UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51404
FEDERAL HOME LOAN BANK OF INDIANAPOLIS
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Federally Chartered Corporation | | 35-6001443 |
(State or other jurisdiction of incorporation) | | (IRS employer identification number) |
| |
8250 Woodfield Crossing Blvd. Indianapolis, IN | | 46240 |
(Address of principal executive offices) | | (Zip code) |
(317) 465-0200
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | None | 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 for the past 90 days.
x Yes o 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o 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 definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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☐ | Large accelerated filer | ☐ | Accelerated filer | ☐ | Emerging growth company |
x | Non-accelerated Filer | ☐ | Smaller reporting 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.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| | | | | |
| Shares outstanding as of October 31, 20202021 |
Class A Stock, par value $100 | — | |
Class B Stock, par value $100 | 24,861,25122,965,620 | |
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Table of Contents | Page |
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| Special Note Regarding Forward-Looking Statements | |
PART I. | FINANCIAL INFORMATION | |
Item 1. | FINANCIAL STATEMENTS (unaudited) | |
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| Statements of Condition as of September 30, 20202021 and December 31, 20192020 | |
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| Statements of Income for the Three and Nine Months Ended September 30, 20202021 and 20192020 | |
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| Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 20202021 and 20192020 | |
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| Statements of Capital for the Three and Nine Months Ended September 30, 20202021 and 20192020 | |
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| Statements of Cash Flows for the Nine Months Ended September 30, 20202021 and 20192020 | |
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| Notes to Financial Statements: | |
| Note 1 - Summary of Significant Accounting Policies | |
| Note 2 - Recently Adopted and Issued Accounting Guidance | |
| Note 3 - Investments | |
| Note 4 - Advances | |
| Note 5 - Mortgage Loans Held for Portfolio | |
| Note 6 - Derivatives and Hedging Activities | |
| Note 7 - Consolidated Obligations | |
| Note 8 - Affordable Housing Program | |
| Note 9 - Capital | |
| Note 10 - Accumulated Other Comprehensive Income | |
| Note 11 - Segment Information | |
| Note 12 - Estimated Fair Values | |
| Note 13 - Commitments and Contingencies | |
| Note 14 - Related Party and Other Transactions | |
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| Defined Terms | |
| | |
Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
| Presentation | |
| Executive Summary | |
| Selected Financial Data | |
| Results of Operations and Changes in Financial Condition | |
| Operating Segments | |
| Analysis of Financial Condition | |
| Liquidity and Capital Resources | |
| Off-Balance Sheet Arrangements | |
| Critical Accounting Policies and Estimates | |
| Recent Accounting and Regulatory Developments | |
| Risk Management | |
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
Item 4. | CONTROLS AND PROCEDURES | |
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PART II. | OTHER INFORMATION | |
Item 1. | LEGAL PROCEEDINGS | |
Item 1A. | RISK FACTORS | |
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |
Item 3. | DEFAULTS UPON SENIOR SECURITIES | |
Item 4. | MINE SAFETY DISCLOSURES | |
Item 5. | OTHER INFORMATION | |
Item 6. | EXHIBITS | |
As used in this Form 10-Q, unless the context otherwise requires, the terms "we," "us," "our," and the "Bank" refer to the Federal Home Loan Bank of Indianapolis or its management. We use acronyms and terms throughout that are defined herein or in the Defined Terms in Part I Item 1.
Special Note Regarding Forward-Looking Statements
Statements in this Form 10-Q, including statements describing our objectives, projections, estimates or predictions, may be considered to be "forward-looking statements." These statements may use forward-looking terminology, such as "anticipates," "believes," "could," "estimates," "may," "should," "expects," "will," or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements involve risk or uncertainty and that actual results either could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following:
•economic and market conditions, including the timing and volume of market activity, inflation or deflation, changes in the value of global currencies, and changes in the financial condition of market participants;
•volatility of market prices, interest rates, and indices or the availability of suitable interest rate indices, or other factors, resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, including those determined by the FRBFederal Reserve and the FDIC, or a decline in liquidity in the financial markets, that could affect the value of investments or collateral we hold as security for the obligations of our members and counterparties;
•changes in demand for our advances and purchases of mortgage loans resulting from:
◦changes in our members' deposit flows and credit demands;
◦changes in products or services we are able to provide;
◦federal or state regulatory developments impacting suitability or eligibility of membership classes;
◦membership changes, including, but not limited to, mergers, acquisitions and consolidations of charters;
◦changes in the general level of housing activity in the United States and particularly our district states of Michigan and Indiana, the level of refinancing activity and consumer product preferences;
◦competitive forces, including, without limitation, other sources of funding available to our members; and
◦changes in the terms and conditions of ownership of our capital stock;
•changes in mortgage asset prepayment patterns, delinquency rates and housing values or improper or inadequate mortgage originations and mortgage servicing;
•ability to introduce and successfully manage new products and services, including new types of collateral securing advances;
•political events, including federal government shutdowns, administrative, legislative, regulatory, or other developments, national or international health crises (such as the COVID-19 pandemic) and the responses of governments and financial markets to such crises, changes in international political structures and alliances, and judicial rulings that affect us, our status as a secured creditor, our members (or certain classes of members), prospective members, counterparties, GSEs generally, one or more of the FHLBanks and/or investors in the consolidated obligations of the FHLBanks;
•national or international health crises, such as the COVID-19 pandemic, including any resurgence of the pandemic, new and evolving pandemic strains, and the effects of health crises on our and our counterparties' operations, member demand, market liquidity, and the global funding markets, and the governmental, regulatory, and fiscal interventions undertaken to stabilize local, national, and global economic conditions;
•ability to access the capital markets and raise capital market funding on acceptable terms;
•changes in our credit ratings or the credit ratings of the other FHLBanks and the FHLBank System;
•changes in the level of government guarantees provided to other United States and international financial institutions;
•dealer commitment to supporting the issuance of our consolidated obligations;
•ability of one or more of the FHLBanks to repay its portion of the consolidated obligations, or otherwise meet its financial obligations;
•ability to attract and retain skilled personnel;
•ability to develop, implement and support technology and information systems sufficient to manage our business effectively;
•nonperformance of counterparties to uncleared and cleared derivative transactions;
•changes in terms of derivative agreements and similar agreements;
•loss arising from natural disasters, acts of war, riots, insurrection or acts of terrorism;
•changes in or differing interpretations of accounting guidance; and
•other risk factors identified in our filings with the SEC.
Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, additional disclosures may be made through reports filed with the SEC in the future, including our Forms 10-K, 10-Q and 8-K.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Federal Home Loan Bank of Indianapolis
Statements of Condition
(Unaudited, $ amounts in thousands, except par value)
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| September 30, 2020 | | December 31, 2019 |
Assets: | | | |
Cash and due from banks | $ | 130,595 | | | $ | 220,294 | |
Interest-bearing deposits (Note 3) | 56,028 | | | 809,141 | |
Securities purchased under agreements to resell (Note 3) | 4,500,000 | | | 1,500,000 | |
Federal funds sold (Note 3) | 952,000 | | | 2,550,000 | |
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Trading securities (Note 3) | 5,058,984 | | | 5,016,649 | |
Available-for-sale securities, amortized cost of $10,266,677 and $8,394,665 (Note 3) | 10,363,969 | | | 8,484,478 | |
Held-to-maturity securities, net (estimated fair values of $4,296,287 and $5,216,206) (Note 3) | 4,272,457 | | | 5,216,401 | |
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Advances (Note 4) | 31,264,246 | | | 32,480,108 | |
Mortgage loans held for portfolio, net (Note 5) | 9,237,185 | | | 10,815,037 | |
Accrued interest receivable | 105,170 | | | 131,822 | |
Premises, software, and equipment, net | 35,126 | | | 36,549 | |
Derivative assets, net (Note 6) | 319,838 | | | 208,008 | |
Other assets | 46,064 | | | 42,288 | |
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Total assets | $ | 66,341,662 | | | $ | 67,510,775 | |
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Liabilities: | | | |
Deposits | $ | 1,299,227 | | | $ | 960,304 | |
Consolidated obligations (Note 7): | | | |
Discount notes | 19,461,386 | | | 17,676,793 | |
Bonds | 41,148,153 | | | 44,715,224 | |
Total consolidated obligations, net | 60,609,539 | | | 62,392,017 | |
Accrued interest payable | 64,322 | | | 178,981 | |
Affordable Housing Program payable (Note 8) | 34,581 | | | 38,084 | |
Derivative liabilities, net (Note 6) | 6,991 | | | 3,206 | |
Mandatorily redeemable capital stock (Note 9) | 262,454 | | | 322,902 | |
Other liabilities | 642,985 | | | 458,521 | |
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Total liabilities | 62,920,099 | | | 64,354,015 | |
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Commitments and contingencies (Note 13) | | | |
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Capital (Note 9): | | | |
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Capital stock (putable at par value of $100 per share): | | | |
Class B issued and outstanding shares: 22,236,699 and 19,740,755, respectively | 2,223,670 | | | 1,974,076 | |
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Retained earnings: | | | |
Unrestricted | 861,455 | | | 864,454 | |
Restricted | 262,390 | | | 250,854 | |
Total retained earnings | 1,123,845 | | | 1,115,308 | |
Total accumulated other comprehensive income (loss) (Note 10) | 74,048 | | | 67,376 | |
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Total capital | 3,421,563 | | | 3,156,760 | |
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Total liabilities and capital | $ | 66,341,662 | | | $ | 67,510,775 | |
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| September 30, 2021 | | December 31, 2020 |
Assets: | | | |
Cash and due from banks | $ | 1,953,744 | | | $ | 1,811,544 | |
Interest-bearing deposits (Note 3) | 100,041 | | | 100,026 | |
Securities purchased under agreements to resell (Note 3) | 4,200,000 | | | 2,500,000 | |
Federal funds sold (Note 3) | 2,075,000 | | | 1,215,000 | |
Trading securities (Note 3) | 4,858,818 | | | 5,094,703 | |
Available-for-sale securities, amortized cost of $9,141,491 and $10,007,978 (Note 3) | 9,319,579 | | | 10,144,899 | |
Held-to-maturity securities (estimated fair values of $4,510,359 and $4,723,796) (Note 3) | 4,496,595 | | | 4,701,302 | |
Advances (Note 4) | 26,958,039 | | | 31,347,486 | |
Mortgage loans held for portfolio, net (Note 5) | 7,570,462 | | | 8,515,645 | |
Accrued interest receivable | 75,813 | | | 103,076 | |
Premises, software, and equipment, net | 31,541 | | | 33,993 | |
Derivative assets, net (Note 6) | 231,280 | | | 283,082 | |
Other assets | 89,482 | | | 74,000 | |
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Total assets | $ | 61,960,394 | | | $ | 65,924,756 | |
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Liabilities: | | | |
Deposits | $ | 1,736,009 | | | $ | 1,375,206 | |
Consolidated obligations (Note 7): | | | |
Discount notes | 12,713,890 | | | 16,617,079 | |
Bonds | 43,225,386 | | | 43,332,946 | |
Total consolidated obligations, net | 55,939,276 | | | 59,950,025 | |
Accrued interest payable | 64,042 | | | 63,581 | |
Affordable Housing Program payable (Note 8) | 30,466 | | | 34,402 | |
Derivative liabilities, net (Note 6) | 18,542 | | | 22,979 | |
Mandatorily redeemable capital stock (Note 9) | 50,442 | | | 250,768 | |
Other liabilities | 570,382 | | | 777,493 | |
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Total liabilities | 58,409,159 | | | 62,474,454 | |
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Commitments and contingencies (Note 13) | 0 | | 0 |
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Capital (Note 9): | | | |
Capital stock (putable at par value of $100 per share): | | | |
Class B issued and outstanding shares: 22,364,922 and 22,075,696, respectively | 2,236,492 | | | 2,207,570 | |
Retained earnings: | | | |
Unrestricted | 881,456 | | | 868,904 | |
Restricted | 281,820 | | | 268,426 | |
Total retained earnings | 1,163,276 | | | 1,137,330 | |
Total accumulated other comprehensive income (Note 10) | 151,467 | | | 105,402 | |
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Total capital | 3,551,235 | | | 3,450,302 | |
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Total liabilities and capital | $ | 61,960,394 | | | $ | 65,924,756 | |
The accompanying notes are an integral part of these financial statements.
4
Federal Home Loan Bank of Indianapolis
Statements of Income
(Unaudited, $ amounts in thousands)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| |
| 2020 | | 2019 | | 2020 | | 2019 |
Interest Income: | | | | | | | |
Advances | $ | 45,084 | | | $ | 207,226 | | | $ | 291,030 | | | $ | 641,126 | |
Interest-bearing deposits | 364 | | | 6,923 | | | 5,396 | | | 16,610 | |
Securities purchased under agreements to resell | 820 | | | 24,212 | | | 10,879 | | | 69,872 | |
Federal funds sold | 542 | | | 10,163 | | | 10,155 | | | 50,678 | |
Trading securities | 22,335 | | | 18,441 | | | 71,651 | | | 31,896 | |
Available-for-sale securities | 22,539 | | | 48,360 | | | 72,682 | | | 154,627 | |
Held-to-maturity securities | 11,201 | | | 36,388 | | | 60,147 | | | 116,245 | |
Mortgage loans held for portfolio | 48,268 | | | 87,741 | | | 189,496 | | | 277,440 | |
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Total interest income | 151,153 | | | 439,454 | | | 711,436 | | | 1,358,494 | |
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Interest Expense: | | | | | | | |
Consolidated obligation discount notes | 10,967 | | | 110,286 | | | 111,056 | | | 368,799 | |
Consolidated obligation bonds | 77,398 | | | 271,639 | | | 398,449 | | | 803,497 | |
Deposits | 32 | | | 3,655 | | | 2,821 | | | 10,170 | |
Mandatorily redeemable capital stock | 2,037 | | | 3,514 | | | 7,777 | | | 8,585 | |
Other interest expense | 0 | | | 36 | | | 0 | | | 36 | |
Total interest expense | 90,434 | | | 389,130 | | | 520,103 | | | 1,191,087 | |
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Net interest income | 60,719 | | | 50,324 | | | 191,333 | | | 167,407 | |
Provision for (reversal of) credit losses | 124 | | | (180) | | | 172 | | | (166) | |
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Net interest income after provision for credit losses | 60,595 | | | 50,504 | | | 191,161 | | | 167,573 | |
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Other Income: | | | | | | | |
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Net realized gains from sale of available-for-sale securities | 504 | | | 0 | | | 504 | | | 0 | |
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Net gains (losses) on trading securities | (19,331) | | | 5,601 | | | 1,975 | | | 26,257 | |
Net losses on derivatives and hedging activities | (297) | | | (3,612) | | | (52,124) | | | (21,399) | |
Service fees | 128 | | | 186 | | | 425 | | | 581 | |
Standby letters of credit fees | 188 | | | 201 | | | 506 | | | 503 | |
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Other, net | 1,931 | | | 410 | | | 1,911 | | | 3,328 | |
Total other income (loss) | (16,877) | | | 2,786 | | | (46,803) | | | 9,270 | |
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Other Expenses: | | | | | | | |
Compensation and benefits | 14,519 | | | 12,698 | | | 44,156 | | | 40,255 | |
Other operating expenses | 7,847 | | | 7,925 | | | 22,881 | | | 21,045 | |
Federal Housing Finance Agency | 1,181 | | | 1,012 | | | 3,516 | | | 3,009 | |
Office of Finance | 1,293 | | | 1,370 | | | 3,604 | | | 3,515 | |
Other | 2,053 | | | 1,154 | | | 5,244 | | | 3,526 | |
Total other expenses | 26,893 | | | 24,159 | | | 79,401 | | | 71,350 | |
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Income before assessments | 16,825 | | | 29,131 | | | 64,957 | | | 105,493 | |
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Affordable Housing Program assessments | 1,886 | | | 3,265 | | | 7,273 | | | 11,408 | |
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Net income | $ | 14,939 | | | $ | 25,866 | | | $ | 57,684 | | | $ | 94,085 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Interest Income: | | | | | | | |
Advances | $ | 20,432 | | | $ | 45,084 | | | $ | 84,716 | | | $ | 291,030 | |
Interest-bearing deposits | 136 | | | 364 | | | 413 | | | 5,396 | |
Securities purchased under agreements to resell | 540 | | | 820 | | | 1,192 | | | 10,879 | |
Federal funds sold | 728 | | | 542 | | | 2,182 | | | 10,155 | |
Trading securities | 10,473 | | | 22,335 | | | 41,064 | | | 71,651 | |
Available-for-sale securities | 22,477 | | | 22,539 | | | 73,497 | | | 72,682 | |
Held-to-maturity securities | 7,694 | | | 11,201 | | | 25,367 | | | 60,147 | |
Mortgage loans held for portfolio | 44,111 | | | 48,268 | | | 124,512 | | | 189,496 | |
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Total interest income | 106,591 | | | 151,153 | | | 352,943 | | | 711,436 | |
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Interest Expense: | | | | | | | |
Consolidated obligation discount notes | 1,675 | | | 10,967 | | | 7,607 | | | 111,056 | |
Consolidated obligation bonds | 46,601 | | | 77,398 | | | 153,071 | | | 398,449 | |
Deposits | 42 | | | 32 | | | 122 | | | 2,821 | |
Mandatorily redeemable capital stock | 312 | | | 2,037 | | | 2,345 | | | 7,777 | |
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Total interest expense | 48,630 | | | 90,434 | | | 163,145 | | | 520,103 | |
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Net interest income | 57,961 | | | 60,719 | | | 189,798 | | | 191,333 | |
Provision for (reversal of) credit losses | (16) | | | 124 | | | 28 | | | 172 | |
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Net interest income after provision for credit losses | 57,977 | | | 60,595 | | | 189,770 | | | 191,161 | |
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Other Income: | | | | | | | |
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Net gains (losses) on trading securities | (8,207) | | | (19,331) | | | (35,566) | | | 1,975 | |
Net realized gains from sale of available-for-sale securities | — | | | 504 | | | — | | | 504 | |
Net gains (losses) on derivatives | (1,361) | | | (297) | | | (2,013) | | | (52,124) | |
Service fees | 123 | | | 128 | | | 382 | | | 425 | |
Standby letters of credit fees | 189 | | | 188 | | | 614 | | | 506 | |
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Other, net | 389 | | | 1,931 | | | 4,972 | | | 1,911 | |
Total other income (loss) | (8,867) | | | (16,877) | | | (31,611) | | | (46,803) | |
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Other Expenses: | | | | | | | |
Compensation and benefits | 14,570 | | | 14,519 | | | 44,420 | | | 44,156 | |
Other operating expenses | 7,352 | | | 7,847 | | | 22,041 | | | 22,881 | |
Federal Housing Finance Agency | 1,473 | | | 1,181 | | | 4,420 | | | 3,516 | |
Office of Finance | 1,493 | | | 1,293 | | | 4,718 | | | 3,604 | |
Other | 2,030 | | | 2,053 | | | 7,887 | | | 5,244 | |
Total other expenses | 26,918 | | | 26,893 | | | 83,486 | | | 79,401 | |
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Income before assessments | 22,192 | | | 16,825 | | | 74,673 | | | 64,957 | |
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Affordable Housing Program assessments | 2,250 | | | 1,886 | | | 7,702 | | | 7,273 | |
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Net income | $ | 19,942 | | | $ | 14,939 | | | $ | 66,971 | | | $ | 57,684 | |
The accompanying notes are an integral part of these financial statements.
5
Federal Home Loan Bank of Indianapolis
Statements of Comprehensive Income
(Unaudited, $ amounts in thousands)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
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| 2020 | | 2019 | | 2020 | | 2019 |
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Net income | $ | 14,939 | | | $ | 25,866 | | | $ | 57,684 | | | $ | 94,085 | |
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Other Comprehensive Income: | | | | | | | |
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Net change in unrealized gains (losses) on available-for-sale securities | 77,290 | | | (2,139) | | | 7,479 | | | 16,842 | |
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Pension benefits, net | 867 | | | 486 | | | (807) | | | (2,882) | |
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Total other comprehensive income (loss) | 78,157 | | | (1,653) | | | 6,672 | | | 13,960 | |
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Total comprehensive income | $ | 93,096 | | | $ | 24,213 | | | $ | 64,356 | | | $ | 108,045 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
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Net income | $ | 19,942 | | | $ | 14,939 | | | $ | 66,971 | | | $ | 57,684 | |
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Other Comprehensive Income: | | | | | | | |
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Net change in unrealized gains (losses) on available-for-sale securities | (36,864) | | | 77,290 | | | 41,167 | | | 7,479 | |
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Pension benefits, net | (5,093) | | | 867 | | | 4,898 | | | (807) | |
| | | | | | | |
Total other comprehensive income (loss) | (41,957) | | | 78,157 | | | 46,065 | | | 6,672 | |
| | | | | | | |
Total comprehensive income (loss) | $ | (22,015) | | | $ | 93,096 | | | $ | 113,036 | | | $ | 64,356 | |
The accompanying notes are an integral part of these financial statements.
6
Federal Home Loan Bank of Indianapolis
Statements of Capital
Three Months Ended September 30, 20202021 and 20192020
(Unaudited, $ amounts and shares in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Capital Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Capital |
| | Shares | | Par Value | | Unrestricted | | Restricted | | Total | | |
| | | | | | | | | | | | | | |
Balance, June 30, 2020 | | 21,943 | | | $ | 2,194,319 | | | $ | 868,328 | | | $ | 259,403 | | | $ | 1,127,731 | | | $ | (4,109) | | | $ | 3,317,941 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | | | | | 11,952 | | | 2,987 | | | 14,939 | | | 78,157 | | | 93,096 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 305 | | | 30,432 | | | | | | | | | | | 30,432 | |
| | | | | | | | | | | | | | |
Redemption/repurchase of capital stock | | (6) | | | (585) | | | | | | | | | | | (585) | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (5) | | | (496) | | | | | | | | | | | (496) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (3.50% annualized) | | | | | | (18,825) | | | — | | | (18,825) | | | | | (18,825) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2020 | | 22,237 | | | $ | 2,223,670 | | | $ | 861,455 | | | $ | 262,390 | | | $ | 1,123,845 | | | $ | 74,048 | | | $ | 3,421,563 | |
| | | | | | | | | | | | | | |
Balance, June 30, 2019 | | 20,485 | | | $ | 2,048,523 | | | $ | 856,911 | | | $ | 236,142 | | | $ | 1,093,053 | | | $ | 57,300 | | | $ | 3,198,876 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | | | | | 20,692 | | | 5,174 | | | 25,866 | | | (1,653) | | | 24,213 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 398 | | | 39,796 | | | | | | | | | | | 39,796 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (1,489) | | | (148,870) | | | | | | | | | | | (148,870) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (5.50% annualized) | | | | | | (28,339) | | | — | | | (28,339) | | | | | (28,339) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2019 | | 19,394 | | | $ | 1,939,449 | | | $ | 849,264 | | | $ | 241,316 | | | $ | 1,090,580 | | | $ | 55,647 | | | $ | 3,085,676 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Capital Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total Capital |
| | Shares | | Par Value | | Unrestricted | | Restricted | | Total | | |
| | | | | | | | | | | | | | |
Balance, June 30, 2021 | | 22,339 | | | $ | 2,233,916 | | | $ | 878,581 | | | $ | 277,832 | | | $ | 1,156,413 | | | $ | 193,424 | | | $ | 3,583,753 | |
| | | | | | | | | | | | | | |
Total comprehensive income (loss) | | | | | | 15,954 | | | 3,988 | | | 19,942 | | | (41,957) | | | (22,015) | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 183 | | | 18,302 | | | | | | | | | | | 18,302 | |
| | | | | | | | | | | | | | |
Redemption/repurchase of capital stock | | (113) | | | (11,277) | | | | | | | | | | | (11,277) | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (44) | | | (4,449) | | | | | | | | | | | (4,449) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (2.35% annualized) | | | | | | (13,079) | | | — | | | (13,079) | | | | | (13,079) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2021 | | 22,365 | | | $ | 2,236,492 | | | $ | 881,456 | | | $ | 281,820 | | | $ | 1,163,276 | | | $ | 151,467 | | | $ | 3,551,235 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, June 30, 2020 | | 21,943 | | | $ | 2,194,319 | | | $ | 868,328 | | | $ | 259,403 | | | $ | 1,127,731 | | | $ | (4,109) | | | $ | 3,317,941 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | | | | | 11,952 | | | 2,987 | | | 14,939 | | | 78,157 | | | 93,096 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 305 | | | 30,432 | | | | | | | | | | | 30,432 | |
| | | | | | | | | | | | | | |
Redemption/repurchase of capital stock | | (6) | | | (585) | | | | | | | | | | | (585) | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (5) | | | (496) | | | | | | | | | | | (496) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (3.50% annualized) | | | | | | (18,825) | | | — | | | (18,825) | | | | | (18,825) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2020 | | 22,237 | | | $ | 2,223,670 | | | $ | 861,455 | | | $ | 262,390 | | | $ | 1,123,845 | | | $ | 74,048 | | | $ | 3,421,563 | |
The accompanying notes are an integral part of these financial statements.
7
Federal Home Loan Bank of Indianapolis
Statements of Capital
Nine Months Ended September 30, 20202021 and 20192020
(Unaudited, $ amounts and shares in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Capital |
| | Shares | | Par Value | | Unrestricted | | Restricted | | Total | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, December 31, 2019 | | 19,741 | | | $ | 1,974,076 | | | $ | 864,454 | | | $ | 250,854 | | | $ | 1,115,308 | | | $ | 67,376 | | | $ | 3,156,760 | |
| | | | | | | | | | | | | | |
Total comprehensive income (loss) | | | | | | 46,148 | | | 11,536 | | | 57,684 | | | 6,672 | | | 64,356 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 2,640 | | | 264,022 | | | | | | | | | | | 264,022 | |
| | | | | | | | | | | | | | |
Redemption/repurchase of capital stock | | (6) | | | (585) | | | | | | | | | | | (585) | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (138) | | | (13,843) | | | | | | | | | | | (13,843) | |
| | | | | | | | | | | | | | |
Partial recovery of prior capital distribution to Financing Corporation | | | | | | 10,574 | | | — | | | 10,574 | | | | | 10,574 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (3.91% annualized) | | | | | | (59,721) | | | — | | | (59,721) | | | | | (59,721) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2020 | | 22,237 | | | $ | 2,223,670 | | | $ | 861,455 | | | $ | 262,390 | | | $ | 1,123,845 | | | $ | 74,048 | | | $ | 3,421,563 | |
| | | | | | | | | | | | | | |
Balance, December 31, 2018 | | 19,310 | | | $ | 1,930,952 | | | $ | 855,311 | | | $ | 222,499 | | | $ | 1,077,810 | | | $ | 41,687 | | | $ | 3,050,449 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | | | | | 75,268 | | | 18,817 | | | 94,085 | | | 13,960 | | | 108,045 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 1,594 | | | 159,476 | | | | | | | | | | | 159,476 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (1,510) | | | (150,979) | | | | | | | | | | | (150,979) | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (5.50% annualized) | | | | | | (81,315) | | | — | | | (81,315) | | | | | (81,315) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2019 | | 19,394 | | | $ | 1,939,449 | | | $ | 849,264 | | | $ | 241,316 | | | $ | 1,090,580 | | | $ | 55,647 | | | $ | 3,085,676 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total Capital |
| | Shares | | Par Value | | Unrestricted | | Restricted | | Total | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, December 31, 2020 | | 22,076 | | | $ | 2,207,570 | | | $ | 868,904 | | | $ | 268,426 | | | $ | 1,137,330 | | | $ | 105,402 | | | $ | 3,450,302 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | | | | | 53,577 | | | 13,394 | | | 66,971 | | | 46,065 | | | 113,036 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 449 | | | 44,929 | | | | | | | | | | | 44,929 | |
| | | | | | | | | | | | | | |
Redemption/repurchase of capital stock | | (113) | | | (11,277) | | | | | | | | | | | (11,277) | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (47) | | | (4,730) | | | | | | | | | | | (4,730) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (2.48% annualized) | | | | | | (41,025) | | | — | | | (41,025) | | | | | (41,025) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2021 | | 22,365 | | | $ | 2,236,492 | | | $ | 881,456 | | | $ | 281,820 | | | $ | 1,163,276 | | | $ | 151,467 | | | $ | 3,551,235 | |
| | | | | | | | | | | | | | |
Balance, December 31, 2019 | | 19,741 | | | $ | 1,974,076 | | | $ | 864,454 | | | $ | 250,854 | | | $ | 1,115,308 | | | $ | 67,376 | | | $ | 3,156,760 | |
| | | | | | | | | | | | | | |
Total comprehensive income | | | | | | 46,148 | | | 11,536 | | | 57,684 | | | 6,672 | | | 64,356 | |
| | | | | | | | | | | | | | |
Proceeds from issuance of capital stock | | 2,640 | | | 264,022 | | | | | | | | | | | 264,022 | |
| | | | | | | | | | | | | | |
Redemption/repurchase of capital stock | | (6) | | | (585) | | | | | | | | | | | (585) | |
| | | | | | | | | | | | | | |
Shares reclassified to mandatorily redeemable capital stock, net | | (138) | | | (13,843) | | | | | | | | | | | (13,843) | |
| | | | | | | | | | | | | | |
Partial recovery of prior capital distribution to Financing Corporation | | | | | | 10,574 | | | — | | | 10,574 | | | | | 10,574 | |
| | | | | | | | | | | | | | |
Cash dividends on capital stock (3.91% annualized) | | | | | | (59,721) | | | — | | | (59,721) | | | | | (59,721) | |
| | | | | | | | | | | | | | |
Balance, September 30, 2020 | | 22,237 | | | $ | 2,223,670 | | | $ | 861,455 | | | $ | 262,390 | | | $ | 1,123,845 | | | $ | 74,048 | | | $ | 3,421,563 | |
The accompanying notes are an integral part of these financial statements.
8
Federal Home Loan Bank of Indianapolis
Statements of Cash Flows
(Unaudited, $ amounts in thousands)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net income | Net income | $ | 57,684 | | | $ | 94,085 | | Net income | $ | 66,971 | | | $ | 57,684 | |
Adjustments to reconcile net income to net cash used in operating activities: | | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
Amortization and depreciation | Amortization and depreciation | 53,918 | | | 61,251 | | Amortization and depreciation | 61,766 | | | 53,918 | |
| Changes in net derivative and hedging activities | Changes in net derivative and hedging activities | (470,940) | | | (348,291) | | Changes in net derivative and hedging activities | 87,188 | | | (470,940) | |
| Provision for (reversal of) credit losses | 172 | | | (166) | | |
Net gains on trading securities | (1,975) | | | (26,257) | | |
Provision for credit losses | | Provision for credit losses | 28 | | | 172 | |
Net losses (gains) on trading securities | | Net losses (gains) on trading securities | 35,566 | | | (1,975) | |
Net realized gains from sale of available-for-sale securities | Net realized gains from sale of available-for-sale securities | (504) | | | 0 | | Net realized gains from sale of available-for-sale securities | — | | | (504) | |
| Changes in: | Changes in: | | Changes in: | |
Accrued interest receivable | Accrued interest receivable | 26,910 | | | (8,667) | | Accrued interest receivable | 26,750 | | | 26,910 | |
Other assets | Other assets | (1,670) | | | (736) | | Other assets | (17,725) | | | (1,670) | |
Accrued interest payable | Accrued interest payable | (114,660) | | | (3,243) | | Accrued interest payable | 461 | | | (114,660) | |
Other liabilities | Other liabilities | 44,253 | | | 16,652 | | Other liabilities | 19,697 | | | 44,253 | |
Total adjustments, net | Total adjustments, net | (464,496) | | | (309,457) | | Total adjustments, net | 213,731 | | | (464,496) | |
| Net cash used in operating activities | (406,812) | | | (215,372) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 280,702 | | | (406,812) | |
| Investing Activities: | Investing Activities: | | Investing Activities: | |
Net change in: | Net change in: | | Net change in: | |
Interest-bearing deposits | Interest-bearing deposits | (34,408) | | | 221,363 | | Interest-bearing deposits | 492,551 | | | (34,408) | |
Securities purchased under agreements to resell | Securities purchased under agreements to resell | (3,000,000) | | | (337,274) | | Securities purchased under agreements to resell | (1,700,000) | | | (3,000,000) | |
Federal funds sold | Federal funds sold | 1,598,000 | | | 1,670,000 | | Federal funds sold | (860,000) | | | 1,598,000 | |
Trading securities: | Trading securities: | | Trading securities: | |
Proceeds from maturities | Proceeds from maturities | 3,160,000 | | | 0 | | Proceeds from maturities | 2,000,000 | | | 3,160,000 | |
Proceeds from sales | | Proceeds from sales | 50,006 | | | — | |
Purchases | Purchases | (3,200,361) | | | (4,385,044) | | Purchases | (1,849,689) | | | (3,200,361) | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Proceeds from maturities | Proceeds from maturities | 93,550 | | | 510,500 | | Proceeds from maturities | 727,875 | | | 93,550 | |
Proceeds from sales | Proceeds from sales | 96,779 | | | 0 | | Proceeds from sales | — | | | 96,779 | |
Purchases | Purchases | (1,564,036) | | | (610,415) | | Purchases | (140,093) | | | (1,564,036) | |
Held-to-maturity securities: | Held-to-maturity securities: | | Held-to-maturity securities: | |
Proceeds from maturities | Proceeds from maturities | 1,128,834 | | | 813,026 | | Proceeds from maturities | 770,773 | | | 1,128,834 | |
| Purchases | Purchases | (125,019) | | | (109,369) | | Purchases | (742,571) | | | (125,019) | |
Advances: | Advances: | | Advances: | |
Principal repayments | Principal repayments | 199,835,256 | | | 289,850,757 | | Principal repayments | 193,228,613 | | | 199,835,256 | |
Disbursements to members | Disbursements to members | (198,028,162) | | | (289,182,302) | | Disbursements to members | (189,160,818) | | | (198,028,162) | |
Mortgage loans held for portfolio: | Mortgage loans held for portfolio: | | Mortgage loans held for portfolio: | |
Principal collections | Principal collections | 3,175,183 | | | 1,211,661 | | Principal collections | 2,348,187 | | | 3,175,183 | |
Purchases from members | Purchases from members | (1,509,048) | | | (876,635) | | Purchases from members | (1,577,038) | | | (1,509,048) | |
Purchases of premises, software, and equipment | Purchases of premises, software, and equipment | (3,889) | | | (4,596) | | Purchases of premises, software, and equipment | (3,375) | | | (3,889) | |
Loans to other Federal Home Loan Banks: | Loans to other Federal Home Loan Banks: | | Loans to other Federal Home Loan Banks: | |
Principal repayments | Principal repayments | 80,000 | | | 0 | | Principal repayments | 30,000 | | | 80,000 | |
Disbursements | Disbursements | (80,000) | | | 0 | | Disbursements | (30,000) | | | (80,000) | |
| Net cash provided by (used in) investing activities | 1,622,679 | | | (1,228,328) | | |
Net cash provided by investing activities | | Net cash provided by investing activities | 3,584,421 | | | 1,622,679 | |
(continued)
The accompanying notes are an integral part of these financial statements.
9
Federal Home Loan Bank of Indianapolis
Statements of Cash Flows, continued
(Unaudited, $ amounts in thousands)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Changes in deposits | Changes in deposits | 338,552 | | | 128,515 | | Changes in deposits | 360,803 | | | 338,552 | |
Net payments on derivative contracts with financing elements | Net payments on derivative contracts with financing elements | (2,307) | | | 185 | | Net payments on derivative contracts with financing elements | (11,629) | | | (2,307) | |
Net proceeds from issuance of consolidated obligations: | Net proceeds from issuance of consolidated obligations: | | Net proceeds from issuance of consolidated obligations: | |
Discount notes | Discount notes | 238,137,022 | | | 245,285,750 | | Discount notes | 183,417,467 | | | 238,137,022 | |
Bonds | Bonds | 37,468,384 | | | 28,145,595 | | Bonds | 33,114,188 | | | 37,468,384 | |
Payments for matured and retired consolidated obligations: | Payments for matured and retired consolidated obligations: | | Payments for matured and retired consolidated obligations: | |
Discount notes | Discount notes | (236,329,608) | | | (250,889,998) | | Discount notes | (187,316,013) | | | (236,329,608) | |
Bonds | Bonds | (41,057,605) | | | (21,359,255) | | Bonds | (33,075,310) | | | (41,057,605) | |
Loans from other Federal Home Loan Banks: | | |
Proceeds from borrowings | 0 | | | 250,000 | | |
Principal repayments | 0 | | | (250,000) | | |
| Proceeds from issuance of capital stock | Proceeds from issuance of capital stock | 264,022 | | | 159,476 | | Proceeds from issuance of capital stock | 44,929 | | | 264,022 | |
Proceeds from issuance of mandatorily redeemable capital stock | 0 | | | 3,704 | | |
| Payments for redemption/repurchase of capital stock | Payments for redemption/repurchase of capital stock | (585) | | | 0 | | Payments for redemption/repurchase of capital stock | (11,277) | | | (585) | |
Payments for redemption/repurchase of mandatorily redeemable capital stock | Payments for redemption/repurchase of mandatorily redeemable capital stock | (74,294) | | | (540) | | Payments for redemption/repurchase of mandatorily redeemable capital stock | (205,056) | | | (74,294) | |
Partial recovery of prior capital distribution to Financing Corporation | Partial recovery of prior capital distribution to Financing Corporation | 10,574 | | | 0 | | Partial recovery of prior capital distribution to Financing Corporation | — | | | 10,574 | |
Dividend payments on capital stock | Dividend payments on capital stock | (59,721) | | | (80,622) | | Dividend payments on capital stock | (41,025) | | | (59,721) | |
| Net cash provided by (used in) financing activities | (1,305,566) | | | 1,392,810 | | |
Net cash used in financing activities | | Net cash used in financing activities | (3,722,923) | | | (1,305,566) | |
| Net decrease in cash and due from banks | (89,699) | | | (50,890) | | |
Net increase (decrease) in cash and due from banks | | Net increase (decrease) in cash and due from banks | 142,200 | | | (89,699) | |
| Cash and due from banks at beginning of period | Cash and due from banks at beginning of period | 220,294 | | | 100,735 | | Cash and due from banks at beginning of period | 1,811,544 | | | 220,294 | |
| Cash and due from banks at end of period | Cash and due from banks at end of period | $ | 130,595 | | | $ | 49,845 | | Cash and due from banks at end of period | $ | 1,953,744 | | | $ | 130,595 | |
| Supplemental Disclosures: | Supplemental Disclosures: | | Supplemental Disclosures: | |
Cash activities: | Cash activities: | | Cash activities: | |
Interest payments | Interest payments | $ | 716,017 | | | $ | 1,158,294 | | Interest payments | $ | 220,573 | | | $ | 716,017 | |
Affordable Housing Program payments | Affordable Housing Program payments | 10,776 | | | 15,085 | | Affordable Housing Program payments | 11,638 | | | 10,776 | |
Non-cash activities: | Non-cash activities: | | Non-cash activities: | |
Purchases of investment securities, traded but not yet settled | Purchases of investment securities, traded but not yet settled | 65,000 | | | 54,609 | | Purchases of investment securities, traded but not yet settled | 122,924 | | | 65,000 | |
Capitalized interest on certain held-to-maturity securities | Capitalized interest on certain held-to-maturity securities | 1,349 | | | 3,900 | | Capitalized interest on certain held-to-maturity securities | 841 | | | 1,349 | |
Par value of shares reclassified to mandatorily redeemable capital stock, net | Par value of shares reclassified to mandatorily redeemable capital stock, net | 13,843 | | | 150,979 | | Par value of shares reclassified to mandatorily redeemable capital stock, net | 4,730 | | | 13,843 | |
|
The accompanying notes are an integral part of these financial statements.
10
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 1 - Summary of Significant Accounting Policies
Unless the context otherwise requires, the terms "we," "us," "our," and "Bank" refer to the Federal Home Loan Bank of Indianapolis or its management. We use acronyms and terms throughout these Notes to Financial Statements that are defined in the Defined Terms.
Basis of Presentation. The accompanying interim financial statements have been prepared in accordance with GAAP and SEC requirements for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. Certain disclosures that would have substantially duplicated the disclosures in the financial statements, and notes thereto, included in our 20192020 Form 10-K have been omitted unless the information contained in those disclosures materially changed. Therefore, these interim financial statements should be read in conjunction with our audited financial statements, and notes thereto, included in our 20192020 Form 10-K.
The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full calendar year or any other interim period.
Use of Estimates. When preparing financial statements in accordance with GAAP, we are required to make subjective assumptions and estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates. The most significant estimates pertain to derivatives and hedging activities, and the fair value of financial instruments.
Significant Accounting Policies. Our significant accounting policies and certain other disclosures are set forth in our 20192020 Form 10-K in Note 1 - Summary of Significant Accounting Policies. The adoption of ASU 2016-13,There have been no significant changes to these policies through Measurement of Expected Credit Losses on Financial Instruments, resulted in the following revisions to our significant accounting policies.September 30, 2021.
Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold.These investments are evaluated quarterly for expected credit losses. If necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses. We use the collateral maintenance provision practical expedient for securities purchased under agreements to resell. Consequently, a credit loss would be recognized if there is a collateral shortfall which we do not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the estimated fair value of the collateral and the investment’s amortized cost. For more information on the allowance methodology related to these investments, see Note 3 - Investments.
Investment Securities.
HTM Securities. HTM securities are evaluated quarterly for expected credit losses on a collective, or pooled, basis unless an individual assessment is deemed necessary, e.g. the securities do not possess similar risk characteristics. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. For more information on the allowance methodology related to these investments, see Note 3 - Investments.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
AFS Securities. We individually evaluate our AFS securities for impairment on a quarterly basis. Impairment exists when the estimated 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, we consider whether there could be a shortfall in receiving all cash flows contractually due. When a shortfall is considered possible, we compare the present value of cash flows to be collected from the security with its amortized cost. 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 for credit losses. The allowance is limited by the amount of the unrealized loss and excludes any uncollectible accrued interest receivable, which is measured separately.
If we do not intend to sell an impaired AFS security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, any remaining difference between the security’s estimated fair value and amortized cost is recorded to net unrealized gains (losses) on AFS securities within OCI. If we intend to sell an impaired AFS security, or more likely than not will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses is charged off and the amortized cost basis is written down to the security’s estimated fair value at the reporting date with any such impairment reported in earnings as net gains (losses) on investment securities. For more information on the allowance methodology related to these investments, see Note 3 - Investments.
Advances.Our advances are evaluated quarterly on a collective, or pooled, basis unless an individual assessment is deemed necessary, e.g. the advances do not possess similar risk characteristics. If any credit losses are expected, an allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. For more information on the allowance methodology related to advances, see Note 4 - Advances.
Mortgage Loans Held for Portfolio.On a quarterly basis, we apply a systematic approach for estimating the allowance for expected credit losses on our conventional mortgage loans over their estimated remaining lives through analyses that include, among other considerations, various loan portfolio and collateral-related characteristics, past loan performance, current and historical economic conditions, and reasonable and supportable forecasts of expected economic conditions. An allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses.
We measure expected losses on our conventional 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 losses on an individual basis. In addition, we individually evaluate all TDRs, any remaining exposure to delinquent conventional MPP loans paid in full by servicers, and collateral dependent loans. Loans are considered collateral dependent if repayment is expected to be provided solely by the sale of the underlying property, i.e., there is no other available and reliable source of repayment (including LRA and SMI). The Bank estimates expected losses on collateral dependent loans by applying a practical expedient that considers the expected loss of a collateral dependent loan to be equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs.
When developing the allowance for credit losses, we consider how credit enhancements are expected to mitigate credit losses and reduce the allowance accordingly.
If a loan is purchased at a discount, the discount does not offset the allowance for credit losses.
The allowance excludes uncollectible accrued interest receivable, as we charge off accrued interest receivable by reversing interest income if a mortgage loan is placed on nonaccrual status.
For more information on the allowance methodology related to mortgage loans, see Note 5 - Mortgage Loans Held for Portfolio.
Off-Balance Sheet Credit Exposures. We evaluate our off-balance sheet credit exposures on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses is recorded in other liabilities with a corresponding adjustment to the provision for credit losses. For more information about our off-balance sheet credit exposures, see Note 13 - Commitments and Contingencies.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 2 - Recently Adopted and Issued Accounting Guidance
We did not adopt any new accounting guidance or elect to apply certain optional expedients prescribed by existing accounting guidance that are applicable and remain available in 2021. Further, the FASB has not issued any new and applicable accounting guidance since the filing of our 2020 Form 10-K. See Note 2 - Recently Adopted and Issued Accounting Guidance.Guidancein our 2020 Form 10-K for additional detail.
Note 3 - Investments
Short-term Investments.
Measurement of Credit Losses on Financial Instruments (ASU 2016-13). On June 16, 2016, the FASB issued guidance replacing the current incurred loss model. The guidance requires entities to measure expected credit losses based on consideration of a broad range of relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount of the financial instrument.
This guidance was effective for the interim and annual periods beginning on January 1, 2020 and was applied using a modified-retrospective method. In spite of the requirement to measure expected credit losses over the estimated life of our financial instruments, i.e.We invest in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold investment securities, advances, and mortgage loans held for portfolio, the adoptionto provide short-term liquidity. These investments are generally transacted with counterparties that maintain a credit rating of this guidance had no effect on our allowance for credit losses given the specific terms, issuer guarantees, and/triple-B or collateralized/secured nature of the instruments, and therefore 0 cumulative-effect adjustment was recorded to retained earnings as of January 1, 2020.
Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13).higher (investment grade) by an NRSRO. At September 30, 2021 On August 28, 2018, the FASB issued guidance to update the disclosure requirements for fair value measurement. This guidance was issued as part of the FASB's disclosure framework project and is intended to improve disclosure effectiveness.
The guidance was effective for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance will allow us to eliminate an annual disclosure related to the process for determining the estimated fair value of Level 3 impaired mortgage loans held for portfolio, but had no effect on our financial condition, results of operations or cash flows.
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). On August 29, 2018, the FASB issued guidance on implementation costs incurred in a hosting arrangement that is a service contract. The guidance aligns the requirements for capitalizing such costs 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 was effective for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance on a prospective basis had no effect on our financial condition, results of operations, or cash flows.
The CARES Act and Interagency Statement. On March 27, 2020, Section 4013 of the CARES Act was signed into law and provides optional, temporary relief from the accounting and reporting requirements for TDRs on certain conventional loan modifications related to COVID-19 that are offered by financial institutions, including a forbearance arrangement, an interest rate modification, a repayment plan, or any similar arrangement that defers or delays payment of principal or interest. To qualify for such relief, a loan must have been current as of December 31, 2019 and the modification must occur between March 1, 2020 and the earlier of December 31, 2020, or 60 days following the terminationnone of these investments were with counterparties rated below single-A and none were with unrated counterparties. The NRSRO ratings may differ from our internal ratings of the national emergency declared by the President of the United States.
In addition to the CARES Act, the Board of Governors of the Federal Reserve System, the FDIC, National Credit Union Administration, OCC, CFPB and the State Banking Regulators (collectively, the "Banking Agencies") issued a Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the "Interagency Statement") in April 2020. The Interagency Statement primarily offers certain interpretations of existing GAAP relative to conventional loan modifications that occur in response to the COVID-19 pandemic.
In the second quarter of 2020, we elected to apply the TDR relief that is provided by the CARES Act and further clarified by the Interagency Statement. As such, all qualifying COVID-related loan modifications considered to be formal, i.e. the legal terms of the loan were changed, are excluded from TDR classification and accounting. As of September 30, 2020, we had $1.8 million of loans outstanding with such formal modifications. For all informal COVID-related loan modifications, i.e. the legal terms of the loan were not changed, we continue to follow our existing past-due, non-accrual, TDR, and charge-off accounting policies as disclosed in Note 1 - Summary of Significant Accounting Policies in our 2019 Form 10-K.investments, if applicable.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Recently Issued Accounting Guidance.Investment Securities.
Trading Securities.
Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14).Major Security Types. On August 28, 2018, the FASB issued
guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement
plans. This guidance was issued as partThe following table presents our trading securities by type of the FASB's disclosure framework project and is intended to improve disclosure
effectiveness.security.
The guidance is effective for the annual period ended December 31, 2020. The adoption of this guidance will require us to add a disclosure to describe the reasons for any significant gains and losses related to changes in our benefit obligation and remove an existing disclosure regarding amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year. The guidance will have no effect on our financial condition, results of operations or cash flows. | | | | | | | | | | | | | | |
Security Type | | September 30, 2021 | | December 31, 2020 |
Non-mortgage-backed securities: | | | | |
U.S. Treasury obligations | | $ | 4,858,818 | | | $ | 5,094,703 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total trading securities at estimated fair value | | $ | 4,858,818 | | | $ | 5,094,703 | |
FacilitationNet Gains (Losses) on Trading Securities. The following table presents net gains (losses) on trading securities, excluding any offsetting effect of gains (losses) on the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04).On March 12, 2020, the FASB issued optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform, if certain criteria are met. These transactions include: (i) contract modifications, (ii) hedging relationships, and (iii) sales or transfers of debt securities classified as HTM.associated derivatives.
The guidance is effective from March 12, 2020 through December 31, 2022. We may elect to adopt the guidance for eligible contract modifications and hedging relationships existing as of January 1, 2020 and prospectively thereafter until the expiration date of the guidance. The one-time election to sell, transfer, or both sell and transfer debt securities classified as HTM may be made at any time after March 12, 2020, but no later than December 31, 2022.
We expect that we will elect to apply certain of the expedients and exceptions provided in the guidance; however, we are still evaluating the guidance and have yet to apply any of its provisions. Therefore, the impact of the adoption of the guidance on our financial condition, results of operations, or cash flows has not yet been determined. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Net unrealized gains (losses) on trading securities held at period end | | $ | 6,400 | | | $ | (27,983) | | | $ | (22,506) | | | $ | (19,333) | |
Net realized gains (losses) on trading securities that matured/sold during the period | | (14,607) | | | 8,652 | | | (13,060) | | | 21,308 | |
Net gains (losses) on trading securities | | $ | (8,207) | | | $ | (19,331) | | | $ | (35,566) | | | $ | 1,975 | |
Note 3 - Investments
Short-term Investments.
We invest in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity.Available-for-Sale Securities.
AllowanceMajor Security Types.The following table presents ourAFS securities by type of security.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Estimated |
September 30, 2021 | | Cost (1) | | Gains | | Losses | | Fair Value |
GSE and TVA debentures | | $ | 2,683,050 | | | $ | 45,617 | | | $ | — | | | $ | 2,728,667 | |
GSE MBS | | 6,458,441 | | | 133,300 | | | (829) | | | 6,590,912 | |
Total AFS securities | | $ | 9,141,491 | | | $ | 178,917 | | | $ | (829) | | | $ | 9,319,579 | |
| | | | | | | | |
December 31, 2020 | | | | | | | | |
GSE and TVA debentures | | $ | 3,462,885 | | | $ | 40,252 | | | $ | — | | | $ | 3,503,137 | |
GSE MBS | | 6,545,093 | | | 98,263 | | | (1,594) | | | 6,641,762 | |
Total AFS securities | | $ | 10,007,978 | | | $ | 138,515 | | | $ | (1,594) | | | $ | 10,144,899 | |
(1) Includes adjustments made to the cost basis for Credit Losses. These investments are generally transacted with counterparties that maintain a credit rating of triple-Bpurchase discount or higher (investment grade) by an NRSRO. Atpremium and related accretion or amortization, and, if applicable, fair-value hedging basis adjustments. Net unamortized premium at September 30, 2021 and December 31, 2020 NaNtotaled $15,352 and $16,300, respectively. The applicable fair value hedging basis adjustments at September 30, 2021 and December 31, 2020 totaled $287,859 and $627,619, respectively. Excludes accrued interest receivable at September 30, 2021 and December 31, 2020 of these investments were with counterparties rated below single-A$26,112 and NaN were with unrated counterparties. The NRSRO ratings may differ from our internal ratings of the investments, if applicable.$34,616, respectively.
Interest-Bearing Deposits. Interest-bearing deposits are considered overnight investments given our ability to withdraw funds from these accounts at any time. As such, 0 allowance for credit losses was recorded for these investments at September 30, 2020 or December 31, 2019.
The carrying values of interest-bearing deposits at September 30, 2020 and December 31, 2019 exclude accrued interest receivable of $15 and $1,080, respectively.
Securities Purchased Under Agreements to Resell. Securities purchased under agreements to resell 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 our counterparties, 0 allowance for credit losses was recorded for securities purchased under agreements to resell at September 30, 2020 or December 31, 2019.
The carrying values of securities purchased under agreements to resell as of September 30, 2020 and December 31, 2019 exclude accrued interest receivable of $10 and $65, respectively.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Federal Funds Sold. Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit an individual FHLBank may extend to a counterparty. All investments in federal funds sold at September 30, 2020Unrealized Loss Positions. The following table presents impaired AFS securities (i.e., in an unrealized loss position), aggregated by major security type and December 31, 2019 were repaid according to the contractual terms and, therefore, 0 allowance for credit losses was recorded.length of time that individual securities have been in a continuous unrealized loss position.
The carrying values | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or More | | Total |
| | Estimated | | Unrealized | | Estimated | | Unrealized | | Estimated | | Unrealized |
September 30, 2021 | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| | | | | | | | | | | | |
GSE MBS | | $ | 174,857 | | | $ | (829) | | | $ | — | | | $ | — | | | $ | 174,857 | | | $ | (829) | |
Total impaired AFS securities | | $ | 174,857 | | | $ | (829) | | | $ | — | | | $ | — | | | $ | 174,857 | | | $ | (829) | |
| | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | |
| | | | | | | | | | | | |
GSE MBS | | $ | 132,054 | | | $ | (179) | | | $ | 179,387 | | | $ | (1,415) | | | $ | 311,441 | | | $ | (1,594) | |
Total impaired AFS securities | | $ | 132,054 | | | $ | (179) | | | $ | 179,387 | | | $ | (1,415) | | | $ | 311,441 | | | $ | (1,594) | |
Realized Gains and Losses. There were no sales of federal funds sold atAFS securities during the three or nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, for strategic, economic and December 31, 2019 exclude accrued interest receivableoperational reasons, we sold certain of $3our GSE MBS. Proceeds from the AFS sales totaled $96,779, resulting in net realized gains of $504, comprised of realized gains of $715 and $111, respectively.realized losses of $211 determined by the specific identification method.
Investment Securities.Contractual Maturity. The amortized cost and estimated fair value of non-MBS AFS securities are presented below by contractual maturity. MBS are not presented by contractual maturity because their actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.
Trading Securities. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | Amortized | | Estimated | | Amortized | | Estimated |
Year of Contractual Maturity | | Cost | | Fair Value | | Cost | | Fair Value |
Due in 1 year or less | | $ | 584,204 | | | $ | 585,335 | | | $ | 705,134 | | | $ | 705,442 | |
Due after 1 year through 5 years | | 1,411,287 | | | 1,437,066 | | | 1,215,038 | | | 1,225,187 | |
Due after 5 years through 10 years | | 687,559 | | | 706,266 | | | 1,542,713 | | | 1,572,508 | |
| | | | | | | | |
Total non-MBS | | 2,683,050 | | | 2,728,667 | | | 3,462,885 | | | 3,503,137 | |
Total MBS | | 6,458,441 | | | 6,590,912 | | | 6,545,093 | | | 6,641,762 | |
Total AFS securities | | $ | 9,141,491 | | | $ | 9,319,579 | | | $ | 10,007,978 | | | $ | 10,144,899 | |
Major Security Types. The following table presents our trading securities by type of security.
| | | | | | | | | | | | | | |
Security Type | | September 30, 2020 | | December 31, 2019 |
Non-mortgage-backed securities: | | | | |
U.S. Treasury obligations | | $ | 5,058,984 | | | $ | 5,016,649 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total trading securities at estimated fair value | | $ | 5,058,984 | | | $ | 5,016,649 | |
Net Gains (Losses) on Trading Securities. The following table presents net gains (losses) on trading securities, excluding any offsetting effect of gains (losses) on the associated derivatives.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Net unrealized gains (losses) on trading securities held at period end | | $ | (27,983) | | | $ | 5,601 | | | $ | (19,333) | | | $ | 26,257 | |
Net realized gains on trading securities that matured/sold during the period | | 8,652 | | | 0 | | | 21,308 | | | 0 | |
Net gains (losses) on trading securities | | $ | (19,331) | | | $ | 5,601 | | | $ | 1,975 | | | $ | 26,257 | |
Available-for-Sale Securities.
Major Security Types.The following table presents ourAFS securities by type of security.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Gross | | Gross | | |
| | Amortized | | | | Unrealized | | Unrealized | | Estimated |
September 30, 2020 | | Cost (1) | | | | Gains | | Losses | | Fair Value |
GSE and TVA debentures | | $ | 3,985,296 | | | | | $ | 40,308 | | | $ | 0 | | | $ | 4,025,604 | |
| | | | | | | | | | |
GSE MBS | | 6,281,381 | | | | | 64,408 | | | (7,424) | | | 6,338,365 | |
| | | | | | | | | | |
Total AFS securities | | $ | 10,266,677 | | | | | $ | 104,716 | | | $ | (7,424) | | | $ | 10,363,969 | |
| | | | | | | | | | |
December 31, 2019 | | | | | | | | | | |
GSE and TVA debentures | | $ | 3,885,012 | | | | | $ | 41,840 | | | $ | 0 | | | $ | 3,926,852 | |
GSE MBS | | 4,509,653 | | | | | 51,200 | | | (3,227) | | | 4,557,626 | |
| | | | | | | | | | |
Total AFS securities | | $ | 8,394,665 | | | | | $ | 93,040 | | | $ | (3,227) | | | $ | 8,484,478 | |
(1) Includes adjustments made to the cost basis for accretion, amortization, net charge-offs, and, if applicable, fair-value hedging basis adjustments, and excludes accrued interest receivable at September 30, 2020 and December 31, 2019 of $30,237 and $32,963, respectively. Carrying value equals estimated fair value.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Unrealized Loss Positions. The following table presents impaired AFS securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or More | | Total |
| | Estimated | | Unrealized | | Estimated | | Unrealized | | Estimated | | Unrealized |
September 30, 2020 | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| | | | | | | | | | | | |
GSE MBS | | $ | 691,312 | | | $ | (4,636) | | | $ | 453,630 | | | $ | (2,788) | | | $ | 1,144,942 | | | $ | (7,424) | |
| | | | | | | | | | | | |
Total impaired AFS securities | | $ | 691,312 | | | $ | (4,636) | | | $ | 453,630 | | | $ | (2,788) | | | $ | 1,144,942 | | | $ | (7,424) | |
| | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | |
| | | | | | | | | | | | |
GSE MBS | | $ | 339,981 | | | $ | (1,134) | | | $ | 519,446 | | | $ | (2,093) | | | $ | 859,427 | | | $ | (3,227) | |
| | | | | | | | | | | | |
Total impaired AFS securities | | $ | 339,981 | | | $ | (1,134) | | | $ | 519,446 | | | $ | (2,093) | | | $ | 859,427 | | | $ | (3,227) | |
Contractual Maturity. The amortized cost and estimated fair value of non-MBS AFS securities are presented below by contractual maturity. MBS are not presented by contractual maturity because their actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Amortized | | Estimated | | Amortized | | Estimated |
Year of Contractual Maturity | | Cost | | Fair Value | | Cost | | Fair Value |
Due in 1 year or less | | $ | 1,208,283 | | | $ | 1,209,339 | | | $ | 570,209 | | | $ | 571,588 | |
Due after 1 year through 5 years | | 1,166,278 | | | 1,176,543 | | | 1,729,664 | | | 1,742,681 | |
Due after 5 years through 10 years | | 1,610,735 | | | 1,639,722 | | | 1,489,144 | | | 1,514,978 | |
Due after 10 years | | 0 | | | 0 | | | 95,995 | | | 97,605 | |
Total non-MBS | | 3,985,296 | | | 4,025,604 | | | 3,885,012 | | | 3,926,852 | |
Total MBS | | 6,281,381 | | | 6,338,365 | | | 4,509,653 | | | 4,557,626 | |
Total AFS securities | | $ | 10,266,677 | | | $ | 10,363,969 | | | $ | 8,394,665 | | | $ | 8,484,478 | |
Realized Gains and Losses. During the three and nine months ended September 30, 2020, for strategic, economic and operational reasons, we sold certain of our GSE MBS. Proceeds from the AFS sales totaled $96,779, resulting in net realized gains of $504, comprised of realized gains of $715 and realized losses of $211 determined by the specific identification method. There were 0 sales during the three or nine months ended September 30, 2019.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Held-to-Maturity Securities.
Major Security Types. The following table presents our HTM securities by type of security.
| | | | | | | Gross | | Gross | | | | | | | Gross | | Gross | | |
| | | | | | Unrecognized | | Unrecognized | | | | | | Unrecognized | | Unrecognized | |
| | | Amortized | | | Holding | | Holding | | Estimated | | | Amortized | | Holding | | Holding | | Estimated |
September 30, 2020 | | Cost (1) | | | Gains (2) | | Losses (2) | | Fair Value | |
September 30, 2021 | | September 30, 2021 | | Cost (1) | | Gains (2) | | Losses (2) | | Fair Value |
| MBS: | MBS: | | | | | | | | | | MBS: | | | | | | | | |
Other U.S. obligations - guaranteed MBS | Other U.S. obligations - guaranteed MBS | | $ | 2,749,359 | | | | $ | 5,890 | | | $ | (6,902) | | | $ | 2,748,347 | | Other U.S. obligations - guaranteed MBS | | $ | 2,737,308 | | | $ | 8,716 | | | $ | (6,875) | | | $ | 2,739,149 | |
GSE MBS | GSE MBS | | 1,523,098 | | | | 25,202 | | | (360) | | | 1,547,940 | | GSE MBS | | 1,759,287 | | | 16,904 | | | (4,981) | | | 1,771,210 | |
Total HTM securities | Total HTM securities | | $ | 4,272,457 | | | | $ | 31,092 | | | $ | (7,262) | | | $ | 4,296,287 | | Total HTM securities | | $ | 4,496,595 | | | $ | 25,620 | | | $ | (11,856) | | | $ | 4,510,359 | |
| December 31, 2019 | | | | |
December 31, 2020 | | December 31, 2020 | |
| MBS: | MBS: | | | | MBS: | |
Other U.S. obligations - guaranteed MBS | Other U.S. obligations - guaranteed MBS | | $ | 3,059,875 | | | | $ | 6,948 | | | $ | (13,217) | | | $ | 3,053,606 | | Other U.S. obligations - guaranteed MBS | | $ | 2,622,677 | | | $ | 6,920 | | | $ | (4,590) | | | $ | 2,625,007 | |
GSE MBS | GSE MBS | | 2,156,526 | | | | 10,117 | | | (4,043) | | | 2,162,600 | | GSE MBS | | 2,078,625 | | | 21,640 | | | (1,476) | | | 2,098,789 | |
| Total HTM securities | Total HTM securities | | $ | 5,216,401 | | | | $ | 17,065 | | | $ | (17,260) | | | $ | 5,216,206 | | Total HTM securities | | $ | 4,701,302 | | | $ | 28,560 | | | $ | (6,066) | | | $ | 4,723,796 | |
(1) Carrying value equals amortized cost, which includes adjustments made to the cost basis for purchase discount or premium and related accretion amortization and/or net charge-offsamortization. Net unamortized premium at September 30, 2021 and excludesDecember 31, 2020 totaled $28,418 and $7,101, respectively. Excludes accrued interest receivable at September 30, 20202021 and December 31, 20192020 of $2,819$2,061 and $7,156,$2,689, respectively.
(2) Gross unrecognized holding gains (losses) represent the cumulative increases (decreases) in estimated fair value.
Contractual Maturity. MBSHTM securities are not presented by contractual maturity because theirthey consisted entirely of MBS, whose actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.
Allowance for Credit Losses on Investment Securities. At September 30, 2021 and December 31, 2020, 100% of our AFS and HTM securities were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security. These may differ for anyfrom our internal ratings of the securities, if applicable.
AFS Securities. At September 30, 2021 and December 31, 2020, certain of our AFS securities were in an unrealized loss position; however,however, we did 0tnot record an allowance for credit losses because thesethose losses arewere considered temporary and we expectexpected to recover the entire amortized cost basis on these securities at maturity based upon the following factors: (i) all securities were highly-rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, (iii) the U.S., GSE, and other Agency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be zero, and (iv) we had no intention of selling any of these securities nor did we consider it more likely than not that we will be required to sell any of these securities before recovery of each security's remaining amortized cost basis, (ii)basis.
HTM Securities. At September 30, 2021 and December 31, 2020, we did not record an allowance for credit losses on any of our HTM securities based on the following factors: (i) all securities were highly-rated, (iii)highly rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, and (iv)(iii) the U.S., GSE, and other agencyAgency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be zero.
HTM Securities. At September 30, 2020, we did 0t establish an allowance for credit losses on any of our HTM securities based on the following factors: (i)zero, and (iv) we had no intention of selling any of these securities nor did we consider it more likely than not that we will be required to sell any of these securities, (ii) all securities were highly-rated and/or had short remaining terms to maturity, (iii) we have not experienced, nor do we expect, any payment defaults on the securities, and (iv) the U.S., GSE, and other agency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be zero.securities.
Under the previous security impairment methodology for AFS and HTM securities, the Bank did 0t recognize any OTTI during the three or nine months ended September 30, 2019.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 4 - Advances
The following table presents advances outstanding by redemption term.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Redemption Term | | Amount | | WAIR % | | Amount | | WAIR % |
Overdrawn demand and overnight deposit accounts | | $ | 0 | | | 0 | | | $ | 37 | | | 3.99 | |
Due in 1 year or less | | 9,075,746 | | | 0.83 | | | 11,791,716 | | | 1.85 | |
Due after 1 year through 2 years | | 2,304,357 | | | 1.72 | | | 2,106,315 | | | 2.12 | |
Due after 2 years through 3 years | | 2,965,939 | | | 1.80 | | | 2,505,693 | | | 2.16 | |
Due after 3 years through 4 years | | 4,017,918 | | | 1.56 | | | 2,625,446 | | | 2.44 | |
Due after 4 years through 5 years | | 2,751,069 | | | 1.46 | | | 4,076,103 | | | 2.08 | |
Thereafter | | 9,349,544 | | | 1.11 | | | 9,166,357 | | | 1.89 | |
Total advances, par value | | 30,464,573 | | | 1.23 | | | 32,271,667 | | | 1.98 | |
| | | | | | | | |
Fair-value hedging adjustments, net | | 795,676 | | | | | 207,111 | | | |
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees | | 3,997 | | | | | 1,330 | | | |
Total advances (1) | | $ | 31,264,246 | | | | | $ | 32,480,108 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Redemption Term | | Amount | | WAIR % | | Amount | | WAIR % |
Overdrawn demand and overnight deposit accounts | | $ | 29,977 | | | 2.43 | | | $ | — | | | — | |
Due in 1 year or less | | 6,865,431 | | | 0.60 | | | 10,115,576 | | | 0.51 | |
Due after 1 year through 2 years | | 2,340,823 | | | 1.89 | | | 2,149,839 | | | 1.57 | |
Due after 2 years through 3 years | | 3,770,555 | | | 1.50 | | | 2,760,624 | | | 2.02 | |
Due after 3 years through 4 years | | 2,736,669 | | | 1.32 | | | 3,725,103 | | | 1.36 | |
Due after 4 years through 5 years | | 1,848,753 | | | 1.33 | | | 3,020,039 | | | 1.29 | |
Thereafter | | 9,030,857 | | | 0.89 | | | 8,919,678 | | | 1.05 | |
Total advances, par value | | 26,623,065 | | | 1.07 | | | 30,690,859 | | | 1.06 | |
| | | | | | | | |
Fair-value hedging basis adjustments, net | | 325,320 | | | | | 645,946 | | | |
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees | | 9,654 | | | | | 10,681 | | | |
Total advances (1) | | $ | 26,958,039 | | | | | $ | 31,347,486 | | | |
(1) Carrying value equals amortized cost, which includes adjustments made to the cost basis for accretion, amortization and/or net charge-offs and excludes accrued interest receivable at September 30, 20202021 and December 31, 20192020 of $16,409$12,422 and $27,019,$14,961, respectively.
The following table presents advances outstanding by the earlier of the redemption date or the next call date and next put date.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Earlier of Redemption or Next Call Date | | Earlier of Redemption or Next Put Date |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Overdrawn demand and overnight deposit accounts | | $ | 0 | | | $ | 37 | | | $ | 0 | | | $ | 37 | |
Due in 1 year or less | | 14,236,204 | | | 18,497,813 | | | 13,580,996 | | | 14,560,066 | |
Due after 1 year through 2 years | | 2,135,657 | | | 1,514,015 | | | 3,360,257 | | | 3,329,315 | |
Due after 2 years through 3 years | | 2,305,249 | | | 2,127,903 | | | 3,496,144 | | | 3,254,093 | |
Due after 3 years through 4 years | | 2,545,418 | | | 2,117,546 | | | 4,341,918 | | | 3,025,551 | |
Due after 4 years through 5 years | | 1,995,369 | | | 2,454,103 | | | 2,123,719 | | | 3,481,353 | |
Thereafter | | 7,246,676 | | | 5,560,250 | | | 3,561,539 | | | 4,621,252 | |
Total advances, par value | | $ | 30,464,573 | | | $ | 32,271,667 | | | $ | 30,464,573 | | | $ | 32,271,667 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Earlier of Redemption or Next Call Date | | Earlier of Redemption or Next Put Date |
| | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
Overdrawn demand and overnight deposit accounts | | $ | 29,977 | | | $ | — | | | $ | 29,977 | | | $ | — | |
Due in 1 year or less | | 11,806,255 | | | 15,296,034 | | | 12,302,331 | | | 14,645,076 | |
Due after 1 year through 2 years | | 2,004,432 | | | 1,797,049 | | | 2,876,028 | | | 3,107,339 | |
Due after 2 years through 3 years | | 2,358,055 | | | 2,440,024 | | | 4,094,555 | | | 3,160,729 | |
Due after 3 years through 4 years | | 1,985,969 | | | 2,246,102 | | | 2,788,069 | | | 3,824,603 | |
Due after 4 years through 5 years | | 1,335,378 | | | 2,076,839 | | | 1,598,753 | | | 2,585,439 | |
Thereafter | | 7,102,999 | | | 6,834,811 | | | 2,933,352 | | | 3,367,673 | |
Total advances, par value | | $ | 26,623,065 | | | $ | 30,690,859 | | | $ | 26,623,065 | | | $ | 30,690,859 | |
Advance Concentrations. At September 30, 20202021 and December 31, 2019,2020, our top five borrowers held 38%40% and 42%44%, respectively, of total advances outstanding at par.
Allowance for Credit Losses on Advances. Our evaluation of credit losses on advances utilizes a basic framework that considers the adequacy of the advances' associated collateral and the associated members' willingness and ability to pledge additional collateral to satisfy any current or anticipated future deficiency. Our agreements with borrowers allow us, at any time and in our sole discretion, to require substitution of collateral, adjust the over-collateralization requirements applied to collateral, or refuse to make extensions of credit against any collateral. We also may require borrowers to pledge additional collateral regardless of whether the collateral would be eligible to originate a new extension of credit. Our agreements with our borrowers also afford us the right, in our sole discretion, to declare any borrower to be in default if we deem our Bank to be inadequately secured.
We determine the estimated value of the collateral required to secure each member's advances by applying collateral discounts, or haircuts, to the market value or UPB of the collateral, as applicable. Using a risk-based approach, we consider the amount and quality of the collateral pledged and the borrower's financial condition to be the primary indicators of an advance's credit quality. At September 30, 2020 and December 31, 2019, we had rights to collateral on a borrower-by-borrower basis with an estimated value, after haircuts, equal to or in excess of our advances outstanding.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
At September 30, 2020 and December 31, 2019, we did 0t have any advances that were past due, on non-accrual status, or considered impaired. In addition, there were 0 TDRs related to advances during the three or nine months ended September 30, 2020 or 2019.
Based upon the collateral held as security, our credit extension and collateral policies, our credit analysis and the repayment history on advances, we have not recorded an allowance for credit losses on advances.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 5 - Mortgage Loans Held for Portfolio
Mortgage loans held for portfolio consist of residential loans acquired from our members through the MPP and participating interests purchased in 2012 - 2014 from the FHLBank of Topeka in residential loans that were originated by certain of its PFIs through their participation in the MPF Program offered by the FHLBank of Chicago. The balances also reflect the sale of a 90% participating interest in a $100 million MCC of certain newly acquired MPP loans to another FHLBank in 2016. The MPP and MPF Program loans are fixed rate and either credit enhanced by PFIs, if conventional, or guaranteed or insured by government agencies.
The following tables present information on mortgage loans held for portfolio by term, type and product.
| Term | Term | | September 30, 2020 | | December 31, 2019 | Term | | September 30, 2021 | | December 31, 2020 |
Fixed-rate long-term mortgages | Fixed-rate long-term mortgages | | $ | 8,007,228 | | | $ | 9,677,008 | | Fixed-rate long-term mortgages | | $ | 6,330,986 | | | $ | 7,257,237 | |
Fixed-rate medium-term (1) mortgages | Fixed-rate medium-term (1) mortgages | | 1,025,956 | | | 908,526 | | Fixed-rate medium-term (1) mortgages | | 1,059,771 | | | 1,065,329 | |
Total mortgage loans held for portfolio, UPB | Total mortgage loans held for portfolio, UPB | | 9,033,184 | | | 10,585,534 | | Total mortgage loans held for portfolio, UPB | | 7,390,757 | | | 8,322,566 | |
Unamortized premiums | Unamortized premiums | | 198,183 | | | 231,807 | | Unamortized premiums | | 177,749 | | | 187,425 | |
Unamortized discounts | Unamortized discounts | | (1,813) | | | (2,158) | | Unamortized discounts | | (2,441) | | | (1,638) | |
| Fair-value hedging adjustments, net | | 8,031 | | | 154 | | |
Hedging basis adjustments, net | | Hedging basis adjustments, net | | 4,722 | | | 7,642 | |
Total mortgage loans held for portfolio | Total mortgage loans held for portfolio | | 9,237,585 | | | 10,815,337 | | Total mortgage loans held for portfolio | | 7,570,787 | | | 8,515,995 | |
Allowance for credit losses | Allowance for credit losses | | (400) | | | (300) | | Allowance for credit losses | | (325) | | | (350) | |
Total mortgage loans held for portfolio, net (2) | Total mortgage loans held for portfolio, net (2) | | $ | 9,237,185 | | | $ | 10,815,037 | | Total mortgage loans held for portfolio, net (2) | | $ | 7,570,462 | | | $ | 8,515,645 | |
(1) Defined as a term of 15 years or less at origination.
(2) Excludes accrued interest receivable at September 30, 20202021 and December 31, 20192020 of $38,057$27,990 and $47,722,$34,151, respectively.
| Type | Type | | September 30, 2020 | | December 31, 2019 | Type | | September 30, 2021 | | December 31, 2020 |
Conventional | Conventional | | $ | 8,759,844 | | | $ | 10,263,249 | | Conventional | | $ | 7,197,498 | | | $ | 8,069,274 | |
Government-guaranteed or -insured | Government-guaranteed or -insured | | 273,340 | | | 322,285 | | Government-guaranteed or -insured | | 193,259 | | | 253,292 | |
Total mortgage loans held for portfolio, UPB | Total mortgage loans held for portfolio, UPB | | $ | 9,033,184 | | | $ | 10,585,534 | | Total mortgage loans held for portfolio, UPB | | $ | 7,390,757 | | | $ | 8,322,566 | |
| Product | Product | | September 30, 2020 | | December 31, 2019 | Product | | September 30, 2021 | | December 31, 2020 |
MPP | MPP | | $ | 8,854,990 | | | $ | 10,363,081 | | MPP | | $ | 7,275,562 | | | $ | 8,163,902 | |
MPF Program | MPF Program | | 178,194 | | | 222,453 | | MPF Program | | 115,195 | | | 158,664 | |
Total mortgage loans held for portfolio, UPB | Total mortgage loans held for portfolio, UPB | | $ | 9,033,184 | | | $ | 10,585,534 | | Total mortgage loans held for portfolio, UPB | | $ | 7,390,757 | | | $ | 8,322,566 | |
Conventional MPP. The following table presents the activity in the LRA, which is reported in other liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
LRA Activity | | 2021 | | 2020 | | 2021 | | 2020 |
Liability, beginning of period | | $ | 220,061 | | | $ | 196,653 | | | $ | 207,305 | | | $ | 186,585 | |
Additions | | 5,007 | | | 5,344 | | | 18,371 | | | 17,658 | |
Claims paid | | (29) | | | (52) | | | (94) | | | (293) | |
Distributions to PFIs | | (117) | | | (891) | | | (660) | | | (2,896) | |
Liability, end of period | | $ | 224,922 | | | $ | 201,054 | | | $ | 224,922 | | | $ | 201,054 | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Conventional MortgageLoans. We invest in conventional mortgage loans primarily through the MPP. Additionally, we hold participating interests in conventional mortgage loans that were originated by PFIs of the FHLBank of Topeka through the MPF Program.
Conventional MPP. The following table presents the activity in the LRA, which is reported in other liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
LRA Activity | | 2020 | | 2019 | | 2020 | | 2019 |
Liability, beginning of period | | $ | 196,653 | | | $ | 180,074 | | | $ | 186,585 | | | $ | 174,096 | |
Additions | | 5,344 | | | 3,402 | | | 17,658 | | | 10,392 | |
Claims paid | | (52) | | | (64) | | | (293) | | | (206) | |
Distributions to PFIs | | (891) | | | (823) | | | (2,896) | | | (1,693) | |
Liability, end of period | | $ | 201,054 | | | $ | 182,589 | | | $ | 201,054 | | | $ | 182,589 | |
Credit Quality Indicators for Conventional Mortgage Loans and Other Delinquency Statistics.All qualifying COVID-related loan modifications considered to be formal, i.e. the legal terms of the loan were changed, are excluded from TDR classification and existing accounting policies and the loans are returned to current status upon modification. As of September 30, 2021 and December 31, 2020, we had $29,567, or 0.4%, and $12,309, or 0.2%, respectively, of our total conventional loans outstanding with formal modifications.
We have continued to apply our existing accounting policies for past due, non-accrual, and charge-offs resulting from COVID-related loan modifications considered to be informal, i.e. the legal terms of the loan were not changed. Based on information from our mortgage servicers, as of September 30, 2021 and December 31, 2020, the UPB of conventional loans in an informal forbearance arrangement, including current loans, totaled $37,558 and $111,516, respectively, or 0.5% and 1.4%, respectively, of our total conventional loans outstanding. As of September 30, 2021, no informal COVID-19-related loan modifications were classified as TDRs.
Payment status is the key credit quality indicator for conventional mortgage loans and allows us 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. Other delinquency statistics include non-accrual loans and loans in process of foreclosure. The tables below present the key credit quality indicators and other delinquency statistics for our mortgage loans held for portfolio.portfolio aggregated by (i) the most recent five origination years and (ii) all prior origination years. Amounts are based on amortized cost, which excludes accrued interest receivable.
| | | | | | | | | | | | | | | | | | | | |
| | Origination Year | | |
Payment Status as of September 30, 2020 | | Prior to 2016 | | 2016 to 2020 | | Total |
Past due: | | | | | | |
30-59 days | | $ | 20,307 | | | $ | 23,459 | | | $ | 43,766 | |
60-89 days | | 8,495 | | | 21,688 | | | 30,183 | |
90 days or more | | 37,920 | | | 82,822 | | | 120,742 | |
Total past due | | 66,722 | | | 127,969 | | | 194,691 | |
Total current | | 2,881,490 | | | 5,884,711 | | | 8,766,201 | |
Total conventional mortgage loans, amortized cost (1) | | $ | 2,948,212 | | | $ | 6,012,680 | | | $ | 8,960,892 | |
| | | | | | | | | | | | | | | | | | | | |
| | Origination Year | | |
Payment Status as of September 30, 2021 | | Prior to 2017 | | 2017 to 2021 | | Total |
Past due: | | | | | | |
30-59 days | | $ | 16,664 | | | $ | 10,675 | | | $ | 27,339 | |
60-89 days | | 3,041 | | | 1,740 | | | 4,781 | |
90 days or more | | 23,574 | | | 16,127 | | | 39,701 | |
Total past due | | 43,279 | | | 28,542 | | | 71,821 | |
Total current | | 2,685,414 | | | 4,618,028 | | | 7,303,442 | |
Total conventional mortgage loans, amortized cost | | $ | 2,728,693 | | | $ | 4,646,570 | | | $ | 7,375,263 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
The Bank continues to apply its existing accounting policies forAs of September 30, 2021, the UPB of conventional loans in an informal forbearance arrangement included amounts 30-59 days past due of $3,753, 60-89 days past due non-accrual,of $3,036, and charge-offs90 days or more past due of $27,945, for COVID-related loan modifications considered to be informal, i.e. the legal termstotal past due of the loan were not changed. Based on the most recent information received from$34,734.
our mortgage servicers, as
| | | | | | | | | | | | | | | | | | | | |
| | Origination Year | | |
Payment Status as of December 31, 2020 | | Prior to 2016 | | 2016 to 2020 | | Total |
Past due: | | | | | | |
30-59 days | | $ | 19,893 | | | $ | 22,130 | | | $ | 42,023 | |
60-89 days | | 6,980 | | | 12,078 | | | 19,058 | |
90 days or more | | 27,467 | | | 67,075 | | | 94,542 | |
Total past due | | 54,340 | | | 101,283 | | | 155,623 | |
Total current | | 2,468,908 | | | 5,635,070 | | | 8,103,978 | |
Total conventional mortgage loans, amortized cost | | $ | 2,523,248 | | | $ | 5,736,353 | | | $ | 8,259,601 | |
As of September 30,December 31, 2020, the UPB of conventional loans in an informal forbearance arrangement totaled $184,936, or 2.1% of our total conventional loans outstanding. The payment status as of September 30, 2020 includes such loans 30 to 59included amounts 30-59 days past due of $15,684,$10,214, 60-89 days past due of $24,359,$12,661, and 90 days or more past due of $105,295,$79,011, for total past due of $145,338. Such loans with a current payment status totaled $39,598. For more information, see Note 2 - Recently Adopted and Issued Accounting Guidance.
| | | | | | | | | | | |
Payment Status as of December 31, 2019 | | | Total |
Past due: | | | |
30-59 days | | | $ | 44,479 | |
60-89 days | | | 9,868 | |
90 days or more | | | 10,668 | |
Total past due | | | 65,015 | |
Total current | | | 10,470,495 | |
Total conventional mortgage loans, recorded investment (1)(2)
| | | $ | 10,535,510 | |
$101,886.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
| | | | | | | | | | | | | | | | | | | | |
Other Delinquency Statistics as of September 30, 2020 | | Conventional | | Government | | Total |
In process of foreclosure (3) | | $ | 2,594 | | | $ | 0 | | | $ | 2,594 | |
Serious delinquency rate (1)(4) | | 1.35 | % | | 2.99 | % | | 1.40 | % |
Past due 90 days or more still accruing interest (1)(5) | | $ | 40,210 | | | $ | 7,369 | | | $ | 47,579 | |
On non-accrual status (6) | | $ | 93,137 | | | $ | 0 | | | $ | 93,137 | |
| | | | | | |
Other Delinquency Statistics as of December 31, 2019 | | | | | | |
In process of foreclosure (3) | | $ | 2,071 | | | $ | 0 | | | $ | 2,071 | |
Serious delinquency rate (1)(4) | | 0.10 | % | | 0.94 | % | | 0.13 | % |
Past due 90 days or more still accruing interest (1)(5) | | $ | 10,127 | | | $ | 3,069 | | | $ | 13,196 | |
On non-accrual status | | $ | 1,063 | | | $ | 0 | | | $ | 1,063 | |
| | | | | | | | | | | | | | | | | | | | |
Other Delinquency Statistics as of September 30, 2021 | | Conventional | | Government | | Total |
In process of foreclosure (1) | | $ | 2,121 | | | $ | — | | | $ | 2,121 | |
Serious delinquency rate (2) | | 0.54 | % | | 1.44 | % | | 0.56 | % |
Past due 90 days or more still accruing interest (3) | | $ | 18,979 | | | $ | 2,094 | | | $ | 21,073 | |
On non-accrual status (4) | | $ | 32,581 | | | $ | — | | | $ | 32,581 | |
| | | | | | |
Other Delinquency Statistics as of December 31, 2020 | | | | | | |
In process of foreclosure (1) | | $ | 2,689 | | | $ | — | | | $ | 2,689 | |
Serious delinquency rate (2) | | 1.14 | % | | 3.36 | % | | 1.21 | % |
Past due 90 days or more still accruing interest (3) | | $ | 36,585 | | | $ | 7,933 | | | $ | 44,518 | |
On non-accrual status (4) | | $ | 87,763 | | | $ | — | | | $ | 87,763 | |
(1)Based on the amortized cost at September 30, 2020, which excludes accrued interest receivable. Based on the recorded investment at December 31, 2019, which includes accrued interest receivable.
(2) The recorded investment in a loan is the UPB of the loan, adjusted for accrued interest, net of any unamortized premiums or discounts (which may include the basis adjustment related to any gain or loss on a delivery commitment prior to being funded) and direct charge-offs. The recorded investment is not net of any valuation allowance.
(3) Includes loans for which the decision of foreclosure or similar alternative, such as pursuit of deed-in-lieudeed in lieu of foreclosure, has been reported. Loans in process of foreclosure are included in past due categories depending on their delinquency status, but are not necessarily considered to be on non-accrual status.
(4)(2) Represents loans 90 days or more past due (including loans in process of foreclosure) expressed as a percentage of the total mortgage loans. The percentage excludes principal and interest amounts previously paid in full by the servicers on conventional loans that are pending resolution of potential loss claims. Our servicers repurchase seriously delinquent government loans, including FHA loans, when certain criteria are met.
(5)(3) Although our past due scheduled/scheduled MPP loans are classified as loans past due 90 days or more based on the loan's delinquency status, we do not consider these loans to be on non-accrual status.status as they are well-secured and in the process of collection.
(6)(4) As of September 30, 2021 and December 31, 2020, $93,082$32,526 and $87,708, respectively, of UPB of these conventional mortgage loans on non-accrual status did not have a specifically assigned allowance for credit losses and $79,779$18,166 and $59,306, respectively, of UPB of these conventional mortgage loans were in informal forbearance related to the COVID-19 pandemic.
Allowance for Credit Losses.
Collectively Evaluated Mortgage Loans.Conventional loans current to 179 days past due are collectively evaluated at the pool level using a recognized third-party credit and prepayment model, which considers both current and historical information and events and reasonable and supportable forecasts that rely upon certain key inputs and assumptions, to estimate potential ranges of credit loss exposure. One such key input is a 3-year forecast of housing prices before full reversion to historical inputs over 5 years. Additionally, the evaluation is based upon distinct underlying loan characteristics, including loan vintage (year of origination), geographic location, credit support features and other factors, and a projected migration of loans through the various stages of delinquency.
Seriously delinquent conventional loans 180 days or more past due are also collectively evaluated at the pool level based on current and historical information and events and reasonable and supportable forecasts.
Prior to January 1, 2020, our allowance was based on our best estimate of probable losses over a loss emergence period of 24 months. For information on the prior methodology for evaluating credit losses, see Notes to Financial Statements - Note 7 - Allowance for Credit Losses in the 2019 Form 10-K.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Individually Evaluated Mortgage Loans.Certain conventional mortgage loans, primarily TDRs, are specifically identified for purposes of calculating the allowance for loan losses. The measurement of our allowance for individually evaluated loans considers loan-specific attribution data similar to homogeneous pools of delinquent loans evaluated on a collective basis, including the use of loan-level property values from a third-party.
We also individually evaluate any remaining exposure to delinquent MPP conventional loans paid in full by the servicers. An estimate of the loss, if any, is equal to the estimated cost associated with maintaining and disposing of the property (which includes the UPB, interest owed on the delinquent loan to date, and estimated costs associated with disposing of the collateral) less the estimated fair value of the collateral (net of estimated selling costs) and the amount of credit enhancements including the PMI, LRA and SMI. The estimated fair value of the collateral is obtained from HUD statements, sales listings or other evidence of current expected liquidation amounts.
Interest income recognized on impaired MPP conventional loans was not material for the periods presented.
Qualitative Factors. We also assess qualitative factors in the estimation of credit losses. These factors represent a subjective management judgment based on facts and circumstances that exist as of the reporting date that are not ascribed to any specific measurable economic or credit event and are intended to address other inherent losses that may not otherwise be captured in our methodology.
Components and Rollforward of Allowance for Credit Losses. The following table presents the components of the allowance for credit losses, including the credit enhancement waterfall for MPP.
| Components of Allowance | Components of Allowance | | September 30, 2020 | | December 31, 2019 | Components of Allowance | | September 30, 2021 | | December 31, 2020 |
MPP estimated losses remaining after borrower's equity, before credit enhancements | | $ | 12,484 | | | $ | 4,410 | | |
Portion of estimated expected losses recoverable from credit enhancements: | | |
MPP expected losses remaining after borrower's equity, before credit enhancements | | MPP expected losses remaining after borrower's equity, before credit enhancements | | $ | 5,028 | | | $ | 10,305 | |
Portion of expected losses recoverable from credit enhancements: | | Portion of expected losses recoverable from credit enhancements: | |
PMI | PMI | | (2,930) | | | (667) | | PMI | | (837) | | | (2,277) | |
LRA (1) | LRA (1) | | (7,718) | | | (2,581) | | LRA (1) | | (3,299) | | | (6,847) | |
SMI | SMI | | (1,608) | | | (927) | | SMI | | (674) | | | (963) | |
Total portion recoverable from credit enhancements | Total portion recoverable from credit enhancements | | (12,256) | | | (4,175) | | Total portion recoverable from credit enhancements | | (4,810) | | | (10,087) | |
Allowance for unrecoverable PMI/SMI | Allowance for unrecoverable PMI/SMI | | 22 | | | 15 | | Allowance for unrecoverable PMI/SMI | | 32 | | | 32 | |
Allowance for MPP credit losses | Allowance for MPP credit losses | | 250 | | | 250 | | Allowance for MPP credit losses | | 250 | | | 250 | |
Allowance for MPF Program credit losses | Allowance for MPF Program credit losses | | 150 | | | 50 | | Allowance for MPF Program credit losses | | 75 | | | 100 | |
Allowance for credit losses | Allowance for credit losses | | $ | 400 | | | $ | 300 | | Allowance for credit losses | | $ | 325 | | | $ | 350 | |
(1) Amounts recoverable are limited to (i) the estimatedexpected losses remaining after borrower's equity and PMI and (ii) the remaining balance in each pool's portion of the LRA. The remainder of the total LRA balance is available to cover any losses not yet incurredexpected and to distribute any excess funds to the PFIs.
The table below presents a rollforward of our allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Rollforward of Allowance | | 2020 | | 2019 | | 2020 | | 2019 |
Balance, beginning of period | | $ | 325 | | | $ | 600 | | | $ | 300 | | | $ | 600 | |
Charge-offs | | (50) | | | (26) | | | (93) | | | (101) | |
Recoveries | | 1 | | | 56 | | | 21 | | | 117 | |
Provision for (reversal of) credit losses | | 124 | | | (180) | | | 172 | | | (166) | |
Balance, end of period | | $ | 400 | | | $ | 450 | | | $ | 400 | | | $ | 450 | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The table below presents a rollforward of our allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Rollforward of Allowance | | 2021 | | 2020 | | 2021 | | 2020 |
Balance, beginning of period | | $ | 325 | | | $ | 325 | | | $ | 350 | | | $ | 300 | |
Charge-offs | | 5 | | | (50) | | | (87) | | | (93) | |
Recoveries | | 11 | | | 1 | | | 34 | | | 21 | |
Provision for (reversal of) credit losses | | (16) | | | 124 | | | 28 | | | 172 | |
Balance, end of period | | $ | 325 | | | $ | 400 | | | $ | 325 | | | $ | 400 | |
Government-Guaranteed or -Insured Mortgage Loans. Based on the U.S. government guarantee or insurance on these loans, our assessment of our servicers, and the collateral backing the loans, the risk of loss was immaterial, consequently, we did 0t establishnot record an allowance for credit losses for government-guaranteed or -insured mortgage loans at September 30, 20202021 or December 31, 2019.2020. Furthermore, NaNnone of these mortgage loans have been placed on non-accrual status due to the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.
Note 6 - Derivatives and Hedging Activities
Managing Credit Risk on Derivatives. We are subject to credit risk due to the risk of nonperformance by the counterparties to our derivative transactions.
Uncleared Derivatives. For certain of our uncleared derivatives, we have credit support agreements that contain provisions requiring us to post additional collateral with our counterparties if there is deterioration in our credit rating. If our credit rating is lowered by an NRSRO, we could be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate estimated fair value of all uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest on cash collateral) at September 30, 20202021 was $5,777,$412, for which we have posted collateral in cash, including accrued interest, of $894 in the normal course of business. If our credit rating had been lowered by an NRSRO (from an S&P equivalent of AA+ to AA), we would not have been required to deliver additional collateral of $650 to our uncleared derivative counterparties at September 30, 2020.2021.
Cleared Derivatives. The clearinghouse determines margin requirements which are generally not based on credit ratings. However, clearing agents may require additional margin to be posted by us based on credit considerations, including but not limited to any creditcredit rating downgrades. At September 30, 2020,2021, we were not required by our clearing agents to post any additional margin.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Financial Statement Effect and Additional Financial Information.
We record derivative instruments, related cash collateral received or pledged/posted and associated accrued interest on a net basis, by clearing agent and/or by counterparty when the netting requirements have been met. The following table presents the notional amount and estimated fair value of derivative assets and liabilities.
| | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Fair Value | | Estimated Fair Value |
| | Notional | | of Derivative | | of Derivative |
September 30, 2020 | | Amount | | Assets | | Liabilities |
Derivatives designated as hedging instruments: | | | | | | |
Interest-rate swaps | | $ | 39,270,303 | | | $ | 16,091 | | | $ | 962,018 | |
Total derivatives designated as hedging instruments | | 39,270,303 | | | 16,091 | | | 962,018 | |
Derivatives not designated as hedging instruments: | | | | | | |
Interest-rate swaps | | 9,162,000 | | | 7,753 | | | 324 | |
Swaptions | | 0 | | | 0 | | | 0 | |
Interest-rate caps/floors | | 625,500 | | | 451 | | | 0 | |
Interest-rate forwards | | 261,200 | | | 470 | | | 8 | |
MDCs | | 261,771 | | | 201 | | | 250 | |
Total derivatives not designated as hedging instruments | | 10,310,471 | | | 8,875 | | | 582 | |
Total derivatives before adjustments | | $ | 49,580,774 | | | 24,966 | | | 962,600 | |
Netting adjustments and cash collateral (1) | | | | 294,872 | | | (955,609) | |
Total derivatives, net | | | | $ | 319,838 | | | $ | 6,991 | |
| | | | | | |
December 31, 2019 | | | | | | |
Derivatives designated as hedging instruments: | | | | | | |
Interest-rate swaps | | $ | 41,108,749 | | | $ | 60,155 | | | $ | 318,815 | |
Total derivatives designated as hedging instruments | | 41,108,749 | | | 60,155 | | | 318,815 | |
Derivatives not designated as hedging instruments: | | | | | | |
Interest-rate swaps | | 7,634,000 | | | 450 | | | 27 | |
Swaptions | | 850,000 | | | 16 | | | 0 | |
Interest-rate caps/floors | | 668,500 | | | 215 | | | 0 | |
Interest-rate forwards | | 70,200 | | | 0 | | | 216 | |
MDCs | | 70,693 | | | 105 | | | 3 | |
Total derivatives not designated as hedging instruments | | 9,293,393 | | | 786 | | | 246 | |
Total derivatives before adjustments | | $ | 50,402,142 | | | 60,941 | | | 319,061 | |
Netting adjustments and cash collateral (1) | | | | 147,067 | | | (315,855) | |
Total derivatives, net | | | | $ | 208,008 | | | $ | 3,206 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Fair Value |
| | Notional | | Derivative | | Derivative |
September 30, 2021 | | Amount | | Assets | | Liabilities |
Derivatives designated as hedging instruments: | | | | | | |
Interest-rate swaps | | $ | 42,839,114 | | | $ | 78,296 | | | $ | 380,416 | |
Total derivatives designated as hedging instruments | | 42,839,114 | | | 78,296 | | | 380,416 | |
Derivatives not designated as hedging instruments: | | | | | | |
Economic hedges: | | | | | | |
Interest-rate swaps | | 9,327,000 | | | 4,321 | | | 161 | |
| | | | | | |
Interest-rate caps/floors | | 625,500 | | | 644 | | | — | |
Interest-rate forwards | | 141,100 | | | 336 | | | 47 | |
MDCs | | 139,076 | | | 81 | | | 257 | |
Total derivatives not designated as hedging instruments | | 10,232,676 | | | 5,382 | | | 465 | |
Total derivatives before adjustments | | $ | 53,071,790 | | | 83,678 | | | 380,881 | |
Netting adjustments and cash collateral (1) | | | | 147,602 | | | (362,339) | |
Total derivatives, net | | | | $ | 231,280 | | | $ | 18,542 | |
| | | | | | |
December 31, 2020 | | | | | | |
Derivatives designated as hedging instruments: | | | | | | |
Interest-rate swaps | | $ | 40,227,966 | | | $ | 13,018 | | | $ | 761,330 | |
Total derivatives designated as hedging instruments | | 40,227,966 | | | 13,018 | | | 761,330 | |
Derivatives not designated as hedging instruments: | | | | | | |
Economic hedges; | | | | | | |
Interest-rate swaps | | 9,177,000 | | | 5,404 | | | 181 | |
| | | | | | |
Interest-rate caps/floors | | 625,500 | | | 1,113 | | | — | |
Interest-rate forwards | | 180,900 | | | — | | | 1,486 | |
MDCs | | 180,152 | | | 1,022 | | | — | |
Total derivatives not designated as hedging instruments | | 10,163,552 | | | 7,539 | | | 1,667 | |
Total derivatives before adjustments | | $ | 50,391,518 | | | 20,557 | | | 762,997 | |
Netting adjustments and cash collateral (1) | | | | 262,525 | | | (740,018) | |
Total derivatives, net | | | | $ | 283,082 | | | $ | 22,979 | |
(1) Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty. Cash collateral pledged to counterparties at September 30, 20202021 and December 31, 2019,2020, including accrued interest, totaled $1,251,375$510,835 and $464,187,$1,003,437, respectively. Cash collateral received from counterparties and held at both September 30, 20202021 and December 31, 2019, including2020, including accrued interest, totaled $894 and $1,265, respectively.$894. At September 30, 20202021 and December 31, 2019, 02020, no securities were pledged as collateral.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The following table presents separately the estimated fair value of derivative instruments meeting and not meeting netting requirements, including the effect of the related collateral.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
Derivative instruments meeting netting requirements: | | | | | | | | |
Gross recognized amount | | | | | | | | |
Uncleared | | $ | 4,517 | | | $ | 961,467 | | | $ | 51,955 | | | $ | 318,023 | |
Cleared | | 19,778 | | | 875 | | | 8,881 | | | 819 | |
Total gross recognized amount | | 24,295 | | | 962,342 | | | 60,836 | | | 318,842 | |
Gross amounts of netting adjustments and cash collateral | | | | | | | | |
Uncleared | | 15,766 | | | (954,734) | | | (36,954) | | | (315,036) | |
Cleared | | 279,106 | | | (875) | | | 184,021 | | | (819) | |
Total gross amounts of netting adjustments and cash collateral | | 294,872 | | | (955,609) | | | 147,067 | | | (315,855) | |
Net amounts after netting adjustments and cash collateral | | | | | | | | |
Uncleared | | 20,283 | | | 6,733 | | | 15,001 | | | 2,987 | |
Cleared | | 298,884 | | | 0 | | | 192,902 | | | 0 | |
Total net amounts after netting adjustments and cash collateral | | 319,167 | | | 6,733 | | | 207,903 | | | 2,987 | |
Derivative instruments not meeting netting requirements (1) | | 671 | | | 258 | | | 105 | | | 219 | |
Total derivatives, at estimated fair value | | $ | 319,838 | | | $ | 6,991 | | | $ | 208,008 | | | $ | 3,206 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
Derivative instruments meeting netting requirements: | | | | | | | | |
Gross recognized amount | | | | | | | | |
Uncleared | | $ | 78,602 | | | $ | 376,138 | | | $ | 13,793 | | | $ | 755,118 | |
Cleared | | 4,659 | | | 4,439 | | | 5,742 | | | 6,393 | |
Total gross recognized amount | | 83,261 | | | 380,577 | | | 19,535 | | | 761,511 | |
Gross amounts of netting adjustments and cash collateral | | | | | | | | |
Uncleared | | (78,283) | | | (357,900) | | | (13,793) | | | (733,625) | |
Cleared | | 225,885 | | | (4,439) | | | 276,318 | | | (6,393) | |
Total gross amounts of netting adjustments and cash collateral | | 147,602 | | | (362,339) | | | 262,525 | | | (740,018) | |
Net amounts after netting adjustments and cash collateral | | | | | | | | |
Uncleared | | 319 | | | 18,238 | | | — | | | 21,493 | |
Cleared | | 230,544 | | | — | | | 282,060 | | | — | |
Total net amounts after netting adjustments and cash collateral | | 230,863 | | | 18,238 | | | 282,060 | | | 21,493 | |
Derivative instruments not meeting netting requirements (1) | | 417 | | | 304 | | | 1,022 | | | 1,486 | |
Total derivatives, at estimated fair value | | $ | 231,280 | | | $ | 18,542 | | | $ | 283,082 | | | $ | 22,979 | |
(1) Includes MDCs and certain interest-rate forwards.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The following table presents, by type of hedged item, the components of net gains (losses) on derivatives and the related hedged items in qualifying fair-value hedging activities reported in otherrelationships and the impact on net interest income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Type of Hedge | | 2020 | | 2019 | | 2020 | | 2019 |
Net gain (loss) on derivatives not designated as hedging instruments: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Interest-rate swaps | | $ | 11,994 | | | $ | (2,550) | | | $ | (8,287) | | | $ | (14,636) | |
Swaptions | | 0 | | | (430) | | | (323) | | | (1,023) | |
Interest-rate caps/floors | | (228) | | | (799) | | | 236 | | | (801) | |
Interest-rate forwards | | (917) | | | (268) | | | (11,840) | | | (1,487) | |
Net interest settlements | | (11,579) | | | 127 | | | (40,491) | | | (4,961) | |
MDCs | | 433 | | | 308 | | | 8,581 | | | 1,509 | |
Total net gains (losses) on derivatives not designated as hedging instruments | | $ | (297) | | | $ | (3,612) | | | $ | (52,124) | | | $ | (21,399) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Three Months Ended September 30, 2021 | | Advances | | Investments | | CO Bonds | | Total |
Changes in estimated fair value: | | | | | | | | |
Hedged items (attributable to risk being hedged) | | $ | (66,161) | | | $ | (30,326) | | | $ | 37,891 | | | $ | (58,596) | |
Derivatives | | 58,792 | | | 32,609 | | | (35,558) | | | 55,843 | |
Net changes in estimated fair value before price alignment interest | | (7,369) | | | 2,283 | | | 2,333 | | | (2,753) | |
Price alignment interest (1) | | 22 | | | 10 | | | (2) | | | 30 | |
Net interest settlements on derivatives (2) | | (45,957) | | | (25,658) | | | 27,351 | | | (44,264) | |
Amortization/accretion of gains (losses) on active hedging relationships | | — | | | 1,114 | | | 44 | | | 1,158 | |
Net gains (losses) on qualifying fair-value hedging relationships | | (53,304) | | | (22,251) | | | 29,726 | | | (45,829) | |
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | (58) | | | (11,472) | | | — | | | (11,530) | |
Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | (53,362) | | | $ | (33,723) | | | $ | 29,726 | | | $ | (57,359) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Three Months Ended September 30, 2020 | | | | | | | | |
Changes in estimated fair value: | | | | | | | | |
Hedged items (attributable to risk being hedged) | | $ | (104,009) | | | $ | (50,989) | | | $ | 13,439 | | | $ | (141,559) | |
Derivatives | | 99,757 | | | 53,325 | | | (13,934) | | | 139,148 | |
Net changes in estimated fair value before price alignment interest | | (4,252) | | | 2,336 | | | (495) | | | (2,411) | |
Price alignment interest (1) | | 92 | | | 73 | | | (10) | | | 155 | |
Net interest settlements on derivatives (2) | | (54,836) | | | (39,134) | | | 15,069 | | | (78,901) | |
Amortization/accretion of gains (losses) on active hedging relationships | | 1 | | | 1,263 | | | 751 | | | 2,015 | |
Net gains (losses) on qualifying fair-value hedging relationships | | (58,995) | | | (35,462) | | | 15,315 | | | (79,142) | |
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | — | | | — | | | — | | | — | |
Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | (58,995) | | | $ | (35,462) | | | $ | 15,315 | | | $ | (79,142) | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The following table presents, by type of hedged item, the net gains (losses) on derivatives and the related hedged items in qualifying fair-value hedging relationships and the impact on net interest income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Three Months Ended September 30, 2020 | | Advances | | Investments | | CO Bonds | | Total |
Changes in estimated fair value: | | | | | | | | |
Hedged items (attributable to risk being hedged) | | $ | (104,009) | | | $ | (50,989) | | | $ | 13,439 | | | $ | (141,559) | |
Derivatives | | 99,757 | | | 53,325 | | | (13,934) | | | 139,148 | |
Net changes in estimated fair value before price alignment interest | | (4,252) | | | 2,336 | | | (495) | | | (2,411) | |
Price alignment interest (1) | | 92 | | | 73 | | | (10) | | | 155 | |
Net interest settlements on derivatives (2) | | (54,836) | | | (39,134) | | | 15,069 | | | (78,901) | |
Amortization/accretion of gains (losses) on active hedging relationships | | 1 | | | 1,263 | | | 751 | | | 2,015 | |
Net gains (losses) on qualifying fair-value hedging relationships | | (58,995) | | | (35,462) | | | 15,315 | | | (79,142) | |
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | 0 | | | 0 | | | 0 | | | 0 | |
Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | (58,995) | | | $ | (35,462) | | | $ | 15,315 | | | $ | (79,142) | |
| | | | | | | | |
| | Three Months Ended September 30, 2019 | | |
Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Advances | | Investments | | CO Bonds | | Total |
Changes in estimated fair value: | Changes in estimated fair value: | | Changes in estimated fair value: | | | | | | | | |
Hedged items (attributable to risk being hedged) | Hedged items (attributable to risk being hedged) | | $ | 101,809 | | | $ | 140,243 | | | $ | (10,308) | | | $ | 231,744 | | Hedged items (attributable to risk being hedged) | | $ | (299,081) | | | $ | (256,325) | | | $ | 121,951 | | | $ | (433,455) | |
Derivatives | Derivatives | | (96,264) | | | (150,320) | | | 5,782 | | | (240,802) | | Derivatives | | 293,540 | | | 266,802 | | | (116,664) | | | 443,678 | |
Net changes in estimated fair value before price alignment interest | Net changes in estimated fair value before price alignment interest | | 5,545 | | | (10,077) | | | (4,526) | | | (9,058) | | Net changes in estimated fair value before price alignment interest | | (5,541) | | | 10,477 | | | 5,287 | | | 10,223 | |
Price alignment interest (1) | Price alignment interest (1) | | 782 | | | 201 | | | (147) | | | 836 | | Price alignment interest (1) | | 58 | | | 27 | | | (6) | | | 79 | |
Net interest settlements on derivatives (2) | Net interest settlements on derivatives (2) | | 13,271 | | | 6,556 | | | (3,967) | | | 15,860 | | Net interest settlements on derivatives (2) | | (137,849) | | | (86,438) | | | 61,588 | | | (162,699) | |
Amortization/accretion of gains (losses) on active hedging relationships | Amortization/accretion of gains (losses) on active hedging relationships | | 0 | | | 117 | | | 187 | | | 304 | | Amortization/accretion of gains (losses) on active hedging relationships | | — | | | 5,274 | | | 206 | | | 5,480 | |
Net gains (losses) on qualifying fair-value hedging relationships | Net gains (losses) on qualifying fair-value hedging relationships | | 19,598 | | | (3,203) | | | (8,453) | | | 7,942 | | Net gains (losses) on qualifying fair-value hedging relationships | | (143,332) | | | (70,660) | | | 67,075 | | | (146,917) | |
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | 2 | | | 0 | | | (514) | | | (512) | | Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | (170) | | | (24,264) | | | — | | | (24,434) | |
Net gains (losses) on derivatives and hedging activities in net interest income (3) | Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | 19,600 | | | $ | (3,203) | | | $ | (8,967) | | | $ | 7,430 | | Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | (143,502) | | | $ | (94,924) | | | $ | 67,075 | | | $ | (171,351) | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2020 | | Advances | | Investments | | CO Bonds | | Total |
Changes in estimated fair value: | | | | | | | | |
Hedged items (attributable to risk being hedged) | | $ | 530,727 | | | $ | 589,234 | | | $ | (26,013) | | | $ | 1,093,948 | |
Derivatives | | (533,327) | | | (614,242) | | | 28,821 | | | (1,118,748) | |
Net changes in estimated fair value before price alignment interest | | (2,600) | | | (25,008) | | | 2,808 | | | (24,800) | |
Price alignment interest (1) | | 732 | | | 474 | | | (159) | | | 1,047 | |
Net interest settlements on derivatives (2) | | (83,275) | | | (72,815) | | | 43,844 | | | (112,246) | |
Amortization/accretion of gains (losses) on active hedging relationships | | (13) | | | 1,902 | | | 2,084 | | | 3,973 | |
Net gains (losses) on qualifying fair-value hedging relationships | | (85,156) | | | (95,447) | | | 48,577 | | | (132,026) | |
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | 0 | | | 0 | | | (36) | | | (36) | |
Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | (85,156) | | | $ | (95,447) | | | $ | 48,541 | | | $ | (132,062) | |
| Nine Months Ended September 30, 2019 | | |
Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | |
Changes in estimated fair value: | Changes in estimated fair value: | | Changes in estimated fair value: | |
Hedged items (attributable to risk being hedged) | Hedged items (attributable to risk being hedged) | | $ | 432,419 | | | $ | 507,397 | | | $ | (109,183) | | | $ | 830,633 | | Hedged items (attributable to risk being hedged) | | $ | 530,727 | | | $ | 589,234 | | | $ | (26,013) | | | $ | 1,093,948 | |
Derivatives | Derivatives | | (431,365) | | | (535,526) | | | 104,749 | | | (862,142) | | Derivatives | | (533,327) | | | (614,242) | | | 28,821 | | | (1,118,748) | |
Net changes in estimated fair value before price alignment interest | Net changes in estimated fair value before price alignment interest | | 1,054 | | | (28,129) | | | (4,434) | | | (31,509) | | Net changes in estimated fair value before price alignment interest | | (2,600) | | | (25,008) | | | 2,808 | | | (24,800) | |
Price alignment interest (1) | Price alignment interest (1) | | 477 | | | (877) | | | (153) | | | (553) | | Price alignment interest (1) | | 732 | | | 474 | | | (159) | | | 1,047 | |
Net interest settlements on derivatives (2) | Net interest settlements on derivatives (2) | | 56,729 | | | 32,167 | | | (34,564) | | | 54,332 | | Net interest settlements on derivatives (2) | | (83,275) | | | (72,815) | | | 43,844 | | | (112,246) | |
Amortization/accretion of gains (losses) on active hedging relationships | Amortization/accretion of gains (losses) on active hedging relationships | | 0 | | | 293 | | | 372 | | | 665 | | Amortization/accretion of gains (losses) on active hedging relationships | | (13) | | | 1,902 | | | 2,084 | | | 3,973 | |
Net gains (losses) on qualifying fair-value hedging relationships | Net gains (losses) on qualifying fair-value hedging relationships | | 58,260 | | | 3,454 | | | (38,779) | | | 22,935 | | Net gains (losses) on qualifying fair-value hedging relationships | | (85,156) | | | (95,447) | | | 48,577 | | | (132,026) | |
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | 0 | | | 0 | | | (6,678) | | | (6,678) | | Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships | | — | | | — | | | (36) | | | (36) | |
Net gains (losses) on derivatives and hedging activities in net interest income (3) | Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | 58,260 | | | $ | 3,454 | | | $ | (45,457) | | | $ | 16,257 | | Net gains (losses) on derivatives and hedging activities in net interest income (3) | | $ | (85,156) | | | $ | (95,447) | | | $ | 48,541 | | | $ | (132,062) | |
|
(1) Relates to derivatives for which variation margin payments are characterized as daily settled contracts.
(2) Represents interest income/expense on derivatives in qualifying fair-value hedging relationships. Net interest settlements on derivatives that are not in qualifying fair-value hedging relationships are reported in other income.
(3) Excludes the interest income/expense of the respective hedged items recorded in net interest income.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The following table presents the components of net gains (losses) on derivatives reported in other income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Type of Hedge | | 2021 | | 2020 | | 2021 | | 2020 |
Net gains (losses) on derivatives not designated as hedging instruments: | | | | | | | | |
Economic hedges: | | | | | | | | |
Interest-rate swaps | | $ | 175 | | | $ | 11,994 | | | $ | 8,369 | | | $ | (8,287) | |
Swaptions | | — | | | — | | | — | | | (323) | |
Interest-rate caps/floors | | (72) | | | (228) | | | (468) | | | 236 | |
Interest-rate forwards | | (459) | | | (917) | | | 2,353 | | | (11,840) | |
Net interest settlements | | (1,333) | | | (11,579) | | | (9,571) | | | (40,491) | |
MDCs | | 328 | | | 433 | | | (2,696) | | | 8,581 | |
Net gains (losses) on derivatives in other income | | $ | (1,361) | | | $ | (297) | | | $ | (2,013) | | | $ | (52,124) | |
| | | | | | | | |
| | | | | | | | |
The following table presents the amortized cost of, and the related cumulative basis adjustments on, hedged items in qualifying fair-value hedging relationships.
| | | | | | | | | | | | | | | | | | | | | | |
September 30, 2020 | | Advances | | Investments | | CO Bonds | | |
Amortized cost of hedged items (1) | | $ | 19,491,639 | | | $ | 10,216,030 | | | $ | 13,114,608 | | | |
| | | | | | | | |
Cumulative basis adjustments included in amortized cost: | | | | | | | | |
For active fair-value hedging relationships (2) | | $ | 794,820 | | | $ | 682,858 | | | $ | 31,892 | | | |
For discontinued fair-value hedging relationships | | 856 | | | 50,648 | | | 0 | | | |
Total cumulative fair-value hedging basis adjustments on hedged items | | $ | 795,676 | | | $ | 733,506 | | | $ | 31,892 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
September 30, 2021 | | Advances | | Investments | | CO Bonds | | |
Amortized cost of hedged items (1) | | $ | 16,446,754 | | | $ | 9,141,491 | | | $ | 19,794,934 | | | |
| | | | | | | | |
Cumulative basis adjustments included in amortized cost: | | | | | | | | |
For active fair-value hedging relationships (2) | | $ | 324,690 | | | $ | (71,459) | | | $ | (100,409) | | | |
For discontinued fair-value hedging relationships | | 630 | | | 359,318 | | | — | | | |
Total cumulative fair-value hedging basis adjustments on hedged items | | $ | 325,320 | | | $ | 287,859 | | | $ | (100,409) | | | |
| December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Amortized cost of hedged items (1) | Amortized cost of hedged items (1) | | $ | 17,320,223 | | | $ | 8,394,665 | | | $ | 17,039,657 | | Amortized cost of hedged items (1) | | $ | 17,219,312 | | | $ | 9,882,225 | | | $ | 17,406,679 | |
| Cumulative basis adjustments included in amortized cost: | Cumulative basis adjustments included in amortized cost: | | Cumulative basis adjustments included in amortized cost: | |
For active fair-value hedging relationships (2) | For active fair-value hedging relationships (2) | | $ | 207,111 | | | $ | 150,372 | | | $ | 7,855 | | For active fair-value hedging relationships (2) | | $ | 645,146 | | | $ | 501,865 | | | $ | 21,605 | |
For discontinued fair-value hedging relationships | For discontinued fair-value hedging relationships | | 0 | | | 0 | | | (36) | | For discontinued fair-value hedging relationships | | 799 | | | 125,754 | | | — | |
Total cumulative fair-value hedging basis adjustments on hedged items | Total cumulative fair-value hedging basis adjustments on hedged items | | $ | 207,111 | | | $ | 150,372 | | | $ | 7,819 | | Total cumulative fair-value hedging basis adjustments on hedged items | | $ | 645,945 | | | $ | 627,619 | | | $ | 21,605 | |
(1) Includes only the portion of the amortized cost of the hedged items in qualifying fair-value hedging relationships.
(2) Excludes any offsetting effect of the net estimated fair value of the associated derivatives.
Note 7 - Consolidated Obligations
In addition to being the primary obligor for all consolidated obligations issued on our behalf, we are jointly and severally liable with each of the other FHLBanks for the payment of the principal and interest on all of the FHLBanks' consolidated obligations outstanding. The par values of the FHLBanks' consolidated obligations outstanding at September 30, 20202021 and December 31, 20192020 totaled $819.9$641.4 billion and $1.0 trillion,$746.8 billion, respectively. As provided by the Bank Act and Finance Agency regulations, consolidated obligations are backed only by the financial resources of all FHLBanks.
Discount Notes. The following table presents our discount notes outstanding, all of which are due within one year of issuance.
| | | | | | | | | | | | | | |
Discount Notes | | September 30, 2020 | | December 31, 2019 |
Book value | | $ | 19,461,386 | | | $ | 17,676,793 |
Par value | | $ | 19,466,035 | | | $ | 17,713,204 |
| | | | |
Weighted average effective interest rate | | 0.14 | % | | 1.59 | % |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Discount Notes. The following table presents our discount notes outstanding, all of which are due within one year of issuance.
| | | | | | | | | | | | | | |
Discount Notes | | September 30, 2021 | | December 31, 2020 |
Book value | | $ | 12,713,890 | | | $ | 16,617,079 |
Par value | | 12,715,399 | | | 16,620,486 |
| | | | |
Weighted average effective interest rate | | 0.05 | % | | 0.12 | % |
CO Bonds. The following table presents our CO bonds outstanding by contractual maturity.
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Year of Contractual Maturity | Year of Contractual Maturity | | Amount | | WAIR% | | Amount | | WAIR% | Year of Contractual Maturity | | Amount | | WAIR% | | Amount | | WAIR% |
Due in 1 year or less | Due in 1 year or less | | $ | 28,157,490 | | | 0.30 | | | $ | 23,404,785 | | | 1.88 | | Due in 1 year or less | | $ | 19,458,850 | | | 0.27 | | | $ | 31,126,310 | | | 0.29 | |
Due after 1 year through 2 years | Due after 1 year through 2 years | | 5,208,700 | | | 0.79 | | | 6,881,120 | | | 1.93 | | Due after 1 year through 2 years | | 4,130,410 | | | 0.96 | | | 4,109,700 | | | 0.70 | |
Due after 2 years through 3 years | Due after 2 years through 3 years | | 1,325,275 | | | 1.97 | | | 4,020,790 | | | 2.10 | | Due after 2 years through 3 years | | 3,001,900 | | | 0.68 | | | 1,753,010 | | | 1.34 | |
Due after 3 years through 4 years | Due after 3 years through 4 years | | 798,600 | | | 2.00 | | | 1,234,375 | | | 2.18 | | Due after 3 years through 4 years | | 3,730,900 | | | 0.73 | | | 767,250 | | | 1.93 | |
Due after 4 years through 5 years | Due after 4 years through 5 years | | 919,900 | | | 1.46 | | | 3,471,250 | | | 2.11 | | Due after 4 years through 5 years | | 5,420,250 | | | 1.06 | | | 837,300 | | | 1.13 | |
Thereafter | Thereafter | | 4,638,150 | | | 3.01 | | | 5,650,600 | | | 3.11 | | Thereafter | | 7,514,000 | | | 2.13 | | | 4,652,000 | | | 2.91 | |
Total CO bonds, par value | Total CO bonds, par value | | 41,048,115 | | | 0.78 | | | 44,662,920 | | | 2.09 | | Total CO bonds, par value | | 43,256,310 | | | 0.83 | | | 43,245,570 | | | 0.70 | |
Unamortized premiums | Unamortized premiums | | 89,220 | | | | | 67,708 | | | | Unamortized premiums | | 87,809 | | | | | 87,133 | | | |
Unamortized discounts | Unamortized discounts | | (12,815) | | | | | (13,321) | | | | Unamortized discounts | | (11,725) | | | | | (12,703) | | | |
Unamortized concessions | Unamortized concessions | | (8,259) | | | (9,902) | | | Unamortized concessions | | (6,599) | | | (8,659) | | |
Fair-value hedging adjustments, net | | 31,892 | | | | | 7,819 | | | | |
Fair-value hedging basis adjustments, net | | Fair-value hedging basis adjustments, net | | (100,409) | | | | | 21,605 | | | |
Total CO bonds | Total CO bonds | | $ | 41,148,153 | | | | | $ | 44,715,224 | | | | Total CO bonds | | $ | 43,225,386 | | | | | $ | 43,332,946 | | | |
The following tables present the par value of our CO bonds outstanding by redemption feature and the earlier of the year of contractual maturity or next call date.
| Redemption Feature | Redemption Feature | | September 30, 2020 | | December 31, 2019 | Redemption Feature | | September 30, 2021 | | December 31, 2020 |
Non-callable / non-putable | Non-callable / non-putable | | $ | 35,073,615 | | | $ | 28,829,420 | | Non-callable / non-putable | | $ | 26,902,810 | | | $ | 36,809,070 | |
Callable | Callable | | 5,974,500 | | | 15,833,500 | | Callable | | 16,353,500 | | | 6,436,500 | |
Total CO bonds, par value | Total CO bonds, par value | | $ | 41,048,115 | | | $ | 44,662,920 | | Total CO bonds, par value | | $ | 43,256,310 | | | $ | 43,245,570 | |
| | | | | | | | | | | | | | |
Year of Contractual Maturity or Next Call Date | | September 30, 2020 | | December 31, 2019 |
Due in 1 year or less | | $ | 31,386,990 | | | $ | 36,243,785 | |
Due after 1 year through 2 years | | 5,223,700 | | | 4,484,620 | |
Due after 2 years through 3 years | | 1,255,275 | | | 742,790 | |
Due after 3 years through 4 years | | 380,100 | | | 516,375 | |
Due after 4 years through 5 years | | 603,900 | | | 380,750 | |
Thereafter | | 2,198,150 | | | 2,294,600 | |
Total CO bonds, par value | | $ | 41,048,115 | | | $ | 44,662,920 | |
| | | | | | | | | | | | | | |
Year of Contractual Maturity or Next Call Date | | September 30, 2021 | | December 31, 2020 |
Due in 1 year or less | | $ | 35,255,350 | | | $ | 34,272,810 | |
Due after 1 year through 2 years | | 4,482,410 | | | 4,159,700 | |
Due after 2 years through 3 years | | 652,900 | | | 1,608,010 | |
Due after 3 years through 4 years | | 608,900 | | | 443,750 | |
Due after 4 years through 5 years | | 437,750 | | | 563,300 | |
Thereafter | | 1,819,000 | | | 2,198,000 | |
Total CO bonds, par value | | $ | 43,256,310 | | | $ | 43,245,570 | |
The following table presents the par value of our CO bonds outstanding by interest-rate payment type.
| | | | | | | | | | | | | | |
Interest-Rate Payment Type | | September 30, 2020 | | December 31, 2019 |
Fixed-rate | | $ | 20,805,115 | | | $ | 27,565,920 | |
Step-up | | 15,000 | | | 30,000 | |
Simple variable-rate | | 20,228,000 | | | 17,067,000 | |
| | | | |
| | | | |
| | | | |
Total CO bonds, par value | | $ | 41,048,115 | | | $ | 44,662,920 | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The following table presents the par value of our CO bonds outstanding by interest-rate payment type.
| | | | | | | | | | | | | | |
Interest-Rate Payment Type | | September 30, 2021 | | December 31, 2020 |
Fixed-rate | | $ | 33,086,810 | | | $ | 24,750,570 | |
Step-up | | 628,500 | | | 15,000 | |
Simple variable-rate | | 9,541,000 | | | 18,480,000 | |
| | | | |
| | | | |
| | | | |
Total CO bonds, par value | | $ | 43,256,310 | | | $ | 43,245,570 | |
Note 8 - Affordable Housing Program
The following table summarizes the activity in our AHP funding obligation.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
AHP Activity | | 2020 | | 2019 | | 2020 | | 2019 |
Liability at beginning of period | | $ | 36,661 | | | $ | 40,247 | | | $ | 38,084 | | | $ | 40,747 | |
Assessment (expense) | | 1,886 | | | 3,265 | | | 7,273 | | | 11,408 | |
Subsidy usage, net (1) | | (3,966) | | | (6,442) | | | (10,776) | | | (15,085) | |
Liability at end of period | | $ | 34,581 | | | $ | 37,070 | | | $ | 34,581 | | | $ | 37,070 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
AHP Activity | | 2021 | | 2020 | | 2021 | | 2020 |
Liability at beginning of period | | $ | 30,765 | | | $ | 36,661 | | | $ | 34,402 | | | $ | 38,084 | |
Assessment (expense) | | 2,250 | | | 1,886 | | | 7,702 | | | 7,273 | |
Subsidy usage, net (1) | | (2,549) | | | (3,966) | | | (11,638) | | | (10,776) | |
Liability at end of period | | $ | 30,466 | | | $ | 34,581 | | | $ | 30,466 | | | $ | 34,581 | |
(1) Subsidies disbursed are reported net of returns/recaptures of previously disbursed subsidies.
Note 9 - Capital
Classes of Capital Stock. We amended and restated our capital plan effective September 26, 2020. The amended plan, like the prior plan, divides our Class B stock into 2 sub-series: Class B-1 and Class B-2. However, under the amended plan, any Class B stock supporting activity requirements is classified as B-2, while all other Class B stock is classified as B-1. A member's Class B-1 stock is reclassified as B-2 as needed to help fulfill the member's activity stock requirement, and the member may be required to purchase additional Class B-2 stock to fully meet that requirement. Any excess stock is automatically classified as Class B-1.
Under the amended capital plan, PFIs may opt in to an activity stock (i.e., Class B-2 stock) requirement in connection with their sales of mortgage loans to us under Advantage MPP. PFIs may elect this stock requirement under an MCC until such election is withdrawn. As of September 30, 2020, no such shares of Class B-2 stock were issued and outstanding.
The amended capital plan also permits the board of directors to authorize the issuance of Class A stock although, as of September 30, 2020, the board of directors had not authorized such issuance. If authorized, a member may elect to purchase Class A stock, rather than Class B-2 stock, to satisfy the member’s activity stock requirement, subject to certain restrictions.
Under our prior capital plan, Class B-1 was stock held by our members that was not subject to a redemption request. Class B-2 stock consisted solely of required stock that was subject to a redemption request.
The following table presents the capital stock outstanding by sub-series under the prior and amended capital plan.sub-series.
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Prior capital plan | | | |
Class B-1 issued and outstanding shares: 0 and 19,737,727, respectively | $ | — | | | $ | 1,973,773 | |
Class B-2 issued and outstanding shares: 0 and 3,028, respectively | — | | | 303 | |
| | | |
Amended capital plan | | | |
Class B-1 issued and outstanding shares: 8,401,720 and 0, respectively | 840,172 | | | — | |
Class B-2 issued and outstanding shares: 13,834,979 and 0, respectively | 1,383,498 | | | — | |
| | | |
Total Class B issued and outstanding shares: 22,236,699 and 19,740,755, respectively | $ | 2,223,670 | | | $ | 1,974,076 | |
| | | | | | | | | | | | | | |
Capital stock outstanding | | September 30, 2021 | | December 31, 2020 |
Class B-1 | | $ | 968,869 | | | $ | 797,196 | |
Class B-2 | | 1,267,623 | | | 1,410,374 | |
| | | | |
Total Class B | | $ | 2,236,492 | | | $ | 2,207,570 | |
Mandatorily Redeemable Capital Stock.The following table presents the activity in our MRCS.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
MRCS Activity | | 2021 | | 2020 | | 2021 | | 2020 |
Liability at beginning of period | | $ | 232,893 | | | $ | 299,704 | | | $ | 250,768 | | | $ | 322,902 | |
Reclassification from capital stock | | 4,449 | | | 496 | | | 4,730 | | | 13,843 | |
| | | | | | | | |
| | | | | | | | |
Redemptions/repurchases | | (186,900) | | | (37,750) | | | (205,056) | | | (74,331) | |
Accrued distributions | | — | | | 4 | | | — | | | 40 | |
Liability at end of period | | $ | 50,442 | | | $ | 262,454 | | | $ | 50,442 | | | $ | 262,454 | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Dividends. Our board of directors may, but is not required to, declare and pay dividends on our capital stock in either cash or capital stock or a combination thereof, as long as we are in compliance with Finance Agency regulations. The amount of the dividend to be paid is based on the average number of shares of each sub-series held by the member during the dividend payment period (applicable quarter).
Under our prior capital plan, which was in effect through September 25, 2020, the Class B-2 dividend was calculated at 80% of the amount of the Class B-1 dividend. The amended plan, however, does not mandate a specific difference between Class B-1 and Class B-2 dividend rates. Rather, the board of directors may set a dividend rate on Class B-2 stock that is equal to or greater than the rate on Class B-1 stock. The plan also authorizes the board of directors to set a dividend rate on Class A stock (if issued and outstanding) that is equal to or less than the rate on Class B-2 stock.
Mandatorily Redeemable Capital Stock.The following table presents the activity in our MRCS.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
MRCS Activity | | 2020 | | 2019 | | 2020 | | 2019 |
Liability at beginning of period | | $ | 299,704 | | | $ | 174,193 | | | $ | 322,902 | | | $ | 168,876 | |
Reclassification from capital stock | | 496 | | | 148,870 | | | 13,843 | | | 150,979 | |
| | | | | | | | |
Proceeds from issuance (1) | | 0 | | | 0 | | | 0 | | | 3,704 | |
Redemptions/repurchases | | (37,750) | | | (43) | | | (74,331) | | | (540) | |
Accrued distributions | | 4 | | | 692 | | | 40 | | | 693 | |
Liability at end of period | | $ | 262,454 | | | $ | 323,712 | | | $ | 262,454 | | | $ | 323,712 | |
(1) Represents a purchase of capital stock by a captive insurance company member, which is considered mandatorily redeemable as a result of the Final Membership Rule.
The following table presents MRCS by contractual year of redemption. The year of redemption is the later of (i) the final year of the five-year redemption period, or (ii) the first year in which a non-member no longer has an activity-based stock requirement.
| | MRCS Contractual Year of Redemption | MRCS Contractual Year of Redemption | | September 30, 2020 | | December 31, 2019 | MRCS Contractual Year of Redemption | | September 30, 2021 | | December 31, 2020 |
Year 1 (1)(2) | Year 1 (1)(2) | | $ | 9,289 | | | $ | 680 | | Year 1 (1)(2) | | $ | 12,431 | | | $ | 9,274 | |
Year 2 | Year 2 | | 0 | | | 8,649 | | Year 2 | | 471 | | | — | |
Year 3 | Year 3 | | 26,723 | | | 0 | | Year 3 | | 9,873 | | | 26,723 | |
Year 4 | Year 4 | | 150,957 | | | 26,723 | | Year 4 | | 4,270 | | | 150,957 | |
Year 5 | Year 5 | | 13,843 | | | 150,958 | | Year 5 | | 23,397 | | | 32,791 | |
Thereafter (2)(3) | Thereafter (2)(3) | | 61,642 | | | 135,892 | | Thereafter (2)(3) | | — | | | 31,023 | |
Total MRCS | Total MRCS | | $ | 262,454 | | | $ | 322,902 | | Total MRCS | | $ | 50,442 | | | $ | 250,768 | |
(1) Balances at September 30, 20202021 and December 31, 20192020 include $637$597 and $680,$624, respectively, of Class B stock that had reached the end of the five-year redemption period but will not be redeemed until the associated credit products and other obligations are no longer outstanding.
(2) Balance at September 30, 2021 includes $11,835 of Class B stock held by one captive insurance company whose membership was terminated on February 19, 2021 but will not be redeemed until the associated credit products and other obligations are no longer outstanding. Such amount was properly classified as "thereafter" as of December 31, 2020.
(3)Represents the five-year redemption period of Class B stock held by certain captive insurance companies which beginsbegan immediately upon their respective terminations of membership no later thanon February 19, 2021, in accordance with the Final Membership Rule. However, upon2021. Upon their respective terminations, we currently intend to repurchaserepurchased their excess stock (if any) in accordance with our capital plan, the balances of which at September 30, 2020 and December 31, 2019 totaled $48,682 and $61,642, respectively.totaling $18,063.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
The following table presents the distributions related to MRCS.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
MRCS Distributions | MRCS Distributions | | 2020 | | 2019 | | 2020 | | 2019 | MRCS Distributions | | 2021 | | 2020 | | 2021 | | 2020 |
Recorded as interest expense | Recorded as interest expense | | $ | 2,037 | | | $ | 3,514 | | | $ | 7,777 | | | $ | 8,585 | | Recorded as interest expense | | $ | 312 | | | $ | 2,037 | | | $ | 2,345 | | | $ | 7,777 | |
Recorded as distributions from retained earnings | Recorded as distributions from retained earnings | | 4 | | | 692 | | | 40 | | | 693 | | Recorded as distributions from retained earnings | | 13 | | | 4 | | | 97 | | | 40 | |
Total | Total | | $ | 2,041 | | | $ | 4,206 | | | $ | 7,817 | | | $ | 9,278 | | Total | | $ | 325 | | | $ | 2,041 | | | $ | 2,442 | | | $ | 7,817 | |
Capital Requirements. We are subject to 3 capital requirements under our capital plan and Finance Agency regulations as disclosed in Note 1312 - Capital in our 20192020 Form 10-K. As presented in the following table, we were in compliance with thosethese requirements at September 30, 20202021 and December 31, 2019.2020.
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Regulatory Capital Requirements | Regulatory Capital Requirements | | Required | | Actual | | Required | | Actual | Regulatory Capital Requirements | | Required | | Actual | | Required | | Actual |
Risk-based capital | Risk-based capital | | $ | 578,760 | | $ | 3,609,969 | | $ | 639,495 | | $ | 3,412,286 | Risk-based capital | | $ | 973,066 | | $ | 3,450,210 | | $ | 630,661 | | $ | 3,595,668 |
| Total regulatory capital | Total regulatory capital | | $ | 2,653,666 | | $ | 3,609,969 | | $ | 2,700,431 | | $ | 3,412,286 | Total regulatory capital | | $ | 2,478,416 | | $ | 3,450,210 | | $ | 2,636,990 | | $ | 3,595,668 |
Total regulatory capital-to-asset ratio | | 4.00% | | 5.44% | | 4.00% | | 5.05% | |
Total regulatory capital-to-assets ratio | | Total regulatory capital-to-assets ratio | | 4.00% | | 5.57% | | 4.00% | | 5.45% |
| Leverage capital | Leverage capital | | $ | 3,317,083 | | $ | 5,414,954 | | $ | 3,375,539 | | $ | 5,118,429 | Leverage capital | | $ | 3,098,020 | | $ | 5,175,315 | | $ | 3,296,238 | | $ | 5,393,502 |
Leverage ratio | Leverage ratio | | 5.00% | | 8.16% | | 5.00% | | 7.58% | Leverage ratio | | 5.00% | | 8.36% | | 5.00% | | 8.18% |
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, FICO. The capitalization of FICO was provided by capital distributions from the FHLBanks to FICO in 1987, 1988 and 1989 that aggregated to $680 million in exchange for FICO nonvoting capital stock. Upon passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's previous investment in capital stock of FICO was determined to be non-redeemable and, therefore, the Bank charged-off its prior capital distributions to FICO directly against retained earnings.
Upon the dissolution of FICO in October 2019, FICO determined that excess funds aggregating to $200 million were available for distribution to its sole stockholders, the FHLBanks. Specifically, the Bank received $10,574 during the nine months ended September 30, 2020 which was determined based on our proportionate ownership of FICO's nonvoting capital stock. The Bank treated the receipt of these funds as a partial recovery of the prior capital distributions made by the Bank to FICO. These funds have been credited to unrestricted retained earnings.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 10 - Accumulated Other Comprehensive Income
The following table presents a summary of the changes in the components of AOCI.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
AOCI Rollforward | | Unrealized Gains (Losses) on AFS Securities | | Pension Benefits | | Total AOCI |
Balance, June 30, 2020 | | $ | 20,002 | | | $ | (24,111) | | | $ | (4,109) | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | 77,290 | | | 0 | | | 77,290 | |
| | | | | | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
| | | | | | |
Pension benefits, net | | 0 | | | 867 | | | 867 | |
Total other comprehensive income | | 77,290 | | | 867 | | | 78,157 | |
| | | | | | |
Balance, September 30, 2020 | | $ | 97,292 | | | $ | (23,244) | | | $ | 74,048 | |
| | | | | | |
| | | | | | |
Balance, June 30, 2019 | | $ | 71,967 | | | $ | (14,667) | | | $ | 57,300 | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | (2,139) | | | 0 | | | (2,139) | |
| | | | | | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
| | | | | | |
Pension benefits, net | | 0 | | | 486 | | | 486 | |
Total other comprehensive income (loss) | | (2,139) | | | 486 | | | (1,653) | |
| | | | | | |
Balance, September 30, 2019 | | $ | 69,828 | | | $ | (14,181) | | | $ | 55,647 | |
| | | | | | | | | | | | | | | | | | | | |
AOCI Rollforward | | Unrealized Gains (Losses) on AFS Securities | | Pension Benefits | | Total AOCI |
Balance, December 31, 2019 | | $ | 89,813 | | | $ | (22,437) | | | $ | 67,376 | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | 7,479 | | | 0 | | | 7,479 | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
Pension benefits, net | | 0 | | | (807) | | | (807) | |
Total other comprehensive income (loss) | | 7,479 | | | (807) | | | 6,672 | |
| | | | | | |
Balance, September 30, 2020 | | $ | 97,292 | | | $ | (23,244) | | | $ | 74,048 | |
| | | | | | |
| | | | | | |
Balance, December 31, 2018 | | $ | 52,986 | | | $ | (11,299) | | | $ | 41,687 | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | 16,842 | | | 0 | | | 16,842 | |
| | | | | | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
Pension benefits, net | | 0 | | | (2,882) | | | (2,882) | |
Total other comprehensive income (loss) | | 16,842 | | | (2,882) | | | 13,960 | |
| | | | | | |
Balance, September 30, 2019 | | $ | 69,828 | | | $ | (14,181) | | | $ | 55,647 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
AOCI Rollforward | | Unrealized Gains (Losses) on AFS Securities | | Pension Benefits | | Total AOCI |
Balance, June 30, 2021 | | $ | 214,952 | | | $ | (21,528) | | | $ | 193,424 | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | (36,864) | | | — | | | (36,864) | |
| | | | | | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
| | | | | | |
Pension benefits, net | | — | | | (5,093) | | | (5,093) | |
Total other comprehensive income (loss) | | (36,864) | | | (5,093) | | | (41,957) | |
| | | | | | |
Balance, September 30, 2021 | | $ | 178,088 | | | $ | (26,621) | | | $ | 151,467 | |
| | | | | | |
| | | | | | |
Balance, June 30, 2020 | | $ | 20,002 | | | $ | (24,111) | | | $ | (4,109) | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | 77,290 | | | — | | | 77,290 | |
| | | | | | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
| | | | | | |
Pension benefits, net | | — | | | 867 | | | 867 | |
Total other comprehensive income | | 77,290 | | | 867 | | | 78,157 | |
| | | | | | |
Balance, September 30, 2020 | | $ | 97,292 | | | $ | (23,244) | | | $ | 74,048 | |
| | | | | | | | | | | | | | | | | | | | |
AOCI Rollforward | | Unrealized Gains (Losses) on AFS Securities | | Pension Benefits | | Total AOCI |
Balance, December 31, 2020 | | $ | 136,921 | | | $ | (31,519) | | | $ | 105,402 | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | 41,167 | | | — | | | 41,167 | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
Pension benefits, net | | — | | | 4,898 | | | 4,898 | |
Total other comprehensive income | | 41,167 | | | 4,898 | | | 46,065 | |
| | | | | | |
Balance, September 30, 2021 | | $ | 178,088 | | | $ | (26,621) | | | $ | 151,467 | |
| | | | | | |
| | | | | | |
Balance, December 31, 2019 | | $ | 89,813 | | | $ | (22,437) | | | $ | 67,376 | |
| | | | | | |
OCI before reclassifications: | | | | | | |
Net change in unrealized gains (losses) | | 7,479 | | | — | | | 7,479 | |
| | | | | | |
| | | | | | |
Reclassifications from OCI to net income: | | | | | | |
| | | | | | |
Pension benefits, net | | — | | | (807) | | | (807) | |
Total other comprehensive income (loss) | | 7,479 | | | (807) | | | 6,672 | |
| | | | | | |
Balance, September 30, 2020 | | $ | 97,292 | | | $ | (23,244) | | | $ | 74,048 | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 11 - Segment Information
The following table presents our financial performance by operating segment.
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 |
| | Traditional | | Mortgage Loans | | Total | | Traditional | | Mortgage Loans | | Total | | Traditional | | Mortgage Loans | | Total | | Traditional | | Mortgage Loans | | Total |
Net interest income | Net interest income | | $ | 65,392 | | | $ | (4,673) | | | $ | 60,719 | | | $ | 38,149 | | | $ | 12,175 | | | $ | 50,324 | | Net interest income | | $ | 49,655 | | | $ | 8,306 | | | $ | 57,961 | | | $ | 65,392 | | | $ | (4,673) | | | $ | 60,719 | |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | 0 | | | 124 | | | 124 | | | 0 | | | (180) | | | (180) | | Provision for (reversal of) credit losses | | — | | | (16) | | | (16) | | | — | | | 124 | | | 124 | |
Other income (loss) | Other income (loss) | | (16,480) | | | (397) | | | (16,877) | | | 2,678 | | | 108 | | | 2,786 | | Other income (loss) | | (8,779) | | | (88) | | | (8,867) | | | (16,480) | | | (397) | | | (16,877) | |
Other expenses | Other expenses | | 22,992 | | | 3,901 | | | 26,893 | | | 20,636 | | | 3,523 | | | 24,159 | | Other expenses | | 23,016 | | | 3,902 | | | 26,918 | | | 22,992 | | | 3,901 | | | 26,893 | |
Income before assessments | | 25,920 | | | (9,095) | | | 16,825 | | | 20,191 | | | 8,940 | | | 29,131 | | |
Affordable Housing Program assessments | | 2,796 | | | (910) | | | 1,886 | | | 2,371 | | | 894 | | | 3,265 | | |
Net income | | $ | 23,124 | | | $ | (8,185) | | | $ | 14,939 | | | $ | 17,820 | | | $ | 8,046 | | | $ | 25,866 | | |
Income (loss) before assessments | | Income (loss) before assessments | | 17,860 | | | 4,332 | | | 22,192 | | | 25,920 | | | (9,095) | | | 16,825 | |
Affordable Housing Program assessments (credits) | | Affordable Housing Program assessments (credits) | | 1,816 | | | 434 | | | 2,250 | | | 2,796 | | | (910) | | | 1,886 | |
Net income (loss) | | Net income (loss) | | $ | 16,044 | | | $ | 3,898 | | | $ | 19,942 | | | $ | 23,124 | | | $ | (8,185) | | | $ | 14,939 | |
| | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 |
| | Traditional | | Mortgage Loans | | Total | | Traditional | | Mortgage Loans | | Total | | Traditional | | Mortgage Loans | | Total | | Traditional | | Mortgage Loans | | Total |
Net interest income | Net interest income | | $ | 177,645 | | | $ | 13,688 | | | $ | 191,333 | | | $ | 121,594 | | | $ | 45,813 | | | $ | 167,407 | | Net interest income | | $ | 177,792 | | | $ | 12,006 | | | $ | 189,798 | | | $ | 177,645 | | | $ | 13,688 | | | $ | 191,333 | |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | 0 | | | 172 | | | 172 | | | 0 | | | (166) | | | (166) | | Provision for (reversal of) credit losses | | — | | | 28 | | | 28 | | | — | | | 172 | | | 172 | |
Other income (loss) | Other income (loss) | | (43,771) | | | (3,032) | | | (46,803) | | | 9,078 | | | 192 | | | 9,270 | | Other income (loss) | | (31,388) | | | (223) | | | (31,611) | | | (43,771) | | | (3,032) | | | (46,803) | |
Other expenses | Other expenses | | 67,601 | | | 11,800 | | | 79,401 | | | 61,012 | | | 10,338 | | | 71,350 | | Other expenses | | 71,356 | | | 12,130 | | | 83,486 | | | 67,601 | | | 11,800 | | | 79,401 | |
Income before assessments | | 66,273 | | | (1,316) | | | 64,957 | | | 69,660 | | | 35,833 | | | 105,493 | | |
Affordable Housing Program assessments | | 7,405 | | | (132) | | | 7,273 | | | 7,825 | | | 3,583 | | | 11,408 | | |
Net income | | $ | 58,868 | | | $ | (1,184) | | | $ | 57,684 | | | $ | 61,835 | | | $ | 32,250 | | | $ | 94,085 | | |
Income (loss) before assessments | | Income (loss) before assessments | | 75,048 | | | (375) | | | 74,673 | | | 66,273 | | | (1,316) | | | 64,957 | |
Affordable Housing Program assessments (credits) | | Affordable Housing Program assessments (credits) | | 7,739 | | | (37) | | | 7,702 | | | 7,405 | | | (132) | | | 7,273 | |
Net income (loss) | | Net income (loss) | | $ | 67,309 | | | $ | (338) | | | $ | 66,971 | | | $ | 58,868 | | | $ | (1,184) | | | $ | 57,684 | |
The following table presents our asset balances by operating segment.
| | | | | | | | | | | | | | | | | | | | |
By Date | | Traditional | | Mortgage Loans | | Total |
September 30, 2020 | | $ | 57,104,477 | | | $ | 9,237,185 | | | $ | 66,341,662 | |
December 31, 2019 | | 56,695,738 | | | 10,815,037 | | | 67,510,775 | |
| | | | | | | | | | | | | | | | | | | | |
By Date | | Traditional | | Mortgage Loans | | Total |
September 30, 2021 | | $ | 54,389,932 | | | $ | 7,570,462 | | | $ | 61,960,394 | |
December 31, 2020 | | 57,409,111 | | | 8,515,645 | | | 65,924,756 | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 12 - Estimated Fair Values
The following tables present the carrying value and estimated fair value of each of our financial instruments. The total of the estimated fair values does not represent an estimate of our overall market value as a going concern, which would take into account, among other considerations, future business opportunities and the net profitability of assets and liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
| | | | Estimated Fair Value |
| | Carrying | | | | | | | | | | Netting |
Financial Instruments | | Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Assets: | | | | | | | | | | | | |
Cash and due from banks | | $ | 130,595 | | | $ | 130,595 | | | $ | 130,595 | | | $ | 0 | | | $ | 0 | | | $ | — | |
Interest-bearing deposits | | 56,028 | | | 56,028 | | | 56,007 | | | 21 | | | 0 | | | — | |
Securities purchased under agreements to resell | | 4,500,000 | | | 4,500,000 | | | 0 | | | 4,500,000 | | | 0 | | | — | |
Federal funds sold | | 952,000 | | | 952,000 | | | 0 | | | 952,000 | | | 0 | | | — | |
Trading securities | | 5,058,984 | | | 5,058,984 | | | 0 | | | 5,058,984 | | | 0 | | | — | |
AFS securities | | 10,363,969 | | | 10,363,969 | | | 0 | | | 10,363,969 | | | 0 | | | — | |
HTM securities | | 4,272,457 | | | 4,296,287 | | | 0 | | | 4,296,287 | | | 0 | | | — | |
Advances | | 31,264,246 | | | 31,278,477 | | | 0 | | | 31,278,477 | | | 0 | | | — | |
Mortgage loans held for portfolio, net | | 9,237,185 | | | 9,683,385 | | | 0 | | | 9,599,563 | | | 83,822 | | | — | |
Accrued interest receivable | | 105,170 | | | 105,170 | | | 0 | | | 105,170 | | | 0 | | | — | |
Derivative assets, net | | 319,838 | | | 319,838 | | | 0 | | | 24,966 | | | 0 | | | 294,872 | |
Grantor trust assets (2) | | 27,428 | | | 27,428 | | | 27,428 | | | 0 | | | 0 | | | — | |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Deposits | | 1,299,227 | | | 1,299,227 | | | 0 | | | 1,299,227 | | | 0 | | | — | |
Consolidated obligations: | | | | | | | | | | | | |
Discount notes | | 19,461,386 | | | 19,463,824 | | | 0 | | | 19,463,824 | | | 0 | | | — | |
Bonds | | 41,148,153 | | | 41,804,331 | | | 0 | | | 41,804,331 | | | 0 | | | — | |
Accrued interest payable | | 64,322 | | | 64,322 | | | 0 | | | 64,322 | | | 0 | | | — | |
Derivative liabilities, net | | 6,991 | | | 6,991 | | | 0 | | | 962,600 | | | 0 | | | (955,609) | |
MRCS | | 262,454 | | | 262,454 | | | 262,454 | | | — | | | 0 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | | | Estimated Fair Value |
| | Carrying | | | | | | | | | | Netting |
Financial Instruments | | Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Assets: | | | | | | | | | | | | |
Cash and due from banks | | $ | 1,953,744 | | | $ | 1,953,744 | | | $ | 1,953,744 | | | $ | — | | | $ | — | | | $ | — | |
Interest-bearing deposits | | 100,041 | | | 100,041 | | | 100,000 | | | 41 | | | — | | | — | |
Securities purchased under agreements to resell | | 4,200,000 | | | 4,200,000 | | | — | | | 4,200,000 | | | — | | | — | |
Federal funds sold | | 2,075,000 | | | 2,075,000 | | | — | | | 2,075,000 | | | — | | | — | |
Trading securities | | 4,858,818 | | | 4,858,818 | | | — | | | 4,858,818 | | | — | | | — | |
AFS securities | | 9,319,579 | | | 9,319,579 | | | — | | | 9,319,579 | | | — | | | — | |
HTM securities | | 4,496,595 | | | 4,510,359 | | | — | | | 4,510,359 | | | — | | | — | |
Advances | | 26,958,039 | | | 26,929,765 | | | — | | | 26,929,765 | | | — | | | — | |
Mortgage loans held for portfolio, net | | 7,570,462 | | | 7,839,709 | | | — | | | 7,809,902 | | | 29,807 | | | — | |
Accrued interest receivable | | 75,813 | | | 75,813 | | | — | | | 75,813 | | | — | | | — | |
Derivative assets, net | | 231,280 | | | 231,280 | | | — | | | 83,678 | | | — | | | 147,602 | |
Grantor trust assets (2) | | 60,129 | | | 60,129 | | | 60,129 | | | — | | | — | | | — | |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Deposits | | 1,736,009 | | | 1,736,009 | | | — | | | 1,736,009 | | | — | | | — | |
Consolidated obligations: | | | | | | | | | | | | |
Discount notes | | 12,713,890 | | | 12,713,966 | | | — | | | 12,713,966 | | | — | | | — | |
Bonds | | 43,225,386 | | | 43,615,928 | | | — | | | 43,615,928 | | | — | | | — | |
Accrued interest payable | | 64,042 | | | 64,042 | | | — | | | 64,042 | | | — | | | — | |
Derivative liabilities, net | | 18,542 | | | 18,542 | | | — | | | 380,881 | | | — | | | (362,339) | |
MRCS | | 50,442 | | | 50,442 | | | 50,442 | | | — | | | — | | | — | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
| | | December 31, 2019 | | December 31, 2020 |
| | | Estimated Fair Value | | | Estimated Fair Value |
| | Carrying | | | Netting | | Carrying | | | Netting |
Financial Instruments | Financial Instruments | | Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) | Financial Instruments | | Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Assets: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
Cash and due from banks | Cash and due from banks | | $ | 220,294 | | | $ | 220,294 | | | $ | 220,294 | | | $ | 0 | | | $ | 0 | | | $ | — | | Cash and due from banks | | $ | 1,811,544 | | | $ | 1,811,544 | | | $ | 1,811,544 | | | $ | — | | | $ | — | | | $ | — | |
Interest-bearing deposits | Interest-bearing deposits | | 809,141 | | | 809,141 | | | 809,000 | | | 141 | | | 0 | | | — | | Interest-bearing deposits | | 100,026 | | | 100,026 | | | 100,000 | | | 26 | | | — | | | — | |
Securities purchased under agreements to resell | Securities purchased under agreements to resell | | 1,500,000 | | | 1,500,000 | | | 0 | | | 1,500,000 | | | 0 | | | — | | Securities purchased under agreements to resell | | 2,500,000 | | | 2,500,000 | | | — | | | 2,500,000 | | | — | | | — | |
Federal funds sold | Federal funds sold | | 2,550,000 | | | 2,550,000 | | | 0 | | | 2,550,000 | | | 0 | | | — | | Federal funds sold | | 1,215,000 | | | 1,215,000 | | | — | | | 1,215,000 | | | — | | | — | |
Trading securities | Trading securities | | 5,016,649 | | | 5,016,649 | | | 0 | | | 5,016,649 | | | 0 | | | — | | Trading securities | | 5,094,703 | | | 5,094,703 | | | — | | | 5,094,703 | | | — | | | — | |
AFS securities | AFS securities | | 8,484,478 | | | 8,484,478 | | | 0 | | | 8,484,478 | | | 0 | | | — | | AFS securities | | 10,144,899 | | | 10,144,899 | | | — | | | 10,144,899 | | | — | | | — | |
HTM securities | HTM securities | | 5,216,401 | | | 5,216,206 | | | 0 | | | 5,216,206 | | | 0 | | | — | | HTM securities | | 4,701,302 | | | 4,723,796 | | | — | | | 4,723,796 | | | — | | | — | |
Advances | Advances | | 32,480,108 | | | 32,425,749 | | | 0 | | | 32,425,749 | | | 0 | | | — | | Advances | | 31,347,486 | | | 31,290,664 | | | — | | | 31,290,664 | | | — | | | — | |
Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | | 10,815,037 | | | 10,943,595 | | | 0 | | | 10,935,787 | | | 7,808 | | | — | | Mortgage loans held for portfolio, net | | 8,515,645 | | | 8,922,185 | | | — | | | 8,860,853 | | | 61,332 | | | — | |
Accrued interest receivable | Accrued interest receivable | | 131,822 | | | 131,822 | | | 0 | | | 131,822 | | | 0 | | | — | | Accrued interest receivable | | 103,076 | | | 103,076 | | | — | | | 103,076 | | | — | | | — | |
Derivative assets, net | Derivative assets, net | | 208,008 | | | 208,008 | | | 0 | | | 60,941 | | | 0 | | | 147,067 | | Derivative assets, net | | 283,082 | | | 283,082 | | | — | | | 20,557 | | | — | | | 262,525 | |
Grantor trust assets (2) | Grantor trust assets (2) | | 26,050 | | | 26,050 | | | 26,050 | | | 0 | | | 0 | | | — | | Grantor trust assets (2) | | 51,032 | | | 51,032 | | | 51,032 | | | — | | | — | | | — | |
| Liabilities: | Liabilities: | | Liabilities: | |
Deposits | Deposits | | 960,304 | | | 960,304 | | | 0 | | | 960,304 | | | 0 | | | — | | Deposits | | 1,375,206 | | | 1,375,206 | | | — | | | 1,375,206 | | | — | | | — | |
Consolidated obligations: | Consolidated obligations: | | Consolidated obligations: | |
Discount notes | Discount notes | | 17,676,793 | | | 17,679,210 | | | 0 | | | 17,679,210 | | | 0 | | | — | | Discount notes | | 16,617,079 | | | 16,617,976 | | | — | | | 16,617,976 | | | — | | | — | |
Bonds | Bonds | | 44,715,224 | | | 45,036,500 | | | 0 | | | 45,036,500 | | | 0 | | | — | | Bonds | | 43,332,946 | | | 43,952,206 | | | — | | | 43,952,206 | | | — | | | — | |
Accrued interest payable | Accrued interest payable | | 178,981 | | | 178,981 | | | 0 | | | 178,981 | | | 0 | | | — | | Accrued interest payable | | 63,581 | | | 63,581 | | | — | | | 63,581 | | | — | | | — | |
Derivative liabilities, net | Derivative liabilities, net | | 3,206 | | | 3,206 | | | 0 | | | 319,061 | | | 0 | | | (315,855) | | Derivative liabilities, net | | 22,979 | | | 22,979 | | | — | | | 762,997 | | | — | | | (740,018) | |
MRCS | MRCS | | 322,902 | | | 322,902 | | | 322,902 | | | 0 | | | 0 | | | — | | MRCS | | 250,768 | | | 250,768 | | | 250,768 | | | — | | | — | | | — | |
(1) Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed with the same clearing agent and/or counterparty.
(2) Included in other assets on the statement of condition.
Summary of Valuation Techniques and Significant Inputs. A description of the valuation techniques, significant inputs, and levels of fair value hierarchy is disclosed in Note 1716 - Estimated Fair Values in our 20192020 Form 10-K. No significant changes have been made in the current year.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Estimated Fair Value Measurements. The following tables present, by level within the fair value hierarchy, the estimated fair value of our financial assets and liabilities that are recorded at estimated fair value on a recurring or non-recurring basis on our statement of condition.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Netting |
September 30, 2020 | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Trading securities: | | | | | | | | | | |
U.S. Treasury securities | | $ | 5,058,984 | | | $ | 0 | | | $ | 5,058,984 | | | $ | 0 | | | $ | — | |
Total trading securities | | 5,058,984 | | | 0 | | | 5,058,984 | | | 0 | | | — | |
AFS securities: | | | | | | | | | | |
GSE and TVA debentures | | 4,025,604 | | | 0 | | | 4,025,604 | | | 0 | | | — | |
GSE MBS | | 6,338,365 | | | 0 | | | 6,338,365 | | | 0 | | | — | |
| | | | | | | | | | |
Total AFS securities | | 10,363,969 | | | 0 | | | 10,363,969 | | | 0 | | | — | |
Derivative assets: | | | | | | | | | | |
Interest-rate related | | 319,637 | | | 0 | | | 24,765 | | | 0 | | | 294,872 | |
MDCs | | 201 | | | 0 | | | 201 | | | 0 | | | 0 | |
Total derivative assets, net | | 319,838 | | | 0 | | | 24,966 | | | 0 | | | 294,872 | |
Grantor trust assets (2) | | 27,428 | | | 27,428 | | | 0 | | | 0 | | | — | |
Total assets at recurring estimated fair value | | $ | 15,770,219 | | | $ | 27,428 | | | $ | 15,447,919 | | | $ | 0 | | | $ | 294,872 | |
| | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | |
Interest-rate related | | $ | 6,741 | | | $ | 0 | | | $ | 962,350 | | | $ | 0 | | | $ | (955,609) | |
MDCs | | 250 | | | 0 | | | 250 | | | 0 | | | 0 | |
Total derivative liabilities, net | | 6,991 | | | 0 | | | 962,600 | | | 0 | | | (955,609) | |
Total liabilities at recurring estimated fair value | | $ | 6,991 | | | $ | 0 | | | $ | 962,600 | | | $ | 0 | | | $ | (955,609) | |
| | | | | | | | | | |
Mortgage loans held for portfolio (3) | | $ | 1,511 | | | $ | 0 | | | $ | 0 | | | $ | 1,511 | | | $ | — | |
Total assets at non-recurring estimated fair value | | $ | 1,511 | | | $ | 0 | | | $ | 0 | | | $ | 1,511 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Netting |
September 30, 2021 | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Trading securities: | | | | | | | | | | |
U.S. Treasury securities | | $ | 4,858,818 | | | $ | — | | | $ | 4,858,818 | | | $ | — | | | $ | — | |
Total trading securities | | 4,858,818 | | | — | | | 4,858,818 | | | — | | | — | |
AFS securities: | | | | | | | | | | |
GSE and TVA debentures | | 2,728,667 | | | — | | | 2,728,667 | | | — | | | — | |
GSE MBS | | 6,590,912 | | | — | | | 6,590,912 | | | — | | | — | |
| | | | | | | | | | |
Total AFS securities | | 9,319,579 | | | — | | | 9,319,579 | | | — | | | — | |
Derivative assets: | | | | | | | | | | |
Interest-rate related | | 231,199 | | | — | | | 83,597 | | | — | | | 147,602 | |
MDCs | | 81 | | | — | | | 81 | | | — | | | — | |
Total derivative assets, net | | 231,280 | | | — | | | 83,678 | | | — | | | 147,602 | |
Other assets: | | | | | | | | | | |
Grantor trust assets | | 60,129 | | | 60,129 | | | — | | | — | | | — | |
Total assets at recurring estimated fair value | | $ | 14,469,806 | | | $ | 60,129 | | | $ | 14,262,075 | | | $ | — | | | $ | 147,602 | |
| | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | |
Interest-rate related | | $ | 18,285 | | | $ | — | | | $ | 380,624 | | | $ | — | | | $ | (362,339) | |
MDCs | | 257 | | | — | | | 257 | | | — | | | — | |
Total derivative liabilities, net | | 18,542 | | | — | | | 380,881 | | | — | | | (362,339) | |
Total liabilities at recurring estimated fair value | | $ | 18,542 | | | $ | — | | | $ | 380,881 | | | $ | — | | | $ | (362,339) | |
| | | | | | | | | | |
Mortgage loans held for portfolio (2) | | $ | 1,141 | | | $ | — | | | $ | — | | | $ | 1,141 | | | $ | — | |
Total assets at non-recurring estimated fair value | | $ | 1,141 | | | $ | — | | | $ | — | | | $ | 1,141 | | | $ | — | |
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Netting |
December 31, 2019 | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Trading securities: | | | | | | | | | | |
U.S. Treasury securities | | $ | 5,016,649 | | | $ | 0 | | | $ | 5,016,649 | | | $ | 0 | | | $ | — | |
Total trading securities | | 5,016,649 | | | 0 | | | 5,016,649 | | | 0 | | | — | |
AFS securities: | | | | | | | | | | |
GSE and TVA debentures | | 3,926,852 | | | 0 | | | 3,926,852 | | | 0 | | | — | |
GSE MBS | | 4,557,626 | | | 0 | | | 4,557,626 | | | 0 | | | — | |
Total AFS securities | | 8,484,478 | | | 0 | | | 8,484,478 | | | 0 | | | — | |
Derivative assets: | | | | | | | | | | |
Interest-rate related | | 207,903 | | | 0 | | | 60,836 | | | 0 | | | 147,067 | |
MDCs | | 105 | | | 0 | | | 105 | | | 0 | | | — | |
Total derivative assets, net | | 208,008 | | | 0 | | | 60,941 | | | 0 | | | 147,067 | |
Grantor trust assets (2) | | 26,050 | | | 26,050 | | | 0 | | | 0 | | | — | |
Total assets at recurring estimated fair value | | $ | 13,735,185 | | | $ | 26,050 | | | $ | 13,562,068 | | | $ | 0 | | | $ | 147,067 | |
| | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | |
Interest-rate related | | $ | 3,203 | | | $ | 0 | | | $ | 319,058 | | | $ | 0 | | | $ | (315,855) | |
MDCs | | 3 | | | 0 | | | 3 | | | 0 | | | 0 | |
Total derivative liabilities, net | | 3,206 | | | 0 | | | 319,061 | | | 0 | | | (315,855) | |
Total liabilities at recurring estimated fair value | | $ | 3,206 | | | $ | 0 | | | $ | 319,061 | | | $ | 0 | | | $ | (315,855) | |
| | | | | | | | | | |
Mortgage loans held for portfolio (4) | | $ | 1,504 | | | $ | 0 | | | $ | 0 | | | $ | 1,504 | | | $ | — | |
Total assets at non-recurring estimated fair value | | $ | 1,504 | | | $ | 0 | | | $ | 0 | | | $ | 1,504 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Netting |
December 31, 2020 | | Total | | Level 1 | | Level 2 | | Level 3 | | Adjustments (1) |
Trading securities: | | | | | | | | | | |
U.S. Treasury securities | | $ | 5,094,703 | | | $ | — | | | $ | 5,094,703 | | | $ | — | | | $ | — | |
Total trading securities | | 5,094,703 | | | — | | | 5,094,703 | | | — | | | — | |
AFS securities: | | | | | | | | | | |
GSE and TVA debentures | | 3,503,137 | | | — | | | 3,503,137 | | | — | | | — | |
GSE MBS | | 6,641,762 | | | — | | | 6,641,762 | | | — | | | — | |
Total AFS securities | | 10,144,899 | | | — | | | 10,144,899 | | | — | | | — | |
Derivative assets: | | | | | | | | | | |
Interest-rate related | | 282,060 | | | — | | | 19,535 | | | — | | | 262,525 | |
MDCs | | 1,022 | | | — | | | 1,022 | | | — | | | — | |
Total derivative assets, net | | 283,082 | | | — | | | 20,557 | | | — | | | 262,525 | |
Other assets: | | | | | | | | | | |
Grantor trust assets | | 51,032 | | | 51,032 | | | — | | | — | | | — | |
Total assets at recurring estimated fair value | | $ | 15,573,716 | | | $ | 51,032 | | | $ | 15,260,159 | | | $ | — | | | $ | 262,525 | |
| | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | |
Interest-rate related | | $ | 22,979 | | | $ | — | | | $ | 762,997 | | | $ | — | | | $ | (740,018) | |
MDCs | | — | | | — | | | — | | | — | | | — | |
Total derivative liabilities, net | | 22,979 | | | — | | | 762,997 | | | — | | | (740,018) | |
Total liabilities at recurring estimated fair value | | $ | 22,979 | | | $ | — | | | $ | 762,997 | | | $ | — | | | $ | (740,018) | |
| | | | | | | | | | |
Mortgage loans held for portfolio (3) | | $ | 1,460 | | | $ | — | | | $ | — | | | $ | 1,460 | | | $ | — | |
Total assets at non-recurring estimated fair value | | $ | 1,460 | | | $ | — | | | $ | — | | | $ | 1,460 | | | $ | — | |
(1) Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed with the same clearing agent and/or counterparty.
(2) Included in other assets on the statement of condition.
(3) Amounts are as of the date the fair-value adjustment was recorded during the nine months ended September 30, 2020.2021.
(4)(3) Amounts are as of the date the fair-value adjustment was recorded during the year ended December 31, 2019.2020.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 13 - Commitments and Contingencies
The following table presents our off-balance-sheet commitments at their notional amounts.
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
Type of Commitment | | Expire within one year | | Expire after one year | | Total |
Standby letters of credit outstanding | | $ | 416,488 | | | $ | 100,152 | | | $ | 516,640 | |
Unused lines of credit (1) | | 949,984 | | | 0 | | | 949,984 | |
Commitments to fund additional advances (2) | | 10,500 | | | 0 | | | 10,500 | |
Commitments to fund or purchase mortgage loans, net (3) | | 261,771 | | | 0 | | | 261,771 | |
Unsettled CO bonds, at par | | 250,000 | | | 0 | | | 250,000 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
Type of Commitment | | Expire within one year | | Expire after one year | | Total |
Standby letters of credit outstanding | | $ | 70,984 | | | $ | 303,170 | | | $ | 374,154 | |
Unused lines of credit (1) | | 923,200 | | | — | | | 923,200 | |
Commitments to fund additional advances (2) | | 33,000 | | | — | | | 33,000 | |
Commitments to fund or purchase mortgage loans, net (3) | | 139,076 | | | — | | | 139,076 | |
Unsettled CO bonds, at par | | 640,000 | | | — | | | 640,000 | |
| | | | | | |
(1) Maximum line of credit amount per member is $50,000.$100,000.
(2) Generally for periods up to six months.
(3) Generally for periods up to 91 days.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Liability for Credit Losses. We monitor the creditworthiness of our members that have standby letters of credit and lines of credit. As standby letters of credit and lines of credit are subject to the same collateralization and borrowing limits that apply to advances and are fully collateralized at the time of issuance, we have not recorded a liability for credit losses on these credit products.
Legal Proceedings. We are subject to legal proceedings arising in the normal course of business. We record an accrual for a loss contingency when it is probable that a loss for which we could be liable has been incurred and the amount can be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these proceedings could have a material effect on our financial condition, results of operations or cash flows.
Additional discussion of other commitments and contingencies is provided in Note 4 - Advances; Note 5 - Mortgage Loans Held for Portfolio; Note 6 - Derivatives and Hedging Activities; Note 7 - Consolidated Obligations; Note 9 - Capital; and Note 12 - Estimated Fair Values.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
Note 14 - Related Party and Other Transactions
Transactions with Related Parties. The following table presents the aggregate balances of capital stock and advances outstanding for directors' financial institutions and their balances as a percent of the total balances on our statement of condition.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Balances with Directors' Financial Institutions | | Par value | | % of Total | | Par value | | % of Total |
Capital stock | | $ | 423,986 | | | 17 | % | | $ | 57,133 | | | 2 | % |
Advances | | 3,544,862 | | | 12 | % | | 698,699 | | | 2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Balances with Directors' Financial Institutions | | Par value | | % of Total | | Par value | | % of Total |
Capital stock | | $ | 433,736 | | | 19 | % | | $ | 426,003 | | | 17 | % |
Advances | | 3,239,201 | | | 12 | % | | 5,397,433 | | | 18 | % |
The par values at September 30, 20202021 reflect changes in the composition of directors' financial institutions effective January 1, 2020,2021, due to changes in board membership resulting from the 20192020 director election.
The following table presents our transactions with directors' financial institutions, taking into account the beginning and ending dates of the directors' terms, merger activity and other changes in the composition of directors' financial institutions.
| Transactions with Directors' Financial Institutions | Transactions with Directors' Financial Institutions | | Three Months Ended September 30, | | Nine Months Ended September 30, | Transactions with Directors' Financial Institutions | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Net capital stock issuances (redemptions and repurchases) | Net capital stock issuances (redemptions and repurchases) | | $ | 450 | | | $ | 268 | | | $ | 78,071 | | | $ | 4,836 | | Net capital stock issuances (redemptions and repurchases) | | $ | — | | | $ | 450 | | | $ | — | | | $ | 78,071 | |
Net advances (repayments) | Net advances (repayments) | | (784,706) | | | 57,019 | | | (1,504,938) | | | 142,464 | | Net advances (repayments) | | (146,031) | | | (784,706) | | | (2,189,295) | | | (1,504,938) | |
Mortgage loan purchases | Mortgage loan purchases | | 7,390 | | | 7,954 | | | 34,254 | | | 19,282 | | Mortgage loan purchases | | 18,293 | | | 7,390 | | | 47,915 | | | 34,254 | |
Transactions with Other FHLBanks. Occasionally, we loan or borrow short-term funds to/from other FHLBanks. The following table presents the loans to/borrowings from other FHLBanks.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Loans to other FHLBanks | Loans to other FHLBanks | | 2020 | | 2019 | | 2020 | | 2019 | Loans to other FHLBanks | | 2021 | | 2020 | | 2021 | | 2020 |
Principal repayments | | Principal repayments | | $ | 10,000 | | | $ | 60,000 | | | $ | 30,000 | | | $ | 80,000 | |
Disbursements | Disbursements | | $ | (60,000) | | | $ | 0 | | | $ | (80,000) | | | $ | 0 | | Disbursements | | (10,000) | | | (60,000) | | | (30,000) | | | (80,000) | |
Principal repayments | | 60,000 | | | 0 | | | 80,000 | | | 0 | | |
| Borrowings from other FHLBanks | | |
Proceeds from borrowings | | $ | 0 | | | $ | 250,000 | | | $ | 0 | | | $ | 250,000 | | |
Principal repayments | | 0 | | | (250,000) | | | 0 | | | (250,000) | | |
|
There were 0 loans to or borrowings from other FHLBanks outstanding at September 30, 20202021 or December 31, 2019.2020.
Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)
DEFINED TERMS
2005 SERP: Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Retirement Plan, as amended
ABS: Asset-Backed Securities
Advance: Secured loan to members, former members or Housing Associates
AFS: Available-for-Sale
Agency: GSE and Ginnie Mae
AHP: Affordable Housing Program
AMA: Acquired Member Assets
AOCI: Accumulated Other Comprehensive Income (Loss)
Bank Act: Federal Home Loan Bank Act of 1932, as amended
bps: basis points
CARES Act: Coronavirus Aid, Relief and Economic Security Act
CDFI: Community Development Financial Institution
CE: Credit Enhancement
CFI: Community Financial Institution, an FDIC-insured depository institution with average total assets below an annually- adjusted limit established by the Finance Agency Director based on the Consumer Price Index
CFPB: Bureau of Consumer Financial Protection
CFTC: United States Commodity Futures Trading Commission
Clearinghouse: A United States Commodity Futures Trading Commission-registered derivatives clearing organization
CME: CME Clearing
CMO: Collateralized Mortgage Obligation
CO bond: Consolidated Obligation bond
COVID-19: Coronavirus Disease 2019
DB Plan: Pentegra Defined Benefit Pension Plan for Financial Institutions, as amended
DC Plan: Collectively, the Pentegra Defined Contribution Retirement Savings Plan for Financial Institutions, as amended, in effect through October 1, 2020 and the Federal Home Loan Bank of Indianapolis Retirement Savings Plan, commencing October 2, 2020
DDCP: Directors' Deferred Compensation Plan
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended
EFFR: Effective Federal Funds Rate
Exchange Act: Securities Exchange Act of 1934, as amended
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: United Kingdom Financial Conduct Authority
FDIC: Federal Deposit Insurance Corporation
FHA: Federal Housing Administration
FHLBank: A Federal Home Loan Bank
FHLBanks: The 11 Federal Home Loan Banks or a subset thereof
FHLBank System: The 11 Federal Home Loan Banks and the Office of Finance
FICO: The Financing Corporation
FICO®: Fair Isaac Corporation, the creators of the FICO credit score
Final Membership Rule: Final Rule on FHLBank Membership issued by the Finance Agency effective February 19, 2016
Finance Agency: Federal Housing Finance Agency, successor to Finance Board
Finance Board: Federal Housing Finance Board, predecessor to Finance Agency
FLA: First Loss Account
FOMC: Federal Open Market Committee
Form 8-K: Current Report on Form 8-K as filed with the SEC under the Exchange Act
Form 10-K: Annual Report on Form 10-K as filed with the SEC under the Exchange Act
Form 10-Q: Quarterly Report on Form 10-Q as filed with the SEC under the Exchange Act
FRB: Federal Reserve Board
Freddie Mac: Federal Home Loan Mortgage Corporation
Frozen SERP: Federal Home Loan Bank of Indianapolis Supplemental Executive Retirement Plan, frozen effective December 31, 2004
GAAP: Generally Accepted Accounting Principles in the United States of America
Ginnie Mae: Government National Mortgage Association
GLB Act: Gramm-Leach-Bliley Act of 1999, as amended
GSE: United States Government-Sponsored Enterprise
HERA: Housing and Economic Recovery Act of 2008, as amended
Housing Associate: Approved lender under Title II of the National Housing Act of 1934 that is either a government agency or is chartered under federal or state law with rights and powers similar to those of a corporation
HTM: Held-to-Maturity
HUD: United States Department of Housing and Urban Development
JCE Agreement: Joint Capital Enhancement Agreement, as amended, among the 11 FHLBanks
KESP: Key Employee Severance Policy
LCH: LCH.Clearnet LLC
LIBOR: London Interbank Offered Rate
LRA: Lender Risk Account
LTV: Loan-to-Value
MAP-21: Moving Ahead for Progress in the 21st Century Act, enacted on July 6, 2012
MBS: Mortgage-Backed Securities
MCC: Master Commitment Contract
MDC: Mandatory Delivery Commitment
Moody's: Moody's Investor Services
MPF: Mortgage Partnership Finance®
MPP: Mortgage Purchase Program, including Original and Advantage unless indicated otherwise
MRCS: Mandatorily Redeemable Capital Stock
MVE: Market Value of Equity
NRSRO: Nationally Recognized Statistical Rating Organization
OCC: Office of the Comptroller of the Currency
OCI: Other Comprehensive Income (Loss)
OIS: Overnight-Indexed Swap
ORERC: Other Real Estate-Related Collateral
OTTI: Other-Than-Temporary Impairment or -Temporarily Impaired (as the context indicates)
PFI: Participating Financial Institution
PMI: Primary Mortgage Insurance
REMIC: Real Estate Mortgage Investment Conduit
REO: Real Estate Owned
RMBS: Residential Mortgage-Backed Securities
S&P: Standard & Poor's Rating Service
Safety and Soundness Act: Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended
SBA: Small Business Administration
SEC: Securities and Exchange Commission
Securities Act: Securities Act of 1933, as amended
SERP: Federal Home Loan Bank of IndianapolisCollectively, the 2005 Supplemental Executive Retirement Plan and/or a similar frozen planSERP and the Frozen SERP
SETP: Federal Home Loan Bank of Indianapolis 2016 Supplemental Executive Thrift Plan, as amended and restated
SMI: Supplemental Mortgage Insurance
SOFR: Secured Overnight Financing Rate
TBA: To Be Announced, a forward contract for the purchase or sale of MBS at a future agreed-upon date for an established price
TDR: Troubled Debt Restructuring
TVA: Tennessee Valley Authority
UPB: Unpaid Principal Balance
VaR: Value at Risk
WAIR: Weighted-Average Interest Rate
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Presentation
This discussion and analysis by management of the Bank's financial condition and results of operations should be read in conjunction with our 20192020 Form 10-K and the interim Financial Statements and related Notes to Financial Statements contained in Item 1. Financial Statements.
Unless otherwise stated, amounts disclosed in this Item are rounded to the nearest million; therefore, dollar amounts of less than one million may not be reflected or, due to rounding, may not appear to agree to the amounts presented in thousands in the Financial Statements and related Notes to Financial Statements. Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations based upon the disclosed amounts (millions) may not produce the same results.
Executive Summary
Overview. As an FHLBank, we are a regional wholesale bank that serves as a financial intermediary between the capital markets and our members. The Bank is structured as a financial cooperative and thereforecooperative. Therefore, it is generally designed to expand and contract in asset size as the needs of our members and their communities change over time.change. We primarily make secured loans in the form of advances to our members and purchase whole mortgage loans from our members. Additionally, we purchase other investments and provide other financial services to our members.
Our principal source of funding is the proceeds from the sale to the public of FHLBank debt instruments, called consolidated obligations, which are the joint and several obligation of all FHLBanks. We obtain additional funds from deposits, other borrowings, and the issuance ofby issuing capital stock to our members.
Our primary source of revenue is interest earned on advances, mortgage loans, and investments, including MBS.
Our net interest income is primarily determined by the spread between the interest rate earned on our assets and the interest rate paid on our share of the consolidated obligations. A substantial portion of net interest income is also derived from deploying our interest-free capital. We use funding and hedging strategies to manage the related interest-rate risk.
Due to our cooperative structure and wholesale nature, we typically earn a narrow interest spread. Accordingly, our net income is relatively low compared to our total assets and capital.
We group our products and services within two operating segments: traditional and mortgage loans.
EconomicBusiness Environment. The Bank’s financial performance is influenced by several key regional and national economic and market factors, including fiscal and monetary policies, the strength of the housing markets and the level and volatility of market interest rates, inflation or deflation, fiscal and monetary policies, and the strength of housing markets.
COVID-19 Pandemic.The effects of the COVID-19 pandemic, and the fiscal, monetary, and social-distancing mitigation actions taken in response, on the global and U.S. economies continue to evolve, with the full duration and long-term impact of the pandemic remaining uncertain. At the end of the third quarter 2020, confirmed cases of COVID-19 were again rapidly rising in the U.S., signaling a renewed surge in the virus. Uneven economic reopenings across the U.S. and a trend of returning to shelter-in-place, stay-at-home, travel restrictions, and business closures protocols, caused by the resurgence of the pandemic, creates headwinds for the economy. Pre-pandemic economic growth and financial market stability will likely not completely return until an effective vaccine and enhanced therapeutic treatments are widely available.rates.
Economy and Financial Markets.Markets. The federal government has enacted several financial relief programs to help offset declines in business and family incomes. The American Rescue Plan Act of 2021, the third major COVID-19 relief bill, was passed by the U.S. economy reboundedCongress in March 2021. This legislation provided significant financial relief to businesses and individuals affected by the COVID-19 pandemic, including extending unemployment assistance programs to September 6, 2021. Another major relief bill is currently under consideration by Congress.
In October 2021, the Bureau of Labor Statistics reported that the U.S. unemployment rate had declined to 4.8% in September 2021, compared to 5.9% in June 2021 and 6.7% in December 2020. If COVID-19 vaccines continue to be successfully administered and the virus, along with its variants, is effectively contained, business conditions are expected to continue to improve and the unemployment rate could continue to decline in the third quarter 2020 due to unprecedented federal government fiscal relief combined with FRB monetary policy support to fight the impact of COVID-19. The United States.
U.S. real gross domestic product ("GDP") advanced estimate rose 33.1%increased at an annualizedannual rate for the third quarter 2020, following the second quarter 2020 COVID-19 induced loss of -31.4%. The economic boost2.0% (advance estimate) in the third quarter can be attributedof 2021 after increasing at annual rates of 6.3% (revised) and 6.7% (revised) in the second and first quarters of 2021, according to business reopenings, government fiscal support for consumers, households, and businesses, continued low interestthe Bureau of Economic Analysis. Recent changes in unemployment rates and smoothly functioning financialGDP reflect the continued economic recovery, reopening of establishments, and capital markets, butcontinued government response related to the economy still has a long way to go to reach pre-pandemic performance.
COVID-19 pandemic.
While the economy gained strengthConditions in U.S. Housing Markets. The seasonally adjusted annual rate of U.S. home sales declined by 4% in September of 2021, compared to September of 2020, attributed to low housing inventory levels and higher home prices in the third quarter 2020, it has not fully recovered, and appears to be entering a slowdown phase. According to the Bureau of Economic Analysis preliminary review, third quarter 2020 real GDP is 2.9% below the first quarter 2020 level. Recent trends in "high frequency economic data", such as mobility, travel, petroleum usage, new business applications, business reopenings, bankruptcies, hours worked, and unemployment claims, that incorporate the growing
COVID-19 infection rate information point to slowing economic activity. This trend is exacerbated by the lack of additional federal stimulus relief needed by consumers, households, small business, and state/local governments. These emerging trends are reflected in the labor market. Despite the surge in third quarter 2020 real GDP, monthly nonfarm payroll increases fell from 4.8 million in June 2020 to 0.6 million in September 2020. Moreover, although 11.4 million jobs have been recovered since April 2020, a deficit of about 10.7 million jobs remains today. The U.S. labor market, particularly the leisure and hospitality industries, remain challenged and will likely continue to be until a vaccine combined with enhanced therapeutics are widely available to control COVID-19. Layering the uncertainty of the impact of the presidential and congressional elections, particularly if contested, on top of the current economic environment may lead to a period of economic uncertainty and financial market volatility through the end of the year.2021.
Unprecedented monetary policy action taken by the FRB this year in response to COVID-19 served to quickly promote financial market stability in the U.S. and abroad by providing ample liquidity and credit flows and preserving the smooth functioning of capital markets-supported by lower interest rates for the foreseeable future. FRB forward guidance has made it clear that it does not plan to raise interest rates until the economy achieves full employment and inflation is back on track to exceed its 2.0% objective. The FRB has so far accomplished this using three monetary policy mechanisms.
First, at the outset of the pandemic in early March 2020, the FRB reduced its policy rate from a range of 1.50% to 1.75% to its "zero lower bound" of 0% to 0.25%. Lower short-term interest rate borrowing costs for consumers, households, and businesses, along with pent-up demand and fiscal relief, has stimulated spending, driving third quarter 2020 real GDP higher. For example, of the net 33% third quarter 2020 real GDP growth estimate, 25 percentage points of the increase is attributed to consumer spending, 7 percentage points to increased spending on business inventories, and 5 percentage points to business fixed investment. These increases were offset by decreases in net exports and government spending of 3 and 1 percentage points, respectively. FOMC minutes and FRB policy maker "forward guidance" public commentary strongly suggest the policy rate will remain at the "zero lower bound" until the pandemic is controlledBusiness closures and the economy is firmly on a positive track-possibly as long as past 2023.
Second,resulting spike in late Marchunemployment during 2020 the FRB committedcaused many homeowners to large scale asset purchases, referred to as quantitative easing. Throughout this year, the FRB has increased its holding of Treasury securities and MBS, including commercial MBS, issued by government agencies or GSEs in "the amounts needed to support smooth market functioning and effective transmission of monetary policy." At the end of the third quarter 2020, the FRB’s total assets stood at $7.1 trillion, representing an increase of $2.9 trillion year-to-date. The bulk of FRB purchases have been in U.S. Treasury securities and Agency MBS while a much smaller volume of corporate debt, high-yield debt, loans, and money market mutual funds have been purchased to support the smooth function of capital markets.
The FRB asset purchase program has been very successful in supporting the economy and financial market stability. The Chicago Board Options Exchange Volatility Index (VIX), a key financial benchmark for stock market volatility, dropped from its high in March 2020 at 83 points to 26 points at the end of third quarter. The low interest rate environment created by the FRB has supported the U.S. equity markets. Long-term interest rates, as benchmarked by the 10-year U.S. Treasury, have been driven to historically low levels in the 0.60% to 0.90% range. With respect to the credit markets, the FRB low-rate environment and asset purchases have driven spreads down to near pre-pandemic levels. The Bloomberg Barclays Investment Grade U.S. Corporate Bond index ended the third quarter 2020 at an option adjusted spread ("OAS") of 125 bps, well below the COVID-19 high of 381 bps. Similarly, the Bloomberg Barclays High Yield Index OAS decreased to 502 bps, significantly down from the pandemic peak of 1,099 bps. FRB actions have also provided significant support for the MBS TBA market. According to the Bloomberg Fannie Mae 30-year OAS Index, spreads have tightened from a high of 136 bps at the end of the first quarter 2020 to a low of 7 bps at the end of the third quarter 2020.
Third, the FRB has adopted a new policy framework for managing inflation. Over the past number of years, the economy has not generated enough inflation to reach the FRB target of 2.0% annually. To counter this, the FRB has moved to targeting an "average inflation rate." This means the FRB will let inflation move above the 2.0% target for a period before raising rates, adding support to the view that interest rates will remain lower, and longer, for this cycle.
The COVID-19 pandemic hit Indiana at a time when its economy was already slowing. Moody’s Analytics forecast that the state’s Gross State Product ("GSP") for the full year 2020 will approximate $323 billion, below 2019’s GSP of $341 billion. Moreover, Moody’s estimates that the 2019 pre-pandemic GSP of $341 billion will not be reached until sometime in early 2022. With respect to unemployment, Moody’s estimates that the state’s unemployment rate will be 6.28% in the fourth quarter of 2020, significantly higher than the 3.2% unemployment rate in the fourth quarter of 2019. Over the longer-term, Moody’s believes that slowing population growth and weaknesses in manufacturing will hold job growth back, causing Indiana to lag the rest of the country in economic growth.
The COVID-19 pandemic pushed Michigan’s weak economy into a recession. Moody’s Analytics estimates that GSP for the full year 2020 will be $439 billion, well below the state’s 2019 pre-pandemic GSP of $474 billion. Looking forward, Moody’s forecasts that Michigan’s GSP will not recover to 2019 levels until late 2022. Regarding unemployment, Moody’s projects that the state’s unemployment rate in the fourth quarter of 2020 will be about 6.97%, far above the pre-pandemic rate of 3.9% in the fourth quarter of 2019. Unfortunately, Moody’s does not see Michigan’s unemployment rate returning to pre-COVID-19 levels in the next 10 years. All together, Michigan faces an uphill battle to achieve pre-pandemic economic growth. Michigan's strained state and local government finances, a labor market reliant on the service sector, and a persistent out-migration trend present significant headwinds.
Conditions in the U.S. Housing Market.Demand for homes is robust, driving home prices higher. The COVID-19 pandemic combined with historically low mortgage finance rates, firmly below 3.0% for a 30-year fixed rate Agency mortgage, has driven demand to record levels for 1-4 single family housing. The Mortgage Bankers Association Mortgage Applications Purchase Index is well above its year-ago level at approximately 21.6% higher. In September 2020, the CoreLogic Home Price Index advanced 6.7% year-over-year. Across the board, the numbers point to a very strong housing market. Pending home sales are up 20.5%seek relief from their year-ago levels asmortgage payments, resulting in higher rates of September 30, 2020. Existing home sales are up by 20.9% this year comparedmortgage loan delinquency. Mortgage loan delinquency rates have declined in 2021 due to year-to-date September 2019. New home sales followed suit with annualized unit sales of 595 thousand in September 2020, well above the 570 annualized units sold in April 2020. The market consensus is that the drivers of housing demand will stay in play for the remainder of 2020businesses reopening and into next year.reduced unemployment.
Interest Rate Levels and Volatility. FRB actions to drive its policy rate down to the “zero lower bound”The level and engage in asset purchases supported by "forward guidance" communication has made it clear that the FRB does not plan to raisevolatility of interest rates any time soon. Futureand credit spreads were affected by several factors that may causeduring the FRB to increase interest rates include: (1)three and nine months ended September 30, 2021, principally the continued economic recovery from the COVID-19 pandemic is under control with an effective vaccine and therapeutic drugs widely available; (2)efforts in response by the Federal Reserve to maintain low short-term interest rates and facilitate liquidity. Overall economic conditions and financial regulation also continue to be influencing factors.
On March 15, 2020, the FOMC lowered the federal funds rate to a target range of 0.0% to 0.25%, noting that the COVID-19 pandemic had harmed communities and disrupted economic activity in many countries, including the United States. At its meeting in November 2021, the FOMC maintained the federal funds target range, and signaled that it would begin the process of gradually tapering its purchases of Treasury securities and Agency MBS, as the economic recovery remains broadly on track. While still characterizing inflation as transitory, Federal Reserve officials acknowledged that the supply chain disruptions have created sizeable price increases in some parts of the economy is onthat could last longer than previously assumed.
The following table presents certain key interest rates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three-Month Average | | Nine-Month Average | | Period End |
| | September 30, | | September 30, | | September 30, | | December 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Federal Funds Effective | | 0.09 | % | | 0.09 | % | | 0.08 | % | | 0.45 | % | | 0.06 | % | | 0.09 | % |
SOFR | | 0.05 | % | | 0.09 | % | | 0.04 | % | | 0.45 | % | | 0.05 | % | | 0.07 | % |
Overnight LIBOR | | 0.08 | % | | 0.08 | % | | 0.08 | % | | 0.46 | % | | 0.08 | % | | 0.08 | % |
1-week OIS | | 0.09 | % | | 0.09 | % | | 0.08 | % | | 0.45 | % | | 0.08 | % | | 0.09 | % |
3-month LIBOR | | 0.13 | % | | 0.25 | % | | 0.16 | % | | 0.79 | % | | 0.13 | % | | 0.24 | % |
3-month U.S. Treasury yield | | 0.04 | % | | 0.11 | % | | 0.04 | % | | 0.44 | % | | 0.04 | % | | 0.07 | % |
2-year U.S Treasury yield | | 0.22 | % | | 0.14 | % | | 0.18 | % | | 0.47 | % | | 0.28 | % | | 0.12 | % |
10-year U.S. Treasury yield | | 1.32 | % | | 0.65 | % | | 1.41 | % | | 0.90 | % | | 1.49 | % | | 0.92 | % |
The averages of short-term interest rates remained low and generally were even lower or little changed in the three and nine months ended September 30, 2021, compared to the same periods in 2020, impacting the Bank's results of operations, primarily by decreasing both interest income and interest expense. However, longer-term interest rates, while still relatively low, have increased in the three and nine months ended September 30, 2021 compared to the corresponding periods in 2020. Changes in the short- and long-term interest rates also impacted the fair values of certain assets and liabilities. The prevailing expectation of prolonged low interest rates will likely continue to be a firm path to sustainable growth; (3) full employment is near achievement;significant factor driving the Bank's results of operations and (4) inflation has increased abovechanges in its target rate for a period of time such that it averages 2.0%.financial condition.
Impact on Operating Results. Market interest rates and trends affect yields and margins on earning assets, including advances, purchased mortgage loans, and our investment portfolio, which contribute to our overall profitability. Additionally, market interest rates drive mortgage origination and prepayment activity, which can lead to net interest margin volatility in our MPP and MBS portfolios. A flat or inverted yield curve, wherein which the difference between short-term interest rates and long-term interest rates is low, or negative, respectively, tends tocan have an unfavorable impact on our net interest margins. A steep yield curve, in which the difference between short-term and long-term interest rates is high, can have a favorable impact on our net interest margins. The level of interest rates also directly affects our earnings on assets funded by our interest-free capital.
Lending and investing activity by our member institutions is a key driver for our balance sheet and income growth. Such activity is a function of both prevailing interest rates and economic activity, including local economic factors, particularly relating to the housing and mortgage markets. Positive economic trends could drive interest rates higher, which could impair growth of the mortgage market. A less active mortgage market could affect demand for advances and activity levels in our Advantage MPP. However, borrowing patterns between our insurance company and depository members can differ during various economic and market conditions, thereby easing the potential magnitude of core business fluctuations during business cycles. Member demand for liquidity during stressed market conditions can lead to advances growth.
The results of operations and the changes in the financial condition of the Bank were affected by the disruptions in the financial markets caused by the COVID-19 pandemic as discussed herein. However, we have continued to be a reliable source of liquidity for our members and maintain a full-service business operation while continuing a work-from-home program that began on March 16, 2020. In September 2020, approximately 20% of our employees returned to work at one of our physical locations.
Selected Financial Data
The following table presents a summary of selected financial information ($ amounts in millions).
| | | | As of and for the Three Months Ended | | | As of and for the Three Months Ended |
| | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | September 30, 2021 | | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 |
Statement of Condition: | Statement of Condition: | | | | | | | | | | | Statement of Condition: | | | | | | | | | | |
Advances | Advances | | $ | 31,264 | | | $ | 34,848 | | | $ | 38,927 | | | $ | 32,480 | | | $ | 32,487 | | Advances | | $ | 26,958 | | | $ | 27,633 | | | $ | 29,784 | | | $ | 31,347 | | | $ | 31,264 | |
Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | | 9,237 | | | 10,083 | | | 10,649 | | | 10,815 | | | 11,104 | | Mortgage loans held for portfolio, net | | 7,570 | | | 7,737 | | | 8,057 | | | 8,516 | | | 9,237 | |
Cash and short-term investments | Cash and short-term investments | | 5,639 | | | 5,791 | | | 8,085 | | | 5,079 | | | 5,521 | | Cash and short-term investments | | 8,329 | | | 7,268 | | | 8,873 | | | 5,627 | | | 5,639 | |
Investment securities | Investment securities | | 19,695 | | | 19,817 | | | 20,487 | | | 18,718 | | | 17,754 | | Investment securities | | 18,675 | | | 19,689 | | | 19,480 | | | 19,941 | | | 19,695 | |
Total assets | Total assets | | 66,342 | | | 71,070 | | | 78,666 | | | 67,511 | | | 67,262 | | Total assets | | 61,960 | | | 62,771 | | | 66,680 | | | 65,925 | | | 66,342 | |
| Discount notes | Discount notes | | 19,462 | | | 28,234 | | | 29,653 | | | 17,677 | | | 15,300 | | Discount notes | | 12,714 | | | 14,445 | | | 17,573 | | | 16,617 | | | 19,462 | |
CO bonds | CO bonds | | 41,148 | | | 36,973 | | | 42,079 | | | 44,715 | | | 47,169 | | CO bonds | | 43,225 | | | 42,363 | | | 42,794 | | | 43,333 | | | 41,148 | |
Total consolidated obligations | Total consolidated obligations | | 60,610 | | | 65,207 | | | 71,732 | | | 62,392 | | | 62,469 | | Total consolidated obligations | | 55,939 | | | 56,808 | | | 60,367 | | | 59,950 | | | 60,610 | |
| MRCS | MRCS | | 262 | | | 300 | | | 323 | | | 323 | | | 324 | | MRCS | | 50 | | | 233 | | | 233 | | | 251 | | | 262 | |
| Capital stock | Capital stock | | 2,224 | | | 2,194 | | | 2,098 | | | 1,974 | | | 1,939 | | Capital stock | | 2,237 | | | 2,234 | | | 2,214 | | | 2,208 | | | 2,224 | |
Retained earnings | Retained earnings | | 1,124 | | | 1,128 | | | 1,124 | | | 1,115 | | | 1,091 | | Retained earnings | | 1,163 | | | 1,157 | | | 1,153 | | | 1,137 | | | 1,124 | |
AOCI | AOCI | | 74 | | | (4) | | | (81) | | | 68 | | | 56 | | AOCI | | 151 | | | 193 | | | 180 | | | 105 | | | 74 | |
Total capital | Total capital | | 3,422 | | | 3,318 | | | 3,141 | | | 3,157 | | | 3,086 | | Total capital | | 3,551 | | | 3,584 | | | 3,547 | | | 3,450 | | | 3,422 | |
| Statement of Income: | Statement of Income: | | Statement of Income: | |
Net interest income | Net interest income | | $ | 61 | | | $ | 67 | | | $ | 63 | | | $ | 70 | | | $ | 50 | | Net interest income | | $ | 58 | | | $ | 57 | | | $ | 75 | | | $ | 72 | | | $ | 61 | |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | | | — | | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | | | — | |
Other income (loss) | Other income (loss) | | (17) | | | (25) | | | (5) | | | 11 | | | 3 | | Other income (loss) | | (9) | | | (10) | | | (13) | | | (9) | | | (17) | |
Other expenses | Other expenses | | 27 | | | 26 | | | 26 | | | 28 | | | 24 | | Other expenses | | 27 | | | 28 | | | 28 | | | 30 | | | 27 | |
AHP assessments | AHP assessments | | 2 | | | 2 | | | 3 | | | 6 | | | 3 | | AHP assessments | | 2 | | | 2 | | | 4 | | | 4 | | | 2 | |
Net income | Net income | | $ | 15 | | | $ | 14 | | | $ | 29 | | | $ | 47 | | | $ | 26 | | Net income | | $ | 20 | | | $ | 17 | | | $ | 30 | | | $ | 29 | | | $ | 15 | |
| Selected Financial Ratios: | Selected Financial Ratios: | | Selected Financial Ratios: | |
Net interest margin (1) | Net interest margin (1) | | 0.35 | % | | 0.37 | % | | 0.36 | % | | 0.41 | % | | 0.29 | % | Net interest margin (1) | | 0.37 | % | | 0.36 | % | | 0.44 | % | | 0.43 | % | | 0.35 | % |
Return on average equity (2) | Return on average equity (2) | | 1.70 | % | | 1.64 | % | | 3.81 | % | | 6.05 | % | | 3.31 | % | Return on average equity (2) | | 2.22 | % | | 1.94 | % | | 3.40 | % | | 3.49 | % | | 1.70 | % |
Return on average assets (2) | Return on average assets (2) | | 0.08 | % | | 0.07 | % | | 0.17 | % | | 0.28 | % | | 0.15 | % | Return on average assets (2) | | 0.13 | % | | 0.11 | % | | 0.18 | % | | 0.18 | % | | 0.08 | % |
| Weighted average dividend rate (3) | Weighted average dividend rate (3) | | 3.50 | % | | 4.00 | % | | 4.25 | % | | 4.75 | % | | 5.50 | % | Weighted average dividend rate (3) | | 2.35 | % | | 2.57 | % | | 2.50 | % | | 3.00 | % | | 3.50 | % |
Dividend payout ratio (4) | Dividend payout ratio (4) | | 126.01 | % | | 150.84 | % | | 70.91 | % | | 48.35 | % | | 106.89 | % | Dividend payout ratio (4) | | 65.59 | % | | 81.59 | % | | 46.70 | % | | 55.32 | % | | 126.01 | % |
| Average equity to average assets | | Average equity to average assets | | 5.67 | % | | 5.47 | % | | 5.24 | % | | 5.19 | % | | 4.86 | % |
Total capital ratio (5) | Total capital ratio (5) | | 5.16 | % | | 4.67 | % | | 3.99 | % | | 4.68 | % | | 4.59 | % | Total capital ratio (5) | | 5.73 | % | | 5.71 | % | | 5.32 | % | | 5.23 | % | | 5.16 | % |
Total regulatory capital ratio (6) | Total regulatory capital ratio (6) | | 5.44 | % | | 5.10 | % | | 4.51 | % | | 5.05 | % | | 4.99 | % | Total regulatory capital ratio (6) | | 5.57 | % | | 5.77 | % | | 5.40 | % | | 5.45 | % | | 5.44 | % |
Average equity to average assets | | 4.86 | % | | 4.39 | % | | 4.43 | % | | 4.66 | % | | 4.55 | % | |
(1) Annualized net interest income expressed as a percentage of average interest-earning assets.
(2) Annualized, as appropriate.
(3) Dividends paid in cash during the period divided by the average amount of Class B capital stock eligible for dividends under our capital plan, excluding MRCS.
(4) Dividends paid in cash during the period divided by net income for the period. By dividing dividends paid in cash during the period by the net income for the prior period, the dividend payout ratios for each of the three months ended September 30, 2020,2021, June 30, 2020,2021, March 31, 2020,2021, December 31, 20192020 and September 30, 2019 would be 2020 wo143%uld be 76%, 67%47%, 44%46%, 89%112% and 79%143%, respectively.
(5) Capital stock plus retained earnings and AOCI expressed as a percentage of total assets.
(6) Capital stock plus retained earnings and MRCS expressed as a percentage of total assets.
Results of Operations and Changes in Financial Condition
Results of Operations for the Three and Nine Months Ended September 30, 20202021 and 2019.2020. The following table presents the comparative highlights of our results of operations ($ amounts in millions).
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Condensed Statements of Comprehensive Income | Condensed Statements of Comprehensive Income | | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change | Condensed Statements of Comprehensive Income | | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change |
Net interest income | Net interest income | | $ | 61 | | | $ | 50 | | | $ | 11 | | | 21 | % | | $ | 191 | | | $ | 167 | | | $ | 24 | | | 14 | % | Net interest income | | $ | 58 | | | $ | 61 | | | $ | (3) | | | (5) | % | | $ | 190 | | | $ | 191 | | | $ | (1) | | | (1) | % |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | | | — | | | — | | | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | | | — | | | — | | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | | 61 | | | 50 | | | 11 | | | 20 | % | | 191 | | | 167 | | | 24 | | | 14 | % | Net interest income after provision for credit losses | | 58 | | | 61 | | | (3) | | | (4) | % | | 190 | | | 191 | | | (1) | | | (1) | % |
Other income (loss) | Other income (loss) | | (17) | | | 3 | | | (20) | | | (47) | | | 9 | | | (56) | | | Other income (loss) | | (9) | | | (17) | | | 8 | | | (32) | | | (47) | | | 15 | | |
Other expenses | Other expenses | | 27 | | | 24 | | | 3 | | | 79 | | | 71 | | | 8 | | | Other expenses | | 27 | | | 27 | | | — | | | 83 | | | 79 | | | 4 | | |
Income before assessments | Income before assessments | | 17 | | | 29 | | | (12) | | | (42) | % | | 65 | | | 105 | | | (40) | | | (38) | % | Income before assessments | | 22 | | | 17 | | | 5 | | | 32 | % | | 75 | | | 65 | | | 10 | | | 15 | % |
AHP assessments | AHP assessments | | 2 | | | 3 | | | (1) | | | 7 | | | 11 | | | (4) | | | AHP assessments | | 2 | | | 2 | | | — | | | 8 | | | 7 | | | 1 | | |
Net income | Net income | | 15 | | | 26 | | | (11) | | | (42) | % | | 58 | | | 94 | | | (36) | | | (39) | % | Net income | | 20 | | | 15 | | | 5 | | | 33 | % | | 67 | | | 58 | | | 9 | | | 16 | % |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | | 78 | | | (2) | | | 80 | | | 6 | | | 14 | | | (8) | | | Total other comprehensive income (loss) | | (42) | | | 78 | | | (120) | | | 46 | | | 6 | | | 40 | | |
| Total comprehensive income | | $ | 93 | | | $ | 24 | | | $ | 69 | | | 284 | % | | $ | 64 | | | $ | 108 | | | $ | (44) | | | (40) | % | |
Total comprehensive income (loss) | | Total comprehensive income (loss) | | $ | (22) | | | $ | 93 | | | $ | (115) | | | (124) | % | | $ | 113 | | | $ | 64 | | | $ | 49 | | | 76 | % |
The decrease in netNet income for the three months ended September 30, 20202021 was $19.9 million, an increase of $5.0 million compared to the corresponding period in the prior year year. The increase was substantiallyprimarily due to lower net earnings on trading securities andbut still accelerated amortization of purchase premium resulting from higherlower but still elevated prepayments on mortgage loans, both resulting from the decline in market interest rates. These decreases were partially offset by additionallower net interest income resulting from the Bank's growthdecline in average asset balances and by lower net losses on qualifying fair-value hedging relationships.balances.
The decrease in netNet income for the nine months ended September 30, 20202021 was $67.0 million, an increase of $9.3 million compared to the corresponding period in the prior yearyear. The increase was substantiallyprimarily due to net hedging gains on qualifying fair-value hedging relationships and lower but still accelerated amortization of purchase premium, resulting from higher prepayments on mortgage loans andsubstantially offset by lower net earnings on trading securities, both resulting from the decline in market interest rates. These decreases were partially offsetportion of the Bank's assets funded by additionalits capital and lower net interest income resulting from narrower interest spreads and the Bank's growthdecline in average asset balances.
The increase in totalTotal other comprehensive incomeloss for the three months ended September 30, 20202021 was $42.0 million, a decrease of $120.1 million compared to the corresponding period in the prior yearyear. The decrease was due to net unrealized gainslosses on AFS securities.securities in the current period compared to net unrealized gains in the corresponding period in the prior year.
The decrease in totalTotal other comprehensive income for the nine months ended September 30, 20202021 was $46.1 million, an increase of $39.4 million compared to the corresponding period in the prior yearyear. The increase was due to lowerhigher net unrealized gains on AFS securities.
securities in the current period.
Adjusted Net Income, a Non-GAAP Financial Measure
The Bank reports its results of operations in accordance with GAAP. Management believes that a non-GAAP financial measure may also be useful to shareholders and other stakeholders as a key measure of its operating performance. Such measure can also provide additional insights into period-to-period comparisons of the Bank's operating results beyond its GAAP results, which are impacted by temporary changes in fair value and other factors driven by market volatility that hinder consistent performance measurement. As a result, the Bank is reporting adjusted net income as a non-GAAP financial measure.
Adjusted net income represents GAAP net income adjusted to exclude: (i) the mark-to-market adjustments and other transitory effects from derivatives and trading/hedging activities, (ii) interest expense on MRCS, (iii) realized gains and losses on sales of investment securities, and (iv) at the discretion of management, other eligible non-routine transactions. These adjustments reflect (i) the temporary nature of fair-value and certain other hedging gains (losses) due to the Bank's practice of holding its financial instruments to maturity, (ii) the reclassification of interest on MRCS as dividends, (iii) the sale of investment securities, primarily for liquidity purposes or to reduce exposure to LIBOR-indexed instruments, the gains (losses) on which arise from accelerating the recognition of future income (expense), and (iv) any other eligible non-routine transactions that management determines can provide additional insights into period-to-period comparisons of the Bank’s operating results beyond its GAAP results.
Non-GAAP financial measures are not audited. In addition, non-GAAP financial measures have no standardized measurement prescribed by GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. While the Bank believes that adjusted net income is helpful in understanding the Bank's performance, this measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyses of earnings reported in accordance with GAAP.
The following table presents a reconciliation of the Bank's GAAP net income to adjusted net income ($ amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | |
Reconciliation of Net Income | | 2021 | | 2020 | | 2021 | | 2020 |
GAAP net income | | $ | 19.9 | | | $ | 14.9 | | | $ | 67.0 | | | $ | 57.7 | |
Adjustments to exclude: | | | | | | | | |
Fair-value hedging (gains) losses (1) | | 2.8 | | | 2.4 | | | (10.2) | | | 24.6 | |
Amortization/accretion of (gains) losses on active and discontinued fair-value hedging relationships (2) | | 11.5 | | | (0.6) | | | 24.4 | | | (1.8) | |
Trading (gains) losses, net of economic hedging gains (losses) (3) | | 7.7 | | | 5.6 | | | 26.9 | | | 4.9 | |
Net unrealized (gains) losses on other economic hedges | | 0.4 | | | 1.9 | | | 0.8 | | | 1.2 | |
Net realized (gains) on sales of investment securities | | — | | | (0.5) | | | — | | | (0.5) | |
Interest expense on MRCS | | 0.3 | | | 2.0 | | | 2.3 | | | 7.8 | |
Total adjustments | | 22.7 | | | 10.8 | | | 44.2 | | | 36.2 | |
| | | | | | | | |
AHP assessments on adjustments | | (2.2) | | | (0.9) | | | (4.2) | | | (2.8) | |
| | | | | | | | |
Adjusted net income (non-GAAP measure) | | $ | 40.4 | | | $ | 24.8 | | | $ | 107.0 | | | $ | 91.1 | |
(1) Changes in fair value on hedged items (attributable to the risk being hedged) and associated derivatives in qualifying hedging relationships.
(2) Gains (losses) resulting from cumulative basis adjustments on hedged items.
(3) Includes both (i) unrealized (gains) losses on trading securities and (ii) realized (gains) losses on maturities of trading securities.
Adjusted net income for the three months ended September 30, 2021 was $40.4 million, an increase of $15.6 million compared to the corresponding period in the prior year. The increase was primarily due to lower accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans, partially offset by lower net interest income resulting from the decline in average asset balances.
Adjusted net income for the nine months ended September 30, 2021 was $107.0 million, an increase of $15.9 million compared to the corresponding period in the prior year. The increase was primarily due to higher earnings (excluding net gains and losses) on trading securities and lower accelerated amortization of purchase premium, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the decline in average asset balances.
Changes in Financial Condition for the Nine Months Ended September 30, 2020.2021. The following table presents the comparative highlights of our changes in financial condition ($ amounts in millions).
| Condensed Statements of Condition | Condensed Statements of Condition | | September 30, 2020 | | December 31, 2019 | | $ Change | | % Change | Condensed Statements of Condition | | September 30, 2021 | | December 31, 2020 | | $ Change | | % Change |
Advances | Advances | | $ | 31,264 | | | $ | 32,480 | | | $ | (1,216) | | | (4) | % | Advances | | $ | 26,958 | | | $ | 31,347 | | | $ | (4,389) | | | (14) | % |
Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | | 9,237 | | | 10,815 | | | (1,578) | | | (15) | % | Mortgage loans held for portfolio, net | | 7,570 | | | 8,516 | | | (946) | | | (11) | % |
Cash and short-term investments (1) | Cash and short-term investments (1) | | 5,639 | | | 5,079 | | | 560 | | | 11 | % | Cash and short-term investments (1) | | 8,329 | | | 5,627 | | | 2,702 | | | 48 | % |
Investment securities and other assets (2) | Investment securities and other assets (2) | | 20,202 | | | 19,137 | | | 1,065 | | | 6 | % | Investment securities and other assets (2) | | 19,103 | | | 20,435 | | | (1,332) | | | (7) | % |
Total assets | Total assets | | $ | 66,342 | | | $ | 67,511 | | | $ | (1,169) | | | (2) | % | Total assets | | $ | 61,960 | | | $ | 65,925 | | | $ | (3,965) | | | (6) | % |
| Consolidated obligations | Consolidated obligations | | $ | 60,610 | | | $ | 62,392 | | | $ | (1,782) | | | (3) | % | Consolidated obligations | | $ | 55,939 | | | $ | 59,950 | | | $ | (4,011) | | | (7) | % |
MRCS | MRCS | | 262 | | | 323 | | | (61) | | | (19) | % | MRCS | | 50 | | | 251 | | | (201) | | | (80) | % |
Other liabilities | Other liabilities | | 2,048 | | | 1,639 | | | 409 | | | 25 | % | Other liabilities | | 2,420 | | | 2,274 | | | 146 | | | 6 | % |
Total liabilities | Total liabilities | | 62,920 | | | 64,354 | | | (1,434) | | | (2) | % | Total liabilities | | 58,409 | | | 62,475 | | | (4,066) | | | (7) | % |
| Capital stock | Capital stock | | 2,224 | | | 1,974 | | | 250 | | | 13 | % | Capital stock | | 2,237 | | | 2,208 | | | 29 | | | 1 | % |
Retained earnings (3) | Retained earnings (3) | | 1,124 | | | 1,115 | | | 9 | | | 1 | % | Retained earnings (3) | | 1,163 | | | 1,137 | | | 26 | | | 2 | % |
AOCI | AOCI | | 74 | | | 68 | | | 6 | | | 10 | % | AOCI | | 151 | | | 105 | | | 46 | | | 44 | % |
Total capital | Total capital | | 3,422 | | | 3,157 | | | 265 | | | 8 | % | Total capital | | 3,551 | | | 3,450 | | | 101 | | | 3 | % |
| Total liabilities and capital | Total liabilities and capital | | $ | 66,342 | | | $ | 67,511 | | | $ | (1,169) | | | (2) | % | Total liabilities and capital | | $ | 61,960 | | | $ | 65,925 | | | $ | (3,965) | | | (6) | % |
| Total regulatory capital (4) | Total regulatory capital (4) | | $ | 3,610 | | | $ | 3,412 | | | $ | 198 | | | 6 | % | Total regulatory capital (4) | | $ | 3,450 | | | $ | 3,596 | | | $ | (146) | | | (4) | % |
(1) Includes cash, interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold.
(2) Includes trading, AFS and HTM securities.
(3) Includes restricted retained earnings at September 30, 20202021 and December 31, 20192020 of $262282 million and $251$268 million, respectively.
(4) Total capital less AOCI plus MRCS.
The decrease in totalTotal assets at September 30, 2020 compared to2021 were $62.0 billion, a net decrease of $4.0 billion, or 6%, from December 31, 2019 was2020, driven primarily by a net decrease in advances, partially offset by a net decreasesincrease in mortgagethe liquidity portfolio.
Advances outstanding at September 30, 2021, at carrying value, totaled $27.0 billion, a net decrease of $4.4 billion, or 14%, from December 31, 2020. The par value of advances to depository institutions - comprising commercial banks, savings institutions and credit unions - and insurance companies decreased by 19% and 6%, respectively.
Mortgage loans held for portfolio at September 30, 2021 totaled $7.6 billion, a net decrease of $946 million, or 11%, from December 31, 2020, as principal repayments by borrowers significantly outpaced the Bank's purchases from its members during the period.
The liquidity portfolio at September 30, 2021 totaled $13.2 billion, a net increase of $2.5 billion, or 23%, from December 31, 2020. Cash and advances short-term investments increased by $2.7 billion, or 48%, to members, partially offset$8.3 billion. U.S. Treasury securities, classified as trading securities, decreased by an increase in available-for-sale securities.$236 million, or 5%, to $4.9 billion. As a result, cash and short-term investments represented 63% of the liquidity portfolio at September 30, 2021, while U.S. Treasury securities represented 37%.
The decrease in total liabilitiesFHLBank Indianapolis' consolidated obligations outstanding at September 30, 2020 compared to2021 totaled $55.9 billion, a net decrease of $4.0 billion, or 7%, from December 31, 2019 was attributable to a decrease in consolidated obligations. Such decrease2020, which reflected the net decrease in the Bank's total assets.
The increase in totalTotal capital at September 30, 2020 compared to2021 was $3.6 billion, a net increase of $101 million, or 3%, from December 31, 20192020.
The Bank's regulatory capital-to-assets ratio at September 30, 2021 was substantially due to proceeds from the issuance5.57%, which exceeds all applicable regulatory capital requirements.
Analysis of Results of Operations for the Three and Nine Months Ended September 30, 20202021 and 2019.2020.
Net Interest Income. The increase in net interest income for the three months ended September 30, 2020 compared to the corresponding period in 2019 was primarily due to the Bank's growth in average asset balances, lower net losses on qualifying fair-value hedging relationships, and an increase in interest income on trading securities, in which the associated increase in net interest settlements on derivatives is recorded in other income. Such increases were substantially offset by accelerated amortization of purchase premium resulting from higher prepayments on mortgage loans.
Hedging gains (losses) on qualifying fair-value hedging relationships are reported in net interest income. As a result, net interest income for the three months ended September 30, 2020 included net hedging losses of $2 million, compared to net hedging losses for the three months ended September 30, 2019 of $9 million. In general, we hold the derivatives and associated hedged items to the maturity, call, or put date. As a result, we expect that nearly all of the net gains and losses on these financial instruments will reverse over the remaining contractual terms of the hedged items.
The increase in net interest income for the nine months ended September 30, 2020 compared to the corresponding period in 2019 was primarily due to an increase in interest income on trading securities, in which the associated increase in net interest settlements on derivatives is recorded in other income, and the Bank's growth in average asset balances. Such increases were substantially offset by accelerated amortization of purchase premium resulting from higher prepayments on mortgage loans. Net interest income for the nine months ended September 30, 2020 included net hedging losses of $25 million, compared to net hedging losses for the nine months ended September 30, 2019 of $31 million.
The following table presents average daily balances, interest income/expense, and average yieldsyields/cost of funds of our major categories of interest-earning assets and their funding sources ($ amounts in millions).
| | | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | Average Balance | | Interest Income/ Expense (1) | | Average Yield (1) (2) | | Average Balance | | Interest Income/ Expense (1) | | Average Yield (1) (2) | | Average Balance | | Interest Income/ Expense (1) | | Average Yield/ Cost of Funds (1) (2) | | Average Balance | | Interest Income/ Expense (1) | | Average Yield/ Cost of Funds (1) (2) |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Federal funds sold and securities purchased under agreements to resell | Federal funds sold and securities purchased under agreements to resell | $ | 5,945 | | | $ | 2 | | | 0.09 | % | | $ | 5,944 | | | $ | 34 | | | 2.29 | % | Federal funds sold and securities purchased under agreements to resell | $ | 6,344 | | | $ | 2 | | | 0.08 | % | | $ | 5,945 | | | $ | 2 | | | 0.09 | % |
Investment securities (3) | Investment securities (3) | 19,860 | | | 56 | | | 1.12 | % | | 17,430 | | | 104 | | | 2.35 | % | Investment securities (3) | 19,218 | | | 41 | | | 0.84 | % | | 19,860 | | | 56 | | | 1.12 | % |
Advances (4) | Advances (4) | 32,990 | | | 45 | | | 0.54 | % | | 32,100 | | | 207 | | | 2.56 | % | Advances (4) | 28,378 | | | 20 | | | 0.29 | % | | 32,990 | | | 45 | | | 0.54 | % |
Mortgage loans held for portfolio (4) (5) | Mortgage loans held for portfolio (4) (5) | 9,673 | | | 48 | | | 1.99 | % | | 11,275 | | | 87 | | | 3.09 | % | Mortgage loans held for portfolio (4) (5) | 7,660 | | | 44 | | | 2.28 | % | | 9,673 | | | 48 | | | 1.99 | % |
Other assets (interest-earning) (6) | Other assets (interest-earning) (6) | 1,528 | | | — | | | 0.09 | % | | 1,298 | | | 7 | | | 2.12 | % | Other assets (interest-earning) (6) | 671 | | | — | | | 0.08 | % | | 1,528 | | | — | | | 0.09 | % |
Total interest-earning assets | Total interest-earning assets | 69,996 | | | 151 | | | 0.86 | % | | 68,047 | | | 439 | | | 2.56 | % | Total interest-earning assets | 62,271 | | | 107 | | | 0.68 | % | | 69,996 | | | 151 | | | 0.86 | % |
Other assets (7) | Other assets (7) | (639) | | | (6) | | | Other assets (7) | 476 | | | (639) | | |
Total assets | Total assets | $ | 69,357 | | | $ | 68,041 | | | Total assets | $ | 62,747 | | | $ | 69,357 | | |
| Liabilities and Capital: | Liabilities and Capital: | | Liabilities and Capital: | |
Interest-bearing deposits | Interest-bearing deposits | $ | 1,264 | | | — | | | 0.01 | % | | $ | 743 | | | 4 | | | 1.95 | % | Interest-bearing deposits | $ | 1,677 | | | — | | | 0.01 | % | | $ | 1,264 | | | — | | | 0.01 | % |
Discount notes | Discount notes | 24,479 | | | 11 | | | 0.18 | % | | 19,185 | | | 110 | | | 2.28 | % | Discount notes | 13,350 | | | 2 | | | 0.05 | % | | 24,479 | | | 11 | | | 0.18 | % |
CO bonds (4) | CO bonds (4) | 38,965 | | | 77 | | | 0.79 | % | | 43,996 | | | 271 | | | 2.45 | % | CO bonds (4) | 43,282 | | | 47 | | | 0.43 | % | | 38,965 | | | 77 | | | 0.79 | % |
MRCS | MRCS | 280 | | | 2 | | | 2.90 | % | | 273 | | | 4 | | | 5.10 | % | MRCS | 174 | | | — | | | 0.71 | % | | 280 | | | 2 | | | 2.90 | % |
Other borrowings | — | | | — | | | — | % | | 6 | | | — | | | 2.28 | % | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | 64,988 | | | 90 | | | 0.55 | % | | 64,203 | | | 389 | | | 2.40 | % | Total interest-bearing liabilities | 58,483 | | | 49 | | | 0.33 | % | | 64,988 | | | 90 | | | 0.55 | % |
Other liabilities | Other liabilities | 999 | | | | | 740 | | | | | Other liabilities | 707 | | | | | 999 | | | | |
Total capital | Total capital | 3,370 | | | 3,098 | | | Total capital | 3,557 | | | 3,370 | | |
Total liabilities and capital | Total liabilities and capital | $ | 69,357 | | | $ | 68,041 | | | Total liabilities and capital | $ | 62,747 | | | $ | 69,357 | | |
| Net interest income | Net interest income | | $ | 61 | | | $ | 50 | | | Net interest income | | $ | 58 | | | $ | 61 | | |
| Net spread on interest-earning assets less interest-bearing liabilities (2) | | 0.31 | % | | 0.16 | % | |
Net spread on interest-earning assets less interest-bearing liabilities (1) (2) | | Net spread on interest-earning assets less interest-bearing liabilities (1) (2) | | 0.35 | % | | 0.31 | % |
| Net interest margin (8) | | 0.35 | % | | 0.29 | % | |
Net interest margin (1) (8) | | Net interest margin (1) (8) | | 0.37 | % | | 0.35 | % |
| Average interest-earning assets to interest-bearing liabilities | Average interest-earning assets to interest-bearing liabilities | 1.08 | | | 1.06 | | | Average interest-earning assets to interest-bearing liabilities | 1.06 | | | 1.08 | | |
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | Average Balance | | Interest Income/ Expense (1) | | Average Yield (1) (2) | | Average Balance | | Interest Income/ Expense (1) | | Average Yield (1) (2) | | Average Balance | | Interest Income/ Expense (1) | | Average Yield/ Cost of Funds (1) (2) | | Average Balance | | Interest Income/ Expense (1) | | Average Yield/Cost of Funds (1) (2) |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Federal funds sold and securities purchased under agreements to resell | Federal funds sold and securities purchased under agreements to resell | $ | 5,450 | | | $ | 21 | | | 0.52 | % | | $ | 6,697 | | | $ | 120 | | | 2.41 | % | Federal funds sold and securities purchased under agreements to resell | $ | 7,281 | | | $ | 3 | | | 0.06 | % | | $ | 5,450 | | | $ | 21 | | | 0.52 | % |
Investment securities (3) | Investment securities (3) | 19,913 | | | 205 | | | 1.37 | % | | 15,848 | | | 303 | | | 2.55 | % | Investment securities (3) | 19,615 | | | 140 | | | 0.95 | % | | 19,913 | | | 205 | | | 1.37 | % |
Advances (4) | Advances (4) | 33,977 | | | 291 | | | 1.14 | % | | 32,077 | | | 641 | | | 2.67 | % | Advances (4) | 29,000 | | | 85 | | | 0.39 | % | | 33,977 | | | 291 | | | 1.14 | % |
Mortgage loans held for portfolio (4) (5) | Mortgage loans held for portfolio (4) (5) | 10,277 | | | 189 | | | 2.46 | % | | 11,355 | | | 277 | | | 3.27 | % | Mortgage loans held for portfolio (4) (5) | 7,937 | | | 125 | | | 2.10 | % | | 10,277 | | | 189 | | | 2.46 | % |
Other assets (interest-earning) (6) | Other assets (interest-earning) (6) | 1,563 | | | 5 | | | 0.46 | % | | 1,011 | | | 17 | | | 2.20 | % | Other assets (interest-earning) (6) | 767 | | | — | | | 0.07 | % | | 1,563 | | | 5 | | | 0.46 | % |
Total interest-earning assets | Total interest-earning assets | 71,180 | | | 711 | | | 1.34 | % | | 66,988 | | | 1,358 | | | 2.71 | % | Total interest-earning assets | 64,600 | | | 353 | | | 0.73 | % | | 71,180 | | | 711 | | | 1.34 | % |
Other assets (7) | Other assets (7) | 55 | | | 218 | | | Other assets (7) | 653 | | | 55 | | |
Total assets | Total assets | $ | 71,235 | | | $ | 67,206 | | | Total assets | $ | 65,253 | | | $ | 71,235 | | |
| Liabilities and Capital: | Liabilities and Capital: | | Liabilities and Capital: | |
Interest-bearing deposits | Interest-bearing deposits | $ | 1,392 | | | 3 | | | 0.27 | % | | $ | 647 | | | 10 | | | 2.10 | % | Interest-bearing deposits | $ | 1,628 | | | — | | | 0.01 | % | | $ | 1,392 | | | 3 | | | 0.27 | % |
Discount notes | Discount notes | 24,772 | | | 111 | | | 0.60 | % | | 20,586 | | | 369 | | | 2.40 | % | Discount notes | 16,187 | | | 8 | | | 0.06 | % | | 24,772 | | | 111 | | | 0.60 | % |
CO bonds (4) | CO bonds (4) | 40,503 | | | 398 | | | 1.31 | % | | 41,870 | | | 803 | | | 2.57 | % | CO bonds (4) | 42,943 | | | 153 | | | 0.48 | % | | 40,503 | | | 398 | | | 1.31 | % |
MRCS | MRCS | 302 | | | 8 | | | 3.44 | % | | 207 | | | 9 | | | 5.54 | % | MRCS | 216 | | | 2 | | | 1.45 | % | | 302 | | | 8 | | | 3.44 | % |
Other borrowings | — | | | — | | | — | % | | 2 | | | — | | | 2.31 | % | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | 66,969 | | | 520 | | | 1.04 | % | | 63,312 | | | 1,191 | | | 2.51 | % | Total interest-bearing liabilities | 60,974 | | | 163 | | | 0.36 | % | | 66,969 | | | 520 | | | 1.04 | % |
Other liabilities | Other liabilities | 1,020 | | | | | 783 | | | | | Other liabilities | 720 | | | | | 1,020 | | | | |
Total capital | Total capital | 3,246 | | | 3,111 | | | Total capital | 3,559 | | | 3,246 | | |
Total liabilities and capital | Total liabilities and capital | $ | 71,235 | | | $ | 67,206 | | | Total liabilities and capital | $ | 65,253 | | | $ | 71,235 | | |
| Net interest income | Net interest income | | $ | 191 | | | $ | 167 | | | Net interest income | | $ | 190 | | | $ | 191 | | |
| Net spread on interest-earning assets less interest-bearing liabilities (2) | | 0.30 | % | | 0.20 | % | |
Net spread on interest-earning assets less interest-bearing liabilities (1) (2) | | Net spread on interest-earning assets less interest-bearing liabilities (1) (2) | | 0.37 | % | | 0.30 | % |
| Net interest margin (8) | | 0.36 | % | | 0.33 | % | |
Net interest margin (1) (8) | | Net interest margin (1) (8) | | 0.39 | % | | 0.36 | % |
| Average interest-earning assets to interest-bearing liabilities | Average interest-earning assets to interest-bearing liabilities | 1.06 | | | 1.06 | | | Average interest-earning assets to interest-bearing liabilities | 1.06 | | | 1.06 | | |
(1) HedgingIncludes hedging gains (losses) on qualifying fair-value hedging relationships are reported inrelationships. Excludes impact of purchase discount (premium) recorded through mark-to-market gains (losses) on trading securities and net interest income.settlements on derivatives hedging trading securities.
(2) Annualized.
(3) Consists of trading, AFS and HTM securities. The average balances of AFS securities are based on amortized cost; therefore, the resulting yields do not reflect changes in the estimated fair value that are a component of OCI. Interest income/expense and average yield/cost of funds includes all other components of interest, including the effectsimpact of associated derivative transactions, except for trading securitiesnet interest payments or receipts on derivatives in which such effects are includedqualifying hedging relationships and amortization of hedge accounting basis adjustment. Excludes net interest payment or receipts on derivatives in other income.economic hedging relationships.
(4) Interest income/expense and average yieldyield/cost of funds include all other components of interest, including the impact of net interest payments or receipts on derivatives in qualifying hedge relationships, amortization of hedge accounting basis adjustments, and prepayment fees on advances. Excluded areExcludes net interest payments or receipts on derivatives in economic hedging relationships.
(5) Includes non-accrual loans.
(6) Consists of interest-bearing deposits and loans to other FHLBanks (if applicable). Includes the rights or obligations to cash collateral, except for variation margin payments characterized as daily settled contracts.
(7) Includes changes in the estimated fair value of AFS securities and grantor trust assets.
(8) Annualized net interest income expressed as a percentage of the average balance of interest-earning assets.
The decrease in net interest income for the three months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to the decline in average asset balances, partially offset by lower but still accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans. Net interest income for the three months ended September 30, 2021 included net hedging losses of $3 million, compared to net hedging losses for the corresponding period in 2020 of $2 million.
Yields.
The decrease in net interest income for the nine months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to lower interest income on the portion of the Bank's assets funded by its capital, narrower interest spreads, and the decline in average asset balances, substantially offset by net hedging gains on qualifying fair-value hedging relationships and lower but still accelerated amortization of purchase premium. Net interest income for the nine months ended September 30, 2021 included net hedging gains of $10 million, compared to net hedging losses for the corresponding period in 2020 of $25 million.
Yields/Cost of Funds. The average yield on total interest-earning assets, including the impact of nethedging gains orand losses on qualifying fair-value hedging relationships,but excluding certain impacts of trading securities, for the three months ended September 30, 2020 2021 was 0.86%0.68%, a decrease of 17018 bps compared to the corresponding period in 2019,2020, resulting primarily from decreases in market interest rates that led to lower yields on substantially all of our interest-earning assets. The yield on mortgage loans held for portfolio increased due to lower but still accelerated amortization of purchase premium resulting from lower but still elevated prepayments on mortgage loans. The average cost of funds of total interest-bearing liabilities, including the impact of hedging gains and losses but excluding certain impacts of trading securities, for the three months ended September 30, 2021 was 0.33%, a decrease of 22 bps due to lower funding costs on our consolidated obligations. The net effect was an increase in the overall net interest spread under GAAP of 4 bps to 0.35% from 0.31% for the corresponding period in 2020.
The average yield on total interest-earning assets, including the impact of hedging gains and losses but excluding certain impacts of trading securities, for the nine months ended September 30, 2021 was 0.73%, a decrease of 61 bps compared to the corresponding period in 2020, resulting primarily from decreases in market interest rates that led to lower yields on all of our interest-earning assets. The average cost of funds of total interest-bearing liabilities, including the impact of net hedging gains orand losses on qualifying fair-value hedging relationships,but excluding certain impacts of trading securities, for the nine months ended September 30, 2021 was 0.55%0.36%, a decrease of 18568 bps due to lower funding costs on all of our interest-bearing liabilities.consolidated obligations. The net effect was an increase in the overall net interest spread under GAAP of 157 bps to 0.31% for the three months ended September 30, 20200.37% from 0.16%0.30% for the corresponding period in 2019. The increase was due to a combination of factors.
The average yield on total interest-earning assets, including the impact of net hedging gains or losses on qualifying fair-value hedging relationships, for the nine months ended September 30, 2020 was 1.34%, a decrease of 137 bps compared to the corresponding period in 2019, resulting primarily from decreases in market interest rates that led to lower yields on all of our interest-earning assets. The average cost of total interest-bearing liabilities, including the impact of net hedging gains or losses on qualifying fair-value hedging relationships, was 1.04%, a decrease of 147 bps due to lower funding costs on all of our interest-bearing liabilities. The net effect was an increase in the net interest spread of 10 bps to 0.30% for the nine months ended September 30, 2020 from 0.20% for the corresponding period in 2019. The increase was primarily due to an increase in interest income on trading securities, in which the associated increase in net interest settlements on derivatives is recorded in other income.2020.
Average Balances. The average balances outstanding of interest-earning assets for the three months ended September 30, 2020 increased2021 decreased by 3%11% compared to the corresponding period in 2019.2020. The average balancebalances of investment securities increasedadvances and mortgage loans decreased by 14% due to purchases of trading securities to enhance liquidity and purchases of AFS securities.21%, respectively, reflecting paydowns by our borrowers. The increasedecrease in average interest-bearing liabilities was due to an increasereflected the decrease in discount notes outstanding to fund the increases inaverage interest-earning assets. The average balances of total interest-earning assets, net of interest-bearing liabilities, increased decreased by 30%24%.
The average balances outstanding of interest-earning assets for the nine months ended September 30, 2020 increased2021 decreased by 6%9% compared to the corresponding period in 2019.2020. The average balancebalances of investment securities increasedadvances and mortgage loans decreased by 26% due to purchases of trading securities to enhance liquidity15% and purchases of AFS securities.23%, respectively, reflecting paydowns by our borrowers. The increasedecrease in average interest-bearing liabilities was due to an increasereflected the decrease in discount notes outstanding to fund the increases inaverage interest-earning assets. The average balances of total interest-earning assets, net of interest-bearing liabilities, increaseddecreased by 15%14%.
Provision for Credit Losses. In spite of the requirement to measure expected credit losses over the estimated life of our financial instruments under new accounting guidance effective January 1, 2020, theThe change in the provisionprovisions for (reversal of) credit losses for the three and nine months ended September 30, 20202021 compared to the corresponding periods in 20192020 was insignificant. For more information, see Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance.
Other Income. The following table presents a comparison of the components of other income ($ amounts in millions).
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Components | Components | | 2020 | | 2019 | | 2020 | | 2019 | Components | | 2021 | | 2020 | | 2021 | | 2020 |
| Net gains (losses) on trading securities (1) | | $ | (19) | | | $ | 6 | | | $ | 2 | | | $ | 26 | | |
Net unrealized gains (losses) on trading securities (1) | | Net unrealized gains (losses) on trading securities (1) | | $ | 6 | | | $ | (28) | | | $ | (23) | | | $ | (19) | |
Net realized gains (losses) on trading securities (1) | | Net realized gains (losses) on trading securities (1) | | (14) | | | 9 | | | (13) | | | 21 | |
Net gains (losses) on derivatives hedging trading securities | Net gains (losses) on derivatives hedging trading securities | | 14 | | | (3) | | | (7) | | | (20) | | Net gains (losses) on derivatives hedging trading securities | | 1 | | | 14 | | | 9 | | | (7) | |
Net gains (losses) on trading securities, net of associated derivatives | Net gains (losses) on trading securities, net of associated derivatives | | (5) | | | 3 | | | (5) | | | 6 | | Net gains (losses) on trading securities, net of associated derivatives | | (7) | | | (5) | | | (27) | | | (5) | |
Net interest settlements on derivatives | Net interest settlements on derivatives | | (12) | | | — | | | (40) | | | (5) | | Net interest settlements on derivatives | | (2) | | | (12) | | | (10) | | | (40) | |
Net gains (losses) on other derivatives not designated as hedging instruments | Net gains (losses) on other derivatives not designated as hedging instruments | | (2) | | | (1) | | | (5) | | | 4 | | Net gains (losses) on other derivatives not designated as hedging instruments | | — | | | (2) | | | (1) | | | (5) | |
Net realized gains from sale of available-for-sale securities | Net realized gains from sale of available-for-sale securities | | 1 | | | — | | | 1 | | | — | | Net realized gains from sale of available-for-sale securities | | — | | | 1 | | | — | | | 1 | |
Change in fair value of investments indirectly funding our SERP | Change in fair value of investments indirectly funding our SERP | | 1 | | | — | | | — | | | 2 | | Change in fair value of investments indirectly funding our SERP | | — | | | 1 | | | 3 | | | — | |
| Other, net | Other, net | | — | | | 1 | | | 2 | | | 2 | | Other, net | | — | | | — | | | 3 | | | 2 | |
| Total other income (loss) | Total other income (loss) | | $ | (17) | | | $ | 3 | | | $ | (47) | | | $ | 9 | | Total other income (loss) | | $ | (9) | | | $ | (17) | | | $ | (32) | | | $ | (47) | |
(1) Before impact of associated derivatives.
The decreasedecreases in total other incomeloss for the three and nine months ended September 30, 20202021 compared to the corresponding periods in 2019 was2020 were primarily due to higherlower net interest settlements on economic hedging relationships andderivatives, partially offset by higher net losses on trading securities, net of associated derivatives.
securities.
Net Gains (Losses) on Trading Securities. We purchase fixed-rate U.S. Treasury securities to enhance our liquidity. These securities are classified as trading securities and are recorded at fair value, with changes in fair value reported in other income. 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, which were magnified by the disruptions in the financial markets in the nine months ended September 30, 2020. These trading securities are economically hedged, so that over time the gains (losses) on these securities will be generally offset by the change in fair value of the associated derivatives. Net gains (losses) on trading securities, net of associated derivatives, for the three and nine months ended September 30, 2020 were $(5) million and $(5) million, respectively, a decrease of $8 million and $11 million, respectively, compared to the corresponding periods in 2019.
Net Gains (Losses) on Derivatives and Hedging Activities. Our net gains (losses) on derivatives and hedging activities fluctuate due tovolatility in the overall interest-rate environment as we hedge our asset or liability risk exposures. In general, we hold derivatives and associated hedged items to the maturity, call, or put date. Therefore, due to timing, nearly all of the cumulative net gains and losses for these financial instruments will generally reverse over the remaining contractual terms of the hedged item. However, there may be instances when we terminate these instruments prior to the maturity, call or put date. Terminating the financial instrument or hedging relationship may result in a realized gain or loss.
For derivatives not qualifying for hedge accounting (economic hedges), the net interest settlements and the changes in the estimated fair value of the derivatives are recorded in other income as net gains (losses) on derivatives and hedging activities.
Other Expenses. The following table presents a comparison of the components of other expenses ($ amounts in millions).
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Components | Components | | 2020 | | 2019 | | 2020 | | 2019 | Components | | 2021 | | 2020 | | 2021 | | 2020 |
Compensation and benefits | Compensation and benefits | | $ | 15 | | | $ | 12 | | | $ | 44 | | | $ | 40 | | Compensation and benefits | | $ | 14 | | | $ | 15 | | | $ | 44 | | | $ | 44 | |
Other operating expenses | Other operating expenses | | 8 | | | 8 | | | 23 | | | 21 | | Other operating expenses | | 7 | | | 8 | | | 22 | | | 23 | |
Finance Agency and Office of Finance | Finance Agency and Office of Finance | | 2 | | | 3 | | | 7 | | | 7 | | Finance Agency and Office of Finance | | 4 | | | 2 | | | 9 | | | 7 | |
Other | Other | | 2 | | | 1 | | | 5 | | | 3 | | Other | | 2 | | | 2 | | | 8 | | | 5 | |
| Total other expenses | Total other expenses | | $ | 27 | | | $ | 24 | | | $ | 79 | | | $ | 71 | | Total other expenses | | $ | 27 | | | $ | 27 | | | $ | 83 | | | $ | 79 | |
The net increase in compensation and benefits for the three months ended September 30, 2020 compared to the corresponding period in 2019 was due to increases in compensation, primarily driven by slightly higher headcount and salaries, and post-retirement benefits, primarily due to changes in market conditions.
The increase in compensation and benefits for the nine months ended September 30, 2020 compared to the corresponding period in 2019 was due to increases in post-retirement benefits, primarily due to changes in market conditions, and increases in compensation primarily driven by slightly higher headcount and salaries. The increase intotal other operating expenses for the nine months ended September 30, 20202021 compared to the corresponding period in 20192020 was primarily due to various software-related expenses and various consulting and professional services engagements.higher non-service costs associated with our SERP.
Total Other Comprehensive Income (Loss). Total OCI for the three andmonths ended September 30, 2021 consisted primarily of net unrealized losses on AFS securities, compared to net unrealized gains on AFS securities for the corresponding period in 2020.
Total OCI for the nine months ended September 30, 2021 and 2020 consisted substantially of net unrealized gains on AFS securities, particularly MBS.securities. These amounts were primarily impacted by changes in interest rates, credit spreads and volatility, which were magnified by the disruptions in the financial markets during 2020. Total OCI for the corresponding periods in 2019 consisted substantially of net unrealized losses and gains, respectively, on AFS securities.
Operating Segments
Our products and services are grouped within two operating segments: traditional and mortgage loans.
Traditional. The traditional segment consists of (i) credit products (including advances, letters of credit, and lines of credit), (ii) investments (including federal funds sold, securities purchased under agreements to resell, interest-bearing demand deposit accounts, and investment securities), and (iii) correspondent services and deposits. The following table presents the financial performance of our traditional segment ($ amounts in millions).
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Traditional | Traditional | | 2020 | | 2019 | | 2020 | | 2019 | Traditional | | 2021 | | 2020 | | 2021 | | 2020 |
Net interest income | Net interest income | | $ | 65 | | | $ | 38 | | | $ | 177 | | | $ | 121 | | Net interest income | | $ | 50 | | | $ | 65 | | | $ | 178 | | | $ | 177 | |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | |
Other income (loss) | Other income (loss) | | (17) | | | 3 | | | (44) | | | 9 | | Other income (loss) | | (9) | | | (17) | | | (31) | | | (44) | |
Other expenses | Other expenses | | 23 | | | 21 | | | 68 | | | 61 | | Other expenses | | 23 | | | 23 | | | 72 | | | 68 | |
Income before assessments | Income before assessments | | 25 | | | 20 | | | 65 | | | 69 | | Income before assessments | | 18 | | | 25 | | | 75 | | | 65 | |
AHP assessments | AHP assessments | | 2 | | | 2 | | | 7 | | | 7 | | AHP assessments | | 2 | | | 2 | | | 8 | | | 7 | |
| Net income | Net income | | $ | 23 | | | $ | 18 | | | $ | 58 | | | $ | 62 | | Net income | | $ | 16 | | | $ | 23 | | | $ | 67 | | | $ | 58 | |
The decrease in net income for the traditional segment for the three months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to lower net interest income resulting from the decline in average asset balances.
The increase in net income for the traditional segment for the threenine months ended September 30, 20202021 compared to the corresponding period in 20192020 was primarily due to additionalnet hedging gains on qualifying fair-value hedging relationships, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the Bank's growth in average asset balances and by lower net losses on qualifying fair-value hedging relationships, partially offset by lower net earnings on trading securities.
The decrease in net income for the traditional segment for the nine months ended September 30, 2020 compared to the corresponding period in 2019 was primarily due to lower net earnings on trading securities, partially offset by additional net interest income resulting from the Bank's growthdecline in average asset balances.
Mortgage Loans. The mortgage loans segment includes (i) mortgage loans purchased from our members through our MPP and (ii) participating interests purchased in 2012 - 2014 from the FHLBank of Topeka in mortgage loans originated by certain of its PFIs under the MPF Program. The following table presents the financial performance of our mortgage loans segment ($ amounts in millions).
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Mortgage Loans | Mortgage Loans | | 2020 | | 2019 | | 2020 | | 2019 | Mortgage Loans | | 2021 | | 2020 | | 2021 | | 2020 |
Net interest income | Net interest income | | $ | (4) | | | $ | 12 | | | $ | 14 | | | $ | 46 | | Net interest income | | $ | 8 | | | $ | (4) | | | $ | 12 | | | $ | 14 | |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | | Provision for (reversal of) credit losses | | — | | | — | | | — | | | — | |
Other income (loss) | Other income (loss) | | — | | | — | | | (3) | | | — | | Other income (loss) | | — | | | — | | | — | | | (3) | |
Other expenses | Other expenses | | 4 | | | 3 | | | 12 | | | 10 | | Other expenses | | 4 | | | 4 | | | 12 | | | 12 | |
Income before assessments | | (8) | | | 9 | | | (1) | | | 36 | | |
AHP assessments | | — | | | 1 | | | — | | | 4 | | |
Income (loss) before assessments | | Income (loss) before assessments | | 4 | | | (8) | | | — | | | (1) | |
AHP assessments (credits) | | AHP assessments (credits) | | — | | | — | | | — | | | — | |
| Net income | | $ | (8) | | | $ | 8 | | | $ | (1) | | | $ | 32 | | |
Net income (loss) | | Net income (loss) | | $ | 4 | | | $ | (8) | | | $ | — | | | $ | (1) | |
The decreaseincrease in net income for the mortgage loans segment for the three and nine months ended September 30, 20202021 compared to the corresponding periodsperiod in 20192020 was primarily due substantially to lower but still accelerated amortization of purchase premium resulting from higherlower but still elevated MPP loan prepayments.
The increase in net income for the mortgage loans segment for the nine months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to lower but still accelerated amortization of purchase premium, resulting from lower but still elevated MPP loan prepayments, and accelerated amortization of concession fees on called consolidated obligations. Such decreases were partiallyhedging losses in 2020, substantially offset by reductions in funding costs, partiallylower net interest income resulting from calls of higher-yielding CO bondsthe decline in 2019 and 2020.
average MPP loan balances.
Analysis of Financial Condition
Total Assets. The table below presents the comparative highlights of our major asset categories ($ amounts in millions).
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Major Asset Categories | Major Asset Categories | | Carrying Value | | % of Total | | Carrying Value | | % of Total | Major Asset Categories | | Carrying Value | | % of Total | | Carrying Value | | % of Total |
Advances | Advances | | $ | 31,264 | | | 47 | % | | $ | 32,480 | | | 48 | % | Advances | | $ | 26,958 | | | 44 | % | | $ | 31,347 | | | 48 | % |
Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | | 9,237 | | | 14 | % | | 10,815 | | | 16 | % | Mortgage loans held for portfolio, net | | 7,570 | | | 12 | % | | 8,516 | | | 13 | % |
Cash and short-term investments | Cash and short-term investments | | 5,639 | | | 8 | % | | 5,079 | | | 8 | % | Cash and short-term investments | | 8,329 | | | 13 | % | | 5,627 | | | 9 | % |
Trading securities | Trading securities | | 5,059 | | | 8 | % | | 5,017 | | | 7 | % | Trading securities | | 4,859 | | | 8 | % | | 5,095 | | | 8 | % |
Other investment securities | Other investment securities | | 14,636 | | | 22 | % | | 13,701 | | | 20 | % | Other investment securities | | 13,816 | | | 22 | % | | 14,846 | | | 22 | % |
Other assets (1) | Other assets (1) | | 507 | | | 1 | % | | 419 | | | 1 | % | Other assets (1) | | 428 | | | 1 | % | | 494 | | | — | % |
| Total assets | Total assets | | $ | 66,342 | | | 100 | % | | $ | 67,511 | | | 100 | % | Total assets | | $ | 61,960 | | | 100 | % | | $ | 65,925 | | | 100 | % |
(1) Includes accrued interest receivable, premises, software and equipment, derivative assets and other miscellaneous assets.
TotalThe mix of our assets as ofat September 30, 2020 were2021 changed $66.3 billion, a net decrease of $1.2 billion, or 2%, compared to December 31, 2019, primarily driven by decreases2020 in mortgage loans held for portfolio andthat advances to members, partially offset by an increase in AFS securities.
Our advance portfolio comprised 47% as a percent of total assets at September 30, 2020. Mortgage loans held for portfolio has declined from 48% to 44% while cash a16% to 14% of total assets at September 30, 2020, while trading and other investment securities havend short-term investments increased from 27%9% to 30%.13%, reflecting primarily the paydowns of short-term advances.
Advances. In general, advances fluctuate in accordance with our members' funding needs, primarily determined by their deposit levels, mortgage pipelines, loan growth, investment opportunities, available collateral, other balance sheet strategies, and the cost of alternative funding options.
Advances at September 30, 20202021 at carrying value totaled $31.3$27.0 billion,, a net decrease of $1.2$4.4 billion, or 4%14%, compared to December 31, 2019.2020. The high levels of liquidity injected by the Federal Reserve's actionsReserve and held by our members as deposits, alternative sources of wholesale funds available to increase liquidityour members, continued consolidation in the markets has had an adverse effect onfinancial services industry involving our members' demand for wholesale funding. However, the average daily balance of outstanding advances for the nine months ended September 30, 2020 totaled $34.0 billion.members, and governmental relief efforts continue to pressure overall advance levels.
The par value of advances to depository institutions - comprising commercial banks, savings institutions and credit unions - and insurance companies decreased by 1% and 11%, respectively. Advances to depository institutions, as a percent of total advances outstanding at par value, were 55%54% at September 30, 2020,2021, while advances to insurance companies were 45%46%.
The table below presents advances outstanding by type of financial institution ($ amounts in millions).
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Borrower Type | Borrower Type | | Par Value | | % of Total | | Par Value | | % of Total | Borrower Type | | Par Value | | % of Total | | Par Value | | % of Total |
Depository institutions: | Depository institutions: | | | | | | | | | Depository institutions: | | | | | | | | |
Commercial banks and savings institutions(1) | Commercial banks and savings institutions(1) | | $ | 13,567 | | | 44 | % | | $ | 13,663 | | | 42 | % | Commercial banks and savings institutions(1) | | $ | 11,766 | | | 44 | % | | $ | 14,749 | | | 48 | % |
Credit unions | Credit unions | | 2,793 | | | 9 | % | | 2,798 | | | 9 | % | Credit unions | | 2,268 | | | 9 | % | | 2,548 | | | 8 | % |
Former members - depositories | Former members - depositories | | 480 | | | 2 | % | | 540 | | | 2 | % | Former members - depositories | | 254 | | | 1 | % | | 268 | | | 1 | % |
Total depository institutions | Total depository institutions | | 16,840 | | | 55 | % | | 17,001 | | | 53 | % | Total depository institutions | | 14,288 | | | 54 | % | | 17,565 | | | 57 | % |
| Insurance companies: | Insurance companies: | | Insurance companies: | |
Captive insurance companies (1)(2) | Captive insurance companies (1)(2) | | 326 | | | 1 | % | | 2,724 | | | 8 | % | Captive insurance companies (1)(2) | | 263 | | | 1 | % | | 288 | | | 1 | % |
Other insurance companies | Other insurance companies | | 13,293 | | | 44 | % | | 12,541 | | | 39 | % | Other insurance companies | | 12,067 | | | 45 | % | | 12,832 | | | 42 | % |
Former members - insurance | | 6 | | | — | % | | 6 | | | — | % | |
Former members - insurance companies | | Former members - insurance companies | | 5 | | | — | % | | 6 | | | — | % |
Total insurance companies | Total insurance companies | | 13,625 | | | 45 | % | | 15,271 | | | 47 | % | Total insurance companies | | 12,335 | | | 46 | % | | 13,126 | | | 43 | % |
| CDFIs | CDFIs | | — | | | — | % | | — | | | — | % | CDFIs | | — | | | — | % | | — | | | — | % |
| Total advances | | $ | 30,465 | | | 100 | % | | $ | 32,272 | | | 100 | % | |
Total advances outstanding | | Total advances outstanding | | $ | 26,623 | | | 100 | % | | $ | 30,691 | | | 100 | % |
(1) Memberships must terminate no later thanIncludes advances outstanding at September 30, 2021 and December 31, 2020 of $2.5 billion, or 9%, and $4.6 billion, or 15%, of total advances outstanding, respectively, to Flagstar Bank, FSB ("Flagstar"). The parent company of Flagstar announced a merger pursuant to which Flagstar would merge with a non-member depository. On the effective date of Flagstar's merger, any outstanding advances will be required to be repaid at their respective maturity dates. For more information, see Item 1A. Risk Factors.
(2) Captive insurance companies that were admitted as FHLBank members prior to September 12, 2014, and did not meet the definition of "insurance company" or fall within another category of institution that is eligible for FHLBank membership under the Final Membership Rule, had their memberships terminated on February 19, 2021. See certain restrictions on and maturities ofThe outstanding advances in Notes to Financial Statements - Note 5 - Advances in the 2019 Form 10-K. These advances mature onone captive insurer are not required to be repaid prior to their various maturity dates through 2024.
On August 26, 2020, our board of directors approved the involuntary termination of a captive insurance company member
that had repaid all outstanding advances and directed the repurchase of all of that member's Class B stock. This stock was
repurchased on August 28, 2020.
The following table presents the par value of advances outstanding by product type and redemption term, some of which contain call or put options ($ amounts in millions).
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Product Type and Redemption Term | Product Type and Redemption Term | | Par Value | | % of Total | | Par Value | | % of Total | Product Type and Redemption Term | | Par Value | | % of Total | | Par Value | | % of Total |
Fixed-rate: | Fixed-rate: | | | | | | | | | Fixed-rate: | | | | | | | | |
Fixed-rate (1) | Fixed-rate (1) | | Fixed-rate (1) | |
Due in 1 year or less | Due in 1 year or less | | $ | 8,840 | | | 29 | % | | $ | 11,167 | | | 35 | % | Due in 1 year or less | | $ | 6,797 | | | 26 | % | | $ | 10,023 | | | 33 | % |
Due after 1 year | Due after 1 year | | 8,500 | | | 28 | % | | 7,479 | | | 23 | % | Due after 1 year | | 6,562 | | | 25 | % | | 7,998 | | | 26 | % |
Total | Total | | 17,340 | | | 57 | % | | 18,646 | | | 58 | % | Total | | 13,359 | | | 51 | % | | 18,021 | | | 59 | % |
| Callable or prepayable | | |
Due in 1 year or less | | — | | | — | % | | — | | | — | % | |
Due after 1 year | | 24 | | | — | % | | 34 | | | — | % | |
Total | | 24 | | | — | % | | 34 | | | — | % | |
| | Putable | Putable | | Putable | |
Due in 1 year or less | Due in 1 year or less | | — | | | — | % | | — | | | — | % | Due in 1 year or less | | — | | | — | % | | — | | | — | % |
Due after 1 year | Due after 1 year | | 7,578 | | | 25 | % | | 6,094 | | | 19 | % | Due after 1 year | | 8,097 | | | 30 | % | | 7,252 | | | 24 | % |
Total | Total | | 7,578 | | | 25 | % | | 6,094 | | | 19 | % | Total | | 8,097 | | | 30 | % | | 7,252 | | | 24 | % |
| Other (2) | Other (2) | | Other (2) | |
Due in 1 year or less | Due in 1 year or less | | 41 | | | — | % | | 50 | | | — | % | Due in 1 year or less | | 23 | | | — | % | | 32 | | | — | % |
Due after 1 year | Due after 1 year | | 145 | | | — | % | | 175 | | | 1 | % | Due after 1 year | | 129 | | | — | % | | 147 | | | — | % |
Total | Total | | 186 | | | — | % | | 225 | | | 1 | % | Total | | 152 | | | — | % | | 179 | | | — | % |
| Total fixed-rate | Total fixed-rate | | 25,128 | | | 82 | % | | 24,999 | | | 78 | % | Total fixed-rate | | 21,608 | | | 81 | % | | 25,452 | | | 83 | % |
| Variable-rate: | Variable-rate: | | Variable-rate: | |
Variable-rate (1) | Variable-rate (1) | | Variable-rate (1) | |
Due in 1 year or less | Due in 1 year or less | | 40 | | | — | % | | 442 | | | 1 | % | Due in 1 year or less | | 10 | | | — | % | | 24 | | | — | % |
Due after 1 year | Due after 1 year | | — | | | — | % | | — | | | — | % | Due after 1 year | | — | | | — | % | | — | | | — | % |
Total | Total | | 40 | | | — | % | | 442 | | | 1 | % | Total | | 10 | | | — | % | | 24 | | | — | % |
| Callable or prepayable | Callable or prepayable | | Callable or prepayable | |
Due in 1 year or less | Due in 1 year or less | | 156 | | | 1 | % | | 133 | | | — | % | Due in 1 year or less | | 36 | | | — | % | | 36 | | | — | % |
Due after 1 year | Due after 1 year | | 5,141 | | | 17 | % | | 6,698 | | | 21 | % | Due after 1 year | | 4,939 | | | 19 | % | | 5,179 | | | 17 | % |
Total | Total | | 5,297 | | | 18 | % | | 6,831 | | | 21 | % | Total | | 4,975 | | | 19 | % | | 5,215 | | | 17 | % |
| Total variable-rate | Total variable-rate | | 5,337 | | | 18 | % | | 7,273 | | | 22 | % | Total variable-rate | | 4,985 | | | 19 | % | | 5,239 | | | 17 | % |
| Overdrawn demand and overnight deposit accounts | Overdrawn demand and overnight deposit accounts | | — | | | — | % | | — | | | — | % | Overdrawn demand and overnight deposit accounts | | 30 | | | — | % | | — | | | — | % |
| Total advances | Total advances | | $ | 30,465 | | | 100 | % | | $ | 32,272 | | | 100 | % | Total advances | | $ | 26,623 | | | 100 | % | | $ | 30,691 | | | 100 | % |
(1) Includes advances without call or put options.
(2) Includes callable or prepayable advances and hybrid, fixed-rate amortizing/mortgage matched advances.
AdvancesDuring the nine months ended September 30, 2021, the par value of advances due in one year or less decreased by 32%, while advances due after one year decreased by 4%. As a result, advances due in one year or less, as a percentage of the total outstanding at par, decreased totaled 26% at September 30, 2021, a decrease from 36%33% at December 31, 2019 to 30% at September 30, 2020 reflecting members' decreased demand for shorter-term funding. For. For additional information, see Notes to Financial Statements - Note 4 - Advances.
Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio at September 30, 2021, at carrying value, totaled $7.6 billion, a net decrease of $946 million, or 11%, from December 31, 2020, as principal repayments by borrowers significantly outpaced the Bank's purchases. For the nine months ended September 30, 2021, purchases of mortgage loans from the Bank's members under Advantage MPP totaled $1.6 billion, while MPP and MPF program repayments totaled $2.3 billion. In addition to low interest rates, Federal Reserve purchases of Fannie Mae and Freddie Mac MBS encouraged refinancing activity by borrowers.
A breakdown of the UPB of mortgage loans held for portfolio by primary product type is presented below ($ amounts in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Product Type | | UPB | | % of Total | | UPB | | % of Total |
MPP: | | | | | | | | |
Conventional Advantage | | $ | 8,164 | | | 90 | % | | $ | 9,526 | | | 90 | % |
Conventional Original | | 456 | | | 5 | % | | 561 | | | 5 | % |
FHA | | 235 | | | 3 | % | | 276 | | | 3 | % |
Total MPP | | 8,855 | | | 98 | % | | 10,363 | | | 98 | % |
| | | | | | | | |
MPF Program: | | | | | | | | |
Conventional | | 140 | | | 2 | % | | 176 | | | 2 | % |
Government | | 38 | | | — | % | | 47 | | | — | % |
Total MPF Program | | 178 | | | 2 | % | | 223 | | | 2 | % |
| | | | | | | | |
Total mortgage loans held for portfolio | | $ | 9,033 | | | 100 | % | | $ | 10,586 | | | 100 | % |
The decrease in the UPB of mortgage loans held for portfolio was due to repayments of MPP and MPF Program loans outstanding exceeding purchases under Advantage MPP. Over time, the aggregate outstanding balance of mortgage loans purchased under our original MPP and the MPF Program will continue to decrease. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Product Type | | UPB | | % of Total | | UPB | | % of Total |
MPP: | | | | | | | | |
Conventional Advantage | | $ | 6,786 | | | 92 | % | | $ | 7,529 | | | 90 | % |
Conventional Original | | 324 | | | 4 | % | | 417 | | | 5 | % |
FHA | | 166 | | | 2 | % | | 218 | | | 3 | % |
Total MPP | | 7,276 | | | 98 | % | | 8,164 | | | 98 | % |
| | | | | | | | |
MPF Program: | | | | | | | | |
Conventional | | 87 | | | 2 | % | | 123 | | | 2 | % |
Government | | 28 | | | — | % | | 36 | | | — | % |
Total MPF Program | | 115 | | | 2 | % | | 159 | | | 2 | % |
| | | | | | | | |
Total mortgage loans held for portfolio | | $ | 7,391 | | | 100 | % | | $ | 8,323 | | | 100 | % |
As disclosed in the Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance, we adopted ASU 2016-13, Measurement of Expected Credit Losses on Financial Instruments, beginning January, 1, 2020. As a result, wWe maintain an allowance for credit losses based on our best estimateestimate of expected losses over the remaining life of each loan. Previously, our allowance was based on our best estimate of probable losses over a loss emergence period of 24 months. Our estimate of MPP losses remaining after borrower's equity, but before credit enhancements, was $12$5 million and $4$10 million at September 30, 20202021 and December 31, 2019,2020, respectively. After consideration of the portion recoverable under the associated credit enhancements, the resulting allowance was less than $1 million at September 30, 2020 2021 and December 31, 2019.2020. For more information, see Notes to Financial Statements - Note 5 - Mortgage Loans Held for Portfolio.
Consistent with other lenders in the mortgage loan industry, we developed a loan forbearance program for our MPP duein response to the COVID-19 pandemic. Under the forbearance program, our servicers can agree to reduce or suspend the borrower's monthly payments for a specified period. The forbearance may be granted upWe issued additional guidelines to 90 days from the date of the first reduced or suspended payment. Initially, written approval from us was required for longer periods. However, effective May 11, 2020,provide delegated authority to our servicers so they may extend the forbearance periods and establish qualified forbearance resolution plans with borrowers withoutwithin our review and approval. In addition, we haveestablished parameters. We also authorized the suspension of foreclosure sales and evictions (with certain exceptions) through DecemberJuly 31, 20202021, suspension of evictions through September 30, 2021 and, for borrowers under loss mitigation agreements related to the COVID-19 pandemic, the suspension of any negative credit reporting and the waiver of late fees.
Since June 30, 2020, the totalThe UPB of our conventional mortgage loans in COVID-relatedCOVID-19-related informal forbearance programs declined by approximately 32% to $184.9$74 million from $112 million at December 31, 2020 to $38 million at September 30, 2020.2021 as a result of borrowers becoming current, repaying their loans in full, or moving to a COVID-19-related formal forbearance program. The total UPB of loans in COVID-relatedCOVID-19-related formal forbearance programs increased by $18 million from $12 million at December 31, 2020 to $30 million at September 30, 2020 totaled $1.8 million.2021.
Cash and Investments. The following table presents a comparison of the components of our cash and investments at carrying value ($ amounts in millions).
| Components | Components | | September 30, 2020 | | December 31, 2019 | | Change | Components | | September 30, 2021 | | December 31, 2020 | | Change |
Cash and short-term investments: | Cash and short-term investments: | | | | | | | Cash and short-term investments: | | | | | | |
Cash and due from banks | Cash and due from banks | | $ | 131 | | | $ | 220 | | | $ | (89) | | Cash and due from banks | | $ | 1,954 | | | $ | 1,812 | | | $ | 142 | |
Interest-bearing deposits | Interest-bearing deposits | | 56 | | | 809 | | | (753) | | Interest-bearing deposits | | 100 | | | 100 | | | — | |
Securities purchased under agreements to resell | Securities purchased under agreements to resell | | 4,500 | | | 1,500 | | | 3,000 | | Securities purchased under agreements to resell | | 4,200 | | | 2,500 | | | 1,700 | |
Federal funds sold | Federal funds sold | | 952 | | | 2,550 | | | (1,598) | | Federal funds sold | | 2,075 | | | 1,215 | | | 860 | |
Total cash and short-term investments | Total cash and short-term investments | | 5,639 | | | 5,079 | | | 560 | | Total cash and short-term investments | | 8,329 | | | 5,627 | | | 2,702 | |
| | Trading securities: | Trading securities: | | Trading securities: | |
U.S. Treasury obligations | U.S. Treasury obligations | | 5,059 | | | 5,017 | | | 42 | | U.S. Treasury obligations | | 4,859 | | | 5,095 | | | (236) | |
Total trading securities | Total trading securities | | 5,059 | | | 5,017 | | | 42 | | Total trading securities | | 4,859 | | | 5,095 | | | (236) | |
| Other investment securities: | Other investment securities: | | Other investment securities: | |
AFS securities: | AFS securities: | | AFS securities: | |
GSE and TVA debentures | GSE and TVA debentures | | 4,026 | | | 3,927 | | | 99 | | GSE and TVA debentures | | 2,729 | | | 3,503 | | | (774) | |
GSE MBS | GSE MBS | | 6,338 | | | 4,558 | | | 1,780 | | GSE MBS | | 6,590 | | | 6,642 | | | (52) | |
| Total AFS securities | Total AFS securities | | 10,364 | | | 8,485 | | | 1,879 | | Total AFS securities | | 9,319 | | | 10,145 | | | (826) | |
| HTM securities: | HTM securities: | | | | | | HTM securities: | | | | | |
| Other U.S. obligations - guaranteed MBS | Other U.S. obligations - guaranteed MBS | | 2,749 | | | 3,060 | | | (311) | | Other U.S. obligations - guaranteed MBS | | 2,738 | | | 2,623 | | | 115 | |
GSE MBS | GSE MBS | | 1,523 | | | 2,156 | | | (633) | | GSE MBS | | 1,759 | | | 2,078 | | | (319) | |
| Total HTM securities | Total HTM securities | | 4,272 | | | 5,216 | | | (944) | | Total HTM securities | | 4,497 | | | 4,701 | | | (204) | |
| Total investment securities | Total investment securities | | 19,695 | | | 18,718 | | | 977 | | Total investment securities | | 18,675 | | | 19,941 | | | (1,266) | |
| Total cash and investments, carrying value | Total cash and investments, carrying value | | $ | 25,334 | | | $ | 23,797 | | | $ | 1,537 | | Total cash and investments, carrying value | | $ | 27,004 | | | $ | 25,568 | | | $ | 1,436 | |
Cash and Short-Term Investments. Cash andshort-term investments at September 30, 2021 totaled $8.3 billion, an increase of $2.7 billion, or 48%, from December 31, 2020. The total outstanding balance and composition of our short-term investments outstanding are influenced by our liquidity needs, regulatory requirements, actual and anticipated member advance activity, market conditions and the availability of short-term investments at attractive interest rates, relative to our cost of funds.
Cash andshort-term investments at September 30, 2020 totaled $5.6 billion, an increase of $560 million, or 11%, from December 31, 2019. Cash and short-term investments as a percent of total assets at September 30, 2020 and December 31, 2019 totaled 8%.
Trading Securities. The Bank purchases U.S. Treasury securities as trading securities to enhance its liquidity. Such securities outstanding at September 30, 20202021 totaled $5.1$4.9 billion,, an increase a decrease of $42$236 million, or 1%5%, from December 31, 2019.
As a result, the liquidity portfolio at September 30, 2020 totaled $10.7 billion, an increase of $602 million, or 6%, from December 31, 2019. Cash and short-term investments represented 53% of the liquidity portfolio at September 30, 2020, while U.S. Treasury securities represented 47%.2020.
Other Investment Securities. AFS securities at September 30, 20202021 totaled $10.4$9.3 billion,, a net increasedecrease of $1.9 billion,$826 million, or 22%8%, from December 31, 2019.2020. The increasedecrease resulted primarily from purchases ofchanges in the fair-value hedging basis adjustments associated with these securities and principal payments on GSE MBS to maintain a ratio of MBS and ABS to total regulatory capital of up to 300%. Generally, our goal is to maintain these investments near the 300% limit in order to enhance earnings and capital for our members and diversify our revenue stream.TVA debentures.
Net unrealized gains on AFS securities at September 30, 20202021 totaled $97$178 million, a net increase of $7$41 million compared to December 31, 2019,2020, primarily due to changes in interest rates, credit spreads and volatility.
HTM securities at September 30, 20202021 totaled $4.3$4.5 billion,, a net decrease of $944$204 million, or 18%4%, from December 31, 2019. 2020. The Bank purchased three HTM securities during the nine months ended September 30, 2020.decrease resulted from principal payments on these securities.
Interest-Rate Payment Terms. Our investment securities are presented below by interest-rate payment terms ($ amounts in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Interest-Rate Payment Terms | | Estimated Fair Value | | % of Total | | Estimated Fair Value | | % of Total |
Trading Securities: | | | | | | | | |
U.S. Treasury obligations fixed-rate | | $ | 5,059 | | | 100 | % | | $ | 5,017 | | | 100 | % |
| | | | | | | | |
Total trading securities | | $ | 5,059 | | | 100 | % | | $ | 5,017 | | | 100 | % |
| | | | | | | | |
| | Amortized Cost | | % of Total | | Amortized Cost | | % of Total |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
AFS Securities: | | | | | | | | |
Total non-MBS fixed-rate | | $ | 3,985 | | | 39 | % | | $ | 3,885 | | | 46 | % |
| | | | | | | | |
Total MBS fixed-rate | | 6,282 | | | 61 | % | | 4,510 | | | 54 | % |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total AFS securities | | $ | 10,267 | | | 100 | % | | $ | 8,395 | | | 100 | % |
| | | | | | | | |
HTM Securities: | | | | | | | | |
MBS: | | | | | | | | |
Fixed-rate | | $ | 302 | | | 7 | % | | $ | 760 | | | 15 | % |
Variable-rate | | 3,970 | | | 93 | % | | 4,456 | | | 85 | % |
Total MBS | | 4,272 | | | 100 | % | | 5,216 | | | 100 | % |
| | | | | | | | |
Total HTM securities | | $ | 4,272 | | | 100 | % | | $ | 5,216 | | | 100 | % |
| | | | | | | | |
Total AFS and HTM securities: | | | | | | | | |
Total fixed-rate | | $ | 10,569 | | | 73 | % | | $ | 9,155 | | | 67 | % |
Total variable-rate | | 3,970 | | | 27 | % | | 4,456 | | | 33 | % |
| | | | | | | | |
Total AFS and HTM securities | | $ | 14,539 | | | 100 | % | | $ | 13,611 | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Interest-Rate Payment Terms | | Estimated Fair Value | | % of Total | | Estimated Fair Value | | % of Total |
Trading Securities: | | | | | | | | |
U.S. Treasury obligations fixed-rate | | $ | 4,859 | | | 100 | % | | $ | 5,095 | | | 100 | % |
| | | | | | | | |
Total trading securities | | $ | 4,859 | | | 100 | % | | $ | 5,095 | | | 100 | % |
| | | | | | | | |
| | Amortized Cost | | % of Total | | Amortized Cost | | % of Total |
AFS Securities: | | | | | | | | |
Total non-MBS fixed-rate | | $ | 2,683 | | | 29 | % | | $ | 3,463 | | | 35 | % |
Total MBS fixed-rate | | 6,458 | | | 71 | % | | 6,545 | | | 65 | % |
| | | | | | | | |
Total AFS securities | | $ | 9,141 | | | 100 | % | | $ | 10,008 | | | 100 | % |
| | | | | | | | |
HTM Securities: | | | | | | | | |
MBS: | | | | | | | | |
Fixed-rate | | $ | 227 | | | 5 | % | | $ | 283 | | | 6 | % |
Variable-rate | | 4,270 | | | 95 | % | | 4,418 | | | 94 | % |
Total MBS | | 4,497 | | | 100 | % | | 4,701 | | | 100 | % |
| | | | | | | | |
Total HTM securities | | $ | 4,497 | | | 100 | % | | $ | 4,701 | | | 100 | % |
| | | | | | | | |
Total AFS and HTM securities: | | | | | | | | |
Total fixed-rate | | $ | 9,368 | | | 69 | % | | $ | 10,291 | | | 70 | % |
Total variable-rate | | 4,270 | | | 31 | % | | 4,418 | | | 30 | % |
| | | | | | | | |
Total AFS and HTM securities | | $ | 13,638 | | | 100 | % | | $ | 14,709 | | | 100 | % |
The mix of fixed- vs. variable-rate AFS and HTM securities at September 30, 20202021 changed slightly from December 31, 2019,2020, primarily due to purchases ofprincipal payments on fixed-rate MBS. However, all of the fixed-rate AFS securities are swapped to effectively create variable-rate exposures, consistent with our balance sheet strategies to manage interest-rate risk.
Total Liabilities.Total liabilities at September 30, 2020 were $62.9 billion, a net decrease of $1.4 billion, or 2%, from December 31, 2019, substantially due to an decrease in consolidated obligations.
Deposits (Liabilities). Total deposits at September 30, 20202021 were $1.3$1.7 billion,, a net increase of $339$361 million, or 35%26%, from December 31, 2019.2020. These deposits represent a relatively small portion of our funding. The balances of these accounts can fluctuate from period to period and vary dependingdepending upon such factors as the attractiveness of our deposit pricing relative to the rates available on alternative money market instruments, members' preferences with respect to the maturity of their investments, and members' liquidity.
Consolidated Obligations. The carrying value of consolidated obligations outstanding at September 30, 20202021 totaled $60.6$55.9 billion, a net decrease of $1.8$4.0 billion, or 3%7%, from December 31, 2019.2020. Such decrease reflected the net decrease in the Bank's total assets.
The following table presents a breakdown by term of our consolidated obligations outstanding ($ amounts in millions).
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
By Term | By Term | | Par Value | | % of Total | | Par Value | | % of Total | By Term | | Par Value | | % of Total | | Par Value | | % of Total |
Consolidated obligations due in 1 year or less: | Consolidated obligations due in 1 year or less: | | | | | | | | | Consolidated obligations due in 1 year or less: | | | | | | | | |
Discount notes | Discount notes | | $ | 19,466 | | | 32 | % | | $ | 17,713 | | | 28 | % | Discount notes | | $ | 12,715 | | | 22 | % | | $ | 16,620 | | | 28 | % |
CO bonds | CO bonds | | 28,157 | | | 47 | % | | 23,405 | | | 38 | % | CO bonds | | 19,459 | | | 35 | % | | 31,127 | | | 52 | % |
Total due in 1 year or less | Total due in 1 year or less | | 47,623 | | | 79 | % | | 41,118 | | | 66 | % | Total due in 1 year or less | | 32,174 | | | 57 | % | | 47,747 | | | 80 | % |
Long-term CO bonds | Long-term CO bonds | | 12,891 | | | 21 | % | | 21,258 | | | 34 | % | Long-term CO bonds | | 23,798 | | | 43 | % | | 12,119 | | | 20 | % |
| Total consolidated obligations | Total consolidated obligations | | $ | 60,514 | | | 100 | % | | $ | 62,376 | | | 100 | % | Total consolidated obligations | | $ | 55,972 | | | 100 | % | | $ | 59,866 | | | 100 | % |
The mix of our funding has changed significantly. The percentage of consolidated obligations due in 1 year or less increaseddecreased from 66%80% at December 31, 20192020 to 79%57% at September 30, 20202021 as the Bank took advantage of market opportunities to replace maturing short-term debt with long-term callable debt at favorable terms. As a result, long-term CO bonds increased from 20% of seekingtotal consolidated obligations at December 31, 2020 to 43% at September 30, 2021. We continue to seek to maintain a sufficient liquidity and funding balance between our financial assets and financial liabilities.
Additionally, the FHLBanks work collectively to manage FHLB System-wide liquidity and funding and jointly monitor System-wide refinancing risk. In managing and monitoring the amounts of assets that require refunding, the FHLBanks may consider contractual maturities of the financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations). For more detailed information regarding contractual maturities of certain of our financial assets and liabilities, see Notes to Financial Statements - Note 3 - Investments, Notes to Financial Statements - Note 4 - Advances, and Notes to Financial Statements - Note 7 - Consolidated Obligations.
Derivatives. The volume of derivative hedges is often expressed in terms of notional amounts, which is the amount upon which interest payments are calculated. The following table presents the notional amounts by type of hedged item regardless of whether or not it is in a qualifying hedge relationship ($ amounts in millions).
| Hedged Item | Hedged Item | | September 30, 2020 | | December 31, 2019 | Hedged Item | | September 30, 2021 | | December 31, 2020 |
Advances | Advances | | $ | 18,696 | | | $ | 17,113 | | Advances | | $ | 17,355 | | | $ | 16,573 | |
Investments | Investments | | 15,138 | | | 13,917 | | Investments | | 14,307 | | | 15,035 | |
Mortgage loans | Mortgage loans | | 523 | | | 991 | | Mortgage loans | | 280 | | | 361 | |
CO bonds | CO bonds | | 13,074 | | | 17,031 | | CO bonds | | 20,530 | | | 17,473 | |
Discount notes | Discount notes | | 2,150 | | | 1,350 | | Discount notes | | 600 | | | 950 | |
| Total notional | Total notional | | $ | 49,581 | | | $ | 50,402 | | Total notional | | $ | 53,072 | | | $ | 50,392 | |
The decreaseincrease in the total notional amount during the nine months ended September 30, 20202021 of $821 million,$2.7 billion, or 2%5%, was primarilysubstantially due to a decreasean increase in derivatives hedging CO bonds, driven primarily by the decreaseincrease in long-term CO bonds outstanding.
The following table presents the net cumulative impact of fair-value hedging basis adjustments on our statement of condition ($ amounts in millions).
| September 30, 2020 | | Advances | | Investments | | CO Bonds | | Total | |
September 30, 2021 | | September 30, 2021 | | Advances | | Investments | | CO Bonds | | Total |
Cumulative fair-value hedging basis adjustments on hedged items | Cumulative fair-value hedging basis adjustments on hedged items | | $ | 796 | | | $ | 734 | | | $ | (32) | | | $ | 1,498 | | Cumulative fair-value hedging basis adjustments on hedged items | | $ | 325 | | | $ | 288 | | | $ | 100 | | | $ | 713 | |
Estimated fair value of associated derivatives, net | Estimated fair value of associated derivatives, net | | (791) | | | (751) | | | 31 | | | (1,511) | | Estimated fair value of associated derivatives, net | | (327) | | | (1) | | | (93) | | | (421) | |
| Net cumulative fair-value hedging basis adjustments | Net cumulative fair-value hedging basis adjustments | | $ | 5 | | | $ | (17) | | | $ | (1) | | | $ | (13) | | Net cumulative fair-value hedging basis adjustments | | $ | (2) | | | $ | 287 | | | $ | 7 | | | $ | 292 | |
Total Capital. Total capital at September 30, 2020 was $3.4 billion, a net increase of $265 million, or 8%, from December 31, 2019, substantially due to proceeds from the issuance of capital stock.
The following table presents a percentage breakdown of the components of GAAP capital.
| Components | Components | | September 30, 2020 | | December 31, 2019 | Components | | September 30, 2021 | | December 31, 2020 |
Capital stock | Capital stock | | 65 | % | | 63 | % | Capital stock | | 63 | % | | 64 | % |
Retained earnings | Retained earnings | | 33 | % | | 35 | % | Retained earnings | | 33 | % | | 33 | % |
AOCI | AOCI | | 2 | % | | 2 | % | AOCI | | 4 | % | | 3 | % |
Total GAAP capital | Total GAAP capital | | 100 | % | | 100 | % | Total GAAP capital | | 100 | % | | 100 | % |
The changes in the components of GAAP capital at September 30, 20202021 compared to December 31, 20192020 were substantiallyprimarily due to a high level of capital stock issued and outstanding.an increase in unrealized gains on AFS securities.
The following table presents a reconciliation of GAAP capital to regulatory capital ($ amounts in millions).
| Reconciliation | Reconciliation | | September 30, 2020 | | December 31, 2019 | Reconciliation | | September 30, 2021 | | December 31, 2020 |
| Total GAAP capital | Total GAAP capital | | $ | 3,422 | | | $ | 3,157 | | Total GAAP capital | | $ | 3,551 | | | $ | 3,450 | |
Exclude: AOCI | Exclude: AOCI | | (74) | | | (68) | | Exclude: AOCI | | (151) | | | (105) | |
Add: MRCS | Add: MRCS | | 262 | | | 323 | | Add: MRCS | | 50 | | | 251 | |
Total regulatory capital | Total regulatory capital | | $ | 3,610 | | | $ | 3,412 | | Total regulatory capital | | $ | 3,450 | | | $ | 3,596 | |
Liquidity and Capital Resources
Liquidity. Our primary sources of liquidity are holdings of liquid assets, comprised of cash, short-term investments, and trading securities, as well as the issuance of consolidated obligations.
Our cash and short-term investments totaled $5.6 billionat September 30, 2020.2021 totaled $8.3 billion. Our short-term investments generally consist of high-quality financial instruments, many of which mature overnight. Our trading securities at September 30, 20202021 totaled $5.1$4.9 billion and consisted solely of U.S. Treasury securities. As a result, our liquidity portfolio at September 30, 20202021 totaled $10.7$13.2 billion, or 16% of21% of total assets. The level of our liquidity fluctuates and is influenced by regulatory requirements, actual and anticipated member advance activity and market conditions.
During the nine months ended September 30, 2020,2021, we maintained sufficient access to funding; our net proceeds from the issuance of consolidated obligations totaled $275.6totaled $216.5 billion.
In 2018, the Finance Agency issued Advisory Bulletin 2018-07 that communicates the Finance Agency's expectations with respect to the maintenance of sufficient liquidity. The Bank has fully implemented such liquidity guidance on a timely basis. After December 31, 2019, the standard increased from 10 to 20 calendar days of liquidity sufficient to cover a temporary inability to issue consolidated obligations. In May 2020, however, as a result of continuing market conditions, the Finance Agency indicated that an FHLBank would be considered to have adequate reserves of liquid assets if, by August 31, 2020, it maintains 15 days of positive liquidity and, by December 31, 2020, it maintains 20 days of positive liquidity. This guidance updated the March 2020 guidance on temporary relaxation of liquidity expectations. Our liquidity exceeded the 20-day standard at September 30, 2020. We anticipate our liquidity will continue to meet or exceed the Finance Agency's standards going forward.
New or revised regulatory guidance from the Finance Agency could continue to increase the amount and change the characteristics of liquidity that we are required to maintain. We have not identified any other trends, demands, commitments, or events that are likely to materially increase or decrease our liquidity.
Changes in Cash Flow. Net cash used inprovided by operating activities for the nine months ended September 30, 20202021 was $407$281 million,, compared to net cash used in operating activities for the nine months ended September 30, 20192020 of $215$407 million. The net increasechange in cash usedprovided by operating activities of $192$688 million was substantially due to the fluctuation in variation margin payments on cleared derivatives. Such payments are treated by the clearinghouses as daily settled contracts.
Capital Resources.
Total Regulatory Capital. The following table provides a breakdown of our outstanding capital stock and MRCS outstanding ($ amounts in millions).
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
By Type of Member Institution | By Type of Member Institution | | Amount | | % of Total | | Amount | | % of Total | By Type of Member Institution | | Amount | | % of Total | | Amount | | % of Total |
Capital Stock: | Capital Stock: | | | | | | | | | Capital Stock: | | | | | | | | |
Depository institutions: | Depository institutions: | | Depository institutions: | |
Commercial banks and savings institutions | Commercial banks and savings institutions | | $ | 1,105 | | | 44 | % | | $ | 955 | | | 42 | % | Commercial banks and savings institutions | | $ | 1,130 | | | 50 | % | | $ | 1,108 | | | 45 | % |
Credit unions | Credit unions | | 298 | | | 12 | % | | 277 | | | 12 | % | Credit unions | | 303 | | | 13 | % | | 298 | | | 12 | % |
Total depository institutions | Total depository institutions | | 1,403 | | | 56 | % | | 1,232 | | | 54 | % | Total depository institutions | | 1,433 | | | 63 | % | | 1,406 | | | 57 | % |
Insurance companies | Insurance companies | | 821 | | | 33 | % | | 742 | | | 32 | % | Insurance companies | | 804 | | | 35 | % | | 802 | | | 33 | % |
CDFIs | CDFIs | | — | | | — | % | | — | | | — | % | CDFIs | | — | | | — | % | | — | | | — | % |
Total capital stock, putable at par value | Total capital stock, putable at par value | | 2,224 | | | 89 | % | | 1,974 | | | 86 | % | Total capital stock, putable at par value | | 2,237 | | | 98 | % | | 2,208 | | | 90 | % |
| MRCS: | MRCS: | | MRCS: | |
Captive insurance companies(1) | Captive insurance companies(1) | | 62 | | | 3 | % | | 136 | | | 6 | % | Captive insurance companies(1) | | 12 | | | 1 | % | | 31 | | | 1 | % |
Former members (1) | Former members (1) | | 200 | | | 8 | % | | 187 | | | 8 | % | Former members (1) | | 38 | | | 1 | % | | 220 | | | 9 | % |
| Total MRCS | Total MRCS | | 262 | | | 11 | % | | 323 | | | 14 | % | Total MRCS | | 50 | | | 2 | % | | 251 | | | 10 | % |
| Total regulatory capital stock | Total regulatory capital stock | | $ | 2,486 | | | 100 | % | | $ | 2,297 | | | 100 | % | Total regulatory capital stock | | $ | 2,287 | | | 100 | % | | $ | 2,459 | | | 100 | % |
(1) Balances, at both September 30, 2020 and December 31, 2019, include less than $1 millionRepresents captive insurance companies whose membership was terminated on February 19, 2021. On that date, we repurchased their excess stock of MRCS that had reached the end of the five-year redemption period but$18.1 million. The remaining balance will not be redeemed until the associated credit products and other obligations are no longer outstanding.
On August 26, 2020, our board of directors approved the involuntary termination of a captive insurance company member that had repaid all outstanding advances and directed the repurchase of all of that member's Class B stock. This stock, totaling $18.3 million, was repurchased on August 28, 2020.
We amended and restated our capital plan effective September 26, 2020. For more information, see Notes to Financial Statements - Note 9 - Capital.
Excess Capital Stock. The following table presents the composition of our excess capital stock ($ amounts in millions).
| Components | Components | | September 30, 2020 | | December 31, 2019 | Components | | September 30, 2021 | | December 31, 2020 |
Member capital stock not subject to outstanding redemption requests | Member capital stock not subject to outstanding redemption requests | | $ | 661 | | $ | 441 | Member capital stock not subject to outstanding redemption requests | | $ | 842 | | $ | 605 |
Member capital stock subject to outstanding redemption requests | Member capital stock subject to outstanding redemption requests | | — | | 1 | Member capital stock subject to outstanding redemption requests | | 11 | | — |
MRCS | MRCS | | 225 | | 175 | MRCS | | 28 | | 225 |
| Total excess capital stock | Total excess capital stock | | $ | 886 | | $ | 617 | Total excess capital stock | | $ | 881 | | $ | 830 |
| Excess stock as a percentage of regulatory capital stock | Excess stock as a percentage of regulatory capital stock | | 36 | % | | 27 | % | Excess stock as a percentage of regulatory capital stock | | 39 | % | | 34 | % |
The increase inin excess stock during the nine months ended September 30, 20202021 resulted substantially from advance activity.the reduction in advances outstanding.
On July 29, 2021, our board of directors authorized the repurchase of $181 million par value of excess MRCS held by former members or their successors-in-interest. The repurchase occurred on September 2, 2021.
In addition, we repurchased $11.3 million par value of excess stock subject to outstanding redemption requests on September 2, 2021.
Finance Agency rules limit the ability of an FHLBank to pay dividends in the form of additional shares of capital stock or otherwise issue excess stock under certain circumstances, including when its total excess stock exceeds 1% of total assets or if the issuance of excess stock would cause total excess stock to exceed 1% of total assets. Our total excess stock at September 30, 20202021 was 1.34%1.42% of our total assets. Therefore, as a result of these regulatory limitations, we are currently not permitted to distribute stock dividends or issue excess stock to our members.members, should we choose to do so.
Under the amended capital plan, the Bank is required to repurchase excess stock if its regulatory capital ratio as of the last day of any month exceeds a specific ratio established by the board of directors from time to time, currently 5.75%, by at least 25 bps. As a result, the current threshold for repurchase is a regulatory capital ratio of 6.0%. Our regulatory capital ratio at September 30, 2020 was 5.44%, the only month end since the effectiveness of the amended capital plan. Excess stock shall be repurchased under these circumstances only to the extent required to reduce the Bank's regulatory capital ratio to the specific ratio which was initially used to calculate the repurchase obligation.
Capital Distributions. Our board of directors seeks to reward our members with a competitive, risk-adjusted return on their investment, particularly those who actively utilize our products. Our board of directors' decision to declare dividends is influenced by our financial condition, overall financial performance and retained earnings, as well as actual and anticipated developments in the overall economic and financial environment including the level of interest rates and conditions in the mortgage and credit markets. In addition, our board of directors considers several other factors, including our risk profile, regulatory requirements, our relationship with our members and the stability of our current capital stock position and membership.
On October 28, 2020,2021, our board of directors declared its third quarter 2020 dividends for the period ended September 25, 2020 on Class B-1 and Class B-2 capital stock at annualized rates of 3.00% and 2.40%, respectively.
As a result of implementing the amended capital plan effective September 26, 2020, the board of directors also declared dividends for the remaining five-day period of the quartercash dividend on Class B-2 activity-based stock at an annualizedannualized rate of 3.00%3.25% and on Class B-1 non-activity-based stock at an annualized rate of 3.00%1.00%, resulting in a spread between the rates of 2.25 percentage points. The overall weighted-average annualized rate declared was 2.25%. Given the short period of time that the amended capital plan was in effect during the quarter, the Board declared the same rate on the Class B-1 stock as on the Class B-2 stock.
The prior capital plan required that dividends on Class B-2 stock be calculated as 80% of the dividends declared on Class B-1 stock, while the amended capital plan permits the dividends on Class B-2 (activity-based) stock to be equal to or greater than the dividends on Class B-1 (non-activity-based) stock.
The dividends were paid in cash on October 29, 2020.2021.
Adequacy of Capital. We must maintain sufficient permanent capital to meet the combined credit risk, market risk and operations risk components of the risk-based capital requirement. As presented in the following table, we were in compliance with the risk-based capital requirement at September 30, 20202021 and December 31, 20192020 ($ amounts in millions)millions).
| | Risk-Based Capital Components | Risk-Based Capital Components | | September 30, 2020 | | December 31, 2019 | Risk-Based Capital Components | | September 30, 2021 | | December 31, 2020 |
Credit risk | Credit risk | | $ | 167 | | | $ | 294 | | Credit risk | | $ | 155 | | | $ | 158 | |
Market risk | Market risk | | 278 | | | 198 | | Market risk | | 594 | | | 327 | |
Operations risk | Operations risk | | 134 | | | 147 | | Operations risk | | 224 | | | 146 | |
| Total risk-based capital requirement | Total risk-based capital requirement | | $ | 579 | | | $ | 639 | | Total risk-based capital requirement | | $ | 973 | | | $ | 631 | |
| Permanent capital | Permanent capital | | $ | 3,610 | | | $ | 3,412 | | Permanent capital | | $ | 3,450 | | | $ | 3,596 | |
The decreaseincrease in theour total risk-based capital requirement was driven by a decrease in the credit risk component, primarily for mortgage loans held for portfolio, based on changes in the requirements outlined in the Finance Agency Final Rule on FHLBank Capital Requirements, which took effect January 1, 2020. This decrease was partially offsetcaused by an increase in the market risk capital componentscomponent due to changes in the market environment, including changes in interest rates spreads, and volatility,option adjusted spreads and changes in the composition of our balance sheet composition.sheet. Our permanent capital at September 30, 20202021 remained well in excess of our total risk-based capital requirement.
In August 2019, the Finance Agency issued Advisory Bulletin 2019-03 requiring that, beginning in February 2020, we maintain a ratio of total regulatory capital stock to total assets, measured on a daily average basis at month end, of at least two percent. At September 30, 2020, our ratio exceeded this requirement.
Off-Balance Sheet Arrangements
At September 30, 2020,2021, principal previously paid in full by our MPP servicersservicers totaling less than $1 million rem$1 million remainsains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. AnAn estimate of the losses is included in the MPP allowance for creditloan losses. For more information, see Notes to Financial Statements - Note 76 - AllowanceMortgage Loans Held for Credit LossesPortfolio in our 20192020 Form 10-K.
Critical Accounting Policies and Estimates
A full discussion of our critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our 20192020 Form 10-K.
Recent Accounting and Regulatory Developments
Accounting Developments. For a description of how recent accounting developments may impact our financial condition, results of operations or cash flows, see Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance.
Legislative and Regulatory Developments.
COVID-19 Pandemic.
Finance Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank AdvancesAgency.. On July 1, 2020, Congress approved an extension of the Paycheck Protection Program until August 8, 2020. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral for advances remains in effect.
Federal Reserve Lending Facilities.FHLBank Membership Supervisory Letter. On September 9, 2021, the Finance Agency published a Supervisory Letter on FHLBank Membership Issues covering five issues, including (1) Requirements for De Novo CDFI, (2) Automatic Transfer of Membership, (3) Large Non-Member Institution Merging with a Small Member, (4) Applicant’s Compliance with "Financial Condition" Requirement, and (5) Definition of Insurance Company. The Federal Reserve announcedSupervisory Letter is intended to provide uniform guidance to the FHLBanks in the event they encounter similar circumstances. The Bank continues to evaluate the Supervisory Letter and its effect on July 28, 2020 that its lending facilities scheduled to expire on or around September 30, 2020 would be extended through December 31, 2020.Bank membership.
Coronavirus Aid, Relief,Regulatory Interpretation on Eligibility of Mortgage Participations as Collateral for FHLBank Advances. On October 4, 2021, the Finance Agency published a Regulatory Interpretation on Eligibility of Mortgage Loan Participations as Collateral for FHLBank Advances. The Regulatory Interpretation addresses whether an FHLBank can accept as collateral to secure advances mortgage loan participations that cannot be readily liquidated in the form in which they are to be pledged. The Regulatory Interpretation concludes that mortgage loan participations must meet the requirements of Finance Agency regulation 12 CFR 1266.7(a)(4), including the requirement that the collateral can be "liquidated in due course" in order to be eligible to secure FHLBank advances. It further concludes that participations for which there would be a known impediment to liquidation do not meet such requirement and Economic Security Acttherefore are not eligible collateral for advances. Finally, the Regulatory Interpretation rescinds prior guidance from FHLBank System regulators that provide mortgage loan participations may be eligible as collateral under regulatory provisions other than 12 CFR 1266.7(a)(4). The CARES Act provisions began to expire in July 2020, but some have been extended by regulatory action.Regulatory Interpretation becomes effective on December 13, 2021.
•Additional federal unemployment funds expiredAlthough we do not currently expect the Regulatory Interpretation to have a material impact on July 31, 2020.our financial condition or results of operations, this restriction on collateral may negatively impact future borrowing by certain members.
•Fair Housing and Fair Lending Enforcement. Statutory eviction freeze for federally-backed properties expired onOn July 25, 2020.
•Foreclosure moratorium on federally-backed properties was extended by9, 2021, the Finance Agency published a Policy Statement on August 27, 2020Fair Lending to last until at least December 31, 2020.communicate the Finance Agency’s general position on monitoring and information gathering, supervisory examinations, and administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act. The Policy Statement became effective on the date of publication.
Congress may enact additional phasesOn August 12, 2021, the Finance Agency and HUD announced they had entered into a Memorandum of Understanding regarding fair housing and fair lending enforcement. Under the Memorandum of Understanding, the two agencies will focus on enhancing their enforcement of the CARESFair Housing Act, or other COVID-19 pandemic relief legislation. We continueand their oversight of Fannie Mae, Freddie Mac, and the FHLBanks.
The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the actual and potential impacts of the CARES Act and other COVID-19-related legislation on our business, including: the continuing impacts to the U.S. economy, impacts to mortgages held or serviced by our members and that we accept as collateral, and the impacts on MPP.Bank.
COVID-19 Developments.
Additional COVID-19 Presidential, Legislative and Regulatory DevelopmentsDevelopments. . In light of the COVID-19 pandemic, the President of the United States, through executive orders, governmental agencies, including the SEC, OCC, FRB,Federal Reserve, FDIC, National Credit Union Administration, CFTC and the Finance Agency, as well as state and local governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic. Statepandemic, and local actionsthe Congress has enacted and may continue to include efforts to reduce the spreadenact pandemic relief legislation, some of COVID-19 through substantial limitations on travel, public social interaction and commercial activities. These regulatory actions and guidance have had and will continue towhich may have a direct or indirect impact on us and ourthe Bank or its members. SomeMany of these actions may be short-termare temporary in duration, but their actual duration will depend on several factors. We continuenature. The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on our financial condition and results of operations.the Bank.
Other RegulatoryLegislative Developments.
Margin and Capital Requirements for Covered Swap EntitiesAffordable Housing. On July 1, 2020, the OCC, the FRB, the FDIC, the Farm Credit Administration, and the Finance Agency (collectively, "Prudential Banking Regulators") jointly publishedCongress continues to consider a final rule, effective August 31, 2020, amending regulations that establish minimum margin and capital requirements for uncleared swaps for covered swap entities under the jurisdictionlegislative proposal, recently as part of the Prudential Banking Regulators ("Prudential Margin Rules")Congressional budget reconciliation process, that, if enacted in its proposed form, would require the FHLBanks to increase the contribution to their affordable housing programs, in each year from 2022 to 2027, to 15% of their net income for the preceding year, an increase from the current level of 10% (with the aggregate annual contributions from the FHLBanks unchanged at no less than $100,000,000). In additionThe FHLBanks continue to other changes,actively monitor the final rule: (1) allows swaps entered into by a covered swap entity prior to an applicable compliance date to retain their legacy status and not become subject to the Prudential Margin Rules in the event that the legacy swaps are amended to replace an interbank offered rate (such as LIBOR) or other discontinued rate, or due to other technical amendments such as notional reductions or portfolio compression exercises; (2) introduces a new Phase 6 compliance date for initial margin requirements for covered swap entities and their counterparties with an average daily aggregate notional amount ("AANA") of uncleared swaps from $8 billion to $50 billion, and limits Phase 5 to counterparties with an AANA of uncleared swaps from $50 billion to $750 billion; and (3) clarifies that initial margin trading documentation does not need to be executed prior to a counterparty reaching the initial margin threshold.proposal.
On the same date, the Prudential Banking Regulators issued an interim final rule, effective September 1, 2020, extending the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extending the initial margin compliance date for Phase 6 counterparties to September 1, 2022. On July 10, 2020, the CFTC issued a final rule and a proposed rule to amend the minimum margin and capital requirements for uncleared swaps under the jurisdiction of the CFTC ("CFTC Margin Rules") which collectively, among other things, extend the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extend the initial margin compliance date for Phase 6 counterparties to September 1, 2022, thereby aligning with the Prudential Banking Regulators.
On September 22, 2020, the CFTC issued a proposed rule to amend the CFTC Margin Rules which would permit, among other changes, covered swap entities to maintain separate minimum transfer amounts ("MTA") for initial and variation margin for each swap counterparty, provided the combined MTA does not exceed $500,000. Separately, on September 23, 2020, the CFTC issued a proposed rule to address concerns by covered entities related to determining initial margin compliance across different regulators and jurisdictions. The CFTC’s proposed rule would, among other things, require entities subject to the CFTC’s jurisdiction to calculate the AANA for uncleared swaps during March, April and May of the current year, based on an average of month-end dates, as opposed to the existing requirement which requires the calculation of AANA during June, July and August of the prior year, based on daily calculations. Parties would continue to be expected to exchange initial margin based on the AANA totals as of September 1 of the current year. The proposed change aligns with the recommendation of the Basel Committee on Banking Supervision and Board of the International Organization of Securities Commission.
We donot expect thesefinal rules or the CFTC proposed rules, if adopted as proposed, to have a material adverse effect on our financial condition or results of operations.
ISDA Interbank Offered Rate ("IBOR") Fallbacks Protocol. 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 IBOR Fallbacks Protocol ("Protocol"). Both the Supplement and the Protocol will take effect on January 25, 2021. On that date, all legacy bilateral derivative transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered IBOR, including US Dollar LIBOR, will be amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR's cessation. Both an FHLBank and its relevant counterparty must have adhered to the Protocol to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. As of January 25, 2021, new and future derivative contracts will be subject to the relevant IBOR 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 adhered to the Protocol on October 23, 2020, and will work with counterparties, as necessary, to address its over-the-counter derivative agreements referencing US Dollar LIBOR as a part of its LIBOR transition efforts.
Risk Management
We have exposure to a number of risks in pursuing our business objectives. These risks may be broadly classified as market, credit, liquidity, operational, and business. Market risk is discussed in Item 3. Quantitative and Qualitative Disclosures about Market Risk. For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management in our 20192020 Form 10-K.
Credit Risk Management. We face credit risk on advances and other credit products, investments, mortgage loans, derivative financial instruments, and AHP grants.
Advances and Other Credit Products. New or renewed credit extensions to captive insurance companies that became members prior to September 12, 2014 are subject to certain regulatory restrictions relating to maturity dates and cannot exceed 40% of the member's total assets. As of September 30, 2020, no such captive insurance company member's total balance of credit products exceeded the percentage limit. We may impose additional restrictions on extensions of credit to our members, including captive insurance companies, at our discretion.
Concentration. Our credit risk is magnified due to the concentration of advances in a few borrowers. As of September 30, 2020,2021, our top borrower held 10%12% of total advances outstanding, at par, and our top five borrowers held 38%40% of total advances outstanding, at par. As a result of this concentration, we perform frequent credit and collateral reviews on our largest borrowers. In addition, we analyze the implications to our financial management and profitability if we were to lose the business of one or more of these borrowers.
Investments. We are also exposed to credit risk through our investment portfolios.portfolio. Our policies restrict the acquisition of investments to high-quality, short-term money market instruments and high-quality long-term securities.
The following table presents the unsecured investment credit exposure to private counterparties, categorized by the domicile of the counterparty's ultimate parent, based on the lowest of the counterparty's NRSRO long-term credit ratings, stated in terms of the S&P equivalent. The table does not reflect the foreign sovereign government's credit rating ($ amounts in millions).
| | September 30, 2020 | | | A | | Total | |
September 30, 2021 | | September 30, 2021 | | AA | | A | | Total |
Domestic | Domestic | | | $ | 143 | | | $ | 143 | | Domestic | | $ | — | | | $ | 100 | | | $ | 100 | |
Australia | Australia | | | 865 | | | 865 | | Australia | | 960 | | | — | | | 960 | |
Canada | | Canada | | — | | | 500 | | | 500 | |
| Netherlands | | Netherlands | | — | | | 615 | | | 615 | |
| Total unsecured credit exposure | Total unsecured credit exposure | | | $ | 1,008 | | | $ | 1,008 | | Total unsecured credit exposure | | $ | 960 | | | $ | 1,215 | | | $ | 2,175 | |
A Finance Agency regulation provides that the total amount of our investments in MBS and ABS, calculated using amortized historical cost, must not exceed 300% of our total regulatory capital, as of the day we purchase the securities, based on the capital amount most recently reported to the Finance Agency. If our outstanding investments in MBS and ABS exceed the limitation at any time, but were in compliance at the time we purchased the investments, we would not be considered out of compliance with the regulation, but we would not be permitted to purchase additional investments in MBS or ABS until these outstanding investments were within the capital limitation. At September 30, 2020,2021, these investments totaled 277%312% of total regulatory capital.capital due to the reduction in total regulatory capital resulting from the repurchases of excess stock on September 2, 2021 totaling $192.3 million. Generally, our goal is to maintain these investments near the 300% limit in order to enhance earnings and capital for our members and diversify our revenue stream. However, we do not expect our ratio to fall below 300% until some time in 2022. As a result, the opportunity to further enhance our earnings will not be available until we are again permitted to purchase these investments.
The following table presents the carrying values of our investments, excluding accrued interest, grouped by credit rating and investment category. Applicable rating levels are determined using the lowest relevant long-term rating from S&P Moody's and Fitch Ratings, Inc.,Moody's, each stated in terms of the S&P equivalent. Rating modifiers are ignored when determining the applicable rating level for a given counterparty or investment. Amounts reported do not reflect any subsequent changes in ratings, outlook, or watch status ($ amounts in millions).
| | | Below | | | Below | |
| | Investment | | | Investment | |
September 30, 2020 | | AAA | | AA | | A | | BBB | | Grade | | Total | |
September 30, 2021 | | September 30, 2021 | | AAA | | AA | | A | | BBB | | Grade | | Total |
Short-term investments: | Short-term investments: | | | | | | | | | | | | | Short-term investments: | | | | | | | | | | | | |
Interest-bearing deposits | Interest-bearing deposits | | $ | — | | $ | — | | $ | 56 | | $ | — | | $ | — | | $ | 56 | Interest-bearing deposits | | $ | — | | $ | — | | $ | 100 | | $ | — | | $ | — | | $ | 100 |
Securities purchased under agreements to resell | Securities purchased under agreements to resell | | — | | 4,500 | | — | | — | | — | | 4,500 | Securities purchased under agreements to resell | | — | | 4,200 | | — | | — | | — | | 4,200 |
Federal funds sold | Federal funds sold | | — | | — | | 952 | | — | | — | | 952 | Federal funds sold | | — | | 960 | | 1,115 | | — | | — | | 2,075 |
Total short-term investments | Total short-term investments | | — | | 4,500 | | 1,008 | | — | | — | | 5,508 | Total short-term investments | | — | | 5,160 | | 1,215 | | — | | — | | 6,375 |
| Trading securities: | Trading securities: | | Trading securities: | |
U.S. Treasury obligations | U.S. Treasury obligations | | — | | 5,059 | | — | | — | | — | | 5,059 | U.S. Treasury obligations | | — | | 4,859 | | — | | — | | — | | 4,859 |
Total trading securities | Total trading securities | | — | | 5,059 | | — | | — | | — | | 5,059 | Total trading securities | | — | | 4,859 | | — | | — | | — | | 4,859 |
| Other investment securities: | Other investment securities: | | Other investment securities: | |
GSE and TVA debentures | GSE and TVA debentures | | — | | 4,026 | | — | | — | | — | | 4,026 | GSE and TVA debentures | | — | | 2,729 | | — | | — | | — | | 2,729 |
GSE MBS | GSE MBS | | — | | 7,861 | | — | | — | | — | | 7,861 | GSE MBS | | — | | 8,350 | | — | | — | | — | | 8,350 |
Other U.S. obligations - guaranteed RMBS | Other U.S. obligations - guaranteed RMBS | | — | | 2,749 | | — | | — | | — | | 2,749 | Other U.S. obligations - guaranteed RMBS | | — | | 2,737 | | — | | — | | — | | 2,737 |
Total other investment securities | Total other investment securities | | — | | 14,636 | | — | | — | | — | | 14,636 | Total other investment securities | | — | | 13,816 | | — | | — | | — | | 13,816 |
| Total investments, carrying value | Total investments, carrying value | | $ | — | | $ | 24,195 | | $ | 1,008 | | $ | — | | $ | — | | $ | 25,203 | Total investments, carrying value | | $ | — | | $ | 23,835 | | $ | 1,215 | | $ | — | | $ | — | | $ | 25,050 |
| Percentage of total | Percentage of total | | — | % | | 96 | % | | 4 | % | | — | % | | — | % | | 100 | % | Percentage of total | | — | % | | 95 | % | | 5 | % | | — | % | | — | % | | 100 | % |
| | December 31, 2019 | | |
Short-term investments: | | | | |
Interest-bearing deposits | | $ | — | | $ | — | | $ | 809 | | $ | — | | $ | — | | $ | 809 | |
Securities purchased under agreements to resell | | — | | 1,500 | | — | | — | | — | | 1,500 | |
Federal funds sold | | — | | 1,090 | | 1,460 | | — | | — | | 2,550 | |
Total short-term investments | | — | | 2,590 | | 2,269 | | — | | — | | 4,859 | |
| Trading securities: | | |
U.S. Treasury obligations | | — | | 5,017 | | — | | — | | — | | 5,017 | |
Total trading securities | | — | | 5,017 | | — | | — | | — | | 5,017 | |
| Other investment securities: | | |
GSE and TVA debentures | | — | | 3,927 | | — | | — | | — | | 3,927 | |
GSE MBS | | — | | 6,714 | | — | | — | | — | | 6,714 | |
Other U.S. obligations - guaranteed RMBS | | — | | 3,060 | | — | | — | | — | | 3,060 | |
Total other investment securities | | — | | 13,701 | | — | | — | | — | | 13,701 | |
| Total investments, carrying value | | $ | — | | $ | 21,308 | | $ | 2,269 | | $ | — | | $ | — | | $ | 23,577 | |
| Percentage of total | | — | % | | 90 | % | | 10 | % | | — | % | | — | % | | 100 | % | |
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December 31, 2020 | | AAA | | AA | | A | | BBB | | Grade | | Total |
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Short-term investments: | | | | | | | | | | | | |
Interest-bearing deposits | | $ | — | | $ | — | | $ | 100 | | $ | — | | $ | — | | $ | 100 |
Securities purchased under agreements to resell | | — | | 2,500 | | — | | — | | — | | 2,500 |
Federal funds sold | | — | | 100 | | 1,115 | | — | | — | | 1,215 |
Total short-term investments | | — | | 2,600 | | 1,215 | | — | | — | | 3,815 |
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Trading securities: | | | | | | | | | | | | |
U.S. Treasury obligations | | — | | 5,095 | | — | | — | | — | | 5,095 |
Total trading securities | | — | | 5,095 | | — | | — | | — | | 5,095 |
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Other investment securities: | | | | | | | | | | | | |
GSE and TVA debentures | | — | | 3,503 | | — | | — | | — | | 3,503 |
GSE MBS | | — | | 8,720 | | — | | — | | — | | 8,720 |
Other U.S. obligations - guaranteed RMBS | | — | | 2,623 | | — | | — | | — | | 2,623 |
Total other investment securities | | — | | 14,846 | | — | | — | | — | | 14,846 |
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Total investments, carrying value | | $ | — | | $ | 22,541 | | $ | 1,215 | | $ | — | | $ | — | | $ | 23,756 |
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Percentage of total | | — | % | | 95 | % | | 5 | % | | — | % | | — | % | | 100 | % |
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Mortgage Loans Held for Portfolio. The following table presents the changes in the LRA for original MPP and Advantage MPP ($ amounts in millions).
| | | | Three Months Ended September 30, 2020 | | | Three Months Ended September 30, 2021 | |
LRA Activity | LRA Activity | | Original | | Advantage | | Total | | LRA Activity | | Original | | Advantage | | Total | |
Liability, beginning of period | Liability, beginning of period | | $ | 6 | | | $ | 191 | | | $ | 197 | | | Liability, beginning of period | | $ | 4 | | | $ | 216 | | | $ | 220 | | |
Additions | Additions | | — | | | 5 | | | 5 | | | Additions | | — | | | 5 | | | 5 | | |
Claims paid | Claims paid | | — | | | — | | | — | | | Claims paid | | — | | | — | | | — | | |
Distributions to PFIs | Distributions to PFIs | | (1) | | | — | | | (1) | | | Distributions to PFIs | | — | | | — | | | — | | |
Liability, end of period | Liability, end of period | | $ | 5 | | | $ | 196 | | | $ | 201 | | | Liability, end of period | | $ | 4 | | | $ | 221 | | | $ | 225 | | |
| | | | Nine Months Ended September 30, 2020 | | | Nine Months Ended September 30, 2021 | |
LRA Activity | LRA Activity | | Original | | Advantage | | Total | | LRA Activity | | Original | | Advantage | | Total | |
Liability, beginning of period | Liability, beginning of period | | $ | 7 | | | $ | 180 | | | $ | 187 | | | Liability, beginning of period | | $ | 4 | | | $ | 203 | | | $ | 207 | | |
Additions | Additions | | — | | | 17 | | | 17 | | | Additions | | — | | | 18 | | | 18 | | |
Claims paid | Claims paid | | — | | | — | | | — | | | Claims paid | | — | | | — | | | — | | |
Distributions to PFIs | Distributions to PFIs | | (2) | | | (1) | | | (3) | | | Distributions to PFIs | | — | | | — | | | — | | |
Liability, end of period | Liability, end of period | | $ | 5 | | | $ | 196 | | | $ | 201 | | | Liability, end of period | | $ | 4 | | | $ | 221 | | | $ | 225 | | |
Derivatives. The following table presents key information on derivative positions with counterparties on a settlement date basis using the lower credit rating from S&P orand Moody's, stated in terms of the S&P equivalent ($ amounts in millions).
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September 30, 2020 | | Notional Amount | | Net Estimated Fair Value Before Collateral | | Cash Collateral Pledged To (From) Counterparties | | Net Credit Exposure |
Non-member counterparties: | | | | | | | | |
Asset positions with credit exposure | | | | | | | | |
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Uncleared derivatives - A | | $ | 233 | | | $ | — | | | $ | — | | | $ | — | |
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Cleared derivatives (1) | | 32,694 | | | 19 | | | 278 | | | 297 | |
Liability positions with credit exposure | | | | | | | | |
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Uncleared derivatives - A | | 13,483 | | | (920) | | | 939 | | | 19 | |
Uncleared derivatives - BBB | | 580 | | | (9) | | | 11 | | | 2 | |
Cleared derivatives (1) | | 1,911 | | | — | | | 2 | | | 2 | |
Total derivative positions with credit exposure to non-member counterparties | | 48,901 | | | (910) | | | 1,230 | | | 320 | |
Total derivative positions with credit exposure to member institutions (2) | | 125 | | | — | | | — | | | — | |
Subtotal - derivative positions with credit exposure | | 49,026 | | | $ | (910) | | | $ | 1,230 | | | $ | 320 | |
Derivative positions without credit exposure | | 555 | | | | | | | |
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Total derivative positions | | $ | 49,581 | | | | | | | |
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September 30, 2021 | | Notional Amount | | Net Estimated Fair Value Before Collateral | | Cash Collateral Pledged To (From) Counterparties | | Net Credit Exposure |
Non-member counterparties: | | | | | | | | |
Asset positions with credit exposure | | | | | | | | |
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Uncleared derivatives - A | | $ | 63 | | | $ | — | | | $ | — | | | $ | — | |
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Cleared derivatives (1) | | 9,900 | | | 3 | | | 77 | | | 80 | |
Liability positions with credit exposure | | | | | | | | |
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Uncleared derivatives - A | | 199 | | | (5) | | | 5 | | | — | |
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Cleared derivatives (1) | | 14,956 | | | (3) | | | 154 | | | 151 | |
Total derivative positions with credit exposure to non-member counterparties | | 25,118 | | | (5) | | | 236 | | | 231 | |
Total derivative positions with credit exposure to member institutions (2) | | 42 | | | — | | | — | | | — | |
Subtotal - derivative positions with credit exposure | | 25,160 | | | $ | (5) | | | $ | 236 | | | $ | 231 | |
Derivative positions without credit exposure | | 27,912 | | | | | | | |
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Total derivative positions | | $ | 53,072 | | | | | | | |
(1) Represents derivative transactions cleared by two clearinghouses (one rated AA- and the other unrated).
(2) Includes MDCs from member institutions under our MPP.
Business Risk Management.
Replacement of the LIBOR Benchmark Interest Rate. In July 2017, the Financial Conduct Authority ("FCA"), a regulator of financial services firms and financial markets in the UK, announced that it planned to phase out its regulatory oversight responsibilities for LIBOR interest rate indices. The FCA indicated that it will cease persuading or compelling banks to submit rates for the calculation of LIBOR after 2021, and that the continuation of LIBOR on the current basis will not be guaranteed after 2021. The Alternative Reference Rates Committee has proposed SOFR as its recommended alternative to LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in April 2018.
Many of our advances, investments, CO bonds, derivative assets, derivative liabilities, and related collateral are indexed to LIBOR. Some of these assets and liabilities and related collateral have maturity dates that extend beyond 2021. As a result, we are continuing to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate, including the likelihood of SOFR as the dominant replacement on an ongoing basis.
We continue to implement our transition plan that has the flexibility to evolve with market developments and standards, member needs, and guidance provided by the issuers of Agency securities. The key components of our LIBOR replacement plan are: exposure, fallback language, information technology systems preparation, and balance sheet strategy. We have evaluated our current exposure to LIBOR including completing an inventory of all financial instruments impacted and identifying financial instruments and contracts that may require adding or adjusting fallback language. We have assessed our operational readiness including potential effects on core Bank systems and replacing LIBOR references in policies and procedures. From a balance-sheet management perspective, we participate in the issuance of SOFR-indexed debt. In addition, in accordance with the Supervisory Letter issued by the Finance Agency to the FHLBanks on September 27, 2019, we have ceased purchasing investments that reference LIBOR and mature after December 31, 2021. We have also ceased the issuance of LIBOR-indexed debt with maturities beyond 2021. Further, beginning March 31, 2020, we have ceased entering into transactions in certain structured advances and advances with terms directly linked to LIBOR that mature after December 31, 2021. Beginning June 30, 2020, we are no longer authorized to enter into derivatives with swaps, caps, or floors indexed to LIBOR that terminate after December 31, 2021.
We have revised our members' collateral reporting requirements to distinguish LIBOR-linked collateral that matures after December 31, 2021. Finally, we have implemented OIS as an alternative interest rate hedging strategy for certain financial instruments.
The following table presents our LIBOR-rate indexed financial instruments outstanding at September 30, 2020 and December 31, 2019 by year of maturity ($ amounts in millions).
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LIBOR-Indexed Financial Instruments | | Year of Maturity | | |
September 30, 2020 | | 2020 | | 2021 | | 2022 and thereafter | | Total |
Assets: | | | | | | | | |
Advances, par value (1) | | $ | — | | | $ | 175 | | | $ | 3,600 | | | $ | 3,775 | |
Mortgage-backed securities, par value (2) | | — | | | — | | | 3,867 | | | 3,867 | |
Total | | $ | — | | | $ | 175 | | | $ | 7,467 | | | $ | 7,642 | |
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Interest-rate swaps - receive leg, notional: | | | | | | | | |
Cleared | | $ | 1,916 | | | $ | 2,162 | | | $ | 6,988 | | | $ | 11,066 | |
Uncleared | | 10 | | | 117 | | | 11,521 | | | 11,648 | |
Total | | $ | 1,926 | | | $ | 2,279 | | | $ | 18,509 | | | $ | 22,714 | |
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Liabilities: | | | | | | | | |
CO bonds, par value (2) | | $ | 3,075 | | | $ | 6,450 | | | $ | — | | | $ | 9,525 | |
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Interest-rate swaps - pay leg, notional: | | | | | | | | |
Cleared | | $ | 3,572 | | | $ | 9,344 | | | $ | 434 | | | $ | 13,350 | |
Uncleared | | 80 | | | 1,030 | | | 264 | | | 1,374 | |
Total | | $ | 3,652 | | | $ | 10,374 | | | $ | 698 | | | $ | 14,724 | |
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Other derivatives, notional: | | | | | | | | |
Interest-rate caps held | | $ | — | | | $ | — | | | $ | 626 | | | $ | 626 | |
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December 31, 2019 | | | | | | | | |
Assets: | | | | | | | | |
Advances, par value (1) | | $ | 178 | | | $ | 311 | | | $ | 3,841 | | | $ | 4,330 | |
Mortgage-backed securities, par value (2) | | 12 | | | — | | | 4,437 | | | 4,449 | |
Total | | $ | 190 | | | $ | 311 | | | $ | 8,278 | | | $ | 8,779 | |
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Interest-rate swaps - receive leg, notional: | | | | | | | | |
Cleared | | $ | 4,364 | | | $ | 1,871 | | | $ | 7,087 | | | $ | 13,322 | |
Uncleared | | 279 | | | 117 | | | 10,814 | | | 11,210 | |
Total | | $ | 4,643 | | | $ | 1,988 | | | $ | 17,901 | | | $ | 24,532 | |
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Liabilities: | | | | | | | | |
CO bonds, par value (2) | | $ | 10,235 | | | $ | 1,050 | | | $ | — | | | $ | 11,285 | |
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Interest-rate swaps - pay leg, notional: | | | | | | | | |
Cleared | | $ | 4,520 | | | $ | 849 | | | $ | 234 | | | $ | 5,603 | |
Uncleared | | 2,737 | | | 2,445 | | | 6,248 | | | 11,430 | |
Total | | $ | 7,257 | | | $ | 3,294 | | | $ | 6,482 | | | $ | 17,033 | |
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Other derivatives, notional: | | | | | | | | |
Interest-rate caps held | | $ | 43 | | | $ | — | | | $ | 626 | | | $ | 669 | |
(1) Year of maturity on our advances is based on redemption term.
(2) Year of maturity on our MBS and CO bonds is based on contractual maturity. The actual maturities on MBS will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.
For more information, see Item 1A. Risk Factors - Changes to or Replacement of the LIBOR Benchmark Interest Rate Could Adversely Affect Our Business, Financial Condition and Results of Operations in our 2019 Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Measuring Market Risks
To evaluate market risk, we utilize multiple risk measurements, including duration of equity, duration gap, convexity, VaR, earnings at risk, and changes in MVE. Periodically, we conduct stress tests to measure and analyze the effects that extreme movements in the level of interest rates and the shape of the yield curve would have on our risk position.
As part of our overall interest-rate risk management process, we continue to evaluate strategies to manage interest-rate risk. Certain strategies, if implemented, could have an adverse impact on future earnings. We are in the process of refining certain methodologies underlying the calculations of our key risk metrics. The changes in the methodologies are subject to either approval or non-objection by the Finance Agency. If implemented, the net impact of the changes on our metrics is expected to be slightly favorable.
Market Risk-Based Capital Requirement. When calculating the risk-based capital requirement, the VaR comprising the first factor of the market risk component is defined as the potential dollar loss from adverse market movements, for a holding period of 120 business days based on those adverse historical prices and market rates. As of September 30, 2020, VaR is reported as the average of the five worst scenarios. As of December 31, 2019, VaR is reported at the 99th percent confidence interval. The table below presents the VaR ($ amounts in millions).
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Date | | VaR |
September 30, 2020 | | $ | 278 | |
December 31, 2019 | | 198 |
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Market Value of Equity. MVE represents the difference between the estimated market value of total assets and the estimated market value of total liabilities, including any off-balance sheet positions. It measures, in present value terms, the long-term economic value of current capital and the long-term level and volatility of net interest income.
We also monitor the sensitivities of MVE to potential interest-rate scenarios. We measure potential changes in the market value to book value of equity based on the current month-end level of rates versus various large parallel and non-parallel shifts in rates. Our board of directors determines acceptable ranges for the change in MVE for 200 bps parallel upward or downward shift in the interest-rate curves.curves as well as certain flattening and steepening scenarios.
Key Metrics. The following table presents certain market and interest-rate metrics under different interest-rate scenarios ($ amounts in millions).
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September 30, 2020 | | Down 200 (1) | | Down 100 (1) | | Base | | Up 100 | | Up 200 |
MVE | | $ | 3,685 | | $ | 3,696 | | $ | 3,623 | | $ | 3,601 | | $ | 3,535 |
Percent change in MVE from base | | 1.7 | % | | 2.0 | % | | 0 | % | | (0.6) | % | | (2.4) | % |
MVE/Book value of equity | | 100.0 | % | | 100.3 | % | | 98.4 | % | | 97.7 | % | | 96.0 | % |
Duration of equity (2) | | (0.1) | | | 0.3 | | | 1.6 | | | 1.3 | | | 2.2 | |
| December 31, 2019 | | |
September 30, 2021 | | September 30, 2021 | | Down 200 (1) | | Down 100 (1) | | Base | | Up 100 | | Up 200 |
MVE | MVE | | $ | 3,353 | | $ | 3,285 | | $ | 3,237 | | $ | 3,175 | | $ | 3,171 | MVE | | $ | 3,691 | | $ | 3,578 | | $ | 3,544 | | $ | 3,534 | | $ | 3,493 |
Percent change in MVE from base | Percent change in MVE from base | | 3.6 | % | | 1.5 | % | | 0 | % | | (1.9) | % | | (2.0) | % | Percent change in MVE from base | | 4.1 | % | | 1.0 | % | | — | % | | (0.3) | % | | (1.5) | % |
MVE/Book value of equity | | 96.4 | % | | 94.4 | % | | 93.0 | % | | 91.2 | % | | 91.1 | % | |
MVE/book value of equity | | MVE/book value of equity | | 102.5 | % | | 99.4 | % | | 98.4 | % | | 98.1 | % | | 97.0 | % |
Duration of equity (2) | Duration of equity (2) | | 2.0 | | 0.5 | | 2.4 | | 0.5 | | 0.5 | Duration of equity (2) | | 1.9 | | | 1.8 | | | 0.4 | | | 0.7 | | | 1.6 | |
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December 31, 2020 | | | | | | | | | | |
MVE | | $ | 3,621 | | $ | 3,605 | | $ | 3,559 | | $ | 3,579 | | $ | 3,590 |
Percent change in MVE from base | | 1.8 | % | | 1.3 | % | | 0 | % | | 0.6 | % | | 0.9 | % |
MVE/book value of equity | | 97.8 | % | | 97.4 | % | | 96.2 | % | | 96.7 | % | | 97.0 | % |
Duration of equity | | — | | 0.8 | | 0.7 | | (0.7) | | 0.4 |
(1) Given the low interest rates in the short-to-medium term points of the yield curves, downward rate shocks are constrained to prevent rates from becoming negative.
(2) We use interest-rate shocks During periods of extremely low interest rates, the Finance Agency requires that FHLBanks employ a constrained down-shock analysis to limit the evolution of forward interest rates to positive non-zero values. Since our market risk model imposes a positive non-zero boundary on post-shock interest rates, no additional calculations are necessary in 50 bps incrementsorder to determine duration of equity.meet this Finance Agency requirement when applicable.
The changes in thesethose key metrics from December 31, 20192020 resulted primarily from the change in market value of the Bank's assets and liabilities in response to changes in the market environment, changes in portfolio composition, and our hedging strategies.
Duration Gap. The base case duration gap was 0.05%(0.02)% and 0.08%0.01% at September 30, 20202021 and December 31, 2019,2020, respectively.
For information about our use of derivative hedges, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Use of Derivative Hedges in our 20192020 Form 10-K.
Replacement of the LIBOR Benchmark Interest Rate
In March 2021, the FCA announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, or, in the case of some more frequently used U.S. dollar LIBOR settings, immediately after June 30, 2023.
Many of our advances, investments, CO bonds, derivative assets, derivative liabilities, and related collateral are directly or indirectly indexed to LIBOR. Some of these assets and liabilities and related collateral have maturity dates that extend beyond the date in which the applicable LIBOR setting ceases to be provided or to be representative.
We continue to implement our transition plan that has reduced our exposure to the transition and has the flexibility to evolve with market developments and standards, member needs, and guidance provided by the issuers of Agency securities. As a result, we do not expect the initial transition on December 31, 2021 to have a material adverse impact on the Bank's business, financial condition or results of operations.
For more information, see Item 1A. Risk Factors - Changes to or Replacement of the LIBOR Benchmark Interest Rate Could Adversely Affect Our Business, Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Form 10-K.
The following table presents our LIBOR-rate indexed financial instruments outstanding at September 30, 2021 and December 31, 2020 by year of maturity ($ amounts in millions).
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LIBOR-Indexed Financial Instruments | | Year of Maturity | | |
September 30, 2021 | | 2021 | | 2022 | | Through June 30, 2023 | | Thereafter | | Total |
Assets: | | | | | | | | | | |
Advances, par value (1) | | $ | — | | | $ | 198 | | | $ | 78 | | | $ | 2,324 | | | $ | 2,600 | |
Mortgage-backed securities, par value (2) | | — | | | — | | | — | | | 2,879 | | | 2,879 | |
Total | | $ | — | | | $ | 198 | | | $ | 78 | | | $ | 5,203 | | | $ | 5,479 | |
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Interest-rate swaps - receive leg, notional (2): | | | | | | | | | | |
Cleared | | $ | 147 | | | $ | 1,421 | | | $ | 770 | | | $ | 3,768 | | | $ | 6,106 | |
Uncleared | | 22 | | | 320 | | | 316 | | | 6,498 | | | 7,156 | |
Total | | $ | 169 | | | $ | 1,741 | | | $ | 1,086 | | | $ | 10,266 | | | $ | 13,262 | |
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Liabilities: | | | | | | | | | | |
CO bonds, par value (2) | | $ | 825 | | | $ | — | | | $ | — | | | $ | — | | | $ | 825 | |
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Interest-rate swaps - pay leg, notional (2): | | | | | | | | | | |
Cleared | | $ | 4,815 | | | $ | 1,434 | | | $ | 200 | | | $ | — | | | $ | 6,449 | |
Uncleared | | — | | | — | | | — | | | 15 | | | 15 | |
Total | | $ | 4,815 | | | $ | 1,434 | | | $ | 200 | | | $ | 15 | | | $ | 6,464 | |
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Other derivatives, notional: | | | | | | | | | | |
Interest-rate caps held (2) | | $ | — | | | $ | 15 | | | $ | — | | | $ | 611 | | | $ | 626 | |
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December 31, 2020 | | | | | | | | | | |
Assets: | | | | | | | | | | |
Advances, par value (1) | | $ | 40 | | | $ | 353 | | | $ | 187 | | | $ | 2,913 | | | $ | 3,493 | |
Mortgage-backed securities, par value (2) | | — | | | 32 | | | — | | | 3,555 | | | 3,587 | |
Total | | $ | 40 | | | $ | 385 | | | $ | 187 | | | $ | 6,468 | | | $ | 7,080 | |
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Interest-rate swaps - receive leg, notional (2): | | | | | | | | | | |
Cleared | | $ | 2,037 | | | $ | 1,464 | | | $ | 786 | | | $ | 4,218 | | | $ | 8,505 | |
Uncleared | | 105 | | | 320 | | | 316 | | | 9,914 | | | 10,655 | |
Total | | $ | 2,142 | | | $ | 1,784 | | | $ | 1,102 | | | $ | 14,132 | | | $ | 19,160 | |
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Liabilities: | | | | | | | | | | |
CO bonds, par value (2) | | $ | 6,675 | | | $ | — | | | $ | — | | | $ | — | | | $ | 6,675 | |
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Interest-rate swaps - pay leg, notional (2): | | | | | | | | | | |
Cleared | | $ | 12,711 | | | $ | 234 | | | $ | 200 | | | $ | — | | | $ | 13,145 | |
Uncleared | | 2,950 | | | — | | | — | | | 204 | | | 3,154 | |
Total | | $ | 15,661 | | | $ | 234 | | | $ | 200 | | | $ | 204 | | | $ | 16,299 | |
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Other derivatives, notional: | | | | | | | | | | |
Interest-rate caps held (2) | | $ | — | | | $ | 15 | | | $ | — | | | $ | 611 | | | $ | 626 | |
(1) Year of maturity on our advances is based on redemption term.
(2) Year of maturity on our MBS, interest-rate swaps, CO bonds and interest-rate caps is based on contractual maturity. The actual maturities on MBS will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and (b) accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, to allow timely decisions regarding required disclosures.
As of September 30, 2020,2021, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive officer), Chief Financial Officer (the principal financial officer) and Chief Accounting Officer (the principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. In making this evaluation, we used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.2021.
Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in rules 13a-15(f) and 15(d)-15(f) of the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures and other internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In the ordinary course of business, we may from time to time become a party to lawsuits involving various business matters. We are unaware of any lawsuits presently pending which, individually or in the aggregate, could have a material effect on our financial condition or results of operations.
Item 1A. RISK FACTORS
Except as set forthnoted below, therethere have been no material changes in the risk factors described in Item 1A. Risk Factors of our 20192020 Form 10-K.
The COVID-19 Pandemic and Related Developments Have Created Substantial Economic andA Loss of Significant Borrowers, PFIs, Acceptable Loan Servicers or Other Financial Disruptions and Uncertainties As Well As Significant Operational Challenges, Which Could Heighten Many of the Risks We Face and Counterparties Could Adversely AffectImpact Our Profitability, Our Ability to Achieve Business Financial Condition, Results of Operations,Objectives, Our Ability to Pay Dividends andor Redeem or Repurchase Capital Stock.Stock, and Our Risk Concentration.
The pandemic causedloss of any large borrower or PFI could adversely impact our profitability and our ability to achieve business objectives. The loss of a large borrower or PFI could result from a variety of factors, including acquisition, consolidation of charters within a bank holding company, a member's loss of market share, resolution of a financially distressed member, or regulatory changes relating to FHLBank membership.
On April 26, 2021, Flagstar Bancorp, Inc., the parent company of Flagstar Bank, FSB ("Flagstar"), historically one of our largest and most active borrowers, announced it had reached an agreement to merge with another institution and, pursuant to the agreement, Flagstar would merge with a non-member depository. At September 30, 2021, Flagstar had advances outstanding totaling $2.5 billion or 9% of the Bank's total advances outstanding, at par. Flagstar has not been an active PFI seller since 2011. The parties currently expect that the Flagstar parent company merger will close in 2022, as soon as regulatory approvals are received, with Flagstar's merger expected to close thereafter. On the effective date of the Flagstar merger, the successor bank would not be eligible for membership in our Bank. As a result, as with any loss of a large borrower, the consummation of the expected Flagstar merger could have a material adverse effect upon our future results of operations and financial condition.
As the financial industry continues to consolidate into a smaller number of institutions, this could lead to further loss of large members and a related decrease in our membership and significant loss of business. Our largest borrower had advances outstanding at September 30, 2021 totaling $3.1 billion, or 12% of the Bank's total advances outstanding, at par. If advances are concentrated in a smaller number of members, our risk of loss resulting from a single event could become greater. Loss of other large advance borrowers, without replacement of such advances by existing or new members, would be expected to reduce our interest income and profitability accordingly.
During the nine months ended September 30, 2021, our top-selling PFI sold us mortgage loans totaling $185 million, or 12% of the total mortgage loans purchased by the outbreakBank. Our larger PFIs originate mortgages on properties in several states. We also purchase mortgage loans from many smaller PFIs that predominantly originate mortgage loans on properties in Michigan and Indiana. Our concentration of COVID-19MPP loans on properties in Michigan and governmentalIndiana could continue to increase over time, as we do not currently limit such concentration.
We do not service the mortgage loans we purchase. PFIs may elect to retain servicing rights for the loans sold to us, or they may elect to sell servicing rights to an MPP-approved servicer. Federal banking regulations and public actions taken in response, such as shelter-in-place, stay-at-home or similar orders, travel restrictions and business shutdowns, have reducedDodd-Frank Act capital requirements are causing some mortgage servicing rights to be transitioned to non-depository institutions and may inreduce the future significantly reduce economic activity and have created substantial uncertainty about the future economic environment. In addition, the pandemic and related developments have resulted in substantial disruptions in the financial markets, including dramatic increases in market volatility. There are no comparable recent events that provide guidance as to the effects that the COVID-19 pandemic and government actions may have. The ultimate effectsavailability of the outbreak, including the duration, speed and severitybuyers of the pandemic, the depthmortgage servicing rights. A scarcity of the economic downturn and the timing and shape of the economic recovery, continue to evolve and are highly uncertain and difficult to predict. These circumstances could heighten many of the risks we face, as described in the "Risk Factors" section of our 2019 Form 10-K, andmortgage servicers could adversely affect our business, financial condition, results of operations, ability to pay dividends and redeem or repurchase capital stock.
A prolonged economic downturn, or periods of significant economic and financial disruptions and uncertainties, resulting from the COVID-19 pandemic will lead to increased credit risk exposure (and possible increased risk of credit losses for us), in particular due to declines in the value of our assets or collateral securing our advances, due to member financial difficulties or failures, or from one or more members facing both circumstances together. Many businesses in our district and across the U.S. have been, and may in the future be, required by government orders to suspend or substantially curtail operations from time to time or for an indefinite time in an attempt to slow the spread of COVID-19, resulting in widespread employee layoffs and a dramatic increase in unemployment insurance claims. In turn, higher loan delinquencies stemming from rising unemployment, as well as the effects of mortgage forbearance and other debt relief, could reduce the fair value of our mortgage assets and mortgage-related collateral, and increase the Bank's exposure to credit losses in our MPP portfolio. Further, significant borrower defaults on loans made by our member institutions could occur as a result of the economic downturn, and these defaults could cause members to fail. We could be adversely impacted by the reduction in business volume that would arise from the failure of one or more of our members. Moreover, this significant slowdown in economic activity could reduce demand for our members’ products and services, which could negatively impact our members’ demand for our products and services.operations.
The disruptionsnumber of counterparties that meet our internal and regulatory standards for derivative, repurchase, federal funds sold, TBA, and other financial transactions, such as broker-dealers and their affiliates, has decreased over time. In addition, since the Dodd-Frank Act, the requirements for posting margin or other collateral to interest rates, credit spreadsfinancial counterparties has tended to increase, both in terms of the amount of collateral to be posted and the availabilitytypes of funds intransactions for which margin is now required. These factors tend to increase the capital markets in connection with the COVID-19 pandemicrisk exposure that we have also adversely affected,to any one counterparty, and as such may continuetend to adversely affect,increase our access to funding, as well as the valuation of and the market and book yields on our assets. Our cost of funding may similarly be adversely affected. The FRB’s policies directly and indirectly influence the yield on our interest-bearing assets and the costreliance upon each of our interest-bearing liabilities. In response to the COVID-19 pandemic, the FOMC lowered the target range for federal funds from 1.50% to 1.75% to a target rangecounterparties. A failure of 0.00% to 0.25%. The FRB additionally increased their purchasesany one of US Treasuries and agency MBS, thereby lowering agency MBS yields and increasing GSE purchase prices for conforming mortgages. The outlook for the remainder of 2020 is uncertain, and FOMC may maintain current low interest rates environment, and it may set negative interest rates if economic conditions warrant. These factors are beyond our control and, coupled with variability in our members’ demands for advances, have challenged and may continue to challenge our ability to manage our assets and liabilities (including the pricing of advances) andmajor financial counterparties, or continuing market consolidation, could adversely affect our profitability, results of operations, and liquidity.ability to enter into additional transactions with existing counterparties without exceeding internal or regulatory risk limits.
In addition, the shelter-in-place, stay-at-home or similar orders, travel restrictions and business shutdowns or limitations as a result of the COVID-19 pandemic have led to substantial changes in normal business practices, such as the implementation of work-from-home arrangements, for us as well as for many of our members, dealers, and other third-party service providers. These changes in business practices have resulted in significant operational challenges, including heightened risks of operational errors, disruptions, failures and cybersecurity breaches, which could adversely affect our ability, and that of our members, counterparties and third-party vendors, to conduct and manage our respective businesses. Currently, most of our employees are working remotely. At this time, we cannot predict when our full employee base will return to work in our offices. In addition, some or all of our employees, management or board of directors could contract COVID-19, which, depending on the number and severity of such cases, could similarly affect our ability to conduct our business.
For more information, see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting and Regulatory Developments – Legislative and Regulatory Developments.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
EXHIBIT INDEX
| | | | | | | | |
Exhibit Number | | Description |
| | |
3.1* | | |
| | |
3.2* | | |
| | |
4.1* | | |
| | |
4.2* | | |
| | |
10.1* | | |
| | |
10.2*10.2 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
31.3 | | |
| | |
32 | | |
| | |
101.INS | | XBRL Instance Document |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
* These documents are incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| FEDERAL HOME LOAN BANK OF INDIANAPOLIS |
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November 10, 20202021 | By: | /s/ CINDY L. KONICH |
| Name: | Cindy L. Konich |
| Title: | President - Chief Executive Officer |
| | |
November 10, 20202021 | By: | /s/ GREGORY L. TEARE |
| Name: | Gregory L. Teare |
| Title: | Executive Vice President - Chief Financial Officer |
| | |
November 10, 20202021 | By: | /s/ K. LOWELL SHORT, JR. |
| Name: | K. Lowell Short, Jr. |
| Title: | Senior Vice President - Chief Accounting Officer |