029 117,246 0 3,578,275 
GSE multi-family MBS6,374,582 3,302 (17,715)6,360,169 
Total MBS11,089,217 163,071 (17,785)11,234,503 
Total$11,130,599 $163,077 $(17,785)$11,275,891 
 
 December 31, 2019
 
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:
U.S. Treasury obligations$35,171 $5 $0 $35,176 
Total non-MBS35,171 5 0 35,176 
MBS:   
U.S. obligation single-family MBS1,670,783 13,499 (239)1,684,043 
GSE single-family MBS4,500,471 40,386 (24,072)4,516,785 
GSE multi-family MBS7,292,894 54 (27,745)7,265,203 
Total MBS13,464,148 53,939 (52,056)13,466,031 
Total$13,499,319 $53,944 $(52,056)$13,501,207 
(1)Carrying value equals amortized cost. Amortized cost of held-to-maturity securities includes adjustments made to the cost basis of an investment for accretion and amortization and excludes accrued interest receivable of (in thousands) $10,938 and $20,365 as of September 30, 2020 and December 31, 2019.

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Table 3.8 - Net Purchased Premiums Included in the Amortized Cost of MBS Classified as Held-to-Maturity (in thousands)
September 30, 2020December 31, 2019
Premiums$19,288 $32,071 
Discounts(8,060)(13,996)
Net purchased premiums$11,228 $18,075 

Table 3.9 - Held-to-Maturity Securities by Contractual Maturity (in thousands)
September 30, 2020December 31, 2019
Year of Maturity
Amortized Cost (1)
Fair Value
Amortized Cost (1)
Fair Value
Non-MBS:    
Due in 1 year or less$41,382 $41,388 $35,171 $35,176 
Due after 1 year through 5 years0 0 0 0 
Due after 5 years through 10 years0 0 0 0 
Due after 10 years0 0 0 0 
Total non-MBS41,382 41,388 35,171 35,176 
MBS (2)
11,089,217 11,234,503 13,464,148 13,466,031 
Total$11,130,599 $11,275,891 $13,499,319 $13,501,207 
 September 30, 2019 December 31, 2018
Year of Maturity
Amortized Cost (1)
 Fair Value 
Amortized Cost (1)
 Fair Value
Non-MBS:       
Due in 1 year or less$34,991
 $35,014
 $35,667
 $35,661
Due after 1 year through 5 years—
 —
 —
 —
Due after 5 years through 10 years—
 —
 —
 —
Due after 10 years—
 —
 —
 —
Total non-MBS34,991
 35,014
 35,667
 35,661
MBS (2)
14,035,888
 14,047,511
 15,755,555
 15,539,707
Total$14,070,879
 $14,082,525
 $15,791,222
 $15,575,368
(1)Carrying value equals amortized cost.
(1)Carrying value equals amortized cost.
(2)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

(2)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 5.53.10 - Interest Rate Payment Terms of Held-to-Maturity Securities (in thousands)
 September 30, 2020December 31, 2019
Amortized cost of non-MBS:   
Fixed-rate$41,382  $35,171 
Total amortized cost of non-MBS41,382  35,171 
Amortized cost of MBS:   
Fixed-rate4,209,998  5,438,532 
Variable-rate6,879,219  8,025,616 
Total amortized cost of MBS11,089,217  13,464,148 
Total$11,130,599  $13,499,319 
 September 30, 2019 December 31, 2018
Amortized cost of non-MBS:   
Fixed-rate$34,991
 $35,667
Total amortized cost of non-MBS34,991
 35,667
Amortized cost of MBS:   
Fixed-rate5,770,756
 6,652,055
Variable-rate8,265,132
 9,103,500
Total amortized cost of MBS14,035,888
 15,755,555
Total$14,070,879
 $15,791,222


Realized Gains and Losses.From time to time the FHLB may sell securities out of its held-to-maturity portfolio. These securities, generally, have less than 15 percent of the acquired principal outstanding at the time of the sale. These sales are considered maturities for the purposes of security classification. For the nine months ended September 30, 20192020 and 2018,2019, the FHLB did not0t sell any held-to-maturity securities.
Allowance for Credit Losses on Available-for-Sale and Held-to-Maturity Securities


Note 6 - Other-Than-Temporary Impairment Analysis

The FHLB evaluates any of its individual available-for-sale and held-to-maturity investment securities holdingsfor credit losses on a quarterly basis. The FHLB adopted new accounting guidance for the measurement of credit losses on financial instruments on January 1, 2020. See Note 1 - Summary of Significant Accounting Policies for additional information. See Note 1 - Summary of Significant Accounting Policies in the FHLB’s 2019 Annual Report on Form 10-K for information on the prior methodology for evaluating credit losses. As of December 31, 2019, the FHLB did not record any credit losses for its available-for-sale or held-to-maturity securities.

The FHLB’s available-for-sale and held-to-maturity securities are certificates of deposit, U.S. Treasury obligations, GSE obligations, and MBS issued by Fannie Mae, Freddie Mac, Ginnie Mae and the National Credit Union Administration (NCUA) that are backed by single-family or multi-family mortgage loans. The FHLB only purchases securities considered investment quality. At September 30, 2020, all available-for-sale and held-to-maturity securities were rated single-A, or above, by an
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NRSRO, based on the lowest long-term credit rating for each security used by the FHLB. The FHLB’s internal ratings of these securities may differ from those obtained from an NRSRO.

The FHLB evaluates individual available-for-sale securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss positionposition). At September 30, 2020, 0 available-for-sale securities were in an unrealized loss position. As a result, 0 allowance for other-than-temporarycredit losses was recorded on these available-for-sale securities at September 30, 2020.

The FHLB evaluates its held-to-maturity securities for impairment on a quarterly basis.

U.S. Obligations and GSE Investments

For its U.S. obligations and GSE investments (MBS and non-MBS),collective, or pooled basis, unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. As of September 30, 2020, the FHLB has determined thathad 0t established an allowance for credit loss on any held-to-maturity securities because the strength of the issuers' guarantees through direct obligations securities: (1) were all highly-rated and/or support from the U.S. government is sufficienthad short remaining terms to protectmaturity, (2) had not experienced, nor did the FHLB from losses basedexpect, any payment default on current expectations. As a result, the FHLB determined that, asinstruments, and (3) in the case of September 30, 2019U.S., all of the gross unrealized losses on these investments were temporary as the declines in market value of these securities were not attributable to credit quality. Furthermore, the FHLB does not intend to sell the investments, and it is not more likely than notGSE, or other agency obligations, carry an implicit or explicit government guarantee such that the FHLB will be required to sellconsidered the investments before recoveryrisk of their amortized cost bases. As a result, the FHLB did not consider any of these investmentsnonpayment to be other-than-temporarily impaired at zero.
September 30, 2019.

The FHLB did not consider any of its investments to be other-than-temporarily impaired at
December 31, 2018.


Note 74 - Advances

The FHLB offers a wide range of fixed- and variable-rate Advance products with different maturities, interest rates, payment characteristics and optionality. The following table presents Advance redemptions by contractual maturity, including index-amortizing Advances, which are presented according to their predetermined amortization schedules.


Table 7.14.1 - Advances by Redemption Term (dollars in thousands)
September 30, 2020December 31, 2019
Redemption TermAmountWeighted Average Interest
Rate		AmountWeighted Average Interest
Rate
Due in 1 year or less$12,899,712 0.77 %$32,342,198 1.78 %
Due after 1 year through 2 years1,961,395 1.94 4,477,497 2.19 
Due after 2 years through 3 years1,614,013 2.09 1,996,647 2.30 
Due after 3 years through 4 years1,984,165 2.17 1,408,948 2.50 
Due after 4 years through 5 years2,675,665 1.06 1,765,323 2.08 
Thereafter5,513,011 1.37 5,273,531 2.35 
Total principal amount26,647,961 1.19 47,264,144 1.94 
Commitment fees(187) (281) 
Discount on Affordable Housing Program (AHP) Advances(2,375) (3,148) 
Premiums998  1,221  
Discounts(3,349) (2,530) 
Hedging adjustments456,945  109,929  
Fair value option valuation adjustments and accrued interest964 238 
Total (1)
$27,100,957  $47,369,573  
 September 30, 2019 December 31, 2018
Redemption TermAmount 
Weighted Average Interest
Rate
 Amount 
Weighted Average Interest
Rate
Due in 1 year or less$30,921,585
 2.16% $38,592,494
 2.56%
Due after 1 year through 2 years4,848,567
 2.26
 6,461,276
 2.39
Due after 2 years through 3 years1,953,191
 2.38
 3,146,830
 2.30
Due after 3 years through 4 years1,329,705
 2.49
 1,145,118
 2.56
Due after 4 years through 5 years1,746,348
 2.25
 935,439
 2.76
Thereafter5,386,305
 2.50
 4,591,015
 2.98
Total principal amount46,185,701
 2.23
 54,872,172
 2.56
Commitment fees(329)   (456)  
Discount on Affordable Housing Program (AHP) Advances(3,451)   (4,386)  
Premiums1,294
   1,510
  
Discounts(2,471)   (3,090)  
Hedging adjustments177,193
   (43,506)  
Fair value option valuation adjustments and accrued interest267
   8
  
Total$46,358,204
   $54,822,252
  
(1)Carrying values exclude accrued interest receivable of (in thousands) $28,047 and $60,682 as of September 30, 2020 and December 31, 2019.


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

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Table 7.24.2 - Advances by Redemption Term or Next Call Date (in thousands)
Redemption Term or Next Call DateSeptember 30, 2020December 31, 2019
Due in 1 year or less$16,215,663 $35,366,608 
Due after 1 year through 2 years1,788,958 4,982,222 
Due after 2 years through 3 years1,500,850 1,724,647 
Due after 3 years through 4 years1,960,365 1,381,718 
Due after 4 years through 5 years1,190,614 1,535,418 
Thereafter3,991,511 2,273,531 
Total principal amount$26,647,961 $47,264,144 
Redemption Term or Next Call DateSeptember 30, 2019 December 31, 2018
Due in 1 year or less$34,181,189
 $43,793,555
Due after 1 year through 2 years5,221,817
 4,338,117
Due after 2 years through 3 years1,683,289
 3,490,580
Due after 3 years through 4 years1,195,707
 753,716
Due after 4 years through 5 years1,517,394
 905,189
Thereafter2,386,305
 1,591,015
Total principal amount$46,185,701
 $54,872,172


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


Table 7.34.3 - Advances by Redemption Term or Next Put Date for Putable Advances (in thousands)
Redemption Term or Next Put DateSeptember 30, 2020December 31, 2019
Due in 1 year or less$15,691,962 $33,451,448 
Due after 1 year through 2 years2,111,395 4,777,497 
Due after 2 years through 3 years1,614,013 2,129,647 
Due after 3 years through 4 years1,729,915 1,238,948 
Due after 4 years through 5 years2,660,665 1,611,073 
Thereafter2,840,011 4,055,531 
Total principal amount$26,647,961 $47,264,144 
Redemption Term or Next Put DateSeptember 30, 2019 December 31, 2018
Due in 1 year or less$31,935,835
 $38,827,494
Due after 1 year through 2 years5,223,567
 6,611,276
Due after 2 years through 3 years2,076,191
 3,221,830
Due after 3 years through 4 years1,259,705
 1,145,118
Due after 4 years through 5 years1,492,098
 835,439
Thereafter4,198,305
 4,231,015
Total principal amount$46,185,701
 $54,872,172


Table 7.44.4 - Advances by Interest Rate Payment Terms (in thousands)                    
September 30, 2020December 31, 2019
Total fixed-rate (1)
$20,562,653 $36,113,108 
Total variable-rate (1)
6,085,308 11,151,036 
Total principal amount$26,647,961 $47,264,144 
 September 30, 2019 December 31, 2018
Total fixed-rate (1)
$31,152,304
 $23,988,298
Total variable-rate (1)
15,033,397
 30,883,874
Total principal amount$46,185,701
 $54,872,172
(1)(1)     Payment terms based on current interest rate terms, which reflect any option exercises or rate conversions that have occurred subsequent to the related Advance issuance.

Table 7.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLB (dollars in millions)
September 30, 2019 December 31, 2018
 Principal % of Total Principal Amount of Advances  Principal % of Total Principal Amount of Advances
JPMorgan Chase Bank, N.A.$8,050
 17% JPMorgan Chase Bank, N.A.$23,400
 43%
U.S. Bank, N.A.4,974
 11
 U.S. Bank, N.A.4,574
 8
Third Federal Savings and Loan Association3,896
 8
 Third Federal Savings and Loan Association3,727
 7
Fifth Third Bank2,856
 6
 Total$31,701
 58%
Total$19,776
 42%  

 



Credit Risk Exposure and Security Terms

Note 8 - Mortgage Loans Held for Portfolio

Table 8.1 - Mortgage Loans Held for Portfolio (in thousands)
 September 30, 2019 December 31, 2018
Unpaid principal balance:   
Fixed rate medium-term single-family mortgage loans (1)
$805,059
 $933,340
Fixed rate long-term single-family mortgage loans9,832,179
 9,338,814
Total unpaid principal balance10,637,238
 10,272,154
Premiums232,145
 227,161
Discounts(2,272) (2,603)
Hedging basis adjustments (2)
17,219
 5,045
Total mortgage loans held for portfolio$10,884,330
 $10,501,757

(1)Medium-term is defined as a term of 15 years or less.
(2)Represents the unamortized balance of the mortgage purchase commitments' market values at the time of settlement. The market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.


Table 8.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)
 September 30, 2019 December 31, 2018
Unpaid principal balance:   
Conventional mortgage loans$10,396,652
 $9,999,307
Federal Housing Administration (FHA) mortgage loans240,586
 272,847
Total unpaid principal balance$10,637,238
 $10,272,154


Table 8.3 - Members, Including Any Known Affiliates thatThe FHLB's Advances are Members of the FHLB, and Former Members Selling Five Percent or more of Total Unpaid Principal (dollars in millions)
 September 30, 2019  December 31, 2018
 Principal % of Total  Principal % of Total
Union Savings Bank$3,590
 34% Union Savings Bank$3,449
 34%
Guardian Savings Bank FSB991
 9
 Guardian Savings Bank FSB987
 10
FirstBank593
 6
  

 




Note 9 - Allowance for Credit Losses

The FHLB has established an allowance methodology for each of the FHLB's portfolio segments: credit products (Advances, Letters of Credit and other extensions of creditmade to members); FHA mortgage loans held for portfolio; and conventional mortgage loans held for portfolio.

Credit Products

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

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

▪one-to-four family and multi-family mortgage loans (delinquent for no more than 90 days) and securities representing such mortgages;
▪loans and securities issued, insured, or guaranteed by the U.S. government or any U.S. government agency (for example, mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);
▪cash or deposits in the FHLB;
▪certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value and that the FHLB can perfect a security interest in it; and
▪certain qualifying securities representing undivided equity interests in eligible Advance collateral.

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Residential mortgage loans are the principal form of collateral for Advances. The estimated value of the collateral required to secure each member's credit products is calculated by applying collateral discounts, or haircuts, to the value of the collateral. The FHLB accepts certain investment securities, residential mortgage loans, deposits and other real estate related assets as collateral. In addition, community financial institutions are eligible to utilize expanded statutory collateral provisions for small business agriculture loans and community developmentagribusiness loans. The FHLB's capital stock owned by its member borrowers is also pledged as collateral. Collateral arrangements and a member’s borrowing capacity vary based on the financial condition and performance of the institution, the types of collateral pledged and the overall quality of those assets. The FHLB can also require additional or substitute collateral to protect its security interest. The FHLB also has policies and procedures for validating the reasonableness of its collateral valuations and makes changes to its collateral guidelines, as necessary, based on current market conditions. In addition, collateral verifications and on-site reviews are performed by the FHLB based on the risk profile of the borrower. Management of the FHLB believes that these policies effectively manage the FHLB's credit risk from credit products.Advances.

Members experiencing financial difficulties are subject to FHLB-performed “stress tests” of the impact of poorly performing assets on the member’s capital and loss reserve positions. Depending on the results of these tests and the level of over-collateralization, a member may be allowed to maintain pledged loan assets in its custody, may be required to deliver those loans into the custody of the FHLB or its agent, or may be required to provide details on those loans to facilitate an estimate of their fair value. The FHLB perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the FHLB by a member priority over the claims or rights of any other party except for claims or rights of a third party that would otherwise be entitled to priority under applicable law and that are held by a bona fide purchaser for value or by a secured party holding a prior perfected security interest.

Using a risk-based approach, the FHLB considers the payment status, collateralization levels, and borrower's financial condition to be indicators of credit quality for its credit products. At September 30, 20192020 and December 31, 2018,2019, the FHLB did 0t have any Advances that were past due, in non-accrual status or considered impaired. In addition, there were 0 troubled debt restructurings related to Advances of the FHLB during the nine months ended September 30, 2020 or 2019. At September 30, 2020 and December 31, 2019, the FHLB had rights to collateral on a member-by-member basis with an estimated value in excess of its outstanding extensions of credit.


The FHLB evaluates and makes changes to its collateral guidelines, as necessary, based on current market conditions. At September 30, 2019 and December 31, 2018, the FHLB did not have any Advances that were past due, in non-accrual status or

impaired. In addition, there were no troubled debt restructurings related to credit products of the FHLB during the nine months ended September 30, 2019 or 2018.

The FHLB has not experienced any credit losses on Advances since it was founded in 1932. Based upon the collateral held as security, its credit extension and collateral policies and the repayment history on credit products,Advances, the FHLB did not recordexpect any credit losses on credit productsAdvances as of September 30, 2019 or December 31, 2018. Accordingly,2020 and therefore, 0 allowance for credit losses on Advances was recorded. For the same reasons, the FHLB did not0t record any allowance for credit losses on Advances.Advances at December 31, 2019.


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

Table 4.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLB (dollars in millions)
September 30, 2020 December 31, 2019
 Principal% of Total Principal Amount of Advances  Principal% of Total Principal Amount of Advances
U.S. Bank, N.A.$4,273 16 %U.S. Bank, N.A.$13,874 29 %
Third Federal Savings and Loan Association3,520 13 JPMorgan Chase Bank, N.A.4,500 10 
Nationwide Life Insurance Company2,160 8 Third Federal Savings and Loan Association3,883 8 
Protective Life Insurance Company1,750 7 Total$22,257 47 %
Western-Southern Life Assurance Co.1,388 5 
Total$13,091 49 %

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Note 5 - Mortgage Loans

Total mortgage loans held for portfolio represent residential mortgage loans under the Mortgage Purchase Program (MPP) that the FHLB's members originate, credit enhance, and then sell to the FHLB. The FHLB does not service any of these loans. The FHLB plans to retain its existing portfolio of mortgage loans.

Table 5.1 - Mortgage Loans Held for Portfolio (in thousands)
 September 30, 2020December 31, 2019
Fixed rate medium-term single-family mortgage loans (1)
$746,795 $773,575 
Fixed rate long-term single-family mortgage loans9,666,561 10,207,367 
Total unpaid principal balance10,413,356 10,980,942 
Premiums231,574 241,356 
Discounts(1,879)(2,166)
Hedging basis adjustments (2)
28,370 15,932 
Total mortgage loans held for portfolio (3)
10,671,421 11,236,064 
Allowance for credit losses on mortgage loans(242)(711)
Mortgage loans held for portfolio, net$10,671,179 $11,235,353 
(1)Medium-term is defined as a term of 15 years or less.
(2)Represents the unamortized balance of the mortgage purchase commitments' market values at the time of settlement. The market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.
(3)Excludes accrued interest receivable of (in thousands) $33,796 and $36,739 at September 30, 20192020 and December 31, 2018,2019.

Table 5.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)
 September 30, 2020December 31, 2019
Conventional mortgage loans$10,213,953 $10,750,526 
FHA mortgage loans199,403 230,416 
Total unpaid principal balance$10,413,356 $10,980,942 

Table 5.3 - Members, Including Any Known Affiliates that are Members of the FHLB, and Former Members Selling Five Percent or more of Total Unpaid Principal (dollars in millions)
 September 30, 2020 December 31, 2019
 Principal% of Total Principal% of Total
Union Savings Bank$3,294 32 %Union Savings Bank$3,574 33 %
Guardian Savings Bank FSB908 9 Guardian Savings Bank FSB1,004 9 
FirstBank583 6 FirstBank714 7 
The Huntington National Bank526 5 

Credit Risk Exposure

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

Credit Enhancements. The conventional mortgage loans under the MPP are supported by some combination of credit enhancements (primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) and the Lender Risk Account (LRA), including pooled LRA for those members participating in an aggregated MPP pool). These credit enhancements apply after a homeowner’s equity is exhausted. Beginning in February 2011, the FHLB discontinued the use of SMI for all new loan purchases and replaced it with expanded use of the LRA. The LRA is funded by the FHLB upfront as a portion of the purchase proceeds. The LRA is recorded in other liabilities in the Statement of Condition. Excess funds from the LRA are released to the member in accordance with the terms of the Master Commitment Contract, which is typically after five years, subject to performance of the related loan pool. The LRA established for a pool of loans is limited to only covering losses of that specific pool of loans. Because the FHA makes an explicit guarantee on FHA mortgage loans, the FHLB does not require any credit enhancements on these loans beyond primary mortgage insurance.
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Table 5.4 - Changes in the LRA (in thousands)
Nine Months Ended
September 30, 2020
LRA at beginning of year$233,476 
Additions26,037 
Claims(97)
Scheduled distributions(13,118)
LRA at end of period$246,298 

Mortgage Loans Forbearance Plans. In response to the COVID-19 pandemic, which has caused economic strain on many home loan borrowers, the FHLB’s mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related hardships regardless of the payment status of the loan at the time of the request. Based on the most recent information received from mortgage servicers, as of September 30, 2020, there was approximately (in thousands) $108,705 in unpaid principal balance of conventional mortgage loans under a forbearance plan as a result of COVID-19, which represented one percent of conventional mortgage loans held for portfolio.

Payment Status of Mortgage Loans. The key credit quality indicator for conventional mortgage loans is payment status, which allows the FHLB to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Although certain loans have been granted a forbearance period as noted above, there has been no change in the terms of the loan. Accordingly, when a borrower fails to make timely payments of principal and/or interest for loans under forbearance, they are considered past due. Table 5.5 presents the payment status of conventional mortgage loans. As of September 30, 2020, (in thousands) $30,310 in unpaid principal balance of conventional loans under forbearance had a current payment status, (in thousands) $9,460 was 30 to 59 days past due, (in thousands) $12,703 was 60 to 89 days past due, and (in thousands) $56,232 was greater than 90 days past due.

Table 5.5 - Credit Quality Indicator of Conventional Mortgage Loans (in thousands)
September 30, 2020
Origination Year
Payment status, at amortized cost (1):
Prior to 20162016 to September 30, 2020Total
Past due 30-59 days$19,286 $17,555 $36,841 
Past due 60-89 days6,356 12,991 19,347 
Past due 90 days or more27,274 44,142 71,416 
Total past due mortgage loans52,916 74,688 127,604 
Current mortgage loans2,901,775 7,440,949 10,342,724 
Total conventional mortgage loans$2,954,691 $7,515,637 $10,470,328 
December 31, 2019
Payment status, at recorded investment (1):
Conventional Loans
Past due 30-59 days$35,416 
Past due 60-89 days5,572 
Past due 90 days or more12,421 
Total past due mortgage loans53,409 
Current mortgage loans10,985,818 
Total conventional mortgage loans$11,039,227 
(1)The recorded investment at December 31, 2019 includes accrued interest receivable whereas the amortized cost at September 30, 2020 excludes accrued interest receivable.

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Other delinquency statistics include loans in process of foreclosure, serious delinquency rates, loans past due 90 days or more and still accruing interest, and non-accrual loans. Table 5.6 presents other delinquency statistics of mortgage loans.

Table 5.6 - Other Delinquency Statistics (dollars in thousands)
September 30, 2020
Amortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
$5,400 $2,148 $7,548 
Serious delinquency rate (2)
0.69 %5.83 %0.79 %
Past due 90 days or more still accruing interest (3)
$65,587 $11,579 $77,166 
Loans on non-accrual status$7,054 $0 $7,054 
December 31, 2019
Recorded Investment:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
$8,311 $2,515 $10,826 
Serious delinquency rate (2)
0.11 %2.49 %0.16 %
Past due 90 days or more still accruing interest (3)
$11,935 $5,805 $17,740 
Loans on non-accrual status$1,902 $0 $1,902 
(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(2)Loans that are 90 days or more past due or in the process of foreclosure (including past due or current loans in the process of foreclosure) expressed as a percentage of the total loan portfolio class.
(3)Each conventional loan past due 90 days or more still accruing interest is on a schedule/scheduled monthly settlement basis and contains one or more credit enhancements. Loans that are well secured and in the process of collection as a result of remaining credit enhancements and schedule/scheduled settlement are not placed on non-accrual status.

The FHLB did not record0t have any liability to reflect an allowance for credit losses for off-balance sheet credit exposures. real estate owned at September 30, 2020 or December 31, 2019.

Evaluation of Current Expected Credit Losses

See Note 1910 - Allowance for Credit Losses in the FHLB's 2019 Annual Report on Form 10-K, for additional information on the FHLB's off-balance sheetprior methodology for evaluating credit exposure.losses.

Mortgage Loans Held for Portfolio - FHAFHA.

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

Mortgage Loans Held for Portfolio - Conventional Mortgage Purchase Program (MPP)

TheMPP. Conventional loans are evaluated collectively when similar risk characteristics exist. Conventional loans that do not share risk characteristics with other pools are removed from the collective evaluation and evaluated for expected credit losses on an individual basis. For loans with similar risk characteristics, the FHLB determines the allowance for conventional loanscredit losses through analyses that include consideration of various data observationsloan portfolio and collateral-related characteristics, such as past performance, current performance, loan portfolio characteristics, collateral-related characteristics, industry data,conditions, and prevailingreasonable and supportable forecasts of expected economic conditions. The measurementFHLB uses a model that employs a variety of methods, such as projected cash flows to estimate expected credit losses over the life of the allowance forloans. This model relies on a number of inputs, such as both current and forecasted property values and interest rates as well as historical borrower behavior experience. The FHLB’s calculation of expected credit losses consists of: (1) collectively evaluating homogeneous poolsincludes a forecast of residential mortgage loans; (2) reviewing specifically identified loans for impairment; and (3) considering other relevant qualitative factors.

Collectively Evaluated Mortgage Loans. The credit risk analysishome prices over the entire contractual terms of its conventional loans evaluated collectively for impairment considersrather than a reversion to historical delinquency migration, applies estimated loss severities, andhome price trends after an initial forecast period. The FHLB also incorporates the associated credit enhancements in order to determine the FHLB's best estimate of probable incurred losses at the reporting date. Migration analysisestimated expected credit losses.

If a loan is a methodology for determining, through the FHLB's experience over a historical period, the rate of defaultrequired to be evaluated on loans. The FHLB applies migration analysis to loans based on payment status categories such as current, 30, 60, and 90 days past due. The FHLB then estimates how many loans in these categories may migrate to a loss realization event and applies a current loss severity to estimate losses. The estimated losses are then reduced by the probable cash flows resulting from available credit enhancements. To properly determine the credit enhancements available to recover estimated losses,an individual basis, the FHLB performs the credit risk analysis of all conventional mortgage loans at the individual Master Commitment Contract level. The Master Commitment Contract is an agreement with a member in which the member agrees to make a best efforts attempt to sell a specific dollar amount of loans to the FHLB, generally over a one-year period. Any credit enhancement cash flows that are projected and assessed as not probable of receipt do not reduce estimated losses.

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

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Certain conventional loans may be evaluated for credit losses by using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent 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 FHLB removes specifically identified loans evaluated for impairment frommay estimate the collectively evaluatedfair value of this collateral by either applying an appropriate loss severity rate, using third-party estimates, or using a property valuation model. The expected credit loss of a collateral dependent mortgage loan population.is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The FHLB will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.


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

Allowance for Credit Losses on Conventional Mortgage Loans. The FHLB established an allowance for credit losses on its conventional mortgage loans held for portfolio. The following tables presenttable presents a rollforward of the allowance for credit losses on conventional mortgage loans as well as the recorded investment in mortgage loans by impairment methodology. The recorded investment in a loan is the unpaid principal balance of the loan adjusted for accrued interest, unamortized premiums or discounts, hedging basis adjustments and direct write-downs. The recorded investment is not net of any allowance.loans.


Table 9.15.7 - Rollforward of Allowance for Credit Losses on Conventional Mortgage Loans (in thousands)
 Three Months Ended September 30,
 2019 2018
Balance, beginning of period$784
 $953
Net charge offs(44) (26)
Balance, end of period$740
 $927
    
 Nine Months Ended September 30,
 2019 2018
Balance, beginning of period$840
 $1,190
Net charge offs(100) (263)
Balance, end of period$740
 $927

Three Months Ended September 30,
20202019
Balance, beginning of period$264 $784 
Net charge offs(22)(44)
Balance, end of period$242 $740 
Nine Months Ended September 30,
20202019
Balance, beginning of period$711 $840 
Adjustment for cumulative effect of accounting change(366)0 
Net charge offs(103)(100)
Balance, end of period$242 $740 

Table 9.2 - Allowance for Credit Losses and Recorded Investment on Conventional Mortgage Loans by Impairment Methodology (in thousands)
 September 30, 2019 December 31, 2018
Allowance for credit losses:   
Collectively evaluated for impairment$740
 $840
Individually evaluated for impairment—
 —
Total allowance for credit losses$740
 $840
Recorded investment:   
Collectively evaluated for impairment$10,664,109
 $10,249,169
Individually evaluated for impairment12,156
 10,554
Total recorded investment$10,676,265
 $10,259,723


Credit Enhancements. The conventional mortgage loans under the MPP are supported by some combination of credit enhancements (primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) and the Lender Risk Account (LRA), including pooled LRA for those members participating in an aggregated MPP pool). The amount of credit enhancements needed to protect the FHLB against credit losses is determined through use of a third-party default model. These credit enhancements apply after a homeowner's equity is exhausted. Beginning in February 2011, the FHLB discontinued the use of SMI for all new loan purchases and replaced it with expanded use of the LRA. The LRA is funded by the FHLB as a portion of the purchase proceeds to cover expected losses. The LRA is recorded in other liabilities in the Statements of Condition. Excess funds over required balances are returned to the member in accordance with a step-down schedule that is established upon execution of a Master Commitment Contract, subject to performance of the related loan pool. The LRA established for a pool of loans is limited to only covering losses of that specific pool of loans.

Table 9.3 - Changes in the LRA (in thousands)
 Nine Months Ended
 September 30, 2019
LRA at beginning of year$213,260
Additions17,812
Claims(10)
Scheduled distributions(7,934)
LRA at end of period$223,128



Credit Quality Indicators. Key credit quality indicators for mortgage loans include the migration of past due loans, loans in process of foreclosure, and non-accrual loans. The table below summarizes the FHLB's key credit quality indicators for mortgage loans.

Table 9.4 - Recorded Investment in Delinquent Mortgage Loans (dollars in thousands)
 September 30, 2019
 Conventional MPP Loans FHA Loans Total
Past due 30-59 days delinquent$30,191
 $13,406
 $43,597
Past due 60-89 days delinquent6,044
 3,830
 9,874
Past due 90 days or more delinquent10,998
 5,390
 16,388
Total past due47,233
 22,626
 69,859
Total current mortgage loans10,629,032
 221,197
 10,850,229
Total mortgage loans$10,676,265
 $243,823
 $10,920,088
Other delinquency statistics:     
In process of foreclosure, included above (1)
$7,561
 $2,474
 $10,035
Serious delinquency rate (2)
0.11% 2.25% 0.15%
Past due 90 days or more still accruing interest (3)
$10,508
 $5,390
 $15,898
Loans on non-accrual status, included above$1,920
 $—
 $1,920
      
 December 31, 2018
 Conventional MPP Loans FHA Loans Total
Past due 30-59 days delinquent$29,596
 $14,845
 $44,441
Past due 60-89 days delinquent7,175
 4,238
 11,413
Past due 90 days or more delinquent12,807
 7,210
 20,017
Total past due49,578
 26,293
 75,871
Total current mortgage loans10,210,145
 250,308
 10,460,453
Total mortgage loans$10,259,723
 $276,601
 $10,536,324
Other delinquency statistics:     
In process of foreclosure, included above (1)
$7,557
 $4,635
 $12,192
Serious delinquency rate (2)
0.13% 2.65% 0.19%
Past due 90 days or more still accruing interest (3)
$11,773
 $7,210
 $18,983
Loans on non-accrual status, included above$2,535
 $—
 $2,535
(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.
(2)Loans that are 90 days or more past due or in the process of foreclosure (including past due or current loans in the process of foreclosure) expressed as a percentage of the total loan portfolio class recorded investment amount.
(3)Each conventional loan past due 90 days or more still accruing interest is on a schedule/scheduled monthly settlement basis and contains one or more credit enhancements. Loans that are well secured and in the process of collection as a result of remaining credit enhancements and schedule/scheduled settlement are not placed on non-accrual status.

The FHLB did not have any real estate owned at September 30, 2019 or December 31, 2018.

Troubled Debt Restructurings. A troubled debt restructuring is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties and that concession would not have been considered otherwise. The FHLB's troubled debt restructurings primarily involve loans where an agreement permits the recapitalization of past due amounts up to the original loan amount and certain loans discharged in Chapter 7 bankruptcy. A loan considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by estimating expected cash shortfalls incurred as of the reporting date.


The FHLB's recorded investment in modified loans considered troubled debt restructurings was (in thousands) $12,156 and $10,554 at September 30, 2019 and December 31, 2018, respectively. The amount of troubled debt restructurings is not considered material to the FHLB's financial condition, results of operations, or cash flows.


Note 106 - Derivatives and Hedging Activities

Nature of Business Activity

The FHLB is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and on the interest-bearing liabilities that finance these assets. The goal of the FHLB's interest-rate risk management strategy is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the FHLB has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the FHLB monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities. The FHLB uses derivatives when they are considered to be the most cost-effective alternative to achieve the FHLB's financial and risk management objectives. See Note 11 - Derivatives and Hedging Activities in the FHLB's 20182019 Annual Report on Form 10-K for additional information on the FHLB's derivative transactions.

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

Financial Statement Effect and Additional Financial Information

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


Table 10.16.1 summarizes the notional amount and fair value of derivative instruments and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.


Table 10.16.1 - Fair Value of Derivative Instruments (in thousands)
 September 30, 2020
 Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:   
Interest rate swaps$10,982,156 $3,855 $216,437 
Derivatives not designated as hedging instruments:   
Interest rate swaps13,120,104 3,829 5,934 
Interest rate swaptions2,284,000 745 0 
Mortgage delivery commitments145,164 817 0 
Total derivatives not designated as hedging instruments15,549,268 5,391 5,934 
Total derivatives before adjustments$26,531,424 9,246 222,371 
Netting adjustments and cash collateral (1)
 249,924 (222,290)
Total derivative assets and total derivative liabilities $259,170 $81 
 December 31, 2019
 Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:   
Interest rate swaps$9,310,089 $7,227 $53,641 
Derivatives not designated as hedging instruments:
Interest rate swaps28,501,469 9,685 363 
Interest rate swaptions6,000,000 12,464 0 
Forward rate agreements849,000 21 782 
Mortgage delivery commitments936,269 2,798 64 
Total derivatives not designated as hedging instruments36,286,738 24,968 1,209 
Total derivatives before adjustments$45,596,827 32,195 54,850 
Netting adjustments and cash collateral (1)
 234,970 (53,540)
Total derivative assets and total derivative liabilities $267,165 $1,310 
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed by the FHLB with the same clearing agent and/or counterparty. Cash collateral posted, including accrued interest, was (in thousands) $472,974 and $293,148 at September 30, 2020 and December 31, 2019. Cash collateral received, including accrued interest, was (in thousands) $760 and $4,638 at September 30, 2020 and December 31, 2019.

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 September 30, 2019
 Notional Amount of Derivatives Derivative Assets Derivative Liabilities
Derivatives designated as fair value hedging instruments:     
Interest rate swaps$9,428,000
 $5,550
 $85,183
Derivatives not designated as hedging instruments:     
Interest rate swaps30,617,599
 2,961
 1,393
Interest rate swaptions6,000,000
 35,298
 —
Forward rate agreements680,000
 16
 652
Mortgage delivery commitments738,399
 2,256
 546
Total derivatives not designated as hedging instruments38,035,998
 40,531
 2,591
Total derivatives before adjustments$47,463,998
 46,081
 87,774
Netting adjustments and cash collateral (1)
  233,473
 (83,698)
Total derivative assets and total derivative liabilities  $279,554
 $4,076
      
 December 31, 2018
 Notional Amount of Derivatives Derivative Assets Derivative Liabilities
Derivatives designated as fair value hedging instruments:     
Interest rate swaps$6,207,278
 $2,393
 $16,810
Derivatives not designated as hedging instruments:     
Interest rate swaps4,322,480
 3,311
 1,904
Interest rate swaptions3,000,000
 15,911
 —
Forward rate agreements131,000
 —
 2,664
Mortgage delivery commitments146,009
 1,726
 1
Total derivatives not designated as hedging instruments7,599,489
 20,948
 4,569
Total derivatives before adjustments$13,806,767
 23,341
 21,379
Netting adjustments and cash collateral (1)
  42,424
 (16,793)
Total derivative assets and total derivative liabilities  $65,765
 $4,586
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions, and also cash collateral and related accrued interest held or placed by the FHLB with the same clearing agent and/or counterparty. Cash collateral posted and related accrued interest was (in thousands) $331,178 and $71,246 at September 30, 2019 and December 31, 2018. Cash collateral received and related accrued interest was (in thousands) $14,007 and $12,029 at September 30, 2019 and December 31, 2018.

In connection with the adoption of new accounting guidance, changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item beginning on January 1, 2019. Prior to January 1, 2019, for designated fair value hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedge item) was recorded in non-interest income as net gains (losses) on derivatives and hedging activities. See Note 2 for additional information on the adoption of Targeted Improvements to Accounting for Hedging Activities.

Table 10.26.2 presents the impact of qualifying fair value hedging relationships on the Statements of Incomenet interest income as well as the total interest income (expense) by product.


Table 10.26.2 - Impact of Fair Value Hedging Relationships on the Statements ofNet Interest Income (in thousands)
 Three Months Ended September 30, 2020
AdvancesAvailable-for-sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income$63,974 $271 $(119,748)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Net interest settlements$(34,448)$(813)$477 
Gain (loss) on derivatives51,956 2,402 (591)
Gain (loss) on hedged items(54,369)(2,573)591 
Effect on net interest income$(36,861)$(984)$477 

Three Months Ended September 30, 2019
AdvancesAvailable-for-sale securitiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income$267,537 $3,284 $(260,453)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Net interest settlements$8,115 $(92)$550 
Gain (loss) on derivatives(61,531)(2,957)(482)
Gain (loss) on hedged items57,287 2,925 565 
Effect on net interest income$3,871 $(124)$633 

 Nine Months Ended September 30, 2020
AdvancesAvailable-for-sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income$394,578 $4,286 $(435,543)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Net interest settlements$(55,405)$(1,611)$1,290 
Gain (loss) on derivatives(359,963)(9,800)1,949 
Gain (loss) on hedged items345,831 9,440 (1,852)
Effect on net interest income$(69,537)$(1,971)$1,387 

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Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Advances Available-for-sale Securities Consolidated BondsAdvancesAvailable-for-sale securitiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income$267,537
 $3,284
 $(260,453)Total interest income (expense) recorded in the Statements of Income$991,077 $21,697 $(823,376)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
     
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:     Interest income/expense:
Net interest settlements$8,115
 $(92) $550
Net interest settlements$33,643 $(136)$1,102 
Gain (loss) on derivatives(61,531) (2,957) (482)Gain (loss) on derivatives(227,468)(9,460)1,392 
Gain (loss) on hedged items57,287
 2,925
 565
Gain (loss) on hedged items220,699 9,222 (1,434)
Effect on net interest income$3,871
 $(124) $633
Effect on net interest income$26,874 $(374)$1,060 
(1)     Includes interest rate swaps.
 
Three Months Ended September 30, 2018 (2)
 Advances Available-for-sale securities Consolidated Bonds
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
     
Interest income/expense:     
Net interest settlements (3)
$7,643
 $(4) $(510)
Effect on net interest income$7,643
 $(4) $(510)
Non-interest income (loss):     
Gain (loss) on derivatives$8,005
 $104
 $301
Gain (loss) on hedged items(8,799) (90) (213)
Effect on non-interest income (loss)$(794) $14
 $88
 Nine Months Ended September 30, 2019
 Advances Available-for-sale Securities Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income$991,077
 $21,697
 $(823,376)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
     
Interest income/expense:     
Net interest settlements$33,643
 $(136) $1,102
Gain (loss) on derivatives(227,468) (9,460) 1,392
Gain (loss) on hedged items220,699
 9,222
 (1,434)
Effect on net interest income$26,874
 $(374) $1,060

 
Nine Months Ended September 30, 2018 (2)
 Advances Available-for-sale securities Consolidated Bonds
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
     
Interest income/expense:     
Net interest settlements (3)
$15,077
 $(4) $(3,360)
Effect on net interest income$15,077
 $(4) $(3,360)
Non-interest income (loss):     
Gain (loss) on derivatives$58,315
 $104
 $1,166
Gain (loss) on hedged items(56,368) (90) (1,257)
Effect on non-interest income (loss)$1,947
 $14
 $(91)

(1)Includes interest rate swaps.
(2)Prior period amounts were not conformed to new hedge accounting guidance adopted January 1, 2019.
(3)Excludes (amortization)/accretion on closed fair value hedge relationships of (in thousands) $(140) for the three months ended September 30, 2018 and (in thousands) $(463) for the nine months ended September 30, 2018.

Table 10.36.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items.

Table 10.36.3 - Cumulative Basis Adjustments for Fair Value Hedges (in thousands)
September 30, 2020
Hedged Item
Amortized Cost of Hedged Asset/ Liability (1)
Basis Adjustment for Active Hedging Relationships Included in Amortized CostBasis Adjustments for Discontinued Hedging Relationships Included in Amortized CostTotal Amount of Fair Value Hedging Basis Adjustments
Advances$11,100,659 $455,255 $1,690 $456,945 
Available-for-sale securities291,505 16,355 399 16,754 
Consolidated Bonds121,367 2,560 0 2,560 
December 31, 2019
Hedged Item
Amortized Cost of Hedged Asset/ Liability (1)
Basis Adjustment for Active Hedging Relationships Included in Amortized CostBasis Adjustments for Discontinued Hedging Relationships Included in Amortized CostTotal Amount of Fair Value Hedging Basis Adjustments
Advances$9,160,841 $109,078 $851 $109,929 
Available-for-sale securities131,814 7,314 0 7,314 
Consolidated Bonds210,696 708 0 708 
(1)     Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.
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  September 30, 2019
Hedged Item 
Amortized Cost of Hedged Asset/ Liability (1)
 Basis Adjustment for Active Hedging Relationships Included in Amortized Cost Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost Cumulative Amount of Fair Value Hedging Basis Adjustments
Advances $9,201,520
 $176,257
 $936
 $177,193
Available-for-sale securities 134,729
 10,229
 —
 10,229
Consolidated Bonds 356,224
 1,238
 —
 1,238
(1)Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

Table 10.46.4 presents net gains (losses) related to derivatives and hedging activities recorded in non-interest income (loss). For fair value on derivatives not designated as hedging relationships, the portion of net gains (losses) representing hedge ineffectiveness were recorded in non-interest income for periods prior to January 1, 2019.instruments.


Table 10.46.4 - Net Gains (Losses) on Derivatives and Hedging Activities Recorded in Non-interest Income (Loss) on Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended September 30,
20202019
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps$60,667 $(77,671)
Interest rate swaptions110 19,315 
Forward rate agreements0 (4,584)
Net interest settlements(44,242)(3,655)
Mortgage delivery commitments3,033 4,785 
Total net gains (losses) related to derivatives not designated as hedging instruments19,568 (61,810)
Price alignment amount (1)
140 1,556 
Net gains (losses) on derivatives and hedging activities$19,708 $(60,254)
Nine Months Ended September 30,
20202019
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps$(305,565)$(232,074)
Interest rate swaptions90,626 3,815 
Forward rate agreements(31,935)(11,283)
Net interest settlements(82,239)(15,041)
Mortgage delivery commitments19,627 14,004 
Total net gains (losses) related to derivatives not designated as hedging instruments(309,486)(240,579)
Price alignment amount (1)
1,256 2,240 
Net gains (losses) on derivatives and hedging activities$(308,230)$(238,339)
 Three Months Ended September 30,
 2019 2018
Derivatives designated as fair value hedging relationships:   
Interest rate swapsN/A
 $(692)
Derivatives not designated as hedging instruments:   
Economic hedges:   
Interest rate swaps$(77,671) 10,128
Interest rate swaptions19,315
 (745)
Forward rate agreements(4,584) 1,833
Net interest settlements(3,655) (16,695)
Mortgage delivery commitments4,785
 (2,520)
Total net gains (losses) related to derivatives not designated as hedging instruments(61,810) (7,999)
Price alignment amount (1)
1,556
 (113)
Net gains (losses) on derivatives and hedging activities$(60,254) $(8,804)
    
 Nine Months Ended September 30,
 2019 2018
Derivatives designated as fair value hedging relationships:   
Interest rate swapsN/A
 $1,870
Derivatives not designated as hedging instruments:   
Economic hedges:   
Interest rate swaps$(232,074) (8,845)
Interest rate swaptions3,815
 4
Forward rate agreements(11,283) 6,317
Net interest settlements(15,041) (38,876)
Mortgage delivery commitments14,004
 (7,105)
Total net gains (losses) related to derivatives not designated as hedging instruments(240,579) (48,505)
Price alignment amount (1)
2,240
 (134)
Net gains (losses) on derivatives and hedging activities$(238,339) $(46,769)
(1)    This amount is for derivatives for which variation margin is characterized as a daily settled contract.
(1)This amount is for derivatives for which variation margin is characterized as a daily settled contract.

Credit Risk on Derivatives

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

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

For cleared derivatives, the Clearinghouse is the FHLB's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent in turn notifies the FHLB. The FHLB utilizes two Clearinghouses

for all cleared derivative transactions, LCH Ltd. and CME Clearing. At both Clearinghouses, variation margin is characterized as daily settlement payments, while initial margin is considered to be collateral. The requirement that the FHLB post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the FHLB to credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the value of cleared derivatives is posted daily through a clearing agent.
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For cleared derivatives, the Clearinghouse determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. At September 30, 2019,2020, the FHLB was not required to post additional initial margin by its clearing agents based on credit considerations.

Offsetting of Derivative Assets and Derivative Liabilities

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

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


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Table 10.56.5 presents separately the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral received from or pledged to counterparties.collateral. At September 30, 20192020 and December 31, 2018,2019, the FHLB did not receive or pledge any non-cash collateral. Any over-collateralization under an individual clearing agent and/or counterparty level is not included in the determination of the net unsecured amount.


Table 10.56.5 - Offsetting of Derivative Assets and Derivative Liabilities (in thousands)
 September 30, 2019
 Derivative Instruments Meeting Netting Requirements    
 Amount Recognized Gross Amount of Netting Adjustments and Cash Collateral 
Derivative Instruments Not Meeting Netting Requirements (1)
 Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:       
Uncleared$39,174
 $(39,174) $2,272
 $2,272
Cleared4,635
 272,647
 —
 277,282
Total
 

 

 $279,554
Derivative Liabilities:       
Uncleared$85,837
 $(82,959) $1,198
 $4,076
Cleared739
 (739) —
 —
Total
 

 

 $4,076
        
 December 31, 2018
 Derivative Instruments Meeting Netting Requirements    
 Amount Recognized Gross Amount of Netting Adjustments and Cash Collateral 
Derivative Instruments Not Meeting Netting Requirements (1)
 Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:       
Uncleared$20,284
 $(20,250) $1,726
 $1,760
Cleared1,331
 62,674
 —
 64,005
Total
 
 
 $65,765
Derivative Liabilities:       
Uncleared$13,745
 $(11,824) $2,665
 $4,586
Cleared4,969
 (4,969) —
 —
Total
 
 
 $4,586

(1)Represents mortgage delivery commitments and forward rate agreements that are not subject to an enforceable netting agreement.

September 30, 2020
Derivative Instruments Meeting Netting Requirements
Gross Recognized AmountGross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements (1)
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:
Uncleared$1,256 $2,846 $817 $4,919 
Cleared7,173 247,078 0 254,251 
Total$259,170 
Derivative Liabilities:
Uncleared$222,213 $(222,132)$0 $81 
Cleared158 (158)0 0 
Total$81 
December 31, 2019
Derivative Instruments Meeting Netting Requirements
Gross Recognized AmountGross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements (1)
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:
Uncleared$16,637 $(13,903)$2,819 $5,553 
Cleared12,739 248,873 0 261,612 
Total$267,165 
Derivative Liabilities:
Uncleared$53,533 $(53,069)$846 $1,310 
Cleared471 (471)0 0 
Total$1,310 

(1)    Represents mortgage delivery commitments and forward rate agreements that are not subject to an enforceable netting agreement.



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Note 117 - Deposits

Table 11.17.1 - Deposits (in thousands)
 September 30, 2020December 31, 2019
Interest-bearing:   
Demand and overnight$1,118,550  $906,028 
Term108,525  27,850 
Other12,123  7,179 
Total interest-bearing1,239,198  941,057 
Non-interest bearing:   
Other0  10,239 
Total non-interest bearing0  10,239 
Total deposits$1,239,198  $951,296 
 September 30, 2019 December 31, 2018
Interest bearing:   
Demand and overnight$791,894
 $605,979
Term37,600
 51,600
Other9,074
 4,959
Total interest bearing838,568
 662,538
Non-interest bearing:   
Other8,452
 6,478
Total non-interest bearing8,452
 6,478
Total deposits$847,020
 $669,016



Note 128 - Consolidated Obligations

Table 12.18.1 - Consolidated Discount Notes Outstanding (dollars in thousands)
 Book Value Principal Amount 
Weighted Average Interest Rate (1)
September 30, 2020$26,667,698  $26,674,511  0.17 %
December 31, 2019$49,084,219  $49,176,985  1.56 %
 Book Value Principal Amount 
Weighted Average Interest Rate (1)
September 30, 2019$49,553,251
 $49,639,893
 1.99%
December 31, 2018$46,943,632
 $47,071,113
 2.35%
(1)Represents an implied rate without consideration of concessions.
(1)Represents an implied rate without consideration of concessions.

Table 12.28.2 - Consolidated Bonds Outstanding by Original Contractual Maturity (dollars in thousands)
 September 30, 2020 December 31, 2019
Year of Original Contractual MaturityAmountWeighted Average Interest Rate AmountWeighted Average Interest Rate
Due in 1 year or less$27,672,605 0.47 % $18,259,565 1.77 %
Due after 1 year through 2 years3,731,015 2.40  8,293,595 1.96 
Due after 2 years through 3 years2,614,465 2.25  3,024,885 2.41 
Due after 3 years through 4 years2,062,795 2.47  3,123,120 2.62 
Due after 4 years through 5 years1,781,730 1.97  1,540,405 2.73 
Thereafter3,515,000 2.51  4,139,000 2.97 
Total principal amount41,377,610 1.09  38,380,570 2.10 
Premiums47,871   64,604  
Discounts(21,622)  (24,335) 
Hedging adjustments2,560   708  
Fair value option valuation adjustment and
accrued interest		25,759 18,177 
Total$41,432,178   $38,439,724  
  September 30, 2019 December 31, 2018
Year of Original Contractual Maturity Amount Weighted Average Interest Rate Amount Weighted Average Interest Rate
Due in 1 year or less $22,924,065
 1.96% $21,085,800
 2.20%
Due after 1 year through 2 years 8,300,500
 1.97
 6,998,565
 2.13
Due after 2 years through 3 years 4,412,015
 2.39
 6,829,595
 2.05
Due after 3 years through 4 years 2,564,465
 2.60
 2,958,620
 2.39
Due after 4 years through 5 years 2,211,795
 2.74
 3,248,975
 2.63
Thereafter 4,109,730
 2.96
 4,525,635
 2.94
Total principal amount 44,522,570
 2.17
 45,647,190
 2.29
Premiums 69,351
   75,809
  
Discounts (25,257)   (29,275)  
Hedging adjustments 1,238
   (196)  
Fair value option valuation adjustment and
   accrued interest
 22,423
   (34,390)  
Total $44,590,325
   $45,659,138
  





Table 12.38.3 - Consolidated Bonds Outstanding by Call Features (in thousands)
 September 30, 2020 December 31, 2019
Principal Amount of Consolidated Bonds:   
Non-callable$37,276,610  $32,953,570 
Callable4,101,000  5,427,000 
Total principal amount$41,377,610  $38,380,570 
 September 30, 2019 December 31, 2018
Principal Amount of Consolidated Bonds:   
Non-callable$38,329,570
 $38,539,190
Callable6,193,000
 7,108,000
Total principal amount$44,522,570
 $45,647,190
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Table 12.48.4 - Consolidated Bonds Outstanding by Original Contractual Maturity or Next Call Date (in thousands)
Year of Original Contractual Maturity or Next Call DateSeptember 30, 2020 December 31, 2019
Due in 1 year or less$30,773,605  $22,631,565 
Due after 1 year through 2 years3,956,015  7,130,595 
Due after 2 years through 3 years2,088,465  2,662,885 
Due after 3 years through 4 years1,699,795  2,343,120 
Due after 4 years through 5 years1,055,730  1,253,405 
Thereafter1,804,000  2,359,000 
Total principal amount$41,377,610  $38,380,570 
Year of Original Contractual Maturity or Next Call Date September 30, 2019 December 31, 2018
Due in 1 year or less $27,905,065
 $27,173,800
Due after 1 year through 2 years 6,690,500
 5,773,565
Due after 2 years through 3 years 3,542,015
 5,060,595
Due after 3 years through 4 years 1,979,465
 2,470,620
Due after 4 years through 5 years 1,699,795
 2,231,975
Thereafter 2,705,730
 2,936,635
Total principal amount $44,522,570
 $45,647,190


Table 12.58.5 - Consolidated Bonds by Interest-rate Payment Type (in thousands)
 September 30, 2020 December 31, 2019
Principal Amount of Consolidated Bonds:   
Fixed-rate$25,774,610  $27,368,570 
Variable-rate15,603,000 11,012,000 
Total principal amount$41,377,610 $38,380,570 
 September 30, 2019 December 31, 2018
Principal Amount of Consolidated Bonds:   
Fixed-rate$28,618,570
 $29,837,190
Variable-rate15,904,000
 15,470,000
Step-up—
 340,000
Total principal amount$44,522,570
 $45,647,190



Note 139 - Affordable Housing Program (AHP)

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

Table 13.19.1 - Analysis of AHP Liability (in thousands)
Balance at December 31, 2019$115,295 
Assessments (current year additions)26,382 
Subsidy uses, net(25,922)
Balance at September 30, 2020$115,755 
Balance at December 31, 2018$117,336
Assessments (current year additions)22,342
Subsidy uses, net(25,390)
Balance at September 30, 2019$114,288



Note 10 - Capital
Note 14
 - Capital

Table 14.110.1 - Capital Requirements (dollars in thousands)
 September 30, 2020December 31, 2019
 Minimum RequirementActualMinimum RequirementActual
Risk-based capital$470,213 $4,234,451 $820,635 $4,482,519 
Capital-to-assets ratio (regulatory)4.00 %5.72 %4.00 %4.79 %
Regulatory capital$2,963,096 $4,234,451 $3,739,662 $4,482,519 
Leverage capital-to-assets ratio (regulatory)5.00 %8.57 %5.00 %7.19 %
Leverage capital$3,703,870 $6,351,677 $4,674,578 $6,723,779 
 September 30, 2019 December 31, 2018
 Minimum Requirement Actual Minimum Requirement Actual
Risk-based capital$722,256
 $4,677,807
 $837,666
 $5,366,443
Capital-to-assets ratio (regulatory)4.00% 4.67% 4.00% 5.41%
Regulatory capital$4,008,442
 $4,677,807
 $3,968,103
 $5,366,443
Leverage capital-to-assets ratio (regulatory)5.00% 7.00% 5.00% 8.11%
Leverage capital$5,010,552
 $7,016,711
 $4,960,129
 $8,049,665


Restricted Retained Earnings. At September 30, 20192020 and December 31, 20182019 the FHLB had (in thousands) $430,864$493,340 and $390,829$446,048 in restricted retained earnings. These restricted retained earnings are not available to pay dividends but are available to absorb unexpected losses, if any, that the FHLBan FHLBank may experience.

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Table 14.210.2 - Mandatorily Redeemable Capital Stock Rollforward (in thousands)
Balance, December 31, 2019$21,669 
Capital stock subject to mandatory redemption reclassified from equity557,642 
Capital stock previously subject to mandatory redemption reclassified to capital(123)
Repurchase/redemption of mandatorily redeemable capital stock(561,527)
Balance, September 30, 2020$17,661 
Balance, December 31, 2018$23,184
Capital stock subject to mandatory redemption reclassified from equity7,671
Repurchase/redemption of mandatorily redeemable capital stock(5,243)
Balance, September 30, 2019$25,612


Table 14.310.3 - Mandatorily Redeemable Capital Stock by Contractual Year of Redemption (in thousands)
Contractual Year of RedemptionSeptember 30, 2020 December 31, 2019
Year 1$159  $371 
Year 2 1,246  298 
Year 31,174  1,129 
Year 4 1,791  2,955 
Year 5 16  1,931 
Thereafter (1)
650 650 
Past contractual redemption date due to remaining activity (2)
12,625 14,335 
Total$17,661  $21,669 
(1)Represents mandatorily redeemable capital stock resulting from a Finance Agency rule effective February 19, 2016, that made captive insurance companies ineligible for FHLB membership. Captive insurance companies that were admitted as FHLB members prior to September 12, 2014, will have their membership terminated no later than February 19, 2021. The related mandatorily redeemable capital stock is not required to be redeemed until five years after the member's termination.
(2)Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.

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

In accordance with the dissolution of FICO in 2020, FICO determined that excess funds aggregating to $200 million were available for distribution to its stockholders, the FHLBanks. Specifically, the FHLB’s partial recovery of prior capital distribution was $16.5 million, which was determined based on its share of the $680 million originally contributed. The FHLB treated the receipt of these funds as a return of the investment in FICO capital stock, and therefore as a partial recovery of the prior capital distributions made by the FHLBanks to FICO in 1987, 1988, and 1989. These funds have been credited to unrestricted retained earnings.
32
Contractual Year of Redemption September 30, 2019 December 31, 2018
Year 1 $351
 $1,633
Year 2  202
 371
Year 3 1,249
 357
Year 4  1,531
 1,209
Year 5  6,712
 3,553
Thereafter (1)
 650
 624
Past contractual redemption date due to remaining activity (2)
 14,917
 15,437
Total $25,612
 $23,184
(1)Represents mandatorily redeemable capital stock resulting from a Finance Agency rule effective February 19, 2016, that made captive insurance companies ineligible for FHLB membership. Captive insurance companies that were admitted as FHLB members prior to September 12, 2014, will have their membership terminated no later than February 19, 2021. Captive insurance companies that were admitted as FHLB members on or after September 12, 2014, had their membership terminated no later than February 19, 2017. The related mandatorily redeemable capital stock is not required to be redeemed until five years after the member's termination.
(2)Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.

Table of Contents

Note 1511 - Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 20192020 and 2018.2019.

Table 15.111.1 - Accumulated Other Comprehensive Income (Loss) (in thousands)
Net unrealized gains (losses) on available-for-sale securities Pension and postretirement benefits Total accumulated other comprehensive income (loss)
BALANCE, JUNE 30, 2018$220
 $(15,563) $(15,343)
Other comprehensive income before reclassification:     
Net unrealized gains (losses)(101) —
 (101)
Reclassifications from other comprehensive income (loss) to net income:     
Amortization - pension and postretirement benefits—
 677
 677
Net current period other comprehensive income (loss)(101) 677
 576
BALANCE, SEPTEMBER 30, 2018$119
 $(14,886) $(14,767)
     
     Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, JUNE 30, 2019$(360) $(12,016) $(12,376)BALANCE, JUNE 30, 2019$(360)$(12,016)$(12,376)
Other comprehensive income before reclassification:     Other comprehensive income before reclassification:
Net unrealized gains (losses)(192) —
 (192)Net unrealized gains (losses)(192)0 (192)
Reclassifications from other comprehensive income (loss) to net income:     Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits—
 459
 459
Amortization - pension and postretirement benefits0 459 459 
Net current period other comprehensive income (loss)(192) 459
 267
Net current period other comprehensive income (loss)(192)459 267 
BALANCE, SEPTEMBER 30, 2019$(552) $(11,557) $(12,109)BALANCE, SEPTEMBER 30, 2019$(552)$(11,557)$(12,109)
BALANCE, JUNE 30, 2020BALANCE, JUNE 30, 2020$(513)$(15,620)$(16,133)
Other comprehensive income before reclassification:Other comprehensive income before reclassification:
Net unrealized gains (losses)Net unrealized gains (losses)3,504 0 3,504 
Reclassifications from other comprehensive income (loss) to net income:Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefitsAmortization - pension and postretirement benefits0 572 572 
Net current period other comprehensive income (loss)Net current period other comprehensive income (loss)3,504 572 4,076 
BALANCE, SEPTEMBER 30, 2020BALANCE, SEPTEMBER 30, 2020$2,991 $(15,048)$(12,057)
Net unrealized gains (losses) on available-for-sale securities Pension and postretirement benefits Total accumulated other comprehensive income (loss)Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, DECEMBER 31, 2017$(124) $(16,536) $(16,660)
Other comprehensive income before reclassification:     
Net unrealized gains (losses)243
 —
 243
Reclassifications from other comprehensive income (loss) to net income:     
Amortization - pension and postretirement benefits—
 1,650
 1,650
Net current period other comprehensive income (loss)243
 1,650
 1,893
BALANCE, SEPTEMBER 30, 2018$119
 $(14,886) $(14,767)
     
     
BALANCE, DECEMBER 31, 2018$(110) $(12,933) $(13,043)BALANCE, DECEMBER 31, 2018$(110)$(12,933)$(13,043)
Other comprehensive income before reclassification:     Other comprehensive income before reclassification:
Net unrealized gains (losses)(442) —
 (442)Net unrealized gains (losses)(442)0(442)
Reclassifications from other comprehensive income (loss) to net income:     Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits—
 1,376
 1,376
Amortization - pension and postretirement benefits01,376 1,376 
Net current period other comprehensive income (loss)(442) 1,376
 934
Net current period other comprehensive income (loss)(442)1,376 934 
BALANCE, SEPTEMBER 30, 2019$(552) $(11,557) $(12,109)BALANCE, SEPTEMBER 30, 2019$(552)$(11,557)$(12,109)
BALANCE, DECEMBER 31, 2019BALANCE, DECEMBER 31, 2019$370 $(16,764)$(16,394)
Other comprehensive income before reclassification:Other comprehensive income before reclassification:
Net unrealized gains (losses)Net unrealized gains (losses)2,621 0 2,621 
Reclassifications from other comprehensive income (loss) to net income:Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefitsAmortization - pension and postretirement benefits0 1,716 1,716 
Net current period other comprehensive income (loss)Net current period other comprehensive income (loss)2,621 1,716 4,337 
BALANCE, SEPTEMBER 30, 2020BALANCE, SEPTEMBER 30, 2020$2,991 $(15,048)$(12,057)
33
Table of Contents


Note 1612 - Pension and Postretirement Benefit Plans

Qualified Defined Benefit Multi-employer Plan. The FHLB participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Defined Benefit Plan), a tax-qualified defined benefit pension plan. Under the Pentegra Defined Benefit Plan, contributions made by one participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The Pentegra Defined Benefit Plan covers all officers and employees of the FHLB who meet certain eligibility requirements. Contributions to the Pentegra Defined Benefit Plan charged to compensation and benefit expense were $1,485,000$1,594,000 and $1,250,000$1,485,000 in the three months ended September 30, 20192020 and 2018,2019, respectively, and $5,422,000$4,630,000 and $6,301,000$5,422,000 in the nine months ended September 30, 20192020 and 2018, respectively.2019.

Qualified Defined Contribution Plan. The FHLB also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified, defined contribution plan. The FHLB contributes a percentage of the participants' compensation by making a matching contribution equal to a percentage of voluntary employee contributions, subject to certain IRS limitations. The FHLB contributed $252,000$271,000 and $240,000$252,000 in the three months ended September 30, 20192020 and 2018,2019, respectively, and $1,058,000$1,133,000 and $1,007,000$1,058,000 in the nine months ended September 30, 20192020 and 2018, respectively.2019.

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

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

Table 16.112.1 - Net Periodic Benefit Cost (in thousands)
 Three Months Ended September 30,
 Defined Benefit
Retirement Plan		 Postretirement Benefits Plan
 20202019 20202019
Net Periodic Benefit Cost     
Service cost$282 $225  $3 $3 
Interest cost331 388  35 46 
Amortization of net loss572 459  0 0 
Net periodic benefit cost$1,185 $1,072  $38 $49 
Nine Months Ended September 30,
Defined Benefit
Retirement Plan		Postretirement Benefits Plan
2020201920202019
Net Periodic Benefit Cost
Service cost$847 $676 $7 $10 
Interest cost993 1,163 106 136 
Amortization of net loss1,716 1,376 0 0 
Net periodic benefit cost$3,556 $3,215 $113 $146 
 Three Months Ended September 30,
 
Defined Benefit
Retirement Plan
 Postretirement Benefits Plan
 2019 2018 2019 2018
Net Periodic Benefit Cost       
Service cost$225
 $294
 $3
 $6
Interest cost388
 352
 46
 41
Amortization of net loss459
 677
 —
 —
Net periodic benefit cost$1,072
 $1,323
 $49
 $47
        
 Nine Months Ended September 30,
 Defined Benefit
Retirement Plan		 Postretirement Benefits Plan
 2019 2018 2019 2018
Net Periodic Benefit Cost       
Service cost$676
 $847
 $10
 $15
Interest cost1,163
 1,015
 136
 124
Amortization of net loss1,376
 1,650
 —
 —
Net periodic benefit cost$3,215
 $3,512
 $146
 $139


34

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



Note 1713 - Segment Information

The FHLB has identified 2 primary operating segments based on its method of internal reporting: Traditional Member Finance and the MPP. These segments reflect the FHLB's two primary Mission Asset Activities and the manner in which they are managed from the perspective of development, resource allocation, product delivery, pricing, credit risk and operational administration. The segments identify the principal ways the FHLB provides services to member stockholders.

Table 17.113.1 - Financial Performance by Operating Segment (in thousands)
 Three Months Ended September 30,
 Traditional Member
Finance		MPPTotal
2020   
Net interest income$91,957 $1,151 $93,108 
Non-interest income (loss)(10,582)3,111 (7,471)
Non-interest expense18,918 2,953 21,871 
Income before assessments62,457 1,309 63,766 
Affordable Housing Program assessments6,238 131 6,369 
Net income$56,219 $1,178 $57,397 
2019   
Net interest income$65,146 $22,093 $87,239 
Non-interest income (loss)(8,242)12,536 4,294 
Non-interest expense19,166 2,677 21,843 
Income before assessments37,738 31,952 69,690 
Affordable Housing Program assessments3,800 3,195 6,995 
Net income$33,938 $28,757 $62,695 
 Three Months Ended September 30,
 
Traditional Member
Finance
 MPP Total
2019     
Net interest income$65,146
 $22,093
 $87,239
Non-interest income (loss)(8,242) 12,536
 4,294
Non-interest expense19,166
 2,677
 21,843
Income before assessments37,738
 31,952
 69,690
Affordable Housing Program assessments3,800
 3,195
 6,995
Net income$33,938
 $28,757
 $62,695
2018     
Net interest income$102,279
 $27,881
 $130,160
Non-interest income (loss)(7,805) (1,118) (8,923)
Non-interest expense16,957
 2,451
 19,408
Income before assessments77,517
 24,312
 101,829
Affordable Housing Program assessments7,793
 2,431
 10,224
Net income$69,724
 $21,881
 $91,605

 Nine Months Ended September 30,
 Traditional Member
Finance		MPPTotal
2020   
Net interest income$295,920 $28,898 $324,818 
Non-interest income (loss)(41,540)49,733 8,193 
Non-interest expense61,379 8,790 70,169 
Income before assessments193,001 69,841 262,842 
Affordable Housing Program assessments19,398 6,984 26,382 
Net income$173,603 $62,857 $236,460 
2019   
Net interest income$226,254 $80,671 $306,925 
Non-interest income (loss)(22,306)5,542 (16,764)
Non-interest expense59,158 8,486 67,644 
Income before assessments144,790 77,727 222,517 
Affordable Housing Program assessments14,569 7,773 22,342 
Net income$130,221 $69,954 $200,175 
 Nine Months Ended September 30,
 
Traditional Member
Finance
 MPP Total
2019     
Net interest income$226,254
 $80,671
 $306,925
Non-interest income (loss)(22,306) 5,542
 (16,764)
Non-interest expense59,158
 8,486
 67,644
Income before assessments144,790
 77,727
 222,517
Affordable Housing Program assessments14,569
 7,773
 22,342
Net income$130,221
 $69,954
 $200,175
2018     
Net interest income$299,006
 $78,405
 $377,411
Non-interest income (loss)(24,732) (857) (25,589)
Non-interest expense55,202
 8,471
 63,673
Income before assessments219,072
 69,077
 288,149
Affordable Housing Program assessments22,028
 6,908
 28,936
Net income$197,044
 $62,169
 $259,213
35

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Table 17.213.2 - Asset Balances by Operating Segment (in thousands)
Assets
Traditional Member
Finance		MPPTotal
September 30, 2020$63,045,740 $11,031,668 $74,077,408 
December 31, 201981,064,206 12,427,353 93,491,559 
 Assets
 Traditional Member
Finance		 MPP Total
September 30, 2019$87,706,932
 $12,504,110
 $100,211,042
December 31, 201886,042,150
 13,160,423
 99,202,573



Note 1814 - Fair Value Disclosures

The fair value amounts recorded on the Statements of Condition and presented in the related note disclosures have been determined by the FHLB using available market information and the FHLB's best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair values reflect the FHLB's judgment of how a market participant would estimate the fair values.

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

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

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

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

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

The FHLB reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain financial assets or liabilities. Such reclassifications would be reported as transfers in/out at fair value as of the beginning of the quarter in which the changes occur. The FHLB did not have any transfers of assets or liabilities betweeninto or out of Level 3 of the fair value levelshierarchy during the nine months ended September 30, 20192020 or 2019.
2018.


Table 18.114.1 presents the net carrying value/carrying value, fair value, and fair value hierarchy of financial assets and liabilities of the FHLB. The FHLB records trading securities, available-for-sale securities, derivative assets, derivative liabilities, certain Advances and certain Consolidated Obligations at fair value on a recurring basis, and on occasion, certain mortgage loans held for portfolio on a nonrecurring basis. The FHLB records all other financial assets and liabilities at amortized cost. Refer to Table 18.214.2 for further details about the financial assets and liabilities held at fair value on either a recurring or nonrecurring basis.

36
Table of Contents
Table 18.114.1 - Fair Value Summary (in thousands)
September 30, 2020
Fair Value
Financial InstrumentsNet Carrying ValueTotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Assets:  
Cash and due from banks$1,363,958 $1,363,958 $1,363,958 $0 $0 $— 
Interest-bearing deposits630,161 630,161 0 630,161 0 — 
Securities purchased under agreements to resell2,453,694 2,453,694 0 2,453,694 0 — 
Federal funds sold8,705,000 8,705,000 0 8,705,000 0 — 
Trading securities11,300,464 11,300,464 0 11,300,464 0 — 
Available-for-sale securities294,496 294,496 0 294,496 0 — 
Held-to-maturity securities11,130,599 11,275,891 0 11,275,891 0 — 
Advances (2)
27,100,957 27,334,478 0 27,334,478 0 — 
Mortgage loans held for portfolio10,671,179 10,990,116 0 10,919,323 70,793 — 
Accrued interest receivable144,310 144,310 0 144,310 0 — 
Derivative assets259,170 259,170 0 9,246 0 249,924 
Liabilities:  
Deposits1,239,198 1,239,330 0 1,239,330 0 — 
Consolidated Obligations: 
Discount Notes26,667,698 26,671,553 0 26,671,553 0 — 
Bonds (3)
41,432,178 42,302,498 0 42,302,498 0 — 
Mandatorily redeemable capital stock17,661 17,661 17,661 0 0 — 
Accrued interest payable77,746 77,746 0 77,746 0 — 
Derivative liabilities81 81 0 222,371 0 (222,290)
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)Includes (in thousands) $27,464 of Advances recorded under the fair value option at September 30, 2020.
(3)Includes (in thousands) $2,447,759 of Consolidated Obligation Bonds recorded under the fair value option at September 30, 2020.

37
Table of Contents
 September 30, 2019
   Fair Value
Financial InstrumentsCarrying Value Total Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
Assets:           
Cash and due from banks$15,417
 $15,417
 $15,417
 $—
 $—
 $—
Interest-bearing deposits599,201
 599,201
 —
 599,201
 —
 —
Securities purchased under agreements to resell1,839,576
 1,839,586
 —
 1,839,586
 —
 —
Federal funds sold14,082,000
 14,082,000
 —
 14,082,000
 —
 —
Trading securities11,416,483
 11,416,483
 —
 11,416,483
 —
 —
Available-for-sale securities434,177
 434,177
 —
 434,177
 —
 —
Held-to-maturity securities14,070,879
 14,082,525
 —
 14,082,525
 —
 —
Advances (2)
46,358,204
 46,426,913
 —
 46,426,913
 —
 —
Mortgage loans held for portfolio, net10,883,590
 11,082,299
 —
 11,071,158
 11,141
 —
Accrued interest receivable204,910
 204,910
 —
 204,910
 —
 —
Derivative assets279,554
 279,554
 —
 46,081
 —
 233,473
Liabilities:           
Deposits847,020
 847,109
 —
 847,109
 —
 —
Consolidated Obligations:           
Discount Notes (3)
49,553,251
 49,558,074
 —
 49,558,074
 —
 —
Bonds (4)
44,590,325
 45,032,831
 —
 45,032,831
 —
 —
Mandatorily redeemable capital stock25,612
 25,612
 25,612
 —
 —
 —
Accrued interest payable144,699
 144,699
 —
 144,699
 —
 —
Derivative liabilities4,076
 4,076
 —
 87,774
 —
 (83,698)
Other:           
Standby bond purchase agreements—
 405
 —
 405
 —
 —
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)
Includes (in thousands) $10,267 of Advances recorded under the fair value option at September 30, 2019.
(3)Includes (in thousands) $13,914,315 of Consolidated Obligation Discount Notes recorded under the fair value option at September 30, 2019.
(4)
Includes (in thousands) $5,436,423 of Consolidated Obligation Bonds recorded under the fair value option at September 30, 2019.

December 31, 2019
Fair Value
Financial InstrumentsCarrying ValueTotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Assets:  
Cash and due from banks$20,608 $20,608 $20,608 $0 $0 $— 
Interest-bearing deposits550,160 550,160 0 550,160 0 — 
Securities purchased under agreements to resell2,348,584 2,348,607 0 2,348,607 0 — 
Federal funds sold4,833,000 4,833,000 0 4,833,000 0 — 
Trading securities11,615,693 11,615,693 0 11,615,693 0 — 
Available-for-sale securities1,542,185 1,542,185 0 1,542,185 0 — 
Held-to-maturity securities13,499,319 13,501,207 0 13,501,207 0 — 
Advances (2)
47,369,573 47,458,028 0 47,458,028 0 — 
Mortgage loans held for portfolio, net11,235,353 11,437,180 0 11,424,857 12,323 — 
Accrued interest receivable182,252 182,252 0 182,252 0 — 
Derivative assets267,165 267,165 0 32,195 0 234,970 
Liabilities:  
Deposits951,296 951,343 0 951,343 0 — 
Consolidated Obligations:  
Discount Notes (3)
49,084,219 49,086,723 0 49,086,723 0 — 
Bonds (4)
38,439,724 38,832,230 0 38,832,230 0 — 
Mandatorily redeemable capital stock21,669 21,669 21,669 0 0 — 
Accrued interest payable126,091 126,091 0 126,091 0 — 
Derivative liabilities1,310 1,310 0 54,850 0 (53,540)

(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.

(2)Includes (in thousands) $5,238 of Advances recorded under the fair value option at December 31, 2019.
(3)Includes (in thousands) $12,386,974 of Consolidated Obligation Discount Notes recorded under the fair value option at December 31, 2019.
 December 31, 2018
   Fair Value
Financial InstrumentsCarrying Value Total Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
Assets:           
Cash and due from banks$10,037
 $10,037
 $10,037
 $—
 $—
 $—
Interest-bearing deposits122
 122
 —
 122
 —
 —
Securities purchased under agreements to resell4,402,208

4,402,237
 —
 4,402,237
 —
 —
Federal funds sold10,793,000
 10,793,000
 —
 10,793,000
 —
 —
Trading securities223,980
 223,980
 —
 223,980
 —
 —
Available-for-sale securities2,402,897
 2,402,897
 —
 2,402,897
 —
 —
Held-to-maturity securities15,791,222
 15,575,368
 —
 15,575,368
 —
 —
Advances (2)
54,822,252
 54,736,645
 —
 54,736,645
 —
 —
Mortgage loans held for portfolio, net10,500,917
 10,329,982
 —
 10,317,010
 12,972
 —
Accrued interest receivable169,982
 169,982
 —
 169,982
 —
 —
Derivative assets65,765
 65,765
 —
 23,341
 —
 42,424
Liabilities:           
Deposits669,016
 668,947
 —
 668,947
 —
 —
Consolidated Obligations:           
Discount Notes46,943,632
 46,944,523
 —
 46,944,523
 —
 —
Bonds (3)
45,659,138
 45,385,615
 —
 45,385,615
 —
 —
Mandatorily redeemable capital stock23,184
 23,184
 23,184
 —
 —
 —
Accrued interest payable147,337
 147,337
 —
 147,337
 —
 —
Derivative liabilities4,586
 4,586
 —
 21,379
 —
 (16,793)
Other:           
Standby bond purchase agreements—
 443
 —
 443
 —
 —
(4)Includes (in thousands) $4,757,177 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2019.
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)
Includes (in thousands)

$10,008 of Advances recorded under the fair value option at December 31, 2018.
(3)
Includes (in thousands) $3,906,610 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2018.

Summary of Valuation Methodologies and Primary Inputs.

The valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statement of Condition are disclosed in Note 19 - Fair Value Disclosures in the FHLB's 20182019 Annual Report on Form 10-K. There have been no significant changes in the valuation methodologies during 2019.2020.


38

Table of Contents



Fair Value Measurements.

Table 18.214.2 presents the fair value of financial assets and liabilities that are recorded on a recurring or nonrecurring basis at September 30, 20192020 and December 31, 2018,2019, by level within the fair value hierarchy. The FHLB records nonrecurring fair value adjustments to reflect partial write-downs on certain mortgage loans.


Table 18.214.2 - Fair Value Measurements (in thousands)
Fair Value Measurements at September 30, 2020
 Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets     
Trading securities:     
U.S. Treasury obligations$9,152,799 $0 $9,152,799 $0 $— 
GSE obligations2,147,291 0 2,147,291 0 — 
U.S. obligation single-family MBS374 0 374 0 — 
Total trading securities11,300,464 0 11,300,464 0 — 
Available-for-sale securities:     
GSE obligations143,579 0 143,579 0 — 
GSE multi-family MBS150,917 0 150,917 0 — 
Total available-for-sale securities294,496 0 294,496 0 — 
Advances27,464 0 27,464 0 — 
Derivative assets:     
Interest rate related258,353 0 8,429 0 249,924 
Mortgage delivery commitments817 0 817 0 — 
Total derivative assets259,170 0 9,246 0 249,924 
Total assets at fair value$11,881,594 $0 $11,631,670 $0 $249,924 
Recurring fair value measurements - Liabilities     
Consolidated Obligation Bonds$2,447,759 $0 $2,447,759 $0 $— 
Derivative liabilities:     
Interest rate related81 0 222,371 0 (222,290)
Total derivative liabilities81 0 222,371 0 (222,290)
Total liabilities at fair value$2,447,840 $0 $2,670,130 $0 $(222,290)
Nonrecurring fair value measurements - Assets (2)
Mortgage loans held for portfolio$110 $0 $0 $110 
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)The fair value information presented is as of the date the fair value adjustment was recorded during the nine months ended September 30, 2020.

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Table of Contents
 Fair Value Measurements at September 30, 2019
 Total   Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets         
Trading securities:         
U.S. Treasury obligations$9,386,559
 $—
 $9,386,559
 $—
 $—
GSE obligations2,029,426
 —
 2,029,426
 —
 —
U.S. obligation single-family MBS498
 —
 498
 —
 —
Total trading securities11,416,483
 —
 11,416,483
 —
 —
Available-for-sale securities:         
Certificates of deposit300,003
 —
 300,003
 —
 —
GSE obligations134,174
 —
 134,174
 —
 —
Total available-for-sale securities434,177
 —
 434,177
 —
 —
Advances10,267
 —
 10,267
 —
 —
Derivative assets:         
Interest rate related277,282
 —
 43,809
 —
 233,473
Forward rate agreements16
 —
 16
 —
 —
Mortgage delivery commitments2,256
 —
 2,256
 —
 —
Total derivative assets279,554
 —
 46,081
 —
 233,473
Total assets at fair value$12,140,481
 $—
 $11,907,008
 $—
 $233,473
          
Recurring fair value measurements - Liabilities         
Consolidated Obligations:         
Discount Notes$13,914,315
 $—
 $13,914,315
 $—
 $—
Bonds5,436,423
 —
 5,436,423
 —
 —
Total Consolidated Obligations19,350,738
 —
 19,350,738
 —
 —
Derivative liabilities:         
Interest rate related2,878
 —
 86,576
 —
 (83,698)
Forward rate agreements652
 —
 652
 —
 —
Mortgage delivery commitments546
 —
 546
 —
 —
Total derivative liabilities4,076
 —
 87,774
 —
 (83,698)
Total liabilities at fair value$19,354,814
 $—
 $19,438,512
 $—
 $(83,698)
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.

Fair Value Measurements at December 31, 2019
 Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets     
Trading securities:     
U.S. Treasury obligations$9,626,964 $0 $9,626,964 $0 $— 
GSE obligations1,988,259 0 1,988,259 0 — 
U.S. obligation single-family MBS470 0 470 0 — 
Total trading securities11,615,693 0 11,615,693 0 — 
Available-for-sale securities:     
Certificates of deposit1,410,111 0 1,410,111 0 — 
GSE obligations132,074 0 132,074 0 — 
Total available-for-sale securities1,542,185 0 1,542,185 0 — 
Advances5,238 0 5,238 0 — 
Derivative assets:     
Interest rate related264,346 0 29,376 0 234,970 
Forward rate agreements21 0 21 0 — 
Mortgage delivery commitments2,798 0 2,798 0 — 
Total derivative assets267,165 0 32,195 0 234,970 
Total assets at fair value$13,430,281 $0 $13,195,311 $0 $234,970 
Recurring fair value measurements - Liabilities     
Consolidated Obligations:
Discount Notes$12,386,974 $0 $12,386,974 $0 $— 
Bonds4,757,177 0 4,757,177 0 — 
Total Consolidated Obligations17,144,151 0 17,144,151 0 — 
Derivative liabilities:     
Interest rate related464 0 54,004 0 (53,540)
Forward rate agreements782 0 782 0 — 
Mortgage delivery commitments64 0 64 0 — 
Total derivative liabilities1,310 0 54,850 0 (53,540)
Total liabilities at fair value$17,145,461 $0 $17,199,001 $0 $(53,540)

(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.


 Fair Value Measurements at December 31, 2018
 Total   Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets         
Trading securities:         
GSE obligations$223,368
 $—
 $223,368
 $—
 $—
U.S. obligation single-family MBS612
 —
 612
 —
 —
Total trading securities223,980
 —
 223,980
 —
 —
Available-for-sale securities:         
Certificates of deposit2,350,002
 —
 2,350,002
 —
 —
GSE obligations52,895
 —
 52,895
 —
 —
Total available-for-sale securities2,402,897
 —
 2,402,897
 —
 —
Advances10,008
 —
 10,008
 —
 —
Derivative assets:         
Interest rate related64,039
 —
 21,615
 —
 42,424
Mortgage delivery commitments1,726
 —
 1,726
 —
 —
Total derivative assets65,765
 —
 23,341
 —
 42,424
Total assets at fair value$2,702,650
 $—
 $2,660,226
 $—
 $42,424
          
Recurring fair value measurements - Liabilities         
Consolidated Obligation Bonds$3,906,610
 $—
 $3,906,610
 $—
 $—
Derivative liabilities:         
Interest rate related1,921
 —
 18,714
 —
 (16,793)
Forward rate agreements2,664
 —
 2,664
 —
 —
Mortgage delivery commitments1
 —
 1
 —
 —
Total derivative liabilities4,586
 —
 21,379
 —
 (16,793)
Total liabilities at fair value$3,911,196
 $—
 $3,927,989
 $—
 $(16,793)
          
Nonrecurring fair value measurements - Assets (2)
         
Mortgage loans held for portfolio$311
 $—
 $—
 $311
  

(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(2)The fair value information presented is as of the date the fair value adjustment was recorded during the year ended December 31, 2018.

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

The FHLB has elected the fair value option for certain financial instruments that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements. These fair value elections were made primarily in an effort to

mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value.

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Table 18.3of Contents
Table 14.3 presents net gains (losses) recognized in earnings related to financial assets and liabilities in which the fair value option was elected during the three and nine months ended September 30, 20192020 and 2018.2019.


Table 18.314.3 – Fair Value Option - Financial Assets and Liabilities (in thousands)
 Three Months Ended September 30, Nine Months Ended September 30,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings2019 2018 2019 2018
Advances$53
 $(46) $259
 $(76)
Consolidated Discount Notes(2,449) —
 (2,449) —
Consolidated Bonds(6,285) (3,561) (48,425) 12,300
Total net gains (losses)$(8,681) $(3,607) $(50,615) $12,224

Three Months Ended September 30,Nine Months Ended September 30,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings2020201920202019
Advances$526 $53 $704 $259 
Consolidated Discount Notes1,222 (2,449)1,060 (2,449)
Consolidated Bonds8,939 (6,285)(16,166)(48,425)
Total net gains (losses)$10,687 $(8,681)$(14,402)$(50,615)

For instruments recorded under the fair value option, the related contractual interest income and contractual interest expense are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments in which the fair value option has been elected are recorded as “Net gains (losses) on financial instruments held under fair value option” in the Statements of Income, except for changes in fair value related to instrument specific credit risk, which are recorded in accumulated other comprehensive income in the Statement of Condition. The FHLB has determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the nine months ended September 30, 20192020 or 2018.2019. In determining that there has been 0 change in instrument-specific credit risk period to period, the FHLB primarily considered the following factors:

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

▪The FHLB is a federally chartered GSE, and as a result of this status, the FHLB’s Consolidated Obligations have historically received the same credit ratings as the government bond credit rating of the United States, even though they are not Obligations of the United States and are not guaranteed by the United States.
▪The FHLB is jointly and severally liable with the other 10 FHLBanks for the payment of principal and interest on all Consolidated Obligations of each of the other FHLBanks.

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

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

Table 18.414.4 – Aggregate Unpaid Balance and Aggregate Fair Value (in thousands)
September 30, 2020December 31, 2019
Aggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal BalanceAggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Advances$26,500 $27,464 $964 $5,000 $5,238 $238 
Consolidated Discount Notes0 0 0 12,400,865 12,386,974 (13,891)
Consolidated Bonds2,422,000 2,447,759 25,759 4,739,000 4,757,177 18,177 

41
 September 30, 2019 December 31, 2018
 Aggregate Unpaid Principal Balance Aggregate Fair Value Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance Aggregate Unpaid Principal Balance Aggregate Fair Value Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Advances (1)
$10,000
 $10,267
 $267
 $10,000
 $10,008
 $8
Consolidated Discount Notes13,936,995
 13,914,315
 (22,680) —
 —
 —
Consolidated Bonds5,414,000
 5,436,423
 22,423
 3,941,000
 3,906,610
 (34,390)

Table of Contents
(1)At September 30, 2019 and December 31, 2018, none of the Advances were 90 days or more past due or had been placed on non-accrual status.



Note 1915 - Commitments and Contingencies


Table 19.115.1 - Off-Balance Sheet Commitments (in thousands)
September 30, 2020December 31, 2019
Notional AmountExpire within one yearExpire after one yearTotalExpire within one yearExpire after one yearTotal
Standby Letters of Credit (1)
$21,902,639 $1,108,410 $23,011,049 $15,143,075 $1,062,105 $16,205,180 
Commitments for standby bond purchases (1)
28,970 37,320 66,290 20,360 55,150 75,510 
Commitments to purchase mortgage loans145,164 0 145,164 936,269 0 936,269 
Unsettled Consolidated Bonds, principal amount (2)
124,000 0 124,000 0 0 0 
(1)The FHLB has deemed it unnecessary to record any liability for credit losses on these agreements.
(2)Expiration is based on settlement period rather than underlying contractual maturity of Consolidated Obligations.
 September 30, 2019 December 31, 2018
Notional AmountExpire within one year Expire after one year Total Expire within one year Expire after one year Total
Standby Letters of Credit$15,039,194
 $1,051,164
 $16,090,358
 $14,578,925
 $268,395
 $14,847,320
Commitments for standby bond purchases20,360
 55,150
 75,510
 23,215
 54,820
 78,035
Commitments to purchase mortgage loans738,399
 —
 738,399
 146,009
 —
 146,009
Unsettled Consolidated Bonds, principal amount (1)
—
 —
 —
 92,000
 —
 92,000
Unsettled Consolidated Discount Notes, principal amount (1)
20,000
 —
 20,000
 525,000
 —
 525,000

(1)Expiration is based on settlement period rather than underlying contractual maturity of Consolidated Obligations.

Legal Proceedings. From time to time, the FHLB is subject to legal proceedings arising in the normal course of business. The FHLB would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount could be reasonably estimated. After consultation with legal counsel, management does not anticipate that ultimate liability, if any, arising out of any matters will have a material effect on the FHLB's financial condition or results of operations.


Note 2016 - Transactions with Other FHLBanks

The FHLB notes all transactions with other FHLBanks on the face of its financial statements. Occasionally, the FHLB loans short-term funds to and borrows short-term funds from other FHLBanks. These loans and borrowings are transacted at then current market rates when traded. There were no such loans or borrowings outstanding at September 30, 20192020 or December 31, 2018.2019. The following table details the average daily balance of lending and borrowing between the FHLB and other FHLBanks for the nine months ended September 30, 20192020 and 2018.

2019.

Table 20.116.1 - Lending and Borrowing Between the FHLB and Other FHLBanks (in thousands)
Average Daily Balances for the Nine Months Ended September 30,
Average Daily Balances for the Nine Months Ended September 30,
2019 2018 2020 2019
Loans to other FHLBanks$3,846
 $1,832
Loans to other FHLBanks$6,569  $3,846 
Borrowings from other FHLBanks183
 366
Borrowings from other FHLBanks182  183 


In addition, the FHLB may, from time to time, assume the outstanding primary liability for Consolidated Obligations of another FHLBank (at then current market rates on the day when the transfer is traded) rather than issuing new debt for which the FHLB is the primary obligor. The FHLB then becomes the primary obligor on the transferred debt. There were 0 Consolidated Obligations transferred to the FHLB during the nine months ended September 30, 20192020, or 2018.2019. The FHLB had 0 Consolidated Obligations transferred to other FHLBanks during these periods.


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Note 2117 - Transactions with Stockholders

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

For financial statement purposes, the FHLB defines related parties as those members with more than 10 percent of the voting interests of the FHLB capital stock outstanding. Federal statute prescribes the voting rights of members in the election of both Member and Independent directors. For Member directorships, the Finance Agency designates the number of Member directorships in a given year and an eligible voting member may vote only for candidates seeking election in its respective state. For Independent directors, the FHLB's Board of Directors nominates candidates to be placed on the ballot in an at-large election. For both Member and Independent director elections, a member is entitled to vote one share of required capital stock, subject to a statutory limitation, for each applicable directorship. Under this limitation, the total number of votes that a member may cast is limited to the average number of shares of the FHLB's capital stock that were required to be held by all members in that state as of the record date for voting. Nonmember stockholders are not eligible to vote in director elections. Due to these statutory limitations, no member owned more than 10 percent of the voting interests of the FHLB at September 30, 20192020 or December 31, 2018.2019.

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

Transactions with Directors' Financial Institutions. In the ordinary course of its business, the FHLB provides products and services to members whose officers or directors serve as directors of the FHLB (Directors' Financial Institutions). Finance Agency regulations require that transactions with Directors' Financial Institutions be made on the same terms as those with any other member. The following table reflects balances with Directors' Financial Institutions for the items indicated below. The FHLB had no MBS or derivatives transactions with Directors' Financial Institutions at September 30, 20192020 or December 31, 2018.2019.

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Table 21.117.1 - Transactions with Directors' Financial Institutions (dollars in millions)
 September 30, 2020December 31, 2019
 Balance
% of Total (1)
Balance
% of Total (1)
Advances$7,337 27.5 %$3,428 7.3 %
MPP159 1.5 122 1.1 
Regulatory capital stock545 18.5 176 5.2 
 September 30, 2019 December 31, 2018
 Balance 
% of Total (1)
 Balance 
% of Total (1)
Advances$3,214
 7.0% $3,424
 6.2%
MPP121
 1.1
 585
 5.7
Regulatory capital stock178
 4.9
 419
 9.6
(1)Percentage of total principal (Advances), unpaid principal balance (MPP), and regulatory capital stock.
(1)Percentage of total principal (Advances), unpaid principal balance (MPP), and regulatory capital stock.

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

Table 21.217.2 - Stockholders Holding Five Percent or more of Regulatory Capital Stock (dollars in millions)
 Regulatory Capital Stock Advance MPP Unpaid
September 30, 2019Balance % of Total  Principal Principal Balance
JPMorgan Chase Bank, N.A.$852
 24% $8,050
 $—
U.S. Bank, N.A.497
 14
 4,974
 17
Regulatory Capital StockAdvanceMPP Unpaid
September 30, 2020Balance% of Total PrincipalPrincipal Balance
U.S. Bank, N.A.$366 12 %$4,273 $14 
JPMorgan Chase Bank, N.A.317 11 0 0 

 Regulatory Capital Stock Advance MPP Unpaid
December 31, 2018Balance % of Total Principal Principal Balance
JPMorgan Chase Bank, N.A.$1,085
 25% $23,400
 $—
U.S. Bank, N.A.796
 18
 4,574
 19
The Huntington National Bank248
 6
 6
 486


Regulatory Capital StockAdvanceMPP Unpaid
December 31, 2019Balance% of TotalPrincipalPrincipal Balance
JPMorgan Chase Bank, N.A.$675 20 %$4,500 $0 
U.S. Bank, N.A.485 14 13,874 17 
Nonmember Affiliates. The FHLB has relationships with 3 nonmember affiliates, the Kentucky Housing Corporation, the Ohio Housing Finance Agency and the Tennessee Housing Development Agency. The FHLB had no investments in or borrowings to any of these nonmember affiliates at September 30, 20192020 or December 31, 2018.2019. The FHLB has executed standby bond purchase agreements with 1 state housing authoritythe Ohio Housing Finance Agency whereby the FHLB, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. During the first nine months of 20192020 and 2018,2019, the FHLB was not required to purchase any bonds under these agreements.


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

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

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

▪political events, including legislative, regulatory, federal government, judicial or other developments that could affect us, our members, our counterparties, other Federal Home Loan Banks (FHLBanks) and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System) debt securities, which are called Consolidated Obligations or Obligations;

▪political, national, or world events, including acts of war, terrorism, natural disasters, pandemics, including the current COVID-19 pandemic, or other catastrophic events, and legislative, regulatory, government, judicial or other developments that could affect us, our members, our counterparties, other Federal Home Loan Banks (FHLBanks) and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System) debt securities, which are called Consolidated Obligations or Obligations;
▪competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;

▪the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on favorable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;
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▪competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;

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

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

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

▪uncertainties relating to the phasing out of the London InterBank Offered Rate (LIBOR) that could impact our mortgage-backed securities (MBS) investments, Advances, Consolidated Obligations, derivatives, and collateral;
▪the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;

▪the ability to attract and retain skilled management and other key employees;
▪uncertainties relating to the phasing out of the London InterBank Offered Rate (LIBOR) that could impact our mortgage-backed securities (MBS) investments, Advances, Consolidated Obligations, derivatives, and collateral;

▪the ability to develop and support technology and information systems that effectively manage the risks we face (including cybersecurity risks);
▪the ability to attract and retain skilled management and other key employees;

▪the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;
▪the ability to develop and support technology and information systems that effectively manage the risks we face (including cybersecurity risks);

▪the ability to successfully manage new products and services; and
▪the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;

▪the risk of loss arising from litigation filed against us or one or more other FHLBanks.
▪the ability to successfully manage new products and services; and

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

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


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EXECUTIVE OVERVIEW

The following table presents selected Statement of Condition data, Statement of Income data and financial ratios for the periods indicated.
(Dollars in millions)September 30, 2020June 30, 2020March 30, 2020December 31, 2019September 30, 2019
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets$74,077 $90,645 $122,510 $93,492 $100,211 
Advances27,101 48,913 80,425 47,370 46,358 
Mortgage loans held for portfolio10,671 11,704 11,923 11,236 10,885 
Allowance for credit losses on mortgage loans (1)
— — — 1 1 
Investments (2)
34,514 29,533 25,665 34,389 42,442 
Consolidated Obligations, net:
Discount Notes26,668 44,324 79,660 49,084 49,553 
Bonds41,432 39,339 34,668 38,440 44,591 
Total Consolidated Obligations, net68,100 83,663 114,328 87,524 94,144 
Mandatorily redeemable capital stock17 19 572 22 26 
Capital:
Capital stock - putable2,935 3,813 4,739 3,367 3,597 
Retained earnings1,282 1,247 1,153 1,094 1,055 
Accumulated other comprehensive loss(12)(16)(17)(16)(12)
Total capital4,205 5,044 5,875 4,445 4,640 
STATEMENT OF INCOME DATA FOR THE QUARTER:
Net interest income$93 $149 $82 $99 $87 
Non-interest income (loss)(7)(15)31 6 5 
Non-interest expense22 24 24 21 22 
Affordable Housing Program assessments7 11 9 8 7 
Net income$57 $99 $80 $76 $63 
FINANCIAL RATIOS FOR THE QUARTER:
Dividend payout ratio (3)
38.4 %21.7 %27.4 %47.7 %71.7 %
Weighted average dividend rate (4)
2.00 2.50 2.50 4.00 4.50 
Return on average equity4.70 7.12 6.94 6.64 5.36 
Return on average assets0.26 0.37 0.34 0.34 0.26 
Net interest margin (5)
0.43 0.58 0.36 0.44 0.36 
Average equity to average assets5.61 5.22 4.95 5.06 4.86 
Regulatory capital ratio (6)
5.72 5.60 5.28 4.79 4.67 
Operating expense to average assets (7)
0.079 0.063 0.084 0.071 0.069 
(1)The methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of new accounting guidance on the measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior periods have not been revised to conform to the new basis of accounting.
(2)Investments include interest bearing deposits in banks, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.
(3)Dividend payout ratio is dividends declared in the period as a percentage of net income.
(4)Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.
(5)Net interest margin is net interest income as a percentage of average earning assets.
(6)Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.
(7)Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.
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(Dollars in millions)September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018
STATEMENT OF CONDITION DATA AT PERIOD END:         
Total assets$100,211
 $96,424
 $103,378
 $99,203
 $99,796
Advances46,358
 42,869
 54,880
 54,822
 57,771
Mortgage loans held for portfolio10,885
 10,640
 10,520
 10,502
 10,182
Allowance for credit losses on mortgage loans1
 1
 1
 1
 1
Investments (1)
42,442
 42,444
 37,550
 33,614
 31,580
Consolidated Obligations, net:         
Discount Notes49,553
 41,493
 44,212
 46,944
 45,313
Bonds44,591
 48,780
 52,124
 45,659
 46,913
Total Consolidated Obligations, net94,144
 90,273
 96,336
 92,603
 92,226
Mandatorily redeemable capital stock26
 23
 23
 23
 22
Capital:         
Capital stock - putable3,597
 3,806
 4,059
 4,320
 4,242
Retained earnings1,055
 1,037
 1,031
 1,023
 1,008
Accumulated other comprehensive loss(12) (12) (13) (13) (15)
Total capital4,640
 4,831
 5,077
 5,330
 5,235
STATEMENT OF INCOME DATA FOR THE QUARTER:         
Net interest income$87
 $97
 $122
 $121
 $130
Non-interest income (loss)5
 (3) (18) (11) (9)
Non-interest expense22
 23
 23
 21
 19
Affordable Housing Program assessments7
 7
 8
 9
 10
Net income$63
 $64
 $73
 $80
 $92
FINANCIAL RATIOS FOR THE QUARTER:         
Dividend payout ratio (2)
71.7% 90.1% 89.4% 80.8% 74.0%
Weighted average dividend rate (3)
4.50
 5.50
 6.00
 6.00
 6.00
Return on average equity5.36
 5.09
 5.59
 5.90
 6.87
Return on average assets0.26
 0.26
 0.28
 0.30
 0.36
Net interest margin (4)
0.36
 0.40
 0.47
 0.46
 0.52
Average equity to average assets4.86
 5.15
 5.07
 5.16
 5.27
Regulatory capital ratio (5)
4.67
 5.05
 4.95
 5.41
 5.28
Operating expense to average assets (6)
0.069
 0.069
 0.070
 0.064
 0.060
(1)Investments include interest bearing deposits in banks, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.
(2)Dividend payout ratio is dividends declared in the period as a percentage of net income.
(3)Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.
(4)Net interest margin is net interest income as a percentage of average earning assets.
(5)Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.
(6)Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.

Financial Condition

Mission Asset ActivityRecent Developments
In
Coronavirus Pandemic (COVID-19)
The global outbreak of COVID-19 has impacted communities and businesses worldwide, including those in the first nine monthsFifth District. The effects of 2019,COVID-19 are evolving, and the FHLB fulfilled itsfull impact and duration of the virus are unknown. Despite the uncertainties created by the COVID-19 pandemic, we continued to fulfill our mission byof providing robust access to a key source of readily available and competitively priced wholesale funding to its member financial institutions and supporting itsour commitment to affordable housing and community investment, while maintaining strong capital and paying stockholders a competitive dividend return on their capital investment.liquidity positions.

In support of our members, we created a new Advance program that offered Advances at zero percent interest to members between May 1, 2020 and September 30, 2020. These Advances supported COVID-19 related assistance made by all Fifth District members. At September 30, 2020, we had $0.2 billion of these Advances outstanding.

In order to assist homeowners affected by COVID-19 within our Mortgage Purchase Program (MPP), we are allowing various relief options, such as forbearance plans to help with short-term hardships such as illness, unemployment or loss of income when homeowners meet certain eligibility requirements. Additionally, we have asked servicers of the mortgage loans we own to temporarily suspend all foreclosure sales and evictions, unless a home is vacant, in order to allow homeowners to stay in their homes during this period.

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

At this time, we cannot predict the ultimate impact of COVID-19 on our members, counterparties, vendors, and other third parties we rely upon to conduct our business. However, we continue to monitor the progression of COVID-19 and are committed to assisting members and their communities as impacts related to the pandemic continue to unfold. For additional information on the risks associated with the COVID-19 pandemic, see Part II, Item 1A. "Risk Factors."

Financial Condition

Mission Asset Activity
Mission Assets, which we define as Advances, Letters of Credit, and total Mortgage Purchase Program (MPP)MPP are the primary means by which we fulfill our mission with direct connections to members. We regularly monitor our balance sheet concentration of Mission Asset Activity. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In the first nine months of 2019,2020, the Primary Mission Asset ratio was slightly over 70averaged 76 percent, exceedingwhich exceeded the Federal Housing Finance Agency (Finance Agency)Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity, the most significant of which is Letters of Credit issued to members.
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The following table summarizes our Mission Asset Activity.
 Ending BalancesAverage Balances
September 30,December 31,Nine Months Ended September 30,Year Ended December 31,
(In millions)202020192019 202020192019
Mission Asset Activity:
Advances (principal)$26,648 $46,186 $47,264 $48,726 $51,353 $47,894 
MPP:  
Mortgage loans held for portfolio (principal)10,413 10,637 10,981 11,370 10,371 10,499 
Mandatory Delivery Contracts (notional)145 738 936 406 417 516 
Total MPP10,558 11,375 11,917 11,776 10,788 11,015 
Letters of Credit (notional)23,011 16,090 16,205 18,333 14,878 15,150 
Total Mission Asset Activity$60,217 $73,651 $75,386 $78,835 $77,019 $74,059 
 Ending Balances Average Balances
 September 30, December 31, Nine Months Ended September 30, Year Ended December 31,
(In millions)2019 2018 2018 2019 2018 2018
Mission Asset Activity:           
Advances (principal)$46,186
 $57,886
 $54,872
 $51,353
 $66,005
 $65,593
Mortgage Purchase Program (MPP):           
Mortgage loans held for portfolio (principal)10,637
 9,955
 10,272
 10,371
 9,612
 9,743
Mandatory Delivery Contracts (notional)738
 298
 146
 417
 294
 287
Total MPP11,375
 10,253
 10,418
 10,788
 9,906
 10,030
Letters of Credit (notional)16,090
 13,952
 14,847
 14,878
 14,785
 14,619
Total Mission Asset Activity$73,651
 $82,091
 $80,137
 $77,019
 $90,696
 $90,242

The balance of Mission Asset Activity was $73.7$60.2 billion at September 30, 2019,2020, a decrease of $6.5$15.2 billion (eight(20 percent) from year-end 2018,2019, which was primarily driven by lower Advance balances. Advance principal balances decreased $8.7$20.6 billion (16(44 percent) from year-end 2018. 2019 due to the reduction in borrowings from a few large-asset members as these members experienced an inflow of deposits on their balance sheets and increased access to other sources of liquidity in the financial markets. The decrease in the balance of Mission Asset Activity was partially offset by an increase of $6.8 billion (42 percent) in Letters of Credit balances from year-end 2019. The increase in Letters of Credit was due in part to members using Letters of Credit rather than securities to secure increased deposits from municipalities during the pandemic.

Average Advance principal balances for the nine months ended September 30, 2019 declined $14.72020 decreased only $2.6 billion compared to the same period of 2018 primarily due2019 as Advances spiked across our membership at the end of the first quarter as the financial markets reacted to a reduction in borrowings from a few large-asset members.the pandemic. Most of these Advances matured or prepaid by the end of the third quarter of 2020. Advance balances are often volatile due to members' ability to quickly, normally on the same day, increase or decrease their amount of Advances. We believe providing members flexibility in their funding levels helps support their asset-liability management needs and is a key benefit of membership. At September 30, 2019, 692020, 66 percent of members held Mission Asset Activity, which was relatively stable compared to prior periods.

As in recent years, most members continued to have modest demand for Advance borrowings. Based on the most-recently available figures, members funded an average of 2.9 percent of their assets with Advances. Demand for Advances is affected by the accessibility and cost of other sources of liquidity and funding, such as deposits, available to members.

The MPP principal balance rose $0.4fell $0.6 billion (four(five percent) from year-end 2018.2019. During the first nine months of 2019,2020, we purchased $1.6$2.4 billion of mortgage loans, while principal reductions totaled $1.2 billion.

of $3.0 billion reflected the significant increase in mortgage loan refinance activity in 2020.

Based on earnings in the first nine months of 2019,2020, we accrued $22$27 million for the Affordable Housing Program (AHP) pool of funds to be available to members in 2020.2021. In addition to the required AHP assessment, we continued ourprovided voluntary sponsorship of twothree other housing programs. These programs which provide resourcesprovided funds to pay forcover accessibility rehabilitation and emergency repairs for special needs and elderly homeowners, funds for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District, and to help members aid their communities following natural disasters.Advances at zero percent interest for COVID-19 related assistance.


Investments
The balance of investments at September 30, 20192020 was $42.4$34.5 billion, an increase of $8.8$0.1 billion (26 percent) from year-end 2018. Investments averaged $37.0 billion in the first nine months of 2019, an increase of $7.1 billion (24 percent) from the average balance during the same period of 2018. We increased investments in order to hold more asset liquidity, which we obtained primarily by purchasing U.S. Treasury obligations as part of our plan to manage the implementation of the Finance Agency's Advisory Bulletin on the maintenance of sufficient liquidity. In addition, liquidity investments can vary significantly on a daily basis during times of volatility in Advance balances.2019. At September 30, 2019,2020, investments included $14.0$11.2 billion of MBS and $28.4$23.3 billion of other investments, which consisted primarily of highly-rated short-term instruments and longer-term U.S. Treasury and GSE obligations held for liquidity. All of our MBS held at September 30, 20192020 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency.

Investments averaged $33.5 billion in the first nine months of 2020, a decrease of $3.5 billion (10 percent) from the average balance during the same period of 2019. The decrease in average investments was driven by lower MBS balances due to an increase in prepayments of MBS as a result of the low interest rate environment. Due to regulatory limitations regarding the purchase of MBS that reference LIBOR, we have not been able to fully replace the MBS that were prepaid. Liquidity investments can vary significantly on a daily basis during times of volatility in Advance balances. We maintained a robust amount of asset liquidity throughout the first nine months of 20192020 across a variety of liquidity measures, as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

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Capital
Capital adequacy surpassed all minimum regulatory capital requirements in the first nine months of 2019.2020. The GAAP capital-to-assets ratio at September 30, 20192020 was 4.635.68 percent, while the regulatory capital-to-assets ratio was 4.675.72 percent. Both ratios exceeded the regulatory required minimum of four percent. Regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under GAAP. The amount of GAAP and regulatory capital both decreased $690 million and $688 million, respectively,$0.2 billion in the first nine months of 2019,2020, primarily due to our repurchase of over $1.2$2.0 billion inof excess stock from members. These repurchasesand members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were partially offset by members' purchases of capital stock to support Advance growth at the end of the first quarter. Retained earnings grew in the first nine months of 2020, continuing a response totrend over the decrease in Advances in 2019.last several years. Retained earnings totaled $1.1$1.3 billion at September 30, 2019,2020, an increase of three17 percent from year-end 2018. The decreases in GAAP and regulatory capital were partially offset by purchases of capital stock associated with new Advance activity from certain members.2019.

Results of Operations

Overall Results
The table below summarizes our results of operations.
 Three Months Ended September 30, Nine Months Ended September 30, Year Ended December 31,
(Dollars in millions)2019 2018 2019 2018 2018
Net income$63
 $92
 $200
 $259
 $339
Affordable Housing Program assessments7
 10
 22
 29
 38
Return on average equity (ROE)5.36% 6.87% 5.35% 6.41% 6.29%
Return on average assets0.26
 0.36
 0.27
 0.33
 0.32
Weighted average dividend rate4.50
 6.00
 5.36
 5.84
 5.88
Average 3-month LIBOR2.20
 2.34
 2.46
 2.20
 2.31
ROE spread to 3-month LIBOR3.16
 4.53
 2.89
 4.21
 3.98
Dividend rate spread to 3-month LIBOR2.30
 3.66
 2.90
 3.64
 3.57

Net income decreased $29 million (32 percent) in the three-month comparison period and $59 million (23 percent) in the nine-month comparison period. Net income was lower in both comparison periods primarily due to lower spreads earned on Advances and a decrease in Advance balances. However, the lower net income in both comparison periods was partially offset by net gains realized on certain derivatives.

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

In September 2019, we paid stockholders a quarterly 4.50 percent annualized dividend rate on their capital investment in our company. The lower dividend rate compared to the 6.00 percent and 5.50 percent annualized rates in the first and second quarters of 2019, respectively, was in part due to the decline in the interest rate environment over the last several quarters.

We believe that our operations and financial condition will continue to generate competitive profitability, reflectingOur earnings reflect the combination of a stable business model and a conservative management of risk. Our business model is structured to be able to

absorb sharp changes in Mission Asset Activity because we can execute commensurate changes in liability balances and capital. Key factors that can cause significant periodic volatility in our profitability are changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization due to accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. The table below summarizes our results of operations.
 Three Months Ended September 30,Nine Months Ended September 30,Year Ended December 31,
(Dollars in millions)20202019202020192019
Net income$57 $63 $236 $200 $276 
Affordable Housing Program assessments7 7 27 22 31 
Return on average equity (ROE)4.70 %5.36 %6.28 %5.35 %5.65 %
Return on average assets0.26 0.26 0.33 0.27 0.28 
Weighted average dividend rate2.00 4.50 2.30 5.36 5.05 
Average short-term interest rates (1)
0.17 2.19 0.63 2.40 2.24 
ROE spread to average short-term interest rates4.53 3.17 5.65 2.95 3.41 
Dividend rate spread to average short-term interest rates1.83 2.31 1.67 2.96 2.81 
(1)     Average short-term interest rates consist of 3-month LIBOR and the Federal funds effective rate.

Net income decreased $6 million (eight percent) in the three-month comparison period and increased $36 million (18 percent) in the nine-month comparison period. The low interest rate environment impacted results for the third quarter and first nine months of 2020. The historically low long-term interest rates resulted in a higher volume of mortgage refinance activity, which led to elevated levels of mortgage loan repayments and related premium amortization. Additionally, sharp reductions in short-term interest rates lowered the earnings generated from investing capital. However, net income in the year-to-date period was higher as a result of gains on the sale of certain derivatives during the first quarter of 2020.

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

In September 2020, we paid stockholders a quarterly dividend at a 2.00 percent annualized rate on their capital investment in our company, which is 1.83 percentage points above third quarter average short-term interest rates. The dividend rates in the first three quarters of 2020 were lower compared to those in 2019 due to the uncertainty of the economy, and our intent to grow retained earnings to ensure a stable capital position going forward.

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Effect of Interest Rate Environment
Trends in market interest rates and the resulting shapes of the market yield curves strongly influence the results of operations and profitability because of how they affect members' demand for Mission Asset Activity, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).
Nine Months Ended September 30,
Quarter 3 2020Quarter 2 2020Quarter 1 202020202019Year 2019
 EndingAverageEndingAverageEndingAverageAverageAverageEndingAverage
Federal funds effective0.09 %0.09 %0.08 %0.06 %0.08 %1.25 %0.47 %2.33 %1.55 %2.16 %
Secured Overnight Financing Rate (SOFR)0.08 0.09 0.10 0.05 0.01 1.25 0.46 2.38 1.55 2.20 
3-month LIBOR0.23 0.25 0.30 0.61 1.45 1.54 0.80 2.46 1.91 2.33 
2-year LIBOR0.22 0.22 0.23 0.32 0.49 1.18 0.57 2.17 1.70 2.03 
10-year LIBOR0.71 0.65 0.64 0.69 0.72 1.34 0.89 2.22 1.90 2.09 
2-year U.S. Treasury0.13 0.14 0.15 0.19 0.25 1.10 0.48 2.10 1.57 1.97 
10-year U.S. Treasury0.69 0.65 0.66 0.68 0.67 1.38 0.90 2.26 1.92 2.14 
15-year mortgage current coupon (1)
0.83 0.86 0.98 1.09 1.07 1.86 1.27 2.60 2.28 2.52 
30-year mortgage current coupon (1)
1.33 1.32 1.54 1.58 1.63 2.31 1.74 3.03 2.71 2.95 
       Nine Months Ended September 30,  
 Quarter 3 2019 Quarter 2 2019 Quarter 1 2019 2019 2018 Year 2018
 Ending Average Ending Average Ending Average Average Average Ending Average
Federal funds effective1.90% 2.19% 2.40% 2.40% 2.43% 2.40% 2.33% 1.71% 2.40% 1.83%
Secured Overnight Financing Rate (SOFR)2.35
 2.26
 2.50
 2.43
 2.65
 2.44
 2.38
 1.71
 3.00
 1.85
3-month LIBOR2.09
 2.20
 2.32
 2.51
 2.60
 2.69
 2.46
 2.20
 2.81
 2.31
2-year LIBOR1.63
 1.70
 1.81
 2.20
 2.38
 2.62
 2.17
 2.67
 2.66
 2.75
10-year LIBOR1.56
 1.70
 1.96
 2.30
 2.41
 2.67
 2.22
 2.91
 2.71
 2.95
2-year U.S. Treasury1.62
 1.69
 1.76
 2.13
 2.26
 2.49
 2.10
 2.43
 2.49
 2.52
10-year U.S. Treasury1.67
 1.79
 2.01
 2.33
 2.41
 2.65
 2.26
 2.87
 2.69
 2.91
15-year mortgage current coupon (1)
2.20
 2.22
 2.29
 2.63
 2.67
 2.97
 2.60
 3.13
 3.06
 3.20
30-year mortgage current coupon (1)
2.60
 2.62
 2.73
 3.07
 3.11
 3.41
 3.03
 3.57
 3.51
 3.65
(1)     Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.
(1)Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.
The target overnight Federal funds rate was in the range of 1.75zero to 2.000.25 percent at September 30, 2019, a decrease2020, unchanged from the range of 2.25 to 2.50 percent at June 30, 2019 due2020. The low interest rate environment reflects the evolving risks to two rate cuts byeconomic activity from the Federal Reserve in the third quarter of 2019. In October 2019, the Federal Reserve decreased the target Federal funds rate to a range of 1.50 to 1.75 percent.COVID-19 pandemic.

Average short-term rates (i.e., federal funds effective, SOFR and 3-month LIBOR) were still approximately 0.25160 to 0.65 percentage190 basis points higherlower in the first nine months of 20192020 compared to the same period of 2018, while2019 and average long-term rates decreased by approximately 0.50 to 0.70 percentage130 basis points during that same period. The higher short-termdecline in interest rate environment continued to benefitrates negatively impacted income in the first nine months of 20192020 primarily because of the lower earnings generated by funding assets with interest-free capital. However,from investing capital and the trendincreased mortgage asset prepayments resulting in higher net amortization of higher short-term interest rates with lower long-term rates has resulted in flatter, and at certain maturity points inverted, market yield curves, which may lower profitability further if this trend continues. For example, a flat to inverted yield curve may result in narrower spreads earnedpremiums on new long-term mortgage assets as the costs of new Consolidated Obligations used to fund them increase.those assets.


Business Outlook and Risk Management

Other than the updates noted below, our major business strategies, outlook for our business, and risk profiles and management have not changed substantially since our 20182019 Annual Report on Form 10-K.10-K, as updated by our 2020 Quarterly Reports on Form 10-Q. “Quantitative and Qualitative Disclosures About Risk Management” provides details on current risk exposures.

Regulatory and Legislative Risk and Significant Developments
LIBOR Replacement; Finance Agency Supervisory Letter:Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances:On July 1, 2020, Congress approved an extension of the PPP until August 8, 2020. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral remains in effect.

Coronavirus Aid, Relief, and Economic Security (CARES) Act: The following CARES Act provisions have been extended beyond their original expiration date by regulatory action:

▪Additional federal unemployment funds expired July 31, 2020.
▪Statutory eviction freeze for federally-backed properties expired July 25, 2020.
▪Foreclosure moratorium on federally-backed properties and on evictions was extended by the Finance Agency on August 27, 2020 to until “at least” December 31, 2020.

Additional phases of the CARES Act or other COVID-19 pandemic relief legislation may be enacted by Congress or other actions by the President, state governments, and governmental agencies. We continue to monitor these actions and guidance as they evolve and to evaluate the potential impact to the U.S. economy; the impacts to mortgages held or serviced by our members that we accept as collateral; the impacts on our MPP portfolio; and the impacts to our overall business.
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LIBOR Transition: We are planning for the replacement of LIBOR given the announcement that the LIBOR index is expected to be phased out by no later than the end of 2021 and the Federal Reserve Bank of New York's establishment of the Secured Overnight Financing Rate (SOFR)SOFR as its recommended alternative to U.S. dollar LIBOR. In the first nine months of 2019, we have continued to participate in the FHLBank System's issuances of SOFR-linked Consolidated Bonds. At September 30, 2019, $15.82020, all $15.6 billion (99 percent) of our adjustable-rate Consolidated Bonds were indexed to SOFR. We have also continued to offeroffering SOFR-linked Advances and began swapping certain instruments to adjustable-rates tied to SOFR and the overnight Federal funds effective rate in 2019.2020. However, the majority of our variable-rate assets still remain indexed to LIBOR. Therefore, we are continuing to plan for the eventual replacement of our LIBOR-indexed instruments away from the LIBOR benchmark interest rate, includingrate.

Part of our adoption of a LIBOR transition plan in the first quarter of 2019. Part ofincludes our plan includes havingpreviously implemented fallback language for our LIBOR-indexed Advances and Consolidated Bonds in new and legacy contracts. As for our derivatives and investments that are tied to LIBOR, we are monitoring market-wide efforts to enhance fallback language for new activity and develop frameworks to address existing transactions. We are also monitoring

Additionally, on October 23, 2020, the transition relief proposed byInternational Swaps and Derivatives Association, Inc. (ISDA), launched the Financial Accounting Standards Board (FASB) concerningSupplement to the accounting2006 ISDA Definitions (Supplement) and the ISDA 2020 Interbank Offered Rate Fallbacks Protocol (Protocol). Both the Supplement and the Protocol will take effect on January 25, 2021. On that date, all legacy bilateral derivatives transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered interbank offered rate, including U.S. dollar LIBOR, will be amended to apply the new ISDA-recommended interbank offered rate fallbacks in the event of the relevant interbank offered rate’s cessation. Both an FHLBank and its relevant counterparty must have adhered to the Protocol in order to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. The Protocol will remain open for contract modifications.

adherence after this effective date. As of January 25, 2021, new and future derivative contracts will be subject to the relevant interbank offered rate fallbacks set forth in the Supplement. On September 27, 2019,October 21, 2020, the Finance Agency issued a Supervisory Letter - Planning for LIBOR Phase-Out (Supervisory Letter) to the FHLBanks that requires each FHLBank to adhere to the Protocol no later than December 31, 2020, and to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020. We have adhered to the Protocol and will work with our counterparties, as necessary, to address over-the-counter derivative agreements referencing U.S. dollar LIBOR as a part of our LIBOR transition efforts.

The Finance Agency stated ishas also issued directives designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. The Supervisory Letter provides thatAs of June 30, 2020, the FHLBanks should, by March 31, 2020,were required to cease entering into new LIBOR referencedLIBOR-based financial assets, liabilities, and derivatives with maturities beyondinstruments that mature after December 31, 2021, except for all product types except investments.investments and option embedded products. With respect to investments, the Finance Agency required the FHLBanks, should, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates do not apply to collateral accepted by the FHLBanks. The Supervisory Letter also directsAs directed by the Finance Agency, the FHLBanks to updatebegan requiring their pledged collateral certification reporting requirements by March 31, 2020 in an effort to encourage members to distinguishreport levels of LIBOR-linked collateral maturingthat mature after December 31, 2021. The Finance Agency may permit certain exceptions to its Supervisory Letter given there may be LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes forThis will assist the FHLBanks that do not currentlyin determining the level of member reliance on these assets to support borrowings, make decisions about their future eligibility and the impact of any incremental haircuts and asset value deterioration on borrowing capacity.

We have readily available alternatives.Advances, investment securities and derivatives with interest rates indexed to LIBOR. The following table presents LIBOR-indexed Advances, investment securities and derivatives at September 30, 2020.

(In millions)Maturing in 2020-2021Maturing after 2021
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term$2,535 $3,311 
MBS by contractual maturity (1)
142 6,737 
Total principal amount$2,677 $10,048 
Derivatives, notional amount by termination date$5,315 $7,438 
Overall,(1)MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

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

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

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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition
The table below shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.
(Dollars in millions)September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018
 Balance 
Percent(1)
 Balance 
Percent(1)
 Balance 
Percent(1)
 Balance 
Percent(1)
Adjustable/Variable-Rate Indexed:               
LIBOR$13,604
 29% $16,127
 37% $20,462
 38% $28,740
 52%
SOFR1,050
 2
 1,050
 3
 1,400
 2
 1,400
 3
Other379
 1
 416
 1
 394
 1
 744
 1
Total15,033
 32
 17,593
 41
 22,256
 41
 30,884
 56
Fixed-Rate:               
Repurchase based (REPO)13,399
 29
 7,520
 17
 15,187
 28
 7,003
 13
Regular Fixed-Rate12,364
 27
 11,486
 27
 10,991
 20
 10,972
 20
Putable (2)
1,414
 3
 1,020
 3
 885
 1
 460
 1
Amortizing/Mortgage Matched2,583
 6
 2,646
 6
 2,753
 5
 2,702
 5
Other1,393
 3
 2,490
 6
 2,806
 5
 2,851
 5
Total31,153
 68
 25,162
 59
 32,622
 59
 23,988
 44
Total Advances Principal$46,186
 100% $42,755
 100% $54,878
 100% $54,872
 100%
                
Letters of Credit (notional)$16,090
   $15,697
   $13,812
   $14,847
  
(1)As a percentage of total Advances principal.    
(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.
(Dollars in millions)September 30, 2020June 30, 2020March 31, 2020December 31, 2019
 Balance
Percent(1)
Balance
Percent(1)
Balance
Percent(1)
Balance
Percent(1)
Adjustable/Variable-Rate Indexed:  
LIBOR$5,846 22 %$21,071 44 %$28,889 36 %$10,430 22 %
SOFR116 — 116 — 2,000 3 500 1 
Other123 1 83 — 247 — 221 1 
Total6,085 23 21,270 44 31,136 39 11,151 24 
Fixed-Rate:  
Repurchase based (REPO)3,896 15 8,978 18 28,058 35 19,386 41 
Regular Fixed-Rate10,207 38 11,445 24 14,452 18 11,476 24 
Putable (2)
3,107 12 3,164 6 3,164 4 1,444 3 
Amortizing/Mortgage Matched2,195 8 2,309 5 2,439 3 2,358 5 
Other1,158 4 1,241 3 680 1 1,449 3 
Total20,563 77 27,137 56 48,793 61 36,113 76 
Total Advances Principal$26,648 100 %$48,407 100 %$79,929 100 %$47,264 100 %
Letters of Credit (notional)$23,011 $22,381 $15,785 $16,205 
(1)As a percentage of total Advances principal.    
(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.

Advance balances at September 30, 20192020 decreased 1644 percent compared to year-end 2018. Although a number2019. Advances spiked across our membership at the end of the first quarter as the financial markets reacted to the COVID-19 pandemic, and members increased their borrowingsturned to us for liquidity, primarily in the first nine monthsform of 2019,LIBOR and REPO Advances. Most of these Advances matured or prepaid by the end of the third quarter of 2020. Additionally, Advance balances decreased further in the third quarter of 2020 as a few large-asset members reduced their borrowings. The reduction in borrowings from our largest borrower ledwas primarily driven by these members experiencing an inflow of deposits on their balance sheets, while also having access to other liquidity sources as a result of certain government actions related to the net decrease in Advances. REPOs, which traditionally have the most volatile balances because a majority of them have overnight maturities, allow our members the most flexibility as their liquidity needs may change daily.pandemic.

Advance Usage
In addition to analyzing Advance balances by dollar trends, we monitor the degree to which members use Advances to fund their balance sheets. The following table shows the unweighted, average ratio of each member's Advance balance to its most-recently available figures for total assets.
 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018
Average Advances-to-assets for members       
Assets less than $1.0 billion (546 members)2.71% 2.67% 2.82% 3.05%
Assets over $1.0 billion (93 members)3.87
 3.65
 3.67
 4.26
All members2.88
 2.81
 2.94
 3.22


 September 30, 2020June 30, 2020March 31, 2020December 31, 2019
Average Advances-to-assets for members 
Assets less than $1.0 billion (517 members)2.22 %2.48 %2.73 %2.55 %
Assets over $1.0 billion (112 members)2.47 2.85 3.92 3.31 
All members2.26 2.54 2.91 2.67 
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The following tables present principal balances for the five members with the largest Advance borrowings.
(Dollars in millions)
September 30, 2020 December 31, 2019
NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
U.S. Bank, N.A.$4,273 16 % U.S. Bank, N.A.$13,874 29 %
Third Federal Savings and Loan Association3,520 13  JPMorgan Chase Bank, N.A.4,500 10 
Nationwide Life Insurance Company2,160 8  Third Federal Savings and Loan Association3,883 8 
Protective Life Insurance Company1,750 7  First Horizon Bank2,200 5 
Western-Southern Life Assurance Co.1,388 5  Pinnacle Bank2,063 4 
Total of Top 5$13,091 49 % Total of Top 5$26,520 56 %
(Dollars in millions)          
September 30, 2019 December 31, 2018
Name Principal Amount of Advances Percent of Total Principal Amount of Advances Name Principal Amount of Advances Percent of Total Principal Amount of Advances
JPMorgan Chase Bank, N.A. $8,050
 17% JPMorgan Chase Bank, N.A. $23,400
 43%
U.S. Bank, N.A. 4,974
 11
 U.S. Bank, N.A. 4,574
 8
Third Federal Savings and Loan Association 3,896
 8
 Third Federal Savings and Loan Association 3,727
 7
Fifth Third Bank 2,856
 6
 Nationwide Life Insurance Company 2,510
 5
1st Tennessee Bank, N.A. 2,150
 4
 Pinnacle Bank 1,444
 3
Total of Top 5 $21,926
 46% Total of Top 5 $35,655
 66%

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

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

The table below shows principal purchases and reductions of loans in the MPP for the first nine months of 2019.2020.
(In millions)MPP Principal
Balance at December 31, 2019$10,981 
Principal purchases2,375 
Principal reductions(2,943)
Balance at September 30, 2020$10,413 
(In millions)MPP Principal
Balance at December 31, 2018$10,272
Principal purchases1,587
Principal reductions(1,222)
Balance at September 30, 2019$10,637

Although there were 7881 active members participating in the MPP atduring the nine months ended September 30, 2019,2020, approximately 6250 percent of the principal purchases in the first nine months of 20192020 resulted from activity of our threefive largest sellers. All loans acquired in the first nine months of 20192020 were conventional loans.
We closely track the refinancing incentives of our mortgage assets (including loans in the MPP and MBS) because the option for homeowners to change their principal payments normally represents the largest portion of our market risk exposure and can affect MPP balances. MPP principal paydowns increased in the first nine months of 2019 equated2020 to a 1227 percent annual constant prepayment rate, up fromcompared to the eight14 percent rate for all of 2018. The2019, driven by reductions in mortgage rates. We expect to see a higher rate of prepayments for the remainder of the year unless mortgage rates that occurredrise. MPP yields on purchases in the first nine months of 2019 have accelerated prepayment speeds. We expect the recent trend of faster prepayments to continue in the remainder of 2019 unless mortgage rates rise.

The MPP's composition of balances by loan type, original final maturity, and weighted-average mortgage note rate did not change materially in the first nine months of 2019. MPP yields earned in the first nine months of 2019,2020, after consideration of funding and hedging costs, continued to offer favorable returnsreturns. However, MPP yields on existing portfolio balances, net of funding and hedging costs, have declined and are expected to continue to do so with the increased prepayment speeds noted above. The metrics of portfolio return relative to their market and credit risk exposure.risks continue to indicate that the MPP has generated, and can be expected to continue to generate, a profitable long-term, risk-adjusted return.


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Investments

The table below presents the ending and average balances of our investment portfolio.
Nine Months EndedYear Ended
(In millions)September 30, 2020 December 31, 2019
 Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments$23,274  $20,714  $20,924  $22,525 
MBS11,240  12,288  13,465  15,029 
Other investments (1)
— 472 —232 
Total investments$34,514 $33,474 $34,389 $37,786 
 Nine Months Ended Year Ended
(In millions)September 30, 2019 December 31, 2018
 Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments$28,406
 $21,358
 $17,858
 $13,989
MBS14,036
 15,451
 15,756
 15,741
Other investments (1)
—
 203
 —
 64
Total investments$42,442
 $37,012
 $33,614
 $29,794
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
We continued
Liquidity investments are either short-term (primarily overnight), or longer-term, but can be easily sold and converted to maintaincash. It is normal for liquidity investments to vary by up to several billion dollars on a robust amount of asset liquidity.daily basis. Liquidity investment levels can vary significantly based on changes in the amount of actual Advances, anticipated demand for Advances, liquidity needs, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria. It is normal for

The balance of liquidity investments was higher at September 30, 2020 compared to vary by upyear-end 2019 primarily due to several billion dollars on a daily basis.the prepayment and maturity of Advances, especially in the third quarter of 2020. The increase inaverage balance of liquidity investments infor the first nine months ended September 30, 2020 was near the average balance for all of 2019 was driven by volatility in short-term and variable-rate Advance borrowings and the purchases ofas we continued to hold U.S. Treasury obligations to help meet new regulatory liquidity requirements that went into effect on March 31, 2019.requirements. Under the new regulatory requirements, liquidity includes certain high-quality liquid assets, which are defined as U.S. Treasury obligations with remaining maturities of 10 years or less held as trading securities or available-for-sale securities.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum, subject to the availability of securities that we believe provide acceptable risk/return tradeoffs. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was 3.002.65 at September 30, 2019. Per regulation, we will suspend2020. The MBS ratio was lower than normal primarily due to the decline in MBS balances given paydowns in the low interest rate environment and the regulatory limitations regarding the purchase of new MBS until regular principal paydowns result in the ratio falling below three times regulatory capital.investments that reference LIBOR.


The balance of MBS at September 30, 20192020 consisted of $12.2$10.0 billion of securities issued by Fannie Mae or Freddie Mac (of which $8.0$6.7 billion were floating-rate securities), $0.3$0.1 billion of floating-rate securities issued by the National Credit Union Administration (NCUA), and $1.5$1.1 billion of securities issued by Ginnie Mae (which are primarily fixed rate). At September 30, 2019, the floating-rate MBS issued by Fannie Mae, Freddie Mac and the NCUA were indexed to LIBOR. As noted in the "Business Outlook and Risk Management" section of the "Executive Overview," the Finance Agency's Supervisor Letter directed the FHLBanks by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021.
The table below shows principal purchases and paydowns of our MBS for the first nine months of 2019.2020.
(In millions)MBS Principal
Balance at December 31, 2019$13,447 
Principal purchases149 
Principal paydowns(2,368)
Balance at September 30, 2020$11,228 
(In millions)MBS Principal
Balance at December 31, 2018$15,734
Principal purchases909
Principal paydowns(2,625)
Balance at September 30, 2019$14,018

MBS principal paydowns in the first nine months of 20192020 equated to a 2022 percent annual constant prepayment rate, up from the 1620 percent rate experienced in all of 2018.2019. The higher prepayment rate experienced in 2019the first nine months of 2020 is a result of the decline inhistorically low mortgage rates.rate environment.


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Consolidated Obligations

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

The table below presents the ending and average balances of our participations in Consolidated Obligations.
Nine Months EndedYear Ended
(In millions)September 30, 2020 December 31, 2019
 Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:       
Unswapped$26,675  $44,628  $36,776  $39,286 
Swapped— 5,133 12,401 5,291 
Total par Discount Notes26,675 49,761 49,177 44,577 
Other items (1)
(7) (48) (93) (95)
Total Discount Notes26,668  49,713  49,084  44,482 
Bonds:       
Unswapped fixed-rate23,234  21,322  22,420  24,423 
Unswapped adjustable-rate (2)
15,603  13,366  11,012  16,132 
Swapped fixed-rate2,541  3,940  4,949  5,310 
Total par Bonds41,378  38,628  38,381  45,865 
Other items (1)
54  74  59  44 
Total Bonds41,432  38,702  38,440  45,909 
Total Consolidated Obligations (3)
$68,100  $88,415  $87,524  $90,391 
 Nine Months Ended Year Ended
(In millions)September 30, 2019 December 31, 2018
 Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:       
Unswapped$35,703
 $41,570
 $47,071
 $49,273
Swapped13,937
 3,546
 —
 —
Total par Discount Notes49,640
 45,116
 47,071
 49,273
Other items (1)
(87) (104) (127) (88)
Total Discount Notes49,553
 45,012
 46,944
 49,185
Bonds:       
Unswapped fixed-rate22,850
 25,096
 25,982
 26,566
Unswapped adjustable-rate (2)
15,904
 16,899
 15,470
 16,967
Swapped fixed-rate5,769
 5,832
 4,195
 5,982
Total par Bonds44,523
 47,827
 45,647
 49,515
Other items (1)
68
 40
 12
 (13)
Total Bonds44,591
 47,867
 45,659
 49,502
Total Consolidated Obligations (3)
$94,144
 $92,879
 $92,603
 $98,687
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(2)Unswapped adjustable-rate Bonds are indexed to either LIBOR or SOFR. At September 30, 2020, 100 percent were indexed to SOFR. At December 31, 2019, 1 percent were indexed to LIBOR and 99 percent were indexed to SOFR.
(3)The 11 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amount of the outstanding Consolidated Obligations for all of the FHLBanks was (in millions) $819,863 and $1,025,895 at September 30, 2020 and December 31, 2019, respectively.

The average balance of Discount Notes was higher in the first nine months of 2020 compared to the average for all of 2019 due to the growth in short-term and variable-rate Advances across our membership at the end of the first quarter of 2020 as the financial markets reacted to the COVID-19 pandemic. However, the ending balance of Discount Notes was significantly lower at September 30, 2020 compared to year-end 2019 due to the reduction in short-term and variable-rate Advances in the second and third quarters of 2020. The decrease in swapped Discount Notes at September 30, 2020 was driven by our preference to use unswapped Discount Notes and unswapped adjustable-rate Bonds in the current market environment.

The average balance of unswapped fixed-rate Bonds, which typically have initial maturities greater than one year, declined in the first nine months of 2020 compared to the average balance in 2019 due to terminating higher coupon fixed-rate Bonds with embedded options as interest rates fell.
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(2)Unswapped adjustable-rate Bonds are indexed to either LIBOR or SOFR. At September 30, 2019, 1 percent were indexed to LIBOR and 99 percent were indexed to SOFR. At December 31, 2018, 69 percent were indexed to LIBOR and 31 percent were indexed to SOFR.
(3)
The 11 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amount of the outstanding Consolidated Obligations for all of the FHLBanks was (in millions) $1,010,271 and $1,031,617 at September 30, 2019 and December 31, 2018, respectively.

The balances of Consolidated Obligations were relatively stable in the periods shown above with fluctuations resulting from changes in the balances of our assets. Beginning in the third quarter of 2019, we began swapping term Discount Notes to adjustable-rates tied to the overnight Federal funds effective rate in order to reduce the repricing risk of Discount Notes being used to fund certain overnight and shorter-term assets.
Deposits

Total deposits with us are normally a relatively minor source of low-cost funding. Total interest bearinginterest-bearing deposits at September 30, 20192020 were $0.8$1.2 billion, an increase of 27 percent$0.3 billion from year-end 2018.2019.

Derivatives Hedging Activity and Liquidity

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


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Table of Contents
Capital Resources

The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same manner as GAAP capital stock and retained earnings.
Nine Months EndedYear Ended
(In millions)September 30, 2020 December 31, 2019
Period End Average Period End Average
GAAP and Regulatory Capital
GAAP Capital Stock$2,935  $3,837  $3,367  $3,827 
Mandatorily Redeemable Capital Stock17  68  22  25 
Regulatory Capital Stock2,952  3,905  3,389  3,852 
Retained Earnings1,282  1,207  1,094  1,069 
Regulatory Capital$4,234  $5,112  $4,483  $4,921 
 Nine Months Ended Year Ended
(In millions)September 30, 2019 December 31, 2018
 Period End Average Period End Average
GAAP and Regulatory Capital       
GAAP Capital Stock$3,597
 $3,949
 $4,320
 $4,387
Mandatorily Redeemable Capital Stock26
 25
 23
 30
Regulatory Capital Stock3,623
 3,974
 4,343
 4,417
Retained Earnings1,055
 1,066
 1,023
 1,025
Regulatory Capital$4,678
 $5,040
 $5,366
 $5,442
Nine Months EndedYear Ended
September 30, 2020 December 31, 2019
 Period EndAverage Period EndAverage
GAAP and Regulatory Capital-to-Assets Ratio
GAAP5.68 % 5.25 % 4.75 % 5.04 %
Regulatory (1)
5.72  5.34  4.79  5.08 
(1)    At all times, the FHLBanks must maintain at least a four percent minimum regulatory capital-to-assets ratio.
 Nine Months Ended Year Ended
 September 30, 2019 December 31, 2018
 Period End Average Period End Average
GAAP and Regulatory Capital-to-Assets Ratio       
GAAP4.63% 5.03% 5.37% 5.11%
Regulatory (1)
4.67
 5.07
 5.41
 5.16
(1)At all times, the FHLBanks must maintain at least a four percent minimum regulatory capital-to-assets ratio.
See the "Capital Adequacy" section in “Quantitative and Qualitative Disclosures About Risk Management” for discussion of our retained earnings.
A portion of our capital stock is excess, meaning it is not required as a condition to being a member and is not currently capitalizing Mission Asset Activity. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used to capitalize a portion of growth in Mission Assets. Throughout the first nine months of 2019,At September 30, 2020, the amount of excess stock, as defined by our Capital Plan, was $413 million, an increase of $376 million from year-end 2019. The balance of excess stock grew as Advancemany Advances matured or prepaid in the second and third quarters. The decrease in GAAP and regulatory capital balances decreased. In orderwas primarily due to help manage our capital and financial performance, we repurchased over $1.2repurchase of $2.0 billion of excess capital stock and members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were partially offset by members' purchases of capital stock to support Advance growth at the end of the first nine months of 2019. As a result, excess stock decreased $676 million from year-end 2018 to end the quarter at $339 million. The repurchase of excess stock also resulted in decreases to GAAP and regulatory capital balances and the related capital-to-assets ratios.quarter.

Membership and Stockholders

In the first nine months of 2019,2020, we added fivesix new member stockholders and lost 1217 member stockholders, ending the quarter at 639629 member stockholders. The decline in membership during the first nine months of 20192020 was primarily attributable to intra-district merger activity.

56

RESULTS OF OPERATIONS

Components of Earnings and Return on Equity

The following table is a summary income statement for the three and nine months ended September 30, 20192020 and 2018.2019. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period.
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2020201920202019
 Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Net interest income$93 7.63 %$87 7.46 %$325 8.63 %$307 8.21 %
Non-interest income (loss):
Net gains (losses) on investment securities(42)(3.45)70 6.00 320 8.49 264 7.05 
Net gains (losses) on derivatives and hedging activities20 1.61 (60)(5.15)(308)(8.19)(238)(6.37)
Net gains (losses) on financial instruments held under fair value option11 0.87 (8)(0.74)(15)(0.38)(51)(1.35)
Other non-interest income, net4 0.35 3 0.26 11 0.29 8 0.22 
Total non-interest income (loss)(7)(0.62)5 0.37 8 0.21 (17)(0.45)
Total income86 7.01 92 7.83 333 8.84 290 7.76 
Non-interest expense22 1.79 22 1.87 70 1.86 68 1.81 
Affordable Housing Program assessments7 0.52 7 0.60 27 0.70 22 0.60 
Net income$57 4.70 %$63 5.36 %$236 6.28 %$200 5.35 %
 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions)2019 2018 2019 2018
 Amount 
ROE (1)
 Amount 
ROE (1)
 Amount 
ROE (1)
 Amount 
ROE (1)
Net interest income$87
 7.46 % $130
 9.76 % $307
 8.21 % $377
 9.34 %
Non-interest income (loss):               
Net gains (losses) on investment securities70
 6.00
 1
 0.06
 264
 7.05
 1
 0.02
Net gains (losses) on derivatives and hedging activities(60) (5.15) (9) (0.66) (238) (6.37) (46) (1.15)
Net gains (losses) on financial instruments held under fair value option(8) (0.74) (4) (0.27) (51) (1.35) 12
 0.30
Other non-interest income, net3
 0.26
 3
 0.20
 8
 0.22
 8
 0.20
Total non-interest income (loss)5
 0.37
 (9) (0.67) (17) (0.45) (25) (0.63)
Total income92
 7.83
 121
 9.09
 290
 7.76
 352
 8.71
Non-interest expense22
 1.87
 19
 1.45
 68
 1.81
 64
 1.58
Affordable Housing Program assessments7
 0.60
 10
 0.77
 22
 0.60
 29
 0.72
Net income$63
 5.36 % $92
 6.87 % $200
 5.35 % $259
 6.41 %
(1)The ROE amounts have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may produce nominally different results.
(1)The ROE amounts have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may produce nominally different results.

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


57
Net Interest Income
Components of Net Interest Income
The following table shows selected components of net interest income.
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2020201920202019
 Amount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning Assets
Components of net interest rate spread:
Net (amortization)/accretion (1) (2)
$(33)(0.15)%$(12)(0.05)%$(82)(0.12)%$(23)(0.03)%
Prepayment fees on Advances, net (2)
7 0.04 1 — 25 0.04 1 — 
Other components of net interest rate spread107 0.50 70 0.30 345 0.49 236 0.32 
Total net interest rate spread81 0.39 59 0.25 288 0.41 214 0.29 
Earnings from funding assets with interest-free capital12 0.04 28 0.11 37 0.05 93 0.12 
Total net interest income/net interest margin (3)
$93 0.43 %$87 0.36 %$325 0.46 %$307 0.41 %
 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions)2019 2018 2019 2018
 Amount % of Earning Assets Amount % of Earning Assets Amount % of Earning Assets Amount % of Earning Assets
Components of net interest rate spread:               
Net (amortization)/accretion (1) (2)
$(12) (0.05)% $(5) (0.02)% $(23) (0.03)% $(13) (0.02)%
Prepayment fees on Advances, net (2)
1
 —
 —
 —
 1
 —
 1
 —
Other components of net interest rate spread70
 0.30
 107
 0.43
 236
 0.32
 313
 0.40
Total net interest rate spread59
 0.25
 102
 0.41
 214
 0.29
 301
 0.38
Earnings from funding assets with interest-free capital28
 0.11
 28
 0.11
 93
 0.12
 76
 0.10
Total net interest income/net interest margin (3)
$87
 0.36 % $130
 0.52 % $307
 0.41 % $377
 0.48 %
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest earning assets.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Net Amortization/Accretion (generally referred to as "amortization"): While net amortization has been moderate over the past few years, it can become substantial and volatile whenvolatile. When mortgage rates decrease.decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. Amortization in the three and nine months ended September 30, 20192020 increased significantly compared to the 2018same periods in 2019 primarily due to thea decline in mortgage rates, during 2019, which led to accelerated prepayments of mortgage assets.assets in the first nine months of 2020. We expect the trend of faster prepayments to continue throughout 2020 unless mortgage rates rise 0.50 percent or more.

Prepayment Fees on Advances: Fees for members' early repayment of certain Advances, which are included in net interest income, are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. Although Advance prepayment fees can be and have been significantminimal in the past,recent years, they were minimalgrew in the three and nine months ended September 30, 2019 and 2018, reflecting2020. The growth in Advance prepayment fees was due to a lowhigher amount of member prepayments of Advances.Advances as interest rates declined and due to the U.S. government's actions to provide liquidity to support the economy.

Other Components of Net Interest Rate Spread: The total other components of net interest rate spread decreasedincreased $37 million and $77$109 million in the three- and nine-monthnine-months comparison periods, respectively. The net decreasesincreases were primarily due to the factors below.

Nine-Months Comparison
▪
Lower spreads on Advances
▪Higher spreads on liquidity investment balances-Favorable: Higher spreads on liquidity investments improved net interest income by an estimated $131 million as the rates on the debt funding these investments declined. However, the increase in net interest income was substantially offset by lower non-interest income (loss) primarily due to an increase of $105 million in the net interest settlements being paid on related derivatives not receiving hedge accounting.-Unfavorable: Lower spreads earned on certain Advances decreased net interest income by an estimated $53 million. The lower spreads were driven by a narrower spread on LIBOR-indexed Advances funded with Discount Notes and a change in composition of Advances as a result of paydowns of Advances that earned relatively higher spreads.
▪
Lower average Advance balances-Unfavorable: The $14.5 billion decline in average Advance balances decreased net interest income by an estimated $23 million. The decline in average Advance balances was primarily due to the reduction in borrowings by a few large-asset members.
▪
Lower spreads on non-mortgage investments-Unfavorable: Lower spreads on non-mortgage investments decreased net interest income by an estimated $8 million. This decrease in net interest income was partially offset by earnings increases in non-interest income related to derivatives and hedging activities and fair value adjustments as many of these non-mortgage investments were classified as trading securities and hedged with interest rate swaps.
▪
Growth in average MPP balances-Favorable: The $0.8 billion increase in the average balance of mortgage loans held for portfolio improved net interest income by an estimated $7 million.



▪Growth in average MPP balances-Favorable: The $1.0 billion increase in the average balance of mortgage loans held for portfolio improved net interest income by an estimated $7 million.

▪Lower average balances of mortgage-backed securities-Unfavorable: The $3.2 billion decrease in the average balance of mortgage-backed securities lowered net interest income by an estimated $11 million.

▪Unrealized losses on designated fair value hedges-Unfavorable: Net unrealized losses on hedged items and derivatives in qualifying fair value hedge relationships lowered net interest income by $7 million.

58
▪Lower average Advance balances-Unfavorable: The $2.3 billion decrease in the average balance of Advances lowered net interest income by an estimated $6 million.
▪Lower spreads on Advances-Unfavorable: Lower spreads earned on Advances decreased net interest income by an estimated $4 million. However, the lower net interest spreads were more than offset by a decrease of $38 million in net interest payments on related derivatives not receiving hedge accounting, which was reflected in non-interest income (loss).

Three-Months Comparison
ForExcept for the three-months comparison,higher unrealized losses on fair value hedges, the same factors generally affected the other components of net interest rate spread as in the
nine-months comparison and by approximately the same relative magnitude. In addition to the factors above, lower spreads on mortgage assets decreased net interest income by an estimated $5 million in the three-months comparison.

Earnings from Capital: Earnings from capital were flatdecreased $16 million and $56 million in the three-months comparison due to short-term interest rates beginning to decline in the third quarter of 2019three and lower average capital balances. However, earnings from capital increased $17 million in the nine months ended September 30, 20192020, respectively, compared to the same periodperiods in 20182019 primarily due to average short-term rates being approximately 0.25declining more than 180 basis points as the Federal Reserve responded to 0.65 percentage points higher in the 2019 period.evolving risks to economic activity from the COVID-19 pandemic.

Average Balance Sheet and Rates
The following table providestables provide average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. In connection with the January 1, 2019, prospective adoption of the FASB's Targeted Improvements to Accounting for Hedging Activities standard, interestInterest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships for the three and nine months ended September 30, 2019.relationships.



In addition, the net interest settlements of interest receivables or payables associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables are recorded in “Non-interest income (loss)” as “Net“Net gains (losses) on derivatives and hedging activities”activities” and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
(Dollars in millions)Three Months Ended Three Months Ended
 September 30, 2019 September 30, 2018
 Average Balance Interest 
Average Rate (1)
 Average Balance Interest 
Average Rate (1)
Assets:           
Advances$44,153
 $268
 2.41% $59,109
 $342
 2.30%
Mortgage loans held for portfolio (2)
10,749
 83
 3.08
 10,005
 80
 3.18
Federal funds sold and securities purchased under resale agreements13,369
 76
 2.24
 12,005
 60
 1.98
Interest-bearing deposits in banks (3) (4) (5)
1,178
 6
 2.12
 2,539
 15
 2.25
Mortgage-backed securities14,908
 95
 2.52
 16,385
 101
 2.45
Other investments (4)
10,546
 63
 2.36
 41
 —
 2.22
Loans to other FHLBanks—
 —
 —
 —
 —
 —
Total interest-earning assets94,903
 591
 2.47
 100,084
 598
 2.37
Less: allowance for credit losses on mortgage loans1
     1
    
Other assets520
     289
    
Total assets$95,422
     $100,372
    
Liabilities and Capital:           
Term deposits$39
 —
 2.47
 $86
 —
 1.83
Other interest bearing deposits (5)
829
 4
 1.96
 707
 3
 1.72
Discount Notes43,332
 239
 2.18
 41,694
 208
 1.98
Unswapped fixed-rate Bonds23,952
 138
 2.29
 26,391
 138
 2.07
Unswapped adjustable-rate Bonds15,149
 90
 2.35
 19,126
 97
 2.02
Swapped Bonds6,565
 33
 1.97
 6,434
 21
 1.28
Mandatorily redeemable capital stock27
 —
 3.75
 26
 1
 6.22
Other borrowings—
 —
 2.19
 —
 —
 —
Total interest-bearing liabilities89,893
 504
 2.22
 94,464
 468
 1.96
Non-interest bearing deposits9
     5
    
Other liabilities881
     613
    
Total capital4,639
     5,290
    
Total liabilities and capital$95,422
     $100,372
    
            
Net interest rate spread    0.25%     0.41%
Net interest income and net interest margin (6)
  $87
 0.36%   $130
 0.52%
Average interest-earning assets to interest-bearing liabilities    105.57%     105.95%
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Non-accrual loans are included in average balances used to determine average rate.
(3)Includes certificates of deposit that are classified as available-for-sale securities.
(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(5)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(6)Net interest margin is net interest income as a percentage of average total interest earning assets.

(Dollars in millions)Nine Months Ended Nine Months Ended
 September 30, 2019 September 30, 2018
 Average Balance Interest 
Average Rate (1)
 Average Balance Interest 
Average Rate (1)
Assets:           
Advances$51,397
 $992
 2.58% $65,905
 $1,010
 2.05%
Mortgage loans held for portfolio (2)
10,607
 258
 3.25
 9,836
 236
 3.20
Federal funds sold and securities purchased under resale agreements13,404
 240
 2.39
 12,409
 163
 1.76
Interest-bearing deposits in banks (3) (4) (5)
1,560
 29
 2.47
 1,768
 28
 2.13
Mortgage-backed securities15,451
 304
 2.64
 15,748
 279
 2.36
Other investments (4)
6,597
 115
 2.33
 36
 —
 1.82
Loans to other FHLBanks4
 —
 2.43
 2
 —
 1.46
Total interest-earning assets99,020
 1,938
 2.62
 105,704
 1,716
 2.17
Less: allowance for credit losses on mortgage loans1
     1
    
Other assets423
     279
    
Total assets$99,442
     $105,982
    
Liabilities and Capital:           
Term deposits$53
 1
 2.44
 $76
 1
 1.65
Other interest bearing deposits (5)
701
 11
 2.11
 623
 7
 1.50
Discount Notes45,012
 795
 2.36
 47,273
 605
 1.71
Unswapped fixed-rate Bonds25,140
 427
 2.27
 26,696
 411
 2.06
Unswapped adjustable-rate Bonds16,899
 309
 2.45
 18,689
 251
 1.80
Swapped Bonds5,828
 87
 2.00
 6,598
 63
 1.27
Mandatorily redeemable capital stock25
 1
 4.86
 27
 1
 6.01
Other borrowings—
 —
 2.14
 —
 —
 1.81
Total interest-bearing liabilities93,658
 1,631
 2.33
 99,982
 1,339
 1.79
Non-interest bearing deposits9
     4
    
Other liabilities772
     593
    
Total capital5,003
     5,403
    
Total liabilities and capital$99,442
     $105,982
    
            
Net interest rate spread    0.29%     0.38%
Net interest income and net interest margin (6)
  $307
 0.41%   $377
 0.48%
Average interest-earning assets to interest-bearing liabilities    105.73%     105.72%
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Non-accrual loans are included in average balances used to determine average rate.
(3)Includes certificates of deposit that are classified as available-for-sale securities.
(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(5)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(6)Net interest margin is net interest income as a percentage of average total interest earning assets.
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Table of Contents
(Dollars in millions)Three Months EndedThree Months Ended
September 30, 2020September 30, 2019
 Average Balance Interest 
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:     
Advances$41,730 $71 0.68 %$44,153  $268  2.41 %
Mortgage loans held for portfolio (2)
11,218 62 2.21 10,749  83  3.08 
Federal funds sold and securities purchased under resale agreements7,947 2 0.09 13,369  76  2.24 
Interest-bearing deposits in banks (3) (4) (5)
1,316 — 0.13 1,178  6  2.12 
MBS (4)
11,608 37 1.25 14,908  95  2.52 
Other investments (4)
12,199 67 2.17 10,546  63  2.36 
Loans to other FHLBanks— — — —  —  — 
Total interest-earning assets86,018 239 1.11 94,903  591  2.47 
Less: allowance for credit losses on mortgage loans— 1     
Other assets527 520     
Total assets$86,545 $95,422     
Liabilities and Capital:     
Term deposits$103 — 0.46 $39  —  2.47 
Other interest bearing deposits (5)
1,253 — 0.02 829  4  1.96 
Discount Notes36,502 26 0.29 43,332  239  2.18 
Unswapped fixed-rate Bonds23,420 102 1.73 23,952  138  2.29 
Unswapped adjustable-rate Bonds16,543 8 0.18 15,149  90  2.35 
Swapped Bonds2,762 10 1.51 6,565  33  1.97 
Mandatorily redeemable capital stock19 — (1.59)27  —  3.75 
Other borrowings1 — — —  —  2.19 
Total interest-bearing liabilities80,603 146 0.72 89,893  504  2.22 
Non-interest bearing deposits— 9     
Other liabilities1,089 881     
Total capital4,853 4,639     
Total liabilities and capital$86,545 $95,422     
Net interest rate spread0.39 %   0.25 %
Net interest income and net interest margin (6)
$93 0.43 %  $87  0.36 %
Average interest-earning assets to interest-bearing liabilities106.72 %    105.57 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Non-accrual loans are included in average balances used to determine average rate.
(3)Includes certificates of deposit that are classified as available-for-sale securities.
(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(5)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
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(Dollars in millions)Nine Months EndedNine Months Ended
September 30, 2020September 30, 2019
 Average Balance Interest 
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:     
Advances$49,131 $420 1.14 %$51,397  $992  2.58 %
Mortgage loans held for portfolio (2)
11,648 226 2.59 10,607  258  3.25 
Federal funds sold and securities purchased under resale agreements7,573 41 0.73 13,404  240  2.39 
Interest-bearing deposits in banks (3) (4) (5)
1,525 8 0.64 1,560  29  2.47 
MBS (4)
12,288 153 1.66 15,451  304  2.64 
Other investments (4)
12,088 203 2.25 6,597  115  2.33 
Loans to other FHLBanks7 — 1.22 4  —  2.43 
Total interest-earning assets94,260 1,051 1.49 99,020  1,938  2.62 
Less: allowance for credit losses on mortgage loans— 1     
Other assets1,513 423     
Total assets$95,773 $99,442     
Liabilities and Capital:     
Term deposits$62 — 0.87 $53  1  2.44 
Other interest bearing deposits (5)
1,186 3 0.33 701  11  2.11 
Discount Notes49,713 286 0.77 45,012  795  2.36 
Unswapped fixed-rate Bonds21,355 340 2.13 25,140  427  2.27 
Unswapped adjustable-rate Bonds13,366 48 0.47 16,899  309  2.45 
Swapped Bonds3,981 48 1.61 5,828  87  2.00 
Mandatorily redeemable capital stock68 1 1.93 25  1  4.86 
Other borrowings— — — —  —  2.14 
Total interest-bearing liabilities89,731 726 1.08 93,658  1,631  2.33 
Non-interest bearing deposits3 9     
Other liabilities1,010 772     
Total capital5,029 5,003     
Total liabilities and capital$95,773 $99,442     
Net interest rate spread0.41 %   0.29 %
Net interest income and net interest margin (6)
$325 0.46 %  $307  0.41 %
Average interest-earning assets to interest-bearing liabilities105.05 %    105.73 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Non-accrual loans are included in average balances used to determine average rate.
(3)Includes certificates of deposit that are classified as available-for-sale securities.
(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(5)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Rates on all of our short-term and adjustable-rateinterest-bearing assets and liabilities increased more substantially than rates on our longer-term assets and liabilities in the nine months ended September 30, 2019 compared to the same period in 2018 due to the increases in short-term LIBOR and the Federal funds target rate in the second half of 2018 that persisted throughout the first two quarters of 2019. The decreases in net interest margindecreased in the three and nine months ended September 30, 20192020 compared to the same periods in 2018 were primarily driven by2019 due to the decline in interest rates. Average rates on short-term assets and liabilities declined more notably as they repriced quicker to lower spreads earned on Advances and a decrease in average Advance balances.rates.


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Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
(In millions)Three Months Ended
September 30, 2020 over 2019		Nine Months Ended
September 30, 2020 over 2019
 
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Increase (decrease) in interest income   
Advances$(14)$(183)$(197)$(42)$(530)$(572)
Mortgage loans held for portfolio3 (24)(21)24 (56)(32)
Federal funds sold and securities purchased under resale agreements(22)(52)(74)(77)(122)(199)
Interest-bearing deposits in banks1 (7)(6)— (21)(21)
MBS(18)(40)(58)(54)(97)(151)
Other investments9 (5)4 92 (4)88 
Loans to other FHLBanks— — — — — — 
Total(41)(311)(352)(57)(830)(887)
Increase (decrease) in interest expense    
Term deposits— — — — (1)(1)
Other interest-bearing deposits1 (5)(4)5 (13)(8)
Discount Notes(33)(180)(213)75 (584)(509)
Unswapped fixed-rate Bonds(3)(33)(36)(62)(25)(87)
Unswapped adjustable-rate Bonds8 (90)(82)(53)(208)(261)
Swapped Bonds(16)(7)(23)(24)(15)(39)
Mandatorily redeemable capital stock— — — 1 (1)— 
Other borrowings— — — — — — 
Total(43)(315)(358)(58)(847)(905)
Increase (decrease) in net interest income$2 $4 $6 $1 $17 $18 
(1)Volume changes are calculated as the change in volume multiplied by the prior year rate.
(2)Rate changes are calculated as the change in rate multiplied by the prior year average balance.
(3)Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.

62
(In millions)Three Months Ended
September 30, 2019 over 2018		 Nine Months Ended
September 30, 2019 over 2018
 
Volume (1)(3)
 
Rate (2)(3)
 Total 
Volume (1)(3)
 
Rate (2)(3)
 Total
Increase (decrease) in interest income           
Advances$(90) $16
 $(74) $(249) $231
 $(18)
Mortgage loans held for portfolio6
 (3) 3
 19
 3
 22
Federal funds sold and securities purchased under resale agreements7
 9
 16
 14
 63
 77
Interest-bearing deposits in banks(8) (1) (9) (3) 4
 1
MBS(9) 3
 (6) (6) 31
 25
Other investments63
 —
 63
 115
 —
 115
Loans to other FHLBanks—
 —
 —
 —
 —
 —
Total(31) 24
 (7) (110) 332
 222
Increase (decrease) in interest expense           
Term deposits—
 —
 —
 —
 —
 —
Other interest-bearing deposits1
 —
 1
 1
 3
 4
Discount Notes9
 22
 31
 (30) 220
 190
Unswapped fixed-rate Bonds(14) 14
 —
 (25) 41
 16
Unswapped adjustable-rate Bonds(22) 15
 (7) (26) 84
 58
Swapped Bonds—
 12
 12
 (8) 32
 24
Mandatorily redeemable capital stock—
 (1) (1) —
 —
 —
Other borrowings—
 —
 —
 —
 —
 —
Total(26) 62
 36
 (88) 380
 292
Increase (decrease) in net interest income$(5) $(38) $(43) $(22) $(48) $(70)
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(1)Volume changes are calculated as the change in volume multiplied by the prior year rate.
(2)Rate changes are calculated as the change in rate multiplied by the prior year average balance.
(3)Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.




Effect of the Use of Derivatives on Net Interest Income
The following table shows the impact on net interest income from the effect of derivatives and hedging activities. As noted above, for the three and nine months ended September 30, 2019, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense as a result of the prospective adoption of new hedge accounting guidance.expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, beginning in 2019, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the “Non-Interest Income (Loss)” section below.

(In millions)Three Months Ended September 30, Nine Months Ended September 30,(In millions)Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020 201920202019
Advances:       Advances:
Amortization of hedging activities in net interest income$—
 $—
 $—
 $(1)
Gains (losses) on designated fair value hedges(4) N/A
 (7) N/A
Gains (losses) on designated fair value hedges$(2)$(4)$(14)$(7)
Net interest settlements included in net interest incomeNet interest settlements included in net interest income(34)8 (55)34 
Investment securities:Investment securities:
Net interest settlements included in net interest income8
 8
 34
 15
Net interest settlements included in net interest income(1)—(2)— 
Mortgage loans:       Mortgage loans:
Amortization of derivative fair value adjustments in net interest income(1) —
 (2) (1)Amortization of derivative fair value adjustments in net interest income(4)(1)(8)(2)
Consolidated Obligation Bonds:       Consolidated Obligation Bonds:
Net interest settlements included in net interest income1
 (1) 1
 (3)Net interest settlements included in net interest income— 1 1 1 
Increase (decrease) to net interest income$4
 $7
 $26
 $10
Increase (decrease) to net interest income$(41)$4 $(78)$26 

Most of our use of derivatives is to synthetically convert the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., one- and three-month LIBOR, the Federal funds effective rate, or SOFR). The larger positivenegative net effect of derivatives on net interest income in the first nine months of 20192020 periods was primarily due to higherlower short-term benchmark interest rates in the three and nine months ended September 30, 2020 compared to the same periods in 2019, which resulted in an increase in net interest settlements being paid, rather than received, on certain Advances where the fixed interest rates were converted to adjustable-coupon rates. The fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure by matching actual cash flows between assets and liabilities more closely than would otherwise occur.
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Non-Interest Income (Loss)

Non-interest income (loss) consists of certain realized and unrealized gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). In connection with the prospective adoption of new hedge accounting guidance, gains (losses) on hedged items and derivatives in a qualifying fair value hedge relationship are no longer recorded in non-interest income (loss) for the three and nine months ended September 30, 2019. As such, beginning in 2019, theThe effects of derivatives and hedging activities on non-interest income relate only to derivatives not qualifying for fair value hedge accounting.


(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Three Months Ended September 30, 2020
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$2 $67 $3 $(7)$(1)$— $— $64 
Net interest settlements on derivatives not receiving hedge accounting— (53)— 8 1 — — (44)
Price alignment amount— — — — — — — — 
Net gains (losses) on derivatives and hedging activities2 14 3 1 — — — 20 
Gains (losses) on trading securities (2)
— (42)— — — — — (42)
Gains (losses) on financial instruments held under fair value option (3)
1 — — 9 1 — — 11 
Total net effect on non-interest income$3 $(28)$3 $10 $1 $— $— $(11)
Three Months Ended September 30, 2019
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(1)$(84)$— $7 $1 $19 $— $(58)
Net interest settlements on derivatives not receiving hedge accounting— 3 — (6)(1)— — (4)
Price alignment amount— — — — — — 2 2 
Net gains (losses) on derivatives and hedging activities(1)(81)— 1 — 19 2 (60)
Gains (losses) on trading securities (2)
— 70 — — — — — 70 
Gains (losses) on financial instruments held under fair value option (3)
— — — (6)(2)— — (8)
Total net effect on non-interest income$(1)$(11)$— $(5)$(2)$19 $2 $2 
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(In millions)Advances Investment Securities Mortgage Loans Bonds Discount Notes 
Balance Sheet (1)
 Other Total
Three Months Ended September 30, 2019               
Net effect of derivatives and hedging activities               
Gains (losses) on derivatives not receiving hedge accounting$(1) $(84) $—
 $7
 $1
 $19
 $—
 $(58)
Net interest settlements on derivatives not receiving hedge accounting—
 3
 —
 (6) (1) —
 —
 (4)
Price alignment amount—
 —
 —
 —
 —
 —
 2
 2
Net gains (losses) on derivatives and hedging activities(1) (81) —
 1
 —
 19
 2
 (60)
Gains (losses) on trading securities (2)
—
 70
 —
 —
 —
 —
 —
 70
Gains (losses) on financial instruments held under fair value option (3)
—
 —
 —
 (6) (2) —
 —
 (8)
Total net effect on non-interest income$(1) $(11) $—
 $(5) $(2) $19
 $2
 $2
Three Months Ended September 30, 2018               
Net effect of derivatives and hedging activities               
Gains (losses) on fair value hedges$(1) $—
 $—
 $—
 $—
 $—
 $—
 $(1)
Gains (losses) on derivatives not receiving hedge accounting—
 —
 (1) 10
 —
 (1) —
 8
Net interest settlements on derivatives not receiving hedge accounting—
 —
 —
 (16) —
 —
 —
 (16)
Net gains (losses) on derivatives and hedging activities(1) —
 (1) (6) —
 (1) —
 (9)
Gains (losses) on trading securities (2)
—
 1
 —
 —
 —
 —
 —
 1
Gains (losses) on financial instruments held under fair value option (3)
—
 —
 —
 (4) —
 —
 —
 (4)
Total net effect on non-interest income$(1) $1
 $(1) $(10) $—
 $(1) $—
 $(12)

(In millions)Advances Investment Securities Mortgage Loans Bonds Discount Notes 
Balance Sheet (1)
 Other Total(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Nine Months Ended September 30, 2019               
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2020
Net effect of derivatives and hedging activities               Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(3) $(284) $3
 $54
 $1
 $4
 $—
 $(225)Gains (losses) on derivatives not receiving hedge accounting$(6)$(321)$(12)$21 $— $91 $— $(227)
Net interest settlements on derivatives not receiving hedge accounting1
 8
 —
 (23) (1) —
 —
 (15)Net interest settlements on derivatives not receiving hedge accounting— (120)— 16 22 — — (82)
Price alignment amount—
 —
 —
 —
 —
 —
 2
 2
Price alignment amount— — — — — — 1 1 
Net gains (losses) on derivatives and hedging activities(2) (276) 3
 31
 —
 4
 2
 (238)Net gains (losses) on derivatives and hedging activities(6)(441)(12)37 22 91 1 (308)
Gains (losses) on trading securities (2)
—
 264
 —
 —
 —
 —
 —
 264
Gains (losses) on trading securities (2)
— 320 — — — — — 320 
Gains (losses) on financial instruments held under fair value option (3)
—
 —
 —
 (49) (2) —
 —
 (51)
Gains (losses) on financial instruments held under fair value option (3)
1 — — (16)— — — (15)
Total net effect on non-interest income$(2) $(12)
$3

$(18) $(2)
$4
 $2
 $(25)Total net effect on non-interest income$(5)$(121)$(12)$21 $22 $91 $1 $(3)
Nine Months Ended September 30, 2018               
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019
Net effect of derivatives and hedging activities               Net effect of derivatives and hedging activities
Gains (losses) on fair value hedges$2
 $—
 $—
 $—
 $—
 $—
 $—
 $2
Gains (losses) on derivatives not receiving hedge accounting2
 —
 (1) (10) —
 —
 —
 (9)Gains (losses) on derivatives not receiving hedge accounting$(3)$(284)$3 $54 $1 $4 $— $(225)
Net interest settlements on derivatives not receiving hedge accounting—
 —
 —
 (39) —
 —
 —
 (39)Net interest settlements on derivatives not receiving hedge accounting1 8 — (23)(1)— — (15)
Price alignment amountPrice alignment amount— — — — — — 2 2 
Net gains (losses) on derivatives and hedging activities4
 —
 (1) (49) —
 —
 —
 (46)Net gains (losses) on derivatives and hedging activities(2)(276)3 31 — 4 2 (238)
Gains (losses) on trading securities (2)
—
 —
 —
 —
 —
 —
 —
 —
Gains (losses) on trading securities (2)
— 264 — — — — — 264 
Gains (losses) on financial instruments held under fair value option (3)
—
 —
 —
 12
 —
 —
 —
 12
Gains (losses) on financial instruments held under fair value option (3)
— — — (49)(2)— — (51)
Total net effect on non-interest income$4
 $—
 $(1) $(37) $—
 $—
 $—
 $(34)Total net effect on non-interest income$(2)$(12)$3 $(18)$(2)$4 $2 $(25)
(1)Balance sheet includes swaptions, which are not designated as hedging a specific financial instrument.
(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statement of Income.
(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."
(1)Balance sheet includes swaptions, which are not designated as hedging a specific financial instrument.
(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statement of Income.
(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."

The totalnet amount of income volatility in derivatives and hedging activities was moderate and consistent with the close hedging relationships of our derivative transactions. Most of the volatility was a result of both unrealized fair value gains and losses on instruments we expect to hold to maturity and the costssale of utilizingcertain swaptions as interest rates fell to historically low levels during the first quarter of 2020. We use swaptions to hedge market risk exposure associated with fixed-rate mortgage assets and may sell swaptions as interest rates change in order to offset actual and anticipated risks associated with holding fixed-rate mortgage assets.

During the first nine months of 2019, we began purchasing U.S. Treasury obligations to help meet the new regulatory liquidity requirements. At September 30, 2019,2020, we held nearly $9.4$11.3 billion of fixed-rate U.S. Treasury and GSE obligations and swapped them to a variable rate. These investments are classified as trading securities and are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, including changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these securities will generally be offset by the changes in fair value of the associated interest rate swaps.

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Non-Interest Expense

The total effect of derivativesfollowing table presents non-interest expense and hedging activitiesrelated financial ratios.

Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2020 201920202019
Non-interest expense  
Compensation and benefits$12 $11 $38 $35 
Other operating expense5 6 16 17 
Finance Agency2 2 5 5 
Office of Finance1 1 4 4 
Other2 2 7 7 
Total non-interest expense$22 $22 $70 $68 
Average total assets$86,545 $95,422 $95,773 $99,442 
Average regulatory capital4,887 4,678 5,112 5,040 
Total non-interest expense to average total assets (1)
0.10 %0.09 %0.10 %0.09 %
Total non-interest expense to average regulatory capital (1)
1.78 1.85 1.83 1.79 
(1)Amounts used to calculate percentages are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
Total non-interest income was positively impactedexpenses have remained stable with only slight increases over the past several years as seen in the 2019 periods duethree and nine months ended September 30, 2020 compared to the salesame periods in 2019. We have managed our operating costs in times of certain swaptions as rates fell during the third quarter. We may sell swaptions as interest rates changeincreased Mission Asset Activity, so that we can continue to generate competitive profitability in order to offset actual and anticipated risks associated with holding fixed-rate mortgage assets.
times of reduced business activity.

Non-Interest Expense

The following table presents non-interest expense.
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 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions)2019 2018 2019 2018
Non-interest expense       
Compensation and benefits$11
 $10
 $35
 $34
Other operating expense6
 5
 17
 15
Finance Agency2
 2
 5
 5
Office of Finance1
 1
 4
 4
Other2
 1
 7
 6
Total non-interest expense$22
 $19
 $68
 $64
Average total assets$95,422
 $100,372
 $99,442
 $105,982
Average regulatory capital4,678
 5,331
 5,040
 5,446
Total non-interest expense to average total assets (1)
0.09% 0.08% 0.09% 0.08%
Total non-interest expense to average regulatory capital (1)
1.85
 1.44
 1.79
 1.56

(1)Amounts used to calculate percentages are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
Total non-interest expense remained relatively stable for the three and nine months ended September 30, 2019 compared to the same periods in 2018.

Segment Information

Note 1713 of the Notes to Unaudited Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.
(Dollars in millions)Traditional Member Finance MPP Total
Three Months Ended September 30, 2020     
Net interest income$92  $1  $93 
Net income$56  $1  $57 
Average assets$75,289  $11,256  $86,545 
Assumed average capital allocation$4,224  $629  $4,853 
Return on average assets (1)
0.30 % 0.04 % 0.26 %
Return on average equity (1)
5.29 % 0.75 % 4.70 %
Three Months Ended September 30, 2019     
Net interest income$65  $22  $87 
Net income$34 $29 $63 
Average assets$82,494  $12,928  $95,422 
Assumed average capital allocation$4,011  $628  $4,639 
Return on average assets (1)
0.16 % 0.88 % 0.26 %
Return on average equity (1)
3.36 % 18.16 % 5.36 %
(Dollars in millions)Traditional Member Finance MPP Total
Nine Months Ended September 30, 2020
Net interest income$296  $29  $325 
Net income$173 $63 $236 
Average assets$84,011  $11,762  $95,773 
Assumed average capital allocation$4,411  $618  $5,029 
Return on average assets (1)
0.28 % 0.71 % 0.33 %
Return on average equity (1)
5.26 % 13.60 % 6.28 %
Nine Months Ended September 30, 2019
Net interest income$226 $81 $307 
Net income$130 $70 $200 
Average assets$86,200 $13,242 $99,442 
Assumed average capital allocation$4,337 $666 $5,003 
Return on average assets (1)
0.20 %0.71 %0.27 %
Return on average equity (1)
4.01 %14.05 %5.35 %
(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(Dollars in millions)Traditional Member Finance MPP Total
Three Months Ended September 30, 2019     
Net interest income$65
 $22
 $87
Net income$34
 $29
 $63
Average assets$82,494
 $12,928
 $95,422
Assumed average capital allocation$4,011
 $628
 $4,639
Return on average assets (1)
0.16% 0.88% 0.26%
Return on average equity (1)
3.36% 18.16% 5.36%
Three Months Ended September 30, 2018     
Net interest income$102
 $28
 $130
Net income$70
 $22
 $92
Average assets$88,441
 $11,931
 $100,372
Assumed average capital allocation$4,661
 $629
 $5,290
Return on average assets (1)
0.31% 0.73% 0.36%
Return on average equity (1)
5.93% 13.81% 6.87%
(Dollars in millions)Traditional Member Finance MPP Total
Nine Months Ended September 30, 2019     
Net interest income$226
 $81
 $307
Net income$130
 $70
 $200
Average assets$86,200
 $13,242
 $99,442
Assumed average capital allocation$4,337
 $666
 $5,003
Return on average assets (1)
0.20% 0.71% 0.27%
Return on average equity (1)
4.01% 14.05% 5.35%
Nine Months Ended September 30, 2018     
Net interest income$299
 $78
 $377
Net income$197
 $62
 $259
Average assets$94,236
 $11,746
 $105,982
Assumed average capital allocation$4,803
 $600
 $5,403
Return on average assets (1)
0.28% 0.71% 0.33%
Return on average equity (1)
5.48% 13.86% 6.41%
(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
Traditional Member Finance Segment
Net interest income decreased in the three- and nine-months comparison periods primarily due to lower spreads earned on certain Advances and investments and lower average Advance balances. The decrease in net income in the nine-months comparison was partially offset by higher earnings from funding assets with interest-free capital.


MPP Segment
The MPP continued to earn a substantial level of profitability compared to market interest rates, with a moderate amount of market risk and a minimal amount of credit risk. In the first nine months of 2019, the MPP averaged 13 percent of total average assets while accounting for 35 percent of earnings. Net income increased in the three- and nine-months comparison periods primarily due to higher spreads earned on liquidity investments as well as an increase in prepayment fees on Advances. Much of the higher spreads earned on liquidity investments was offset by earnings reductions recognized in non-interest income from an increase in net gainsinterest payments on
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related derivatives not receiving hedge accounting. The favorable factors noted were primarily offset by lower earnings from funding assets with interest-free capital and hedging activitiesthe decline in average MBS balances.

MPP Segment
Net income decreased in both the three- and secondarilynine-months comparison periods due to higher net amortization and lower earnings generated from investing capital driven by the growthlow interest rate environment. We expect the trend of higher net amortization to continue throughout 2020 unless mortgage rates rise. The negative factors were partially offset in average MPP balances. However,the first nine months of 2020 by the sale of certain swaptions as rates fell to historically low levels in the first quarter of 2020. In addition, net interest income was lowerdecreased in the three-months comparison period due to higherlower net amortization as a result of accelerated prepaymentsgains on derivatives and lower spreads earned on MPP assets.hedging activities.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Market Risk

Market Value of Equity and Duration of Equity - Entire Balance Sheet
Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables, as presented in the following tables for various instantaneous and permanent interest rate shocks (in basis points). We compiled average results using data for each month end. Given the current level of rates, some down rate shocks are nonparallel scenarios, with short-term rates decreasing less than long-term rates such that no rate falls below zero.

Market Value of Equity
(Dollars in millions)Down 300 Down 200 Down 100 Flat Rates Up 100 Up 200 Up 300
Average Results             
2019 Year-to-Date             
Market Value of Equity$4,607
 $4,654
 $4,771
 $4,845
 $4,790
 $4,709
 $4,659
% Change from Flat Case(4.9)% (3.9)% (1.5)% —
 (1.1)% (2.8)% (3.8)%
2018 Full Year             
Market Value of Equity$4,936
 $5,154
 $5,306
 $5,264
 $5,176
 $5,105
 $5,045
% Change from Flat Case(6.2)% (2.1)% 0.8 % —
 (1.7)% (3.0)% (4.2)%
Month-End Results             
September 30, 2019             
Market Value of Equity$4,499
 $4,499
 $4,421
 $4,495
 $4,477
 $4,379
 $4,299
% Change from Flat Case0.1 % 0.1 % (1.7)% —
 (0.4)% (2.6)% (4.4)%
December 31, 2018             
Market Value of Equity$4,736
 $4,911
 $5,130
 $5,149
 $5,043
 $4,951
 $4,906
% Change from Flat Case(8.0)% (4.6)% (0.4)% —
 (2.1)% (3.8)% (4.7)%

(Dollars in millions)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2020 Year-to-Date       
Market Value of Equity$4,792 $4,792 $4,791 $4,878 $4,999 $4,892 $4,745 
% Change from Flat Case(1.8)%(1.8)%(1.8)%— 2.5 %0.3 %(2.7)%
2019 Full Year       
Market Value of Equity$4,545 $4,580 $4,652 $4,729 $4,674 $4,586 $4,528 
% Change from Flat Case(3.9)%(3.1)%(1.6)%— (1.1)%(3.0)%(4.3)%
Month-End Results
September 30, 2020
Market Value of Equity$3,979 $3,979 $3,993 $4,056 $4,154 $4,041 $3,905 
% Change from Flat Case(1.9)%(1.9)%(1.6)%— 2.4 %(0.4)%(3.7)%
December 31, 2019
Market Value of Equity$4,257 $4,262 $4,236 $4,372 $4,313 $4,213 $4,144 
% Change from Flat Case(2.6)%(2.5)%(3.1)%— (1.3)%(3.6)%(5.2)%
Duration of Equity
 
(In years)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2020 Year-to-Date— — (0.8)(2.9)0.5 3.2 1.9 
2019 Full Year(0.8)(1.4)(1.7)(0.8)1.7 1.4 1.1 
Month-End Results       
September 30, 2020— — (1.4)(2.4)1.5 3.5 2.5 
December 31, 2019(0.1)0.6 (2.1)(1.2)2.0 1.7 1.4 
(In years)Down 300 Down 200 Down 100 Flat Rates Up 100 Up 200 Up 300
Average Results             
2019 Year-to-Date(1.2) (2.6) (3.8) (0.7) 1.6
 1.1
 0.9
2018 Full Year(4.5) (4.7) (0.9) 1.7
 1.4
 1.2
 1.1
Month-End Results             
September 30, 2019—
 0.1
 (4.1) (2.5) 1.5
 1.8
 1.4
December 31, 2018(3.8) (5.6) (2.5) 1.2
 2.0
 1.0
 0.6

The overall market risk exposure to changing interest rates was within policy limits during the periods presented. At September 30, 2019,2020, exposure to falling interest rates in the down 200 basis points and 300 basis pointsshock scenarios iswas muted as some rates become floored at near zero rate levels. Exposure to moderate rising rate shocks decreased due to the reduction in all market rates that occurred during the first quarter of 2020. The duration of equity provides an estimate of the change in market value of equity for a 1.00 percentage point further change in interest rates from the rate shock level.

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Based on the totality of our risk analysis, we expect that profitability, defined as the level of ROE compared with short-term market rates, will remain competitive over the long term unless interest rates change by large amounts in a short period of time.

Further declines in long-term interest rates could substantially decrease income in the near term (one to two years) before reverting over time to average levels. This temporary reduction in income would be driven fromby the accelerated recognition of mortgage asset premiums as the incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets. We believe that profitability would not become uncompetitive in a rising rate environment unless interest rates were to permanently increase in a short period of time by four percentage points or more and persist at the higher levels for a long period of time.

Market Risk Exposure of the Mortgage Assets Portfolio
The mortgage assets portfolio normally accounts for almost all market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining sufficient net spreads. Sensitivities of the market value of equity allocated to the mortgage assets portfolio under interest rate shocks (in basis points) are shown below. The average mortgage assets portfolio had an assumed capital allocation of $1.3 billion in the first nine months of 20192020 based on the entire balance sheet's average regulatory capital-to-assets ratio. Average results shown in the table below are compiled using data for each month end. The market value sensitivities are one measure we use to analyze the portfolio's estimated market risk exposure.

% Change in Market Value of Equity-Mortgage Assets Portfolio
 Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2020 Year-to-Date(15.8)%(15.8)%(15.2)%— 13.1 %3.4 %(10.6)%
2019 Full Year(28.6)%(24.1)%(10.4)%— (2.4)%(8.3)%(11.7)%
Month-End Results       
September 30, 2020(16.4)%(16.4)%(14.6)%— 12.0 %3.1 %(8.5)%
December 31, 2019(17.7)%(17.2)%(12.5)%— (5.6)%(14.6)%(20.5)%
 Down 300 Down 200 Down 100 Flat Rates Up 100 Up 200 Up 300
Average Results             
2019 Year-to-Date(33.7)% (27.8)% (10.5)% — (2.1)% (7.1)% (9.6)%
2018 Full Year(35.9)% (15.2)% 0.3 % — (4.3)% (7.4)% (10.0)%
Month-End Results             
September 30, 2019(12.2)% (12.2)% (10.3)% — 0.8 % (6.0)% (11.3)%
December 31, 2018(41.2)% (24.7)% (3.6)% — (7.0)% (13.2)% (15.9)%

The average risk exposure of the mortgage assets portfolio in the first nine months of 20192020 remained aligned with our preference to keep our exposure to market risk at a low to moderate level. The variances between periods shownprimarily reflect normal changes in the balance sheet composition and the impact of lower long-term interest rates observed in the first nine months of 2019.2020. These lower long-term interest rates result in reduced exposure to moderate rising rate shocks and muted exposure to falling rate shocks as they become floored when they reach near zero rate levels. We believe the mortgage asset portfolio will continue to provide an acceptable risk adjusted return consistent with our risk appetite philosophy.
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Capital Adequacy

Retained Earnings
We must hold sufficient capital to protect against exposure to various risks, including market, credit, and operational. We regularly conduct a variety of measurements and assessments for capital adequacy. At September 30, 2019,2020, our capital management policy set forth a range of $175 million to $375approximately $350 million as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk and to provide for dividend stability from factors that could cause earnings to be volatile.

risk.

The following table presents retained earnings.
(In millions)September 30, 2019 December 31, 2018(In millions)September 30, 2020December 31, 2019
Unrestricted retained earnings$624
 $632
Unrestricted retained earnings$789 $648 
Restricted retained earnings (1)
431
 391
Restricted retained earnings (1)
493 446 
Total retained earnings$1,055
 $1,023
Total retained earnings$1,282 $1,094 
(1)Pursuant to the FHLBank System's Joint Capital Enhancement Agreement we are not permitted to distribute as dividends.
(1)     Pursuant to the FHLBank System's Joint Capital Enhancement Agreement we are not permitted to distribute as dividends.

As notedindicated in the table above, our current balance of retained earnings exceeds the policy range,minimum, which we expect will continue to be the case as we bolster capital adequacy over time by allocating a portion of earnings to the restricted retained earnings account.
Market Capitalization Ratios
We measure two sets of market capitalization ratios. One measures the market value of equity (i.e., total capital) relative to the par value of regulatory capital stock (which is GAAP capital stock and mandatorily redeemable capital stock). The other measures the market value of total capital relative to the book value of total capital, which includes all components of capital,

and mandatorily redeemable capital stock. The measures provide a point-in-time indication of the FHLB's liquidation or
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franchise value and can also serve as a measure of realized or potential market risk exposure.

 The down shocks used are either 100 or 200 basis points depending on the benchmark interest rate levels at the time.

The following table presents the market value of equity to regulatory capital stock (excluding retained earnings) for several interest rate environments.
September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario124% 119%Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario137 %129 %
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)
122
 118
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)
135 125 
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)
121
 114
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)
137 124 
(1)Represents a down shock of 100 basis points.
(2)Represents an up shock of 200 basis points.
(1)    Represents a down shock of 100 basis points.
(2)    Represents an up shock of 200 basis points.

A base case value below 100 percent could indicate that, in the remote event of an immediate liquidation scenario involving redemption of all capital stock, capital stock may be returned to stockholders at a value below par. This could be due to experiencing risks that lower the market value of capital and/or to having an insufficient amount of retained earnings. In the first nine months of 2019,2020, the market capitalization ratios in the scenarios presented continued to be above our policy requirements. The base case ratio at September 30, 20192020 was well above 100 percent becauseand increased relative to year-end 2019 driven primarily by the growth in retained earnings, were 29which rose to 43 percent of regulatory capital stock andas we maintainedcontinued to maintain risk exposures at moderate levels.

The following table presents the market value of equity to the book value of total capital and mandatorily redeemable capital stock.
September 30, 2020December 31, 2019
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
96 %98 %
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
95 95 
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
96 94 
 September 30, 2019 December 31, 2018
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
96% 96%
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
95
 96
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
94
 93
(1)    Capital includes total capital and mandatorily redeemable capital stock.
(1)Capital includes total capital and mandatorily redeemable capital stock.
(2)Represents a down shock of 100 basis points.
(3)Represents an up shock of 200 basis points.
(2)    Represents a down shock of 100 basis points.
(3)    Represents an up shock of 200 basis points.

A base-case value below 100 percent indicates that we have realized or could realize risks (especially market risk), such that the market value of total capital owned by stockholders is below the book value of total capital. The base-case ratio of 96 percent at September 30, 20192020 indicates that the market value of total capital is $171$166 million below the book value of total capital. In a scenario in which interest rates increase 200 basis points, the market value of total capital would be $287$181 million below the book value of total capital. This indicates that in a liquidation scenario, stockholders would not receive the full sum of their total equity ownership in the FHLB. We believe the likelihood of a liquidation scenario is extremely remote; and therefore, we accept the risk of diluting equity ownership in such a scenario.

Credit Risk

Overview
Our business entails a significant amount of inherent credit risk exposure. We believe our risk management practices, discussed below, bring the amount of residual credit risk to a minimal level. We have no loan loss reserves or impairment recorded for Credit Services, investments, and derivatives and a minimal amount of legacy credit risk exposure to the MPP.

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


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Collateral: We require each member to provide a security interest in eligible collateral before it can undertake any secured borrowing. Eligible collateral includes single-family loans, multi-family loans, home equity loans and lines of credit, commercial real estate, bond securities, government guaranteed loans and farm real estate. The estimated value of pledged collateral is discounted in order to offset market, credit and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. Over-collateralization by one member is not applied to another member. At September 30, 2019,2020, our policy of over-collateralization resulted in total collateral pledged of $359.2$392.2 billion to serve members'support total borrowing capacity of $286.5$310.0 billion of which $62.3$49.7 billion was used to support outstanding Advances and Letters of Credit. Borrowers often pledge collateral in excess of their collateral requirement to demonstrate available liquidity and to have the ability to borrow additional amounts in the future. The collateral composition remained relatively stable compared to the end of 2018.2019.

Borrowing Capacity/Lendable Value: We determine borrowing capacity against pledged collateral by applying collateral discounts, or haircuts, to the value of the collateral. These haircuts result in Lendable Value Rates (LVRs) that are less than the amount of pledged collateral.

LVRs are determined by statistical analysis and management assumptions relating to historical price volatility, inherent credit risks, liquidation costs, and the current credit and economic environment. We apply LVR results to the estimated values of pledged assets. LVRs vary among pledged assets and members based on the member institution type, the financial strength of the member institution, the form of valuation, the issuer of bond collateral or the quality of securitized assets, the quality of the loan collateral as reflected in the manner in which it was underwritten, and the marketability of the pledged assets. Effective July 2019, we updated LVRs resulting in relatively minor changes in borrowing capacity for most members.
 
Internal Credit Ratings: We perform credit underwriting of our members and nonmember borrowers and assign them an internal credit rating. These credit ratings are based on internal ratings models, credit analyses and consideration of credit ratings from independent credit rating organizations. Credit ratings are used in conjunction with other measures of credit risk in managing secured credit risk exposure.

Member Failures, Closures, and Receiverships: There have been twono member failures in 20192020 through the date of this filing. We have no outstanding exposure to these institutions and the failure of these members did not have an impact on our financial condition or results of operations.

MPP
Overview: We believe that the residual amount of credit risk exposure to loans in the MPP is minimal, based on the same factors described in the 20182019 Annual Report on Form 10-K. We believe, based onIn light of the COVID-19 pandemic, we are closely monitoring the credit risk of our analysis, that future credit losses will not harm capital adequacy and will not significantly affect profitability except underMPP portfolio. Although we may see further increases in delinquencies due to the most extreme and unlikely credit conditions.current unemployment level, we cannot predict the overall impact. However, we have implemented temporary relief provisions for MPP loans, including forbearance plans to help with short-term hardships, in response to the negative economic impacts associated with COVID-19.

Conventional Loan Portfolio Characteristics: The levels of loan-to-value ratios are consistent with the portfolio's excellent credit quality. At September 30, 2019,2020, the weighted average loan-to-value ratios for conventional loans based on origination values and estimated current values were 7473 percent and 6056 percent, respectively. These ratios were similarThe estimated weighted average current loan-to-value ratio decreased three percent compared to the ratio at December 31, 2018.2019 as home values have continued to increase.


Credit Performance: The table below provides an analysis of conventional loans delinquent or in the process of foreclosure, along with the national average serious delinquency rate.
Conventional Loan Delinquencies
(Dollars in millions)September 30, 2020 December 31, 2019
Early stage delinquencies - unpaid principal balance (1)
$54  $40 
Serious delinquencies - unpaid principal balance (2)
$71  $12 
Early stage delinquency rate (3)
0.5 %0.4 %
Serious delinquency rate (4)
0.7 % 0.1 %
National average serious delinquency rate (5)
3.3 % 1.3 %
(1)Includes conventional loans 30 to 89 days delinquent and not in foreclosure.
(2)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(3)Early stage delinquencies expressed as a percentage of the total conventional loan portfolio.
(4)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.
(5)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The September 30, 2020 rate is based on June 30, 2020 data.
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 Conventional Loan Delinquencies
(Dollars in millions)September 30, 2019 December 31, 2018
Early stage delinquencies - unpaid principal balance (1)
$35
 $36
Serious delinquencies - unpaid principal balance (2)
$11
 $13
Early stage delinquency rate (3)
0.3% 0.4%
Serious delinquency rate (4)
0.1% 0.1%
National average serious delinquency rate (5)
1.5% 1.6%
(1)Includes conventional loans 30 to 89 days delinquent and not in foreclosure.
(2)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(3)Early stage delinquencies expressed as a percentage of the total conventional loan portfolio.
(4)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.
(5)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The September 30, 2019 rate is based on June 30, 2019 data.

TheIn response to the COVID-19 pandemic, our mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related hardships. These forbearances do not alter the underlying terms of the loans, and loans not paid timely are considered past due. As a result, early stage and serious delinquencies increased in the first nine months of 2020. At September 30, 2020, $22 million and $56 million of conventional loans with an early stage and serious delinquency, respectively, were under a forbearance plan.

Overall, the MPP has experienced a smallminimal amount of delinquencies, with delinquency rates continuing to be well below national averages. This further supports our view that the overall portfolio is comprised of high-quality, well-performing loans.

Credit Enhancements: Conventional mortgage loans are supported against credit losses by various combinations of primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) (for loans purchased before February 2011), and the Lender Risk Account (LRA). The LRA is a hold back of a portion of the initial purchase price to cover expected credit losses for a specific pool of loans. Starting after five years from the loan purchase date, we may return the hold back to Participating Financial Institutions (PFIs) if they manage credit risk to predefined acceptable levels of exposure on the loan pools they sell to us. As a result, some pools of loans may have sufficient credit enhancements to recapture all losses while other pools of loans may not. The LRA had balances of $223$246 million and $213$233 million at September 30, 20192020 and December 31, 2018,2019, respectively. For more information, see Note 95 of the Notes to Unaudited Financial Statements.

Credit Losses: The following table shows the effects of credit enhancements on the estimation of credit losses at the noted periods. Estimated incurred credit losses, after credit enhancements, are accounted for in the allowance for credit losses or as a charge off (i.e., a reduction to the principal of mortgage loans held for portfolio). Our methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of new accounting guidance on the measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting.

(In millions)September 30, 2019 December 31, 2018(In millions)September 30, 2020December 31, 2019
Estimated incurred credit losses, before credit enhancements$3
 $4
Estimated credit losses, before credit enhancementsEstimated credit losses, before credit enhancements$8 $4 
Estimated amounts deemed recoverable by:   Estimated amounts deemed recoverable by:
Primary mortgage insurance—
 (1)Primary mortgage insurance— — 
Supplemental mortgage insurance(1) (1)Supplemental mortgage insurance(2)(2)
Lender Risk Account(1) (1)Lender Risk Account(6)(1)
Estimated incurred credit losses, after credit enhancements$1
 $1
Estimated credit losses, after credit enhancementsEstimated credit losses, after credit enhancements$— $1 
The minimal amount of incurredestimated credit losses provides further evidence of the overall health of the portfolio. CreditAs a result of adopting new accounting guidance, the estimated credit losses before credit enhancements increased at September 30, 2020 as our estimate now includes a forecast of housing prices, including the potential impact of the COVID-19 pandemic. Residual credit risk exposure depends on the actual and potential credit performance of the loans in each pool compared to the pool's equity (on individual loans) and credit enhancements, including PMI, the LRA, and SMI. WeOur available credit enhancements at September 30, 2020 were ample and able to cover the increase in estimated gross credit losses. In addition, we have assessed that we do not have any credit risk exposure to our PMI providers, and our estimation of credit exposure to SMI providers was not material at September 30, 20192020 or December 31, 2018.2019.

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


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

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

(In millions)September 30, 2019(In millions)September 30, 2020
Long-Term RatingLong-Term Rating
AA A TotalAAATotal
Unsecured Liquidity Investments     Unsecured Liquidity Investments
Interest-bearing deposits$—
 $599
 $599
Interest-bearing deposits$— $630 $630 
Federal funds sold7,242
 6,840
 14,082
Federal funds sold2,210 6,495 8,705 
Certificates of deposit—
 300
 300
Total unsecured liquidity investments7,242
 7,739
 14,981
Total unsecured liquidity investments2,210 7,125 9,335 
Guaranteed/Secured Liquidity Investments     Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell1,840
 —
 1,840
Securities purchased under agreements to resell2,454 — 2,454 
U.S. Treasury obligations9,421
 —
 9,421
U.S. Treasury obligations9,194 — 9,194 
GSE obligations2,164
 —
 2,164
GSE obligations2,291 — 2,291 
Total guaranteed/secured liquidity investments13,425
 —
 13,425
Total guaranteed/secured liquidity investments13,939 — 13,939 
Total liquidity investments$20,667
 $7,739
 $28,406
Total liquidity investments$16,149 $7,125 $23,274 
December 31, 2019
Long-Term Rating
AAATotal
Unsecured Liquidity Investments
Interest-bearing deposits$— $550 $550 
Federal funds sold1,023 3,810 4,833 
Certificates of deposit500 910 1,410 
Total unsecured liquidity investments1,523 5,270 6,793 
Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell2,349 — 2,349 
U.S. Treasury obligations9,662 — 9,662 
GSE obligations2,120 — 2,120 
Total guaranteed/secured liquidity investments14,131 — 14,131 
Total liquidity investments$15,654 $5,270 $20,924 
 December 31, 2018
 Long-Term Rating
 AA A Total
Unsecured Liquidity Investments     
Federal funds sold$5,640
 $5,153
 $10,793
Certificates of deposit800
 1,550
 2,350
Total unsecured liquidity investments6,440
 6,703
 13,143
Guaranteed/Secured Liquidity Investments     
Securities purchased under agreements to resell4,402
 —
 4,402
U.S. Treasury obligations36
 —
 36
GSE obligations277
 —
 277
Total guaranteed/secured liquidity investments4,715
 —
 4,715
Total liquidity investments$11,155
 $6,703
 $17,858


DuringOur balance of liquidity investments increased during the first nine months of 2019 we increased our2020 primarily due to the volatility in Advance activity, especially the reductions in short-term and variable-rate Advance borrowings. The lower balance of liquidity investments primarily throughat the investmentend of U.S. Treasury obligationsthe first quarter of 2020 was in response to more effectively meet the expanded regulatoryvolatile market conditions and limited returns on other available liquidity requirements.investments. In addition, a portion of our total liquidity investments are with counterparties for which the investments are secured with collateral (secured resale agreements). We believe these investments present no credit risk exposure to us.


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

(In millions) September 30, 2019(In millions)September 30, 2020
 Counterparty Rating  Counterparty Rating
Domicile of Counterparty AA A TotalDomicile of CounterpartyAAATotal
Domestic $1,542
 $3,674
 $5,216
Domestic$45 $630 $675 
U.S. branches and agency offices of foreign commercial banks:      U.S. branches and agency offices of foreign commercial banks:
CanadaCanada865 1,730 2,595 
Sweden 1,830
 830
 2,660
Sweden750 1,115 1,865 
Canada 1,290
 875
 2,165
Australia 1,290
 —
 1,290
Australia— 1,350 1,350 
Norway 1,290
 —
 1,290
Netherlands —
 830
 830
Netherlands— 865 865 
Switzerland —
 830
 830
Germany —
 500
 500
Germany— 835 835 
France —
 200
 200
France— 600 600 
FinlandFinland350 — 350 
NorwayNorway200 — 200 
Total U.S. branches and agency offices of foreign commercial banks 5,700
 4,065
 9,765
Total U.S. branches and agency offices of foreign commercial banks2,165 6,495 8,660 
Total unsecured investment credit exposure $7,242
 $7,739
 $14,981
Total unsecured investment credit exposure$2,210 $7,125 $9,335 

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

(In millions) September 30, 2019(In millions)September 30, 2020
Domicile of Counterparty Overnight Due 2 days through 30 days TotalDomicile of CounterpartyOvernightTotal
Domestic $5,216
 $—
 $5,216
Domestic$675 $675 
U.S. branches and agency offices of foreign commercial banks:      U.S. branches and agency offices of foreign commercial banks:
CanadaCanada2,595 2,595 
Sweden 2,660
 —
 2,660
Sweden1,865 1,865 
Canada 2,165
 —
 2,165
Australia 1,290
 —
 1,290
Australia1,350 1,350 
Norway 1,290
 —
 1,290
Netherlands 830
 —
 830
Netherlands865 865 
Switzerland 830
 —
 830
Germany 200
 300
 500
Germany835 835 
France 200
 —
 200
France600 600 
FinlandFinland350 350 
NorwayNorway200 200 
Total U.S. branches and agency offices of foreign commercial banks 9,465
 300
 9,765
Total U.S. branches and agency offices of foreign commercial banks8,660 8,660 
Total unsecured investment credit exposure $14,681
 $300
 $14,981
Total unsecured investment credit exposure$9,335 $9,335 

At September 30, 2019,2020, all of the $15.0$9.3 billion of unsecured investment exposure was to counterparties with holding companies domiciled in countries receiving either AAA or AA long-term sovereign ratings. Furthermore, we restrict a significant portion of unsecured lending to overnight maturities, which further limits risk exposure to these counterparties. By Finance Agency regulation, all counterparties exposed to non-U.S. countries are required to be domestic U.S. branches of foreign counterparties.

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MBS:
GSE MBS
At September 30, 2019, $12.22020, $10.0 billion of MBS held were GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest. We believe that the conservatorships of Fannie Mae and Freddie Mac lower the chance that they would not be able to fulfill their credit guarantees and that the securities issued by these two GSEs are effectively government guaranteed. In addition, based on the data available to us and our purchase practices, we believe that most of the mortgage loans backing our GSE MBS are of high quality with acceptable credit performance.

MBS Issued by Other Government Agencies
We also invest in MBS issued and guaranteed by Ginnie Mae and the NCUA. These investments totaled $1.8$1.2 billion at September 30, 2019.2020. We believe that the strength of the issuers' guarantees and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.

Derivatives
Credit Risk Exposure: We mitigate most of the credit risk exposure resulting from derivative transactions through collateralization or use of daily settled contracts. The table below presents the lowest long-term counterparty credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services for derivative positions to which we had credit risk exposure at September 30, 2019.2020. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.
(In millions) 
Total NotionalNet Derivatives Fair Value Before CollateralCash Collateral Pledged to (from) CounterpartiesNet Credit Exposure to Counterparties
Nonmember counterparties:
Asset positions with credit exposure:
Uncleared derivatives:
AA-rated$431 $1 $(1)$— 
Total uncleared derivatives431 1 (1)— 
Cleared derivatives (1)
20,337 7 245 252 
Liability positions with credit exposure:
Uncleared derivatives:
A-rated1,274 (30)30 — 
BBB-rated2,974 (189)193 4 
Total uncleared derivatives4,248 (219)223 4 
Cleared derivatives (1)
595 — 2 2 
Total derivative positions with credit exposure to nonmember counterparties25,611 (211)469 258 
Member institutions (2)
145 1 — 1 
Total$25,756 $(210)$469 $259 
(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated Aa3 by Moody's and AA- by Standard & Poor's.
(2)Represents Mandatory Delivery Contracts.

75
(In millions)        
  Total Notional Net Derivatives Fair Value Before Collateral Cash Collateral Pledged to (from) Counterparties Net Credit Exposure to Counterparties
Nonmember counterparties:        
Asset positions with credit exposure:        
Uncleared derivatives:        
A-rated $37
 $—
 $—
 $—
Total uncleared derivatives 37
 —
 —
 —
Cleared derivatives (1)
 18,351
 5
 259
 264
Liability positions with credit exposure:        
Cleared derivatives (1)
 19,507
 (1) 15
 14
Total derivative positions with credit exposure to nonmember counterparties 37,895
 4
 274
 278
Member institutions (2)
 448
 2
 —
 2
Total $38,343
 $6
 $274
 $280
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(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated Aa3 by Moody's and AA- by Standard & Poor's.
(2)Represents Mandatory Delivery Contracts.

Our exposure to cleared derivatives is primarily associated with our requirement to post initial margin through the clearing agent to the Derivatives Clearing Organizations. The amount of cash collateral pledged as initial margin has increased from our use of cleared derivatives. However, the use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties.

At September 30, 2019,2020, the gross and net exposure of uncleared derivatives with residual credit risk exposure was minimal. Gross exposure would likely increase if$4 million. If interest rates rise and could increase ifor the composition of our derivatives change. However,change resulting in an increase to our gross exposure to uncleared derivatives, the contractual collateral provisions in these derivatives would limit our net exposure to acceptable levels.
Although we cannot predict if we will realize credit risk losses from any of our derivatives counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and, more generally, to continue to satisfy the terms and conditions of their derivative contracts with us. As of September 30, 2019,2020, we had $491$366 million of notional principal of

interest rate swaps with one member, JPMorgan Chase Bank, N.A., which also had outstanding credit services with us. Due to the amount of market value collateralization, we had no outstanding credit exposure to this counterparty related to interest rate swaps outstanding.

Liquidity Risk

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

We believe our liquidity position, as well as that of the System, continued to be strong during the first nine months of 2019.2020, even in light of the temporary market disruptions earlier in the year caused by the COVID-19 pandemic. Our overall ability to effectively fund our operations through debt issuances remained sufficient. Investor demand for System debt was robust in the first nine months of 2019. Although we can make no assurances, we expect this2020, as investors preferred short-term, high-quality money market instruments amid the uncertainty in the financial markets due to continue to be the case.COVID-19 pandemic. We believe the possibility of a liquidity or funding crisis in the System that would impair our ability to participate, on a cost-effective basis, in issuances of debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends is remote.

The System works collectively to manage and monitor the System-wide liquidity and funding risks. Liquidity risk includes the risk that the System could have difficulty rolling over short-term Obligations when market conditions change, also called refinancing risk. The System has a large reliance on short-term funding; therefore, it has a sharp focus on managing liquidity risk to very low levels. As shown on the Statements of Cash Flows, in the first nine months of 2019,2020, our portion of the System's debt issuances totaled $605.3$232.9 billion for Discount Notes and $24.0$35.6 billion for Bonds. Access to short-term debt markets has been reliable because investors, driven by liquidity preferences and risk aversion, have sought the System’s short-term debt, which has resulted in strong demand for debt maturing in one year or less.

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

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

In August 2018,We adhere to the Finance Agency issuedAgency's Advisory Bulletin 2018-07 Federal Home Loan Bank Liquidity Guidance (Liquidity AB). The Liquidity AB increasesestablishes the expectations with respect to the maintenance of sufficient liquidity for a specified number of days. The Liquidity AB rescinds the 2009 liquidity guidance previously issued by the Finance Agency. Under the new Liquidity AB, the calculation of liquidity is intended to provide additional assurance that we can continue to provide Advances and Letters of Credit to members over an extended period without access to the capital markets. Under the new this
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guidance, all Advance maturities are assumed to renew, unless the Advances relate to former members who are ineligible to borrow new Advances.

As part of the base case liquidity expectations, the Liquidity AB requires the FHLBanks to maintain sufficient liquidity for an increaseda period of between 10 to 30 calendar days. Contemporaneously with the issuance of the Liquidity AB, the Finance Agency issued a supervisory letter that identifies initial thresholds for measures of liquidity. As of September 30, 2019,2020, we maintained a sufficient number of days of positive daily cash balances under the newLiquidity AB guidance.

The Liquidity AB also providedprovides guidance related to asset/liability maturity funding gap limits, which was implemented on December 31, 2018.limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. TheAlthough subject to change depending on conditions in the financial markets, the Liquidity AB provides guidance on

maintaining appropriate funding gaps for three-month (-10 percent to -20 percent) and one-year (-25 percent to -35 percent) maturity horizons. The Finance Agency's supervisory letter set forth initial funding gap percentage limits. As of September 30, 2019,2020, we were operating within those limits.

We also meet operational and contingency liquidity requirements. We satisfy the operational liquidity requirement by both meeting a contingency liquidity requirement, discussed below, and because we are able to adequately access the capital markets to issue debt. In addition, we focus on maintaining an adequate liquidity balance and a funding balance between our financial assets and financial liabilities.

Contingency liquidity risk is the potential inability to meet liquidity needs because our access to the capital markets to issue Consolidated Obligations is restricted or suspended for a period of time due to a market disruption, operational failure, or real or perceived credit quality problems. We continued to hold an ample amount of liquidity reserves to protect against contingency liquidity risk. The following table presents the components of the contingency liquidity requirement.
(In millions)September 30, 2019 December 31, 2018
Contingency Liquidity Requirement   
Total Contingency Liquidity Reserves (1)
$49,218
 $34,808
Total Requirement (2)
(25,451) (18,745)
Excess Contingency Liquidity Available$23,767
 $16,063

(1)Includes, among others, cash, overnight Federal funds, overnight deposits, self-liquidating term Federal funds, 95 percent of the market value of available-for-sale negotiable securities, and 75 percent of the market value of certain held-to-maturity obligations, including obligations of the United States, U.S. government agency obligations and MBS.

(2)Includes net liabilities maturing in the next seven business days, assets traded not yet settled, Advance commitments outstanding, Advances maturing in the next seven business days, and a three percent hypothetical increase in Advances.

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

(In millions)September 30, 2019 December 31, 2018(In millions)September 30, 2020December 31, 2019
Deposit Reserve Requirement   Deposit Reserve Requirement
Total Eligible Deposit Reserves$68,358
 $66,643
Total Eligible Deposit Reserves$42,407 $61,590 
Total Member Deposits(840) (664)Total Member Deposits(1,239)(942)
Excess Deposit Reserves$67,518
 $65,979
Excess Deposit Reserves$41,168 $60,648 

Contractual Obligations
The following table summarizes our contractual obligations at September 30, 2019.2020. We believe that, as in the past, we will continue to have sufficient liquidity, including from access to the debt markets to issue Consolidated Obligations, to satisfy these obligations on a timely basis.
(In millions)< 1 year1 < 3 years3 < 5 years> 5 yearsTotal
Contractual Obligations     
Long-term debt (Bonds) - par (1)
$27,673 $6,345 $3,845 $3,515 $41,378 
Operating leases (include premises and equipment)1 2 2 1 6 
Mandatorily redeemable capital stock12 2 2 1 17 
Commitments to fund mortgage loans145 — — — 145 
Pension and other postretirement benefit obligations2 5 5 35 47 
Total Contractual Obligations$27,833 $6,354 $3,854 $3,552 $41,593 
(1)Does not include Discount Notes and contractual interest payments related to Bonds. Total is based on contractual maturities; the actual timing of payments could be affected by factors affecting redemptions.
(In millions)< 1 year 1 < 3 years 3 < 5 years > 5 years Total
Contractual Obligations         
Long-term debt (Bonds) - par (1)
$22,924
 $12,713
 $4,776
 $4,110
 $44,523
Operating leases (include premises and equipment)1
 3
 2
 2
 8
Mandatorily redeemable capital stock15
 2
 8
 1
 26
Commitments to fund mortgage loans738
 —
 —
 —
 738
Pension and other postretirement benefit obligations2
 5
 5
 29
 41
Total Contractual Obligations$23,680
 $12,723
 $4,791
 $4,142
 $45,336

(1)Does not include Discount Notes and contractual interest payments related to Bonds. Total is based on contractual maturities; the actual timing of payments could be affected by factors affecting redemptions.


Off-Balance Sheet Arrangements
The following table summarizes our off-balance sheet items at September 30, 2019.2020. For more information, see Note 1915 of the Notes to Unaudited Financial Statements.
(In millions)< 1 year1 < 3 years3 < 5 years> 5 yearsTotal
Off-balance sheet items (1)
     
Standby Letters of Credit$21,902 $1,022 $86 $1 $23,011 
Standby bond purchase agreements29 37 — — 66 
Consolidated Obligations traded, not yet settled— — 124 — 124 
Total off-balance sheet items$21,931 $1,059 $210 $1 $23,201 
(1)Represents notional amount of off-balance sheet obligations.

77
(In millions)< 1 year 1 < 3 years 3 < 5 years > 5 years Total
Off-balance sheet items (1)
         
Standby Letters of Credit$15,039
 $835
 $215
 $1
 $16,090
Standby bond purchase agreements21
 55
 —
 —
 76
Consolidated Obligations traded, not yet settled20
 —
 —
 —
 20
Total off-balance sheet items$15,080
 $890
 $215
 $1
 $16,186
Table of Contents
(1)Represents notional amount of off-balance sheet obligations.

Member Concentration Risk

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

Operational Risks

There were no material developments regarding our operational risk exposure during the first nine months of 2019.2020.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Information required by this Item is set forth under the caption “Quantitative and Qualitative Disclosures About Risk Management” in Part I, Item 2, of this Report.


Item 4.Controls and Procedures.

Item 4.Controls and Procedures.


DISCLOSURE CONTROLS AND PROCEDURES

As of September 30, 2019,2020, the FHLB's management, including its principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, these two officers each concluded that, as of September 30, 2019,2020, the FHLB maintained effective disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files under the Exchange Act is (1) accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of September 30, 2019,2020, the FHLB's management, including its principal executive officer and principal financial officer, evaluated the FHLB's internal control over financial reporting. Based upon that evaluation, these two officers each concluded that there were no changes in the FHLB's internal control over financial reporting that occurred during the quarter ended September 30, 20192020 that materially affected, or are reasonably likely to materially affect, the FHLB's internal control over financial reporting.



PART II - OTHER INFORMATION

Item 1A.
Item 1A.Risk Factors.


For a discussion of our risk factors, see Part I, Item 1A. "Risk Factors" in our 20182019 Annual Report on Form 10-K. ThereOther than the risk factor noted below, there have been no material changes from the risk factors in our 20182019 Annual Report on Form 10-K.

Other External Risk. Natural disasters, pandemics, terrorist attacks, or other catastrophic events could adversely affect our operations, business activities, results of operations and financial condition.

Natural disasters, pandemics or other widespread health emergencies (such as the recent outbreak of COVID-19), terrorist attacks, or other unanticipated or catastrophic events could create economic and financial disruptions and uncertainties, which may lead to reduced demand for Advances and an increased risk of credit losses and may adversely affect our cost of funding or access to funding. These events may also lead to operational difficulties that could adversely affect the ability of the FHLBanks and the Office of Finance to conduct and manage their businesses. Any of these factors could adversely affect our business activities and results of operations.
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In particular, the current COVID-19 pandemic temporarily disrupted the credit markets in which we operate, and the decline in interest rates has affected, or may in the future adversely affect, the fair values of some of our assets, the valuation of collateral, and our net income and capital. Many businesses in our district and across the U.S. suspended or modified operations for a period of time in an attempt to slow the spread of the virus, resulting in higher unemployment claims. Ultimately, the slowdown in economic activity caused by the COVID-19 pandemic could reduce demand at our member institutions, which could impact members’ demand for our products and services and have an adverse effect on our profitability and financial condition. It could also lead to a devaluation of our assets, the collateral pledged by members to secure Advances and other extensions of credit, or our MPP portfolio, all of which could have an adverse impact on our financial condition and results of operations, including as a result of reduced business volumes, reduced income or credit losses. Market volatility and economic stress during the COVID-19 pandemic may adversely affect the FHLBanks’ access to the debt markets and possibly affect our liquidity. Our decision to have most employees work remotely could create additional cybersecurity risks and operational challenges that could affect our ability to conduct business or increase the risk of operational incidents and errors. In addition, we rely on vendors and other third parties to perform certain services, and if a critical vendor or third party experiences a failure or any interruption to their business due to the COVID-19 pandemic, we may be unable to conduct and manage our business effectively.

The outlook for the remainder of 2020 is uncertain, and there is a possibility that the Federal Reserve will keep interest rates low or even use negative interest rates, which could significantly affect our business and profitability.

Item 6.    Exhibits.
Item 2.
Exhibit
Number (1)
Unregistered SalesDescription of Equity Securities and Use of Proceeds.exhibitDocument filed or
furnished, as indicated below

From time to time the FHLB provides Letters of Credit in the ordinary course of business to support members' obligations issued in support of unaffiliated, third-party offerings of notes, bonds or other securities. The FHLB provided $2.6 million of such credit support during the three months ended September 30, 2019. To the extent that these Letters of Credit are securities for purposes of the Securities Act of 1933, their issuance is exempt from registration pursuant to Section 3(a)(2) thereof.


Item 6.
Exhibits.

(a)
Filed Herewith
Filed Herewith
Furnished Herewith
101.INSXBRL Instance DocumentThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCHXBRL Taxonomy Extension Schema DocumentFiled Herewith
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled Herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled Herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled Herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled Herewith
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)Filed Herewith

See Index(1)     Numbers coincide with Item 601 of ExhibitsRegulation S-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 7th12th day of November 2019.2020.

FEDERAL HOME LOAN BANK OF CINCINNATI
(Registrant)


By: /s/ Andrew S. Howell
Andrew S. Howell
President and Chief Executive Officer
(principal executive officer)
By: /s/ Andrew S. Howell
Andrew S. Howell
President and Chief Executive Officer
(principal executive officer)
By: /s/ Stephen J. Sponaugle
Stephen J. Sponaugle
Executive Vice President - Chief Financial Officer
(principal financial officer)


INDEX OF EXHIBITS
80
Exhibit
Number (1)
Description of exhibit
Document filed or
furnished, as indicated below
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
Filed Herewith
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
Filed Herewith
32
Section 1350 Certifications
Furnished Herewith
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema DocumentFiled Herewith
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled Herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled Herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled Herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled Herewith
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)Filed Herewith

(1)Numbers coincide with Item 601 of Regulation S-K.



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