Federal Home Loan Bank of Des Moines 10-Q 2023 Q2 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 June 30, 2023

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 July 31, 2023
Class B Stock, par value $100	66,727,818

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	10
	Note 3 - Investments	10
	Note 4 - Advances	15
	Note 5 - Mortgage Loans Held for Portfolio	17
	Note 6 - Derivatives and Hedging Activities	19
	Note 7 - Consolidated Obligations	23
	Note 8 - Capital	25
	Note 9 - Fair Value	27
	Note 10 - Commitments and Contingencies	33
	Note 11 - Activities with Stockholders	34
	Note 12 - Activities with Other FHLBanks	35
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	64
Part II - Other Information
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
Signatures		67

Table of Contents

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)

	June 30, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	52	$	89
Interest-bearing deposits (Note 3)	2,841		2,031
Securities purchased under agreements to resell (Note 3)	17,950		12,590
Federal funds sold (Note 3)	12,145		9,415
Investment securities (Note 3)
Trading securities	1,562		2,817
Available-for-sale securities (amortized cost of $20,199 and $15,677)	20,095		15,563
Held-to-maturity securities (fair value of $899 and $959)	905		965
Total investment securities	22,562		19,345
Advances (Note 4)	114,057		111,202
Mortgage loans held for portfolio, net of allowance for credit losses of $6 and $5 (Note 5)	8,909		8,348
Accrued interest receivable	430		389
Derivative assets, net (Note 6)	1,111		643
Other assets, net	124		117
TOTAL ASSETS	$	180,181	$	164,169
LIABILITIES
Deposits
Interest-bearing	$	976	$	1,006
Non-interest-bearing	87		70
Total deposits	1,063		1,076
Consolidated obligations (Note 7)
Discount notes (includes $30,641 and $44,531 at fair value held under fair value option)	50,443		69,170
Bonds	116,810		84,337
Total consolidated obligations	167,253		153,507
Borrowings from other FHLBanks	200		—
Mandatorily redeemable capital stock (Note 8)	13		15
Accrued interest payable	927		436
Affordable Housing Program payable	160		135
Derivative liabilities, net (Note 6)	9		4
Other liabilities	1,360		245
TOTAL LIABILITIES	170,985		155,418
Commitments and contingencies (Note 10)
CAPITAL (Note 8)
Capital stock - Class B putable ($100 par value); 64 and 63 issued and outstanding shares	6,449		6,250
Retained earnings
Unrestricted	2,063		1,915
Restricted	791		703
Total retained earnings	2,854		2,618
Accumulated other comprehensive income (loss)	(107)		(117)
TOTAL CAPITAL	9,196		8,751
TOTAL LIABILITIES AND CAPITAL	$	180,181	$	164,169

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

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF INCOME

(dollars in millions)

(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
INTEREST INCOME
Advances	$	1,608	$	184	$	3,002	$	295
Interest-bearing deposits	50		2		89		3
Securities purchased under agreements to resell	169		8		262		9
Federal funds sold	225		23		396		26
Trading securities	8		9		17		16
Available-for-sale securities	294		55		518		85
Held-to-maturity securities	11		8		22		14
Mortgage loans held for portfolio	74		56		143		109
Loans to other FHLBanks	1		—		1		—
Total interest income	2,440		345		4,450		557
INTEREST EXPENSE
Consolidated obligations - Discount notes	727		94		1,462		108
Consolidated obligations - Bonds	1,364		124		2,347		223
Deposits	11		1		21		1
Mandatorily redeemable capital stock	1		1		1		1
Total interest expense	2,103		220		3,831		333
NET INTEREST INCOME	337		125		619		224
Provision (reversal) for credit losses on mortgage loans	1		1		1		3
NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES	336		124		618		221
OTHER INCOME (LOSS)
Net gains (losses) on trading securities	(10)		(23)		23		(64)
Net gains (losses) on financial instruments held under fair value option	4		77		(61)		99
Net gains (losses) on derivatives	(17)		(30)		(7)		(14)
Net gains (losses) on extinguishment of debt	—		—		2		—
Standby letter of credit fees	2		3		4		5
Other, net	4		(2)		7		(1)
Total other income (loss)	(17)		25		(32)		25
OTHER EXPENSE
Compensation and benefits	18		18		38		36
Contractual services	6		5		12		10
Professional fees	4		3		7		6
Other operating expenses	6		5		11		9
Federal Housing Finance Agency	3		2		5		5
Office of Finance	1		2		4		4
Community and housing contributions	—		—		12		—
Other, net	3		4		7		6
Total other expense	41		39		96		76
NET INCOME BEFORE ASSESSMENTS	278		110		490		170
Affordable Housing Program assessments	28		11		49		17
NET INCOME	$	250	$	99	$	441	$	153

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

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income	$	250	$	99	$	441	$	153
Other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities	77		(50)		10		(111)
Pension and postretirement benefits	(1)		—		—		(2)
Total other comprehensive income (loss)	76		(50)		10		(113)
TOTAL COMPREHENSIVE INCOME (LOSS)	$	326	$	49	$	451	$	40

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

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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, MARCH 31, 2022	36	$	3,523	$	1,773	$	628	$	2,401	$	21	$	5,945
Comprehensive income (loss)	—	—		79		20		99		(50)		49
Proceeds from issuance of capital stock	17	1,725		—		—		—		—		1,725
Repurchases/redemptions of capital stock	(14)	(1,370)		—		—		—		—		(1,370)
Net shares reclassified (to) from mandatorily redeemable capital stock	—	(2)		—		—		—		—		(2)
Cash dividends on capital stock	—	—		(42)		—		(42)		—		(42)
BALANCE, JUNE 30, 2022	39	$	3,876	$	1,810	$	648	$	2,458	$	(29)	$	6,305
BALANCE, MARCH 31, 2023	66	$	6,592	$	1,972	$	741	$	2,713	$	(183)	$	9,122
Comprehensive income (loss)	—	—		200		50		250		76		326
Proceeds from issuance of capital stock	27	2,709		—		—		—		—		2,709
Repurchases/redemptions of capital stock	(29)	(2,852)		—		—		—		—		(2,852)
Cash dividends on capital stock	—	—		(109)		—		(109)		—		(109)
BALANCE, JUNE 30, 2023	64	$	6,449	$	2,063	$	791	$	2,854	$	(107)	$	9,196
BALANCE, DECEMBER 31, 2021	34	$	3,364	$	1,773	$	617	$	2,390	$	84	$	5,838
Comprehensive income (loss)	—	—		122		31		153		(113)		40
Proceeds from issuance of capital stock	27	2,712		—		—		—		—		2,712
Repurchases/redemptions of capital stock	(22)	(2,197)		—		—		—		—		(2,197)
Net shares reclassified (to) from mandatorily redeemable capital stock	—	(3)		—		—		—		—		(3)
Cash dividends on capital stock	—	—		(85)		—		(85)		—		(85)
BALANCE, JUNE 30, 2022	39	$	3,876	$	1,810	$	648	$	2,458	$	(29)	$	6,305
BALANCE, DECEMBER 31, 2022	63	$	6,250	$	1,915	$	703	$	2,618	$	(117)	$	8,751
Comprehensive income (loss)	—	—		353		88		441		10		451
Proceeds from issuance of capital stock	63	6,343		—		—		—		—		6,343
Repurchases/redemptions of capital stock	(62)	(6,144)		—		—		—		—		(6,144)
Cash dividends on capital stock	—	—		(205)		—		(205)		—		(205)
BALANCE, JUNE 30, 2023	64	$	6,449	$	2,063	$	791	$	2,854	$	(107)	$	9,196

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

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS

(dollars in millions)

(Unaudited)

	For the Six Months Ended
	June 30,
	2023		2022
OPERATING ACTIVITIES
Net income	$	441	$	153
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization/(accretion)	129		67
Net (gains) losses on trading securities	(23)		64
Net (gains) losses on financial instruments held under fair value option	61		(99)
Net change in derivatives and hedging activities	325		1,078
Net (gains) losses on extinguishment of debt	(2)		—
Other adjustments, net	2		3
Net change in:
Accrued interest receivable	(134)		(44)
Other assets	(1)		7
Accrued interest payable	491		11
Other liabilities	13		(16)
Total adjustments	861		1,071
Net cash provided by (used in) operating activities	1,302		1,224
INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits	(1,263)		(690)
Securities purchased under agreements to resell	(5,360)		5,200
Federal funds sold	(2,730)		(3,490)
Trading securities
Proceeds from sales	248		—
Proceeds from maturities and paydowns	1,030		190
Purchases	—		(1,298)
Available-for-sale securities
Proceeds from maturities and paydowns	2,019		1,471
Purchases	(5,375)		(1,485)
Held-to-maturity securities
Proceeds from maturities and paydowns	57		272
Advances
Repaid	370,884		102,609
Originated	(374,009)		(112,016)
Mortgage loans held for portfolio
Principal collected	361		599
Purchased	(930)		(984)
Other investing activities, net	(6)		(5)
Net cash provided by (used in) investing activities	(15,074)		(9,627)

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

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FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS (continued from previous page)

(dollars in millions)

(Unaudited)

	For the Six Months Ended
	June 30,
	2023		2022
FINANCING ACTIVITIES
Net change in deposits	(2)		(242)
Borrowings from other FHLBanks	200		—
Net proceeds from issuance of consolidated obligations
Discount notes	858,608		276,308
Bonds	79,524		13,157
Payments for maturing and retiring consolidated obligations
Discount notes	(877,564)		(248,457)
Bonds	(47,023)		(33,023)
Proceeds from issuance of capital stock	6,343		2,712
Payments for repurchases/redemptions of capital stock	(6,144)		(2,197)
Net payments for repurchases/redemptions of mandatorily redeemable capital stock	(2)		(15)
Cash dividends paid	(205)		(85)
Net cash provided by (used in) financing activities	13,735		8,158
Net increase (decrease) in cash and due from banks	(37)		(245)
Cash and due from banks at beginning of the period	89		295
Cash and due from banks at end of the period	$	52	$	50
SUPPLEMENTAL DISCLOSURES
Cash Transactions:
Interest paid	$	3,229	$	258
Affordable Housing Program payments	24		22
Non-Cash Transactions:
Capitalized interest on reverse mortgage investment securities	96		10
Traded but not settled investment security purchases	1,308		504
Traded but not settled investment security payments/calls	1		8

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

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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 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, 2022, which are contained in the Bank’s 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 8, 2023 (2022 Form 10-K).

In the opinion of management, the unaudited interim 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, 2023.

SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Bank’s significant accounting policies during the six months ended June 30, 2023. Descriptions of all significant accounting policies are included in “Item 8. Financial Statements and Supplementary Data — Note 1 — Summary of Significant Accounting Policies” in the 2022 Form 10-K.

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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 became effective for the Bank for the interim and annual periods beginning on January 1, 2023, and was adopted on a prospective basis. The adoption of this guidance did not have a material effect on the Bank’s financial condition, results of operations, or cash flows.

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 became effective for the interim and annual periods beginning on January 1, 2023. The Bank does not currently utilize the last-of-layer hedging method and therefore this guidance did not 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 away from the London Interbank Offered Rate (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, 2024.

As of June 30, 2023, the Bank has transitioned all of its outstanding LIBOR-indexed instruments to reference the Secured Overnight Financing Rate (SOFR) immediately after June 30, 2023, or at the beginning of the next reset period following LIBOR cessation. As a result of finalizing the transition, the Bank elected the contractual modification and hedging relationship optional expedients during the six months ended June 30, 2023. The election of the expedients did not have a material effect on the Bank’s financial condition, results of operations, or cash flows. As all of the Bank’s qualifying contracts have transitioned at June 30, 2023, the Bank does not expect to further elect this guidance through its ending date of December 31, 2024.

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 June 30, 2023 and December 31, 2022, none of these investments were with counterparties rated below triple-B; however, as of June 30, 2023 and December 31, 2022, approximately 20 percent and nine percent were secured securities purchased under agreements to resell with unrated counterparties. 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 June 30, 2023 and December 31, 2022, 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 $15 million and $11 million at June 30, 2023 and December 31, 2022.

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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 June 30, 2023 and December 31, 2022. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of $3 million at both June 30, 2023 and December 31, 2022.

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):

	June 30, 2023		December 31, 2022
Non-mortgage-backed securities
U.S. Treasury obligations1	$	1,276	$	2,501
Other U.S. obligations1	72		76
GSE and Tennessee Valley Authority obligations	48		49
Other2	121		146
Total non-mortgage-backed securities	1,517		2,772
Mortgage-backed securities
GSE multifamily	45		45
Total fair value	$	1,562	$	2,817

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 Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net unrealized gains (losses) on trading securities held at period-end	$	(19)	$	(23)	$	3	$	(62)
Net gains (losses) on trading securities no longer held at period-end	9		—		20		(2)
Net gains (losses) on trading securities	$	(10)	$	(23)	$	23	$	(64)

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AFS Securities

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

	June 30, 2023
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
Other U.S. obligations2	$	575	$	—	$	(6)	$	569
GSE and Tennessee Valley Authority obligations	429		18		—		447
State or local housing agency obligations	435		—		(7)		428
Other3	235		6		—		241
Total non-mortgage-backed securities	1,674		24		(13)		1,685
Mortgage-backed securities
U.S. obligations single-family2	3,589		—		(16)		3,573
GSE single-family	196		1		(3)		194
GSE multifamily	14,740		27		(124)		14,643
Total mortgage-backed securities	18,525		28		(143)		18,410
Total	$	20,199	$	52	$	(156)	$	20,095

	December 31, 2022
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
Other U.S. obligations2	$	759	$	1	$	(2)	$	758
GSE and Tennessee Valley Authority obligations	459		12		(1)		470
State or local housing agency obligations	454		—		(5)		449
Other3	234		6		—		240
Total non-mortgage-backed securities	1,906		19		(8)		1,917
Mortgage-backed securities
U.S. obligations single-family2	3,693		1		(18)		3,676
GSE single-family	212		1		(3)		210
GSE multifamily	9,866		10		(116)		9,760
Total mortgage-backed securities	13,771		12		(137)		13,646
Total	$	15,677	$	31	$	(145)	$	15,563

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 $67 million and $49 million at June 30, 2023 and December 31, 2022.

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

3    Consists primarily of taxable municipal bonds.

The Bank had no sales of AFS securities during the three and six months ended June 30, 2023 and 2022.

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Unrealized Losses

The following tables summarize AFS securities with gross 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.

	June 30, 2023
	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Non-mortgage-backed securities
Other U.S. obligations1	$	139	$	(5)	$	287	$	(1)	$	426	$	(6)
State or local housing agency obligations	29		(1)		399		(6)		428		(7)
Total non-mortgage-backed securities	168		(6)		686		(7)		854		(13)
Mortgage-backed securities
U.S. obligations single-family1	1,924		(8)		1,543		(8)		3,467		(16)
GSE single-family	59		—		71		(3)		130		(3)
GSE multifamily	6,034		(50)		3,937		(74)		9,971		(124)
Total mortgage-backed securities	8,017		(58)		5,551		(85)		13,568		(143)
Total	$	8,185	$	(64)	$	6,237	$	(92)	$	14,422	$	(156)

	December 31, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Non-mortgage-backed securities
Other U.S. obligations1	$	428	$	(1)	$	63	$	(1)	$	491	$	(2)
GSE and Tennessee Valley Authority obligations	84		(1)		—		—		84		(1)
State or local housing agency obligations	35		(1)		403		(4)		438		(5)
Total non-mortgage-backed securities	547		(3)		466		(5)		1,013		(8)
Mortgage-backed securities
U.S. obligations single-family1	3,094		(17)		122		(1)		3,216		(18)
GSE single-family	138		(3)		—		—		138		(3)
GSE multifamily	5,471		(97)		2,012		(19)		7,483		(116)
Total mortgage-backed securities	8,703		(117)		2,134		(20)		10,837		(137)
Total	$	9,250	$	(120)	$	2,600	$	(25)	$	11,850	$	(145)

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):

	June 30, 2023				December 31, 2022
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due in one year or less	$	351	$	352	$	293	$	295
Due after one year through five years	702		699		832		833
Due after five years through ten years	173		175		330		333
Due after ten years	448		459		451		456
Total non-mortgage-backed securities	1,674		1,685		1,906		1,917
Mortgage-backed securities	18,525		18,410		13,771		13,646
Total	$	20,199	$	20,095	$	15,677	$	15,563

HTM Securities

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

	June 30, 2023
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations	$	366	$	9	$	(4)	$	371
State or local housing agency obligations	32		—		—		32
Total non-mortgage-backed securities	398		9		(4)		403
Mortgage-backed securities
U.S. obligations single-family2	2		—		—		2
GSE single-family	502		—		(11)		491
Private-label	3		—		—		3
Total mortgage-backed securities	507		—		(11)		496
Total	$	905	$	9	$	(15)	$	899

	December 31, 2022
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations	$	369	$	10	$	(4)	$	375
State or local housing agency obligations	33		—		—		33
Total non-mortgage-backed securities	402		10		(4)		408
Mortgage-backed securities
U.S. obligations single-family2	2		—		—		2
GSE single-family	557		—		(12)		545
Private-label	4		—		—		4
Total mortgage-backed securities	563		—		(12)		551
Total	$	965	$	10	$	(16)	$	959

1    Amortized cost includes adjustments made to the cost basis of an investment for accretion or amortization and excludes accrued interest receivable of $5 million at both June 30, 2023 and December 31, 2022.

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

The Bank had no sales of HTM securities during the three and six months ended June 30, 2023 and 2022.

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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):

	June 30, 2023				December 31, 2022
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due after one year through five years	$	251	$	249	$	254	$	254
Due after five years through ten years	71		73		71		73
Due after ten years	76		81		77		81
Total non-mortgage-backed securities	398		403		402		408
Mortgage-backed securities	507		496		563		551
Total	$	905	$	899	$	965	$	959

ALLOWANCE FOR CREDIT LOSSES ON AFS AND HTM SECURITIES

The Bank evaluates AFS and HTM investment securities for credit losses on a quarterly basis. At June 30, 2023 and December 31, 2022, the Bank had no allowance for credit losses recorded on its AFS or HTM securities. For additional details on the Bank’s allowance methodology, refer to “Item 8. Financial Statements and Supplementary Data — Note 4 — Investments” in the 2022 Form 10-K.

Note 4 — Advances

REDEMPTION TERM

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

	June 30, 2023				December 31, 2022
Redemption Term	Amount1		Weighted Average Interest Rate		Amount1		Weighted Average Interest Rate
Overdrawn demand deposit accounts	$	8	6.85	%	$	1	6.10	%
Due in one year or less	58,052		5.12		$	61,578	4.26
Due after one year through two years	22,521		4.46		23,026		4.25
Due after two years through three years	11,292		4.35		10,790		3.47
Due after three years through four years	9,622		3.66		7,149		3.03
Due after four years through five years	10,324		4.23		6,047		3.89
Thereafter	3,680		3.31		3,783		3.03
Total par value	115,499		4.66	%	112,374		4.04	%
Premiums	7				11
Fair value hedging adjustments	(1,449)				(1,183)
Total	$	114,057			$	111,202

1    Excludes accrued interest receivable of $287 million and $271 million at June 30, 2023 and December 31, 2022.

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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
	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Overdrawn demand deposit accounts	$	8	$	1	$	8	$	1
Due in one year or less	69,348		73,765		58,053		61,745
Due after one year through two years	19,303		20,883		22,521		22,890
Due after two years through three years	8,427		6,218		11,292		10,767
Due after three years through four years	6,619		4,468		9,622		7,149
Due after four years through five years	8,165		3,228		10,324		6,047
Thereafter	3,629		3,811		3,679		3,775
Total par value	$	115,499	$	112,374	$	115,499	$	112,374

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 June 30, 2023 and December 31, 2022, the Bank had callable advances outstanding totaling $16.6 billion and $23.4 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 June 30, 2023 and December 31, 2022, the Bank had putable advances outstanding totaling $1 million and $168 million.

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.

ADVANCE CONCENTRATIONS

The Bank’s advances are primarily concentrated in commercial banks and insurance companies. At June 30, 2023 and December 31, 2022, the Bank had outstanding advances of $24.0 billion and $32.0 billion to Wells Fargo Bank, N.A., which represented 21 percent and 28 percent of the total principal amount of outstanding advances.

ALLOWANCE FOR CREDIT LOSSES

The Bank evaluates advances for credit losses on a quarterly basis. At June 30, 2023 and December 31, 2022, none of the Bank’s advances were past due, on non-accrual status, or considered impaired. The Bank considers an advance past due if a default of contractual principal or interest exists for a period of 30 days or more. In addition, there were no modifications related to advances resulting from a borrower experiencing financial difficulties during the six months ended June 30, 2023 and 2022.

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 at June 30, 2023 and December 31, 2022. For additional information on the Bank’s allowance methodology, including eligible collateral types, see “Item 8. Financial Statements and Supplementary Data — Note 5 — Advances” in the 2022 Form 10-K.

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Note 5 — Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio include 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):

	June 30, 2023		December 31, 2022
Fixed rate, long-term single-family mortgage loans	$	7,852	$	7,244
Fixed rate, medium-term1 single-family mortgage loans	982		1,033
Total unpaid principal balance	8,834		8,277
Premiums	103		96
Discounts	(11)		(11)
Basis adjustments from mortgage loan purchase commitments	(11)		(9)
Total mortgage loans held for portfolio2	8,915		8,353
Allowance for credit losses	(6)		(5)
Total mortgage loans held for portfolio, net	$	8,909	$	8,348

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

2    Excludes accrued interest receivable of $46 million and $42 million at June 30, 2023 and December 31, 2022.

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

	June 30, 2023		December 31, 2022
Conventional mortgage loans	$	8,453	$	7,890
Government-insured mortgage loans	381		387
Total unpaid principal balance	$	8,834	$	8,277

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.

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

	June 30, 2023
	Origination Year
	Prior to 2019		2019 to 2023		Total
Past due 30 - 59 days	$	33	$	40	$	73
Past due 60 - 89 days	5		5		10
Past due 90 - 179 days	4		3		7
Past due 180 days or more	5		1		6
Total past due mortgage loans	47		49		96
Total current mortgage loans	1,868		6,564		8,432
Total amortized cost of mortgage loans1	$	1,915	$	6,613	$	8,528

	December 31, 2022
	Origination Year
	Prior to 2018		2018 to 2022		Total
Past due 30 - 59 days	$	21	$	22	$	43
Past due 60 - 89 days	5		6		11
Past due 90 - 179 days	3		2		5
Past due 180 days or more	7		2		9
Total past due mortgage loans	36		32		68
Total current mortgage loans	1,764		6,128		7,892
Total amortized cost of mortgage loans1	$	1,800	$	6,160	$	7,960

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.

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

	June 30, 2023
Amortized Cost	Conventional			Government-Insured			Total
In process of foreclosure1	$	2		$	1		$	3
Serious delinquency rate2	—		%	1		%	—		%
Past due 90 days or more and still accruing interest3	$	—		$	6		$	6
Non-accrual mortgage loans4	$	38		$	—		$	38

	December 31, 2022
Amortized Cost	Conventional			Government- Insured			Total
In process of foreclosure1	$	4		$	1		$	5
Serious delinquency rate2	—		%	2		%	—		%
Past due 90 days or more and still accruing interest3	$	—		$	8		$	8
Non-accrual mortgage loans4	$	40		$	—		$	40

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 June 30, 2023 and December 31, 2022.

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 June 30, 2023 and December 31, 2022, $25 million and $29 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.

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ALLOWANCE FOR CREDIT LOSSES

The Bank evaluates mortgage loans for credit losses on a quarterly basis. At June 30, 2023 and December 31, 2022, the Bank’s allowance for credit losses on conventional mortgage loans remained stable at $6 million and $5 million. The Bank recorded no credit losses on its government-insured mortgage loans at June 30, 2023 and December 31, 2022. For additional information on the Bank’s allowance methodology, refer to “Item 8. Financial Statements and Supplementary Data — Note 6 — Mortgage Loans Held for Portfolio” in the 2022 Form 10-K.

Note 6 — Derivatives and Hedging Activities

NATURE OF BUSINESS ACTIVITY

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.

For additional information on the Bank’s derivative and hedging accounting policies, see “Item 8. Financial Statements and Supplementary Data — Note 1 — Summary of Significant Accounting Policies” in the 2022 Form 10-K. For additional information on the types of derivatives and hedged items utilized by the Bank, see “Item 8. Financial Statements and Supplementary Data — Note 7 — Derivatives and Hedging Activities” in the 2022 Form 10-K.

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):

	June 30, 2023						December 31, 2022
	Notional Amount		Derivative Assets		Derivative  Liabilities		Notional Amount		Derivative Assets		Derivative  Liabilities
Derivatives designated as hedging instruments (fair value hedges)
Interest rate swaps	$	91,374	$	200	$	163	$	53,136	$	226	$	205
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	36,214		5		4		48,347		11		13
Forward settlement agreements	235		1		—		46		—		—
Mortgage loan purchase commitments	231		—		1		46		—		—
Total derivatives not designated as hedging instruments	36,680		6		5		48,439		11		13
Total derivatives before netting and collateral adjustments	$	128,054	206		168		$	101,575	237		218
Netting adjustments and cash collateral1			905		(159)				406		(214)
Total derivative assets and derivative liabilities			$	1,111	$	9			$	643	$	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, including accrued interest, held or placed with the same clearing agent and/or counterparty. At June 30, 2023 and December 31, 2022, cash collateral, including accrued interest, posted by the Bank was $1.2 billion and $739 million. At June 30, 2023 and December 31, 2022, the Bank held cash collateral, including accrued interest, from clearing agents or counterparties of $128 million and $119 million.

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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 June 30, 2023
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	1,608	$	294	$	(1,364)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	726	$	417	$	(181)
Hedged items3	(526)		(316)		117
Net gains (losses) on fair value hedging relationships	$	200	$	101	$	(64)

	For the Three Months Ended June 30, 2022
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	184	$	55	$	(124)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	229	$	177	$	(55)
Hedged items3	(241)		(185)		57
Net gains (losses) on fair value hedging relationships	$	(12)	$	(8)	$	2

	For the Six Months Ended June 30, 2023
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	3,002	$	518	$	(2,347)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	604	$	222	$	(135)
Hedged items3	(266)		(56)		7
Net gains (losses) on fair value hedging relationships	$	338	$	166	$	(128)

	For the Six Months Ended June 30, 2022
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	295	$	85	$	(223)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	$	735	$	427	$	(173)
Hedged items3	(786)		(456)		184
Net gains (losses) on fair value hedging relationships	$	(51)	$	(29)	$	11

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.

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

	June 30, 2023
	Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/ liability1	$	40,853	$	12,929	$	37,297
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	(1,385)	$	(684)	$	(258)
Basis adjustments for discontinued hedging relationships included in amortized cost	(64)		(43)		(17)
Total amount of fair value hedging adjustments	$	(1,449)	$	(727)	$	(275)

	December 31, 2022
	Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/ liability1	$	21,832	$	8,606	$	22,205
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	(1,109)	$	(671)	$	(297)
Basis adjustments for discontinued hedging relationships included in amortized cost	(74)		(1)		(1)
Total amount of fair value hedging adjustments	$	(1,183)	$	(672)	$	(298)

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 Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	$	14	$	(40)	$	54	$	(23)
Forward settlement agreements	3		4		2		11
Mortgage loan purchase commitments	(3)		(4)		(3)		(11)
Net interest settlements	(26)		11		(48)		10
Total net gains (losses) related to derivatives not designated as hedging instruments	(12)		(29)		5		(13)
Price alignment amount1	(5)		(1)		(12)		(1)
Net gains (losses) on derivatives	$	(17)	$	(30)	$	(7)	$	(14)

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.

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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 June 30, 2023. As such, the Bank was not required to post collateral in the normal course of business.

Uncleared derivative transactions executed on or after the dates specified in applicable regulations are subject to two-way initial margin requirements as mandated by the Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, if the Bank’s aggregate uncleared derivative transactions exposure to a counterparty exceeds a specified threshold. The initial margin is required to be held at a third-party custodian and does not change ownership. Rather, the party in respect of which the initial margin has been posted to the third-party custodian will have a security interest in the amount of initial margin required under the uncleared margin rules and can only take ownership upon the occurrence of certain events, including an event of default due to bankruptcy, insolvency, or similar proceeding. As of June 30, 2023, the Bank was not required to post initial margin on its uncleared derivative transactions in accordance with the noted regulations.

For all uncleared transactions entered into on or after March 1, 2017, the derivative agreements are fully collateralized with a zero unsecured threshold in accordance with variation margin requirements issued by the U.S. federal bank regulatory agencies and the Commodity Futures Trading Commission.

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 June 30, 2023. 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 “Item 8. Financial Statements and Supplementary Data — Note 1 — Summary of Significant Accounting Policies” in the 2022 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.

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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):

	June 30, 2023
	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	$	185	$	(182)	$	—	$	3
Cleared derivatives	21		1,087		—		1,108
Total	$	206	$	905	$	—	$	1,111
Derivative Liabilities
Uncleared derivatives	$	152	$	(144)	$	1	$	9
Cleared derivatives	15		(15)		—		—
Total	$	167	$	(159)	$	1	$	9

	December 31, 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	$	195	$	(194)	$	—	$	1
Cleared derivatives	42		600		—		642
Total	$	237	$	406	$	—	$	643
Derivative Liabilities
Uncleared derivatives	$	200	$	(196)	$	—	$	4
Cleared derivatives	18		(18)		—		—
Total	$	218	$	(214)	$	—	$	4

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 June 30, 2023 and December 31, 2022, the total par value of outstanding consolidated obligations of the FHLBanks was $1,340.2 billion and $1,181.7 billion.

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DISCOUNT NOTES

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

	June 30, 2023				December 31, 2022
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Par value	$	51,049	4.69	%	$	70,002	3.79	%
Discounts and concessions1	(560)				(725)
Fair value option adjustments	(46)				(107)
Total	$	50,443			$	69,170

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):

	June 30, 2023				December 31, 2022
Year of Contractual Maturity	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Due in one year or less	$	85,183	4.98	%	$	55,421	4.01	%
Due after one year through two years	23,060		4.48		20,665		3.79
Due after two years through three years	1,499		3.18		1,175		2.23
Due after three years through four years	1,230		2.13		1,210		1.97
Due after four years through five years	1,047		3.15		865		2.42
Thereafter	5,022		2.62		5,236		2.61
Total par value	117,041		4.71	%	84,572		3.80	%
Premiums	69				86
Discounts and concessions1	(25)				(23)
Fair value hedging adjustments	(275)				(298)
Total	$	116,810			$	84,337

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):

	June 30, 2023		December 31, 2022
Non-callable or non-putable	$	95,202	$	73,578
Callable	21,839		10,994
Total par value	$	117,041	$	84,572

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	June 30, 2023		December 31, 2022
Due in one year or less	$	93,321	$	62,033
Due after one year through two years	20,365		19,141
Due after two years through three years	969		850
Due after three years through four years	583		753
Due after four years through five years	461		324
Thereafter	1,342		1,471
Total par value	$	117,041	$	84,572

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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 June 30, 2023 and December 31, 2022, the Bank had no excess capital stock outstanding.

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 table summarizes changes in MRCS (dollars in millions):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Balance, beginning of period	$	14	$	18	$	15	$	29
Capital stock reclassified to (from) MRCS, net	—		2		—		3
Net payments for repurchases/redemptions of MRCS	(1)		(3)		(2)		(15)
Balance, end of period	$	13	$	17	$	13	$	17

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

Year of Contractual Redemption1	June 30, 2023		December 31, 2022
Due after two years through three years	$	6	$	—
Due after three years through four years	—		8
Past contractual redemption date due to outstanding activity with the Bank	7		7
Total	$	13	$	15

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.

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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 June 30, 2023 and December 31, 2022, the Bank’s restricted retained earnings account totaled $791 million and $703 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, March 31, 2022	$	27	$	(6)	$	21
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(50)		—		(50)
Net current period other comprehensive income (loss)	(50)		—		(50)
Balance, June 30, 2022	$	(23)	$	(6)	$	(29)
Balance, March 31, 2023	$	(181)	$	(2)	$	(183)
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	77		—		77
Net actuarial gains (losses)	—		(1)		(1)
Net current period other comprehensive income (loss)	77		(1)		76
Balance, June 30, 2023	$	(104)	$	(3)	$	(107)
Balance, December 31, 2021	$	88	$	(4)	$	84
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(111)		—		(111)
Net actuarial gains (losses)	—		(2)		(2)
Net current period other comprehensive income (loss)	(111)		(2)		(113)
Balance, June 30, 2022	$	(23)	$	(6)	$	(29)
Balance, December 31, 2022	$	(114)	$	(3)	$	(117)
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	10		—		10
Net current period other comprehensive income (loss)	10		—		10
Balance, June 30, 2023	$	(104)	$	(3)	$	(107)

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 the amounts paid-in for 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.

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•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 June 30, 2023 and December 31, 2022.

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):

	June 30, 2023						December 31, 2022
	Required			Actual			Required			Actual
Regulatory capital requirements
Risk-based capital	$	1,500		$	9,316		$	737		$	8,883
Regulatory capital	$	7,207		$	9,316		$	6,567		$	8,883
Leverage capital	$	9,009		$	13,974		$	8,208		$	13,323
Capital-to-assets ratio	4.00		%	5.17		%	4.00		%	5.41		%
Capital stock-to-assets ratio	2.00		%	3.49		%	2.00		%	3.73		%
Leverage ratio	5.00		%	7.76		%	5.00		%	8.12		%

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 six months ended June 30, 2023 and 2022.

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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). 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.

	June 30, 2023
			Fair Value
Financial Instruments	Carrying Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Cash and due from banks	$	52	$	52	$	—	$	—	$	—	$	52
Interest-bearing deposits	2,841		—		2,841		—		—		2,841
Securities purchased under agreements to resell	17,950		—		17,950		—		—		17,950
Federal funds sold	12,145		—		12,145		—		—		12,145
Trading securities	1,562		—		1,562		—		—		1,562
Available-for-sale securities	20,095		—		20,095		—		—		20,095
Held-to-maturity securities	905		—		896		3		—		899
Advances	114,057		—		114,031		—		—		114,031
Mortgage loans held for portfolio, net	8,909		—		7,869		31		—		7,900
Accrued interest receivable	430		—		430		—		—		430
Derivative assets, net	1,111		—		206		—		905		1,111
Other assets	37		37		—		—		—		37
Liabilities
Deposits	(1,063)		—		(1,063)		—		—		(1,063)
Consolidated obligations
Discount notes	(50,443)		—		(50,435)		—		—		(50,435)
Bonds	(116,810)		—		(115,690)		—		—		(115,690)
Total consolidated obligations	(167,253)		—		(166,125)		—		—		(166,125)
Borrowings from other FHLBanks	(200)		—		(200)		—		—		(200)
MRCS	(13)		(13)		—		—		—		(13)
Accrued interest payable	(927)		—		(927)		—		—		(927)
Derivative liabilities, net	(9)		—		(168)		—		159		(9)

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, 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	$	89	$	89	$	—	$	—	$	—	$	89
Interest-bearing deposits	2,031		—		2,031		—		—		2,031
Securities purchased under agreements to resell	12,590		—		12,590		—		—		12,590
Federal funds sold	9,415		—		9,415		—		—		9,415
Trading securities	2,817		—		2,817		—		—		2,817
Available-for-sale securities	15,563		—		15,563		—		—		15,563
Held-to-maturity securities	965		—		955		4		—		959
Advances	111,202		—		110,909		—		—		110,909
Mortgage loans held for portfolio, net	8,348		—		7,316		36		—		7,352
Accrued interest receivable	389		—		389		—		—		389
Derivative assets, net	643		—		237		—		406		643
Other assets	35		35		—		—		—		35
Liabilities
Deposits	(1,076)		—		(1,076)		—		—		(1,076)
Consolidated obligations
Discount notes	(69,170)		—		(69,162)		—		—		(69,162)
Bonds	(84,337)		—		(83,238)		—		—		(83,238)
Total consolidated obligations	(153,507)		—		(152,400)		—		—		(152,400)
MRCS	(15)		(15)		—		—		—		(15)
Accrued interest payable	(436)		—		(436)		—		—		(436)
Derivative liabilities, net	(4)		—		(218)		—		214		(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.

SUMMARY OF VALUATION TECHNIQUES AND PRIMARY INPUTS

The valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition are disclosed in “Item 8. Financial Statements and Supplementary Data — Note 13 — Fair Value” in the 2022 Form 10-K. There have been no significant changes in the valuation methodologies during the six months ended June 30, 2023.

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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):

	June 30, 2023
Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Trading securities
U.S. Treasury obligations	$	—	$	1,276	$	—	$	—	$	1,276
Other U.S. obligations	—		72		—		—		72
GSE and TVA obligations	—		48		—		—		48
Other non-MBS	—		121		—		—		121
GSE multifamily MBS	—		45		—		—		45
Total trading securities	—		1,562		—		—		1,562
Available-for-sale securities
Other U.S. obligations	—		569		—		—		569
GSE and TVA obligations	—		447		—		—		447
State or local housing agency obligations	—		428		—		—		428
Other non-MBS	—		241		—		—		241
U.S. obligations single-family MBS	—		3,573		—		—		3,573
GSE single-family MBS	—		194		—		—		194
GSE multifamily MBS	—		14,643		—		—		14,643
Total available-for-sale securities	—		20,095		—		—		20,095
Derivative assets, net
Interest-rate related	—		205		—		905		1,110
Forward settlement agreements	—		1		—		—		1
Total derivative assets, net	—		206		—		905		1,111
Other assets	37		—		—		—		37
Total recurring assets at fair value	$	37	$	21,863	$	—	$	905	$	22,805
Liabilities
Discount notes2	$	—	$	(30,641)	$	—	$	—	$	(30,641)
Derivative liabilities, net
Interest-rate related	—		(167)		—		159		(8)
Mortgage loan purchase commitments	—		(1)		—		—		(1)
Total derivative liabilities, net	—		(168)		—		159		(9)
Total recurring liabilities at fair value	$	—	$	(30,809)	$	—	$	159	$	(30,650)

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, 2022
Recurring Fair Value Measurements	Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Trading securities
U.S. Treasury obligations	$	—	$	2,501	$	—	$	—	$	2,501
Other U.S. obligations	—		76		—		—		76
GSE and TVA obligations	—		49		—		—		49
Other non-MBS	—		146		—		—		146
GSE multifamily MBS	—		45		—		—		45
Total trading securities	—		2,817		—		—		2,817
Available-for-sale securities
Other U.S. obligations	—		758		—		—		758
GSE and TVA obligations	—		470		—		—		470
State or local housing agency obligations	—		449		—		—		449
Other non-MBS	—		240		—		—		240
U.S. obligations single-family MBS	—		3,676		—		—		3,676
GSE single-family MBS	—		210		—		—		210
GSE multifamily MBS	—		9,760		—		—		9,760
Total available-for-sale securities	—		15,563		—		—		15,563
Derivative assets, net
Interest-rate related	—		237		—		406		643
Other assets	35		—		—		—		35
Total recurring assets at fair value	$	35	$	18,617	$	—	$	406	$	19,058
Liabilities
Discount notes2	$	—	$	(44,531)	$	—	$	—	$	(44,531)
Derivative liabilities, net
Interest-rate related	—		(218)		—		214		(4)
Total recurring liabilities at fair value	$	—	$	(44,749)	$	—	$	214	$	(44,535)

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 both June 30, 2023 and December 31, 2022, impaired mortgage loans held for portfolio recorded at fair value as a result of a non-recurring change in fair value were $1 million. These fair values were as of the date the fair value adjustment was recorded during the six months ended June 30, 2023 and year ended December 31, 2022.

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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 six months ended June 30, 2023, the Bank recorded net gains of $4 million and net losses of $61 million on financial instruments held under fair value option (i.e., discount notes) compared to net gains of $77 million and $99 million for the same periods in 2022, 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):

	June 30, 2023
	Unpaid Principal Balance		Fair Value		Fair Value Over (Under) Unpaid Principal
Discount Notes	$	31,154	$	30,641	$	(513)

	December 31, 2022
	Unpaid Principal Balance		Fair Value		Fair Value Over (Under) Unpaid Principal
Discount Notes	$	45,244	$	44,531	$	(713)

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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 June 30, 2023 and December 31, 2022, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which the Bank is jointly and severally liable was $1,172.1 billion and $1,027.1 billion.

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

	June 30, 2023						December 31, 2022
	Expire within one year		Expire after one year		Total		Total
Standby letters of credit1,2	$	7,372	$	158	$	7,530	$	6,566
Standby bond purchase agreements2	111		625		736		736
Commitments to purchase mortgage loans	231		—		231		46
Commitment to issue bonds	1,110		—		1,110		3,200
Commitments to issue discount notes	65		—		65		202
Commitments to fund advances2	236		70		306		128

1    Excludes commitments to issue standby letters of credit, when applicable. At both June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022.

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 June 30, 2023 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 June 30, 2023 and December 31, 2022.

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 June 30, 2023, the Bank had standby bond purchase agreements with six housing associates. The maturities of standby bond purchase agreements outstanding at June 30, 2023 are currently no later than 2028. During the six months ended June 30, 2023 and 2022, 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 June 30, 2023 and December 31, 2022 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 June 30, 2023, the Bank had commitments to issue $1.1 billion and $65 million of consolidated obligation bonds and discount notes. At December 31, 2022, the Bank had commitments to issue $3.2 billion and $202 million of consolidated obligation bonds and discount notes.

Commitments to Fund Advances. The Bank enters into commitments to fund additional advances up to 24 months in the future. At June 30, 2023 and December 31, 2022, the Bank had commitments to fund advances of $306 million and $128 million.

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 $168 million and $162 million at June 30, 2023 and December 31, 2022.

Legal Proceedings. The Bank is subject to various pending legal proceedings arising in the normal course of business. 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. Refer to “Note 8 — Capital” for more information on our capital stock requirements.

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):

	June 30, 2023			December 31, 2022
	Amount		% of Total	Amount		% of Total
Advances	$	622	1	$	317	—
Mortgage loans	105		1	143		2
Deposits	8		1	4		—
Capital stock	51		1	40		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 June 30, 2023 and December 31, 2022, the Bank had the following business concentrations with stockholders (dollars in millions):

	June 30, 2023
	Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total1	Advances		Loans		Income2
Wells Fargo Bank, N.A.3	$	970	15	$	24,000	$	8	$	693
Superior Guaranty Insurance Company3,4	6		—	—		149		—
Total	$	976	15	$	24,000	$	157	$	693

	December 31, 2022
	Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total1	Advances		Loans		Income2
Wells Fargo Bank, N.A.3	$	1,290	21	$	32,000	$	9	$	336
Superior Guaranty Insurance Company3,4	7		—	—		162		—
Total	$	1,297	21	$	32,000	$	171	$	336

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 six months ended ended June 30, 2023 and the year ended December 31, 2022. Interest income on mortgage loans is excluded from this table as this interest relates to the borrower, not to the stockholder.

3    This stockholder had no standby letters of credit outstanding with the Bank at June 30, 2023 and December 31, 2022.

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

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 six months ended June 30, 2023 and 2022 (dollars in millions):

Other FHLBank	Beginning Balance		Loans		Principal Repayment		Ending Balance
2023
Chicago	$	—	$	5	$	(5)	$	—
New York	—		500		(500)		—
San Francisco	—		1,905		(1,905)		—
	$	—	$	2,410	$	(2,410)	$	—
2022
Chicago	$	—	$	1	$	(1)	$	—

The following table summarizes borrowing activity from other FHLBanks during the six months ended June 30, 2023 (dollars in millions):

Other FHLBank	Beginning Balance		Borrowing		Principal Payment		Ending Balance
2023
Boston	$	—	$	200	$	—	$	200
Cincinnati	—		250		(250)		—
Topeka	—		65		(65)		—
	$	—	$	515	$	(315)	$	200
2022
Chicago	$	—	$	250	$	(250)	$	—
San Francisco	—		500		(500)		—
	$	—	$	750	$	(750)	$	—

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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, 2022, filed with the Securities and Exchange Commission (SEC) on March 8, 2023 (2022 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	37
Executive Overview	38
Conditions in the Financial Markets	41
Selected Financial Data	42
Results of Operations	43
Net Interest Income	43
Other Income (Loss)	46
Hedging Activities	46
Other Expense	49
Statements of Condition	50
Financial Highlights	50
Advances	50
Mortgage Loans	51
Investments	52
Consolidated Obligations	53
Capital	54
Derivatives	54
Liquidity and Capital Resources	54
Critical Accounting Estimates	58
Legislative and Regulatory Developments	58
Risk Management	58

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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;

•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, inflation/deflation, employment rates, geopolitical instability or conflicts, housing market activity and housing prices, 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;

•the ability to attract and retain key personnel; and

•natural disasters, including those from significant climate change.

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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 2022 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).

Community Impact

During the second quarter of 2023, as a part of our ongoing mission to support our members’ affordable housing and community development needs, we disbursed $8 million of Affordable Housing Program (AHP) funds through our Competitive and Set-Aside down payment assistance programs. In partnership with our member institutions and their communities, we also awarded $15 million to hundreds of recipients, primarily nonprofit organizations, through the Member Impact Fund in targeted areas of the district.

Financial Results

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. Throughout 2022 and the first six months of 2023, in response to higher inflation, the Federal Open Markets Committee (FOMC or Committee) raised the target range for the federal funds rate, 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.

For the three and six months ended June 30, 2023, we reported net income of $250 million and $441 million compared to $99 million and $153 million for the same periods in 2022. The increase in net income, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was primarily driven by an increase in net interest income, partially offset by a decline in other income (loss) and an increase in other expense.

Net interest income increased $212 million and $395 million during the three and six months ended June 30, 2023 when compared to the same periods last year due primarily to higher interest rates, which improved earnings on invested capital, and growth in advance balances.

Other income (loss) decreased $42 million and $57 million during the three and six months ended June 30, 2023 when compared to the same periods last year. The decline for both periods was primarily driven by changes in fair value on our trading securities, fair value option instruments, and economic derivatives.

Other expense increased $2 million and $20 million during the three and six months ended June 30, 2023 when compared to the same periods last year. The increase during the six months ended June 30, 2023 was primarily due to a $12 million voluntary contribution to our Member Impact Fund.

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 $180.2 billion at June 30, 2023, from $164.2 billion at December 31, 2022, driven primarily by an increase in advances and investments. Advances increased $2.9 billion due mainly to an increase in borrowings by depository institution members. Investments increased $12.1 billion due to an increase in short-term investments of $8.9 billion, mainly securities purchased under agreements to resell and federal funds sold, as well as the purchase of agency mortgage-backed securities (MBS).

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Total capital increased to $9.2 billion at June 30, 2023 from $8.8 billion at December 31, 2022, due primarily to an increase in retained earnings and activity-based capital stock resulting from an increase in advance balances. Our regulatory capital ratio decreased to 5.17 percent at June 30, 2023, from 5.41 percent at December 31, 2022, but remained 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.

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, MRCS interest expense, debt extinguishment gains (losses), 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-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 six months ended June 30, 2023 when compared to the same periods in 2022. Our adjusted net interest income was impacted primarily by higher interest rates, which improved earnings on invested capital, and growth in advance balances.

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

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
GAAP net interest income	$	337		$	125		$	619		$	224
Exclude:
Prepayment fees on advances, net1	—			3			(1)			9
Prepayment fees on investments, net2	5			7			10			10
MRCS interest expense	(1)			(1)			(1)			(1)
Market value adjustments on fair value hedges3	11			5			1			8
Total adjustments	15			14			9			26
Include items reclassified from other income (loss):
Net interest income (expense) on economic hedges	(27)			10			(48)			9
Adjusted net interest income	$	295		$	121		$	562		$	207
GAAP net interest margin	0.72		%	0.54		%	0.69		%	0.50		%
Adjusted net interest margin	0.63		%	0.52		%	0.63		%	0.46		%

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.

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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 Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
GAAP net income before assessments	$	278	$	110	$	490	$	170
Exclude:
Prepayment fees on advances, net1	—		3		(1)		9
Prepayment fees on investments, net2	5		7		10		10
MRCS interest expense	(1)		(1)		(1)		(1)
Market value adjustments on fair value hedges3	11		5		1		8
Market value adjustments on economic hedges4	10		(40)		41		(23)
Net gains (losses) on financial instruments held under fair value option	4		77		(61)		99
Net gains (losses) on trading securities	(10)		(23)		23		(64)
Net gains (losses) on extinguishment of debt	—		—		2		—
Gains on litigation settlements, net	1		—		1		—
Adjusted net income before assessments	258		82		475		132
Adjusted AHP assessments5	25		8		47		13
Adjusted net income	$	233	$	74	$	428	$	119

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 market value gains (losses) on economic derivatives.    

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 2022 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

As discussed in our 2022 Form 10-K, we have ceased all new London Interbank Offered Rate (LIBOR)-indexed transactions and are utilizing the Secured Overnight Financing Rate (SOFR) as our dominant replacement rate. As of June 30, 2023, all of our LIBOR-indexed derivatives have been terminated or replaced with SOFR-indexed derivatives. We have also transitioned all remaining LIBOR-indexed instruments to reference SOFR immediately after June 30, 2023, or at the beginning of the next reset period following LIBOR cessation. Immediately after June 30, 2023, our remaining LIBOR-indexed instruments either convert to SOFR, become static until the instrument’s next applicable reset date, or mature. As such, we have no outstanding LIBOR exposure as of June 30, 2023. For a summary of our risks on the replacement of the LIBOR benchmark interest rate, refer to “Item 1A. Risk Factors” in our 2022 Form 10-K.

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CONDITIONS IN THE FINANCIAL MARKETS

Economy and Financial Markets

In March 2023, several U.S. banks experienced significant deposit outflows and financial difficulties, creating stress for the banking industry and the financial markets. During this time, the FHLBanks continued to execute their mission by serving as a reliable source of liquidity and funding for their members. The FHLBanks’ assets and liabilities, primarily advances and consolidated obligations, generally increased during the first half of 2023, driven by increased member demand.

With inflation remaining elevated, in its May 3, 2023 statement, the FOMC stated that it decided to raise the target range for the federal funds rate by 0.25 percent, bringing the target range to 5.00 to 5.25 percent. More recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. However, inflation remains elevated. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. In its July 26, 2023 statement, the FOMC stated that it decided to raise the target range for the federal funds rate by an additional 0.25 percent, bringing the target range to 5.25 to 5.50 percent. The Committee stated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic financial developments in order to return inflation to two percent over time. The Committee stated that it will continue reducing its holdings of Treasury securities and agency debt and agency MBS.

Mortgage Markets

During the first half of 2023, mortgage rates increased, on average, compared to the same period last year; and from the prior year-end. Prepayment activity decreased relative to the prior year. In the first half of 2023, new and existing home sales increased due to seasonality and home prices increased. The primary driver of mortgage activity was purchase activity in the second quarter of 2023 as mortgage rates remain elevated.

Interest Rates

    The following table shows information on key market interest rates1:

	Second Quarter 2023 3-Month Average		Second Quarter 2022 3-Month Average		Second Quarter 2023 6-Month Average		Second Quarter 2022 6-Month Average		June 30, 2023 Ending Rate		December 31, 2022 Ending Rate
Federal funds	4.99	%	0.77	%	4.76	%	0.45	%	5.08	%	4.33	%
SOFR	4.97		0.71		4.73		0.41		5.09		4.30
2-year U.S. Treasury	4.28		2.72		4.31		2.10		4.87		4.43
10-year U.S. Treasury	3.60		2.93		3.62		2.45		3.81		3.88
30-year residential mortgage note	6.54		5.20		6.44		4.48		6.70		6.41

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, on average, during the first half of 2023 when compared to the prior year.

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SELECTED FINANCIAL DATA

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

Statements of Condition	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022
Cash and due from banks	$	52	$	71	$	89	$	58	$	50
Investments1	55,498		57,530		43,381		40,753		32,753
Advances	114,057		119,027		111,202		82,196		52,731
Mortgage loans held for portfolio, net2	8,909		8,473		8,348		8,243		7,940
Total assets	180,181		186,417		164,169		133,155		93,968
Consolidated obligations
Discount notes	50,443		72,642		69,170		64,166		50,185
Bonds	116,810		100,883		84,337		58,708		35,130
Total consolidated obligations3	167,253		173,525		153,507		122,874		85,315
Mandatorily redeemable capital stock	13		14		15		15		17
Total liabilities	170,985		177,295		155,418		125,623		87,663
Capital stock — Class B putable	6,449		6,592		6,250		5,086		3,876
Retained earnings	2,854		2,713		2,618		2,538		2,458
Accumulated other comprehensive income (loss)	(107)		(183)		(117)		(92)		(29)
Total capital	9,196		9,122		8,751		7,532		6,305
Regulatory capital ratio4	5.17		5.00		5.41		5.74		6.76

	For the Three Months Ended
Statements of Income	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Net interest income	$	337		$	282		$	262		$	197		$	125
Provision (reversal) for credit losses on mortgage loans	1			—			1			—			1
Other income (loss)5	(17)			(15)			(53)			(12)			25
Other expense6	41			55			46			39			39
AHP assessments	28			21			16			15			11
Net income	250			191			146			131			99
Selected Financial Ratios7
Net interest spread8	0.43		%	0.41		%	0.48		%	0.55		%	0.47		%
Net interest margin9	0.72			0.66			0.69			0.69			0.54
Return on average equity (annualized)	10.98			8.51			7.02			7.64			6.43
Return on average capital stock (annualized)	15.04			12.00			9.95			11.71			10.44
Return on average assets (annualized)	0.53			0.44			0.38			0.46			0.42
Average equity to average assets	4.79			5.19			5.36			5.98			6.56

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 $6 million, $5 million, $5 million, $4 million, and $4 million at June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, and June 30, 2022.

3    The total par value of outstanding consolidated obligations of the 11 FHLBanks was $1,340.2 billion, $1,477.7 billion, $1,181.7 billion, $1,031.9 billion, and $882.5 billion at June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, and June 30, 2022.

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 financial instruments held under fair value option.

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.

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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 June 30,
	2023						2022
	Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2
Interest-earning assets
Interest-bearing deposits	$	4,174	4.80	%	$	50	$	1,423	0.76	%	$	2
Securities purchased under agreements to resell	13,409		5.04		169		4,229		0.76		8
Federal funds sold	17,801		5.06		225		11,397		0.79		23
MBS3,4,5	18,668		5.83		271		11,522		1.66		48
Other investments3,4,5,6	4,508		3.78		42		4,826		1.95		24
Advances4,7	120,464		5.36		1,608		51,542		1.43		184
Mortgage loans8	8,655		3.41		74		7,805		2.89		56
Loans to other FHLBanks	20		5.13		1		—		—		—
Total interest-earning assets	187,699		5.21		2,440		92,744		1.49		345
Non-interest-earning assets	3,100		—		—		1,657		—		—
Total assets	$	190,799	5.13	%	$	2,440	$	94,401	1.46	%	$	345
Interest-bearing liabilities
Deposits	$	1,050	4.12	%	$	11	$	1,702	0.12	%	$	1
Consolidated obligations
Discount notes4	62,632		4.66		727		48,158		0.79		94
Bonds4	112,573		4.86		1,364		36,161		1.38		124
Other interest-bearing liabilities9	22		6.91		1		26		4.66		1
Total interest-bearing liabilities	176,277		4.78		2,103		86,047		1.02		220
Non-interest-bearing liabilities	5,386		—		—		2,159		—		—
Total liabilities	181,663		4.64		2,103		88,206		1.00		220
Capital	9,136		—		—		6,195		—		—
Total liabilities and capital	$	190,799	4.42	%	$	2,103	$	94,401	0.93	%	$	220
Net interest income and spread10			0.43	%	$	337			0.47	%	$	125
Net interest margin11			0.72	%					0.54	%
Average interest-earning assets to interest-bearing liabilities			106.48	%					107.78	%

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    Interest income on investment securities includes prepayment fees, net of related amortization, of $5 million and $7 million for the three months ended June 30, 2023 and 2022.

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

7    Interest income on advances includes prepayment fees, net of related amortization, of less than $1 million and $3 million for the three months ended June 30, 2023 and 2022.

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

9    Other interest-bearing liabilities consist primarily of MRCS and/or borrowings from other FHLBanks.

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

11    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 Six Months Ended June 30,
	2023						2022
	Average Balance1		Yield/Cost		Interest Income/ Expense2		Average Balance1		Yield/Cost		Interest Income/ Expense2
Interest-earning assets
Interest-bearing deposits	$	3,863	4.65	%	$	89	$	1,310	0.49	%	$	3
Securities purchased under agreements to resell	10,849		4.87		262		4,386		0.42		9
Federal funds sold	16,530		4.83		396		11,350		0.46		26
Mortgage-backed securities3,4,5	17,068		5.65		478		11,490		1.30		74
Other investments3,4,5,6	4,668		3.40		79		4,609		1.77		41
Advances4,7	118,528		5.11		3,002		49,165		1.21		295
Mortgage loans8	8,521		3.38		143		7,722		2.85		109
Loans to other FHLBanks	24		4.86		1		—		—		—
Total interest-earning assets	180,051		4.98		4,450		90,032		1.25		557
Non-interest-earning assets	3,098		—		—		1,234		—		—
Total assets	$	183,149	4.90	%	$	4,450	$	91,266	1.23	%	$	557
Interest-bearing liabilities
Deposits	$	1,081	3.91	%	$	21	$	1,830	0.06	%	$	1
Consolidated obligations
Discount notes4	66,386		4.44		1,462		38,714		0.56		108
Bonds4	101,832		4.65		2,347		42,834		1.05		223
Other interest-bearing liabilities9	19		7.25		1		27		4.74		1
Total interest-bearing liabilities	169,318		4.56		3,831		83,405		0.80		333
Non-interest-bearing liabilities	4,708		—		—		1,826		—		—
Total liabilities	174,026		4.44		3,831		85,231		0.79		333
Capital	9,123		—		—		6,035		—		—
Total liabilities and capital	$	183,149	4.22	%	$	3,831	$	91,266	0.73	%	$	333
Net interest income and spread10			0.42	%	$	619			0.45	%	$	224
Net interest margin11			0.69	%					0.50	%
Average interest-earning assets to interest-bearing liabilities			106.34	%					107.95	%

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    Interest income on investment securities includes prepayment fees, net of related amortization, of $10 million for both the six months ended June 30, 2023 and 2022.

6    Other investments primarily include U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, and taxable municipal bonds.

7    Interest income on advances includes prepayment fees, net of related amortization, of $(1) million and $9 million for the six months ended June 30, 2023 and 2022.

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

9    Other interest-bearing liabilities consist primarily of MRCS and/or borrowings from other FHLBanks.

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

11    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						Six Months Ended
	June 30, 2023 vs. June 30, 2022						June 30, 2023 vs. June 30, 2022
	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	$	13	$	35	$	48	$	16	$	70	$	86
Securities purchased under agreements to resell	45		116		161		31		222		253
Federal funds sold	19		183		202		17		353		370
MBS	44		179		223		51		353		404
Other investments	(2)		20		18		1		37		38
Advances	466		958		1,424		824		1,883		2,707
Mortgage loans	7		11		18		12		22		34
Loans to other FHLBanks	—		1		1		—		1		1
Total interest income	592		1,503		2,095		952		2,941		3,893
Interest expense
Deposits	—		10		10		—		20		20
Consolidated obligations
Discount notes	37		596		633		127		1,227		1,354
Bonds	565		675		1,240		609		1,515		2,124
Total interest expense	602		1,281		1,883		736		2,762		3,498
Net interest income	$	(10)	$	222	$	212	$	216	$	179	$	395

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. Our net interest spread declined slightly during the three and six months ended June 30, 2023 when compared to the same periods in 2022 due primarily to the cost of our interest-bearing liabilities increasing at a quicker pace than the yield on our interest-earnings assets. Net interest margin equals net interest income expressed as a percentage of average interest-earning assets. Our net interest margin increased during the three and six months ended June 30, 2023 when compared to the same periods in 2022 due primarily to higher interest rates, which improved our earnings on invested capital.

Interest income increased during the three and six months ended June 30, 2023 when compared to the same periods in 2022 due primarily to the higher interest rate environment, as well as higher advance volumes. Interest expense increased during the three and six months ended June 30, 2023 when compared to the same periods in 2022 due to the higher interest rate environment and higher consolidated obligation volumes necessary to fund our asset growth and/or meet liquidity requirements.

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Other Income (Loss)

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

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net gains (losses) on trading securities	$	(10)	$	(23)	$	23	$	(64)
Net gains (losses) on financial instruments held under fair value option	4		77		(61)		99
Net gains (losses) on derivatives	(17)		(30)		(7)		(14)
Net gains (losses) on extinguishment of debt	—		—		2		—
Standby letter of credit fees	2		3		4		5
Other, net	4		(2)		7		(1)
Total other income (loss)	$	(17)	$	25	$	(32)	$	25

Other income (loss) declined $42 million and $57 million during the three and six months ended June 30, 2023 when compared to the same periods in 2022. During the three and six months ended June 30, 2023, we recorded net combined losses of $23 million and $45 million on our trading securities, fair value option instruments, and economic derivatives, including the related interest settlements, compared to net gains of $24 million and $21 million for the same periods in 2022. These changes were primarily driven by the interest rate environment and the reversal of historic gains and losses on instruments as they approach maturity. 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.

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).

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

	For the Three Months Ended June 30, 2023
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Discount Notes		Bonds		Other		Total
Net interest income:
Net amortization/accretion1	$	12	$	9	$	—	$	—	$	(5)	$	—	$	16
Net gains (losses) on derivatives and hedged items	(5)		27		—		—		(11)		—		11
Net interest settlements on derivatives2	193		65		—		—		(48)		—		210
Total impact to net interest income	200		101		—		—		(64)		—		237
Other income (loss):
Net gains (losses) on derivatives3	—		32		—		(44)		—		—		(12)
Net gains (losses) on trading securities4	—		(10)		—		—		—		—		(10)
Net gains (losses) on financial instruments held under fair value option4	—		—		—		4		—		—		4
Price alignment amount on derivatives5	—		—		—		—		—		(5)		(5)
Total impact to other income (loss)	—		22		—		(40)		—		(5)		(23)
Total net effect of hedging activities6	$	200	$	123	$	—	$	(40)	$	(64)	$	(5)	$	214

	For the Three Months Ended June 30, 2022
Net Effect of Hedging Activities	Advances		Investments		Discount Notes		Bonds		Other		Total
Net interest income:
Net amortization/accretion1	$	6	$	5	$	—	$	(1)	$	—	$	10
Net gains (losses) on derivatives and hedged items	—��		8		—		(1)		—		7
Net interest settlements on derivatives2	(19)		(20)		—		5		—		(34)
Total impact to net interest income	(13)		(7)		—		3		—		(17)
Other income (loss):
Net gains (losses) on derivatives3	—		21		(50)		(1)		—		(30)
Net gains (losses) on trading securities4	—		(23)		—		—		—		(23)
Net gains (losses) on financial instruments held under fair value option4	—		—		77		—		—		77
Price alignment amount on derivatives5	—		—		—		—		(1)		(1)
Total impact to other income (loss)	—		(2)		27		(1)		(1)		23
Total net effect of hedging activities6	$	(13)	$	(9)	$	27	$	2	$	(1)	$	6

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, which is included in net gains (losses) on derivatives on our Statements of Income.

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 tables categorize the net effect of hedging activities on net income by product (dollars in millions):

	For the Six Months Ended June 30, 2023
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Discount Notes		Bonds		Other		Total
Net interest income:
Net amortization/accretion1	$	21	$	15	$	—	$	—	$	(6)	$	—	$	30
Net gains (losses) on derivatives and hedged items	(11)		38		—		—		(25)		—		2
Net interest settlements on derivatives2	328		113		—		—		(97)		—		344
Total impact to net interest income	338		166		—		—		(128)		—		376
Other income (loss):
Net gains (losses) on derivatives3	—		29		(1)		(23)		—		—		5
Net gains (losses) on trading securities4	—		23		—		—		—		—		23
Net gains (losses) on financial instruments held under fair value option4	—		—		—		(61)		—		—		(61)
Price alignment amount on derivatives5	—		—		—		—		—		(12)		(12)
Total impact to other income (loss)	—		52		(1)		(84)		—		(12)		(45)
Total net effect of hedging activities6	$	338	$	218	$	(1)	$	(84)	$	(128)	$	(12)	$	331

	For the Six Months Ended June 30, 2022
Net Effect of Hedging Activities	Advances		Investments		Mortgage Loans		Discount Notes		Bonds		Other		Total
Net interest income:
Net amortization/accretion1	$	6	$	5	$	(1)	$	—	$	(2)	$	—	$	8
Net gains (losses) on derivatives and hedged items	—		15		—		—		(4)				11
Net interest settlements on derivatives2	(58)		(48)		—		—		18		—		(88)
Total impact to net interest income	(52)		(28)		(1)		—		12		—		(69)
Other income (loss):
Net gains (losses) on derivatives3	—		53		—		(66)		(1)		—		(14)
Net gains (losses) on trading securities4	—		(64)		—		—		—		—		(64)
Net gains (losses) on financial instruments held under fair value option4	—		—		—		99		—		—		99
Price alignment amount on derivatives5	—		—		—		—		—		(1)		(1)
Total impact to other income (loss)	—		(11)		—		33		(1)		(1)		20
Total net effect of hedging activities6	$	(52)	$	(39)	$	(1)	$	33	$	11	$	(1)	$	(49)

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, which is included in net gains (losses) on derivatives on our Statements of Income.

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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NET AMORTIZATION/ACCRETION

Net 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 six months ended June 30, 2023, 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 fair value hedge relationships.

NET GAINS (LOSSES) ON DERIVATIVES AND HEDGED ITEMS

Net gains and losses on derivatives and hedged items designated in fair value hedge relationships are recorded in net interest income. Gains (losses) on derivatives and hedged items fluctuate with changes in market conditions and are based on a range of factors, including current and projected levels of interest rates and volatility.

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 six months ended June 30, 2023, we recorded net losses of $12 million and net gains of $5 million on our economic derivatives, compared to net losses of $30 million and $14 million during the same periods last year. These changes were primarily driven by the interest rate environment and the reversal of historic gains and losses on instruments as they approach maturity.

Other Expense

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Compensation and benefits	$	18	$	18	$	38	$	36
Contractual services	6		5		12		10
Professional fees	4		3		7		6
Other operating expenses	6		5		11		9
Total operating expenses	34		31		68		61
Federal Housing Finance Agency	3		2		5		5
Office of Finance	1		2		4		4
Community and housing contributions	—		—		12		—
Other, net	3		4		7		6
Total other expense	$	41	$	39	$	96	$	76

Other expense increased $2 million and $20 million during the three and six months ended June 30, 2023 when compared to the same periods last year. The increase during the six months ended June 30, 2023 was primarily due to a $12 million contribution to our Member Impact Fund, a discretionary non-AHP program intended to support affordable housing and community development.

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STATEMENTS OF CONDITION

Financial Highlights

    Our total assets increased to $180.2 billion at June 30, 2023 from $164.2 billion at December 31, 2022. Our total liabilities increased to $171.0 billion at June 30, 2023 from $155.4 billion at December 31, 2022. Total capital increased to $9.2 billion at June 30, 2023 from $8.8 billion at December 31, 2022. See further discussion of changes in our financial condition in the appropriate sections that follow.

Advances

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

	June 30, 2023		December 31, 2022
Commercial banks	$	69,150	$	66,303
Savings institutions	1,442		1,498
Credit unions	13,200		12,989
Insurance companies	31,581		31,433
CDFIs	12		12
Total member advances	115,385		112,235
Housing associates	54		74
Non-member borrowers	60		65
Total par value	$	115,499	$	112,374

Our total advance par value increased $3.1 billion or three percent at June 30, 2023 when compared to December 31, 2022, primarily due to an increase in borrowings by depository institution members.

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

	June 30, 2023			December 31, 2022
	Amount		% of Total	Amount		% of Total
Fixed rate	$	76,089	66	$	63,693	57
Fixed rate, putable	1		—	168		—
Variable rate	21,520		19	23,908		21
Variable rate, callable1	16,511		14	23,291		21
Other2	1,370		1	1,313		1
Overdrawn demand deposit accounts	8		—	1		—
Total advance par value	115,499		100	112,374		100
Premiums	7			11
Fair value hedging adjustments	(1,449)			(1,183)
Total	$	114,057		$	111,202

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 $266 million at June 30, 2023 when compared to December 31, 2022 due primarily to the impact of interest rates on our cumulative fair value adjustments on advances in active hedge relationships.

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At June 30, 2023 and December 31, 2022, advances outstanding to our five largest member borrowers totaled $43.3 billion and $50.9 billion, which represented 38 percent and 45 percent of our total advances outstanding. The following table summarizes advances outstanding to our five largest member borrowers at June 30, 2023 (dollars in millions):

	Amount		% of Total Advances
Wells Fargo Bank, N.A.	$	24,000	21
Umpqua Bank	6,200		5
Athene Annuity and Life Company1	4,481		4
UBS Bank USA	4,359		4
Principal Life Insurance Company	4,250		4
Total par value	$	43,290	38

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):

	June 30, 2023		December 31, 2022
Fixed rate conventional loans	$	8,453	$	7,890
Fixed rate government-insured loans	381		387
Total unpaid principal balance	8,834		8,277
Premiums	103		96
Discounts	(11)		(11)
Basis adjustments from mortgage loan purchase commitments	(11)		(9)
Total mortgage loans held for portfolio	8,915		8,353
Allowance for credit losses	(6)		(5)
Total mortgage loans held for portfolio, net	$	8,909	$	8,348

Our total mortgage loans increased $0.6 billion or seven percent at June 30, 2023 when compared to December 31, 2022. The increase was primarily due to new loan purchases exceeding principal paydowns, driven in part by a decrease in prepayment activity as mortgage rates remained elevated.

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.”

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Investments

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

	June 30, 2023			December 31, 2022
	Amount		% of Total	Amount		% of Total
Short-term investments1
Interest-bearing deposits	$	2,841	5	$	2,031	4
Securities purchased under agreements to resell	17,950		32	12,590		29
Federal funds sold	12,145		22	9,415		22
Total short-term investments	32,936		59	24,036		55
Long-term investments2
MBS
GSE single-family	696		1	767		2
GSE multifamily	14,688		27	9,805		23
U.S. obligations single-family3	3,575		6	3,678		8
Private-label residential	3		—	4		—
Total MBS	18,962		34	14,254		33
Non-MBS
U.S. Treasury obligations3	1,276		2	2,501		6
Other U.S. obligations3	641		1	834		2
GSE and TVA obligations	861		2	888		2
State or local housing agency obligations	460		1	482		1
Other4	362		1	386		1
Total non-MBS	3,600		7	5,091		12
Total long-term investments	22,562		41	19,345		45
Total investments	$	55,498	100	$	43,381	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 $12.1 billion or 28 percent at June 30, 2023 when compared to December 31, 2022 due primarily to an increase in short-term investments of $8.9 billion, mainly securities purchased under agreements to resell and federal funds sold, as well as the purchase of agency MBS. At June 30, 2023 and December 31, 2022, we had GSE MBS purchases with a total par value of $1.3 billion and $181 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 2.12 and 1.69 at June 30, 2023 and December 31, 2022.

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 June 30, 2023 and December 31, 2022, the carrying value of consolidated obligations for which we are primarily liable totaled $167.3 billion and $153.5 billion.

DISCOUNT NOTES

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

	June 30, 2023		December 31, 2022
Par value	$	51,049	$	70,002
Discounts and concession fees1	(560)		(725)
Fair value option valuation adjustments	(46)		(107)
Total	$	50,443	$	69,170

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

Our discount notes decreased $18.7 billion or 27 percent at June 30, 2023 when compared to December 31, 2022. Although the balance declined from the prior year-end, during the six months ended June 30, 2023, we continued to utilize discount notes primarily to fund our increase in short-term assets and/or meet our liquidity requirements.

BONDS

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

	June 30, 2023		December 31, 2022
Par value	$	117,041	$	84,572
Premiums	69		86
Discounts and concession fees1	(25)		(23)
Fair value hedging adjustments	(275)		(298)
Total	$	116,810	$	84,337

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

Our bonds increased $32.5 billion or 39 percent at June 30, 2023 when compared to December 31, 2022. During the six months ended June 30, 2023, we increased our utilization of bonds primarily to fund our asset growth and/or meet our liquidity requirements. Fair value hedging adjustments changed $23 million at June 30, 2023 when compared to December 31, 2022 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):

	June 30, 2023		December 31, 2022
Capital stock	$	6,449	$	6,250
Retained earnings	2,854		2,618
Accumulated other comprehensive income (loss)	(107)		(117)
Total capital	$	9,196	$	8,751

Our capital increased at June 30, 2023 when compared to December 31, 2022 due primarily to an increase in retained earnings and 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):

	June 30, 2023		December 31, 2022
Interest rate swaps
Non-callable	$	106,109	$	94,582
Callable by counterparty	21,479		6,901
Total interest rate swaps	127,588		101,483
Forward settlement agreements	235		46
Mortgage loan purchase commitments	231		46
Total notional amount	$	128,054	$	101,575

The notional amount of our derivative contracts increased $26.5 billion or 26 percent at June 30, 2023 when compared to December 31, 2022. This was primarily due to increased utilization of both non-callable and callable swaps to hedge our advances and consolidated obligations in an effort to manage our interest rate risk. 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.”

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 six months ended June 30, 2023, proceeds from the issuance of bonds and discount notes were $79.5 billion and $858.6 billion compared to $13.2 billion and $276.3 billion for the same periods in 2022. During the six months ended June 30, 2023, we increased our usage of consolidated obligations primarily to fund our asset growth and/or meet our liquidity requirements.

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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 July 31, 2023, 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. In August 2023, Fitch Ratings downgraded the long-term U.S. sovereign rating to AA+ with a stable outlook. Following this action, Fitch Ratings also downgraded our long-term rating to AA+ with 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 2022 Form 10-K.

Although we are primarily liable for the portion of consolidated obligations that are 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 June 30, 2023 and December 31, 2022, the total par value of outstanding consolidated obligations for which we are primarily liable was $168.1 billion and $154.6 billion. At June 30, 2023 and December 31, 2022, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which we are jointly and severally liable was $1,172.1 billion and $1,027.1 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 and chief executive officer (CEO) 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 July 31, 2023, no purchases had been made by the U.S. Treasury under this authorization.

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 six months ended June 30, 2023, repayments of consolidated obligations totaled $924.6 billion compared to $281.5 billion for the same period in 2022.

During the six months ended June 30, 2023, advance disbursements (excluding daily renewals) totaled $374.0 billion compared to $112.0 billion for the same period in 2022. Advance disbursements will vary from period to period depending on member needs and increased during the six months ended June 30, 2023 due primarily to increased member utilization of short-term advances. In particular, we saw accelerated member demand throughout March in response to the stress placed on the banking industry and financial markets resulting from the financial difficulties experienced by certain depository institutions. During the six months ended June 30, 2023, investment purchases (excluding overnight investments) totaled $5.4 billion compared to $2.8 billion for the same period in 2022. In both periods, we purchased short-term investments 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.

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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 2022 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 June 30, 2023 and December 31, 2022, 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 recommended funding gap maximums of negative 15 percent at the three-month horizon and negative 30 percent at the one-year horizon. At June 30, 2023 and December 31, 2022, 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 the amounts paid-in for 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 June 30, 2023 and December 31, 2022, we did not hold any nonpermanent capital. At June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022, 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.

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 Class B 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.

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

	June 30, 2023		December 31, 2022
Commercial banks	$	3,811	$	3,659
Savings institutions	119		119
Credit unions	963		926
Insurance companies	1,555		1,545
CDFIs	1		1
Total GAAP capital stock	6,449		6,250
MRCS	13		15
Total regulatory capital stock	$	6,462	$	6,265

The increase in regulatory capital stock held at June 30, 2023 when compared to December 31, 2022 was due primarily 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 June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022, our restricted retained earnings balance totaled $791 million and $703 million. One percent of our average balance of outstanding consolidated obligations for the three months ended June 30, 2023 was $1.8 billion.

Dividends

Our dividend philosophy is to pay a consistent dividend equal to or greater than the current market rate for a highly-rated investment (i.e. SOFR), and at a rate that the Board of Directors believes is sustainable under current and projected earnings to maintain an appropriate level of capital and retained earnings. Our 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 Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Aggregate cash dividends paid1	$	109		$	42		$	205		$	85
Effective combined annualized dividend rate paid on capital stock2	6.86		%	5.00		%	6.72		%	4.93		%
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	7.95		%	6.25		%	7.85		%	6.13		%
Average SOFR	4.97		%	0.71		%	4.73		%	0.41		%

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.

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CRITICAL ACCOUNTING ESTIMATES

For a discussion of our critical accounting estimates, refer to our 2022 Form 10-K. There have been no material changes to our critical accounting estimates during the six months ended June 30, 2023.

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

Finance Agency Review and Analysis of the FHLBank System

In the fall of 2022, and over a period of several months, the Finance Agency undertook a review and analysis of the FHLBank System, in part through a series of public listening sessions, regional roundtable discussions, and receipt of comments from stakeholders. This review covered such areas as the FHLBanks’ mission and purpose in a changing marketplace; their organization, operational efficiency, and effectiveness; their role in promoting affordable, sustainable, equitable, and resilient housing and community investment; their role in addressing the unique needs of rural and financially vulnerable communities; member products, services, collateral requirements; and membership eligibility and requirements. The Finance Agency has stated that its review and analysis will culminate in a written report issued no later than September 30, 2023. The report is expected to (i) summarize the feedback received, (ii) identify actions the Finance Agency plans to take, and (iii) outline any recommendations for consideration by Congress.

RISK MANAGEMENT

We have risk management policies, established by our Board of Directors, that allow us to monitor and control our exposure to various risks, including interest rate, liquidity, credit, operational, model, information security, legal, regulatory and compliance, diversity, equity, and inclusion (DEI), strategic, and reputational risk, 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 2022 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) or 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. At June 30, 2023 and December 31, 2022, our base case MVE was $9.3 billion and $8.6 billion, and the increase between periods was primarily due to an increase in retained earnings and activity-based capital stock. During the six months ended June 30, 2023, we recorded net income of $441 million and our dividends totaled $205 million. The earnings in excess of our dividend payments had a positive impact on MVE. At June 30, 2023 and December 31, 2022, we were in compliance with all MVE policy limits.

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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 $143.8 at June 30, 2023 compared to $136.7 at December 31, 2022. The increase in our base case MVCS was primarily attributable to an increase in our MVE, offset in part by the issuance of activity-based capital stock at par value, which is below our current MVCS value.

For more information on this risk measure, including policy limits, 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 2022 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.”

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. We were in compliance with all projected 24-month income policy limits at June 30, 2023 and December 31, 2022.

For more information on this risk measure, including policy limits, 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 2022 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.

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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.

At June 30, 2023 and December 31, 2022, borrowers pledged $364.6 billion and $350.2 billion of collateral (net of applicable discounts) to support activity with us, including advances. At June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022. Refer to “Item 1. Financial Statements — Note 4 — Advances” for additional information on our 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	June 30, 2023		December 31, 2022
Conventional	$	8,453	$	7,890
Government	381		387
Total unpaid principal balance	$	8,834	$	8,277

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 participating financial institutions (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 June 30, 2023 and December 31, 2022, we had an allowance for credit losses of $6 million and $5 million on our conventional mortgage loans. At June 30, 2023, over 99 percent of our conventional loan portfolio was performing (i.e. current payment status) and charge-offs recorded during the six months ended June 30, 2023 were less than one percent of the total conventional portfolio.

We have never experienced a credit loss on our government-insured mortgage loans. At June 30, 2023 and December 31, 2022, 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.

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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.

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 June 30, 2023, 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 June 30, 2023, 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 2022 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.

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At June 30, 2023, 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):

	June 30, 2023
	Credit Rating1,2
Domicile of Counterparty	AA		A		Total
Domestic	$	—	$	3,800	$	3,800
U.S subsidiaries of foreign commercial banks	—		910		910
Total domestic and U.S. subsidiaries of foreign commercial banks	—		4,710		4,710
U.S. branches and agency offices of foreign commercial banks
Australia	1,250		—		1,250
Belgium	—		960		960
Canada	—		2,820		2,820
Finland	1,440		—		1,440
France	—		200		200
Germany	1,200		—		1,200
Netherlands	—		500		500
Sweden	—		960		960
United Kingdom	—		945		945
Total U.S. branches and agency offices of foreign commercial banks	3,890		6,385		10,275
Total unsecured short-term investment exposure	$	3,890	$	11,095	$	14,985

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.

Investment Ratings

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

	June 30, 2023
	Credit Rating1
	AAA		AA		A		BBB		Unrated		Total
Interest-bearing deposits	$	—	$	1	$	2,840	$	—	$	—	$	2,841
Securities purchased under agreements to resell	—		5,950		5,500		—		6,500		17,950
Federal funds sold	—		3,890		8,255		—		—		12,145
Investment securities:
MBS
GSE single-family	—		696		—		—		—		696
GSE multifamily	—		14,688		—		—		—		14,688
U.S. obligations single-family2	—		3,575		—		—		—		3,575
Private-label residential	—		—		2		1		—		3
Total MBS	—		18,959		2		1		—		18,962
Non-MBS
U.S. Treasury obligations2	—		1,276		—		—		—		1,276
Other U.S. obligations2	—		641		—		—		—		641
GSE and TVA obligations	—		861		—		—		—		861
State or local housing agency obligations	431		29		—		—		—		460
Other3	343		19		—		—		—		362
Total non-MBS	774		2,826		—		—		—		3,600
Total investments	$	774	$	31,626	$	16,597	$	1	$	6,500	$	55,498

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.

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We evaluate investments for credit losses on a quarterly basis. At June 30, 2023 and December 31, 2022, 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.

Uncleared derivative transactions executed on or after the dates specified in applicable regulations are subject to two-way initial margin requirements as mandated by the Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, if our aggregate uncleared derivative transactions exposure to a counterparty exceeds a specified threshold. The initial margin is required to be held at a third-party custodian and does not change ownership. Rather, the party in respect of which the initial margin has been posted to the third-party custodian will have a security interest in the amount of initial margin required under the uncleared margin rules and can only take ownership upon the occurrence of certain events, including an event of default due to bankruptcy, insolvency, or similar proceeding. As of July 31, 2023, we were not required to post initial margin on our uncleared derivative transactions in accordance with the noted regulations.

For all uncleared transactions entered into on or after March 1, 2017, the derivative agreements are fully

collateralized with a zero unsecured threshold in accordance with variation margin requirements issued by the U.S. federal bank regulatory agencies and the Commodity Futures Trading Commission.

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.

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

	June 30, 2023
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
A	$	1,533	$	22	$	(21)	$	1
Cleared derivatives2	40,212		8		461		469
Liability positions with credit exposure
Uncleared derivatives
A	5,730		(10)		12		2
Cleared derivatives2	64,879		(2)		641		639
Total derivative positions with credit exposure to non-member counterparties	112,354		18		1,093		1,111
Member institutions3,4	20		—		—		—
Total	112,374		$	18	$	1,093	$	1,111
Derivative positions without credit exposure	15,680
Total notional	$	128,054

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 June 30, 2023. LCH Ltd. was rated AA- by S&P at June 30, 2023.

3    Net credit exposure is less than $1 million.

4    Represents mortgage loan purchase commitments with our member institutions.

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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.

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 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 June 30, 2023.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2023, 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 2022 Form 10-K. There have been no material changes to our risk factors during the six months ended June 30, 2023.

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
10.1	Federal Home Loan Bank of Des Moines Executive Severance Plan, effective May 1, 20234
10.2	Purchase Agreement with Principal Life Insurance Company, effective April 28, 20235
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).

4    Incorporated by reference from our Form 8-K filed with the SEC on May 22, 2023 (Commission File No. 000-51999).

5    Incorporated by reference from our Form 8-K filed with the SEC on May 2, 2023 (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:	August 8, 2023
By:	/s/ Kristina K. Williams
	Kristina K. Williams President and Chief Executive Officer
By:	/s/ James G. Livingston
	James G. Livingston Chief Financial Officer (Principal Financial and Accounting Officer)

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