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~~June 30, ~~2020~~2021


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

For the transition period from __________ to __________.

Commission File No. 000-51399

FEDERAL HOME LOAN BANK OF CINCINNATI

(Exact name of registrant as specified in its charter)


Federally chartered corporation of the United States		31-6000228
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
600 Atrium Two, P.O. Box 598,
Cincinnati,	OH		45201-0598
(Address of principal executive offices)		(Zip Code)

(513) 852-7500

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

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


Large accelerated Filer ☐		Accelerated Filer ☐
Non-accelerated Filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

The capital stock of the registrant is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share. As of ~~October~~July 31, ~~2020,~~2021, the registrant had ~~28,023,930~~25,385,576 shares of capital stock outstanding, which included stock classified as mandatorily redeemable.


Page 1 of			8078

Table of Contents


	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Statements of Condition - ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Statements of Income - Three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4

	Statements of Comprehensive Income - Three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5

	Statements of Capital - Three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6

	Statements of Cash Flows - ~~Nine~~Six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	7

	Notes to Unaudited Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4442

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7875

Item 4.	Controls and Procedures	7875

	PART II - OTHER INFORMATION

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	7876

Item 1A.	Risk Factors	76

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76

Item 3.	Defaults Upon Senior Securities	76

Item 4.	Mine Safety Disclosures	76

Item 5.	Other Information	76

Item 6.	Exhibits	7977

Signatures		8078

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CONDITION

(Unaudited)

(In thousands, except par value)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	1,363,958	$	20,608	Cash and due from banks	$	135,003	$	2,984,073
Interest-bearing deposits	Interest-bearing deposits	630,161		550,160		Interest-bearing deposits	374,147		555,104
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2,453,694		2,348,584		Securities purchased under agreements to resell	436,500		1,818,268
Federal funds sold	Federal funds sold	8,705,000		4,833,000		Federal funds sold	6,175,000		4,240,000
Investment securities:	Investment securities:					Investment securities:
Trading securities	Trading securities	11,300,464		11,615,693		Trading securities	9,327,467		10,488,124
Available-for-sale securities		294,496		1,542,185
Held-to-maturity securities (includes $0 and $0 pledged as collateral at September 30, 2020 and December 31, 2019, respectively, that may be repledged) (a)		11,130,599		13,499,319
Available-for-sale securities (amortized cost of $1,931,506 and $286,869 at June 30, 2021 and December 31, 2020, respectively)						Available-for-sale securities (amortized cost of $1,931,506 and $286,869 at June 30, 2021 and December 31, 2020, respectively)	1,947,871		291,587
Held-to-maturity securities (includes $0 and $0 pledged as collateral at June 30, 2021 and December 31, 2020, respectively, that may be repledged) (a)						Held-to-maturity securities (includes $0 and $0 pledged as collateral at June 30, 2021 and December 31, 2020, respectively, that may be repledged) (a)	8,835,019		9,648,171
Total investment securities	Total investment securities	22,725,559		26,657,197		Total investment securities	20,110,357		20,427,882
Advances (includes $27,464 and $5,238 at fair value under fair value option at September 30, 2020 and December 31, 2019, respectively)		27,100,957		47,369,573
Mortgage loans held for portfolio, net of allowance for credit losses of $242 and $711 at September 30, 2020 and December 31, 2019, respectively		10,671,179		11,235,353
Advances (includes $26,066 and $27,202 at fair value under fair value option at June 30, 2021 and December 31, 2020, respectively)						Advances (includes $26,066 and $27,202 at fair value under fair value option at June 30, 2021 and December 31, 2020, respectively)	23,586,541		25,362,003
Mortgage loans held for portfolio, net of allowance for credit losses of $248 and $248 at June 30, 2021 and December 31, 2020, respectively						Mortgage loans held for portfolio, net of allowance for credit losses of $248 and $248 at June 30, 2021 and December 31, 2020, respectively	7,716,841		9,548,506
Accrued interest receivable	Accrued interest receivable	144,310		182,252		Accrued interest receivable	96,727		113,701
Derivative assets	Derivative assets	259,170		267,165		Derivative assets	216,216		215,888
Other assets, net	Other assets, net	23,420		27,667		Other assets, net	24,787		30,814
TOTAL ASSETS	TOTAL ASSETS	$	74,077,408	$	93,491,559	TOTAL ASSETS	$	58,872,119	$	65,296,239
LIABILITIES	LIABILITIES					LIABILITIES
Deposits	Deposits	$	1,239,198	$	951,296	Deposits	$	1,336,420	$	1,327,202

Consolidated Obligations:	Consolidated Obligations:					Consolidated Obligations:
Discount Notes (includes $0 and $12,386,974 at fair value under fair value option at September 30, 2020 and December 31, 2019, respectively)		26,667,698		49,084,219
Bonds (includes $2,447,759 and $4,757,177 at fair value under fair value option at September 30, 2020 and December 31, 2019, respectively)		41,432,178		38,439,724
Discount Notes (includes $2,866,877 and $0 at fair value under fair value option at June 30, 2021 and December 31, 2020, respectively)						Discount Notes (includes $2,866,877 and $0 at fair value under fair value option at June 30, 2021 and December 31, 2020, respectively)	21,180,119		27,500,244
Bonds (includes $2,295,683 and $2,262,388 at fair value under fair value option at June 30, 2021 and December 31, 2020, respectively)						Bonds (includes $2,295,683 and $2,262,388 at fair value under fair value option at June 30, 2021 and December 31, 2020, respectively)	31,678,112		31,996,311
Total Consolidated Obligations	Total Consolidated Obligations	68,099,876		87,523,943		Total Consolidated Obligations	52,858,231		59,496,555
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	17,661		21,669		Mandatorily redeemable capital stock	13,719		19,454
Accrued interest payable	Accrued interest payable	77,746		126,091		Accrued interest payable	67,258		77,521
Affordable Housing Program payable	Affordable Housing Program payable	115,755		115,295		Affordable Housing Program payable	101,724		110,772
Derivative liabilities	Derivative liabilities	81		1,310		Derivative liabilities	2,389		3,813
Other liabilities	Other liabilities	322,358		307,499		Other liabilities	479,408		331,008
Total liabilities	Total liabilities	69,872,675		89,047,103		Total liabilities	54,859,149		61,366,325
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
CAPITAL	CAPITAL					CAPITAL
Capital stock Class B putable ($100 par value); issued and outstanding shares: 29,345 shares at September 30, 2020 and 33,664 shares at December 31, 2019		2,934,499		3,366,428
Capital stock Class B putable ($100 par value); issued and outstanding shares: 27,184 shares at June 30, 2021 and 26,409 shares at December 31, 2020						Capital stock Class B putable ($100 par value); issued and outstanding shares: 27,184 shares at June 30, 2021 and 26,409 shares at December 31, 2020	2,718,430		2,640,863
Retained earnings:	Retained earnings:					Retained earnings:
Unrestricted	Unrestricted	788,951		648,374		Unrestricted	791,390		802,715
Restricted	Restricted	493,340		446,048		Restricted	505,136		501,321
Total retained earnings	Total retained earnings	1,282,291		1,094,422		Total retained earnings	1,296,526		1,304,036
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(12,057)		(16,394)		Accumulated other comprehensive loss	(1,986)		(14,985)
Total capital	Total capital	4,204,733		4,444,456		Total capital	4,012,970		3,929,914
TOTAL LIABILITIES AND CAPITAL	TOTAL LIABILITIES AND CAPITAL	$	74,077,408	$	93,491,559	TOTAL LIABILITIES AND CAPITAL	$	58,872,119	$	65,296,239

(a)Fair values: ~~$11,275,891~~$8,947,316 and ~~$13,501,207~~$9,792,136 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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

Table of Contents

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF INCOME

(Unaudited)

(In thousands) Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
INTEREST INCOME:
Advances $ 63,974 $ 267,537 $ 394,578 $ 991,077
Prepayment fees on Advances, net 7,509 724 25,103 904
Interest-bearing deposits 442 3,823 4,202 9,104
Securities purchased under agreements to resell 290 13,271 10,680 54,319
Federal funds sold 1,541 62,322 30,621 185,343
Investment securities:
Trading securities 66,281 61,653 201,876 112,213
Available-for-sale securities 271 3,284 4,286 21,697
Held-to-maturity securities 36,516 94,740 153,199 305,192
Total investment securities 103,068 159,677 359,361 439,102
Mortgage loans held for portfolio 62,429 83,506 225,837 257,758
Loans to other FHLBanks 0 0 60 70
Total interest income 239,253 590,860 1,050,442 1,937,677
INTEREST EXPENSE:
Consolidated Obligations:
Discount Notes 26,299 238,574 285,755 794,469
Bonds 119,748 260,453 435,543 823,376
Total Consolidated Obligations 146,047 499,027 721,298 1,617,845
Deposits 174 4,337 3,348 12,008
Loans from other FHLBanks 0 3 0 3
Mandatorily redeemable capital stock (76) 254 978 896
Total interest expense 146,145 503,621 725,624 1,630,752
NET INTEREST INCOME 93,108 87,239 324,818 306,925
NON-INTEREST INCOME (LOSS):
Net gains (losses) on investment securities (42,136) 70,146 319,866 263,733
Net gains (losses) on financial instruments held under fair value option 10,687 (8,681) (14,402) (50,615)
Net gains (losses) on derivatives and hedging activities 19,708 (60,254) (308,230) (238,339)
Standby Letters of Credit fees 3,726 2,496 9,430 6,950
Other, net 544 587 1,529 1,507
Total non-interest income (loss) (7,471) 4,294 8,193 (16,764)
NON-INTEREST EXPENSE:
Compensation and benefits 12,356 11,173 37,647 35,208
Other operating expenses 4,789 5,498 15,860 16,443
Finance Agency 1,629 1,695 4,886 5,086
Office of Finance 1,331 1,204 4,034 3,684
Other 1,766 2,273 7,742 7,223
Total non-interest expense 21,871 21,843 70,169 67,644
INCOME BEFORE ASSESSMENTS 63,766 69,690 262,842 222,517
Affordable Housing Program assessments 6,369 6,995 26,382 22,342
NET INCOME $ 57,397 $ 62,695 $ 236,460 $ 200,175


(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
INTEREST INCOME:
Advances	$	31,371	$	158,437	$	72,531	$	330,604
Prepayment fees on Advances, net	5,060		13,320		6,400		17,594
Interest-bearing deposits	164		410		381		3,760
Securities purchased under agreements to resell	53		236		267		10,390
Federal funds sold	1,204		554		2,546		29,080
Investment securities:
Trading securities	53,670		67,691		111,722		135,595
Available-for-sale securities	344		619		1,679		4,015
Held-to-maturity securities	24,412		48,379		54,143		116,683
Total investment securities	78,426		116,689		167,544		256,293
Mortgage loans held for portfolio	38,430		74,151		82,844		163,408
Loans to other FHLBanks	0		0		0		60
Total interest income	154,708		363,797		332,513		811,189
INTEREST EXPENSE:
Consolidated Obligations:
Discount Notes	1,761		83,332		7,229		259,456
Bonds	86,589		129,808		182,775		315,795
Total Consolidated Obligations	88,350		213,140		190,004		575,251
Deposits	97		198		248		3,174

Mandatorily redeemable capital stock	110		864		204		1,054

Total interest expense	88,557		214,202		190,456		579,479
NET INTEREST INCOME	66,151		149,595		142,057		231,710


NON-INTEREST INCOME (LOSS):
Net gains (losses) on investment securities	(15,389)		(10,404)		(154,249)		362,002
Net gains (losses) on financial instruments held under fair value option	2,602		25,741		6,507		(25,089)
Net gains (losses) on derivatives and hedging activities	(36,079)		(33,972)		61,065		(327,938)
Standby Letters of Credit fees	6,632		3,234		12,443		5,704
Other, net	394		376		829		985
Total non-interest income (loss)	(41,840)		(15,025)		(73,405)		15,664
NON-INTEREST EXPENSE:
Compensation and benefits	12,086		11,951		24,989		25,291
Other operating expenses	5,232		4,968		11,184		11,071
Finance Agency	1,879		1,629		3,758		3,257
Office of Finance	1,171		1,445		2,442		2,703

Other	3,543		4,025		5,061		5,976
Total non-interest expense	23,911		24,018		47,434		48,298
INCOME BEFORE ASSESSMENTS	400		110,552		21,218		199,076
Affordable Housing Program assessments	51		11,142		2,142		20,013


NET INCOME	$	349	$	99,410	$	19,076	$	179,063

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

Table of Contents

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


(In thousands)	(In thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	57,397	$	62,695	$	236,460	$	200,175	Net income	$	349	$	99,410	$	19,076	$	179,063
Other comprehensive income adjustments:	Other comprehensive income adjustments:									Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities	Net unrealized gains (losses) on available-for-sale securities	3,504		(192)		2,621		(442)		Net unrealized gains (losses) on available-for-sale securities	8,960		22		11,647		(883)
Pension and postretirement benefits	Pension and postretirement benefits	572		459		1,716		1,376		Pension and postretirement benefits	676		581		1,352		1,144
Total other comprehensive income (loss) adjustments	Total other comprehensive income (loss) adjustments	4,076		267		4,337		934		Total other comprehensive income (loss) adjustments	9,636		603		12,999		261
Comprehensive income	Comprehensive income	$	61,473	$	62,962	$	240,797	$	201,109	Comprehensive income	$	9,985	$	100,013	$	32,075	$	179,324

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

Table of Contents

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CAPITAL

(Unaudited)


(In thousands)	(In thousands)	Capital Stock Class B - Putable			Retained Earnings						Accumulated Other Comprehensive		Total		(In thousands)	Capital Stock Class B - Putable			Retained Earnings						Accumulated Other Comprehensive		Total
		Shares	Par Value		Unrestricted		Restricted		Total		Loss		Capital			Shares	Par Value		Unrestricted		Restricted		Total		Loss		Capital
BALANCE, JUNE 30, 2019		38,065	$	3,806,530	$	618,634	$	418,325	$	1,036,959	$	(12,376)	$	4,831,113
BALANCE, MARCH 31, 2020															BALANCE, MARCH 31, 2020	47,394	$	4,739,413	$	690,615	$	461,979	$	1,152,594	$	(16,736)	$	5,875,271
Comprehensive income (loss)															Comprehensive income (loss)				79,528		19,882		99,410		603		100,013
Proceeds from sale of capital stock															Proceeds from sale of capital stock	313	31,339										31,339
Repurchase of capital stock															Repurchase of capital stock	(9,500)	(950,000)										(950,000)
Net shares reclassified to mandatorily redeemable capital stock															Net shares reclassified to mandatorily redeemable capital stock	(76)	(7,642)										(7,642)
Partial recovery of prior capital distribution to Financing Corporation															Partial recovery of prior capital distribution to Financing Corporation				16,533				16,533				16,533
Cash dividends on capital stock															Cash dividends on capital stock				(21,592)				(21,592)				(21,592)
BALANCE, JUNE 30, 2020															BALANCE, JUNE 30, 2020	38,131	$	3,813,110	$	765,084	$	481,861	$	1,246,945	$	(16,133)	$	5,043,922

BALANCE, MARCH 31, 2021															BALANCE, MARCH 31, 2021	27,479	$	2,747,938	$	803,806	$	505,066	$	1,308,872	$	(11,622)	$	4,045,188
Comprehensive income (loss)	Comprehensive income (loss)				50,156		12,539		62,695		267		62,962		Comprehensive income (loss)				279		70		349		9,636		9,985
Proceeds from sale of capital stock	Proceeds from sale of capital stock	1,475	147,464										147,464		Proceeds from sale of capital stock	6,289	628,894										628,894
Repurchase of capital stock	Repurchase of capital stock	(3,500)	(350,000)										(350,000)		Repurchase of capital stock	(5,984)	(598,402)										(598,402)
Net shares reclassified to mandatorily redeemable capital stock	Net shares reclassified to mandatorily redeemable capital stock	(65)	(6,493)										(6,493)		Net shares reclassified to mandatorily redeemable capital stock	(600)	(60,000)										(60,000)

Cash dividends on capital stock	Cash dividends on capital stock				(44,960)				(44,960)				(44,960)		Cash dividends on capital stock				(12,695)				(12,695)				(12,695)
BALANCE, SEPTEMBER 30, 2019		35,975	$	3,597,501	$	623,830	$	430,864	$	1,054,694	$	(12,109)	$	4,640,086

BALANCE, JUNE 30, 2020		38,131	$	3,813,110	$	765,084	$	481,861	$	1,246,945	$	(16,133)	$	5,043,922
Comprehensive income (loss)					45,918		11,479		57,397		4,076		61,473
Proceeds from sale of capital stock		214	21,389										21,389
Repurchase of capital stock		(9,000)	(900,000)										(900,000)

Cash dividends on capital stock					(22,051)				(22,051)				(22,051)
BALANCE, SEPTEMBER 30, 2020		29,345	$	2,934,499	$	788,951	$	493,340	$	1,282,291	$	(12,057)	$	4,204,733
BALANCE, JUNE 30, 2021															BALANCE, JUNE 30, 2021	27,184	$	2,718,430	$	791,390	$	505,136	$	1,296,526	$	(1,986)	$	4,012,970


(In thousands)	(In thousands)	Capital Stock Class B - Putable			Retained Earnings						Accumulated Other Comprehensive		Total		(In thousands)	Capital Stock Class B - Putable			Retained Earnings						Accumulated Other Comprehensive		Total
		Shares	Par Value		Unrestricted		Restricted		Total		Loss		Capital			Shares	Par Value		Unrestricted		Restricted		Total		Loss		Capital

BALANCE, DECEMBER 31, 2018		43,205	$	4,320,459	$	631,971	$	390,829	$	1,022,800	$	(13,043)	$	5,330,216
Comprehensive income (loss)					160,140		40,035		200,175		934		201,109
Proceeds from sale of capital stock		5,233	523,257										523,257
Repurchase of capital stock		(12,386)	(1,238,544)										(1,238,544)
Net shares reclassified to mandatorily redeemable capital stock		(77)	(7,671)										(7,671)

Cash dividends on capital stock					(168,281)				(168,281)				(168,281)
BALANCE, SEPTEMBER 30, 2019		35,975	$	3,597,501	$	623,830	$	430,864	$	1,054,694	$	(12,109)	$	4,640,086

BALANCE, DECEMBER 31, 2019	BALANCE, DECEMBER 31, 2019	33,664	$	3,366,428	$	648,374	$	446,048	$	1,094,422	$	(16,394)	$	4,444,456	BALANCE, DECEMBER 31, 2019	33,664	$	3,366,428	$	648,374	$	446,048	$	1,094,422	$	(16,394)	$	4,444,456
Adjustment for cumulative effect of accounting change	Adjustment for cumulative effect of accounting change				366				366				366		Adjustment for cumulative effect of accounting change				366				366				366
Comprehensive income (loss)	Comprehensive income (loss)				189,168		47,292		236,460		4,337		240,797		Comprehensive income (loss)				143,250		35,813		179,063		261		179,324
Proceeds from sale of capital stock	Proceeds from sale of capital stock	21,256	2,125,590										2,125,590		Proceeds from sale of capital stock	21,042	2,104,201										2,104,201
Repurchase of capital stock	Repurchase of capital stock	(20,000)	(2,000,000)										(2,000,000)		Repurchase of capital stock	(11,000)	(1,100,000)										(1,100,000)
Net shares reclassified to mandatorily redeemable capital stock	Net shares reclassified to mandatorily redeemable capital stock	(5,575)	(557,519)										(557,519)		Net shares reclassified to mandatorily redeemable capital stock	(5,575)	(557,519)										(557,519)
Partial recovery of prior capital distribution to Financing Corporation	Partial recovery of prior capital distribution to Financing Corporation				16,533				16,533				16,533		Partial recovery of prior capital distribution to Financing Corporation				16,533				16,533				16,533

Cash dividends on capital stock	Cash dividends on capital stock				(65,490)				(65,490)				(65,490)		Cash dividends on capital stock				(43,439)				(43,439)				(43,439)
BALANCE, SEPTEMBER 30, 2020		29,345	$	2,934,499	$	788,951	$	493,340	$	1,282,291	$	(12,057)	$	4,204,733
BALANCE, JUNE 30, 2020															BALANCE, JUNE 30, 2020	38,131	$	3,813,110	$	765,084	$	481,861	$	1,246,945	$	(16,133)	$	5,043,922

BALANCE, DECEMBER 31, 2020															BALANCE, DECEMBER 31, 2020	26,409	$	2,640,863	$	802,715	$	501,321	$	1,304,036	$	(14,985)	$	3,929,914

Comprehensive income (loss)															Comprehensive income (loss)				15,261		3,815		19,076		12,999		32,075
Proceeds from sale of capital stock															Proceeds from sale of capital stock	10,049	1,004,972										1,004,972
Repurchase of capital stock															Repurchase of capital stock	(8,664)	(866,402)										(866,402)
Net shares reclassified to mandatorily redeemable capital stock															Net shares reclassified to mandatorily redeemable capital stock	(610)	(61,003)										(61,003)

Cash dividends on capital stock															Cash dividends on capital stock				(26,586)				(26,586)				(26,586)
BALANCE, JUNE 30, 2021															BALANCE, JUNE 30, 2021	27,184	$	2,718,430	$	791,390	$	505,136	$	1,296,526	$	(1,986)	$	4,012,970

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands) Nine Months Ended September 30,
2020 2019
OPERATING ACTIVITIES:
Net income $ 236,460 $ 200,175
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 37,313 8,900
Net change in derivative and hedging activities (183,733) (198,494)
Net change in fair value adjustments on trading securities (319,866) (263,733)
Net change in fair value adjustments on financial instruments held under fair value option 14,402 50,615
Other adjustments, net 798 596
Net change in:
Accrued interest receivable 38,140 (35,226)
Other assets 3,135 (994)
Accrued interest payable (56,937) 5,917
Other liabilities 17,125 8,005
Total adjustments (449,623) (424,414)
Net cash provided by (used in) operating activities (213,163) (224,239)
INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits (260,047) (858,712)
Securities purchased under agreements to resell (105,110) 2,562,632
Federal funds sold (3,872,000) (3,289,000)
Premises, software, and equipment (1,265) (1,753)
Trading securities:
Proceeds from maturities 5,135,034 113
Purchases (4,499,939) (10,928,882)
Available-for-sale securities:
Proceeds from maturities 1,810,000 5,090,000
Purchases (550,267) (3,128,500)
Held-to-maturity securities:
Proceeds from maturities 2,437,476 2,694,458
Purchases (75,604) (994,810)
Advances:
Repaid 470,292,647 1,147,441,338
Originated (449,675,012) (1,138,754,813)
Mortgage loans held for portfolio:
Principal collected 2,942,372 1,221,970
Purchases (2,432,823) (1,622,397)
Net cash provided by (used in) investing activities 21,145,462 (568,356)
The accompanying notes are an integral part of these financial statements.


(In thousands)	Six Months Ended June 30,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	19,076	$	179,063
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	47,699		40,466
Net change in derivative and hedging activities	96,090		(224,019)
Net change in fair value adjustments on trading securities	154,249		(362,002)
Net change in fair value adjustments on financial instruments held under fair value option	(6,507)		25,089
Other adjustments, net	447		569
Net change in:
Accrued interest receivable	16,981		36,565
Other assets	4,868		3,172
Accrued interest payable	(19,376)		(40,551)
Other liabilities	(13,293)		20,018
Total adjustments	281,158		(500,693)
Net cash provided by (used in) operating activities	300,234		(321,630)

INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits	232,472		(590,355)
Securities purchased under agreements to resell	1,381,768		1,384,740
Federal funds sold	(1,935,000)		1,308,000
Premises, software, and equipment	(501)		(863)
Trading securities:

Proceeds from maturities	750,062		54
Proceeds from sale	256,346		0

Available-for-sale securities:
Proceeds from maturities	0		1,810,000
Purchases	(1,649,104)		(400,000)
Held-to-maturity securities:

Proceeds from maturities	1,582,303		1,659,909

Purchases	(616,065)		(34,234)
Advances:
Repaid	254,966,449		359,827,848
Originated	(253,337,180)		(360,969,150)
Mortgage loans held for portfolio:
Principal collected	2,205,296		1,667,502
Purchases	(432,636)		(2,161,320)
Net cash provided by (used in) investing activities	3,404,210		3,502,131



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

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(continued from previous page)	(continued from previous page)							(continued from previous page)
FEDERAL HOME LOAN BANK OF CINCINNATI	FEDERAL HOME LOAN BANK OF CINCINNATI					FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS	STATEMENTS OF CASH FLOWS					STATEMENTS OF CASH FLOWS

(Unaudited)	(Unaudited)					(Unaudited)

(In thousands)	(In thousands)	Nine Months Ended September 30,				(In thousands)	Six Months Ended June 30,
		2020		2019					2021		2020
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:							FINANCING ACTIVITIES:
Net change in deposits and pass-through reserves	Net change in deposits and pass-through reserves	$	284,032	$	179,964			Net change in deposits and pass-through reserves	$	9,718	$	281,252
Net proceeds (payments) on derivative contracts with financing elements	Net proceeds (payments) on derivative contracts with financing elements	(1,394)		(373)				Net proceeds (payments) on derivative contracts with financing elements	0		(689)
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	232,873,177		605,292,074				Discount Notes	99,552,017		180,208,634
Bonds	Bonds	35,649,162		24,021,342				Bonds	19,762,205		20,341,399

Payments for maturing and retiring Consolidated Obligations:	Payments for maturing and retiring Consolidated Obligations:							Payments for maturing and retiring Consolidated Obligations:
Discount Notes	Discount Notes	(255,247,967)		(602,674,421)				Discount Notes	(105,864,700)		(184,963,367)
Bonds	Bonds	(32,661,065)		(25,131,800)				Bonds	(20,058,000)		(19,462,565)
Proceeds from issuance of capital stock	Proceeds from issuance of capital stock	2,125,590		523,257				Proceeds from issuance of capital stock	1,004,972		2,104,201
Payments for repurchase of capital stock	Payments for repurchase of capital stock	(2,000,000)		(1,238,544)				Payments for repurchase of capital stock	(866,402)		(1,100,000)
Payments for repurchase/redemption of mandatorily redeemable capital stock	Payments for repurchase/redemption of mandatorily redeemable capital stock	(561,527)		(5,243)				Payments for repurchase/redemption of mandatorily redeemable capital stock	(66,738)		(560,138)
Cash dividends paid	Cash dividends paid	(65,490)		(168,281)				Cash dividends paid	(26,586)		(43,439)
Partial recovery of prior capital distribution to Financing Corporation	Partial recovery of prior capital distribution to Financing Corporation	16,533		0				Partial recovery of prior capital distribution to Financing Corporation	0		16,533
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(19,588,949)		797,975				Net cash provided by (used in) financing activities	(6,553,514)		(3,178,179)
Net increase (decrease) in cash and due from banks	Net increase (decrease) in cash and due from banks	1,343,350		5,380				Net increase (decrease) in cash and due from banks	(2,849,070)		2,322
Cash and due from banks at beginning of the period	Cash and due from banks at beginning of the period	20,608		10,037				Cash and due from banks at beginning of the period	2,984,073		20,608
Cash and due from banks at end of the period	Cash and due from banks at end of the period	$	1,363,958	$	15,417			Cash and due from banks at end of the period	$	135,003	$	22,930
Supplemental Disclosures:	Supplemental Disclosures:							Supplemental Disclosures:
Interest paid	Interest paid	$	830,682	$	1,649,854			Interest paid	$	214,794	$	643,599
Affordable Housing Program payments, net	Affordable Housing Program payments, net	$	25,922	$	25,390			Affordable Housing Program payments, net	$	11,190	$	14,108

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Background Information

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

Note 1 - ~~Summary of Significant Accounting Policies~~

Basis of Presentation

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates. These assumptions and estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates. The interim financial statements presented are unaudited, but they include all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, and cash flows for such periods. These financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the audited financial statements and notes included in the FHLB's Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the Securities and Exchange Commission (SEC). Results for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 are not necessarily indicative of operating results for the full year.

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

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the requirements for netting, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in Note 6. Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented. For more information about the FHLB's investments in securities purchased under agreements to resell, see “Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies” in the FHLB's ~~2019~~2020 Annual Report on Form 10-K.

Subsequent Events

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

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~~Significant Accounting Policies~~

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

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

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

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

~~Investment Securities.~~

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

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

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

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

Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. Prior to January 1, 2020, credit losses were recorded as

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~~a direct write-down of the held-to-maturity security carrying value. As of December 31, 2019, the FHLB had not recorded any direct write-downs to the carrying value of its held-to-maturity securities.~~

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

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

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

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

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

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

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

Note 2 - Recently Issued and Adopted Accounting ~~Standards and Interpretations~~

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

Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting.~~Reporting, as amended. On March 12, 2020, the Financial Accounting Standards Board (FASB) issued temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale and/or transfer of debt securities classified as held-to-maturity. This guidance isbecame effective immediately for the FHLB, and the amendments may be applied prospectively through December 31, 2022. The FHLB either elected or plans to elect the majority of the optional expedients and exceptions provided; however, the full effect on the FHLB's financial condition, results of operations and cash flows has not yet been determined.

~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ ~~On August 29, 2018,~~ In particular, during the ~~FASB issued amended guidance that aligns the requirements for capitalizing implementation costs~~

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incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance became effective forfourth quarter of 2020, the FHLB ~~for~~elected optional practical expedients specific to the ~~interim and annual periods beginning~~discounting transition on ~~January 1, 2020. The guidance~~a retrospective basis, which did not have a material ~~impact on the FHLB’s financial condition, results of operations, and cash flows.~~

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

~~Changes to the Disclosure Requirements for Fair Value Measurement.~~ On August 28, 2018, the FASB issued amended guidance that modifies the disclosure requirements for fair value measurements to improve disclosure effectiveness. This guidance became effective for the FHLB for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance ~~affected the FHLB's disclosures, but did not have any effect on the FHLB's financial condition, results of operations, or cash flows.~~

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

Note 3 - Investments

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

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

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

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the FHLB may extend to a counterparty. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. NaN allowance for credit losses was recorded for these assets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of (in thousands) ~~$107~~$50 and ~~$20~~$12 as of ~~September~~June 30, ~~2020,~~2021, and ~~$1,162~~$72 and ~~$210~~$10 as of December 31, ~~2019.~~2020.

Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with counterparties, the FHLB determined that 0 allowance for credit losses was needed for its securities purchased under agreements to resell at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The carrying value of

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securities purchased under agreements to resell excludes accrued interest receivable of (in thousands) ~~$15~~$8 and ~~$3,503~~$13 as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Debt Securities

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

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Trading Securities

Table 3.1 - Trading Securities by Major Security Types (in thousands)


Fair Value	Fair Value	September 30, 2020		December 31, 2019		Fair Value	June 30, 2021		December 31, 2020
Non-mortgage-backed securities (non-MBS):	Non-mortgage-backed securities (non-MBS):					Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligations	U.S. Treasury obligations	$	9,152,799	$	9,626,964	U.S. Treasury obligations	$	7,536,087	$	8,362,211
GSE obligations	GSE obligations	2,147,291		1,988,259		GSE obligations	1,791,111		2,125,580
Total non-MBS	Total non-MBS	11,300,090		11,615,223		Total non-MBS	9,327,198		10,487,791
Mortgage-backed securities (MBS):	Mortgage-backed securities (MBS):					Mortgage-backed securities (MBS):
U.S. obligation single-family MBS	U.S. obligation single-family MBS	374		470		U.S. obligation single-family MBS	269		333
Total	Total	$	11,300,464	$	11,615,693	Total	$	9,327,467	$	10,488,124

Table 3.2 - Net Gains (Losses) on Trading Securities (in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net gains (losses) on trading securities held at period end $ (38,866) $ 70,146 $ 323,136 $ 263,733
Net gains (losses) on securities matured during the period (3,270) 0 (3,270) 0
Net gains (losses) on trading securities $ (42,136) $ 70,146 $ 319,866 $ 263,733


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net unrealized gains (losses) on trading securities held at period end	$	(8,603)	$	(10,404)	$	(143,842)	$	362,002
Net gains (losses) on trading securities sold/matured during the period	(6,786)		0		(10,407)		0
Net gains (losses) on trading securities	$	(15,389)	$	(10,404)	$	(154,249)	$	362,002

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Available-for-Sale Securities

Table 3.3 - Available-for-Sale Securities by Major Security Types (in thousands)


											June 30, 2021
											Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-MBS:										Non-MBS:
U.S. Treasury obligations										U.S. Treasury obligations	$	1,654,897	$	8,783	$	0	$	1,663,680
GSE obligations										GSE obligations	135,740		2,423		0		138,163
Total non-MBS										Total non-MBS	1,790,637		11,206		0		1,801,843
MBS:										MBS:
GSE multi-family MBS										GSE multi-family MBS	140,869		5,159		0		146,028
Total MBS										Total MBS	140,869		5,159		0		146,028
Total										Total	$	1,931,506	$	16,365	$	0	$	1,947,871

		September 30, 2020									December 31, 2020
		Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-MBS:	Non-MBS:									Non-MBS:

GSE obligations	GSE obligations	$	142,362	$	1,217	$	0	$	143,579	GSE obligations	$	140,600	$	1,802	$	0	$	142,402
Total non-MBS	Total non-MBS	142,362		1,217		0		143,579		Total non-MBS	140,600		1,802		0		142,402
MBS:	MBS:									MBS:
GSE multi-family MBS	GSE multi-family MBS	149,143		1,774		0		150,917		GSE multi-family MBS	146,269		2,916		0		149,185
Total MBS	Total MBS	149,143		1,774		0		150,917		Total MBS	146,269		2,916		0		149,185
Total	Total	$	291,505	$	2,991	$	0	$	294,496	Total	$	286,869	$	4,718	$	0	$	291,587

		December 31, 2019
		Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Certificates of deposit		$	1,410,000	$	111	$	0	$	1,410,111
GSE obligations		131,815		601		(342)		132,074
Total		$	1,541,815	$	712	$	(342)	$	1,542,185

(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of (in thousands) ~~$647~~$5,390 and ~~$5,149~~$1,242 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table ~~3.4 summarizes the available-for-sale securities with unrealized losses, which are aggregated by major security type and length~~ of ~~time that individual securities have been in a continuous unrealized loss position.~~ Contents

All securities outstanding at ~~September~~June 30, 2021 and December 31, 2020 had gross unrealized gains.

Table 3.4 ~~- Available-for-Sale Securities in a Continuous Unrealized Loss Position (in thousands)~~

December 31, 2019
Less than 12 Months 12 Months or more Total
Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
GSE obligations $ 17,071 $ (126) $ 21,574 $ (216) $ 38,645 $ (342)
Total $ 17,071 $ (126) $ 21,574 $ (216) $ 38,645 $ (342)

~~Table 3.5~~ - Available-for-Sale Securities by Contractual Maturity (in thousands)


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Year of Maturity	Year of Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Year of Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-MBS:	Non-MBS:									Non-MBS:
Due in 1 year or less	Due in 1 year or less	$	0	$	0	$	1,410,000	$	1,410,111	Due in 1 year or less	$	0	$	0	$	0	$	0
Due after 1 year through 5 years	Due after 1 year through 5 years	11,341		11,377		0		0		Due after 1 year through 5 years	82,990		84,147		11,248		11,309
Due after 5 years through 10 years	Due after 5 years through 10 years	117,375		118,374		119,771		119,870		Due after 5 years through 10 years	1,695,070		1,704,598		116,096		117,507
Due after 10 years	Due after 10 years	13,646		13,828		12,044		12,204		Due after 10 years	12,577		13,098		13,256		13,586
Total non-MBS	Total non-MBS	142,362		143,579		1,541,815		1,542,185		Total non-MBS	1,790,637		1,801,843		140,600		142,402
MBS (1)	MBS (1)	149,143		150,917		0		0		MBS (1)	140,869		146,028		146,269		149,185
Total	Total	$	291,505	$	294,496	$	1,541,815	$	1,542,185	Total	$	1,931,506	$	1,947,871	$	286,869	$	291,587

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

~~Table of Contents~~

Table ~~3.6~~3.5 - Interest Rate Payment Terms of Available-for-Sale Securities (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Amortized cost of non-MBS:	Amortized cost of non-MBS:					Amortized cost of non-MBS:
Fixed-rate	Fixed-rate	$	142,362	$	1,541,815	Fixed-rate	$	1,790,637	$	140,600
Total amortized cost of non-MBS	Total amortized cost of non-MBS	142,362		1,541,815		Total amortized cost of non-MBS	1,790,637		140,600
Amortized cost of MBS:	Amortized cost of MBS:					Amortized cost of MBS:
Fixed-rate	Fixed-rate	149,143		0		Fixed-rate	140,869		146,269
Total amortized cost of MBS	Total amortized cost of MBS	149,143		0		Total amortized cost of MBS	140,869		146,269
Total	Total	$	291,505	$	1,541,815	Total	$	1,931,506	$	286,869

The FHLB had 0 sales of securities out of its available-for-sale portfolio for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019.~~2020.

Table of Contents

Held-to-Maturity Securities

Table ~~3.7~~3.6 - Held-to-Maturity Securities by Major Security Types (in thousands)


		September 30, 2020									June 30, 2021
		Amortized Cost (1)		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value			Amortized Cost (1)		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value
Non-MBS:	Non-MBS:									Non-MBS:

U.S. Treasury obligations	U.S. Treasury obligations	$	41,382	$	6	$	0	$	41,388	U.S. Treasury obligations	$	40,499	$	0	$	0	$	40,499

Total non-MBS	Total non-MBS	41,382		6		0		41,388		Total non-MBS	40,499		0		0		40,499
MBS:	MBS:									MBS:
U.S. obligation single-family MBS	U.S. obligation single-family MBS	1,253,606		42,523		(70)		1,296,059		U.S. obligation single-family MBS	1,092,017		27,780		(297)		1,119,500
GSE single-family MBS	GSE single-family MBS	3,461,029		117,246		0		3,578,275		GSE single-family MBS	2,317,442		80,500		0		2,397,942
GSE multi-family MBS	GSE multi-family MBS	6,374,582		3,302		(17,715)		6,360,169		GSE multi-family MBS	5,385,061		6,252		(1,938)		5,389,375

Total MBS	Total MBS	11,089,217		163,071		(17,785)		11,234,503		Total MBS	8,794,520		114,532		(2,235)		8,906,817
Total	Total	$	11,130,599	$	163,077	$	(17,785)	$	11,275,891	Total	$	8,835,019	$	114,532	$	(2,235)	$	8,947,316

		December 31, 2019									December 31, 2020
		Amortized Cost (1)		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value			Amortized Cost (1)		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses		Fair Value
Non-MBS:	Non-MBS:									Non-MBS:
U.S. Treasury obligations	U.S. Treasury obligations	$	35,171	$	5	$	0	$	35,176	U.S. Treasury obligations	$	41,398	$	1	$	0	$	41,399

Total non-MBS	Total non-MBS	35,171		5		0		35,176		Total non-MBS	41,398		1		0		41,399
MBS:	MBS:									MBS:
U.S. obligation single-family MBS	U.S. obligation single-family MBS	1,670,783		13,499		(239)		1,684,043		U.S. obligation single-family MBS	986,399		41,218		0		1,027,617
GSE single-family MBS	GSE single-family MBS	4,500,471		40,386		(24,072)		4,516,785		GSE single-family MBS	3,013,326		105,657		(2)		3,118,981
GSE multi-family MBS	GSE multi-family MBS	7,292,894		54		(27,745)		7,265,203		GSE multi-family MBS	5,607,048		5,146		(8,055)		5,604,139

Total MBS	Total MBS	13,464,148		53,939		(52,056)		13,466,031		Total MBS	9,606,773		152,021		(8,057)		9,750,737
Total	Total	$	13,499,319	$	53,944	$	(52,056)	$	13,501,207	Total	$	9,648,171	$	152,022	$	(8,057)	$	9,792,136

(1)Carrying value equals amortized cost. Amortized cost of held-to-maturity securities includes adjustments made to the cost basis of an investment for accretion and amortization and excludes accrued interest receivable of (in thousands) ~~$10,938~~$7,964 and ~~$20,365~~$9,609 as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table ~~of Contents~~

~~Table 3.8~~3.7 - Net Purchased Premiums Included in the Amortized Cost of MBS Classified as Held-to-Maturity (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Premiums	Premiums	$	19,288	$	32,071	Premiums	$	17,262	$	18,299
Discounts	Discounts	(8,060)		(13,996)		Discounts	(6,262)		(7,269)
Net purchased premiums	Net purchased premiums	$	11,228	$	18,075	Net purchased premiums	$	11,000	$	11,030

Table ~~3.9~~of Contents

Table 3.8 - Held-to-Maturity Securities by Contractual Maturity (in thousands)


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Year of Maturity	Year of Maturity	Amortized Cost (1)		Fair Value		Amortized Cost (1)		Fair Value		Year of Maturity	Amortized Cost (1)		Fair Value		Amortized Cost (1)		Fair Value
Non-MBS:	Non-MBS:									Non-MBS:
Due in 1 year or less	Due in 1 year or less	$	41,382	$	41,388	$	35,171	$	35,176	Due in 1 year or less	$	40,499	$	40,499	$	41,398	$	41,399
Due after 1 year through 5 years	Due after 1 year through 5 years	0		0		0		0		Due after 1 year through 5 years	0		0		0		0
Due after 5 years through 10 years	Due after 5 years through 10 years	0		0		0		0		Due after 5 years through 10 years	0		0		0		0
Due after 10 years	Due after 10 years	0		0		0		0		Due after 10 years	0		0		0		0
Total non-MBS	Total non-MBS	41,382		41,388		35,171		35,176		Total non-MBS	40,499		40,499		41,398		41,399
MBS (2)	MBS (2)	11,089,217		11,234,503		13,464,148		13,466,031		MBS (2)	8,794,520		8,906,817		9,606,773		9,750,737
Total	Total	$	11,130,599	$	11,275,891	$	13,499,319	$	13,501,207	Total	$	8,835,019	$	8,947,316	$	9,648,171	$	9,792,136

(1)Carrying value equals amortized cost.

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

Table ~~3.10~~3.9 - Interest Rate Payment Terms of Held-to-Maturity Securities (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Amortized cost of non-MBS:	Amortized cost of non-MBS:					Amortized cost of non-MBS:
Fixed-rate	Fixed-rate	$	41,382	$	35,171	Fixed-rate	$	40,499	$	41,398

Total amortized cost of non-MBS	Total amortized cost of non-MBS	41,382		35,171		Total amortized cost of non-MBS	40,499		41,398
Amortized cost of MBS:	Amortized cost of MBS:					Amortized cost of MBS:
Fixed-rate	Fixed-rate	4,209,998		5,438,532		Fixed-rate	3,158,930		3,677,199
Variable-rate	Variable-rate	6,879,219		8,025,616		Variable-rate	5,635,590		5,929,574
Total amortized cost of MBS	Total amortized cost of MBS	11,089,217		13,464,148		Total amortized cost of MBS	8,794,520		9,606,773
Total	Total	$	11,130,599	$	13,499,319	Total	$	8,835,019	$	9,648,171

From time to time the FHLB may sell securities out of its held-to-maturity portfolio. These securities, generally, have less than 15 percent of the acquired principal outstanding at the time of the sale. These sales are considered maturities for the purposes of security classification. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the FHLB did 0t sell any held-to-maturity securities.

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

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

~~The~~ FHLB’s available-for-sale and held-to-maturity securities are ~~certificates of deposit,~~ U.S. Treasury obligations, GSE obligations, and MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae ~~and the National Credit Union Administration (NCUA)~~ that are backed by single-family or multi-family mortgage loans. The FHLB only purchases securities considered investment quality. At ~~September~~June 30, 2021 and December 31, 2020, all available-for-sale and held-to-maturity securities were rated single-A, or above, by an

~~Table of Contents~~

NRSRO, based on the lowest long-term credit rating for each security used by the FHLB. The FHLB’s internal ratings of these securities may differ from those obtained from an NRSRO.

The FHLB evaluates individual available-for-sale securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). At ~~September~~June 30, 2021 and December 31, 2020, 0 available-for-sale securities were in an unrealized loss position. As a result, 0 allowance for credit losses was recorded on these available-for-sale securities at ~~September~~June 30, 2021 and December 31, 2020.

The FHLB evaluates its held-to-maturity securities for impairment on a collective, or pooled basis, unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. As of ~~September~~June 30, 2021 and December 31, 2020, the FHLB had 0t established an allowance for credit loss on any held-to-maturity securities because the securities: (1) were all highly-rated and/or had short remaining terms to maturity, (2) had not experienced, nor did the FHLB expect, any payment default on the instruments, and (3) in the case of U.S., GSE, or other agency obligations, carry an implicit or explicit government guarantee such that the FHLB considered the risk of nonpayment to be zero.

Table of Contents

Note 4 - Advances

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

Table 4.1 - Advances by Redemption Term (dollars in thousands)


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Redemption Term	Redemption Term	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Redemption Term	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate

Due in 1 year or less	Due in 1 year or less	$	12,899,712	0.77	%	$	32,342,198	1.78	%	Due in 1 year or less	$	11,594,813	0.51	%	$	12,064,753	0.75	%
Due after 1 year through 2 years	Due after 1 year through 2 years	1,961,395		1.94		4,477,497		2.19		Due after 1 year through 2 years	1,507,005		1.70		1,986,446		1.88
Due after 2 years through 3 years	Due after 2 years through 3 years	1,614,013		2.09		1,996,647		2.30		Due after 2 years through 3 years	1,730,057		2.22		1,445,139		2.15
Due after 3 years through 4 years	Due after 3 years through 4 years	1,984,165		2.17		1,408,948		2.50		Due after 3 years through 4 years	1,510,405		1.54		1,809,523		1.97
Due after 4 years through 5 years	Due after 4 years through 5 years	2,675,665		1.06		1,765,323		2.08		Due after 4 years through 5 years	3,377,957		0.82		2,361,604		1.02
Thereafter	Thereafter	5,513,011		1.37		5,273,531		2.35		Thereafter	3,657,892		1.52		5,339,932		1.34
Total principal amount	Total principal amount	26,647,961		1.19		47,264,144		1.94		Total principal amount	23,378,129		0.98		25,007,397		1.16
Commitment fees	Commitment fees	(187)				(281)				Commitment fees	(160)				(170)
Discount on Affordable Housing Program (AHP) Advances	Discount on Affordable Housing Program (AHP) Advances	(2,375)				(3,148)				Discount on Affordable Housing Program (AHP) Advances	(1,689)				(2,053)
Premiums		998				1,221

Discounts	Discounts	(3,349)				(2,530)				Discounts	(1,675)				(2,046)
Hedging adjustments	Hedging adjustments	456,945				109,929				Hedging adjustments	212,370				358,173
Fair value option valuation adjustments and accrued interest	Fair value option valuation adjustments and accrued interest	964				238				Fair value option valuation adjustments and accrued interest	(434)				702
Total (1)	Total (1)	$	27,100,957			$	47,369,573			Total (1)	$	23,586,541			$	25,362,003

(1)Carrying values exclude accrued interest receivable of (in thousands) ~~$28,047~~$19,583 and ~~$60,682~~$26,426 as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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

~~Table of Contents~~

Table 4.2 - Advances by Redemption Term or Next Call Date (in thousands)


Redemption Term or Next Call Date	Redemption Term or Next Call Date	September 30, 2020		December 31, 2019		Redemption Term or Next Call Date	June 30, 2021		December 31, 2020

Due in 1 year or less	Due in 1 year or less	$	16,215,663	$	35,366,608	Due in 1 year or less	$	14,907,547	$	15,375,354
Due after 1 year through 2 years	Due after 1 year through 2 years	1,788,958		4,982,222		Due after 1 year through 2 years	1,222,522		1,716,058
Due after 2 years through 3 years	Due after 2 years through 3 years	1,500,850		1,724,647		Due after 2 years through 3 years	1,708,257		1,434,377
Due after 3 years through 4 years	Due after 3 years through 4 years	1,960,365		1,381,718		Due after 3 years through 4 years	1,503,954		1,785,672
Due after 4 years through 5 years	Due after 4 years through 5 years	1,190,614		1,535,418		Due after 4 years through 5 years	399,457		877,504
Thereafter	Thereafter	3,991,511		2,273,531		Thereafter	3,636,392		3,818,432
Total principal amount	Total principal amount	$	26,647,961	$	47,264,144	Total principal amount	$	23,378,129	$	25,007,397

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

Table of Contents

Table 4.3 - Advances by Redemption Term or Next Put Date for Putable Advances (in thousands)


Redemption Term or Next Put Date	Redemption Term or Next Put Date	September 30, 2020		December 31, 2019		Redemption Term or Next Put Date	June 30, 2021		December 31, 2020

Due in 1 year or less	Due in 1 year or less	$	15,691,962	$	33,451,448	Due in 1 year or less	$	14,072,063	$	14,407,003
Due after 1 year through 2 years	Due after 1 year through 2 years	2,111,395		4,777,497		Due after 1 year through 2 years	1,587,005		2,146,446
Due after 2 years through 3 years	Due after 2 years through 3 years	1,614,013		2,129,647		Due after 2 years through 3 years	1,675,057		1,485,139
Due after 3 years through 4 years	Due after 3 years through 4 years	1,729,915		1,238,948		Due after 3 years through 4 years	1,531,155		1,855,273
Due after 4 years through 5 years	Due after 4 years through 5 years	2,660,665		1,611,073		Due after 4 years through 5 years	3,377,957		2,346,604
Thereafter	Thereafter	2,840,011		4,055,531		Thereafter	1,134,892		2,766,932
Total principal amount	Total principal amount	$	26,647,961	$	47,264,144	Total principal amount	$	23,378,129	$	25,007,397

Table 4.4 - Advances by Interest Rate Payment Terms (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020

Total fixed-rate (1)	Total fixed-rate (1)	$	20,562,653	$	36,113,108	Total fixed-rate (1)	$	17,772,835	$	19,195,790

Total variable-rate (1)	Total variable-rate (1)	6,085,308		11,151,036		Total variable-rate (1)	5,605,294		5,811,607
Total principal amount	Total principal amount	$	26,647,961	$	47,264,144	Total principal amount	$	23,378,129	$	25,007,397

(1)Payment terms based on current interest rate terms, which reflect any option exercises or rate conversions that have occurred subsequent to the related Advance issuance.

Credit Risk Exposure and Security Terms

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

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

▪one-to-four family and multi-family mortgage loans (delinquent for no more than 90 days) and securities representing such mortgages;

▪loans and securities issued, insured, or guaranteed by the U.S. government or any U.S. government agency (for example, mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);

▪cash or deposits in the FHLB;

▪certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value and that the FHLB can perfect a security interest in it; and

▪certain qualifying securities representing undivided equity interests in eligible Advance collateral.

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

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

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party that would otherwise be entitled to priority under applicable law and that are held by a bona fide purchaser for value or by a secured party holding a prior perfected security interest.

Using a risk-based approach, the FHLB considers the payment status, collateralization levels, and borrower's financial condition to be indicators of credit quality for its credit products. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the FHLB did 0t have any Advances that were past due, in non-accrual status or considered impaired. In addition, there were 0 troubled debt restructurings related to Advances of the FHLB during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019.~~2020. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the FHLB had rights to collateral on a member-by-member basis with an estimated value in excess of its outstanding extensions of credit.

Based upon the collateral held as security, its credit extension and collateral policies and the repayment history on Advances, the FHLB did not expect any credit losses on Advances as of ~~September~~June 30, ~~2020~~2021 and, therefore, 0 allowance for credit losses on Advances was recorded. For the same reasons, the FHLB did 0t record any allowance for credit losses on Advances at December 31, ~~2019.~~2020.

Advance Concentrations

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

Table 4.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLB (dollars in millions)


September 30, 2020						December 31, 2019
June 30, 2021											June 30, 2021					December 31, 2020
		Principal		% of Total Principal Amount of Advances			Principal		% of Total Principal Amount of Advances			Principal		% of Total Principal Amount of Advances			Principal		% of Total Principal Amount of Advances
U.S. Bank, N.A.	U.S. Bank, N.A.	$	4,273	16	%	U.S. Bank, N.A.	$	13,874	29	%	U.S. Bank, N.A.	$	3,272	14	%	U.S. Bank, N.A.	$	4,273	17	%
Third Federal Savings and Loan Association	Third Federal Savings and Loan Association	3,520		13		JPMorgan Chase Bank, N.A.	4,500		10		Third Federal Savings and Loan Association	3,141		13		Third Federal Savings and Loan Association	3,443		14
Nationwide Life Insurance Company	Nationwide Life Insurance Company	2,160		8		Third Federal Savings and Loan Association	3,883		8		Nationwide Life Insurance Company	2,607		11		Nationwide Life Insurance Company	2,062		8
Protective Life Insurance Company	Protective Life Insurance Company	1,750		7		Total	$	22,257	47	%	Protective Life Insurance Company	2,225		10		Protective Life Insurance Company	1,955		8
Western-Southern Life Assurance Co.	Western-Southern Life Assurance Co.	1,388		5							Western-Southern Life Assurance Co.	1,504		6		Western-Southern Life Assurance Co.	1,344		5
Total	Total	$	13,091	49	%						Total	$	12,749	54	%	Total	$	13,077	52	%

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Note 5 - Mortgage Loans

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

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Table 5.1 - Mortgage Loans Held for Portfolio (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Fixed rate medium-term single-family mortgage loans (1)	Fixed rate medium-term single-family mortgage loans (1)	$	746,795	$	773,575	Fixed rate medium-term single-family mortgage loans (1)	$	687,922	$	731,756
Fixed rate long-term single-family mortgage loans	Fixed rate long-term single-family mortgage loans	9,666,561		10,207,367		Fixed rate long-term single-family mortgage loans	6,843,302		8,584,239
Total unpaid principal balance	Total unpaid principal balance	10,413,356		10,980,942		Total unpaid principal balance	7,531,224		9,315,995
Premiums	Premiums	231,574		241,356		Premiums	169,493		208,281
Discounts	Discounts	(1,879)		(2,166)		Discounts	(1,328)		(1,636)
Hedging basis adjustments (2)	Hedging basis adjustments (2)	28,370		15,932		Hedging basis adjustments (2)	17,700		26,114
Total mortgage loans held for portfolio (3)	Total mortgage loans held for portfolio (3)	10,671,421		11,236,064		Total mortgage loans held for portfolio (3)	7,717,089		9,548,754
Allowance for credit losses on mortgage loans	Allowance for credit losses on mortgage loans	(242)		(711)		Allowance for credit losses on mortgage loans	(248)		(248)
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	$	10,671,179	$	11,235,353	Mortgage loans held for portfolio, net	$	7,716,841	$	9,548,506

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

(2)Represents the unamortized balance of the mortgage purchase commitments' market values at the time of settlement. The market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.

(3)Excludes accrued interest receivable of (in thousands) ~~$33,796~~$24,129 and ~~$36,739~~$30,109 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table 5.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Conventional mortgage loans	Conventional mortgage loans	$	10,213,953	$	10,750,526	Conventional mortgage loans	$	7,371,386	$	9,133,942
FHA mortgage loans		199,403		230,416
Federal Housing Administration (FHA) mortgage loans						Federal Housing Administration (FHA) mortgage loans	159,838		182,053
Total unpaid principal balance	Total unpaid principal balance	$	10,413,356	$	10,980,942	Total unpaid principal balance	$	7,531,224	$	9,315,995

Table 5.3 - Members, Including Any Known Affiliates that are Members of the FHLB, and Former Members Selling Five Percent or more of Total Unpaid Principal (dollars in millions)


		September 30, 2020					December 31, 2019					June 30, 2021					December 31, 2020
		Principal		% of Total			Principal		% of Total			Principal		% of Total			Principal		% of Total
Union Savings Bank	Union Savings Bank	$	3,294	32	%	Union Savings Bank	$	3,574	33	%	Union Savings Bank	$	1,998	27	%	Union Savings Bank	$	2,826	30	%
Guardian Savings Bank FSB	Guardian Savings Bank FSB	908		9		Guardian Savings Bank FSB	1,004		9		Guardian Savings Bank FSB	567		8		Guardian Savings Bank FSB	796		9
FirstBank		583		6		FirstBank	714		7
The Huntington National Bank		526		5

Credit Risk Exposure

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

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

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Table 5.4 - Changes in the LRA (in thousands)

~~Nine~~Six Months Ended

~~September~~June 30, ~~2020~~2021

LRA at beginning of year

~~233,476~~246,435

Additions

~~26,037~~5,327

Claims

~~(97)~~(3)

Scheduled distributions

~~(13,118)~~(4,569)

LRA at end of period

~~246,298~~247,190

Mortgage Loans Forbearance Plans. In response to the COVID-19 pandemic, which has caused economic strain on many home loan borrowers, the FHLB’s mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related hardships regardless of the payment status of the loan at the time of the request. Based on the most recent information received from mortgage servicers, as of ~~September~~June 30, ~~2020,~~2021, there was approximately (in thousands) ~~$108,705~~$44,378 in unpaid principal balance of conventional mortgage loans under a forbearance plan as a result of COVID-19, which represented one percent of conventional mortgage loans held for portfolio.

Payment Status of Mortgage Loans. The key credit quality indicator for conventional mortgage loans is payment status, which allows the FHLB to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make ~~timely payments~~a full payment of principal ~~and/or~~and interest ~~in accordance with the terms~~within one month of ~~the loan.~~its due date. Although certain loans have been granted a forbearance period as noted above, there has been no change in the terms of the loan. Accordingly, when a borrower fails to make timely payments of principal and/or interest for loans under forbearance, they are considered past due. Table 5.5presents the payment status of conventional mortgage loans. As of ~~September~~June 30, ~~2020,~~2021, (in thousands) ~~$30,310~~$6,139 in unpaid principal balance of conventional loans under forbearance had a current payment status, (in thousands) ~~$9,460~~$3,649 was 30 to 59 days past due, (in thousands) ~~$12,703~~$4,758 was 60 to 89 days past due, and (in thousands) ~~$56,232~~$29,832 was greater than 90 days past due.

Table 5.5 - Credit Quality Indicator of Conventional Mortgage Loans (in thousands)

September 30, 2020
Origination Year
Payment status, at amortized cost (1):
Prior to 2016 2016 to September 30, 2020 Total
Past due 30-59 days $ 19,286 $ 17,555 $ 36,841
Past due 60-89 days 6,356 12,991 19,347
Past due 90 days or more 27,274 44,142 71,416
Total past due mortgage loans 52,916 74,688 127,604
Current mortgage loans 2,901,775 7,440,949 10,342,724
Total conventional mortgage loans $ 2,954,691 $ 7,515,637 $ 10,470,328


	~~December 31, 2019~~
~~Payment status, at recorded investment~~ ~~(1)~~:	~~Conventional Loans~~
~~Past due 30-59 days~~	$	~~35,416~~
~~Past due 60-89 days~~	~~5,572~~
~~Past due 90 days or more~~	~~12,421~~
~~Total past due mortgage loans~~	~~53,409~~
~~Current mortgage loans~~	~~10,985,818~~
~~Total conventional mortgage loans~~	$	~~11,039,227~~

~~(1)The recorded investment at December 31, 2019 includes accrued interest receivable whereas the amortized cost at September 30, 2020 excludes accrued interest receivable.~~


	June 30, 2021
	Origination Year
Payment status, at amortized cost:	Prior to 2017		2017 to June 30, 2021		Total
Past due 30-59 days	$	17,455	$	9,987	$	27,442
Past due 60-89 days	5,836		4,059		9,895
Past due 90 days or more	20,074		23,004		43,078
Total past due mortgage loans	43,365		37,050		80,415
Current mortgage loans	3,136,125		4,339,425		7,475,550
Total conventional mortgage loans	$	3,179,490	$	4,376,475	$	7,555,965

	December 31, 2020
	Origination Year
Payment status, at amortized cost:	Prior to 2016		2016 to 2020		Total
Past due 30-59 days	$	16,812	$	19,036	$	35,848
Past due 60-89 days	7,245		7,553		14,798
Past due 90 days or more	24,651		39,921		64,572
Total past due mortgage loans	48,708		66,510		115,218
Current mortgage loans	2,555,139		6,694,837		9,249,976
Total conventional mortgage loans	$	2,603,847	$	6,761,347	$	9,365,194

2119

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

Table 5.6 - Other Delinquency Statistics (dollars in thousands)


		September 30, 2020										June 30, 2021
Amortized Cost:	Amortized Cost:	Conventional MPP Loans			FHA Loans			Total			Amortized Cost:	Conventional MPP Loans			FHA Loans			Total
In process of foreclosure (1)	In process of foreclosure (1)	$	5,400		$	2,148		$	7,548		In process of foreclosure (1)	$	4,393		$	406		$	4,799
Serious delinquency rate (2)	Serious delinquency rate (2)	0.69		%	5.83		%	0.79		%	Serious delinquency rate (2)	0.57		%	2.44		%	0.61		%
Past due 90 days or more still accruing interest (3)	Past due 90 days or more still accruing interest (3)	$	65,587		$	11,579		$	77,166		Past due 90 days or more still accruing interest (3)	$	37,820		$	3,930		$	41,750
Loans on non-accrual status	Loans on non-accrual status	$	7,054		$	0		$	7,054		Loans on non-accrual status	$	6,316		$	0		$	6,316

		December 31, 2019										December 31, 2020
Recorded Investment:		Conventional MPP Loans			FHA Loans			Total
Amortized Cost:											Amortized Cost:	Conventional MPP Loans			FHA Loans			Total
In process of foreclosure (1)	In process of foreclosure (1)	$	8,311		$	2,515		$	10,826		In process of foreclosure (1)	$	5,031		$	617		$	5,648
Serious delinquency rate (2)	Serious delinquency rate (2)	0.11		%	2.49		%	0.16		%	Serious delinquency rate (2)	0.69		%	3.28		%	0.74		%
Past due 90 days or more still accruing interest (3)	Past due 90 days or more still accruing interest (3)	$	11,935		$	5,805		$	17,740		Past due 90 days or more still accruing interest (3)	$	58,881		$	5,961		$	64,842
Loans on non-accrual status	Loans on non-accrual status	$	1,902		$	0		$	1,902		Loans on non-accrual status	$	6,721		$	0		$	6,721

(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported. During the six months endedJune 30, 2021 and year ended December 31, 2020, there were foreclosure moratoriums enacted in response to the COVID-19 pandemic.

(2)Loans that are 90 days or more past due or in the process of foreclosure (including past due or current loans in the process of foreclosure) expressed as a percentage of the total loan portfolio class.

(3)Each conventional loan past due 90 days or more still accruing interest is on a schedule/scheduled monthly settlement basis and contains one or more credit enhancements. Loans that are well secured and in the process of collection as a result of remaining credit enhancements and schedule/scheduled settlement are not placed on non-accrual status.

The FHLB did 0t have any real estate owned at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Evaluation of Current Expected Credit Losses

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

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

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

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

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Certain conventional loans may be evaluated for credit losses by using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The FHLB may estimate the fair value of this collateral by either applying an appropriate loss severity rate, using third-party estimates, or using a property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated

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fair value of the collateral, less estimated selling costs. The FHLB will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.

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

Allowance for Credit Losses on Conventional Mortgage Loans. The FHLB established an allowance for credit losses on its conventional mortgage loans held for portfolio. The following table presents a rollforward of the allowance for credit losses on conventional mortgage loans.

Table 5.7 - Allowance for Credit Losses on Conventional Mortgage Loans (in thousands)


		Three Months Ended September 30,						Three Months Ended June 30,
		2020		2019				2021		2020
Balance, beginning of period	Balance, beginning of period	$	264	$	784		Balance, beginning of period	$	248	$	297

Net charge offs	Net charge offs	(22)		(44)			Net charge offs	0		(33)

Balance, end of period	Balance, end of period	$	242	$	740		Balance, end of period	$	248	$	264

		Nine Months Ended September 30,				Six Months Ended June 30,
		2020		2019				2021		2020
Balance, beginning of period	Balance, beginning of period	$	711	$	840		Balance, beginning of period	$	248	$	711
Adjustment for cumulative effect of accounting change	Adjustment for cumulative effect of accounting change	(366)		0			Adjustment for cumulative effect of accounting change	0		(366)
Net charge offs	Net charge offs	(103)		(100)			Net charge offs	0		(81)

Balance, end of period	Balance, end of period	$	242	$	740		Balance, end of period	$	248	$	264

Note 6 - Derivatives and Hedging Activities

Nature of Business Activity

The FHLB is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and on the interest-bearing liabilities that finance these assets. The goal of the FHLB's interest-rate risk management strategy is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the FHLB has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the FHLB monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities. The FHLB uses derivatives when they are considered to be the most cost-effective alternative to achieve the FHLB's financial and risk management objectives. See Note 117 - Derivatives and Hedging Activities in the FHLB's ~~2019~~2020 Annual Report on Form 10-K for additional information on the FHLB's derivative transactions.

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

Financial Statement Effect and Additional Financial Information

The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. The notional amount reflects the FHLB's involvement in the various classes of financial instruments and represents neither the

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actual amounts exchanged nor the overall exposure of the FHLB to credit and market risk; the overall risk is much smaller. The risks of derivatives only can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged and any offsets between the derivatives and the items being hedged.

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Table 6.1 summarizes the notional amount and fair value of derivative instruments and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.

Table 6.1 - Fair Value of Derivative Instruments (in thousands)


		September 30, 2020							June 30, 2021
		Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives designated as fair value hedging instruments:	Derivatives designated as fair value hedging instruments:							Derivatives designated as fair value hedging instruments:
Interest rate swaps	Interest rate swaps	$	10,982,156	$	3,855	$	216,437	Interest rate swaps	$	10,307,599	$	53	$	111,378
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	13,120,104		3,829		5,934		Interest rate swaps	14,041,364		1,213		2,440
Interest rate swaptions	Interest rate swaptions	2,284,000		745		0		Interest rate swaptions	1,436,000		1,127		0

Mortgage delivery commitments	Mortgage delivery commitments	145,164		817		0		Mortgage delivery commitments	513,208		2,200		6
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	15,549,268		5,391		5,934		Total derivatives not designated as hedging instruments	15,990,572		4,540		2,446
Total derivatives before adjustments	Total derivatives before adjustments	$	26,531,424	9,246		222,371		Total derivatives before adjustments	$	26,298,171	4,593		113,824
Netting adjustments and cash collateral (1)	Netting adjustments and cash collateral (1)			249,924		(222,290)		Netting adjustments and cash collateral (1)			211,623		(111,435)
Total derivative assets and total derivative liabilities	Total derivative assets and total derivative liabilities			$	259,170	$	81	Total derivative assets and total derivative liabilities			$	216,216	$	2,389

		December 31, 2019							December 31, 2020
		Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives designated as fair value hedging instruments:	Derivatives designated as fair value hedging instruments:							Derivatives designated as fair value hedging instruments:
Interest rate swaps	Interest rate swaps	$	9,310,089	$	7,227	$	53,641	Interest rate swaps	$	10,477,703	$	272	$	163,174
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	28,501,469		9,685		363		Interest rate swaps	13,267,539		691		2,563
Interest rate swaptions	Interest rate swaptions	6,000,000		12,464		0		Interest rate swaptions	2,175,000		713		0
Forward rate agreements		849,000		21		782

Mortgage delivery commitments	Mortgage delivery commitments	936,269		2,798		64		Mortgage delivery commitments	137,352		1,056		0
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	36,286,738		24,968		1,209		Total derivatives not designated as hedging instruments	15,579,891		2,460		2,563
Total derivatives before adjustments	Total derivatives before adjustments	$	45,596,827	32,195		54,850		Total derivatives before adjustments	$	26,057,594	2,732		165,737
Netting adjustments and cash collateral (1)	Netting adjustments and cash collateral (1)			234,970		(53,540)		Netting adjustments and cash collateral (1)			213,156		(161,924)
Total derivative assets and total derivative liabilities	Total derivative assets and total derivative liabilities			$	267,165	$	1,310	Total derivative assets and total derivative liabilities			$	215,888	$	3,813

(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed by the FHLB with the same clearing agent and/or counterparty. Cash collateral posted, including accrued interest, was (in thousands) ~~$472,974~~$323,868 and ~~$293,148~~$375,390 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Cash collateral received, including accrued interest, was (in thousands) ~~$760~~$810 and ~~$4,638~~$310 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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

Table 6.2 - Impact of Fair Value Hedging Relationships on Net Interest Income (in thousands)

Three Months Ended September 30, 2020
Advances Available-for-sale Securities Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income $ 63,974 $ 271 $ (119,748)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Net interest settlements $ (34,448) $ (813) $ 477
Gain (loss) on derivatives 51,956 2,402 (591)
Gain (loss) on hedged items (54,369) (2,573) 591
Effect on net interest income $ (36,861) $ (984) $ 477

Three Months Ended September 30, 2019
Advances Available-for-sale securities Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income $ 267,537 $ 3,284 $ (260,453)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Net interest settlements $ 8,115 $ (92) $ 550
Gain (loss) on derivatives (61,531) (2,957) (482)
Gain (loss) on hedged items 57,287 2,925 565
Effect on net interest income $ 3,871 $ (124) $ 633


		Nine Months Ended September 30, 2020							Three Months Ended June 30, 2021
		Advances		Available-for-sale Securities		Consolidated Bonds			Advances		Available-for-Sale Securities		Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income	Total interest income (expense) recorded in the Statements of Income	$	394,578	$	4,286	$	(435,543)	Total interest income (expense) recorded in the Statements of Income	$	31,371	$	344	$	(86,589)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Impact of Fair Value Hedging Relationships								Impact of Fair Value Hedging Relationships
Interest rate swaps:								Interest rate swaps:
Net interest settlements	Net interest settlements	$	(55,405)	$	(1,611)	$	1,290	Net interest settlements	$	(27,851)	$	(2,829)	$	269
Gain (loss) on derivatives	Gain (loss) on derivatives	(359,963)		(9,800)		1,949		Gain (loss) on derivatives	(2,194)		(11,891)		(451)
Gain (loss) on hedged items	Gain (loss) on hedged items	345,831		9,440		(1,852)		Gain (loss) on hedged items	(993)		11,295		445
Effect on net interest income	Effect on net interest income	$	(69,537)	$	(1,971)	$	1,387	Effect on net interest income	$	(31,038)	$	(3,425)	$	263

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Nine Months Ended September 30, 2019
Advances Available-for-sale securities Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income $ 991,077 $ 21,697 $ (823,376)
Impact of Fair Value Hedging Relationships on the Statements of Income (1)
Interest income/expense:
Net interest settlements $ 33,643 $ (136) $ 1,102
Gain (loss) on derivatives (227,468) (9,460) 1,392
Gain (loss) on hedged items 220,699 9,222 (1,434)
Effect on net interest income $ 26,874 $ (374) $ 1,060

~~(1) Includes interest rate swaps.~~


	Three Months Ended June 30, 2020
	Advances		Available-for-Sale Securities		Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income	$	158,437	$	619	$	(129,808)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements	$	(19,243)	$	(524)	$	429
Gain (loss) on derivatives	(7,608)		(1,019)		17
Gain (loss) on hedged items	9,736		1,218		103
Effect on net interest income	$	(17,115)	$	(325)	$	549



	Six Months Ended June 30, 2021
	Advances		Available-for-sale Securities		Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income	$	72,531	$	1,679	$	(182,775)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements	$	(60,695)	$	(3,708)	$	520
Gain (loss) on derivatives	146,420		4,716		(826)
Gain (loss) on hedged items	(145,802)		(4,479)		815
Effect on net interest income	$	(60,077)	$	(3,471)	$	509



	Six Months Ended June 30, 2020
	Advances		Available-for-Sale Securities		Consolidated Bonds
Total interest income (expense) recorded in the Statements of Income	$	330,604	$	4,015	$	(315,795)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements	$	(20,957)	$	(798)	$	813
Gain (loss) on derivatives	(411,919)		(12,202)		2,540
Gain (loss) on hedged items	400,200		12,013		(2,443)
Effect on net interest income	$	(32,676)	$	(987)	$	910

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

Table 6.3 - Cumulative Basis Adjustments for Fair Value Hedges (in thousands)

September 30, 2020
Hedged Item
Amortized Cost of Hedged Asset/ Liability (1)
Basis Adjustment for Active Hedging Relationships Included in Amortized Cost Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost Total Amount of Fair Value Hedging Basis Adjustments
Advances $ 11,100,659 $ 455,255 $ 1,690 $ 456,945
Available-for-sale securities 291,505 16,355 399 16,754
Consolidated Bonds 121,367 2,560 0 2,560
December 31, 2019
Hedged Item
Amortized Cost of Hedged Asset/ Liability (1)
Basis Adjustment for Active Hedging Relationships Included in Amortized Cost Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost Total Amount of Fair Value Hedging Basis Adjustments
Advances $ 9,160,841 $ 109,078 $ 851 $ 109,929
Available-for-sale securities 131,814 7,314 0 7,314
Consolidated Bonds 210,696 708 0 708


	June 30, 2021
	Advances		Available-for-Sale Securities		Consolidated Bonds
Amortized cost of hedged asset or liability (1)	$	8,342,700	$	1,931,506	$	295,869
Fair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost	$	211,082	$	7,291	$	1,270
Basis adjustments for discontinued hedging relationships included in amortized cost	1,288		370		0
Total amount of fair value hedging basis adjustments	$	212,370	$	7,661	$	1,270

	December 31, 2020
	Advances		Available-for-Sale Securities		Consolidated Bonds
Amortized cost of hedged asset or liability (1)	$	10,483,218	$	286,869	$	132,852
Fair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost	$	356,624	$	11,751	$	2,086
Basis adjustments for discontinued hedging relationships included in amortized cost	1,549		389		0
Total amount of fair value hedging basis adjustments	$	358,173	$	12,140	$	2,086

(1) Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

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

Table 6.4 - Net Gains (Losses) Recorded in Non-interest Income (Loss) on Derivatives Not Designated as Hedging Instruments (in thousands)


		Three Months Ended September 30,				Three Months Ended June 30,
		2020		2019				2021		2020

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Economic hedges:	Economic hedges:						Economic hedges:
Interest rate swaps	Interest rate swaps	$	60,667	$	(77,671)		Interest rate swaps	$	8,066	$	769
Interest rate swaptions	Interest rate swaptions	110		19,315			Interest rate swaptions	(3,375)		(1,561)
Forward rate agreements	Forward rate agreements	0		(4,584)			Forward rate agreements	0		(6,051)
Net interest settlements	Net interest settlements	(44,242)		(3,655)			Net interest settlements	(44,587)		(26,715)
Mortgage delivery commitments	Mortgage delivery commitments	3,033		4,785			Mortgage delivery commitments	3,804		(500)
Total net gains (losses) related to derivatives not designated as hedging instruments	Total net gains (losses) related to derivatives not designated as hedging instruments	19,568		(61,810)			Total net gains (losses) related to derivatives not designated as hedging instruments	(36,092)		(34,058)
Price alignment amount (1)	Price alignment amount (1)	140		1,556			Price alignment amount (1)	13		86
Net gains (losses) on derivatives and hedging activities	Net gains (losses) on derivatives and hedging activities	$	19,708	$	(60,254)		Net gains (losses) on derivatives and hedging activities	$	(36,079)	$	(33,972)

		Nine Months Ended September 30,						Six Months Ended June 30,
		2020		2019				2021		2020
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Economic hedges:	Economic hedges:						Economic hedges:
Interest rate swaps	Interest rate swaps	$	(305,565)	$	(232,074)		Interest rate swaps	$	148,846	$	(366,232)
Interest rate swaptions	Interest rate swaptions	90,626		3,815			Interest rate swaptions	414		90,516
Forward rate agreements	Forward rate agreements	(31,935)		(11,283)			Forward rate agreements	0		(31,935)
Net interest settlements	Net interest settlements	(82,239)		(15,041)			Net interest settlements	(88,795)		(37,997)
Mortgage delivery commitments	Mortgage delivery commitments	19,627		14,004			Mortgage delivery commitments	540		16,594
Total net gains (losses) related to derivatives not designated as hedging instruments	Total net gains (losses) related to derivatives not designated as hedging instruments	(309,486)		(240,579)			Total net gains (losses) related to derivatives not designated as hedging instruments	61,005		(329,054)
Price alignment amount (1)	Price alignment amount (1)	1,256		2,240			Price alignment amount (1)	60		1,116
Net gains (losses) on derivatives and hedging activities	Net gains (losses) on derivatives and hedging activities	$	(308,230)	$	(238,339)		Net gains (losses) on derivatives and hedging activities	$	61,065	$	(327,938)

(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.

Credit Risk on Derivatives

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

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

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

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For cleared derivatives, the Clearinghouse determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. At ~~September~~June 30, ~~2020,~~2021, the FHLB was not required to post additional initial margin by its clearing agents based on credit considerations.

Offsetting of Derivative Assets and Derivative Liabilities

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

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

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Table 6.5 presents separately the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the FHLB did not receive or pledge any non-cash collateral. Any over-collateralization under an individual clearing agent and/or counterparty level is not included in the determination of the net unsecured amount.

Table 6.5 - Offsetting of Derivative Assets and Derivative Liabilities (in thousands)


		September 30, 2020								June 30, 2021
		Derivative Instruments Meeting Netting Requirements									Derivative Instruments Meeting Netting Requirements
		Gross Recognized Amount		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements (1)		Total Derivative Assets and Total Derivative Liabilities					Gross Recognized Amount		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements (1)		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:	Derivative Assets:											Derivative Assets:
Uncleared	Uncleared	$	1,256	$	2,846	$	817	$	4,919			Uncleared	$	2,244	$	(2,211)	$	2,200	$	2,233
Cleared	Cleared	7,173		247,078		0		254,251				Cleared	149		213,834		0		213,983
Total	Total							$	259,170			Total							$	216,216
Derivative Liabilities:	Derivative Liabilities:											Derivative Liabilities:
Uncleared	Uncleared	$	222,213	$	(222,132)	$	0	$	81			Uncleared	$	108,121	$	(105,738)	$	6	$	2,389
Cleared	Cleared	158		(158)		0		0				Cleared	5,697		(5,697)		0		0
Total	Total							$	81			Total							$	2,389

		December 31, 2019								December 31, 2020
		Derivative Instruments Meeting Netting Requirements									Derivative Instruments Meeting Netting Requirements
		Gross Recognized Amount		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements (1)		Total Derivative Assets and Total Derivative Liabilities					Gross Recognized Amount		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements (1)		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:	Derivative Assets:											Derivative Assets:
Uncleared	Uncleared	$	16,637	$	(13,903)	$	2,819	$	5,553			Uncleared	$	1,047	$	(1,047)	$	1,056	$	1,056
Cleared	Cleared	12,739		248,873		0		261,612				Cleared	629		214,203		0		214,832
Total	Total							$	267,165			Total							$	215,888
Derivative Liabilities:	Derivative Liabilities:											Derivative Liabilities:
Uncleared	Uncleared	$	53,533	$	(53,069)	$	846	$	1,310			Uncleared	$	161,633	$	(157,820)	$	0	$	3,813
Cleared	Cleared	471		(471)		0		0				Cleared	4,104		(4,104)		0		0
Total	Total							$	1,310			Total							$	3,813

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

~~Table of Contents~~

Note 7 - Deposits

Table 7.1 - Deposits (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Interest-bearing:	Interest-bearing:					Interest-bearing:
Demand and overnight	Demand and overnight	$	1,118,550	$	906,028	Demand and overnight	$	1,236,705	$	1,190,508
Term	Term	108,525		27,850		Term	85,150		123,675
Other	Other	12,123		7,179		Other	14,565		13,019
Total interest-bearing		1,239,198		941,057
Total interest-bearing deposits						Total interest-bearing deposits	$	1,336,420	$	1,327,202

Non-interest bearing:
Other		0		10,239
Total non-interest bearing		0		10,239
Total deposits		$	1,239,198	$	951,296

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Note 8 - Consolidated Obligations

Table 8.1 - Consolidated Discount Notes Outstanding (dollars in thousands)

Book Value Principal Amount
Weighted Average Interest Rate (1)
September 30, 2020 $ 26,667,698 $ 26,674,511 0.17 %
December 31, 2019 $ 49,084,219 $ 49,176,985 1.56 %


	Book Value		Principal Amount		Weighted Average Interest Rate (1)
June 30, 2021	$	21,180,119	$	21,180,728	0.02	%
December 31, 2020	$	27,500,244	$	27,502,730	0.11	%

(1)Represents an implied rate without consideration of concessions.

Table 8.2 - Consolidated Bonds Outstanding by Original Contractual Maturity (dollars in thousands)


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
Year of Original Contractual Maturity	Year of Original Contractual Maturity	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Year of Original Contractual Maturity	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Due in 1 year or less	Due in 1 year or less	$	27,672,605	0.47	%	$	18,259,565	1.77	%	Due in 1 year or less	$	19,735,345	0.51	%	$	18,676,595	0.72	%
Due after 1 year through 2 years	Due after 1 year through 2 years	3,731,015		2.40		8,293,595		1.96		Due after 1 year through 2 years	2,506,080		2.22		2,728,885		2.38
Due after 2 years through 3 years	Due after 2 years through 3 years	2,614,465		2.25		3,024,885		2.41		Due after 2 years through 3 years	2,880,580		2.05		3,388,120		2.09
Due after 3 years through 4 years	Due after 3 years through 4 years	2,062,795		2.47		3,123,120		2.62		Due after 3 years through 4 years	1,886,000		2.04		1,793,405		2.21
Due after 4 years through 5 years	Due after 4 years through 5 years	1,781,730		1.97		1,540,405		2.73		Due after 4 years through 5 years	1,532,000		1.58		1,910,000		1.45
Thereafter	Thereafter	3,515,000		2.51		4,139,000		2.97		Thereafter	3,116,000		2.26		3,454,000		2.39

Total principal amount	Total principal amount	41,377,610		1.09		38,380,570		2.10		Total principal amount	31,656,005		1.10		31,951,005		1.32
Premiums	Premiums	47,871				64,604				Premiums	34,886				43,235
Discounts	Discounts	(21,622)				(24,335)				Discounts	(18,732)				(21,403)
Hedging adjustments	Hedging adjustments	2,560				708				Hedging adjustments	1,270				2,086
Fair value option valuation adjustment and accrued interest	Fair value option valuation adjustment and accrued interest	25,759				18,177				Fair value option valuation adjustment and accrued interest	4,683				21,388
Total	Total	$	41,432,178			$	38,439,724			Total	$	31,678,112			$	31,996,311

Table 8.3 - Consolidated Bonds Outstanding by Call Features (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Principal Amount of Consolidated Bonds:	Principal Amount of Consolidated Bonds:					Principal Amount of Consolidated Bonds:
Non-callable	Non-callable	$	37,276,610	$	32,953,570	Non-callable	$	27,395,005	$	26,539,005
Callable	Callable	4,101,000		5,427,000		Callable	4,261,000		5,412,000
Total principal amount	Total principal amount	$	41,377,610	$	38,380,570	Total principal amount	$	31,656,005	$	31,951,005

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Table 8.4 - Consolidated Bonds Outstanding by Original Contractual Maturity or Next Call Date (in thousands)

Year of Original Contractual Maturity or Next Call Date September 30, 2020 December 31, 2019
Due in 1 year or less $ 30,773,605 $ 22,631,565
Due after 1 year through 2 years 3,956,015 7,130,595
Due after 2 years through 3 years 2,088,465 2,662,885
Due after 3 years through 4 years 1,699,795 2,343,120
Due after 4 years through 5 years 1,055,730 1,253,405
Thereafter 1,804,000 2,359,000
Total principal amount $ 41,377,610 $ 38,380,570


Year of Original Contractual Maturity or Next Call Date	June 30, 2021		December 31, 2020
Due in 1 year or less	$	23,996,345	$	22,968,595
Due after 1 year through 2 years	2,481,080		2,823,885
Due after 2 years through 3 years	1,875,580		2,452,120
Due after 3 years through 4 years	1,209,000		1,253,405
Due after 4 years through 5 years	556,000		728,000
Thereafter	1,538,000		1,725,000

Total principal amount	$	31,656,005	$	31,951,005

Table 8.5 - Consolidated Bonds by Interest-rate Payment Type (in thousands)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Principal Amount of Consolidated Bonds:	Principal Amount of Consolidated Bonds:					Principal Amount of Consolidated Bonds:
Fixed-rate	Fixed-rate	$	25,774,610	$	27,368,570	Fixed-rate	$	23,656,005	$	21,312,005
Variable-rate	Variable-rate	15,603,000		11,012,000		Variable-rate	8,000,000		10,639,000

Total principal amount	Total principal amount	$	41,377,610	$	38,380,570	Total principal amount	$	31,656,005	$	31,951,005

Note 9 - Affordable Housing Program (AHP)

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

Table 9.1 - Analysis of AHP Liability (in thousands)



Balance at December 31, ~~2019~~2020	$	~~115,295~~110,772
Assessments (current year additions)	~~26,382~~2,142
Subsidy uses, net	~~(25,922)~~(11,190)
Balance at ~~September~~June 30, ~~2020~~2021	$	~~115,755~~101,724

Note 10 - Capital

Table 10.1 - Capital Requirements (dollars in thousands)


		September 30, 2020						December 31, 2019							June 30, 2021						December 31, 2020
		Minimum Requirement			Actual			Minimum Requirement			Actual				Minimum Requirement			Actual			Minimum Requirement			Actual
Risk-based capital	Risk-based capital	$	470,213		$	4,234,451		$	820,635		$	4,482,519		Risk-based capital	$	658,569		$	4,028,675		$	539,321		$	3,964,353
Capital-to-assets ratio (regulatory)	Capital-to-assets ratio (regulatory)	4.00		%	5.72		%	4.00		%	4.79		%	Capital-to-assets ratio (regulatory)	4.00		%	6.84		%	4.00		%	6.07		%
Regulatory capital	Regulatory capital	$	2,963,096		$	4,234,451		$	3,739,662		$	4,482,519		Regulatory capital	$	2,354,885		$	4,028,675		$	2,611,850		$	3,964,353
Leverage capital-to-assets ratio (regulatory)	Leverage capital-to-assets ratio (regulatory)	5.00		%	8.57		%	5.00		%	7.19		%	Leverage capital-to-assets ratio (regulatory)	5.00		%	10.26		%	5.00		%	9.11		%
Leverage capital	Leverage capital	$	3,703,870		$	6,351,677		$	4,674,578		$	6,723,779		Leverage capital	$	2,943,606		$	6,043,013		$	3,264,812		$	5,946,530

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Restricted Retained Earnings. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 the FHLB had (in thousands) ~~$493,340~~$505,136 and ~~$446,048~~$501,321 in restricted retained earnings. These restricted retained earnings are not available to pay dividends but are available to absorb unexpected losses, if any, that an FHLBank may experience.

~~Table of Contents~~

Table 10.2 - Mandatorily Redeemable Capital Stock Rollforward (in thousands)

Balance, December 31, ~~2019~~2020

~~21,669~~19,454

Capital stock subject to mandatory redemption reclassified from equity

~~557,642~~61,003

~~Capital stock previously subject to mandatory redemption reclassified to capital~~

~~(123)~~

Repurchase/redemption of mandatorily redeemable capital stock

~~(561,527)~~(66,738)

Balance, ~~September~~June 30, ~~2020~~2021

~~17,661~~13,719

Table 10.3 - Mandatorily Redeemable Capital Stock by Contractual Year of Redemption (in thousands)


Contractual Year of Redemption	Contractual Year of Redemption	September 30, 2020		December 31, 2019		Contractual Year of Redemption	June 30, 2021		December 31, 2020
Year 1	Year 1	$	159	$	371	Year 1	$	1,243	$	156
Year 2	Year 2	1,246		298		Year 2	803		1,124
Year 3	Year 3	1,174		1,129		Year 3	894		2,167
Year 4	Year 4	1,791		2,955		Year 4	255		391
Year 5	Year 5	16		1,931		Year 5	1,667		3,142
Thereafter (1)	Thereafter (1)	650		650		Thereafter (1)	0		650
Past contractual redemption date due to remaining activity (2)	Past contractual redemption date due to remaining activity (2)	12,625		14,335		Past contractual redemption date due to remaining activity (2)	8,857		11,824
Total	Total	$	17,661	$	21,669	Total	$	13,719	$	19,454

(1)Represents mandatorily redeemable capital stock resulting from a Finance Agency rule effective February 19, 2016, that made captive insurance companies ineligible for FHLB membership. Captive insurance companies that were admitted as FHLB members prior to September 12, 2014, ~~will have~~had their membership terminated no later than February 19, 2021. The related mandatorily redeemable capital stock is not required to be redeemed until five years after the member's termination.

(2)Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.

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

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

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Note 11 - Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in accumulated other comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Table 11.1 - Accumulated Other Comprehensive Income (Loss) (in thousands)


		Net unrealized gains (losses) on available-for-sale securities		Pension and postretirement benefits		Total accumulated other comprehensive income (loss)			Net unrealized gains (losses) on available-for-sale securities		Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
BALANCE, JUNE 30, 2019		$	(360)	$	(12,016)	$	(12,376)
BALANCE, MARCH 31, 2020								BALANCE, MARCH 31, 2020	$	(535)	$	(16,201)	$	(16,736)
Other comprehensive income before reclassification:	Other comprehensive income before reclassification:							Other comprehensive income before reclassification:
Net unrealized gains (losses)	Net unrealized gains (losses)	(192)		0		(192)		Net unrealized gains (losses)	22		0		22

Reclassifications from other comprehensive income (loss) to net income:	Reclassifications from other comprehensive income (loss) to net income:							Reclassifications from other comprehensive income (loss) to net income:

Amortization - pension and postretirement benefits	Amortization - pension and postretirement benefits	0		459		459		Amortization - pension and postretirement benefits	0		581		581
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	(192)		459		267		Net current period other comprehensive income (loss)	22		581		603
BALANCE, SEPTEMBER 30, 2019		$	(552)	$	(11,557)	$	(12,109)
BALANCE, JUNE 30, 2020								BALANCE, JUNE 30, 2020	$	(513)	$	(15,620)	$	(16,133)

BALANCE, JUNE 30, 2020		$	(513)	$	(15,620)	$	(16,133)
BALANCE, MARCH 31, 2021								BALANCE, MARCH 31, 2021	$	7,405	$	(19,027)	$	(11,622)
Other comprehensive income before reclassification:	Other comprehensive income before reclassification:							Other comprehensive income before reclassification:
Net unrealized gains (losses)	Net unrealized gains (losses)	3,504		0		3,504		Net unrealized gains (losses)	8,960		0		8,960

Reclassifications from other comprehensive income (loss) to net income:	Reclassifications from other comprehensive income (loss) to net income:							Reclassifications from other comprehensive income (loss) to net income:

Amortization - pension and postretirement benefits	Amortization - pension and postretirement benefits	0		572		572		Amortization - pension and postretirement benefits	0		676		676
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	3,504		572		4,076		Net current period other comprehensive income (loss)	8,960		676		9,636
BALANCE, SEPTEMBER 30, 2020		$	2,991	$	(15,048)	$	(12,057)
BALANCE, JUNE 30, 2021								BALANCE, JUNE 30, 2021	$	16,365	$	(18,351)	$	(1,986)


		Net unrealized gains (losses) on available-for-sale securities		Pension and postretirement benefits		Total accumulated other comprehensive income (loss)			Net unrealized gains (losses) on available-for-sale securities		Pension and postretirement benefits		Total accumulated other comprehensive income (loss)

BALANCE, DECEMBER 31, 2018		$	(110)	$	(12,933)	$	(13,043)
Other comprehensive income before reclassification:
Net unrealized gains (losses)		(442)		0		(442)

Reclassifications from other comprehensive income (loss) to net income:

Amortization - pension and postretirement benefits		0		1,376		1,376
Net current period other comprehensive income (loss)		(442)		1,376		934
BALANCE, SEPTEMBER 30, 2019		$	(552)	$	(11,557)	$	(12,109)

BALANCE, DECEMBER 31, 2019	BALANCE, DECEMBER 31, 2019	$	370	$	(16,764)	$	(16,394)	BALANCE, DECEMBER 31, 2019	$	370	$	(16,764)	$	(16,394)
Other comprehensive income before reclassification:	Other comprehensive income before reclassification:							Other comprehensive income before reclassification:
Net unrealized gains (losses)	Net unrealized gains (losses)	2,621		0		2,621		Net unrealized gains (losses)	(883)		0		(883)

Reclassifications from other comprehensive income (loss) to net income:	Reclassifications from other comprehensive income (loss) to net income:							Reclassifications from other comprehensive income (loss) to net income:

Amortization - pension and postretirement benefits	Amortization - pension and postretirement benefits	0		1,716		1,716		Amortization - pension and postretirement benefits	0		1,144		1,144
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	2,621		1,716		4,337		Net current period other comprehensive income (loss)	(883)		1,144		261
BALANCE, SEPTEMBER 30, 2020		$	2,991	$	(15,048)	$	(12,057)
BALANCE, JUNE 30, 2020								BALANCE, JUNE 30, 2020	$	(513)	$	(15,620)	$	(16,133)

BALANCE, DECEMBER 31, 2020								BALANCE, DECEMBER 31, 2020	$	4,718	$	(19,703)	$	(14,985)
Other comprehensive income before reclassification:								Other comprehensive income before reclassification:
Net unrealized gains (losses)								Net unrealized gains (losses)	11,647		0		11,647

Reclassifications from other comprehensive income (loss) to net income:								Reclassifications from other comprehensive income (loss) to net income:

Amortization - pension and postretirement benefits								Amortization - pension and postretirement benefits	0		1,352		1,352
Net current period other comprehensive income (loss)								Net current period other comprehensive income (loss)	11,647		1,352		12,999
BALANCE, JUNE 30, 2021								BALANCE, JUNE 30, 2021	$	16,365	$	(18,351)	$	(1,986)

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Note 12 - Pension and Postretirement Benefit Plans

Qualified Defined Benefit Multi-employer Plan. The FHLB participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Defined Benefit Plan), a tax-qualified defined benefit pension plan. Under the Pentegra Defined Benefit Plan, contributions made by one participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The Pentegra Defined Benefit Plan covers all officers and employees of the FHLB who meet certain eligibility requirements. Contributions to the Pentegra Defined Benefit Plan charged to compensation and benefit expense were ~~$1,594,000~~$1,697,000 and ~~$1,485,000~~$1,518,000 in the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$4,630,000~~$3,393,000 and ~~$5,422,000~~$3,036,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Qualified Defined Contribution Plan. The FHLB also participates in the ~~Pentegra~~Fidelity Defined Contribution Plan, ~~for Financial Institutions,~~ a tax-qualified, defined contribution plan. The FHLB contributes a percentage of the participants' compensation by making a matching contribution equal to a percentage of voluntary employee contributions, subject to certain IRS limitations. The FHLB contributed ~~$271,000~~$339,000 and ~~$252,000~~$324,000 in the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$1,133,000~~$942,000 and ~~$1,058,000~~$862,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

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

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

Table 12.1 - Net Periodic Benefit Cost (in thousands)


		Three Months Ended September 30,									Three Months Ended June 30,
		Defined Benefit Retirement Plan				Postretirement Benefits Plan					Defined Benefit Retirement Plan				Postretirement Benefits Plan
		2020		2019		2020		2019			2021		2020		2021		2020
Net Periodic Benefit Cost	Net Periodic Benefit Cost									Net Periodic Benefit Cost
Service cost	Service cost	$	282	$	225	$	3	$	3	Service cost	$	326	$	290	$	2	$	2
Interest cost	Interest cost	331		388		35		46		Interest cost	274		331		29		35

Amortization of net loss	Amortization of net loss	572		459		0		0		Amortization of net loss	663		581		13		0
Net periodic benefit cost	Net periodic benefit cost	$	1,185	$	1,072	$	38	$	49	Net periodic benefit cost	$	1,263	$	1,202	$	44	$	37

		Nine Months Ended September 30,									Six Months Ended June 30,
		Defined Benefit Retirement Plan				Postretirement Benefits Plan					Defined Benefit Retirement Plan				Postretirement Benefits Plan
		2020		2019		2020		2019			2021		2020		2021		2020
Net Periodic Benefit Cost	Net Periodic Benefit Cost									Net Periodic Benefit Cost
Service cost	Service cost	$	847	$	676	$	7	$	10	Service cost	$	652	$	565	$	4	$	4
Interest cost	Interest cost	993		1,163		106		136		Interest cost	548		662		58		71

Amortization of net loss	Amortization of net loss	1,716		1,376		0		0		Amortization of net loss	1,326		1,144		26		0
Net periodic benefit cost	Net periodic benefit cost	$	3,556	$	3,215	$	113	$	146	Net periodic benefit cost	$	2,526	$	2,371	$	88	$	75

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

Note 13 - Segment Information

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

Table 13.1 - Financial Performance by Operating Segment (in thousands)


		Three Months Ended September 30,							Three Months Ended June 30,
		Traditional Member Finance		MPP		Total			Traditional Member Finance		MPP		Total
2020
Net interest income		$	91,957	$	1,151	$	93,108
2021								2021
Net interest income (loss)								Net interest income (loss)	$	80,863	$	(14,712)	$	66,151

Non-interest income (loss)	Non-interest income (loss)	(10,582)		3,111		(7,471)		Non-interest income (loss)	(43,205)		1,365		(41,840)
Non-interest expense	Non-interest expense	18,918		2,953		21,871		Non-interest expense	21,342		2,569		23,911
Income before assessments		62,457		1,309		63,766
Income (loss) before assessments								Income (loss) before assessments	16,316		(15,916)		400
Affordable Housing Program assessments	Affordable Housing Program assessments	6,238		131		6,369		Affordable Housing Program assessments	1,643		(1,592)		51
Net income		$	56,219	$	1,178	$	57,397
2019
Net interest income		$	65,146	$	22,093	$	87,239
Net income (loss)								Net income (loss)	$	14,673	$	(14,324)	$	349
2020								2020

Net interest income								Net interest income	$	139,314	$	10,281	$	149,595
Non-interest income (loss)	Non-interest income (loss)	(8,242)		12,536		4,294		Non-interest income (loss)	(7,378)		(7,647)		(15,025)
Non-interest expense	Non-interest expense	19,166		2,677		21,843		Non-interest expense	21,354		2,664		24,018
Income before assessments		37,738		31,952		69,690
Income (loss) before assessments								Income (loss) before assessments	110,582		(30)		110,552
Affordable Housing Program assessments	Affordable Housing Program assessments	3,800		3,195		6,995		Affordable Housing Program assessments	11,145		(3)		11,142
Net income		$	33,938	$	28,757	$	62,695
Net income (loss)								Net income (loss)	$	99,437	$	(27)	$	99,410


		Nine Months Ended September 30,							Six Months Ended June 30,
		Traditional Member Finance		MPP		Total			Traditional Member Finance		MPP		Total
2020
Net interest income		$	295,920	$	28,898	$	324,818
2021								2021
Net interest income (loss)								Net interest income (loss)	$	168,245	$	(26,188)	$	142,057

Non-interest income (loss)	Non-interest income (loss)	(41,540)		49,733		8,193		Non-interest income (loss)	(74,231)		826		(73,405)
Non-interest expense	Non-interest expense	61,379		8,790		70,169		Non-interest expense	42,066		5,368		47,434
Income before assessments		193,001		69,841		262,842
Income (loss) before assessments								Income (loss) before assessments	51,948		(30,730)		21,218
Affordable Housing Program assessments	Affordable Housing Program assessments	19,398		6,984		26,382		Affordable Housing Program assessments	5,215		(3,073)		2,142
Net income		$	173,603	$	62,857	$	236,460
2019
Net income (loss)								Net income (loss)	$	46,733	$	(27,657)	$	19,076
2020								2020
Net interest income	Net interest income	$	226,254	$	80,671	$	306,925	Net interest income	$	203,963	$	27,747	$	231,710

Non-interest income (loss)	Non-interest income (loss)	(22,306)		5,542		(16,764)		Non-interest income (loss)	(30,958)		46,622		15,664
Non-interest expense	Non-interest expense	59,158		8,486		67,644		Non-interest expense	42,461		5,837		48,298
Income before assessments	Income before assessments	144,790		77,727		222,517		Income before assessments	130,544		68,532		199,076
Affordable Housing Program assessments	Affordable Housing Program assessments	14,569		7,773		22,342		Affordable Housing Program assessments	13,160		6,853		20,013
Net income	Net income	$	130,221	$	69,954	$	200,175	Net income	$	117,384	$	61,679	$	179,063

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Table 13.2 - Asset Balances by Operating Segment (in thousands)

Assets
Traditional Member
Finance MPP Total
September 30, 2020 $ 63,045,740 $ 11,031,668 $ 74,077,408
December 31, 2019 81,064,206 12,427,353 93,491,559


	Assets
	Traditional Member Finance		MPP		Total
June 30, 2021	$	47,713,254	$	11,158,865	$	58,872,119
December 31, 2020	53,356,209		11,940,030		65,296,239

Note 14 - Fair Value Disclosures

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

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

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

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

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

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

The FHLB reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain financial assets or liabilities. The FHLB did not have any transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019.~~2020.

Table 14.1 presents the net ~~carrying value/~~carrying value, fair value, and fair value hierarchy of financial assets and liabilities of the FHLB. The FHLB records trading securities, available-for-sale securities, derivative assets, derivative liabilities, certain Advances and certain Consolidated Obligations at fair value on a recurring basis, and on occasion, certain mortgage loans held for portfolio on a nonrecurring basis. The FHLB records all other financial assets and liabilities at amortized cost. Refer to Table 14.2 for further details about the financial assets and liabilities held at fair value on either a recurring or nonrecurring basis.

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Table 14.1 - Fair Value Summary (in thousands)


		September 30, 2020													June 30, 2021
				Fair Value													Fair Value
Financial Instruments	Financial Instruments	Net Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)		Financial Instruments	Net Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Assets:	Assets:													Assets:
Cash and due from banks	Cash and due from banks	$	1,363,958	$	1,363,958	$	1,363,958	$	0	$	0	$	—	Cash and due from banks	$	135,003	$	135,003	$	135,003	$	0	$	0	$	—
Interest-bearing deposits	Interest-bearing deposits	630,161		630,161		0		630,161		0		—		Interest-bearing deposits	374,147		374,147		0		374,147		0		—
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2,453,694		2,453,694		0		2,453,694		0		—		Securities purchased under agreements to resell	436,500		436,500		0		436,500		0		—
Federal funds sold	Federal funds sold	8,705,000		8,705,000		0		8,705,000		0		—		Federal funds sold	6,175,000		6,175,000		0		6,175,000		0		—
Trading securities	Trading securities	11,300,464		11,300,464		0		11,300,464		0		—		Trading securities	9,327,467		9,327,467		0		9,327,467		0		—
Available-for-sale securities	Available-for-sale securities	294,496		294,496		0		294,496		0		—		Available-for-sale securities	1,947,871		1,947,871		0		1,947,871		0		—
Held-to-maturity securities	Held-to-maturity securities	11,130,599		11,275,891		0		11,275,891		0		—		Held-to-maturity securities	8,835,019		8,947,316		0		8,947,316		0		—
Advances (2)	Advances (2)	27,100,957		27,334,478		0		27,334,478		0		—		Advances (2)	23,586,541		23,785,148		0		23,785,148		0		—
Mortgage loans held for portfolio	Mortgage loans held for portfolio	10,671,179		10,990,116		0		10,919,323		70,793		—		Mortgage loans held for portfolio	7,716,841		7,959,301		0		7,916,827		42,474		—
Accrued interest receivable	Accrued interest receivable	144,310		144,310		0		144,310		0		—		Accrued interest receivable	96,727		96,727		0		96,727		0		—
Derivative assets	Derivative assets	259,170		259,170		0		9,246		0		249,924		Derivative assets	216,216		216,216		0		4,593		0		211,623
Liabilities:	Liabilities:													Liabilities:
Deposits	Deposits	1,239,198		1,239,330		0		1,239,330		0		—		Deposits	1,336,420		1,336,365		0		1,336,365		0		—
Consolidated Obligations:	Consolidated Obligations:													Consolidated Obligations:
Discount Notes(3)	Discount Notes(3)	26,667,698		26,671,553		0		26,671,553		0		—		Discount Notes(3)	21,180,119		21,179,813		0		21,179,813		0		—
Bonds ~~(3)~~(4)	Bonds ~~(3)~~(4)	41,432,178		42,302,498		0		42,302,498		0		—		Bonds ~~(3)~~(4)	31,678,112		32,212,241		0		32,212,241		0		—
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	17,661		17,661		17,661		0		0		—		Mandatorily redeemable capital stock	13,719		13,719		13,719		0		0		—
Accrued interest payable	Accrued interest payable	77,746		77,746		0		77,746		0		—		Accrued interest payable	67,258		67,258		0		67,258		0		—
Derivative liabilities	Derivative liabilities	81		81		0		222,371		0		(222,290)		Derivative liabilities	2,389		2,389		0		113,824		0		(111,435)

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

(2)Includes (in thousands) ~~$27,464~~$26,066 of Advances recorded under the fair value option at ~~September~~June 30, ~~2020.~~2021.

(3)Includes (in thousands) ~~$2,447,759~~$2,866,877 of Consolidated Obligation Discount Notes recorded under the fair value option at June 30, 2021.

(4)Includes (in thousands) $2,295,683 of Consolidated Obligation Bonds recorded under the fair value option at ~~September~~June 30, ~~2020.~~2021.

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		December 31, 2019													December 31, 2020
				Fair Value													Fair Value
Financial Instruments	Financial Instruments	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)		Financial Instruments	Net Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Assets:	Assets:													Assets:
Cash and due from banks	Cash and due from banks	$	20,608	$	20,608	$	20,608	$	0	$	0	$	—	Cash and due from banks	$	2,984,073	$	2,984,073	$	2,984,073	$	0	$	0	$	—
Interest-bearing deposits	Interest-bearing deposits	550,160		550,160		0		550,160		0		—		Interest-bearing deposits	555,104		555,104		0		555,104		0		—
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2,348,584		2,348,607		0		2,348,607		0		—		Securities purchased under agreements to resell	1,818,268		1,818,268		0		1,818,268		0		—
Federal funds sold	Federal funds sold	4,833,000		4,833,000		0		4,833,000		0		—		Federal funds sold	4,240,000		4,240,000		0		4,240,000		0		—
Trading securities	Trading securities	11,615,693		11,615,693		0		11,615,693		0		—		Trading securities	10,488,124		10,488,124		0		10,488,124		0		—
Available-for-sale securities	Available-for-sale securities	1,542,185		1,542,185		0		1,542,185		0		—		Available-for-sale securities	291,587		291,587		0		291,587		0		—
Held-to-maturity securities	Held-to-maturity securities	13,499,319		13,501,207		0		13,501,207		0		—		Held-to-maturity securities	9,648,171		9,792,136		0		9,792,136		0		—
Advances (2)	Advances (2)	47,369,573		47,458,028		0		47,458,028		0		—		Advances (2)	25,362,003		25,573,785		0		25,573,785		0		—
Mortgage loans held for portfolio, net		11,235,353		11,437,180		0		11,424,857		12,323		—
Mortgage loans held for portfolio														Mortgage loans held for portfolio	9,548,506		9,861,802		0		9,798,019		63,783		—
Accrued interest receivable	Accrued interest receivable	182,252		182,252		0		182,252		0		—		Accrued interest receivable	113,701		113,701		0		113,701		0		—
Derivative assets	Derivative assets	267,165		267,165		0		32,195		0		234,970		Derivative assets	215,888		215,888		0		2,732		0		213,156
Liabilities:	Liabilities:													Liabilities:
Deposits	Deposits	951,296		951,343		0		951,343		0		—		Deposits	1,327,202		1,327,267		0		1,327,267		0		—
Consolidated Obligations:	Consolidated Obligations:													Consolidated Obligations:
Discount Notes ~~(3)~~	Discount Notes ~~(3)~~	49,084,219		49,086,723		0		49,086,723		0		—		Discount Notes ~~(3)~~	27,500,244		27,501,296		0		27,501,296		0		—
Bonds ~~(4)~~(3)	Bonds ~~(4)~~(3)	38,439,724		38,832,230		0		38,832,230		0		—		Bonds ~~(4)~~(3)	31,996,311		32,785,647		0		32,785,647		0		—
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	21,669		21,669		21,669		0		0		—		Mandatorily redeemable capital stock	19,454		19,454		19,454		0		0		—
Accrued interest payable	Accrued interest payable	126,091		126,091		0		126,091		0		—		Accrued interest payable	77,521		77,521		0		77,521		0		—
Derivative liabilities	Derivative liabilities	1,310		1,310		0		54,850		0		(53,540)		Derivative liabilities	3,813		3,813		0		165,737		0		(161,924)

(2)Includes (in thousands) ~~$5,238~~$27,202 of Advances recorded under the fair value option at December 31, ~~2019.~~2020.

(3)Includes (in thousands) ~~$12,386,974 of Consolidated Obligation Discount Notes recorded under the fair value option at December 31, 2019.~~

~~(4)Includes (in thousands) $4,757,177~~$2,262,388 of Consolidated Obligation Bonds recorded under the fair value option at December 31, ~~2019.~~2020.

Summary of Valuation Methodologies and Primary Inputs.

The valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statement of Condition are disclosed in Note 1915 - Fair Value Disclosures in the FHLB's ~~2019~~2020 Annual Report on Form 10-K. There have been no significant changes in the valuation methodologies during ~~2020.~~2021.

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Fair Value Measurements.

Table 14.2 presents the fair value of financial assets and liabilities that are recorded on a recurring or nonrecurring basis at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, by level within the fair value hierarchy. The FHLB records nonrecurring fair value adjustments to reflect partial write-downs on certain mortgage loans.

Table 14.2 - Fair Value Measurements (in thousands)


		Fair Value Measurements at September 30, 2020											Fair Value Measurements at June 30, 2021
		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)			Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets	Recurring fair value measurements - Assets											Recurring fair value measurements - Assets
Trading securities:	Trading securities:											Trading securities:
U.S. Treasury obligations	U.S. Treasury obligations	$	9,152,799	$	0	$	9,152,799	$	0	$	—	U.S. Treasury obligations	$	7,536,087	$	0	$	7,536,087	$	0	$	—
GSE obligations	GSE obligations	2,147,291		0		2,147,291		0		—		GSE obligations	1,791,111		0		1,791,111		0		—
U.S. obligation single-family MBS	U.S. obligation single-family MBS	374		0		374		0		—		U.S. obligation single-family MBS	269		0		269		0		—
Total trading securities	Total trading securities	11,300,464		0		11,300,464		0		—		Total trading securities	9,327,467		0		9,327,467		0		—
Available-for-sale securities:	Available-for-sale securities:											Available-for-sale securities:

U.S. Treasury obligations												U.S. Treasury obligations	1,663,680		0		1,663,680		0		—

GSE obligations	GSE obligations	143,579		0		143,579		0		—		GSE obligations	138,163		0		138,163		0		—
GSE multi-family MBS	GSE multi-family MBS	150,917		0		150,917		0		—		GSE multi-family MBS	146,028		0		146,028		0		—
Total available-for-sale securities	Total available-for-sale securities	294,496		0		294,496		0		—		Total available-for-sale securities	1,947,871		0		1,947,871		0		—
Advances	Advances	27,464		0		27,464		0		—		Advances	26,066		0		26,066		0		—
Derivative assets:	Derivative assets:											Derivative assets:
Interest rate related	Interest rate related	258,353		0		8,429		0		249,924		Interest rate related	214,016		0		2,393		0		211,623

Mortgage delivery commitments	Mortgage delivery commitments	817		0		817		0		—		Mortgage delivery commitments	2,200		0		2,200		0		—
Total derivative assets	Total derivative assets	259,170		0		9,246		0		249,924		Total derivative assets	216,216		0		4,593		0		211,623
Total assets at fair value	Total assets at fair value	$	11,881,594	$	0	$	11,631,670	$	0	$	249,924	Total assets at fair value	$	11,517,620	$	0	$	11,305,997	$	0	$	211,623

Recurring fair value measurements - Liabilities	Recurring fair value measurements - Liabilities											Recurring fair value measurements - Liabilities

Consolidated Obligation Bonds		$	2,447,759	$	0	$	2,447,759	$	0	$	—

Consolidated Obligations:												Consolidated Obligations:
Discount Notes												Discount Notes	$	2,866,877	$	0	$	2,866,877	$	0	$	—
Bonds												Bonds	2,295,683		0		2,295,683		0		—
Total Consolidated Obligations												Total Consolidated Obligations	5,162,560		0		5,162,560		0		—
Derivative liabilities:	Derivative liabilities:											Derivative liabilities:
Interest rate related	Interest rate related	81		0		222,371		0		(222,290)		Interest rate related	2,383		0		113,818		0		(111,435)

Mortgage delivery commitments												Mortgage delivery commitments	6		0		6		0		—
Total derivative liabilities	Total derivative liabilities	81		0		222,371		0		(222,290)		Total derivative liabilities	2,389		0		113,824		0		(111,435)
Total liabilities at fair value	Total liabilities at fair value	$	2,447,840	$	0	$	2,670,130	$	0	$	(222,290)	Total liabilities at fair value	$	5,164,949	$	0	$	5,276,384	$	0	$	(111,435)

Nonrecurring fair value measurements - Assets (2)
Mortgage loans held for portfolio		$	110	$	0	$	0	$	110

Table of Contents


	Fair Value Measurements at December 31, 2020
	Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets
Trading securities:
U.S. Treasury obligations	$	8,362,211	$	0	$	8,362,211	$	0	$	—
GSE obligations	2,125,580		0		2,125,580		0		—
U.S. obligation single-family MBS	333		0		333		0		—
Total trading securities	10,488,124		0		10,488,124		0		—
Available-for-sale securities:

GSE obligations	142,402		0		142,402		0		—
GSE multi-family MBS	149,185		0		149,185		0		—
Total available-for-sale securities	291,587		0		291,587		0		—
Advances	27,202		0		27,202		0		—
Derivative assets:
Interest rate related	214,832		0		1,676		0		213,156

Mortgage delivery commitments	1,056		0		1,056		0		—
Total derivative assets	215,888		0		2,732		0		213,156
Total assets at fair value	$	11,022,801	$	0	$	10,809,645	$	0	$	213,156

Recurring fair value measurements - Liabilities


Consolidated Obligation Bonds	$	2,262,388	$	0	$	2,262,388	$	0	$	—

Derivative liabilities:
Interest rate related	3,813		0		165,737		0		(161,924)


Total derivative liabilities	3,813		0		165,737		0		(161,924)
Total liabilities at fair value	$	2,266,201	$	0	$	2,428,125	$	0	$	(161,924)

Nonrecurring fair value measurements - Assets (2)
Mortgage loans held for portfolio	$	108	$	0	$	0	$	108

(2)The fair value information presented is as of the date the fair value adjustment was recorded during the ~~nine months~~year ended ~~September 30,~~December 31, 2020.

~~Table of Contents~~

Fair Value Measurements at December 31, 2019
Total Level 1 Level 2 Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets
Trading securities:
U.S. Treasury obligations $ 9,626,964 $ 0 $ 9,626,964 $ 0 $ —
GSE obligations 1,988,259 0 1,988,259 0 —
U.S. obligation single-family MBS 470 0 470 0 —
Total trading securities 11,615,693 0 11,615,693 0 —
Available-for-sale securities:
Certificates of deposit 1,410,111 0 1,410,111 0 —
GSE obligations 132,074 0 132,074 0 —
Total available-for-sale securities 1,542,185 0 1,542,185 0 —
Advances 5,238 0 5,238 0 —
Derivative assets:
Interest rate related 264,346 0 29,376 0 234,970
Forward rate agreements 21 0 21 0 —
Mortgage delivery commitments 2,798 0 2,798 0 —
Total derivative assets 267,165 0 32,195 0 234,970
Total assets at fair value $ 13,430,281 $ 0 $ 13,195,311 $ 0 $ 234,970
Recurring fair value measurements - Liabilities
Consolidated Obligations:
Discount Notes $ 12,386,974 $ 0 $ 12,386,974 $ 0 $ —
Bonds 4,757,177 0 4,757,177 0 —
Total Consolidated Obligations 17,144,151 0 17,144,151 0 —
Derivative liabilities:
Interest rate related 464 0 54,004 0 (53,540)
Forward rate agreements 782 0 782 0 —
Mortgage delivery commitments 64 0 64 0 —
Total derivative liabilities 1,310 0 54,850 0 (53,540)
Total liabilities at fair value $ 17,145,461 $ 0 $ 17,199,001 $ 0 $ (53,540)

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

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

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

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Table 14.3 presents net gains (losses) recognized in earnings related to financial assets and liabilities in which the fair value option was elected during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Table 14.3 – Fair Value Option - Financial Assets and Liabilities (in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings	Net Gains (Losses) from Changes in Fair Value Recognized in Earnings	2020		2019		2020		2019			Net Gains (Losses) from Changes in Fair Value Recognized in Earnings	2021		2020		2021		2020
Advances	Advances	$	526	$	53	$	704	$	259		Advances	$	165	$	31	$	(1,135)	$	178
Consolidated Discount Notes	Consolidated Discount Notes	1,222		(2,449)		1,060		(2,449)			Consolidated Discount Notes	55		13,864		50		(162)
Consolidated Bonds	Consolidated Bonds	8,939		(6,285)		(16,166)		(48,425)			Consolidated Bonds	2,382		11,846		7,592		(25,105)
Total net gains (losses)	Total net gains (losses)	$	10,687	$	(8,681)	$	(14,402)	$	(50,615)		Total net gains (losses)	$	2,602	$	25,741	$	6,507	$	(25,089)

For instruments recorded under the fair value option, the related contractual interest income, ~~and~~ contractual interest expense and the discount amortization on Discount Notes are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments in which the fair value option has been elected are recorded as “Net gains (losses) on financial instruments held under fair value option” in the Statements of Income, except for changes in fair value related to instrument specific credit risk, which are recorded in accumulated other comprehensive income in the Statement of Condition. The FHLB has determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019.~~2020. In determining that there has been 0 change in instrument-specific credit risk period to period, the FHLB primarily considered the following factors:

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

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

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

Table 14.4 – Aggregate Unpaid Balance and Aggregate Fair Value (in thousands)


		September 30, 2020						December 31, 2019							June 30, 2021						December 31, 2020
		Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance		Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance			Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance		Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Advances	Advances	$	26,500	$	27,464	$	964	$	5,000	$	5,238	$	238	Advances	$	26,500	$	26,066	$	(434)	$	26,500	$	27,202	$	702
Consolidated Discount Notes	Consolidated Discount Notes	0		0		0		12,400,865		12,386,974		(13,891)		Consolidated Discount Notes	2,867,100		2,866,877		(223)		0		0		0
Consolidated Bonds	Consolidated Bonds	2,422,000		2,447,759		25,759		4,739,000		4,757,177		18,177		Consolidated Bonds	2,291,000		2,295,683		4,683		2,241,000		2,262,388		21,388

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Note 15 - Commitments and Contingencies

Off-Balance Sheet Commitments. Table 15.1 ~~- Off-Balance Sheet Commitments (in thousands)~~

September 30, 2020 December 31, 2019
Notional Amount Expire within one year Expire after one year Total Expire within one year Expire after one year Total
Standby Letters of Credit (1)
$ 21,902,639 $ 1,108,410 $ 23,011,049 $ 15,143,075 $ 1,062,105 $ 16,205,180
Commitments for standby bond purchases (1)
28,970 37,320 66,290 20,360 55,150 75,510
Commitments to purchase mortgage loans 145,164 0 145,164 936,269 0 936,269
Unsettled Consolidated Bonds, principal amount (2)
124,000 0 124,000 0 0 0

~~(1)~~represents off-balance sheet commitments at June 30, 2021 and December 31, 2020. The FHLB has deemed it unnecessary to record any ~~liability~~liabilities for credit losses on these ~~agreements.~~commitments at June 30, 2021 and December 31, 2020.

~~(2)~~

Table 15.1 - Off-Balance Sheet Commitments (in thousands)


	June 30, 2021						December 31, 2020
Notional Amount	Expire within one year		Expire after one year		Total		Expire within one year		Expire after one year		Total
Standby Letters of Credit	$	33,932,607	$	1,233,417	$	35,166,024	$	27,741,220	$	1,071,029	$	28,812,249
Commitments for standby bond purchases	15,905		14,600		30,505		0		35,030		35,030
Commitments to fund additional Advances	63		0		63		0		0		0
Commitments to purchase mortgage loans	513,208		0		513,208		137,352		0		137,352
Unsettled Consolidated Bonds, principal amount (1)	500,000		0		500,000		0		0		0
Unsettled Consolidated Discount Notes, principal amount (1)	100,000		0		100,000		321,551		0		321,551

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

The carrying value of guarantees related to Standby Letters of Credit are recorded in other liabilities and were (in thousands) $7,396 and $8,675 at June 30, 2021 and December 31, 2020.

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

Note 16 - Transactions with Other FHLBanks

The FHLB notes all transactions with other FHLBanks on the face of its financial statements. Occasionally, the FHLB loans short-term funds to and borrows short-term funds from other FHLBanks. These loans and borrowings are transacted at then current market rates when traded. There were no such loans or borrowings outstanding at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020. The following table details the average daily balance of lending and borrowing between the FHLB and other FHLBanks for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Table 16.1 - Lending and Borrowing Between the FHLB and Other FHLBanks (in thousands)

Average Daily Balances for the Nine Months Ended September 30,
2020 2019
Loans to other FHLBanks $ 6,569 $ 3,846
Borrowings from other FHLBanks 182 183


	Average Daily Balances for the Six Months Ended June 30,

	2021		2020
Loans to other FHLBanks	$	0	$	9,890

In addition, the FHLB may, from time to time, assume the outstanding primary liability for Consolidated Obligations of another FHLBank (at then current market rates on the day when the transfer is traded) rather than issuing new debt for which the FHLB is the primary obligor. The FHLB then becomes the primary obligor on the transferred debt. There were 0 Consolidated Obligations transferred to the FHLB during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 or ~~2019.~~2020. The FHLB had 0 Consolidated Obligations transferred to other FHLBanks during these periods.

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Note 17 - Transactions with Stockholders

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

For financial statement purposes, the FHLB defines related parties as those members with more than 10 percent of the voting interests of the FHLB capital stock outstanding. Federal statute prescribes the voting rights of members in the election of both Member and Independent directors. For Member directorships, the Finance Agency designates the number of Member directorships in a given year and an eligible voting member may vote only for candidates seeking election in its respective state. For Independent directors, the FHLB's Board of Directors nominates candidates to be placed on the ballot in an at-large election. For both Member and Independent director elections, a member is entitled to vote one share of required capital stock, subject to a statutory limitation, for each applicable directorship. Under this limitation, the total number of votes that a member may cast is limited to the average number of shares of the FHLB's capital stock that were required to be held by all members in that state as of the record date for voting. Nonmember stockholders are not eligible to vote in director elections. Due to these statutory limitations, no member owned more than 10 percent of the voting interests of the FHLB at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

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

Transactions with Directors' Financial Institutions. In the ordinary course of its business, the FHLB provides products and services to members whose officers or directors serve as directors of the FHLB (Directors' Financial Institutions). Finance Agency regulations require that transactions with Directors' Financial Institutions be made on the same terms as those with any other member. The following table reflects balances with Directors' Financial Institutions for the items indicated below. The FHLB had no MBS or derivatives transactions with Directors' Financial Institutions at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

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Table 17.1 - Transactions with Directors' Financial Institutions (dollars in millions)


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Balance		% of Total (1)		Balance		% of Total (1)			Balance		% of Total (1)		Balance		% of Total (1)
Advances	Advances	$	7,337	27.5	%	$	3,428	7.3	%	Advances	$	6,137	26.3	%	$	7,048	28.2	%
MPP	MPP	159		1.5		122		1.1		MPP	162		2.2		159		1.7

Regulatory capital stock	Regulatory capital stock	545		18.5		176		5.2		Regulatory capital stock	647		23.7		467		17.6

(1)Percentage of total principal (Advances), unpaid principal balance (MPP), and regulatory capital stock.

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

Table 17.2 - Stockholders Holding Five Percent or more of Regulatory Capital Stock (dollars in millions)

Regulatory Capital Stock Advance MPP Unpaid
September 30, 2020 Balance % of Total Principal Principal Balance
U.S. Bank, N.A. $ 366 12 % $ 4,273 $ 14
JPMorgan Chase Bank, N.A. 317 11 0 0


	Regulatory Capital Stock				Advance		MPP Unpaid
June 30, 2021	Balance		% of Total		Principal		Principal Balance
U.S. Bank, N.A.	$	437	16	%	$	3,272	$	11

Third Federal Savings & Loan Association	163		6		3,141		34
Nationwide Life Insurance Company	138		5		2,607		0


		Regulatory Capital Stock				Advance		MPP Unpaid			Regulatory Capital Stock				Advance		MPP Unpaid
December 31, 2019		Balance		% of Total		Principal		Principal Balance
December 31, 2020										December 31, 2020	Balance		% of Total		Principal		Principal Balance
U.S. Bank, N.A.										U.S. Bank, N.A.	$	288	11	%	$	4,273	$	13
JPMorgan Chase Bank, N.A.	JPMorgan Chase Bank, N.A.	$	675	20	%	$	4,500	$	0	JPMorgan Chase Bank, N.A.	163		6		0		0
U.S. Bank, N.A.		485		14		13,874		17
Third Federal Savings & Loan Association										Third Federal Savings & Loan Association	137		5		3,443		42

Nonmember Affiliates. The FHLB has relationships with 3 nonmember affiliates, the Kentucky Housing Corporation, the Ohio Housing Finance Agency and the Tennessee Housing Development Agency. The FHLB had no investments in or borrowings to any of these nonmember affiliates at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020. The FHLB has executed standby bond purchase agreements with the Ohio Housing Finance Agency whereby the FHLB, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. During the first ~~nine~~six months of ~~2020~~2021 and ~~2019,~~2020, the FHLB was not required to purchase any bonds under these agreements.

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

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

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

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▪political, national, or world events, including acts of war, civil unrest, terrorism, natural disasters, climate change, pandemics, including the current COVID-19 pandemic, or other catastrophic events, and legislative, regulatory, government, judicial or other developments that could affect us, our members, our counterparties, other Federal Home Loan Banks (FHLBanks) and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System) unsecured debt securities, which are called Consolidated Obligations or Obligations;

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

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

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

▪changes in investor demand for Obligations;

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

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

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

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

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

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

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

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

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EXECUTIVE OVERVIEW

The following table presents selected Statement of Condition data, Statement of Income data and financial ratios for the periods indicated.


(Dollars in millions)	(Dollars in millions)	September 30, 2020			June 30, 2020			March 30, 2020			December 31, 2019			September 30, 2019			(Dollars in millions)	June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
STATEMENT OF CONDITION DATA AT PERIOD END:	STATEMENT OF CONDITION DATA AT PERIOD END:																STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets	Total assets	$	74,077		$	90,645		$	122,510		$	93,492		$	100,211		Total assets	$	58,872		$	60,634		$	65,296		$	74,077		$	90,645
Advances	Advances	27,101			48,913			80,425			47,370			46,358			Advances	23,587			24,365			25,362			27,101			48,913
Mortgage loans held for portfolio	Mortgage loans held for portfolio	10,671			11,704			11,923			11,236			10,885			Mortgage loans held for portfolio	7,717			8,599			9,549			10,671			11,704
Allowance for credit losses on mortgage loans (1)		—			—			—			1			1

Investments ~~(2)~~(1)	Investments ~~(2)~~(1)	34,514			29,533			25,665			34,389			42,442			Investments ~~(2)~~(1)	27,096			24,209			27,041			34,514			29,533
Consolidated Obligations, net:
Consolidated Obligations:																	Consolidated Obligations:
Discount Notes	Discount Notes	26,668			44,324			79,660			49,084			49,553			Discount Notes	21,180			26,873			27,500			26,668			44,324
Bonds	Bonds	41,432			39,339			34,668			38,440			44,591			Bonds	31,678			27,798			31,997			41,432			39,339
Total Consolidated Obligations, net		68,100			83,663			114,328			87,524			94,144
Total Consolidated Obligations																	Total Consolidated Obligations	52,858			54,671			59,497			68,100			83,663
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	17			19			572			22			26			Mandatorily redeemable capital stock	14			15			19			17			19
Capital:	Capital:																Capital:
Capital stock - putable	Capital stock - putable	2,935			3,813			4,739			3,367			3,597			Capital stock - putable	2,718			2,748			2,641			2,935			3,813
Retained earnings	Retained earnings	1,282			1,247			1,153			1,094			1,055			Retained earnings	1,297			1,309			1,304			1,282			1,247
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(12)			(16)			(17)			(16)			(12)			Accumulated other comprehensive loss	(2)			(12)			(15)			(12)			(16)
Total capital	Total capital	4,205			5,044			5,875			4,445			4,640			Total capital	4,013			4,045			3,930			4,205			5,044
STATEMENT OF INCOME DATA FOR THE QUARTER:	STATEMENT OF INCOME DATA FOR THE QUARTER:																STATEMENT OF INCOME DATA FOR THE QUARTER:
Net interest income	Net interest income	$	93		$	149		$	82		$	99		$	87		Net interest income	$	66		$	76		$	81		$	93		$	149

Non-interest income (loss)	Non-interest income (loss)	(7)			(15)			31			6			5			Non-interest income (loss)	(42)			(32)			(15)			(7)			(15)
Non-interest expense	Non-interest expense	22			24			24			21			22			Non-interest expense	24			23			22			22			24
Affordable Housing Program assessments	Affordable Housing Program assessments	7			11			9			8			7			Affordable Housing Program assessments	—			2			4			7			11
Net income	Net income	$	57		$	99		$	80		$	76		$	63		Net income	$	—		$	19		$	40		$	57		$	99
FINANCIAL RATIOS FOR THE QUARTER:	FINANCIAL RATIOS FOR THE QUARTER:																FINANCIAL RATIOS FOR THE QUARTER:
Dividend payout ratio (3)		38.4		%	21.7		%	27.4		%	47.7		%	71.7		%

Weighted average dividend rate ~~(4)~~(2)	Weighted average dividend rate ~~(4)~~(2)	2.00			2.50			2.50			4.00			4.50			Weighted average dividend rate ~~(4)~~(2)	2.00		%	2.00		%	2.00		%	2.00		%	2.50		%
Return on average equity	Return on average equity	4.70			7.12			6.94			6.64			5.36			Return on average equity	0.03			1.96			3.93			4.70			7.12
Return on average assets	Return on average assets	0.26			0.37			0.34			0.34			0.26			Return on average assets	—			0.12			0.23			0.26			0.37
Net interest margin ~~(5)~~(3)	Net interest margin ~~(5)~~(3)	0.43			0.58			0.36			0.44			0.36			Net interest margin ~~(5)~~(3)	0.43			0.49			0.48			0.43			0.58
Average equity to average assets	Average equity to average assets	5.61			5.22			4.95			5.06			4.86			Average equity to average assets	6.59			6.13			5.97			5.61			5.22
Regulatory capital ratio ~~(6)~~(4)	Regulatory capital ratio ~~(6)~~(4)	5.72			5.60			5.28			4.79			4.67			Regulatory capital ratio ~~(6)~~(4)	6.84			6.72			6.07			5.72			5.60
Operating expense to average assets ~~(7)~~(5)	Operating expense to average assets ~~(7)~~(5)	0.079			0.063			0.084			0.071			0.069			Operating expense to average assets ~~(7)~~(5)	0.112			0.121			0.104			0.079			0.063

(1)The methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of new accounting guidance on the measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior periods have not been revised to conform to the new basis of accounting.

~~(2)~~Investments include interest bearing deposits in banks, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.

~~(3)Dividend payout ratio is dividends declared in the period as a percentage of net income.~~

~~(4)~~(2)Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.

~~(5)~~(3)Net interest margin is net interest income as a percentage of average earning assets.

~~(6)~~(4)Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.

~~(7)~~(5)Operating expenses comprise compensation and benefits and other operating expenses, which are included in non-interest expense.

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Recent Developments

~~Coronavirus~~COVID-19 Pandemic ~~(COVID-19)~~

The global outbreak of COVID-19 has impacted communities and businesses worldwide, including those in the Fifth District. The effects of COVID-19 ~~are evolving,~~continue to evolve, and the full impact and duration of the virus are unknown. ~~Despite the uncertainties created by~~Throughout the COVID-19 pandemic, we have continued to fulfill our mission of providing robust access to a key source of readily available and competitively priced wholesale funding to member financial institutions and supporting our commitment to affordable housing and community investment, while maintaining strong capital and liquidity positions.

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

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

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

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

Financial Condition

Mission Asset Activity

Mission Assets, which we define as Advances, Letters of Credit, and total MPP are the primary means by which we fulfill our mission with direct connections to members. We regularly monitor our balance sheet concentration of Mission Asset Activity. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In the first ~~nine~~six months of ~~2020,~~2021, the Primary Mission Asset ratio averaged 7669 percent, ~~which exceeded~~slightly below the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Asset Activity, the most significant of which is Letters of Credit issued tofor the benefit of members.

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The following table summarizes our Mission Asset Activity.


		Ending Balances						Average Balances							Ending Balances						Average Balances
		September 30,				December 31,		Nine Months Ended September 30,				Year Ended December 31,			June 30,				December 31,		Six Months Ended June 30,				Year Ended December 31,
(In millions)	(In millions)	2020		2019		2019		2020		2019		2019		(In millions)	2021		2020		2020		2021		2020		2020
Mission Asset Activity:	Mission Asset Activity:													Mission Asset Activity:
Advances (principal)	Advances (principal)	$	26,648	$	46,186	$	47,264	$	48,726	$	51,353	$	47,894	Advances (principal)	$	23,378	$	48,407	$	25,007	$	24,836	$	52,515	$	42,917
MPP:	MPP:													MPP:
Mortgage loans held for portfolio (principal)	Mortgage loans held for portfolio (principal)	10,413		10,637		10,981		11,370		10,371		10,499		Mortgage loans held for portfolio (principal)	7,531		11,424		9,316		8,393		11,584		10,995
Mandatory Delivery Contracts (notional)	Mandatory Delivery Contracts (notional)	145		738		936		406		417		516		Mandatory Delivery Contracts (notional)	513		133		137		141		539		338
Total MPP	Total MPP	10,558		11,375		11,917		11,776		10,788		11,015		Total MPP	8,044		11,557		9,453		8,534		12,123		11,333
Letters of Credit (notional)	Letters of Credit (notional)	23,011		16,090		16,205		18,333		14,878		15,150		Letters of Credit (notional)	35,166		22,381		28,812		33,630		17,102		20,141
Total Mission Asset Activity	Total Mission Asset Activity	$	60,217	$	73,651	$	75,386	$	78,835	$	77,019	$	74,059	Total Mission Asset Activity	$	66,588	$	82,345	$	63,272	$	67,000	$	81,740	$	74,391

At June 30, 2021, 60 percent of members held Mission Asset Activity, which was relatively stable compared to prior periods. The balance of Mission Asset Activity was ~~$60.2~~$66.6 billion at ~~September~~June 30, ~~2020, a decrease~~2021, an increase of ~~$15.2~~$3.3 billion ~~(20~~(five percent) from year-end ~~2019,~~2020, which was ~~primarily~~ driven by lower Advance balances. Advance principal balances decreased $20.6 billion (44 percent) from year-end 2019 due to the reduction in borrowings from a few large-asset members as these members experienced an inflow of deposits on their balance sheets and increased access to other sources of liquidity in the financial markets. The decrease in the balance of Mission Asset Activity was partially offset by an increase of $6.8 billion (42 percent) inhigher Letters of Credit ~~balances from year-end 2019.~~balances. The increase in Letters of Credit was primarily due ~~in part~~ to members using them to secure elevated levels of public unit deposits. We normally earn fees on Letters of Credit ~~rather~~based on the actual average amount of the Letters utilized, which generally is less than ~~securities~~the notional amount issued. Advance principal balances decreased $1.6 billion (seven percent) from year-end 2020. Advance balances have remained low in the first six months of 2021 due to ~~secure~~ increased ~~deposits from municipalities during~~liquidity in the ~~pandemic.~~financial markets and increased deposit levels at member institutions.

Average principal Advance balances for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 decreased ~~only $2.6~~$27.7 billion (53 percent) compared to the same period of ~~2019 as Advances spiked across our membership at the end of~~2020. Advance balances in the first quarter of 2020 were significantly higher as members sought additional liquidity during the ~~financial markets reacted to~~onset of the COVID-19 pandemic. ~~Most~~However, most of these Advances matured or prepaid by the end of 2020 and as noted above, the ~~third quarter of 2020.~~demand for Advances has remained low. Advance balances are often volatile due to members' ability to quickly, normally on the same day, increase or decrease their amount of Advances. We believe providing members flexibility in their funding levels helps support their asset-liability management needs and is a key benefit of membership. ~~At September 30, 2020, 66 percent~~

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

The MPP principal balance fell ~~$0.6~~$1.8 billion ~~(five~~(19 percent) from year-end ~~2019.~~2020. During the first ~~nine~~six months of ~~2020,~~2021, we purchased ~~$2.4~~$0.4 billion of mortgage loans, while principal reductions of ~~$3.0~~$2.2 billion reflected the ~~significant increase in~~continuing high levels of mortgage loan refinance ~~activity in 2020.~~activity. We have not yet been able to fully replace the prepaid mortgage loans with suitable alternatives that provide an acceptable risk/return tradeoff.

Based on earnings in the first ~~nine~~six months of ~~2020,~~2021, we accrued ~~$27~~$2 million for the Affordable Housing Program (AHP) pool of funds to be available to members in ~~2021.~~2022. In addition to the required AHP assessment, we provided voluntary sponsorship of ~~three~~two other housing programs. These programs provided funds to cover accessibility and emergency repairs for special needs and elderly homeowners and funds for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth ~~District, and Advances at zero percent interest for COVID-19 related assistance.~~District.

Investments

The balance of investments at ~~September~~June 30, ~~2020~~2021 was ~~$34.5~~$27.1 billion, an increase of $0.1 billion from year-end ~~2019.~~2020. At ~~September~~June 30, ~~2020,~~2021, investments included ~~$11.2~~$8.9 billion of MBS and ~~$23.3~~$18.2 billion of other investments, which consisted primarily of highly-rated short-term instruments and longer-term U.S. Treasury and GSE obligations held for liquidity. All of our MBS held at ~~September~~June 30, ~~2020~~2021 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency.

Investments averaged $33.5 billion in the first nine months of 2020, a decrease of $3.5 billion (10 percent) from the average balance during the same period of 2019. The decrease in average investments was driven by lower MBS balances declined compared to year end due to ~~an increase in~~elevated levels of prepayments of ~~MBS~~the underlying mortgages as a result of the low interest rate environment. Due to regulatory limitations regarding the purchase of MBS that reference LIBOR, we have not been able to ~~fully~~ replace the prepaid MBS with suitable alternatives that ~~were prepaid.~~we believe provide an acceptable risk/return tradeoff.

Investments averaged $28.2 billion in the first six months of 2021, a decrease of $5.5 billion (16 percent) from the average balance during the same period of 2020. The decrease in average investments reflected lower liquidity investments needed in light of the reduced Advance demand and lower MBS due to the reasons noted above. Liquidity investments can vary significantly on a daily basis during times of volatility in Advance balances. We maintained a robust amount of asset liquidity throughout the first ~~nine~~six months of ~~2020~~2021 across a variety of liquidity measures, as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

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Capital

Capital adequacy surpassed all minimum regulatory capital requirements in the first ~~nine~~six months of ~~2020.~~2021. The GAAP capital-to-assets ratio at ~~September~~June 30, ~~2020~~2021 was ~~5.68~~6.82 percent, while the regulatory capital-to-assets ratio was ~~5.72~~6.84 percent. Both ratios exceeded the regulatory required minimum of four percent. Regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under GAAP. GAAP and regulatory capital both ~~decreased $0.2~~increased $0.1 billion in the first ~~nine~~six months of 2020, primarily due to repurchase of $2.0 billion of excess stock and members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were partially offset by members' purchases of capital stock to support Advance growth at the end of the first quarter. Retained earnings grew in the first nine months of 2020, continuing a trend over the last several years.2021. Retained earnings totaled $1.3 billion at ~~September~~June 30, ~~2020, an increase~~2021, a decrease of 17less than one percent from year-end ~~2019.~~2020.

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Results of Operations

Overall Results

Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key factors that can cause significant periodic volatility in our profitability are changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization due to accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. The table below summarizes our results of operations.


		Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,				Three Months Ended June 30,						Six Months Ended June 30,						Year Ended December 31,

(Dollars in millions)	(Dollars in millions)	2020			2019			2020			2019			2019			(Dollars in millions)	2021			2020			2021			2020			2020
Net income	Net income	$	57		$	63		$	236		$	200		$	276		Net income	$	—		$	99		$	19		$	179		$	276
Affordable Housing Program assessments	Affordable Housing Program assessments	7			7			27			22			31			Affordable Housing Program assessments	—			11			2			20			31
Return on average equity (ROE)	Return on average equity (ROE)	4.70		%	5.36		%	6.28		%	5.35		%	5.65		%	Return on average equity (ROE)	0.03		%	7.12		%	0.97		%	7.04		%	5.78		%
Return on average assets	Return on average assets	0.26			0.26			0.33			0.27			0.28			Return on average assets	—			0.37			0.06			0.36			0.31
Weighted average dividend rate	Weighted average dividend rate	2.00			4.50			2.30			5.36			5.05			Weighted average dividend rate	2.00			2.50			2.00			2.50			2.23
Average short-term interest rates (1)	Average short-term interest rates (1)	0.17			2.19			0.63			2.40			2.24			Average short-term interest rates (1)	0.11			0.33			0.13			0.86			0.51

ROE spread to average short-term interest rates	ROE spread to average short-term interest rates	4.53			3.17			5.65			2.95			3.41			ROE spread to average short-term interest rates	(0.08)			6.79			0.84			6.18			5.27
Dividend rate spread to average short-term interest rates	Dividend rate spread to average short-term interest rates	1.83			2.31			1.67			2.96			2.81			Dividend rate spread to average short-term interest rates	1.89			2.17			1.87			1.64			1.72

(1) Average short-term interest rates consist of 3-month LIBOR and the Federal funds effective rate.

Net income decreased $6$99 million ~~(eight percent)~~ in the three-month comparison period and ~~increased $36~~$160 million ~~(18 percent)~~ in the ~~nine-month~~six-month comparison period. The decline in profitability in the three months ended June 30, 2021 compared to the same period of 2020 was primarily driven by:

▪Advances. Average Advance balances declined 59 percent. Although Advances grew significantly during the onset of the COVID-19 pandemic as members sought additional liquidity, balances subsequently fell in 2020 and have remained low due to increased liquidity in the financial markets and increased deposit levels at member institutions. Additionally, Advance prepayment fees were lower due to a higher amount of member prepayments of Advances in the first half of 2020 as interest ~~rate environment impacted results for~~rates declined.

▪Mortgage Assets.The spreads earned on mortgage assets declined due to the ~~third quarter and first nine months~~accelerated payoff of ~~2020.~~higher-yielding mortgages at a faster pace than the associated debt funding them. The historically low long-term interest rates led to prepayments occurring faster than the purchases of new mortgage assets, which also resulted in ~~a higher volume~~the average balances of mortgage ~~refinance activity, which led to elevated levels of mortgage loan repayments~~assets declining 30 percent.

▪Fair Value Adjustments. Unrealized losses on derivatives and ~~related premium amortization. Additionally, sharp reductions in short-term interest rates lowered the earnings generated from investing capital. However, net income~~instruments held at fair value were higher in the ~~year-to-date~~second quarter of 2021 in response to changes in interest rates.

The decline in profitability in the first six months of 2021 compared to the same period of 2020 was ~~higher~~primarily driven by the Advances and mortgage assets factors noted for the three-months comparison as ~~a result~~well as the following:

▪Sales of ~~gains on the sale of certain derivatives during~~Swaptions. We sold interest rate swaptions in the first quarter of ~~2020.~~

~~Earnings levels continued~~2020 in response to ~~represent competitive returns on stockholders' capital investment. Our business model is structured to be able to absorb sharp~~ changes in ~~Mission Asset Activity because we can execute commensurate~~interest rates, which resulted in net realized gains of approximately $69 million before assessments. We did not sell any interest rate swaptions in the first six months of 2021. We use swaptions to hedge market risk exposure associated with holding fixed-rate mortgage assets and may sell them to offset the risk incurred due to changes in liability and capital stock balances. ROE was higher than average short-term rates in the periods presented above, while we maintained risk exposures in line with our appetite for a moderate risk profile. The spread between ROE and average short-term rates, which we compute using 3-month LIBOR and the Federal funds effective rate, is a market benchmark we believe member stockholders actively use to assess the competitiveness of the return on their capital investment.

interest rates.

In ~~September 2020,~~June 2021, we paid stockholders a quarterly dividend at a 2.00 percent annualized rate on their capital investment in our company, which is ~~1.83~~1.89 percentage points above ~~third~~second quarter average short-term interest rates. The dividend rates in the first three quarters of 2020 were lower compared to those in 2019 due to the uncertainty of the economy, and our intent to grow retained earnings to ensure a stable capital position going forward.

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Effect of Interest Rate Environment

Trends in market interest rates and the resulting shapes of the market yield curves strongly influence the results of operations and profitability because of how they affect members' demand for Mission Asset Activity, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).

Nine Months Ended September 30,
Quarter 3 2020 Quarter 2 2020 Quarter 1 2020 2020 2019 Year 2019
Ending Average Ending Average Ending Average Average Average Ending Average
Federal funds effective 0.09 % 0.09 % 0.08 % 0.06 % 0.08 % 1.25 % 0.47 % 2.33 % 1.55 % 2.16 %
Secured Overnight Financing Rate (SOFR) 0.08 0.09 0.10 0.05 0.01 1.25 0.46 2.38 1.55 2.20
3-month LIBOR 0.23 0.25 0.30 0.61 1.45 1.54 0.80 2.46 1.91 2.33
2-year LIBOR 0.22 0.22 0.23 0.32 0.49 1.18 0.57 2.17 1.70 2.03
10-year LIBOR 0.71 0.65 0.64 0.69 0.72 1.34 0.89 2.22 1.90 2.09
2-year U.S. Treasury 0.13 0.14 0.15 0.19 0.25 1.10 0.48 2.10 1.57 1.97
10-year U.S. Treasury 0.69 0.65 0.66 0.68 0.67 1.38 0.90 2.26 1.92 2.14
15-year mortgage current coupon (1)
0.83 0.86 0.98 1.09 1.07 1.86 1.27 2.60 2.28 2.52
30-year mortgage current coupon (1)
1.33 1.32 1.54 1.58 1.63 2.31 1.74 3.03 2.71 2.95

~~(1) Simple average of current coupon rates of Fannie Mae and Freddie Mac par MBS indications.~~



									Six Months Ended June 30,
	Quarter 2 2021				Quarter 1 2021				2021	2020		Year 2020
	Ending		Average		Ending		Average			Average		Average		Ending		Average

Federal funds effective	0.08	%	0.07	%	0.06	%	0.08	%		0.07	%	0.66	%	0.09	%	0.37	%
Secured Overnight Financing Rate (SOFR)	0.05		0.02		0.01		0.04			0.03		0.65		0.09		0.37
3-month LIBOR	0.15		0.16		0.19		0.20			0.18		1.07		0.24		0.65
2-year LIBOR	0.33		0.27		0.29		0.22			0.25		0.75		0.20		0.49
10-year LIBOR	1.44		1.57		1.78		1.35			1.46		1.01		0.93		0.88
2-year U.S. Treasury	0.25		0.17		0.16		0.13			0.15		0.65		0.12		0.39
10-year U.S. Treasury	1.47		1.58		1.74		1.31			1.45		1.03		0.92		0.89
15-year mortgage current coupon (1)	1.23		1.26		1.39		1.05			1.15		1.52		0.71		1.21
30-year mortgage current coupon (1)	1.83		1.87		2.04		1.68			1.77		1.99		1.34		1.69

(1) Current coupon rate of Fannie Mae par MBS indications.

The target overnight Federal funds rate was in the range of zero to 0.25 percent at ~~September~~June 30, ~~2020,~~2021, unchanged from ~~the range at June 30, 2020.~~March 31, 2021. The low interest rate environment reflects the evolving risks to economic activity lingering from the COVID-19 pandemic.

Average short-term rates were approximately ~~160~~60 to ~~190~~90 basis points lower in the first ~~nine~~six months of ~~2020~~2021 compared to the same period of ~~2019~~2020 and average ~~long-term~~mortgage rates decreased by approximately ~~130~~20 to 35 basis points during that same period. The decline in interest rates negatively impacted income in the first ~~nine~~six months of ~~2020~~2021 primarily because of ~~the~~ lower earnings generated from investing capital and ~~the~~ increased mortgage asset ~~prepayments resulting in higher net amortization of premiums on those assets.~~prepayments.

Business Outlook and Risk Management

Other than the updates noted below, our major business strategies, outlook for our business, and risk profiles and management have not changed substantially since our ~~2019~~2020 Annual Report on Form ~~10-K, as updated by our 2020 Quarterly Reports on Form 10-Q.~~10-K. “Quantitative and Qualitative Disclosures About Risk Management” provides details on current risk exposures.

Regulatory and Legislative Risk and Significant Developments

Significant regulatory and legislative actions and developments for the period covered by this Report not previously disclosed are summarized below.

~~Finance Agency Supervisory Letter -~~

Federal Reserve Board Extends Paycheck Protection Program Liquidity Facility:On June 25, 2021, the Federal Reserve Board announced a final extension of its Paycheck Protection Program Liquidity Facility (PPPLF) by an additional month to July 30, 2021. The PPPLF provides collateralized Paycheck Protection Program (PPP) ~~Loans as Collateral~~loan liquidity to eligible Federal Reserve member financial institutions in order to facilitate PPP loan originations at such financial institutions. The extension allowed additional processing time for ~~FHLBank Advances:On July 1, 2020, Congress~~banks, community development financial institutions, and other financial institutions to pledge to the facility any PPP loans approved ~~an extension~~by the Small Business Administration (SBA) through the June 30, 2021 expiration of the PPP ~~until August 8, 2020. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral remains in effect.~~program.

~~Coronavirus Aid, Relief,~~Additional COVID-19 Presidential, Legislative and ~~Economic Security (CARES) Act:~~Regulatory Developments: ~~The following CARES Act provisions have been extended beyond their original expiration date by regulatory action:~~

▪~~Additional federal unemployment funds expired July 31, 2020.~~

▪~~Statutory eviction freeze for federally-backed properties expired July 25, 2020.~~

▪~~Foreclosure moratorium on federally-backed properties and on evictions was extended by the Finance Agency on August 27, 2020 to until “at least” December 31, 2020.~~

~~Additional phases~~In light of the ~~CARES Act or other~~ COVID-19 pandemic, ~~relief legislation may be enacted by Congress or other actions by~~ the ~~President,~~federal government and its agencies as well as state governments and ~~governmental agencies.~~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. Some of these may have a direct or indirect impact on us or our members. Many of these actions are temporary in nature. We continue to monitor these actions and guidance as they evolve and to evaluate ~~the~~their potential impact ~~to the U.S. economy; the impacts to mortgages held or serviced by our members that we accept as collateral; the impacts~~ on ~~our MPP portfolio; and the impacts to our overall business.~~us.

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Affordable Housing and Community Investment:Legislation has been introduced in the U.S. Senate and House of Representatives that, if enacted in its proposed form, would require that the FHLBanks set aside higher percentages of their earnings for their affordable housing and community investment programs than is currently required under law. The FHLBanks are actively monitoring these proposals.

LIBOR Transition: We are planning for the replacement of LIBOR ~~given that the LIBOR index is expected to be phased out by no later than the end of 2021~~ and the ~~Federal Reserve Bank of New York's~~ establishment of SOFR as ~~its~~the recommended alternative to ~~U.S. dollar~~ LIBOR. ~~At September 30, 2020, all $15.6 billion~~In March 2021, the Financial Conduct Authority 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 our adjustable-rate Consolidated Bonds were indexed to SOFR. We also continued offering SOFR-linked Advances and swapping certain instruments to adjustable-rates tied to SOFR and the overnight Federal funds effective rate in 2020. However, the majority of our variable-rate assets still remain indexed to LIBOR. Therefore, we are continuing to plan for the eventual replacement of our LIBOR-indexed instruments away from the LIBOR benchmark interest rate.

Part of our LIBOR transition plan includes our previously implemented fallback language for our LIBOR-indexed Advances and Consolidated Bonds in new and legacy contracts. As for our investments that are tied to LIBOR, we are monitoring market-wide efforts to enhance fallback language for new activity and develop frameworks to address existing transactions.

Additionally, on October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA), launched the Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 Interbank Offered Rate Fallbacks Protocol (Protocol). Both the Supplement and the Protocol will take effect on January 25, 2021. On that date, all legacy bilateral derivatives transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered interbank offered rate, includingsome more frequently used U.S. dollar LIBOR settings, immediately after June 30, 2023). Although the Financial Conduct Authority does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be ~~amended~~published or be representative through any particular date. The market activity in SOFR-linked financial instruments has continued to ~~apply the new ISDA-recommended interbank~~develop and we have offered ~~rate fallbacks~~SOFR-linked Consolidated Obligations and SOFR-linked Advances on an ongoing basis. In addition, we have been using SOFR-based derivatives to manage interest-rate risk and we have begun purchasing SOFR-linked MBS in the ~~event~~second quarter of the relevant interbank offered rate’s cessation. Both an FHLBank and its relevant counterparty must have adhered to the Protocol in order to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. The Protocol will remain open for adherence after this effective date. As of January 25, 2021, new and future derivative contracts will be subject to the relevant interbank offered rate fallbacks set forth in the Supplement. On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that requires each ~~FHLBank to adhere to the Protocol no later than December 31, 2020, and to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020.~~ We have adhered to the Protocol and will work with our counterparties, as necessary, to address over-the-counter derivative agreements referencing U.S. dollar LIBOR as a part of our LIBOR transition efforts.2021.

The Finance Agency has also issued directives designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. As of June 30, 2020, the FHLBanks were required to cease entering into new LIBOR-based financial instruments that mature after December 31, 2021, except for investments and option embedded products. With respect to investments, the Finance Agency required the FHLBanks, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates do not apply to collateral accepted by the FHLBanks. As directed by the Finance Agency, the FHLBanks began requiring their members to report levels of LIBOR-linked collateral that mature after December 31, 2021. This will assist the FHLBanks in determining the level of member reliance on these assets to support borrowings, make decisions about their future eligibility and the impact of any incremental haircuts and asset value deterioration on borrowing capacity.

~~We have Advances, investment securities and derivatives with interest rates indexed to LIBOR. The~~ following table presents our LIBOR-indexed Advances, investment securities and derivatives at ~~September~~June 30, ~~2020.~~2021. At June 30, 2021, all of our variable rate Consolidated Obligations were linked to SOFR.

(In millions) Maturing in 2020-2021 Maturing after 2021
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term $ 2,535 $ 3,311
MBS by contractual maturity (1)
142 6,737
Total principal amount $ 2,677 $ 10,048
Derivatives, notional amount by termination date $ 5,315 $ 7,438


(In millions)	Maturing on or before June 30, 2023		Maturing after June 30, 2023
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term	$	2,329	$	3,009
MBS by contractual maturity (1)	—		5,224

Total principal amount	$	2,329	$	8,233
Derivatives, notional amount by termination date	$	4,816	$	4,619

(1)MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

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

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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition

The table below shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.


(Dollars in millions)	(Dollars in millions)	September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				(Dollars in millions)	June 30, 2021				March 31, 2021				December 31, 2020
		Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)			Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable-Rate Indexed:	Adjustable/Variable-Rate Indexed:																	Adjustable/Variable-Rate Indexed:
LIBOR	LIBOR	$	5,846	22	%	$	21,071	44	%	$	28,889	36	%	$	10,430	22	%	LIBOR	$	5,338	23	%	$	5,433	22	%	$	5,611	22	%
SOFR	SOFR	116		—		116		—		2,000		3		500		1		SOFR	118		—		118		1		118		1
Other	Other	123		1		83		—		247		—		221		1		Other	149		1		16		—		82		—
Total	Total	6,085		23		21,270		44		31,136		39		11,151		24		Total	5,605		24		5,567		23		5,811		23
Fixed-Rate:	Fixed-Rate:																	Fixed-Rate:
Repurchase based (REPO)	Repurchase based (REPO)	3,896		15		8,978		18		28,058		35		19,386		41		Repurchase based (REPO)	3,942		17		3,787		16		3,780		15
Regular Fixed-Rate	Regular Fixed-Rate	10,207		38		11,445		24		14,452		18		11,476		24		Regular Fixed-Rate	8,131		35		9,047		37		9,587		38
Putable (2)	Putable (2)	3,107		12		3,164		6		3,164		4		1,444		3		Putable (2)	2,607		11		2,657		11		2,657		11
Amortizing/Mortgage Matched	Amortizing/Mortgage Matched	2,195		8		2,309		5		2,439		3		2,358		5		Amortizing/Mortgage Matched	1,722		7		1,872		8		2,021		8
Other	Other	1,158		4		1,241		3		680		1		1,449		3		Other	1,371		6		1,227		5		1,151		5
Total	Total	20,563		77		27,137		56		48,793		61		36,113		76		Total	17,773		76		18,590		77		19,196		77

Total Advances Principal	Total Advances Principal	$	26,648	100	%	$	48,407	100	%	$	79,929	100	%	$	47,264	100	%	Total Advances Principal	$	23,378	100	%	$	24,157	100	%	$	25,007	100	%

Letters of Credit (notional)	Letters of Credit (notional)	$	23,011			$	22,381			$	15,785			$	16,205			Letters of Credit (notional)	$	35,166			$	33,650			$	28,812

(1)As a percentage of total Advances principal.

(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.

Advance principal balances at ~~September~~June 30, ~~2020~~2021 decreased 44seven percent compared to year-end 2019. Advances spiked across our membership at the end of the first quarter as the financial markets reacted to the COVID-19 pandemic, and members turned to us for liquidity, primarily in the form of LIBOR and REPO Advances. Most of these Advances matured or prepaid by the end of the third quarter of 2020. ~~Additionally,~~ Advance balances ~~decreased further in~~have remained low since the ~~third quarter~~last half of 2020 as ~~a few large-asset~~ members ~~reduced their borrowings. The reduction in borrowings was primarily driven by these members experiencing~~experienced an inflow of deposits on their balance sheets, while also having access to other liquidity sources as a result of certain government actions related to the pandemic. Letters of Credit increased 22 percent primarily due to members using them to secure elevated levels of public unit deposits.

Advance Usage

In addition to analyzing Advance balances by dollar trends, we monitor the degree to which members use Advances to fund their balance sheets. The following table shows the unweighted, average ratio of each member's Advance balance to its most-recently available figures for total assets.


		September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Average Advances-to-assets for members	Average Advances-to-assets for members									Average Advances-to-assets for members
Assets less than $1.0 billion (517 members)		2.22	%	2.48	%	2.73	%	2.55	%
Assets over $1.0 billion (112 members)		2.47		2.85		3.92		3.31
Assets less than $1.0 billion (502 members)										Assets less than $1.0 billion (502 members)	1.59	%	1.99	%
Assets over $1.0 billion (126 members)										Assets over $1.0 billion (126 members)	1.64		2.11
All members	All members	2.26		2.54		2.91		2.67		All members	1.60		2.01

Table of Contents

~~Table of Contents~~

The following tables present principal balances for the five members with the largest Advance borrowings.


(Dollars in millions)	(Dollars in millions)										(Dollars in millions)
September 30, 2020						December 31, 2019
June 30, 2021											June 30, 2021					December 31, 2020
Name	Name	Principal Amount of Advances		Percent of Total Principal Amount of Advances		Name	Principal Amount of Advances		Percent of Total Principal Amount of Advances		Name	Principal Amount of Advances		Percent of Total Principal Amount of Advances		Name	Principal Amount of Advances		Percent of Total Principal Amount of Advances
U.S. Bank, N.A.	U.S. Bank, N.A.	$	4,273	16	%	U.S. Bank, N.A.	$	13,874	29	%	U.S. Bank, N.A.	$	3,272	14	%	U.S. Bank, N.A.	$	4,273	17	%
Third Federal Savings and Loan Association	Third Federal Savings and Loan Association	3,520		13		JPMorgan Chase Bank, N.A.	4,500		10		Third Federal Savings and Loan Association	3,141		13		Third Federal Savings and Loan Association	3,443		14
Nationwide Life Insurance Company	Nationwide Life Insurance Company	2,160		8		Third Federal Savings and Loan Association	3,883		8		Nationwide Life Insurance Company	2,607		11		Nationwide Life Insurance Company	2,062		8
Protective Life Insurance Company	Protective Life Insurance Company	1,750		7		First Horizon Bank	2,200		5		Protective Life Insurance Company	2,225		10		Protective Life Insurance Company	1,955		8
Western-Southern Life Assurance Co.	Western-Southern Life Assurance Co.	1,388		5		Pinnacle Bank	2,063		4		Western-Southern Life Assurance Co.	1,504		6		Western-Southern Life Assurance Co.	1,344		5
Total of Top 5	Total of Top 5	$	13,091	49	%	Total of Top 5	$	26,520	56	%	Total of Top 5	$	12,749	54	%	Total of Top 5	$	13,077	52	%

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

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

The table below shows principal purchases and reductions of loans in the MPP for the first ~~nine~~six months of ~~2020.~~2021. All loans acquired in the first six months of 2021 were conventional loans.

(In millions)

MPP Principal

Balance at December 31, ~~2019~~2020

~~10,981~~9,316

Principal purchases

~~2,375~~420

Principal reductions

~~(2,943)~~(2,205)

Balance at ~~September~~June 30, ~~2020~~2021

~~10,413~~7,531

Although there were 81 active members participating in the MPP during the nine months ended September 30, 2020, approximately 50 percent of the principal purchases in the first nine months of 2020 resulted from activity of our five largest sellers. All loans acquired in the first nine months of 2020 were conventional loans.

We closely track the refinancing incentives of our mortgage assets (including loans in the MPP and MBS) because the option for homeowners to change their principal payments normally represents the largest portion of our market risk exposure and can affect MPP balances. MPP principal paydowns increased in the first ~~nine~~six months of ~~2020~~2021 to a 2739 percent annual constant prepayment rate, compared to the 1430 percent rate for all of ~~2019,~~2020, driven by ~~reductions in~~the historically low mortgage rates. ~~We expect to see a higher rate~~Our purchases of ~~prepayments for~~new loans were much lower than the ~~remainder~~level of repayments during the ~~year unless mortgage rates rise.~~first six months of 2021. Although MPP yields on purchases ~~in the first nine months~~ of ~~2020, after consideration of funding and hedging costs,~~new loans continued to offer favorable ~~returns. However,~~returns, the lack of volume that met our risk adjusted return criteria along with other balance sheet concentration considerations prevented us from purchasing new loans to fully replace repayments received.

Overall, MPP yields on existing portfolio balances, net of funding and hedging costs, have declined and are expected to ~~continue~~remain at lower levels in the short-term due to ~~do so with~~ the ~~increased prepayment speeds noted above. The~~accelerated payoff of higher-yielding mortgages at a faster pace than the associated debt funding them. Despite the lower yields on existing MPP balances, the metrics of portfolio return relative to their market and credit risks continue to indicate that the MPP has generated, and can be expected to continue to generate, a profitable long-term, risk-adjusted return.

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Investments

The table below presents the ending and average balances of our investment portfolio.


		Nine Months Ended				Year Ended					Six Months Ended				Year Ended
(In millions)	(In millions)	September 30, 2020				December 31, 2019				(In millions)	June 30, 2021				December 31, 2020
		Ending Balance		Average Balance		Ending Balance		Average Balance			Ending Balance		Average Balance		Ending Balance		Average Balance
Liquidity investments	Liquidity investments	$	23,274	$	20,714	$	20,924	$	22,525	Liquidity investments	$	18,155	$	18,787	$	17,285	$	20,548
MBS	MBS	11,240		12,288		13,465		15,029		MBS	8,941		9,081		9,756		11,864
Other investments (1)	Other investments (1)	—		472		—		232		Other investments (1)	—		320		—		459
Total investments	Total investments	$	34,514	$	33,474	$	34,389	$	37,786	Total investments	$	27,096	$	28,188	$	27,041	$	32,871

(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

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

The balance of liquidity investments was higher at ~~September~~June 30, ~~2020~~2021 compared to year-end ~~2019 primarily~~2020, as we held $3.0 billion of our liquidity portfolio as deposits at the Federal Reserve at the end of 2020, which are reflected in cash and due tofrom banks on the ~~prepayment and maturity~~Statements of ~~Advances, especially~~Condition. Also, we purchased additional longer-term U.S. Treasury obligations in the ~~third~~second quarter of ~~2020. The average balance of liquidity investments for the nine months ended September 30, 2020 was near the average balance for all of 2019 as we continued to hold U.S. Treasury obligations~~2021, which are held to help meet regulatory liquidity requirements. Under the regulatory requirements, liquidity includes certain high-quality liquid assets, which are defined as U.S. Treasury obligations with remaining maturities of 10 years or less held as trading securities or available-for-sale securities. The average balance of liquidity investments for the six months ended June 30, 2021 fell $1.8 billion (nine percent) from the average balance for all of 2020 due to lower liquidity investments being needed in light of the reduced Advance demand.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory ~~maximum, subject to the availability of securities that we believe provide acceptable risk/return tradeoffs.~~maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was ~~2.65~~2.22 at ~~September~~June 30, ~~2020.~~2021. The MBS ratio was lower than normal primarily due to the decline in MBS balances given paydowns in the low interest rate environment and the regulatory limitations regarding the purchase of investments that reference LIBOR. Given these limitations, we have not been able to replace the prepaid MBS with suitable alternatives that we believe provide an acceptable risk/return tradeoff.

The balance of MBS at ~~September~~June 30, ~~2020~~2021 consisted of ~~$10.0~~$7.8 billion of securities issued by Fannie Mae or Freddie Mac (of which ~~$6.7~~$5.6 billion were floating-rate securities)~~, $0.1 billion of floating-rate securities issued by the National Credit Union Administration (NCUA)~~, and $1.1 billion of securities issued by Ginnie Mae (which are primarily fixed rate).

The table below shows principal purchases and paydowns of our MBS for the first ~~nine~~six months of ~~2020.~~2021.


(In millions)	MBS Principal

Balance at December 31, ~~2019~~2020	$	~~13,447~~9,745
Principal purchases	~~149~~729
Principal paydowns	~~(2,368)~~(1,541)

Balance at ~~September~~June 30, ~~2020~~2021	$	~~11,228~~8,933

MBS principal paydowns in the first ~~nine~~six months of ~~2020~~2021 equated to a 2229 percent annual constant prepayment rate, upan increase from the 2027 percent rate experienced in ~~2019.~~2020. The ~~higher~~elevated prepayment ~~rate~~rates experienced in the first ~~nine~~six months of 2021 and all of 2020 is a result of the historically low mortgage rate environment.

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Consolidated Obligations

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

The table below presents the ending and average balances of our participations in Consolidated Obligations.

Nine Months Ended Year Ended
(In millions) September 30, 2020 December 31, 2019
Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:
Unswapped $ 26,675 $ 44,628 $ 36,776 $ 39,286
Swapped — 5,133 12,401 5,291
Total par Discount Notes 26,675 49,761 49,177 44,577
Other items (1)
(7) (48) (93) (95)
Total Discount Notes 26,668 49,713 49,084 44,482
Bonds:
Unswapped fixed-rate 23,234 21,322 22,420 24,423
Unswapped adjustable-rate (2)
15,603 13,366 11,012 16,132
Swapped fixed-rate 2,541 3,940 4,949 5,310
Total par Bonds 41,378 38,628 38,381 45,865
Other items (1)
54 74 59 44
Total Bonds 41,432 38,702 38,440 45,909
Total Consolidated Obligations (3)
$ 68,100 $ 88,415 $ 87,524 $ 90,391


	Six Months Ended				Year Ended
(In millions)	June 30, 2021				December 31, 2020
	Ending Balance		Average Balance		Ending Balance		Average Balance
Discount Notes:
Unswapped	$	18,314	$	25,421	$	27,503	$	39,478
Swapped	2,867		805		—		3,843
Total par Discount Notes	21,181		26,226		27,503		43,321
Other items (1)	(1)		(1)		(3)		(37)
Total Discount Notes	21,180		26,225		27,500		43,284
Bonds:
Unswapped fixed-rate	21,070		19,213		18,940		21,288
Unswapped adjustable-rate (2)	8,000		9,324		10,639		13,394
Swapped fixed-rate	2,586		1,364		2,372		3,547
Total par Bonds	31,656		29,901		31,951		38,229
Other items (1)	22		31		46		68
Total Bonds	31,678		29,932		31,997		38,297
Total Consolidated Obligations (3)	$	52,858	$	56,157	$	59,497	$	81,581

(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.

(2)~~Unswapped~~At June 30, 2021 and December 31, 2020, all unswapped adjustable-rate Bonds ~~are indexed to either LIBOR or SOFR. At September 30, 2020, 100 percent were indexed to SOFR. At December 31, 2019, 1 percent were indexed to LIBOR and 99 percent~~ were indexed to SOFR.

(3)The 11 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amount of the outstanding Consolidated Obligations for all of the FHLBanks was (in millions) ~~$819,863~~$666,747 and ~~$1,025,895~~$746,772 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The ~~average~~ending balance of Discount Notes ~~was higher~~at June 30, 2021 declined compared to year-end 2020 due in part to the lower Advance and cash balances. The average balances of Discount Notes and unswapped adjustable-rate Bonds in the first ~~nine~~six months of ~~2020~~2021 were significantly lower compared to the ~~average~~averages for all of ~~2019~~2020 due to the growth in short-term and variable-rate Advances ~~across our membership at the end of~~in the first quarter of 2020 as members sought additional liquidity during the ~~financial markets reacted to~~onset of the COVID-19 pandemic. However, most of these Advances matured or prepaid by the ~~ending balance~~end of ~~Discount Notes was significantly lower at September 30,~~ 2020 ~~compared to year-end 2019 due to~~and the ~~reduction in short-term and variable-rate~~demand for Advances in the second and third quarters of 2020. The decrease in swapped Discount Notes at September 30, 2020 was driven by our preference to use unswapped Discount Notes and unswapped adjustable-rate Bonds in the current market environment.has remained low.

The average balance of unswapped fixed-rate Bonds, which typically have initial ~~maturities~~maturities greater than one year, declined in the first ~~nine~~six months of ~~2020~~2021 compared to the average balance in ~~2019~~2020 due to terminating higher coupon fixed-rate Bonds with embedded options as interest rates fell.

Deposits

Total deposits with us are normally a relatively minor source of low-cost funding. Total interest-bearing deposits at ~~September~~June 30, ~~2020~~2021 were ~~$1.2~~$1.3 billion, ~~an increase of $0.3 billion from~~similar to the balance at year-end ~~2019.~~2020.

Derivatives Hedging Activity and Liquidity

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

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Capital Resources

The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same manner as GAAP capital stock and retained earnings.


		Nine Months Ended				Year Ended					Six Months Ended				Year Ended
(In millions)	(In millions)	September 30, 2020				December 31, 2019				(In millions)	June 30, 2021				December 31, 2020
		Period End		Average		Period End		Average			Period End		Average		Period End		Average
GAAP and Regulatory Capital	GAAP and Regulatory Capital									GAAP and Regulatory Capital
GAAP Capital Stock	GAAP Capital Stock	$	2,935	$	3,837	$	3,367	$	3,827	GAAP Capital Stock	$	2,718	$	2,678	$	2,641	$	3,567
Mandatorily Redeemable Capital Stock	Mandatorily Redeemable Capital Stock	17		68		22		25		Mandatorily Redeemable Capital Stock	14		21		19		55
Regulatory Capital Stock	Regulatory Capital Stock	2,952		3,905		3,389		3,852		Regulatory Capital Stock	2,732		2,699		2,660		3,622
Retained Earnings	Retained Earnings	1,282		1,207		1,094		1,069		Retained Earnings	1,297		1,306		1,304		1,228
Regulatory Capital	Regulatory Capital	$	4,234	$	5,112	$	4,483	$	4,921	Regulatory Capital	$	4,029	$	4,005	$	3,964	$	4,850


		Nine Months Ended				Year Ended					Six Months Ended				Year Ended
		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Period End		Average		Period End		Average			Period End		Average		Period End		Average
GAAP and Regulatory Capital-to-Assets Ratio	GAAP and Regulatory Capital-to-Assets Ratio									GAAP and Regulatory Capital-to-Assets Ratio
GAAP	GAAP	5.68	%	5.25	%	4.75	%	5.04	%	GAAP	6.82	%	6.36	%	6.02	%	5.39	%
Regulatory (1)	Regulatory (1)	5.72		5.34		4.79		5.08		Regulatory (1)	6.84		6.41		6.07		5.47

(1) At all times, the ~~FHLBanks~~FHLB must maintain at least a four percent minimum regulatory capital-to-assets ratio.

Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in the first six months of 2021, we issued $1.0 billion of capital stock to members in support of short-term Advance borrowings that were subsequently repaid prior to June 30, 2021. During the same period, we repurchased $0.9 billion of capital stock in response to lower Advance balances.

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

A portion of our capital stock is excess, meaning it is not required as a condition to being a member and is not currently capitalizing Mission Asset Activity. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used to capitalize a portion of growth in Mission Assets. At September 30, 2020, the amount of excess stock, as defined by our Capital Plan, was $413 million, an increase of $376 million from year-end 2019. The balance of excess stock grew as many Advances matured or prepaid in the second and third quarters. The decrease in GAAP and regulatory capital balances was primarily due to our repurchase of $2.0 billion of excess capital stock and members' redemption of $0.6 billion of stock in 2020. The repurchase and redemption of capital stock were partially offset by members' purchases of capital stock to support Advance growth at the end of the first quarter.

Membership and Stockholders

In the first ~~nine~~six months of ~~2020,~~2021, we added ~~six~~five new member stockholders and lost 17five member stockholders, ending the quarter at ~~629~~628 member stockholders. ~~The decline in membership~~Three of the five members lost during the first ~~nine~~six months of ~~2020 was primarily~~2021 were attributable to intra-district merger activity.

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RESULTS OF OPERATIONS

Components of Earnings and Return on Equity

The following table is a summary income statement for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period.

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2020 2019 2020 2019
Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Net interest income $ 93 7.63 % $ 87 7.46 % $ 325 8.63 % $ 307 8.21 %
Non-interest income (loss):
Net gains (losses) on investment securities (42) (3.45) 70 6.00 320 8.49 264 7.05
Net gains (losses) on derivatives and hedging activities 20 1.61 (60) (5.15) (308) (8.19) (238) (6.37)
Net gains (losses) on financial instruments held under fair value option 11 0.87 (8) (0.74) (15) (0.38) (51) (1.35)
Other non-interest income, net 4 0.35 3 0.26 11 0.29 8 0.22
Total non-interest income (loss) (7) (0.62) 5 0.37 8 0.21 (17) (0.45)
Total income 86 7.01 92 7.83 333 8.84 290 7.76
Non-interest expense 22 1.79 22 1.87 70 1.86 68 1.81
Affordable Housing Program assessments 7 0.52 7 0.60 27 0.70 22 0.60
Net income $ 57 4.70 % $ 63 5.36 % $ 236 6.28 % $ 200 5.35 %


	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in millions)	2021				2020				2021				2020
	Amount		ROE (1)		Amount		ROE (1)		Amount		ROE (1)		Amount		ROE (1)
Net interest income	$	66	6.51	%	$	149	10.71	%	$	142	7.21	%	$	232	9.11	%


Non-interest income (loss):
Net gains (losses) on investment securities	(15)		(1.51)		(11)		(0.74)		(154)		(7.83)		362		14.23
Net gains (losses) on derivatives and hedging activities	(36)		(3.55)		(34)		(2.43)		61		3.10		(328)		(12.89)
Net gains (losses) on financial instruments held under fair value option	2		0.25		26		1.84		7		0.33		(25)		(0.99)
Other non-interest income, net	7		0.69		4		0.26		13		0.68		6		0.26
Total non-interest income (loss)	(42)		(4.12)		(15)		(1.07)		(73)		(3.72)		15		0.61
Total income	24		2.39		134		9.64		69		3.49		247		9.72
Non-interest expense	24		2.35		24		1.72		48		2.41		48		1.90
Affordable Housing Program assessments	—		0.01		11		0.80		2		0.11		20		0.78
Net income	$	—	0.03	%	$	99	7.12	%	$	19	0.97	%	$	179	7.04	%

(1)The ROE amounts have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may produce nominally different results.

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

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Net Interest Income

Components of Net Interest Income

The following table shows selected components of net interest income.


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in millions)	(Dollars in millions)	2020				2019				2020				2019				(Dollars in millions)	2021				2020				2021				2020
		Amount		% of Earning Assets		Amount		% of Earning Assets		Amount		% of Earning Assets		Amount		% of Earning Assets			Amount		% of Earning Assets		Amount		% of Earning Assets		Amount		% of Earning Assets		Amount		% of Earning Assets
Components of net interest rate spread:	Components of net interest rate spread:																	Components of net interest rate spread:
Net (amortization)/accretion (1) (2)	Net (amortization)/accretion (1) (2)	$	(33)	(0.15)	%	$	(12)	(0.05)	%	$	(82)	(0.12)	%	$	(23)	(0.03)	%	Net (amortization)/accretion (1) (2)	$	(28)	(0.18)	%	$	(28)	(0.11)	%	$	(56)	(0.18)	%	$	(50)	(0.10)	%
Prepayment fees on Advances, net (2)	Prepayment fees on Advances, net (2)	7		0.04		1		—		25		0.04		1		—		Prepayment fees on Advances, net (2)	5		0.03		13		0.05		6		0.02		18		0.03
Other components of net interest rate spread	Other components of net interest rate spread	107		0.50		70		0.30		345		0.49		236		0.32		Other components of net interest rate spread	82		0.54		158		0.61		178		0.58		239		0.49
Total net interest rate spread	Total net interest rate spread	81		0.39		59		0.25		288		0.41		214		0.29		Total net interest rate spread	59		0.39		143		0.55		128		0.42		207		0.42
Earnings from funding assets with interest-free capital	Earnings from funding assets with interest-free capital	12		0.04		28		0.11		37		0.05		93		0.12		Earnings from funding assets with interest-free capital	7		0.04		6		0.03		14		0.04		25		0.05
Total net interest income/net interest margin (3)	Total net interest income/net interest margin (3)	$	93	0.43	%	$	87	0.36	%	$	325	0.46	%	$	307	0.41	%	Total net interest income/net interest margin (3)	$	66	0.43	%	$	149	0.58	%	$	142	0.46	%	$	232	0.47	%

(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.

(2)This component of net interest rate spread has been segregated to display its relative impact.

(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Net Amortization/Accretion (generally referred to as "amortization"): ~~While net~~Net amortization ~~has been moderate over the past few years, it~~ can become substantial and ~~volatile.~~volatile with changes in interest rates. When mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. ~~Amortization~~Net amortization in the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~increased significantly compared~~was elevated due to the ~~same periods in 2019 primarily due to a decline in~~historically low mortgage rates, which led to accelerated prepayments of mortgage assets. The $10 million increase in amortization from mortgage assets in the six-months comparison was partially offset by a $4 million decrease in amortization on Consolidated Obligations. Amortization on Consolidated Obligations was elevated in the first ~~nine~~three months of ~~2020. We expect the trend of faster prepayments to continue throughout~~ 2020 ~~unless mortgage~~as we repaid higher coupon fixed-rate Bonds as interest rates ~~rise 0.50 percent or more.~~fell.

Prepayment Fees on Advances: Fees for members' early repayment of certain Advances, which are included in net interest income, are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. ~~Although~~ Advance prepayment fees ~~have been minimal in recent years, they grew~~were moderate in the ~~three and nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~growth in~~higher Advance prepayment fees in the first six months of 2020 was due to a higher amount of member prepayments of Advances as interest rates ~~declined and due to the U.S. government's actions to provide liquidity to support the economy.~~declined.

Other Components of Net Interest Rate Spread: The total other components of net interest rate spread ~~increased $37~~decreased $76 million and ~~$109~~$61 million in the three- and ~~nine-months comparison~~six-months comparisons periods, respectively. The net ~~increases~~decreases were primarily due to the factors below.

~~Nine-Months~~Six-Months Comparison

▪Lower average Advance balances-Unfavorable: The $27.8 billion decrease in the average balance of Advances lowered net interest income by an estimated $49 million.

▪Lower spreads earned on mortgage assets-Unfavorable: Lower spreads on the mortgage assets portfolio decreased net interest income by an estimated $35 million. The lower spreads were driven by the decline in average long-term interest rates, which accelerated the prepayments of higher-yielding mortgages at a faster pace than the associated debt funding them.

▪Lower average balances of mortgage assets-Unfavorable: The $3.6 billion decrease in the average balance of mortgage-backed securities and the $3.3 billion decrease in the average balance of mortgage loans held for portfolio lowered net interest income by an estimated $27 million. Mortgage balances declined due to the acceleration of principal cash flows driven by historically low mortgage interest rates.

▪Higher spreads on ~~liquidity investment~~shorter-term and floating-rate asset balances-Favorable: Higher spreads on ~~liquidity investments~~shorter-term assets and floating-rate assets (including those that have been swapped to a floating rate) improved net interest income by an estimated ~~$131~~$39 million as the rates on the debt funding these ~~investments~~assets declined. However, the increase in net interest

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income was ~~substantially~~more than offset by lower non-interest income (loss) primarily due to an increase of ~~$105~~$51 million in the net interest settlements being paid on related derivatives not receiving hedge accounting.

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

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

▪Unrealized ~~losses~~gains on designated fair value hedges-~~Unfavorable~~Favorable: Net unrealized ~~losses~~gains on hedged items and derivatives in qualifying fair value hedge relationships ~~lowered~~improved net interest income by $7$12 million.

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▪~~Lower average Advance balances-Unfavorable~~: ~~The $2.3 billion decrease in the average balance of Advances lowered net interest income by an estimated $6 million.~~

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

Three-Months Comparison

Except for the ~~higher~~ unrealized ~~losses~~gains on fair value hedges, which were losses in the three-months comparison, the same factors generally affected the other components of net interest rate spread as in the ~~nine-months~~six-months comparison and by approximately the same relative magnitude.

Earnings from Capital: Earnings from capital decreased ~~$16 million and $56~~$11 million in the ~~three and nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021 compared to the same ~~periods~~period in ~~2019~~2020 primarily due to average short-term rates declining ~~more than 180~~approximately 60 to 90 basis points as the Federal Reserve responded to the evolving risks to economic activity ~~from~~in the first quarter of 2020 due to the COVID-19 ~~pandemic.~~pandemic and has continued to keep rates low. Earnings from capital were relatively flat in the three-months comparison given average short-term rates were similar in each of the quarters.

Average Balance Sheet and Rates

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

In addition, the net interest settlements of interest receivables or payables associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables are recorded in “Non-interest income (loss)” as “Net gains (losses) on derivatives and hedging activities” and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.

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(Dollars in millions)	(Dollars in millions)	Three Months Ended						Three Months Ended						(Dollars in millions)	Three Months Ended						Three Months Ended
		September 30, 2020						September 30, 2019							June 30, 2021						June 30, 2020
		Average Balance		Interest		Average Rate (1)		Average Balance		Interest		Average Rate (1)			Average Balance		Interest		Average Rate (1)		Average Balance		Interest		Average Rate (1)
Assets:	Assets:													Assets:
Advances	Advances	$	41,730	$	71	0.68	%	$	44,153	$	268	2.41	%	Advances	$	25,646	$	37	0.57	%	$	62,445	$	172	1.11	%
Mortgage loans held for portfolio (2)	Mortgage loans held for portfolio (2)	11,218		62		2.21		10,749		83		3.08		Mortgage loans held for portfolio (2)	8,111		38		1.90		11,963		74		2.49
Federal funds sold and securities purchased under resale agreements	Federal funds sold and securities purchased under resale agreements	7,947		2		0.09		13,369		76		2.24		Federal funds sold and securities purchased under resale agreements	7,748		1		0.07		4,154		1		0.08
Interest-bearing deposits in banks (3) (4) (5)		1,316		—		0.13		1,178		6		2.12
Interest-bearing deposits in banks (3) (4)														Interest-bearing deposits in banks (3) (4)	679		—		0.10		1,467		—		0.11
MBS ~~(4)~~(3)	MBS ~~(4)~~(3)	11,608		37		1.25		14,908		95		2.52		MBS ~~(4)~~(3)	8,736		24		1.10		12,212		48		1.59
Other investments ~~(4)~~(3)	Other investments ~~(4)~~(3)	12,199		67		2.17		10,546		63		2.36		Other investments ~~(4)~~(3)	10,350		55		2.11		12,163		68		2.26
Loans to other FHLBanks	Loans to other FHLBanks	—		—		—		—		—		—		Loans to other FHLBanks	—		—		—		—		—		—
Total interest-earning assets	Total interest-earning assets	86,018		239		1.11		94,903		591		2.47		Total interest-earning assets	61,270		155		1.01		104,404		363		1.40
Less: allowance for credit losses on mortgage loans		—						1

Other assets	Other assets	527						520						Other assets	660						3,099
Total assets	Total assets	$	86,545					$	95,422					Total assets	$	61,930					$	107,503
Liabilities and Capital:	Liabilities and Capital:													Liabilities and Capital:
Term deposits	Term deposits	$	103	—		0.46		$	39	—		2.47		Term deposits	$	75	—		0.21		$	51	—		1.07
Other interest bearing deposits ~~(5)~~(4)	Other interest bearing deposits ~~(5)~~(4)	1,253		—		0.02		829		4		1.96		Other interest bearing deposits ~~(5)~~(4)	1,423		—		0.02		1,266		—		0.02
Discount Notes	Discount Notes	36,502		26		0.29		43,332		239		2.18		Discount Notes	25,805		2		0.03		63,084		83		0.53
Unswapped fixed-rate Bonds	Unswapped fixed-rate Bonds	23,420		102		1.73		23,952		138		2.29		Unswapped fixed-rate Bonds	20,901		83		1.60		19,152		108		2.27
Unswapped adjustable-rate Bonds	Unswapped adjustable-rate Bonds	16,543		8		0.18		15,149		90		2.35		Unswapped adjustable-rate Bonds	7,622		1		0.04		12,702		5		0.14
Swapped Bonds	Swapped Bonds	2,762		10		1.51		6,565		33		1.97		Swapped Bonds	1,192		3		0.86		4,393		17		1.58
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	19		—		(1.59)		27		—		3.75		Mandatorily redeemable capital stock	22		—		1.99		133		1		2.61
Other borrowings	Other borrowings	1		—		—		—		—		2.19		Other borrowings	—		—		—		—		—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	80,603		146		0.72		89,893		504		2.22		Total interest-bearing liabilities	57,040		89		0.62		100,781		214		0.85
Non-interest bearing deposits	Non-interest bearing deposits	—						9						Non-interest bearing deposits	—						—
Other liabilities	Other liabilities	1,089						881						Other liabilities	812						1,106
Total capital	Total capital	4,853						4,639						Total capital	4,078						5,616
Total liabilities and capital	Total liabilities and capital	$	86,545					$	95,422					Total liabilities and capital	$	61,930					$	107,503

Net interest rate spread	Net interest rate spread					0.39	%					0.25	%	Net interest rate spread					0.39	%					0.55	%
Net interest income and net interest margin ~~(6)~~(5)	Net interest income and net interest margin ~~(6)~~(5)			$	93	0.43	%			$	87	0.36	%	Net interest income and net interest margin ~~(6)~~(5)			$	66	0.43	%			$	149	0.58	%
Average interest-earning assets to interest-bearing liabilities	Average interest-earning assets to interest-bearing liabilities					106.72	%					105.57	%	Average interest-earning assets to interest-bearing liabilities					107.42	%					103.60	%

(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.

(2)Non-accrual loans are included in average balances used to determine average rate.

(3)Includes ~~certificates of deposit that are classified as available-for-sale securities.~~

~~(4)Includes~~ available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.

~~(5)~~(4)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

~~(6)~~(5)Net interest margin is net interest income as a percentage of average total interest-earning assets.

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(Dollars in millions)	(Dollars in millions)	Nine Months Ended						Nine Months Ended						(Dollars in millions)	Six Months Ended						Six Months Ended
		September 30, 2020						September 30, 2019							June 30, 2021						June 30, 2020
		Average Balance		Interest		Average Rate (1)		Average Balance		Interest		Average Rate (1)			Average Balance		Interest		Average Rate (1)		Average Balance		Interest		Average Rate (1)
Assets:	Assets:													Assets:
Advances	Advances	$	49,131	$	420	1.14	%	$	51,397	$	992	2.58	%	Advances	$	25,099	$	79	0.63	%	$	52,872	$	348	1.32	%
Mortgage loans held for portfolio (2)	Mortgage loans held for portfolio (2)	11,648		226		2.59		10,607		258		3.25		Mortgage loans held for portfolio (2)	8,601		83		1.94		11,865		163		2.77
Federal funds sold and securities purchased under resale agreements	Federal funds sold and securities purchased under resale agreements	7,573		41		0.73		13,404		240		2.39		Federal funds sold and securities purchased under resale agreements	7,934		3		0.07		7,385		40		1.07
Interest-bearing deposits in banks (3) (4) (5)	Interest-bearing deposits in banks (3) (4) (5)	1,525		8		0.64		1,560		29		2.47		Interest-bearing deposits in banks (3) (4) (5)	770		—		0.10		1,630		7		0.85
MBS (4)	MBS (4)	12,288		153		1.66		15,451		304		2.64		MBS (4)	9,077		54		1.21		12,631		116		1.85
Other investments (4)	Other investments (4)	12,088		203		2.25		6,597		115		2.33		Other investments (4)	10,398		113		2.19		12,033		137		2.29
Loans to other FHLBanks	Loans to other FHLBanks	7		—		1.22		4		—		2.43		Loans to other FHLBanks	—		—		—		10		—		1.22
Total interest-earning assets	Total interest-earning assets	94,260		1,051		1.49		99,020		1,938		2.62		Total interest-earning assets	61,879		332		1.08		98,426		811		1.66
Less: allowance for credit losses on mortgage loans		—						1

Other assets	Other assets	1,513						423						Other assets	615						2,011
Total assets	Total assets	$	95,773					$	99,442					Total assets	$	62,494					$	100,437
Liabilities and Capital:	Liabilities and Capital:													Liabilities and Capital:
Term deposits	Term deposits	$	62	—		0.87		$	53	1		2.44		Term deposits	$	92	—		0.29		$	42	—		1.38
Other interest bearing deposits (5)	Other interest bearing deposits (5)	1,186		3		0.33		701		11		2.11		Other interest bearing deposits (5)	1,388		—		0.02		1,153		3		0.50
Discount Notes	Discount Notes	49,713		286		0.77		45,012		795		2.36		Discount Notes	26,225		7		0.06		56,391		259		0.93
Unswapped fixed-rate Bonds	Unswapped fixed-rate Bonds	21,355		340		2.13		25,140		427		2.27		Unswapped fixed-rate Bonds	19,232		171		1.79		20,312		239		2.36
Unswapped adjustable-rate Bonds	Unswapped adjustable-rate Bonds	13,366		48		0.47		16,899		309		2.45		Unswapped adjustable-rate Bonds	9,324		4		0.07		11,760		40		0.68
Swapped Bonds	Swapped Bonds	3,981		48		1.61		5,828		87		2.00		Swapped Bonds	1,376		8		1.21		4,596		37		1.64
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	68		1		1.93		25		1		4.86		Mandatorily redeemable capital stock	21		—		2.00		92		1		2.29
Other borrowings	Other borrowings	—		—		—		—		—		2.14		Other borrowings	—		—		—		—		—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	89,731		726		1.08		93,658		1,631		2.33		Total interest-bearing liabilities	57,658		190		0.66		94,346		579		1.24
Non-interest bearing deposits	Non-interest bearing deposits	3						9						Non-interest bearing deposits	—						5
Other liabilities	Other liabilities	1,010						772						Other liabilities	863						969
Total capital	Total capital	5,029						5,003						Total capital	3,973						5,117
Total liabilities and capital	Total liabilities and capital	$	95,773					$	99,442					Total liabilities and capital	$	62,494					$	100,437

Net interest rate spread	Net interest rate spread					0.41	%					0.29	%	Net interest rate spread					0.42	%					0.42	%
Net interest income and net interest margin (6)	Net interest income and net interest margin (6)			$	325	0.46	%			$	307	0.41	%	Net interest income and net interest margin (6)			$	142	0.46	%			$	232	0.47	%
Average interest-earning assets to interest-bearing liabilities	Average interest-earning assets to interest-bearing liabilities					105.05	%					105.73	%	Average interest-earning assets to interest-bearing liabilities					107.32	%					104.32	%

(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.

(2)Non-accrual loans are included in average balances used to determine average rate.

(3)Includes certificates of deposit that are classified as available-for-sale securities.

(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.

(5)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Rates and corresponding levels of interest income and expense on ~~all of~~ our interest-bearing assets and liabilities decreased in the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019~~2020 due to the decline in market interest rates. ~~Average rates on short-term assets and liabilities declined more notably as they repriced quicker to lower rates.~~

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Volume/Rate Analysis

Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.


(In millions)	(In millions)	Three Months Ended September 30, 2020 over 2019						Nine Months Ended September 30, 2020 over 2019						(In millions)	Three Months Ended June 30, 2021 over 2020						Six Months Ended June 30, 2021 over 2020

		Volume (1)(3)		Rate (2)(3)		Total		Volume (1)(3)		Rate (2)(3)		Total			Volume (1)(3)		Rate (2)(3)		Total		Volume (1)(3)		Rate (2)(3)		Total
Increase (decrease) in interest income	Increase (decrease) in interest income													Increase (decrease) in interest income
Advances	Advances	$	(14)	$	(183)	$	(197)	$	(42)	$	(530)	$	(572)	Advances	$	(74)	$	(61)	$	(135)	$	(135)	$	(134)	$	(269)
Mortgage loans held for portfolio	Mortgage loans held for portfolio	3		(24)		(21)		24		(56)		(32)		Mortgage loans held for portfolio	(21)		(15)		(36)		(38)		(42)		(80)
Federal funds sold and securities purchased under resale agreements	Federal funds sold and securities purchased under resale agreements	(22)		(52)		(74)		(77)		(122)		(199)		Federal funds sold and securities purchased under resale agreements	—		—		—		3		(40)		(37)
Interest-bearing deposits in banks	Interest-bearing deposits in banks	1		(7)		(6)		—		(21)		(21)		Interest-bearing deposits in banks	—		—		—		(3)		(4)		(7)
MBS	MBS	(18)		(40)		(58)		(54)		(97)		(151)		MBS	(12)		(12)		(24)		(28)		(34)		(62)
Other investments	Other investments	9		(5)		4		92		(4)		88		Other investments	(9)		(4)		(13)		(18)		(6)		(24)
Loans to other FHLBanks	Loans to other FHLBanks	—		—		—		—		—		—		Loans to other FHLBanks	—		—		—		—		—		—
Total	Total	(41)		(311)		(352)		(57)		(830)		(887)		Total	(116)		(92)		(208)		(219)		(260)		(479)
Increase (decrease) in interest expense	Increase (decrease) in interest expense													Increase (decrease) in interest expense
Term deposits	Term deposits	—		—		—		—		(1)		(1)		Term deposits	—		—		—		—		—		—
Other interest-bearing deposits	Other interest-bearing deposits	1		(5)		(4)		5		(13)		(8)		Other interest-bearing deposits	—		—		—		—		(3)		(3)
Discount Notes	Discount Notes	(33)		(180)		(213)		75		(584)		(509)		Discount Notes	(31)		(50)		(81)		(91)		(161)		(252)
Unswapped fixed-rate Bonds	Unswapped fixed-rate Bonds	(3)		(33)		(36)		(62)		(25)		(87)		Unswapped fixed-rate Bonds	9		(34)		(25)		(12)		(56)		(68)
Unswapped adjustable-rate Bonds	Unswapped adjustable-rate Bonds	8		(90)		(82)		(53)		(208)		(261)		Unswapped adjustable-rate Bonds	(1)		(3)		(4)		(7)		(29)		(36)
Swapped Bonds	Swapped Bonds	(16)		(7)		(23)		(24)		(15)		(39)		Swapped Bonds	(9)		(5)		(14)		(21)		(8)		(29)
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	—		—		—		1		(1)		—		Mandatorily redeemable capital stock	(1)		—		(1)		(1)		—		(1)
Other borrowings	Other borrowings	—		—		—		—		—		—		Other borrowings	—		—		—		—		—		—
Total	Total	(43)		(315)		(358)		(58)		(847)		(905)		Total	(33)		(92)		(125)		(132)		(257)		(389)
Increase (decrease) in net interest income	Increase (decrease) in net interest income	$	2	$	4	$	6	$	1	$	17	$	18	Increase (decrease) in net interest income	$	(83)	$	—	$	(83)	$	(87)	$	(3)	$	(90)

(1)Volume changes are calculated as the change in volume multiplied by the prior year rate.

(2)Rate changes are calculated as the change in rate multiplied by the prior year average balance.

(3)Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.

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Effect of the Use of Derivatives on Net Interest Income

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


(In millions)	(In millions)	Three Months Ended September 30,				Nine Months Ended September 30,				(In millions)	Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Advances:	Advances:									Advances:

Gains (losses) on designated fair value hedges	Gains (losses) on designated fair value hedges	$	(2)	$	(4)	$	(14)	$	(7)	Gains (losses) on designated fair value hedges	$	(3)	$	2	$	1	$	(11)
Net interest settlements included in net interest income	Net interest settlements included in net interest income	(34)		8		(55)		34		Net interest settlements included in net interest income	(28)		(19)		(61)		(21)
Investment securities:	Investment securities:									Investment securities:

Gains (losses) on designated fair value hedges										Gains (losses) on designated fair value hedges	(1)		—		—		—
Net interest settlements included in net interest income	Net interest settlements included in net interest income	(1)		—		(2)		—		Net interest settlements included in net interest income	(3)		(1)		(4)		(1)
Mortgage loans:	Mortgage loans:									Mortgage loans:
Amortization of derivative fair value adjustments in net interest income	Amortization of derivative fair value adjustments in net interest income	(4)		(1)		(8)		(2)		Amortization of derivative fair value adjustments in net interest income	(4)		(3)		(8)		(5)
Consolidated Obligation Bonds:	Consolidated Obligation Bonds:									Consolidated Obligation Bonds:

Net interest settlements included in net interest income	Net interest settlements included in net interest income	—		1		1		1		Net interest settlements included in net interest income	—		1		1		1
Increase (decrease) to net interest income	Increase (decrease) to net interest income	$	(41)	$	4	$	(78)	$	26	Increase (decrease) to net interest income	$	(39)	$	(20)	$	(71)	$	(37)

Most of our use of derivatives is to synthetically convert the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., LIBOR, the Federal funds effective rate, or SOFR). The larger negative ~~net~~ effect of derivatives on net interest income in the ~~2020 periods~~three and six months ended June 30, 2021 was primarily due to lower short-term benchmark interest rates, ~~in the three and nine months ended September 30, 2020 compared to the same periods in 2019,~~ which resulted in higher net interest settlements being paid ~~rather than received,~~ on certain Advances where the fixed interest rates were converted to adjustable-coupon rates. The fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure by matching actual cash flows between assets and liabilities more closely and efficiently than would otherwise occur.

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Non-Interest Income (Loss)

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


(In millions)	(In millions)	Advances		Investment Securities		Mortgage Loans		Bonds		Discount Notes		Balance Sheet (1)		Other		Total		(In millions)	Advances		Investment Securities		Mortgage Loans		Bonds		Discount Notes		Balance Sheet (1)		Other		Total
Three Months Ended September 30, 2020
Three Months Ended June 30, 2021																		Three Months Ended June 30, 2021
Net effect of derivatives and hedging activities	Net effect of derivatives and hedging activities																	Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting	Gains (losses) on derivatives not receiving hedge accounting	$	2	$	67	$	3	$	(7)	$	(1)	$	—	$	—	$	64	Gains (losses) on derivatives not receiving hedge accounting	$	(1)	$	11	$	4	$	(2)	$	—	$	(3)	$	—	$	9
Net interest settlements on derivatives not receiving hedge accounting	Net interest settlements on derivatives not receiving hedge accounting	—		(53)		—		8		1		—		—		(44)		Net interest settlements on derivatives not receiving hedge accounting	—		(47)		—		2		—		—		—		(45)
Price alignment amount	Price alignment amount	—		—		—		—		—		—		—		—		Price alignment amount	—		—		—		—		—		—		—		—
Net gains (losses) on derivatives and hedging activities	Net gains (losses) on derivatives and hedging activities	2		14		3		1		—		—		—		20		Net gains (losses) on derivatives and hedging activities	(1)		(36)		4		—		—		(3)		—		(36)
Gains (losses) on trading securities (2)	Gains (losses) on trading securities (2)	—		(42)		—		—		—		—		—		(42)		Gains (losses) on trading securities (2)	—		(15)		—		—		—		—		—		(15)
Gains (losses) on financial instruments held under fair value option (3)	Gains (losses) on financial instruments held under fair value option (3)	1		—		—		9		1		—		—		11		Gains (losses) on financial instruments held under fair value option (3)	—		—		—		2		—		—		—		2
Total net effect on non-interest income	Total net effect on non-interest income	$	3	$	(28)	$	3	$	10	$	1	$	—	$	—	$	(11)	Total net effect on non-interest income	$	(1)	$	(51)	$	4	$	2	$	—	$	(3)	$	—	$	(49)

Three Months Ended September 30, 2019
Three Months Ended June 30, 2020																		Three Months Ended June 30, 2020
Net effect of derivatives and hedging activities	Net effect of derivatives and hedging activities																	Net effect of derivatives and hedging activities

Gains (losses) on derivatives not receiving hedge accounting	Gains (losses) on derivatives not receiving hedge accounting	$	(1)	$	(84)	$	—	$	7	$	1	$	19	$	—	$	(58)	Gains (losses) on derivatives not receiving hedge accounting	$	—	$	18	$	(7)	$	(3)	$	(13)	$	(2)	$	—	$	(7)
Net interest settlements on derivatives not receiving hedge accounting	Net interest settlements on derivatives not receiving hedge accounting	—		3		—		(6)		(1)		—		—		(4)		Net interest settlements on derivatives not receiving hedge accounting	—		(49)		—		9		13		—		—		(27)
Price alignment amount	Price alignment amount	—		—		—		—		—		—		2		2		Price alignment amount	—		—		—		—		—		—		—		—
Net gains (losses) on derivatives and hedging activities	Net gains (losses) on derivatives and hedging activities	(1)		(81)		—		1		—		19		2		(60)		Net gains (losses) on derivatives and hedging activities	—		(31)		(7)		6		—		(2)		—		(34)
Gains (losses) on trading securities (2)	Gains (losses) on trading securities (2)	—		70		—		—		—		—		—		70		Gains (losses) on trading securities (2)	—		(11)		—		—		—		—		—		(11)
Gains (losses) on financial instruments held under fair value option (3)	Gains (losses) on financial instruments held under fair value option (3)	—		—		—		(6)		(2)		—		—		(8)		Gains (losses) on financial instruments held under fair value option (3)	—		—		—		12		14		—		—		26
Total net effect on non-interest income	Total net effect on non-interest income	$	(1)	$	(11)	$	—	$	(5)	$	(2)	$	19	$	2	$	2	Total net effect on non-interest income	$	—	$	(42)	$	(7)	$	18	$	14	$	(2)	$	—	$	(19)

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(In millions)	(In millions)	Advances		Investment Securities		Mortgage Loans		Bonds		Discount Notes		Balance Sheet (1)		Other		Total		(In millions)	Advances		Investment Securities		Mortgage Loans		Bonds		Discount Notes		Balance Sheet (1)		Other		Total
Nine Months Ended September 30, 2020
Six Months Ended June 30, 2021																		Six Months Ended June 30, 2021
Net effect of derivatives and hedging activities	Net effect of derivatives and hedging activities																	Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting	Gains (losses) on derivatives not receiving hedge accounting	$	(6)	$	(321)	$	(12)	$	21	$	—	$	91	$	—	$	(227)	Gains (losses) on derivatives not receiving hedge accounting	$	1	$	154	$	1	$	(6)	$	—	$	—	$	—	$	150
Net interest settlements on derivatives not receiving hedge accounting	Net interest settlements on derivatives not receiving hedge accounting	—		(120)		—		16		22		—		—		(82)		Net interest settlements on derivatives not receiving hedge accounting	—		(95)		—		6		—		—		—		(89)
Price alignment amount	Price alignment amount	—		—		—		—		—		—		1		1		Price alignment amount	—		—		—		—		—		—		—		—
Net gains (losses) on derivatives and hedging activities	Net gains (losses) on derivatives and hedging activities	(6)		(441)		(12)		37		22		91		1		(308)		Net gains (losses) on derivatives and hedging activities	1		59		1		—		—		—		—		61
Gains (losses) on trading securities (2)	Gains (losses) on trading securities (2)	—		320		—		—		—		—		—		320		Gains (losses) on trading securities (2)	—		(154)		—		—		—		—		—		(154)
Gains (losses) on financial instruments held under fair value option (3)	Gains (losses) on financial instruments held under fair value option (3)	1		—		—		(16)		—		—		—		(15)		Gains (losses) on financial instruments held under fair value option (3)	(1)		—		—		8		—		—		—		7
Total net effect on non-interest income	Total net effect on non-interest income	$	(5)	$	(121)	$	(12)	$	21	$	22	$	91	$	1	$	(3)	Total net effect on non-interest income	$	—	$	(95)	$	1	$	8	$	—	$	—	$	—	$	(86)

Nine Months Ended September 30, 2019
Six Months Ended June 30, 2020																		Six Months Ended June 30, 2020
Net effect of derivatives and hedging activities	Net effect of derivatives and hedging activities																	Net effect of derivatives and hedging activities

Gains (losses) on derivatives not receiving hedge accounting	Gains (losses) on derivatives not receiving hedge accounting	$	(3)	$	(284)	$	3	$	54	$	1	$	4	$	—	$	(225)	Gains (losses) on derivatives not receiving hedge accounting	$	(9)	$	(387)	$	(15)	$	28	$	1	$	91	$	—	$	(291)
Net interest settlements on derivatives not receiving hedge accounting	Net interest settlements on derivatives not receiving hedge accounting	1		8		—		(23)		(1)		—		—		(15)		Net interest settlements on derivatives not receiving hedge accounting	1		(68)		—		9		20		—		—		(38)
Price alignment amount	Price alignment amount	—		—		—		—		—		—		2		2		Price alignment amount	—		—		—		—		—		—		1		1
Net gains (losses) on derivatives and hedging activities	Net gains (losses) on derivatives and hedging activities	(2)		(276)		3		31		—		4		2		(238)		Net gains (losses) on derivatives and hedging activities	(8)		(455)		(15)		37		21		91		1		(328)
Gains (losses) on trading securities (2)	Gains (losses) on trading securities (2)	—		264		—		—		—		—		—		264		Gains (losses) on trading securities (2)	—		362		—		—		—		—		—		362
Gains (losses) on financial instruments held under fair value option (3)	Gains (losses) on financial instruments held under fair value option (3)	—		—		—		(49)		(2)		—		—		(51)		Gains (losses) on financial instruments held under fair value option (3)	—		—		—		(25)		—		—		—		(25)
Total net effect on non-interest income	Total net effect on non-interest income	$	(2)	$	(12)	$	3	$	(18)	$	(2)	$	4	$	2	$	(25)	Total net effect on non-interest income	$	(8)	$	(93)	$	(15)	$	12	$	21	$	91	$	1	$	9

(1)Balance sheet includes synthetic basis swaps and swaptions, which are not designated as hedging a specific financial instrument.

(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statement of Income.

(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."

~~(1)Balance sheet includes swaptions, which are not designated as hedging a specific financial instrument.~~

~~(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statement of Income.~~

~~(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."~~

The net ~~amount~~effect of ~~income volatility in~~ derivatives and hedging activities was ~~moderate~~more unfavorable in the three and ~~consistent with~~six months ended June 30, 2021 compared to the ~~close hedging relationships~~same periods of ~~our derivative transactions. Most~~2020. In the first six months of 2021, most of the ~~volatility~~negative impact was a result of ~~both unrealized fair value gains and losses~~higher net interest settlements being paid on ~~instruments we expect to hold to maturity and~~investment securities. In the first six month of 2020, the sale of ~~certain~~interest rate swaptions as interest rates fell to historically low levels during the first quarter of ~~2020.~~2020 benefited non-interest income. The sales of swaptions in the first quarter of 2020 resulted in net realized gains of approximately $69 million before assessments. We did not sell any interest rate swaptions in the first six months of 2021. We use swaptions to hedge market risk exposure associated with fixed-rate mortgage assets and may sell swaptions as interest rates change in order to offset actual and anticipated risks associated with holding fixed-rate mortgage assets. In the three-months comparison, the negative impact was primarily a result of both unrealized fair value gains and losses on instruments we expect to hold to maturity and less net interest settlements being received on swapped Discount Notes and Bonds.

~~At September 30, 2020, we held $11.3 billion~~In the table above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations ~~and~~that have been swapped ~~them~~ to a variable rate. ~~These investments are classified as trading~~Trading securities ~~and~~ are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, including changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the ~~changes in fair value of~~gains or losses on the associated interest rate swaps.

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Non-Interest Expense

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in millions)		2020			2019			2020			2019
(In millions)														(In millions)	2021		2020		2021		2020

Non-interest expense	Non-interest expense													Non-interest expense
Compensation and benefits	Compensation and benefits	$	12		$	11		$	38		$	35		Compensation and benefits	$	12	$	12	$	25	$	25
Other operating expense	Other operating expense	5			6			16			17			Other operating expense	5		5		11		11
Finance Agency	Finance Agency	2			2			5			5			Finance Agency	2		2		4		3
Office of Finance	Office of Finance	1			1			4			4			Office of Finance	1		1		3		3

Other	Other	2			2			7			7			Other	4		4		5		6
Total non-interest expense	Total non-interest expense	$	22		$	22		$	70		$	68		Total non-interest expense	$	24	$	24	$	48	$	48
Average total assets		$	86,545		$	95,422		$	95,773		$	99,442
Average regulatory capital		4,887			4,678			5,112			5,040
Total non-interest expense to average total assets (1)		0.10		%	0.09		%	0.10		%	0.09		%
Total non-interest expense to average regulatory capital (1)		1.78			1.85			1.83			1.79

~~(1)~~
~~Amounts used~~

Our business is designed to ~~calculate percentages are based on dollars~~support significant changes in ~~thousands.~~asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. Accordingly, ~~recalculations based upon the disclosed amounts in millions may not produce the same results.~~

~~Total~~total non-interest expenses ~~have~~ remained stable ~~with only slight increases over the past several years as seen in~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019. We have managed our operating costs in times of increased Mission Asset Activity, so that we can continue to generate competitive profitability in times of reduced business activity.~~2020.

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Segment Information

Note 13 of the Notes to Unaudited Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.


(Dollars in millions)	(Dollars in millions)	Traditional Member Finance			MPP			Total			(Dollars in millions)	Traditional Member Finance			MPP			Total
Three Months Ended September 30, 2020
Net interest income		$	92		$	1		$	93
Net income		$	56		$	1		$	57
Three Months Ended June 30, 2021											Three Months Ended June 30, 2021
Net interest income (loss)											Net interest income (loss)	$	81		$	(15)		$	66
Net income (loss)											Net income (loss)	$	14		$	(14)		$	—
Average assets	Average assets	$	75,289		$	11,256		$	86,545		Average assets	$	50,494		$	11,436		$	61,930
Assumed average capital allocation	Assumed average capital allocation	$	4,224		$	629		$	4,853		Assumed average capital allocation	$	3,324		$	754		$	4,078
Return on average assets (1)	Return on average assets (1)	0.30		%	0.04		%	0.26		%	Return on average assets (1)	0.12		%	(0.50)		%	—		%
Return on average equity (1)	Return on average equity (1)	5.29		%	0.75		%	4.70		%	Return on average equity (1)	1.77		%	(7.62)		%	0.03		%
Three Months Ended September 30, 2019
Three Months Ended June 30, 2020											Three Months Ended June 30, 2020
Net interest income	Net interest income	$	65		$	22		$	87		Net interest income	$	139		$	10		$	149
Net income		$	34		$	29		$	63
Net income (loss)											Net income (loss)	$	99		$	—		$	99
Average assets	Average assets	$	82,494		$	12,928		$	95,422		Average assets	$	95,499		$	12,004		$	107,503
Assumed average capital allocation	Assumed average capital allocation	$	4,011		$	628		$	4,639		Assumed average capital allocation	$	4,988		$	628		$	5,616
Return on average assets (1)	Return on average assets (1)	0.16		%	0.88		%	0.26		%	Return on average assets (1)	0.42		%	—		%	0.37		%
Return on average equity (1)	Return on average equity (1)	3.36		%	18.16		%	5.36		%	Return on average equity (1)	8.02		%	(0.02)		%	7.12		%


(Dollars in millions)	(Dollars in millions)	Traditional Member Finance			MPP			Total			(Dollars in millions)	Traditional Member Finance			MPP			Total
Nine Months Ended September 30, 2020
Six Months Ended June 30, 2021											Six Months Ended June 30, 2021
Net interest income (loss)											Net interest income (loss)	$	168		$	(26)		$	142
Net income (loss)											Net income (loss)	$	47		$	(28)		$	19
Average assets											Average assets	$	50,877		$	11,617		$	62,494
Assumed average capital allocation											Assumed average capital allocation	$	3,235		$	738		$	3,973
Return on average assets (1)											Return on average assets (1)	0.19		%	(0.48)		%	0.06		%
Return on average equity (1)											Return on average equity (1)	2.91		%	(7.55)		%	0.97		%
Six Months Ended June 30, 2020											Six Months Ended June 30, 2020
Net interest income	Net interest income	$	296		$	29		$	325		Net interest income	$	204		$	28		$	232
Net income	Net income	$	173		$	63		$	236		Net income	$	117		$	62		$	179
Average assets	Average assets	$	84,011		$	11,762		$	95,773		Average assets	$	88,419		$	12,018		$	100,437
Assumed average capital allocation	Assumed average capital allocation	$	4,411		$	618		$	5,029		Assumed average capital allocation	$	4,505		$	612		$	5,117
Return on average assets (1)	Return on average assets (1)	0.28		%	0.71		%	0.33		%	Return on average assets (1)	0.27		%	1.03		%	0.36		%
Return on average equity (1)	Return on average equity (1)	5.26		%	13.60		%	6.28		%	Return on average equity (1)	5.24		%	20.28		%	7.04		%
Nine Months Ended September 30, 2019
Net interest income		$	226		$	81		$	307
Net income		$	130		$	70		$	200
Average assets		$	86,200		$	13,242		$	99,442
Assumed average capital allocation		$	4,337		$	666		$	5,003
Return on average assets (1)		0.20		%	0.71		%	0.27		%
Return on average equity (1)		4.01		%	14.05		%	5.35		%

(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.

Traditional Member Finance Segment

Net ~~interest~~ income ~~increased~~decreased in the ~~three- and nine-months~~six-month comparison ~~periods~~period primarily due to ~~higher~~the decline in average Advance and MBS balances, lower spreads ~~earned~~ on ~~liquidity investments as well as an increase in~~MBS and lower Advance prepayment ~~fees on Advances. Much of the higher spreads earned on liquidity investments was~~fees. However, these unfavorable factors were partially offset by ~~earnings reductions recognized in non-interest~~net unrealized gains on fair value hedges. In the three-months comparison, the factors impacting net income ~~from an increase in net interest payments~~were generally the same except for the unrealized gains on fair value hedges, which were unrealized losses.

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related derivatives not receiving hedge accounting. The favorable factors noted were primarily offset by lower earnings from funding assets with interest-free capital and the decline in average MBS balances.

MPP Segment

~~Net income decreased in both the three- and nine-months comparison periods due~~Due to ~~higher net amortization and lower earnings generated from investing capital driven by~~ the low interest rate ~~environment. We expect~~environment, the ~~trend of higher~~MPP segment experienced net losses in the three and six months ended June 30, 2021. The net losses were due to elevated net amortization, ~~to continue throughout 2020 unless mortgage rates rise. The negative factors were partially offset~~lower MPP balances, and lower portfolio spreads earned on MPP driven by the accelerated payoff of higher-yielding mortgages at a faster pace than the associated debt funding them. Net income in the first ~~nine~~six months of 2020 bysignificantly benefited from gains due to the sale of ~~certain~~interest rate swaptions as rates fell to historically low levels in the first quarter of 2020. ~~In addition, net income decreased~~We did not sell any swaptions in the ~~three-months comparison period due to lower net gains on derivatives and hedging activities.~~first six months of 2021.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Market Risk

Market Value of Equity and Duration of Equity - Entire Balance Sheet

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

Market Value of Equity


(Dollars in millions)	(Dollars in millions)	Down 300			Down 200			Down 100			Flat Rates		Up 100			Up 200			Up 300			(Dollars in millions)	Down 300			Down 200			Down 100			Flat Rates		Up 100			Up 200			Up 300
Average Results	Average Results																					Average Results
2020 Year-to-Date
2021 Year-to-Date																						2021 Year-to-Date
Market Value of Equity	Market Value of Equity	$	4,792		$	4,792		$	4,791		$	4,878	$	4,999		$	4,892		$	4,745		Market Value of Equity	$	3,978		$	3,984		$	4,026		$	4,051	$	3,999		$	3,905		$	3,859
% Change from Flat Case	% Change from Flat Case	(1.8)		%	(1.8)		%	(1.8)		%	—		2.5		%	0.3		%	(2.7)		%	% Change from Flat Case	(1.8)		%	(1.6)		%	(0.6)		%	—		(1.3)		%	(3.6)		%	(4.8)		%
2019 Full Year
2020 Full Year																						2020 Full Year
Market Value of Equity	Market Value of Equity	$	4,545		$	4,580		$	4,652		$	4,729	$	4,674		$	4,586		$	4,528		Market Value of Equity	$	4,541		$	4,541		$	4,547		$	4,624	$	4,723		$	4,608		$	4,466
% Change from Flat Case	% Change from Flat Case	(3.9)		%	(3.1)		%	(1.6)		%	—		(1.1)		%	(3.0)		%	(4.3)		%	% Change from Flat Case	(1.8)		%	(1.8)		%	(1.7)		%	—		2.1		%	(0.3)		%	(3.4)		%
Month-End Results	Month-End Results																					Month-End Results
September 30, 2020
June 30, 2021																						June 30, 2021
Market Value of Equity	Market Value of Equity	$	3,979		$	3,979		$	3,993		$	4,056	$	4,154		$	4,041		$	3,905		Market Value of Equity	$	4,010		$	4,010		$	4,037		$	4,073	$	4,004		$	3,896		$	3,825
% Change from Flat Case	% Change from Flat Case	(1.9)		%	(1.9)		%	(1.6)		%	—		2.4		%	(0.4)		%	(3.7)		%	% Change from Flat Case	(1.6)		%	(1.6)		%	(0.9)		%	—		(1.7)		%	(4.3)		%	(6.1)		%
December 31, 2019
December 31, 2020																						December 31, 2020
Market Value of Equity	Market Value of Equity	$	4,257		$	4,262		$	4,236		$	4,372	$	4,313		$	4,213		$	4,144		Market Value of Equity	$	3,765		$	3,765		$	3,791		$	3,835	$	3,893		$	3,777		$	3,676
% Change from Flat Case	% Change from Flat Case	(2.6)		%	(2.5)		%	(3.1)		%	—		(1.3)		%	(3.6)		%	(5.2)		%	% Change from Flat Case	(1.8)		%	(1.8)		%	(1.1)		%	—		1.5		%	(1.5)		%	(4.2)		%

Duration of Equity

(In years) Down 300 Down 200 Down 100 Flat Rates Up 100 Up 200 Up 300
Average Results
2020 Year-to-Date — — (0.8) (2.9) 0.5 3.2 1.9
2019 Full Year (0.8) (1.4) (1.7) (0.8) 1.7 1.4 1.1
Month-End Results
September 30, 2020 — — (1.4) (2.4) 1.5 3.5 2.5
December 31, 2019 (0.1) 0.6 (2.1) (1.2) 2.0 1.7 1.4


(In years)	Down 300	Down 200	Down 100	Flat Rates	Up 100	Up 200	Up 300
Average Results
2021 Year-to-Date	(0.2)	(0.6)	(1.4)	0.8	2.3	2.0	0.4
2020 Full Year	—	—	(0.9)	(2.6)	1.0	3.4	2.0
Month-End Results
June 30, 2021	—	(0.2)	(1.4)	1.2	2.5	3.4	1.0
December 31, 2020	—	(0.1)	(1.4)	(2.3)	1.8	3.2	1.2

The overall market risk exposure to changing interest rates was well within policy limits during the periods presented. At ~~September~~June 30, ~~2020,~~2021, exposure to falling interest rates in the down shock scenarios was muted as some rates become floored at near zero rate levels. Exposure to moderate rising rate shocks ~~decreased~~increased marginally due primarily to the ~~reduction~~increase in ~~all market~~long-term interest rates that occurred ~~during~~in the first ~~quarter~~six months of ~~2020.~~2021. The duration of equity, which provides an estimate of the change in market value of equity ~~for a 1.00 percentage point~~to further ~~change~~changes in interest rates, ~~from the rate shock level.~~remains stable and well within policy limits.

~~Table of Contents~~

Based on the totality of our risk analysis, we expect that profitability, defined as the level of ROE compared with short-term market rates, will ~~remain~~be competitive over the long term unless interest rates change by large amounts in a short period of time. Further declines in long-term interest rates could substantially decrease income in the near term (one to two years) before reverting over time to average levels. This temporary reduction in income would be driven by ~~the accelerated~~additional recognition of

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mortgage asset premiums as the further incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets.

Market Risk Exposure of the Mortgage Assets Portfolio

The mortgage assets portfolio normally accounts for almost all market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining sufficient net spreads. Sensitivities of the market value of equity allocated to the mortgage assets portfolio under interest rate shocks (in basis points) are shown below. The average mortgage assets portfolio had an assumed capital allocation of ~~$1.3~~$1.1 billion in the first ~~nine~~six months of ~~2020~~2021 based on the entire balance sheet's average regulatory capital-to-assets ratio. Average results shown in the table below are compiled using data for each month end. The market value sensitivities are one measure we use to analyze the portfolio's estimated market risk exposure.

% Change in Market Value of Equity-Mortgage Assets Portfolio

Down 300 Down 200 Down 100 Flat Rates Up 100 Up 200 Up 300
Average Results
2020 Year-to-Date (15.8) % (15.8) % (15.2) % — 13.1 % 3.4 % (10.6) %
2019 Full Year (28.6) % (24.1) % (10.4) % — (2.4) % (8.3) % (11.7) %
Month-End Results
September 30, 2020 (16.4) % (16.4) % (14.6) % — 12.0 % 3.1 % (8.5) %
December 31, 2019 (17.7) % (17.2) % (12.5) % — (5.6) % (14.6) % (20.5) %


	Down 300		Down 200		Down 100		Flat Rates	Up 100		Up 200		Up 300
Average Results
2021 Year-to-Date	(15.4)	%	(14.1)	%	(7.5)	%	—	(0.5)	%	(4.5)	%	(5.0)	%
2020 Full Year	(15.9)	%	(15.9)	%	(14.6)	%	—	11.9	%	2.4	%	(10.3)	%
Month-End Results
June 30, 2021	(12.9)	%	(12.9)	%	(7.0)	%	—	(1.4)	%	(5.7)	%	(7.7)	%
December 31, 2020	(15.3)	%	(15.3)	%	(11.3)	%	—	10.6	%	3.9	%	(1.7)	%

The average risk exposure of the mortgage assets portfolio in the first ~~nine~~six months of ~~2020~~2021 remained aligned with our preference to keep our exposure to market risk at a low to moderate level. The variances between periods primarily reflect the impact of ~~lower~~higher long-term interest rates observed in the first ~~nine~~six months of ~~2020.~~2021. These ~~lower~~higher long-term interest rates ~~result~~resulted in ~~reduced~~marginally higher exposure at June 30, 2021 to ~~moderate~~ rising rate shocks and ~~muted~~less exposure to falling rate shocks asbefore they become floored when they reach near zero rate levels. We believe the mortgage asset portfolio will continue to provide an acceptable risk adjusted return consistent with our risk appetite philosophy.

Capital Adequacy

Retained Earnings

We must hold sufficient capital to protect against exposure to various risks, including market, credit, and operational. We regularly conduct a variety of measurements and assessments for capital adequacy. At ~~September~~June 30, ~~2020,~~2021, our capital management policy set forth approximately ~~$350~~$230 million as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk.

The following table presents retained earnings.


(In millions)	(In millions)	September 30, 2020		December 31, 2019		(In millions)	June 30, 2021		December 31, 2020
Unrestricted retained earnings	Unrestricted retained earnings	$	789	$	648	Unrestricted retained earnings	$	792	$	803
Restricted retained earnings (1)	Restricted retained earnings (1)	493		446		Restricted retained earnings (1)	505		501
Total retained earnings	Total retained earnings	$	1,282	$	1,094	Total retained earnings	$	1,297	$	1,304

(1) Pursuant to the FHLBank System's Joint Capital Enhancement Agreement we are not permitted to distribute as dividends.

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

Market Capitalization Ratios

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

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franchise value and can also serve as a measure of realized or potential market risk exposure. ~~The down shocks used are either 100 or 200 basis points depending on the benchmark interest rate levels at the time.~~

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The following table presents the market value of equity to regulatory capital stock (excluding retained earnings) for several interest rate environments.


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario	Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario	137	%	129	%	Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario	149	%	144	%
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)	Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)	135		125		Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)	148		143
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)	Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)	137		124		Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)	143		142

(1) Represents a down shock of 100 basis points.

(2) Represents an up shock of 200 basis points.

A base case value below 100 percent could indicate that, in the remote event of an immediate liquidation scenario involving redemption of all capital stock, capital stock may be returned to stockholders at a value below par. This could be due to experiencing risks that lower the market value of capital and/or to having an insufficient amount of retained earnings. In the first ~~nine~~six months of ~~2020,~~2021, the market capitalization ratios in the scenarios presented continued to be above our policy requirements. The base case ratio at ~~September~~June 30, ~~2020~~2021 was well above 100 percent ~~and increased relative to year-end 2019 driven primarily by the growth in~~because retained earnings ~~which rose to 43~~were 47 percent of regulatory capital stock asand we ~~continued to maintain~~maintained stable market risk ~~exposures at moderate levels.~~exposure.

The following table presents the market value of equity to the book value of total capital and mandatorily redeemable capital stock.


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)	Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)	96	%	98	%	Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)	101	%	97	%
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)	Market Value of Equity to Book Value of Capital - Down Shock (1)(2)	95		95		Market Value of Equity to Book Value of Capital - Down Shock (1)(2)	100		96
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)	Market Value of Equity to Book Value of Capital - Up Shock (1)(3)	96		94		Market Value of Equity to Book Value of Capital - Up Shock (1)(3)	97		96

(1) Capital includes total capital and mandatorily redeemable capital stock.

(2) Represents a down shock of 100 basis points.

(3) Represents an up shock of 200 basis points.

A base-case value below 100 percent indicates that we have realized or could realize risks (especially market risk), such that the market value of total capital owned by stockholders is below the book value of total capital. ~~The base-case ratio of 96 percent at September 30, 2020 indicates that the market value of total capital is $166 million below the book value of total capital.~~ In a scenario in which interest rates increase 200 basis points, the market value of total capital would be ~~$181~~$131 million below the book value of total capital. This indicates that in a liquidation scenario, stockholders would not receive the full sum of their total equity ownership in the FHLB. We believe the likelihood of a liquidation scenario is extremely remote; and therefore, we accept the risk of diluting equity ownership in such a scenario.

Credit Risk

Overview

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

Credit Services

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

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Collateral: We require each member to provide a security interest in eligible collateral before it can undertake any secured borrowing. Eligible loan collateral ~~includes single-family loans,~~types include the following: single- and multi-family ~~loans,~~residential, home equity, ~~loans and lines of credit,~~ commercial real estate, ~~bond securities,~~ government guaranteed ~~loans~~ and farm real estate. Eligible security types include those that are government or agency backed, along with highly-rated private-label residential and commercial mortgage-backed securities. We have conservative eligibility criteria within each of the above asset types. The estimated value of pledged collateral is discounted in order to offset market, credit, and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. ~~Over-collateralization by one member is not applied to another member.~~ At ~~September~~June 30, ~~2020, our policy~~

Table of ~~over-collateralization resulted in~~Contents

2021, total collateral pledged of ~~$392.2~~$410.8 billion ~~to support~~resulted in total borrowing capacity of ~~$310.0~~$328.4 billion of which ~~$49.7~~$58.5 billion was used to support outstanding Advances and Letters of Credit. Borrowers often pledge collateral in excess of their collateral requirement to demonstrate ~~available~~access to liquidity and to have the ability to borrow additional amounts in the future. ~~The collateral composition remained relatively stable compared~~Over-collateralization by one member is not applied to ~~the end of 2019.~~another member.

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

collateral value net of the discount, or haircut, we apply for purposes of determining borrowing capacity. LVRs are determined by statistical analysis and management assumptions relating to historical price volatility, inherent credit risks, liquidation costs, and the current credit and economic environment. We apply LVR results to the estimated values of pledged assets. LVRs vary among pledged assets and members based on the member institution type, the financial strength of the member institution, the form of valuation, lien position, the issuer of bond collateral or the quality of securitized assets, the quality of the loan collateral as reflected in the manner in which it was underwritten, and the marketability of the pledged assets.

Internal Credit Ratings: We perform credit underwriting of our members and nonmember ~~borrowers~~institutions and assign them an internal credit rating. These credit ratings are based on internal and third-party ratings models, credit analyses and consideration of credit ratings from independent credit rating organizations. Credit ratings are used in conjunction with other measures of credit risk in managing secured credit risk exposure.

Member Failures, Closures, and Receiverships: There have been no member failures in ~~2020~~2021 through the date of this filing.

MPP

Overview: ~~We believe that the~~The residual amount of credit risk exposure to loans in the MPP is minimal, based on the same factors described in the ~~2019~~2020 Annual Report on Form 10-K. In light of the COVID-19 pandemic, we are closely monitoring the credit risk of our MPP portfolio. ~~Although we may see further increases in delinquencies due to the current unemployment level, we cannot predict the overall impact. However, we~~We have implemented temporary relief provisions for MPP loans, including forbearance plans to help with short-term hardships, in response to the negative economic impacts associated with COVID-19.

Conventional Loan Portfolio Characteristics: The levels of loan-to-value ratios are consistent with the portfolio's excellent credit quality. At ~~September~~June 30, ~~2020,~~2021, the weighted average loan-to-value ratios for conventional loans based on origination values and estimated current values were 73 percent and 5650 percent, respectively. The estimated weighted average current loan-to-value ratio decreased ~~three~~five percent compared to the ratio at December 31, ~~2019~~2020 as home values have continued to increase.

Credit Performance: The table below provides an analysis of conventional loans delinquent or in the process of foreclosure, along with the national average serious delinquency rate.


		Conventional Loan Delinquencies							Conventional Loan Delinquencies
(Dollars in millions)	(Dollars in millions)	September 30, 2020			December 31, 2019			(Dollars in millions)	June 30, 2021			December 31, 2020
Early stage delinquencies - unpaid principal balance (1)	Early stage delinquencies - unpaid principal balance (1)	$	54		$	40		Early stage delinquencies - unpaid principal balance (1)	$	36		$	49
Serious delinquencies - unpaid principal balance (2)	Serious delinquencies - unpaid principal balance (2)	$	71		$	12		Serious delinquencies - unpaid principal balance (2)	$	42		$	64
Early stage delinquency rate (3)	Early stage delinquency rate (3)	0.5		%	0.4		%	Early stage delinquency rate (3)	0.5		%	0.5		%
Serious delinquency rate (4)	Serious delinquency rate (4)	0.7		%	0.1		%	Serious delinquency rate (4)	0.6		%	0.7		%
National average serious delinquency rate (5)	National average serious delinquency rate (5)	3.3		%	1.3		%	National average serious delinquency rate (5)	3.2		%	3.7		%

(1)Includes conventional loans 30 to 89 days delinquent and not in foreclosure.

(2)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.

(3)Early stage delinquencies expressed as a percentage of the total conventional loan portfolio.

(4)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.

(5)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The ~~September~~June 30, ~~2020~~2021 rate is based on ~~June 30, 2020~~March 31, 2021 data.

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In response to the COVID-19 pandemic, our mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related ~~hardships.~~hardships such as illness, unemployment or loss of income when homeowners meet certain eligibility requirements. These forbearances do not alter the underlying terms of the loans, and loans not paid timely are considered past due. As a result, early stage and serious delinquencies ~~increased in the first nine months of 2020.~~were elevated at June 30, 2021 and December 31, 2020 compared to prior periods. At ~~September~~June 30, ~~2020, $22~~2021, $8 million and ~~$56~~$30 million of conventional loans with an early stage and serious delinquency, respectively, were under a forbearance plan. However, delinquencies have decreased since year-end 2020 as fewer borrowers have requested temporary relief provisions for MPP loans.

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

Credit Enhancements: Conventional mortgage loans are supported against credit losses by various combinations of primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) (for loans purchased before February 2011), and the Lender Risk Account (LRA). The LRA is a hold back of a portion of the initial purchase price to cover expected credit losses for a specific pool of loans. Starting after five years from the loan purchase date, we may return the hold back to Participating Financial Institutions (PFIs) if they manage credit risk to predefined acceptable levels of exposure on the loan pools they sell to us. As a result, some pools of loans may have sufficient credit enhancements to recapture all losses while other pools of loans may not. The LRA had balances of $247 million and $246 million ~~and $233 million~~ at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. For more information, see Note 5 of the Notes to Unaudited Financial Statements.

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

(In millions) September 30, 2020 December 31, 2019
Estimated credit losses, before credit enhancements $ 8 $ 4
Estimated amounts deemed recoverable by:
Primary mortgage insurance — —
Supplemental mortgage insurance (2) (2)
Lender Risk Account (6) (1)
Estimated credit losses, after credit enhancements $ — $ 1

The minimal amount of estimated credit losses provides further evidence of the overall health of the portfolio. As a result of adopting new accounting guidance, the estimated credit losses before credit enhancements increased at September 30, 2020 as our estimate now includes a forecast of housing prices, including the potential impact of the COVID-19 pandemic. Residual credit risk exposure depends on the actual and potential credit performance of the loans in each pool compared to the pool's equity (on individual loans) and credit enhancements, including PMI, the LRA, and SMI. Our available credit enhancements at ~~September~~June 30, ~~2020~~2021 were ample and able to cover nearly all of the ~~increase in~~ estimated gross credit losses. As a result, estimated credit losses at June 30, 2021 were less than $1 million. Estimated credit losses, after credit enhancements, are accounted for in the allowance for credit losses or as a charge off (i.e., a reduction to the principal of mortgage loans held for portfolio). In addition, we have assessed that we do not have any credit risk exposure to our PMI providers, and our estimation of credit exposure to SMI providers was not material at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

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

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Investments

Liquidity Investments: We purchase liquidity investments from counterparties that have a strong ability to repay principal and interest. These investments can be easily converted to cash and may be unsecured, guaranteed or supported by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the debt securities of highly rated, investment-grade institutions, have appropriate and conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices, including active monitoring of credit quality of our counterparties and of the environment in which they operate. In addition, we believe the portion of our liquidity investments for which the investments are secured with collateral (secured resale agreements) present no credit risk exposure to us.

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


(In millions)	(In millions)	September 30, 2020						(In millions)	June 30, 2021
		Long-Term Rating							Long-Term Rating
		AA		A		Total			AA		A		Total
Unsecured Liquidity Investments	Unsecured Liquidity Investments							Unsecured Liquidity Investments
Interest-bearing deposits	Interest-bearing deposits	$	—	$	630	$	630	Interest-bearing deposits	$	—	$	374	$	374
Federal funds sold	Federal funds sold	2,210		6,495		8,705		Federal funds sold	1,238		4,937		6,175

Total unsecured liquidity investments	Total unsecured liquidity investments	2,210		7,125		9,335		Total unsecured liquidity investments	1,238		5,311		6,549
Guaranteed/Secured Liquidity Investments	Guaranteed/Secured Liquidity Investments							Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2,454		—		2,454		Securities purchased under agreements to resell	437		—		437
U.S. Treasury obligations	U.S. Treasury obligations	9,194		—		9,194		U.S. Treasury obligations	9,240		—		9,240
GSE obligations	GSE obligations	2,291		—		2,291		GSE obligations	1,929		—		1,929

Total guaranteed/secured liquidity investments	Total guaranteed/secured liquidity investments	13,939		—		13,939		Total guaranteed/secured liquidity investments	11,606		—		11,606
Total liquidity investments	Total liquidity investments	$	16,149	$	7,125	$	23,274	Total liquidity investments	$	12,844	$	5,311	$	18,155


		December 31, 2019							December 31, 2020
		Long-Term Rating							Long-Term Rating
		AA		A		Total			AA		A		Total
Unsecured Liquidity Investments	Unsecured Liquidity Investments							Unsecured Liquidity Investments
Interest-bearing deposits	Interest-bearing deposits	$	—	$	550	$	550	Interest-bearing deposits	$	—	$	555	$	555
Federal funds sold	Federal funds sold	1,023		3,810		4,833		Federal funds sold	500		3,740		4,240
Certificates of deposit		500		910		1,410

Total unsecured liquidity investments	Total unsecured liquidity investments	1,523		5,270		6,793		Total unsecured liquidity investments	500		4,295		4,795
Guaranteed/Secured Liquidity Investments	Guaranteed/Secured Liquidity Investments							Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2,349		—		2,349		Securities purchased under agreements to resell	1,818		—		1,818
U.S. Treasury obligations	U.S. Treasury obligations	9,662		—		9,662		U.S. Treasury obligations	8,404		—		8,404
GSE obligations	GSE obligations	2,120		—		2,120		GSE obligations	2,268		—		2,268

Total guaranteed/secured liquidity investments	Total guaranteed/secured liquidity investments	14,131		—		14,131		Total guaranteed/secured liquidity investments	12,490		—		12,490
Total liquidity investments	Total liquidity investments	$	15,654	$	5,270	$	20,924	Total liquidity investments	$	12,990	$	4,295	$	17,285

Our balance of liquidity investments increased during the first nine months of 2020 primarily due to the volatility in Advance activity, especially the reductions in short-term and variable-rate Advance borrowings. The lower balance of liquidity investments at the end of the first quarter of 2020 was in response to volatile market conditions and limited returns on other available liquidity investments. In addition, a portion of our total liquidity investments are with counterparties for which the investments are secured with collateral (secured resale agreements). We believe these investments present no credit risk exposure to us.

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


(In millions)	(In millions)	September 30, 2020						(In millions)	June 30, 2021
		Counterparty Rating							Counterparty Rating
Domicile of Counterparty	Domicile of Counterparty	AA		A		Total		Domicile of Counterparty	AA		A		Total
Domestic	Domestic	$	45	$	630	$	675	Domestic	$	—	$	374	$	374

U.S. branches and agency offices of foreign commercial banks:	U.S. branches and agency offices of foreign commercial banks:							U.S. branches and agency offices of foreign commercial banks:
Canada	Canada	865		1,730		2,595		Canada	388		1,496		1,884
Sweden	Sweden	750		1,115		1,865		Sweden	—		1,496		1,496
Australia	Australia	—		1,350		1,350		Australia	—		748		748
Netherlands	Netherlands	—		865		865		Netherlands	—		748		748
Norway								Norway	600		—		600
Finland								Finland	250		—		250
Germany	Germany	—		835		835		Germany	—		249		249
France	France	—		600		600		France	—		200		200
Finland		350		—		350
Norway		200		—		200

Total U.S. branches and agency offices of foreign commercial banks	Total U.S. branches and agency offices of foreign commercial banks	2,165		6,495		8,660		Total U.S. branches and agency offices of foreign commercial banks	1,238		4,937		6,175
Total unsecured investment credit exposure	Total unsecured investment credit exposure	$	2,210	$	7,125	$	9,335	Total unsecured investment credit exposure	$	1,238	$	5,311	$	6,549

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


(In millions)	(In millions)	September 30, 2020		(In millions)	June 30, 2021
Domicile of Counterparty	Domicile of Counterparty	Overnight				Total		Domicile of Counterparty	Overnight		Total
Domestic	Domestic	$	675			$	675	Domestic	$	374	$	374

U.S. branches and agency offices of foreign commercial banks:	U.S. branches and agency offices of foreign commercial banks:							U.S. branches and agency offices of foreign commercial banks:
Canada	Canada	2,595				2,595		Canada	1,884		1,884
Sweden	Sweden	1,865				1,865		Sweden	1,496		1,496
Australia	Australia	1,350				1,350		Australia	748		748
Netherlands	Netherlands	865				865		Netherlands	748		748
Norway								Norway	600		600
Finland								Finland	250		250
Germany	Germany	835				835		Germany	249		249
France	France	600				600		France	200		200
Finland		350				350
Norway		200				200

Total U.S. branches and agency offices of foreign commercial banks	Total U.S. branches and agency offices of foreign commercial banks	8,660				8,660		Total U.S. branches and agency offices of foreign commercial banks	6,175		6,175
Total unsecured investment credit exposure	Total unsecured investment credit exposure	$	9,335			$	9,335	Total unsecured investment credit exposure	$	6,549	$	6,549

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

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MBS:

GSE MBS

At ~~September~~June 30, ~~2020, $10.0~~2021, $7.8 billion of MBS held were GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest. We believe that the conservatorships of Fannie Mae and Freddie Mac lower the chance that they would not be able to fulfill their credit guarantees and that the securities issued by these two GSEs are effectively government guaranteed. In addition, based on the data available to us and our purchase practices, we believe that most of the mortgage loans backing our GSE MBS are of high quality with acceptable credit performance.

MBS Issued by Other Government Agencies

We also invest in MBS issued and guaranteed by Ginnie ~~Mae and the NCUA.~~Mae. These investments totaled ~~$1.2~~$1.1 billion at ~~September~~June 30, ~~2020.~~2021. We believe that the strength of ~~the issuers' guarantees~~Ginnie Mae's guarantee and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.

Derivatives

Credit Risk Exposure: We mitigate most of the credit risk exposure resulting from derivative transactions through collateralization or use of daily settled contracts. The table below presents the lowest long-term counterparty credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services for derivative positions to which we had credit risk exposure at ~~September~~June 30, ~~2020.~~2021. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.


(In millions)	(In millions)									(In millions)
		Total Notional		Net Derivatives Fair Value Before Collateral		Cash Collateral Pledged to (from) Counterparties		Net Credit Exposure to Counterparties			Total Notional		Net Derivatives Fair Value Before Collateral		Cash Collateral Pledged to (from) Counterparties		Net Credit Exposure to Counterparties
Nonmember counterparties:	Nonmember counterparties:									Nonmember counterparties:
Asset positions with credit exposure:	Asset positions with credit exposure:									Asset positions with credit exposure:
Uncleared derivatives:

AA-rated		$	431	$	1	$	(1)	$	—

Total uncleared derivatives		431		1		(1)		—

Cleared derivatives (1)	Cleared derivatives (1)	20,337		7		245		252		Cleared derivatives (1)	$	736	$	—	$	3	$	3
Liability positions with credit exposure:	Liability positions with credit exposure:									Liability positions with credit exposure:
Uncleared derivatives:	Uncleared derivatives:									Uncleared derivatives:

A-rated	A-rated	1,274		(30)		30		—		A-rated	148		(1)		1		—
BBB-rated		2,974		(189)		193		4

Total uncleared derivatives	Total uncleared derivatives	4,248		(219)		223		4		Total uncleared derivatives	148		(1)		1		—
Cleared derivatives (1)	Cleared derivatives (1)	595		—		2		2		Cleared derivatives (1)	20,973		(5)		216		211
Total derivative positions with credit exposure to nonmember counterparties	Total derivative positions with credit exposure to nonmember counterparties	25,611		(211)		469		258		Total derivative positions with credit exposure to nonmember counterparties	21,857		(6)		220		214
Member institutions (2)	Member institutions (2)	145		1		—		1		Member institutions (2)	506		2		—		2
Total	Total	$	25,756	$	(210)	$	469	$	259	Total	$	22,363	$	(4)	$	220	$	216

(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated Aa3 by Moody's and AA- by Standard & Poor's.

(2)Represents Mandatory Delivery Contracts.

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

At ~~September~~June 30, ~~2020,~~2021, the net exposure of uncleared derivatives with residual credit risk exposure was $4less than $1 million. If interest rates rise or the composition of our derivatives change resulting in an increase to our gross exposure to uncleared derivatives, the contractual collateral provisions in these derivatives would limit our net exposure to acceptable levels.

Although we cannot predict if we will realize credit risk losses from any of our derivatives counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and, more generally, to continue to satisfy the terms and conditions of their derivative contracts with us. As of ~~September~~June 30, ~~2020,~~2021, we had ~~$366 million~~$0.4 billion of notional principal of interest rate swaps with ~~one~~a subsidiary of our member, JPMorgan Chase Bank, N.A., which also had outstanding credit services with us.

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Due to the amount of market value collateralization, we had no outstanding credit exposure to this counterparty related to interest rate swaps outstanding.

Liquidity Risk

Liquidity Overview

We strive to be in a liquidity position at all times to meet the borrowing needs of our members and to meet all current and future financial commitments. This objective is achieved by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of assets and liabilities. Our liquidity position complies with the FHLBank Act, Finance Agency regulations, and internal policies.

The FHLBank System's primary source of funds is the sale of Consolidated Obligations in the capital markets. Our ability to obtain funds through the sale of Consolidated Obligations at acceptable interest costs depends on the financial market's perception of the riskiness of the Obligations and on prevailing conditions in the capital markets, particularly the short-term capital markets. The System's favorable debt ratings, the implicit U.S. government backing of our debt, and our effective risk management practices are instrumental in ensuring stable and satisfactory access to the capital markets.

We believe our liquidity position, as well as that of the System, continued to be strong during the first ~~nine~~six months of ~~2020, even in light of the temporary market disruptions earlier in the year caused by the COVID-19 pandemic.~~2021. Our overall ability to effectively fund our operations through debt issuances remained sufficient. Investor demand for System debt was robust in the first ~~nine~~six months of ~~2020,~~2021, as investors ~~preferred~~continued to prefer short-term, high-quality money market ~~instruments amid the uncertainty in the financial markets due to the COVID-19 pandemic.~~instruments. We believe the possibility of a liquidity or funding crisis in the System that would impair our ability to participate, on a cost-effective basis, in issuances of debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends is remote.

The System works collectively to manage and monitor the System-wide liquidity and funding risks. Liquidity risk includes the risk that the System could have difficulty rolling over short-term Obligations when market conditions change, also called refinancing risk. The System has a large reliance on short-term funding; therefore, it has a sharp focus on managing liquidity risk to very low levels. As shown on the Statements of Cash Flows, in the first ~~nine~~six months of ~~2020,~~2021, our portion of the System's debt issuances totaled ~~$232.9~~$99.6 billion for Discount Notes and ~~$35.6~~$19.8 billion for Bonds. Access to short-term debt markets has been reliable because investors, driven by liquidity preferences and risk aversion, have sought the System’s short-term debt, which has resulted in strong demand for debt maturing in one year or less.

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

Liquidity Management and Regulatory Requirements

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

~~We adhere to the~~The Finance ~~Agency's~~ ~~Advisory Bulletin 2018-07 Federal Home Loan Bank Liquidity Guidance~~ ~~(Liquidity AB). The Liquidity AB~~Agency establishes the expectations with respect to the maintenance of sufficient liquidity without access to the capital markets for a specified number of ~~days.~~days, which was set as a period of between 10 to 30 calendar days in the base case. Under these expectations, all Advance maturities are assumed to renew, unless the ~~Liquidity AB, the calculation~~Advances relate to former members who are ineligible to borrow new Advances. The maintenance of sufficient liquidity is intended to provide additional assurance that we can continue to provide Advances and Letters of Credit to members over an extended period without access to the capital markets. ~~Under this~~

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~~guidance, all Advance maturities are assumed to renew, unless the Advances relate to former members who are ineligible to borrow new Advances.~~

~~As part of the base case liquidity expectations, the Liquidity AB requires the FHLBanks to maintain sufficient liquidity for a period of between 10 to 30 calendar days.~~ As of ~~September~~June 30, ~~2020, we maintained a sufficient number of~~2021, our days of positive daily cash balances ~~under the Liquidity AB guidance.~~were within these expectations.

The ~~Liquidity AB~~Finance Agency also provides guidance related to asset/liability maturity funding gap limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. Although subject to change depending on conditions in the financial markets, the ~~Liquidity AB provides guidance on maintaining appropriate~~current regulatory requirement for funding gaps ~~for three-month (-10~~is between -10 percent to -20 ~~percent)~~percent for the three-month maturity horizon and ~~one-year (-25~~is between -25 percent to -35 ~~percent)~~percent for the one-year maturity ~~horizons.~~horizon. As of ~~September~~June 30, ~~2020,~~2021, we were operating within those limits.

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


(In millions)	(In millions)	September 30, 2020		December 31, 2019		(In millions)	June 30, 2021		December 31, 2020
Deposit Reserve Requirement	Deposit Reserve Requirement					Deposit Reserve Requirement
Total Eligible Deposit Reserves	Total Eligible Deposit Reserves	$	42,407	$	61,590	Total Eligible Deposit Reserves	$	35,680	$	37,185
Total Member Deposits	Total Member Deposits	(1,239)		(942)		Total Member Deposits	(1,336)		(1,327)
Excess Deposit Reserves	Excess Deposit Reserves	$	41,168	$	60,648	Excess Deposit Reserves	$	34,344	$	35,858

~~Contractual Obligations~~

The following table summarizes our contractual obligations at September 30, 2020. We believe that, as in the past, we will continue to have sufficient liquidity, including from access to the debt markets to issue Consolidated Obligations, to satisfy these obligations on a timely basis.

(In millions) < 1 year 1 < 3 years 3 < 5 years > 5 years Total
Contractual Obligations
Long-term debt (Bonds) - par (1)
$ 27,673 $ 6,345 $ 3,845 $ 3,515 $ 41,378
Operating leases (include premises and equipment) 1 2 2 1 6
Mandatorily redeemable capital stock 12 2 2 1 17
Commitments to fund mortgage loans 145 — — — 145
Pension and other postretirement benefit obligations 2 5 5 35 47
Total Contractual Obligations $ 27,833 $ 6,354 $ 3,854 $ 3,552 $ 41,593

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

Off-Balance Sheet Arrangements

The following table summarizes our off-balance sheet items at ~~September~~June 30, ~~2020.~~2021. For more information, see Note 15 of the Notes to Unaudited Financial Statements.


(In millions)	(In millions)	< 1 year		1 < 3 years		3 < 5 years		> 5 years		Total		(In millions)	< 1 year		1 < 3 years		3 < 5 years		> 5 years		Total
Off-balance sheet items (1)	Off-balance sheet items (1)											Off-balance sheet items (1)

Standby Letters of Credit	Standby Letters of Credit	$	21,902	$	1,022	$	86	$	1	$	23,011	Standby Letters of Credit	$	33,933	$	1,165	$	68	$	—	$	35,166
Standby bond purchase agreements	Standby bond purchase agreements	29		37		—		—		66		Standby bond purchase agreements	16		15		—		—		31
Consolidated Obligations traded, not yet settled	Consolidated Obligations traded, not yet settled	—		—		124		—		124		Consolidated Obligations traded, not yet settled	100		—		425		75		600
Total off-balance sheet items	Total off-balance sheet items	$	21,931	$	1,059	$	210	$	1	$	23,201	Total off-balance sheet items	$	34,049	$	1,180	$	493	$	75	$	35,797

(1)Represents notional amount of off-balance sheet obligations.

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Member Concentration Risk

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

Operational Risks

There were no material developments regarding our operational risk exposure during the first ~~nine~~six months of ~~2020.~~2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes in the first six months of 2021 to our critical accounting policies and estimates. Our critical accounting policies and estimates are described in detail in our 2020 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

As of ~~September~~June 30, ~~2020,~~2021, the FHLB's management, including its principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, these two officers each concluded that, as of ~~September~~June 30, ~~2020,~~2021, the FHLB maintained effective disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files under the Exchange Act is (1) accumulated and communicated to management as appropriate to allow timely

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decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of ~~September~~June 30, ~~2020,~~2021, the FHLB's management, including its principal executive officer and principal financial officer, evaluated the FHLB's internal control over financial reporting. Based upon that evaluation, these two officers each concluded that there were no changes in the FHLB's internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2020~~2021 that materially affected, or are reasonably likely to materially affect, the FHLB's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings.

Information regarding legal proceedings is set forth in Note 15 - Commitments and Contingencies in Part I, Item I, of this Report.

Item 1A. Risk Factors.

For a discussion of our risk factors, see Part I, Item 1A. "Risk Factors" in our ~~2019~~2020 Annual Report on Form 10-K. ~~Other than the risk factor noted below, there~~There have been no material changes from the risk factors in our ~~2019~~2020 Annual Report on Form 10-K.

~~Other External Risk~~Item 2.~~. Natural disasters, pandemics, terrorist attacks, or other catastrophic events could adversely affect our operations, business activities, results~~Unregistered Sales of ~~operations~~Equity Securities and ~~financial condition.~~Use of Proceeds.

Natural disasters, pandemics or other widespread health emergencies (such as the recent outbreak of COVID-19), terrorist attacks, or other unanticipated or catastrophic events could create economic and financial disruptions and uncertainties, which may lead to reduced demand for Advances and an increased risk of credit losses and may adversely affect our cost of funding or access to funding. These events may also lead to operational difficulties that could adversely affect the ability of the FHLBanks and the Office of Finance to conduct and manage their businesses. Any of these factors could adversely affect our business activities and results of operations.None.

Item 3.Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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

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

Item 6. Exhibits.

Exhibit

Number (1)

Description of exhibit

Document filed or
furnished, as indicated below

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

Filed Herewith

31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

Filed Herewith

Section 1350 Certifications

Furnished Herewith

101.INS

XBRL Instance Document

The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

Filed Herewith

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Filed Herewith

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Filed Herewith

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed Herewith

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Filed Herewith

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

Filed Herewith

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the ~~12th~~5th day of ~~November 2020.~~August 2021.

FEDERAL HOME LOAN BANK OF CINCINNATI

(Registrant)


By:			/s/ Andrew S. Howell
			Andrew S. Howell
			President and Chief Executive Officer
			(principal executive officer)

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

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	December 31, 2019
	Less than 12 Months				12 Months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
GSE obligations	$	17,071	$	(126)	$	21,574	$	(216)	$	38,645	$	(342)
Total	$	17,071	$	(126)	$	21,574	$	(216)	$	38,645	$	(342)


	September 30, 2020
	Origination Year
Payment status, at amortized cost (1):	Prior to 2016		2016 to September 30, 2020		Total
Past due 30-59 days	$	19,286	$	17,555	$	36,841
Past due 60-89 days	6,356		12,991		19,347
Past due 90 days or more	27,274		44,142		71,416
Total past due mortgage loans	52,916		74,688		127,604
Current mortgage loans	2,901,775		7,440,949		10,342,724
Total conventional mortgage loans	$	2,954,691	$	7,515,637	$	10,470,328


	September 30, 2020
Hedged Item	Amortized Cost of Hedged Asset/ Liability (1)		Basis Adjustment for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost		Total Amount of Fair Value Hedging Basis Adjustments
Advances	$	11,100,659	$	455,255	$	1,690	$	456,945
Available-for-sale securities	291,505		16,355		399		16,754
Consolidated Bonds	121,367		2,560		0		2,560

	December 31, 2019
Hedged Item	Amortized Cost of Hedged Asset/ Liability (1)		Basis Adjustment for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost		Total Amount of Fair Value Hedging Basis Adjustments
Advances	$	9,160,841	$	109,078	$	851	$	109,929
Available-for-sale securities	131,814		7,314		0		7,314
Consolidated Bonds	210,696		708		0		708



													Nine Months Ended September 30,
	Quarter 3 2020				Quarter 2 2020				Quarter 1 2020				2020		2019		Year 2019
	Ending		Average		Ending		Average		Ending		Average		Average		Average		Ending		Average

Federal funds effective	0.09	%	0.09	%	0.08	%	0.06	%	0.08	%	1.25	%	0.47	%	2.33	%	1.55	%	2.16	%
Secured Overnight Financing Rate (SOFR)	0.08		0.09		0.10		0.05		0.01		1.25		0.46		2.38		1.55		2.20
3-month LIBOR	0.23		0.25		0.30		0.61		1.45		1.54		0.80		2.46		1.91		2.33
2-year LIBOR	0.22		0.22		0.23		0.32		0.49		1.18		0.57		2.17		1.70		2.03
10-year LIBOR	0.71		0.65		0.64		0.69		0.72		1.34		0.89		2.22		1.90		2.09
2-year U.S. Treasury	0.13		0.14		0.15		0.19		0.25		1.10		0.48		2.10		1.57		1.97
10-year U.S. Treasury	0.69		0.65		0.66		0.68		0.67		1.38		0.90		2.26		1.92		2.14
15-year mortgage current coupon (1)	0.83		0.86		0.98		1.09		1.07		1.86		1.27		2.60		2.28		2.52
30-year mortgage current coupon (1)	1.33		1.32		1.54		1.58		1.63		2.31		1.74		3.03		2.71		2.95


(In millions)	Maturing in 2020-2021		Maturing after 2021
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term	$	2,535	$	3,311
MBS by contractual maturity (1)	142		6,737

Total principal amount	$	2,677	$	10,048
Derivatives, notional amount by termination date	$	5,315	$	7,438