UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020
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 April 30,October 31, 2020, the registrant had 47,608,73528,023,930 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 - March 31,September 30, 2020 and December 31, 2019
3
Statements of Income - Three and nine months ended March 31,September 30, 2020 and 2019
4
Statements of Comprehensive Income - Three and nine months ended March 31,September 30, 2020 and 2019
5
Statements of Capital - Three and nine months ended March 31,September 30, 2020 and 2019
6
Statements of Cash Flows - ThreeNine months ended March 31,September 30, 2020 and 2019
7
Notes to Unaudited Financial Statements
9
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
4244
Item 3.Quantitative and Qualitative Disclosures About Market Risk
7278
Item 4.Controls and Procedures
7278
PART II - OTHER INFORMATION
Item 1A.Risk Factors
7378
Item 6.Exhibits
7479
Signatures
7580

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 
 March 31, 2020 December 31, 2019
ASSETS   
Cash and due from banks$3,923,890
 $20,608
Interest-bearing deposits780,081
 550,160
Securities purchased under agreements to resell183,504
 2,348,584
Federal funds sold—
 4,833,000
Investment securities:   
Trading securities11,988,073
 11,615,693
Available-for-sale securities142,074
 1,542,185
Held-to-maturity securities (includes $0 and $0 pledged as collateral at March 31, 2020 and December 31 2019, respectively, that may be repledged) (a)
12,570,626
 13,499,319
Total investment securities24,700,773
 26,657,197
Advances (includes $5,385 and $5,238 at fair value under fair value option at March 31, 2020 and December 31 2019, respectively)80,424,950
 47,369,573
Mortgage loans held for portfolio, net of allowance for credit losses of $297 and $711 at March 31, 2020 and December 31 2019, respectively11,923,078
 11,235,353
Accrued interest receivable197,718
 182,252
Derivative assets352,410
 267,165
Other assets23,440
 27,667
TOTAL ASSETS$122,509,844
 $93,491,559
LIABILITIES   
Deposits$1,185,476
 $951,296
Consolidated Obligations:   
Discount Notes (includes $9,319,663 and $12,386,974 at fair value under fair value option at March 31, 2020 and December 31 2019, respectively)79,659,562
 49,084,219
Bonds (includes $4,359,486 and $4,757,177 at fair value under fair value option at March 31, 2020 and December 31 2019, respectively)34,668,308
 38,439,724
Total Consolidated Obligations114,327,870
 87,523,943
Mandatorily redeemable capital stock571,546
 21,669
Accrued interest payable98,157
 126,091
Affordable Housing Program payable118,120
 115,295
Derivative liabilities22,691
 1,310
Other liabilities310,713
 307,499
Total liabilities116,634,573
 89,047,103
Commitments and contingencies

 

CAPITAL   
Capital stock Class B putable ($100 par value); issued and outstanding shares: 47,394 shares at March 31, 2020 and 33,664 shares at December 31, 20194,739,413
 3,366,428
Retained earnings:   
Unrestricted690,615
 648,374
Restricted461,979
 446,048
Total retained earnings1,152,594
 1,094,422
Accumulated other comprehensive loss(16,736) (16,394)
Total capital5,875,271
 4,444,456
TOTAL LIABILITIES AND CAPITAL$122,509,844
 $93,491,559
(a)Fair values: $11,275,891 and $13,501,207 at September 30, 2020 and December 31, 2019, respectively.
(a)
Fair values: $12,685,449 and

$13,501,207 at March 31, 2020 and December 31, 2019, 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 March 31,(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
2020 2019 2020 201920202019
INTEREST INCOME:   INTEREST INCOME:   
Advances$172,167
 $402,777
Advances$63,974  $267,537 $394,578 $991,077 
Prepayment fees on Advances, net4,274
 15
Prepayment fees on Advances, net7,509  724 25,103 904 
Interest-bearing deposits3,350
 1,544
Interest-bearing deposits442  3,823 4,202 9,104 
Securities purchased under agreements to resell10,154
 18,825
Securities purchased under agreements to resell290  13,271 10,680 54,319 
Federal funds sold28,526
 63,829
Federal funds sold1,541  62,322 30,621 185,343 
Investment securities:   Investment securities:
Trading securities67,904
 5,171
Trading securities66,281  61,653 201,876 112,213 
Available-for-sale securities3,396
 13,559
Available-for-sale securities271  3,284 4,286 21,697 
Held-to-maturity securities68,304
 106,473
Held-to-maturity securities36,516 94,740 153,199 305,192 
Total investment securities139,604
 125,203
Total investment securities103,068 159,677 359,361 439,102 
Mortgage loans held for portfolio89,257
 88,665
Mortgage loans held for portfolio62,429  83,506 225,837 257,758 
Loans to other FHLBanks60
 20
Loans to other FHLBanks0  0 60 70 
Total interest income447,392
 700,878
Total interest income239,253  590,860 1,050,442 1,937,677 
INTEREST EXPENSE:   INTEREST EXPENSE:   
Consolidated Obligations:   Consolidated Obligations:
Discount Notes176,124
 311,710
Discount Notes26,299  238,574 285,755 794,469 
Bonds185,987
 262,863
Bonds119,748  260,453 435,543 823,376 
Total Consolidated Obligations362,111
 574,573
Total Consolidated Obligations146,047 499,027 721,298 1,617,845 
Deposits2,976
 3,698
Deposits174  4,337 3,348 12,008 
Loans from other FHLBanksLoans from other FHLBanks0 3 0 3 
Mandatorily redeemable capital stock190
 349
Mandatorily redeemable capital stock(76) 254 978 896 
Total interest expense365,277
 578,620
Total interest expense146,145  503,621 725,624 1,630,752 
NET INTEREST INCOME82,115
 122,258
NET INTEREST INCOME93,108  87,239 324,818 306,925 
NON-INTEREST INCOME (LOSS):   NON-INTEREST INCOME (LOSS):   
Net gains (losses) on investment securities372,406
 22,126
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(50,830) (17,181)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(293,966) (25,959)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, net3,079
 2,615
Other, net544  587 1,529 1,507 
Total non-interest income (loss)30,689
 (18,399)Total non-interest income (loss)(7,471) 4,294 8,193 (16,764)
NON-INTEREST EXPENSE:   NON-INTEREST EXPENSE:   
Compensation and benefits13,340
 12,659
Compensation and benefits12,356  11,173 37,647 35,208 
Other operating expenses6,103
 5,477
Other operating expenses4,789  5,498 15,860 16,443 
Finance Agency1,628
 1,696
Finance Agency1,629  1,695 4,886 5,086 
Office of Finance1,258
 1,366
Office of Finance1,331  1,204 4,034 3,684 
Other1,951
 1,225
Other1,766  2,273 7,742 7,223 
Total non-interest expense24,280
 22,423
Total non-interest expense21,871  21,843 70,169 67,644 
INCOME BEFORE ASSESSMENTS88,524
 81,436
INCOME BEFORE ASSESSMENTS63,766  69,690 262,842 222,517 
Affordable Housing Program assessments8,871
 8,179
Affordable Housing Program assessments6,369  6,995 26,382 22,342 
NET INCOME$79,653
 $73,257
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,
2020201920202019
Net income$57,397 $62,695 $236,460 $200,175 
Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities3,504 (192)2,621 (442)
Pension and postretirement benefits572 459 1,716 1,376 
Total other comprehensive income (loss) adjustments4,076 267 4,337 934 
Comprehensive income$61,473 $62,962 $240,797 $201,109 
(In thousands)Three Months Ended March 31,
 2020 2019
Net income$79,653
 $73,257
Other comprehensive income adjustments:   
Net unrealized gains (losses) on available-for-sale securities(905) 187
Pension and postretirement benefits563
 401
Total other comprehensive income (loss) adjustments(342) 588
Comprehensive income$79,311
 $73,845

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


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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
SharesPar ValueUnrestrictedRestrictedTotalLossCapital
Shares Par Value Unrestricted Restricted Total Loss Capital
BALANCE, DECEMBER 31, 201843,205
 $4,320,459
 $631,971
 $390,829
 $1,022,800
 $(13,043) $5,330,216
BALANCE, DECEMBER 31, 201843,205 $4,320,459 $631,971 $390,829 $1,022,800 $(13,043)$5,330,216 
Comprehensive income (loss)    58,605
 14,652
 73,257
 588
 73,845
Comprehensive income (loss)160,140 40,035 200,175 934 201,109 
Proceeds from sale of capital stock2,281
 228,106
         228,106
Proceeds from sale of capital stock5,233 523,257 523,257 
Repurchase of capital stock(4,886) (488,544)         (488,544)Repurchase of capital stock(12,386)(1,238,544)(1,238,544)
Net shares reclassified to mandatorily
redeemable capital stock
(10) (1,040)         (1,040)Net shares reclassified to mandatorily redeemable capital stock(77)(7,671)(7,671)
Dividends on capital stock:             
Cash dividends on capital stock    (65,473)   (65,473)   (65,473)Cash dividends on capital stock(168,281)(168,281)(168,281)
BALANCE, MARCH 31, 201940,590
 $4,058,981
 $625,103
 $405,481
 $1,030,584
 $(12,455) $5,077,110
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, 201933,664
 $3,366,428
 $648,374
 $446,048
 $1,094,422
 $(16,394) $4,444,456
BALANCE, DECEMBER 31, 201933,664 $3,366,428 $648,374 $446,048 $1,094,422 $(16,394)$4,444,456 
Adjustment for cumulative effect of
accounting change		    366
 —
 366
   366
Adjustment for cumulative effect of accounting change366 366 366 
Comprehensive income (loss) 
  
 63,722
 15,931
 79,653
 (342) 79,311
Comprehensive income (loss)  189,168 47,292 236,460 4,337 240,797 
Proceeds from sale of capital stock20,729
 2,072,862
         2,072,862
Proceeds from sale of capital stock21,256 2,125,590  2,125,590 
Repurchase of capital stock(1,500) (150,000)         (150,000)Repurchase of capital stock(20,000)(2,000,000)(2,000,000)
Net shares reclassified to mandatorily
redeemable capital stock
(5,499) (549,877)         (549,877)Net shares reclassified to mandatorily redeemable capital stock(5,575)(557,519) (557,519)
Dividends on capital stock:             
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    (21,847)   (21,847)   (21,847)Cash dividends on capital stock  (65,490)(65,490) (65,490)
BALANCE, MARCH 31, 202047,394
 $4,739,413
 $690,615
 $461,979
 $1,152,594
 $(16,736) $5,875,271
BALANCE, SEPTEMBER 30, 2020BALANCE, SEPTEMBER 30, 202029,345 $2,934,499 $788,951 $493,340 $1,282,291 $(12,057)$4,204,733 

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)Three Months Ended March 31,
 2020 2019
OPERATING ACTIVITIES:   
Net income$79,653
 $73,257
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Depreciation and amortization29,025
 37,144
Net change in derivative and hedging activities(204,187) (58,808)
Net change in fair value adjustments on trading securities(372,406) (22,126)
Net change in fair value adjustments on financial instruments held under fair value option50,830
 17,181
Other adjustments177
 177
Net change in:   
Accrued interest receivable(15,359) (61,925)
Other assets3,741
 4,977
Accrued interest payable(28,574) 13,051
Other liabilities6,632
 (2,705)
Total adjustments(530,121) (73,034)
Net cash provided by (used in) operating activities(450,468) 223
    
INVESTING ACTIVITIES:   
Net change in:   
Interest-bearing deposits(496,833) (473,043)
Securities purchased under agreements to resell2,165,080
 1,573,412
Federal funds sold4,833,000
 (1,027,000)
Premises, software, and equipment(263) (455)
Trading securities:   
Proceeds from maturities27
 31
Purchases—
 (4,738,086)
Available-for-sale securities:   
Proceeds from maturities1,810,000
 2,350,000
Purchases(400,000) (1,026,000)
Held-to-maturity securities:   
Proceeds from maturities958,486
 538,649
Purchases(34,234) (622,454)
Advances:   
Repaid256,213,831
 410,450,110
Originated(288,877,977) (410,455,274)
Mortgage loans held for portfolio:   
Principal collected539,328
 226,964
Purchases(1,231,879) (249,754)
Net cash provided by (used in) investing activities(24,521,434) (3,452,900)
    
    
    
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)Three Months Ended March 31,
 2020 2019
FINANCING ACTIVITIES:   
Net change in deposits and pass-through reserves$233,060
 $102,205
Net proceeds (payments) on derivative contracts with financing elements(303) (92)
Net proceeds from issuance of Consolidated Obligations:   
Discount Notes150,972,042
 125,632,457
Bonds9,381,318
 11,340,789
Payments for maturing and retiring Consolidated Obligations:   
Discount Notes(120,420,948) (128,399,569)
Bonds(13,191,000) (4,885,800)
Proceeds from issuance of capital stock2,072,862
 228,106
Payments for repurchase of capital stock(150,000) (488,544)
Payments for repurchase/redemption of mandatorily redeemable capital stock—
 (754)
Cash dividends paid(21,847) (65,473)
Net cash provided by (used in) financing activities28,875,184
 3,463,325
Net increase (decrease) in cash and due from banks3,903,282
 10,648
Cash and due from banks at beginning of the period20,608
 10,037
Cash and due from banks at end of the period$3,923,890
 $20,685
Supplemental Disclosures:   
Interest paid$388,791
 $535,427
Affordable Housing Program payments, net$6,046
 $3,266



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, 2019 filed with the Securities and Exchange Commission (SEC). Results for the threenine months ended March 31,September 30, 2020 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 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 2019 Annual Report on Form 10-K.

The FHLB did not hold any equity securities as of March 31, 2020 and December 31, 2019.

Reclassifications

Certain amounts in the 2019 financial statements have been reclassified to conform to the presentation as of March 31, 2020. 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, when evaluatingwhich 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 for credit losses.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 losseslosses.

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

Troubled Debt Restructuring Relief. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs) was signed into law. Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of the coronavirus pandemic (COVID-19) granted to borrowers that were current as of December 31, 2019. TDR relief 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 Reform on Financial Reporting. On March 12, 2020, the Financial Accounting Standards Board (FASB) issued temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale and/or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately for the FHLB, and the amendments may be applied prospectively through December 31, 2022. The FHLB is inplans to elect the processmajority of evaluating the guidance,optional expedients and itsexceptions provided; however, the effect on the FHLB's financial condition, results of operations and cash flows has not yet been determined.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. On August 29, 2018, 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 became effective for the FHLB for the interim and annual periods beginning on January 1, 2020. The guidance did 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 will adopt this guidance for the year endedending 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 became effective for the FHLB for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance affected the FHLB's disclosures, but did not have any effect on the FHLB's financial condition, results of operations, or cash flows.
Measurement of Credit Losses on Financial Instruments. On June 16, 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to immediately record the full amount of expected credit losses in their loan portfolios. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance also requires, among other things, credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses and expanded disclosure requirements. The guidance became effective for the FHLB for the interim and annual periods beginning on January 1, 2020. The guidance was applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective. The adoption of this guidance did not result in an allowance for credit losses for certain financial instruments including Advances, U.S. obligation/GSE investments, securities purchased under agreement to resell and other short-term investments given the specific terms, issuer guarantees, and/or collateralized/secured nature of the instruments. For mortgage loans held for portfolio, the adoption of this guidance did not have a material impact on the FHLB's financial condition, results of operations, or cash flows.


Note 3 - 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. FHFAFinance Agency regulations include a limit on the amount of unsecured credit the FHLB may extend to a counterparty. At March 31,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 March 31,September 30, 2020 and December 31, 2019. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of (in thousands) $599$107 and $0$20 as of March 31,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 March 31,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) $474$15 and $3,503 as of March 31,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, 2020 December 31, 2019
Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligations$9,152,799 $9,626,964 
GSE obligations2,147,291  1,988,259 
Total non-MBS11,300,090 11,615,223 
Mortgage-backed securities (MBS):   
U.S. obligation single-family MBS374  470 
Total$11,300,464  $11,615,693 
Fair ValueMarch 31, 2020 December 31, 2019
Non-mortgage-backed securities (non-MBS):   
U.S. Treasury obligations$9,860,650
 $9,626,964
GSE obligations2,126,978
 1,988,259
Total non-MBS11,987,628
 11,615,223
Mortgage-backed securities (MBS):   
U.S. obligation single-family MBS445
 470
Total$11,988,073
 $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 
 Three Months Ended March 31,
 2020 2019
Net gains (losses) on trading securities held at period end$372,406
 $22,126
Net gains (losses) on trading securities$372,406
 $22,126


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Available-for-Sale Securities

Table 3.3 - Available-for-Sale Securities by Major Security Types (in thousands)
 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 
 March 31, 2020
 
Amortized
Cost (1)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
GSE obligations$142,609
 $409
 $(944) $142,074
Total$142,609
 $409
 $(944) $142,074
        
 December 31, 2019
 
Amortized
Cost (1)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Certificates of deposit$1,410,000
 $111
 $—
 $1,410,111
GSE obligations131,815
 601
 (342) 132,074
Total$1,541,815
 $712
 $(342) $1,542,185
(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of (in thousands) $493 and $5,149 at March 31, 2020 and December 31, 2019.

(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of (in thousands) $647 and $5,149 at September 30, 2020 and December 31, 2019.


Table 3.4 summarizes the available-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 3.4 - Available-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)
 March 31, 2020
 Less than 12 Months 12 Months or more Total
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
GSE obligations$55,707
 $(604) $16,358
 $(340) $72,065
 $(944)
Total$55,707
 $(604) $16,358
 $(340) $72,065
 $(944)
            
 December 31, 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
GSE obligations$17,071
 $(126) $21,574
 $(216) $38,645
 $(342)
Total$17,071
 $(126) $21,574
 $(216) $38,645
 $(342)


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 
 March 31, 2020 December 31, 2019
Year of Maturity
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in 1 year or less$—
 $—
 $1,410,000
 $1,410,111
Due after 1 year through 5 years—
 —
 —
 —
Due after 5 years through 10 years128,773
 128,074
 119,771
 119,870
Due after 10 years13,836
 14,000
 12,044
 12,204
Total$142,609
 $142,074
 $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 3.6 - 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 
 March 31, 2020 December 31, 2019
Amortized cost of available-for-sale securities:   
Fixed-rate$142,609
 $1,541,815


The FHLB had 0 sales of securities out of its available-for-sale portfolio for the threenine months ended March 31,September 30, 2020 or 2019.2019.


Held-to-Maturity Securities

Table 3.7 - Held-to-Maturity Securities by Major Security Types (in thousands)
March 31, 2020September 30, 2020
Amortized Cost (1)
 
Gross Unrecognized Holding
Gains
 Gross Unrecognized Holding Losses Fair Value
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:       Non-MBS:
U.S. Treasury obligations$34,345
 $144
 $—
 $34,489
U.S. Treasury obligations$41,382 $6 $0 $41,388 
Total non-MBS34,345
 144
 —
 34,489
Total non-MBS41,382 6 0 41,388 
MBS:       MBS:    
U.S. obligation single-family MBS1,493,694
 57,446
 (373) 1,550,767
U.S. obligation single-family MBS1,253,606 42,523 (70)1,296,059 
GSE single-family MBS4,232,995
 116,453
 (2,558) 4,346,890
GSE single-family MBS3,461,029 117,246 0 3,578,275 
GSE multi-family MBS6,809,592
 28
 (56,317) 6,753,303
GSE multi-family MBS6,374,582 3,302 (17,715)6,360,169 
Total MBS12,536,281
 173,927
 (59,248) 12,650,960
Total MBS11,089,217 163,071 (17,785)11,234,503 
Total$12,570,626
 $174,071
 $(59,248) $12,685,449
Total$11,130,599 $163,077 $(17,785)$11,275,891 
       
December 31, 2019 December 31, 2019
Amortized Cost (1)
 
Gross Unrecognized Holding
Gains
 Gross Unrecognized Holding Losses Fair Value
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:       Non-MBS:
U.S. Treasury obligations$35,171
 $5
 $—
 $35,176
U.S. Treasury obligations$35,171 $5 $0 $35,176 
Total non-MBS35,171
 5
 —
 35,176
Total non-MBS35,171 5 0 35,176 
MBS:       MBS:   
U.S. obligation single-family MBS1,670,783
 13,499
 (239) 1,684,043
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 single-family MBS4,500,471 40,386 (24,072)4,516,785 
GSE multi-family MBS7,292,894
 54
 (27,745) 7,265,203
GSE multi-family MBS7,292,894 54 (27,745)7,265,203 
Total MBS13,464,148
 53,939
 (52,056) 13,466,031
Total MBS13,464,148 53,939 (52,056)13,466,031 
Total$13,499,319
 $53,944
 $(52,056) $13,501,207
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) $18,169 and $20,365 as of March 31, 2020 and December 31, 2019.
(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 
 March 31, 2020 December 31, 2019
Premiums$24,532
 $32,071
Discounts(10,898) (13,996)
Net purchased premiums$13,634
 $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 
 March 31, 2020 December 31, 2019
Year of Maturity
Amortized Cost (1)
 Fair Value 
Amortized Cost (1)
 Fair Value
Non-MBS:       
Due in 1 year or less$34,345
 $34,489
 $35,171
 $35,176
Due after 1 year through 5 years—
 —
 —
 —
Due after 5 years through 10 years—
 —
 —
 —
Due after 10 years—
 —
 —
 —
Total non-MBS34,345
 34,489
 35,171
 35,176
MBS (2)
12,536,281
 12,650,960
 13,464,148
 13,466,031
Total$12,570,626
 $12,685,449
 $13,499,319
 $13,501,207
(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 3.10 - 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 
 March 31, 2020 December 31, 2019
Amortized cost of non-MBS:   
Fixed-rate$34,345
 $35,171
Total amortized cost of non-MBS34,345
 35,171
Amortized cost of MBS:   
Fixed-rate5,135,315
 5,438,532
Variable-rate7,400,966
 8,025,616
Total amortized cost of MBS12,536,281
 13,464,148
Total$12,570,626
 $13,499,319


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 threenine months ended March 31,September 30, 2020 and 2019, the FHLB did 0t sell any held-to-maturity securities.

Allowance for Credit Losses on Available-for-Sale and Held-to-Maturity Securities

The FHLB evaluates available-for-sale and held-to-maturity investment securities for credit losses on a quarterly basis. The FHLB adopted new accounting guidance for the measurement of credit losses on financial instruments on January 1, 2020. 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 March 31,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 position). At March 31,September 30, 2020, certain0 available-for-sale securities were in an unrealized loss position. These losses are considered temporary as the FHLB expects to recover the entire amortized cost basis on these available-for-sale investment securities and does not intend to sell these securities nor considers it more likely than not that it will be required to sell these

securities before its anticipated recovery of each security's remaining amortized cost basis. Further, the FHLB has not experienced any payment defaults on the instruments. In addition, (in thousands) $142,074 of these securities carry a government guarantee. As a result, 0 allowance for credit losses was recorded on these available-for-sale securities at March 31,September 30, 2020.

The FHLB evaluates its held-to-maturity securities for impairment on a collective, or pooled basis, unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. As of March 31,September 30, 2020, the FHLB had 0t established an allowance for credit loss on any held-to-maturity securities because the securities: (1) were all highly-rated and/or had short remaining terms to maturity, (2) had not experienced, nor did the FHLB expect, any payment default on the instruments, and (3) in the case of U.S., GSE, or other agency obligations, carry an implicit or explicit government guarantee such that the FHLB considered the risk of nonpayment to be zero.


Note 4 - 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 4.1 - 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  
 March 31, 2020 December 31, 2019
Redemption TermAmount 
Weighted Average Interest
Rate
 Amount 
Weighted Average Interest
Rate
Due in 1 year or less$43,900,826
 0.79% $32,342,198
 1.78%
Due after 1 year through 2 years20,964,575
 1.48
 4,477,497
 2.19
Due after 2 years through 3 years4,293,578
 1.76
 1,996,647
 2.30
Due after 3 years through 4 years2,258,670
 2.38
 1,408,948
 2.50
Due after 4 years through 5 years1,445,267
 1.77
 1,765,323
 2.08
Thereafter7,065,586
 1.86
 5,273,531
 2.35
Total principal amount79,928,502
 1.18
 47,264,144
 1.94
Commitment fees(230)   (281)  
Discount on Affordable Housing Program (AHP) Advances(2,875)   (3,148)  
Premiums1,147
   1,221
  
Discounts(2,539)   (2,530)  
Hedging adjustments500,560
   109,929
  
Fair value option valuation adjustments and accrued interest385
   238
  
Total (1)
$80,424,950
   $47,369,573
  
(1)Carrying values exclude accrued interest receivable of (in thousands) $28,047 and $60,682 as of September 30, 2020 and December 31, 2019.

(1)Carrying values exclude accrued interest receivable of (in thousands) $66,712 and $60,682 as of March 31, 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 4.2 - 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 DateMarch 31, 2020 December 31, 2019
Due in 1 year or less$67,120,907
 $35,366,608
Due after 1 year through 2 years3,576,815
 4,982,222
Due after 2 years through 3 years1,501,086
 1,724,647
Due after 3 years through 4 years2,231,336
 1,381,718
Due after 4 years through 5 years1,432,772
 1,535,418
Thereafter4,065,586
 2,273,531
Total principal amount$79,928,502
 $47,264,144


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 4.3 - 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 DateMarch 31, 2020 December 31, 2019
Due in 1 year or less$46,537,576
 $33,451,448
Due after 1 year through 2 years21,272,075
 4,777,497
Due after 2 years through 3 years4,411,578
 2,129,647
Due after 3 years through 4 years1,888,670
 1,238,948
Due after 4 years through 5 years1,476,017
 1,611,073
Thereafter4,342,586
 4,055,531
Total principal amount$79,928,502
 $47,264,144


Table 4.4 - 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 
 March 31, 2020 December 31, 2019
Total fixed-rate (1)
$48,793,003
 $36,113,108
Total variable-rate (1)
31,135,499
 11,151,036
Total principal amount$79,928,502
 $47,264,144
(1)     Payment terms based on current interest rate terms, which reflect any option exercises or rate conversions that have occurred subsequent to the related Advance issuance.
(1)Payment terms based on current interest rate terms, which reflect any option exercises or rate conversions that have occurred subsequent to the related Advance issuance.

Credit Risk Exposure and Security Terms

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

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

▪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. In addition, community financial institutions are eligible to utilize expanded statutory collateral provisions for small business and agribusiness loans. The FHLB's capital stock owned by its member borrowers is also pledged as collateral. Collateral 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 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 March 31,September 30, 2020 and December 31, 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 threenine months ended March 31,September 30, 2020 or 2019.2019. At March 31,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.

Based upon the collateral held as security, its credit extension and collateral policies and the repayment history on Advances, the FHLB did not expect any credit losses on Advances as of March 31,September 30, 2020 and therefore, 0 allowance for credit losses on Advances was recorded. For the same reasons, the FHLB did 0t record any allowance for credit losses on Advances at December 31, 2019.

Advance Concentrations

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 %
March 31, 2020 December 31, 2019
 Principal % of Total Principal Amount of Advances  Principal % of Total Principal Amount of Advances
U.S. Bank, N.A.$24,374
 30% U.S. Bank, N.A.$13,874
 29%
JPMorgan Chase Bank, N.A.15,000
 19
 JPMorgan Chase Bank, N.A.4,500
 10
Third Federal Savings and Loan Association4,077
 5
 Third Federal Savings and Loan Association3,883
 8
Total$43,451
 54% Total$22,257
 47%


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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)
 March 31, 2020 December 31, 2019
Fixed rate medium-term single-family mortgage loans (1)
$743,427
 $773,575
Fixed rate long-term single-family mortgage loans10,900,312
 10,207,367
Total unpaid principal balance11,643,739
 10,980,942
Premiums257,731
 241,356
Discounts(2,062) (2,166)
Hedging basis adjustments (2)
23,967
 15,932
Total mortgage loans held for portfolio (3)
11,923,375
 11,236,064
Allowance for credit losses on mortgage loans(297) (711)
Mortgage loans held for portfolio, net$11,923,078
 $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) $38,473 and $36,739 at March 31, 2020 and December 31, 2019.

 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, 2020 and December 31, 2019.

Table 5.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)
March 31, 2020 December 31, 2019 September 30, 2020December 31, 2019
Conventional mortgage loans$11,423,290
 $10,750,526
Conventional mortgage loans$10,213,953 $10,750,526 
FHA mortgage loans220,449
 230,416
FHA mortgage loans199,403 230,416 
Total unpaid principal balance$11,643,739
 $10,980,942
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 
 March 31, 2020  December 31, 2019
 Principal % of Total  Principal % of Total
Union Savings Bank$3,911
 34% Union Savings Bank$3,574
 33%
Guardian Savings Bank FSB1,068
 9
 Guardian Savings Bank FSB1,004
 9
FirstBank804
 7
 FirstBank714
 7
The Huntington National Bank624
 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 
 Three Months Ended
 March 31, 2020
LRA at beginning of year$233,476
Additions13,776
Claims(41)
Scheduled distributions(4,377)
LRA at end of period$242,834

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. Tables 5.5 andTable 5.6 present the payment status of conventional mortgage loans andpresents other delinquency statistics.statistics of mortgage loans.

Table 5.5 - Credit Quality Indicator of Conventional Mortgage Loans (dollars in thousands)
 March 31, 2020
 Origination Year  
Payment status, at amortized cost (1):
Prior to 2016 2016 to March 31, 2020 Total
Past due 30-59 days$20,153
 $13,860
 $34,013
Past due 60-89 days4,154
 470
 4,624
Past due 90 days or more9,802
 1,630
 11,432
Total past due mortgage loans34,109
 15,960
 50,069
Current mortgage loans3,592,598
 8,058,309
 11,650,907
Total conventional mortgage loans$3,626,707
 $8,074,269
 $11,700,976
 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 March 31, 2020 excludes accrued interest receivable.


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 
 March 31, 2020
Amortized Cost:Conventional MPP Loans FHA Loans Total
In process of foreclosure (1)
$7,156
 $2,768
 $9,924
Serious delinquency rate (2)
0.10% 2.18% 0.14%
Past due 90 days or more still accruing interest (3)
$10,657
 $4,743
 $15,400
Loans on non-accrual status$2,168
 $—
 $2,168
      
 December 31, 2019
Recorded Investment:Conventional MPP Loans FHA Loans Total
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
 $—
 $1,902
(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(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.
(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 0t have any real estate owned at March 31,September 30, 2020 or December 31, 2019.

Evaluation of Current Expected Credit Losses

See Note 10 - Allowance for Credit Losses in the FHLB's 2019 Annual Report on Form 10-K, for information on the prior methodology for evaluating credit losses.

Mortgage Loans - FHA. 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 record 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 - Conventional MPP. 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 credit losses through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. The FHLB uses a model that employs a variety of methods, such as projected cash flows to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as both current and forecasted property values and interest rates as well as historical borrower behavior experience. The FHLB’s calculation of expected credit losses includes a forecast of home prices over the entire contractual terms of its conventional loans rather than a reversion to historical home price trends after an initial forecast period. The FHLB also incorporates associated credit enhancements to determine estimated expected credit losses.

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

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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 may estimate the fair value of this collateral by either applying an appropriate loss severity rate, using third-party estimates, or using a property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The FHLB will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.

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

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 table presents a rollforward of the allowance for credit losses on conventional mortgage loans.

Table 5.7 - Allowance for Credit Losses on Conventional Mortgage Loans (in thousands)
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 
 Three Months Ended March 31,
 2020 2019
Balance, beginning of period$711
 $840
Adjustment for cumulative effect of accounting changes(366) —
Net charge offs(48) (61)
Balance, end of period$297
 $779



Note 6 - 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 2019 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 6.1 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 6.1 - 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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 March 31, 2020
 Notional Amount of Derivatives Derivative Assets Derivative Liabilities
Derivatives designated as fair value hedging instruments:     
Interest rate swaps$11,947,085
 $5,467
 $231,639
Derivatives not designated as hedging instruments:     
Interest rate swaps24,987,214
 8,062
 10,291
Interest rate swaptions2,901,000
 5,945
 —
Forward rate agreements1,392,000
 1,558
 15,964
Mortgage delivery commitments764,574
 10,972
 823
Total derivatives not designated as hedging instruments30,044,788
 26,537
 27,078
Total derivatives before adjustments$41,991,873
 32,004
 258,717
Netting adjustments and cash collateral (1)
  320,406
 (236,026)
Total derivative assets and total derivative liabilities  $352,410
 $22,691
      
 December 31, 2019
 Notional Amount of Derivatives Derivative Assets Derivative 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
 —
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 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) $559,952 and $293,148 at March 31, 2020 and December 31, 2019. Cash collateral received and related accrued interest was (in thousands) $3,520 and $4,638 at March 31, 2020 and December 31, 2019.


Table 6.2 presents the impact of qualifying fair value hedging relationships on net interest income as well as the total interest income (expense) by product.


Table 6.2 - Impact of Fair Value Hedging Relationships on Net 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 March 31, 2020
 Advances Available-for-sale Securities Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income$172,167
 $3,396
 $(185,987)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
     
Interest income/expense:     
Net interest settlements$(1,714) $(274) $384
Gain (loss) on derivatives(404,311) (11,183) 2,523
Gain (loss) on hedged items390,464
 10,795
 (2,546)
Effect on net interest income$(15,561) $(662) $361
 Three Months Ended March 31, 2019
 Advances Available-for-sale securities Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income$402,777
 $13,559
 $(262,863)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
     
Interest income/expense:     
Net interest settlements$13,676
 $(15) $195
Gain (loss) on derivatives(52,594) (2,228) 1,042
Gain (loss) on hedged items51,621
 2,212
 (1,161)
Effect on net interest income$12,703
 $(31) $76
(1)Includes interest rate swaps.


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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 Nine Months Ended September 30, 2019
AdvancesAvailable-for-sale securitiesConsolidated 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 
(1)     Includes interest rate swaps.

Table 6.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items.

Table 6.3 - 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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  March 31, 2020
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 $12,277,322
 $499,638
 $922
 $500,560
Available-for-sale securities 142,609
 18,110
 —
 18,110
Consolidated Bonds 122,021
 3,254
 —
 3,254
         
  December 31, 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 $9,160,841
 $109,078
 $851
 $109,929
Available-for-sale securities 131,814
 7,314
 —
 7,314
Consolidated Bonds 210,696
 708
 —
 708
(1)Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

Table 6.4 presents net gains (losses) recorded in non-interest income (loss) on derivatives not designated as hedging instruments.


Table 6.4 - Net Gains (Losses) 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)$(238,339)
 Three Months Ended March 31,
 2020 2019
Derivatives not designated as hedging instruments:   
Economic hedges:   
Interest rate swaps$(367,001) $(6,530)
Interest rate swaptions92,077
 (12,476)
Forward rate agreements(25,884) (2,167)
Net interest settlements(11,282) (8,167)
Mortgage delivery commitments17,094
 3,356
Total net gains (losses) related to derivatives not designated as hedging instruments(294,996) (25,984)
Price alignment amount (1)
1,030
 25
Net gains (losses) on derivatives and hedging activities$(293,966) $(25,959)
(1)(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 March 31,September 30, 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 6.5 presents separately the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral. At March 31,September 30, 2020 and December 31, 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 6.5 - Offsetting of Derivative Assets and Derivative Liabilities (in thousands)
 March 31, 2020
 Derivative Instruments Meeting Netting Requirements    
 Gross Recognized Amount 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$7,148
 $(7,100) $12,530
 $12,578
Cleared12,326
 327,506
 —
 339,832
Total
 

 

 $352,410
Derivative Liabilities:       
Uncleared$235,907
 $(230,003) $16,787
 $22,691
Cleared6,023
 (6,023) —
 —
Total
 

 

 $22,691
        
 December 31, 2019
 Derivative Instruments Meeting Netting Requirements    
 Gross Recognized Amount 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$16,637
 $(13,903) $2,819
 $5,553
Cleared12,739
 248,873
 —
 261,612
Total
 
 
 $267,165
Derivative Liabilities:       
Uncleared$53,533
 $(53,069) $846
 $1,310
Cleared471
 (471) —
 —
Total
 
 
 $1,310

(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 7 - Deposits

Table 7.1 - 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 
 March 31, 2020 December 31, 2019
Interest-bearing:   
Demand and overnight$1,126,033
 $906,028
Term49,800
 27,850
Other9,643
 7,179
Total interest-bearing1,185,476
 941,057
Non-interest bearing:   
Other—
 10,239
Total non-interest bearing—
 10,239
Total deposits$1,185,476
 $951,296



Note 8 - Consolidated Obligations

Table 8.1 - 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)
March 31, 2020$79,659,562
 $79,747,788
 0.74%
December 31, 2019$49,084,219
 $49,176,985
 1.56%
(1)Represents an implied rate without consideration of concessions.
(1)Represents an implied rate without consideration of concessions.

Table 8.2 - 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  
  March 31, 2020 December 31, 2019
Year of Original Contractual Maturity Amount Weighted Average Interest Rate Amount Weighted Average Interest Rate
Due in 1 year or less $20,409,565
 0.85% $18,259,565
 1.77%
Due after 1 year through 2 years 3,833,595
 2.36
 8,293,595
 1.96
Due after 2 years through 3 years 2,743,830
 2.43
 3,024,885
 2.41
Due after 3 years through 4 years 1,981,175
 2.99
 3,123,120
 2.62
Due after 4 years through 5 years 1,248,405
 2.74
 1,540,405
 2.73
Thereafter 4,359,000
 2.83
 4,139,000
 2.97
Total principal amount 34,575,570
 1.58
 38,380,570
��2.10
Premiums 58,791
   64,604
  
Discounts (23,793)   (24,335)  
Hedging adjustments 3,254
   708
  
Fair value option valuation adjustment and
   accrued interest
 54,486
   18,177
  
Total $34,668,308
   $38,439,724
  




Table 8.3 - 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 
 March 31, 2020 December 31, 2019
Principal Amount of Consolidated Bonds:   
Non-callable$31,297,570
 $32,953,570
Callable3,278,000
 5,427,000
Total principal amount$34,575,570
 $38,380,570
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Table 8.4 - 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 March 31, 2020 December 31, 2019
Due in 1 year or less $22,390,565
 $22,631,565
Due after 1 year through 2 years 4,055,595
 7,130,595
Due after 2 years through 3 years 2,713,830
 2,662,885
Due after 3 years through 4 years 1,962,175
 2,343,120
Due after 4 years through 5 years 1,160,405
 1,253,405
Thereafter 2,293,000
 2,359,000
Total principal amount $34,575,570
 $38,380,570


Table 8.5 - 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 
 March 31, 2020 December 31, 2019
Principal Amount of Consolidated Bonds:   
Fixed-rate$22,752,570
 $27,368,570
Variable-rate11,823,000
 11,012,000
Total principal amount$34,575,570
 $38,380,570



Note 9 - 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 9.1 - 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, 2019$115,295
Assessments (current year additions)8,871
Subsidy uses, net(6,046)
Balance at March 31, 2020$118,120



Note 10 - Capital
Note 10
 - Capital

Table 10.1 - 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 
 March 31, 2020 December 31, 2019
 Minimum Requirement Actual Minimum Requirement Actual
Risk-based capital$570,582
 $6,463,553
 $820,635
 $4,482,519
Capital-to-assets ratio (regulatory)4.00% 5.28% 4.00% 4.79%
Regulatory capital$4,900,394
 $6,463,553
 $3,739,662
 $4,482,519
Leverage capital-to-assets ratio (regulatory)5.00% 7.91% 5.00% 7.19%
Leverage capital$6,125,492
 $9,695,330
 $4,674,578
 $6,723,779


Restricted Retained Earnings. At March 31,September 30, 2020 and December 31, 2019 the FHLB had (in thousands) $461,979$493,340 and $446,048$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 an FHLBank may experience.

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Table 10.2 - 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, 2019$21,669
Capital stock subject to mandatory redemption reclassified from equity550,000
Capital stock previously subject to mandatory redemption reclassified to capital(123)
Balance, March 31, 2020$571,546


Table 10.3 - 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 March 31, 2020 December 31, 2019
Year 1 $224
 $371
Year 2  337
 298
Year 3 1,142
 1,129
Year 4  2,903
 2,955
Year 5  551,808
 1,931
Thereafter (1)
 650
 650
Past contractual redemption date due to remaining activity (2)
 14,482
 14,335
Total $571,546
 $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.

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Note 11 - Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in accumulated other comprehensive income (loss) for the three and nine months ended March 31,September 30, 2020 and 2019.

Table 11.1 - Accumulated Other Comprehensive Income (Loss) (in thousands)
Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, JUNE 30, 2019$(360)$(12,016)$(12,376)
Other comprehensive income before reclassification:
Net unrealized gains (losses)(192)0 (192)
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits0 459 459 
Net current period other comprehensive income (loss)(192)459 267 
BALANCE, SEPTEMBER 30, 2019$(552)$(11,557)$(12,109)
BALANCE, JUNE 30, 2020$(513)$(15,620)$(16,133)
Other comprehensive income before reclassification:
Net unrealized gains (losses)3,504 0 3,504 
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits0 572 572 
Net current period other comprehensive income (loss)3,504 572 4,076 
BALANCE, SEPTEMBER 30, 2020$2,991 $(15,048)$(12,057)
Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities Pension and postretirement benefits Total accumulated other comprehensive income (loss)
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)187
 —
 187
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—
 401
 401
Amortization - pension and postretirement benefits01,376 1,376 
Net current period other comprehensive income (loss)187
 401
 588
Net current period other comprehensive income (loss)(442)1,376 934 
BALANCE, MARCH 31, 2019$77
 $(12,532) $(12,455)
BALANCE, SEPTEMBER 30, 2019BALANCE, SEPTEMBER 30, 2019$(552)$(11,557)$(12,109)
     
     
BALANCE, DECEMBER 31, 2019$370
 $(16,764) $(16,394)BALANCE, DECEMBER 31, 2019$370 $(16,764)$(16,394)
Other comprehensive income before reclassification:     Other comprehensive income before reclassification:
Net unrealized gains (losses)(905) —
 (905)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 benefits—
 563
 563
Amortization - pension and postretirement benefits0 1,716 1,716 
Net current period other comprehensive income (loss)(905) 563
 (342)Net current period other comprehensive income (loss)2,621 1,716 4,337 
BALANCE, MARCH 31, 2020$(535) $(16,201) $(16,736)
BALANCE, SEPTEMBER 30, 2020BALANCE, SEPTEMBER 30, 2020$2,991 $(15,048)$(12,057)
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Note 12 - 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 $1,518,000$1,594,000 and $1,968,000$1,485,000 in the three months ended March 31,September 30, 2020 and 2019, respectively.respectively, and $4,630,000 and $5,422,000 in the nine months ended September 30, 2020 and 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 $538,000$271,000 and $497,000$252,000 in the three months ended March 31,September 30, 2020 and 2019, respectively.respectively, and $1,133,000 and $1,058,000 in the nine months ended September 30, 2020 and 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 12.1 - 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 March 31,
 
Defined Benefit
Retirement Plan
 Postretirement Benefits Plan
 2020 2019 2020 2019
Net Periodic Benefit Cost       
Service cost$275
 $217
 $2
 $4
Interest cost331
 383
 36
 45
Amortization of net loss563
 401
 —
 —
Net periodic benefit cost$1,169
 $1,001
 $38
 $49


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



Note 13 - 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 13.1 - 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 

 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 
 Three Months Ended March 31,
 
Traditional Member
Finance
 MPP Total
2020     
Net interest income$64,649
 $17,466
 $82,115
Non-interest income (loss)(23,580) 54,269
 30,689
Non-interest expense21,107
 3,173
 24,280
Income before assessments19,962
 68,562
 88,524
Affordable Housing Program assessments2,015
 6,856
 8,871
Net income$17,947
 $61,706
 $79,653
2019     
Net interest income$90,395
 $31,863
 $122,258
Non-interest income (loss)(11,955) (6,444) (18,399)
Non-interest expense19,390
 3,033
 22,423
Income before assessments59,050
 22,386
 81,436
Affordable Housing Program assessments5,940
 2,239
 8,179
Net income$53,110
 $20,147
 $73,257
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Table 13.2 - 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
March 31, 2020$110,547,932
 $11,961,912
 $122,509,844
December 31, 201981,064,206
 12,427,353
 93,491,559



Note 14 - 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. The FHLB did not have any transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the threenine months ended March 31,September 30, 2020 or 2019.
2019.


Table 14.1 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 14.2 for further details about the financial assets and liabilities held at fair value on either a recurring or nonrecurring basis.

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Table 14.1 - 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.

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Table of Contents
 March 31, 2020
   Fair Value
Financial InstrumentsCarrying Value Total Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
Assets:           
Cash and due from banks$3,923,890
 $3,923,890
 $3,923,890
 $—
 $—
 $—
Interest-bearing deposits780,081
 780,081
 —
 780,081
 —
 —
Securities purchased under agreements to resell183,504
 183,506
 —
 183,506
 —
 —
Trading securities11,988,073
 11,988,073
 —
 11,988,073
 —
 —
Available-for-sale securities142,074
 142,074
 —
 142,074
 —
 —
Held-to-maturity securities12,570,626
 12,685,449
 —
 12,685,449
 —
 —
Advances (2)
80,424,950
 80,413,947
 —
 80,413,947
 —
 —
Mortgage loans held for portfolio, net11,923,078
 12,369,024
 —
 12,357,555
 11,469
 —
Accrued interest receivable197,718
 197,718
 —
 197,718
 —
 —
Derivative assets352,410
 352,410
 —
 32,004
 —
 320,406
Liabilities:           
Deposits1,185,476
 1,185,669
 —
 1,185,669
 —
 —
Consolidated Obligations:           
Discount Notes (3)
79,659,562
 79,719,001
 —
 79,719,001
 —
 —
Bonds (4)
34,668,308
 35,497,338
 —
 35,497,338
 —
 —
Mandatorily redeemable capital stock571,546
 571,546
 571,546
 —
 —
 —
Accrued interest payable98,157
 98,157
 —
 98,157
 —
 —
Derivative liabilities22,691
 22,691
 —
 258,717
 —
 (236,026)
(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) $5,385 of Advances recorded under the fair value option at March 31, 2020.
(3)Includes (in thousands) $9,319,663 of Consolidated Obligation Discount Notes recorded under the fair value option at March 31, 2020.
(4)
Includes (in thousands) $4,359,486 of Consolidated Obligation Bonds recorded under the fair value option at March 31, 2020.

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, 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$20,608
 $20,608
 $20,608
 $—
 $—
 $—
Interest-bearing deposits550,160
 550,160
 —
 550,160
 —
 —
Securities purchased under agreements to resell2,348,584

2,348,607
 —
 2,348,607
 —
 —
Federal funds sold4,833,000
 4,833,000
 —
 4,833,000
 —
 —
Trading securities11,615,693
 11,615,693
 —
 11,615,693
 —
 —
Available-for-sale securities1,542,185
 1,542,185
 —
 1,542,185
 —
 —
Held-to-maturity securities13,499,319
 13,501,207
 —
 13,501,207
 —
 —
Advances (2)
47,369,573
 47,458,028
 —
 47,458,028
 —
 —
Mortgage loans held for portfolio, net11,235,353
 11,437,180
 —
 11,424,857
 12,323
 —
Accrued interest receivable182,252
 182,252
 —
 182,252
 —
 —
Derivative assets267,165
 267,165
 —
 32,195
 —
 234,970
Liabilities:           
Deposits951,296
 951,343
 —
 951,343
 —
 —
Consolidated Obligations:           
Discount Notes (3)
49,084,219
 49,086,723
 —
 49,086,723
 —
 —
Bonds (4)
38,439,724
 38,832,230
 —
 38,832,230
 —
 —
Mandatorily redeemable capital stock21,669
 21,669
 21,669
 —
 —
 —
Accrued interest payable126,091
 126,091
 —
 126,091
 —
 —
Derivative liabilities1,310
 1,310
 —
 54,850
 —
 (53,540)
(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)

$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.
(4)
Includes (in thousands) $4,757,177 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2019.

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 2019 Annual Report on Form 10-K. There have been no significant changes in the valuation
methodologies during 2020.


38

Table of Contents
Fair Value Measurements.

Table 14.2 presents the fair value of financial assets and liabilities that are recorded on a recurring or nonrecurring basis at March 31,September 30, 2020 and December 31, 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 14.2 - 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 March 31, 2020
 Total   Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets         
Trading securities:         
U.S. Treasury obligations$9,860,650
 $—
 $9,860,650
 $—
 $—
GSE obligations2,126,978
 —
 2,126,978
 —
 —
U.S. obligation single-family MBS445
 —
 445
 —
 —
Total trading securities11,988,073
 —
 11,988,073
 —
 —
Available-for-sale securities:         
GSE obligations142,074
 —
 142,074
 —
 —
Total available-for-sale securities142,074
 —
 142,074
 —
 —
Advances5,385
 —
 5,385
 —
 —
Derivative assets:         
Interest rate related339,880
 —
 19,474
 —
 320,406
Forward rate agreements1,558
 —
 1,558
 —
 —
Mortgage delivery commitments10,972
 —
 10,972
 —
 —
Total derivative assets352,410
 —
 32,004
 —
 320,406
Total assets at fair value$12,487,942
 $—
 $12,167,536
 $—
 $320,406
          
Recurring fair value measurements - Liabilities         
Consolidated Obligations:         
Discount Notes$9,319,663
 $—
 $9,319,663
 $—
 $—
Bonds4,359,486
 —
 4,359,486
 —
 —
Total Consolidated Obligations13,679,149
 —
 13,679,149
 —
 —
Derivative liabilities:         
Interest rate related5,904
 —
 241,930
 —
 (236,026)
Forward rate agreements15,964
 —
 15,964
 —
 —
Mortgage delivery commitments823
 —
 823
 —
 —
Total derivative liabilities22,691
 —
 258,717
 —
 (236,026)
Total liabilities at fair value$13,701,840
 $—
 $13,937,866
 $—
 $(236,026)
(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, 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$9,626,964
 $—
 $9,626,964
 $—
 $—
GSE obligations1,988,259
 —
 1,988,259
 —
 —
U.S. obligation single-family MBS470
 —
 470
 —
 —
Total trading securities11,615,693
 —
 11,615,693
 —
 —
Available-for-sale securities:         
Certificates of deposit1,410,111
 —
 1,410,111
 —
 —
GSE obligations132,074
 —
 132,074
 —
 —
Total available-for-sale securities1,542,185
 —
 1,542,185
 —
 —
Advances5,238
 —
 5,238
 —
 —
Derivative assets:         
Interest rate related264,346
 —
 29,376
 —
 234,970
Forward rate agreements21
 —
 21
 —
 —
Mortgage delivery commitments2,798
 —
 2,798
 —
 —
Total derivative assets267,165
 —
 32,195
 —
 234,970
Total assets at fair value$13,430,281
 $—
 $13,195,311
 $—
 $234,970
          
Recurring fair value measurements - Liabilities         
Consolidated Obligations:         
Discount Notes$12,386,974
 $—
 $12,386,974
 $—
 $—
Bonds4,757,177
 —
 4,757,177
 —
 —
Total Consolidated Obligations17,144,151
 —
 17,144,151
 —
 —
Derivative liabilities:         
Interest rate related464
 —
 54,004
 —
 (53,540)
Forward rate agreements782
 —
 782
 —
 —
Mortgage delivery commitments64
 —
 64
 —
 —
Total derivative liabilities1,310
 —
 54,850
 —
 (53,540)
Total liabilities at fair value$17,145,461
 $—
 $17,199,001
 $—
 $(53,540)
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.

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

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


40
Table of 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 March 31,September 30, 2020 and 2019.


Table 14.3 – Fair Value Option - Financial Assets and Liabilities (in thousands)
 Three Months Ended March 31,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings2020 2019
Advances$147
 $100
Consolidated Discount Notes(14,026) —
Consolidated Bonds(36,951) (17,281)
Total net gains (losses)$(50,830) $(17,181)

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 threenine months ended March 31,September 30, 2020 or 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 14.4 – 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
 March 31, 2020 December 31, 2019
 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)
$5,000
 $5,385
 $385
 $5,000
 $5,238
 $238
Consolidated Discount Notes9,320,610
 9,319,663
 (947) 12,400,865
 12,386,974
 (13,891)
Consolidated Bonds4,305,000
 4,359,486
 54,486
 4,739,000
 4,757,177
 18,177
(1)At March 31, 2020 and December 31, 2019, none of the Advances were 90 days or more past due or had been placed on non-accrual status.

Table of Contents


Note 15 - Commitments and Contingencies


Table 15.1 - 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.
 March 31, 2020 December 31, 2019
Notional AmountExpire within one year Expire after one year Total Expire within one year Expire after one year Total
Standby Letters of Credit (1)
$14,690,822
 $1,094,601
 $15,785,423
 $15,143,075
 $1,062,105
 $16,205,180
Commitments for standby bond purchases (1)
26,285
 47,900
 74,185
 20,360
 55,150
 75,510
Commitments to purchase mortgage loans764,574
 —
 764,574
 936,269
 —
 936,269
Unsettled Consolidated Bonds, principal amount (2)
548,000
 —
 548,000
 —
 —
 —
Unsettled Consolidated Discount Notes, principal amount (2)
200,000
 —
 200,000
 —
 —
 —

(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.

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 16 - 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 March 31,September 30, 2020 or December 31, 2019. The following table details the average daily balance of lending and borrowing between the FHLB and other FHLBanks for the threenine months ended March 31,September 30, 2020 and 2019.

Table 16.1 - Lending and Borrowing Between the FHLB and Other FHLBanks (in thousands)
 Average Daily Balances for the Three Months Ended March 31,
 2020 2019
Loans to other FHLBanks$19,780
 $3,333
Average Daily Balances for the Nine Months Ended September 30,
 2020 2019
Loans to other FHLBanks$6,569  $3,846 
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 threenine months ended March 31,September 30, 2020, or 2019. The FHLB had 0 Consolidated Obligations transferred to other FHLBanks during these periods.


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Note 17 - 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 March 31,September 30, 2020 or December 31, 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 March 31,September 30, 2020 or December 31, 2019.

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Table 17.1 - 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 
 March 31, 2020 December 31, 2019
 Balance 
% of Total (1)
 Balance 
% of Total (1)
Advances$27,833
 34.8% $3,428
 7.3%
MPP126
 1.1
 122
 1.1
Regulatory capital stock1,188
 22.4
 176
 5.2
(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 17.2 - Stockholders Holding Five Percent or more of Regulatory Capital Stock (dollars in millions)
 Regulatory Capital Stock Advance MPP Unpaid
March 31, 2020Balance % of Total  Principal Principal Balance
JPMorgan Chase Bank, N.A.$1,183
 22% $15,000
 $—
U.S. Bank, N.A.1,015
 19
 24,374
 16
First Horizon Bank562
 11
 3,900
 —
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, 2019Balance % of Total Principal Principal Balance
JPMorgan Chase Bank, N.A.$675
 20% $4,500
 $—
U.S. Bank, N.A.485
 14
 13,874
 17


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 March 31,September 30, 2020 or December 31, 2019. The FHLB has executed standby bond purchase agreements with the Ohio Housing Finance Agency whereby the FHLB, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. During the first threenine months of 2020 and 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;

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

▪political, national, or world events, including acts of war, terrorism, natural disasters, pandemics, 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;
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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;

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

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

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

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

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

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

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

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

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

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


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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.
46
(Dollars in millions)March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019
STATEMENT OF CONDITION DATA AT PERIOD END:         
Total assets$122,510
 $93,492
 $100,211
 $96,424
 $103,378
Advances80,425
 47,370
 46,358
 42,869
 54,880
Mortgage loans held for portfolio11,923
 11,236
 10,885
 10,640
 10,520
Allowance for credit losses on mortgage loans (1)
—
 1
 1
 1
 1
Investments (2)
25,665
 34,389
 42,442
 42,444
 37,550
Consolidated Obligations, net:         
Discount Notes79,660
 49,084
 49,553
 41,493
 44,212
Bonds34,668
 38,440
 44,591
 48,780
 52,124
Total Consolidated Obligations, net114,328
 87,524
 94,144
 90,273
 96,336
Mandatorily redeemable capital stock572
 22
 26
 23
 23
Capital:         
Capital stock - putable4,739
 3,367
 3,597
 3,806
 4,059
Retained earnings1,153
 1,094
 1,055
 1,037
 1,031
Accumulated other comprehensive loss(17) (16) (12) (12) (13)
Total capital5,875
 4,445
 4,640
 4,831
 5,077
STATEMENT OF INCOME DATA FOR THE QUARTER:         
Net interest income$82
 $99
 $87
 $97
 $122
Non-interest income (loss)31
 6
 5
 (3) (18)
Non-interest expense24
 21
 22
 23
 23
Affordable Housing Program assessments9
 8
 7
 7
 8
Net income$80
 $76
 $63
 $64
 $73
FINANCIAL RATIOS FOR THE QUARTER:         
Dividend payout ratio (3)
27.4% 47.7% 71.7% 90.1% 89.4%
Weighted average dividend rate (4)
2.50
 4.00
 4.50
 5.50
 6.00
Return on average equity6.94
 6.64
 5.36
 5.09
 5.59
Return on average assets0.34
 0.34
 0.26
 0.26
 0.28
Net interest margin (5)
0.36
 0.44
 0.36
 0.40
 0.47
Average equity to average assets4.95
 5.06
 4.86
 5.15
 5.07
Regulatory capital ratio (6)
5.28
 4.79
 4.67
 5.05
 4.95
Operating expense to average assets (7)
0.084
 0.071
 0.069
 0.069
 0.070
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(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.

Recent Developments

Coronavirus Pandemic (COVID-19)
The global outbreak of COVID-19 has resulted in extraordinary market stress and caused financial hardship for many, includingimpacted communities and businesses worldwide.worldwide, including those in the Fifth District. The effects of COVID-19 are rapidly evolving, and the full impact and duration of the virus are unknown. During these times of extraordinary market stress,Despite the uncertainties created by the COVID-19 pandemic, we continued to fulfill our mission of providing robust access to a key source of readily available and competitively priced wholesale funding to member financial institutions and supporting our commitment to affordable housing and community investment, while maintaining strong capital and liquidity positions.

We have been engaging with our members to develop programs to assist them during this unprecedented time. In support of our members, beginning in April 2020, we have temporarily modified our existing discounted Advance programs and, effective May 1, 2020, created a new Advance program that will offer up to $2 billion in six-monthoffered Advances at zero percent interest to members.members between May 1, 2020 and September 30, 2020. These Advances can be used to supportsupported 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, effective March 25, 2020, we have asked servicers of the mortgage loans we own to temporarily suspend all foreclosure sales and evictions, for the next 60 days, 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. To the extent possible, employeesEmployees are working from home with only a limited number of operationally critical employees voluntarily working from either our downtown Cincinnati location orlocation. 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 back-up facility.employees are able to return safely.

At this time, we cannot predict when our full employee base will return to work in our offices or the potentialultimate impact of COVID-19 on our members, counterparties, vendors, and other third parties we rely upon to conduct our business. To date,However, we have met our members' needs in stressed market conditionscontinue to monitor the progression of COVID-19 and have not experienced significant operational difficulties or disruptions; however, this possibility exists, which could impair our abilityare committed to conductassisting members and manage our business effectively.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 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 threenine months of 2020, the Primary Mission Asset ratio averaged 7176 percent, slightly overwhich exceeded the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity, the most significant of which is Letters of Credit issued to members.

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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
 March 31, December 31, Three Months Ended March 31, Year Ended December 31,
(In millions)2020 2019 2019 2020 2019 2019
Mission Asset Activity:           
Advances (principal)$79,929
 $54,878
 $47,264
 $43,083
 $61,370
 $47,894
Mortgage Purchase Program (MPP):           
Mortgage loans held for portfolio (principal)11,644
 10,290
 10,981
 11,491
 10,281
 10,499
Mandatory Delivery Contracts (notional)765
 341
 936
 685
 187
 516
Total MPP12,409
 10,631
 11,917
 12,176
 10,468
 11,015
Letters of Credit (notional)15,785
 13,812
 16,205
 15,583
 13,903
 15,150
Total Mission Asset Activity$108,123
 $79,321
 $75,386
 $70,842
 $85,741
 $74,059

The balance of Mission Asset Activity was $108.1$60.2 billion at March 31,September 30, 2020, an increasea decrease of $32.7$15.2 billion (43(20 percent) from year-end 2019, which was primarily driven by higherlower Advance balances. Advance principal balances increased $32.7decreased $20.6 billion (69(44 percent) from year-end 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. We experiencedThe 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 growthbalances for the nine months ended September 30, 2020 decreased only $2.6 billion compared to the same period of 2019 as Advances spiked across our membership at the end of the first quarter as the financial markets reacted to the COVID-19 pandemic. However, average Advance principal balances forMost of these Advances matured or prepaid by the three months ended March 31, 2020 declined $18.3 billion compared to the same period of 2019 as balances were lower for mostend of the third quarter after a few large-asset members had reduced their borrowings throughout 2019 and earlyof 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 March 31,September 30, 2020, 6866 percent of members held Mission Asset Activity, which was relatively stable compared to prior periods.

The MPP principal balance rose $0.7fell $0.6 billion (six(five percent) from year-end 2019. During the first threenine months of 2020, we purchased $1.2$2.4 billion of mortgage loans, while principal reductions totaled $0.5 billion.

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

Based on earnings in the first threenine months of 2020,, we accrued $9$27 million for the Affordable Housing Program (AHP) pool of funds to be available to members in 2021. In addition to the required AHP assessment, we continued ourprovided voluntary sponsorship of twothree other housing programs. These programs and announced one new voluntary housing program in April 2020. The two existing programs 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. The new program provides up to $2 billion ofAdvances at zero percent interest rate Advances in response to thefor COVID-19 pandemic, as noted above.related assistance.

Investments
The balance of investments at March 31,September 30, 2020 was $25.7$34.5 billion, a decreasean increase of $8.7$0.1 billion (25 percent) from year-end 2019. At March 31,September 30, 2020, investments included $12.6$11.2 billion of MBS and $13.1$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 March 31,September 30, 2020 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency. The decrease in investments at March 31, 2020 was primarily driven by lower liquidity investments as we decided to hold more of our liquidity portfolio as deposits at the Federal Reserve in light of volatile market conditions and limited returns on other available liquidity investments. At March 31, 2020, we held $3.9 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements of Condition.

Investments averaged $37.4$33.5 billion in the first threenine months of 2020, an increasea decrease of $4.8$3.5 billion (15(10 percent) from the average balance during the same period of 2019. AverageThe 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 higher in the first three months of 2020 as we began holding more asset liquidity throughout 2019, which we obtained primarily by purchasing U.S. Treasury obligations as part of our plan to manage the Finance Agency's requirements on the maintenance of sufficient liquidity. In addition, liquidityprepaid. 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 threenine months of 2020 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 threenine months of 2020. The GAAP capital-to-assets ratio at March 31,September 30, 2020 was 4.805.68 percent, while the regulatory capital-to-assets ratio was 5.285.72 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. GAAP and regulatory capital increased $1.4both decreased $0.2 billion and $2.0 billion, respectively, in the first threenine months of 2020, primarily due to repurchase of $2.0 billion of excess stock and members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were partially offset by members' purchases of capital stock by members to support Advance growth.growth at the end of the first quarter. Retained earnings grew in the first nine months of 2020, continuing a trend over the last several years. Retained earnings totaled $1.2$1.3 billion at March 31,September 30, 2020, an increase of five17 percent from year-end 2019.

Results of Operations

Overall Results
The table below summarizes our results of operations.
 Three Months Ended March 31, Year Ended December 31,
(Dollars in millions)2020 2019 2019
Net income$80
 $73
 $276
Affordable Housing Program assessments9
 8
 31
Return on average equity (ROE)6.94% 5.59% 5.65%
Return on average assets0.34
 0.28
 0.28
Weighted average dividend rate2.50
 6.00
 5.05
Average short-term interest rates (1)
1.40
 2.54
 2.24
ROE spread to average short-term interest rates5.54
 3.05
 3.41
Dividend rate spread to average short-term interest rates1.10
 3.46
 2.81
(1)Average short-term interest rates consist of 3-month LIBOR and the Federal funds effective rate.

Net income increased $7 million (nine percent) in the first three months of 2020 compared to the same period of 2019. Net income increased as a result of higher non-interest income primarily due to gains on the sale of certain derivatives during the quarter. These gains were partially offset by unrealized losses on other instruments held at fair value in response to changes in interest rates. Although net income increased, net interest income decreased in the first three months of 2020. The decline in net interest income was primarily due to higher net amortization as a result of accelerated prepayments of financial instruments during a period of historically low interest rates.

Earnings levels continued to represent competitive returns on stockholders' capital investment. 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, consisting of 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 March 2020, we paid stockholders a quarterly 2.50 percent annualized dividend rate on their capital investment in our company. The lower dividend rate in the first quarter of 2020 compared to those in 2019 was in part due to the decline in the interest rate environment over the last several quarters, including the Federal Reserve's 150 basis point decrease in the target overnight Federal funds rate in March 2020.

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

 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
Quarter 1 2020 Year 2019 Quarter 1 2019 EndingAverageEndingAverageEndingAverageAverageAverageEndingAverage
Ending Average Ending Average Ending Average
Federal funds effective0.08% 1.25% 1.55% 2.16% 2.43% 2.40%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)0.01
 1.25
 1.55
 2.20
 2.65
 2.44
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 LIBOR1.45
 1.54
 1.91
 2.33
 2.60
 2.69
3-month LIBOR0.23 0.25 0.30 0.61 1.45 1.54 0.80 2.46 1.91 2.33 
2-year LIBOR0.49
 1.18
 1.70
 2.03
 2.38
 2.62
2-year LIBOR0.22 0.22 0.23 0.32 0.49 1.18 0.57 2.17 1.70 2.03 
10-year LIBOR0.72
 1.34
 1.90
 2.09
 2.41
 2.67
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. Treasury0.25
 1.10
 1.57
 1.97
 2.26
 2.49
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. Treasury0.67
 1.38
 1.92
 2.14
 2.41
 2.65
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)
1.07
 1.86
 2.28
 2.52
 2.67
 2.97
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)
1.63
 2.31
 2.71
 2.95
 3.11
 3.41
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 
(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 zero to 0.25 percent at March 31,September 30, 2020, a decreaseunchanged from the range of 1.50 to 1.75 percent at December 31, 2019.June 30, 2020. The decreaselow interest rate environment reflects the evolving risks to economic activity from the COVID-19 pandemic.

Average short-term rates were approximately 115160 to 145190 basis points lower in the first threenine months of 2020 compared to the same period of 2019 and average long-term rates decreased by approximately 110 to 135130 basis points during that same period. The decline in interest rates on short-term assets negatively impacted income in the first threenine months of 2020 primarily because of the lower earnings generated by funding assets with interest-free capital.from investing capital and the increased mortgage asset prepayments resulting in higher net amortization of premiums on 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 2019 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
Finance Agency Supervisory 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 issued a Supervisory Letter (PPP Supervisory Letter) permitting theallowing FHLBanks to accept PPP loans as collateral for Advances as “Agency Securities,” given the Small Business Administration’s (SBA) 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA's third interim final rule related to PPP loans was published. The rule explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral that focus on the financial condition of members, collateral discounts, and pledge dollar limits.remains in effect.

We have reviewed the PPP Supervisory Letter and decided to accept PPP loans as collateral. On May 4, 2020, we issued a member communication detailing the terms on which we would accept such collateral. We do not expect the PPP Supervisory Letter to materially effect our financial condition or results of operations.

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 signed into lawextended by the Finance Agency on MarchAugust 27, 2020. The $2.2 trillion package is the largest stimulus bill in United States history. The CARES Act is in addition2020 to previous relief legislation passed by Congress in Marchuntil “at least” December 31, 2020.The legislation provides the following:
▪Assistance to businesses, states, and municipalities.
▪A loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives.

▪Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act.
▪Direct payments to eligible taxpayers and their families.
▪Expanded eligibility for unemployment insurance and payment amounts.
▪Mortgage forbearance provisions and a foreclosure moratorium.

Additional phases of the CARES Act or other COVID-19 pandemic relief legislation may be enacted by Congress.Congress or other actions by the President, state governments, and governmental agencies. We are evaluatingcontinue to monitor these actions and guidance as they evolve and to evaluate the potential impact of the CARES Act on our business, including its impact to the U.S. economy, which is unknown; andeconomy; the impacts to mortgages held or serviced by our members that we accept as collateral; andthe impacts on our MPP portfolio.portfolio; and the impacts to our overall business.
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LIBOR Replacement; Finance Agency Supervisory Letter:Transition: We are planning for the replacement of LIBOR given 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 SOFR as its recommended alternative to U.S. dollar LIBOR. At March 31,September 30, 2020, all $11.8$15.6 billion of our adjustable-rate Consolidated Bonds were indexed to SOFR. We also continued offering SOFR-linked Advances and swapping certain instruments to adjustable-rates tied to SOFR and the overnight Federal funds effective rate in 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.

Part of our LIBOR transition plan includes our previously implemented fallback language for our LIBOR-indexed Advances and Consolidated Bonds in new and legacy contracts. As for our derivatives and investments that are tied to LIBOR, we are monitoring market-wide efforts to enhance fallback language for new activity and develop frameworks to address existing transactions. We are also evaluating and plan to utilize the transition relief provided by the Financial Accounting Standards Board (FASB) concerning the accounting for contract modifications during the replacement of LIBOR.

Additionally, on October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA), launched the Supplement to the 2006 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 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 October 21, 2020, the Finance Agency issued a 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 has 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. As a result of the recent market conditions triggered in part by COVID-19, the Finance Agency has extended the date by three months from March 31, 2020 to June 30, 2020, for when the FHLBanks arewere required to cease entering into new LIBOR-based financial instruments that mature after December 31, 2021, except for investments and option embedded products. With respect to investments, the Finance Agency required the FHLBanks, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates do not apply to collateral accepted by the FHLBanks. TheAs directed by the Finance Agency, also directed the FHLBanks to updatebegan requiring their pledged collateral certification reporting requirements by September 30, 2020 in an effort to encourage members to identifyreport levels of LIBOR-linked collateral maturingthat mature after December 31, 2021. This will assist the FHLBanks in determining the level of member reliance on these assets to support borrowings, make decisions about their future eligibility and the impact of any incremental haircuts and asset value deterioration on borrowing capacity.

We have Advances, investment securities and derivatives with interest rates indexed to LIBOR. The following table presents LIBOR-indexed Advances, investment securities and derivatives at March 31,September 30, 2020. See
(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 
(1)MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the "Credit Services" section of "Analysis of Financial Condition" for further information.right to call or prepay obligations with or without call or prepayment fees.
(In millions)Maturing in 2020-2021 Maturing after 2021
LIBOR-Indexed Variable Rate Financial Instruments   
Advances by redemption term$20,576
 $8,313
MBS by contractual maturity (1)
154
 7,246
Total principal amount$20,730
 $15,559
Derivatives, notional amount by termination date$8,263
 $8,834
(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.


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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)March 31, 2020 December 31, 2019 March 31, 2019
 Balance 
Percent(1)
 Balance 
Percent(1)
 Balance 
Percent(1)
Adjustable/Variable-Rate Indexed:           
LIBOR$28,889
 36% $10,430
 22% $20,462
 38%
SOFR2,000
 3
 500
 1
 1,400
 2
Other247
 —
 221
 1
 394
 1
Total31,136
 39
 11,151
 24
 22,256
 41
Fixed-Rate:           
Repurchase based (REPO)28,058
 35
 19,386
 41
 15,187
 28
Regular Fixed-Rate14,452
 18
 11,476
 24
 10,991
 20
Putable (2)
3,164
 4
 1,444
 3
 885
 1
Amortizing/Mortgage Matched2,439
 3
 2,358
 5
 2,753
 5
Other680
 1
 1,449
 3
 2,806
 5
Total48,793
 61
 36,113
 76
 32,622
 59
Total Advances Principal$79,929
 100% $47,264
 100% $54,878
 100%
            
Letters of Credit (notional)$15,785
   $16,205
   $13,812
  
(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 March 31,September 30, 2020 increased 69decreased 44 percent compared to year-end 2019. We experienced Advance growthAdvances spiked across our membership at the end of the first quarter as the financial markets reacted to the COVID-19 pandemic, and members turned to us for liquidity, primarily in the form of LIBOR and REPO Advances. REPOs, which traditionally haveMost of these Advances matured or prepaid by the most volatileend of the third quarter of 2020. Additionally, Advance balances becausedecreased further in the third quarter of 2020 as a majorityfew large-asset members reduced their borrowings. The reduction in borrowings was primarily driven by these members experiencing an inflow of them have overnight maturities, allow our membersdeposits on their balance sheets, while also having access to other liquidity sources as a result of certain government actions related to 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.
 March 31, 2020 December 31, 2019
Average Advances-to-assets for members   
Assets less than $1.0 billion (538 members)2.73% 2.55%
Assets over $1.0 billion (96 members)3.92
 3.31
All members2.91
 2.67
 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)          
March 31, 2020 December 31, 2019
Name Principal Amount of Advances Percent of Total Principal Amount of Advances Name Principal Amount of Advances Percent of Total Principal Amount of Advances
U.S. Bank, N.A. $24,374
 30% U.S. Bank, N.A. $13,874
 29%
JPMorgan Chase Bank, N.A. 15,000
 19
 JPMorgan Chase Bank, N.A. 4,500
 10
Third Federal Savings and Loan Association 4,077
 5
 Third Federal Savings and Loan Association 3,883
 8
First Horizon Bank 3,900
 5
 First Horizon Bank 2,200
 5
Keybank National Association 3,616
 5
 Pinnacle Bank 2,063
 4
Total of Top 5 $50,967
 64% Total of Top 5 $26,520
 56%

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

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 threenine months of 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, 2019$10,981
Principal purchases1,202
Principal reductions(539)
Balance at March 31, 2020$11,644

Although there were 7281 active members participating in the MPP during the threenine months ended March 31,September 30, 2020, approximately 7450 percent of the principal purchases in the first threenine months of 2020 resulted from activity of our fourfive largest sellers. All loans acquired in the first quarternine months of 2020 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 threenine months of 2020 equated to a 1527 percent annual constant prepayment rate, compared to the 14 percent rate for all of 2019. In the fourth quarter of 2019, mortgage rates were steady, remaining at historically low levels and resulted in a similar prepayment rate during the first three months of 2020 as all of 2019. Given thedriven by reductions in mortgage rates that occurred inrates. We expect to see a higher rate of prepayments for the first three monthsremainder of 2020, we expect prepayments to increase throughout 2020the year unless mortgage rates rise. MPP yields on purchases in the first threenine months of 2020, after consideration of funding and hedging costs, continued to offer favorable returns. However, MPP yields on existing portfolio balances, net of funding and hedging costs, have declined and we believe willare expected to continue to do so ifwith the increased prepayment speeds increase, as noted above. The metrics of portfolio return relative to their market and credit risks continue to indicate that the MPP has generated, and willcan be expected to continue to generate, a profitable long-term, risk-adjusted return.

Housing and Community Investment
53

Other than the updates noted below, our housing and community investment programs have not changed substantially since our 2019 Annual Report on Form 10-K.

In April 2020, we announced a new, zero interest rate Advance program, RISE (Responsive, Inclusive, Supportive and Empowering). The newly created RISE Program will offer up to $2 billion in six-month Advances at zero percent interest, for a limited time beginning May 1, 2020. These Advances can be used to support COVID-19 related assistance by all Fifth District

members, including loans originated by member financial institutions under the CARES Act, loans to support members’ customers who have been directly impacted by COVID-19, assisting mortgage servicers with required investor remittances during borrower forbearance periods as well as deferring insurance premium payments and lease payments.

Beginning April 2020, we have also expanded our Community Investment Program and Economic Development Program, which offer Advances with below-market interest rates at or near funding costs. Total funding for these programs was increased to $1.50 billion from $1.25 billion and the maturity requirementTable of one-year or greater will be temporarily suspended for COVID-19 related activity initiated by September 30, 2020.Contents

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 
 Three Months Ended Year Ended
(In millions)March 31, 2020 December 31, 2019
 Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments$13,128
 $23,938
 $20,924
 $22,525
MBS12,537
 13,051
 13,465
 15,029
Other investments (1)
—
 373
 —
 232
Total investments$25,665
 $37,362
 $34,389
 $37,786
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

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

The balance of liquidity investments droppedwas higher at March 31,September 30, 2020 as we decidedcompared to hold moreyear-end 2019 primarily due to the prepayment and maturity of our liquidity portfolio as deposits atAdvances, especially in the Federal Reserve in lightthird quarter of volatile market conditions and limited returns on other available liquidity investments. At March 31, 2020, we held $3.9 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements2020. The average balance of Condition. Average liquidity investments for the threenine months ended March 31,September 30, 2020 remained elevatedwas near the average balance for all of 2019 as we continued to hold U.S. Treasury obligations to help meet regulatory liquidity requirements. Under the regulatory requirements, liquidity includes certain high-quality liquid assets, which are defined as U.S. Treasury obligations with remaining maturities of 10 years or less held as trading securities or available-for-sale securities.

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 averaged 2.78 in the first three months ofwas 2.65 at September 30, 2020. However, the ratio declined in March 2020 to end the quarter at 1.94. The MBS ratio was lower than normal primarily due to the increasedecline in regulatory capitalMBS balances given paydowns in March 2020 as a result of members purchasing $2.1 billion of capital stock to support Advance growth as well asthe low interest rate environment and the regulatory limitations regarding the purchase of investments that reference LIBOR.

The balance of MBS at March 31,September 30, 2020 consisted of $11.1$10.0 billion of securities issued by Fannie Mae or Freddie Mac (of which $7.2$6.7 billion were floating-rate securities), $0.2$0.1 billion of floating-rate securities issued by the National Credit Union Administration (NCUA), and $1.3$1.1 billion of securities issued by Ginnie Mae (which are primarily fixed rate).
The table below shows principal purchases and paydowns of our MBS for the first threenine months of 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, 2019$13,447
Principal paydowns(924)
Balance at March 31, 2020$12,523


MBS principal paydowns in the first threenine months of 2020 equated to a 2422 percent annual constant prepayment rate, up from the 20 percent rate experienced in 2019. The higher prepayment rate experienced in the first threenine months of 2020 is a result of the historically low mortgage 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 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 
 Three Months Ended Year Ended
(In millions)March 31, 2020 December 31, 2019
 Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:       
Unswapped$70,427
 $38,702
 $36,776
 $39,286
Swapped9,321
 11,078
 12,401
 5,291
Total par Discount Notes79,748
 49,780
 49,177
 44,577
Other items (1)
(88) (84) (93) (95)
Total Discount Notes79,660
 49,696
 49,084
 44,482
Bonds:       
Unswapped fixed-rate18,328
 21,433
 22,420
 24,423
Unswapped adjustable-rate (2)
11,823
 10,819
 11,012
 16,132
Swapped fixed-rate4,424
 4,773
 4,949
 5,310
Total par Bonds34,575
 37,025
 38,381
 45,865
Other items (1)
93
 65
 59
 44
Total Bonds34,668
 37,090
 38,440
 45,909
Total Consolidated Obligations (3)
$114,328
 $86,786
 $87,524
 $90,391
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(2)Unswapped adjustable-rate Bonds are indexed to either LIBOR or SOFR. At March 31, 2020, 100 percent were indexed to SOFR. At December 31, 2019, 1 percent were indexed to LIBOR and 99 percent were indexed to SOFR.
(3)
(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.

$1,174,670 and $1,025,895 at March 31, 2020 and December 31, 2019, respectively.

The balancesaverage balance of Discount Notes werewas higher at March 31,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. The averageHowever, 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 first three months of 2020 was higher than the average for all of 2019 because 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.current market environment.

The average balance of unswapped fixed-rate Bonds, which typically have initial maturities greater than one year, declined in the first threenine months of 2020 compared to the same periodaverage balance in 2019 driven by actions takendue to terminateterminating higher coupon fixed-rate Bonds with embedded options as interest rates fell.
Deposits

Total deposits with us are normally a relatively minor source of low-cost funding. Total interest-bearing deposits at March 31,September 30, 2020 were $1.2 billion, an increase of $0.2$0.3 billion from year-end 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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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 
 Three Months Ended Year Ended
(In millions)March 31, 2020 December 31, 2019
 Period End Average Period End Average
GAAP and Regulatory Capital       
GAAP Capital Stock$4,739
 $3,489
 $3,367
 $3,827
Mandatorily Redeemable Capital Stock572
 52
 22
 25
Regulatory Capital Stock5,311
 3,541
 3,389
 3,852
Retained Earnings1,153
 1,145
 1,094
 1,069
Regulatory Capital$6,464
 $4,686
 $4,483
 $4,921
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.
 Three Months Ended Year Ended
 March 31, 2020 December 31, 2019
 Period End Average Period End Average
GAAP and Regulatory Capital-to-Assets Ratio       
GAAP4.80% 4.95% 4.75% 5.04%
Regulatory (1)
5.28
 5.02
 4.79
 5.08
(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. At March 31,September 30, 2020, the amount of excess stock, as defined by our Capital Plan, was $82$413 million, similar to the balance atan increase of $376 million from year-end 2019. The balance of excess stock was minimal atgrew as many Advances matured or prepaid in the end of the quarter as a result of a member's request to redeem $550 million of excess stocksecond and the growth in Advances.third quarters. The increasedecrease in GAAP and regulatory capital balances and the related capital-to-assets ratios was primarily due to members purchasing $2.1our repurchase 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. The higher increase in regulatory capital compared to GAAP capital was driven bygrowth at the large redemption requestend of excess stock, which resulted in the stock becoming a liability and recognized as mandatorily redeemable capital stock. In April 2020, we settled the $550 million outstanding redemption request.first quarter.

Membership and Stockholders

In the first threenine months of 2020, we added twosix new member stockholders and lost eight17 member stockholders, ending the quarter at 634629 member stockholders. The decline in membership during the first threenine months of 2020 was primarily attributable to intra-district merger activity.

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Table of Contents

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 March 31,September 30, 2020 and 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 March 31,
(Dollars in millions)2020 2019
 Amount 
ROE (1)
 Amount 
ROE (1)
Net interest income$82
 7.15 % $122
 9.32 %
Non-interest income (loss):       
Net gains (losses) on investment securities373
 32.43
 22
 1.69
Net gains (losses) on derivatives and hedging activities(294) (25.60) (26) (1.98)
Net gains (losses) on financial instruments held under fair value option(51) (4.43) (17) (1.31)
Other non-interest income, net3
 0.27
 3
 0.20
Total non-interest income (loss)31
 2.67
 (18) (1.40)
Total income113
 9.82
 104
 7.92
Non-interest expense24
 2.11
 23
 1.71
Affordable Housing Program assessments9
 0.77
 8
 0.62
Net income$80
 6.94 % $73
 5.59 %
(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.

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Table of Contents
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 March 31,
(Dollars in millions)2020 2019
 Amount % of Earning Assets Amount % of Earning Assets
Components of net interest rate spread:       
Net (amortization)/accretion (1) (2)
$(22) (0.09)% $(3) (0.01)%
Prepayment fees on Advances, net (2)
4
 0.02
 —
 —
Other components of net interest rate spread81
 0.35
 92
 0.36
Total net interest rate spread63
 0.28
 89
 0.35
Earnings from funding assets with interest-free capital19
 0.08
 33
 0.12
Total net interest income/net interest margin (3)
$82
 0.36 % $122
 0.47 %
(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 increased $19 million in the

first three and nine months ofended September 30, 2020 increased significantly compared to the same periodperiods in 2019 primarily due to a decline in mortgage rates, which led to accelerated prepayments of mortgage assets in the first quarternine months of 2020. We expect the recent trend of faster prepayments to continue throughout 2020 unless mortgage rates rise.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 significant,have been minimal in recent years, they were moderategrew in the first three and nine months ofended September 30, 2020. The growth in Advance prepayment fees increased in the first three months of 2020 compared to the same period of 2019was due to a higher amount of member prepayments of Advances as interest rates declined.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 decreased $11increased $37 million and $109 million in the first three months of 2020 compared to the same period in 2019.three- and nine-months comparison periods, respectively. The net decrease wasincreases were primarily due to the factors below.

▪
Nine-Months Comparison
▪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.

▪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
Except for the 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.

-Unfavorable: Lower spreads earned on certain Advances decreased net interest income by an estimated $13 million. The lower spreads were a result of a shift in composition of Advance balances to overnight and shorter-term Advances. However, the decrease in net interest income was partially offset by a decrease of $10 million in net interest payments on related derivatives not receiving hedge accounting, which was a benefit reflected in non-interest income (loss).
▪
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 $13 million.
▪
Lower average Advance balances-Unfavorable: The $18.0 billion decline in average Advance balances decreased net interest income by an estimated $8 million. The decline in average Advance balances was primarily due to the reduction in borrowings by a few large-asset members in 2019, the impact of which was experienced for most of the first quarter of 2020.
▪
Lower spreads on mortgage assets balances-Unfavorable: Lower spreads on mortgage assets decreased net interest income by an estimated $4 million due to the falling interest rate environment.
▪
Lower average balances of mortgage-backed securities -Unfavorable: The $2.8 billion decrease in the average balance of mortgage-backed securities decreased net interest income by an estimated $3 million.
▪
Higher spreads on liquidity investment balances-Favorable: Higher spreads on liquidity investments improved net interest income by an estimated $22 million. The increase in net interest income was partially offset by earnings reductions recognized in non-interest income from an increase of $12 million in net interest payments on related derivatives not receiving hedge accounting and from a $4 million market value decline reflecting the impact of purchase premiums on certain trading securities.
▪
Growth in average MPP balances-Favorable: The $1.3 billion increase in the average balance of mortgage loans held for portfolio improved net interest income by an estimated $4 million.
▪
Growth in average liquidity investment balances-Favorable: The $7.3 billion increase in the average balance of liquidity investments improved net interest income by an estimated $4 million.

Earnings from Capital: Earnings from capital decreased $14$16 million and $56 million in the three and nine months ended March 31,September 30, 2020, respectively, compared to the same periodperiods in 2019 primarily due to average short-term rates declining more than 100180 basis points as the Federal Reserve responded to the 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. Interest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.


In addition, the net interest settlements of interest receivables or payables 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
 March 31, 2020 March 31, 2019
 Average Balance Interest 
Average Rate (1)
 Average Balance Interest 
Average Rate (1)
Assets:           
Advances$43,299
 $176
 1.64% $61,327
 $403
 2.66%
Mortgage loans held for portfolio (2)
11,767
 89
 3.05
 10,512
 89
 3.42
Federal funds sold and securities purchased under resale agreements10,615
 39
 1.47
 13,585
 83
 2.47
Interest-bearing deposits in banks (3) (4) (5)
1,793
 7
 1.45
 2,220
 14
 2.67
Mortgage-backed securities13,051
 68
 2.10
 15,873
 106
 2.72
Other investments (4)
11,902
 68
 2.31
 931
 6
 2.54
Loans to other FHLBanks20
 —
 1.22
 3
 —
 2.43
Total interest-earning assets92,447
 447
 1.95
 104,451
 701
 2.72
Less: allowance for credit losses on mortgage loans—
     1
    
Other assets924
     314
    
Total assets$93,371
     $104,764
    
Liabilities and Capital:           
Term deposits$32
 —
 1.86
 $61
 1
 2.38
Other interest bearing deposits (5)
1,040
 3
 1.09
 612
 3
 2.22
Discount Notes49,696
 176
 1.43
 51,648
 312
 2.45
Unswapped fixed-rate Bonds21,471
 131
 2.44
 26,043
 144
 2.24
Unswapped adjustable-rate Bonds10,819
 35
 1.32
 16,153
 99
 2.48
Swapped Bonds4,800
 20
 1.69
 4,239
 20
 1.91
Mandatorily redeemable capital stock52
 —
 1.47
 23
 —
 6.00
Other borrowings—
 —
 —
 —
 —
 —
Total interest-bearing liabilities87,910
 365
 1.67
 98,779
 579
 2.37
Non-interest bearing deposits10
     9
    
Other liabilities833
     659
    
Total capital4,618
     5,317
    
Total liabilities and capital$93,371
     $104,764
    
            
Net interest rate spread    0.28%     0.35%
Net interest income and net interest margin (6)
  $82
 0.36%   $122
 0.47%
Average interest-earning assets to interest-bearing liabilities    105.16%     105.74%
(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)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 mostall of our interest-bearing assets and liabilities decreased in the first three and nine months ended September 30, 2020 compared to the same periodperiods in 2019 due to the decline in interest rates. Average rates on short-term assets and liabilities declined more notably as they repriced quicker to lower 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)2020 over 2019
 
Volume (1)(3)
 
Rate (2)(3)
 Total
Increase (decrease) in interest income     
Advances$(99) $(128) $(227)
Mortgage loans held for portfolio10
 (10) —
Federal funds sold and securities purchased under resale agreements(16) (28) (44)
Interest-bearing deposits in banks(2) (5) (7)
MBS(17) (21) (38)
Other investments63
 (1) 62
Loans to other FHLBanks—
 —
 —
Total(61) (193) (254)
Increase (decrease) in interest expense     
Term deposits—
 (1) (1)
Other interest-bearing deposits2
 (2) —
Discount Notes(12) (124) (136)
Unswapped fixed-rate Bonds(26) 13
 (13)
Unswapped adjustable-rate Bonds(27) (37) (64)
Swapped Bonds2
 (2) —
Mandatorily redeemable capital stock—
 —
 —
Other borrowings—
 —
 —
Total(61) (153) (214)
Increase (decrease) in net interest income$—
 $(40) $(40)
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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, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the “Non-Interest Income (Loss)” section below.

(In millions)Three Months Ended March 31,(In millions)Three Months Ended September 30,Nine Months Ended September 30,
2020 20192020 201920202019
Advances:   Advances:
Gains (losses) on designated fair value hedges$(14) $(1)Gains (losses) on designated fair value hedges$(2)$(4)$(14)$(7)
Net interest settlements included in net interest incomeNet interest settlements included in net interest income(34)8 (55)34 
Investment securities:Investment securities:
Net interest settlements included in net interest income(2) 14
Net interest settlements included in net interest income(1)—(2)— 
Mortgage loans:   Mortgage loans:
Amortization of derivative fair value adjustments in net interest income(1) —
Amortization of derivative fair value adjustments in net interest income(4)(1)(8)(2)
Consolidated Obligation Bonds:Consolidated Obligation Bonds:
Net interest settlements included in net interest incomeNet interest settlements included in net interest income— 1 1 1 
Increase (decrease) to net interest income$(17) $13
Increase (decrease) to net interest income$(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., LIBOR, the Federal funds effective rate, or SOFR). The negative net effect of derivatives on net interest income in first three months ofthe 2020 periods was primarily due to lower short-term benchmark interest rates in the first quarter ofthree and nine months ended September 30, 2020 compared to the same period ofperiods in 2019, which resulted in 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). The 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 $2 
(In millions)Three Months Ended March 31,2020
 Advances Investment Securities Mortgage Loans Bonds Discount Notes 
Balance Sheet (1)
 Other Total
Net effect of derivatives and hedging activities               
Gains (losses) on derivatives not receiving hedge accounting$(8) $(404) $(9) $31
 $14
 $92
 $—
 $(284)
Net interest settlements on derivatives not receiving hedge accounting1
 (19) —
 —
 7
 —
 —
 (11)
Price alignment amount—
 —
 —
 —
 —
 —
 1
 1
Net gains (losses) on derivatives and hedging activities(7) (423) (9) 31
 21
 92
 1
 (294)
Gains (losses) on trading securities (2)
—
 373
 —
 —
 —
 —
 —
 373
Gains (losses) on financial instruments held under fair value option (3)
—
 —
 —
 (37) (14) —
 —
 (51)
Total net effect on non-interest income$(7) $(50) $(9) $(6) $7
 $92
 $1
 $28
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(In millions)Three Months Ended March 31,2019(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Advances Investment Securities Mortgage Loans Bonds 
Balance Sheet (1)
 Total
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2020
Net effect of derivatives and hedging activities           Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting$(1) $(24) $1
 $19
 $(12) $(17)Gains (losses) on derivatives not receiving hedge accounting$(6)$(321)$(12)$21 $— $91 $— $(227)
Net interest settlements on derivatives not receiving hedge accounting—
 —
 —
 (9) —
 (9)Net interest settlements on derivatives not receiving hedge accounting— (120)— 16 22 — — (82)
Price alignment amountPrice alignment amount— — — — — — 1 1 
Net gains (losses) on derivatives and hedging activities(1) (24) 1
 10
 (12) (26)Net gains (losses) on derivatives and hedging activities(6)(441)(12)37 22 91 1 (308)
Gains (losses) on trading securities (2)
—
 22
 —
 —
 —
 22
Gains (losses) on trading securities (2)
— 320 — — — — — 320 
Gains (losses) on financial instruments held under fair value option (3)
—
 —
 —
 (17) —
 (17)
Gains (losses) on financial instruments held under fair value option (3)
1 — — (16)— — — (15)
Total net effect on non-interest income$(1) $(2) $1
 $(7) $(12) $(21)Total net effect on non-interest income$(5)$(121)$(12)$21 $22 $91 $1 $(3)
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019
Net effect of derivatives and hedging activitiesNet effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accountingGains (losses) on derivatives not receiving hedge accounting$(3)$(284)$3 $54 $1 $4 $— $(225)
Net interest settlements on derivatives not receiving hedge accountingNet interest settlements on derivatives not receiving hedge accounting1 8 — (23)(1)— — (15)
Price alignment amountPrice alignment amount— — — — — — 2 2 
Net gains (losses) on derivatives and hedging activitiesNet gains (losses) on derivatives and hedging activities(2)(276)3 31 — 4 2 (238)
Gains (losses) on trading securities (2)
Gains (losses) on trading securities (2)
— 264 — — — — — 264 
Gains (losses) on financial instruments held under fair value option (3)
Gains (losses) on financial instruments held under fair value option (3)
— — — (49)(2)— — (51)
Total net effect on non-interest incomeTotal net effect on non-interest income$(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 net 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 sale of certain swaptions as interest rates fell to historically low levels during the quarter.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.

At March 31,September 30, 2020, we held $12.0$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. In the first quarter

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decline in longer-term interest rates led to large market value gains on investments held as trading securities and corresponding market value losses on the swaps hedging those investments.

Non-Interest Expense

The following table presents non-interest expense and related financial ratios.

Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)(Dollars in millions)2020 201920202019
Three Months Ended March 31,
(Dollars in millions)2020 2019
Non-interest expense   Non-interest expense  
Compensation and benefits$13
 $13
Compensation and benefits$12 $11 $38 $35 
Other operating expense6
 6
Other operating expense5 6 16 17 
Finance Agency2
 2
Finance Agency2 2 5 5 
Office of Finance1
 1
Office of Finance1 1 4 4 
Other2
 1
Other2 2 7 7 
Total non-interest expense$24
 $23
Total non-interest expense$22 $22 $70 $68 
Average total assets$93,371
 $104,764
Average total assets$86,545 $95,422 $95,773 $99,442 
Average regulatory capital4,686
 5,353
Average regulatory capital4,887 4,678 5,112 5,040 
Total non-interest expense to average total assets (1)
0.10% 0.09%
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)
2.08
 1.70
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 expenses have remained stable with only slight increases over the past several years as seen in the three and nine months ended September 30, 2020 compared to the same periods in 2019. We have managed our operating costs in times of increased Mission Asset Activity, so that we can continue to generate competitive profitability in times of reduced business activity.
(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 in the first three months of 2020 compared to same period in 2019. The ratio of non-interest expense to average regulatory capital increased in the first three months of 2020 compared to same period in 2019 due to the lower average capital balance, which was a remaining result from the repurchases of excess stock throughout 2019.

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Segment Information

Note 13 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(Dollars in millions)Traditional Member Finance MPP Total
Three Months Ended March 31, 2020     
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2020
Net interest income$65
 $17
 $82
Net interest income$296  $29  $325 
Net income$18
 $62
 $80
Net income$173 $63 $236 
Average assets$81,339
 $12,032
 $93,371
Average assets$84,011  $11,762  $95,773 
Assumed average capital allocation$4,023
 $595
 $4,618
Assumed average capital allocation$4,411  $618  $5,029 
Return on average assets (1)
0.09% 2.06% 0.34%
Return on average assets (1)
0.28 % 0.71 % 0.33 %
Return on average equity (1)
1.79% 41.67% 6.94%
Return on average equity (1)
5.26 % 13.60 % 6.28 %
Three Months Ended March 31, 2019     
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019
Net interest income$90
 $32
 $122
Net interest income$226 $81 $307 
Net income$53
 $20
 $73
Net income$130 $70 $200 
Average assets$91,449
 $13,315
 $104,764
Average assets$86,200 $13,242 $99,442 
Assumed average capital allocation$4,642
 $675
 $5,317
Assumed average capital allocation$4,337 $666 $5,003 
Return on average assets (1)
0.24% 0.61% 0.28%
Return on average assets (1)
0.20 %0.71 %0.27 %
Return on average equity (1)
4.64% 12.10% 5.59%
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.
(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 decreasedincreased in the first three months of 2020 compared to the same period in 2019three- 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 interest 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 decreasesand the decline in the fair values of certain derivatives and other financial instruments carried at fair value, lower spreads earned on certain Advances and lower average AdvanceMBS balances.

MPP Segment
Net income decreased in both the three- and nine-months comparison periods due to higher net amortization and lower earnings generated from investing capital driven by the low interest rate environment. We expect the trend of higher net amortization to continue throughout 2020 unless mortgage rates rise. 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. Innegative factors were partially offset in the first threenine months of 2020 the MPP averaged 13 percent of total average assets while accounting for 77 percent of earnings. Net income increased in the first three months of 2020 compared to the same period in 2019 due to net gains on derivatives and hedging activities, which resulted fromby the sale of certain swaptions as rates fell during the quarter. The decrease in net interest incometo historically low levels in the first three monthsquarter of 2020 compared2020. In addition, net income decreased in the three-months comparison period due to the same period of 2019 was driven by higherlower net amortization.gains on derivatives and 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             
2020 Year-to-Date             
Market Value of Equity$4,778
 $4,778
 $4,766
 $4,853
 $4,950
 $4,871
 $4,767
% Change from Flat Case(1.5)% (1.5)% (1.8)% —
 2.0 % 0.4 % (1.8)%
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             
March 31, 2020             
Market Value of Equity$5,928
 $5,928
 $5,923
 $6,078
 $6,346
 $6,371
 $6,303
% Change from Flat Case(2.5)% (2.5)% (2.5)% —
 4.4 % 4.8 % 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)%

(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             
2020 Year-to-Date—
 —
 —
 (3.5) 0.4
 2.3
 1.9
2019 Full Year(0.8) (1.4) (1.7) (0.8) 1.7
 1.4
 1.1
Month-End Results             
March 31, 2020—
 —
 (1.0) (4.5) (2.1) 0.6
 0.8
December 31, 2019(0.1) 0.6
 (2.1) (1.2) 2.0
 1.7
 1.4

The overall market risk exposure to changing interest rates was within policy limits during the periods presented. At March 31,September 30, 2020, exposure to falling interest rates in the down shock scenarios was muted as some rates become floored at near zero rate levels. Exposure to moderate rising rate shocks decreased materially due to the reduction in all market rates that occurred during the first quarter.quarter of 2020. The duration of equity provides an estimate of the change in market value of equity for a 1.00 percentage point further change in interest rates from the rate shock level.

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Based on the totality of our risk analysis, we expect that profitability, defined as the level of ROE compared with short-term market rates, will remain competitive over the long term unless interest rates change by large amounts in a short period of time. Further declines in long-term interest rates could substantially decrease income in the near term (one to two years) before reverting over time to average levels. This temporary reduction in income would be driven by 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 three 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 $1.2$1.3 billion in the first threenine months of 2020 based on the entire balance sheet's average regulatory capital-to-assets ratio. Average results shown in the table below are compiled using data for each month end. The market value sensitivities are one measure we use to analyze the portfolio's estimated market risk exposure.

% 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             
2020 Year-to-Date(15.9)% (15.9)% (15.4)% — 11.2 % 2.8 % (8.9)%
2019 Full Year(28.6)% (24.1)% (10.4)% — (2.4)% (8.3)% (11.7)%
Month-End Results             
March 31, 2020(19.9)% (19.9)% (20.5)% — 24.1 % 23.6 % 13.1 %
December 31, 2019(17.7)% (17.2)% (12.5)% — (5.6)% (14.6)% (20.5)%

The average risk exposure of the mortgage assets portfolio in the first threenine months of 2020 remained aligned with our preference to keep our exposure to market risk at a low to moderate level. The variances between periods primarily showreflect the impact of lower long-term interest rates observed in the first threenine months of 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.
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 March 31,September 30, 2020, our capital management policy set forth $650approximately $350 million as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk.

The following table presents retained earnings.
(In millions)March 31, 2020 December 31, 2019(In millions)September 30, 2020December 31, 2019
Unrestricted retained earnings$691
 $648
Unrestricted retained earnings$789 $648 
Restricted retained earnings (1)
462
 446
Restricted retained earnings (1)
493 446 
Total retained earnings$1,153
 $1,094
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 indicated 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.
March 31, 2020 December 31, 2019September 30, 2020December 31, 2019
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario114% 129%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)
112
 125
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)
120
 124
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 threenine months of 2020, the market capitalization ratios in the scenarios presented continued to be above our policy requirements. The base case ratio at March 31,September 30, 2020 was well above 100 percent becauseand increased relative to year-end 2019 driven primarily by the growth in retained earnings, were 22which rose to 43 percent of regulatory capital stock andas we maintainedcontinued to maintain risk exposures at moderate levels. The decrease observed in the first quarter was driven primarily by increases in capital stock, due to purchases to support Advance growth, which reduces this ratio.

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 
 March 31, 2020 December 31, 2019
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
94% 98%
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
92
 95
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
99
 94
(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 9496 percent at March 31,September 30, 2020 indicates that the market value of total capital is $369$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 $76$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 March 31,September 30, 2020, our policy of over-collateralization resulted in total collateral pledged of $388.2$392.2 billion to serve members'support total borrowing capacity of $303.6$310.0 billion of which $95.7$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 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.
 
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 no member failures in 2020 through the date of this filing.

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 2019 Annual Report on Form 10-K. In light of the COVID-19 pandemic, we are closely monitoring the credit risk of our MPP portfolio. WeAlthough we may see an increasefurther increases in delinquencies due to the risingcurrent unemployment rate andlevel, 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 March 31,September 30, 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, 2019.2019 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)March 31, 2020 December 31, 2019
Early stage delinquencies - unpaid principal balance (1)
$38
 $40
Serious delinquencies - unpaid principal balance (2)
$11
 $12
Early stage delinquency rate (3)
0.3% 0.4%
Serious delinquency rate (4)
0.1% 0.1%
National average serious delinquency rate (5)
1.2% 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 March 31, 2020 rate is based on December 31, 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 minimal 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 $243$246 million and $233 million at March 31,September 30, 2020 and December 31, 2019, respectively. For more information, see Note 5 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 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)March 31, 2020 December 31, 2019(In millions)September 30, 2020December 31, 2019
Estimated credit losses, before credit enhancements$8
 $4
Estimated credit losses, before credit enhancements$8 $4 
Estimated amounts deemed recoverable by:   Estimated amounts deemed recoverable by:
Primary mortgage insurance—
 —
Primary mortgage insurance— — 
Supplemental mortgage insurance(2) (2)Supplemental mortgage insurance(2)(2)
Lender Risk Account(5) (1)Lender Risk Account(6)(1)
Estimated credit losses, after credit enhancements$1
 $1
Estimated credit losses, after credit enhancements$— $1 
The minimal amount of estimated credit losses provides further evidence of the overall health of the portfolio. As a result of adopting new accounting guidance, the estimated credit losses before credit enhancements increased at March 31,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. Our available credit enhancements at March 31,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 March 31,September 30, 2020 or December 31, 2019.

Separate from our allowance for credit losses analysis, we regularly analyze potential adverse scenarios of lifetime credit risk exposure for the loans in the MPP. Even under 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 are either short-term, or longer-term, but can be easily converted to cash and may be unsecured, guaranteed or supported by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the debt 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)March 31, 2020(In millions)September 30, 2020
Long-Term RatingLong-Term Rating
AA A TotalAAATotal
Unsecured Liquidity Investments     Unsecured Liquidity Investments
Interest-bearing deposits$—
 $780
 $780
Interest-bearing deposits$— $630 $630 
Federal funds soldFederal funds sold2,210 6,495 8,705 
Total unsecured liquidity investments—
 780
 780
Total unsecured liquidity investments2,210 7,125 9,335 
Guaranteed/Secured Liquidity Investments     Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell184
 —
 184
Securities purchased under agreements to resell2,454 — 2,454 
U.S. Treasury obligations9,895
 —
 9,895
U.S. Treasury obligations9,194 — 9,194 
GSE obligations2,269
 —
 2,269
GSE obligations2,291 — 2,291 
Total guaranteed/secured liquidity investments12,348
 —
 12,348
Total guaranteed/secured liquidity investments13,939 — 13,939 
Total liquidity investments$12,348
 $780
 $13,128
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 $20,924 
 December 31, 2019
 Long-Term Rating
 AA A Total
Unsecured Liquidity Investments     
Interest-bearing deposits$—
 $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

Our balance of liquidity investments decreasedincreased during the first threenine months of 2020 primarily because we decideddue to hold morethe volatility in Advance activity, especially the reductions in short-term and variable-rate Advance borrowings. The lower balance of our liquidity portfolio as depositsinvestments at the Federal Reserveend of the first quarter of 2020 was in light ofresponse to volatile market conditions and limited returns on other available liquidity investments. At March 31, 2020, we held $3.9 billion in deposits at the Federal Reserve, which are reflected in cash and due from banks on the Statements of Condition. 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.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) March 31, 2020(In millions)September 30, 2020
 Counterparty Rating  Counterparty Rating
Domicile of Counterparty A TotalDomicile of CounterpartyAAATotal
Domestic $780
 $780
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 
SwedenSweden750 1,115 1,865 
AustraliaAustralia— 1,350 1,350 
NetherlandsNetherlands— 865 865 
GermanyGermany— 835 835 
FranceFrance— 600 600 
FinlandFinland350 — 350 
NorwayNorway200 — 200 
Total U.S. branches and agency offices of foreign commercial banksTotal U.S. branches and agency offices of foreign commercial banks2,165 6,495 8,660 
Total unsecured investment credit exposure $780
 $780
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.counterparty or the domicile of the counterparty's immediate parent for U.S. branches and agency offices of foreign commercial banks.

(In millions) March 31, 2020(In millions)September 30, 2020
Domicile of Counterparty Overnight TotalDomicile of CounterpartyOvernightTotal
Domestic $780
 $780
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 
SwedenSweden1,865 1,865 
AustraliaAustralia1,350 1,350 
NetherlandsNetherlands865 865 
GermanyGermany835 835 
FranceFrance600 600 
FinlandFinland350 350 
NorwayNorway200 200 
Total U.S. branches and agency offices of foreign commercial banksTotal U.S. branches and agency offices of foreign commercial banks8,660 8,660 
Total unsecured investment credit exposure $780
 $780
Total unsecured investment credit exposure$9,335 $9,335 

At March 31,September 30, 2020, all of the $0.8$9.3 billion of unsecured investment exposure was to counterparties with holding companies domiciled in the United States.countries receiving either AAA or AA long-term sovereign ratings. Furthermore, allwe restrict a significant portion of unsecured lending at March 31, 2020 hadto 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 March 31,September 30, 2020, $11.1$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 $1.5$1.2 billion at March 31,September 30, 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 March 31,September 30, 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.

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(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 $893
 $3
 $(2) $1
BBB-rated 12
 —
 —
 —
Total uncleared derivatives 905
 3
 (2) 1
Cleared derivatives (1)
 30,734
 8
 317
 325
Liability positions with credit exposure:        
Cleared derivatives (1)
 2,953
 (1) 16
 15
Total derivative positions with credit exposure to nonmember counterparties 34,592
 10
 331
 341
Member institutions (2)
 580
 11
 —
 11
Total $35,172
 $21
 $331
 $352
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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 March 31,September 30, 2020, the net exposure of uncleared derivatives with residual credit risk exposure was less than $2$4 million. If interest rates rise or the composition of our derivatives change resulting in an increase to our gross exposure to uncleared derivatives, the contractual collateral provisions in these derivatives would limit our net exposure to acceptable levels.
Although we cannot predict if we will realize credit risk losses from any of our derivatives counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and, more generally, to continue to satisfy the terms and conditions of their derivative contracts with us. As of March 31,September 30, 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 threenine months of 2020, even in light of the temporary market disruptions earlier in the year caused by the COVID-19 pandemic during the period.pandemic. Our overall ability to effectively fund our operations through debt issuances remained sufficient. Investor demand for System debt was robust in the first threenine months of 2020, as investors preferred short-term, high-quality money market instruments amid the uncertainty in the financial markets due to the 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 threenine months of 2020, our portion of the System's debt issuances totaled $151.0$232.9 billion for Discount Notes and $9.4$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.

We adhere to the Finance Agency's Advisory Bulletin 2018-07 Federal Home Loan Bank Liquidity Guidance (Liquidity AB). The Liquidity AB establishes the expectations with respect to the maintenance of sufficient liquidity for a specified number of days. Under the 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 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 a period of between 10 to 30 calendar days. As of March 31,September 30, 2020, we maintained a sufficient number of days of positive daily cash balances under the Liquidity AB guidance.

The Liquidity AB also provides guidance related to asset/liability maturity funding gap limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. Although subject to change depending on conditions in the financial markets, the 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. As of March 31,September 30, 2020, we were operating within those limits.

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)March 31, 2020 December 31, 2019(In millions)September 30, 2020December 31, 2019
Deposit Reserve Requirement   Deposit Reserve Requirement
Total Eligible Deposit Reserves$90,311
 $61,590
Total Eligible Deposit Reserves$42,407 $61,590 
Total Member Deposits(1,186) (942)Total Member Deposits(1,239)(942)
Excess Deposit Reserves$89,125
 $60,648
Excess Deposit Reserves$41,168 $60,648 


Contractual Obligations
The following table summarizes our contractual obligations at March 31, 2020.September 30, 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)
$20,410
 $6,577
 $3,229
 $4,359
 $34,575
Operating leases (include premises and equipment)1
 2
 2
 2
 7
Mandatorily redeemable capital stock15
 1
 555
 1
 572
Commitments to fund mortgage loans765
 —
 —
 —
 765
Pension and other postretirement benefit obligations2
 5
 4
 37
 48
Total Contractual Obligations$21,193
 $6,585
 $3,790
 $4,399
 $35,967

(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 March 31, 2020.September 30, 2020. For more information, see Note 15 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.

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(In millions)< 1 year 1 < 3 years 3 < 5 years > 5 years Total
Off-balance sheet items (1)
         
Standby Letters of Credit$14,690
 $1,026
 $68
 $1
 $15,785
Standby bond purchase agreements26
 48
 —
 —
 74
Consolidated Obligations traded, not yet settled700
 —
 —
 48
 748
Total off-balance sheet items$15,416
 $1,074
 $68
 $49
 $16,607
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(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 threenine months of 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 March 31,September 30, 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 March 31,September 30, 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 March 31,September 30, 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 March 31,September 30, 2020 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 2019 Annual Report on Form 10-K. Other than the risk factor noted below, there have been no material changes from the risk factors in our 2019 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 hastemporarily 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. have been forced to suspendsuspended or modified operations for an indefinitea period of time in an attempt to slow the spread of the virus, andresulting in higher unemployment claims have increased dramatically as more employers layoff workers.claims. Ultimately, the significant 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 the 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 a prolongedthe COVID-19 outbreakpandemic may adversely affect the FHLBanks’ access to the debt markets and possibly affect our liquidity. Our decision to have most employees work remotely in accordance with local “stay-at-home” orders 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 keepswill keep interest rates low or even usesuse negative interest rates, which could significantly affect our business and profitability.



Item 6.    Exhibits.
Item 6.
Exhibits.

Exhibit
Number (1)
Description of exhibit
Document filed or

furnished, as indicated below
Filed Herewith
Filed Herewith
Furnished Herewith
101.INS
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)(1)     Numbers coincide with Item 601 of Regulation 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 MayNovember 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)



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