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Federal Home Loan Bank Of Cincinnati (1326771) SEC Filing 10-Q Quarterly Report for the period ending Thursday, September 30, 2021

Federal Home Loan Bank Of Cincinnati

CIK: 1326771

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Contact:
News Release
Laura Gaffin, FHLB Cincinnati
FOR IMMEDIATE RELEASE
513.852.7086 (office) or 513.265.5431 (cell)
October 28, 2021
    
FHLB CINCINNATI ANNOUNCES THIRD QUARTER 2021 RESULTS

Cincinnati, Ohio – The Federal Home Loan Bank of Cincinnati (the FHLB) today released unaudited financial results for the third quarter ended September 30, 2021.
Operating Results
Three-Months Comparison: For the three months ended September 30, 2021, net income was $6 million and return on average equity (ROE) was 0.60 percent. This compares to net income of $57 million and ROE of 4.70 percent for the same period of 2020. The decline in profitability in the third quarter of 2021 compared to the same period of 2020 was primarily the result of low interest rates and an unprecedented amount of liquidity in the financial markets due to governmental stimulus actions, which impacted the following:
Advances. Average Advance balances declined 46 percent. Although Advances grew significantly during the onset of the COVID-19 pandemic as members sought additional liquidity, balances subsequently fell in 2020 and have remained below pre-pandemic levels due to increased liquidity in the financial markets and increased deposit levels at member institutions. Additionally, Advance prepayment fees were lower due to a higher amount of member prepayments of Advances in the third quarter of 2020 as interest rates declined.
Mortgage Assets. The spreads earned on mortgage assets declined due to the accelerated payoff of higher-yielding mortgages at a faster pace than the associated debt funding them. The historically low long-term interest rates led to prepayments occurring faster than the purchases of new mortgage assets, which also resulted in the average balances of mortgage assets declining 28 percent.
Fair Value Adjustments. Unrealized losses on derivatives and instruments held at fair value in response to changes in interest rates.
Nine-Months Comparison: For the first nine months of 2021, net income was $25 million and ROE was 0.85 percent, compared to net income of $236 million and ROE of 6.28 percent for the same period of 2020. The decline in profitability in the first nine months of 2021 compared to the same period of 2020 was primarily driven by the Advances and mortgage assets factors noted for the three-months comparison as well as the following:
Sales of Swaptions. The FHLB sold interest rate swaptions in the first quarter of 2020 in response to changes in interest rates, which resulted in net realized gains of approximately $69 million before assessments. The FHLB did not sell any interest rate swaptions in the first nine months of 2021. The FHLB uses swaptions to hedge market risk exposure associated with
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The following information was filed by Federal Home Loan Bank Of Cincinnati on Thursday, October 28, 2021 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.


 UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 000-51399
FEDERAL HOME LOAN BANK OF CINCINNATI
(Exact name of registrant as specified in its charter)
Federally chartered corporation of the United States
31-6000228
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
600 Atrium Two, P.O. Box 598, Cincinnati, Ohio
45201-0598
(Address of principal executive offices)
(Zip Code)
(513) 852-7500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer 
Accelerated Filer 
Non-accelerated FilerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No
The capital stock of the registrant is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share. As of October 31, 2021, the registrant had 24,705,101 shares of capital stock outstanding, which included stock classified as mandatorily redeemable.
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Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited):
Statements of Condition - September 30, 2021 and December 31, 2020
Statements of Income - Three and nine months ended September 30, 2021 and 2020
Statements of Comprehensive Income - Three and nine months ended September 30, 2021 and 2020
Statements of Capital - Three and nine months ended September 30, 2021 and 2020
Statements of Cash Flows - Nine months ended September 30, 2021 and 2020
Notes to Unaudited Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II - OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
Signatures
2

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CONDITION
(Unaudited)

(In thousands, except par value)
 September 30, 2021 December 31, 2020
ASSETS   
Cash and due from banks $20,295  $2,984,073 
Interest-bearing deposits335,075  555,104 
Securities purchased under agreements to resell289,600  1,818,268 
Federal funds sold5,715,000  4,240,000 
Investment securities:
Trading securities 7,108,446  10,488,124 
Available-for-sale securities (amortized cost of $3,826,002 and $286,869 at September 30, 2021 and December 31, 2020, respectively)
3,853,974  291,587 
Held-to-maturity securities (includes $0 and $0 pledged as collateral at September 30, 2021 and December 31, 2020, respectively, that may be repledged) (a)
10,004,477  9,648,171 
Total investment securities20,966,897 20,427,882 
Advances (includes $25,918 and $27,202 at fair value under fair value option at September 30, 2021 and December 31, 2020, respectively)
22,792,786  25,362,003 
Mortgage loans held for portfolio, net of allowance for credit losses of $248 and $248 at September 30, 2021 and December 31, 2020, respectively
7,687,610  9,548,506 
Accrued interest receivable105,684  113,701 
Derivative assets 245,787  215,888 
Other assets, net22,808  30,814 
TOTAL ASSETS$58,181,542  $65,296,239 
LIABILITIES   
Deposits $1,525,337  $1,327,202 
Consolidated Obligations:    
Discount Notes (includes $4,873,353 and $0 at fair value under fair value option at September 30, 2021 and December 31, 2020, respectively)
26,609,080  27,500,244 
Bonds (includes $2,152,204 and $2,262,388 at fair value under fair value option at September 30, 2021 and December 31, 2020, respectively)
24,686,178  31,996,311 
Total Consolidated Obligations51,295,258  59,496,555 
Mandatorily redeemable capital stock 12,855  19,454 
Accrued interest payable62,900  77,521 
Affordable Housing Program payable 89,868  110,772 
Derivative liabilities 3,197  3,813 
Other liabilities1,464,610  331,008 
Total liabilities54,454,025  61,366,325 
Commitments and contingencies
CAPITAL    
Capital stock Class B putable ($100 par value); issued and outstanding shares: 24,287 shares at September 30, 2021 and 26,409 shares at December 31, 2020
2,428,747  2,640,863 
Retained earnings:
Unrestricted782,159 802,715 
Restricted506,294 501,321 
Total retained earnings1,288,453  1,304,036 
Accumulated other comprehensive loss 10,317  (14,985)
Total capital3,727,517  3,929,914 
TOTAL LIABILITIES AND CAPITAL$58,181,542  $65,296,239 
(a)Fair values: $10,098,282 and $9,792,136 at September 30, 2021 and December 31, 2020, respectively.

The accompanying notes are an integral part of these financial statements.
3

FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF INCOME
(Unaudited)

(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
 2021 202020212020
INTEREST INCOME:   
Advances$30,688  $63,974 $103,219 $394,578 
Prepayment fees on Advances, net2,229  7,509 8,629 25,103 
Interest-bearing deposits154  442 535 4,202 
Securities purchased under agreements to resell72  290 339 10,680 
Federal funds sold1,436  1,541 3,982 30,621 
Investment securities:
Trading securities47,260  66,281 158,982 201,876 
Available-for-sale securities2,296  271 3,975 4,286 
Held-to-maturity securities23,796 36,516 77,939 153,199 
Total investment securities73,352 103,068 240,896 359,361 
Mortgage loans held for portfolio42,515  62,429 125,359 225,837 
Loans to other FHLBanks—  — — 60 
Total interest income150,446  239,253 482,959 1,050,442 
INTEREST EXPENSE:   
Consolidated Obligations:
Discount Notes2,624  26,299 9,853 285,755 
Bonds83,704  119,748 266,479 435,543 
Total Consolidated Obligations86,328 146,047 276,332 721,298 
Deposits100  174 348 3,348 
Mandatorily redeemable capital stock70  (76)274 978 
Total interest expense86,498  146,145 276,954 725,624 
NET INTEREST INCOME63,948  93,108 206,005 324,818 
NON-INTEREST INCOME (LOSS):   
Net gains (losses) on investment securities(50,642)(42,136)(204,891)319,866 
Net gains (losses) on financial instruments held under fair value option
1,301 10,687 7,808 (14,402)
Net gains (losses) on derivatives and hedging activities5,924  19,708 66,989 (308,230)
Letters of Credit fees6,475 3,726 18,918 9,430 
Other, net478  544 1,307 1,529 
Total non-interest income (loss)(36,464) (7,471)(109,869)8,193 
NON-INTEREST EXPENSE:   
Compensation and benefits10,698  12,356 35,687 37,647 
Other operating expenses5,522  4,789 16,706 15,860 
Finance Agency1,879  1,629 5,637 4,886 
Office of Finance1,315  1,331 3,757 4,034 
Other1,629  1,766 6,690 7,742 
Total non-interest expense21,043  21,871 68,477 70,169 
INCOME BEFORE ASSESSMENTS6,441  63,766 27,659 262,842 
Affordable Housing Program assessments651  6,369 2,793 26,382 
NET INCOME$5,790  $57,397 $24,866 $236,460 
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

(In thousands)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net income$5,790 $57,397 $24,866 $236,460 
Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities
11,607 3,504 23,254 2,621 
Pension and postretirement benefits696 572 2,048 1,716 
Total other comprehensive income (loss) adjustments
12,303 4,076 25,302 4,337 
Comprehensive income$18,093 $61,473 $50,168 $240,797 

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

5

FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CAPITAL
(Unaudited)
(In thousands)Capital Stock
Class B - Putable
Retained EarningsAccumulated Other ComprehensiveTotal
 SharesPar ValueUnrestrictedRestrictedTotalLossCapital
BALANCE, JUNE 30, 202038,131 $3,813,110 $765,084 $481,861 $1,246,945 $(16,133)$5,043,922 
Comprehensive income (loss)45,918 11,479 57,397 4,076 61,473 
Proceeds from sale of capital stock214 21,389 21,389 
Repurchase of capital stock(9,000)(900,000)(900,000)
Cash dividends on capital stock(22,051)(22,051)(22,051)
BALANCE, SEPTEMBER 30, 202029,345 $2,934,499 $788,951 $493,340 $1,282,291 $(12,057)$4,204,733 
BALANCE, JUNE 30, 202127,184 $2,718,430 $791,390 $505,136 $1,296,526 $(1,986)$4,012,970 
Comprehensive income (loss)  4,632 1,158 5,790 12,303 18,093 
Proceeds from sale of capital stock309 30,896  30,896 
Repurchase of capital stock(3,200)(320,000)(320,000)
Net shares reclassified to mandatorily
   redeemable capital stock
(6)(579) (579)
Cash dividends on capital stock  (13,863)(13,863) (13,863)
BALANCE, SEPTEMBER 30, 202124,287 $2,428,747 $782,159 $506,294 $1,288,453 $10,317 $3,727,517 
(In thousands)Capital Stock
Class B - Putable
Retained EarningsAccumulated Other ComprehensiveTotal
 SharesPar ValueUnrestrictedRestrictedTotalLossCapital
BALANCE, DECEMBER 31, 201933,664 $3,366,428 $648,374 $446,048 $1,094,422 $(16,394)$4,444,456 
Adjustment for cumulative effect of accounting change366 366 366 
Comprehensive income (loss)189,168 47,292 236,460 4,337 240,797 
Proceeds from sale of capital stock21,256 2,125,590 2,125,590 
Repurchase of capital stock(20,000)(2,000,000)(2,000,000)
Net shares reclassified to mandatorily redeemable capital stock(5,575)(557,519)(557,519)
Partial recovery of prior capital distribution to Financing Corporation16,533 16,533 16,533 
Cash dividends on capital stock(65,490)(65,490)(65,490)
BALANCE, SEPTEMBER 30, 202029,345 $2,934,499 $788,951 $493,340 $1,282,291 $(12,057)$4,204,733 
BALANCE, DECEMBER 31, 202026,409 $2,640,863 $802,715 $501,321 $1,304,036 $(14,985)$3,929,914 
Comprehensive income (loss)  19,893 4,973 24,866 25,302 50,168 
Proceeds from sale of capital stock10,358 1,035,868  1,035,868 
Repurchase of capital stock(11,864)(1,186,402)(1,186,402)
Net shares reclassified to mandatorily redeemable capital stock(616)(61,582) (61,582)
Cash dividends on capital stock  (40,449)(40,449) (40,449)
BALANCE, SEPTEMBER 30, 202124,287 $2,428,747 $782,159 $506,294 $1,288,453 $10,317 $3,727,517 

The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)Nine Months Ended September 30,
 2021 2020
OPERATING ACTIVITIES:   
Net income$24,866  $236,460 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
   
Depreciation and amortization68,026  37,313 
Net change in derivative and hedging activities
155,958  (183,733)
Net change in fair value adjustments on trading securities204,891  (319,866)
Net change in fair value adjustments on financial instruments held under fair value option
(7,808)14,402 
Other adjustments, net667  798 
Net change in:  
Accrued interest receivable8,024  38,140 
Other assets6,353  3,135 
Accrued interest payable(23,656) (56,937)
Other liabilities(22,601) 17,125 
Total adjustments389,854  (449,623)
Net cash provided by (used in) operating activities414,720  (213,163)
INVESTING ACTIVITIES:   
Net change in:   
Interest-bearing deposits244,522  (260,047)
Securities purchased under agreements to resell1,528,668  (105,110)
Federal funds sold(1,475,000) (3,872,000)
Premises, software, and equipment(833) (1,265)
Trading securities:   
Proceeds from maturities1,000,097  5,135,034 
Proceeds from sale2,174,690 — 
Purchases— (4,499,939)
Available-for-sale securities:   
Proceeds from maturities—  1,810,000 
Purchases(3,301,754)(550,267)
Held-to-maturity securities:   
Proceeds from maturities2,270,257  2,437,476 
Purchases(1,768,566) (75,604)
Advances:   
Repaid307,504,422  470,292,647 
Originated(305,113,614) (449,675,012)
Mortgage loans held for portfolio:   
Principal collected2,927,342  2,942,372 
Purchases(1,138,756) (2,432,823)
Net cash provided by (used in) investing activities4,851,475  21,145,462 
The accompanying notes are an integral part of these financial statements.
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(continued from previous page)
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)Nine Months Ended September 30,
2021 2020
FINANCING ACTIVITIES:   
Net change in deposits and pass-through reserves$198,285  $284,032 
Net proceeds (payments) on derivative contracts with financing elements—  (1,394)
Net proceeds from issuance of Consolidated Obligations:   
Discount Notes147,066,103  232,873,177 
Bonds26,224,969  35,649,162 
Payments for maturing and retiring Consolidated Obligations:   
Discount Notes(147,951,166) (255,247,967)
Bonds(33,509,000) (32,661,065)
Proceeds from issuance of capital stock1,035,868  2,125,590 
Payments for repurchase of capital stock
(1,186,402)(2,000,000)
Payments for repurchase/redemption of mandatorily redeemable capital stock
(68,181) (561,527)
Cash dividends paid(40,449) (65,490)
Partial recovery of prior capital distribution to Financing Corporation
— 16,533 
Net cash provided by (used in) financing activities(8,229,973) (19,588,949)
Net increase (decrease) in cash and due from banks(2,963,778) 1,343,350 
Cash and due from banks at beginning of the period2,984,073  20,608 
Cash and due from banks at end of the period$20,295  $1,363,958 
Supplemental Disclosures:   
Interest paid$306,978  $830,682 
Affordable Housing Program payments, net$23,697  $25,922 


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

8

FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO UNAUDITED FINANCIAL STATEMENTS


Background Information    

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

Note 1 - Basis of Presentation

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

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

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

Subsequent Events

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


Note 2 - Recently Issued and Adopted Accounting Guidance

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. On March 12, 2020, the Financial Accounting Standards Board (FASB) issued temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale and/or transfer of debt securities classified as held-to-maturity. This guidance became effective immediately, and the FHLB may elect to apply the amendments through December 31, 2022. The FHLB either elected or plans to elect the majority of the optional expedients and exceptions provided; however, the full effect on the FHLB's financial condition, results of operations and cash flows has not yet been determined. In particular, during the fourth quarter of
9

2020, the FHLB elected optional practical expedients specific to the discounting transition on a retrospective basis, which did not have a material effect.


Note 3 - Investments

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

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

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

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the FHLB may extend to a counterparty. At September 30, 2021 and December 31, 2020, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. No allowance for credit losses was recorded for these assets at September 30, 2021 and December 31, 2020. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of (in thousands) $38 and $10 as of September 30, 2021, and $72 and $10 as of December 31, 2020.

Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with counterparties, the FHLB determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at September 30, 2021 and December 31, 2020. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of (in thousands) $9 and $13 as of September 30, 2021 and December 31, 2020.

Debt Securities

The FHLB invests in debt securities, which are classified as either trading, available-for-sale, or held-to-maturity. The FHLB is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities and instruments that experienced credit deterioration after their purchase by the FHLB. As of September 30, 2021, the FHLB had debt securities that were purchased, but not yet settled. The related payable for these securities of (in thousands) $1,137,344 was included in other liabilities on the Statements of Condition.

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Trading Securities

Table 3.1 - Trading Securities by Major Security Types (in thousands)
Fair ValueSeptember 30, 2021 December 31, 2020
Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligations$5,338,124 $8,362,211 
GSE obligations1,770,088  2,125,580 
Total non-MBS7,108,212 10,487,791 
Mortgage-backed securities (MBS):   
U.S. obligation single-family MBS234  333 
Total$7,108,446  $10,488,124 

Table 3.2 - Net Gains (Losses) on Trading Securities (in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net unrealized gains (losses) on trading securities held at period end$(19,324)$(38,866)$(163,166) $323,136 
Net gains (losses) on trading securities sold/matured during the period(31,318)(3,270)(41,725) (3,270)
Net gains (losses) on trading securities$(50,642)$(42,136)$(204,891) $319,866 

Available-for-Sale Securities

Table 3.3 - Available-for-Sale Securities by Major Security Types (in thousands)
 September 30, 2021
 
Amortized
Cost (1)
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
Non-MBS:
U.S. Treasury obligations$3,474,069  $21,982  $— $3,496,051 
GSE obligations134,743 2,347 — 137,090 
Total non-MBS3,608,812 24,329 — 3,633,141 
MBS:
GSE multi-family MBS217,190 3,651 (8)220,833 
Total MBS217,190 3,651 (8)220,833 
Total$3,826,002 $27,980 $(8)$3,853,974 
 December 31, 2020
 
Amortized
Cost (1)
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
Non-MBS:
GSE obligations$140,600 $1,802 $— $142,402 
Total non-MBS140,600 1,802 — 142,402 
MBS:
GSE multi-family MBS146,269 2,916 — 149,185 
Total MBS146,269 2,916 — 149,185 
Total$286,869 $4,718 $— $291,587 
(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of (in thousands) $7,114 and $1,242 at September 30, 2021 and December 31, 2020.

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

Table 3.4 - Available-for-Sale Securities in a Continuous Unrealized Loss Position (in thousands)
September 30, 2021
Less than 12 Months12 Months or moreTotal
 Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
GSE multi-family MBS$47,334 $(8)$— $— $47,334 $(8)
Total$47,334 $(8)$— $— $47,334 $(8)

All securities outstanding at December 31, 2020 had gross unrealized gains.

Table 3.5 - Available-for-Sale Securities by Contractual Maturity (in thousands)
 September 30, 2021 December 31, 2020
Year of MaturityAmortized
Cost
 Fair
Value
 Amortized
Cost
 Fair
Value
Non-MBS:
Due in 1 year or less$—  $—  $—  $— 
Due after 1 year through 5 years82,467 83,608 11,248 11,309 
Due after 5 years through 10 years3,513,889 3,536,530 116,096 117,507 
Due after 10 years12,456 13,003 13,256 13,586 
Total non-MBS3,608,812 3,633,141 140,600 142,402 
MBS (1)
217,190 220,833 146,269 149,185 
Total$3,826,002 $3,853,974 $286,869 $291,587 
(1)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.6 - Interest Rate Payment Terms of Available-for-Sale Securities (in thousands)
 September 30, 2021 December 31, 2020
Amortized cost of non-MBS:   
Fixed-rate$3,608,812  $140,600 
Total amortized cost of non-MBS3,608,812 140,600 
Amortized cost of MBS:
Fixed-rate217,190 146,269 
Total amortized cost of MBS217,190 146,269 
Total$3,826,002 $286,869 

The FHLB had no sales of securities out of its available-for-sale portfolio for the nine months ended September 30, 2021 or 2020.

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Held-to-Maturity Securities

Table 3.7 - Held-to-Maturity Securities by Major Security Types (in thousands)
September 30, 2021
Amortized Cost (1)
Gross Unrecognized Holding
Gains
Gross Unrecognized Holding LossesFair Value
Non-MBS:
U.S. Treasury obligations
$46,874 $— $— $46,874 
Total non-MBS46,874 — — 46,874 
MBS:    
U.S. obligation single-family MBS1,133,473 23,880 (3,980)1,153,373 
GSE single-family MBS
2,072,946 71,465 — 2,144,411 
GSE multi-family MBS
6,751,184 6,000 (3,560)6,753,624 
Total MBS9,957,603 101,345 (7,540)10,051,408 
Total$10,004,477 $101,345 $(7,540)$10,098,282 
 
 December 31, 2020
 
Amortized Cost (1)
Gross Unrecognized Holding
Gains
Gross Unrecognized Holding LossesFair Value
Non-MBS:
U.S. Treasury obligations$41,398 $$— $41,399 
Total non-MBS41,398 — 41,399 
MBS:   
U.S. obligation single-family MBS986,399 41,218 — 1,027,617 
GSE single-family MBS3,013,326 105,657 (2)3,118,981 
GSE multi-family MBS5,607,048 5,146 (8,055)5,604,139 
Total MBS9,606,773 152,021 (8,057)9,750,737 
Total$9,648,171 $152,022 $(8,057)$9,792,136 
 
(1)Carrying value equals amortized cost. Amortized cost of held-to-maturity securities includes adjustments made to the cost basis of an investment for accretion and amortization and excludes accrued interest receivable of (in thousands) $7,674 and $9,609 as of September 30, 2021 and December 31, 2020.

Table 3.8 - Net Purchased Premiums Included in the Amortized Cost of MBS Classified as Held-to-Maturity (in thousands)
September 30, 2021December 31, 2020
Premiums$17,403 $18,299 
Discounts(5,450)(7,269)
Net purchased premiums$11,953 $11,030 



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Table 3.9 - Held-to-Maturity Securities by Contractual Maturity (in thousands)
September 30, 2021December 31, 2020
Year of Maturity
Amortized Cost (1)
Fair Value
Amortized Cost (1)
Fair Value
Non-MBS:    
Due in 1 year or less$46,874 $46,874 $41,398 $41,399 
Due after 1 year through 5 years— — — — 
Due after 5 years through 10 years— — — — 
Due after 10 years— — — — 
Total non-MBS46,874 46,874 41,398 41,399 
MBS (2)
9,957,603 10,051,408 9,606,773 9,750,737 
Total$10,004,477 $10,098,282 $9,648,171 $9,792,136 
(1)Carrying value equals amortized cost.
(2)MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.10 - Interest Rate Payment Terms of Held-to-Maturity Securities (in thousands)
 September 30, 2021December 31, 2020
Amortized cost of non-MBS:   
Fixed-rate$46,874  $41,398 
Total amortized cost of non-MBS46,874  41,398 
Amortized cost of MBS:   
Fixed-rate2,985,407  3,677,199 
Variable-rate6,972,196  5,929,574 
Total amortized cost of MBS9,957,603  9,606,773 
Total$10,004,477  $9,648,171 

From time to time the FHLB may sell securities out of its held-to-maturity portfolio. These securities, generally, have less than 15 percent of the acquired principal outstanding at the time of the sale. These sales are considered maturities for the purposes of security classification. For the nine months ended September 30, 2021 and 2020, the FHLB did not sell any held-to-maturity securities.
Allowance for Credit Losses on Available-for-Sale and Held-to-Maturity Securities

The FHLB evaluates available-for-sale and held-to-maturity investment securities for credit losses on a quarterly basis. The FHLB’s available-for-sale and held-to-maturity securities are U.S. Treasury obligations, GSE obligations, and MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae that are backed by single-family or multi-family mortgage loans. The FHLB only purchases securities considered investment quality. At September 30, 2021 and December 31, 2020, all available-for-sale and held-to-maturity securities were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security used by the FHLB. The FHLB’s internal ratings of these securities may differ from those obtained from an NRSRO.

The FHLB evaluates individual available-for-sale securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). At September 30, 2021, one available-for-sale security was in an unrealized loss position. This loss is considered temporary as the FHLB expects to recover the entire amortized cost basis on this available-for-sale investment security and does not intend to sell this security nor considers it more likely than not that it will be required to sell this security before the anticipated recovery of its remaining amortized cost basis. Further, the FHLB has not experienced any payment defaults on the instrument. At December 31, 2020, no available-for-sale securities were in an unrealized loss position. As a result, no allowance for credit losses was recorded on these available-for-sale securities at September 30, 2021 and December 31, 2020.

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

Note 4 - Advances

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

Table 4.1 - Advances by Redemption Term (dollars in thousands)
September 30, 2021December 31, 2020
Redemption TermAmountWeighted Average Interest
Rate
AmountWeighted Average Interest
Rate
Due in 1 year or less$11,036,755 0.50 %$12,064,753 0.75 %
Due after 1 year through 2 years1,564,121 1.98 1,986,446 1.88 
Due after 2 years through 3 years1,652,202 2.04 1,445,139 2.15 
Due after 3 years through 4 years2,742,514 0.98 1,809,523 1.97 
Due after 4 years through 5 years2,078,476 0.95 2,361,604 1.02 
Thereafter3,542,521 1.51 5,339,932 1.34 
Total principal amount22,616,589 0.97 25,007,397 1.16 
Commitment fees(158) (170) 
Discount on Affordable Housing Program (AHP) Advances
(1,522) (2,053) 
Discounts(1,541) (2,046) 
Hedging adjustments180,000  358,173  
Fair value option valuation adjustments and accrued interest
(582)702 
Total (1)
$22,792,786  $25,362,003  
(1)Carrying values exclude accrued interest receivable of (in thousands) $18,821 and $26,426 as of September 30, 2021 and December 31, 2020.

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

Table 4.2 - Advances by Redemption Term or Next Call Date (in thousands)
Redemption Term or Next Call DateSeptember 30, 2021December 31, 2020
Due in 1 year or less$14,168,589 $15,375,354 
Due after 1 year through 2 years1,460,538 1,716,058 
Due after 2 years through 3 years1,629,502 1,434,377 
Due after 3 years through 4 years1,258,463 1,785,672 
Due after 4 years through 5 years578,476 877,504 
Thereafter3,521,021 3,818,432 
Total principal amount$22,616,589 $25,007,397 

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

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Table 4.3 - Advances by Redemption Term or Next Put Date for Putable Advances (in thousands)
Redemption Term or Next Put DateSeptember 30, 2021December 31, 2020
Due in 1 year or less$13,474,005 $14,407,003 
Due after 1 year through 2 years1,634,121 2,146,446 
Due after 2 years through 3 years1,647,952 1,485,139 
Due after 3 years through 4 years2,727,514 1,855,273 
Due after 4 years through 5 years2,070,476 2,346,604 
Thereafter1,062,521 2,766,932 
Total principal amount$22,616,589 $25,007,397 

Table 4.4 - Advances by Interest Rate Payment Terms (in thousands)                    
September 30, 2021December 31, 2020
Total fixed-rate (1)
$17,537,445 $19,195,790 
Total variable-rate (1)
5,079,144 5,811,607 
Total principal amount$22,616,589 $25,007,397 
(1)Payment terms based on current interest rate terms, which reflect any option exercises or rate conversions that have occurred subsequent to the related Advance issuance.

Credit Risk Exposure and Security Terms

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

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

one-to-four family loans (delinquent for no more than 60 days) and multi-family mortgage loans (delinquent for no more than 30 days) and securities representing such mortgages;
loans and securities issued and insured, or guaranteed by the U.S. government or any U.S. government agency (for example, mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);
cash or deposits in the FHLB;
certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value and that the FHLB can perfect a security interest in it; and
certain qualifying securities representing undivided equity interests in eligible Advance collateral.

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

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

Using a risk-based approach, the FHLB considers the payment status, collateralization levels, and borrower's financial condition to be indicators of credit quality for its credit products. At September 30, 2021 and December 31, 2020, the FHLB did not have any Advances that were past due, in non-accrual status or considered impaired. In addition, there were no troubled debt restructurings related to Advances of the FHLB during the nine months ended September 30, 2021 or 2020. At September 30, 2021 and December 31, 2020, the FHLB had rights to collateral on a member-by-member basis with an estimated value in excess of its outstanding extensions of credit.

Based upon the collateral held as security, its credit extension and collateral policies and the repayment history on Advances, the FHLB did not expect any credit losses on Advances as of September 30, 2021 and, therefore, no allowance for credit losses on Advances was recorded. For the same reasons, the FHLB did not record any allowance for credit losses on Advances at December 31, 2020.

Advance Concentrations

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

Table 4.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLB (dollars in millions)
September 30, 2021 December 31, 2020
 Principal% of Total Principal Amount of Advances  Principal% of Total Principal Amount of Advances
U.S. Bank, N.A.$3,272 14 %U.S. Bank, N.A.$4,273 17 %
Third Federal Savings and Loan Association
3,090 14 
Third Federal Savings and Loan Association
3,443 14 
Nationwide Life Insurance Company2,555 11 Nationwide Life Insurance Company2,062 
Protective Life Insurance Company2,200 10 Protective Life Insurance Company1,955 
Western-Southern Life Assurance Co.1,514 Western-Southern Life Assurance Co.1,344 
Total$12,631 56 %Total$13,077 52 %


Note 5 - Mortgage Loans

Total mortgage loans held for portfolio represent residential mortgage loans under the Mortgage Purchase Program (MPP) that the FHLB's members originate, credit enhance, and then sell to the FHLB. The FHLB does not service any of these loans. The FHLB plans to retain its existing portfolio of mortgage loans.
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Table 5.1 - Mortgage Loans Held for Portfolio (in thousands)
 September 30, 2021December 31, 2020
Fixed rate medium-term single-family mortgage loans (1)
$670,931 $731,756 
Fixed rate long-term single-family mortgage loans6,824,625 8,584,239 
Total unpaid principal balance7,495,556 9,315,995 
Premiums172,057 208,281 
Discounts(1,198)(1,636)
Hedging basis adjustments (2)
21,443 26,114 
Total mortgage loans held for portfolio (3)
7,687,858 9,548,754 
Allowance for credit losses on mortgage loans(248)(248)
Mortgage loans held for portfolio, net
$7,687,610 $9,548,506 
(1)Medium-term is defined as a term of 15 years or less.
(2)Represents the unamortized balance of the mortgage purchase commitments' market values at the time of settlement. The market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.
(3)Excludes accrued interest receivable of (in thousands) $23,430 and $30,109 at September 30, 2021 and December 31, 2020.

Table 5.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)
 September 30, 2021December 31, 2020
Conventional mortgage loans$7,346,936 $9,133,942 
Federal Housing Administration (FHA) mortgage loans148,620 182,053 
Total unpaid principal balance$7,495,556 $9,315,995 

Table 5.3 - Members, Including Any Known Affiliates that are Members of the FHLB, and Former Members Selling Five Percent or more of Total Unpaid Principal (dollars in millions)
 September 30, 2021 December 31, 2020
 Principal% of Total Principal% of Total
Union Savings Bank$1,981 26 %Union Savings Bank$2,826 30 %
Guardian Savings Bank FSB560 Guardian Savings Bank FSB796 
FirstBank402 

Credit Risk Exposure

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

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

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Table 5.4 - Changes in the LRA (in thousands)
Nine Months Ended
September 30, 2021
LRA at beginning of year$246,435 
Additions13,488 
Claims(3)
Scheduled distributions(13,194)
LRA at end of period$246,726 

Mortgage Loans Forbearance Plans. In response to the COVID-19 pandemic, which has caused economic strain on many home loan borrowers, the FHLB’s mortgage loan servicers may grant a forbearance period to borrowers who have had COVID-19 related hardships regardless of the payment status of the loan at the time of the request. Based on the most recent information received from mortgage servicers, as of September 30, 2021, there was approximately (in thousands) $24,876 in unpaid principal balance of conventional mortgage loans under a forbearance plan as a result of COVID-19, which represented less than one percent of conventional mortgage loans held for portfolio.

Payment Status of Mortgage Loans. The key credit quality indicator for conventional mortgage loans is payment status, which allows the FHLB to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make a full payment of principal and interest within one month of its due date. For loans that have been granted a forbearance period as noted above, there have been no permanent changes in the contractual terms of these loans. Accordingly, when a borrower fails to make a full payment of principal and interest within one month of its due date for loans under forbearance, they are considered past due. Table 5.5 presents the payment status of conventional mortgage loans. As of September 30, 2021, (in thousands) $2,104 in unpaid principal balance of conventional loans under forbearance had a current payment status, (in thousands) $1,743 was 30 to 59 days past due, (in thousands) $1,534 was 60 to 89 days past due, and (in thousands) $19,495 was greater than 90 days past due.

Table 5.5 - Credit Quality Indicator of Conventional Mortgage Loans (in thousands)
September 30, 2021
Origination Year
Payment status, at amortized cost:Prior to 20172017 to September 30, 2021Total
Past due 30-59 days$13,494 $10,006 $23,500 
Past due 60-89 days3,378 1,621 4,999 
Past due 90 days or more15,460 17,849 33,309 
Total past due mortgage loans32,332 29,476 61,808 
Current mortgage loans2,824,937 4,651,308 7,476,245 
Total conventional mortgage loans$2,857,269 $4,680,784 $7,538,053 
December 31, 2020
Origination Year
Payment status, at amortized cost:Prior to 20162016 to 2020Total
Past due 30-59 days$16,812 $19,036 $35,848 
Past due 60-89 days7,245 7,553 14,798 
Past due 90 days or more24,651 39,921 64,572 
Total past due mortgage loans48,708 66,510 115,218 
Current mortgage loans2,555,139 6,694,837 9,249,976 
Total conventional mortgage loans$2,603,847 $6,761,347 $9,365,194 

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

Table 5.6 - Other Delinquency Statistics (dollars in thousands)
September 30, 2021
Amortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
$4,135 $427 $4,562 
Serious delinquency rate (2)
0.44 %1.93 %0.47 %
Past due 90 days or more still accruing interest (3)
$31,747 $2,891 $34,638 
Loans on non-accrual status$2,607 $— $2,607 
December 31, 2020
Amortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
$5,031 $617 $5,648 
Serious delinquency rate (2)
0.69 %3.28 %0.74 %
Past due 90 days or more still accruing interest (3)
$58,881 $5,961 $64,842 
Loans on non-accrual status$6,721 $— $6,721 
(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported. During the nine months ended September 30, 2021 and year ended December 31, 2020, there were foreclosure moratoriums in effect in response to the COVID-19 pandemic.
(2)Loans that are 90 days or more past due or in the process of foreclosure (including past due or current loans in the process of foreclosure) expressed as a percentage of the total loan portfolio class.
(3)Each conventional loan past due 90 days or more still accruing interest is on a schedule/scheduled monthly settlement basis and contains one or more credit enhancements. Loans that are well secured and in the process of collection as a result of remaining credit enhancements and schedule/scheduled settlement are not placed on non-accrual status.

The FHLB did not have any real estate owned at September 30, 2021 or December 31, 2020.

Evaluation of Current Expected Credit Losses

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

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

Certain conventional loans may be evaluated for credit losses by using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The FHLB may estimate the fair value of this collateral by either applying an appropriate loss severity rate, using third-party estimates, or using a property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated
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fair value of the collateral, less estimated selling costs. The FHLB will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.

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

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

Table 5.7 - Allowance for Credit Losses on Conventional Mortgage Loans (in thousands)
Three Months Ended September 30,
20212020
Balance, beginning of period$248 $264 
Net charge offs— (22)
Balance, end of period$248 $242 
Nine Months Ended September 30,
20212020
Balance, beginning of period$248 $711 
Adjustment for cumulative effect of accounting change— (366)
Net charge offs— (103)
Balance, end of period$248 $242 


Note 6 - Derivatives and Hedging Activities

Nature of Business Activity

The FHLB is exposed to interest rate risk primarily from the effect of changes in interest rates. The goal of the FHLB's interest-rate risk management strategy is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the FHLB has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the FHLB monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities. The FHLB uses derivatives when they are considered to be the most cost-effective alternative to achieve the FHLB's financial and risk management objectives. See Note 7 - Derivatives and Hedging Activities in the FHLB's 2020 Annual Report on Form 10-K for additional information on the FHLB's derivative transactions.

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

Financial Statement Effect and Additional Financial Information

The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. The notional amount reflects the FHLB's involvement in the various classes of financial instruments and represents neither the actual amounts exchanged nor the overall exposure of the FHLB to credit and market risk; the overall risk is much smaller. The risks of derivatives only can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged and any offsets between the derivatives and the items being hedged.

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

Table 6.1 - Fair Value of Derivative Instruments (in thousands)
 September 30, 2021
 Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:   
Interest rate swaps$12,216,993 $28 $107,414 
Derivatives not designated as hedging instruments:   
Interest rate swaps13,755,964 1,339 2,623 
Interest rate swaptions1,219,000 870 — 
Mortgage delivery commitments264,587 435 476 
Total derivatives not designated as hedging instruments15,239,551 2,644 3,099 
Total derivatives before adjustments$27,456,544 2,672 110,513 
Netting adjustments and cash collateral (1)
 243,115 (107,316)
Total derivative assets and total derivative liabilities $245,787 $3,197 
 December 31, 2020
 Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:   
Interest rate swaps$10,477,703 $272 $163,174 
Derivatives not designated as hedging instruments:
Interest rate swaps13,267,539 691 2,563 
Interest rate swaptions2,175,000 713 — 
Mortgage delivery commitments137,352 1,056 — 
Total derivatives not designated as hedging instruments15,579,891 2,460 2,563 
Total derivatives before adjustments$26,057,594 2,732 165,737 
Netting adjustments and cash collateral (1)
 213,156 (161,924)
Total derivative assets and total derivative liabilities $215,888 $3,813 
 
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed by the FHLB with the same clearing agent and/or counterparty. Cash collateral posted, including accrued interest, was (in thousands) $350,891 and $375,390 at September 30, 2021 and December 31, 2020. Cash collateral received, including accrued interest, was (in thousands) $460 and $310 at September 30, 2021 and December 31, 2020.

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

Table 6.2 - Impact of Fair Value Hedging Relationships on Net Interest Income (in thousands)
 
Three Months Ended September 30, 2021
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$30,688 $2,296 $(83,704)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(24,885)$(6,317)$270 
Gain (loss) on derivatives31,492 35,549 (208)
Gain (loss) on hedged items (32,371)(35,356)201 
Effect on net interest income$(25,764)$(6,124)$263 
22


Three Months Ended September 30, 2020
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$63,974 $271 $(119,748)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(34,448)$(813)$477 
Gain (loss) on derivatives51,956 2,402 (591)
Gain (loss) on hedged items(54,369)(2,573)591 
Effect on net interest income$(36,861)$(984)$477 

 
Nine Months Ended September 30, 2021
AdvancesAvailable-for-sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$103,219 $3,975 $(266,479)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(85,580)$(10,025)$790 
Gain (loss) on derivatives177,912 40,265 (1,034)
Gain (loss) on hedged items(178,173)(39,835)1,016 
Effect on net interest income$(85,841)$(9,595)$772 

 
Nine Months Ended September 30, 2020
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$394,578 $4,286 $(435,543)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(55,405)$(1,611)$1,290 
Gain (loss) on derivatives(359,963)(9,800)1,949 
Gain (loss) on hedged items345,831 9,440 (1,852)
Effect on net interest income$(69,537)$(1,971)$1,387 
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Table 6.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items.

Table 6.3 - Cumulative Basis Adjustments for Fair Value Hedges (in thousands)
September 30, 2021
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Amortized cost of hedged asset or liability (1)
$8,212,671 $3,826,002 $374,527 
Fair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost$178,838 $(28,054)$1,070 
Basis adjustments for discontinued hedging relationships included in amortized cost1,162 360 — 
Total amount of fair value hedging basis adjustments$180,000 $(27,694)$1,070 
December 31, 2020
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Amortized cost of hedged asset or liability (1)
$10,483,218 $286,869 $132,852 
Fair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost$356,624 $11,751 $2,086 
Basis adjustments for discontinued hedging relationships included in amortized cost1,549 389 — 
Total amount of fair value hedging basis adjustments$358,173 $12,140 $2,086 
(1)     Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

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

Table 6.4 - Net Gains (Losses) Recorded in Non-interest Income (Loss) on Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended September 30,
20212020
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps