Federal Home Loan Bank of Des Moines 10-Q 2022 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

OR

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

Commission File Number: 000-51999

FEDERAL HOME LOAN BANK OF DES MOINES

(Exact name of registrant as specified in its charter)

Federally chartered corporation of the United States	42-6000149
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)

909 Locust Street

Des Moines, IA

(Address of principal executive offices)

50309

(Zip code)

Registrant’s telephone number, including area code: (515) 412-2100

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.

☒ 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 (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

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

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

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

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

☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Shares outstanding as of October 31, 2022
Class B Stock, par value $100	55,466,433

Table of Contents
Part I - Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Statements of Condition	3
	Statements of Income	4
	Statements of Comprehensive Income	5
	Statements of Capital	6
	Statements of Cash Flows	7
	Condensed Notes to the Unaudited Financial Statements	9
	Background Information	9
	Note 1 - Basis of Presentation	9
	Note 2 - Recently Adopted and Issued Accounting Guidance	9
	Note 3 - Investments	10
	Note 4 - Advances	16
	Note 5 - Mortgage Loans Held for Portfolio	18
	Note 6 - Derivatives and Hedging Activities	21
	Note 7 - Consolidated Obligations	28
	Note 8 - Capital	30
	Note 9 - Fair Value	33
	Note 10 - Commitments and Contingencies	41
	Note 11 - Activities with Stockholders	42
	Note 12 - Activities with Other FHLBanks	43
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76
Item 4.	Controls and Procedures	76
Part II - Other Information
Item 1.	Legal Proceedings	77
Item 1A.	Risk Factors	77
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78
Signatures		79

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CONDITION

(dollars and shares in millions, except capital stock par value)

(Unaudited)

	September 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	58	$	295
Interest-bearing deposits (Note 3)	1,126		416
Securities purchased under agreements to resell (Note 3)	10,940		12,450
Federal funds sold (Note 3)	10,268		4,690
Investment securities (Note 3)
Trading securities	2,816		1,169
Available-for-sale securities (amortized cost of $14,689 and $13,301)	14,602		13,389
Held-to-maturity securities (fair value of $997 and $1,405)	1,001		1,328
Total investment securities	18,419		15,886
Advances (Note 4)	82,196		44,111
Mortgage loans held for portfolio, net of allowance for credit losses of $4 and $1 (Note 5)	8,243		7,578
Loans to other FHLBanks	1,020		—
Accrued interest receivable	237		84
Derivative assets, net (Note 6)	522		221
Other assets, net	126		121
TOTAL ASSETS	$	133,155	$	85,852
LIABILITIES
Deposits
Interest-bearing	$	1,152	$	1,718
Non-interest-bearing	82		129
Total deposits	1,234		1,847
Consolidated obligations (Note 7)
Discount notes (includes $35,278 and $22,348 at fair value held under fair value option)	64,166		22,348
Bonds	58,708		55,205
Total consolidated obligations	122,874		77,553
Mandatorily redeemable capital stock (Note 8)	15		29
Accrued interest payable	208		97
Affordable Housing Program payable	132		131
Derivative liabilities, net (Note 6)	4		3
Other liabilities	1,156		354
TOTAL LIABILITIES	125,623		80,014
Commitments and contingencies (Note 10)
CAPITAL (Note 8)
Capital stock - Class B putable ($100 par value); 51 and 34 issued and outstanding shares	5,086		3,364
Retained earnings
Unrestricted	1,864		1,773
Restricted	674		617
Total retained earnings	2,538		2,390
Accumulated other comprehensive income (loss)	(92)		84
TOTAL CAPITAL	7,532		5,838
TOTAL LIABILITIES AND CAPITAL	$	133,155	$	85,852

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

3

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF INCOME

(dollars in millions)

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
INTEREST INCOME
Advances	$	442	$	107	$	737	$	359
Interest-bearing deposits	8		—		11		1
Securities purchased under agreements to resell	30		1		39		2
Federal funds sold	71		2		97		5
Trading securities	8		7		24		29
Available-for-sale securities	102		25		187		83
Held-to-maturity securities	8		6		22		19
Mortgage loans held for portfolio	62		51		171		154
Total interest income	731		199		1,288		652
INTEREST EXPENSE
Consolidated obligations - Discount notes	264		2		372		10
Consolidated obligations - Bonds	266		108		489		351
Deposits	4		—		5		—
Mandatorily redeemable capital stock	—		—		1		1
Total interest expense	534		110		867		362
NET INTEREST INCOME	197		89		421		290
Provision (reversal) for credit losses on mortgage loans	—		—		3		—
NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES	197		89		418		290
OTHER INCOME (LOSS)
Net gains (losses) on trading securities	(47)		(6)		(111)		(30)
Net gains (losses) on financial instruments held under fair value option	50		—		149		—
Net gains (losses) on derivatives	(18)		1		(32)		10
Standby letter of credit fees	1		3		6		8
Other, net	2		2		1		13
Total other income (loss)	(12)		—		13		1
OTHER EXPENSE
Compensation and benefits	17		18		53		57
Contractual services	5		5		15		14
Professional fees	5		3		11		10
Other operating expenses	5		5		14		15
Federal Housing Finance Agency	2		2		7		6
Office of Finance	1		2		5		6
Other, net	4		2		10		5
Total other expense	39		37		115		113
NET INCOME BEFORE ASSESSMENTS	146		52		316		178
Affordable Housing Program assessments	15		5		32		18
NET INCOME	$	131	$	47	$	284	$	160

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

4

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	131	$	47	$	284	$	160
Other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities	(64)		(16)		(175)		34
Pension and postretirement benefits	1		—		(1)		—
Total other comprehensive income (loss)	(63)		(16)		(176)		34
TOTAL COMPREHENSIVE INCOME (LOSS)	$	68	$	31	$	108	$	194

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

5

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CAPITAL

(dollars and shares in millions)

(Unaudited)

	Capital Stock Class B (putable)			Retained Earnings						Accumulated Other Comprehensive Income (Loss)		Total Capital
	Shares	Par Value		Unrestricted		Restricted		Total
BALANCE, JUNE 30, 2021	35	$	3,429	$	1,785	$	598	$	2,383	$	98	$	5,910
Comprehensive income (loss)	—	—		37		10		47		(16)		31
Proceeds from issuance of capital stock	5	512		—		—		—		—		512
Repurchases/redemptions of capital stock	(6)	(561)		—		—		—		—		(561)
Net shares reclassified (to) from mandatorily redeemable capital stock	—	(1)		—		—		—		—		(1)
Cash dividends on capital stock	—	—		(43)		—		(43)		—		(43)
BALANCE, SEPTEMBER 30, 2021	34	$	3,379	$	1,779	$	608	$	2,387	$	82	$	5,848
BALANCE, JUNE 30, 2022	39	$	3,876	$	1,810	$	648	$	2,458	$	(29)	$	6,305
Comprehensive income (loss)	—	—		105		26		131		(63)		68
Proceeds from issuance of capital stock	33	3,300		—		—		—		—		3,300
Repurchases/redemptions of capital stock	(21)	(2,088)		—		—		—		—		(2,088)
Net shares reclassified (to) from mandatorily redeemable capital stock	—	(2)		—		—		—		—		(2)
Cash dividends on capital stock	—	—		(51)		—		(51)		—		(51)
BALANCE, SEPTEMBER 30, 2022	51	$	5,086	$	1,864	$	674	$	2,538	$	(92)	$	7,532
BALANCE, DECEMBER 31, 2020	34	$	3,341	$	1,775	$	576	$	2,351	$	48	$	5,740
Comprehensive income (loss)	—	—		128		32		160		34		194
Proceeds from issuance of capital stock	20	2,013		—		—		—		—		2,013
Repurchases/redemptions of capital stock	(19)	(1,894)		—		—		—		—		(1,894)
Net shares reclassified (to) from mandatorily redeemable capital stock	(1)	(81)		—		—		—		—		(81)
Cash dividends on capital stock	—	—		(124)		—		(124)		—		(124)
BALANCE, SEPTEMBER 30, 2021	34	$	3,379	$	1,779	$	608	$	2,387	$	82	$	5,848
BALANCE, DECEMBER 31, 2021	34	$	3,364	$	1,773	$	617	$	2,390	$	84	$	5,838
Comprehensive income (loss)	—	—		227		57		284		(176)		108
Proceeds from issuance of capital stock	60	6,012		—		—		—		—		6,012
Repurchases/redemptions of capital stock	(43)	(4,285)		—		—		—		—		(4,285)
Net shares reclassified (to) from mandatorily redeemable capital stock	—	(5)		—		—		—		—		(5)
Cash dividends on capital stock	—	—		(136)		—		(136)		—		(136)
BALANCE, SEPTEMBER 30, 2022	51	$	5,086	$	1,864	$	674	$	2,538	$	(92)	$	7,532

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

6

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS

(dollars in millions)

(Unaudited)

	For the Nine Months Ended
	September 30,
	2022		2021
OPERATING ACTIVITIES
Net income	$	284	$	160
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization/(accretion)	200		32
Net (gains) losses on trading securities	111		30
Net (gains) losses on financial instruments held under fair value option	(149)		—
Net change in derivatives and hedging activities	1,575		238
Other adjustments, net	4		15
Net change in:
Accrued interest receivable	(173)		(6)
Other assets	9		(10)
Accrued interest payable	111		(16)
Other liabilities	(1)		(5)
Total adjustments	1,687		278
Net cash provided by (used in) operating activities	1,971		438
INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits	(966)		144
Securities purchased under agreements to resell	1,510		(2,650)
Federal funds sold	(5,578)		(1,190)
Loans to other FHLBanks	(1,020)		—
Trading securities
Proceeds from sales	549		—
Proceeds from maturities and paydowns	284		4,752
Purchases	(2,591)		(1,098)
Available-for-sale securities
Proceeds from maturities and paydowns	2,226		1,793
Purchases	(3,594)		(18)
Held-to-maturity securities
Proceeds from maturities and paydowns	323		383
Advances
Repaid	204,844		99,336
Originated	(244,139)		(97,191)
Mortgage loans held for portfolio
Principal collected	845		2,029
Purchased	(1,540)		(1,386)
Other investing activities, net	(8)		(1)
Net cash provided by (used in) investing activities	(48,855)		4,903

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

7

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS (continued from previous page)

(dollars in millions)

(Unaudited)

	For the Nine Months Ended
	September 30,
	2022		2021
FINANCING ACTIVITIES
Net change in deposits	(505)		(53)
Net proceeds from issuance of consolidated obligations
Discount notes	643,483		209,630
Bonds	44,684		52,058
Payments for maturing and retiring consolidated obligations
Discount notes	(601,751)		(226,221)
Bonds	(40,836)		(41,575)
Proceeds from issuance of capital stock	6,012		2,013
Payments for repurchases/redemptions of capital stock	(4,285)		(1,894)
Net payments for repurchases/redemptions of mandatorily redeemable capital stock	(19)		(103)
Cash dividends paid	(136)		(124)
Net cash provided by (used in) financing activities	46,647		(6,269)
Net increase (decrease) in cash and due from banks	(237)		(928)
Cash and due from banks at beginning of the period	295		978
Cash and due from banks at end of the period	$	58	$	50
SUPPLEMENTAL DISCLOSURES
Cash Transactions:
Interest paid	$	570	$	420
Affordable Housing Program payments	31		40
Non-Cash Transactions:
Capitalized interest on reverse mortgage investment securities	24		15
Traded but not settled investment security purchases	1,092		—
Traded but not settled investment security payments/calls	8		113
Capital stock reclassified to (from) mandatorily redeemable capital stock, net	5		81

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

8

FEDERAL HOME LOAN BANK OF DES MOINES

CONDENSED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation that is exempt from all federal, state, and local taxation (except real property taxes and certain employer payroll taxes) and is one of 11 district Federal Home Loan Banks (FHLBanks). The FHLBanks are government-sponsored enterprises (GSEs) and were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act) in order to serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank is regulated by the Federal Housing Finance Agency (Finance Agency).

The Bank is a cooperative, meaning it is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain capital stock to support business activities with the Bank. In return, the Bank provides a readily available source of funding and liquidity to its member institutions and eligible housing associates in Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank’s Board of Directors.

Note 1 — Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements for the year ended December 31, 2021, which are contained in the Bank’s 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 9, 2022 (2021 Form 10-K).

In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

Reclassifications

Certain amounts in the Bank’s 2021 financial statements have been reclassified to conform to the presentation for the three and nine months ended September 30, 2022. These amounts were not deemed to be material.

SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Bank’s significant accounting policies during the nine months ended September 30, 2022. Descriptions of all significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” in the 2021 Form 10-K.

Note 2 — Recently Adopted and Issued Accounting Guidance

Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02)

On March 31, 2022, the Financial Accounting Standards Board (FASB) issued guidance eliminating the accounting requirements for troubled debt restructurings (TDRs) by creditors that have adopted the current expected credit losses methodology, while enhancing the 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 and net investment in leases. This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted. The Bank is in the process of evaluating this guidance and its effect on the Bank’s financial condition, results of operations, or cash flows has not yet been determined.

9

Fair Value Hedging – Portfolio Layer Method (ASU 2022-01)

On March 28, 2022, the FASB issued guidance expanding 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”. Among other things, this guidance (i) expands the scope of the portfolio layer method to include non-prepayable assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. This guidance becomes effective for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted. The Bank does not currently utilize the last-of-layer hedging method and therefore this guidance is not expected to have any impact on the Bank’s financial condition, results of operations, or cash flows.

Reference Rate Reform (ASU 2020-04)

On March 12, 2020, the FASB issued temporary guidance to ease the potential burden in accounting for reference rate reform related to the transition from LIBOR. The guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform, if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale/transfer of held-to-maturity (HTM) debt securities. This guidance became effective immediately and remains in effect until December 31, 2022. The Bank continues to evaluate the impact of the guidance and anticipates electing the applicable optional expedients as reference rate activities occur. The effect, if any, of this guidance and these activities on the Bank’s financial condition, results of operations, or cash flows depends on the nature of the transactions and market conditions at the time any election is made.

Note 3 — Investments

The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold, and makes other investments in debt securities, which are classified as either trading, available-for-sale (AFS), or HTM.

INTEREST-BEARING DEPOSITS, SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL, AND FEDERAL FUNDS SOLD

The Bank invests 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 triple-B or greater (investment grade) by a nationally recognized statistical rating organization (NRSRO). At September 30, 2022 and December 31, 2021, none of these investments were with counterparties rated below triple-B; however, as of September 30, 2022, approximately two percent were secured securities purchased under agreements to resell with unrated counterparties. At December 31, 2021, the Bank held no unrated investments. These NRSRO ratings may differ from any internal ratings of the investments by the Bank.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At September 30, 2022 and December 31, 2021, no allowance for credit losses was recorded for interest-bearing deposits and federal funds sold, as all assets were repaid or expected to be repaid according to their contractual terms. The carrying values of interest-bearing deposits and federal funds sold exclude accrued interest receivable of $1 million at September 30, 2022 and less than $1 million at December 31, 2021.

Securities purchased under agreements to resell are secured, short-term, and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e. subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at September 30, 2022 and December 31, 2021. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of $1 million at September 30, 2022 and less than $1 million at December 31, 2021.

10

DEBT SECURITIES

The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. 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. A security is considered to be investment quality if it has adequate financial backing so that full and timely payment of principal and interest is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. Exceptions are allowed for certain investments targeted at low-income persons or communities, and instruments that experience credit deterioration after their purchase by the Bank.

Trading Securities

Trading securities by major security type were as follows (dollars in millions):

	September 30, 2022		December 31, 2021
Non-mortgage-backed securities
U.S. Treasury obligations1	$	2,483	$	496
Other U.S. obligations1	78		102
GSE and Tennessee Valley Authority obligations	50		60
Other2	160		201
Total non-mortgage-backed securities	2,771		859
Mortgage-backed securities
GSE multifamily	45		310
Total fair value	$	2,816	$	1,169

1    Represents investment securities backed by the full faith and credit of the U.S. Government.

2    Consists of taxable municipal bonds.

Net Gains (Losses) on Trading Securities

The following table summarizes the components of “Net gains (losses) on trading securities” as presented on the Statements of Income (dollars in millions):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net unrealized gains (losses) on trading securities held at period-end	$	(47)	$	(5)	$	(102)	$	(20)
Net gains (losses) on trading securities no longer held at period-end	—		(1)		(9)		(10)
Net gains (losses) on trading securities	$	(47)	$	(6)	$	(111)	$	(30)

11

AFS Securities

AFS securities by major security type were as follows (dollars in millions):

	September 30, 2022
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
Other U.S. obligations2	$	847	$	2	$	(3)	$	846
GSE and Tennessee Valley Authority obligations	460		15		—		475
State or local housing agency obligations	473		—		(4)		469
Other3	238		7		—		245
Total non-mortgage-backed securities	2,018		24		(7)		2,035
Mortgage-backed securities
U.S. obligations single-family2	3,347		—		(13)		3,334
GSE single-family	220		1		(1)		220
GSE multifamily	9,104		12		(103)		9,013
Total mortgage-backed securities	12,671		13		(117)		12,567
Total	$	14,689	$	37	$	(124)	$	14,602

	December 31, 2021
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
Other U.S. obligations2	$	1,152	$	5	$	(1)	$	1,156
GSE and Tennessee Valley Authority obligations	953		30		—		983
State or local housing agency obligations	492		—		(4)		488
Other3	277		11		—		288
Total non-mortgage-backed securities	2,874		46		(5)		2,915
Mortgage-backed securities
U.S. obligations single-family2	2,890		19		—		2,909
GSE single-family	273		4		—		277
GSE multifamily	7,264		42		(18)		7,288
Total mortgage-backed securities	10,427		65		(18)		10,474
Total	$	13,301	$	111	$	(23)	$	13,389

1    Amortized cost 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 $36 million and $28 million at September 30, 2022 and December 31, 2021.

2    Represents investment securities backed by the full faith and credit of the U.S. Government.

3    Consists primarily of taxable municipal bonds.

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Unrealized Losses

The following tables summarize AFS securities with unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.

	September 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Non-mortgage-backed securities
Other U.S. obligations1	$	450	$	(2)	$	73	$	(1)	$	523	$	(3)
GSE and Tennessee Valley Authority obligations	86		—		—		—		86		—
State or local housing agency obligations	29		—		412		(4)		441		(4)
Total non-mortgage-backed securities	565		(2)		485		(5)		1,050		(7)
Mortgage-backed securities
U.S. obligations single-family1	2,972		(13)		128		—		3,100		(13)
GSE single-family	98		(1)		—		—		98		(1)
GSE multifamily	3,712		(76)		3,258		(27)		6,970		(103)
Total mortgage-backed securities	6,782		(90)		3,386		(27)		10,168		(117)
Total	$	7,347	$	(92)	$	3,871	$	(32)	$	11,218	$	(124)

	December 31, 2021
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Non-mortgage-backed securities
Other U.S. obligations1	$	80	$	—	$	115	$	(1)	$	195	$	(1)
GSE and Tennessee Valley Authority obligations	355		—		—		—		355		—
State or local housing agency obligations	—		—		451		(4)		451		(4)
Total non-mortgage-backed securities	435		—		566		(5)		1,001		(5)
Mortgage-backed securities
U.S. obligations single-family1	89		—		87		—		176		—
GSE single-family	2		—		—		—		2		—
GSE multifamily	1,831		(3)		2,917		(15)		4,748		(18)
Total mortgage-backed securities	1,922		(3)		3,004		(15)		4,926		(18)
Total	$	2,357	$	(3)	$	3,570	$	(20)	$	5,927	$	(23)

1    Represents investment securities backed by the full faith and credit of the U.S. Government.

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Contractual Maturity

The following table summarizes AFS securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):

	September 30, 2022				December 31, 2021
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due in one year or less	$	249	$	250	$	422	$	422
Due after one year through five years	987		989		1,538		1,548
Due after five years through ten years	329		334		348		356
Due after ten years	453		462		566		589
Total non-mortgage-backed securities	2,018		2,035		2,874		2,915
Mortgage-backed securities	12,671		12,567		10,427		10,474
Total	$	14,689	$	14,602	$	13,301	$	13,389

HTM Securities

HTM securities by major security type were as follows (dollars in millions):

	September 30, 2022
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations	$	370	$	12	$	(4)	$	378
State or local housing agency obligations	34		—		(1)		33
Total non-mortgage-backed securities	404		12		(5)		411
Mortgage-backed securities
U.S. obligations single-family2	2		—		—		2
GSE single-family	591		1		(12)		580
Private-label	4		—		—		4
Total mortgage-backed securities	597		1		(12)		586
Total	$	1,001	$	13	$	(17)	$	997

	December 31, 2021
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations	$	374	$	71	$	—	$	445
State or local housing agency obligations	187		1		(1)		187
Total non-mortgage-backed securities	561		72		(1)		632
Mortgage-backed securities
U.S. obligations single-family2	2		—		—		2
GSE single-family	760		6		—		766
Private-label	5		—		—		5
Total mortgage-backed securities	767		6		—		773
Total	$	1,328	$	78	$	(1)	$	1,405

1    Amortized cost includes adjustments made to the cost basis of an investment for accretion or amortization and excludes accrued interest receivable of $10 million and $5 million at September 30, 2022 and December 31, 2021.

2    Represents investment securities backed by the full faith and credit of the U.S. Government.

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Contractual Maturity

The following table summarizes HTM securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):

	September 30, 2022				December 31, 2021
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due after one year through five years	$	254	$	254	$	257	$	287
Due after five years through ten years	72		75		196		204
Due after ten years	78		82		108		141
Total non-mortgage-backed securities	404		411		561		632
Mortgage-backed securities	597		586		767		773
Total	$	1,001	$	997	$	1,328	$	1,405

ALLOWANCE FOR CREDIT LOSSES ON AFS AND HTM SECURITIES

The Bank evaluates AFS and HTM investment securities for credit losses on a quarterly basis. The Bank’s AFS and HTM securities may include, but are not limited to, certificates of deposit, commercial paper, U.S. obligations, GSE and Tennessee Valley Authority (TVA) obligations, state or local housing agency obligations, taxable municipal bonds, and mortgage-backed securities (MBS). The Bank only purchases securities considered investment quality. At both September 30, 2022 and December 31, 2021, over 99 percent of the Bank’s AFS and HTM securities, based on amortized cost, were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security. These NRSRO ratings may differ from any internal ratings of the securities by the Bank.

The Bank evaluates its individual AFS securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e. in an unrealized loss position). At September 30, 2022 and December 31, 2021, certain AFS securities held by the Bank were in an unrealized loss position. These losses are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security’s remaining amortized cost basis. In addition, substantially all of these securities are high-quality GSE securities or carry an explicit government guarantee. As a result, no allowance for credit losses was recorded on these AFS securities at September 30, 2022 and December 31, 2021.

The Bank evaluates its HTM securities for impairment on a collective, or pooled, basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. At September 30, 2022 and December 31, 2021, the Bank had no allowance for credit losses recorded on its HTM securities because the securities: (i) were all highly-rated, (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of U.S. obligations and GSE and TVA obligations, are high-quality and may carry an explicit government guarantee such that the Bank considers the risk of nonpayment to be zero.

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Note 4 — Advances

REDEMPTION TERM

The following table summarizes the Bank’s advances outstanding by redemption term (dollars in millions):

	September 30, 2022				December 31, 2021
Redemption Term	Amount1		Weighted Average Interest Rate		Amount1		Weighted Average Interest Rate
Due in one year or less	$	43,590	3.07	%	$	12,441	1.18	%
Due after one year through two years	13,937		2.87		7,415		1.72
Due after two years through three years	9,884		2.59		9,956		1.04
Due after three years through four years	4,698		2.62		4,939		0.94
Due after four years through five years	7,028		2.62		6,275		0.95
Thereafter	4,297		2.52		3,113		2.07
Total par value	83,434		2.89	%	44,139		1.24	%
Premiums	11				14
Discounts	—				(2)
Fair value hedging adjustments	(1,249)				(40)
Total	$	82,196			$	44,111

1    Excludes accrued interest receivable of $136 million and $13 million at September 30, 2022 and December 31, 2021.

The following table summarizes advances by year of redemption term or next call date for callable advances, and by year of redemption term or next put date for putable advances (dollars in millions):

	Redemption Term or Next Call Date				Redemption Term or Next Put Date
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Due in one year or less	$	64,002	$	24,690	$	43,780	$	13,270
Due after one year through two years	5,067		6,253		13,796		7,429
Due after two years through three years	4,141		4,429		9,845		9,173
Due after three years through four years	2,104		2,357		4,698		4,889
Due after four years through five years	3,801		3,273		7,028		6,276
Thereafter	4,319		3,137		4,287		3,102
Total par value	$	83,434	$	44,139	$	83,434	$	44,139

The Bank offers advances to members and eligible housing associates that may be prepaid on predetermined dates (call dates) prior to maturity without incurring prepayment fees (callable advances). Other advances may require a prepayment fee or credit that makes the Bank financially indifferent to the prepayment of the advance. At September 30, 2022 and December 31, 2021, the Bank had callable advances outstanding totaling $24.2 billion and $13.4 billion.

The Bank also holds putable advances. With a putable advance, the Bank has the right to terminate the advance from the borrower on predetermined exercise dates. Generally, these put options are exercised when interest rates increase relative to contractual rates. At September 30, 2022 and December 31, 2021, the Bank had putable advances outstanding totaling $191 million and $1.1 billion.

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PREPAYMENT FEES

The Bank generally charges a prepayment fee for advances that a borrower elects to terminate prior to the stated maturity or outside of a predetermined call or put date. The fees charged are priced to make the Bank financially indifferent to the prepayment of the advance. For certain advances with symmetrical prepayment features, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Prepayment fees and credits are recorded net of the hedged item fair value hedging adjustments, if applicable, in advance interest income on the Statements of Income. During the three and nine months ended September 30, 2022, the Bank recorded net prepayment fees on advances of $1 million and $10 million compared to $4 million and $34 million for the same periods in 2021.

ADVANCE CONCENTRATIONS

The Bank’s advances are primarily concentrated in commercial banks and insurance companies. At September 30, 2022, the Bank had outstanding advances of $17.0 billion to Wells Fargo Bank, N.A., which represented 21 percent of the total principal amount of outstanding advances. At December 31, 2021, the Bank did not have any members who individually held 10 percent or more of the Bank’s advances.

ALLOWANCE FOR CREDIT LOSSES

The Bank evaluates advances for credit losses on a quarterly basis and manages its credit exposure to advances through an approach that includes establishing a credit limit for each borrower. This approach includes 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 borrowers’ needs for a reliable source of funding. In addition, the Bank lends to eligible borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

The Bank is required by regulation to obtain sufficient collateral to fully secure its advances. The estimated value of the collateral required to secure each borrower’s advances is calculated by applying collateral discounts, or haircuts, to the unpaid principal balance or market value, as applicable, of the collateral. The Bank also has policies and procedures for validating the reasonableness of the Bank’s collateral valuations. In addition, collateral verifications and on-site reviews are performed by the Bank based on the risk profile of the borrower. Management believes that these policies effectively manage the Bank’s credit risk from advances.

Eligible collateral includes:

•fully disbursed whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages;

•loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association;

•cash deposited with the Bank; and

•other real estate-related collateral acceptable to the Bank, such as second lien mortgages, home equity lines of credit, tax-exempt municipal securities, and commercial real estate mortgages, provided such collateral has a readily ascertainable value and the Bank can perfect a security interest in it.

Community financial institutions may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that the Bank has a lien on each member’s capital stock investment; however, capital stock cannot be pledged as collateral to secure advances.

Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower. The Bank can also require additional or substitute collateral to protect its security interest. The Bank periodically evaluates and makes changes to its collateral guidelines and collateral haircuts.

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Borrowers may pledge collateral to the Bank by executing a blanket pledge agreement, specifically assigning collateral, or placing physical possession of collateral with the Bank or its custodians. The Bank perfects its security interest in all pledged collateral by filing Uniform Commercial Code financing statements or by taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to the Bank by its members, or any affiliates of its members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket pledge agreement, the Bank is granted a security interest in all financial assets of the borrower to fully secure the borrower’s obligation. Other than securities and cash deposits, the Bank does not initially take delivery of collateral from blanket pledge agreement borrowers. In the event of a default or a deterioration in the financial condition of a blanket pledge agreement borrower, the Bank has the ability to require delivery of pledged collateral sufficient to secure the borrower’s obligation. With respect to non-blanket pledge agreement borrowers that are federally insured, the Bank generally requires collateral to be specifically assigned. With respect to non-blanket pledge agreement borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), the Bank generally takes control of collateral through the delivery of cash, securities, or loans to the Bank or its custodians.

Using a risk-based approach and taking into consideration each borrower’s financial strength, the Bank considers the types and level of collateral to be the primary indicators of credit quality on its advances. At September 30, 2022 and December 31, 2021, the Bank had rights to collateral on a borrower-by-borrower basis with an unpaid principal balance or market value, as applicable, in excess of its outstanding advances.

At September 30, 2022 and December 31, 2021, none of the Bank’s advances were past due, on non-accrual status, or considered impaired. The Bank considers an advance past due for financial reporting purposes if a default of contractual principal or interest exists for a period of 30 days or more. In addition, there were no TDRs related to advances during the nine months ended September 30, 2022 and 2021.

The Bank has never experienced a credit loss on its advances. Based upon the Bank’s collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no expected credit losses on its advances as of September 30, 2022 and December 31, 2021.

Note 5 — Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio includes conventional mortgage loans and government-guaranteed or -insured mortgage loans obtained primarily through the Mortgage Partnership Finance (MPF) program (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago). The Bank’s mortgage loan program involves investment by the Bank in single-family mortgage loans held for portfolio that are purchased from participating financial institutions (PFIs). Mortgage loans may also be acquired through participations in pools of eligible mortgage loans purchased from other FHLBanks. The Bank’s PFIs generally originate, service, and credit enhance mortgage loans that are sold to the Bank. PFIs participating in the servicing release program do not service the loans owned by the Bank. The servicing on these loans is sold concurrently by the PFI to a designated mortgage service provider.

The following table presents information on the Bank’s mortgage loans held for portfolio (dollars in millions):

	September 30, 2022		December 31, 2021
Fixed rate, long-term single-family mortgage loans	$	7,110	$	6,307
Fixed rate, medium-term1 single-family mortgage loans	1,058		1,172
Total unpaid principal balance	8,168		7,479
Premiums	97		96
Discounts	(10)		(2)
Basis adjustments from mortgage loan purchase commitments	(8)		6
Total mortgage loans held for portfolio2	8,247		7,579
Allowance for credit losses	(4)		(1)
Total mortgage loans held for portfolio, net	$	8,243	$	7,578

1    Medium-term is defined as an original term of 15 years or less.

2    Excludes accrued interest receivable of $39 million and $34 million at September 30, 2022 and December 31, 2021.

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The following table presents the Bank’s mortgage loans held for portfolio by collateral or guarantee type (dollars in millions):

	September 30, 2022		December 31, 2021
Conventional mortgage loans	$	7,777	$	7,063
Government-insured mortgage loans	391		416
Total unpaid principal balance	$	8,168	$	7,479

PAYMENT STATUS OF MORTGAGE LOANS

Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor borrower performance. Past due loans are those where the borrower has failed to make contractual principal and/or interest payments for a period of 30 days or more. Other delinquency statistics include non-accrual loans and loans in process of foreclosure.

The following tables present the payment status for conventional mortgage loans (dollars in millions):

	September 30, 2022
	Origination Year
	Prior to 2018		2018 to 2022		Total
Past due 30 - 59 days	$	21	$	24	$	45
Past due 60 - 89 days	3		2		5
Past due 90 - 179 days	5		2		7
Past due 180 days or more	9		2		11
Total past due mortgage loans	38		30		68
Total current mortgage loans	1,834		5,947		7,781
Total amortized cost of mortgage loans1	$	1,872	$	5,977	$	7,849

	December 31, 2021
	Origination Year
	Prior to 2017		2017 to 2021		Total
Past due 30 - 59 days	$	19	$	17	$	36
Past due 60 - 89 days	5		3		8
Past due 90 - 179 days	7		2		9
Past due 180 days or more	16		3		19
Total past due mortgage loans	47		25		72
Total current mortgage loans	1,826		5,257		7,083
Total amortized cost of mortgage loans1	$	1,873	$	5,282	$	7,155

1    Amortized cost represents the unpaid principal balance adjusted for unamortized premiums, discounts, price adjustment fees, basis adjustments, and direct write-downs. Amortized cost excludes accrued interest receivable.

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The following tables present other delinquency statistics for mortgage loans (dollars in millions):

	September 30, 2022
Amortized Cost	Conventional			Government-Insured			Total
In process of foreclosure1	$	5		$	1		$	6
Serious delinquency rate2	—		%	1		%	—		%
Past due 90 days or more and still accruing interest3	$	—		$	6		$	6
Non-accrual mortgage loans4	$	45		$	—		$	45

	December 31, 2021
Amortized Cost	Conventional			Government- Insured			Total
In process of foreclosure1	$	4		$	1		$	5
Serious delinquency rate2	—		%	3		%	1		%
Past due 90 days or more and still accruing interest3	$	—		$	11		$	11
Non-accrual mortgage loans4	$	86		$	—		$	86

1    Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported.

2    Represents mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total mortgage loans. Serious delinquency rate on conventional loans was less than one percent at both September 30, 2022 and December 31, 2021.

3    Represents government-insured mortgage loans that are 90 days or more past due.

4    Represents conventional mortgage loans that are 90 days or more past due or for which the collection of interest or principal is doubtful. At September 30, 2022 and December 31, 2021, $34 million and $74 million of conventional mortgage loans on non-accrual status were evaluated individually and did not have a related allowance for credit losses because these loans were either previously charged off to the expected recoverable value and/or the fair value of the underlying collateral was greater than the amortized cost of the loans.

ALLOWANCE FOR CREDIT LOSSES

The Bank evaluates mortgage loans for credit losses on a quarterly basis.

Conventional Mortgage Loans

Conventional mortgage 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.

For collectively evaluated loans, the Bank uses a projected cash flow model to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as current and projected property values and interest rates, as well as historical borrower behavior experience. The Bank also incorporates associated credit enhancements when determining its estimate of expected credit losses. The Bank may incorporate a management adjustment in the allowance for credit losses for conventional mortgage loans due to changes in economic and business conditions or other factors that may not be fully captured in its model.

For individually evaluated loans, the Bank uses the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent when repayment is expected to be provided solely by the sale of the underlying collateral. The Bank estimates the fair value of this collateral using a property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs and expected proceeds from primary mortgage insurance (PMI). The Bank records a direct charge-off of the loan balance if certain triggering criteria are met. Expected recoveries of prior charge-offs are included in the allowance for credit losses.

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At September 30, 2022 and December 31, 2021, the Bank’s allowance for credit losses on conventional mortgage loans was $4 million and $1 million. During the three and nine months ended September 30, 2022, the Bank projected an increase in expected credit losses on collectively evaluated loans due primarily to an upward revision in forecasted mortgage rates, a deceleration in forecasted regional home price appreciation, and increased loan volumes. The increase in loan volumes was due to new purchases as well as certain individually evaluated loans returning to accrual status during the period. As a result of loans returning to accrual status, the Bank also saw a decline in expected property value recoveries on individually evaluated loans during the period.

Government-Insured Mortgage Loans

The Bank invests in government-insured fixed rate mortgage loans portfolios that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, the Bank only has credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance, but in such instance, the Bank would have recourse against the servicer for such failure.

The Bank has never experienced a credit loss on its government-insured mortgage loans. At September 30, 2022 and December 31, 2021, the Bank assessed its servicers and determined there was no expectation that a servicer would fail to remit payments due until paid in full. As a result, the Bank did not establish an allowance for credit losses for its government-insured mortgage loans at September 30, 2022 and December 31, 2021. Furthermore, none of these mortgage loans have 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.

Note 6 — 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 its related funding sources. 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, which include guidelines on the amount of exposure to interest rate changes it is willing to accept.

The Bank enters into derivative contracts to manage the interest rate risk exposures inherent in its otherwise unhedged assets and funding positions. Finance Agency regulations and the Bank’s risk management policies establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.

Derivative financial instruments are used by the Bank to achieve its financial and risk management objectives. The Bank reevaluates its hedging strategies periodically and may change the hedging techniques it uses or may adopt new strategies. The most common ways in which the Bank uses derivatives are to:

•reduce the interest rate sensitivity and repricing gaps of assets and liabilities;

•preserve an interest rate spread between the yield of an asset and the cost of the related liability. Without the use of derivatives, this interest rate spread could be reduced or eliminated when a change in the interest rate on the asset does not match a change in the interest rate on the liability;

•mitigate the adverse earnings effects of the shortening or extension of certain assets and liabilities;

•manage embedded options in assets and liabilities; and

•reduce funding costs by combining a derivative with a consolidated obligation, as the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation.

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TYPES OF DERIVATIVES AND HEDGED ITEMS

The Bank may use the following derivative instruments:

•interest rate swaps;

•options;

•swaptions;

•interest rate caps and floors; and

•futures/forwards contracts.

The Bank may have the following types of hedged items:

•investment securities;

•advances;

•mortgage loans;

•consolidated obligations; and

•firm commitments.

For additional information on the Bank’s derivative and hedging accounting policies, see “Note 1 — Summary of Significant Accounting Policies” in the 2021 Form 10-K.

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FINANCIAL STATEMENT EFFECT AND ADDITIONAL FINANCIAL INFORMATION

The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

The following table summarizes the Bank’s notional amount and fair value of derivative instruments and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest (dollars in millions):

	September 30, 2022						December 31, 2021
	Notional Amount		Derivative Assets		Derivative  Liabilities		Notional Amount		Derivative Assets		Derivative  Liabilities
Derivatives designated as hedging instruments (fair value hedges)
Interest rate swaps	$	41,000	$	238	$	191	$	57,502	$	68	$	136
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	39,227		11		10		23,664		7		43
Forward settlement agreements	137		2		—		115		—		—
Mortgage loan purchase commitments	132		—		3		115		—		—
Total derivatives not designated as hedging instruments	39,496		13		13		23,894		7		43
Total derivatives before netting and collateral adjustments	$	80,496	251		204		$	81,396	75		179
Netting adjustments and cash collateral1			271		(200)				146		(176)
Total derivative assets and derivative liabilities			$	522	$	4			$	221	$	3

1     Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral, including accrued interest, held or placed with the same clearing agent and/or counterparty. At September 30, 2022 and December 31, 2021, cash collateral, including accrued interest, posted by the Bank was $598 million and $342 million. At September 30, 2022 and December 31, 2021, the Bank held cash collateral, including accrued interest, from clearing agents or counterparties of $127 million and $20 million.

23

The following tables summarize the net gains (losses) on qualifying and discontinued fair value hedging relationships recorded in net interest income, including the net interest settlements on derivatives, as well as total income (expense) by hedged product recorded on the Statements of Income (dollars in millions):

	For the Three Months Ended September 30, 2022
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	442	$	102	$	(266)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	461	$	352	$	(133)
Hedged items3	(423)		(334)		125
Net gains (losses) on fair value hedging relationships	$	38	$	18	$	(8)

	For the Three Months Ended September 30, 2021
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	107	$	25	$	(108)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	12	$	9	$	1
Hedged items3	(62)		(43)		29
Net gains (losses) on fair value hedging relationships	$	(50)	$	(34)	$	30

1     Amounts shown to give context to the disclosure and include total interest income (expense) of the products indicated, including coupon, prepayment fees, amortization, and derivative net interest settlements. Interest income (expense) amounts also include gains and losses on derivatives and hedged items in fair value hedging relationships.

2     Includes changes in fair value and net interest settlements on derivatives.    

3    Includes changes in fair value and amortization/accretion of basis adjustments on closed hedge relationships.

24

The following tables summarize the net gains (losses) on qualifying and discontinued fair value hedging relationships recorded in net interest income, including the net interest settlements on derivatives, as well as total income (expense) by hedged product recorded on the Statements of Income (dollars in millions):

	For the Nine Months Ended September 30, 2022
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	737	$	187	$	(489)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	1,196	$	779	$	(306)
Hedged items3	(1,209)		(790)		309
Net gains (losses) on fair value hedging relationships	$	(13)	$	(11)	$	3

	For the Nine Months Ended September 30, 2021
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	359	$	83	$	(351)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	145	$	104	$	(5)
Hedged items3	(306)		(203)		107
Net gains (losses) on fair value hedging relationships	$	(161)	$	(99)	$	102

1     Amounts shown to give context to the disclosure and include total interest income (expense) of the products indicated, including coupon, prepayment fees, amortization, and derivative net interest settlements. Interest income (expense) amounts also include gains and losses on derivatives and hedged items in fair value hedging relationships.

2    Includes changes in fair value and net interest settlements on derivatives.    

3    Includes changes in fair value and amortization/accretion of basis adjustments on closed hedge relationships.

25

The following tables summarize cumulative fair value hedging adjustments and the related amortized cost of the hedged items (dollars in millions):

	September 30, 2022
	Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/ liability1	$	17,446	$	7,773	$	15,632
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	(1,168)	$	(716)	$	(302)
Basis adjustments for discontinued hedging relationships included in amortized cost	(81)		—		(2)
Total amount of fair value hedging adjustments	$	(1,249)	$	(716)	$	(304)

	December 31, 2021
	Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/ liability1	$	17,598	$	6,547	$	34,271
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	(54)	$	73	$	11
Basis adjustments for discontinued hedging relationships included in amortized cost	14		—		(5)
Total amount of fair value hedging adjustments	$	(40)	$	73	$	6

1    Represents the portion of amortized cost designated as a hedged item in an active or discontinued fair value hedging relationship.

The following table summarizes the components of “Net gains (losses) on derivatives” as presented on the Statements of Income (dollars in millions):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	$	7	$	5	$	(16)	$	23
Forward settlement agreements	4		(1)		15		2
Mortgage loan purchase commitments	(5)		1		(16)		(2)
Net interest settlements	(21)		(4)		(11)		(13)
Total net gains (losses) related to derivatives not designated as hedging instruments	(15)		1		(28)		10
Price alignment amount1	(3)		—		(4)		—
Net gains (losses) on derivatives	$	(18)	$	1	$	(32)	$	10

1    This amount represents interest on variation margin, which is a component of the derivative fair value for cleared transactions, and reflects the price alignment amount on variation margin for daily settled derivative contracts not designated as hedging instruments. The price alignment amount on variation margin for daily settled derivative contracts designated as hedging instruments are recorded in the same line item as the earnings effect of the hedged item.

MANAGING CREDIT RISK ON DERIVATIVES

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative contracts. The Bank manages credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in the Bank’s policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.

26

The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty, referred to as uncleared derivatives, or cleared through a clearing agent with a Clearinghouse, referred to as cleared derivatives. Once a derivative transaction has been accepted for clearing by a Clearinghouse, the derivative transaction is novated and the executing counterparty is replaced with the Clearinghouse. The Bank is not a derivative dealer and does not trade derivatives for short-term profit.

For uncleared derivatives, the degree of credit risk is impacted by the extent to which master netting arrangements are included in the derivative contracts to mitigate the risk. The Bank requires collateral agreements on its uncleared derivatives.

Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by an NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions, unless the collateral delivery threshold is set to zero. The Bank had no uncleared derivative instruments with credit-risk related contingent features that were in a net liability position (before cash collateral and related accrued interest) at September 30, 2022. As such, the Bank was not required to post collateral in the normal course of business.

For cleared derivatives, the Clearinghouse is the Bank’s counterparty. The Bank utilizes two Clearinghouses, CME Clearing and London Clearing House (LCH) Ltd., for all cleared derivative transactions. CME Clearing and LCH Ltd. notify the clearing agent of the required initial margin and daily variation margin requirements, and the clearing agent in turn notifies the Bank.

Each Clearinghouse determines initial margin requirements which are considered cash collateral. Generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. The Bank was not required to post additional initial margin by its clearing agent, based on credit considerations, at September 30, 2022. Variation margin requirements with each Clearinghouse are based on changes in the fair value of cleared derivatives and are legally characterized as daily settlement payments, rather than cash collateral.

The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the fair value of cleared derivatives is posted daily through a clearing agent.

OFFSETTING OF DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES

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 when it has met the netting requirements. Additional information regarding these agreements is provided in “Note 1 — Summary of Significant Accounting Policies” in the 2021 Form 10-K.

The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and has 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 Clearinghouse or the clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

27

The following tables present the fair value of derivative instruments meeting or not meeting the netting requirements and the related collateral received from or pledged to counterparties (dollars in millions):

	September 30, 2022
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized1		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives	$	206	$	(200)	$	—	$	6
Cleared derivatives	45		471		—		516
Total	$	251	$	271	$	—	$	522
Derivative Liabilities
Uncleared derivatives	$	194	$	(193)	$	3	$	4
Cleared derivatives	7		(7)		—		—
Total	$	201	$	(200)	$	3	$	4

	December 31, 2021
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized1		Gross Amount of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives	$	74	$	(73)	$	—	$	1
Cleared derivatives	1		219		—		220
Total	$	75	$	146	$	—	$	221
Derivative Liabilities
Uncleared derivatives	$	172	$	(170)	$	—	$	2
Cleared derivatives	7		(6)		—		1
Total	$	179	$	(176)	$	—	$	3

1    Represents derivative assets and derivative liabilities prior to netting adjustments and cash collateral, including accrued interest.

2    Represents mortgage loan purchase commitments not subject to enforceable master netting requirements.

Note 7 — Consolidated Obligations

    Consolidated obligations consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. Bonds are issued primarily to raise intermediate- and long-term funds for the Bank and are not subject to any statutory or regulatory limits on their maturity. Discount notes are issued primarily to raise short-term funds for the Bank and have original maturities of up to one year. Discount notes sell at or below their face amount and are redeemed at par value when they mature.

    Although the Bank is primarily liable for the portion of consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all FHLBank System consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority. At September 30, 2022 and December 31, 2021, the total par value of outstanding consolidated obligations of the FHLBanks was $1,031.9 billion and $652.9 billion.

28

DISCOUNT NOTES

The following table summarizes the Bank’s discount notes (dollars in millions):

	September 30, 2022				December 31, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Par value	$	64,761	2.45	%	$	22,355	0.08	%
Discounts and concessions1	(445)				(6)
Fair value option adjustments	(150)				(1)
Total	$	64,166			$	22,348

1    Concessions represent fees paid to dealers in connections with the issuance of certain consolidated obligation discount notes.

BONDS

The following table summarizes the Bank’s bonds outstanding by contractual maturity (dollars in millions):

	September 30, 2022				December 31, 2021
Year of Contractual Maturity	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Due in one year or less	$	33,806	2.88	%	$	38,778	0.30	%
Due after one year through two years	15,488		2.84		3,928		2.06
Due after two years through three years	2,183		1.93		5,073		2.41
Due after three years through four years	888		2.15		1,010		2.11
Due after four years through five years	1,152		2.19		1,185		1.97
Thereafter	5,418		2.56		5,105		2.27
Total par value	58,935		2.78	%	55,079		0.87	%
Premiums	97				138
Discounts and concessions1	(20)				(17)
Fair value hedging adjustments	(304)				5
Total	$	58,708			$	55,205

1    Concessions represent fees paid to dealers in connections with the issuance of certain consolidated obligation bonds.

The following table summarizes the Bank’s bonds outstanding by call features (dollars in millions):

	September 30, 2022		December 31, 2021
Non-callable or non-putable	$	48,670	$	49,422
Callable	10,265		5,657
Total par value	$	58,935	$	55,079

The following table summarizes the Bank’s bonds outstanding by year of contractual maturity or next call date (dollars in millions):

Year of Contractual Maturity or Next Call Date	September 30, 2022		December 31, 2021
Due in one year or less	$	40,653	$	44,071
Due after one year through two years	14,424		3,908
Due after two years through three years	1,213		3,831
Due after three years through four years	748		805
Due after four years through five years	380		753
Thereafter	1,517		1,711
Total par value	$	58,935	$	55,079

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Note 8 — Capital

CAPITAL STOCK

The Bank’s capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. The Bank issues a single class of capital stock (Class B capital stock) and has two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding on the Bank’s Statements of Condition and 0.10 percent of its standby letters of credit. All capital stock issued is subject to a notice of redemption period of five years.

The capital stock requirements established in the Bank’s Capital Plan are designed so that the Bank can remain adequately capitalized as member activity changes. The Bank’s Board of Directors may make adjustments to the capital stock requirements within ranges established in the Capital Plan.

EXCESS STOCK

Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under its Capital Plan, the Bank, at its discretion and upon 15 days written notice, may repurchase excess membership capital stock. The Bank, at its discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At September 30, 2022, the Bank had no excess capital stock outstanding. At December 31, 2021, the Bank’s excess capital stock outstanding was less than $1 million.

MANDATORILY REDEEMABLE CAPITAL STOCK

The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock or MRCS) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Dividends on MRCS are classified as interest expense on the Statements of Income.

The following tables summarize changes in MRCS (dollars in millions):

	For the Three Months Ended September 30,
	2022		2021
Balance, beginning of period	$	17	$	35
Capital stock reclassified to (from) MRCS, net	2		1
Net payments for repurchases/redemptions of MRCS	(4)		(6)
Balance, end of period	$	15	$	30

	For the Nine Months Ended September 30,
	2022		2021
Balance, beginning of period	$	29	$	52
Capital stock reclassified to (from) MRCS, net	5		81
Net payments for repurchases/redemptions of MRCS	(19)		(103)
Balance, end of period	$	15	$	30

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The following table summarizes the Bank’s MRCS by year of contractual redemption (dollars in millions):

Year of Contractual Redemption1	September 30, 2022		December 31, 2021
Due in one year or less	$	—	$	10
Due after one year through two years	—		1
Due after three years through four years	8		1
Due after four years through five years	—		9
Past contractual redemption date due to outstanding activity with the Bank	7		8
Total	$	15	$	29

1    At the Bank’s election, MRCS may be redeemed prior to the expiration of the five year redemption period that commences on the date of the notice of redemption.

RESTRICTED RETAINED EARNINGS

The Bank entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other FHLBanks in 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the Bank over time. Under the JCE Agreement, each FHLBank is required to allocate 20 percent of its quarterly net income to a separate restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar quarter, equals at least one percent of its average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends. At September 30, 2022 and December 31, 2021, the Bank’s restricted retained earnings account totaled $674 million and $617 million.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes changes in accumulated other comprehensive income (loss) (AOCI) (dollars in millions):

	Net unrealized gains (losses) on AFS securities (Note 3)		Pension and postretirement benefits		Total AOCI
Balance, June 30, 2021	$	102	$	(4)	$	98
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(16)		—		(16)
Balance, September 30, 2021	$	86	$	(4)	$	82
Balance, June 30, 2022	$	(23)	$	(6)	$	(29)
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(64)		—		(64)
Reclassifications from AOCI to net income
Amortization - pension and postretirement	—		1		1
Net current period other comprehensive income (loss)	(64)		1		(63)
Balance, September 30, 2022	$	(87)	$	(5)	$	(92)
Balance, December 31, 2020	$	52	$	(4)	$	48
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	34		—		34
Balance, September 30, 2021	$	86	$	(4)	$	82
Balance, December 31, 2021	$	88	$	(4)	$	84
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(175)		—		(175)
Reclassifications from AOCI to net income
Amortization - pension and postretirement	—		(1)		(1)
Net current period other comprehensive income (loss)	(175)		(1)		(176)
Balance, September 30, 2022	$	(87)	$	(5)	$	(92)

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REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to three regulatory capital requirements:

•Risk-based capital. The Bank must maintain at all times permanent capital greater than or equal to the sum of its credit, market, and operational risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock (including MRCS), and retained earnings can satisfy this risk-based capital requirement.

•Regulatory capital. The Bank is required to maintain a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B stock (including MRCS) and retained earnings.

•Leverage capital. The Bank is required to maintain a minimum five percent leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. The Bank did not hold any nonpermanent capital at September 30, 2022 and December 31, 2021.

In addition to the requirements previously discussed, the Finance Agency Advisory Bulletin on capital stock (the Capital Stock AB) requires each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets. For purposes of the Capital Stock AB, capital stock includes MRCS. The capital stock to total assets ratio is measured on a daily average basis at month end.

If the Bank’s capital falls below the required levels, the Finance Agency has authority to take actions necessary to return it to levels that it deems to be consistent with safe and sound business operations.

The following table shows the Bank’s compliance with the Finance Agency’s regulatory capital requirements (dollars in millions):

	September 30, 2022						December 31, 2021
	Required			Actual			Required			Actual
Regulatory capital requirements
Risk-based capital	$	676		$	7,640		$	585		$	5,783
Regulatory capital	$	5,326		$	7,640		$	3,434		$	5,783
Leverage capital	$	6,658		$	11,460		$	4,293		$	8,675
Capital-to-assets ratio	4.00		%	5.74		%	4.00		%	6.74		%
Capital stock-to-assets ratio	2.00		%	3.86		%	2.00		%	4.08		%
Leverage ratio	5.00		%	8.61		%	5.00		%	10.10		%

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Note 9 — Fair Value

Fair value amounts are determined by the Bank using available market information and reflect the Bank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The fair value hierarchy requires an entity to maximize the use of significant observable inputs and minimize the use of significant unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of 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 Bank can access on the measurement date. An active market for an 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: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) 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 (iv) market-corroborated inputs.

•Level 3 Inputs. Unobservable inputs for the asset or liability. Valuations are derived from techniques that use significant assumptions not observable in the market, which may include pricing models, discounted cash flow models, or similar techniques.

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. The Bank had no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the nine months ended September 30, 2022 and 2021.

33

The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments (dollars in millions). The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, financial instruments held under the fair value option, and certain other assets at fair value on a recurring basis, and on occasion certain impaired mortgage loans held for portfolio on a non-recurring basis. The Bank records all other financial assets and liabilities at amortized cost. The fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

	September 30, 2022
			Fair Value
Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Cash and due from banks	$	58	$	58	$	—	$	—	$	—	$	58
Interest-bearing deposits	1,126		—		1,126		—		—		1,126
Securities purchased under agreements to resell	10,940		—		10,940		—		—		10,940
Federal funds sold	10,268		—		10,268		—		—		10,268
Trading securities	2,816		—		2,816		—		—		2,816
Available-for-sale securities	14,602		—		14,602		—		—		14,602
Held-to-maturity securities	1,001		—		993		4		—		997
Advances	82,196		—		81,871		—		—		81,871
Mortgage loans held for portfolio, net	8,243		—		7,097		37		—		7,134
Loans to other FHLBanks	1,020		—		1,020		—		—		1,020
Accrued interest receivable	237		—		237		—		—		237
Derivative assets, net	522		—		251		—		271		522
Other assets	32		32		—		—		—		32
Liabilities
Deposits	(1,234)		—		(1,234)		—		—		(1,234)
Consolidated obligations
Discount notes	(64,166)		—		(64,160)		—		—		(64,160)
Bonds	(58,708)		—		(57,558)		—		—		(57,558)
Total consolidated obligations	(122,874)		—		(121,718)		—		—		(121,718)
MRCS	(15)		(15)		—		—		—		(15)
Accrued interest payable	(208)		—		(208)		—		—		(208)
Derivative liabilities, net	(4)		—		(204)		—		200		(4)

1    Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

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The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments (dollars in millions):

	December 31, 2021
			Fair Value
Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Cash and due from banks	$	295	$	295	$	—	$	—	$	—	$	295
Interest-bearing deposits	416		—		416		—		—		416
Securities purchased under agreements to resell	12,450		—		12,450		—		—		12,450
Federal funds sold	4,690		—		4,690		—		—		4,690
Trading securities	1,169		—		1,169		—		—		1,169
Available-for-sale securities	13,389		—		13,389		—		—		13,389
Held-to-maturity securities	1,328		—		1,400		5		—		1,405
Advances	44,111		—		44,397		—		—		44,397
Mortgage loans held for portfolio, net	7,578		—		7,694		81		—		7,775
Accrued interest receivable	84		—		84		—		—		84
Derivative assets, net	221		—		75		—		146		221
Other assets	44		44		—		—		—		44
Liabilities
Deposits	(1,847)		—		(1,847)		—		—		(1,847)
Consolidated obligations
Discount notes	(22,348)		—		(22,348)		—		—		(22,348)
Bonds	(55,205)		—		(55,581)		—		—		(55,581)
Total consolidated obligations	(77,553)		—		(77,929)		—		—		(77,929)
MRCS	(29)		(29)		—		—		—		(29)
Accrued interest payable	(97)		—		(97)		—		—		(97)
Derivative liabilities, net	(3)		—		(179)		—		176		(3)

1    Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

SUMMARY OF VALUATION TECHNIQUES AND PRIMARY INPUTS

The valuation techniques 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 non-recurring basis on the Statements of Condition are outlined below.

Trading and AFS Investment Securities. The Bank’s valuation technique incorporates prices from multiple designated third-party pricing vendors, when available. The pricing vendors generally use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, benchmark securities and yields, reported trades, dealer estimates, issuer spreads, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established process in place to challenge investment valuations, which facilitates resolution of questionable prices identified by the Bank. Annually, the Bank conducts reviews of its pricing vendors to confirm and further augment its understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities.

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The Bank’s valuation technique for estimating the fair values of its investment securities 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. All 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 final price rather than the default price. Alternatively, if 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. In limited instances, when no prices are available from one of the designated pricing services, the Bank obtains prices from dealers or uses the purchase price if the investment security is unsettled.

As of September 30, 2022 and December 31, 2021, multiple prices were received for the majority of the Bank’s trading and AFS investment securities. Based on the Bank’s review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the Bank believes its 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.

Impaired Mortgage Loans Held for Portfolio. The fair value of impaired mortgage loans held for portfolio is estimated by obtaining property values from an external pricing vendor. This vendor utilizes multiple pricing models that generally factor in market observable inputs, including actual sales transactions and home price indices. The Bank applies an adjustment to these values to capture certain limitations in the estimation process and takes into consideration estimated selling costs and expected PMI proceeds.  

Derivative Assets and Liabilities and the Related Hedged Items. The fair value of derivatives is generally estimated using standard valuation techniques such as discounted cash flow analyses and comparisons to similar instruments, and includes variation margin payments for daily settled contracts. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data. The Bank is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. To mitigate credit risk on uncleared derivatives, the Bank enters into master netting agreements with its counterparties as well as collateral agreements that have collateral delivery thresholds. The Bank has evaluated the potential for the fair value of its derivatives to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.

The fair values of the Bank’s derivative assets and derivative liabilities include accrued interest receivable/payable and related cash collateral. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. The fair values of derivatives are netted by clearing agent and/or counterparty if the netting requirements are met. If these netted amounts result in a receivable to the Bank, they are classified as an asset and, if classified as a payable to the clearing agent or counterparty, they are classified as a liability.

The Bank’s discounted cash flow model utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). The Bank uses the following inputs for measuring the fair value of interest-related derivatives:

•Discount rate assumption. The Bank utilizes the federal funds overnight index swap (OIS) or Secured Overnight Financing Rate (SOFR) swap curve depending on the terms of the derivative agreement. 

•Forward interest rate assumption. The Bank utilizes the swap curve of the instrument’s index rate.

•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

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For forward settlement agreements, the Bank utilizes to-be-announced (TBA) security prices that are determined by coupon class and expected term until settlement. For mortgage loan purchase commitments, the Bank utilizes TBA security prices adjusted for factors such as credit risk and servicing spreads.

For the related hedged items, the fair value is estimated using a discounted cash flow analysis which typically considers the following inputs:

•Discount rate assumption. The Bank utilizes the designated benchmark interest rate curve. 

•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

Other Assets. These represent grantor trust assets, which are carried at estimated fair value based on quoted market prices as of the last business day of the reporting period.

Consolidated Obligation Discount Notes Recorded under the Fair Value Option. The fair value of consolidated obligation discount notes recorded under the fair value option is determined by calculating the present value of the expected future cash flows. The discount rates used in the present value calculations are for consolidated obligations with similar terms. The Bank uses the consolidated obligation curve for measuring the fair value of these consolidated obligations, which is a market-observable curve constructed by the Office of Finance. This curve is constructed using the U.S. Treasury curve as a base curve which is then adjusted by adding indicative spreads obtained largely from market-observable sources.

Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods previously described 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.

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FAIR VALUE ON A RECURRING BASIS

The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition (dollars in millions):

	September 30, 2022
Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Trading securities
U.S. Treasury obligations	$	—	$	2,483	$	—	$	—	$	2,483
Other U.S. obligations	—		78		—		—		78
GSE and TVA obligations	—		50		—		—		50
Other non-MBS	—		160		—		—		160
GSE multifamily MBS	—		45		—		—		45
Total trading securities	—		2,816		—		—		2,816
Available-for-sale securities
Other U.S. obligations	—		846		—		—		846
GSE and TVA obligations	—		475		—		—		475
State or local housing agency obligations	—		469		—		—		469
Other non-MBS	—		245		—		—		245
U.S. obligations single-family MBS	—		3,334		—		—		3,334
GSE single-family MBS	—		220		—		—		220
GSE multifamily MBS	—		9,013		—		—		9,013
Total available-for-sale securities	—		14,602		—		—		14,602
Derivative assets, net
Interest-rate related	—		249		—		271		520
Forward settlement agreements	—		2		—		—		2
Total derivative assets, net	—		251		—		271		522
Other assets	32		—		—		—		32
Total recurring assets at fair value	$	32	$	17,669	$	—	$	271	$	17,972
Liabilities
Discount notes2	$	—	$	(35,278)	$	—	$	—	$	(35,278)
Derivative liabilities, net
Interest-rate related	—		(201)		—		200		(1)
Mortgage loan purchase commitments	—		(3)		—		—		(3)
Total derivative liabilities, net	—		(204)		—		200		(4)
Total recurring liabilities at fair value	$	—	$	(35,482)	$	—	$	200	$	(35,282)

1    Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

2    Represents financial instruments recorded under the fair value option.

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The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition (dollars in millions):

	December 31, 2021
Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Trading securities
U.S. Treasury obligations	$	—	$	496	$	—	$	—	$	496
Other U.S. obligations	—		102		—		—		102
GSE and TVA obligations	—		60		—		—		60
Other non-MBS	—		201		—		—		201
GSE multifamily MBS	—		310		—		—		310
Total trading securities	—		1,169		—		—		1,169
Available-for-sale securities
Other U.S. obligations	—		1,156		—		—		1,156
GSE and TVA obligations	—		983		—		—		983
State or local housing agency obligations	—		488		—		—		488
Other non-MBS	—		288		—		—		288
U.S. obligations single-family MBS	—		2,909		—		—		2,909
GSE single-family MBS	—		277		—		—		277
GSE multifamily MBS	—		7,288		—		—		7,288
Total available-for-sale securities	—		13,389		—		—		13,389
Derivative assets, net
Interest-rate related	—		75		—		146		221
Other assets	44		—		—		—		44
Total recurring assets at fair value	$	44	$	14,633	$	—	$	146	$	14,823
Liabilities
Discount notes2	$	—	$	(22,348)	$	—	$	—	$	(22,348)
Derivative liabilities, net
Interest-rate related	—		(179)		—		176		(3)
Total recurring liabilities at fair value	$	—	$	(22,527)	$	—	$	176	$	(22,351)

1    Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

2    Represents financial instruments recorded under the fair value option.

FAIR VALUE ON A NON-RECURRING BASIS

    The Bank measures certain impaired mortgage loans held for portfolio at Level 3 fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances. At September 30, 2022 and December 31, 2021, impaired mortgage loans held for portfolio recorded at fair value as a result of a non-recurring change in fair value were $1 million and $4 million. These fair values were as of the date the fair value adjustment was recorded during the nine months ended September 30, 2022 and year ended December 31, 2021.

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FAIR VALUE OPTION

The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires entities to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income.

The Bank elects the fair value option for certain financial instruments when a hedge relationship does not qualify for hedge accounting. These fair value elections are made primarily in an effort to mitigate the potential income statement volatility that can arise when an economic derivative is adjusted for changes in fair value but the related hedged item is not.

For financial instruments recorded under the fair value option, the related contractual interest income, interest expense, and the discount amortization on fair value option discount notes are recorded as part of net interest income on the Statements of Income. The remaining changes are recorded as “Net gains (losses) on financial instruments held under fair value option” on the Statements of Income.

For the three and nine months ended September 30, 2022, net gains on financial instruments held under fair value option (i.e., discount notes) were $50 million and $149 million compared to net losses of less than $1 million for the same periods in 2021, and the Bank determined no credit risk adjustments for nonperformance were necessary. In determining that no credit risk adjustments were necessary, the Bank considered the following factors:

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

•The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations of the FHLBanks.

The following tables summarize the difference between the unpaid principal balance and fair value of outstanding instruments for which the fair value option has been elected (dollars in millions):

	September 30, 2022
	Unpaid Principal Balance		Fair Value		Fair Value Over (Under) Unpaid Principal
Discount Notes	$	35,785	$	35,278	$	(507)

	December 31, 2021
	Unpaid Principal Balance		Fair Value		Fair Value Over (Under) Unpaid Principal
Discount Notes	$	22,355	$	22,348	$	(7)

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Note 10 — Commitments and Contingencies

Joint and Several Liability. The FHLBanks have joint and several liability for all consolidated obligations issued. Accordingly, if an FHLBank were unable to repay any consolidated obligation for which it is the primary obligor, each of the other FHLBanks could be called upon by the Finance Agency to repay all or part of such obligations. No FHLBank has ever been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank. At September 30, 2022 and December 31, 2021, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which the Bank is jointly and severally liable was $908.2 billion and $575.5 billion.

The following table summarizes additional off-balance sheet commitments for the Bank (dollars in millions):

	September 30, 2022						December 31, 2021
	Expire within one year		Expire after one year		Total		Total
Standby letters of credit1,2	$	6,374	$	101	$	6,475	$	8,159
Standby bond purchase agreements2	75		435		510		497
Commitments to purchase mortgage loans	132		—		132		115
Commitments to issue discount notes	355		—		355		—
Commitments to fund advances2	111		2		113		1,728

1    Excludes commitments to issue standby letters of credit, when applicable. At both September 30, 2022 and December 31, 2021, the Bank had no commitments to issue standby letters of credit.

2    The Bank has deemed it unnecessary to record any liability for credit losses on these agreements at September 30, 2022 and December 31, 2021.

Standby Letters of Credit. The Bank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. Standby letters of credit may be offered to assist members and non-member housing associates in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from federal and state government agencies. Standby letters of credit are executed with members for a fee. If the Bank is required to make payment for a beneficiary’s draw, the member either reimburses the Bank for the amount drawn or, subject to the Bank’s discretion, the amount drawn may be converted into a collateralized advance to the member. The maturities of standby letters of credit outstanding at September 30, 2022 are currently no later than 2028. The carrying value of guarantees related to standby letters of credit are recorded in “Other liabilities” on the Statements of Condition and amounted to $2 million at both September 30, 2022 and December 31, 2021.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of its borrowers. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit. All standby letters of credit, similar to advances, are fully collateralized at the time of issuance and subject to member borrowing limits as established by the Bank.

Standby Bond Purchase Agreements. The Bank has entered into standby bond purchase agreements with state housing associates within its district pursuant to which, for a fee, it agrees to serve as a standby liquidity provider if required, to purchase and hold the housing associate’s bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which the Bank would be required to purchase the bonds and typically allows the Bank to terminate the agreement upon the occurrence of a default event of the issuer. At September 30, 2022, the Bank had standby bond purchase agreements with seven housing associates. The maturities of standby bond purchase agreements outstanding at September 30, 2022 are currently no later than 2027. During both the nine months ended September 30, 2022 and 2021, the Bank was not required to purchase any bonds under these agreements.

Commitments to Purchase Mortgage Loans. The Bank enters into commitments that unconditionally obligate it to purchase mortgage loans from its members. These commitments are considered derivatives and their estimated fair value at September 30, 2022 and December 31, 2021 is reported in “Note 6 — Derivatives and Hedging Activities” as mortgage loan purchase commitments.

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Commitments to Issue Consolidated Obligations. The Bank enters into commitments to issue consolidated obligations in the normal course of its business, generally that settle within 30 calendar days. At September 30, 2022, the Bank had commitments to issue $355 million of consolidated obligation discount notes. At December 31, 2021, the Bank had no commitments to issue consolidated obligation bonds or discount notes.

Commitments to Fund Advances. The Bank enters into commitments to fund additional advances up to 24 months in the future. At September 30, 2022 and December 31, 2021, the Bank had commitments to fund advances of $113 million and $1.7 billion.

Other Commitments. For each MPF master commitment, the Bank’s potential loss exposure prior to the PFI’s credit enhancement obligation is estimated and tracked in a first loss account (FLA). For absorbing certain losses in excess of the FLA, PFIs are paid a credit enhancement fee, a portion of which may be performance-based. To the extent the Bank experiences losses under the FLA, it may be able to recapture performance-based credit enhancement fees paid to the PFI to offset these losses. The FLA balance for all MPF master commitments with a PFI credit enhancement obligation was $174 million and $163 million at September 30, 2022 and December 31, 2021.

Legal Proceedings. The Bank is subject to various pending legal proceedings arising in the normal course of business. As previously noted in the Bank’s 2021 Form 10-K, certain of these legal proceedings involved pending litigation with a current member of the Bank stemming from alleged breaches by the member under the Bank’s MPF program. After consultation with legal counsel, management does not anticipate that the ultimate resolution arising out of the MPF litigation with this member bank will have a material effect on the Bank’s financial condition or results of operations. The Bank is not currently aware of any pending or threatened legal proceedings to which it is a party that it believes could have a material impact on its financial condition, results of operations, or cash flows.

Note 11 — Activities with Stockholders

The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank. All transactions with stockholders are entered into in the ordinary course of business.

TRANSACTIONS WITH DIRECTORS’ FINANCIAL INSTITUTIONS

In the normal course of business, the Bank extends credit to its members whose directors and officers serve as Bank directors (Directors’ Financial Institutions). Finance Agency regulations require that transactions with Directors’ Financial Institutions be made on the same terms and conditions as those with any other member.

The following table summarizes the Bank’s outstanding transactions with Directors’ Financial Institutions (dollars in millions):

	September 30, 2022			December 31, 2021
	Amount		% of Total	Amount		% of Total
Advances	$	160	—	$	17	—
Mortgage loans	141		2	119		2
Deposits	57		5	15		1
Capital stock	33		1	43		1

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BUSINESS CONCENTRATIONS

The Bank considers itself to have business concentrations with stockholders owning 10 percent or more of total capital stock outstanding (including MRCS). At September 30, 2022, the Bank had the following business concentrations with stockholders (dollars in millions):

	September 30, 2022
	Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total1	Advances		Loans		Income2
Wells Fargo Bank, N.A.	$	690	14	$	17,000	$	9	$	56
Superior Guaranty Insurance Company3	7		—	—		171		—
Total	$	697	14	$	17,000	$	180	$	56

1    Pursuant to applicable Finance Agency regulations, the Bank’s voting structure limits the voting rights of these stockholders and other members holding a significant amount of the Bank’s capital stock.

2    Represents interest income earned on advances during the nine months ended ended September 30, 2022. Interest income on mortgage loans is excluded from this table as this interest relates to the borrower, not to the stockholder.

3    Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.

The Bank had no stockholders owning 10 percent or more of total capital stock outstanding (including MRCS) at December 31, 2021.

Note 12 — Activities with Other FHLBanks

    Overnight Funds. The Bank may lend or borrow unsecured overnight funds to or from other FHLBanks. All such transactions are at current market rates. The following table summarizes loan activity to other FHLBanks during the nine months ended September 30, 2022 and 2021 (dollars in millions):

Other FHLBank	Beginning Balance		Loans		Principal Repayment		Ending Balance
2022
Chicago	$	—	$	1	$	(1)	$	—
San Francisco	—		1,770		(750)		1,020
	$	—	$	1,771	$	(751)	$	1,020
2021
Chicago	$	—	$	301	$	(301)	$	—

The following table summarizes borrowing activity from other FHLBanks during the nine months ended September 30, 2022 and 2021 (dollars in millions):

Other FHLBank	Beginning Balance		Borrowing		Principal Payment		Ending Balance
2022
Chicago	$	—	$	250	$	(250)	$	—
San Francisco	—		500		(500)		—
	$	—	$	750	$	(750)	$	—
2021
Chicago	$	—	$	5	$	(5)	$	—

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations should be read in conjunction with our financial statements and condensed notes at the beginning of this Form 10-Q and in conjunction with our MD&A and Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (SEC) on March 9, 2022 (2021 Form 10-K). Our MD&A is designed to provide information that will help the reader develop a better understanding of our financial statements, key financial statement changes from quarter to quarter, and the primary factors driving those changes. Our MD&A is organized as follows:

CONTENTS
Forward-Looking Information	45
Executive Overview	46
Conditions in the Financial Markets	51
Selected Financial Data	53
Results of Operations	54
Net Interest Income	54
Other Income (Loss)	57
Hedging Activities	58
Other Expense	61
Statements of Condition	61
Financial Highlights	61
Cash and Due from Banks	61
Advances	61
Mortgage Loans	62
Investments	63
Consolidated Obligations	64
Capital	65
Derivatives	65
Liquidity and Capital Resources	66
Critical Accounting Policies and Estimates	69
Legislative and Regulatory Developments	69
Risk Management	70

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FORWARD-LOOKING INFORMATION

Statements contained in this report, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should, may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements. These risks and uncertainties include, but are not limited to, the following:

•political or economic events, including legislative, regulatory, monetary, judicial, or other developments that affect us, our members, our counterparties, and/or our investors in the consolidated obligations of the 11 Federal Home Loan Banks (FHLBanks);

•the ability to meet capital and other regulatory requirements;

•competitive forces, including without limitation, other sources of funding available to our borrowers that could impact the demand for our advances, other entities purchasing mortgage loans in the secondary mortgage market, and other entities borrowing funds in the capital markets;

•reliance on a relatively small number of member institutions for a large portion of our advance business;

•replacement of the London Interbank Offered Rate (LIBOR) benchmark interest rate and transition to the Secured Overnight Financing Rate (SOFR);

•member consolidations and failures;

•disruptions in the credit and debt markets and the effect on future funding costs, sources, and availability;

•general economic and market conditions that could impact the business we do with our members, including, but not limited to, the timing and volatility of market activity, negative interest rates, inflation/deflation, employment rates, geopolitical instability or conflicts, housing market activity and housing prices, including the effect of mortgage forbearance, the level of mortgage prepayments, the valuation of pledged collateral, and the condition of the capital markets on our consolidated obligations;

•ineffective use of hedging strategies or the availability of derivative instruments in the types and quantities needed for risk management purposes from acceptable counterparties;

•the volatility of reported results due to changes in the fair value of certain assets, liabilities, and derivative instruments;

•risks related to the other FHLBanks that could trigger our joint and several liability for debt issued by the other FHLBanks;

•changes in the relative attractiveness of consolidated obligations due to actual or perceived changes in the FHLBanks’ credit ratings as well as the U.S. Government’s long-term credit rating;

•increases in delinquency or loss estimates on mortgage loans;

•the ability to develop and support internal controls, business processes, information systems, and other operating technologies that effectively manage the risks we face, including but not limited to, cyber-attacks, widespread health emergencies, and other business interruptions;

•significant business interruptions resulting from third party failures;

•the volatility of credit quality, market prices, interest rates, and other factors that could affect the value of collateral held by us as security for borrower and counterparty obligations; and

•the ability to attract and retain key personnel.

45

For additional information regarding these and other risks and uncertainties that could cause our actual results to differ materially from the expectations reflected in our forward-looking statements, see “Item 1A. Risk Factors” in this quarterly report and in our 2021 Form 10-K. Forward-looking statements apply only as of the date they are made, and we undertake no obligation to update or revise any forward-looking statement.

EXECUTIVE OVERVIEW

Our Bank is a member-owned cooperative serving shareholder members in our district. Our mission is to be a reliable provider of funding, liquidity, and services for our members so that they can meet the housing, business, and economic development needs of the communities they serve. Our operating model balances the trade-off between attractively priced products, reasonable returns on capital stock, maintaining an adequate level of capital to meet regulatory capital requirements, and maintaining adequate retained earnings to preserve the par value of member-owned capital stock. Our members include commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs).

Our financial condition and results of operations are influenced by global and national economies, local economies within our 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 our profitability. During 2022, in response to higher inflation, the Federal Open Markets Committee (FOMC or Committee) raised the target range for the federal funds rate by 3.00 percent, which led to higher interest rates that bolstered our net interest income. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Conditions in the Financial Markets” for additional discussion on economic conditions impacting our financial results.

Financial Results

For the three and nine months ended September 30, 2022, we reported net income of $131 million and $284 million compared to $47 million and $160 million for the same periods in 2021. The increase in our net income, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was primarily driven by increases in net interest income during the three and nine months ended September 30, 2022.

Net interest income increased $108 million and $131 million during the three and nine months ended September 30, 2022 when compared to the same periods last year due primarily to higher interest rates, which improved interest-earning asset yields and earnings on invested capital, as well as growth in advance balances. The increase during the nine months ended September 30, 2022 was also due to reduced net premium amortization on mortgage loans driven by a slowdown in prepayment activity.

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for additional discussion on our results of operations.

    Our total assets increased to $133.2 billion at September 30, 2022, compared to $85.9 billion at December 31, 2021, driven primarily by an increase in advances and investments. Advances increased $38.1 billion due mainly to an increase in borrowings by large depository institution members. Investments increased $7.3 billion driven by increased money market investments and the purchase of U.S. Treasury obligations and agency mortgage-backed securities (MBS).

Total capital increased to $7.5 billion at September 30, 2022 from $5.8 billion at December 31, 2021, primarily due to an increase in activity-based capital stock resulting from an increase in advance balances. Our regulatory capital ratio decreased to 5.74 percent at September 30, 2022, from 6.74 percent at December 31, 2021, and was above the required regulatory limit at each period end. Regulatory capital includes capital stock, mandatorily redeemable capital stock (MRCS), and retained earnings.

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition” for additional discussion on our financial condition.

46

Adjusted Earnings

As part of evaluating our financial performance, we adjust GAAP net interest income and GAAP net income before assessments for the impact of (i) unpredictable items, including, but not limited to, market adjustments relating to derivative and hedging activities and instruments held at fair value, net asset prepayment fee income, mandatorily redeemable capital stock interest expense, and net gains on litigation settlements, and (ii) other non-routine items, if applicable. The resulting non-GAAP measure, referred to as our adjusted earnings, reflects both adjusted net interest income and adjusted net income.

Because our business model is primarily one of holding assets and liabilities to maturity, management believes that the adjusted earnings measure is helpful in understanding our operating results and provides a meaningful period-to-period comparison of our economic performance in contrast to GAAP results, which can be impacted by fair value changes driven by market volatility on financial instruments recorded at fair value or transactions that are considered to be unpredictable or not routine. As a result, management uses the adjusted earnings measure to assess performance under our incentive compensation plans. Non-GAAP financial measures have inherent limitations and are not audited. While these non-GAAP measures can be used to assist in understanding the components of our earnings, they should not be considered a substitute for results reported under GAAP.

The adjusted net income methodology is calculated on a post-Affordable Housing Program (AHP) assessment basis. Management believes AHP assessments are a fundamental component of our business and believes this assessment should be included in our adjusted net income calculation.

As indicated in the tables that follow, our adjusted net interest income and adjusted net income increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021. Our adjusted net interest income was impacted primarily by higher interest rates, which improved interest-earning asset yields and earnings on invested capital, as well as growth in advance balances. The increase during the nine months ended September 30, 3022 was also due to reduced net premium amortization on mortgage loans driven by a slowdown in prepayment activity.

The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
GAAP net interest income	$	197		$	89		$	421		$	290
Exclude:
Prepayment fees on advances, net1	1			5			10			35
Prepayment fees on investments, net2	8			1			18			2
Mandatorily redeemable capital stock interest expense	—			—			(1)			(1)
Market value adjustments on fair value hedges3	4			1			12			8
Total adjustments	13			7			39			44
Include items reclassified from other income (loss):
Net interest income (expense) on economic hedges	(20)			(4)			(11)			(13)
Adjusted net interest income	$	164		$	78		$	371		$	233
GAAP net interest margin	0.69		%	0.41		%	0.58		%	0.44		%
Adjusted net interest margin	0.58		%	0.36		%	0.51		%	0.35		%

1    Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.

2    Prepayment fees on investments, net includes basis adjustment amortization, as well as premium and/or discount amortization on non-MBS.

3     Represents market value gains (losses) on derivatives and hedged items in qualifying hedging relationships.

47

The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income (dollars in millions):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
GAAP net income before assessments	$	146	$	52	$	316	$	178
Exclude:
Prepayment fees on advances, net1	1		5		10		35
Prepayment fees on investments, net2	8		1		18		2
Mandatorily redeemable capital stock interest expense	—		—		(1)		(1)
Market value adjustments on fair value hedges3	4		1		12		8
Net gains (losses) on financial instruments held under fair value option	50		—		149		—
Net gains (losses) on trading securities	(47)		(6)		(111)		(30)
Net gains (losses) on derivatives4	(18)		1		(32)		10
Include:
Net interest income (expense) on economic hedges	(20)		(4)		(11)		(13)
Adjusted net income before assessments	128		46		260		141
Adjusted AHP assessments5	13		4		26		14
Adjusted net income	$	115	$	42	$	234	$	127

1    Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.

2    Prepayment fees on investments, net includes basis adjustment amortization, as well as premium and/or discount amortization on non-MBS.

3    Represents market value gains (losses) on derivatives and hedged items in qualifying hedging relationships.

4    Represents net gains (losses) on economic derivatives and the related interest settlements.

5    Adjusted AHP assessments for this non-GAAP measure are calculated as 10 percent of adjusted net income before assessments. For additional discussion on AHP assessments, refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Affordable Housing Program” in our 2021 Form 10-K.

For additional discussion on items impacting our GAAP earnings, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

Replacement of the LIBOR Benchmark Interest Rate

In March 2021, the Financial Conduct Authority announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 (or, in the case of some more frequently used LIBOR settings, immediately after June 30, 2023). Although the Financial Conduct Authority does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date. The Financial Conduct Authority’s announcement constituted an index cessation event under the 2006 International Swaps and Derivatives Association, Inc. (ISDA) Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol), which we adhered to in October 2020. As a result, the fallback spread adjustment for each tenor is fixed as of the date of the announcement.

As noted throughout this report, certain of our advances, investments, derivatives, and related collateral are indexed to LIBOR. As of June 30, 2020, we ceased all LIBOR indexed transactions with maturities beyond December 31, 2021. We are preparing for a transition away from LIBOR and have developed a transition plan that addresses considerations such as LIBOR exposure, member products, fallback language, operational readiness, and balance sheet management. We are in the process of ensuring we are operationally ready for fallback activities, including updating our processes and IT systems to support the transition away from LIBOR.

As SOFR becomes the dominant market index, activity in SOFR-indexed financial instruments continues to increase. We continue to issue SOFR-indexed debt and develop new SOFR-indexed advance products in addition to our current offerings. We are also utilizing interest rate swaps based on the federal funds overnight index swap (OIS) or SOFR rates as an alternative to using LIBOR when entering into new derivative transactions.

48

The following tables summarize our variable rate advances, investments, consolidated obligation bonds, and derivatives by interest-rate index (in millions):

	September 30, 2022
	LIBOR		SOFR		Federal Funds OIS		Other1		Total
Advances, principal amount	$	347	$	8,388	$	—	$	24,414	$	33,149
Investment securities
Non-MBS, principal amount	928		—		—		—		928
MBS, principal amount	5,046		976		—		—		6,022
Total investment securities	5,974		976		—		—		6,950
Consolidated obligation bonds, principal amount	—		30,673		—		—		30,673
Total variable rate financial instruments amount	$	6,321	$	40,037	$	—	$	24,414	$	70,772
Derivatives
Pay leg, notional amount	$	1,239	$	49,440	$	432	$	—	$	51,111
Receive leg, notional amount	7,014		3,268		18,834		—		29,116

	December 31, 2021
	LIBOR		SOFR		Federal Funds OIS		Other1		Total
Advances, principal amount	$	564	$	430	$	—	$	13,537	$	14,531
Investment securities
Non-MBS, principal amount	1,253		—		—		—		1,253
MBS, principal amount	6,084		—		—		—		6,084
Total investment securities	7,337		—		—		—		7,337
Consolidated obligation bonds, principal amount	—		7,786		—		—		7,786
Total variable rate financial instruments amount	$	7,901	$	8,216	$	—	$	13,537	$	29,654
Derivatives
Pay leg, notional amount	$	1,407	$	53,602	$	432	$	—	$	55,441
Receive leg, notional amount	11,334		5		14,386		—		25,725

1     Consists primarily of advances indexed in part to consolidated obligation yields.

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The following tables present our exposure to LIBOR-indexed advances, investments, consolidated obligation bonds, and derivatives (in millions):

	September 30, 2022
	LIBOR Tenors That Cease or Will no Longer be Representative Immediately After June 30, 2023
	Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates Thereafter		Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term	$	80	$	50	$	217	$	347
Investment securities, by contractual maturity1
Non-MBS, principal amount	—		49		879		928
MBS, principal amount	—		75		4,971		5,046
Derivatives, receive leg
Cleared, notional amount	123		1,671		3,304		5,098
Uncleared, notional amount	188		476		1,252		1,916
Total principal/notional amount	$	391	$	2,321	$	10,623	$	13,335
Liabilities Indexed to LIBOR
Derivatives, pay leg
Cleared, notional amount	$	15	$	264	$	660	$	939
Uncleared, notional amount	—		50		250		300
Total principal/notional amount	$	15	$	314	$	910	$	1,239

	December 31, 2021
	LIBOR Tenors That Cease or Will no Longer be Representative Immediately After June 30, 2023
	Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates Thereafter		Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term	$	206	$	50	$	308	$	564
Investment securities, by contractual maturity1
Non-MBS, principal amount	—		84		1,169		1,253
MBS, principal amount	69		80		5,935		6,084
Derivatives, receive leg
Cleared, notional amount	1,800		1,786		3,851		7,437
Uncleared, notional amount	962		934		2,001		3,897
Total principal/notional amount	$	3,037	$	2,934	$	13,264	$	19,235
Liabilities Indexed to LIBOR
Derivatives, pay leg
Cleared, notional amount	$	80	$	264	$	660	$	1,004
Uncleared, notional amount	103		50		250		403
Total principal/notional amount	$	183	$	314	$	910	$	1,407

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

For a summary of our risks on the replacement of the LIBOR benchmark interest rate, refer to “Item 1A. Risk Factors” in our 2021 Form 10-K.

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CONDITIONS IN THE FINANCIAL MARKETS

Economy and Financial Markets

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

The invasion of Ukraine by Russia and the related events are causing economic hardship, creating additional upward pressure on inflation, and are weighing on economic activity.

In addition to a federal funds rate increase of 0.75 percent in July, in its September 21, 2022 statement, the FOMC stated that it decided to raise the target range for the federal funds rate to between 3.00 and 3.25 percent compared to a range of zero to 0.25 percent for the same period in 2021. The Committee emphasized its strong commitment to return inflation to its two percent objective and anticipates that ongoing increases in the target range will be appropriate. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency MBS. The Committee also stated that its assessment will take into account a wide range of information, including readings on public health, labor market conditions, indicators of inflation pressures, inflation expectations, and financial and international developments.

Mortgage Markets

During 2022, mortgage rates increased, on average, compared to the same periods last year and from the prior year-end. In 2022, new and existing home sales slowed, while home prices continued to rise due to low housing inventories. The primary driver of mortgage activity was purchase activity in the third quarter of 2022.

Interest Rates

    The following table shows information on key market interest rates1:

	Third Quarter 2022 3-Month Average		Third Quarter 2021 3-Month Average		Third Quarter 2022 9-Month Average		Third Quarter 2021 9-Month Average		September 30, 2022 Ending Rate		December 31, 2021 Ending Rate
Federal funds	2.20	%	0.09	%	1.04	%	0.08	%	3.08	%	0.07	%
Three-month LIBOR	3.02		0.13		1.70		0.16		3.75		0.21
SOFR	2.15		0.05		0.99		0.04		2.98		0.05
2-year U.S. Treasury	3.39		0.22		2.53		0.18		4.28		0.73
10-year U.S. Treasury	3.10		1.32		2.67		1.41		3.83		1.51
30-year residential mortgage note	5.58		2.86		4.85		2.91		6.70		3.11

1    Source: Bloomberg.

In response to higher inflation, the FOMC raised the target range for the federal funds rate, which led to higher interest rates during 2022 when compared to the prior year.

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Funding Spreads

The following table reflects our funding spreads to SOFR (basis points)1:

	Third Quarter 2022 3-Month Average	Third Quarter 2021 3-Month Average	Third Quarter 2022 9-Month Average	Third Quarter 2021 9-Month Average	September 30, 2022 Ending Spread	December 31, 2021 Ending Spread
3-month	(3.3)	0.7	(5.1)	1.1	(7.6)	(1.3)
2-year	6.3	5.3	4.8	6.0	13.9	2.7
5-year	31.6	15.0	27.5	14.6	31.0	19.6
10-year	67.3	37.2	59.1	34.0	76.7	41.0

1    Source: The Office of Finance.

The following table reflects our funding spreads to U.S. Treasuries (basis points)1:

	Third Quarter 2022 3-Month Average	Third Quarter 2021 3-Month Average	Third Quarter 2022 9-Month Average	Third Quarter 2021 9-Month Average	September 30, 2022 Ending Spread	December 31, 2021 Ending Spread
3-month	15.1	1.1	10.5	1.5	28.5	1.5
2-year	11.1	1.2	6.7	1.4	17.0	1.5
5-year	9.9	2.5	8.2	2.7	11.0	7.0
10-year	48.7	14.6	41.0	11.9	57.0	24.0

1    Source: The Office of Finance.

As a result of our credit quality and government-sponsored enterprise (GSE) status, we generally have ready access to funding at relatively competitive interest rates. During the nine months ended September 30, 2022, our short-term funding spreads to SOFR generally improved when compared to the prior year-end and the same period last year, while medium and longer-term spreads deteriorated. During the nine months ended September 30, 2022, our funding spreads to U.S. Treasuries deteriorated when compared to the prior year-end and the same period last year. During 2022, we utilized discount notes and shorter-term consolidated obligation bonds in an effort to capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.

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SELECTED FINANCIAL DATA

    The following tables present selected financial data for the periods indicated (dollars in millions):

Statements of Condition	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Cash and due from banks	$	58	$	50	$	71	$	295	$	50
Investments1	40,753		32,753		34,621		33,442		29,211
Advances	82,196		52,731		44,773		44,111		44,076
Mortgage loans held for portfolio, net2	8,243		7,940		7,702		7,578		7,566
Total assets	133,155		93,968		87,737		85,852		81,418
Consolidated obligations
Discount notes	64,166		50,185		36,743		22,348		10,749
Bonds	58,708		35,130		42,463		55,205		62,595
Total consolidated obligations3	122,874		85,315		79,206		77,553		73,344
Mandatorily redeemable capital stock	15		17		18		29		30
Total liabilities	125,623		87,663		81,792		80,014		75,570
Capital stock — Class B putable	5,086		3,876		3,523		3,364		3,379
Retained earnings	2,538		2,458		2,401		2,390		2,387
Accumulated other comprehensive income (loss)	(92)		(29)		21		84		82
Total capital	7,532		6,305		5,945		5,838		5,848
Regulatory capital ratio4	5.74		6.76		6.77		6.74		7.12

	For the Three Months Ended
Statements of Income	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Net interest income	$	197		$	125		$	99		$	91		$	89
Provision (reversal) for credit losses on mortgage loans	—			1			2			—			—
Other income (loss)5	(12)			25			—			3			—
Other expense6	39			39			37			43			37
AHP assessments	15			11			6			5			5
Net income	131			99			54			46			47
Selected Financial Ratios7
Net interest spread8	0.55		%	0.47		%	0.42		%	0.38		%	0.37		%
Net interest margin9	0.69			0.54			0.46			0.42			0.41
Return on average equity (annualized)	7.64			6.43			3.71			3.09			3.13
Return on average capital stock (annualized)	11.71			10.44			6.25			5.27			5.34
Return on average assets (annualized)	0.46			0.42			0.25			0.21			0.22
Average equity to average assets	5.98			6.56			6.67			6.86			6.87

1    Investments include interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, trading securities, available-for-sale (AFS) securities, and held-to-maturity (HTM) securities.

2    Includes an allowance for credit losses of $4 million, $4 million, $3 million, $1 million, and $1 million at September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021, and September 30, 2021.

3    The total par value of outstanding consolidated obligations of the 11 FHLBanks was $1,031.9 billion, $882.5 billion, $699.5 billion, $652.9 billion, and $641.4 billion at September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021, and September 30, 2021.

4    Represents period-end regulatory capital expressed as a percentage of period-end total assets. Regulatory capital includes Class B capital stock (including MRCS) and retained earnings.

5    Other income (loss) includes, among other things, net gains (losses) on investment securities, net gains (losses) on derivatives, and net gains (losses) on fair value option instruments.

6    Other expense includes, among other things, compensation and benefits, professional fees, and contractual services.

7    Amounts used to calculate selected financial ratios are based on numbers in actuals. Accordingly, recalculations using numbers in millions may not produce the same results.

8    Represents annualized yield on total interest-earning assets minus annualized cost of total interest-bearing liabilities.

9    Represents net interest income expressed as a percentage of average interest-earning assets.

53

RESULTS OF OPERATIONS

Net Interest Income

Our net interest income is impacted by changes in average interest-earning asset and interest-bearing liability balances, and the related yields and costs. The following table presents average balances and annualized yields/costs of major asset and liability categories (dollars in millions):    

	For the Three Months Ended September 30,
	2022						2021
	Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2
Interest-earning assets
Interest-bearing deposits	$	1,576	1.95	%	$	8	$	814	0.12	%	$	—
Securities purchased under agreements to resell	5,329		2.23		30		3,521		0.08		1
Federal funds sold	12,751		2.21		71		9,604		0.08		2
MBS3,4	12,685		2.82		90		12,248		0.74		23
Other investments3,4,5	4,991		2.31		28		4,839		1.22		15
Advances4,6	67,120		2.61		442		47,330		0.90		107
Mortgage loans7	8,113		3.01		62		7,526		2.68		51
Loans to other FHLBanks	19		1.01		—		—		—		—
Total interest-earning assets	112,584		2.58		731		85,882		0.92		199
Non-interest-earning assets	1,835		—		—		916		—		—
Total assets	$	114,419	2.54	%	$	731	$	86,798	0.91	%	$	199
Interest-bearing liabilities
Deposits	$	1,338	1.33	%	$	4	$	1,995	0.01	%	$	—
Consolidated obligations
Discount notes4	56,566		1.85		264		20,513		0.04		2
Bonds4	46,317		2.28		266		57,134		0.75		108
Other interest-bearing liabilities8	16		7.28		—		31		4.98		—
Total interest-bearing liabilities	104,237		2.03		534		79,673		0.55		110
Non-interest-bearing liabilities	3,345		—		—		1,166		—		—
Total liabilities	107,582		1.97		534		80,839		0.54		110
Capital	6,837		—		—		5,959		—		—
Total liabilities and capital	$	114,419	1.85	%	$	534	$	86,798	0.50	%	$	110
Net interest income and spread9			0.55	%	$	197			0.37	%	$	89
Net interest margin10			0.69	%					0.41	%
Average interest-earning assets to interest-bearing liabilities			108.01	%					107.79	%

1    Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.

2    Interest income and expense amounts reported for advances, MBS, other investments, and consolidated obligation bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.

3    The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.

4    Average balances reflect the impact of fair value hedging adjustments and/or fair value option adjustments.

5    Other investments primarily include U.S. Treasury obligations, other U.S. obligations, GSE obligations and Tennessee Valley Authority (TVA) obligations, state or local housing agency obligations, and taxable municipal bonds.

6    Interest income on advances includes net prepayment fees of $1 million and $4 million for the three months ended September 30, 2022 and 2021.

7    Non-accrual loans are included in the average balance used to determine the average yield.

8    Other interest-bearing liabilities consist primarily of MRCS.

9    Represents annualized yield on total interest-earning assets minus annualized yield on total interest-bearing liabilities.

10    Represents net interest income expressed as a percentage of average interest-earning assets.

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The following table presents average balances and annualized yields/costs of major asset and liability categories (dollars in millions):

	For the Nine Months Ended September 30,
	2022						2021
	Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2
Interest-earning assets
Interest-bearing deposits	$	1,400	1.04	%	$	11	$	826	0.11	%	$	1
Securities purchased under agreements to resell	4,704		1.11		39		3,303		0.07		2
Federal funds sold	11,822		1.09		97		8,977		0.07		5
Mortgage-backed securities3,4	11,893		1.84		164		12,804		0.78		75
Other investments3,4,5	4,738		1.96		69		6,152		1.22		56
Advances4,6	55,216		1.78		737		47,940		1.00		359
Mortgage loans7	7,853		2.91		171		7,755		2.66		154
Loans to other FHLBanks	6		1.01		—		1		0.12		—
Total interest-earning assets	97,632		1.76		1,288		87,758		0.99		652
Non-interest-earning assets	1,436		—		—		943		—		—
Total assets	$	99,068	1.74	%	$	1,288	$	88,701	0.98	%	$	652
Interest-bearing liabilities
Deposits	$	1,664	0.41	%	$	5	$	1,863	0.01	%	$	—
Consolidated obligations
Discount notes4	44,730		1.11		372		23,028		0.06		10
Bonds4	44,008		1.49		489		56,547		0.83		351
Other interest-bearing liabilities8	23		5.32		1		38		4.97		1
Total interest-bearing liabilities	90,425		1.28		867		81,476		0.59		362
Non-interest-bearing liabilities	2,338		—		—		1,290		—		—
Total liabilities	92,763		1.25		867		82,766		0.59		362
Capital	6,305		—		—		5,935		—		—
Total liabilities and capital	$	99,068	1.17	%	$	867	$	88,701	0.55	%	$	362
Net interest income and spread9			0.48	%	$	421			0.40	%	$	290
Net interest margin10			0.58	%					0.44	%
Average interest-earning assets to interest-bearing liabilities			107.97	%					107.71	%

1    Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.

2    Interest income and expense amounts reported for advances, MBS, other investments, and consolidated obligation bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.

3    The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.

4    Average balances reflect the impact of fair value hedging adjustments and/or fair value option adjustments.

5    Other investments primarily include U.S. Treasury obligations, other U.S. obligations, GSE obligations and Tennessee Valley Authority (TVA) obligations, state or local housing agency obligations, and taxable municipal bonds.

6     Interest income on advances includes net prepayment fees of $10 million and $34 million for the nine months ended September 30, 2022 and 2021.

7    Non-accrual loans are included in the average balance used to determine the average yield.

8    Other interest-bearing liabilities consist primarily of MRCS.

9    Represents annualized yield on total interest-earning assets minus annualized yield on total interest-bearing liabilities.

10    Represents net interest income expressed as a percentage of average interest-earning assets.

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The following table presents changes in interest income and interest expense. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather attributable to both volume and rate changes, are allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes (dollars in millions).

	Three Months Ended						Nine Months Ended
	September 30, 2022 vs. September 30, 2021						September 30, 2022 vs. September 30, 2021
	Total Increase (Decrease) Due to				Total Increase (Decrease)		Total Increase (Decrease) Due to				Total Increase (Decrease)
	Volume		Rate				Volume		Rate
Interest income
Interest-bearing deposits	$	—	$	8	$	8	$	1	$	9	$	10
Securities purchased under agreements to resell	1		28		29		1		36		37
Federal funds sold	1		68		69		2		90		92
MBS	1		66		67		(6)		95		89
Other investments	—		13		13		(15)		28		13
Advances	60		275		335		62		316		378
Mortgage loans	4		7		11		2		15		17
Total interest income	67		465		532		47		589		636
Interest expense
Deposits	—		4		4		—		5		5
Consolidated obligations
Discount notes	10		252		262		18		344		362
Bonds	(24)		182		158		(92)		230		138
Total interest expense	(14)		438		424		(74)		579		505
Net interest income	$	81	$	27	$	108	$	121	$	10	$	131

NET INTEREST SPREAD AND MARGIN

Net interest spread represents the annualized yield on total interest-earning assets minus the annualized cost of total interest-bearing liabilities. Net interest margin equals net interest income expressed as a percentage of average interest-earning assets. Our net interest spread and margin both increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021 due primarily to higher interest rates, which most notably caused our advance yields to increase at a quicker pace than the corresponding debt due to the frequency of rate resets, and earnings on invested capital, as well as growth in average advance balances. The increase during the nine months ended September 30, 2022 was also due to reduced net premium amortization on mortgage loans driven by a slowdown in prepayment activity.

The primary components of our interest income and interest expense are discussed further below.

Advances

Interest income on advances increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021 due primarily to the higher interest rate environment, which improved our advance yields, as well as higher average advance volumes. The increase for the three and nine months ended September 30, 2022 was partially offset by a decline in advance prepayment fee income of $3 million and $24 million.

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Investments

Interest income on investments increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021 due primarily to the higher interest rate environment, an increase in investment prepayment fee income of $7 million and $16 million, and an increase in net gains on investment fair value hedge relationships of $5 million and $10 million. The increase during the nine months ended September 30, 2022 was partially offset by lower average other investment and MBS balances resulting from maturities and/or paydowns.

Mortgage Loans

Interest income on mortgage loans increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021 due primarily to the higher interest rate environment. The increase during the nine months ended September 30, 2022 was also due to decreased net premium amortization resulting from a slowdown in prepayment activity.

Consolidated Obligations

Interest expense on bonds increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021 due primarily to the higher interest rate environment, offset in part by lower average balances as we increased our usage of discount notes relative to bonds.

Interest expense on discount notes increased during the three and nine months ended September 30, 2022 when compared to the same periods in 2021 due to the higher interest rate environment and our increased utilization of discount notes to fund our assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.

Other Income (Loss)

    The following table summarizes the components of other income (loss) (dollars in millions):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net gains (losses) on trading securities	$	(47)	$	(6)	$	(111)	$	(30)
Net gains (losses) on financial instruments held under fair value option	50		—		149		—
Net gains (losses) on derivatives	(18)		1		(32)		10
Standby letter of credit fees	1		3		6		8
Other, net	2		2		1		13
Total other income (loss)	$	(12)	$	—	$	13	$	1

Other income (loss) decreased $12 million during the three months ended September 30, 2022 and increased $12 million during the nine months ended September 30, 2022 when compared to the same periods in 2021. During the three and nine months ended September 30, 2022, we recorded net combined losses of $15 million and gains of $6 million on our trading securities, fair value option instruments, and economic derivatives compared to net losses of $5 million and $20 million for the same periods in 2021. These changes in fair value were primarily driven by market volatility and the impact it had on interest rates, as well as credit spreads on our fixed rate trading securities. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities” for additional discussion on our economic derivatives. The increase during the nine months ended September 30, 2022 was offset in part by a decline in other, net driven primarily by a decrease in the market value of our Benefit Equalization defined benefit plan assets.

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Hedging Activities

We use derivatives to manage interest rate risk. Accounting rules affect the timing and recognition of income and expense on derivatives and therefore we may be subject to income statement volatility. If a hedging activity qualifies for hedge accounting treatment (fair value hedge), the net interest settlements of interest receivables or payables related to the derivative are recognized as interest income or expense in the relevant income statement caption consistent with the hedged asset or liability. The net fair value gains and losses of derivatives and hedged items designated in fair value hedge relationships are also recognized as interest income or expense. Amortization of basis adjustments from terminated hedges is also recorded in interest income or expense.

If a hedging activity does not qualify for hedge accounting treatment (economic hedge), the net interest settlements of interest receivables or payables related to the derivative as well as the fair value gains and losses on the derivative are recorded as a component of other income (loss) in “Net gains (losses) on derivatives;” however, there is no fair value adjustment for the corresponding asset or liability being hedged unless changes in the fair value of the asset or liability are normally marked to fair value through earnings (i.e., trading securities and fair value option instruments).

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):

	For the Three Months Ended September 30, 2022
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Discount Notes		Bonds		Other		Total
Net interest income:
Net amortization/accretion1	$	7	$	7	$	—	$	—	$	(1)	$	—	$	13
Net gains (losses) on derivatives and hedged items	(2)		8		—		—		(1)		—		5
Net interest settlements on derivatives2	33		3		—		—		(6)		—		30
Total impact to net interest income	38		18		—		—		(8)		—		48
Other income (loss):
Net gains (losses) on derivatives3	—		54		(1)		(69)		1		—		(15)
Net gains (losses) on trading securities4	—		(47)		—		—		—		—		(47)
Net gains (losses) on financial instruments held under fair value option4	—		—		—		50		—		—		50
Price alignment amount on derivatives5	—		—		—		—		—		(3)		(3)
Total impact to other income (loss)	—		7		(1)		(19)		1		(3)		(15)
Total net effect of hedging activities6	$	38	$	25	$	(1)	$	(19)	$	(7)	$	(3)	$	33

1    Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2    Represents the interest component on derivatives that qualify for fair value hedge accounting.

3    Represents net gains (losses) on economic derivatives and the related interest settlements.

4    Represents the net gains (losses) on those trading securities and fair value option instruments for which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value.

5    Includes the price alignment amount on derivatives for which variation margin is characterized as a daily settled contract.

6    The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

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The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):

	For the Three Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(4)	$	(4)	$	(1)	$	(2)	$	(11)
Net gains (losses) on derivatives and hedged items	1		3		—		(1)		3
Net interest settlements on derivatives2	(47)		(33)		—		33		(47)
Total impact to net interest income	(50)		(34)		(1)		30		(55)
Other income (loss):
Net gains (losses) on derivatives3	—		1		—		—		1
Net gains (losses) on trading securities4	—		(6)		—		—		(6)
Total impact to other income (loss)	—		(5)		—		—		(5)
Total net effect of hedging activities5	$	(50)	$	(39)	$	(1)	$	30	$	(60)

1    Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2    Represents the interest component on derivatives that qualify for fair value hedge accounting.

3    Represents net gains (losses) on economic derivatives and the related interest settlements.

4    Represents the net gains (losses) on those trading securities for which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value.

5    The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):

	For the Nine Months Ended September 30, 2022
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Discount Notes		Bonds		Other		Total
Net interest income:
Net amortization/accretion1	$	13	$	11	$	(1)	$	—	$	(3)	$	—	$	20
Net gains (losses) on derivatives and hedged items	(2)		23		—		—		(5)		—		16
Net interest settlements on derivatives2	(24)		(45)		—		—		11		—		(58)
Total impact to net interest income	(13)		(11)		(1)		—		3		—		(22)
Other income (loss):
Net gains (losses) on derivatives3	—		107		(1)		(134)		—		—		(28)
Net gains (losses) on trading securities4	—		(111)		—		—		—		—		(111)
Net gains (losses) on financial  instruments held under fair value option4	—		—		—		149		—		—		149
Price alignment amount on derivatives5	—		—		—		—		—		(4)		(4)
Total impact to other income (loss)	—		(4)		(1)		15		—		(4)		6
Total net effect of hedging activities6	$	(13)	$	(15)	$	(2)	$	15	$	3	$	(4)	$	(16)

1    Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2    Represents the interest component on derivatives that qualify for fair value hedge accounting.

3    Represents net gains (losses) on economic derivatives and the related interest settlements.

4    Represents the net gains (losses) on those trading securities and fair value option instruments for which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value.

5    Includes the price alignment amount on derivatives for which variation margin is characterized as a daily settled contract.

6    The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

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The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):

	For the Nine Months Ended September 30, 2021
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Bonds		Total
Net interest income:
Net amortization/accretion1	$	(22)	$	(14)	$	(3)	$	(4)	$	(43)
Net gains (losses) on derivatives and hedged items	3		13		—		(3)		13
Net interest settlements on derivatives2	(142)		(98)		—		109		(131)
Total impact to net interest income	(161)		(99)		(3)		102		(161)
Other income (loss):
Net gains (losses) on derivatives3	—		10		—		—		10
Net gains (losses) on trading securities4	—		(30)		—		—		(30)
Total impact to other income (loss)	—		(20)		—		—		(20)
Total net effect of hedging activities5	$	(161)	$	(119)	$	(3)	$	102	$	(181)

1    Represents the amortization/accretion of basis adjustments on closed hedge relationships.

2    Represents the interest component on derivatives that qualify for fair value hedge accounting.

3    Represents net gains (losses) on economic derivatives and the related interest settlements.

4    Represents the net gains (losses) on those trading securities for which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value.

5    The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

NET AMORTIZATION/ACCRETION

Amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships. During the three and nine months ended September 30, 2022, our change in amortization activity when compared to the same periods last year was driven primarily by the prepayment of advances and investments that were previously in a hedge relationship, as well as the termination of certain advance fair value hedge relationships.

NET GAINS (LOSSES) ON DERIVATIVES AND HEDGED ITEMS

The net gains and losses on derivatives and hedged items designated in fair value hedge relationships are recorded in net interest income. During the three and nine months ended September 30, 2022, we recorded net gains of $5 million and $16 million on our fair value hedge relationships compared to net gains of $3 million and $13 million in the same periods last year, which primarily stemmed from market volatility and the impact it had on interest rates.

NET INTEREST SETTLEMENTS ON DERIVATIVES

Net interest settlements represent the interest component on derivatives that qualify for fair value hedge accounting. These amounts vary from period to period depending on our hedging activities and interest rates and are partially offset by the interest component on the related hedged item within net interest income. The hedging activity tables do not include the impact of the interest component on the related hedged item.

NET GAINS (LOSSES) ON DERIVATIVES

We utilize economic derivatives to manage certain risks on our Statements of Condition. Gains and losses on economic derivatives include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. During the three and nine months ended September 30, 2022, we recorded net losses of $18 million and $32 million on our economic derivatives, compared to net gains of $1 million and $10 million during the same periods last year. The changes were primarily driven by changes in the fair value of interest rate swaps used to economically hedge our discount notes held under fair value option and investment securities portfolio. These fair value changes were primarily driven by market volatility and the impact it had on interest rates.

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Other Expense

The following table shows the components of other expense (dollars in millions):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Compensation and benefits	$	17	$	18	$	53	$	57
Contractual services	5		5		15		14
Professional fees	5		3		11		10
Other operating expenses	5		5		14		15
Total operating expenses	32		31		93		96
Federal Housing Finance Agency	2		2		7		6
Office of Finance	1		2		5		6
Other, net	4		2		10		5
Total other expense	$	39	$	37	$	115	$	113

Other expense remained relatively stable during the three and nine months ended September 30, 2022 when compared to the same periods last year.

STATEMENTS OF CONDITION

Financial Highlights

    Our total assets increased to $133.2 billion at September 30, 2022 from $85.9 billion at December 31, 2021. Our total liabilities increased to $125.6 billion at September 30, 2022 from $80.0 billion at December 31, 2021. Total capital increased to $7.5 billion at September 30, 2022 from $5.8 billion at December 31, 2021. See further discussion of changes in our financial condition in the appropriate sections that follow.

Cash and Due from Banks

At September 30, 2022, our total cash balance was $58 million compared to $295 million at December 31, 2021, a decrease of $237 million. Our cash balance is influenced by our liquidity needs, member advance activity, market conditions, and the availability of attractive investment opportunities.

Advances

The following table summarizes our advances by type of institution (dollars in millions):

	September 30, 2022		December 31, 2021
Commercial banks	$	39,600	$	9,095
Savings institutions	1,222		671
Credit unions	10,945		4,054
Insurance companies	31,505		29,681
CDFIs	12		16
Total member advances	83,284		43,517
Housing associates	79		515
Non-member borrowers	71		107
Total par value	$	83,434	$	44,139

Our total advance par value increased $39.3 billion or 89 percent at September 30, 2022 when compared to December 31, 2021, primarily due to an increase in borrowings by large depository institution members, with the most significant increase of $17.0 billion from Wells Fargo Bank, N.A. In October, we continued to see further advance borrowings from our large depository institution members as their liquidity needs shifted, likely due to declining deposit balances, continued loan growth, and the effects of higher interest rates.

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The following table summarizes our advances by interest rate payment terms (dollars in millions):

	September 30, 2022			December 31, 2021
	Amount		% of Total	Amount		% of Total
Fixed rate	$	48,817	58	$	27,053	61
Fixed rate, putable	191		—	1,139		2
Variable rate	9,010		11	1,212		3
Variable rate, callable1	24,139		29	13,319		30
Other2	1,277		2	1,416		4
Total advance par value	83,434		100	44,139		100
Premiums	11			14
Discounts	—			(2)
Fair value hedging adjustments	(1,249)			(40)
Total	$	82,196		$	44,111

1    Callable advances are those advances that may be contractually prepaid by the borrower on predetermined dates without incurring prepayment or termination fees. Interest rates    on our variable rate callable advances reset at each call date to be consistent with either the underlying index or our current offering rate in line with our underlying cost of funds.

2    Includes fixed rate amortizing and fixed rate callable advances.

Fair value hedging adjustments changed $1.2 billion at September 30, 2022 when compared to December 31, 2021 due primarily to the impact of interest rates on our cumulative fair value adjustments on advances in active hedge relationships, coupled with the recognition of closed basis adjustments on terminated advance hedge relationships.

At September 30, 2022 and December 31, 2021, advances outstanding to our five largest member borrowers totaled $32.3 billion and $17.0 billion, which represented 39 percent of our total advances outstanding at each period end. The following table summarizes advances outstanding to our five largest member borrowers at September 30, 2022 (dollars in millions):

	Amount		% of Total Advances
Wells Fargo Bank, N.A.	$	17,000	21
Principal Life Insurance Company	4,250		5
EquiTrust Life Insurance Company	4,150		5
Zions Bancorporation, National Association	3,500		4
Athene Annuity and Life Company1	3,406		4
Total par value	$	32,306	39

1    Excludes $0.3 billion of advances with Athene Annuity & Life Assurance Company, an affiliate of Athene Annuity and Life Company.    

We evaluate advances for credit losses on a quarterly basis and have never experienced a credit loss on our advances. For additional discussion on our advance credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”

Mortgage Loans

    The following table summarizes information on our mortgage loans held for portfolio (dollars in millions):

	September 30, 2022		December 31, 2021
Fixed rate conventional loans	$	7,777	$	7,063
Fixed rate government-insured loans	391		416
Total unpaid principal balance	8,168		7,479
Premiums	97		96
Discounts	(10)		(2)
Basis adjustments from mortgage loan purchase commitments	(8)		6
Total mortgage loans held for portfolio	8,247		7,579
Allowance for credit losses	(4)		(1)
Total mortgage loans held for portfolio, net	$	8,243	$	7,578

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Our total mortgage loans increased $0.7 billion or nine percent at September 30, 2022 when compared to December 31, 2021. The increase was primarily due to new loan purchases exceeding principal paydowns, driven in part by a decrease in prepayment activity resulting from an increase in mortgage rates.

We evaluate mortgage loans for credit losses on a quarterly basis. For additional discussion on our mortgage loan credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Mortgage Assets.”

Investments

The following table summarizes the carrying value of our investments (dollars in millions):

	September 30, 2022			December 31, 2021
	Amount		% of Total	Amount		% of Total
Short-term investments1
Interest-bearing deposits	$	1,126	3	$	416	1
Securities purchased under agreements to resell	10,940		27	12,450		37
Federal funds sold	10,268		25	4,690		14
Total short-term investments	22,334		55	17,556		52
Long-term investments2
MBS
GSE single-family	811		2	1,037		3
GSE multifamily	9,058		22	7,598		23
U.S. obligations single-family3	3,336		8	2,911		9
Private-label residential	4		—	5		—
Total MBS	13,209		32	11,551		35
Non-MBS
U.S. Treasury obligations3	2,483		6	496		1
Other U.S. obligations3	924		3	1,258		4
GSE and TVA obligations	895		2	1,417		4
State or local housing agency obligations	503		1	675		2
Other4	405		1	489		2
Total non-MBS	5,210		13	4,335		13
Total long-term investments	18,419		45	15,886		48
Total investments	$	40,753	100	$	33,442	100

1    Short-term investments have original maturities equal to or less than one year.

2    Long-term investments have original maturities of greater than one year.

3    Represents investment securities backed by the full faith and credit of the U.S. Government.

4    Consists primarily of taxable municipal bonds.

Our investments increased $7.3 billion or 22 percent at September 30, 2022 when compared to December 31, 2021 due primarily to an increase in money market investments and the purchase of U.S. Treasury obligations and agency MBS. At September 30, 2022 and December 31, 2021, we had GSE MBS purchases with a total par value of $1.1 billion and $289 million that were traded but not yet settled. These investments were recorded as “available-for-sale” on our Statements of Condition with a corresponding payable recorded in “other liabilities.”

The Finance Agency limits our investments in MBS by requiring that the balance of our MBS not exceed three times regulatory capital at the time of purchase. Our ratio of MBS to regulatory capital was 1.83 and 1.99 at September 30, 2022 and December 31, 2021.

We evaluate investments for credit losses on a quarterly basis. For additional discussion on our investment credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Investments.”

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Consolidated Obligations

    Consolidated obligations, which include bonds and discount notes, are the primary source of funds to support our advances, mortgage loans, and investments. At September 30, 2022 and December 31, 2021, the carrying value of consolidated obligations for which we are primarily liable totaled $122.9 billion and $77.6 billion.

DISCOUNT NOTES

The following table summarizes our discount notes, all of which are due within one year (dollars in millions):

	September 30, 2022		December 31, 2021
Par value	$	64,761	$	22,355
Discounts and concession fees1	(445)		(6)
Fair value option valuation adjustments	(150)		(1)
Total	$	64,166	$	22,348

1    Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation discount notes.

Our discount notes increased $41.8 billion or 187 percent at September 30, 2022 when compared to December 31, 2021. During the nine months ended September 30, 2022, we increased our utilization of discount notes to fund our assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.

BONDS

The following table summarizes information on our bonds (dollars in millions):

	September 30, 2022		December 31, 2021
Par value	$	58,935	$	55,079
Premiums	97		138
Discounts and concession fees1	(20)		(17)
Fair value hedging adjustments	(304)		5
Total	$	58,708	$	55,205

1    Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation bonds.

Our bonds increased $3.5 billion or six percent at September 30, 2022 when compared to December 31, 2021. During the nine months ended September 30, 2022, we primarily utilized short-term bonds in an effort to capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements. Fair value hedging adjustments changed $309 million at September 30, 2022 when compared to December 31, 2021 due primarily to the impact of interest rates on our cumulative fair value adjustments on bonds in active hedge relationships.

For additional information on our consolidated obligations, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

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Capital

The following table summarizes information on our capital (dollars in millions):

	September 30, 2022		December 31, 2021
Capital stock	$	5,086	$	3,364
Retained earnings	2,538		2,390
Accumulated other comprehensive income (loss)	(92)		84
Total capital	$	7,532	$	5,838

Our capital increased at September 30, 2022 when compared to December 31, 2021, primarily due to an increase in activity-based capital stock resulting from an increase in advance balances. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital” for additional information on our capital.

Derivatives

    We use derivatives to manage interest rate risk. The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor our overall exposure to credit and market risk.

The following table categorizes the notional amount of our derivatives by type (dollars in millions):

	September 30, 2022		December 31, 2021
Interest rate swaps
Non-callable	$	74,023	$	77,770
Callable by counterparty	6,204		3,396
Total interest rate swaps	80,227		81,166
Forward settlement agreements	137		115
Mortgage loan purchase commitments	132		115
Total notional amount	$	80,496	$	81,396

The notional amount of our derivative contracts decreased $0.9 billion or one percent at September 30, 2022 when compared to December 31, 2021. This was primarily due to a decrease in non-callable swaps resulting from the maturity of fixed rate bonds. This decrease was partially offset by our increased utilization of non-callable swaps to hedge our discount notes in an effort to manage our interest rate risk and capture attractive funding opportunities. In addition, we began utilizing callable swaps to hedge our callable bonds during the second quarter of 2022. For additional discussion regarding our use of derivatives, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Derivatives.”

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LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital positions are actively managed in an effort to preserve stable, reliable, and cost-effective sources of funds to meet current and projected future operating financial commitments, as well as regulatory, liquidity, and capital requirements.

Liquidity

SOURCES OF LIQUIDITY

We utilize several sources of liquidity to carry out our business activities. These include, but are not limited to, proceeds from the issuance of consolidated obligations, payments collected on advances and mortgage loans, proceeds from investment securities, member deposits, proceeds from the issuance of capital stock, and current period earnings.

Our primary source of liquidity is proceeds from the issuance of consolidated obligations (bonds and discount notes) in the capital markets. During the nine months ended September 30, 2022, proceeds from the issuance of bonds and discount notes were $44.7 billion and $643.5 billion compared to $52.1 billion and $209.6 billion for the same period in 2021. During the nine months ended September 30, 2022, we continued to utilize discount notes and shorter-term consolidated obligation bonds to fund our assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.

Access to debt markets has been reliable because investors, driven by increased liquidity preference and our GSE status, have sought the FHLBanks’ debt as an asset of choice. However, due to the short-term maturity of the debt, we may be exposed to additional risks associated with refinancing and our ability to access the capital markets.

We are focused on maintaining an adequate liquidity balance and a funding balance between our financial assets and financial liabilities and work collectively with the other FHLBanks to manage the system-wide liquidity and funding needs. We monitor our debt refinancing risk and liquidity position primarily by tracking the maturities of financial assets and financial liabilities. In managing and monitoring the amounts of assets that require refunding, we consider contractual maturities of our financial assets and liabilities, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments). 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. Refer to “Item 1. Financial Statements” for additional information regarding the contractual maturities of certain of our financial assets and liabilities.

Our ability to raise funds in the capital markets as well as our cost of borrowing may be affected by our credit ratings. As of October 31, 2022, our consolidated obligations were rated AA+/A-1+ by S&P Global Ratings (S&P) and Aaa/P-1 by Moody’s and both ratings had a stable outlook. For further discussion of how credit rating changes and our ability to access the capital markets may impact us in the future, refer to “Item 1A. Risk Factors” in our 2021 Form 10-K.

Although we are primarily liable for the portion of consolidated obligations issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations issued by the FHLBank System. At September 30, 2022 and December 31, 2021, the total par value of outstanding consolidated obligations for which we are primarily liable was $123.7 billion and $77.4 billion. At September 30, 2022 and December 31, 2021, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which we are jointly and severally liable was $908.2 billion and $575.5 billion.

The Office of Finance and FHLBanks have contingency plans in place that prioritize the allocation of proceeds from the issuance of consolidated obligations during periods of financial distress if consolidated obligations cannot be issued in sufficient amounts to satisfy all FHLBank demand. In the event of significant market disruptions or local disasters, our President or designee is authorized to establish interim borrowing relationships with other FHLBanks. To provide further access to funding, the FHLBank Act also authorizes the U.S. Treasury to directly purchase new issue consolidated obligations of the GSEs, including FHLBanks, up to an aggregate principal amount of $4.0 billion. As of October 31, 2022, no purchases had been made by the U.S. Treasury under this authorization.

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USES OF LIQUIDITY

    We use our available liquidity, including proceeds from the issuance of consolidated obligations, primarily to repay consolidated obligations, fund advances, and purchase investments. During the nine months ended September 30, 2022, repayments of consolidated obligations totaled $642.6 billion compared to $267.8 billion for the same period in 2021.

During the nine months ended September 30, 2022, advance disbursements totaled $244.1 billion compared to $97.2 billion for the same period in 2021. Advance disbursements will vary from period to period depending on member needs. During the nine months ended September 30, 2022, investment purchases (excluding overnight investments) totaled $6.3 billion compared to $8.8 billion for the same period in 2021. During the nine months ended September 30, 2022, we purchased money market investments and U.S. Treasury securities in an effort to manage our liquidity position, and also purchased agency MBS.

We also use liquidity to purchase mortgage loans, redeem member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, pay expenses, and pay dividends.

LIQUIDITY REQUIREMENTS

We are subject to certain liquidity requirements set forth by the Finance Agency and maintain a liquidity contingency funding plan designed to enable us to meet our obligations and the liquidity needs of our members in the event of short-term capital market disruptions, or operational disruptions at our Bank and/or the Office of Finance. For additional details on these liquidity requirements, refer to our 2021 Form 10-K. Our primary liquidity requirement is discussed further below.

Finance Agency Advisory Bulletin on FHLBank Liquidity (the Liquidity Guidance AB) – This guidance requires us to maintain sufficient liquidity for a period of 10 to 30 calendar days. The base case scenario requires 20 days of positive daily cash balances and assumes that we cannot access the capital markets to issue debt, and during that time we will automatically renew maturing and called advances for all members, including large, highly-rated members, and we hold additional liquid assets equal to one percent of our letters of credit balances. At September 30, 2022 and December 31, 2021, we were in compliance with this base case liquidity guidance.

The Liquidity Guidance AB also specifies appropriate funding gap limits to address the risks associated with an FHLBank having too large a mismatch between the contractual maturities of its assets and liabilities. A funding gap measures the difference between assets and liabilities that are scheduled to mature during a specified period and is expressed as a percentage of total assets. The guidance provides funding gap limits within the range of negative 10 percent to negative 20 percent for a three-month horizon and negative 25 percent to negative 35 percent for a one-year horizon. At September 30, 2022 and December 31, 2021, we adhered to these funding gap requirements.

Capital

CAPITAL REQUIREMENTS

    We are subject to certain regulatory capital requirements. First, the FHLBank Act requires that we maintain at all times permanent capital greater than or equal to the sum of our credit, market, and operational risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock (including MRCS) and retained earnings, can satisfy this risk-based capital requirement. Second, the FHLBank Act requires a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B capital stock (including MRCS) and retained earnings. Third, the FHLBank Act imposes a five percent minimum leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. At September 30, 2022 and December 31, 2021, we did not hold any nonpermanent capital. At September 30, 2022 and December 31, 2021, we were in compliance with all three of the Finance Agency’s regulatory capital requirements.

    In addition to the requirements previously discussed, the Finance Agency Advisory Bulletin on capital stock (the Capital Stock AB) requires each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets. For purposes of the Capital Stock AB, capital stock includes MRCS. The capital stock to total assets ratio is measured on a daily average basis at month end. At September 30, 2022 and December 31, 2021, we were in compliance with the Capital Stock AB.

Refer to “Item 1. Financial Statements — Note 8 — Capital” for additional information on our regulatory capital requirements.

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CAPITAL STOCK

Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. We issue a single class of capital stock (Class B capital stock) and have two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding and 0.10 percent of its standby letters of credit. All capital stock issued is subject to a notice of redemption period of five years.

The capital stock requirements established in our Capital Plan are designed so that we can remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan.

The following table summarizes our regulatory capital stock by type of member (dollars in millions):

	September 30, 2022		December 31, 2021
Commercial banks	$	2,588	$	1,305
Savings institutions	108		86
Credit unions	842		519
Insurance companies	1,547		1,453
CDFIs	1		1
Total GAAP capital stock	5,086		3,364
Mandatorily redeemable capital stock	15		29
Total regulatory capital stock	$	5,101	$	3,393

The increase in regulatory capital stock held at September 30, 2022 when compared to December 31, 2021 was primarily due to an increase in activity-based capital stock resulting from an increase in advance balances. For additional information on our capital stock, refer to “Item 1. Financial Statements — Note 8 — Capital.”

Retained Earnings

Our risk management policies require a minimum level of retained earnings based on the amount we believe necessary to help protect the redemption value of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend. We monitor our achievement of this minimum level and may utilize tools such as restructuring our balance sheet, generating additional income, reducing our risk exposures, increasing capital stock requirements, or reducing our dividends to achieve this level of retained earnings. At September 30, 2022 and December 31, 2021, our actual retained earnings exceeded our required minimum level of retained earnings.

We entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other Federal Home Loan Banks in 2011. Under the JCE Agreement, we are required to allocate 20 percent of our quarterly net income to a separate restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar quarter, equals at least one percent of our average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends and are presented separately on our Statements of Condition. At September 30, 2022 and December 31, 2021, our restricted retained earnings balance totaled $674 million and $617 million. One percent of our average balance of outstanding consolidated obligations for the three months ended September 30, 2022 was $1.0 billion.

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Dividends

Our current dividend philosophy is to pay a membership capital stock dividend equal to or greater than a reference rate of interest, such as SOFR, and an activity-based capital stock dividend, when possible, at a level above the membership capital stock dividend. Our dividend rates seek to strike a balance between providing reasonable and consistent returns to members while preserving our financial position, flexibility, and ability to serve as a long-term liquidity provider. Our actual dividend is determined quarterly by our Board of Directors, based on policies, regulatory requirements, actual performance, and other considerations that the Board determines to be appropriate.

The following table summarizes dividend-related information (dollars in millions):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Aggregate cash dividends paid1	$	51		$	43		$	136		$	124
Effective combined annualized dividend rate paid on capital stock2	5.34		%	4.88		%	5.07		%	4.81		%
Annualized dividend rate paid on membership capital stock	3.00		%	3.00		%	3.00		%	3.00		%
Annualized dividend rate paid on activity-based capital stock	6.75		%	6.00		%	6.34		%	5.84		%
Average SOFR	2.15		%	0.05		%	0.99		%	0.04		%

1    Includes aggregate cash dividends paid during the period. Amount excludes cash dividends paid on MRCS. For financial reporting purposes, these dividends were recorded as interest expense on our Statements of Income.

2    Effective combined annualized dividend rate is paid on total capital stock, including MRCS.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our critical accounting policies and estimates, refer to our 2021 Form 10-K. There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2022.

For a discussion of recently adopted or issued accounting standards, refer to “Item 1. Financial Statements — Note 2 — Recently Adopted and Issued Accounting Guidance.”

LEGISLATIVE AND REGULATORY DEVELOPMENTS

There have been no material legislative or regulatory developments during the three months ended September 30, 2022.

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RISK MANAGEMENT

We have risk management policies, established by our Board of Directors, that allow us to monitor and control our exposure to interest rate, liquidity, credit, operational, model, information security, legal, regulatory and compliance, diversity, equity, and inclusion (DEI), strategic, and reputational risks, as well as capital adequacy. Our primary risk management objective is to manage our assets and liabilities in ways that ensure liquidity is available to our members and protect the par redemption value of our capital stock. We periodically evaluate our risk management policies in order to respond to changes in our financial position and general market conditions. The following sections outline our interest rate, credit, and information security risks. For additional details on all other risks noted above, please refer to our 2021 Form 10-K.

Interest Rate Risk

We define interest rate risk as the risk that changes in interest rates or spreads will adversely affect our financial condition (market value) and performance (income). Interest rate risk is the principal type of risk to which we are exposed, as our cash flows, and therefore earnings and equity value, can change significantly as interest rates change. Our general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets, liabilities, and derivatives which, taken together, limit our expected exposure to interest rate risk. Our key interest rate risk measures are Market Value of Equity (MVE) and Projected 24-Month Income. Management regularly monitors these key measures, as discussed further in the sections below.

MARKET VALUE OF EQUITY

MVE measures the net present value of the Bank by either marking positions to market or discounting all future cash flows using market discount rates. MVE is measured as the market value of our assets minus the market value of our liabilities (excluding MRCS). MVE is an estimate of the Bank’s value and takes into account short-term market price fluctuations.

We monitor and manage to MVE policy limits in an effort to ensure the stability of the Bank’s value. Our policy limits are based on declines from the base case in parallel and non-parallel interest rate change scenarios. Any policy limit breach must be reported to the Enterprise Risk Committee of the Bank and the Risk and Compliance Committee of the Board of Directors and be remediated in a timely manner.

Effective May 1, 2022, our MVE policy limits were revised to reflect new base case decline limits on our 100 and 200 basis point parallel and non-parallel interest rate change scenarios. Specifically, the limit on our up and down 100 basis point parallel and non-parallel interest rate change scenarios is a 4.0 percent decline from base case MVE, and the limit on our up and down 200 basis point parallel and non-parallel interest rate change scenarios is a 7.5 percent decline from base case MVE. At September 30, 2022 and December 31, 2021, our base case MVE was $7.3 billion and $6.0 billion and we were in compliance with all MVE policy limits in effect at each period end.

Market Value of Capital Stock (MVCS) represents our MVE divided by the total outstanding shares of our capital stock (including MRCS). To ensure we remain adequately capitalized, we must ensure our MVCS remains at or above our $100 par value. Our base case MVCS was $142.6 at September 30, 2022 compared to $177.5 at December 31, 2021. The decrease in our base case MVCS was primarily attributable to an increase in activity-based capital stock when compared to December 31, 2021 due to higher advance activity. As we issued this capital stock at par, which is below our current MVCS value, our MVCS was negatively impacted.

For more information on this risk measure, including policy limits previously in effect, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Interest Rate Risk — Market Value of Equity” in our 2021 Form 10-K.

PROJECTED 24-MONTH INCOME

The projected 24-month income simulation measures our short-term earnings forecast over a two-year horizon based on forward interest rates and business assumptions. The spread between our projected adjusted return on capital stock (AROCS) and average SOFR is used as the primary measure of our profitability. For additional information on our adjusted earnings measure, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — Adjusted Earnings.”

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We monitor and manage to policy limits, which are based on the spread between our projected AROCS and average SOFR in parallel and non-parallel interest rate change scenarios. Additionally, there is a limit on the decline in projected AROCS from base case AROCS for certain basis shock scenarios to limit basis risk exposure. Any policy limit breach must be reported to the Enterprise Risk Committee of the Bank and the Risk and Compliance Committee of the Board of Directors and be remediated in a timely manner.

Effective May 1, 2022, our policy limits for the up and down 100 and 200 basis point parallel interest rate change scenarios, as well as the up and down 100 basis point non-parallel interest rate change scenarios, were updated to SOFR plus 175 basis points over a 24-month horizon. We were in compliance with all projected 24-month income policy limits at September 30, 2022.

In October 2021, our Board of Directors approved an exception to all projected income policy limits effective September 30, 2021 through February 28, 2022, due primarily to the low probability of our modeled changes in mortgage rates occurring. As such, there were no projected 24-month income policy limits in effect at December 31, 2021.

For more information on this risk measure, including policy limits previously in effect, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Interest Rate Risk — Projected 24-Month Income” in our 2021 Form 10-K.

CAPITAL ADEQUACY

An adequate capital position is necessary for facilitating safe and sound business operations, protecting the redemption value of our capital stock, maintaining regulatory capital ratios, and supporting our ability to pay dividends and redeem excess capital stock. To ensure capital adequacy, we maintain a minimum level of retained earnings to accomplish business imperatives and cover unexpected losses. Our key capital adequacy measures are regulatory capital and minimum retained earnings in order to maintain capital levels in accordance with Finance Agency regulations. In addition, our risk management policies require that we maintain MVCS at or above our $100 par value.

For additional information on our compliance with regulatory capital requirements as well as our minimum retained earnings, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital.”

For additional information on MVCS, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Interest Rate Risk — Market Value of Equity.”

Credit Risk

    We define credit risk as the risk that a member or counterparty will fail to meet its financial obligations. Our primary credit risks arise from our ongoing lending, investing, and hedging activities. Our overall objective in managing credit risk is to operate a sound credit granting process and to maintain appropriate credit administration, measurement, and monitoring practices.

ADVANCES

    We manage our credit exposure to advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower’s financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

We are required by regulation to obtain sufficient collateral to fully secure our advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products). The estimated value of the collateral required to secure each borrower’s credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal or market value, as applicable, of the collateral. We also have policies and procedures for validating the reasonableness of our collateral valuations. In addition, we perform collateral verifications and on-site reviews based on the risk profile of the borrower. Management believes that these policies effectively manage our credit risk from advances.

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At September 30, 2022 and December 31, 2021, borrowers pledged $337.5 billion and $294.3 billion of collateral (net of applicable discounts) to support activity with us, including advances. At September 30, 2022 and December 31, 2021, all of our advances met the requirement to be collateralized at a minimum of 100 percent, net of applicable discounts. Borrowers pledge collateral in excess of their collateral requirement mainly to demonstrate available liquidity and to borrow additional amounts in the future.    

We evaluate advances for credit losses on a quarterly basis. We have never experienced a credit loss on our advances. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no expected credit losses on our advances as of September 30, 2022 and December 31, 2021. Refer to “Item 1. Financial Statements — Note 4 — Advances” for additional information on our collateral practices and allowance for credit losses.

MORTGAGE LOANS

Mortgage loan credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage loans is affected by a number of factors, including loan type, borrower’s credit history, and other factors such as home price fluctuations, unemployment levels, and other economic factors in the local market or nationwide.

The following table presents the unpaid principal balance of our mortgage loans by product type (dollars in millions):

Product Type	September 30, 2022		December 31, 2021
Conventional	$	7,777	$	7,063
Government	391		416
Total unpaid principal balance	$	8,168	$	7,479

We manage the credit risk on mortgage loans by (i) adhering to our underwriting standards, (ii) using agreements to establish credit risk sharing responsibilities with our PFIs, and (iii) monitoring the performance of the mortgage loan portfolio and creditworthiness of PFIs.

We evaluate mortgage loans for credit losses on a quarterly basis and establish an allowance for credit losses to reflect management’s estimate of expected credit losses inherent in the portfolio. At September 30, 2022 and December 31, 2021, we had an allowance for credit losses of $4 million and $1 million on our conventional mortgage loans. At September 30, 2022, over 99 percent of our conventional loan portfolio was performing (i.e. current payment status) and charge-offs recorded during the nine months ended September 30, 2022 were less than one percent of the total conventional portfolio.

We have never experienced a credit loss on our government-insured mortgage loans. At September 30, 2022 and December 31, 2021, we determined no allowance for credit losses was necessary on our government-insured mortgage loans.

Refer to “Item 1. Financial Statements — Note 5 — Mortgage Loans Held for Portfolio” for additional information on our allowance for credit losses and the payment status of our conventional mortgage loans.

INVESTMENTS

    We maintain an investment portfolio primarily to provide investment income and liquidity. Our primary credit risk on investments is the counterparties’ ability to meet repayment terms. We mitigate this credit risk by purchasing investment quality securities. We define investment quality as a security with adequate financial backing so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. We consider a variety of credit quality factors when analyzing potential investments, including collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, nationally recognized statistical rating organization (NRSRO) credit ratings, and/or the financial health of the underlying issuer. We limit our purchases of MBS to those guaranteed by the U.S. Government or issued by a GSE. We perform ongoing analysis on these investments to determine potential credit issues.

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Finance Agency regulations also limit the type of investments we may purchase. We are prohibited from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks, unless otherwise approved by the Finance Agency. At September 30, 2022, we were in compliance with the regulation and did not own any financial instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks, and those approved by the Finance Agency.

In addition, Finance Agency regulations include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties. These limits are based on a percentage of regulatory capital and the counterparty’s overall credit rating. At September 30, 2022, we were in compliance with the regulatory limits established for unsecured credit.

Refer to“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk” in our 2021 Form 10-K for additional information on these regulatory limits.

Our short-term portfolio may include, but is not limited to, interest-bearing deposits, federal funds sold, securities purchased under agreements to resell, certificates of deposit, commercial paper, and U.S. Treasury obligations. Our long-term portfolio may include, but is not limited to, U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, taxable municipal bonds, and agency MBS. We consider our long-term investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the Federal Deposit Insurance Corporation (FDIC) to be of the highest credit quality and therefore those exposures are not monitored with other unsecured investments. Given the credit quality of our unsecured long-term investments, our unsecured credit risk is primarily in the short-term portfolio.

We limit short-term unsecured credit exposure primarily to the following overnight investment 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.

•Commercial paper. Unsecured debt issued by corporations, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.

At September 30, 2022, our unsecured short-term investment exposure consisted of overnight interest-bearing deposits and federal funds sold. The following table presents our unsecured short-term investment exposure by counterparty credit rating and domicile (dollars in millions):

	September 30, 2022
	Credit Rating1,2
Domicile of Counterparty	AA		A		Total
Domestic	$	—	$	2,505	$	2,505
U.S subsidiaries of foreign commercial banks	—		690		690
Total domestic and U.S. subsidiaries of foreign commercial banks	—		3,195		3,195
U.S. branches and agency offices of foreign commercial banks
Australia	1,040		—		1,040
Canada	—		3,208		3,208
Finland	1,040		—		1,040
Germany	840		—		840
Netherlands	—		690		690
Sweden	—		690		690
United Kingdom	—		690		690
Total U.S. branches and agency offices of foreign commercial banks	2,920		5,278		8,198
Total unsecured short-term investment exposure	$	2,920	$	8,473	$	11,393

1    Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.

2    Table excludes investments issued or guaranteed by the U.S. Government, U.S. government agencies, government instrumentalities, GSEs, and supranational entities, and does not include related accrued interest.

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Investment Ratings

The following table summarizes the carrying value of our investments by credit rating (dollars in millions):

	September 30, 2022
	Credit Rating1
	AAA		AA		A		BBB		Unrated		Total
Interest-bearing deposits	$	—	$	1	$	1,125	$	—	$	—	$	1,126
Securities purchased under agreements to resell	—		9,400		1,040		—		500		10,940
Federal funds sold	—		2,920		7,348		—		—		10,268
Investment securities:
MBS
GSE single-family	—		811		—		—		—		811
GSE multifamily	—		9,058		—		—		—		9,058
U.S. obligations single-family2	—		3,336		—		—		—		3,336
Private-label residential	—		1		1		2		—		4
Total MBS	—		13,206		1		2		—		13,209
Non-MBS
U.S. Treasury obligations2	—		2,483		—		—		—		2,483
Other U.S. obligations2	—		924		—		—		—		924
GSE and TVA obligations	—		895		—		—		—		895
State or local housing agency obligations	472		31		—		—		—		503
Other3	361		44		—		—		—		405
Total non-MBS	833		4,377		—		—		—		5,210
Total investments	$	833	$	29,904	$	9,514	$	2	$	500	$	40,753

1    Represents either the lowest credit rating available for each investment based on an NRSRO, or the guarantor credit rating, if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.

2    Represents investment securities backed by the full faith and credit of the U.S. Government.

3    Consists primarily of taxable municipal bonds.

We evaluate investments for credit losses on a quarterly basis. At September 30, 2022 and December 31, 2021, we determined no allowance for credit losses was necessary on our investments. Refer to “Item 1. Financial Statements — Note 3 — Investments” for additional information on our allowance for credit losses.

DERIVATIVES

    We execute most of our derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty, referred to as uncleared derivatives, or cleared through a clearing agent with a Clearinghouse, referred to as cleared derivatives.

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in our policies and Finance Agency regulations.

The contractual or notional amount of derivatives reflects our involvement in the various classes of financial instruments. Our maximum credit risk is the estimated cost of replacing derivatives if there is a default, minus the value of any related collateral. In determining maximum credit risk, we consider accrued interest receivables and payables as well as our ability to net settle positive and negative positions with the same counterparty and/or clearing agent when netting requirements are met.

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The following table shows our derivative counterparty credit exposure (dollars in millions):

	September 30, 2022
Credit Rating1	Notional Amount		Net Derivatives Fair Value Before Collateral		Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure  to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives
AA	$	173	$	38	$	(37)	$	1
A	5,506		92		(88)		4
Cleared derivatives2	53,477		40		439		479
Liability positions with credit exposure
Uncleared derivatives
A	584		(10)		11		1
Cleared derivatives2	17,732		(2)		39		37
Total derivative positions with credit exposure to non-member counterparties	77,472		158		364		522
Member institutions3,4	7		—		—		—
Total	77,479		$	158	$	364	$	522
Derivative positions without credit exposure	3,017
Total notional	$	80,496

1    Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable.

2    Represents derivative transactions cleared with CME Clearing and London Clearing House (LCH) Ltd., our Clearinghouses. CME Clearing is not rated, but its parent, CME Group Inc. was rated Aa3 by Moody’s and AA- by S&P at September 30, 2022. LCH Ltd. was rated AA- by S&P at September 30, 2022.

3    Net credit exposure is less than $1 million.

4    Represents mortgage loan purchase commitments with our member institutions.

Refer to “Item 1. Financial Statements — Note 6 — Derivatives and Hedging Activities” for additional information on our derivatives and hedging activities.

Information Security Risk

We define information security risk as the risk arising from unauthorized access, use, disclosure, disruption, modification, or destruction of information or information systems. Importantly, this definition includes the confidentiality, integrity, and availability of both digital and non-digital information managed within information systems and processes.

Information security risk includes the risk that cyber incidents could result in a failure or interruption of our business operations. We have not experienced any such disruption with a material adverse impact. However, we do rely heavily on internal and third-party information systems and other technology to conduct and manage our business and any disruptions to those items could have a material adverse impact on our business operations.

In an effort to mitigate cybersecurity risk, we utilize a widely adopted industry framework to guide and benchmark the activities of our information security program in alignment with our risk appetite statement. Administrative, physical, and logical controls are in place for identifying, monitoring, and controlling system access, sensitive data, and system changes. An independent assessment of our environment relating to the framework guidance is performed periodically and presented to our Board of Directors. To further mitigate our risk, we also maintain cyber insurance coverage in an effort to reduce financial losses stemming from a security incident.

Our Board of Directors is responsible for the oversight of our information security program, establishing our information security risk appetite, and approving our information security policy. The Technology Committee of our Board delegates or directly approves Bank-wide governing policies, standards, guidelines, and procedures for IT and information security, and the Risk and Compliance Committee of our Board has oversight responsibility for information security risk. Our Chief Information Officer establishes our strategic direction and provides executive support for our information security program, and the Director of Information Security is responsible for our information security program.

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In addition, we employ an information security training program that includes security training lessons and phishing exercises for all employees, mandatory staff training on cyber risks, and security testing that includes regular third-party facilitated penetration testing. Our Board of Directors is also required to complete cybersecurity training and participate in a cloud computing education session annually.

Given the importance of cybersecurity and ever-increasing sophistication of potential cyber-attacks, we will continue to invest in and strengthen our cyber-defenses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Interest Rate Risk” and the sections referenced therein for quantitative and qualitative disclosures about market risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our President and chief executive officer (CEO), and chief financial officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

Management, with the participation of our President and CEO, and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this report. Based on that evaluation, our President and CEO, and CFO have concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to “Item 1. Financial Statements — Note 10 — Commitments and Contingencies” for information regarding legal proceedings.

ITEM 1A. RISK FACTORS

For a discussion of our risk factors, refer to our 2021 Form 10-K. There have been no material changes to our risk factors during the nine months ended September 30, 2022.

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.

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ITEM 6. EXHIBITS

3.1	Organization Certificate of the Federal Home Loan Bank of Des Moines, as amended and restated effective May 31, 20151
3.2	Bylaws of the Federal Home Loan Bank of Des Moines, as amended and restated effective December 8, 20212
4.1	Federal Home Loan Bank of Des Moines Capital Plan, as amended and approved by the Federal Housing Finance Agency on May 31, 20153
31.1	Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

1    Incorporated by reference from our Form 8-K filed with the SEC on June 1, 2015 (Commission File No. 000-51999).

2    Incorporated by reference from our Form 8-K filed with the SEC on December 14, 2021 (Commission File No. 000-51999).

3    Incorporated by reference from our Form 10-Q filed with the SEC on August 10, 2022 (Commission File No. 000-51999).

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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 DES MOINES
(Registrant)
Date:	November 10, 2022
By:	/s/ Kristina K. Williams
	Kristina K. Williams President and Chief Executive Officer
By:	/s/ Joelyn R. Jensen-Marren
	Joelyn R. Jensen-Marren Chief Financial Officer (Principal Financial and Accounting Officer)

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