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 June 30, 20212022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-51395
FEDERAL HOME LOAN BANK OF PITTSBURGH
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Federally Chartered Corporation | | 25-6001324 |
(State or other jurisdiction of
incorporation or organization) | | (IRS Employer Identification No.) |
| | | |
| 601 Grant Street | | |
| Pittsburgh, | PA | 15219 |
| (Address of principal executive offices) | | (Zip Code) |
412 288-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| — | — | — |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x]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). [x] 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.
| | | | | | | | | | | | | | | | | |
o | Large accelerated filer | o | Accelerated filer | ☐ | Emerging growth company |
x | Non-accelerated filer | ☐ | Smaller reporting company | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. []
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐ Yes ☒ No
There were 12,520,11220,842,914 shares of common stock with a par value of $100 per share outstanding at July 30, 2021.29, 2022.
FEDERAL HOME LOAN BANK OF PITTSBURGH
TABLE OF CONTENTS
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| Part I - FINANCIAL INFORMATION | |
| Item 1: Financial Statements (unaudited) | |
| Notes to Financial Statements (unaudited) | |
| Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Risk Management | |
| Item 3: Quantitative and Qualitative Disclosures about Market Risk | |
| Item 4: Controls and Procedures | |
| Part II - OTHER INFORMATION | |
| Item 1: Legal Proceedings | |
| Item 1A: Risk Factors | |
| Item 2: Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3: Defaults upon Senior Securities | |
| Item 4: Mine Safety Disclosures | |
| Item 5: Other Information | |
| Item 6: Exhibits | |
| Signatures | |
PART I - FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
Statements contained in this Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of Pittsburgh (the Bank), may be “forward-looking statements.” These statements may use forward-looking terms, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: economic and market conditions, including, but not limited to real estate, credit and mortgage markets; volatility of market prices, rates, and indices related to financial instruments; including but not limited to, the discontinuance of the London Interbank Offered Rate (LIBOR) and the related effect on the Bank's LIBOR-based financial products, investments and contracts; the occurrence of man-made or natural disasters, endemics, global pandemics, conflicts or terrorist attacks or other geopolitical events; political, legislative, regulatory, litigation, or judicial events or actions;actions, including those relating to environmental, social and governance matters; risks related to mortgage-backed securities (MBS); changes in the assumptions used to estimate credit losses; changes in the Bank’s capital structure; changes in the Bank’s capital requirements; changes in expectations regarding the Bank’s payment of dividends; membership changes; changes in the demand by Bank members for Bank advances; an increase in advance prepayments; competitive forces, including the availability of other sources of funding for Bank members; changes in investor demand for consolidated obligations and/or the terms of interest rate exchange agreements and similar agreements; changes in the Federal Home Loan Bank (FHLBank) System’s debt rating or the Bank’s rating; the ability of the Bank to introduce new products and services to meet market demand and to manage successfully the risks associated with new products and services; the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability; applicable Bank policy requirements for retained earnings and the ratio of the market value of equity to par value of capital stock; the Bank’s ability to maintain adequate capital levels (including meeting applicable regulatory capital requirements); business and capital plan adjustments and amendments; technology and cyber-security risks; and timing and volume of market activity. Forward-looking statements in this Form 10-Q should not be relied on as representing the Bank’s expectations or assumptions as of any time subsequent to the time this Form 10-Q is filed with the Securities and Exchange Commission. Forward looking statements speak only as of the date made and the Bank has no obligation, and does not undertake publicly, to update or revise any forward-looking statement for any reason.
This Management's Discussion and Analysis (MD&A) should be read in conjunction with the Bank's unaudited interim financial statements and notes and any Risk Factors included in Part II, Item 1A of this Form 10-Q and all risks and uncertainties addressed throughout this report, as well as the Bank's 20202021 Form 10-K (2020(2021 Form 10-K), including Risk Factors included in Part I, Item 1A of that report. Information on the Bank's websites referred to in this Form 10-Q is not incorporated in, or a part of, this Form 10-Q.
Executive Summary
Overview. The Bank's financial condition and results of operations are influenced by global and national economies, local economies within its three-state district, and the conditions in the financial, housing and credit markets, all of which impact the interest rate environment.
The interest rate environment significantly impacts the Bank's profitability. Net interest income is affected by several external factors, including market interest rate levels and volatility, credit spreads and the general state of the economy. To manage interest rate risk in connection with advances and debt, the Bank executes interest-rate derivatives. Short-term interest rates also directly affect the Bank's earnings on invested capital. Finally, the Bank's mortgage-related assets make it sensitive to changes in mortgage rates. The Bank earns relatively narrow spreads between yields on assets (particularly advances, its largest asset) and the rates paid on corresponding liabilities.
The Bank's earnings are affected not only by rising or falling interest rates but also by the particular path and volatility of changes in market interest rates and the prevailing shape of the yield curve. The flattening of the yield curve tends to compress the Bank's net interest margin, while steepening of the curve offers better opportunities to purchase assets with wider net interest spreads. The performance of the Bank's mortgage asset portfolios is particularly affected by shifts in the 10-year
maturity range of the yield curve, which is the point that heavily influences mortgage rates and potential refinancings. Yield
curve shape can also influence the pace at which borrowers refinance or prepay their existing loans, as borrowers may select shorter-duration mortgage products.
The markets continued to strengthen inDuring the second quarter of 2021 with the expanded reopening of the economy and increased vaccinations. In its June 2021 meeting, the2022, rising inflation, Federal Reserve Board (Federal Reserve) maintainedactions during their May and June meetings to raise the Federal funds targetrate as well as speculation about future actions, and further market volatility caused by ongoing hostilities between Russia and Ukraine were dominant themes. At its May meeting, the Federal Reserve raised the Federal funds rate to a range of 0%0.75% and 0.25%1.00%. At its meeting in June, the Federal Reserve raised the target for the Federal funds rate to a range of 1.50% and 1.75%, forecasted two rate hikes in 2023,due to improved economic indicators and increasedrising future inflation expectations. During the rates on its overnight reverse repurchase agreement facility and interest rate on excess reserves by 5 basis points to 0.05% and 0.15%, respectively.
Yieldssecond quarter of 2022, yields on U.S. Treasuries were generally lower during the second quarter of 2021higher relative to the prevailing yields duringat the end of the first quarter of 2021, although yields increased for maturities two years and longer.2022. Term debt spreads relative to U.S. Treasuries remained high but did improvewere higher during the quarter due to stronger investor demand.rising inflation.
Results of Operations. The Bank's net income totaled $37.5 million for the second quarter of 2022, compared to $11.7 million for the second quarter of 2021, compared to $60.3 million for the second quarter of 2020. Lower2021. Higher net interest income was the primary driver for the year-over-year change, partially offset by lower other expenses.change. The net interest margin was 50 basis points in the second quarter of 2022 and 41 basis points in the second quarter of 2021 and 45 basis points in the second quarter of 2020. The decrease in net interest margin was primarily due to lower spreads on liquidity balances. For the six months ended June 30, 2021, the Bank’s net income totaled $49.8 million, compared to $96.2 million for the same prior-year period. The $46.4 million decrease was driven primarily by lower net interest income, partially offset by an increase in other noninterest income. The net interest margin was 47 basis points for the first six months of 2021 and 43 basis points for the first six months of 2020.2021. The increase in net interest margin was primarily due to advance prepayment fees, along withan increase in yield. For the six months ended June 30, 2022, the Bank’s net income totaled $56.2 million, compared to $49.8 million for the same prior-year period. The $6.4 million increase was driven primarily by higher net interest income and lower expenses, partially offset by higher mark to market losses in derivative and trading securities. The net interest margin was 48 basis points for the first six months of 2022 and 47 basis points for the first six months of 2021. The increase in net interest margin was primarily due to lower funding costs and a higher percentage of MBS and Mortgage Partnership Finance® (MPF®) Program assets which have wider spreads.rates.
Financial Condition. Advances. Advances totaled $15.0$35.2 billion at June 30, 2021, a decrease2022, an increase of $10.0$21.1 billion compared to $25.0$14.1 billion at December 31, 2020. It2021. In addition, the par value of advances that had a remaining maturity of more than one year also increased to 50% at June 30, 2022 compared to 39% at December 31, 2021. Although advance levels increased driven by member demand, it is not uncommon for the Bank to experience variances in the overall advance portfolio driven primarily by changes in member needs. The federal government liquidity programs continued to contribute to higher deposits at our members and decreased advance levels for the Bank. While the advance portfolio decreased compared to December 31, 2020, the par value of advances that had a remaining maturity of more than one year was relatively unchanged at 39% at June 30, 2021 compared to 40% at December 31, 2020.
The ability to grow and/or maintain the advance portfolio is affected by, among other things, the following: (1) the liquidity demands of the Bank's borrowers; (2) the composition of the Bank's membership; (3) members' regulatory requirements; (4) current and future credit market conditions; (5) housing market trends; (6) the shape of the yield curve and (7) advance pricing.
Liquidity. The Bank maintains liquidity to meet member borrowing needs and regulatory standards. Liquidity is comprised of cash, interest-bearing deposits, certificates of deposits, Federal funds sold, securities purchased under agreements to resell, and U.S. Treasury obligations classified as trading or available-for-sale (AFS). At June 30, 2021,2022, the Bank held $11.6$13.9 billion of liquid assets compared to $6.1$9.7 billion at December 31, 2020.2021. The $4.2 billion increase in liquid assets reflects the Bank's liquidity portfolio helpsincrease in Federal funds and securities purchased under agreements to optimize financial holdings while maintaining compliance with regulatory standards.resell in response to increased advance activity.
Investments. To enhance earnings, the Bank maintains investments classified as AFS and held-to-maturity (HTM) as well as certain trading securities.securities, excluding those investments designated as liquidity. The Bank held $9.9$7.8 billion in its investment portfolio at June 30, 20212022 compared with $11.5$8.8 billion at December 31, 2020,2021, a decrease of $1.6$1.0 billion. Paydowns associated with the Bank's Agency MBS portfolio contributed to this decline. In addition, during 2021,During the first six months of 2022, the Bank’s MBS purchases have been restrictedwere limited by Finance Agency regulations which limit the size of the MBS portfolio based on regulatory capital.narrow mortgage spreads.
Consolidated Obligations. The Bank's consolidated obligations totaled $37.6$57.5 billion at June 30, 2021, a decrease2022, an increase of $5.7 $23.9
billion from December 31, 2020.2021. At June 30, 2021,2022, bonds represented 60%57% of the Bank's consolidated obligations, compared with 78%69% at December 31, 2020.2021. Discount notes represented 40%43% of the Bank's consolidated obligations at June 30, 20212022 compared with 22%31% at year-end 2020.2021. The overall decreaseincrease in consolidated obligations outstanding is consistent with the decreasedincreased advances, investments and total asset balances.
Capital Position and Regulatory Requirements. Total capital at June 30, 20212022 was $2.7$3.5 billion, compared to $3.0$2.7 billion at December 31, 2020.2021. The decreaseincrease was primarily due to lowerincreased capital stock as a result of lowerhigher advances. Total retained earnings at June 30, 20212022 were $1.4 billion, relatively unchanged from year-end 2020.2021. Accumulated other comprehensive income (AOCI) was $127.4$5.0 million at June 30, 2021,2022, a decrease of $9.9$105.2 million from December 31, 2020.2021. This decrease was primarily due to declines in the fair values of securities within the AFS portfolio.
In July 2021,2022, the Bank paid quarterly dividends of 6.25% annualized on activity stock and 2.25% annualized on membership stock. In both February and April 2022, the Bank paid quarterly dividends of 5.25% annualized on activity stock and 1.25% annualized on membership stock. In both April and February 2021, the Bank paid quarterly dividends of 5.75% annualized on activity stock
and 2.50% annualized on membership stock. The dividends paid were based on stockholders' average balances for the fourth quarter of 20202021 (February dividend), the first quarter of 20212022 (April dividend), and the second quarter of 20212022 (July dividend).
The dividend rates based on the first two quarters of 2021 financial results are reflective of, and in line with, the Bank’s performance during the first half of the year, particularly given lower interest rates, lower member advance levels and lower net income. The dividend rates also demonstrate that the BankFHLBank continues to return value to its members. The Bank anticipates maintaining similar dividend levels through third quarter 2021; however, the payment and level of any dividends are subject to changing market and business conditions. The fourth quarter 2021 dividend, which has typically been paid in February of the following year, may be lower. The Bank will continue to assess the impact ofmember shareholders. Looking forward, market and business conditions oncan impact the Bank's financialFHLBank's overall performance, and levelas well as the levels of future dividends. ThoseThese conditions can be unpredictable, and theirinclude projected increases to short-term interest rates, which could favorably impact on the Bank’s results of operations and financial condition may result in the potential for lower dividend levels.dividends.
The Bank met all of its capital requirements as of June 30, 2021,2022, and in the Federal Housing Finance Agency's (Finance Agency) most recent determination, as of March 31, 2021,2022, the Bank was deemed "adequately capitalized."
COVID-19 Pandemic. During the pandemic, the Bank's leadership and Board of Directors have remained focused on the health and safety of our staff and being a reliable, readily available liquidity provider to our members. The Bank is well-capitalized and has remained fully operational during the pandemic. The Bank continues to monitor guidance from government authorities and is beginning to execute its plan for employees returning to office. In addition, the Bank consistently monitors member credit quality; to date no material deterioration due to the pandemic or other events has occurred.
Financial Highlights
The following are the financial highlights of the Bank. The Condensed Statements of Condition as of December 31, 2020 have been derived from the Bank's audited financial statements. Financial highlights for the other quarter-end periods have been derived from the Bank's unaudited financial statements.
Condensed Statements of Income
| | | | | | | | | | | | | | | | | |
| | Three months ended |
| | June 30, | March 31, | December 31, | September 30, | June 30, |
| (in millions) | 2021 | 2021 | 2020 | 2020 | 2020 |
| Net interest income | $ | 38.9 | | $ | 58.0 | | $ | 82.0 | | $ | 84.2 | | $ | 102.8 | |
| Provision (benefit) for credit losses | (0.3) | | (1.1) | | (1.3) | | 1.2 | | 1.0 | |
| Other noninterest income (loss) | (3.0) | | 9.4 | | 6.9 | | 5.0 | | 0.1 | |
| Other expense | 23.1 | | 26.0 | | 26.8 | | 23.8 | | 34.5 | |
| Income before assessments | 13.1 | | 42.5 | | 63.4 | | 64.2 | | 67.4 | |
Affordable Housing Program (AHP) assessment (1) | 1.4 | | 4.4 | | 6.6 | | 6.8 | | 7.1 | |
| Net income | $ | 11.7 | | $ | 38.1 | | $ | 56.8 | | $ | 57.4 | | $ | 60.3 | |
| | | | | |
| Dividends (in millions) | $ | 17.6 | | $ | 21.8 | | $ | 31.2 | | $ | 39.8 | | $ | 41.3 | |
| Dividends per share | 1.41 | | 1.52 | | 1.83 | | 1.84 | | 1.50 | |
| Weighted average dividend rate | 5.05 | % | 5.16 | % | 5.80 | % | 5.89 | % | 6.06 | % |
Dividend payout ratio (2) | 150.15 | % | 57.31 | % | 54.90 | % | 69.30 | % | 68.38 | % |
| Return on average equity | 1.70 | % | 5.21 | % | 7.05 | % | 6.29 | % | 5.89 | % |
| Return on average assets | 0.12 | % | 0.33 | % | 0.41 | % | 0.32 | % | 0.26 | % |
Net interest margin (3) | 0.41 | % | 0.51 | % | 0.60 | % | 0.47 | % | 0.45 | % |
Regulatory capital ratio (4) | 6.37 | % | 6.90 | % | 6.39 | % | 5.72 | % | 5.14 | % |
GAAP capital ratio (5) | 6.52 | % | 6.98 | % | 6.38 | % | 5.58 | % | 4.90 | % |
| Total average equity to average assets | 7.11 | % | 6.32 | % | 5.82 | % | 5.05 | % | 4.36 | % |
Notes:
(1) Although the Bank is not subject to federal or state income taxes, by regulation, the Bank is required to allocate 10% of its income before assessments to fund the AHP.
(2) Represents dividends paid as a percentage of net income for the respective periods presented.
(3) Net interest margin is net interest income before provision (benefit) for credit losses as a percentage of average interest-earning assets.
(4) Regulatory capital ratio is the sum of capital stock, mandatorily redeemable capital stock and retained earnings as a percentage of total assets at period-end.
(5) GAAP capital ratio is the sum of capital stock, retained earnings and AOCI as a percentage of total assets at period-end.
| | | | | | | | |
| Six months ended |
| (in millions) | June 30, 2021 | June 30, 2020 |
| Net interest income | $ | 96.9 | | $ | 198.5 | |
| Provision (benefit) for credit losses | (1.4) | | 4.4 | |
| Other noninterest income (loss) | 6.4 | | (31.2) | |
| Other expense | 49.1 | | 54.9 | |
| Income before assessments | 55.6 | | 108.0 | |
AHP assessment (1) | 5.8 | | 11.8 | |
| Net income | $ | 49.8 | | $ | 96.2 | |
| | |
| Dividends (in millions) | $ | 39.4 | | $ | 97.4 | |
| Dividends per share | 2.94 | | 3.50 | |
| Weighted average dividend rate | 5.10 | % | 6.76 | % |
Dividend payout ratio (2) | 79.18 | % | 101.20 | % |
| Return on average equity | 3.50 | % | 4.62 | % |
| Return on average assets | 0.23 | % | 0.21 | % |
Net interest margin (3) | 0.47 | % | 0.43 | % |
Regulatory capital ratio (4) | 6.37 | % | 5.14 | % |
GAAP capital ratio (5) | 6.52 | % | 4.90 | % |
| Total average equity to average assets | 6.68 | % | 4.45 | % |
Notes:
(1) Although the Bank is not subject to federal or state income taxes, by regulation, the Bank is required to allocate 10% of its income before assessments to fund the AHP.
(2) Represents dividends paid as a percentage of net income for the respective periods presented.
(3) Net interest margin is net interest income before provision (benefit) for credit losses as a percentage of average interest-earning assets.
(4) Regulatory capital ratio is the sum of capital stock, mandatorily redeemable capital stock and retained earnings as a percentage of total assets at period-end.
(5) GAAP capital ratio is the sum of capital stock, retained earnings and AOCI as a percentage of total assets at period-end.
Condensed Statements of Condition
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| June 30, | March 31, | December 31, | September 30, | June 30, |
| (in millions) | 2021 | 2021 | 2020 | 2020 | 2020 |
| Cash and due from banks | $ | 545.1 | | $ | 890.9 | | $ | 1,036.5 | | $ | 1,386.5 | | $ | 377.4 | |
Investments (1) | 21,032.5 | | 15,562.1 | | 16,522.7 | | 17,792.1 | | 22,332.6 | |
| Advances | 14,954.7 | | 19,272.4 | | 24,971.1 | | 35,841.0 | | 49,614.4 | |
| Mortgage loans held for portfolio, net | 4,774.4 | | 4,866.2 | | 4,886.2 | | 5,089.8 | | 5,241.5 | |
| Total assets | 41,662.2 | | 40,914.3 | | 47,712.9 | | 60,443.3 | | 77,975.0 | |
| Consolidated obligations: | | | | | |
| Discount notes | 15,112.8 | | 12,209.3 | | 9,510.1 | | 13,995.7 | | 26,051.8 | |
| Bonds | 22,514.3 | | 24,164.5 | | 33,854.7 | | 41,583.3 | | 46,582.8 | |
| Total consolidated obligations | 37,627.1 | | 36,373.8 | | 43,364.8 | | 55,579.0 | | 72,634.6 | |
| Deposits | 940.9 | | 1,305.7 | | 923.4 | | 990.6 | | 951.0 | |
| Total liabilities | 38,944.7 | | 38,059.3 | | 44,671.0 | | 57,071.3 | | 74,156.2 | |
| Capital stock - putable | 1,203.0 | | 1,328.7 | | 1,527.8 | | 1,880.4 | | 2,371.4 | |
| Retained earnings | 1,387.1 | | 1,393.0 | | 1,376.8 | | 1,351.1 | | 1,333.5 | |
| Total capital | 2,717.5 | | 2,855.0 | | 3,041.9 | | 3,372.0 | | 3,818.8 | |
Notes:
(1) Includes interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, and trading, AFS and HTM investment securities.
Earnings Performance
The following is Management's Discussion and Analysis of the Bank's earnings performance for the three and six months ended June 30, 20212022 and 2020,2021, which should be read in conjunction with the Bank's unaudited interim financial statements included in this Form 10-Q as well as the audited financial statements included in Item 8. Financial Statements and Supplementary Financial Data in the Bank's 20202021 Form 10-K.
Summary of Financial Results
Net Income and Return on Average Equity.The Bank's net income totaled $37.5 million for the second quarter of 2022, compared to $11.7 million for the second quarter of 2021, compared to $60.32021. The $25.8 million for the second quarter of 2020. The $48.6 million decreaseincrease in net income was driven primarily by the following:
•Net interest income decreased $63.9 million to $38.9 million for the second quarter of 2021, compared with the same prior-year period.
◦Interest income was $98.9 million for the second quarter of 2021, compared to $284.3 million for the second quarter of 2020. This decrease was largely the result of lower average interest-earning asset balances as well as lower yields, driven by lower short-term interest rates.
◦Interest expense was $60.0 million for the second quarter of 2021, compared to $181.5 million in the same prior-year period. This decrease was primarily the result of lower average consolidated obligations balances as well as lower rates paid, driven by lower short-term interest rates.
•Other expenses decreased $11.4 million to $23.1 million for the second quarter of 2021, compared with the same prior-year period. There were two primary drivers of the decrease. There were lower compensation and benefits expenses in the second quarter of 2021 compared to the second quarter of 2020. In addition, the Bank made a voluntary donation to its Home4Good initiative in the second quarter of 2020 but made no such donation in the second quarter of 2021.
The Bank's return on average equity for the second quarter of 2021 was 1.70% compared to 5.89% for the second quarter of 2020.
The Bank’s net income totaled $49.8 million for the six months ended June 30, 2021, compared to $96.2 million for the same prior-year period. The $46.4 million decrease was driven primarily by the following:
•Net interest income decreased $101.6 million to $96.9was $67.0 million for the six months ended June 30, 2021, compared withsecond quarter of 2022, an increase of $28.1 million from $38.9 million during the same prior-year period.
◦Interest income was $223.5$182.6 million for the six months ended June 30, 2021,second quarter of 2022, compared with $750.2to $98.9 million forin the same prior-year period. This decreaseincrease was the result of lowerhigher average interest-earning assetadvance balances as well as lowerand higher yields driven by lowerhigher short-term interest rates.
◦Interest expense was $126.6$115.6 million for the second quarter of 2022, compared to $60.0 million in the same prior-year period. This increase was the result of higher average consolidated obligations and higher short-term interest rates.
•Other noninterest income was $0.5 million for the second quarter of 2022 compared to a loss of $3.0 million in the same prior-year period. This $3.5 million increase was due primarily to valuation changes in FHLBank's derivative and trading security portfolios as a result of market volatility.
•Other expense was $24.6 million for the second quarter of 2022 compared to $23.1 million in the same period in prior-year, an increase of $1.5 million. The Bank made a $2.0 million voluntary contribution to its defined benefit pension plan in the second quarter 2022 and no such contribution was made in the second quarter of 2021.
The Bank’s net income totaled $56.2 million for the six months ended June 30, 2021,2022, compared to $49.8 million for the same prior-year period. The $6.4 million increase was driven primarily by the following:
▪Net interest income was $111.1 million for the six months ended June 30, 2022, an increase of $14.2 million from $96.9 million in the same prior-year period.
◦Interest income was $277.0 million for the six months ended June 30, 2022, compared with $551.7$223.5 million for the same prior-year period. This increase was the result of higher average advance balances, and higher yields driven by higher short-term interest rates.
◦Interest expense was $165.9 million for the six months ended June 30, 2022, compared with $126.6 million in the same prior-year period. This decreaseincrease was primarily the result of lower average consolidated obligations balances as well as lowerhigher rates paid, driven by lowerhigher short-term interest rates.
•▪Interest income also included net prepayment fees on advances of $8.8$1.9 million for the six months ended June 30, 20212022, compared to $3.3$8.8 million for the same prior-year period.
•▪Other noninterestnon-interest income was $6.4$0.5 million for the six months ended June 30, 2021,2022, compared with a loss of $31.2$6.4 million in the same prior-year period. This $37.6$5.9 million increasedecrease was due primarily to higher net gainslosses on derivatives and hedging activities, partially offset by higher net losses on investmenttrading securities in 2021.2022. Movements in the interest rates in 2022 have led to volatility in the mark to market portfolio.
The Bank's return on average equityOther expense was $46.9 million for the first six months of 2021 was 3.50%ended June 30, 2022, compared to 4.62%with $49.1 million for the same prior year period.prior-year period, a decrease of $2.2 million. The decrease is driven by market value changes of deferred compensation agreements and lower Federal Housing Finance Agency (FHFA) assessments.
Net Interest Income
The following table summarizes the yields and rates paid on interest-earning assets and interest-bearing liabilities, respectively, the average balance for each of the primary balance sheet classifications, and the net interest margin for the three months and six months ended June 30, 20212022 and 2020.2021.
Average Balances and Interest Yields/Rates Paid
| | | | Three months ended June 30, | | Three months ended June 30, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| (dollars in millions) | (dollars in millions) | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) | | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) | (dollars in millions) | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) | | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) |
| Assets: | Assets: | | | | Assets: | | | |
Securities purchased under agreements to resell (1) | | Securities purchased under agreements to resell (1) | $ | 2,135.8 | | $ | 4.5 | | 0.84 | | | $ | 780.2 | | $ | 0.1 | | 0.07 | |
Federal funds sold (1) | Federal funds sold (1) | $ | 2,747.7 | | $ | 0.4 | | 0.07 | | | $ | 8,927.4 | | $ | 1.2 | | 0.06 | | Federal funds sold (1) | 4,031.7 | | 8.1 | | 0.80 | | | 2,747.7 | | 0.4 | | 0.07 | |
Securities purchased under agreements to resell (1) | 780.2 | | 0.1 | | 0.07 | | | 1,374.0 | | 0.2 | | 0.07 | | |
Interest-bearing deposits (2) | Interest-bearing deposits (2) | 652.9 | | 0.2 | | 0.13 | | | 1,975.0 | | 0.4 | | 0.07 | | Interest-bearing deposits (2) | 1,507.1 | | 3.0 | | 0.80 | | | 652.9 | | 0.2 | | 0.13 | |
Investment securities (3) | Investment securities (3) | 13,168.3 | | 36.1 | | 1.10 | | | 16,610.0 | | 71.4 | | 1.73 | | Investment securities (3) | 13,427.2 | | 49.5 | | 1.48 | | | 13,168.3 | | 36.1 | | 1.10 | |
Advances (4) | Advances (4) | 15,760.2 | | 31.3 | | 0.80 | | | 58,793.9 | | 170.5 | | 1.17 | | Advances (4) | 27,960.3 | | 84.3 | | 1.21 | | | 15,760.2 | | 31.3 | | 0.80 | |
Mortgage loans held for portfolio (5) | Mortgage loans held for portfolio (5) | 4,830.8 | | 30.8 | | 2.56 | | | 5,246.8 | | 40.6 | | 3.11 | | Mortgage loans held for portfolio (5) | 4,680.2 | | 33.2 | | 2.85 | | | 4,830.8 | | 30.8 | | 2.56 | |
| Total interest-earning assets | Total interest-earning assets | 37,940.1 | | 98.9 | | 1.05 | | | 92,927.1 | | 284.3 | | 1.23 | | Total interest-earning assets | 53,742.3 | | 182.6 | | 1.36 | | | 37,940.1 | | 98.9 | | 1.05 | |
Other assets (6) | Other assets (6) | 997.0 | | | | 1,611.1 | | | Other assets (6) | 817.7 | | | | 997.0 | | |
| Total assets | Total assets | $ | 38,937.1 | | | | $ | 94,538.2 | | | Total assets | $ | 54,560.0 | | | | $ | 38,937.1 | | |
| Liabilities and capital: | Liabilities and capital: | | | | Liabilities and capital: | | | |
Deposits (2) | Deposits (2) | $ | 994.2 | | $ | — | | — | | | $ | 858.7 | | $ | — | | — | | Deposits (2) | $ | 812.5 | | $ | 1.4 | | 0.71 | | | $ | 994.2 | | $ | — | | — | |
| Consolidated obligation discount notes | Consolidated obligation discount notes | 11,501.4 | | 1.4 | | 0.05 | | | 36,843.1 | | 57.4 | 0.63 | Consolidated obligation discount notes | 21,683.6 | | 36.0 | | 0.67 | | | 11,501.4 | | 1.4 | | 0.05 | |
Consolidated obligation bonds (7) | Consolidated obligation bonds (7) | 22,953.9 | | 57.7 | | 1.01 | | | 51,565.7 | | 120.2 | 0.94 | Consolidated obligation bonds (7) | 27,740.1 | | 77.9 | | 1.13 | | | 22,953.9 | | 57.7 | | 1.01 | |
| Other borrowings | Other borrowings | 65.1 | | 0.9 | | 5.32 | | | 323.4 | | 3.9 | | 4.86 | | Other borrowings | 22.4 | | 0.3 | | 6.15 | | | 65.1 | | 0.9 | | 5.32 | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | 35,514.6 | | 60.0 | | 0.68 | | | 89,590.9 | | 181.5 | | 0.81 | Total interest-bearing liabilities | 50,258.6 | | 115.6 | | 0.92 | | | 35,514.6 | | 60.0 | | 0.68 | |
| Other liabilities | Other liabilities | 653.0 | | | 825.6 | | | Other liabilities | 1,096.6 | | | 653.0 | | |
| Total capital | Total capital | 2,769.5 | | | 4,121.7 | | | Total capital | 3,204.8 | | | 2,769.5 | | |
| Total liabilities and capital | Total liabilities and capital | $ | 38,937.1 | | | $ | 94,538.2 | | | Total liabilities and capital | $ | 54,560.0 | | | $ | 38,937.1 | | |
| Net interest spread | Net interest spread | | 0.37 | | | 0.42 | | Net interest spread | | 0.44 | | | 0.37 | |
| Impact of noninterest-bearing funds | Impact of noninterest-bearing funds | | 0.04 | | | 0.03 | Impact of noninterest-bearing funds | | 0.06 | | | 0.04 |
Net interest income/net interest margin | Net interest income/net interest margin | | $ | 38.9 | | 0.41 | | | $ | 102.8 | | 0.45 | | Net interest income/net interest margin | | $ | 67.0 | | 0.50 | | | $ | 38.9 | | 0.41 | |
Notes:
(1) The average balance of Federal funds sold and securities purchased under agreements to resell and the related interest income and average yield calculations may include loans to other FHLBanks.
(2) Average balances of deposits (assets and liabilities) include cash collateral received from/paid to counterparties which is reflected in the Statements of Condition as derivative assets/liabilities.
(3) Investment securities include trading, AFS and HTM securities. The average balances of AFS and HTM are reflected at amortized cost.
(4) Average balances reflect noninterest-earning hedge accounting adjustments of ($164.4) million in 2022 and $153.1 million in 2021and $497.8 million in 2020.2021.
(5) Nonaccrual mortgage loans are included in average balances in determining the average rate.
(6) Other assets include allowance for credit losses on investment securities and MPF.
(7) Average balances reflect noninterest-bearing hedge accounting adjustments of ($564.6) million in 2022 and $14.4 million in 2021 and $72.6 million in 2020.2021.
| | | | Six months ended June 30, | | Six months ended June 30, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| (dollars in millions) | (dollars in millions) | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) | | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) | (dollars in millions) | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) | | Average
Balance | Interest
Income/
Expense | Avg.
Yield/
Rate
(%) |
| Assets: | Assets: | | | | Assets: | | | |
Securities purchased under agreements to resell (1) | | Securities purchased under agreements to resell (1) | $ | 1,475.1 | | $ | 4.7 | | 0.64 | | | $ | 748.6 | | $ | 0.2 | | 0.07 | |
Federal funds sold (1) | Federal funds sold (1) | $ | 3,558.9 | | $ | 1.3 | | 0.07 | | | $ | 8,632.6 | | $ | 26.4 | | 0.62 | | Federal funds sold (1) | 4,114.8 | | 9.3 | | 0.45 | | | 3,558.9 | | 1.3 | | 0.07 | |
Securities purchased under agreements to resell (1) | 748.6 | | 0.2 | | 0.07 | | | 1,655.7 | | 7.6 | | 0.93 | | |
Interest-bearing deposits (2) | Interest-bearing deposits (2) | 844.9 | | 0.6 | | 0.14 | | | 1,710.7 | | 5.4 | | 0.63 | | Interest-bearing deposits (2) | 1,229.6 | | 3.4 | | 0.55 | | | 844.9 | | 0.6 | | 0.14 | |
Investment securities (3) | Investment securities (3) | 12,817.7 | | 77.0 | | 1.21 | | | 16,683.3 | | 171.4 | | 2.07 | | Investment securities (3) | 13,560.9 | | 82.9 | | 1.23 | | | 12,817.7 | | 77.0 | | 1.21 | |
Advances (4) | Advances (4) | 19,057.1 | | 81.3 | | 0.86 | | | 59,204.3 | | 453.8 | | 1.54 | | Advances (4) | 21,247.9 | | 111.0 | | 1.05 | | | 19,057.1 | | 81.3 | | 0.86 | |
Mortgage loans held for portfolio (5) | Mortgage loans held for portfolio (5) | 4,841.8 | | 63.1 | | 2.63 | | | 5,219.1 | | 85.6 | | 3.30 | | Mortgage loans held for portfolio (5) | 4,695.4 | | 65.7 | | 2.82 | | | 4,841.8 | | 63.1 | | 2.63 | |
| Total interest-earning assets | Total interest-earning assets | 41,869.0 | | 223.5 | | 1.08 | | | 93,105.7 | | 750.2 | | 1.62 | | Total interest-earning assets | 46,323.7 | | 277.0 | | 1.21 | | | 41,869.0 | | 223.5 | | 1.08 | |
Other assets (6) | Other assets (6) | 1,021.1 | | | | 1,181.3 | | | Other assets (6) | 859.2 | | | | 1,021.1 | | |
| Total assets | Total assets | $ | 42,890.1 | | | | $ | 94,287.0 | | | Total assets | $ | 47,182.9 | | | | $ | 42,890.1 | | |
| Liabilities and capital: | Liabilities and capital: | | | Liabilities and capital: | | | |
Deposits (2) | Deposits (2) | $ | 993.5 | | $ | — | | — | | | $ | 722.2 | | $ | 1.8 | | 0.50 | Deposits (2) | $ | 939.8 | | $ | 1.6 | | 0.36 | | | $ | 993.5 | | $ | — | | — | |
| Consolidated obligation discount notes | Consolidated obligation discount notes | 11,795.8 | | 4.1 | | 0.07 | | | 32,737.4 | | 158.5 | 0.97 | Consolidated obligation discount notes | 17,027.8 | | 39.2 | | 0.46 | | | 11,795.8 | | 4.1 | | 0.07 | |
Consolidated obligation bonds (7) | Consolidated obligation bonds (7) | 26,486.8 | | 119.7 | | 0.91 | | | 55,596.4 | | 381.4 | 1.38 | Consolidated obligation bonds (7) | 25,286.2 | | 124.5 | | 0.99 | | | 26,486.8 | | 119.7 | | 0.91 | |
| Other borrowings | Other borrowings | 97.3 | | 2.8 | | 5.74 | | | 321.1 | | 10.0 | | 6.30 | | Other borrowings | 22.4 | | 0.6 | | 5.66 | | | 97.3 | | 2.8 | | 5.74 | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | 39,373.4 | | 126.6 | | 0.65 | | | 89,377.1 | | 551.7 | | 1.24 | Total interest-bearing liabilities | 43,276.2 | | 165.9 | | 0.77 | | | 39,373.4 | | 126.6 | | 0.65 | |
| Other liabilities | Other liabilities | 651.0 | | | 716.8 | | | Other liabilities | 932.4 | | | 651.0 | | |
| Total capital | Total capital | 2,865.7 | | | 4,193.1 | | | Total capital | 2,974.3 | | | 2,865.7 | | |
| Total liabilities and capital | Total liabilities and capital | $ | 42,890.1 | | | $ | 94,287.0 | | | Total liabilities and capital | $ | 47,182.9 | | | $ | 42,890.1 | | |
| Net interest spread | Net interest spread | | 0.43 | | | 0.38 | | Net interest spread | | 0.44 | | | 0.43 | |
| Impact of noninterest-bearing funds | Impact of noninterest-bearing funds | | 0.04 | | | 0.05 | Impact of noninterest-bearing funds | | 0.04 | | | 0.04 |
Net interest income/net interest margin | Net interest income/net interest margin | | $ | 96.9 | | 0.47 | | | $ | 198.5 | | 0.43 | | Net interest income/net interest margin | | $ | 111.1 | | 0.48 | | | $ | 96.9 | | 0.47 | |
Notes:
(1) The average balance of Federal funds sold and securities purchased under agreements to resell and the related interest income and average yield calculations may include loans to other FHLBanks.
(2) Average balances of deposits (assets and liabilities) include cash collateral received from/paid to counterparties which is reflected in the Statements of Condition as derivative assets/liabilities.
(3) Investment securities include trading, AFS and HTM securities. The average balances of AFS and HTM are reflected at amortized cost.
(4) Average balances reflect noninterest-earning hedge accounting adjustments of ($81.0) million in 2022 and $187.8 million in 2021and $382.7 million in 2020.2021.
(5) Nonaccrual mortgage loans are included in average balances in determining the average rate.
(6) Other assets include allowance for credit losses on investment securities and MPF.
(7) Average balances reflect noninterest-bearing hedge accounting adjustments of ($366.5) million in 2022 and $18.2 million in 20212021.
(8) Net interest margin is net interest income before provision (reversal) for credit losses as a percentage of average interest-earning assets.
The Bank’s business model is designed to protect the net interest spread earned by the Bank and $59.3 millionwithstand fluctuations in 2020.both the level of interest rates and volume of business. Interest income and interest expense increased, increasing the Bank's net interest margin by nine basis point to 50 basis points during second quarter of 2022, compared to 41 basis points during second quarter of 2021. This increase was primarily due to the impact of higher yields.
Net interest income increased $28.1 million for the second quarter of 2022 compared to second quarter of 2021 decreased $63.9 million from the same prior-year period due to a decreasean increase in interest income, partially offset by lowerhigher interest expense. Interest-earning assets decreased 59%increased 42% primarily due to lowerhigher average advances. The rateyield earned on interest-earning assets decreased 18increased 31 basis points due to lowerhigher yields across all categories. Interest income on all interest-earning assets declined primarilyincreased due to lowerhigher volumes and lower yields on allhigher rates in most categories. The rate paid on interest-bearing liabilities decreased 13increased 24 basis points due primarily to lower volumes on consolidated obligation bonds and discount notes. In addition, the net interest margin was 41 basis points for the second quarter of 2021 and 45 basis points for the second quarter of 2020. The decrease in net interest margin was primarily due to lower spreads on liquidity balances.higher rates in most categories. The impact of noninterest-bearing funds increased two basis points.
Net interest income for the first six months of 2021 decreased $101.62022 increased $14.2 million from the same prior-year period due to a decreasean increase in interest income, partially offset by lowerhigher interest expense. Interest-earning assets decreased 55%increased 11% primarily due to lowerhigher average advances. The yield earned on interest-earning assets decreased 54increased 13 basis points due to lowerhigher yields across all categories. Interest income on alladvances increased due to higher rates and volumes. Interest income on interest-earning assets declined primarilyincreased due to lowerhigher volumes and lower yields across allhigher rates in most categories. The rate paid on interest-bearing liabilities decreased 59increased 12 basis points due primarily to lower rates paid on consolidated obligation bonds and discount notes. In addition, the net interest margin was 47 basis points for the first six months of 2021 and 43 basis points for the same prior year period. The increase in net interest margin was primarily due to a changehigher rates in balance sheet mix. Higher yielding MBS and MPF securities now make up a larger percentagemost categories. The impact of noninterest-bearing funds was consistent with the balance sheet with advance balances down in 2021.prior period.
Rate/Volume Analysis. Changes in both volume and interest rates influence changes in net interest income and net interest margin. The following table presents and attribution of net interest income between volume and rate for the three and six months ended June 30, 20212022 and 2020.2021.
| | | | Increase (Decrease) in Interest Income/Expense Due to Changes in Rate/Volume 2021 compared to 2020 | | Increase (Decrease) in Interest Income/Expense Due to Changes in Rate/Volume 2022 compared to 2021 |
| | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in millions) | (in millions) | Volume | Rate | Total | Volume | Rate | Total | (in millions) | Volume | Rate | Total | Volume | Rate | Total |
| Securities purchased under agreements to resell | | Securities purchased under agreements to resell | $ | 0.6 | | $ | 3.8 | | $ | 4.4 | | $ | 0.5 | | $ | 4.0 | | $ | 4.5 | |
| Federal funds sold | Federal funds sold | $ | (1.1) | | $ | 0.3 | | $ | (0.8) | | $ | (10.1) | | $ | (15.0) | | $ | (25.1) | | Federal funds sold | 0.3 | | 7.4 | | 7.7 | | 0.2 | | 7.8 | | 8.0 | |
| Securities purchased under agreements to resell | (0.1) | | — | | (0.1) | | (2.8) | | (4.6) | | (7.4) | | |
| Interest-bearing deposits | Interest-bearing deposits | (0.3) | | 0.1 | | (0.2) | | (1.9) | | (2.9) | | (4.8) | | Interest-bearing deposits | 0.5 | | 2.3 | | 2.8 | | 0.4 | | 2.4 | | 2.8 | |
| Investment securities | Investment securities | (12.8) | | (22.5) | | (35.3) | | (33.9) | | (60.5) | | (94.4) | | Investment securities | 0.7 | | 12.7 | | 13.4 | | 4.5 | | 1.4 | | 5.9 | |
| Advances | Advances | (97.0) | | (42.2) | | (139.2) | | (225.8) | | (146.7) | | (372.5) | | Advances | 31.7 | | 21.3 | | 53.0 | | 10.1 | | 19.6 | | 29.7 | |
| Mortgage loans held for portfolio | Mortgage loans held for portfolio | (3.0) | | (6.8) | | (9.8) | | (5.9) | | (16.6) | | (22.5) | | Mortgage loans held for portfolio | (1.0) | | 3.4 | | 2.4 | | (2.0) | | 4.6 | | 2.6 | |
| Total interest-earning assets | Total interest-earning assets | $ | (114.3) | | $ | (71.1) | | $ | (185.4) | | $ | (280.4) | | $ | (246.3) | | $ | (526.7) | | Total interest-earning assets | $ | 32.8 | | $ | 50.9 | | $ | 83.7 | | $ | 13.7 | | $ | 39.8 | | $ | 53.5 | |
| Deposits | Deposits | $ | — | | $ | — | | $ | — | | $ | 0.5 | | $ | (2.3) | | $ | (1.8) | | Deposits | $ | — | | $ | 1.4 | | $ | 1.4 | | $ | — | | $ | 1.6 | | $ | 1.6 | |
| Consolidated obligation discount notes | Consolidated obligation discount notes | (23.9) | | (32.1) | | (56.0) | | (63.1) | | (91.3) | | (154.4) | | Consolidated obligation discount notes | 2.3 | | 32.3 | | 34.6 | | 2.6 | | 32.5 | | 35.1 | |
| Consolidated obligation bonds | Consolidated obligation bonds | (71.0) | | 8.5 | | (62.5) | | (159.0) | | (102.7) | | (261.7) | | Consolidated obligation bonds | 12.9 | | 7.3 | | 20.2 | | (5.6) | | 10.4 | | 4.8 | |
| Other borrowings | Other borrowings | (3.4) | | 0.4 | | (3.0) | | (6.4) | | (0.8) | | (7.2) | | Other borrowings | (0.6) | | — | | (0.6) | | (2.1) | | (0.1) | | (2.2) | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | $ | (98.3) | | $ | (23.2) | | $ | (121.5) | | $ | (228.0) | | $ | (197.1) | | $ | (425.1) | | Total interest-bearing liabilities | $ | 14.6 | | $ | 41.0 | | $ | 55.6 | | $ | (5.1) | | $ | 44.4 | | $ | 39.3 | |
| Total decrease in net interest income | $ | (16.0) | | $ | (47.9) | | $ | (63.9) | | $ | (52.4) | | $ | (49.2) | | $ | (101.6) | | |
| Total increase in net interest income | | Total increase in net interest income | $ | 18.2 | | $ | 9.9 | | $ | 28.1 | | $ | 18.8 | | $ | (4.6) | | $ | 14.2 | |
Interest income and interest expense both decreasedincreased in both quarter-over-quarter and year-over-year comparisons. LowerHigher rates and lowerhigher volume drove the decreasesincrease in both interest income and interest expense.income. The rate decreaseincrease was primarily due to a decreasean increase in market interest rates as a result of the Federal Reserve lowering the Federal funds target rate in response to the economic impacts of the COVID-19 pandemic. Loweryield on advances. Higher volumes were primarily due to decreasesincreases in member advance activity as market liquidity and recent Fed actions to increase short-term interest rates impacted members' need for advances.
Interest expense on the federal government liquidity programs continued to contributeaverage consolidated obligations portfolio increased in both quarter-over-quarter and year-over-year comparisons. The quarter-over-quarter growth was primarily due to higher deposits at our membersrates and decreased advance levels for the Bank. In addition, Federal funds sold and securities purchased under agreements to resell and investment securities decreasedhigher volumes. The rate increase was primarily due to increased rates on discount notes as increases to short-term interest rates have had a reductionsignificant impact . Higher volumes were primarily due to increases to average outstanding balances of bonds in relation to increased advance balances. The year-over-year growth was primarily due to higher rates on discount notes as increases to short-term liquidity balances and paydownsinterest rates have had a significant impact. A portion of the bond portfolio is currently swapped to a variable rate; therefore, as the variable rate (decreases) increases, interest expense on Agency mortgage-backed securities.swapped bonds, including the impact of swaps, (decreases) increases.See details regarding the impact of swaps on the rates paid in the “Derivatives Effects on Interest Income” discussion below.
Derivative Effects on Net Interest Income. The following tables quantify the effects of the Bank's derivative activities on net interest income for the three and six months ended June 30, 20212022 and 2020.2021.
| Three Months Ended
June 30, 2022 | | Three Months Ended
June 30, 2022 | Advances | Investments | Mortgage Loans | Bonds | | Total |
| Amortization/accretion of hedging activities in net interest income | | Amortization/accretion of hedging activities in net interest income | $ | — | | $ | (0.1) | | $ | (0.4) | | $ | 0.1 | | | $ | (0.4) | |
| Gains (losses) on designated fair value hedges | | Gains (losses) on designated fair value hedges | (0.1) | | 0.6 | | — | | (0.9) | | | (0.4) | |
| Net interest settlements included in net interest income | | Net interest settlements included in net interest income | (18.9) | | (5.3) | | — | | 26.2 | | | 2.0 | |
| Total effect on net interest income | | Total effect on net interest income | $ | (19.0) | | $ | (4.8) | | $ | (0.4) | | $ | 25.4 | | | $ | 1.2 | |
| Six Months Ended
June 30, 2022 | | Six Months Ended
June 30, 2022 | Advances | Investments | Mortgage Loans | Bonds | | Total |
| Amortization/accretion of hedging activities in net interest income | | Amortization/accretion of hedging activities in net interest income | $ | — | | $ | (0.1) | | $ | (0.9) | | $ | 0.1 | | | $ | (0.9) | |
| Gains (losses) on designated fair value hedges | | Gains (losses) on designated fair value hedges | (0.1) | | 2.0 | | — | | (0.1) | | | 1.8 | |
| Net interest settlements included in net interest income | | Net interest settlements included in net interest income | (49.3) | | (19.3) | | — | | 52.1 | | | (16.5) | |
| Total effect on net interest income | | Total effect on net interest income | $ | (49.4) | | $ | (17.4) | | $ | (0.9) | | $ | 52.1 | | | $ | (15.6) | |
| Three Months Ended
June 30, 2021 | Three Months Ended
June 30, 2021 | Advances | Investments | Mortgage Loans | Bonds | | Total | Three Months Ended
June 30, 2021 | Advances | Investments | Mortgage Loans | Bonds | | Total |
| Amortization/accretion of hedging activities in net interest income | Amortization/accretion of hedging activities in net interest income | $ | — | | $ | (0.1) | | $ | (1.1) | | $ | 0.1 | | | $ | (1.1) | | Amortization/accretion of hedging activities in net interest income | $ | — | | $ | (0.1) | | $ | (1.1) | | $ | 0.1 | | | $ | (1.1) | |
| Gains (losses) on designated fair value hedges | Gains (losses) on designated fair value hedges | — | | (0.8) | | — | | — | | | (0.8) | | Gains (losses) on designated fair value hedges | — | | (0.8) | | — | | — | | | (0.8) | |
| Net interest settlements included in net interest income | Net interest settlements included in net interest income | (35.2) | | (10.5) | | — | | 8.7 | | | (37.0) | | Net interest settlements included in net interest income | (35.2) | | (10.5) | | — | | 8.7 | | | (37.0) | |
| Total effect on net interest income | Total effect on net interest income | $ | (35.2) | | $ | (11.4) | | $ | (1.1) | | $ | 8.8 | | | $ | (38.9) | | Total effect on net interest income | $ | (35.2) | | $ | (11.4) | | $ | (1.1) | | $ | 8.8 | | | $ | (38.9) | |
| Six Months Ended
June 30, 2021 | Six Months Ended
June 30, 2021 | Advances | Investments | Mortgage Loans | Bonds | | Total | Six Months Ended
June 30, 2021 | Advances | Investments | Mortgage Loans | Bonds | | Total |
| Amortization/accretion of hedging activities in net interest income | Amortization/accretion of hedging activities in net interest income | $ | — | | $ | (0.1) | | $ | (2.0) | | $ | 0.1 | | | $ | (2.0) | | Amortization/accretion of hedging activities in net interest income | | $ | (0.1) | | $ | (2.0) | | $ | 0.1 | | | $ | (2.0) | |
| Gains (losses) on designated fair value hedges | Gains (losses) on designated fair value hedges | — | | 1.4 | | — | | — | | | 1.4 | | Gains (losses) on designated fair value hedges | — | | 1.4 | | — | | — | | | 1.4 | |
| Net interest settlements included in net interest income | Net interest settlements included in net interest income | (74.8) | | (18.1) | | — | | 16.1 | | | (76.8) | | Net interest settlements included in net interest income | (74.8) | | (18.1) | | — | | 16.1 | | | (76.8) | |
| Total effect on net interest income | Total effect on net interest income | $ | (74.8) | | $ | (16.8) | | $ | (2.0) | | $ | 16.2 | | | $ | (77.4) | | Total effect on net interest income | $ | (74.8) | | $ | (16.8) | | $ | (2.0) | | $ | 16.2 | | | $ | (77.4) | |
| Three Months Ended
June 30, 2020 | Advances | Investments | Mortgage Loans | Bonds | | Total | |
| Amortization/accretion of hedging activities in net interest income | $ | — | | $ | — | | $ | (0.7) | | $ | — | | | $ | (0.7) | | |
| Gains (losses) on designated fair value hedges | — | | 0.5 | | — | | — | | | 0.5 | | |
| Net interest settlements included in net interest income | (49.4) | | (4.7) | | — | | 23.1 | | | (31.0) | | |
| Total effect on net interest income | $ | (49.4) | | $ | (4.2) | | $ | (0.7) | | $ | 23.1 | | | $ | (31.2) | | |
| Six Months Ended
June 30, 2020 | Advances | Investments | Mortgage Loans | Bonds | | Total | |
| Amortization/accretion of hedging activities in net interest income | $ | — | | $ | (0.1) | | $ | (1.1) | | $ | 0.1 | | | $ | (1.1) | | |
| Gains (losses) on designated fair value hedges | (0.1) | | (3.6) | | — | | 0.4 | | | (3.3) | | |
| Net interest settlements included in net interest income | (67.1) | | (6.6) | | — | | 32.7 | | | (41.0) | | |
| Total effect on net interest income | $ | (67.2) | | $ | (10.3) | | $ | (1.1) | | $ | 33.2 | | | $ | (45.4) | | |
The variances in the derivative impacts from period to period are driven by the change in the average variable rate, the timing of interest rate resets and the average hedged portfolio balances outstanding during any given period. The Bank uses derivatives to hedge the fair market value changes attributable to the change in the benchmark interest rates. The Bank generally uses interest rate swaps to hedge a portion of fixed rate assets and fixed rate bonds, which convert the interest rates on those instruments from a fixed rate to a variable rate. The purpose of this strategy is to protect the net interest spread. Using derivatives to convert interest rates from fixed to variable can increase or decrease net interest income. The variances in the derivative impacts from period to period are driven by the change in the average variable rate, the timing of interest rate resets and the average hedged portfolio balances outstanding during any given period. The Bank uses derivatives to hedge the fair market value changes attributable to the change in the benchmark interest rates.
In addition, the Bank uses many different funding and hedging strategies. These strategies involve closely match-funding bullet advances with bullet debt. This is designed in part to avoid the use of derivatives where prudent and reduce the Bank's reliance on short-term funding.
Provision (reversal) for Credit Losses. The provision (benefit) for credit losses in the second quarter of 20212022 was a benefit of $0.3$1.2 million compared with a provisionreversal of $1.0$(0.3) million in the second quarter of 2020.2021. For the six months ended June 30, 2021,2022, the benefitprovision for credit losses was $1.4$2.2 million compared with a provisionreversal of $4.4$(1.4) million for the same prior-year period. The benefitsprovision in the second quarter of 2022 was driven by private label MBS classified as AFS due to a decline in market values, which was partially offset by reversals for the Bank's BOB and MPF portfolios. The provision for the six months ended June 30, 2022 was primarily driven by the Bank's private label MBS classified as AFS. The reversal reflected in the 2021 periods werewas driven primarily driven by the MPF portfolio due to improvements in the Bank's assumptions used to estimate expected credit losses, including forecasted housing prices.
The Bank's provision for credit losses in 2020 was impacted by the economic conditions resulting from the COVID-19 pandemic and reflected higher expected credit losses primarily driven by lower forecasted housing prices. The provision for the three months ended June 30, 2020 was primarily driven by a provision on the Bank's MPF portfolio, partially offset by a benefit on private label MBS classified as AFS due to an improvement in market values. For the six months ended June 30, 2020, the
Bank recorded a provision for credit losses on its private label MBS classified as AFS, MPF portfolio, and the BOB loan program.
Other Noninterest Income
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in millions) | (in millions) | 2021 | 2020 | 2021 | 2020 | (in millions) | 2022 | 2021 | 2022 | 2021 |
| Net gains (losses) on investment securities | Net gains (losses) on investment securities | $ | (1.8) | | $ | (3.3) | | $ | (12.7) | | $ | 59.2 | | Net gains (losses) on investment securities | $ | (6.4) | | $ | (1.8) | | $ | (19.9) | | $ | (12.7) | |
| Net gains (losses) on derivatives and hedging activities | Net gains (losses) on derivatives and hedging activities | (8.0) | | (3.9) | | 5.7 | | (101.3) | | Net gains (losses) on derivatives and hedging activities | 1.2 | | (8.0) | | 8.7 | | 5.7 | |
| Standby letters of credit fees | Standby letters of credit fees | 5.7 | | 5.2 | | 11.6 | | 10.6 | | Standby letters of credit fees | 5.6 | | 5.7 | | 11.3 | | 11.6 | |
| Other, net | Other, net | 1.1 | | 2.1 | | 1.8 | | 0.3 | | Other, net | 0.1 | | 1.1 | | 0.4 | | 1.8 | |
| Total other noninterest income (loss) | Total other noninterest income (loss) | $ | (3.0) | | $ | 0.1 | | $ | 6.4 | | $ | (31.2) | | Total other noninterest income (loss) | $ | 0.5 | | $ | (3.0) | | $ | 0.5 | | $ | 6.4 | |
The Bank's change in total other noninterest income (loss) for the second quarter of 2021 and first half of 20212022 compared to the same prior year period was primarily due to valuation changes in the Bank's derivative and trading security portfolios as a result of market volatility. The Bank's change in total other noninterest income for the six months ended June 30, 2022 compared to the same prior year period was primarily due to higher net losses due to investment securities offset by gains (losses) on derivatives and hedging activities andactivities. Movements in the net gains (losses) on investment securities. The valuation changes ofinterest rates in 2022 have led to volatility in the financial instruments in these portfolios are driven by changes in related interest rates.mark-to-market portfolio. The activity related to derivatives and hedging is discussed in more detail below. The net gains (losses) on investment securities are primarily due to the fair market value changes on Agency and U.S. Treasury investments held in the Bank's trading portfolio.
Derivatives and Hedging Activities. The Bank enters into interest rate swaps, TBAs, interest rate caps and floors and swaption agreements, referred to as derivatives transactions. The Bank enters into derivatives transactions to offset all or portions of the financial risk exposures inherent in its member lending, investment and funding activities. All derivatives are recorded on the balance sheet at fair value. Changes in derivatives' fair values are recorded in the Statements of Income.
Economic hedges address specific risks inherent in the Bank's balance sheet, but either they do not qualify for hedge accounting or the Bank does not elect to apply hedge accounting. As a result, income recognition on the derivatives in economic hedges may vary considerably compared to the timing of income recognition on the underlying asset or liability. The Bank does not enter into derivatives for speculative purposes nor does it have any cash flow hedges.
Regardless of the hedge strategy employed, the Bank's predominant hedging instrument is an interest rate swap. At the time of inception, the fair market value of an interest rate swap generally equals or is close to zero. Notwithstanding the exchange of interest payments made during the life of the swap, which are recorded as either interest income/expense or as a gain (loss) on derivatives, depending upon the accounting classification of the hedging instrument, the fair value of an interest rate swap returns to zero at the end of its contractual term. Therefore, although the fair value of an interest rate swap is likely to change over the course of its full term, upon maturity any unrealized gains and losses generally net to zero.
The following tables detail the net effect of derivatives and hedging activities on noninterest income for the three and six months ended June 30, 20212022 and 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2022 |
| (in millions) | Advances | Investments | Mortgage Loans | Bonds | Discount Notes | | Other | Total |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | |
| Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements | $ | 0.7 | | $ | 8.3 | | $ | 1.4 | | $ | (4.9) | | $ | (3.9) | | | $ | — | | $ | 1.6 | |
Other (1) | — | | — | | — | | — | | — | | | (0.4) | | (0.4) | |
| Total net gains (losses) on derivatives and hedging activities | $ | 0.7 | | $ | 8.3 | | $ | 1.4 | | $ | (4.9) | | $ | (3.9) | | | $ | (0.4) | | $ | 1.2 | |
| | | | | | | | |
| Six months ended June 30, 2022 |
| (in millions) | Advances | Investments | Mortgage Loans | Bonds | Discount Notes | | Other | Total |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | |
| Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements | $ | 3.2 | | $ | 26.3 | | $ | 0.8 | | $ | (17.3) | | $ | (3.9) | | | $ | — | | $ | 9.1 | |
Other (1) | — | | — | | — | | — | | — | | | (0.4) | | (0.4) | |
| Total net gains (losses) on derivatives and hedging activities | $ | 3.2 | | $ | 26.3 | | $ | 0.8 | | $ | (17.3) | | $ | (3.9) | | | $ | (0.4) | | $ | 8.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three months ended June 30, 2021 |
| (in millions) | Advances | Investments | Mortgage Loans | Bonds | Discount Notes | | Other | Total |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | |
| Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements | $ | — | | $ | (5.3) | | $ | (3.2) | | $ | 0.7 | | $ | — | | | $ | — | | $ | (7.8) | |
Other (1) | — | | — | | — | | — | | — | | | (0.2) | | (0.2) | |
| Total net gains (losses) on derivatives and hedging activities | $ | — | | $ | (5.3) | | $ | (3.2) | | $ | 0.7 | | $ | — | | | $ | (0.2) | | $ | (8.0) | |
| | | | | | | | |
| Six months ended June 30, 2021 |
| (in millions) | Advances | Investments | Mortgage Loans | Bonds | Discount Notes | | Other | Total |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | |
| Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements | $ | — | | $ | 7.1 | | $ | (1.1) | | $ | (0.3) | | $ | — | | | $ | — | | $ | 5.7 | |
| | | | | | | | |
| Total net gains (losses) on derivatives and hedging activities | $ | — | | $ | 7.1 | | $ | (1.1) | | $ | (0.3) | | $ | — | | | $ | — | | $ | 5.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three months ended June 30, 2020 |
| (in millions) | Advances | Investments | Mortgage Loans | Bonds | Discount Notes | | Other | Total |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | |
| Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements | $ | (0.8) | | $ | (5.6) | | $ | 0.4 | | $ | 2.0 | | $ | — | | | $ | — | | $ | (4.0) | |
Other (1) | — | | 0.1 | | — | | — | | — | | | — | | 0.1 | |
| Total net gains (losses) on derivatives and hedging activities | $ | (0.8) | | $ | (5.5) | | $ | 0.4 | | $ | 2.0 | | $ | — | | | $ | — | | $ | (3.9) | |
| | | | | | | | |
| Six months ended June 30, 2020 |
| (in millions) | Advances | Investments | Mortgage Loans | Bonds | Discount Notes | | Other | Total |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | |
| Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements | $ | (17.5) | | $ | (95.2) | | $ | (13.0) | | $ | 16.4 | | $ | 7.7 | | | $ | — | | $ | (101.6) | |
Other (1) | — | | 0.1 | | — | | — | | — | | | 0.2 | | 0.3 | |
| Total net gains (losses) on derivatives and hedging activities | $ | (17.5) | | $ | (95.1) | | $ | (13.0) | | $ | 16.4 | | $ | 7.7 | | | $ | 0.2 | | $ | (101.3) | |
Notes:
(1) Represents the price alignment amount on derivatives for which variation margin is characterized as a daily settled contract.
Derivatives not receiving hedge accounting. For derivatives not receiving hedge accounting (i.e., economic hedges and mortgage delivery commitments), the Bank includes the net interest settlements and the fair value changes in the "Net gains (losses) on derivatives and hedging activities" financial statement line item. For economic hedges, the Bank recorded net lossesgains of $(7.8)$1.6 million in the second quarter of 20212022 compared to net losses of $(4.0)$(7.8) million for the second quarter of 2020.2021. The higher net lossesgains observed during the second quarter of 20212022 were primarily due to an increase in market value on the Bank’s asset swaps and were attributable to larger decreases in mid and long termresulting from rising interest rates compared toin the interest rate decreases observedsecond quarter of 2022. In contrast, the market value on the Bank's asset swaps fell during the second quarter of 2020.2021 as a result of a decrease in interest rates. For the six months ended June 30, 2021,2022, the Bank recorded net gains of $5.7$9.1 million compared to net lossesgains of $(101.6)$5.7 million for the same prior-year period. Although there weresix months ended June 30, 2021. Interest rates increased steadily over the first and second quarters of 2022 compared to offsetting rate increases and decreases in mid and long term interest rate duringthroughout the second quarterfirst two quarters of 2021, resulting in larger market value gains on the overall change forBank's economic asset swaps in the first six months of 2021 was a slight increase. These mid and long term rate increases led2022 compared to overall net gains for the six month period ended June 30, 2021. In comparison, the significant losses observed during the same six month period in 2020 were attributed to significant decreases in interest rates during the first quarter of that year in response to the COVID-19 pandemic.2021. The total notional amount of economic hedges, which includes mortgage delivery commitments, decreasedincreased to $2.5$5.0 billion at June 30, 20212022 from $3.1$2.1 billion at December 31, 2020.
Other Expense
The Bank's total other expenses decreased $11.4expense increased $1.5 million to $23.1$24.6 million for the second quarter of 2021,2022, compared with the same prior-year period. There were two primary drivers of the decrease. There were lower compensation and benefits expensesThe Bank made a $2.0 million voluntary contribution to its defined benefit pension plan in the second quarter of 2021 compared to the second quarter of 2020. In addition, FHLBank made a voluntary donation to its Home4Good initiative in the second quarter of 2020 but made2022 and no such donationcontribution was made in the second quarter of 2021. Total other expensesexpense for the first half of 2021 were $49.12022 was $46.9 million, down $5.8$2.2 million from the first half of 2020.2021. The decrease was primarily due to the timingis driven by market value changes of the donation to the Home4Good initiative.deferred compensation agreements and lower FHFA assessments.
Financial Condition
The following should be read in conjunction with the Bank's unaudited interim financial statements in this Form 10-Q and the audited financial statements in the Bank's 20202021 Form 10-K.
Assets
Total assets were $41.7$62.0 billion at June 30, 2021,2022, compared with $47.7$37.7 billion at December 31, 2020, a decrease2021. The increase of $6.0 billion. The decrease$24.3 billion was primarily due to advances, partially offset by an increase in the liquidity portfolio.advances. Advances totaled $15.0$35.2 billion at June 30, 2021, a decrease2022, an increase of $10.0$21.1 billion compared to $25.0$14.1 billion at December 31, 2020.2021. The federal government liquidity programs continued to contribute to higher deposits at our members and decreased advance levelsBank's return on average assets for the Bank.three and six months ended June 30, 2022 was 0.28% and 0.24%. The Bank's return on average assets for the three and six months ended June 30, 2021 was 0.12% and 0.23%.
The Bank's core mission activities include the issuance of advances and acquiring member assets through the MPF® program. The core mission asset ratio, defined as the ratio of par amount of advances and MPF loans relative to consolidated obligations adjusted for certain U.S. Treasury securities using full year average balances, was 65.5%70.0% as of June 30, 20212022 and 74.5%64.1% as of December 31, 2020.2021. The decreaseincrease in the core mission asset ratio wasis primarily due to the decrease inhigher average advances.advance balances.
Advances. Advances (par) totaled $14.8$35.5 billion at June 30, 20212022 compared to $24.7$14.1 billion at December 31, 2020.2021. At June 30, 2021,2022, the Bank had advances to 134145 borrowing members, compared to 146122 borrowing members at December 31, 2020.2021. Advances outstanding to the Bank’s five largest borrowers decreasedincreased to 58.7%77.3% of total advances as of June 30, 2021,2022, compared to 61.4%64.0% at December 31, 2020.2021.
The following table provides information on advances at par by redemption terms at June 30, 20212022 and December 31, 2020.2021.
| | (in millions) | (in millions) | June 30, 2021 | December 31, 2020 | (in millions) | June 30, 2022 | December 31, 2021 |
| Fixed-rate | Fixed-rate | | Fixed-rate | |
Due in 1 year or less (1) | Due in 1 year or less (1) | $ | 6,920.7 | | $ | 6,607.2 | | Due in 1 year or less (1) | $ | 16,118.1 | | $ | 8,299.5 | |
| Due after 1 year through 3 years | Due after 1 year through 3 years | 3,844.3 | | 7,182.3 | | Due after 1 year through 3 years | 5,661.3 | | 3,928.8 | |
| Due after 3 years through 5 years | Due after 3 years through 5 years | 1,518.9 | | 2,192.5 | | Due after 3 years through 5 years | 1,454.6 | | 1,209.3 | |
| Due after 5 years through 15 years | | Due after 5 years through 15 years | 75.4 | | 78.8 | |
| Thereafter | Thereafter | 154.1 | | 169.2 | | Thereafter | 74.8 | | 74.7 | |
| Total par value | Total par value | $ | 12,438.0 | | $ | 16,151.2 | | Total par value | $ | 23,384.2 | | $ | 13,591.1 | |
| Fixed-rate, callable or prepayable(1) | | |
Fixed-rate, callable or prepayable(2) | | Fixed-rate, callable or prepayable(2) | |
| | Due after 1 year through 3 years | Due after 1 year through 3 years | $ | — | | $ | 50.0 | | Due after 1 year through 3 years | $ | 250.0 | | $ | — | |
| | | Total par value | Total par value | $ | — | | $ | 50.0 | | Total par value | $ | 250.0 | | $ | — | |
| | | Variable-rate | Variable-rate | | Variable-rate | |
Due in 1 year or less (1) | Due in 1 year or less (1) | $ | 1,864.9 | | $ | 6,664.6 | | Due in 1 year or less (1) | $ | 1,513.0 | | $ | 140.1 | |
| Due after 1 year through 3 years | Due after 1 year through 3 years | 100.0 | | 100.0 | | Due after 1 year through 3 years | 1,057.1 | | 53.1 | |
| Due after 3 years through 5 years | Due after 3 years through 5 years | 3.1 | | 3.1 | | Due after 3 years through 5 years | 9,010.0 | | — | |
| | | Total par value | Total par value | $ | 1,968.0 | | $ | 6,767.7 | | Total par value | $ | 11,580.1 | | $ | 193.2 | |
| Variable-rate, callable or prepayable(2) | Variable-rate, callable or prepayable(2) | | Variable-rate, callable or prepayable(2) | |
| Due in 1 year or less | Due in 1 year or less | $ | 110.0 | | $ | 1,400.0 | | Due in 1 year or less | $ | — | | $ | 10.0 | |
| Due after 1 year through 3 years | Due after 1 year through 3 years | — | | 10.0 | | Due after 1 year through 3 years | 40.0 | | 40.0 | |
| Due after 3 years through 5 years | 40.0 | | 40.0 | | |
| | | Total par value | Total par value | $ | 150.0 | | $ | 1,450.0 | | Total par value | $ | 40.0 | | $ | 50.0 | |
| Other(3) | Other(3) | | Other(3) | |
| Due in 1 year or less | Due in 1 year or less | $ | 78.5 | | $ | 89.0 | | Due in 1 year or less | $ | 58.3 | | $ | 89.7 | |
| Due after 1 year through 3 years | Due after 1 year through 3 years | 101.3 | | 120.8 | | Due after 1 year through 3 years | 70.2 | | 86.3 | |
| Due after 3 years through 5 years | Due after 3 years through 5 years | 54.5 | | 55.2 | | Due after 3 years through 5 years | 42.2 | | 44.0 | |
| Due after 5 years through 15 years | | Due after 5 years through 15 years | 29.9 | | 22.1 | |
| Thereafter | Thereafter | 30.6 | | 41.0 | | Thereafter | 0.7 | | 2.8 | |
| Total par value | Total par value | $ | 264.9 | | $ | 306.0 | | Total par value | $ | 201.3 | | $ | 244.9 | |
| | Total par balance | Total par balance | $ | 14,820.9 | | $ | 24,724.9 | | Total par balance | $ | 35,455.6 | | $ | 14,079.2 | |
Notes:
(1) Includes overnight advances.
(2) Prepayable advances are those advances that may be contractually prepaid by the borrower on specified dates without incurring prepayment or termination fees.
(3) Includes fixed-rate amortizing/mortgage matched, convertible, and other advances.
The Bank had no putable advances at June 30, 20212022 or December 31, 2020.2021.
The following table provides a distribution of the number of members, categorized by individual member asset size (as reported quarterly), that had an outstanding advance balance during the six months ended June 30, 20212022 and 2020.2021. Commercial Bank, Savings Institution and Credit Union members are classified by asset size as follows: Super-Regional (over $150 billion), Regional ($25 billion to $150 billion), Mid-size ($1.2 billion to $25 billion) and Community Financial Institutions (CFIs) (under $1.2 billion). Credit Union and Insurance members are classified separately.
| | Member Classification | Member Classification | June 30, 2021 | June 30, 2020 | Member Classification | June 30, 2022 | June 30, 2021 |
| Super-Regional | Super-Regional | 2 | | 2 | | Super-Regional | 2 | | 2 | |
| Regional | Regional | 3 | | 3 | | Regional | 4 | | 3 | |
| Mid-size | Mid-size | 37 | | 36 | | Mid-size | 33 | | 37 | |
| CFI | CFI | 104 | | 110 | | CFI | 107 | | 104 | |
| Credit Union | Credit Union | 21 | | 23 | | Credit Union | 27 | | 21 | |
| Insurance | Insurance | 13 | | 15 | | Insurance | 19 | | 13 | |
| Total borrowing members during the period | Total borrowing members during the period | 180 | | 189 | | Total borrowing members during the period | 192 | | 180 | |
| Total membership | Total membership | 282 | | 279 | | Total membership | 285 | | 282 | |
| Percentage of members borrowing during the period | Percentage of members borrowing during the period | 63.8 | % | 67.7 | % | Percentage of members borrowing during the period | 67.4 | % | 63.8 | % |
The following table provides information at par on advances by member classification at June 30, 20212022 and December 31, 2020.2021.
| | (in millions) | (in millions) | June 30, 2021 | December 31, 2020 | | (in millions) | June 30, 2022 | December 31, 2021 | |
| Member Classification | Member Classification | Member Classification | June 30, 2022 |
| Super-Regional | Super-Regional | $ | 5,025.0 | | $ | 9,350.0 | | | $ | 23,075.0 | | $ | 6,275.0 | | |
| Regional | Regional | 2,180.0 | | 3,366.0 | | | Regional | 3,680.0 | | 1,280.0 | | |
| Mid-size | Mid-size | 2,257.9 | | 3,938.7 | | | Mid-size | 3,267.2 | | 2,397.2 | | |
| CFI | CFI | 2,154.6 | | 2,510.9 | | | CFI | 2,286.6 | | 1,888.6 | | |
| Credit Union | Credit Union | 835.5 | | 1,002.2 | | | Credit Union | 1,285.1 | | 875.4 | | |
| Insurance | Insurance | 856.5 | | 1,044.0 | | | Insurance | 1,353.9 | | 853.4 | | |
| Non-member | Non-member | 1,511.4 | | 3,513.1 | | | Non-member | 507.8 | | 509.6 | | |
| Total | Total | $ | 14,820.9 | | $ | 24,724.9 | | | Total | $ | 35,455.6 | | $ | 14,079.2 | | |
As of June 30, 2021, total2022, advances decreased 40.0%increased 150% compared with balances at December 31, 2020.2021. It is not uncommon for the Bank to experience variances in the overall advance portfolio driven primarily by changes in member needs. The federal governmentMarket liquidity, programsas well as recent Fed actions to increase short-term interest rates, continued to contribute to higher depositsimpact members' need for advances. Deposit balances remain elevated at our members and decreasedhas kept advance levels forbalances below pre-pandemic levels; however, the Bank.Bank has recorded two consecutive quarters of increased advance levels.
See the “Credit and Counterparty Risk - TCE and Collateral” discussion in the Risk Management section of this Item 2 for further information on collateral policies and practices and details regarding eligible collateral, including amounts and percentages of eligible collateral securing member advances as of June 30, 2021.2022.
Allowance for Credit Losses (ACL) - Advances. The Bank evaluates its advances for an allowance for credit losses on a collective, or pooled basis unless an individual assessment is deemed necessary because the instruments do not possess similar risk characteristics. The Bank pools advances by member type. Based on the collateral held as security, the Bank's credit extension and collateral policies and repayment history on advances, including that the Bank has not incurred any credit losses since inception, the Bank has not recorded an ACL at June 30, 20212022 or December 31, 2020.2021. For additional information on the allowance methodology, see Note 3 - Advances in this Form 10-Q.
Mortgage Loans Held for Portfolio, Net. Mortgage loans held for portfolio, net of ACL, was $4.8$4.7 billion at both June 30, 20212022 and $4.9 billion at December 31, 2020.2021.
The Bank places conventional mortgage loans that are 90 days or more delinquent on nonaccrual status. In addition, the Bank records cash payments received as a reduction of principal until the remaining principal amount due is expected to be collected and then as a recovery of any charge-off, if applicable, followed by the recording of interest income. However, government mortgage loans that are 90 days or more delinquent remain in accrual status due to government guarantees or insurance. The Bank has a loan modification program for participating financial institutions (PFIs) under the MPF Program.
The Bank considers loan modifications or Chapter 7 bankruptcies where the obligation is discharged under the MPF Program to be troubled debt restructurings (TDRs), since some form of concession has been made by the Bank.
Through the MPF Program, the Bank may grantgranted a forbearance period to borrowers due to COVID-19-related difficulties regardless of the status of the loan at the time of the request. Despite granting the forbearance period, thedifficulties. The Bank continues to apply its accounting policy for determining days past due, non-accrual, and charge-offs during the forbearance period. For MPF loans that have been granted a forbearance period, there has been no change in the terms of the loans. For MPF loans that have received COVID-19-related forbearance and meet certain criteria, the Bank may not charge-off the MPF loan, including when it is 180 or more days delinquent, if the Bank expects to recover its amortized cost. After the forbearance period the Bank may modify the borrower's MPF loan. The Bank has elected to suspend TDR accounting for eligible modifications under Section 4013 of the Coronavirus Aid, Relief, and Economic SecurityCARES Act, (CARES Act).for which the applicable period expired on January 1, 2022. As such, loans for which forbearance was granted to borrowers on or after January 1, 2022 are not eligible for the TDR accounting or charge-off relief discussed above. For additional information, refer to Note 4 - Mortgage Loans Held for Portfolio in this Form 10-Q.
Foregone interest represents income the Bank would have recorded if the loan was paying according to its contractual terms. Foregone interest was immaterial for both the Bank's mortgage loans and Banking on Business (BOB) loans for both the first six months of 2021ended June 30, 2022 and 2020. Balances regardingJune 30, 2021.
The following table provides certain balances related to the Bank’s loan products are summarized below.Mortgage loans held for portfolio.
| | | | | | | | |
| (in millions) | June 30, 2021 | December 31, 2020 |
Advances (1) | $ | 14,954.7 | | $ | 24,971.1 | |
Mortgage loans held for portfolio, net (2) | 4,774.4 | | 4,886.2 | |
Nonaccrual mortgage loans (3) | 66.4 | | 90.8 | |
Mortgage loans 90 days or more delinquent and still accruing interest (4) | 4.1 | | 5.3 | |
| BOB loans, net | 22.9 | | 21.2 | |
| | | | | | | | |
| (in millions) | June 30, 2022 | December 31, 2021 |
Nonaccrual mortgage loans (1) | $ | 23.4 | | $ | 30.4 | |
Mortgage loans 90 days or more delinquent and still accruing interest (2) | $ | 3.3 | | $ | 3.1 | |
Notes:
(1) There are no advances which are past due or on nonaccrual status.
(2) All mortgage loans are fixed-rate.
(3) Nonaccrual mortgage loans are reported net of interest applied to principal and do not include performing TDRs. The amounts include approximately $47.0 million and $62.3 million related to loans in forbearance or repayment programs as a result of COVID-19 at June 30, 2021 and December 31, 2020, respectively.
(4)(2) Only government-insured or -guaranteed loans continue to accrue interest after becoming 90 days or more delinquent.
The performance of the mortgage loans in the Bank’s MPF Program improved slightly compared to December 31, 2020,2021, and the MPF Original portfolio continues to outperform the market based on national delinquency statistics. As of June 30, 2021,2022, the Bank’s seriously delinquent mortgage loans (90 days or more delinquent or in the process of foreclosure) represented 0.6%0.3% of the MPF Original portfolio, 3.4%1.3% of the MPF Plus portfolio, and 1.9%0.5% of the MPF 35 portfolio, compared with 1.1%0.3%, 3.5%1.7%, and 2.4%0.7%, respectively, at December 31, 2020.2021. The amount of seriously delinquent loans declined across the Bank's MPF portfoliodecreased compared to December 31, 2020,2021 as loans continued to exit forbearance and the related repayment programs related toprovided as a result of COVID-19.
ACL - Conventional MPF. The Bank’s conventional mortgage loan portfolio is comprised of large groups of smaller-balance homogeneous loans made to borrowers of PFIs that are secured by residential real estate. Expected credit losses are evaluated based on either an individual or collective assessment of the loans, depending on whether the loans share similar risk characteristics. The Bank purchases government-guaranteed and/or insured and conventional fixed-rate residential mortgage loans. Because the credit risk on the government-guaranteed/insured loans is predominantly assumed by other entities, only conventional mortgage loans are evaluated for an ACL.
The Bank determines its ACL through consideration of various loan portfolio and collateral-related characteristics, including past performance, current conditions, and reasonable and supportable forecasts of economic conditions. To estimate credit losses, the Bank uses a third-party model which incorporates certain assumptions, including forecasted housing prices and interest rates, as well as historical borrower behavior experience. The estimate of the expected credit losses includes coverage of certain losses by primary mortgage insurance (PMI), if applicable. The Bank may incorporate a qualitative adjustment to the model results, if deemed appropriate, based on current market conditions or results. For loans determined to be collateral dependent, the Bank charges-off the estimated credit loss against the reserve. However, if the estimated loss can be recovered through credit enhancement (CE), a receivable is established, resulting in a net charge-off. The expected credit loss of a collateral dependent mortgage loan to determine the charge-off is equal to the difference between the amortized cost basis of the loan and the estimated fair value of the underlying collateral, less selling costs.
The Bank recognizes a recovery when expected credit losses, including credit losses charged-off for collateral dependent loans, are less than the amounts previously charged-off. Expected recoveries of prior charge-offs, if any, are included as a reduction to the ACL through the Bank's provision for credit losses. The reduction to the ACL is partially offset by a reversal of expected CE, resulting in a net impact to the Bank's provision for credit losses.
The Bank's conventional MPF loans held for portfolio are required to be credit enhanced as determined through the use of a validated model so the risk of loss is limited to the losses within the Bank's risk tolerance. Credit losses on a mortgage loan may only be absorbed by the CE amount in the master commitment related to the loan. In addition, the CE structure of the MPF
Program is designed such that initial losses on mortgage loans are incurred by the Bank up to an agreed upon amount, referred to as the First Loss Account (FLA). Additional eligible credit losses are covered by CE provided by PFIs (available CE) until exhausted. Certain losses incurred by the Bank on MPF 35 and MPF Plus can be recaptured by withholding fees paid to the PFI for its retention of credit risk. All additional losses are incurred by the Bank.
The following table presents certain ratios as it relates to mortgage loans held for portfolio.
| | | | | | | | |
| June 30, 2022 | December 31, 2021 |
| Ratio of net charge-offs (recoveries) to average loans outstanding during the period | — | % | (0.02) | % |
| Ratio of ACL to mortgage loans held for portfolio | 0.08 | % | 0.07 | % |
| Ratio of nonaccrual loans to mortgage loans held for portfolio | 0.50 | % | 0.65 | % |
| Ratio of ACL to nonaccrual loans | 14.94 | % | 11.24 | % |
The following table presents the impact of the CE structure on the ACL and the balance of the FLA and available CE at June 30, 20212022 and December 31, 2020.2021.
| | | | MPF CE structure
June 30, 2021 | ACL
June 30, 2021 | | MPF CE structure
June 30, 2022 | ACL
June 30, 2022 |
| (in millions) | (in millions) | FLA | Available CE | Estimate of Credit Loss | Estimate of Recovery (1) | Charge-offs | Reduction to the ACL due
to CE | ACL | (in millions) | FLA | Available CE | Estimate of Credit Loss | Estimate of Recovery (1) | Charge-offs | Reduction to the ACL due
to CE | ACL |
| MPF Original | MPF Original | $ | 7.0 | | $ | 103.3 | | $ | 2.1 | | $ | (2.5) | | $ | (0.3) | | $ | (0.6) | | $ | (1.3) | | MPF Original | $ | 7.7 | | $ | 100.0 | | $ | 1.4 | | $ | (2.1) | | $ | (0.3) | | $ | (0.2) | | $ | (1.2) | |
| MPF 35 | MPF 35 | 14.9 | | 145.9 | | 3.1 | | (0.7) | | — | | (3.0) | | (0.6) | | MPF 35 | 17.2 | | 140.2 | | 2.1 | | (0.8) | | — | | (2.0) | | (0.7) | |
| MPF Plus | MPF Plus | 15.0 | | 4.2 | | 7.2 | | (1.7) | | — | | (0.4) | | 5.1 | | MPF Plus | 15.0 | | 2.1 | | 7.0 | | (1.2) | | — | | (0.4) | | 5.4 | |
| Total | Total | $ | 36.9 | | $ | 253.4 | | $ | 12.4 | | $ | (4.9) | | $ | (0.3) | | $ | (4.0) | | $ | 3.2 | | Total | $ | 39.9 | | $ | 242.3 | | $ | 10.5 | | $ | (4.1) | | $ | (0.3) | | $ | (2.6) | | $ | 3.5 | |
| | | | MPF CE structure
December 31, 2020 | ACL
December 31, 2020 | | MPF CE structure
December 31, 2021 | ACL
December 31, 2021 |
| (in millions) | (in millions) | FLA | Available CE | Estimate of Credit Loss | Estimate of Recovery (1) | Charge-offs | Reduction to the ACL due
to CE | ACL | (in millions) | FLA | Available CE | Estimate of Credit Loss | Estimate of Recovery (1) | Charge-offs | Reduction to the ACL due
to CE | ACL |
| MPF Original | MPF Original | $ | 6.7 | | $ | 96.2 | | $ | 4.2 | | $ | (2.6) | | $ | (0.5) | | $ | (1.9) | | $ | (0.8) | | MPF Original | $ | 7.3 | | $ | 105.8 | | $ | 1.7 | | $ | (2.3) | | $ | (0.3) | | $ | (0.3) | | $ | (1.2) | |
| MPF 35 | MPF 35 | 13.2 | | 130.9 | | 6.2 | | (0.6) | | — | | (4.6) | | 1.0 | | MPF 35 | 16.1 | | 148.2 | | 2.4 | | (0.7) | | — | | (2.4) | | (0.7) | |
| MPF Plus | MPF Plus | 15.3 | | 4.4 | | 7.2 | | (1.9) | | — | | (0.5) | | 4.8 | | MPF Plus | 15.0 | | 2.9 | | 6.9 | | (1.4) | | — | | (0.2) | | 5.3 | |
| Total | Total | $ | 35.2 | | $ | 231.5 | | $ | 17.6 | | $ | (5.1) | | $ | (0.5) | | $ | (7.0) | | $ | 5.0 | | Total | $ | 38.4 | | $ | 256.9 | | $ | 11.0 | | $ | (4.4) | | $ | (0.3) | | $ | (2.9) | | $ | 3.4 | |
Note:
(1) Expected recoveries of amounts previously charged-off based on the Bank's quarterly estimate of expected lifetime credit losses.
The ACL on mortgage loans decreased $1.8increased by $0.1 million during the first six months of 20212022 primarily due to lower estimates ofhigher expected credit losses and a decline in estimated recoveries for the MPF Original and MPF 35 products, which were primarily driven by an improvement in forecasted housing prices.Plus product.
The Bank continued to consider potential economic impacts resulting from the COVID-19 pandemic when assessing expected credit losses on its MPF portfolio. The Bank continues to monitor developments and assess the impact of the pandemic on the Bank's MPF portfolio, including with respect to market assumptions, borrower performance, and regulatory relief.
Cash and Investments. The Bank's strategy is to maintain its short-term liquidity position in part to be able to meet members' loan demand and regulatory liquidity requirements. Excess cash is typically invested in overnight investments. The Bank also maintains an investment portfolio to enhance earnings. These investments may be classified as trading, AFS or HTM.
The Bank maintains a liquidity portfolio comprised of cash, interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, certificates of deposits and U.S. Treasury obligations classified as trading or AFS. The liquidity portfolio at June 30, 20212022 increased by approximately $5.5$4.2 billion compared to December 31, 2020.2021. The $4.2 billion increase in liquid assets reflects the Bank's liquidity portfolio helpsincrease in Federal funds and securities purchased under agreements to optimize financial holdings while maintaining compliance with regulatory standards.resell in response to increased advance activity.
The Bank's investment portfolio is comprised of trading, AFS and HTM investments (excluding those investments included in the liquidity portfolio). The investments must meet the Bank's risk guidelines and certain other requirements, such as yield. The Bank's investment portfolio totaled $9.9$7.8 billion at June 30, 20212022 and $11.5$8.8 billion at December 31, 2020.2021. Paydowns associated with the Bank's Agency MBS portfolio contributed to this decline. In addition, during 2021,During the first six months of 2022, the Bank’s MBS purchases have been restrictedwere limited by Finance Agency regulations which limit the size of the MBS portfolio based on regulatory capital.narrow mortgage spreads.
Investment securities, including all trading, AFS, and HTM securities, totaled $15.0$13.4 billion at June 30, 2021,2022, compared to $13.1$13.9 billion at December 31, 2020.2021. Details of the investment securities portfolio follow.
| | | | | | | | |
| | Carrying Value |
| (in millions) | June 30, 2021 | December 31, 2020 |
| Trading securities: | | |
| Non-MBS: | | |
| U.S. Treasury obligations | $ | 615.3 | | $ | 899.4 | |
| Government-sponsored enterprises (GSE) and Tennessee Valley Authority (TVA) obligations | 248.9 | | 256.6 | |
| Total trading securities | $ | 864.2 | | $ | 1,156.0 | |
| Yield on trading securities | 2.05 | % | 2.31 | % |
| AFS securities: | | |
| U.S. Treasury obligations | $ | 4,406.9 | | $ | — | |
| GSE and TVA obligations | 1,578.2 | | 1,643.7 | |
| State or local agency obligations | 226.0 | | 241.7 | |
| MBS: | | |
| U.S. obligations single-family MBS | 487.8 | | 602.1 | |
| GSE single-family MBS | 2,563.2 | | 3,262.9 | |
| GSE multifamily MBS | 3,174.9 | | 3,473.4 | |
| Private label MBS | 220.6 | | 252.6 | |
| Total AFS securities | $ | 12,657.6 | | $ | 9,476.4 | |
| Yield on AFS securities | 1.27 | % | 1.56 | % |
| HTM securities: | | |
| Certificates of deposit | $ | — | | $ | 750.0 | |
| | |
| MBS: | | |
| U.S. obligations single-family MBS | 99.9 | | 120.6 | |
| GSE single-family MBS | 725.7 | | 989.8 | |
| GSE multifamily MBS | 524.7 | | 530.2 | |
| Private label MBS | 81.6 | | 93.1 | |
| Total HTM securities | $ | 1,431.9 | | $ | 2,483.7 | |
| Yield on HTM securities | 2.74 | % | 1.99 | % |
| Total investment securities | $ | 14,953.7 | | $ | 13,116.1 | |
| Yield on investment securities | 1.46 | % | 1.70 | % |
As of June 30, 2021, the Bank held securities from the following issuers with a book value greater than 10% of Bank total capital.
| | | | | | | | |
| (in millions) | Total
Book Value | Total
Fair Value |
| Fannie Mae | $ | 5,022.2 | | $ | 5,022.2 | |
| Freddie Mac | 4,750.6 | | 4,768.5 | |
| Federal Farm Credit Banks | 2,263.2 | | 2,298.7 | |
| U.S. Treasury | 1,716.4 | | 1,716.4 | |
| Ginnie Mae | 587.7 | | 589.1 | |
| Total | $ | 14,340.1 | | $ | 14,394.9 | |
| | | | | | | | |
| | Carrying Value |
| (in millions) | June 30, 2022 | December 31, 2021 |
| Trading securities: | | |
| Non-MBS: | | |
| U.S. Treasury obligations | $ | 14.8 | | $ | — | |
| Government-sponsored enterprises (GSE) | 223.4 | | 243.2 | |
| Total trading securities | $ | 238.2 | | $ | 243.2 | |
| Yield on trading securities | 3.11 | % | 3.18 | % |
| AFS securities: | | |
| U.S. Treasury obligations | $ | 5,623.2 | | $ | 5,075.2 | |
| GSE and Tennessee Valley Authority (TVA) obligations | 1,291.6 | | 1,493.7 | |
| State or local agency obligations | 181.9 | | 207.2 | |
| MBS: | | |
| U.S. obligations single-family | 366.1 | | 398.8 | |
| GSE single-family | 1,753.1 | | 2,093.1 | |
| GSE multifamily | 2,737.1 | | 3,004.9 | |
| Private label | 162.2 | | 194.4 | |
| Total AFS securities | $ | 12,115.2 | | $ | 12,467.3 | |
| Yield on AFS securities | 1.60 | % | 1.20 | % |
| HTM securities: | | |
| | |
| | |
| MBS: | | |
| U.S. obligations single-family | $ | 172.5 | | $ | 83.2 | |
| GSE single-family | 476.0 | | 566.0 | |
| GSE multifamily | 365.6 | | 494.5 | |
| Private label | 59.5 | | 70.2 | |
| Total HTM securities | $ | 1,073.6 | | $ | 1,213.9 | |
| Yield on HTM securities | 3.00 | % | 2.74 | % |
| Total investment securities | $ | 13,427.0 | | $ | 13,924.4 | |
| Yield on investment securities | 1.68 | % | 1.37 | % |
For additional information on the credit risk of the investment portfolio, see the Credit and Counterparty Risk - Investments discussion in the Risk Management section of this Item 2.
ACL - Investments. The Bank invests in interest-bearing deposits and Federal funds sold which are unsecured investments. The Bank also invests in securities purchased under agreements to resell which are secured investments. At June 30, 20212022 and December 31, 2020,2021, these investments were repaid according to the contractual terms. No ACL was recorded for these assets at June 30, 20212022 or December 31, 2020.2021.
AFS securities are evaluated quarterly for expected credit losses on an individual security basis. In assessing whether a credit loss exists, the Bank considers whether there would be a shortfall in receiving all cash flows contractually due. The allowance is limited to the amount of the AFS security’s unrealized loss, if any. If the AFS security is in an unrealized gain, the ACL is zero. The ACL on AFS private label MBS was $2.6$5.0 million at June 30, 20212022 and $2.4 million at December 31, 2020.2021. The increase in the ACL reflected a higher provision for credit losses, which was driven by a decline in market values.
HTM 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 ACL is recorded with a corresponding adjustment to the provision for credit losses. There was no ACL at June 30, 20212022 or December 31, 2020.2021.
For additional information on the allowance methodology, see Note 2 - Investments in this Form 10-Q.
Liabilities and Capital
Deposits. The Bank offers demand, overnight and term deposits for members and qualifying nonmembers. Total deposits at June 30, 2021 increased2022 decreased to $940.9$736.3 million from $923.4$1,087.5 million at December 31, 2020.2021.
Consolidated Obligations. Consolidated obligations consist of bonds and discount notes. The Bank's consolidated obligations totaled $37.6$57.5 billion at June 30, 2021, a decrease2022, an increase of $5.8$23.9 billion from December 31, 2020.2021. The overall decreaseincrease in consolidated obligations outstanding is consistent with the decreasedincreased advances and total asset balances. At June 30, 2022, the Bank’s bonds outstanding increased to $32.7 billion compared to $23.1 billion at December 31, 2021. Discount notes outstanding at June 30, 20212022 increased to $15.1$24.8 billion from $9.5$10.5 billion at December 31, 2020. At June 30, 2021, the Bank’s bonds outstanding decreased to $22.5 billion compared to $33.9 billion at December 31, 2020. The increase in discount notes is consistent with the increase in the Bank's liquidity portfolio.2021.
The Bank primarily uses noncallable bonds as a source of funding but also utilizes structured notes such as callable bonds. Unswapped callable bonds primarily fund the Bank’s mortgage portfolio while swapped callable bonds fund other floating rate assets.
The following table provides information on consolidated obligations by product type and contractual maturity at June 30, 2022 and December 31, 2021.
| | | | | | | | |
| (in millions) | June 30, 2022 | December 31, 2021 |
| Discount Notes | | |
| Overnight | $ | 1,406.9 | | $ | 413.3 | |
| Due after 1 day through 30 days | 10,835.1 | | 4,197.6 | |
| Due after 30 days through 90 days | 10,228.2 | | 3,647.3 | |
| Due after 90 days though 1 Year | 2,401.2 | | 2,236.7 | |
| Total par value | $ | 24,871.4 | | $ | 10,494.9 | |
| | |
| Fixed-rate, non-callable | | |
| Due in 1 year or less | $ | 6,789.9 | | $ | 4,898.6 | |
| Due after 1 year through 3 years | 3,087.4 | | 2,878.3 | |
| Due after 3 years through 5 years | 1,101.0 | | 1,303.5 | |
| Thereafter | 1,410.1 | | 1,446.0 | |
| Total par value | $ | 12,388.4 | | $ | 10,526.4 | |
| | |
| Fixed-rate, callable | | |
| Due in 1 year or less | $ | 2,821.0 | | $ | — | |
| Due after 1 year through 3 years | 5,649.0 | | 2,506.0 | |
| Due after 3 years through 5 years | 5,865.0 | | 5,635.0 | |
| Thereafter | 2,041.0 | | 1,983.0 | |
| Total par value | $ | 16,376.0 | | $ | 10,124.0 | |
| | |
| Variable- rate, non-callable | | |
| Due in 1 year or less | $ | 1,595.0 | | $ | 825.0 | |
| Due after 1 year through 3 years | — | | 100.0 | |
| | |
| | |
| Total par value | $ | 1,595.0 | | $ | 925.0 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Step-up, non-callable | | |
| Due in 1 year or less | $ | — | | $ | 25.0 | |
| Due after 1 year through 3 years | 50.0 | | — | |
| Due after 3 years through 5 years | 170.0 | | — | |
| | |
| Total par value | $ | 220.0 | | $ | 25.0 | |
| | |
| Step-up, callable | | |
| Due in 1 year or less | $ | 941.0 | | $ | — | |
| Due after 1 year through 3 years | $ | 773.0 | | 279.0 | |
| Due after 3 years through 5 years | $ | 845.0 | | 1,046.0 | |
| Thereafter | 200.0 | | 210.0 | |
| Total par value | $ | 2,759.0 | | $ | 1,535.0 | |
Other Adjustments (1) | $ | (678.3) | | $ | (31.0) | |
| Total consolidated obligations | $ | 57,531.5 | | $ | 33,599.3 | |
Notes:
(1)Consists of premiums, discounts, and other adjustments.
For additional information on the Bank's consolidated obligations, refer to Note 9 to the audited financial statements in Item 8. Financial Statements and Supplementary Financial Data of the Bank's 20202021 Form 10-K.
Commitments and Off-Balance Sheet Items. As of June 30, 2021,2022, the Bank was obligated to fund approximately $22.9$3.3 million in additional advances and BOBBanking on Business (BOB) loans, $65.2$14.1 million of mortgage loans, and to issue $462.0$555.6 million in consolidated obligations. In addition, the Bank had $18.6$19.7 billion in outstanding standby letters of credit as of June 30, 2021.2022. The Bank does not consolidate any off-balance sheet special purpose entities or other off-balance sheet conduits.
Capital and Retained Earnings. The Bank’s return on average equity for the three and six months ended June 30, 2022 was 4.69% and 3.81%. The Bank's return on average equity for the three and six months ended June 30, 2021 was 1.70% and 3.50%. Capital adequacy, including the level of retained earnings, is monitored through the evaluation of market value of equity to par value of capital stock (MV/CS) as well as other risk metrics. Details regarding these metrics are discussed in the Risk Management portion of this Item 2.
The Bank's capital stock is owned by its members. The concentration of the Bank's capital stock by institution type is presented below.
| | (dollars in millions) | (dollars in millions) | | June 30, 2021 | December 31, 2020 | (dollars in millions) | | June 30, 2022 | December 31, 2021 |
| Commercial banks | Commercial banks | | 135 | | $ | 945.8 | | 135 | | $ | 1,262.3 | | Commercial banks | | 130 | | $ | 1,753.8 | | 131 | | $ | 966.5 | |
| Savings institutions | Savings institutions | | 51 | | 112.0 | | 51 | | 114.3 | | Savings institutions | | 51 | | 120.1 | | 51 | | 107.6 | |
| Insurance companies | Insurance companies | | 31 | | 81.8 | | 30 | | 83.6 | | Insurance companies | | 39 | | 105.9 | | 35 | | 88.7 | |
| Credit unions | Credit unions | | 63 | | 63.0 | | 63 | | 67.2 | | Credit unions | | 63 | | 82.8 | | 62 | | 63.8 | |
| Community Development Financial Institution (CDFI) | Community Development Financial Institution (CDFI) | | 2 | | 0.4 | | 2 | | 0.4 | | Community Development Financial Institution (CDFI) | | 2 | | 0.4 | | 2 | | 0.5 | |
| Total member institutions / total GAAP capital stock | Total member institutions / total GAAP capital stock | | 282 | | $ | 1,203.0 | | 281 | | $ | 1,527.8 | | Total member institutions / total GAAP capital stock | | 285 | | $ | 2,063.0 | | 281 | | $ | 1,227.1 | |
| Mandatorily redeemable capital stock | Mandatorily redeemable capital stock | | 62.4 | | | 142.8 | | Mandatorily redeemable capital stock | | 22.3 | | | 22.5 | |
| Total capital stock | Total capital stock | | $ | 1,265.4 | | | $ | 1,670.6 | | Total capital stock | | $ | 2,085.3 | | | $ | 1,249.6 | |
The total number of members as of June 30, 20212022 increased by one memberfour members compared to December 31, 2020.2021. The Bank added six new members and lost two members. One member merged with another institution within the Bank's district and one new member and there were no reductions inmerged its charter with an entity outside the membership.Bank's district.
The following tables present member holdings of 10% or more of the Bank’s total capital stock, including mandatorily redeemable capital stock, outstanding as of June 30, 20212022 and December 31, 2020.2021.
| | (dollars in millions) | (dollars in millions) | June 30, 2021 | (dollars in millions) | June 30, 2022 |
| Member | Member | Capital Stock | % of Total | Member | Capital Stock | % of Total |
Ally Bank, Midvale, UT (1) | Ally Bank, Midvale, UT (1) | $ | 238.8 | | 18.9 | % | Ally Bank, Midvale, UT (1) | $ | 548.0 | | 26.3 | % |
| TD Bank N.A., Wilmington, DE | 148.8 | | 11.8 | | |
| First National Bank of Pennsylvania, Greenville, PA | 136.2 | | 10.8 | | |
PNC Bank, N.A., Wilmington, DE (1) | | PNC Bank, N.A., Wilmington, DE (1) | 425.0 | | 20.4 | |
| |
| | | | | | | | |
| (dollars in millions) | December 31, 2020 |
| Member | Capital Stock | % of Total |
Ally Bank, Midvale, UT (1) | $ | 276.5 | | 16.6 | % |
PNC Bank, N.A., Wilmington, DE (1) | 185.0 | | 11.1 | |
| | |
| | | | | | | | |
| (dollars in millions) | December 31, 2021 |
| Member | Capital Stock | % of Total |
Ally Bank, Midvale, UT (1) | $ | 288.8 | | 23.1 | % |
| TD Bank N.A., Wilmington, DE | 159.8 | | 12.8 | |
| | |
Note:
(1) For Bank membership purposes, the principal place of business for Ally Bank, is Horsham, PA. For PNC Bank, the principal place of business is Pittsburgh, PA.PA
The Finance Agency has issued regulatory guidance to the FHLBanks relating to capital management and retained earnings. The guidance directs each FHLBank to assess, at least annually, the adequacy of its retained earnings with consideration given to future possible financial and economic scenarios. The guidance also outlines the considerations that each FHLBank should undertake in assessing the adequacy of its retained earnings.
Management monitors capital adequacy, including the level of retained earnings, through the evaluation of market value of equity to par value of capital stock (MV/CS) as well as other risk metrics. Details regarding these metrics are discussed in the Risk Management portion of this Item 2.
Management hasThe Bank developed and adopted a framework for evaluating retained earnings adequacy, consistent with regulatory guidance and requirements. Retained earnings are intended to cover unexpected losses and protect members' par value of capital stock. The framework includes four risk elements that comprise the Bank's total retained earnings target: (1) market risk; (2) credit risk; (3)
operational risk; and (4) accounting risk. The retained earnings target generated from this framework is sensitive to changes in the Bank's risk profile, whether favorable or unfavorable. In addition to the retained earnings target for risk, the framework considers the amount of retained earnings needed for compliance with the capital-to-asset ratio regulatory minimum in determining an overall retained earnings need. The framework also assists management in its overall analysis of the level of future dividends. The framework generated a retained earnings target of $429$304.0 million and an overall retained earnings need of $830$701.0 million as of June 30, 2021. 2022.
The Bank'sfollowing table presents retained earnings were $1,387.1 million at June 30, 2021.information for the current and prior year.
| | | | | | | | |
| June 30, 2022 | December 31, 2021 |
| Unrestricted Retained Earnings | 965.1 | | $ | 941.0 | |
| Restricted Retained Earnings (RRE) | 464.9 | | 457.4 | |
| Total Retained Earnings | $ | 1,430.0 | | $ | 1,398.4 | |
Retained earnings increased slightly to $1,387.1$31.6 million at June 30, 2021, compared to $1,376.8 million at December 31, 2020.2021. The slight increase in retained earnings during the first six months of 2021 reflected net income that was largely offset by dividends paid. Total retained earnings at June 30, 2021 included unrestricted retained earningsIn accordance with the Joint Capital Enhancement Agreement (JCEA), entered into by the Bank and as result of $929.7 million and restricted
retained earnings (RRE) of $457.4 million. At June 30, 2021, the balance in RRE exceeded the threshold for the contribution requirement. Accordingly, noincreased consolidated obligations, an allocation of net income was made to RRE induring the first or second quartersquarter of 2021.2022. For additional information, see Note 7 - Capital in this Form 10-Q.
Dividends. The Bank declares dividends based on an annualized yield and differentiates between membership and activity capital stock. The dividend received by the member is calculated based on the average capital stock owned by the member for the previous quarter. Historically, the Bank has paid cash dividends although dividends may be paid in capital stock. Details regarding the Bank’s payment of dividends, including annual yields, for current and prior year periods are provided in Note 7 - Capital in this Form 10-Q. The following table summarizes dividends paid and related information for the three and six months ended June 30, 2022 and 2021.
| | | | | | | | | | | | | | |
| Three months ended June 30, | Six months ended June 30, |
| 2022 | 2021 | 2022 | 2021 |
| Dividends (in millions) | $ | 12.6 | | $ | 17.6 | | $ | 24.6 | | $ | 39.4 | |
| Dividends per share | 0.72 | | 1.41 | | 1.63 | | 2.94 | |
Dividend payout ratio (1) | 33.74 | % | 150.15 | % | 43.81 | % | 79.18 | % |
| Weighted average dividend rate | 4.14 | % | 5.05 | % | 4.11 | % | 5.10 | % |
| Average Fed Funds rate | 0.80 | % | 0.07 | % | 0.45 | % | 0.07 | % |
| Dividend spread to Fed Funds | 3.34 | % | 4.98 | % | 3.66 | % | 5.03 | % |
Notes:
(1) Represents dividends paid as a percentage of net income for the respective periods presented.
Capital Resources
The following should be read in conjunction with the unaudited interim financial statements included in this Form 10-Q, the audited financial statements in Item 8. Financial Statements and Supplementary Financial Data and the Capital Resources section of Item 1. Business in the Bank's 20202021 Form 10-K.
Risk-Based Capital (RBC)
The Finance Agency’s RBC regulatory framework requires the Bank to maintain sufficient permanent capital, defined as retained earnings plus capital stock, to meet its combined credit risk, market risk and operations risk. Each of these components is computed as specified in regulations and directives issued by the Finance Agency.
| | | | | | | | |
| (in millions) | June 30, 2021 | December 31, 2020 |
| Permanent capital: | | |
Capital stock (1) | $ | 1,265.4 | | $ | 1,670.6 | |
| Retained earnings | 1,387.1 | | 1,376.8 | |
| Total permanent capital | $ | 2,652.5 | | $ | 3,047.4 | |
| | |
| RBC requirement: | | |
| Credit risk capital | $ | 170.8 | | $ | 189.3 | |
| Market risk capital | 246.3 | | 211.2 | |
| Operations risk capital | 125.1 | | 120.2 | |
| Total RBC requirement | $ | 542.2 | | $ | 520.7 | |
| Excess permanent capital over RBC requirement | $ | 2,110.3 | | $ | 2,526.7 | |
| | | | | | | | |
| (in millions) | June 30, 2022 | December 31, 2021 |
| Permanent capital: | | |
Capital stock (1) | $ | 2,085.3 | | $ | 1,249.6 | |
| Retained earnings | 1,430.0 | | 1,398.4 | |
| Total permanent capital | $ | 3,515.3 | | $ | 2,648.0 | |
| | |
| RBC requirement: | | |
| Credit risk capital | $ | 182.8 | | $ | 160.4 | |
| Market risk capital | 120.8 | | 152.5 | |
| Operations risk capital | 91.0 | | 93.8 | |
| Total RBC requirement | $ | 394.6 | | $ | 406.7 | |
| Excess permanent capital over RBC requirement | $ | 3,120.7 | | $ | 2,241.3 | |
Note:
(1) Capital stock includes mandatorily redeemable capital stock.
The increasedecrease in the total RBC requirement as of June 30, 20212022 is mainly related to the increasedecrease in the market risk capital requirement. The increasedecrease was primarily driven by the increase in long-term interest rates since year-end 2020 and corresponding changes to the Finance Agency's scenarios used to determine the required market risk capital. Despitecapital, as a result of the significant decline in permanent capital due to member advance declines and associated reduction in capital stock,market changes during the first six months of 2022. The Bank continues to maintain significant excess permanent capital over the RBC requirement. The increase in permanent capital and excess permanent capital was driven by the increase in capital stock associated with higher advance levels.
On June 23, 2021,16, 2022, the Bank received final notification from the Finance Agency that it was considered "adequately capitalized" for the quarter ended March 31, 2021.2022. As of the date of this filing, the Bank has not received final notice from the Finance Agency regarding its capital classification for the quarter ended June 30, 2021.2022.
Critical Accounting Policies and Estimates
The Bank's financial statements are prepared by applying certain accounting policies. Note 1 - Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Financial Data in the Bank's 20202021 Form 10-K describes the most significant accounting policies used by the Bank. In addition, the Bank's critical accounting policies and estimates are presented in Item 7. Management's Discussion and Analysis in the Bank's 20202021 Form 10-K. Certain of these policies require management to make estimates or economic assumptions that may prove inaccurate or be subject to variations that may significantly affect the Bank's reported results and financial position for the period or in future periods. Management views these policies as critical accounting policies.
The Bank made no changes to its critical accounting policies during the six months ended June 30, 2021.2022.
See Note 1 - Changes in Accounting Principle and Recently Issued Accounting Standards and Interpretations to the unaudited financial statements in this Form 10-Q for information on new accounting pronouncements impacting the financial statements or becoming effective for the Bank in future periods.
Legislative and Regulatory Developments
LIBOR Transition
FHFA Director’s Testimony to the House Financial Services Committee on a Planned Review of the FHLBank System
LIBOR Transition – 2021 ISDA Interest Rate Derivatives Definitions. On June 11, 2021, ISDA published 2021 ISDA Interest Rate Derivatives Definitions (2021 ISDA Definitions), which will replace the 2006 ISDA Definitions as the standard definitions for cleared and uncleared interest rate derivatives. The 2021 ISDA Definitions incorporate prior supplementsJuly 20, 2022, Finance Agency Director Sandra Thompson gave testimony to the 2006 ISDA DefinitionsHouse Financial Services Committee indicating that the Finance Agency intends to review the FHLBank System. Director Thompson’s testimony indicated that the Finance Agency plans to engage a variety of stakeholders in addition to other changes made to conform to updates in market practice and regulation. Bothholding public listening sessions throughout the 2006 ISDA Definitionscountry as supplemented effective January 25, 2021, and the 2021 ISDA Definitions contain ISDA-recommended fallbacks for interest rate derivatives referencing an Interbank Offered Rate, including U.S. Dollar LIBOR. ISDA announced that implementationpart of the 2021 ISDA Definitionsreview. The Director’s testimony also indicated that the review would examine matters ranging from the System’s membership base, operational efficiency, and effectiveness to more foundational questions about its mission, purpose, and organization. At this time, it is expectednot possible to take place for clearing houses, trading venuesdetermine when these events will occur, whether any actions will result from these events, and other market infrastructures between October 1-4, 2021. Thehow these events will ultimately impact the Bank does not expector the implementation of the 2021 ISDA Definitions to haveSystem as a material effect on its financial condition or results of operations.whole.
COVID-19 Developments
Federal Reserve Board (Federal Reserve) Extends Paycheck Protection Program Liquidity Facility. On June 25, 2021, the Federal Reserve 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) loan liquidity to eligible Federal Reserve member financial institutions in order to facilitate PPP loan originations at such financial institutions. The extension would allow additional processing time for banks, community development financial institutions, and other financial institutions to pledge to the facility any PPP loans approved by the Small Business Administration through the June 30, 2021 expiration of the PPP program.
Additional COVID-19 Presidential, Legislative and Regulatory Developments.
Proposed Rule Implementing the COVID-19 pandemic, the former and current Presidents of the United States, through executive orders, governmental agencies, including the SEC, the Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, Commodity Futures Trading Commission and the Finance Agency, as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, and the Congress has and may continue to enact pandemic relief legislation, some of which may have a direct or indirect impact on the Bank or its members. Many of these actions are temporary in nature. The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the Bank.Adjustable Interest Rate (LIBOR) Act.
Other Legislative Matters
Affordable HousingOn July 28, 2022, the Board of Governors of the Federal Reserve System (the Federal Reserve) published a proposed rule with a comment deadline of August 29, 2022 that would implement the LIBOR Act. The proposed rule would provide default rules for certain contracts (covered contracts) that: reference LIBOR, are governed by U.S. law, do not mature on or before the LIBOR replacement date, 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 earningslack adequate provisions to identify a replacement rate for their affordable housing and community investment programs thanLIBOR. The LIBOR replacement date is currently required under law.July 3, 2023. The FHLBanks are actively monitoring these proposals.proposed rule identifies separate Federal Reserve-selected replacement rates for derivatives transactions, covered GSE contracts, and all other covered contracts. The proposed rule defines covered GSE contracts to include FHLBank advances. The Bank is reviewing the proposed rule, however it is not possible to determine the extent to which the rule will be adopted as proposed and, as a result, the impact the final rule may have on the Bank.
Risk Management
The Bank employs a corporate governance and internal control framework designed to support the effective management of the Bank’s business activities and the related inherent risks. As part of this framework, the Board has approved a Risk Governance Policy and a Member Products Policy, both of which are reviewed regularly and re-approved at least annually. The Risk Governance Policy establishes risk guidelines, limits (if applicable), and standards for credit risk, market risk, liquidity risk, business risk and various forms of operational and technology risk, in accordance with Finance Agency regulations and consistent with the Bank’s risk appetite. The Member Products Policy establishes the eligibility and authorization requirements, policy limits and restrictions, and the terms applicable to each type of Bank product or service, as well as collateral requirements. The risk appetite is established by the Board, as are other applicable guidelines in connection with the Bank’s Capital Plan and overall risk management.
Risk Governance
The Bank’s lending, investment and funding activities and use of derivative instrumentshedging activities expose the Bank to a number of risks that include, market and interest rate risk, credit and counterparty risk, liquidity and funding risk, and operational and business risks. These include risks such as use and reliance on models and end-user computing tools, technology and information security risk, among others. In addition, the Bank’s risks are affected by current and projected financial and residential mortgage market trends, including those described in Item 1A. Risk Factors in the Bank's 20202021 Form 10-K. Details regarding the Bank's risk governance framework and processes are included in the "Risk Governance" discussion in Risk Management in Item 7. Management's Discussion and Analysis in the Bank's 20202021 Form 10-K.
COVID-19 Pandemic Related Risk Impacts. Severe market volatility also impacts the Bank’s ability to model and manage market and other risks, along with determining collateral values. While the Bank has been able to manage these risks, they could affect the Bank’s ability to make business decisions and limit members’ ability to do business with the Bank. Similarly, because of changing economic and market conditions affecting the Bank’s investments, the Bank may be required to recognize further impairments on securities held, which may result in additional provision for credit losses on private label MBS or reduced comprehensive income depending on the classification of the investment. Additionally, the Bank continues to monitor the Bank's members, counterparties and MPF portfolio, as further and material credit deterioration could occur.
Capital Adequacy Measures. MV/CS provides a current assessment of the liquidation value of the balance sheet and measures the Bank's current ability to honor the par put redemption feature of its capital stock. This is one of the risk metrics used to evaluate the adequacy of retained earnings, which is used to develop dividend payment recommendations and support the repurchase of excess capital stock.
The current Board-approved floor for MV/CS is 90.0%. MV/CS is measured against the floor monthly. When MV/CS is below the established floor, excess capital stock repurchases and dividend payouts are restricted. See the “Capital and Retained Earnings” discussion in Financial Condition in this Item 2 for details regarding the Bank’s retained earnings policy.
The MV/CS ratio was 220.5%165.1% at June 30, 20212022 and 188.2%221.8% at December 31, 2020.2021. The increasedecrease was primarily due to the decreaseincrease in capital stock as a result of lowerhigher advances.
Qualitative and Quantitative Disclosures Regarding Market Risk
Managing Market Risk. The Bank's market risk management objective is to protect member/shareholder and bondholder value consistent with the Bank's housing mission and safe and sound operations across a wide range of interest rate environments. Management believes that a disciplined approach to market risk management is essential to maintaining a strong capital base and uninterrupted access to the capital markets.
The Bank's Market Risk Model. Significant resources are devoted to ensuring that the level of market risk in the balance sheet is accurately measured, thus allowing management to monitor the risk against policy and regulatory limits. The Bank uses externally developed models to evaluate its financial position and market risk. One of the most critical market-based models relates to the prepayment of principal on mortgage-related instruments. Management regularly reviews the major assumptions
and methodologies used in its models, as well as the performance of the models relative to empirical results, so that appropriate changes to the models can be made. AsThe recessionary conditions of the COVID-19 pandemic or certain dynamics of future economic recovery, such as inflationary pressures and associated economicrising interest rates, may impact continues to evolve, including actions taken by governmental authorities, the performance of the Bank's models used to measure market risk will likely continue to be affected.risk. Management will consider the additional impact of the pandemic on key market risk measures and may make further changes as deemed appropriate in future periods.
The Bank regularly validates the models used to measure market risk. Such model validations are performed by the Bank's model risk management department, which is separate from the model owner. These model validations may include third-party specialists when appropriate. The model validations are supplemented by performance monitoring by the model owner which is reported to the Bank's model risk management department. In addition, the Bank benchmarks model-derived fair values to those provided by third-party services or alternative internal valuation models. The benchmarking analysis is performed by a group that is separate from the model owner. Results of the model validations and benchmarking analysis, as well as any changes to the valuation methodologies and inputs, are reported to the Bank's Asset and Liability Committee (ALCO) (or subcommittee of), which is responsible for overseeing market risk.
Duration of Equity. One key risk metric used by the Bank is duration. Duration is a measure of the sensitivity of a financial instrument's value, or the value of a portfolio of instruments, to a 100 basis point parallel shift in interest rates. Duration (typically expressed in years) is commonly used by investors throughout the fixed income securities market as a measure of financial instrument price sensitivity.
The Bank's asset/liability management policy approved by the Board calls for actual duration of equity to be maintained within a + 4.5 year range in the base case. In addition, the duration of equity exposure limit in an instantaneous parallel interest rate shock of + 200 basis points is + 7 years. Management analyzes the duration of equity exposure against this policy limit on a daily basis and regularly evaluates its market risk management strategies.
The following table presents the Bank's duration of equity exposure at June 30, 20212022 and December 31, 2020. Given2021. Due to the low level ofincrease in interest rates, an instantaneous parallel interestadditional down rate shock of "down 200 basis points" and "down 100 basis points" could not be meaningfully measuredscenarios are being evaluated by the Bank for these periods and therefore is not presented.re-introduction in future reporting periods.
| | | (in years) | (in years) | Base
Case | Up 100
basis points | Up 200
basis points | (in years) | Base
Case | Up 100
basis points | Up 200
basis points |
| Actual Duration of Equity: | Actual Duration of Equity: | | Actual Duration of Equity: | |
| June 30, 2021 | (2.0) | 0.1 | 1.3 | |
| December 31, 2020 | (0.9) | 0.9 | 3.2 | |
| June 30, 2022 | | June 30, 2022 | 0.8 | 1.0 | 1.2 |
| December 31, 2021 | | December 31, 2021 | (0.4) | 0.5 | 1.3 |
Duration of equity changes in the first six months of 20212022 were mainly the result of funding actions, primarilyinterest rate increases and the issuance of discount notes, which outweighed theoffsetting impact of the increase in long-term interest rates.funding mix changes and higher equity due to capital stock increases. The Bank continues to monitor the mortgage and related fixed-income markets, including the impact that changes in the market or anticipated modeling changes may have on duration of equity and other market risk measures and may take actions to reduce market risk exposures as needed. Management believes that the Bank's current market risk profile is reasonable given the current market conditions.
Return on Equity (ROE) Spread Volatility. Interest rate risk is also measured based on the volatility in the Bank’s projected return on capital in excess of the return of an established benchmark market index. ROE spread is defined as the Bank's return on average equity, including capital stock and retained earnings, in excess of the average of the projected Federal funds rate.
ROE spread volatility is a measure of the variability of the Bank’s projected ROE spread in response to shifts in interest rates and represents the change in ROE spread compared to an ROE spread that is generated by the Bank in its base forecasting scenario. ROE spread volatility is measured over a rolling forward 12 month period for selected interest rate scenarios and excludes the income sensitivity resulting from mark-to-market changes, which are separately described below.
The ROE spread volatility presented in the table below reflects spreads relative to the projected Federal funds rate. Management uses both parallel and non-parallel rate scenarios to assess interest rate risk. The steeper and flatter yield curve shift scenarios are represented by appropriate increases and decreases in short-term and long-term interest rates using the three-year point on the yield curve as the pivot point. GivenDue to the lowincrease in interest rates, additional down rate environment, management replaced a "down 200 basis points parallel rate" scenario with a "down 100 basis points longer term rate shock" as an additional non-parallel rate scenario that reflects a declineshock scenarios are
being evaluated by the Bank for re-introduction in longer-term rates and temporarily suspended the “down 100 basis points parallel” and “100 basis point steeper” shocks.future reporting periods. | | ROE Spread Volatility Increase/(Decline) | ROE Spread Volatility Increase/(Decline) | ROE Spread Volatility Increase/(Decline) |
| (in basis points) | (in basis points) | Down 100 bps Longer Term
Rate Shock | 100 bps Flatter | Up 200 bps
Parallel Shock | (in basis points) | Down 100 bps
Longer Term Rate Shock | 100 bps Flatter | Up 200 bps
Parallel Shock |
| June 30, 2021 | (45) | 121 | 212 | |
| December 31, 2020 | (32) | 40 | 118 | |
| June 30, 2022 | | June 30, 2022 | (4) | (13) | (21) |
| December 31, 2021 | | December 31, 2021 | (49) | 23 | 56 |
Changes in ROE spread volatility in the first six months of 20212022 primarily reflect the impact of funding actions, mainly the issuance of discount notes, which outweighed the impact of the increase in long-termmix changesand interest rates,rate increases. For each scenario, the Board's limit on the decline in ROE spread is set at no greater than 100 basis points. The Bank was in compliance with the ROE spread volatility limit across all selected interest rate shock scenarios at June 30, 20212022 and December 31, 2020.2021.
Mark-to-Market Risk. The Bank measures earnings risk associated with certain mark-to-market positions, including economic hedges. This framework measures forward-looking, scenario-based exposure based on interest rate and volatility shocks that are applied to any existing transaction that is marked to market through the income statement without an offsetting mark arising from a qualifying hedge relationship. In addition, the Bank's Capital Markets and Corporate Risk Management departments monitor the actual profit/loss change on a daily, monthly cumulative, and quarterly cumulative basis. The Bank's ALCO monitors mark-to-market risk through a daily exposure guideline and quarterly profit/loss reporting trigger.
Credit and Counterparty Risk - Total Credit Exposure (TCE) and Collateral
TCE. The Bank manages the credit risk of each member on the basis of the member’s total credit exposure (TCE) to the Bank, which includes advances and related accrued interest, fees, basis adjustments and estimated prepayment fees; letters of credit; forward-dated advance commitments; and MPF credit enhancement and related obligations. This credit risk is managed by monitoring the financial condition of borrowers and by requiring all borrowers (and, where applicable in connection with member affiliate pledge arrangements approved by the Bank, their affiliates) to pledge sufficient eligible collateral for all borrower obligations to the Bank to ensure that all potential forms of credit-related exposures are covered by sufficient eligible collateral. At June 30, 2021,2022, aggregate TCE was $36.1$59.4 billion, comprised of approximately $14.8$35.5 billion in advance principal outstanding, $20.9$23.5 billion in letters of credit (including forward commitments), $20.0$2.0 million in advance commitments, and $354.4$353.7 million in accrued interest, prepayment fees, MPF credit enhancement obligations and other fees.
The Bank establishes a maximum borrowing capacity (MBC) for each member based on collateral weightings applied to eligible collateral as described in the Bank’s Member Products Policy. Details regarding this policy are available in the Advance Products discussion in Item 1. Business in the Bank's 20202021 Form 10-K. According to the Policy, eligible collateral is weighted to help ensure that the collateral value will exceed the amount that may be owed to the Bank in the event of a default. The Bank also has the ability to call for additional or substitute collateral while any indebtedness is outstanding to protect the Bank’s fully secured position. At June 30, 20212022 and December 31, 2020,2021, on a borrower-by-borrower basis, the Bank had a perfected security interest in eligible collateral with an estimated collateral value (after collateral weightings) in excess of the book value of all members’ and nonmember housing associates’ obligations to the Bank.
The financial condition of all members and eligible non-member housing associates is closely monitored for compliance with financial criteria as set forth in the Bank’s credit policies. The Bank has developed an internal credit rating (ICR) system that calculates financial scores and rates member institutions on a quarterly basis using a numerical rating scale from one to ten, with one being the best rating. Generally, scores are objectively calculated based on financial ratios computed from publicly available data. The scoring system gives the highest weighting to the member’s asset quality and capitalization. Other key factors include earnings and balance sheet composition. Operating results which include net income, capital levels, reserve coverage and other factors for the previous four quarters are used. The most recent quarter’s results are given a higher weighting. Additionally, a member’s credit score can be adjusted for various qualitative factors, such as the financial condition of the member’s holding company. A rating in one of the higher number (i.e., worse) categoriesrating indicates that a member exhibits well defined financial weaknesses as described in the Bank's policy.weaknesses. Members in these categories are reviewed for potential change to their collateral delivery status. Other uses of the ICR include the scheduling of on-site collateral reviews. Insurance company members are rated on the same numerical rating scale as depository institutions, but the analysis includes both quantitative and qualitative factors. While depository institution member analysis is based on standardized regulatory Call Report data and risk modeling, insurance company credit risk analysis is based on various forms of financial data, including, but not limited to, statutory reporting filed by insurance companies with state insurance regulators, which requires specialized methodologies and dedicated underwriting resources.
As noted above, the Bank monitors member credit quality on a regular basis. To date, no material deterioration due to the COVID-19 pandemic has occurred. Management believes that it has adequate policies and procedures in place to effectively manage credit risk exposure related to member TCE. These credit and collateral policies balance the Bank’s dual goals of meeting members’ needs as a reliable source of liquidity and limiting credit loss by adjusting the credit and collateral terms in response to deterioration in creditworthiness. The Bank has never experienced a loss on its advance exposure.
The following table presents the Bank’s top five financial entities with respect to their TCE at June 30, 2021.2022.
| | | June 30, 2021 | | June 30, 2022 |
| (dollars in millions) | (dollars in millions) | TCE | % of Total | (dollars in millions) | TCE | % of Total |
| TD Bank, National Association, DE | TD Bank, National Association, DE | $ | 14,341.7 | | 39.7 | % | TD Bank, National Association, DE | $ | 18,804.9 | | 31.7 | % |
Ally Bank, UT (1) | Ally Bank, UT (1) | 5,040.0 | | 13.9 | | Ally Bank, UT (1) | 13,090.1 | | 22.0 | |
| Fulton Bank, N.A., PA | 1,615.5 | | 4.5 | | |
| First National Bank of Pennsylvania, PA | 1,479.7 | | 4.1 | | |
Santander Bank, National Association, DE (2) | 1,004.0 | | 2.8 | | |
PNC Bank, National Association, DE(2) | | PNC Bank, National Association, DE(2) | 10,024.6 | | 16.9 | |
Santander Bank, National Association, DE(3) | | Santander Bank, National Association, DE(3) | 2,762.7 | | 4.7 | |
| Fulton Bank, National Association, PA | | Fulton Bank, National Association, PA | 1,569.0 | | 2.6 | |
| | 23,480.9 | | 65.0 | | | 46,251.3 | | 77.9 | |
| Other financial institutions | Other financial institutions | 12,641.3 | | 35.0 | | Other financial institutions | 13,149.6 | | 22.1 | |
| Total TCE outstanding | Total TCE outstanding | $ | 36,122.2 | | 100.0 | % | Total TCE outstanding | $ | 59,400.9 | | 100.0 | % |
Notes:
(1) For Bank membership purposes, principal place of business is Horsham, PA.
(2)For Bank membership purposes, principal place of business is Pittsburgh, PA.
(3)Santander Bank, N.A. is a subsidiary of Banco Santander, which is located in Spain.
Member Advance Concentration Risk. The following table lists the Bank’s top five borrowers based on advance balances at par as of June 30, 2021.2022.
| | | June 30, 2021 | | June 30, 2022 |
| (dollars in millions) | (dollars in millions) | Advance Balance | % of Total | (dollars in millions) | Advance Balance | % of Total |
Ally Bank, UT (1) | Ally Bank, UT (1) | $ | 5,025.0 | | 33.9 | % | Ally Bank, UT (1) | $ | 13,075.0 | | 36.9 | % |
PNC Bank, National Association, DE(2) | | PNC Bank, National Association, DE(2) | 10,000.0 | | 28.2 | |
Santander Bank, National Association, DE(3) | | Santander Bank, National Association, DE(3) | 2,750.0 | | 7.8 | |
| First National Bank of Pennsylvania, PA | First National Bank of Pennsylvania, PA | 1,330.0 | | 9.0 | | First National Bank of Pennsylvania, PA | 930.0 | | 2.6 | |
JP Morgan Chase Bank, N.A., OH (2) | 1,000.0 | | 6.7 | | |
Santander Bank, National Association, DE (3) | 850.0 | | 5.7 | | |
Brighthouse Life Insurance Company, DE (4) | 500.0 | | 3.4 | | |
| Customers Bank, PA | | Customers Bank, PA | 635.0 | | 1.8 | |
| | 8,705.0 | | 58.7 | | | 27,390.0 | | 77.3 | |
| Other borrowers | Other borrowers | 6,115.9 | | 41.3 | | Other borrowers | 8,065.6 | | 22.7 | |
| Total advances | Total advances | $ | 14,820.9 | | 100.0 | % | Total advances | $ | 35,455.6 | | 100.0 | % |
Notes:
(1) For Bank membership purposes, principal place of business is Horsham, PA.
(2)In 2019, the Bank's member ChaseFor Bank USA, N.A. merged into JP Morgan Chase Bank, N.A., a non-member of the Bank, with amembership purposes, principal place of business in Columbus, OH.is Pittsburgh, PA.
(3)Santander Bank, N.A. is a subsidiary of Banco Santander, which is located in Spain.
(4) In 2018, Brighthouse Life Insurance Company relocated its principal place of business and became a member of another FHLBank.
The average year-to-date June 30, 20212022 balances for the five largest borrowers totaled $10.9$14.8 billion, or 57.8%69% of total average advances outstanding.advances. The advances made by the Bank to each of these borrowers are secured by collateral with an estimated value, after collateral weightings, in excess of the book value of the advances. The Bank has implemented specific credit and collateral review monitoring for these members.
Letters of Credit. The letter of credit product is collateralized under the same policies, procedures and guidelines that apply to advances. Outstanding letters of credit totaled $18.6$19.7 billion at June 30, 20212022 and $19.7$19.4 billion at December 31, 2020,2021, primarily related to public unit deposits. Available masterNot included in these totals are additional authorized but unused standby letters of credit of $2.1$3.5 billion at June 30, 20212022 and $1.2$2.3 billion at December 31, 2020 are not included in these totals.2021. The Bank had a concentration of letters of credit with one member (TD Bank) of $13.2$16.2 billion or 71%82% of the total at June 30, 20212022 and $12.6$14.7 billion or 64%76% of the total at December 31, 2020.2021.
Collateral Policies and Practices. All members are required to maintain eligible collateral to secure their TCE.TCE as described in the Member Products Policy effective January 1, 2022. Refer to the Risk Management section of the Bank's 20202021 Form 10-K for additional information related to the Bank’s Collateral Policy. Beginning in the first quarter of 2021, the Bank accepts certain electronic mortgage notes (eNotes) that comply with the Bank’s Collateral Policy. Consistent with recent regulatory guidance, the Bank has made collateral policy changes associated with LIBOR-linked collateral that are effective January 2022.
Collateral Agreements and Valuation. The Bank provides members with two types of collateral agreements: a blanket lien collateral pledge agreement and a specific collateral pledge agreement. Under a blanket lien agreement, the Bank obtains a
lien against all of the member’s unencumbered eligible collateral assets and most ineligible assets to secure the member’s obligations with the Bank. Under a specific collateral pledge agreement, the Bank obtains a lien against specific eligible collateral assets of the member or its affiliate (if applicable) to secure the member’s obligations with the Bank. The member
provides a detailed listing, as an addendum to the specific collateral agreement, identifying those assets pledged as collateral or delivered to the Bank or its third partythird-party custodian. Details regarding average lending values provided under both blanket liens and specific liens and delivery arrangements are available in the "Credit and Counterparty Risk - TCE and Collateral" discussion in Risk Management in Item 7. Management's Discussion and Analysis in the Bank's 20202021 Form 10-K.
Consistent with previous policy stipulations, high quality investment securities are defined as U.S. Treasury and U.S. Agency securities, REFCORP bonds, GSE MBS, commercial and residential private label MBS with a minimum credit rating of single A-minus, which the Bank considers as part of its evaluation of the collateral. In addition, municipal securities (or portions thereof) with a real estate nexus (e.g. proceeds primarily used for real estate development) with a minimum credit rating of single A-minus are included. Members have the option to deliver such high-quality investment securities to the Bank to increase their maximum borrowing capacity. Upon delivery, these securities are valued daily and all non-government or agency securities are subject to weekly ratings reviews. Reported amount also includes pledged FHLBank cash deposits with the Bank.
For member borrowers, the following tables present information on a combined basis regarding the type of collateral securing their outstanding credit exposure and the collateral status as of June 30, 20212022 and December 31, 2020.2021.
| | | June 30, 2021 | | June 30, 2022 |
| (dollars in millions) | (dollars in millions) | Blanket Lien | Listing | Delivery | Total | (dollars in millions) | Blanket Lien | Listing | Delivery | Total |
| Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % |
One-to-four single-family residential
mortgage loans | One-to-four single-family residential
mortgage loans | $ | 90,744.7 | | 46.1 | % | $ | 146.3 | | 9.3 | % | $ | 2,064.3 | | 59.9 | % | $ | 92,955.3 | | 46.0 | % | One-to-four single-family residential
mortgage loans | $ | 106,172.6 | | 47.4 | % | $ | 189.5 | | 7.7 | % | $ | 1.2 | | 0.1 | % | $ | 106,363.3 | | 46.8 | % |
| High quality investment securities | High quality investment securities | 1,442.0 | | 0.7 | | 1,255.4 | | 79.3 | | 1,333.2 | | 38.7 | | 4,030.6 | | 2.0 | | High quality investment securities | 3,212.9 | | 1.4 | | 1,862.3 | | 75.3 | | 945.2 | | 96.3 | | 6,020.4 | | 2.6 | |
| ORERC/CFI eligible collateral | ORERC/CFI eligible collateral | 85,043.8 | | 43.2 | | 156.9 | | 9.9 | | 49.9 | | 1.4 | | 85,250.6 | | 42.2 | | ORERC/CFI eligible collateral | 94,344.0 | | 42.2 | | 358.7 | | 14.5 | | 34.9 | | 3.6 | | 94,737.6 | | 41.7 | |
Multi-family residential mortgage
loans | Multi-family residential mortgage
loans | 19,671.2 | | 10.0 | | 23.9 | | 1.5 | | — | | — | | 19,695.1 | | 9.8 | | Multi-family residential mortgage
loans | 20,115.0 | | 9.0 | | 62.3 | | 2.5 | | — | | — | | 20,177.3 | | 8.9 | |
| Total eligible collateral value | Total eligible collateral value | $ | 196,901.7 | | 100.0 | % | $ | 1,582.5 | | 100.0 | % | $ | 3,447.4 | | 100.0 | % | $ | 201,931.6 | | 100.0 | % | Total eligible collateral value | $ | 223,844.5 | | 100.0 | % | $ | 2,472.8 | | 100.0 | % | $ | 981.3 | | 100.0 | % | $ | 227,298.6 | | 100.0 | % |
| Total TCE | Total TCE | $ | 33,507.1 | | 92.7 | % | $ | 891.0 | | 2.5 | % | $ | 1,724.1 | | 4.8 | % | $ | 36,122.2 | | 100.0 | % | Total TCE | $ | 57,323.2 | | 96.5 | % | $ | 1,395.9 | | 2.3 | % | $ | 681.8 | | 1.2 | % | $ | 59,400.9 | | 100.0 | % |
| Number of members | Number of members | 165 | | 86.4 | % | 12 | | 6.3 | % | 14 | | 7.3 | % | 191 | | 100.0 | % | Number of members | 161 | | 85.2 | % | 17 | | 9.0 | % | 11 | | 5.8 | % | 189 | | 100.0 | % |
| | | December 31, 2020 | | December 31, 2021 |
| (dollars in millions) | (dollars in millions) | Blanket Lien | Listing | Delivery | Total | (dollars in millions) | Blanket Lien | Listing | Delivery | Total |
| Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | Amount | % |
One-to-four single-family residential
mortgage loans | One-to-four single-family residential
mortgage loans | $ | 94,362.6 | | 45.7 | % | $ | 211.7 | | 12.2 | % | $ | 5,211.0 | | 77.6 | % | $ | 99,785.3 | | 46.4 | % | One-to-four single-family residential
mortgage loans | $ | 95,780.3 | | 48.3 | % | $ | 126.7 | | 8.4 | % | $ | 8.2 | | 0.7 | % | $ | 95,915.2 | | 47.8 | % |
| High quality investment securities | High quality investment securities | 1,485.9 | | 0.7 | | 1,376.5 | | 79.2 | | 1,475.5 | | 21.9 | | 4,337.9 | | 2.0 | | High quality investment securities | 1,155.1 | | 0.6 | | 1,177.9 | | 78.6 | | 1,056.2 | | 95.9 | | 3,389.2 | | 1.7 | |
| ORERC/CFI eligible collateral | ORERC/CFI eligible collateral | 89,983.1 | | 43.5 | | 136.3 | | 7.8 | | 35.6 | | 0.5 | | 90,155.0 | | 41.9 | | ORERC/CFI eligible collateral | 83,792.5 | | 42.3 | | 170.3 | | 11.4 | | 37.4 | | 3.4 | | 84,000.2 | | 41.8 | |
Multi-family residential mortgage
loans | Multi-family residential mortgage
loans | 20,852.3 | | 10.1 | | 13.8 | | 0.8 | | — | | — | | 20,866.1 | | 9.7 | | Multi-family residential mortgage
loans | 17,489.1 | | 8.8 | | 24.0 | | 1.6 | | — | | — | | 17,513.1 | | 8.7 | |
| Total eligible collateral value | Total eligible collateral value | $ | 206,683.9 | | 100.0 | % | $ | 1,738.3 | | 100.0 | % | $ | 6,722.1 | | 100.0 | % | $ | 215,144.3 | | 100.0 | % | Total eligible collateral value | $ | 198,217.0 | | 100.0 | % | $ | 1,498.9 | | 100.0 | % | $ | 1,101.8 | | 100.0 | % | $ | 200,817.7 | | 100.0 | % |
| Total TCE | Total TCE | $ | 41,277.4 | | 89.7 | % | $ | 980.2 | | 2.1 | % | $ | 3,783.4 | | 8.2 | % | $ | 46,041.0 | | 100.0 | % | Total TCE | $ | 35,003.0 | | 95.7 | % | $ | 894.0 | | 2.4 | % | $ | 684.5 | | 1.9 | % | $ | 36,581.5 | | 100.0 | % |
| Number of members | Number of members | 167 | 85.6 | % | 14 | 7.2 | % | 14 | 7.2 | % | 195 | 100.0 | % | Number of members | 156 | 85.2 | % | 13 | 7.1 | % | 14 | 7.7 | % | 183 | 100.0 | % |
Credit and Counterparty Risk - Investments
The Bank is also subject to credit risk on investments consisting of money market investments and investment securities. The Bank considers a variety of credit quality factors when analyzing potential investments, including collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, NRSROsNRSRO credit ratings and/or the financial health of the underlying issuer.
Investment Quality and External Credit Ratings. The following tables present the Bank’s investment carrying values as of June 30, 20212022 and December 31, 2020,2021, based on the lowest credit rating from the NRSROs (Moody’s, S&P and Fitch).
| | | June 30, 2021(1) | | June 30, 2022(1) |
| | Long-Term Rating | | | Long-Term Rating | |
| (in millions) | (in millions) | AAA | AA | A | BBB | Below Investment Grade | Unrated | Total | (in millions) | AAA | AA | A | BBB | Below Investment Grade | Unrated | Total |
| Money market investments: | Money market investments: | | | Money market investments: | | |
| Interest-bearing deposits | Interest-bearing deposits | $ | — | | $ | — | | $ | 347.8 | | $ | — | | $ | — | | $ | — | | $ | 347.8 | | Interest-bearing deposits | $ | — | | $ | — | | $ | 507.6 | | $ | 234.2 | | $ | — | | $ | — | | $ | 741.8 | |
| Securities purchased under agreements to resell | Securities purchased under agreements to resell | 2,200.0 | | — | | 750.0 | | 500.0 | | — | | — | | 3,450.0 | | Securities purchased under agreements to resell | 2,600.0 | | — | | 750.0 | | — | | — | | | 3,350.0 | |
| Federal funds sold | Federal funds sold | — | | — | | 2,275.0 | | — | | — | | — | | 2,275.0 | | Federal funds sold | — | | 1,600.0 | | 2,200.0 | | — | | — | | — | | 3,800.0 | |
| Total money market investments | Total money market investments | 2,200.0 | | — | | 3,372.8 | | 500.0 | | — | | — | | 6,072.8 | | Total money market investments | 2,600.0 | | 1,600.0 | | 3,457.6 | | 234.2 | | — | | — | | 7,891.8 | |
| Investment securities: | Investment securities: | | | Investment securities: | | |
| U.S. Treasury obligations | U.S. Treasury obligations | — | | 5,022.2 | | — | | — | | — | | — | | 5,022.2 | | U.S. Treasury obligations | — | | 5,638.0 | | — | | — | | — | | — | | 5,638.0 | |
| | GSE and TVA obligations | GSE and TVA obligations | — | | 1,827.1 | | — | | — | | — | | — | | 1,827.1 | | GSE and TVA obligations | | 1,515.0 | | — | | — | | — | | — | | 1,515.0 | |
| State or local agency obligations | State or local agency obligations | 22.6 | | 203.4 | | — | | — | | — | | — | | 226.0 | | State or local agency obligations | 18.2 | | 163.7 | | — | | — | | — | | — | | 181.9 | |
| | Total non-MBS | Total non-MBS | 22.6 | | 7,052.7 | | — | | — | | — | | — | | 7,075.3 | | Total non-MBS | 18.2 | | 7,316.7 | | — | | — | | — | | — | | 7,334.9 | |
| U.S. obligations single-family MBS | U.S. obligations single-family MBS | — | | 587.7 | | — | | — | | — | | — | | 587.7 | | U.S. obligations single-family MBS | — | | 538.6 | | — | | — | | — | | — | | 538.6 | |
| GSE single-family MBS | GSE single-family MBS | — | | 3,288.9 | | — | | — | | — | | — | | 3,288.9 | | GSE single-family MBS | — | | 2,229.1 | | — | | — | | — | | — | | 2,229.1 | |
| GSE multifamily MBS | GSE multifamily MBS | — | | 3,699.6 | | — | | — | | — | | — | | 3,699.6 | | GSE multifamily MBS | — | | 3,102.7 | | — | | — | | — | | — | | 3,102.7 | |
| Private label MBS | Private label MBS | — | | 8.6 | | 28.2 | | 20.6 | | 92.6 | | 152.2 | | 302.2 | | Private label MBS | — | | 12.6 | | 13.7 | | 14.9 | | 57.4 | | 123.1 | | 221.7 | |
| Total MBS | Total MBS | — | | 7,584.8 | | 28.2 | | 20.6 | | 92.6 | | 152.2 | | 7,878.4 | | Total MBS | — | | 5,883.0 | | 13.7 | | 14.9 | | 57.4 | | 123.1 | | 6,092.1 | |
| Total investments | Total investments | $ | 2,222.6 | | $ | 14,637.5 | | $ | 3,401.0 | | $ | 520.6 | | $ | 92.6 | | $ | 152.2 | | $ | 21,026.5 | | Total investments | $ | 2,618.2 | | $ | 14,799.7 | | $ | 3,471.3 | | $ | 249.1 | | $ | 57.4 | | $ | 123.1 | | $ | 21,318.8 | |
| | | December 31, 2020 (1) | | December 31, 2021 (1) |
| | Long-Term Rating | | | Long-Term Rating | |
| (in millions) | (in millions) | AAA | AA | A | BBB | Below Investment Grade | Unrated | Total | (in millions) | AAA | AA | A | BBB | Below Investment Grade | Unrated | Total |
| Money market investments: | Money market investments: | | | Money market investments: | | |
| Interest-bearing deposits | Interest-bearing deposits | $ | — | | $ | — | | $ | 950.8 | | $ | — | | $ | — | | $ | — | | $ | 950.8 | | Interest-bearing deposits | $ | — | | $ | — | | $ | 333.0 | | $ | 190.0 | | $ | — | | $ | — | | $ | 523.0 | |
| Securities purchased under agreements to resell | Securities purchased under agreements to resell | — | | — | | 500.0 | | 100.0 | | — | | — | | 600.0 | | Securities purchased under agreements to resell | 920.0 | | — | | 750.0 | | — | | — | | — | | 1,670.0 | |
| Federal funds sold | Federal funds sold | — | | — | | 1,850.0 | | — | | — | | — | | 1,850.0 | | Federal funds sold | — | | 250.0 | | 1,725.0 | | — | | — | | — | | 1,975.0 | |
| Total money market investments | Total money market investments | — | | — | | 3,300.8 | | 100.0 | | — | | — | | 3,400.8 | | Total money market investments | 920.0 | | 250.0 | | 2,808.0 | | 190.0 | | — | | — | | 4,168.0 | |
| Investment securities: | Investment securities: | | | Investment securities: | | |
| U.S. Treasury obligations | U.S. Treasury obligations | — | | 899.4 | | — | | — | | — | | — | | 899.4 | | U.S. Treasury obligations | — | | 5,075.2 | | — | | — | | — | | — | | 5,075.2 | |
| Certificates of deposit | Certificates of deposit | — | | 250.0 | | 500.0 | | — | | — | | — | | 750.0 | | Certificates of deposit | — | | — | | — | | — | | — | | — | | — | |
| GSE and TVA obligations | GSE and TVA obligations | — | | 1,900.3 | | — | | — | | — | | — | | 1,900.3 | | GSE and TVA obligations | — | | 1,736.9 | | — | | — | | — | | — | | 1,736.9 | |
| State or local agency obligations | State or local agency obligations | 26.0 | | 215.7 | | — | | — | | — | | — | | 241.7 | | State or local agency obligations | 20.5 | | 186.7 | | — | | — | | — | | — | | 207.2 | |
| Total non-MBS | Total non-MBS | 26.0 | | 3,265.4 | | 500.0 | | — | | — | | — | | 3,791.4 | | Total non-MBS | 20.5 | | 6,998.8 | | — | | — | | — | | — | | 7,019.3 | |
| U.S. obligations single-family MBS | U.S. obligations single-family MBS | — | | 722.7 | | — | | — | | — | | — | | 722.7 | | U.S. obligations single-family MBS | — | | 482.0 | | — | | — | | — | | — | | 482.0 | |
| GSE single-family MBS | GSE single-family MBS | — | | 4,252.7 | | — | | — | | — | | — | | 4,252.7 | | GSE single-family MBS | — | | 2,659.1 | | — | | — | | — | | — | | 2,659.1 | |
| GSE multifamily MBS | GSE multifamily MBS | — | | 4,003.6 | | — | | — | | — | | — | | 4,003.6 | | GSE multifamily MBS | — | | 3,499.4 | | — | | — | | — | | — | | 3,499.4 | |
| Private label MBS | Private label MBS | — | | 14.6 | | 18.5 | | 14.2 | | 111.3 | | 187.1 | | 345.7 | | Private label MBS | — | | 6.9 | | 24.5 | | 18.1 | | 83.6 | | 131.5 | | 264.6 | |
| Total MBS | Total MBS | — | | 8,993.6 | | 18.5 | | 14.2 | | 111.3 | | 187.1 | | 9,324.7 | | Total MBS | — | | 6,647.4 | | 24.5 | | 18.1 | | 83.6 | | 131.5 | | 6,905.1 | |
| Total investments | Total investments | $ | 26.0 | | $ | 12,259.0 | | $ | 3,819.3 | | $ | 114.2 | | $ | 111.3 | | $ | 187.1 | | $ | 16,516.9 | | Total investments | $ | 940.5 | | $ | 13,896.2 | | $ | 2,832.5 | | $ | 208.1 | | $ | 83.6 | | $ | 131.5 | | $ | 18,092.4 | |
Notes:
(1) Balances exclude $5.3 million of Interest-bearing deposits with FHLB of Chicago for June 30, 2022 and $5.4 million for December 31, 2021 and total accrued interest of $31.5 million for June 30, 20212022 and $28.2$27.6 million for December 31, 2020.2021.
The Bank also manages credit risk based on an internal credit rating system. For purposes of determining the internal credit rating, the Bank measures credit exposure through a process which includes internal credit review and various external factors including NRSRO analysis. The Bank does not rely solely on any NRSRO rating in deriving its final internal credit rating.
Short-term Investments. Within the portfolio of short-term investments, the Bank faces credit risk from unsecured exposures. The Bank's unsecured investments have maturities generally ranging between overnight and six months and may include the following types:
•Interest-bearing deposits. Primarily consists of unsecured deposits that earn interest;
•Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions that are made on an overnight and term basis; and
•Certificates of deposit. Unsecured negotiable promissory notes issued by banks and payable to the bearer at maturity or on demand.
Under the Bank’s Risk Governance Policy, the Bank can place money market investments, which include those investment types listed above, on an unsecured basis with large financial institutions with long-term credit ratings no lower than BBB. Management actively monitors the credit quality of these counterparties. The Bank also invests in securities purchased under agreements to resell which are secured investments.
As of June 30, 2021,2022, the Bank had unsecured exposure to 912 counterparties totaling $2.6$4.5 billion, with five counterparties each exceeding 10% of the total exposure. The following table presents the Bank's unsecured credit exposure with non-governmental counterparties by investment type at June 30, 20212022 and December 31, 2020.2021. The unsecured investment credit exposure presented may not reflect the average or maximum exposure during the period.
| | | (in millions) | (in millions) | | (in millions) | |
Carrying Value (1) (2) | Carrying Value (1) (2) | June 30, 2021 | December 31, 2020 | Carrying Value (1) (2) | June 30, 2022 | December 31, 2021 |
| Interest-bearing deposits | Interest-bearing deposits | $ | 347.8 | | $ | 950.8 | | Interest-bearing deposits | $ | 741.8 | | $ | 523.0 | |
| Certificates of deposit | — | | 750.0 | | |
| | Federal funds sold | Federal funds sold | 2,275.0 | | 1,850.0 | | Federal funds sold | 3,800.0 | | 1,975.0 | |
| Total | Total | $ | 2,622.8 | | $ | 3,550.8 | | Total | $ | 4,541.8 | | $ | 2,498.0 | |
Note:
(1) Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies and instrumentalities, GSEs, and supranational entities.
(2) Excludes a $343.3$350.0 million of compensating balance account with a counterparty which is non-interest bearing.bearing for June 30, 2022 and $336.6 million for December 31, 2021 and $5.3 million of Interest-bearing deposits with FHLB of Chicago for June 30,2022 and $5.4 million for December 31, 2021.
As of June 30, 2021, 86.7%2022, 72.7% of the Bank’s unsecured investment credit exposures were to U.S. branches and agency offices of foreign commercial banks. The Bank actively monitors its credit exposures and the credit quality of its counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, sovereign support, and the current market perceptions of the counterparties. General macro-economic, political and market conditions may also be considered when deciding on unsecured exposure. As a result, the Bank may limit or suspend existing counterparties.
Finance Agency regulations include limits on the amount of unsecured credit the Bank may extend to a counterparty or to a group of affiliated counterparties. This limit is based on a percentage of eligible regulatory capital and the counterparty's overall internal credit rating. Under these regulations, the level of eligible regulatory capital is determined as the lesser of the Bank's total regulatory capital or the eligible amount of regulatory capital of the counterparty. The eligible amount of regulatory capital is then multiplied by a stated percentage. This percentage is 1% to 15% and is based on the counterparty's internal credit rating. The calculation of term extensions of unsecured credit includes on-balance sheet transactions, off-balance sheet commitments, and derivative transactions.
Finance Agency regulation also permits the Bank to extend additional unsecured credit for overnight transactions and for sales of Federal funds subject to continuing contracts that renew automatically. For overnight exposures only, the Bank's total unsecured exposure to a counterparty may not exceed twice the applicable regulatory limit, or a total of 2% to 30% of the eligible amount of regulatory capital, based on the counterparty's internal credit rating. As of June 30, 2021,2022, the Bank was in compliance with the regulatory limits established for unsecured credit.
The Bank's unsecured credit exposures to U.S. branches and agency offices of foreign commercial banks include the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual
repayment obligations. The Bank's unsecured credit exposures to domestic counterparties and U.S. subsidiaries of foreign commercial banks include the risk that these counterparties have extended credit to foreign counterparties.
The following table presents the long-term credit ratings of the unsecured investment credit exposures by the domicile of the counterparty or the domicile of the counterparty's immediate parent for U.S. subsidiaries or branches and agency offices of foreign commercial banks based on the NRSROs used. This table does not reflect the foreign sovereign government's credit rating.
| | (in millions) | (in millions) | | | | | (in millions) | | |
June 30, 2021 (1) (2) | |
June 30, 2022 (1) (2) | | June 30, 2022 (1) (2) |
| | | Carrying Value | | | Carrying Value |
| Domicile of Counterparty | Domicile of Counterparty | | Investment Grade (3) (4) | Domicile of Counterparty | | Investment Grade (3) (4) |
| | | AA | A | | Total | | | AA | A | BBB | Total |
| Domestic | Domestic | | $ | — | | $ | 347.8 | | | $ | 347.8 | | Domestic | | $ | 250.0 | | $ | 757.6 | | $ | 234.2 | | $ | 1,241.8 | |
| | U.S. branches and agency offices of foreign commercial banks: | U.S. branches and agency offices of foreign commercial banks: | | | | | | U.S. branches and agency offices of foreign commercial banks: | | | | |
| Australia | Australia | | — | | 700.0 | | | 700.0 | | Australia | | — | | 675.0 | | — | | 675.0 | |
| | Canada | Canada | | — | | 425.0 | | | 425.0 | | Canada | | 850.0 | | 575.0 | | — | | 1,425.0 | |
| Finland | | Finland | | 500.0 | | — | | — | | 500.0 | |
| | France | | — | | 300.0 | | | 300.0 | | |
| Germany | Germany | | — | | 425.0 | | | 425.0 | | Germany | | — | | 200.0 | | — | | 200.0 | |
| Netherlands | Netherlands | | — | | 425.0 | | | 425.0 | | Netherlands | | — | | 500.0 | | — | | 500.0 | |
| | Total U.S. branches and agency offices of foreign commercial banks | Total U.S. branches and agency offices of foreign commercial banks | | — | | 2,275.0 | | | 2,275.0 | | Total U.S. branches and agency offices of foreign commercial banks | | 1,350.0 | | 1,950.0 | | — | | 3,300.0 | |
| Total unsecured investment credit exposure | Total unsecured investment credit exposure | | $ | — | | $ | 2,622.8 | | | $ | 2,622.8 | | Total unsecured investment credit exposure | | $ | 1,600.0 | | $ | 2,707.6 | | $ | 234.2 | | $ | 4,541.8 | |
| | (in millions) | (in millions) | | | | | (in millions) | | |
December 31, 2020 (1) (2) | |
December 31, 2021 (1) (2) | | December 31, 2021 (1) (2) |
| | | Carrying Value | | | Carrying Value |
| Domicile of Counterparty | Domicile of Counterparty | | Investment Grade (3) (4) | Domicile of Counterparty | | Investment Grade (3) (4) |
| | | AA | A | | Total | | | AA | A | BBB | Total |
| Domestic | Domestic | | $ | — | | $ | 950.8 | | | $ | 950.8 | | Domestic | | $ | — | | $ | 333.0 | | $ | 190.0 | | $ | 523.0 | |
| | U.S. branches and agency offices of foreign commercial banks: | U.S. branches and agency offices of foreign commercial banks: | | | | | | U.S. branches and agency offices of foreign commercial banks: | | | | |
| Australia | Australia | | — | | 750.0 | | | 750.0 | | Australia | | — | | 675.0 | | — | | 675.0 | |
| | Canada | Canada | | 250.0 | | 1,100.0 | | | 1,350.0 | | Canada | | — | | 425.0 | | — | | 425.0 | |
| | Finland | | Finland | | 250.0 | | — | | — | | 250.0 | |
| Germany | | Germany | | — | | 200.0 | | — | | 200.0 | |
| Netherlands | Netherlands | | — | | 500.0 | | | 500.0 | | Netherlands | | — | | 425.0 | | — | | 425.0 | |
| | Total U.S. branches and agency offices of foreign commercial banks | Total U.S. branches and agency offices of foreign commercial banks | | 250.0 | | 2,350.0 | | | 2,600.0 | | Total U.S. branches and agency offices of foreign commercial banks | | 250.0 | | 1,725.0 | | — | | 1,975.0 | |
| Total unsecured investment credit exposure | Total unsecured investment credit exposure | | $ | 250.0 | | $ | 3,300.8 | | | $ | 3,550.8 | | Total unsecured investment credit exposure | | $ | 250.0 | | $ | 2,058.0 | | $ | 190.0 | | $ | 2,498.0 | |
Notes:
(1) Ratings are as of the respective dates.
(2) These ratings represent the lowest rating available for each security owned by the Bank based on the NRSROs used by the Bank. The Bank’s internal ratings may differ from those obtained from the NRSROs.
(3) Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies and instrumentalities, GSEs, and supranational entities.
(4) Represents the NRSRO rating of the counterparty not the country. There were no AAA rated investments at June 30, 2022 or December 31, 2021.
The following table presents the remaining contractual maturity
At June 30, 2022 and December 31, 2021, all of the Bank's unsecured investment credit exposureinvestments held by the domicile of the counterparty or the domicile of the counterparty's parent for U.S. subsidiaries or branches and agency offices of foreign commercial banks. The Bank also mitigates the credit risk on investments by generally investing in investments that have short-termhad overnight maturities.
| | | | | | | | | | | | | | |
| (in millions) | | | |
| June 30, 2021 |
| Carrying Value |
| Domicile of Counterparty | Overnight | Due 2 days through 30 days | Due 31 days through 90 days | Total |
| Domestic | $ | 347.8 | | $ | — | | $ | — | | $ | 347.8 | |
| | | | |
| | | | |
| U.S. branches and agency offices of foreign commercial banks: | | | | |
| Australia | 700.0 | | — | | — | | 700.0 | |
| | | | |
| Canada | 425.0 | | — | | — | | 425.0 | |
| | | | |
| France | 300.0 | | — | | — | | 300.0 | |
| Germany | 425.0 | | — | | — | | 425.0 | |
| Netherlands | 425.0 | | — | | — | | 425.0 | |
| | | | |
| | | | |
| Total U.S. branches and agency offices of foreign commercial banks | 2,275.0 | | — | | — | | 2,275.0 | |
| Total unsecured investment credit exposure | $ | 2,622.8 | | $ | — | | $ | — | | $ | 2,622.8 | |
| | | | | | | | | | | | | | |
| (in millions) | | | |
| December 31, 2020 |
| Carrying Value |
| Domicile of Counterparty | Overnight | Due 2 days through 30 days | Due 31 days through 90 days | Total |
| Domestic | $ | 950.8 | | $ | — | | $ | — | | $ | 950.8 | |
| | | | |
| | | | |
| U.S. branches and agency offices of foreign commercial banks: | | | | |
| Australia | 750.0 | | — | | — | | 750.0 | |
| | | | |
| Canada | 600.0 | | 500.0 | | 250.0 | | 1,350.0 | |
| | | | |
| | | | |
| | | | |
| Netherlands | 500.0 | | — | | — | | 500.0 | |
| | | | |
| | | | |
| Total U.S. branches and agency offices of foreign commercial banks | 1,850.0 | | 500.0 | | 250.0 | | 2,600.0 | |
| Total unsecured investment credit exposure | $ | 2,800.8 | | $ | 500.0 | | $ | 250.0 | | $ | 3,550.8 | |
U.S. Treasury Obligations. The Bank invests in U.S. Treasury obligations that are explicitly fully guaranteed by the U.S. government. This portfolio totaled $5.0$5.6 billion at June 30, 20212022 and $0.9$5.1 billion at December 31, 2020.2021.
Agency/GSE Securities and Agency/GSE MBS. The Bank invests in and is subject to credit risk related to securities issued by Federal Agencies or U.S. government corporations. In addition, the Bank invests in MBS issued by these same entities that are directly supported by underlying mortgage loans. Both the securities and MBS are either explicitly or implicitly guaranteed by the U.S. government. These portfolios totaled $9.4$7.4 billion at June 30, 20212022 and $10.9$8.4 billion at December 31, 2020.2021.
State and Local Agency Obligations. The Bank invests in and is subject to credit risk related to a portfolio of state and local agency obligations (i.e., Housing Finance Agency bonds) that are directly or indirectly supported by underlying mortgage loans. These portfolios totaled $226.0$181.9 million at June 30, 20212022 and $241.7$207.2 million at December 31, 2020.2021.
Private Label MBS. The Bank also holds investments in private label MBS, which are supported by underlying mortgage loans. The Bank made investments in private label MBS that were rated AAA at the time of purchase with the exception of one, which was rated AA at the time of purchase.AA. However, since the time of purchase, there have been significant ratings downgrades. In 2007, the Bank discontinued the purchase of private label MBS. The carrying value of the Bank’s private label MBS portfolio was $302.2$221.7 million at June 30, 20212022 and $345.7$264.6 million at December 31, 2020.2021.
Credit Losses. The Bank evaluates its private label MBS for expected credit losses quarterly, based on whether there is an expectation of a shortfall in receiving all cash flows contractually due. The Bank expects to receive all cash flows contractually due with respect to its HTM private label MBS and therefore has no ACL related to this portfolio. With respect to its AFS private label MBS, the Bank had an ACL of $5.0 million as of June 30, 2022 and $2.4 million as of December 31, 2021. For its AFS private label MBS for which the Bank expects a shortfall, an ACL is recorded, limited to the amount of a security's unrealized loss, if any.loss. If the security is in an unrealized gain position, the ACL is zero.
The Bank recorded a benefitprovision for credit losses of $1.3 million compared with a reversal for credit losses of $0.1 million on its AFS private label MBS for the second quarter of 2022 and 2021, and a benefit of $1.2 million for the second quarter of 2020.respectively. For the six months ended June 30, 2021,2022, the Bank recorded a provision for credit losses of $0.2$2.7 million and a provision of $1.6$0.2 million for the same prior-year period. Because the Bank does not intend to sell and will not be required to sell any securitiesits AFS private label MBS with recorded credit losses before anticipated recovery of their amortized cost basis, the Bank did not write down any of its AFS private label MBS securities amortized cost basis for the difference between amortized cost and fair value. The Bank has not recorded credit losses on any other type of security (e.g., U.S. Agency MBS or non-MBS securities).
WhenFor those AFS private label MBS with a credit loss previously recorded, when the Bank projects an increase in cash flows during its quarterly assessment of expected credit losses, the Bank will first reverse the ACL by recognizing a benefitreversal for credit losses up to the amount of the ACL, if any. If the Bank projects a significant increase in cash flows, the Bank adjusts the accretable yield prospectively. Credit losses recovered through interest income on these securities was $3.3$3.0 million and $4.1$3.3 million for the second quarter of 2022 and 2021 and 2020, respectively,$5.9 million and $6.9 million and $8.1 million for the first six months of 20212022 and 2020,2021, respectively.
Management will continue to evaluate its private label MBS. Material credit losses have occurred on AFS private label MBS and may occur in the future. The specific amount of credit losses will depend on the actual performance of the underlying loan collateral, payments received on the securities themselves, as well as the Bank’s future modeling assumptions. Declines in the fair values of securitiesAFS private label MBS with expected credit losses may result in the Bank recording an ACL. Those securitiesAFS private label MBS for which the Bank is recognizing recovery of credit losses through interest income may be more likely to incur additional credit losses due to the nature of the historic OTTI accounting model.
Credit and Counterparty Risk - Mortgage Loans, BOB Loans and Derivatives
Mortgage Loans. The Finance Agency has authorized the Bank to hold mortgage loans under the MPF Program whereby the Bank acquires mortgage loans from participating members in a shared credit risk structure. These assets carry CEs on any conventionalConventional mortgage loans acquiredcarry CE such that the Bank has a high degree of confidence that it will be paid principal and interest in all material respects, even under reasonably likely adverse changes to expected economic conditions. Loans are assessed by a third-party credit model at acquisition, and a CE is calculated based on loan attributes and the Bank’s risk tolerance with respect to its MPF portfolio. The Bank had net mortgage loans held for portfolio of $4.8$4.7 billion atfor both June 30, 20212022 and $4.9 billion at December 31, 2020,2021, after an allowance for credit losses of $3.2$3.5 million at June 30, 20212022 and $5.0$3.4 million at December 31, 2020.2021.
Mortgage Insurers. The Bank’s MPF Program currently has credit exposure to nine mortgage insurance companies which provide PMI and/or Supplemental Mortgage Insurance (SMI) for the Bank’s various products. To be active, the mortgage insurance company must be approved as a qualified insurer in accordance with the AMA regulation. Every two years, the Bank reviews the qualified insurers to determine if they continue to meet the financial and operational standards set by the Bank.
None of the Bank’sWhen a conventional mortgage insurers currently maintain a rating by at least one NRSRO of A+ or better. As required byloan requires PMI, the MPF Program for originations with PMI,modeling applied to the ratings model currentlyBank’s acquisitions requires additional CE from the PFI to compensate for the mortgage insurer rating when it is below A+BBB+.
The MPF Plus product required SMI under the MPF Program when each pool was established. At June 30, 2021,2022, five of the 14 MPF Plus pools still have SMI policies in place. The Bank does not currently offer the MPF Plus product and has not purchased loans under MPF Plus Commitments since July 2006. Per MPF Program guidelines, the existing MPF Plus product exposure is required to be secured by the PFI once the SMI company is rated below AA-. As of June 30, 2021,2022, all of the SMI exposure is fully collateralized. The Bank does not currently offer the MPF Plus product and has not purchased loans under MPF Plus Commitments since July 2006.
The unpaid principal balance and maximum coverage outstanding for seriously delinquent loans with PMI as of June 30, 20212022 was $22.8$7.1 million and $6.9$2.1 million, respectively. The corresponding amounts at December 31, 20202021 were $30.0$10.3 million and $8.9$3.2 million.
BOB Loans. See Note 1 - Summary of Significant Accounting Policies in Item 8 in the Bank's 20202021 Form 10-K for a description of the BOB program. The allowance for credit losses on BOB loans was $3.1$3.0 million at both June 30, 20212022 and $3.2 million at December 31, 2020.2021.
Derivative Counterparties. To manage interest rate risk, the Bank enters into derivative contracts. Derivative transactions may be either executed with a counterparty (referred to as uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent) or a Swap Execution Facility with a Derivatives Clearing Organization (referred to as cleared derivatives). For uncleared derivatives, the Bank transacts most of 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. The Bank is not a derivatives dealer and does not trade derivatives for short-term profit.
The Bank uses either CME Clearing or LCH Ltd. as the Clearing House for all its cleared derivative transactions. Variation margin payments are characterized as daily settlement payments, rather than collateral. Initial margin is considered cash collateral.
The Bank is subject to credit risk due to the risk of non-performance by counterparties to its derivative transactions. The amount of credit risk on derivatives depends on the extent to which netting procedures, collateral requirements, daily settlement and other credit enhancements are used and are effective in mitigating the risk. The Bank manages credit risk through credit analysis, collateral management, and other credit enhancements.
Uncleared Derivatives. The Bank is subject to non-performance by counterparties to its uncleared derivative transactions. The Bank requires collateral on uncleared derivative transactions. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty. A counterparty must deliver collateral to the Bank if the total market value of the Bank's exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its uncleared derivative transactions with counterparties as of June 30, 2021.2022. The Bank’s total net credit exposure to uncleared derivative counterparties is immaterial.
Cleared Derivatives. The Bank is subject to credit risk exposure to the Clearing Houses and clearing agent. The requirement that the Bank post initial margin and exchange variation margin settlement payments, through the clearing agent, to the Clearing Houses, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearing Houses fail to meet their obligations. Initial margin is the amount calculated based on anticipated exposure to future changes in the value of a swap and protects the Clearing Houses from market risk in the event of default by one of its clearing agents. Variation margin is the amount accumulated through daily settlement of the current exposure arising from changes in the market value of the position since the trade was executed. The Bank's use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral postings and variation margin settlement payments are made daily for changes in the value of cleared derivatives through a clearing agent. The Bank does not anticipate any credit losses on its cleared derivatives as of June 30, 2021.2022.
The contractual or notional amount of derivative transactions reflects the involvement of the Bank in the various classes of financial instruments. The maximum credit risk of the Bank with respect to derivative transactions is the estimated cost of replacing the derivative transactions if there is a default, minus the value of any related collateral, including initial margin and
variation margin settlements on cleared derivatives. In determining maximum credit risk, the Bank considers accrued interest receivables and payables as well as the netting requirements to net assets and liabilities. The following table presents the derivative positions with non-member counterparties and member institutions to which the Bank has credit exposure at June 30, 20212022 and December 31, 2020.2021.
34 | | | | | | | | | | | | | | |
| (in millions) | June 30, 2022 |
Credit Rating (1) | Notional Amount | Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparties | Net Credit Exposure to Counterparties |
| Non-member counterparties | | | | |
| Asset positions with credit exposure: | | | | |
| Uncleared derivatives | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Cleared derivatives | $ | — | | $ | — | | $ | — | | $ | — | |
| Liability positions with credit exposure: | | | | |
| Uncleared derivatives | | | | |
| | | | |
| | | | |
| A | $ | 13,743.4 | | $ | (413.5) | | $ | 455.3 | | $ | 41.8 | |
| BBB | 5,397.0 | | (230.8) | | 246.0 | | 15.2 | |
| Cleared derivatives | 24,359.4 | | — | | 229.8 | | 229.8 | |
| Total derivative positions with credit exposure to non-member counterparties | 43,499.8 | | (644.3) | | 931.1 | | 286.8 | |
Member institutions (2) | 14.1 | | — | | — | | — | |
| Total | $ | 43,513.9 | | $ | (644.3) | | $ | 931.1 | | $ | 286.8 | |
| Derivative positions without credit exposure | 250.0 | | | | |
| Total notional | $ | 43,763.9 | | | | |
| | | | | | | | | | | | | | |
| (in millions) | June 30, 2021 |
Credit Rating (1) | Notional Amount | Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparties | Net Credit Exposure to Counterparties |
| Non-member counterparties | | | | |
| Asset positions with credit exposure: | | | | |
| Uncleared derivatives | | | | |
| | | | |
| | | | |
| | | | |
| BBB | $ | 745.0 | | $ | 0.3 | | $ | 0.1 | | $ | 0.4 | |
| Cleared derivatives | 17,236.5 | | — | | 202.0 | | 202.0 | |
| Liability positions with credit exposure: | | | | |
| Uncleared derivatives | | | | |
| | | | |
| | | | |
| A | 2,257.1 | | (3.3) | | 4.4 | | 1.1 | |
| BBB | 1,333.7 | | (2.5) | | 3.1 | | 0.6 | |
| | | | |
| Total derivative positions with credit exposure to non-member counterparties | 21,572.3 | | (5.5) | | 209.6 | | 204.1 | |
Member institutions (2) | 65.2 | | 0.1 | | — | | 0.1 | |
| Total | $ | 21,637.5 | | $ | (5.4) | | $ | 209.6 | | $ | 204.2 | |
| Derivative positions without credit exposure | 1,225.8 | | | | |
| Total notional | $ | 22,863.3 | | | | |
| | (in millions) | (in millions) | December 31, 2020 | (in millions) | December 31, 2021 |
Credit Rating (1) | Credit Rating (1) | Notional Amount | Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparties | Net Credit Exposure to Counterparties | Credit Rating (1) | Notional Amount | Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparties | Net Credit Exposure to Counterparties |
| Non-member counterparties | Non-member counterparties | | Non-member counterparties | |
| Asset positions with credit exposure: | Asset positions with credit exposure: | | Asset positions with credit exposure: | |
| Uncleared derivatives | | |
| | A | $ | 805.0 | | $ | 0.3 | | $ | — | | $ | 0.3 | | |
| | | Cleared derivatives | Cleared derivatives | 16,077.1 | | — | | 135.6 | | 135.6 | | Cleared derivatives | $ | 16,504.7 | | $ | — | | $ | 182.5 | | $ | 182.5 | |
| Liability positions with credit exposure: | Liability positions with credit exposure: | | Liability positions with credit exposure: | |
| Uncleared derivatives | Uncleared derivatives | | Uncleared derivatives | |
| | A | A | 27.3 | | (0.3) | | 0.5 | | 0.2 | | A | 1,435.0 | | (6.7) | | 6.9 | | 0.2 | |
| BBB | BBB | 234.2 | | (1.0) | | 1.2 | | 0.2 | | BBB | 1,241.9 | | (5.8) | | 5.9 | | 0.1 | |
| | Total derivative positions with credit exposure to non-member counterparties | Total derivative positions with credit exposure to non-member counterparties | 17,143.6 | | (1.0) | | 137.3 | | 136.3 | | Total derivative positions with credit exposure to non-member counterparties | 19,181.6 | | (12.5) | | 195.3 | | 182.8 | |
Member institutions (2) | Member institutions (2) | 60.6 | | 0.7 | | — | | 0.7 | | Member institutions (2) | 24.8 | | — | | — | | — | |
| Total | Total | $ | 17,204.2 | | $ | (0.3) | | $ | 137.3 | | $ | 137.0 | | Total | $ | 19,206.4 | | $ | (12.5) | | $ | 195.3 | | $ | 182.8 | |
| Derivative positions without credit exposure | Derivative positions without credit exposure | 237.8 | | | Derivative positions without credit exposure | 8,505.6 | | |
| Total notional | Total notional | $ | 17,442.0 | | | Total notional | $ | 27,712.0 | | |
Notes:
(1) This table does not reflect any changes in rating, outlook or watch status occurring after June 30, 2021.2022. The ratings presented in this table represent the lowest long-term counterparty credit rating available for each counterparty based on the NRSROs used by the Bank.
(2) Member institutions include mortgage delivery commitments.
The Bank annually underwrites each counterparty and country and regularly monitors NRSRO rating actions and other publications to assess credit risk and determine if there have been any changes to credit quality. This includes actively monitoring counterparties with an elevated risk profile and assessing approximate indirect exposure to foreign sovereign debt.
Liquidity and Funding Risk
As a wholesale bank, the Bank employs financial strategies which enable it to expand and contract its assets, liabilities and capital in response to changes in member credit demand, membership composition and other market factors. In addition, the Bank is required to maintain a level of liquidity in accordance with the FHLBank Act, Finance Agency regulations and policies established by its management and board of directors. The Bank’s liquidity resources are designed to support these strategies and requirements through a focus on maintaining a liquidity and funding balance between its financial assets and financial liabilities.
Asset/Liability Maturity Profile. The Bank is focused on maintaining adequate liquidity and funding balances with its financial assets and financial liabilities, and the FHLBanks work collectively to manage system-wide liquidity and funding needs. The FHLBanks jointly monitor the combined risks, primarily by tracking the maturities of financial assets and financial liabilities. The Bank also monitors the funding balance between financial assets and financial liabilities and is committed to prudent risk management practices.practices and complies with FHFA requirements regarding this funding balance. External factors including member borrowing needs, supply and demand in the debt markets, and other factors may affect liquidity balances and the funding balances between financial assets and financial liabilities.
Sources of Liquidity. The Bank's primary sources of liquidity are proceeds from the issuance of consolidated obligations and a liquidity investment portfolio, as well as proceeds from the issuance of capital stock.
Consolidated Obligations. The Bank’s ability to operate its business, meet its obligations and generate net interest income depends primarily on the ability to issue large amounts of various debt structures at attractive rates. Consolidated obligation bonds and discount notes, along with member deposits and capital, represent the primary funding sources used by the Bank to support its asset base. Consolidated obligations benefit from the Bank’s GSE status; however, they are not obligations of the U.S., and the U.S. government does not guarantee them. Consolidated obligation bonds and discount notes are rated Aaa with stable outlook/P-1 by Moody’s and AA+ with stable outlook/A-1+ by S&P, as of June 30, 2021.2022. These ratings measure the likelihood of timely payment of principal and interest. Note 6 - Consolidated Obligations to the unaudited financial statements in this Form 10-Q provides additional information regarding the Bank’s consolidated obligations.
Liquidity Investment Portfolio. The Bank’s liquidity for regulatory purposes is comprised of cash, interest-bearing deposits, certificates of deposit, Federal funds sold, securities purchased under agreements to resell, and U.S. Treasury obligations classified as trading or AFS.
Contingency Liquidity. The Bank’s access to the capital markets has never been interrupted to the extent the Bank’s ability to meet its membership needs and obligations was compromised, and the Bank currently has no reason to believe that its ability to issue consolidated obligations will be impeded to that extent. Specifically, the Bank's sources of contingency liquidity include maturing overnight and short-term investments, maturing advances, unencumbered repurchase-eligible assets, trading securities, AFS securities, certificates of deposits and MBS repayments. Uses of contingency liquidity include net settlements of consolidated obligations, member loan commitments, mortgage loan purchase commitments, deposit outflows and maturing other borrowed funds. Excess contingency liquidity is calculated as the difference between sources and uses of contingency liquidity. Excess contingency liquidity was approximately $18.7$19.4 billion at June 30, 20212022 and $15.7 billion at December 31, 2020.2021.
Funding and Debt Issuance. Changes or disruptions in the capital markets could limit the Bank’s ability to issue consolidated obligations, which could impact the Bank's liquidity and cost of funds. During the first halfsix months of 2021,2022, the Bank maintained continual access to funding. Access to short-term debt markets has been reliable because investors, driven by increased liquidity preferences and risk aversion have sought the FHLBank’s short-term debt as an asset of choice, including funding indexed to Secured Overnight Financing Rate (SOFR). This has led to advantageous funding opportunities and increased utilization of debt maturing in one year or less. The FHLBanks have maintained comparatively stable access to funding through a diverse investor base at relatively favorable spreads to U.S. Treasury rates.
Refinancing Risk. There are inherent risks in utilizing short-term funding to support longer-dated assets and the Bank may be exposed to refinancing and investor concentration risks (collectively, refinancing risk). Refinancing risk includes the risk the Bank could have difficulty in rolling over short-term obligations when market conditions change. In managing and monitoring the amounts of financial assets that require refinancing, the Bank considers their contractual maturities, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments, embedded call optionality, and scheduled amortizations). The Bank and the Office of Finance (OF) jointly monitor the combined refinancing risk of the FHLBank system. In managing and monitoring the amounts of assets that require refunding, the Bank may consider contractual maturities
of the financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations).
Interest Rate Risk. The Bank may use a portion of the short-term consolidated obligations issued to fund both short- and long-term variable rate-indexed assets. However, funding longer-term variable rate-indexed assets with shorter-term liabilities generally does not expose the Bank to interest rate risk because the rates on the variable rate-indexed assets reset similar to the liabilities. The Bank measures and monitors interest rate-risk with commonly used methods and metrics, which include the calculations of market value of equity, duration of equity, and duration gap.
Regulatory Liquidity Requirements. The Bank is required to maintain a level of liquidity in accordance with certain Finance Agency guidance. Under these policies and guidelines, the Bank is required to maintain contingency liquidity to meet liquidity needs in an amount at least equal to its anticipated net cash outflows under certain scenarios. One scenario assumes that the Bank cannot access the capital markets for a period of 20 days and during that time members would renew any maturing, prepaid or called advances. In addition, the Bank is required to perform and report to the Finance Agency the results of an annual liquidity stress test. The Bank was in compliance with these requirements at June 30, 2021.2022. Refer to the Liquidity and Funding Risk section in Item 7. of the Bank's 20202021 Form 10-K for additional information.
Joint and Several Liability. Although the Bank is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), the Bank is also jointly and severally liable with the other 10 FHLBanks for the payment of principal and interest on consolidated obligations of all the FHLBanks. The Finance Agency, in its discretion and notwithstanding any other provisions, may at any time order any FHLBank to make principal or interest payments due on any consolidated obligation, even in the absence of default by the primary obligor. To the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the non-paying FHLBank, which has a corresponding obligation to reimburse the FHLBank to the extent of such assistance and other associated costs. However, if the Finance Agency determines that the non-paying FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis the Finance Agency may determine. Finance Agency regulations govern the issuance of debt on behalf of the FHLBanks and authorize the FHLBanks to issue consolidated obligations, through the OF as its agent. The Bank is not permitted to issue individual debt without Finance Agency approval. See Note 6 - Consolidated Obligations of the audited financial statements in Item 8. Financial Statements and Supplementary Financial Data in the Bank's 20202021 Form 10-K for additional information.
Operational and Business Risks
Operational Risk. Operational Risk is defined as the potential for loss resulting from inadequate or failed internal processes, people, and systems, or from external events and encompasses risks related to housing mission-related activities, including activities associated with affordable housing programs or goals. The Bank considers various sources of risk of unexpected loss, including human error, fraud, unenforceability of legal contracts, deficiencies in internal controls and/or information systems, or damage from fire, theft, natural disaster or acts of terrorism. Generally, the category of operational risk includes loss exposures of a physical or procedural nature. Specifically, operational risk includes compliance, fraud, information/transaction, legal, cyber, vendor, people, succession and model risk. The Bank has established policies and procedures to manage each of the specific operational risks.
While the Bank’s business operations have not been significantly disrupted to date, they may be disrupted if significant portions of the Bank’s workforce are unable to work effectively due to illness, quarantines, government actions, or other restrictions in connection with the COVID-19 pandemic. The Bank is reliant on third-party vendors who are also impacted by the COVID-19 pandemic. Vendor personnel may be working remotely and/or the vendors could have a shortage of personnel. While theThe Bank has not materially experienced this during the pandemic to date and the Bank continues to monitor vendors afor factors such as disruption delay or failure of a critical third-party vendor’s services as a result of these factorsdelays which could impact the Bank’s operating results, and the Bank’s ability to provide services to the membership.
Business Risk. Business risk is the possibility of an adverse impact on the Bank’s profitability or financial or business strategies resulting from external factors that may occur in the short-term and/or long-term. This risk includes the potential for strategic business constraints to be imposed through regulatory, legislative or political changes. The Bank’s Risk Management Committee monitors economic indicators and the external environment in which the Bank operates for alignment with the Bank's risk appetite.
The Bank continues to evaluate its risks and monitor the changes in the market as it relates to the cessation of LIBOR and the transition to an alternative rate (e.g., SOFR). In March 2021, the FCA confirmed that keyKey LIBOR settings will cease as of June 30, 2023. The Bank has developed a LIBOR transition plan which addresses considerations such as: exposure, fallback language, systems preparation, and balance sheet management. In addition, the Bank has changed the index upon which it bases risk measures and executive compensation from LIBOR to average Federal funds rate.
The Bank has assessed its exposure to LIBOR by developing an inventory of impacted financial instruments. The Bank manages interest rate risk between its assets and liabilities by entering into derivatives to preserve the value of and earn stable returns on its assets. These instruments may have different fallback features when LIBOR ceases. The following table presents the Bank’s LIBOR-indexed financial instruments, excluding interest rate caps, by contractual maturity as of June 30, 2021.2022.
| | (in millions) | (in millions) | Prior to June 30, 2023 | Thereafter | Total | (in millions) | Prior to June 30, 2023 | Thereafter | Total |
| Assets Indexed to LIBOR | Assets Indexed to LIBOR | | | Assets Indexed to LIBOR | | |
| Principal Amount: | Principal Amount: | | | Principal Amount: | | |
| Advances | Advances | $ | 1,885.0 | | $ | 93.1 | | $ | 1,978.1 | | Advances | $ | 50.0 | | $ | 93.1 | | $ | 143.1 | |
| Investments: | Investments: | | | Investments: | | |
| | MBS | MBS | 20.1 | | 5,493.9 | | 5,514.0 | | MBS | 6.1 | | 4,149.4 | | 4,155.5 | |
| Derivatives Hedging Assets (Receive Leg LIBOR) | Derivatives Hedging Assets (Receive Leg LIBOR) | | | Derivatives Hedging Assets (Receive Leg LIBOR) | | |
| Notional Amount: | Notional Amount: | | | Notional Amount: | | |
| Cleared | Cleared | 4,449.2 | | 1,976.7 | | 6,425.9 | | Cleared | 1,801.5 | | 1,972.7 | | 3,774.2 | |
| Uncleared | Uncleared | 25.5 | | 26.1 | | 51.6 | | Uncleared | 7.7 | | 11.7 | | 19.4 | |
| Total Principal/Notional Amounts | Total Principal/Notional Amounts | $ | 6,379.8 | | $ | 7,589.8 | | $ | 13,969.6 | | Total Principal/Notional Amounts | $ | 1,865.3 | | $ | 6,226.9 | | $ | 8,092.2 | |
| | Liabilities Indexed to LIBOR | Liabilities Indexed to LIBOR | | | Liabilities Indexed to LIBOR | | |
| Principal Amount: | Principal Amount: | | | Principal Amount: | | |
| Consolidated Obligations | Consolidated Obligations | $ | 1,790.0 | | $ | — | | $ | 1,790.0 | | Consolidated Obligations | $ | — | | $ | — | | $ | — | |
| Derivatives Hedging Liabilities (Pay Leg LIBOR) | Derivatives Hedging Liabilities (Pay Leg LIBOR) | | | Derivatives Hedging Liabilities (Pay Leg LIBOR) | | |
| Notional Amount: | Notional Amount: | | | Notional Amount: | | |
| Cleared | Cleared | 1,521.2 | | 60.0 | | 1,581.2 | | Cleared | 407.2 | | 60.0 | | 467.2 | |
| Uncleared | Uncleared | 40.0 | | — | | 40.0 | | Uncleared | | — | |
| Total Principal/Notional Amounts | Total Principal/Notional Amounts | $ | 3,351.2 | | $ | 60.0 | | $ | 3,411.2 | | Total Principal/Notional Amounts | $ | 407.2 | | $ | 60.0 | | $ | 467.2 | |
To assess trigger events requiring potential fallback language, the Bank has evaluated its contracts. As toThe Bank has also added or adjusted fallback language in advance contracts with its members, the Bank has added or adjusted fallback language.members. Similarly, fallback language has been added to consolidated obligation agreements. For derivatives, refer to Legislative and Regulatory Developments in Item 7 in the Bank's 2020 Form 10-K for more information on LIBOR transition ISDA fallbacks protocol. AsWith respect to investments, held by the Bank believes that are tied tothe LIBOR Act, which was signed into law in March 2022, will facilitate the Bank is monitoring market-wide efforts to enhance fallback language for new activity and develop frameworkstransition of its LIBOR-based investments that lack adequate language/provisions to address existing transactions.LIBOR’s permanent cessations. The operational impact of adjusting terms and conditions to reflect the fallback language may be impacted by the number of financial instruments and counterparties.
The Bank continues to execute certain variable rate instruments that are indexed to LIBOR. The Bank is assessingenhance its operational readiness including potential effects on core Bank systems.and modeling capabilities for alternative reference rates such as SOFR by testing and installing vendor releases. From a balance sheet management perspective, the Bank has issued SOFR-indexed debt and SOFR-indexed advance products. Additionally, the Bank has been executing Overnight Index Swap (OIS) and SOFR indexed derivatives as alternative interest rate hedging strategies. The Bank is no longer issuing new financial instruments indexed to LIBOR. The following table presents the Bank’s variable rate financial instruments, excluding interest rate caps, by index as of June 30, 2021.2022.
| | (in millions) | (in millions) | LIBOR | SOFR | OIS | Other | Total | (in millions) | LIBOR | SOFR | OIS | Other | Total |
| Assets Indexed to a Variable Rate | Assets Indexed to a Variable Rate | | | Assets Indexed to a Variable Rate | | |
| Principal Amount: | Principal Amount: | | | Principal Amount: | | |
| Advances | Advances | $ | 1,978.1 | | $ | 24.9 | | $ | — | | $ | 115.0 | | $ | 2,118.0 | | Advances | $ | 143.1 | | $ | 10,178.3 | | $ | — | | $ | 1,298.7 | | $ | 11,620.1 | |
| Investments: | Investments: | | | Investments: | | |
| | MBS | MBS | 5,514.0 | | — | | — | | 81.9 | | 5,595.9 | | MBS | 4,155.5 | | 314.4 | | — | | 66.7 | | 4,536.6 | |
| Derivatives Hedging Assets (Receive Leg Variable Rate) | Derivatives Hedging Assets (Receive Leg Variable Rate) | | | Derivatives Hedging Assets (Receive Leg Variable Rate) | | |
| Notional Amount | Notional Amount | 6,477.5 | | 7,105.4 | | 1,057.9 | | — | | 14,640.8 | | Notional Amount | 3,793.6 | | 12,311.6 | | 358.9 | | — | | 16,464.1 | |
| Total Principal/Notional Amounts | Total Principal/Notional Amounts | $ | 13,969.6 | | $ | 7,130.3 | | $ | 1,057.9 | | $ | 196.9 | | $ | 22,354.7 | | Total Principal/Notional Amounts | $ | 8,092.2 | | $ | 22,804.3 | | $ | 358.9 | | $ | 1,365.4 | | $ | 32,620.8 | |
| | Liabilities Indexed to a Variable Rate | Liabilities Indexed to a Variable Rate | | | Liabilities Indexed to a Variable Rate | | |
| Principal Amount: | Principal Amount: | | | Principal Amount: | | |
| Consolidated Obligations | Consolidated Obligations | $ | 1,790.0 | | $ | 1,375.0 | | $ | — | | $ | — | | $ | 3,165.0 | | Consolidated Obligations | $ | — | | $ | 1,595.0 | | $ | — | | $ | — | | $ | 1,595.0 | |
| Derivatives Hedging Liabilities (Pay Leg Variable Rate) | Derivatives Hedging Liabilities (Pay Leg Variable Rate) | | | Derivatives Hedging Liabilities (Pay Leg Variable Rate) | | |
| Notional Amount | Notional Amount | 1,621.2 | | 4,909.0 | | 602.0 | | — | | 7,132.2 | | Notional Amount | 467.2 | | 24,865.5 | | 1,048.0 | | — | | 26,380.7 | |
| Total Principal/Notional Amounts | Total Principal/Notional Amounts | $ | 3,411.2 | | $ | 6,284.0 | | $ | 602.0 | | $ | — | | $ | 10,297.2 | | Total Principal/Notional Amounts | $ | 467.2 | | $ | 26,460.5 | | $ | 1,048.0 | | $ | — | | $ | 27,975.7 | |
On July 1,In 2021, the Finance Agency issued a Supervisory Letter to the FHLBanks regarding its expectations regarding an FHLBank’s use of alternative rates other than SOFR or other rates currently used by the Bank. The Supervisory Letter provides guidance on considerations, such as volume of underlying transactions, credit sensitivity, modeling risk and others, that an FHLBank should take into account prior to employing an alternative reference rate. In addition, if the Bank intends to use an alternative rate not already used, it needs to provide notice to the Finance Agency.
For additional information on operating and business risks to the Bank associated with the LIBOR transition, including those items that are dependent actions by third parties and developments in the market,, see Risk Factors in Item 1A and the "Operating and Business Risks" discussion in the Risk Management section and Legislative and Regulatory Developments of Item 7. in the Bank's 20202021 Form 10-K as well as Legislative and Regulatory Developments in Item 2. in this Form 10-Q.
Item 1: Financial Statements (unaudited)
Federal Home Loan Bank of Pittsburgh
Statements of Income (unaudited)
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Interest income: | Interest income: | | | | Interest income: | | | |
| Advances | Advances | $ | 31,269 | | $ | 170,477 | | $ | 81,284 | | $ | 453,752 | | Advances | $ | 84,301 | | $ | 31,269 | | $ | 110,997 | | $ | 81,284 | |
| Interest-bearing deposits | Interest-bearing deposits | 205 | | 360 | | 586 | | 5,367 | | Interest-bearing deposits | 3,014 | | 205 | | 3,375 | | 586 | |
| Securities purchased under agreements to resell | Securities purchased under agreements to resell | 136 | | 240 | | 264 | | 7,629 | | Securities purchased under agreements to resell | 4,482 | | 136 | | 4,714 | | 264 | |
| Federal funds sold | Federal funds sold | 486 | | 1,239 | | 1,312 | | 26,454 | | Federal funds sold | 8,064 | | 486 | | 9,269 | | 1,312 | |
| Trading securities | Trading securities | 4,245 | | 14,598 | | 8,576 | | 32,731 | | Trading securities | 1,856 | | 4,245 | | 3,712 | | 8,576 | |
| Available-for-sale (AFS) securities | Available-for-sale (AFS) securities | 23,179 | | 43,192 | | 50,297 | | 106,569 | | Available-for-sale (AFS) securities | 40,894 | | 23,179 | | 65,722 | | 50,297 | |
| Held-to-maturity (HTM) securities | Held-to-maturity (HTM) securities | 8,651 | | 13,632 | | 18,125 | | 32,116 | | Held-to-maturity (HTM) securities | 6,745 | | 8,651 | | 13,462 | | 18,125 | |
| Mortgage loans held for portfolio | Mortgage loans held for portfolio | 30,800 | | 40,591 | | 63,118 | | 85,629 | | Mortgage loans held for portfolio | 33,214 | | 30,800 | | 65,745 | | 63,118 | |
| Total interest income | Total interest income | 98,971 | | 284,329 | | 223,562 | | 750,247 | | Total interest income | 182,570 | | 98,971 | | 276,996 | | 223,562 | |
| Interest expense: | Interest expense: | | | | | Interest expense: | | | | |
| Consolidated obligations - discount notes | Consolidated obligations - discount notes | 1,420 | | 57,364 | | 4,095 | | 158,434 | | Consolidated obligations - discount notes | 35,967 | | 1,420 | | 39,162 | | 4,095 | |
| Consolidated obligations - bonds | Consolidated obligations - bonds | 57,716 | | 120,268 | | 119,742 | | 381,427 | | Consolidated obligations - bonds | 77,888 | | 57,716 | | 124,452 | | 119,742 | |
| Deposits | Deposits | 39 | | 16 | | 64 | | 1,801 | | Deposits | 1,436 | | 39 | | 1,670 | | 64 | |
| Mandatorily redeemable capital stock and other borrowings | Mandatorily redeemable capital stock and other borrowings | 864 | | 3,910 | | 2,767 | | 10,055 | | Mandatorily redeemable capital stock and other borrowings | 343 | | 864 | | 628 | | 2,767 | |
| Total interest expense | Total interest expense | 60,039 | | 181,558 | | 126,668 | | 551,717 | | Total interest expense | 115,634 | | 60,039 | | 165,912 | | 126,668 | |
| Net interest income | Net interest income | 38,932 | | 102,771 | | 96,894 | | 198,530 | | Net interest income | 66,936 | | 38,932 | | 111,084 | | 96,894 | |
| Provision (benefit) for credit losses | (309) | | 944 | | (1,418) | | 4,392 | | |
| Net interest income after provision (benefit) for credit losses | 39,241 | | 101,827 | | 98,312 | | 194,138 | | |
| Other noninterest income (loss): | | |
| Provision (reversal) for credit losses | | Provision (reversal) for credit losses | 1,138 | | (309) | | 2,203 | | (1,418) | |
| Net interest income after provision (reversal) for credit losses | | Net interest income after provision (reversal) for credit losses | 65,798 | | 39,241 | | 108,881 | | 98,312 | |
| Noninterest income (loss): | | Noninterest income (loss): | |
| | Net gains (losses) on investment securities (Note 2) | Net gains (losses) on investment securities (Note 2) | (1,837) | | (3,263) | | (12,714) | | 59,191 | | Net gains (losses) on investment securities (Note 2) | (6,408) | | (1,837) | | (19,908) | | (12,714) | |
| Net gains (losses) on derivatives and hedging activities (Note 5) | Net gains (losses) on derivatives and hedging activities (Note 5) | (7,933) | | (3,864) | | 5,734 | | (101,274) | | Net gains (losses) on derivatives and hedging activities (Note 5) | 1,214 | | (7,933) | | 8,761 | | 5,734 | |
| Standby letters of credit fees | Standby letters of credit fees | 5,703 | | 5,229 | | 11,560 | | 10,612 | | Standby letters of credit fees | 5,605 | | 5,703 | | 11,296 | | 11,560 | |
| Other, net | Other, net | 1,115 | | 2,043 | | 1,838 | | 283 | | Other, net | 115 | | 1,115 | | 398 | | 1,838 | |
| Total other noninterest income (loss) | (2,952) | | 145 | | 6,418 | | (31,188) | | |
| Total noninterest income (loss) | | Total noninterest income (loss) | 526 | | (2,952) | | 547 | | 6,418 | |
| Other expense: | Other expense: | | Other expense: | |
| Compensation and benefits | Compensation and benefits | 11,616 | | 16,518 | | 27,210 | | 26,346 | | Compensation and benefits | 13,835 | | 11,616 | | 25,860 | | 27,211 | |
| Other operating | Other operating | 9,073 | | 14,881 | | 16,373 | | 21,998 | | Other operating | 8,424 | | 9,073 | | 16,251 | | 16,373 | |
| Finance Agency | Finance Agency | 1,616 | | 1,894 | | 3,236 | | 3,794 | | Finance Agency | 1,146 | | 1,616 | | 2,421 | | 3,235 | |
| Office of Finance | Office of Finance | 861 | | 1,223 | | 2,301 | | 2,752 | | Office of Finance | 1,229 | | 861 | | 2,415 | | 2,301 | |
| Total other expense | Total other expense | 23,166 | | 34,516 | | 49,120 | | 54,890 | | Total other expense | 24,634 | | 23,166 | | 46,947 | | 49,120 | |
| Income before assessments | Income before assessments | 13,123 | | 67,456 | | 55,610 | | 108,060 | | Income before assessments | 41,690 | | 13,123 | | 62,481 | | 55,610 | |
| Affordable Housing Program (AHP) assessment | Affordable Housing Program (AHP) assessment | 1,399 | | 7,136 | | 5,838 | | 11,811 | | Affordable Housing Program (AHP) assessment | 4,203 | | 1,399 | | 6,311 | | 5,838 | |
| Net income | Net income | $ | 11,724 | | $ | 60,320 | | $ | 49,772 | | $ | 96,249 | | Net income | $ | 37,487 | | $ | 11,724 | | $ | 56,170 | | $ | 49,772 | |
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of Pittsburgh
Statements of Comprehensive Income (Loss) (unaudited)
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Net income | Net income | $ | 11,724 | | $ | 60,320 | | $ | 49,772 | | $ | 96,249 | | Net income | $ | 37,487 | | $ | 11,724 | | $ | 56,170 | | $ | 49,772 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Net unrealized gains (losses) on AFS securities | Net unrealized gains (losses) on AFS securities | (7,550) | | 88,564 | | (11,774) | | 21,190 | | Net unrealized gains (losses) on AFS securities | (26,008) | | (7,550) | | (105,408) | | (11,774) | |
| Reclassification of net (gains) included in net income relating to hedging activities | 0 | | (148) | | 0 | | (149) | | |
| Realized (gains) losses on AFS securities included in net income | | Realized (gains) losses on AFS securities included in net income | (227) | | — | | (227) | | — | |
| | Pension and post-retirement benefits | Pension and post-retirement benefits | 1,667 | | 868 | | 1,852 | | 1,037 | | Pension and post-retirement benefits | 235 | | 1,667 | | 378 | | 1,852 | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | (5,883) | | 89,284 | | (9,922) | | 22,078 | | Total other comprehensive income (loss) | (26,000) | | (5,883) | | (105,257) | | (9,922) | |
| Total comprehensive income (loss) | $ | 5,841 | | $ | 149,604 | | $ | 39,850 | | $ | 118,327 | | |
| Total Comprehensive income (loss) | | Total Comprehensive income (loss) | $ | 11,487 | | $ | 5,841 | | $ | (49,087) | | $ | 39,850 | |
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of Pittsburgh
Statements of Condition (unaudited)
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| ASSETS | ASSETS | | ASSETS | |
| Cash and due from banks | Cash and due from banks | $ | 545,056 | | $ | 1,036,459 | | Cash and due from banks | $ | 371,475 | | $ | 428,190 | |
| Interest-bearing deposits (Note 2) | Interest-bearing deposits (Note 2) | 353,756 | | 956,628 | | Interest-bearing deposits (Note 2) | 747,068 | | 528,476 | |
| Securities purchased under agreements to resell (Note 2) | | Securities purchased under agreements to resell (Note 2) | 3,350,000 | | 1,670,000 | |
| Federal funds sold (Note 2) | Federal funds sold (Note 2) | 2,275,000 | | 1,850,000 | | Federal funds sold (Note 2) | 3,800,000 | | 1,975,000 | |
| Securities purchased under agreements to resell (Note 2) | 3,450,000 | | 600,000 | | |
Investment securities: (Note 2) | Investment securities: (Note 2) | | | Investment securities: (Note 2) | | |
| Trading securities | Trading securities | 864,226 | | 1,156,003 | | Trading securities | 238,222 | | 243,262 | |
| AFS securities, net; amortized cost of $12,528,439 and $9,335,210, respectively | 12,657,633 | | 9,476,385 | | |
| HTM securities; fair value of $1,486,946 and $2,557,128, respectively | 1,431,881 | | 2,483,730 | | |
| AFS securities, net; amortized cost of $12,110,836 and $12,354,656 | | AFS securities, net; amortized cost of $12,110,836 and $12,354,656 | 12,115,183 | | 12,467,293 | |
| HTM securities; fair value of $1,030,945 and $1,248,363 | | HTM securities; fair value of $1,030,945 and $1,248,363 | 1,073,562 | | 1,213,872 | |
| Total investment securities | Total investment securities | 14,953,740 | | 13,116,118 | | Total investment securities | 13,426,967 | | 13,924,427 | |
| Advances (Note 3) | Advances (Note 3) | 14,954,724 | | 24,971,119 | | Advances (Note 3) | 35,243,932 | | 14,124,375 | |
| Mortgage loans held for portfolio, net (Note 4) | Mortgage loans held for portfolio, net (Note 4) | 4,774,417 | | 4,886,207 | | Mortgage loans held for portfolio, net (Note 4) | 4,658,273 | | 4,676,183 | |
| Banking on Business (BOB) loans, net | Banking on Business (BOB) loans, net | 22,850 | | 21,236 | | Banking on Business (BOB) loans, net | 20,320 | | 22,501 | |
| Accrued interest receivable | Accrued interest receivable | 82,907 | | 90,702 | | Accrued interest receivable | 105,094 | | 74,660 | |
| Derivative assets (Note 5) | Derivative assets (Note 5) | 204,235 | | 137,042 | | Derivative assets (Note 5) | 286,878 | | 182,853 | |
| Other assets | Other assets | 45,505 | | 47,380 | | Other assets | 38,800 | | 44,609 | |
| Total assets | Total assets | $ | 41,662,190 | | $ | 47,712,891 | | Total assets | $ | 62,048,807 | | $ | 37,651,274 | |
| | LIABILITIES AND CAPITAL | LIABILITIES AND CAPITAL | | LIABILITIES AND CAPITAL | |
| Liabilities | Liabilities | | Liabilities | |
| Deposits | Deposits | $ | 940,937 | | $ | 923,371 | | Deposits | $ | 736,267 | | $ | 1,087,507 | |
Consolidated obligations: (Note 6) | Consolidated obligations: (Note 6) | | | Consolidated obligations: (Note 6) | | |
| Discount notes | Discount notes | 15,112,780 | | 9,510,085 | | Discount notes | 24,830,505 | | 10,493,617 | |
| Bonds | Bonds | 22,514,270 | | 33,854,754 | | Bonds | 32,700,999 | | 23,105,738 | |
| Total consolidated obligations | Total consolidated obligations | 37,627,050 | | 43,364,839 | | Total consolidated obligations | 57,531,504 | | 33,599,355 | |
| Mandatorily redeemable capital stock (Note 7) | Mandatorily redeemable capital stock (Note 7) | 62,390 | | 142,807 | | Mandatorily redeemable capital stock (Note 7) | 22,350 | | 22,457 | |
| Accrued interest payable | Accrued interest payable | 57,159 | | 64,950 | | Accrued interest payable | 88,784 | | 59,123 | |
| AHP payable | AHP payable | 92,204 | | 102,186 | | AHP payable | 70,489 | | 81,152 | |
| Derivative liabilities (Note 5) | Derivative liabilities (Note 5) | 14,177 | | 4,459 | | Derivative liabilities (Note 5) | 47,006 | | 5,845 | |
| Other liabilities | Other liabilities | 150,765 | | 68,361 | | Other liabilities | 54,452 | | 60,183 | |
| Total liabilities | Total liabilities | 38,944,682 | | 44,670,973 | | Total liabilities | 58,550,852 | | 34,915,622 | |
| Commitments and contingencies (Note 10) | Commitments and contingencies (Note 10) | 0 | Commitments and contingencies (Note 10) | 0 |
Capital (Note 7) | Capital (Note 7) | | | Capital (Note 7) | | |
Capital stock - putable ($100 par value) issued and outstanding 12,030 and 15,278 shares, respectively | 1,202,989 | | 1,527,841 | | |
Capital stock - putable ($100 par value) issued and outstanding shares 20,630 and 12,270, respectively | | Capital stock - putable ($100 par value) issued and outstanding shares 20,630 and 12,270, respectively | 2,063,049 | | 1,227,050 | |
| Retained earnings: | Retained earnings: | | | Retained earnings: | | |
| Unrestricted | Unrestricted | 929,737 | | 919,373 | | Unrestricted | 965,097 | | 941,033 | |
| Restricted | Restricted | 457,378 | | 457,378 | | Restricted | 464,875 | | 457,378 | |
| Total retained earnings | Total retained earnings | 1,387,115 | | 1,376,751 | | Total retained earnings | 1,429,972 | | 1,398,411 | |
| Accumulated Other Comprehensive Income (AOCI) | Accumulated Other Comprehensive Income (AOCI) | 127,404 | | 137,326 | | Accumulated Other Comprehensive Income (AOCI) | 4,934 | | 110,191 | |
| Total capital | Total capital | 2,717,508 | | 3,041,918 | | Total capital | 3,497,955 | | 2,735,652 | |
| Total liabilities and capital | Total liabilities and capital | $ | 41,662,190 | | $ | 47,712,891 | | Total liabilities and capital | $ | 62,048,807 | | $ | 37,651,274 | |
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of Pittsburgh
Statements of Cash Flows (unaudited)
| | | | Six months ended June 30, | | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | (in thousands) | 2022 | 2021 |
| OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | OPERATING ACTIVITIES | | |
| Net income | Net income | $ | 49,772 | | $ | 96,249 | | Net income | $ | 56,170 | | $ | 49,772 | |
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: | Adjustments to reconcile net income to net cash provided by
(used in) operating activities: | | Adjustments to reconcile net income to net cash provided by
(used in) operating activities: | |
| Depreciation and amortization | 6,919 | | (10,446) | | |
| Net change in derivatives and hedging activities | 150,279 | | (392,592) | | |
| | Depreciation and amortization (accretion) | | Depreciation and amortization (accretion) | 17,513 | | 6,919 | |
| Net change in derivative and hedging activities | | Net change in derivative and hedging activities | 642,828 | | 150,279 | |
| Net realized (gains) from sales of AFS securities | | Net realized (gains) from sales of AFS securities | (227) | | — | |
| Net change in fair value adjustments on trading securities | Net change in fair value adjustments on trading securities | 12,714 | | 0 | | Net change in fair value adjustments on trading securities | 20,135 | | 12,714 | |
| Other adjustments, net | Other adjustments, net | (437) | | 5,401 | | Other adjustments, net | 3,105 | | (437) | |
| Net change in: | Net change in: | | Net change in: | |
| Trading securities | 0 | | (72,042) | | |
| Accrued interest receivable | Accrued interest receivable | 7,876 | | 61,661 | | Accrued interest receivable | (31,240) | | 7,876 | |
| Other assets | Other assets | 1,563 | | (522) | | Other assets | 2,998 | | 1,563 | |
| Accrued interest payable | Accrued interest payable | (7,791) | | (107,213) | | Accrued interest payable | 29,664 | | (7,791) | |
| Other liabilities | Other liabilities | (23,488) | | (10,265) | | Other liabilities | (16,363) | | (23,488) | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 197,407 | | $ | (429,769) | | Net cash provided by (used in) operating activities | $ | 724,583 | | $ | 197,407 | |
| INVESTING ACTIVITIES | INVESTING ACTIVITIES | | INVESTING ACTIVITIES | |
| Net change in: | Net change in: | | Net change in: | |
| Interest-bearing deposits (including $(96) and $(1,436) (to) from other FHLBanks) | $ | 531,167 | | $ | (188,644) | | |
| Interest-bearing deposits (including $134 and $(96) (to) from other FHLBanks) | | Interest-bearing deposits (including $134 and $(96) (to) from other FHLBanks) | $ | (900,229) | | $ | 531,167 | |
| Securities purchased under agreements to resell | | Securities purchased under agreements to resell | (1,680,000) | | (2,850,000) | |
| Federal funds sold | Federal funds sold | (425,000) | | 930,000 | | Federal funds sold | (1,825,000) | | (425,000) | |
| Securities purchased under agreements to resell | (2,850,000) | | 600,000 | | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Proceeds | Proceeds | 675,091 | | — | | Proceeds | — | | 675,091 | |
| Purchases | Purchases | (399,875) | | — | | Purchases | (14,944) | | (399,875) | |
| AFS securities: | AFS securities: | | AFS securities: | |
| Proceeds | 1,173,684 | | 1,230,536 | | |
| Proceeds (includes $176,407 from sales of AFS securities in 2022) | | Proceeds (includes $176,407 from sales of AFS securities in 2022) | 908,406 | | 1,173,684 | |
| Purchases | Purchases | (4,309,715) | | (626,110) | | Purchases | (1,026,201) | | (4,309,715) | |
| HTM securities: | HTM securities: | | HTM securities: | |
| Proceeds | Proceeds | 1,548,711 | | 920,165 | | Proceeds | 239,798 | | 1,548,711 | |
| Purchases | Purchases | (500,000) | | (490,908) | | Purchases | (101,553) | | (500,000) | |
| Advances: | Advances: | | Advances: | |
| Repaid | Repaid | 17,751,751 | | 296,437,670 | | Repaid | 102,348,772 | | 17,751,751 | |
| Originated | Originated | (7,849,753) | | (280,129,780) | | Originated | (123,722,718) | | (7,849,753) | |
| Mortgage loans held for portfolio: | Mortgage loans held for portfolio: | | Mortgage loans held for portfolio: | |
| Proceeds | 888,644 | | 593,719 | | |
| Principal collected | | Principal collected | 384,662 | | 888,644 | |
| Purchases | Purchases | (795,339) | | (730,655) | | Purchases | (377,975) | | (795,339) | |
| Other investing activities, net | Other investing activities, net | (1,526) | | (285) | | Other investing activities, net | 232 | | (1,526) | |
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | $ | 5,437,840 | | $ | 18,545,708 | | Net cash provided by (used in) investing activities | $ | (25,766,750) | | $ | 5,437,840 | |
The accompanying notes are an integral part of these financial statements. |
The accompanying notes are an integral part of these financial statements. |
The accompanying notes are an integral part of these financial statements. |
|
| | Federal Home Loan Bank of Pittsburgh Statements of Cash Flows (unaudited) | Federal Home Loan Bank of Pittsburgh Statements of Cash Flows (unaudited) | Federal Home Loan Bank of Pittsburgh Statements of Cash Flows (unaudited) |
| (continued) | (continued) | (continued) |
| | Six months ended June 30, | | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | (in thousands) | 2022 | 2021 |
| FINANCING ACTIVITIES | FINANCING ACTIVITIES | | FINANCING ACTIVITIES | |
| Net change in deposits | Net change in deposits | $ | 17,679 | | $ | 372,368 | | Net change in deposits | $ | (348,723) | | $ | 17,679 | |
| 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 | 82,452,989 | | 157,018,954 | | Discount notes | 152,234,378 | | 82,452,989 | |
| Bonds | Bonds | 12,130,263 | | 21,254,195 | | Bonds | 15,456,269 | | 12,130,263 | |
| 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 | (76,848,464) | | (154,099,672) | | Discount notes | (137,918,245) | | (76,848,464) | |
| Bonds | Bonds | (23,434,440) | | (41,493,735) | | Bonds | (5,249,510) | | (23,434,440) | |
| Proceeds from issuance of capital stock | Proceeds from issuance of capital stock | 367,362 | | 2,481,356 | | Proceeds from issuance of capital stock | 2,159,649 | | 367,362 | |
| Payments for repurchase/redemption of capital stock | Payments for repurchase/redemption of capital stock | (692,214) | | (3,125,475) | | Payments for repurchase/redemption of capital stock | (1,323,650) | | (692,214) | |
| Payments for repurchase/redemption of mandatorily redeemable capital stock | Payments for repurchase/redemption of mandatorily redeemable capital stock | (80,417) | | (79,150) | | Payments for repurchase/redemption of mandatorily redeemable capital stock | (107) | | (80,417) | |
| Cash dividends paid | Cash dividends paid | (39,408) | | (97,399) | | Cash dividends paid | (24,609) | | (39,408) | |
| Partial recovery of prior capital distribution to Financing Corporation | — | | 8,541 | | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | $ | (6,126,650) | | $ | (17,760,017) | | Net cash provided by (used in) financing activities | $ | 24,985,452 | | $ | (6,126,650) | |
| Net increase (decrease) in cash and due from banks | Net increase (decrease) in cash and due from banks | $ | (491,403) | | $ | 355,922 | | Net increase (decrease) in cash and due from banks | $ | (56,715) | | $ | (491,403) | |
| Cash and due from banks at beginning of the period | Cash and due from banks at beginning of the period | 1,036,459 | | 21,490 | | Cash and due from banks at beginning of the period | 428,190 | | 1,036,459 | |
| Cash and due from banks at end of the period | Cash and due from banks at end of the period | $ | 545,056 | | $ | 377,412 | | Cash and due from banks at end of the period | $ | 371,475 | | $ | 545,056 | |
| Supplemental disclosures: | Supplemental disclosures: | | Supplemental disclosures: | |
| Cash activities: | | Cash activities: | |
| Interest paid | Interest paid | $ | 150,782 | | $ | 651,066 | | Interest paid | $ | 140,064 | | $ | 150,782 | |
| AHP payments | 15,821 | | 14,520 | | |
| Non-cash activities: | | |
| Capital stock reclassified to mandatorily redeemable capital stock | 0 | | (39,457) | | |
| AHP payments, net | | AHP payments, net | 16,974 | | 15,821 | |
|
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of Pittsburgh
Statements of Changes in Capital (unaudited)
| | | | Capital Stock - Putable | Retained Earnings | | | Capital Stock - Putable | Retained Earnings | |
| (in thousands) | (in thousands) | Shares | Par Value | Unrestricted | Restricted | Total | AOCI | Total Capital | (in thousands) | Shares | Par Value | Unrestricted | Restricted | Total | AOCI | Total Capital |
| March 31, 2020 | 36,299 | | $ | 3,629,937 | | $ | 883,432 | | $ | 422,474 | | $ | 1,305,906 | | $ | 24,620 | | $ | 4,960,463 | | |
| | Comprehensive income | — | | — | | 48,256 | | 12,064 | | 60,320 | | 89,284 | | 149,604 | | |
| March 31, 2021 | | March 31, 2021 | 13,287 | | $ | 1,328,659 | | $ | 935,617 | | $ | 457,378 | | $ | 1,392,995 | | $ | 133,287 | | $ | 2,854,941 | |
| Comprehensive income (loss) | | Comprehensive income (loss) | — | | — | | 11,724 | | — | | 11,724 | | (5,883) | | 5,841 | |
| Issuance of capital stock | Issuance of capital stock | 2,976 | | 297,636 | | — | | — | | — | | — | | 297,636 | | Issuance of capital stock | 2,009 | | 200,913 | | — | | — | | — | | — | | 200,913 | |
| Repurchase/redemption of capital stock | Repurchase/redemption of capital stock | (15,167) | | (1,516,716) | | — | | — | | — | | — | | (1,516,716) | | Repurchase/redemption of capital stock | (3,266) | | (326,583) | | — | | — | | — | | — | | (326,583) | |
Shares reclassified to mandatorily
redeemable capital stock | (394) | | (39,437) | | — | | — | | — | | — | | (39,437) | | |
| Partial recovery of prior capital distribution to Financing Corporation | — | | — | | 8,541 | | — | | 8,541 | | — | | 8,541 | | |
| | Cash dividends | Cash dividends | — | | — | | (41,249) | | — | | (41,249) | | — | | (41,249) | | Cash dividends | — | | — | | (17,604) | | — | | (17,604) | | — | | (17,604) | |
| June 30, 2020 | 23,714 | | $ | 2,371,420 | | $ | 898,980 | | $ | 434,538 | | $ | 1,333,518 | | $ | 113,904 | | $ | 3,818,842 | | |
| June 30, 2021 | | June 30, 2021 | 12,030 | | $ | 1,202,989 | | $ | 929,737 | | $ | 457,378 | | $ | 1,387,115 | | $ | 127,404 | | $ | 2,717,508 | |
| | March 31, 2021 | 13,287 | | $ | 1,328,659 | | $ | 935,617 | | $ | 457,378 | | $ | 1,392,995 | | $ | 133,287 | | $ | 2,854,941 | | |
| March 31, 2022 | | March 31, 2022 | 13,205 | | $ | 1,320,539 | | $ | 947,755 | | $ | 457,378 | | $ | 1,405,133 | | $ | 30,934 | | $ | 2,756,606 | |
| Comprehensive income (loss) | | Comprehensive income (loss) | — | | — | | 29,990 | | 7,497 | | 37,487 | | (26,000) | | 11,487 | |
| Issuance of capital stock | | Issuance of capital stock | 16,062 | | 1,606,223 | | — | | — | | — | | — | | 1,606,223 | |
| Repurchase/redemption of capital stock | | Repurchase/redemption of capital stock | (8,637) | | (863,713) | | — | | — | | — | | — | | (863,713) | |
| | Cash dividends | | Cash dividends | — | | — | | (12,648) | | — | | (12,648) | | — | | (12,648) | |
| June 30, 2022 | | June 30, 2022 | 20,630 | | $ | 2,063,049 | | $ | 965,097 | | $ | 464,875 | | $ | 1,429,972 | | $ | 4,934 | | $ | 3,497,955 | |
| | | | | Capital Stock - Putable | Retained Earnings | |
| (in thousands) | | (in thousands) | Shares | Par Value | Unrestricted | Restricted | Total | AOCI | Total Capital |
| December 31, 2020 | | December 31, 2020 | 15,278 | | $ | 1,527,841 | | $ | 919,373 | | $ | 457,378 | | $ | 1,376,751 | | $ | 137,326 | | $ | 3,041,918 | |
| Comprehensive income | Comprehensive income | — | | — | | 11,724 | | 0 | | 11,724 | | (5,883) | | 5,841 | | Comprehensive income | — | | — | | 49,772 | | — | | 49,772 | | (9,922) | | 39,850 | |
| Issuance of capital stock | Issuance of capital stock | 2,009 | | 200,913 | | — | | — | | — | | — | | 200,913 | | Issuance of capital stock | 3,674 | | 367,362 | | — | | — | | — | | — | | 367,362 | |
| Repurchase/redemption of capital stock | Repurchase/redemption of capital stock | (3,266) | | (326,583) | | — | | — | | — | | — | | (326,583) | | Repurchase/redemption of capital stock | (6,922) | | (692,214) | | — | | — | | — | | — | | (692,214) | |
| | Cash dividends | Cash dividends | — | | — | | (17,604) | | — | | (17,604) | | — | | (17,604) | | Cash dividends | — | | — | | (39,408) | | — | | (39,408) | | — | | (39,408) | |
| June 30, 2021 | June 30, 2021 | 12,030 | | $ | 1,202,989 | | $ | 929,737 | | $ | 457,378 | | $ | 1,387,115 | | $ | 127,404 | | $ | 2,717,508 | | June 30, 2021 | 12,030 | | $ | 1,202,989 | | $ | 929,737 | | $ | 457,378 | | $ | 1,387,115 | | $ | 127,404 | | $ | 2,717,508 | |
| | | Capital Stock - Putable | Retained Earnings | | |
| (in thousands) | Shares | Par Value | Unrestricted | Restricted | Total | AOCI | Total Capital | |
| December 31, 2019 | 30,550 | | $ | 3,054,996 | | $ | 910,726 | | $ | 415,288 | | $ | 1,326,014 | | $ | 91,826 | | $ | 4,472,836 | | |
| Adjustment for cumulative effect of accounting change - adoption of ASU 2016-13 | — | | — | | 113 | | — | | 113 | | — | | 113 | | |
| Comprehensive income | — | | — | | 76,999 | | 19,250 | | 96,249 | | 22,078 | | 118,327 | | |
| Issuance of capital stock | 24,814 | | 2,481,356 | | — | | — | | — | | — | | 2,481,356 | | |
| Repurchase/redemption of capital stock | (31,255) | | (3,125,475) | | — | | — | | — | | — | | (3,125,475) | | |
Shares reclassified to mandatorily
redeemable capital stock | (395) | | (39,457) | | — | | — | | — | | — | | (39,457) | | |
| Partial recovery of prior capital distribution to Financing Corporation | — | | — | | 8,541 | | — | | 8,541 | | — | | 8,541 | | |
| Cash dividends | — | | — | | (97,399) | | — | | (97,399) | | — | | (97,399) | | |
| June 30, 2020 | 23,714 | | $ | 2,371,420 | | $ | 898,980 | | $ | 434,538 | | $ | 1,333,518 | | $ | 113,904 | | $ | 3,818,842 | | |
| | December 31, 2020 | 15,278 | | $ | 1,527,841 | | $ | 919,373 | | $ | 457,378 | | $ | 1,376,751 | | $ | 137,326 | | $ | 3,041,918 | | |
| December 31, 2021 | | December 31, 2021 | 12,270 | | $ | 1,227,050 | | $ | 941,033 | | $ | 457,378 | | $ | 1,398,411 | | $ | 110,191 | | $ | 2,735,652 | |
| Comprehensive income | Comprehensive income | — | | — | | 49,772 | | 0 | | 49,772 | | (9,922) | | 39,850 | | Comprehensive income | — | | — | | 48,673 | | 7,497 | | 56,170 | | (105,257) | | (49,087) | |
| Issuance of capital stock | Issuance of capital stock | 3,674 | | 367,362 | | — | | — | | — | | — | | 367,362 | | Issuance of capital stock | 21,596 | | 2,159,649 | | — | | — | | — | | — | | 2,159,649 | |
| Repurchase/redemption of capital stock | Repurchase/redemption of capital stock | (6,922) | | (692,214) | | — | | — | | — | | — | | (692,214) | | Repurchase/redemption of capital stock | (13,236) | | (1,323,650) | | — | | — | | — | | — | | (1,323,650) | |
| | Cash dividends | Cash dividends | — | | — | | (39,408) | | — | | (39,408) | | — | | (39,408) | | Cash dividends | — | | — | | (24,609) | | — | | (24,609) | | — | | (24,609) | |
| June 30, 2021 | 12,030 | | $ | 1,202,989 | | $ | 929,737 | | $ | 457,378 | | $ | 1,387,115 | | $ | 127,404 | | $ | 2,717,508 | | |
| June 30, 2022 | | June 30, 2022 | 20,630 | | $ | 2,063,049 | | $ | 965,097 | | $ | 464,875 | | $ | 1,429,972 | | $ | 4,934 | | $ | 3,497,955 | |
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of Pittsburgh
Notes to Unaudited Financial Statements
Background Information
The Bank, 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 increasing the availability of credit for residential mortgages and community development. The Bank provides a readily available, low-cost source of funds to its member institutions. The Bank is a cooperative, which means that current members own nearly all of the outstanding capital stock of the Bank. All holders of the Bank’s capital stock may, to the extent declared by the Board, receive dividends on their capital stock. Regulated financial depositories and insurance companies engaged in residential housing finance that maintain their principal place of business (as defined by Finance Agency regulation) in Delaware, Pennsylvania or West Virginia may apply for membership. Community Development Financial Institutions (CDFIs) which meet membership regulation standards are also eligible to become Bank members. State and local housing associates that meet certain statutory and regulatory criteria may also borrow from the Bank. While eligible to borrow, state and local housing associates are not members of the Bank and, as such, do not hold capital stock.
All members must purchase capital stock in the Bank. The amount of capital stock a member owns is based on membership requirements (membership asset value) and activity requirements (i.e., outstanding advances, letters of credit, and the principal balance of certain residential mortgage loans sold to the Bank). The Bank considers those members with capital stock outstanding in excess of 10% of total capital stock outstanding to be related parties. See Note 8 - Transactions with Related Parties for additional information.
The Federal Housing Finance Agency (Finance Agency) is, an independent agency in the independent regulatorexecutive branch of the FHLBanks.U.S. government, supervises and regulates the FHLBanks, Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae). The mission of the Finance AgencyAgency’s stated mission is to ensure the FHLBanks operatehousing GSEs fulfill their mission by operating in a safe and sound manner so theyto serve as a reliable source for liquidity and funding for the housing finance and community investment.market throughout the economic cycle. Each FHLBank operates as a separate entity with its own management, employees and board of directors. The Bank does not consolidate any off-balance sheet special-purpose entities or other conduits.
As provided by the Federal Home Loan Bank Act (FHLBank Act) or Finance Agency regulation, the Bank’s debt instruments, referred to asand applicable regulations, consolidated obligations are joint and several obligations of all the FHLBanks and are the primary source of funds for the FHLBanks. These funds are primarily used to provide advances, purchase mortgages from members through the MPF® Program and purchase certain investments. See Note 6 - Consolidated Obligations for additional information. The Office of Finance (OF) is a joint office of the FHLBanks established to facilitate the issuance and servicing of the consolidated obligations of the FHLBanks and to prepare the combined quarterly and annual financial reports of all the FHLBanks. Deposits, other borrowings, and capital stock issued to members provide other funds. The Bank primarily invests these funds in short-term investments to provide liquidity. The Bank also provides member institutions with correspondent services, such as wire transfer, safekeeping and settlement with the Federal Reserve.
The accounting and financial reporting policies of the Bank conform to U.S. Generally Accepted Accounting Principles (GAAP). Preparation of the unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses. Actual results could differ from those estimates. In the opinion of management, all normal recurring adjustments have been included for a fair statement of this interim financial information. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 20202021 included in the Bank's 20202021 Form 10-K.
Notes to Unaudited Financial Statements (continued)
Note 1 – Changes in Accounting Principle and Recently Issued Accounting Standards and Interpretations
The Bank adopted the followingdid not adopt any new accounting standards during the six months ended June 30, 2021.2022.
The following table provides a brief description of recently issued accounting standards which may have an impact on the Bank.
| | | | | | | | | | | |
| Standard | Description | Adoption Date and Transition | Effect on the Financial Statements or Other Significant Matters |
ASU 2020-08:2022-01: Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs | This ASU clarifies that an entity should reevaluate for each reporting period whether a callable debt security is within the scope of certain guidance in ASC 310-20 that was issued in ASU 2017-08, ReceivablesFair Value Hedging – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt SecuritiesPortfolio Layer Method
| This ASU wasexpands the current last-of-layer method to apply fair value hedging by allowing multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method.
Additionally, among other things, this ASU:
• expands the scope of the portfolio layer method to include nonprepayable assets
• specifies eligible hedging instruments in a single-layer hedge
• provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, and;
•specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.
| This ASU will become effective for the Bank beginning on January 1, 2021 and will be applied on a prospective basis for existing or newly purchased callable debt securities.2023. Early adoption is permitted. | The adoptionBank is evaluating the impact of this ASU did noton its financial statements. The Bank will continue to assess opportunities enabled by the new guidance to expand its risk management strategies. |
ASU 2022-02: Troubled Debt Restructurings and Vintage Disclosures | This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have a significantadopted the current expected credit losses methodology while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables. | This ASU will become effective for the Bank beginning on January 1, 2023. Early adoption is permitted. | The Bank is evaluating the impact of this ASU on its financial statements, including the potential impact on the Bank's financial statements.Bank’s MPF portfolio. |
The Bank did not have any recently issued accounting standards which may have an impact on the Bank for the six months ended June 30, 2021.
Notes to Unaudited Financial Statements (continued)
Note 2 – Investments
The Bank has short-term investments and may make other investments in debt securities, which are classified as trading, AFS, or HTM as further described below.
Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold
The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of BBB or greater (investment grade) by an NRSRO.
Interest-bearing deposits and Federal funds sold are unsecured investments. Federal funds sold are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At June 30, 20212022 and December 31, 2020,2021, all investments in interest-bearing deposits and Federal funds sold were repaid according to the contractual terms; 0no ACL was recorded for these assets at June 30, 20212022 and December 31, 2020.2021. Carrying values of interest-bearing deposits and Federal funds exclude accrued interest receivable which was immaterial for all periods presented. At June 30, 2021, NaN2022, none of these investments were with counterparties rated below BBB or with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable.
Securities purchased under agreements to resell are secured investments. Securities purchased under agreements to resell are generally transacted on an overnight term and have standard market practices that include collateral maintenance provisions. As such, they are evaluated regularly to determine that the securities purchased under agreements to resell are fully collateralized. The counterparty is required to deliver additional collateral if the securities purchased under agreements to resell become under-collateralized, generally by the next business day.
At June 30, 20212022 and December 31, 2020,2021, all investments in securities purchased under agreements to resell were repaid according to the contractual terms; 0no ACL was recorded for these assets at June 30, 20212022 and December 31, 2020.2021. Carrying value of securities purchased under agreements to resell exclude accrued interest receivable which was immaterial for all periods presented. At June 30, 2021, NaN2022, none of these investments were with counterparties rated below BBB or with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable.
Debt Securities
The Bank invests in debt securities, which are classified as trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk related to private label MBS that are supported by underlying mortgage or asset-backed loans. In 2007, the Bank discontinued the purchase of private label MBS. The Bank is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other
Notes to Unaudited Financial Statements (continued)
than certain investments targeted at low-income persons or communities.
Trading Securities. The following table presents the fair value of trading securities as ofby major security type at June 30, 20212022 and December 31, 2020.2021.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| U.S. Treasury obligations | U.S. Treasury obligations | $ | 615,300 | | $ | 899,421 | | U.S. Treasury obligations | $ | 14,817 | | $ | — | |
| GSE and TVA obligations | 248,926 | | 256,582 | | |
| GSE obligations | | GSE obligations | 223,405 | | 243,262 | |
| Total | Total | $ | 864,226 | | $ | 1,156,003 | | Total | $ | 238,222 | | $ | 243,262 | |
|
Notes to Unaudited Financial Statements (continued)
The following table presents net gains (losses) on trading securities for the second quarter and first six months of 20212022 and 2020.2021.
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Net unrealized gains (losses) on trading securities held at period-end | Net unrealized gains (losses) on trading securities held at period-end | $ | (669) | | $ | 934 | | $ | (10,439) | | $ | 43,885 | | Net unrealized gains (losses) on trading securities held at period-end | $ | (6,635) | | $ | (669) | | $ | (20,135) | | $ | (10,439) | |
| Net gains (losses) on trading securities sold/matured during the period | Net gains (losses) on trading securities sold/matured during the period | (1,168) | | (4,197) | | (2,275) | | 15,306 | | Net gains (losses) on trading securities sold/matured during the period | — | | (1,168) | | — | | (2,275) | |
| Net gains (losses) on trading securities | Net gains (losses) on trading securities | $ | (1,837) | | $ | (3,263) | | $ | (12,714) | | $ | 59,191 | | Net gains (losses) on trading securities | $ | (6,635) | | $ | (1,837) | | $ | (20,135) | | $ | (12,714) | |
Notes to Unaudited Financial Statements (continued)
AFS Securities. The following tables presentpresents AFS securities as ofby majority security type at June 30, 20212022 and December 31, 2020.2021.
| | | | June 30, 2021 | | June 30, 2022 |
| (in thousands) | (in thousands) | Amortized Cost (1) | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | (in thousands) | Amortized Cost (1) | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| Non-MBS: | Non-MBS: | | Non-MBS: | |
| U.S. Treasury obligations | U.S. Treasury obligations | $ | 4,412,275 | | $ | 0 | | $ | 15 | | $ | (5,438) | | $ | 4,406,852 | | U.S. Treasury obligations | $ | 5,631,247 | | $ | — | | $ | 4,811 | | $ | (12,902) | | $ | 5,623,156 | |
| GSE and TVA obligations | GSE and TVA obligations | 1,528,246 | | 0 | | 49,961 | | 0 | | 1,578,207 | | GSE and TVA obligations | 1,265,141 | | — | | 27,537 | | (1,038) | | 1,291,640 | |
| State or local agency obligations | State or local agency obligations | 215,104 | | 0 | | 10,944 | | 0 | | 226,048 | | State or local agency obligations | 189,705 | | 0 | 84 | | (7,929) | | 181,860 | |
| Total non-MBS | Total non-MBS | $ | 6,155,625 | | $ | 0 | | $ | 60,920 | | $ | (5,438) | | $ | 6,211,107 | | Total non-MBS | $ | 7,086,093 | | $ | — | | $ | 32,432 | | $ | (21,869) | | $ | 7,096,656 | |
| MBS: | MBS: | | | | MBS: | | | |
| U.S. obligations single-family MBS | $ | 481,806 | | $ | 0 | | $ | 6,086 | | $ | (47) | | $ | 487,845 | | |
| GSE single-family MBS | 2,536,482 | | — | | 26,812 | | (50) | | 2,563,244 | | |
| GSE multifamily MBS | 3,166,430 | | — | | 8,884 | | (435) | | 3,174,879 | | |
| Private label MBS | 188,096 | | (2,624) | | 35,181 | | (95) | | 220,558 | | |
| U.S. obligations single-family | | U.S. obligations single-family | $ | 369,047 | | $ | — | | $ | 1 | | $ | (2,933) | | $ | 366,115 | |
| GSE single-family | | GSE single-family | 1,770,422 | | — | | 791 | | (18,119) | | 1,753,094 | |
| GSE multifamily | | GSE multifamily | 2,739,638 | | — | | 1,163 | | (3,684) | | 2,737,117 | |
| Private label | | Private label | 145,636 | | (5,033) | | 21,901 | | (303) | | 162,201 | |
| Total MBS | Total MBS | $ | 6,372,814 | | $ | (2,624) | | $ | 76,963 | | $ | (627) | | $ | 6,446,526 | | Total MBS | $ | 5,024,743 | | $ | (5,033) | | $ | 23,856 | | $ | (25,039) | | $ | 5,018,527 | |
| Total AFS securities | Total AFS securities | $ | 12,528,439 | | $ | (2,624) | | $ | 137,883 | | $ | (6,065) | | $ | 12,657,633 | | Total AFS securities | $ | 12,110,836 | | $ | (5,033) | | $ | 56,288 | | $ | (46,908) | | $ | 12,115,183 | |
Notes to Unaudited Financial Statements (continued)
| | | | December 31, 2020 | | December 31, 2021 |
| (in thousands) | (in thousands) | Amortized Cost (1) | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | (in thousands) | Amortized Cost (1) | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| Non-MBS: | Non-MBS: | | Non-MBS: | |
| U.S. Treasury obligations | | U.S. Treasury obligations | $ | 5,069,716 | | $ | — | | $ | 6,213 | | $ | (697) | | $ | 5,075,232 | |
| GSE and TVA obligations | GSE and TVA obligations | $ | 1,590,661 | | $ | 0 | | $ | 53,072 | | $ | 0 | | $ | 1,643,733 | | GSE and TVA obligations | 1,449,717 | | — | | 43,935 | | — | | 1,493,652 | |
| State or local agency obligations | State or local agency obligations | 227,248 | | 0 | | 14,382 | | 0 | | 241,630 | | State or local agency obligations | 198,775 | | — | | 8,422 | | — | | 207,197 | |
| Total non-MBS | Total non-MBS | $ | 1,817,909 | | $ | 0 | | $ | 67,454 | | $ | 0 | | $ | 1,885,363 | | Total non-MBS | $ | 6,718,208 | | $ | — | | $ | 58,570 | | $ | (697) | | $ | 6,776,081 | |
| MBS: | MBS: | | | MBS: | | |
| U.S. obligations single-family MBS | $ | 595,215 | | $ | 0 | | $ | 6,994 | | $ | (61) | | $ | 602,148 | | |
| GSE single-family MBS | 3,237,124 | | 0 | | 25,969 | | (213) | | 3,262,880 | | |
| GSE multifamily MBS | 3,466,937 | | 0 | | 10,235 | | (3,778) | | 3,473,394 | | |
| Private label MBS | 218,025 | | (2,417) | | 37,149 | | (157) | | 252,600 | | |
| U.S. obligations single-family | | U.S. obligations single-family | $ | 394,985 | | $ | — | | $ | 3,876 | | $ | (54) | | $ | 398,807 | |
| GSE single-family | | GSE single-family | 2,075,683 | | — | | 18,377 | | (991) | | 2,093,069 | |
| GSE multifamily | | GSE multifamily | 3,001,730 | | — | | 4,526 | | (1,345) | | 3,004,911 | |
| Private label | | Private label | 164,050 | | (2,378) | | 32,826 | | (73) | | 194,425 | |
| Total MBS | Total MBS | $ | 7,517,301 | | $ | (2,417) | | $ | 80,347 | | $ | (4,209) | | $ | 7,591,022 | | Total MBS | $ | 5,636,448 | | $ | (2,378) | | $ | 59,605 | | $ | (2,463) | | $ | 5,691,212 | |
| Total AFS securities | Total AFS securities | $ | 9,335,210 | | $ | (2,417) | | $ | 147,801 | | $ | (4,209) | | $ | 9,476,385 | | Total AFS securities | $ | 12,354,656 | | $ | (2,378) | | $ | 118,175 | | $ | (3,160) | | $ | 12,467,293 | |
Notes:
(1) 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 $23.2$26.4 million and $16.9$22.8 million at June 30, 20212022 and December 31, 2020.2021.
Notes to Unaudited Financial Statements (continued)
The following tables summarize the AFS securities with unrealized losses as of June 30, 20212022 and December 31, 2020.2021. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
| | | | June 30, 2021 | | June 30, 2022 |
| | | Less than 12 Months | Greater than 12 Months | Total | | Less than 12 Months | Greater than 12 Months | Total |
| (in thousands) | (in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | (in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
| Non-MBS: | Non-MBS: | | Non-MBS: | |
| U.S. Treasury obligations | U.S. Treasury obligations | $ | 4,257,081 | | $ | (5,438) | | $ | 0 | | $ | 0 | | $ | 4,257,081 | | $ | (5,438) | | U.S. Treasury obligations | $ | 1,915,505 | | $ | (12,716) | | $ | 92,086 | | $ | (186) | | $ | 2,007,591 | | $ | (12,902) | |
| | GSE and TVA obligations | | GSE and TVA obligations | $ | 23,958 | | $ | (1,038) | | $ | — | | $ | — | | 23,958 | | (1,038) | |
| State or local agency obligations | | State or local agency obligations | 157,501 | | (7,929) | | — | | — | | 157,501 | | (7,929) | |
| Total non-MBS | | Total non-MBS | $ | 2,096,964 | | $ | (21,683) | | $ | 92,086 | | $ | (186) | | $ | 2,189,050 | | $ | (21,869) | |
| MBS: | MBS: | | MBS: | |
| U.S. obligations single-family MBS | $ | 23,299 | | $ | (47) | | $ | 0 | | $ | 0 | | $ | 23,299 | | $ | (47) | | |
| GSE single-family MBS | 31,122 | | (47) | | 6,922 | | (3) | | 38,044 | | (50) | | |
| GSE multifamily MBS | 39,205 | | (18) | | 894,234 | | (417) | | 933,439 | | (435) | | |
| Private label MBS | 0 | | 0 | | 2,455 | | (95) | | 2,455 | | (95) | | |
| U.S. obligations single-family | | U.S. obligations single-family | $ | 334,503 | | $ | (2,778) | | $ | 17,660 | | $ | (155) | | $ | 352,163 | | $ | (2,933) | |
| GSE single-family | | GSE single-family | 1,363,426 | | (17,942) | | 17,243 | | (177) | | 1,380,669 | | (18,119) | |
| GSE multifamily | | GSE multifamily | 1,108,865 | | (2,790) | | 426,345 | | (894) | | 1,535,210 | | (3,684) | |
| Private label | | Private label | 6,812 | | (287) | | 2,522 | | (16) | | 9,334 | | (303) | |
| Total MBS | Total MBS | $ | 93,626 | | $ | (112) | | $ | 903,611 | | $ | (515) | | $ | 997,237 | | $ | (627) | | Total MBS | $ | 2,813,606 | | $ | (23,797) | | $ | 463,770 | | $ | (1,242) | | $ | 3,277,376 | | $ | (25,039) | |
| Total | Total | $ | 4,350,707 | | $ | (5,550) | | $ | 903,611 | | $ | (515) | | $ | 5,254,318 | | $ | (6,065) | | Total | $ | 4,910,570 | | $ | (45,480) | | $ | 555,856 | | $ | (1,428) | | $ | 5,466,426 | | $ | (46,908) | |
| | | | December 31, 2020 | | December 31, 2021 |
| | | Less than 12 Months | Greater than 12 Months | Total | | Less than 12 Months | Greater than 12 Months | Total |
| (in thousands) | (in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | (in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
| | Non-MBS: | | Non-MBS: | |
| U.S. Treasury obligations | | U.S. Treasury obligations | $ | 586,346 | | $ | (697) | | $ | — | | $ | — | | $ | 586,346 | | $ | (697) | |
| | MBS: | MBS: | | MBS: | |
| U.S. obligations single-family MBS | $ | 8,591 | | $ | (17) | | $ | 25,713 | | $ | (44) | | $ | 34,304 | | $ | (61) | | |
| GSE single-family MBS | 54,657 | | (21) | | 217,942 | | (192) | | 272,599 | | (213) | | |
| GSE multifamily MBS | 156,006 | | (70) | | 2,276,207 | | (3,708) | | 2,432,213 | | (3,778) | | |
| Private label MBS | 1,767 | | (10) | | 2,631 | | (147) | | 4,398 | | (157) | | |
| U.S. obligations single-family | | U.S. obligations single-family | $ | 20,188 | | $ | (54) | | $ | — | | $ | — | | $ | 20,188 | | $ | (54) | |
| GSE single-family | | GSE single-family | 188,235 | | (991) | | — | | — | | 188,235 | | (991) | |
| GSE multifamily | | GSE multifamily | 634,032 | | (517) | | 524,002 | | (828) | | 1,158,034 | | (1,345) | |
| Private label | | Private label | — | | — | | 2,476 | | (73) | | 2,476 | | (73) | |
| Total MBS | Total MBS | $ | 221,021 | | $ | (118) | | $ | 2,522,493 | | $ | (4,091) | | $ | 2,743,514 | | $ | (4,209) | | Total MBS | $ | 842,455 | | $ | (1,562) | | $ | 526,478 | | $ | (901) | | $ | 1,368,933 | | $ | (2,463) | |
| Total | Total | $ | 221,021 | | $ | (118) | | $ | 2,522,493 | | $ | (4,091) | | $ | 2,743,514 | | $ | (4,209) | | Total | $ | 1,428,801 | | $ | (2,259) | | $ | 526,478 | | $ | (901) | | $ | 1,955,279 | | $ | (3,160) | |
Notes to Unaudited Financial Statements (continued)
Redemption Terms. The amortized cost and fair value of AFS securities by contractual maturity as of June 30, 20212022 and December 31, 20202021 are presented below. Expected maturities of some securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| 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 one year or less | Due in one year or less | $ | 141,369 | | $ | 142,458 | | $ | 73,115 | | $ | 73,276 | | Due in one year or less | $ | 1,725,836 | | $ | 1,726,746 | | $ | 554,080 | | $ | 555,481 | |
| Due after one year through five years | Due after one year through five years | 3,098,700 | | 3,106,072 | | 570,540 | | 581,853 | | Due after one year through five years | 2,577,257 | | 2,574,048 | | 3,281,393 | | 3,289,730 | |
| Due after five years through ten years | Due after five years through ten years | 2,639,088 | | 2,669,871 | | 789,408 | | 820,239 | | Due after five years through ten years | 2,613,552 | | 2,632,127 | | 2,685,727 | | 2,723,861 | |
| Due after ten years | Due after ten years | 276,468 | | 292,706 | | 384,846 | | 409,995 | | Due after ten years | 169,448 | | 163,735 | | 197,008 | | 207,009 | |
| Total non-MBS | Total non-MBS | 6,155,625 | | 6,211,107 | | 1,817,909 | | 1,885,363 | | Total non-MBS | 7,086,093 | | 7,096,656 | | 6,718,208 | | 6,776,081 | |
| MBS | MBS | 6,372,814 | | 6,446,526 | | 7,517,301 | | 7,591,022 | | MBS | 5,024,743 | | 5,018,527 | | 5,636,448 | | 5,691,212 | |
| Total AFS securities | Total AFS securities | $ | 12,528,439 | | $ | 12,657,633 | | $ | 9,335,210 | | $ | 9,476,385 | | Total AFS securities | $ | 12,110,836 | | $ | 12,115,183 | | $ | 12,354,656 | | $ | 12,467,293 | |
Interest Rate Payment Terms. The following table details interest payment terms at June 30, 20212022 and December 31, 2020.2021.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Amortized cost of AFS non-MBS: | Amortized cost of AFS non-MBS: | | Amortized cost of AFS non-MBS: | |
| Fixed-rate | Fixed-rate | $ | 6,155,625 | | $ | 1,817,909 | | Fixed-rate | $ | 7,086,093 | | $ | 6,718,208 | |
| Variable-rate | Variable-rate | 0 | | 0 | | Variable-rate | — | | — | |
| Total non-MBS | Total non-MBS | $ | 6,155,625 | | $ | 1,817,909 | | Total non-MBS | $ | 7,086,093 | | $ | 6,718,208 | |
| Amortized cost of AFS MBS: | Amortized cost of AFS MBS: | | Amortized cost of AFS MBS: | |
| Fixed-rate | Fixed-rate | $ | 1,025,700 | | $ | 1,382,062 | | Fixed-rate | $ | 676,668 | | $ | 765,556 | |
| Variable-rate | Variable-rate | 5,347,114 | | 6,135,239 | | Variable-rate | 4,348,075 | | 4,870,892 | |
| Total MBS | Total MBS | $ | 6,372,814 | | $ | 7,517,301 | | Total MBS | $ | 5,024,743 | | $ | 5,636,448 | |
| Total amortized cost of AFS securities | Total amortized cost of AFS securities | $ | 12,528,439 | | $ | 9,335,210 | | Total amortized cost of AFS securities | $ | 12,110,836 | | $ | 12,354,656 | |
Realized Gains (Losses) on AFS Securities. The following table provides a summary of proceeds, gross gains and losses on sales of AFS securities for the three and six months ended June 30, 2022.
| | | | | | | | | | | | | | |
| Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Proceeds from sale of AFS securities | $ | 176,407 | | $ | — | | $ | 176,407 | | $ | — | |
| Gross gains on AFS securities | 227 | | — | | 227 | | — | |
| Gross losses on AFS securities | — | | — | | — | | — | |
HTM Securities. The following tables present HTM securities as of June 30, 2021 and December 31, 2020.
| | | | | | | | | | | | | | |
| | June 30, 2021 |
| (in thousands) | Amortized Cost (1) | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Fair Value |
| | | | |
| | | | |
| | | | |
| | | | |
| MBS: | | | | |
| U.S. obligations single-family MBS | $ | 99,903 | | $ | 1,335 | | $ | 0 | | $ | 101,238 | |
| GSE single-family MBS | 725,667 | | 14,360 | | (4,896) | | 735,131 | |
| GSE multifamily MBS | 524,696 | | 43,985 | | 0 | | 568,681 | |
| Private label MBS | 81,615 | | 803 | | (522) | | 81,896 | |
| Total MBS | $ | 1,431,881 | | $ | 60,483 | | $ | (5,418) | | $ | 1,486,946 | |
Total HTM securities (2) | $ | 1,431,881 | | $ | 60,483 | | $ | (5,418) | | $ | 1,486,946 | |
Notes to Unaudited Financial Statements (continued)
| | | | | | | | | | | | | | |
| | December 31, 2020 |
| (in thousands) | Amortized Cost (1) | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Fair Value |
| Non-MBS: | | | | |
| Certificates of deposit | $ | 750,000 | | $ | 77 | | $ | 0 | | $ | 750,077 | |
| | | | |
| | | | |
| MBS: | | | | |
| U.S. obligations single-family MBS | $ | 120,539 | | $ | 1,213 | | $ | 0 | | $ | 121,752 | |
| GSE single-family MBS | 989,824 | | 20,337 | | (1,053) | | 1,009,108 | |
| GSE multifamily MBS | 530,240 | | 53,555 | | 0 | | 583,795 | |
| Private label MBS | 93,127 | | 582 | | (1,313) | | 92,396 | |
| Total MBS | $ | 1,733,730 | | $ | 75,687 | | $ | (2,366) | | $ | 1,807,051 | |
Total HTM securities (2) | $ | 2,483,730 | | $ | 75,764 | | $ | (2,366) | | $ | 2,557,128 | |
| | | | | | | | | | | | | | |
| | June 30, 2022 |
| (in thousands) | Amortized Cost (1) | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Fair Value |
| | | | |
| | | | |
| | | | |
| | | | |
| MBS: | | | | |
| U.S. obligations single-family | $ | 172,453 | | $ | 507 | | $ | (951) | | $ | 172,009 | |
| GSE single-family | 475,981 | | 210 | | (41,717) | | 434,474 | |
| GSE multifamily | 365,630 | | 2,769 | | (1,175) | | 367,224 | |
| Private label | 59,498 | | 95 | | (2,355) | | 57,238 | |
| Total MBS | $ | 1,073,562 | | $ | 3,581 | | $ | (46,198) | | $ | 1,030,945 | |
Total HTM securities (2) | $ | 1,073,562 | | $ | 3,581 | | $ | (46,198) | | $ | 1,030,945 | |
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| (in thousands) | Amortized Cost (1) | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Fair Value |
| | | | |
| | | | |
| | | | |
| | | | |
| MBS: | | | | |
| U.S. obligations single-family | $ | 83,154 | | $ | 1,029 | | $ | — | | $ | 84,183 | |
| GSE single-family | 566,032 | | 7,597 | | (7,978) | | 565,651 | |
| GSE multifamily | 494,472 | | 33,651 | | — | | 528,123 | |
| Private label | 70,214 | | 710 | | (518) | | 70,406 | |
| Total MBS | $ | 1,213,872 | | $ | 42,987 | | $ | (8,496) | | $ | 1,248,363 | |
Total HTM securities (2) | $ | 1,213,872 | | $ | 42,987 | | $ | (8,496) | | $ | 1,248,363 | |
Notes:
(1) Includes adjustments made to the cost basis of an investment for accretion and amortization and excludes accrued interest receivable of $3.2$2.6 million and $4.1$2.7 million at June 30, 20212022 and December 31, 2020.2021.
(2) No ACL was recorded for these securities as of June 30, 20212022 and December 31, 2020.2021.
Redemption Terms. The amortized cost and fair value of HTM securities by contractual maturity as of June 30, 20212022 and December 31, 20202021 are presented below. Expected maturities of some securities will differ fromMBS are not presented by contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
| | | | | | | | | | | | | | |
| (in thousands) | June 30, 2021 | December 31, 2020 |
| Year of Maturity | Amortized Cost | Fair Value | Amortized Cost | Fair Value |
| Non-MBS: | | | | |
| Due in one year or less | $ | 0 | | $ | 0 | | $ | 750,000 | | $ | 750,077 | |
| Due after one year through five years | 0 | | 0 | | 0 | | 0 | |
| Due after five years through ten years | 0 | | 0 | | 0 | | 0 | |
| Due after ten years | 0 | | 0 | | 0 | | 0 | |
| Total non-MBS | 0 | | 0 | | 750,000 | | 750,077 | |
| MBS | 1,431,881 | | 1,486,946 | | 1,733,730 | | 1,807,051 | |
| Total HTM securities | $ | 1,431,881 | | $ | 1,486,946 | | $ | 2,483,730 | | $ | 2,557,128 | |
| | | | | | | | | | | | | | |
| (in thousands) | June 30, 2022 | December 31, 2021 |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Non-MBS | — | | — | | — | | — | |
| MBS | 1,073,562 | | 1,030,945 | | 1,213,872 | | 1,248,363 | |
| Total HTM securities | $ | 1,073,562 | | $ | 1,030,945 | | $ | 1,213,872 | | $ | 1,248,363 | |
Interest Rate Payment Terms. The following table details interest rate payment terms at June 30, 20212022 and December 31, 2020.2021.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Amortized cost of HTM non-MBS: | | |
| Fixed-rate | $ | 0 | | $ | 750,000 | | |
| Variable-rate | 0 | | 0 | | |
| Total non-MBS | $ | 0 | | $ | 750,000 | | |
| | Amortized cost of HTM MBS: | Amortized cost of HTM MBS: | | Amortized cost of HTM MBS: | |
| Fixed-rate | Fixed-rate | $ | 1,227,978 | | $ | 1,493,149 | | Fixed-rate | $ | 926,727 | | $ | 1,042,367 | |
| Variable-rate | Variable-rate | 203,903 | | 240,581 | | Variable-rate | 146,835 | | 171,505 | |
| Total MBS | Total MBS | $ | 1,431,881 | | $ | 1,733,730 | | Total MBS | $ | 1,073,562 | | $ | 1,213,872 | |
| Total HTM securities | Total HTM securities | $ | 1,431,881 | | $ | 2,483,730 | | Total HTM securities | $ | 1,073,562 | | $ | 1,213,872 | |
Debt Securities ACL. For HTM securities, there was 0no ACL at June 30, 20212022 and December 31, 2020.2021. For AFS securities, the Bank recorded an ACL only on its private label MBS at June 30, 20212022 and December 31, 2020.
Notes to Unaudited Financial Statements (continued)
AFS Debt Securities - Rollforward of ACL. The following table presents a rollforward of the ACL on AFS securities for the three and six months ended June 30, 20212022 and 2020.2021.
| | | Private label MBS | | Private label MBS |
| | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Balance, beginning of period | Balance, beginning of period | $ | 2,762 | | $ | 2,834 | | $ | 2,417 | | $ | 0 | | Balance, beginning of period | $ | 3,784 | | $ | 2,762 | | $ | 2,378 | | $ | 2,417 | |
| | Increases (decreases) for securities in which a previous ACL or OTTI was recorded | Increases (decreases) for securities in which a previous ACL or OTTI was recorded | (138) | | (1,260) | | 207 | | 1,574 | | Increases (decreases) for securities in which a previous ACL or OTTI was recorded | 1,249 | | (138) | | 2,655 | | 207 | |
| | Balance, end of period | Balance, end of period | $ | 2,624 | | $ | 1,574 | | $ | 2,624 | | $ | 1,574 | | Balance, end of period | $ | 5,033 | | $ | 2,624 | | $ | 5,033 | | $ | 2,624 | |
Debt Securities ACL Methodology. To evaluate investment securities for credit losses at June 30, 2021,2022, the Bank employs the following methodologies by major security type.
Certificates of Deposits. The Bank invests in short-term investments, such as certificate of deposits, primarily to manage liquidity. The Bank’s certificates of deposits, which are unsecured, have original contractual maturities of one year or less. The Bank only purchases certificates of deposits considered investment quality. The Bank did not own certificates of deposits at June 30, 2021. Due to their short duration, high credit quality, and insignificant expected credit losses, 0 ACL was recorded on certificates of deposits at December 31, 2020.
GSE and Other U.S. Obligations. The Bank invests in GSE and other U.S. obligations, which includes Tennessee Valley Authority obligations, single-family MBS, and GSE single-family and multifamily MBS. These securities are issued by Federal Agencies or U.S. government corporations and include MBS issued by these same entities that are directly supported by underlying mortgage loans. All of these securities carry an implicit or explicit government guarantee such that the Bank considers the risk of nonpayment to be zero. As a result, 0no ACL was recorded on GSE and other U.S. obligations at June 30, 2022 or December 31, 2021.
The Bank only purchases GSE and other U.S. obligations considered investment quality. At June 30, 2021,2022, all of these GSE and other U.S. obligations, based on amortized cost, were rated BBB or above by a NRSRO, based on the lowest long-term credit rating for each security. These may differ from any internal ratings of the securities by the Bank, if applicable.
State or Local Agency Obligations. The Bank invests in state or local agency obligations, such as municipal securities. These securities are subject to credit risk related to a portfolio of state and local agency obligations (i.e., Housing Finance Agency bonds) that are directly or indirectly supported by underlying mortgage loans and carry an implicit or explicit guarantee of the state or local agency.. The Bank has not experienced any payment defaults on these instruments.
The Bank only purchases state or local agency obligations considered investment quality. At June 30, 2021,2022, all of these state or local agency obligations, based on amortized cost, were rated BBB or above by a NRSRO, based on the lowest long-term credit rating for each security. These may differ from any internal ratings of the securities by the Bank, if applicable.
The Bank evaluates AFS state or local agency obligations for an ACL based on a credit assessment of the issuer, or guarantor. If the Bank determines that an ACL should be recognized, it is limited to the unrealized loss of the state or local agency obligation, including zero if it is in an unrealized gain position. At June 30, 2022 and December 31, 2021, the Bank expectsexpected to receive all cash flows contractually due, and no ACL was recorded on AFS state or local agency obligations.
Private Label MBS. The Bank also holds investments in private label MBS. The Bank has not purchased any private label MBS since 2007. However, many of these securities have subsequently experienced significant credit deterioration. As of June 30, 2021, 21.3%2022, 20.1% of private label MBS (AFS and HTM combined, based on amortized cost) were rated BBB or above by a NRSRO and the remaining securities were either rated less than BBB or were unrated. To determine whether an ACL is necessary on these securities, the Bank uses cash flow analyses.
The Bank's evaluation includes estimating the projected cash flows that the Bank is likely to collect based on an assessment of available information, including the structure of the applicable security and certain assumptions such as:
•the remaining payment terms for the security;
•prepayment speeds based on underlying loan-level borrower and loan characteristics;
•expected default rates based on underlying borrower and loan characteristics;
•expected loss severity based on underlying borrower and loan characteristics;
Notes to Unaudited Financial Statements (continued)
•expected housing price changes; and
•expected interest-rate assumptions.
The Bank performed a cash flow analysis using a third-party model to assess whether the entire amortized cost basis of its private label MBS securities will be recovered. The projected cash flows are based on a number of assumptions and
Notes to Unaudited Financial Statements (continued)
expectations, and the results of the model can vary with changes in assumptions and expectations. The projected cash flows, determined based on the model approach, reflect a best estimate scenario and include a base case housing price forecast.
Note 3 – Advances
General Terms. The Bank offers a wide-range of fixed- and variable-rate advance products with different maturities, interest rates, payment characteristics and optionality. Fixed-rate advances generally have maturities ranging from overnight to 30 years. Variable-rate advances generally have maturities ranging up to five years, and the interest rates reset periodically at a fixed spread to LIBOR SOFR or other specified indices.SOFR.
The following table details the Bank’s advances portfolio by year of redemption and weighted-average interest rate as of June 30, 20212022 and December 31, 2020.2021.
| | (dollars in thousands) | (dollars in thousands) | June 30, 2021 | December 31, 2020 | (dollars in thousands) | June 30, 2022 | December 31, 2021 |
| Year of Redemption | Year of Redemption | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate | Year of Redemption | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate |
| Due in 1 year or less | Due in 1 year or less | $ | 8,974,180 | | 1.36 | % | $ | 14,760,790 | | 0.84 | % | Due in 1 year or less | $ | 17,689,416 | | 1.83 | % | $ | 8,539,301 | | 1.60 | % |
| Due after 1 year through 2 years | Due after 1 year through 2 years | 2,978,802 | | 2.32 | | 5,878,635 | | 2.25 | | Due after 1 year through 2 years | 3,145,669 | | 1.67 | | 2,076,494 | | 1.59 | |
| Due after 2 years through 3 years | Due after 2 years through 3 years | 1,066,731 | | 1.90 | | 1,584,471 | | 2.08 | | Due after 2 years through 3 years | 3,932,876 | | 2.00 | | 2,031,671 | | 1.36 | |
| Due after 3 years through 4 years | Due after 3 years through 4 years | 1,336,508 | | 1.98 | | 1,126,992 | | 1.85 | | Due after 3 years through 4 years | 9,567,786 | | 1.93 | | 1,031,294 | | 1.97 | |
| Due after 4 years through 5 years | Due after 4 years through 5 years | 280,000 | | 1.22 | | 1,163,781 | | 1.91 | | Due after 4 years through 5 years | 939,080 | | 2.86 | | 222,058 | | 1.43 | |
| Thereafter | Thereafter | 184,660 | | 2.59 | | 210,220 | | 2.55 | | Thereafter | 180,798 | | 2.73 | | 178,399 | | 2.60 | |
| Total par value | Total par value | 14,820,881 | | 1.66 | % | 24,724,889 | | 1.37 | % | Total par value | 35,455,625 | | 1.89 | % | 14,079,217 | | 1.60 | % |
| Deferred prepayment fees | Deferred prepayment fees | (1,117) | | | (3,673) | | | Deferred prepayment fees | (1,141) | | | (1,405) | | |
| Hedging adjustments | Hedging adjustments | 134,960 | | | 249,903 | | | Hedging adjustments | (210,552) | | | 46,563 | | |
Total book value (1) | Total book value (1) | $ | 14,954,724 | | | $ | 24,971,119 | | | Total book value (1) | $ | 35,243,932 | | | $ | 14,124,375 | | |
Notes:
(1) Amounts exclude accrued interest receivable of $27.1$51.5 million and $36.6$24.7 million at June 30, 20212022 and December 31, 2020.2021.
The Bank also offers convertible advances. Convertible advances allow the Bank to convert an advance from one interest rate structure to another. When issuing convertible advances, the Bank may purchase put options from a member that allow the Bank to convert the fixed-rate advance to a variable-rate advance at the current market rate or another structure after an agreed-upon lockout period. A convertible advance carries a lower interest rate than a comparable-maturity, fixed-rate advance without the conversion feature. In addition, the Bank offers certain advances to members that provide a member the right, based upon predetermined exercise dates, to prepay the advance prior to maturity without incurring prepayment or termination fees (returnable advances). The Bank no longer offers a convertible advance product and had none outstanding at June 30, 2022.
At June 30, 20212022 and December 31, 2020,2021, the Bank did not have any advances with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative.
The following table summarizes advances by the earlier of year of redemption or next call date as of June 30, 2022 and December 31, 2021.
| | | | | | | | | | |
| | Year of Redemption or
Next Call Date | |
| (in thousands) | June 30, 2022 | December 31, 2021 | | |
| Due in 1 year or less | $ | 17,979,416 | | $ | 8,579,301 | | | |
| Due after 1 year through 2 years | 2,895,669 | | 2,076,494 | | | |
| Due after 2 years through 3 years | 3,892,876 | | 1,991,671 | | | |
| Due after 3 years through 4 years | 9,567,786 | | 1,031,294 | | | |
| Due after 4 years through 5 years | 939,080 | | 222,058 | | | |
| Thereafter | 180,798 | | 178,399 | | | |
| Total par value | $ | 35,455,625 | | $ | 14,079,217 | | | |
Notes to Unaudited Financial Statements (continued)
The following table summarizes advances by the earlier of (i) year of redemption or next call date and (ii) year of redemption or next convertible date as of June 30, 2021 and December 31, 2020.
| | | | | | | | | | | | | | |
| | Year of Redemption or
Next Call Date | Year of Redemption or Next Convertible Date |
| (in thousands) | June 30, 2021 | December 31, 2020 | June 30, 2021 | December 31, 2020 |
| Due in 1 year or less | $ | 9,014,180 | | $ | 14,860,790 | | $ | 8,994,180 | | $ | 14,780,790 | |
| Due after 1 year through 2 years | 2,978,802 | | 5,818,635 | | 2,972,802 | | 5,878,635 | |
| Due after 2 years through 3 years | 1,066,731 | | 1,584,471 | | 1,066,731 | | 1,578,471 | |
| Due after 3 years through 4 years | 1,296,508 | | 1,086,992 | | 1,322,508 | | 1,121,992 | |
| Due after 4 years through 5 years | 280,000 | | 1,163,781 | | 280,000 | | 1,154,781 | |
| Thereafter | 184,660 | | 210,220 | | 184,660 | | 210,220 | |
| Total par value | $ | 14,820,881 | | $ | 24,724,889 | | $ | 14,820,881 | | $ | 24,724,889 | |
Interest Rate Payment Terms. The following table details interest rate payment terms by year of redemption for advances as of June 30, 20212022 and December 31, 2020.2021.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Fixed-rate – overnight | Fixed-rate – overnight | $ | 7,000 | | $ | 37,225 | | Fixed-rate – overnight | $ | 772,062 | | $ | 64,000 | |
| Fixed-rate – term: | Fixed-rate – term: | | Fixed-rate – term: | |
| Due in 1 year or less | Due in 1 year or less | 6,992,273 | | 6,658,991 | | Due in 1 year or less | 15,404,307 | | 8,325,202 | |
| Thereafter | Thereafter | 5,703,601 | | 9,810,998 | | Thereafter | 7,659,109 | | 5,446,816 | |
| Total fixed-rate | Total fixed-rate | 12,702,874 | | 16,507,214 | | Total fixed-rate | 23,835,478 | | 13,836,018 | |
| Variable-rate: | Variable-rate: | | Variable-rate: | |
| Due in 1 year or less | Due in 1 year or less | 1,974,907 | | 8,064,575 | | Due in 1 year or less | 1,513,047 | | 150,099 | |
| Thereafter | Thereafter | 143,100 | | 153,100 | | Thereafter | 10,107,100 | | 93,100 | |
| Total variable-rate | Total variable-rate | 2,118,007 | | 8,217,675 | | Total variable-rate | 11,620,147 | | 243,199 | |
| Total par value | Total par value | $ | 14,820,881 | | $ | 24,724,889 | | Total par value | $ | 35,455,625 | | $ | 14,079,217 | |
Credit Risk Exposure and Security Terms.The Bank’s potential credit risk from advances is primarily concentrated in commercial banks. As of June 30, 2021,2022, the Bank had advances of $8.7$27.4 billion outstanding to the five largest borrowers, which represented 58.7%77.3% of the total principal amount of advances outstanding. Of these 5, 2 had outstanding advance balances that were in excess of 10% of the total portfolio at June 30, 2022.
As of December 31, 2021, the Bank had advances of $9.0 billion outstanding to the five largest borrowers, which represented 64.0% of the total principal amount of advances outstanding. Of these 5, 1 had outstanding advance balances that were in excess of 10% of the total portfolio at June 30, 2021.
As of December 31, 2020, the Bank had advances of $15.2 billion outstanding to the five largest borrowers, which represented 61.4% of the total principal amount of advances outstanding. Of these 5, 3 had outstanding advance balances that were in excess of 10% of the total portfolio at December 31, 2020.2021.
Advances ACL. The Bank manages its total credit exposure (TCE), which includes advances, letters of credit, advance commitments, and other credit product exposure, through an integrated approach. This approach generally requires a credit limit to be established for each borrower and an ongoing review of each borrower’s financial condition in conjunction with the Bank's collateral and lending policies to limit risk of loss while balancing each borrower's need for a reliable source of funding. Eligible collateral and collateral requirements can vary based on the type of member: commercial banks, insurance companies, credit unions, de novo banks and CDFIs.
In addition, the Bank lends to its members in accordance with the FHLBank Act and Finance Agency regulations. Specifically, the FHLBank Act requires the Bank to obtain collateral to fully secure credit products. The estimated value of the collateral required to secure each member’s credit products is calculated by applying collateral weightings, or haircuts, to the value of the collateral. The Bank primarily accepts cash, certain investment securities, residential mortgage loans, deposits, and other real estate related assets as collateral. In addition, Community Financial Institutions (CFIs) are eligible to utilize expanded statutory collateral provisions for small business, agriculture, and community development loans. The Bank’s capital stock owned by the borrowing member is pledged as secondary collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower.
Notes to Unaudited Financial Statements (continued)
The Bank can require additional or substitute collateral to help ensure that credit products continue to be secured by adequate collateral. Management of the Bank believes that these policies effectively manage the Bank’s credit risk from credit products.
Based upon the financial condition of the member, the Bank either allows a member to retain physical possession of the collateral assigned to the Bank or requires the member to specifically deliver physical possession or control of the collateral to the Bank or its custodians. However, regardless of the member's financial condition, the Bank always takes possession or control of securities used as collateral. The Bank perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the Bank by a member (or an affiliate of a member) priority over the claims or rights of any other party, except for claims or rights of a third partythird-party that would be otherwise 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 Bank considers the payment status, collateral types and concentration levels, and borrower’s financial condition to be indicators of credit quality on its credit products. At June 30, 20212022 and December 31, 2020,2021, the Bank had rights to collateral on a member-by-member basis with a value in excess of its outstanding extensions of credit.
Notes to Unaudited Financial Statements (continued)
The Bank continues to evaluate and, as necessary, make changes to its collateral guidelines based on current market conditions. At June 30, 20212022 and December 31, 2020,2021, the Bank did not have any credit products that were past due, on nonaccrual status, or considered impaired. In addition, the Bank did not have any credit products considered to be TDRs.
The Bank evaluates its advances for an ACL on a collective, or pooled basis unless an individual assessment is deemed necessary because the instruments do not possess similar risk characteristics. The Bank pools advances by member type, as noted above. Based on the collateral held as security, the Bank's credit extension and collateral policies and repayment history on advances, including that the Bank has not incurred any credit losses since inception, the Bank has not recorded any ACL at June 30, 20212022 or December 31, 2020.2021.
Notes to Unaudited Financial Statements (continued)
Note 4 – Mortgage Loans Held for Portfolio
Under the MPF Program, the Bank invests in mortgage loans that it purchases from its participating members and housing associates. The Bank’s participating members originate, service, and credit enhance residential mortgage loans that are sold to the Bank. See Note 8 for further information regarding transactions with related parties.
The following table presents balances as of June 30, 20212022 and December 31, 20202021 for mortgage loans held for portfolio.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
Fixed-rate long-term single-family mortgages (1) | Fixed-rate long-term single-family mortgages (1) | $ | 4,503,746 | | $ | 4,610,761 | | Fixed-rate long-term single-family mortgages (1) | $ | 4,432,272 | | $ | 4,417,532 | |
Fixed-rate medium-term single-family mortgages (1) | Fixed-rate medium-term single-family mortgages (1) | 180,948 | | 181,535 | | Fixed-rate medium-term single-family mortgages (1) | 154,737 | | 173,195 | |
| Total par value | Total par value | 4,684,694 | | 4,792,296 | | Total par value | 4,587,009 | | 4,590,727 | |
| Premiums | Premiums | 86,377 | | 87,424 | | Premiums | 78,210 | | 84,155 | |
| Discounts | Discounts | (2,126) | | (2,439) | | Discounts | (6,537) | | (1,769) | |
| Hedging adjustments | Hedging adjustments | 8,697 | | 13,898 | | Hedging adjustments | 3,090 | | 6,482 | |
Total mortgage loans held for portfolio (2) | Total mortgage loans held for portfolio (2) | $ | 4,777,642 | | $ | 4,891,179 | | Total mortgage loans held for portfolio (2) | $ | 4,661,772 | | $ | 4,679,595 | |
| Allowance for credit losses on mortgage loans | Allowance for credit losses on mortgage loans | (3,225) | | (4,972) | | Allowance for credit losses on mortgage loans | (3,499) | | (3,412) | |
| Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | $ | 4,774,417 | | $ | 4,886,207 | | Mortgage loans held for portfolio, net | $ | 4,658,273 | | $ | 4,676,183 | |
Note:
(1) Long-term is defined as greater than 15 years. Medium-term is defined as a term of 15 years or less.
(2) Amounts exclude accrued interest receivable of $24.1$21.9 million at June 30, 20212022 and $25.7$22.2 million at December 31, 2020.2021.
The following table details the par value of mortgage loans held for portfolio outstanding categorized by type as of June 30, 20212022 and December 31, 2020.2021.
| | | | | | | | |
| (in thousands) | June 30, 2021 | December 31, 2020 |
| Conventional loans | $ | 4,539,887 | | $ | 4,633,848 | |
| Government-guaranteed/insured loans | 144,807 | | 158,448 | |
| Total par value | $ | 4,684,694 | | $ | 4,792,296 | |
Purchases, Sales and Reclassifications. During the six months ended June 30, 2021 and 2020, there were no significant purchases or sales of financing receivables. Furthermore, none of the financing receivables were reclassified to held-for-sale. | | | | | | | | |
| (in thousands) | June 30, 2022 | December 31, 2021 |
| Conventional loans | $ | 4,466,942 | | $ | 4,460,732 | |
| Government-guaranteed/insured loans | 120,067 | | 129,995 | |
| Total par value | $ | 4,587,009 | | $ | 4,590,727 | |
Conventional MPF Loans - Credit Enhancements (CE). The conventional MPF loans held for portfolio are required to be credit enhanced as determined through the use of a validated model so the risk of loss is limited to the losses within the Bank's risk tolerance. The Bank and its participating financial institution (PFI) share the risk of credit losses on conventional MPF loan products held for portfolio, by structuring potential losses into layers with respect to each master commitment. After considering the borrower’s equity and any Primary Mortgage Insurance (PMI), credit losses on mortgage loans in a master commitment are then absorbed by the Bank’s First Loss Account (FLA). If applicable to the MPF product, the Bank will withhold a PFI’s scheduled performance CE fee in order to reimburse the Bank for any losses allocated to the FLA (recaptured CE Fees). If the FLA is exhausted, the credit losses are then absorbed by the PFI up to an agreed upon CE amount. The CE amount could be covered by supplemental mortgage insurance (SMI) obtained by the PFI. Thereafter, any remaining credit losses are absorbed by the Bank.
Payment Status of Mortgage Loans. Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Other delinquency statistics include nonaccrual loans and loans in process of foreclosure.
Notes to Unaudited Financial Statements (continued)
Credit Quality Indicator for Conventional Mortgage Loans. The following table presents the payment status for conventional mortgage loans at June 30, 20212022 and December 31, 2020.2021.
| | | June 30, 2021 | | June 30, 2022 |
| (in thousands) | (in thousands) | Origination Year | | (in thousands) | Origination Year | |
Payment Status, at amortized cost (1) | Payment Status, at amortized cost (1) | Prior to 2017 | 2017 to 2021 | Total | Payment Status, at amortized cost (1) | Prior to 2018 | 2018 to 2022 | Total |
| Past due 30-59 days | Past due 30-59 days | $ | 12,791 | | $ | 15,154 | | $ | 27,945 | | Past due 30-59 days | $ | 15,211 | | $ | 21,404 | | $ | 36,615 | |
| Past due 60-89 days | Past due 60-89 days | 3,383 | | 6,281 | | 9,664 | | Past due 60-89 days | 3,712 | | 2,926 | | 6,638 | |
| Past due 90 days or more | Past due 90 days or more | 18,379 | | 40,372 | | 58,751 | | Past due 90 days or more | 8,525 | | 11,077 | | 19,602 | |
| Total past due loans | Total past due loans | $ | 34,553 | | $ | 61,807 | | $ | 96,360 | | Total past due loans | $ | 27,448 | | $ | 35,407 | | $ | 62,855 | |
| Current loans | Current loans | 1,314,530 | | 3,218,320 | | 4,532,850 | | Current loans | 1,198,805 | | 3,277,237 | | 4,476,042 | |
Total conventional loans (2) | Total conventional loans (2) | $ | 1,349,083 | | $ | 3,280,127 | | $ | 4,629,210 | | Total conventional loans (2) | $ | 1,226,253 | | $ | 3,312,644 | | $ | 4,538,897 | |
| | | December 31, 2020 | | December 31, 2021 |
| | Origination Year | | | Origination Year | |
Payment Status, at amortized cost (1) | Payment Status, at amortized cost (1) | Prior to 2016 | 2016 to 2020 | Total | Payment Status, at amortized cost (1) | Prior to 2017 | 2017 to 2021 | Total |
| Past due 30-59 days | Past due 30-59 days | $ | 14,211 | | $ | 26,825 | | $ | 41,036 | | Past due 30-59 days | $ | 11,473 | | $ | 16,502 | | $ | 27,975 | |
| Past due 60-89 days | Past due 60-89 days | 5,719 | | 10,950 | | 16,669 | | Past due 60-89 days | 2,785 | | 4,517 | | 7,302 | |
| Past due 90 days or more | Past due 90 days or more | 18,070 | | 61,185 | | 79,255 | | Past due 90 days or more | 9,311 | | 16,455 | | 25,766 | |
| Total past due loans | Total past due loans | $ | 38,000 | | $ | 98,960 | | $ | 136,960 | | Total past due loans | $ | 23,569 | | $ | 37,474 | | $ | 61,043 | |
| Current loans | Current loans | 1,132,774 | | 3,458,941 | | 4,591,715 | | Current loans | 1,115,681 | | 3,369,710 | | 4,485,391 | |
Total conventional loans (3) | Total conventional loans (3) | $ | 1,170,774 | | $ | 3,557,901 | | $ | 4,728,675 | | Total conventional loans (3) | $ | 1,139,250 | | $ | 3,407,184 | | $ | 4,546,434 | |
Note:
(1) The amortized cost at June 30, 20212022 and December 31, 20202021 excludes accrued interest receivable.
(2) Includes approximately $60.5 million par value of loans in a forbearance or repayment plan as a result of COVID-19, of which approximately $1.7 million was current, $5.8 million was 30-59 days past due, $6.0 million was 60-89 days past due, and $47.0 million was 90 days or more past due at June 30, 2021.
(3) Includes approximately $83.9 million par value of loans in a forbearance or repayment plan as a result of COVID-19, of which approximately $1.7 million was current, $10.3 million was 30-59 days past due, $9.6 million was 60-89 days past due, and $62.3 million was 90 days or more past due at December 31, 2020.
Other Delinquency Statistics. The following table presents the delinquency statistics for the Bank’s mortgage loans at June 30, 20212022 and December 31, 2020.2021.
| | | June 30, 2021 | | June 30, 2022 |
| (dollars in thousands) | (dollars in thousands) | Conventional MPF Loans | Government-Guaranteed or Insured Loans (2) | Total | (dollars in thousands) | Conventional MPF Loans | Government-Guaranteed or Insured Loans (2) | Total |
In process of foreclosures, included above (1) | In process of foreclosures, included above (1) | $ | 2,815 | | $ | 614 | | $ | 3,429 | | In process of foreclosures, included above (1) | $ | 5,403 | | $ | 861 | | $ | 6,264 | |
Serious delinquency rate (2) | Serious delinquency rate (2) | 1.3 | % | 2.9 | % | 1.3 | % | Serious delinquency rate (2) | 0.4 | % | 2.8 | % | 0.5 | % |
| Past due 90 days or more still accruing interest | Past due 90 days or more still accruing interest | $ | 0 | | $ | 4,163 | | $ | 4,163 | | Past due 90 days or more still accruing interest | $ | — | | $ | 3,380 | | $ | 3,380 | |
Loans on nonaccrual status (3) | Loans on nonaccrual status (3) | $ | 66,529 | | $ | 0 | | $ | 66,529 | | Loans on nonaccrual status (3) | $ | 23,014 | | $ | — | | $ | 23,014 | |
| | | December 31, 2020 | | December 31, 2021 |
| (dollars in thousands) | (dollars in thousands) | Conventional MPF Loans | Government-Guaranteed or Insured Loans (2) | Total | (dollars in thousands) | Conventional MPF Loans | Government-Guaranteed or Insured Loans (2) | Total |
In process of foreclosures, included above (1) | In process of foreclosures, included above (1) | $ | 8,238 | | $ | 1,667 | | $ | 9,905 | | In process of foreclosures, included above (1) | $ | 2,906 | | $ | 1,007 | | $ | 3,913 | |
Serious delinquency rate (2) | Serious delinquency rate (2) | 1.7 | % | 3.7 | % | 1.8 | % | Serious delinquency rate (2) | 0.6 | % | 2.4 | % | 0.6 | % |
| Past due 90 days or more still accruing interest | Past due 90 days or more still accruing interest | $ | 0 | | $ | 5,483 | | $ | 5,483 | | Past due 90 days or more still accruing interest | $ | — | | $ | 3,129 | | $ | 3,129 | |
Loans on nonaccrual status (3) | Loans on nonaccrual status (3) | $ | 91,201 | | $ | 0 | | $ | 91,201 | | Loans on nonaccrual status (3) | $ | 29,890 | | $ | — | | $ | 29,890 | |
Note:
Notes to Unaudited Financial Statements (continued)
(1) Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.
(2) Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio class.
(3)
All conventional mortgage loans on non-accrual status had an associated ACL or available credit enhancements
Notes to absorb expected credit losses.Unaudited Financial Statements (continued)
Mortgage Loans Held for Portfolio ACL. Conventional MPF - Expected Losses. Conventional loans are evaluated collectively when similar risk characteristics exist. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. The Bank determines its allowances for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. The Bank uses a third-party model to estimate expected credit losses over the life of the loans. The estimate of the expected credit losses includes coverage of certain losses by PMI, if applicable. The model relies on a number of inputs, such as housing price forecasts and interest rates as well as historical borrower behavior experience. The Bank’s reasonable and supportable forecast for housing prices is two years. The Bank then reverts to historic averages over a three year period. The Bank may incorporate a qualitative adjustment to the model results, if deemed appropriate, based on current market conditions or results.
The estimated credit loss on collateral dependent loans is charged-off against the reserve. However, if the estimated loss can be recovered through CE, a receivable is established, resulting in a net charge-off. A mortgage loan is considered collateral dependent ifwhen the borrower is experiencing financial difficulty and repayment is expected to be provided bysubstantially through the sale of the underlying property, that is, if it is considered likely that the borrower will default.collateral. The expected credit loss of a collateral dependent mortgage loan to determine the charge-off is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The estimate of the expected credit losses includes coverage of certain losses by PMI, if applicable. The estimated fair value of the collateral is determined based on a value provided by a third-party’s retail-based Automated Valuation Model (AVM). The Bank adjusts the AVM based on the amount it has historically received on liquidations. Expected recoveries of prior charge-offs, as determined by a third-party model, if any, are included in the allowance for credit losses.
Conventional MPF - COVID-19-Related Modifications. Through the MPF Program, the Bank may grantgranted a forbearance period to certain borrowers due to COVID-19-related difficulties regardless of the status of the loan at the time of the request.difficulties. The Bank continues to apply its accounting policy for determining days past due, non-accrual, and charge-offs during the forbearance period. For MPF loans that have received COVID-19-related forbearance and meet certain criteria, the Bank may not charge-off the MPF loan, including when it is 180 or more days delinquent, if the Bank expects to recover its amortized cost. After the forbearance period, the Bank may modify the borrower's MPF loan. The Bank has elected to suspend TDRtroubled debt restructuring (TDR) accounting for eligible modifications under Section 4013 of the CARES Act.Act, for which the applicable period expired on January 1, 2022. As such, loans for which forbearance was granted to borrowers on or after January 1, 2022 are not eligible for the TDR accounting or charge-off relief discussed above. For additional information regarding the CARES Act, refer to Note 1 - Summary of Significant Accounting Policies in the Bank's 20202021 Form 10-K.
The par value of conventional loans in a forbearance or repayment plan as a result of the COVID-19 pandemic was $60.5 million at June 30, 2021 and $83.9 million at December 31, 2020. These amounts represented 1.3% of mortgage loans held for portfolio at June 30, 2021 and 1.8% at December 31, 2020. Of the conventional loans in a forbearance plan as a result of COVID-19, approximately 85% and 93% of the loans were not deemed to be collateral dependent and not charged-off as of June 30, 2021 and December 31, 2020, respectively.
Conventional MPF - Expected Recoveries. The Bank recognizes a recovery through the provision for credit losses when expected lifetime credit losses are less than the amounts previously charged-off. This includes potentially recording a negative ACL for certain of the Bank's MPF products. The reduction to the ACL for expected recoveries is partially offset by a reversal of expected CE, resulting in a net impact to the Bank's Statements of Condition.
Conventional MPF - Application of CE. The Bank also incorporates associated CE, if any, to determine its estimate of expected credit losses. The Bank records an ACL for expected credit losses that exceed the amount the Bank expects to receive from available CE. Potential recoveries from CE for conventional loans are evaluated at the individual master commitment level to determine the CE available to recover losses on loans under each individual master commitment.
Notes to Unaudited Financial Statements (continued)
Conventional MPF - Rollforward of ACL
| | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Balance, beginning of period | Balance, beginning of period | $ | 3,736 | | $ | 4,294 | | $ | 4,972 | | $ | 7,832 | | Balance, beginning of period | $ | 3,450 | | $ | 3,736 | | $ | 3,412 | | $ | 4,972 | |
Adjustment for cumulative effect of accounting change - adoption of ASU 2016-13(1) | — | | 0 | | — | | (3,875) | | |
(Charge-offs) Recoveries, net (2) | 206 | | 153 | | 506 | | 156 | | |
| Provision (benefit) for credit losses | (717) | | 1,453 | | (2,253) | | 1,787 | | |
(Charge-offs) Recoveries, net (1) | | (Charge-offs) Recoveries, net (1) | (48) | | 206 | | 227 | | 506 | |
| Provision (reversal) for credit losses | | Provision (reversal) for credit losses | 97 | | (717) | | (140) | | (2,253) | |
| Balance, June 30 | Balance, June 30 | $ | 3,225 | | $ | 5,900 | | $ | 3,225 | | $ | 5,900 | | Balance, June 30 | $ | 3,499 | | $ | 3,225 | | $ | 3,499 | | $ | 3,225 | |
Note:
(1)As a result of adopting ASU 2016-13, the reduction to the Bank's ACL of $3.9 million was largely offset by a reversal of CE receivable of $3.8 million, resulting in a net impact of adoption of $0.1 million.
(2) Net charge-offs that the Bank does not expect to recover through CE receivable.
Government-Guaranteed or Insured Mortgage Loans. The Bank invests in government-guaranteed or insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured mortgage loans are those insured or guaranteed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), the Rural Housing Service (RHS) of the Department of Agriculture and/or by Housing and Urban Development (HUD). The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for
Notes to Unaudited Financial Statements (continued)
compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-guaranteed or insured mortgage loans. Any losses on these loans that are not recovered from the issuer or the guarantor are absorbed by the servicer. Therefore, the Bank only has credit risk for these loans if the servicer fails to pay for losses not covered by the guarantee or insurance.insurance, but in such instance, the Bank would have recourse against the servicer for such failure. Based on the Bank's assessment of its servicers and the collateral backing the loans, the risk of loss was immaterial. Consequently, the Bank has not recorded an ACL for government-guaranteed or insured mortgage loans at June 30, 20212022 or December 31, 2020.2021. Furthermore, none of these mortgage loans has been placed on non-accrual status because of the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.
Real Estate Owned (REO). The Bank had $0.7 million and $0.8$0.4 million of REO reported in Other assets on the Statement of Condition at both June 30, 20212022 and December 31, 2020, respectively.2021.
Notes to Unaudited Financial Statements (continued)
Note 5 – Derivatives and Hedging Activities
Nature of Business Activity. The Bank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and interest-bearing liabilities that finance these assets. The goal of the Bank's interest rate risk management strategy is not to eliminate interest rate risk but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures that include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the Bank monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities. For additional information on the Bank's derivative transactions, see Note 7 - Derivatives and Hedging Activities to the audited financial statements in the Bank's 20202021 Form 10-K.
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 Derivatives Clearing Organization (referred to as cleared derivatives). Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearing House), the executing counterparty is replaced with the Clearing House. The Bank is not a derivatives dealer and does not trade derivatives for short-term profit. The Bank transacts uncleared derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations.
Financial Statement Effect and Additional Financial Information. The following tables summarize the notional amount and fair value of derivative instruments and total derivatives 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.
| | | | | | | | | | | |
| | June 30, 2021 |
| (in thousands) | Notional Amount of Derivatives | Derivative Assets | Derivative Liabilities |
| Derivatives designated as hedging instruments: | | | |
| Interest rate swaps | $ | 20,407,052 | | $ | 2,458 | | $ | 19,280 | |
| Derivatives not designated as hedging instruments: | | | |
| Interest rate swaps | $ | 1,365,988 | | $ | 298 | | $ | 2,862 | |
| | | |
| Interest rate caps or floors | 1,025,000 | | 1,015 | | 0 | |
| Mortgage delivery commitments | 65,151 | | 108 | | 34 | |
| Total derivatives not designated as hedging instruments: | $ | 2,456,139 | | $ | 1,421 | | $ | 2,896 | |
| Total derivatives before netting and collateral adjustments | $ | 22,863,191 | | $ | 3,879 | | $ | 22,176 | |
Netting adjustments and cash collateral (1) | | 200,356 | | (7,999) | |
Derivative assets and derivative liabilities as reported on the Statement of
Condition | | $ | 204,235 | | $ | 14,177 | |
| | | | | | | | | | | |
| | December 31, 2020 |
| (in thousands) | Notional Amount of Derivatives | Derivative Assets | Derivative Liabilities |
| Derivatives designated as hedging instruments: | | | |
| Interest rate swaps | $ | 14,307,383 | | $ | 1,494 | | $ | 5,193 | |
| Derivatives not designated as hedging instruments: | | | |
| Interest rate swaps | $ | 1,868,988 | | $ | 71 | | $ | 2,386 | |
| | | |
| Interest rate caps or floors | 1,205,000 | | 1,173 | | 0 | |
| Mortgage delivery commitments | 60,622 | | 675 | | 11 | |
| Total derivatives not designated as hedging instruments: | $ | 3,134,610 | | $ | 1,919 | | $ | 2,397 | |
| Total derivatives before netting and collateral adjustments | $ | 17,441,993 | | $ | 3,413 | | $ | 7,590 | |
Netting adjustments and cash collateral (1) | | 133,629 | | (3,131) | |
Derivative assets and derivative liabilities as reported on the Statement of
Condition | | $ | 137,042 | | $ | 4,459 | |
Note: | | | | | | | | | | | |
| | June 30, 2022 |
| (in thousands) | Notional Amount of Derivatives | Derivative Assets | Derivative Liabilities |
| Derivatives designated as hedging instruments: | | | |
| Interest rate swaps | $ | 38,776,852 | | $ | 8,777 | | $ | 682,585 | |
| Derivatives not designated as hedging instruments: | | | |
| Interest rate swaps | $ | 4,067,997 | | $ | 1,022 | | $ | 19,462 | |
| | | |
| Interest rate caps or floors | 905,000 | | 3,798 | | — | |
| Mortgage delivery commitments | 14,098 | | 46 | | 29 | |
| Total derivatives not designated as hedging instruments: | $ | 4,987,095 | | $ | 4,866 | | $ | 19,491 | |
| Total derivatives before netting and collateral adjustments | $ | 43,763,947 | | $ | 13,643 | | $ | 702,076 | |
Netting adjustments and cash collateral (1) | | 273,235 | | (655,070) | |
Derivative assets and derivative liabilities as reported on the Statement of
Condition | | $ | 286,878 | | $ | 47,006 | |
Notes to Unaudited Financial Statements (continued)
| | | | | | | | | | | |
| | December 31, 2021 |
| (in thousands) | Notional Amount of Derivatives | Derivative Assets | Derivative Liabilities |
| Derivatives designated as hedging instruments: | | | |
| Interest rate swaps | $ | 25,597,234 | | $ | 1,061 | | $ | 70,643 | |
| Derivatives not designated as hedging instruments: | | | |
| Interest rate swaps | $ | 1,084,988 | | $ | 27 | | $ | 3,046 | |
| | | |
| Interest rate caps or floors | 1,005,000 | | 1,357 | | — | |
| Mortgage delivery commitments | 24,822 | | 2 | | 131 | |
| Total derivatives not designated as hedging instruments: | $ | 2,114,810 | | $ | 1,386 | | $ | 3,177 | |
| Total derivatives before netting and collateral adjustments | $ | 27,712,044 | | $ | 2,447 | | $ | 73,820 | |
Netting adjustments and cash collateral (1) | | 180,406 | | (67,975) | |
Derivative assets and derivative liabilities as reported on the Statement of
Condition | | $ | 182,853 | | $ | 5,845 | |
Note:
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, cash collateral including accrued interest held or placed with the same clearing agent and/or counterparties. Cash collateral posted including accrued interest was $209.6$931.1 million for June 30, 20212022 and $137.9$248.7 million for December 31, 2020.2021. Cash collateral received was $1.2$2.8 million for June 30, 20212022 and $1.1$0.3 million for December 31, 2020.2021.
The following table presents, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships, which also includes amortization of basis adjustments related to hedged items in discontinued fair value hedge relationships, and the impact of those derivatives on the Bank’s net interest income. Also included is the amortization of basis adjustments related to mortgage delivery commitments, which are characterized as derivatives, but are not designated in fair value hedge relationships.
| | | | | | | | | | | | | | | | | |
| (in thousands) | Gains/(Losses) on Derivative | Gains/ (Losses) on Hedged Item | Net Interest Settlements | Effect of Derivatives on Net Interest Income | Total Interest Income/ (Expense) Recorded in the Statement of Income |
| Three months ended June 30, 2021 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 22,595 | | $ | (22,594) | | $ | (35,243) | | $ | (35,242) | | $ | 31,269 | |
| AFS securities | (21,508) | | 20,710 | | (10,552) | | (11,350) | | 23,179 | |
| Mortgage loans held for portfolio | 0 | | (1,153) | | 0 | | (1,153) | | 30,800 | |
| Consolidated obligations – bonds | (12,418) | | 12,440 | | 8,724 | | 8,746 | | (57,716) | |
| Total | $ | (11,331) | | $ | 9,403 | | $ | (37,071) | | $ | (38,999) | | |
| Six months ended June 30, 2021 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 114,948 | | $ | (114,945) | | $ | (74,827) | | $ | (74,824) | | $ | 81,284 | |
| AFS securities | 39,901 | | (38,569) | | (18,138) | | (16,806) | | 50,297 | |
| Mortgage loans held for portfolio | 0 | | (2,021) | | 0 | | (2,021) | | 63,118 | |
| Consolidated obligations – bonds | (20,475) | | 20,534 | | 16,143 | | 16,202 | | (119,742) | |
| Total | $ | 134,374 | | $ | (135,001) | | $ | (76,822) | | $ | (77,449) | | |
| | | | | | | | | | | | | | | | | |
| (in thousands) | Gains/(Losses) on Derivative | Gains/ (Losses) on Hedged Item | Net Interest Settlements | Effect of Derivatives on Net Interest Income | Total Interest Income/ (Expense) Recorded in the Statement of Income |
| Three months ended June 30, 2020 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 2,123 | | $ | (2,146) | | $ | (49,396) | | $ | (49,419) | | $ | 170,477 | |
| AFS securities | (6,492) | | 6,996 | | (4,728) | | (4,224) | | 43,192 | |
| Mortgage loans held for portfolio | 0 | | (677) | | 0 | | (677) | | 40,591 | |
| Consolidated obligations – bonds | (15,989) | | 16,005 | | 23,081 | | 23,097 | | (120,268) | |
| Total | $ | (20,358) | | $ | 20,178 | | $ | (31,043) | | $ | (31,223) | | |
| Six months ended June 30, 2020 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | (313,121) | | $ | 312,993 | | $ | (67,109) | | $ | (67,237) | | $ | 453,752 | |
| AFS securities | (112,694) | | 109,053 | | (6,664) | | (10,305) | | 106,569 | |
| Mortgage loans held for portfolio | 0 | | (1,083) | | 0 | | (1,083) | | 85,629 | |
| Consolidated obligations – bonds | 26,381 | | (25,980) | | 32,758 | | 33,159 | | (381,427) | |
| $ | (399,434) | | $ | 394,983 | | $ | (41,015) | | $ | (45,466) | | |
| | | | | | | | | | | | | | | | | |
| (in thousands) | Gains/(Losses) on Derivative | Gains/ (Losses) on Hedged Item | Net Interest Settlements | Effect of Derivatives on Net Interest Income | Total Interest Income/ (Expense) Recorded in the Statement of Income |
| Three months ended June 30, 2022 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 81,428 | | $ | (81,483) | | $ | (18,878) | | $ | (18,933) | | $ | 84,301 | |
| AFS securities | 116,407 | | (115,815) | | (5,406) | | (4,814) | | 40,894 | |
| Mortgage loans held for portfolio | — | | (394) | | — | | (394) | | 33,214 | |
| Consolidated obligations – bonds | (197,033) | | 196,184 | | 26,247 | | 25,398 | | (77,888) | |
| Total | $ | 802 | | $ | (1,508) | | $ | 1,963 | | $ | 1,257 | | |
| Six months ended June 30, 2022 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 257,040 | | $ | (257,118) | | $ | (49,307) | | $ | (49,385) | | $ | 110,997 | |
| AFS securities | 368,024 | | (366,106) | | (19,332) | | (17,414) | | 65,722 | |
| Mortgage loans held for portfolio | — | | (852) | | — | | (852) | | 65,745 | |
| Consolidated obligations – bonds | (600,010) | | 599,997 | | 52,123 | | 52,110 | | (124,452) | |
| Total | $ | 25,054 | | $ | (24,079) | | $ | (16,516) | | $ | (15,541) | | |
Notes to Unaudited Financial Statements (continued)
| | | | | | | | | | | | | | | | | |
| (in thousands) | Gains/(Losses) on Derivative | Gains/ (Losses) on Hedged Item | Net Interest Settlements | Effect of Derivatives on Net Interest Income | Total Interest Income/ (Expense) Recorded in the Statement of Income |
| Three months ended June 30, 2021 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 22,595 | | $ | (22,594) | | $ | (35,243) | | $ | (35,242) | | $ | 31,269 | |
| AFS securities | (21,508) | | 20,710 | | (10,552) | | (11,350) | | 23,179 | |
| Mortgage loans held for portfolio | — | | (1,153) | | — | | (1,153) | | 30,800 | |
| Consolidated obligations – bonds | (12,418) | | 12,440 | | 8,724 | | 8,746 | | (57,716) | |
| Total | $ | (11,331) | | $ | 9,403 | | $ | (37,071) | | $ | (38,999) | | |
| Six months ended June 30, 2021 | | | | | |
| Hedged item type: | | | | | |
| Advances | $ | 114,948 | | $ | (114,945) | | $ | (74,827) | | $ | (74,824) | | $ | 81,284 | |
| AFS securities | 39,901 | | (38,569) | | (18,138) | | (16,806) | | 50,297 | |
| Mortgage loans held for portfolio | — | | (2,021) | | — | | (2,021) | | 63,118 | |
| Consolidated obligations – bonds | (20,475) | | 20,534 | | 16,143 | | 16,202 | | (119,742) | |
| $ | 134,374 | | $ | (135,001) | | $ | (76,822) | | $ | (77,449) | | |
The following table presents the cumulative amount of fair value hedging adjustments and the related carrying amount of the hedged items.
| | (in thousands) | (in thousands) | June 30, 2021 | (in thousands) | June 30, 2022 |
| Hedged item type | Hedged item type | Carrying Amount of Hedged Assets/Liabilities (1) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets/Liabilities | Fair Value Hedging Adjustments for Discontinued Hedging Relationships | Total Amount of Fair Value Hedging Adjustments | Hedged item type | Carrying Amount of Hedged Assets/Liabilities (1) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets/Liabilities | Fair Value Hedging Adjustments for Discontinued Hedging Relationships | Total Amount of Fair Value Hedging Adjustments |
| Advances | Advances | $ | 8,195,378 | | $ | 134,982 | | $ | (22) | | $ | 134,960 | | Advances | $ | 8,701,353 | | $ | (210,535) | | $ | (17) | | $ | (210,552) | |
| AFS securities | AFS securities | 5,854,959 | | 92,885 | | 1,081 | | 93,966 | | AFS securities | 6,388,450 | | (354,370) | | 943 | | (353,427) | |
| Consolidated obligations – bonds | Consolidated obligations – bonds | 6,571,597 | | 4,236 | | 215 | | 4,451 | | Consolidated obligations – bonds | 22,423,725 | | (680,613) | | 75 | | (680,538) | |
|
| | (in thousands) | (in thousands) | December 31, 2020 | (in thousands) | December 31, 2021 |
| Hedged item type | Hedged item type | Carrying Amount of Hedged Assets/Liabilities (1) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets/Liabilities | Fair Value Hedging Adjustments for Discontinued Hedging Relationships | Total Amount of Fair Value Hedging Adjustments | Hedged item type | Carrying Amount of Hedged Assets/Liabilities (1) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets/Liabilities | Fair Value Hedging Adjustments for Discontinued Hedging Relationships | Total Amount of Fair Value Hedging Adjustments |
| Advances | Advances | $ | 10,369,813 | | $ | 249,927 | | $ | (24) | | $ | 249,903 | | Advances | $ | 8,952,529 | | $ | 46,583 | | $ | (20) | | $ | 46,563 | |
| AFS securities | AFS securities | 1,507,492 | | 131,386 | | 1,148 | | 132,534 | | AFS securities | 5,968,405 | | 11,667 | | 1,012 | | 12,679 | |
| Consolidated obligations – bonds | Consolidated obligations – bonds | 2,838,505 | | 24,701 | | 284 | | 24,985 | | Consolidated obligations – bonds | 10,633,898 | | (80,686) | | 146 | | (80,540) | |
Note:
(1) Includes carrying value of hedged items in current fair value hedging relationships.
Notes to Unaudited Financial Statements (continued)
The following table presents net gains (losses) related to derivatives andnot designated as hedging activitiesinstruments in other noninterest income.
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| 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 | $ | (6,191) | | $ | 752 | | $ | 13,673 | | $ | (97,452) | | Interest rate swaps | $ | 271 | | $ | (6,191) | | $ | 7,842 | | $ | 13,673 | |
| | Interest rate caps or floors | Interest rate caps or floors | (916) | | 83 | | (158) | | 635 | | Interest rate caps or floors | 282 | | (916) | | 2441 | | (158) | |
| Net interest settlements | Net interest settlements | (1,979) | | (5,894) | | (4,220) | | (7,165) | | Net interest settlements | 1,589 | | (1,979) | | 1,067 | | (4,220) | |
| To Be Announced (TBA) | To Be Announced (TBA) | 0 | | 0 | | 0 | | 38 | | To Be Announced (TBA) | — | | — | | 74 | | — | |
| Mortgage delivery commitments | Mortgage delivery commitments | 1,152 | | 1,035 | | (3,567) | | 2,366 | | Mortgage delivery commitments | (596) | | 1,152 | | (2,326) | | (3,567) | |
| Other | Other | 0 | | 148 | | 0 | | 149 | | Other | 1 | | — | | 1 | | — | |
| Total net gains (losses) related to derivatives not designated as hedging instruments | Total net gains (losses) related to derivatives not designated as hedging instruments | $ | (7,934) | | $ | (3,876) | | $ | 5,728 | | $ | (101,429) | | Total net gains (losses) related to derivatives not designated as hedging instruments | $ | 1,547 | | $ | (7,934) | | $ | 9,099 | | $ | 5,728 | |
Other - price alignment amount on cleared derivatives (1) | Other - price alignment amount on cleared derivatives (1) | 1 | | 12 | | 6 | | 155 | | Other - price alignment amount on cleared derivatives (1) | (333) | | 1 | | (338) | | 6 | |
| Net gains (losses) on derivatives and hedging activities | $ | (7,933) | | $ | (3,864) | | $ | 5,734 | | $ | (101,274) | | |
| Net gains (losses) on derivatives | | Net gains (losses) on derivatives | $ | 1,214 | | $ | (7,933) | | $ | 8,761 | | $ | 5,734 | |
Notes:
(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.
The Bank had no active cash flow hedging relationships during the first six months of 20212022 or 2020.2021.
Managing Credit Risk on Derivatives. The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. The Bank manages counterparty 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.
Uncleared Derivatives. For uncleared derivatives, the degree of credit risk depends on the extent to which netting arrangements are included in such contracts to mitigate the risk. The Bank requires collateral agreements with collateral delivery thresholds on all uncleared derivatives.
Notes to Unaudited Financial Statements (continued)
Generally, the Bank is subject to certainBank's ISDA agreements for uncleared derivatives have collateral delivery thresholds set to zero (subject to minimum transfer amounts). The Bank has a small number of legacy trades that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank's credit rating and the net liability position exceeds the relevant threshold. IfAs of June 30, 2022, the Bank’s credit rating were to be lowered by a major credit rating agency, the Bank would be required to deliver additional collateral on uncleared derivative instruments in net liability positions, unless the collateral delivery threshold is set to zero. The aggregate fair value of all uncleared derivative instruments with credit-risk related contingent features that require the Bank to deliver additional collateral due to a credit downgrade and were in a net liability position (before cash collateral and related accrued interest) at June 30, 2021 was $0.8 million. The Bank had noof these trades, collateral posted against this position and even if the Bank’spotential additional credit rating had been lowered one notch (i.e., from its current rating to the next lower rating), the Bank would not have been required to deliver additionalcontingent collateral to its derivative counterparties at June 30, 2021.amounts are all immaterial.
Cleared Derivatives. For cleared derivatives, Derivative Clearing Organizations (Clearing Houses) are the Bank's counterparties. The Clearing Houses notify the clearing agent of the required initial and variation margin. The requirement that the Bank post initial margin and exchange variation margin settlement payments through the clearing agent, which notifies the Bank on behalf of the Clearing Houses, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearing Houses fail to meet their respective obligations. The use of cleared derivatives is intended to mitigate credit risk exposure through the use of a central counterparty instead of individual counterparties. Collateral postings and variation margin settlement payments are made daily, through a clearing agent, for changes in the value of cleared derivatives. Initial margin is the amount calculated based on anticipated exposure to future changes in the value of a swap and protects the Clearing Houses from market risk in the event of default by one of their respective clearing agents. Variation margin is paid daily to settle the exposure arising from changes in the market value of the position. The Bank uses either CME Clearing or LCH Ltd. as the Clearing House for all cleared derivative transactions. Variation margin payments are characterized as settled to market, rather than collateral. Initial margin is considered collateralized to market.
Based on credit analyses and collateral requirements, the Bank does not anticipate credit losses related to its derivative agreements. See Note 9 - Estimated Fair Values for discussion regarding the Bank's fair value methodology for derivative assets and liabilities, including an evaluation of the potential for the fair value of these instruments to be affected by counterparty credit risk.
For cleared derivatives, the Clearing House 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
Notes to Unaudited Financial Statements (continued)
considerations, including but not limited to credit rating downgrades. The Bank was not required by its clearing agents to post additional initial margin at June 30, 2021.2022.
Offsetting of Derivative Assets and Derivative Liabilities. When it has met the netting requirements, the Bank presents derivative instruments, related cash collateral received or pledged, and associated accrued interest on a net basis by clearing agent and/or by counterparty. The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default including a bankruptcy, insolvency or similar proceeding involving the Clearing Houses or the Bank’s clearing agent, or both. Based on this analysis, the Bank nets derivative fair values on all of its transactions through a particular clearing agent with a particular Clearing House (including settled variation margin) into one net asset or net liability exposure. Initial margin posted to the clearing house is presented as a derivative asset.
Notes to Unaudited Financial Statements (continued)
The following tables present separately the fair value of derivative instruments meeting or not meeting netting requirements. Gross recognized amounts do not include the related collateral received from or pledged to counterparties. Net amounts reflect the adjustments of collateral received from or pledged to counterparties.
| | | Derivative Assets | | Derivative Assets |
| (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Derivative instruments meeting netting requirements: | Derivative instruments meeting netting requirements: | | Derivative instruments meeting netting requirements: | |
| Gross recognized amount: | Gross recognized amount: | | Gross recognized amount: | |
| Uncleared derivatives | Uncleared derivatives | $ | 3,627 | | $ | 2,355 | | Uncleared derivatives | $ | 9,402 | | $ | 1,972 | |
| Cleared derivatives | Cleared derivatives | 144 | | 383 | | Cleared derivatives | 4,195 | | 473 | |
| Total gross recognized amount | Total gross recognized amount | 3,771 | | 2,738 | | Total gross recognized amount | 13,597 | | 2,445 | |
| Gross amounts of netting adjustments and cash collateral | Gross amounts of netting adjustments and cash collateral | | Gross amounts of netting adjustments and cash collateral | |
| Uncleared derivatives | Uncleared derivatives | (1,482) | | (1,632) | | Uncleared derivatives | 47,612 | | (1,700) | |
| Cleared derivatives | Cleared derivatives | 201,838 | | 135,261 | | Cleared derivatives | 225,623 | | 182,106 | |
| Total gross amounts of netting adjustments and cash collateral | Total gross amounts of netting adjustments and cash collateral | 200,356 | | 133,629 | | Total gross amounts of netting adjustments and cash collateral | 273,235 | | 180,406 | |
| Net amounts after netting adjustments and cash collateral | Net amounts after netting adjustments and cash collateral | | Net amounts after netting adjustments and cash collateral | |
| Uncleared derivatives | Uncleared derivatives | 2,145 | | 723 | | Uncleared derivatives | 57,014 | | 272 | |
| Cleared derivatives | Cleared derivatives | 201,982 | | 135,644 | | Cleared derivatives | 229,818 | | 182,579 | |
| Total net amounts after netting adjustments and cash collateral | Total net amounts after netting adjustments and cash collateral | 204,127 | | 136,367 | | Total net amounts after netting adjustments and cash collateral | 286,832 | | 182,851 | |
Derivative instruments not meeting netting requirements: (1) | Derivative instruments not meeting netting requirements: (1) | | Derivative instruments not meeting netting requirements: (1) | |
| Uncleared derivatives | Uncleared derivatives | 108 | | 675 | | Uncleared derivatives | 46 | | 2 | |
| Cleared derivatives | Cleared derivatives | 0 | | 0 | | Cleared derivatives | — | | — | |
| Total derivative instruments not meeting netting requirements: | Total derivative instruments not meeting netting requirements: | 108 | | 675 | | Total derivative instruments not meeting netting requirements: | 46 | | 2 | |
| Total derivative assets: | Total derivative assets: | | Total derivative assets: | |
| Uncleared derivatives | Uncleared derivatives | 2,253 | | 1,398 | | Uncleared derivatives | 57,060 | | 274 | |
| Cleared derivatives | Cleared derivatives | 201,982 | | 135,644 | | Cleared derivatives | 229,818 | | 182,579 | |
| Total derivative assets as reported in the Statement of Condition | Total derivative assets as reported in the Statement of Condition | 204,235 | | 137,042 | | Total derivative assets as reported in the Statement of Condition | 286,878 | | 182,853 | |
| | Net unsecured amount: | Net unsecured amount: | | Net unsecured amount: | |
| Uncleared derivatives | Uncleared derivatives | 2,253 | | 1,398 | | Uncleared derivatives | 57,060 | | 274 | |
| Cleared derivatives | Cleared derivatives | 201,982 | | 135,644 | | Cleared derivatives | 229,818 | | 182,579 | |
| Total net unsecured amount | Total net unsecured amount | $ | 204,235 | | $ | 137,042 | | Total net unsecured amount | $ | 286,878 | | $ | 182,853 | |
Notes to Unaudited Financial Statements (continued)
| | | Derivative Liabilities | | Derivative Liabilities |
| (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Derivative instruments meeting netting requirements: | Derivative instruments meeting netting requirements: | | Derivative instruments meeting netting requirements: | |
| Gross recognized amount: | Gross recognized amount: | | Gross recognized amount: | |
| Uncleared derivatives | Uncleared derivatives | $ | 9,135 | | $ | 4,282 | | Uncleared derivatives | $ | 653,604 | | $ | 71,083 | |
| Cleared derivatives | Cleared derivatives | 13,007 | | 3,297 | | Cleared derivatives | 48,443 | | 2,606 | |
| Total gross recognized amount | Total gross recognized amount | 22,142 | | 7,579 | | Total gross recognized amount | 702,047 | | 73,689 | |
| Gross amounts of netting adjustments and cash collateral | Gross amounts of netting adjustments and cash collateral | | Gross amounts of netting adjustments and cash collateral | |
| Uncleared derivatives | Uncleared derivatives | (7,855) | | (2,748) | | Uncleared derivatives | (650,876) | | (67,502) | |
| Cleared derivatives | Cleared derivatives | (144) | | (383) | | Cleared derivatives | (4,194) | | (473) | |
| Total gross amounts of netting adjustments and cash collateral | Total gross amounts of netting adjustments and cash collateral | (7,999) | | (3,131) | | Total gross amounts of netting adjustments and cash collateral | (655,070) | | (67,975) | |
| Net amounts after netting adjustments and cash collateral | Net amounts after netting adjustments and cash collateral | | Net amounts after netting adjustments and cash collateral | |
| Uncleared derivatives | Uncleared derivatives | 1,280 | | 1,534 | | Uncleared derivatives | 2,728 | | 3,581 | |
| Cleared derivatives | Cleared derivatives | 12,863 | | 2,914 | | Cleared derivatives | 44,249 | | 2,133 | |
| Total net amounts after netting adjustments and cash collateral | Total net amounts after netting adjustments and cash collateral | 14,143 | | 4,448 | | Total net amounts after netting adjustments and cash collateral | 46,977 | | 5,714 | |
Derivative instruments not meeting netting requirements: (1) | Derivative instruments not meeting netting requirements: (1) | | Derivative instruments not meeting netting requirements: (1) | |
| Uncleared derivatives | Uncleared derivatives | 34 | | 11 | | Uncleared derivatives | 29 | | 131 | |
| Cleared derivatives | Cleared derivatives | 0 | | 0 | | Cleared derivatives | — | | — | |
| Total derivative instruments not meeting netting requirements: | Total derivative instruments not meeting netting requirements: | 34 | | 11 | | Total derivative instruments not meeting netting requirements: | 29 | | 131 | |
| Total derivative liabilities | Total derivative liabilities | | Total derivative liabilities | |
| Uncleared derivatives | Uncleared derivatives | 1,314 | | 1,545 | | Uncleared derivatives | 2,757 | | 3,712 | |
| Cleared derivatives | Cleared derivatives | 12,863 | | 2,914 | | Cleared derivatives | 44,249 | | 2,133 | |
| Total derivative liabilities as reported in the Statement of Condition | Total derivative liabilities as reported in the Statement of Condition | 14,177 | | 4,459 | | Total derivative liabilities as reported in the Statement of Condition | 47,006 | | 5,845 | |
| | Net unsecured amount: | Net unsecured amount: | | Net unsecured amount: | |
| Uncleared derivatives | Uncleared derivatives | 1,314 | | 1,545 | | Uncleared derivatives | 2,757 | | 3,712 | |
| Cleared derivatives | Cleared derivatives | 12,863 | | 2,914 | | Cleared derivatives | 44,249 | | 2,133 | |
| Total net unsecured amount | Total net unsecured amount | $ | 14,177 | | $ | 4,459 | | Total net unsecured amount | $ | 47,006 | | $ | 5,845 | |
Note:
(1) Represents derivatives that are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).
Notes to Unaudited Financial Statements (continued)
Note 6 – Consolidated Obligations
Consolidated obligations consist of consolidated bonds and consolidated discount notes. The FHLBanks issue consolidated obligations through the OF as their agent. In connection with each debt issuance, each FHLBank specifies the amount of debt it wants to have issued on its behalf. The OF tracks the amount of debt issued on behalf of each FHLBank. The Bank records as a liability its specific portion of consolidated obligations for which it is the primary obligor.
Although the Bank is primarily liable for its portion of consolidated obligations, the Bank is also jointly and severally liable with the other ten FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations whether or not the consolidated obligation represents a primary liability of such FHLBank.
Although an FHLBank has never paid the principal or interest payments due on a consolidated obligation on behalf of another FHLBank, if one FHLBank is required to make such payments, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement from the non-complying FHLBank for any payments made on its behalf and other associated costs including interest to be determined by the Finance Agency. If the Finance Agency determines that the non-complying FHLBank is unable to satisfy its repayment obligations, then the Finance Agency may allocate the outstanding liabilities of the non-complying FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding. However, the Finance Agency reserves the right to allocate the outstanding liabilities for the consolidated obligations among the FHLBanks in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner. The par amounts of the 11 FHLBanks’ outstanding consolidated obligations waswere $666.7882.5 billion at June 30, 20212022 and $746.8652.9 billion at December 31, 2020.2021. Additional detailed information regarding consolidated obligations including general terms and interest rate payment terms can be found in Note 9 to the audited financial statements in the Bank's 20202021 Form 10-K.
The following table details interest rate payment terms for the Bank's consolidated obligation bonds as of June 30, 20212022 and December 31, 2020.2021.
| | | | | | | | |
| (in thousands) | June 30, 2021 | December 31, 2020 |
| Par value of consolidated bonds: | | |
| Fixed-rate | $ | 18,826,575 | | $ | 17,148,965 | |
| Step-up | 496,000 | | 40,000 | |
| Floating-rate | 3,125,000 | | 16,561,250 | |
| | |
| Total par value | 22,447,575 | | 33,750,215 | |
| Bond premiums | 74,723 | | 91,225 | |
| Bond discounts | (8,231) | | (7,524) | |
| Concession fees | (4,248) | | (4,147) | |
| Hedging adjustments | 4,451 | | 24,985 | |
| Total book value | $ | 22,514,270 | | $ | 33,854,754 | |
| | | | | | | | |
| (in thousands) | June 30, 2022 | December 31, 2021 |
| Par value of consolidated bonds: | | |
| Fixed-rate | $ | 28,764,425 | | $ | 20,650,400 | |
| Step-up | 2,979,000 | | 1,560,000 | |
| Floating-rate | 1,595,000 | | 925,000 | |
| | |
| Total par value | 33,338,425 | | 23,135,400 | |
| Bond premiums | 56,168 | | 62,536 | |
| Bond discounts | (7,854) | | (7,469) | |
| Concession fees | (5,202) | | (4,188) | |
| Hedging adjustments | (680,538) | | (80,541) | |
| Total book value | $ | 32,700,999 | | $ | 23,105,738 | |
Notes to Unaudited Financial Statements (continued)
Maturity Terms. The following table presents a summary of the Bank’s consolidated obligation bonds outstanding by year of contractual maturity as ofand weighted-average interest rate at June 30, 20212022 and December 31, 2020.2021.
| | | | June 30, 2021 | December 31, 2020 | | June 30, 2022 | December 31, 2021 |
(dollars in thousands)
Year of Contractual Maturity | (dollars in thousands)
Year of Contractual Maturity | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate | (dollars in thousands)
Year of Contractual Maturity | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate |
| Due in 1 year or less | Due in 1 year or less | $ | 9,897,685 | | 0.96 | % | $ | 24,233,615 | | 0.49 | % | Due in 1 year or less | $ | 12,146,915 | | 1.77 | % | $ | 5,748,625 | | 1.17 | % |
| Due after 1 year through 2 years | Due after 1 year through 2 years | 2,542,915 | | 1.89 | | 3,024,625 | | 2.19 | | Due after 1 year through 2 years | 4,666,200 | | 2.19 | | 2,243,000 | | 1.74 | |
| Due after 2 years through 3 years | Due after 2 years through 3 years | 1,394,200 | | 2.13 | | 1,545,000 | | 2.33 | | Due after 2 years through 3 years | 4,893,200 | | 1.54 | | 3,520,275 | | 1.32 | |
| Due after 3 years through 4 years | Due after 3 years through 4 years | 1,812,200 | | 1.54 | | 1,164,475 | | 2.41 | | Due after 3 years through 4 years | 2,767,800 | | 1.24 | | 1,683,725 | | 1.27 | |
| Due after 4 years through 5 years | Due after 4 years through 5 years | 2,766,800 | | 1.11 | | 961,725 | | 1.69 | | Due after 4 years through 5 years | 5,213,200 | | 1.33 | | 6,300,800 | | 1.10 | |
| Thereafter | Thereafter | 4,033,775 | | 1.82 | | 2,820,775 | | 2.05 | | Thereafter | 3,651,110 | | 2.06 | | 3,638,975 | | 1.90 | |
| | Total par value | Total par value | $ | 22,447,575 | | 1.36 | % | $ | 33,750,215 | | 0.96 | % | Total par value | $ | 33,338,425 | | 1.66 | % | $ | 23,135,400 | | 1.35 | % |
The following table presents the Bank’s consolidated obligation bonds outstanding between noncallable and callable as of June 30, 20212022 and December 31, 2020.2021.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Noncallable | Noncallable | $ | 16,451,575 | | $ | 28,583,715 | | Noncallable | $ | 14,203,425 | | $ | 11,476,400 | |
| Callable | Callable | 5,996,000 | | 5,166,500 | | Callable | 19,135,000 | | 11,659,000 | |
| Total par value | Total par value | $ | 22,447,575 | | $ | 33,750,215 | | Total par value | $ | 33,338,425 | | $ | 23,135,400 | |
The following table presents consolidated obligation bonds outstanding by the earlier of contractual maturity or next call date as of June 30, 20212022 and December 31, 2020.2021.
| (in thousands)
Year of Contractual Maturity or Next Call Date | (in thousands)
Year of Contractual Maturity or Next Call Date | June 30, 2021 | December 31, 2020 | (in thousands)
Year of Contractual Maturity or Next Call Date | June 30, 2022 | December 31, 2021 |
| Due in 1 year or less | Due in 1 year or less | $ | 15,363,685 | | $ | 25,737,615 | | Due in 1 year or less | $ | 27,222,915 | | $ | 17,067,625 | |
| Due after 1 year through 2 years | Due after 1 year through 2 years | 2,702,915 | | 3,038,625 | | Due after 1 year through 2 years | 2,088,200 | | 2,025,000 | |
| Due after 2 years through 3 years | Due after 2 years through 3 years | 1,182,200 | | 1,602,000 | | Due after 2 years through 3 years | 1,194,200 | | 1,151,275 | |
| Due after 3 years through 4 years | Due after 3 years through 4 years | 1,044,200 | | 1,089,475 | | Due after 3 years through 4 years | 834,800 | | 848,725 | |
| Due after 4 years through 5 years | Due after 4 years through 5 years | 606,800 | | 759,725 | | Due after 4 years through 5 years | 588,200 | | 596,800 | |
| Thereafter | Thereafter | 1,547,775 | | 1,522,775 | | Thereafter | 1,410,110 | | 1,445,975 | |
| | Total par value | Total par value | $ | 22,447,575 | | $ | 33,750,215 | | Total par value | $ | 33,338,425 | | $ | 23,135,400 | |
Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities up to one year. These notes are issued at less than their face amount and redeemed at par value when they mature. The following table details the Bank’s consolidated obligation discount notes as of June 30, 20212022 and December 31, 2020.2021.
| | (dollars in thousands) | (dollars in thousands) | June 30, 2021 | December 31, 2020 | (dollars in thousands) | June 30, 2022 | December 31, 2021 |
| Book value | Book value | $ | 15,112,780 | | $ | 9,510,085 | | Book value | $ | 24,830,505 | | $ | 10,493,617 | |
| Par value | Par value | 15,114,433 | | 9,512,324 | | Par value | 24,871,455 | | 10,494,933 | |
Weighted average interest rate (1) | Weighted average interest rate (1) | 0.03 | % | 0.11 | % | Weighted average interest rate (1) | 1.22 | % | 0.04 | % |
Note:
(1) Represents an implied rate.
Notes to Unaudited Financial Statements (continued)
Note 7 – Capital
The Bank is subject to 3 capital requirements under its current Capital Plan Structure and the Finance Agency rules and regulations: (1) risk-based capital; (2) total regulatory capital; and (3) leverage capital. Regulatory capital does not include AOCI, but does include mandatorily redeemable capital stock. See details regarding these requirements and the Bank’s Capital Plan in Note 11 to the audited financial statements in the Bank’s 20202021 Form 10-K. At June 30, 2021,2022, the Bank was in compliance with all regulatory capital requirements.
The Bank has 2 subclasses of capital stock: B1 membership stock and B2 activity stock. The Bank had $0.3 billion$309.5 million in B1 membership stock and $0.9 billion$1,753.5 million in B2 activity stock at June 30, 2021.2022. The Bank had $0.3 billion$352.1 million in B1 membership stock and $1.2 billion$874.9 million in B2 activity stock at December 31, 2020.2021.
The following table demonstrates the Bank’s compliance with the regulatory capital requirements at June 30, 20212022 and December 31, 2020.2021.
| | | | June 30, 2021 | December 31, 2020 | | June 30, 2022 | December 31, 2021 |
| (dollars in thousands) | (dollars in thousands) | Required | Actual | Required | Actual | (dollars in thousands) | Required | Actual | Required | Actual |
| Regulatory capital requirements: | Regulatory capital requirements: | | | | | Regulatory capital requirements: | | | | |
| RBC | RBC | $ | 542,196 | | $ | 2,652,494 | | $ | 520,696 | | $ | 3,047,399 | | RBC | $ | 394,631 | | $ | 3,515,371 | | $ | 406,676 | | $ | 2,647,918 | |
| Total capital-to-asset ratio | Total capital-to-asset ratio | 4.0 | % | 6.4 | % | 4.0 | % | 6.4 | % | Total capital-to-asset ratio | 4.0 | % | 5.7 | % | 4.0 | % | 7.0 | % |
| Total regulatory capital | Total regulatory capital | 1,666,488 | | 2,652,494 | | 1,908,516 | | 3,047,399 | | Total regulatory capital | 2,481,952 | | 3,515,371 | | 1,506,051 | | 2,647,918 | |
| Leverage ratio | Leverage ratio | 5.0 | % | 9.6 | % | 5.0 | % | 9.6 | % | Leverage ratio | 5.0 | % | 8.5 | % | 5.0 | % | 10.6 | % |
| Leverage capital | Leverage capital | 2,083,109 | | 3,978,740 | | 2,385,645 | | 4,571,099 | | Leverage capital | 3,102,440 | | 5,273,057 | | 1,882,564 | | 3,971,878 | |
The Finance Agency has established four capital classifications for the FHLBanks: adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. On June 23, 2021,16, 2022, the Bank received final notification from the Finance Agency that it was considered "adequately capitalized" for the quarter ended March 31, 2021.2022. As of the date of this filing, the Bank has not received final notice from the Finance Agency regarding its capital classification for the quarter ended June 30, 2021.2022.
Mandatorily Redeemable Capital Stock. The Bank is a cooperative whose member financial institutions and former members own all of the relevant Bank's issued and outstanding capital stock. Shares cannot be purchased or sold except between the Bank and its members at the shares' par value of $100, as mandated by the Bank's capital plan.
At June 30, 20212022 and December 31, 2020,2021, the Bank had $62.4$22.3 million and $142.8$22.5 million, respectively, in capital stock subject to mandatory redemption with payment subject to a five-year waiting period and the Bank meeting its minimum regulatory capital requirements. The estimated dividends on mandatorily redeemable capital stock recorded as interest expense were $0.3 million and $0.6 million during the three and six months ended June 30, 2022 and $0.9 million and $2.8 million during the three and six months ended June 30, 2021, respectively. The estimated dividends on mandatorily redeemable capital stock recorded as interest expense were $3.9 million and $10.1 million during the three and six months ended June 30, 2020, respectively.
The following table provides the related dollar amounts for activities recorded in mandatorily redeemable capital stock during the six months ended June 30, 20212022 and 2020.2021.
| | | | Six months ended June 30, | | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | (in thousands) | 2022 | 2021 |
| Balance, beginning of the period | Balance, beginning of the period | $ | 142,807 | | $ | 343,575 | | Balance, beginning of the period | $ | 22,457 | | $ | 142,807 | |
| Capital stock subject to mandatory redemption reclassified from capital | Capital stock subject to mandatory redemption reclassified from capital | 0 | | 39,457 | | Capital stock subject to mandatory redemption reclassified from capital | — | | — | |
| Redemption/repurchase of mandatorily redeemable stock | Redemption/repurchase of mandatorily redeemable stock | (80,417) | | (79,150) | | Redemption/repurchase of mandatorily redeemable stock | (107) | | (80,417) | |
| Balance, end of the period | Balance, end of the period | $ | 62,390 | | $ | 303,882 | | Balance, end of the period | $ | 22,350 | | $ | 62,390 | |
As of June 30, 2021,2022, the total mandatorily redeemable capital stock reflected the balance for 65 institutions. NaN institutions were merged out of district and are considered to be non-members and 1 relocated and became a member of another FHLBank at which time the membership with the Bank terminated. NaN other institution hasinstitutions have notified the Bank of itstheir intention to voluntarily redeem itstheir capital stock and withdraw from membership. This institutionThese institutions will continue to be a membermembers of the Bank until the withdrawal period is completed.
Notes to Unaudited Financial Statements (continued)
The following table shows the amount of mandatorily redeemable capital stock by contractual year of redemption at June 30, 20212022 and December 31, 2020.2021.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Due in 1 year or less | Due in 1 year or less | $ | 0 | | $ | 0 | | Due in 1 year or less | $ | — | | $ | — | |
| Due after 1 year through 2 years | Due after 1 year through 2 years | 21 | | 21 | | Due after 1 year through 2 years | 20,000 | | 20,000 | |
| Due after 2 years through 3 years | Due after 2 years through 3 years | 60,000 | | 20,000 | | Due after 2 years through 3 years | 34 | | — | |
| Due after 3 years through 4 years | Due after 3 years through 4 years | 26 | | 120,000 | | Due after 3 years through 4 years | — | | 26 | |
| Due after 4 years through 5 years | Due after 4 years through 5 years | 0 | | 19 | | Due after 4 years through 5 years | 527 | | 459 | |
| Past contractual redemption date due to remaining activity | Past contractual redemption date due to remaining activity | 2,343 | | 2,767 | | Past contractual redemption date due to remaining activity | 1,789 | | 1,972 | |
| Total | Total | $ | 62,390 | | $ | 142,807 | | Total | $ | 22,350 | | $ | 22,457 | |
Under the terms of the Bank’s Capital Plan, membership capital stock is redeemable five years from the date of membership termination or withdrawal notice from the member. If the membership is terminated due to a merger or consolidation, the membership capital stock is deemed to be excess stock and is repurchased. The activity capital stock (i.e., supporting advances, letters of credit and MPF) relating to termination, withdrawal, mergers or consolidation is recalculated based on the underlying activity. Any excess activity capital stock is repurchased on an ongoing basis as part of the Bank’s excess stock repurchase program that is in effect at the time. Therefore, the redemption period could be less than five years if the stock becomes excess stock. However, the redemption period could extend beyond five years if the underlying activity is still outstanding.
Partial Recovery of Prior Capital Distribution to Financing Corporation. The Competitive Equality Banking Act of 1987 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 totaling $680.0 million were made by the FHLBanks in 1987 through 1989. 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-off their prior capital distributions to FICO directly against retained earnings.
FICO paid off its last long-term debt obligation in September 2019, and the following month began the process of dissolution in accordance with relevant statutory requirements of the FHFA. FICO determined that approximately $200.0 million in excess funds were available for distribution to its stockholders, the FHLBanks. The Bank’s partial recovery of prior capital distributions in the second quarter of 2020 approximated $8.5 million based on its share of the $680.0 million originally contributed. These funds are accounted for as a return of the FHLBanks’ investment in FICO capital stock as a partial recovery of the prior capital distributions and credited to the Bank's unrestricted retained earnings account.
Dividends and Retained Earnings. In accordance with the Joint Capital Enhancement Agreement (JCEA), entered into by the Bank, as amended, the Bank allocates on a quarterly basis 20% of its net income to a separate restricted retained earnings account (RRE) until the account balance equals at least 1% of the Bank's average balance of outstanding consolidated obligations for the current quarter. These RRE are not available to pay dividends and are presented separately from other retained earnings on the Statement of Condition. At June 30, 2021,Additionally, the Capital Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., one percent of the average balance in RRE exceededof outstanding consolidated obligations calculated as of the threshold forlast day of each calendar quarter) may be released from restricted retained earnings. As a result of increased consolidated obligations during the contribution requirement. Accordingly, nosecond quarter of 2022, an allocation of net income was made to RRE in the first six months of 2021.RRE. At June 30, 2021,2022, retained earnings were $1,387.1$1,430.0 million, including $929.7$965.1 million of unrestricted retained earnings and $457.4$464.9 million of RRE.
Dividends paid by the Bank are subject to Board approval and may be paid in either capital stock or cash; historically, the Bank has paid cash dividends only. These dividends are based on stockholders' average balances for the previous quarter. Dividends paid through the second quarter of 20212022 and 20202021 are presented in the table below.
| | | Dividend - Annual Yield | | Dividend - Annual Yield |
| | 2021 | 2020 | | 2022 | 2021 |
| | Membership | Activity | Membership | Activity | | Membership | Activity | Membership | Activity |
| February | February | 2.50 | % | 5.75 | % | 4.50 | % | 7.75 | % | February | 1.25 | % | 5.25 | % | 2.50 | % | 5.75 | % |
| April | April | 2.50 | % | 5.75 | % | 3.00 | % | 6.25 | % | April | 1.25 | % | 5.25 | % | 2.50 | % | 5.75 | % |
| |
Notes to Unaudited Financial Statements (continued)
In July 2021,2022, the Bank paid a quarterly dividend equal to an annual yield of 1.25%2.25% on membership stock and 5.25%6.25% on activity stock.
Notes to Unaudited Financial Statements (continued)
The following table summarizes the changes in AOCI for the three and six months ended June 30, 20212022 and 2020.2021.
| | (in thousands) | (in thousands) | Net Unrealized Gains(Losses) on AFS | Non-credit OTTI Gains(Losses) on AFS | Net Unrealized Gains (Losses) on Hedging Activities | Pension and Post-Retirement Plans | Total | (in thousands) | Net Unrealized Gains(Losses) on AFS | | Pension and Post-Retirement Plans | Total |
| March 31, 2020 | $ | 29,485 | | $ | 0 | | $ | 148 | | $ | (5,013) | | $ | 24,620 | | |
| March 31, 2021 | | March 31, 2021 | $ | 139,368 | | | $ | (6,081) | | $ | 133,287 | |
| Other comprehensive income (loss) before reclassification: | Other comprehensive income (loss) before reclassification: | | Other comprehensive income (loss) before reclassification: | | | |
| Net unrealized gains (losses) | Net unrealized gains (losses) | 88,564 | | 0 | | — | | — | | 88,564 | | Net unrealized gains (losses) | (7,550) | | | — | | (7,550) | |
| Amortization on hedging activities | — | | — | | (148) | | — | | (148) | | |
| Pension and post-retirement | — | | — | | — | | 868 | | 868 | | |
| June 30, 2020 | $ | 118,049 | | $ | 0 | | $ | 0 | | $ | (4,145) | | $ | 113,904 | | |
| | March 31, 2021 | $ | 139,368 | | $ | 0 | | $ | 0 | | $ | (6,081) | | $ | 133,287 | | |
| Other comprehensive income (loss) before reclassification: | | |
| | Net unrealized gains (losses) | (7,550) | | — | | — | | — | | (7,550) | | |
| | Pension and post-retirement | Pension and post-retirement | — | | — | | — | | 1,667 | | 1,667 | | Pension and post-retirement | — | | | 1,667 | | 1,667 | |
| June 30, 2021 | June 30, 2021 | $ | 131,818 | | $ | 0 | | $ | 0 | | $ | (4,414) | | $ | 127,404 | | June 30, 2021 | $ | 131,818 | | | $ | (4,414) | | $ | 127,404 | |
| | December 31, 2019 | $ | 45,155 | | $ | 51,704 | | $ | 149 | | $ | (5,182) | | $ | 91,826 | | |
| March 31, 2022 | | March 31, 2022 | $ | 35,615 | | | $ | (4,681) | | $ | 30,934 | |
| Other comprehensive income (loss) before reclassification: | Other comprehensive income (loss) before reclassification: | | Other comprehensive income (loss) before reclassification: | | | |
| Adoption of ASU 2016-13 | 51,704 | | (51,704) | | — | | — | | — | | |
| Net unrealized gains (losses) | Net unrealized gains (losses) | 21,190 | | 0 | — | | — | | 21,190 | | Net unrealized gains (losses) | (26,008) | | | — | | (26,008) | |
| Amortization on hedging activities | — | | — | | (149) | | — | | (149) | | |
| Reclassifications from OCI to net income: | | Reclassifications from OCI to net income: | | | |
| Reclassification adjustment for net gains included in net income | | Reclassification adjustment for net gains included in net income | $ | (227) | | | — | | (227) | |
| Pension and post-retirement | Pension and post-retirement | — | | — | | — | | 1,037 | | 1,037 | | Pension and post-retirement | — | | | 235 | | 235 | |
| June 30, 2020 | $ | 118,049 | | $ | 0 | | $ | 0 | | $ | (4,145) | | $ | 113,904 | | |
| June 30, 2022 | | June 30, 2022 | $ | 9,380 | | | $ | (4,446) | | $ | 4,934 | |
| | December 31, 2020 | December 31, 2020 | $ | 143,592 | | $ | 0 | | $ | 0 | | $ | (6,266) | | $ | 137,326 | | December 31, 2020 | $ | 143,592 | | | $ | (6,266) | | $ | 137,326 | |
| Other comprehensive income (loss) before reclassification: | Other comprehensive income (loss) before reclassification: | | Other comprehensive income (loss) before reclassification: | | | |
| Net unrealized gains (losses) | Net unrealized gains (losses) | (11,774) | | — | | — | | — | | (11,774) | | Net unrealized gains (losses) | (11,774) | | | — | | (11,774) | |
| | Pension and post-retirement | Pension and post-retirement | — | | — | | — | | 1,852 | | 1,852 | | Pension and post-retirement | — | | | 1,852 | | 1,852 | |
| June 30, 2021 | June 30, 2021 | $ | 131,818 | | $ | 0 | | $ | 0 | | $ | (4,414) | | $ | 127,404 | | June 30, 2021 | $ | 131,818 | | | $ | (4,414) | | $ | 127,404 | |
| | December 31, 2021 | | December 31, 2021 | $ | 115,015 | | | $ | (4,824) | | $ | 110,191 | |
| Other comprehensive income (loss) before reclassification: | | Other comprehensive income (loss) before reclassification: | | | |
| Net unrealized gains (losses) | | Net unrealized gains (losses) | (105,408) | | | — | | (105,408) | |
| Reclassifications from OCI to net income: | | Reclassifications from OCI to net income: | | | |
| Reclassification adjustment for net gains included in net income | | Reclassification adjustment for net gains included in net income | (227) | | | — | | (227) | |
| Pension and post-retirement | | Pension and post-retirement | — | | | 378 | | 378 | |
| June 30, 2022 | | June 30, 2022 | $ | 9,380 | | | $ | (4,446) | | $ | 4,934 | |
Notes to Unaudited Financial Statements (continued)
Note 8 – Transactions with Related Parties
The following table includes significant outstanding related party member-activity balances.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Advances | Advances | $ | 7,152,805 | | $ | 10,856,363 | | Advances | $ | 23,743,136 | | $ | 6,948,649 | |
Letters of credit (1) | Letters of credit (1) | 14,680,035 | | 2,730,541 | | Letters of credit (1) | 290,450 | | 15,717,397 | |
| MPF loans | MPF loans | 1,860,011 | | 483,983 | | MPF loans | 285,985 | | 145,193 | |
| Deposits | Deposits | 115,521 | | 31,269 | | Deposits | 37,662 | | 44,415 | |
| Capital stock | Capital stock | 592,442 | | 573,392 | | Capital stock | 1,017,659 | | 510,256 | |
Note:
(1) Letters of credit are off-balance sheet commitments.
The following table summarizes the effects on the Statement of Income corresponding to the related party member balances above. Amounts related to interest expense on deposits were immaterial for the periods presented.
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
Interest income on advances (1) | Interest income on advances (1) | $ | 35,475 | | $ | 117,949 | | $ | 82,454 | | $ | 270,597 | | Interest income on advances (1) | $ | 67,252 | | $ | 35,475 | | $ | 101,293 | | $ | 82,454 | |
| Interest income on MPF loans | Interest income on MPF loans | 16,180 | | 6,321 | | 33,486 | | 12,920 | | Interest income on MPF loans | 3,471 | | 16,180 | | 4,396 | | 33,486 | |
| Letters of credit fees | Letters of credit fees | 4,551 | | 700 | | 9,055 | | 1,412 | | Letters of credit fees | 85 | | 4,551 | | 4,603 | | 9,055 | |
Note:
(1) Interest income on advances includes contractual interest income and prepayment fees. The effect of derivative activities is not included.
The following table summarizes the effect of the MPF activities with FHLBank of Chicago.
| | | | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Servicing fee expense | Servicing fee expense | $ | 923 | | $ | 999 | | $ | 1,831 | | $ | 1,970 | | Servicing fee expense | $ | 893 | | $ | 923 | | $ | 1,784 | | $ | 1,831 | |
| | | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Interest-bearing deposits maintained with FHLBank of Chicago | Interest-bearing deposits maintained with FHLBank of Chicago | $ | 5,952 | | $ | 5,856 | | Interest-bearing deposits maintained with FHLBank of Chicago | $ | 5,276 | | $ | 5,409 | |
From time to time, the Bank may borrow from or lend to other FHLBanks on a short-term uncollateralized basis. DuringThe amount loaned by the Bank to other FHLBanks and repaid by other FHLBanks to the Bank was $750.0 million during the three and six months ended June 30, 20212022. There was no borrowing activity during the three and 2020, theresix months ended June 30, 2022 There was no lending or borrowing activity betweenduring the Bankthree and other FHLBanks.six months ended June 30, 2021.
Subject to mutually agreed upon terms, on occasion, an FHLBank may transfer at fair value its primary debt obligations to another FHLBank. During the three and six months ended June 30, 20212022 and 2020,2021, there were no transfers of debt between the Bank and another FHLBank.
From time to time, a member of one FHLBank may be acquired by a member of another FHLBank. When such an acquisition occurs, the two FHLBanks may agree to transfer at fair value the loans of the acquired member to the FHLBank of the surviving member. The FHLBanks may also agree to the purchase and sale of any related hedging instrument. The Bank had no such activity during the three and six months ended June 30, 20212022 and 2020.2021.
In the ordinary course of business, the Bank may utilize products and services, provided at normal market rates and terms, from its members to support its operations. Additional discussions regarding related party transactions can be found in Note 13 to the audited financial statements in the Bank's 20202021 Form 10-K.
Notes to Unaudited Financial Statements (continued)
Note 9 – Estimated Fair Values
Fair value amounts have been determined by the Bank using available market information and 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). These estimates are based on recent market data and other pertinent information available to the Bank at June 30, 20212022 and December 31, 2020.2021. Although the management of the Bank believes that the valuation methods are appropriate and provide a reasonable determination of the fair value of these financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values are not necessarily equal to the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment of how a market participant would estimate the fair values.
The carrying value and estimated fair value of the Bank’s financial instruments at June 30, 20212022 and December 31, 20202021 are presented in the table below.
| | Fair Value Summary Table | Fair Value Summary Table | Fair Value Summary Table |
| | | June 30, 2021 | | June 30, 2022 |
| (in thousands) | (in thousands) | Carrying
Value | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral (1) | Estimated
Fair Value | (in thousands) | Carrying
Value | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral (1) | Estimated
Fair Value |
| Assets: | Assets: | | | | Assets: | | | |
| Cash and due from banks | Cash and due from banks | $ | 545,056 | | $ | 545,056 | | 0 | | $ | 0 | | $ | — | | $ | 545,056 | | Cash and due from banks | $ | 371,475 | | $ | 371,475 | | $ | — | | $ | — | | $ | — | | $ | 371,475 | |
| Interest-bearing deposits | Interest-bearing deposits | 353,756 | | 347,804 | | 5,952 | | 0 | | — | | 353,756 | | Interest-bearing deposits | 747,068 | | 747,068 | | — | | — | | — | | 747,068 | |
Securities purchased under agreement to resell (2) | | Securities purchased under agreement to resell (2) | 3,350,000 | | — | | 3,350,043 | | — | | — | | 3,350,043 | |
| Federal funds sold | Federal funds sold | 2,275,000 | | 0 | | 2,275,003 | | 0 | | — | | 2,275,003 | | Federal funds sold | 3,800,000 | | — | | 3,800,051 | | — | | — | | 3,800,051 | |
Securities purchased under agreement to resell (2) | 3,450,000 | | 0 | | 3,450,002 | | 0 | | — | | 3,450,002 | | |
| Trading securities | Trading securities | 864,226 | | 0 | | 864,226 | | 0 | | — | | 864,226 | | Trading securities | 238,222 | | — | | 238,222 | | — | | — | | 238,222 | |
| AFS securities | AFS securities | 12,657,633 | | 0 | | 12,437,075 | | 220,558 | | — | | 12,657,633 | | AFS securities | 12,115,183 | | — | | 11,952,982 | | 162,201 | | — | | 12,115,183 | |
| HTM securities | HTM securities | 1,431,881 | | 0 | | 1,405,050 | | 81,896 | | — | | 1,486,946 | | HTM securities | 1,073,562 | | — | | 973,707 | | 57,238 | | — | | 1,030,945 | |
| Advances | Advances | 14,954,724 | | 0 | | 15,043,900 | | 0 | | — | | 15,043,900 | | Advances | 35,243,932 | | — | | 35,068,347 | | — | | — | | 35,068,347 | |
| Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | 4,774,417 | | 0 | | 4,888,024 | | 0 | | — | | 4,888,024 | | Mortgage loans held for portfolio, net | 4,658,273 | | — | | 4,280,847 | | — | | — | | 4,280,847 | |
| BOB loans, net | BOB loans, net | 22,850 | | 0 | | 0 | | 22,850 | | — | | 22,850 | | BOB loans, net | 20,320 | | — | | — | | 20,320 | | — | | 20,320 | |
| Accrued interest receivable | Accrued interest receivable | 82,907 | | 0 | | 82,907 | | 0 | | — | | 82,907 | | Accrued interest receivable | 105,094 | | — | | 105,094 | | — | | — | | 105,094 | |
| Derivative assets | Derivative assets | 204,235 | | 0 | | 3,879 | | 0 | | 200,356 | | 204,235 | | Derivative assets | 286,878 | | — | | 13,643 | | — | | 273,235 | | 286,878 | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Deposits | Deposits | $ | 940,937 | | $ | 0 | | $ | 940,937 | | $ | 0 | | $ | — | | $ | 940,937 | | Deposits | $ | 736,267 | | $ | — | | $ | 736,267 | | $ | — | | $ | — | | $ | 736,267 | |
| Discount notes | Discount notes | 15,112,780 | | 0 | | 15,112,453 | | 0 | | — | | 15,112,453 | | Discount notes | 24,830,505 | | — | | 24,815,094 | | — | | — | | 24,815,094 | |
| Bonds | Bonds | 22,514,270 | | 0 | | 22,753,764 | | 0 | | — | | 22,753,764 | | Bonds | 32,700,999 | | — | | 32,180,318 | | — | | — | | 32,180,318 | |
Mandatorily redeemable capital stock (3) | Mandatorily redeemable capital stock (3) | 62,390 | | 63,254 | | 0 | | 0 | | — | | 63,254 | | Mandatorily redeemable capital stock (3) | 22,350 | | 22,693 | | — | | — | | — | | 22,693 | |
Accrued interest payable (3) | Accrued interest payable (3) | 57,159 | | 0 | | 56,295 | | 0 | | — | | 56,295 | | Accrued interest payable (3) | 88,784 | | — | | 88,441 | | — | | — | | 88,441 | |
| Derivative liabilities | Derivative liabilities | 14,177 | | 0 | | 22,176 | | 0 | | (7,999) | | 14,177 | | Derivative liabilities | 47,006 | | — | | 702,076 | | — | | (655,070) | | 47,006 | |
Notes to Unaudited Financial Statements (continued)
| | | December 31, 2020 | | December 31, 2021 |
| (in thousands) | (in thousands) | Carrying
Value | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral (1) | Estimated
Fair Value | (in thousands) | Carrying
Value | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral (1) | Estimated
Fair Value |
| Assets: | Assets: | | Assets: | |
| Cash and due from banks | Cash and due from banks | $ | 1,036,459 | | $ | 1,036,459 | | $ | 0 | | $ | 0 | | $ | — | | $ | 1,036,459 | | Cash and due from banks | $ | 428,190 | | $ | 428,190 | | $ | — | | $ | — | | $ | — | | $ | 428,190 | |
| Interest-bearing deposits | Interest-bearing deposits | 956,628 | | 950,772 | | 5,856 | | 0 | | — | | 956,628 | | Interest-bearing deposits | 528,476 | | 528,476 | | — | | — | | — | | 528,476 | |
Securities purchased under agreement to resell (2) | | Securities purchased under agreement to resell (2) | 1,670,000 | | — | | 1,670,004 | | — | | — | | 1,670,004 | |
| Federal funds sold | Federal funds sold | 1,850,000 | | 0 | | 1,850,009 | | 0 | | — | | 1,850,009 | | Federal funds sold | 1,975,000 | | — | | 1,975,008 | | — | | — | | 1,975,008 | |
Securities purchased under agreement to resell (2) | 600,000 | | 0 | | 600,003 | | 0 | | — | | 600,003 | | |
| Trading securities | Trading securities | 1,156,003 | | 0 | | 1,156,003 | | 0 | | — | | 1,156,003 | | Trading securities | 243,262 | | — | | 243,262 | | — | | — | | 243,262 | |
| AFS securities | AFS securities | 9,476,385 | | 0 | | 9,223,785 | | 252,600 | | — | | 9,476,385 | | AFS securities | 12,467,293 | | — | | 12,272,868 | | 194,425 | | — | | 12,467,293 | |
| HTM securities | HTM securities | 2,483,730 | | 0 | | 2,464,732 | | 92,396 | | — | | 2,557,128 | | HTM securities | 1,213,872 | | — | | 1,177,957 | | 70,406 | | — | | 1,248,363 | |
| Advances | Advances | 24,971,119 | | 0 | | 25,097,529 | | 0 | | — | | 25,097,529 | | Advances | 14,124,375 | | — | | 14,169,479 | | — | | — | | 14,169,479 | |
| Mortgage loans held for portfolio, net | Mortgage loans held for portfolio, net | 4,886,207 | | — | | 5,084,683 | | 0 | | — | | 5,084,683 | | Mortgage loans held for portfolio, net | 4,676,183 | | — | | 4,719,966 | | — | | — | | 4,719,966 | |
| BOB loans, net | BOB loans, net | 21,236 | | 0 | | 0 | | 21,236 | | — | | 21,236 | | BOB loans, net | 22,501 | | — | | — | | 22,501 | | — | | 22,501 | |
| Accrued interest receivable | Accrued interest receivable | 90,702 | | 0 | | 90,702 | | 0 | | — | | 90,702 | | Accrued interest receivable | 74,660 | | — | | 74,660 | | — | | — | | 74,660 | |
| Derivative assets | Derivative assets | 137,042 | | 0 | | 3,413 | | 0 | | 133,629 | | 137,042 | | Derivative assets | 182,853 | | — | | 2,447 | | — | | 180,406 | | 182,853 | |
| Liabilities: | Liabilities: | | | Liabilities: | | |
| Deposits | Deposits | $ | 923,371 | | $ | 0 | | $ | 923,371 | | $ | 0 | | $ | — | | $ | 923,371 | | Deposits | $ | 1,087,507 | | $ | — | | $ | 1,087,507 | | $ | — | | $ | — | | $ | 1,087,507 | |
| Discount notes | Discount notes | 9,510,085 | | 0 | | 9,510,584 | | 0 | | — | | 9,510,584 | | Discount notes | 10,493,617 | | — | | 10,492,517 | | — | | — | | 10,492,517 | |
| Bonds | Bonds | 33,854,754 | | 0 | | 34,282,476 | | 0 | | — | | 34,282,476 | | Bonds | 23,105,738 | | — | | 23,205,896 | | — | | — | | 23,205,896 | |
Mandatorily redeemable capital stock (3) | Mandatorily redeemable capital stock (3) | 142,807 | | 145,282 | | 0 | | 0 | | — | | 145,282 | | Mandatorily redeemable capital stock (3) | 22,457 | | 22,752 | | — | | — | | — | | 22,752 | |
Accrued interest payable (3) | Accrued interest payable (3) | 64,950 | | 0 | | 62,475 | | 0 | | — | | 62,475 | | Accrued interest payable (3) | 59,123 | | — | | 58,829 | | — | | — | | 58,829 | |
| Derivative liabilities | Derivative liabilities | 4,459 | | 0 | | 7,590 | | 0 | | (3,131) | | 4,459 | | Derivative liabilities | 5,845 | | — | | 73,820 | | — | | (67,975) | | 5,845 | |
Notes:
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held and related interest accrued or placed by the Bank with the same clearing agent and/or counterparties.
(2) Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented. There were no offsetting liabilities related to these securities at June 30, 20212022 and December 31, 2020.2021. These instruments’ maturity term is overnight.
(3) The estimated fair value amount for the mandatorily redeemable capital stock line item includes accrued dividend interest; this amount is excluded from the estimated fair value for the accrued interest payable line item.
Fair Value Hierarchy. The fair value hierarchy is used to prioritize the inputs used to measure fair value by maximizing the use of observable inputs. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of the market observability of the fair value measurement for the asset or liability.
The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:
Level 1 Inputs - Quoted prices (unadjusted) for identical assets or liabilities in an active market that the 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 or in which little information is released publicly; (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 - Valuations derived from techniques in which one or more significant inputs are not observable in the market. Valuation techniques include pricing models, discounted cash flow methodologies or similar techniques.
Notes to Unaudited Financial Statements (continued)
The Bank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities.
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 listed below.
Investment Securities – non-MBS. The Bank uses either the income or market approach to determine the estimated fair value of non-MBS investment securities.
For instruments that use the income approach, the significant inputs include a market-observable interest rate curve and a discount spread, if applicable. The market-observable interest rate curves and the related instrument types are as follows:
•U.S. Treasury curve: certificates of deposit
•CO curve: GSE and other U.S. obligations
The Bank uses a market approach for its state and local agency bonds and U.S. Treasury obligations. For state and local agency bonds, the Bank obtains prices from multiple designated third-party vendors when available, and the default price is the average of the prices obtained. Otherwise, the approach is generally consistent with the approach outlined below for Investment Securities - MBS. For U.S. Treasury obligations, prices are obtained from a third-party vendor based on daily trade activity or dealer quotes. For certain short-term U.S. Treasury obligations, market prices are not available, and the Bank uses an income approach.
Investment Securities – MBS. To value MBS holdings, the Bank obtains prices from multiple third-party pricing vendors, when available. The pricing vendors use various proprietary models to price MBS. The inputs to those models are derived from various sources including, but not limited to: benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers and other market-related data. Since many MBS do not trade on a daily basis, the pricing vendors use available information such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to determine the prices for individual securities, as applicable. Each pricing vendor has an established challenge process in place for all MBS valuations, which facilitates resolution of potentially erroneous prices identified by the Bank.
During the year, the Bank conducts reviews of its pricing vendors to enhance its understanding of the vendors' pricing processes, methodologies and control procedures. To the extent available, the Bank also reviews the vendors' independent auditors' reports regarding the internal controls over their valuation processes.
The Bank's valuation technique first requires the establishment of a median price for each security. All prices that are within a specified tolerance threshold of the median price are included in the cluster of prices that are averaged to compute a default price. Prices that are outside the threshold (outliers) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the price rather than the default price. If, on the other hand, the analysis confirms that an outlier (or outliers) is (are) in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security. If all prices received for a security are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.
As of June 30, 2021,2022, for substantially all of its MBS, the Bank received a price from all of its vendors and the default price was the final price. Based on the Bank's reviews of the pricing methods including inputs and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or, in those instances in which there were outliers or significant yield variances, the Bank's additional analyses), the Bank believes the final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further that the fair value measurements are classified appropriately in the fair value hierarchy. There continues to be unobservable inputs and a lack of significant market activity for private label MBS; therefore, the Bank classified private label MBS as Level 3.
Derivative Assets/Liabilities. The Bank bases the fair values of derivatives with similar terms on market prices, when available. However, market prices do not exist for many types of derivative instruments. Consequently, fair values for these instruments are estimated using standard valuation techniques such as discounted cash flow analysis and comparisons to similar
Notes to Unaudited Financial Statements (continued)
instruments. Estimates developed using these methods are highly subjective and require judgment regarding significant matters such as the amount and timing of future cash flows, volatility of interest rates and the selection of discount rates that appropriately reflect market and credit risks. In addition, the fair value estimates for these instruments include accrued interest receivable/payable which approximate their carrying values due to their short-term nature.
The discounted cash flow analysis used to determine the net present value of derivative instruments utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). Inputs by class of derivative are as follows:
Interest-rate related:
•Discount rate assumption. SOFR curve for cleared derivatives and SOFR uncleared derivatives. Overnight Index Swap (OIS) curve for all other uncleared derivatives.
•Forward interest rate assumption (rates projected in order to calculate cash flows through the designated term of the hedge relationship). LIBOR Swap curve, OIS curve or SOFR curve.
•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.
Mortgage delivery commitments:
•TBA securities prices. Market-based prices of TBAs are determined by coupon class and expected term until settlement and a pricing adjustment reflective of the secondary mortgage market.
The Bank is subject to credit risk on uncleared derivatives transactions due to the potential nonperformance by the derivatives counterparties. To mitigate this risk, the Bank has entered into netting arrangements and security agreements that provide for delivery of collateral at specified levels. As a result, uncleared derivatives are recognized as collateralized-to-market and the fair value of uncleared derivatives excludes netting adjustments and collateral. The Bank has evaluated the potential for fair value adjustment due to uncleared counterparty credit risk and has concluded that no adjustments are necessary.
The Bank's credit risk exposure on cleared derivatives is mitigated through the delivery of initial margin to offset future changes in value and daily delivery of variation margin to offset changes in market value. This is executed through the use of a central counterparty, either CME Clearing or LCH Ltd. Variation margin payments are daily settlement payments rather than collateral. Initial margin continues to be treated as collateral and accounted for separately.
The fair values of derivatives are netted by clearing agent and/or by counterparty pursuant to the provisions of each of the Bank’s netting agreements. If these netted amounts are positive, they are classified as an asset and, if negative, as a liability.
Impaired Mortgage Loans Held for Portfolio and REO. The estimated fair values of impaired mortgage loans held for portfolio and real estate owned are determined based on values provided by a third party'sthird-party's retail-based AVM. The Bank adjusts the AVM value based on the amount it has historically received on liquidation.
Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods described above are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates. These estimates are susceptible to material near term changes because they are made as of a specific point in time.
Notes to Unaudited Financial Statements (continued)
Fair Value Measurements. The following tables present, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on a recurring or non-recurring basis on its Statement of Condition at June 30, 20212022 and December 31, 2020.2021. The Bank measures certain mortgage loans held for portfolio at fair value when a charge-off is recognized and subsequently when the fair value of collateral less costs to sell is lower than the carrying amount. Real estate owned is measured using fair value when the assets' fair value less costs to sell is lower than the carrying amount.
| | | | June 30, 2021 | | June 30, 2022 |
| (in thousands) | (in thousands) | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral(1) | Total | (in thousands) | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral(1) | Total |
| Recurring fair value measurements - Assets | Recurring fair value measurements - Assets | | Recurring fair value measurements - Assets | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Non MBS: | Non MBS: | | Non MBS: | |
| U.S. Treasury obligations | U.S. Treasury obligations | $ | 0 | | $ | 615,300 | | $ | 0 | | $ | — | | $ | 615,300 | | U.S. Treasury obligations | $ | — | | $ | 14,817 | | $ | — | | $ | — | | $ | 14,817 | |
| GSE and TVA obligations | 0 | | 248,926 | | 0 | | — | | 248,926 | | |
| GSE obligations | | GSE obligations | — | | 223,405 | | — | | — | | 223,405 | |
| Total trading securities | Total trading securities | $ | 0 | | $ | 864,226 | | $ | 0 | | $ | — | | $ | 864,226 | | Total trading securities | $ | — | | $ | 238,222 | | $ | — | | $ | — | | $ | 238,222 | |
| AFS securities: | AFS securities: | | AFS securities: | |
| Non MBS: | Non MBS: | | Non MBS: | |
| U.S. Treasury obligations | U.S. Treasury obligations | $ | — | | $ | 4,406,852 | | $ | — | | $ | — | | $ | 4,406,852 | | U.S. Treasury obligations | $ | — | | $ | 5,623,156 | | $ | — | | $ | — | | $ | 5,623,156 | |
| GSE and TVA obligations | GSE and TVA obligations | 0 | | 1,578,207 | | 0 | | — | | 1,578,207 | | GSE and TVA obligations | — | | 1,291,640 | | — | | — | | 1,291,640 | |
| State or local agency obligations | State or local agency obligations | 0 | | 226,048 | | 0 | | — | | 226,048 | | State or local agency obligations | — | | 181,860 | | — | | — | | 181,860 | |
| MBS: | MBS: | | MBS: | |
| U.S. obligations single-family MBS | 0 | | 487,845 | | 0 | | — | | 487,845 | | |
| GSE single-family MBS | 0 | | 2,563,244 | | 0 | | — | | 2,563,244 | | |
| GSE multifamily MBS | 0 | | 3,174,879 | | 0 | | — | | 3,174,879 | | |
| Private label MBS | 0 | | 0 | | 220,558 | | — | | 220,558 | | |
| U.S. obligations single-family | | U.S. obligations single-family | — | | 366,115 | | — | | — | | 366,115 | |
| GSE single-family | | GSE single-family | — | | 1,753,094 | | — | | — | | 1,753,094 | |
| GSE multifamily | | GSE multifamily | — | | 2,737,117 | | — | | — | | 2,737,117 | |
| Private label | | Private label | — | | — | | 162,201 | | — | | 162,201 | |
| Total AFS securities | Total AFS securities | $ | 0 | | $ | 12,437,075 | | $ | 220,558 | | $ | — | | $ | 12,657,633 | | Total AFS securities | $ | — | | $ | 11,952,982 | | $ | 162,201 | | $ | — | | $ | 12,115,183 | |
| Derivative assets: | Derivative assets: | | | | Derivative assets: | | | |
| Interest rate related | Interest rate related | $ | 0 | | $ | 3,771 | | $ | 0 | | $ | 200,356 | | $ | 204,127 | | Interest rate related | $ | — | | $ | 13,597 | | $ | — | | $ | 273,235 | | $ | 286,832 | |
| Mortgage delivery commitments | Mortgage delivery commitments | 0 | | 108 | | 0 | | 0 | | 108 | | Mortgage delivery commitments | — | | 46 | | — | | — | | 46 | |
| Total derivative assets | Total derivative assets | $ | 0 | | $ | 3,879 | | $ | 0 | | $ | 200,356 | | $ | 204,235 | | Total derivative assets | $ | — | | $ | 13,643 | | $ | — | | $ | 273,235 | | $ | 286,878 | |
| | Total recurring assets at fair value | Total recurring assets at fair value | $ | 0 | | $ | 13,305,180 | | $ | 220,558 | | $ | 200,356 | | $ | 13,726,094 | | Total recurring assets at fair value | $ | — | | $ | 12,204,847 | | $ | 162,201 | | $ | 273,235 | | $ | 12,640,283 | |
| Recurring fair value measurements - Liabilities | Recurring fair value measurements - Liabilities | | Recurring fair value measurements - Liabilities | |
| Derivative liabilities: | Derivative liabilities: | | Derivative liabilities: | |
| Interest rate related | Interest rate related | $ | 0 | | $ | 22,142 | | $ | 0 | | $ | (7,999) | | $ | 14,143 | | Interest rate related | $ | — | | $ | 702,047 | | $ | — | | $ | (655,070) | | $ | 46,977 | |
| Mortgage delivery commitments | Mortgage delivery commitments | 0 | | 34 | | 0 | | — | | 34 | | Mortgage delivery commitments | — | | 29 | | — | | — | | 29 | |
Total recurring liabilities at fair value (2) | Total recurring liabilities at fair value (2) | $ | 0 | | $ | 22,176 | | $ | 0 | | $ | (7,999) | | $ | 14,177 | | Total recurring liabilities at fair value (2) | $ | — | | $ | 702,076 | | $ | — | | $ | (655,070) | | $ | 47,006 | |
| Non-recurring fair value measurements - Assets | Non-recurring fair value measurements - Assets | | Non-recurring fair value measurements - Assets | |
| Impaired mortgage loans held for portfolio | Impaired mortgage loans held for portfolio | $ | — | | $ | — | | $ | 4,934 | | $ | — | | $ | 4,934 | | Impaired mortgage loans held for portfolio | $ | — | | $ | — | | $ | 2,649 | | $ | — | | $ | 2,649 | |
| REO | REO | — | | — | | 38 | | — | | 38 | | REO | — | | — | | 134 | | — | | 134 | |
| Total non-recurring assets at fair value | Total non-recurring assets at fair value | $ | — | | $ | — | | $ | 4,972 | | $ | — | | $ | 4,972 | | Total non-recurring assets at fair value | $ | — | | $ | — | | $ | 2,783 | | $ | — | | $ | 2,783 | |
Notes to Unaudited Financial Statements (continued)
| | | | December 31, 2020 | | December 31, 2021 |
| (in thousands) | (in thousands) | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral(1) | Total | (in thousands) | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral(1) | Total |
| Recurring fair value measurements - Assets | Recurring fair value measurements - Assets | | Recurring fair value measurements - Assets | |
| Trading securities: | Trading securities: | | Trading securities: | |
| Non MBS: | Non MBS: | | Non MBS: | |
| U.S. Treasury obligations | $ | 0 | | $ | 899,421 | | $ | 0 | | $ | 0 | | $ | 899,421 | | |
| GSE and TVA obligations | 0 | | 256,582 | | 0 | | — | | 256,582 | | |
| | GSE obligations | | GSE obligations | $ | — | | $ | 243,262 | | $ | — | | $ | — | | $ | 243,262 | |
| Total trading securities | Total trading securities | $ | 0 | | $ | 1,156,003 | | $ | 0 | | $ | — | | $ | 1,156,003 | | Total trading securities | $ | — | | $ | 243,262 | | $ | — | | $ | — | | $ | 243,262 | |
| AFS securities: | AFS securities: | | AFS securities: | |
| Non MBS: | Non MBS: | | Non MBS: | |
| U.S. Treasury obligations | | U.S. Treasury obligations | $ | — | | $ | 5,075,232 | | $ | — | | $ | — | | $ | 5,075,232 | |
| GSE and TVA obligations | GSE and TVA obligations | $ | 0 | | $ | 1,643,733 | | $ | 0 | | $ | 0 | | 1,643,733 | | GSE and TVA obligations | — | | 1,493,652 | | — | | — | | 1,493,652 | |
| State or local agency obligations | State or local agency obligations | 0 | | 241,630 | | 0 | | — | | 241,630 | | State or local agency obligations | — | | 207,197 | | — | | — | | 207,197 | |
| MBS: | MBS: | | MBS: | |
| U.S. obligations single-family MBS | 0 | | 602,148 | | 0 | | — | | 602,148 | | |
| GSE single-family MBS | 0 | | 3,262,880 | | 0 | | — | | 3,262,880 | | |
| GSE multifamily MBS | 0 | | 3,473,394 | | 0 | | — | | 3,473,394 | | |
| Private label MBS | 0 | | 0 | | 252,600 | | — | | 252,600 | | |
| U.S. obligations single-family | | U.S. obligations single-family | — | | 398,807 | | — | | — | | 398,807 | |
| GSE single-family | | GSE single-family | — | | 2,093,069 | | — | | — | | 2,093,069 | |
| GSE multifamily | | GSE multifamily | — | | 3,004,911 | | — | | — | | 3,004,911 | |
| Private label | | Private label | — | | — | | 194,425 | | — | | 194,425 | |
| Total AFS securities | Total AFS securities | $ | 0 | | $ | 9,223,785 | | $ | 252,600 | | $ | — | | $ | 9,476,385 | | Total AFS securities | $ | — | | $ | 12,272,868 | | $ | 194,425 | | $ | — | | $ | 12,467,293 | |
| Derivative assets: | Derivative assets: | | Derivative assets: | |
| Interest rate related | Interest rate related | $ | 0 | | $ | 2,738 | | $ | 0 | | $ | 133,629 | | $ | 136,367 | | Interest rate related | $ | — | | $ | 2,445 | | $ | — | | $ | 180,406 | | $ | 182,851 | |
| Mortgage delivery commitments | Mortgage delivery commitments | 0 | | 675 | | 0 | | 0 | | 675 | | Mortgage delivery commitments | — | | 2 | | — | | — | | 2 | |
| Total derivative assets | Total derivative assets | $ | 0 | | $ | 3,413 | | $ | 0 | | $ | 133,629 | | $ | 137,042 | | Total derivative assets | $ | — | | $ | 2,447 | | $ | — | | $ | 180,406 | | $ | 182,853 | |
| Total recurring assets at fair value | Total recurring assets at fair value | $ | 0 | | $ | 10,383,201 | | $ | 252,600 | | $ | 133,629 | | $ | 10,769,430 | | Total recurring assets at fair value | $ | — | | $ | 12,518,577 | | $ | 194,425 | | $ | 180,406 | | $ | 12,893,408 | |
| Recurring fair value measurements - Liabilities | Recurring fair value measurements - Liabilities | | Recurring fair value measurements - Liabilities | |
| Derivative liabilities: | Derivative liabilities: | | Derivative liabilities: | |
| Interest rate related | Interest rate related | $ | 0 | | $ | 7,579 | | $ | 0 | | $ | (3,131) | | $ | 4,448 | | Interest rate related | $ | — | | $ | 73,689 | | $ | — | | $ | (67,975) | | $ | 5,714 | |
| Mortgage delivery commitments | Mortgage delivery commitments | — | | 11 | | — | | — | | 11 | | Mortgage delivery commitments | — | | 131 | | — | | — | | 131 | |
Total recurring liabilities at fair value (2) | $ | — | | $ | 7,590 | | $ | — | | $ | (3,131) | | $ | 4,459 | | |
| Total recurring liabilities at fair value | | Total recurring liabilities at fair value | $ | — | | $ | 73,820 | | $ | — | | $ | (67,975) | | $ | 5,845 | |
| Non-recurring fair value measurements - Assets | Non-recurring fair value measurements - Assets | | Non-recurring fair value measurements - Assets | |
| Impaired mortgage loans held for portfolio | Impaired mortgage loans held for portfolio | $ | — | | $ | — | | $ | 18,382 | | $ | — | | $ | 18,382 | | Impaired mortgage loans held for portfolio | $ | — | | $ | — | | $ | 10,570 | | $ | — | | $ | 10,570 | |
| REO | REO | — | | — | | 1,270 | | — | | 1,270 | | REO | — | | — | | 478 | | — | | 478 | |
| Total non-recurring assets at fair value | Total non-recurring assets at fair value | $ | — | | $ | — | | $ | 19,652 | | $ | — | | $ | 19,652 | | Total non-recurring assets at fair value | $ | — | | $ | — | | $ | 11,048 | | $ | — | | $ | 11,048 | |
Notes:
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the Bank with the same clearing agent and/or counterparties.
(2) Derivative liabilities represent the total liabilities at fair value.
Notes to Unaudited Financial Statements (continued)
Level 3 Disclosures for all Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis. The following table presents a reconciliation of all assets and liabilities that are measured at fair value on the Statement of Condition using significant unobservable inputs (Level 3) for the six months ended June 30, 20212022 and 2020.2021. For instruments carried at fair value, the Bank reviews the fair value hierarchy classifications each quarter. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out at fair value in the quarter in which the changes occur. There were no Level 3 transfers during the first six months of 20212022 or 2020.2021.
| | | AFS Private Label MBS | | AFS Private Label MBS |
| | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | (in thousands) | 2021 | 2020 | 2021 | 2020 | (in thousands) | 2022 | 2021 | 2022 | 2021 |
| Balance, beginning of period | Balance, beginning of period | $ | 237,673 | | $ | 280,431 | | $ | 252,600 | | $ | 326,146 | | Balance, beginning of period | $ | 180,497 | | $ | 237,673 | | $ | 194,425 | | $ | 252,600 | |
| Total gains (losses) (realized/unrealized) included in: | Total gains (losses) (realized/unrealized) included in: | | | | Total gains (losses) (realized/unrealized) included in: | | | |
| | (Provision) benefit for credit losses | 138 | | 1,260 | | (207) | | (1,574) | | |
| (Provision) reversal for credit losses | | (Provision) reversal for credit losses | (1,249) | | 138 | | (2,655) | | (207) | |
| Accretion of credit losses in interest income | Accretion of credit losses in interest income | 2,467 | | 3,029 | | 5,197 | | 5,938 | | Accretion of credit losses in interest income | 2,295 | | 2,467 | | 4,421 | | 5,197 | |
| Net unrealized gains (losses) on AFS in OCI | Net unrealized gains (losses) on AFS in OCI | (255) | | 12,525 | | (1,905) | | (16,514) | | Net unrealized gains (losses) on AFS in OCI | (5,897) | | (255) | | (11,154) | | (1,905) | |
| Purchases, issuances, sales, and settlements: | Purchases, issuances, sales, and settlements: | | | | Purchases, issuances, sales, and settlements: | | | |
| | Settlements | Settlements | (19,465) | | (16,363) | | (35,127) | | (33,114) | | Settlements | (13,445) | | (19,465) | | (22,836) | | (35,127) | |
| Balance at June 30 | Balance at June 30 | $ | 220,558 | | $ | 280,882 | | $ | 220,558 | | $ | 280,882 | | Balance at June 30 | $ | 162,201 | | $ | 220,558 | | $ | 162,201 | | $ | 220,558 | |
| Total amount of gains for the periods presented included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at June 30 | Total amount of gains for the periods presented included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at June 30 | $ | 2,604 | | $ | 4,289 | | $ | 4,764 | | $ | 4,364 | | Total amount of gains for the periods presented included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at June 30 | $ | 1,047 | | $ | 2,604 | | $ | 1,767 | | $ | 4,764 | |
| Change in unrealized gains (losses) for the period included in other comprehensive income for assets held June 30 | $ | (255) | | $ | 12,525 | | $ | (1,905) | | $ | (16,514) | | |
| Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at June 30 | | Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at June 30 | $ | (5,897) | | $ | (255) | | $ | (11,154) | | $ | (1,905) | |
Notes to Unaudited Financial Statements (continued)
Note 10 – Commitments and Contingencies
The following table presents the Bank's various off-balance sheet commitments which are described in detail below.
| | (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | (in thousands) | June 30, 2022 | December 31, 2021 |
| Notional amount | Notional amount | Expiration Date Within One Year | Expiration Date After One Year | Total | Total | Notional amount | Expiration Date Within One Year | Expiration Date After One Year | Total | Total |
Standby letters of credit outstanding (1) (2) | Standby letters of credit outstanding (1) (2) | $ | 18,575,193 | | $ | 0 | | $ | 18,575,193 | | $ | 19,723,286 | | Standby letters of credit outstanding (1) (2) | $ | 19,747,420 | | $ | — | | $ | 19,747,420 | | $ | 19,419,734 | |
| Commitments to fund additional advances and BOB loans | Commitments to fund additional advances and BOB loans | 22,875 | | 0 | | 22,875 | | 760 | Commitments to fund additional advances and BOB loans | 3,253 | | — | | 3,253 | | 12,206 |
| Commitments to purchase mortgage loans | Commitments to purchase mortgage loans | 65,151 | | 0 | | 65,151 | | 60,622 | Commitments to purchase mortgage loans | 14,098 | | — | | 14,098 | | 24,822 |
| Unsettled consolidated obligation bonds, at par | Unsettled consolidated obligation bonds, at par | 462,000 | | 0 | | 462,000 | | 15,000 | Unsettled consolidated obligation bonds, at par | 249,000 | | — | | 249,000 | | 82,000 |
| Unsettled consolidated obligation discount notes, at par | Unsettled consolidated obligation discount notes, at par | 0 | | 0 | | 0 | | 950 | Unsettled consolidated obligation discount notes, at par | 306,590 | | — | | 306,590 | | — |
Notes:
(1) Excludes approved requests to issue future standby letters of credit of $264.8$338.9 million at June 30, 20212022 and $30.9357.5 million at December 31, 2020.2021.
(2) Letters of credit in the amount of $4.3$2.9 billion at June 30, 20212022 and $5.0$4.3 billion at December 31, 2020,2021, have renewal language that permits the letter of credit to be renewed for an additional period with a maximum renewal period of approximately five years .years.
Commitments to Extend Credit on Standby Letters of Credit, Additional Advances and BOB Loans. Standby letters of credit are issued on behalf of members for a fee. A standby letter of credit is a financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary’s draw, these amounts are withdrawn from the member’s Demand Deposit Account (DDA). Any remaining amounts not covered by the withdrawal from the member’s DDA are converted into a collateralized overnight advance.
Unearned fees related to standby letters of credit are recorded in other liabilities and had a balance of $3.6$4.1 million at June 30, 20212022 and $3.9$4.3 million at December 31, 2020.2021. The Bank manages the credit risk of each member on the basis of the member's TCE to the Bank which includes its standby letters of credit. The Bank has established parameters for the review, assessment, monitoring and measurement of credit risk related to these standby letters of credit as described in Note 3 - Advances.
Based on management’s credit analyses, collateral requirements, and adherence to the requirements set forth in Bank policy and Finance Agency regulations, the Bank has not recorded any additional liability on theseadvance commitments and standby letters of credit. Excluding BOB, commitments and standby letters of credit which are collateralized at the time of issuance. The Bank records a liability with respect to BOB commitments, which is reflected in Other liabilities on the Statement of Condition.
The Bank does not have any legally binding or unconditional unused lines of credit for advances at June 30, 20212022 or December 31, 2020.2021. However, within the Bank's Rollover (weekly/monthly) advance product, there were conditional lines of credit outstanding of $12.3$10.2 billion at both June 30, 20212022 and and$11.9 billion at December 31, 2020.2021.
Commitments to Purchase Mortgage Loans. The Bank may enter into commitments that unconditionally obligate the Bank to purchase mortgage loans under the MPF Program. These delivery commitments are generally for periods not to exceed 60 days. Such commitments are recorded as derivatives.
Pledged Collateral. The Bank may pledge cash and securities, as collateral, related to derivatives. Refer to Note 5 - Derivatives and Hedging Activities in this Form 10-Q for additional information about the Bank's pledged collateral and other credit-risk-related contingent features.
Legal Proceedings. The Bank is subject to legal proceedings arising in the normal course of business. The Bank would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount can be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank's financial condition, results of operations or cash flows.
Notes 3, 5, 6, 7, and 8 also discuss other commitments and contingencies.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
See the Risk Management section in Part I, Item 2. Management’s Discussion and Analysis in this Form 10-Q.
Item 4: Controls and Procedures
Under the supervision and with the participation of the Bank’s management, including the chief executive officer, chief operating officer (principal financial officer), and chief accounting officer, the Bank conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the 1934 Act). Based on this evaluation, the Bank’s chief executive officer, chief operating officer (principal financial officer), and chief accounting officer concluded that the Bank’s disclosure controls and procedures were effective as of June 30, 2021.2022.
Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the second quarter of 20212022 that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1: Legal Proceedings
The Bank may be subject to various legal proceedings arising in the normal course of business. After consultation with legal counsel, management is not aware of any such proceedings that might result in the Bank’s ultimate liability in an amount that will have a material effect on the Bank’s financial condition or results of operations.
Item 1A: Risk Factors
There are no material changes in the Bank's Risk Factors from those previously disclosed in Part I, Item 1A. Risk Factors in the Bank’s 20202021 Form 10-K.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3: Defaults upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
None.
Item 6: Exhibits
| | | | | | | | |
| Exhibit No. | Description | Method of Filing |
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer | Filed herewith. |
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Principal Financial Officer | Filed herewith. |
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Accounting Officer | Filed herewith. |
| Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer | Furnished herewith. |
| Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Principal Financial Officer | Furnished herewith. |
| Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Chief Accounting Officer | Furnished herewith. |
| 101.INS | Inline 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. | Filed herewith. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith. |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith. |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith. |
| 101.DEF | Inline 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. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Federal Home Loan Bank of Pittsburgh
(Registrant)
By: /s/ David G. Paulson
David G. Paulson
Chief Operating Officer
(Principal Financial Officer and Authorized Officer)
By: /s/ Edward V. Weller
Edward V. Weller
Chief Accounting Officer
(Authorized Officer)
Date: August 10, 20219, 2022