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 Filer | ☒ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
The capital stock of the registrant is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share. As of October 31, 2021, the registrant had 24,705,101 shares of capital stock outstanding, which included stock classified as mandatorily redeemable.
| Page 1 of | |||||
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 deposits | 335,075 | 555,104 | |||||||||
| Securities purchased under agreements to resell | 289,600 | 1,818,268 | |||||||||
| Federal funds sold | 5,715,000 | 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 securities | 20,966,897 | 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 receivable | 105,684 | 113,701 | |||||||||
| Derivative assets | 245,787 | 215,888 | |||||||||
| Other assets, net | 22,808 | 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 Obligations | 51,295,258 | 59,496,555 | |||||||||
| Mandatorily redeemable capital stock | 12,855 | 19,454 | |||||||||
| Accrued interest payable | 62,900 | 77,521 | |||||||||
| Affordable Housing Program payable | 89,868 | 110,772 | |||||||||
| Derivative liabilities | 3,197 | 3,813 | |||||||||
| Other liabilities | 1,464,610 | 331,008 | |||||||||
| Total liabilities | 54,454,025 | 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: | |||||||||||
| Unrestricted | 782,159 | 802,715 | |||||||||
| Restricted | 506,294 | 501,321 | |||||||||
| Total retained earnings | 1,288,453 | 1,304,036 | |||||||||
| Accumulated other comprehensive loss | 10,317 | (14,985) | |||||||||
| Total capital | 3,727,517 | 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 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| INTEREST INCOME: | |||||||||||||||||||||||
| Advances | $ | 30,688 | $ | 63,974 | $ | 103,219 | $ | 394,578 | |||||||||||||||
| Prepayment fees on Advances, net | 2,229 | 7,509 | 8,629 | 25,103 | |||||||||||||||||||
| Interest-bearing deposits | 154 | 442 | 535 | 4,202 | |||||||||||||||||||
| Securities purchased under agreements to resell | 72 | 290 | 339 | 10,680 | |||||||||||||||||||
| Federal funds sold | 1,436 | 1,541 | 3,982 | 30,621 | |||||||||||||||||||
| Investment securities: | |||||||||||||||||||||||
| Trading securities | 47,260 | 66,281 | 158,982 | 201,876 | |||||||||||||||||||
| Available-for-sale securities | 2,296 | 271 | 3,975 | 4,286 | |||||||||||||||||||
| Held-to-maturity securities | 23,796 | 36,516 | 77,939 | 153,199 | |||||||||||||||||||
| Total investment securities | 73,352 | 103,068 | 240,896 | 359,361 | |||||||||||||||||||
| Mortgage loans held for portfolio | 42,515 | 62,429 | 125,359 | 225,837 | |||||||||||||||||||
| Loans to other FHLBanks | — | — | — | 60 | |||||||||||||||||||
| Total interest income | 150,446 | 239,253 | 482,959 | 1,050,442 | |||||||||||||||||||
| INTEREST EXPENSE: | |||||||||||||||||||||||
| Consolidated Obligations: | |||||||||||||||||||||||
| Discount Notes | 2,624 | 26,299 | 9,853 | 285,755 | |||||||||||||||||||
| Bonds | 83,704 | 119,748 | 266,479 | 435,543 | |||||||||||||||||||
| Total Consolidated Obligations | 86,328 | 146,047 | 276,332 | 721,298 | |||||||||||||||||||
| Deposits | 100 | 174 | 348 | 3,348 | |||||||||||||||||||
| Mandatorily redeemable capital stock | 70 | (76) | 274 | 978 | |||||||||||||||||||
| Total interest expense | 86,498 | 146,145 | 276,954 | 725,624 | |||||||||||||||||||
| NET INTEREST INCOME | 63,948 | 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 activities | 5,924 | 19,708 | 66,989 | (308,230) | |||||||||||||||||||
| Letters of Credit fees | 6,475 | 3,726 | 18,918 | 9,430 | |||||||||||||||||||
| Other, net | 478 | 544 | 1,307 | 1,529 | |||||||||||||||||||
| Total non-interest income (loss) | (36,464) | (7,471) | (109,869) | 8,193 | |||||||||||||||||||
| NON-INTEREST EXPENSE: | |||||||||||||||||||||||
| Compensation and benefits | 10,698 | 12,356 | 35,687 | 37,647 | |||||||||||||||||||
| Other operating expenses | 5,522 | 4,789 | 16,706 | 15,860 | |||||||||||||||||||
| Finance Agency | 1,879 | 1,629 | 5,637 | 4,886 | |||||||||||||||||||
| Office of Finance | 1,315 | 1,331 | 3,757 | 4,034 | |||||||||||||||||||
| Other | 1,629 | 1,766 | 6,690 | 7,742 | |||||||||||||||||||
| Total non-interest expense | 21,043 | 21,871 | 68,477 | 70,169 | |||||||||||||||||||
| INCOME BEFORE ASSESSMENTS | 6,441 | 63,766 | 27,659 | 262,842 | |||||||||||||||||||
| Affordable Housing Program assessments | 651 | 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.
4
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| (In thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| 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 benefits | 696 | 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 Earnings | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Unrestricted | Restricted | Total | Loss | Capital | |||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2020 | 38,131 | $ | 3,813,110 | $ | 765,084 | $ | 481,861 | $ | 1,246,945 | $ | (16,133) | $ | 5,043,922 | ||||||||||||||||||||||||||||
| Comprehensive income (loss) | 45,918 | 11,479 | 57,397 | 4,076 | 61,473 | ||||||||||||||||||||||||||||||||||||
| Proceeds from sale of capital stock | 214 | 21,389 | 21,389 | ||||||||||||||||||||||||||||||||||||||
| Repurchase of capital stock | (9,000) | (900,000) | (900,000) | ||||||||||||||||||||||||||||||||||||||
| Cash dividends on capital stock | (22,051) | (22,051) | (22,051) | ||||||||||||||||||||||||||||||||||||||
| BALANCE, SEPTEMBER 30, 2020 | 29,345 | $ | 2,934,499 | $ | 788,951 | $ | 493,340 | $ | 1,282,291 | $ | (12,057) | $ | 4,204,733 | ||||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2021 | 27,184 | $ | 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 stock | 309 | 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, 2021 | 24,287 | $ | 2,428,747 | $ | 782,159 | $ | 506,294 | $ | 1,288,453 | $ | 10,317 | $ | 3,727,517 | ||||||||||||||||||||||||||||
| (In thousands) | Capital Stock Class B - Putable | Retained Earnings | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Unrestricted | Restricted | Total | Loss | Capital | |||||||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2019 | 33,664 | $ | 3,366,428 | $ | 648,374 | $ | 446,048 | $ | 1,094,422 | $ | (16,394) | $ | 4,444,456 | ||||||||||||||||||||||||||||
| Adjustment for cumulative effect of accounting change | 366 | 366 | 366 | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | 189,168 | 47,292 | 236,460 | 4,337 | 240,797 | ||||||||||||||||||||||||||||||||||||
| Proceeds from sale of capital stock | 21,256 | 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 Corporation | 16,533 | 16,533 | 16,533 | ||||||||||||||||||||||||||||||||||||||
| Cash dividends on capital stock | (65,490) | (65,490) | (65,490) | ||||||||||||||||||||||||||||||||||||||
| BALANCE, SEPTEMBER 30, 2020 | 29,345 | $ | 2,934,499 | $ | 788,951 | $ | 493,340 | $ | 1,282,291 | $ | (12,057) | $ | 4,204,733 | ||||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2020 | 26,409 | $ | 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 stock | 10,358 | 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, 2021 | 24,287 | $ | 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.
6
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 amortization | 68,026 | 37,313 | |||||||||
Net change in derivative and hedging activities | 155,958 | (183,733) | |||||||||
| Net change in fair value adjustments on trading securities | 204,891 | (319,866) | |||||||||
Net change in fair value adjustments on financial instruments held under fair value option | (7,808) | 14,402 | |||||||||
| Other adjustments, net | 667 | 798 | |||||||||
| Net change in: | |||||||||||
| Accrued interest receivable | 8,024 | 38,140 | |||||||||
| Other assets | 6,353 | 3,135 | |||||||||
| Accrued interest payable | (23,656) | (56,937) | |||||||||
| Other liabilities | (22,601) | 17,125 | |||||||||
| Total adjustments | 389,854 | (449,623) | |||||||||
| Net cash provided by (used in) operating activities | 414,720 | (213,163) | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Net change in: | |||||||||||
| Interest-bearing deposits | 244,522 | (260,047) | |||||||||
| Securities purchased under agreements to resell | 1,528,668 | (105,110) | |||||||||
| Federal funds sold | (1,475,000) | (3,872,000) | |||||||||
| Premises, software, and equipment | (833) | (1,265) | |||||||||
| Trading securities: | |||||||||||
| Proceeds from maturities | 1,000,097 | 5,135,034 | |||||||||
| Proceeds from sale | 2,174,690 | — | |||||||||
| 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 maturities | 2,270,257 | 2,437,476 | |||||||||
| Purchases | (1,768,566) | (75,604) | |||||||||
| Advances: | |||||||||||
| Repaid | 307,504,422 | 470,292,647 | |||||||||
| Originated | (305,113,614) | (449,675,012) | |||||||||
| Mortgage loans held for portfolio: | |||||||||||
| Principal collected | 2,927,342 | 2,942,372 | |||||||||
| Purchases | (1,138,756) | (2,432,823) | |||||||||
| Net cash provided by (used in) investing activities | 4,851,475 | 21,145,462 | |||||||||
| The accompanying notes are an integral part of these financial statements. | |||||||||||
7
| (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 Notes | 147,066,103 | 232,873,177 | |||||||||
| Bonds | 26,224,969 | 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 stock | 1,035,868 | 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 period | 2,984,073 | 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
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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 Value | September 30, 2021 | December 31, 2020 | |||||||||
| Non-mortgage-backed securities (non-MBS): | |||||||||||
| U.S. Treasury obligations | $ | 5,338,124 | $ | 8,362,211 | |||||||
| GSE obligations | 1,770,088 | 2,125,580 | |||||||||
| Total non-MBS | 7,108,212 | 10,487,791 | |||||||||
| Mortgage-backed securities (MBS): | |||||||||||
| U.S. obligation single-family MBS | 234 | 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, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| 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 obligations | 134,743 | 2,347 | — | 137,090 | |||||||||||||||||||
| Total non-MBS | 3,608,812 | 24,329 | — | 3,633,141 | |||||||||||||||||||
| MBS: | |||||||||||||||||||||||
| GSE multi-family MBS | 217,190 | 3,651 | (8) | 220,833 | |||||||||||||||||||
| Total MBS | 217,190 | 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-MBS | 140,600 | 1,802 | — | 142,402 | |||||||||||||||||||
| MBS: | |||||||||||||||||||||||
| GSE multi-family MBS | 146,269 | 2,916 | — | 149,185 | |||||||||||||||||||
| Total MBS | 146,269 | 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 Months | 12 Months or more | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross 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 Maturity | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Non-MBS: | |||||||||||||||||||||||
| Due in 1 year or less | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Due after 1 year through 5 years | 82,467 | 83,608 | 11,248 | 11,309 | |||||||||||||||||||
| Due after 5 years through 10 years | 3,513,889 | 3,536,530 | 116,096 | 117,507 | |||||||||||||||||||
| Due after 10 years | 12,456 | 13,003 | 13,256 | 13,586 | |||||||||||||||||||
| Total non-MBS | 3,608,812 | 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-MBS | 3,608,812 | 140,600 | |||||||||
| Amortized cost of MBS: | |||||||||||
| Fixed-rate | 217,190 | 146,269 | |||||||||
| Total amortized cost of MBS | 217,190 | 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 Losses | Fair Value | ||||||||||||||||||||
| Non-MBS: | |||||||||||||||||||||||
U.S. Treasury obligations | $ | 46,874 | $ | — | $ | — | $ | 46,874 | |||||||||||||||
| Total non-MBS | 46,874 | — | — | 46,874 | |||||||||||||||||||
| MBS: | |||||||||||||||||||||||
| U.S. obligation single-family MBS | 1,133,473 | 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 MBS | 9,957,603 | 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 Losses | Fair Value | ||||||||||||||||||||
| Non-MBS: | |||||||||||||||||||||||
| U.S. Treasury obligations | $ | 41,398 | $ | 1 | $ | — | $ | 41,399 | |||||||||||||||
| Total non-MBS | 41,398 | 1 | — | 41,399 | |||||||||||||||||||
| MBS: | |||||||||||||||||||||||
| U.S. obligation single-family MBS | 986,399 | 41,218 | — | 1,027,617 | |||||||||||||||||||
| GSE single-family MBS | 3,013,326 | 105,657 | (2) | 3,118,981 | |||||||||||||||||||
| GSE multi-family MBS | 5,607,048 | 5,146 | (8,055) | 5,604,139 | |||||||||||||||||||
| Total MBS | 9,606,773 | 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, 2021 | December 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, 2021 | December 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-MBS | 46,874 | 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, 2021 | December 31, 2020 | ||||||||||
| Amortized cost of non-MBS: | |||||||||||
| Fixed-rate | $ | 46,874 | $ | 41,398 | |||||||
| Total amortized cost of non-MBS | 46,874 | 41,398 | |||||||||
| Amortized cost of MBS: | |||||||||||
| Fixed-rate | 2,985,407 | 3,677,199 | |||||||||
| Variable-rate | 6,972,196 | 5,929,574 | |||||||||
| Total amortized cost of MBS | 9,957,603 | 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, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Redemption Term | Amount | Weighted Average Interest Rate | Amount | Weighted 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 years | 1,564,121 | 1.98 | 1,986,446 | 1.88 | |||||||||||||||||||
| Due after 2 years through 3 years | 1,652,202 | 2.04 | 1,445,139 | 2.15 | |||||||||||||||||||
| Due after 3 years through 4 years | 2,742,514 | 0.98 | 1,809,523 | 1.97 | |||||||||||||||||||
| Due after 4 years through 5 years | 2,078,476 | 0.95 | 2,361,604 | 1.02 | |||||||||||||||||||
| Thereafter | 3,542,521 | 1.51 | 5,339,932 | 1.34 | |||||||||||||||||||
| Total principal amount | 22,616,589 | 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 adjustments | 180,000 | 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 Date | September 30, 2021 | December 31, 2020 | |||||||||
| Due in 1 year or less | $ | 14,168,589 | $ | 15,375,354 | |||||||
| Due after 1 year through 2 years | 1,460,538 | 1,716,058 | |||||||||
| Due after 2 years through 3 years | 1,629,502 | 1,434,377 | |||||||||
| Due after 3 years through 4 years | 1,258,463 | 1,785,672 | |||||||||
| Due after 4 years through 5 years | 578,476 | 877,504 | |||||||||
| Thereafter | 3,521,021 | 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 Date | September 30, 2021 | December 31, 2020 | |||||||||
| Due in 1 year or less | $ | 13,474,005 | $ | 14,407,003 | |||||||
| Due after 1 year through 2 years | 1,634,121 | 2,146,446 | |||||||||
| Due after 2 years through 3 years | 1,647,952 | 1,485,139 | |||||||||
| Due after 3 years through 4 years | 2,727,514 | 1,855,273 | |||||||||
| Due after 4 years through 5 years | 2,070,476 | 2,346,604 | |||||||||
| Thereafter | 1,062,521 | 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, 2021 | December 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
16
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 Company | 2,555 | 11 | Nationwide Life Insurance Company | 2,062 | 8 | |||||||||||||||||||||
| Protective Life Insurance Company | 2,200 | 10 | Protective Life Insurance Company | 1,955 | 8 | |||||||||||||||||||||
| Western-Southern Life Assurance Co. | 1,514 | 7 | Western-Southern Life Assurance Co. | 1,344 | 5 | |||||||||||||||||||||
| 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, 2021 | December 31, 2020 | ||||||||||
Fixed rate medium-term single-family mortgage loans (1) | $ | 670,931 | $ | 731,756 | |||||||
| Fixed rate long-term single-family mortgage loans | 6,824,625 | 8,584,239 | |||||||||
| Total unpaid principal balance | 7,495,556 | 9,315,995 | |||||||||
| Premiums | 172,057 | 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, 2021 | December 31, 2020 | ||||||||||
| Conventional mortgage loans | $ | 7,346,936 | $ | 9,133,942 | |||||||
| Federal Housing Administration (FHA) mortgage loans | 148,620 | 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 FSB | 560 | 7 | Guardian Savings Bank FSB | 796 | 9 | |||||||||||||||||||||
| FirstBank | 402 | 5 | ||||||||||||||||||||||||
Credit Risk Exposure
The FHLB manages credit risk exposure for conventional mortgage loans primarily though conservative underwriting and purchasing loans with characteristics consistent with favorable expected credit performance and by applying various credit enhancements.
Credit Enhancements. The conventional mortgage loans under the MPP are supported by some combination of credit enhancements (primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) and the Lender Risk Account (LRA), including pooled LRA for those members participating in an aggregated MPP pool). These credit enhancements apply after a homeowner’s equity is exhausted. Beginning in February 2011, the FHLB discontinued the use of SMI for all new loan purchases and replaced it with expanded use of the LRA. The LRA is funded by the FHLB upfront as a portion of the purchase proceeds. The LRA is recorded in other liabilities in the Statement of Condition. Excess funds from the LRA are released to the member in accordance with the terms of the Master Commitment Contract, which is typically after five years, subject to performance of the related loan pool. The LRA established for a pool of loans is limited to only covering losses of that specific pool of loans. Because the FHA makes an explicit guarantee on FHA mortgage loans, the FHLB does not require any credit enhancements on these loans beyond primary mortgage insurance.
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Table 5.4 - Changes in the LRA (in thousands)
| Nine Months Ended | |||||
| September 30, 2021 | |||||
| LRA at beginning of year | $ | 246,435 | |||
| Additions | 13,488 | ||||
| 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 2017 | 2017 to September 30, 2021 | Total | ||||||||||||||
| Past due 30-59 days | $ | 13,494 | $ | 10,006 | $ | 23,500 | |||||||||||
| Past due 60-89 days | 3,378 | 1,621 | 4,999 | ||||||||||||||
| Past due 90 days or more | 15,460 | 17,849 | 33,309 | ||||||||||||||
| Total past due mortgage loans | 32,332 | 29,476 | 61,808 | ||||||||||||||
| Current mortgage loans | 2,824,937 | 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 2016 | 2016 to 2020 | Total | ||||||||||||||
| Past due 30-59 days | $ | 16,812 | $ | 19,036 | $ | 35,848 | |||||||||||
| Past due 60-89 days | 7,245 | 7,553 | 14,798 | ||||||||||||||
| Past due 90 days or more | 24,651 | 39,921 | 64,572 | ||||||||||||||
| Total past due mortgage loans | 48,708 | 66,510 | 115,218 | ||||||||||||||
| Current mortgage loans | 2,555,139 | 6,694,837 | 9,249,976 | ||||||||||||||
| Total conventional mortgage loans | $ | 2,603,847 | $ | 6,761,347 | $ | 9,365,194 | |||||||||||
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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 Loans | FHA Loans | Total | ||||||||||||||
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 Loans | FHA Loans | Total | ||||||||||||||
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, | |||||||||||
| 2021 | 2020 | ||||||||||
| Balance, beginning of period | $ | 248 | $ | 264 | |||||||
| Net charge offs | — | (22) | |||||||||
| Balance, end of period | $ | 248 | $ | 242 | |||||||
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| 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 Derivatives | Derivative Assets | Derivative 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 swaps | 13,755,964 | 1,339 | 2,623 | ||||||||||||||
| Interest rate swaptions | 1,219,000 | 870 | — | ||||||||||||||
| Mortgage delivery commitments | 264,587 | 435 | 476 | ||||||||||||||
| Total derivatives not designated as hedging instruments | 15,239,551 | 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 Derivatives | Derivative Assets | Derivative 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 swaps | 13,267,539 | 691 | 2,563 | ||||||||||||||
| Interest rate swaptions | 2,175,000 | 713 | — | ||||||||||||||
| Mortgage delivery commitments | 137,352 | 1,056 | — | ||||||||||||||
| Total derivatives not designated as hedging instruments | 15,579,891 | 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 | |||||||||||||||||
| Advances | Available-for-Sale Securities | Consolidated 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 derivatives | 31,492 | 35,549 | (208) | ||||||||||||||
| Gain (loss) on hedged items | (32,371) | (35,356) | 201 | ||||||||||||||
| Effect on net interest income | $ | (25,764) | $ | (6,124) | $ | 263 | |||||||||||
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Three Months Ended September 30, 2020 | |||||||||||||||||
| Advances | Available-for-Sale Securities | Consolidated Bonds | |||||||||||||||
Total interest income (expense) recorded in the Statements of Income | $ | 63,974 | $ | 271 | $ | (119,748) | |||||||||||
| Impact of Fair Value Hedging Relationships | |||||||||||||||||
| Interest rate swaps: | |||||||||||||||||
| Net interest settlements | $ | (34,448) | $ | (813) | $ | 477 | |||||||||||
| Gain (loss) on derivatives | 51,956 | 2,402 | (591) | ||||||||||||||
| Gain (loss) on hedged items | (54,369) | (2,573) | 591 | ||||||||||||||
| Effect on net interest income | $ | (36,861) | $ | (984) | $ | 477 | |||||||||||
Nine Months Ended September 30, 2021 | |||||||||||||||||
| Advances | Available-for-sale Securities | Consolidated 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 derivatives | 177,912 | 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 | |||||||||||||||||
| Advances | Available-for-Sale Securities | Consolidated 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 items | 345,831 | 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 | ||||||||||||||||||||
| Advances | Available-for-Sale Securities | Consolidated 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 cost | 1,162 | 360 | — | |||||||||||||||||
| Total amount of fair value hedging basis adjustments | $ | 180,000 | $ | (27,694) | $ | 1,070 | ||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Advances | Available-for-Sale Securities | Consolidated Bonds | ||||||||||||||||||
Amortized cost of hedged asset or liability (1) | $ | 10,483,218 | $ | 286,869 | $ | 132,852 | ||||||||||||||
| Fair value hedging adjustments | ||||||||||||||||||||
| Basis adjustments for active hedging relationships included in amortized cost | $ | 356,624 | $ | 11,751 | $ | 2,086 | ||||||||||||||
| Basis adjustments for discontinued hedging relationships included in amortized cost | 1,549 | 389 | — | |||||||||||||||||
| 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, | |||||||||||
| 2021 | 2020 | ||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||
| Economic hedges: | |||||||||||
| Interest rate swaps | |||||||||||