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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
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 July 31, 2022, the registrant had 43,475,494 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 - June 30, 2022 and December 31, 2021
Statements of Income - Three and six months ended June 30, 2022 and 2021
Statements of Comprehensive Income - Three and six months ended June 30, 2022 and 2021
Statements of Capital - Three and six months ended June 30, 2022 and 2021
Statements of Cash Flows - Six months ended June 30, 2022 and 2021
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
Table of Contents
PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

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

(In thousands, except par value)
 June 30, 2022 December 31, 2021
ASSETS   
Cash and due from banks$2,884,720  $167,822 
Interest-bearing deposits900,128  340,147 
Securities purchased under agreements to resell2,527,430  1,282,440 
Federal funds sold10,170,000  5,505,000 
Investment securities:
Trading securities 3,056,803  6,780,817 
Available-for-sale securities (amortized cost of $7,675,042 and $5,240,998 at June 30, 2022 and December 31, 2021, respectively)
7,653,407  5,267,123 
Held-to-maturity securities (includes $0 and $0 pledged as collateral at June 30, 2022 and December 31, 2021, respectively, that may be repledged) (a)
12,200,031  10,216,756 
Total investment securities22,910,241 22,264,696 
Advances (includes $23,521 and $25,805 at fair value under fair value option at June 30, 2022 and December 31, 2021, respectively)
55,770,664  23,054,748 
Mortgage loans held for portfolio, net of allowance for credit losses of $264 and $233 at June 30, 2022 and December 31, 2021, respectively
7,400,333  7,588,184 
Accrued interest receivable135,412  88,672 
Derivative assets 335,908  297,736 
Other assets, net22,281  28,140 
TOTAL ASSETS$103,057,117  $60,617,585 
LIABILITIES   
Deposits $1,225,359  $1,415,651 
Consolidated Obligations:    
Discount Notes (includes $29,385,898 and $10,420,974 at fair value under fair value option at June 30, 2022 and December 31, 2021, respectively)
57,077,477  29,837,696 
Bonds (includes $6,236,386 and $7,175,060 at fair value under fair value option at June 30, 2022 and December 31, 2021, respectively)
37,923,031  24,601,838 
Total Consolidated Obligations95,000,508  54,439,534 
Mandatorily redeemable capital stock 19,698  21,211 
Accrued interest payable87,219  60,682 
Affordable Housing Program payable 79,476  84,504 
Derivative liabilities 673  3,291 
Other liabilities949,099  796,811 
Total liabilities97,362,032  56,821,684 
Commitments and contingencies
CAPITAL    
Capital stock Class B putable ($100 par value); issued and outstanding shares: 44,145 shares at June 30, 2022 and 24,900 shares at December 31, 2021
4,414,529  2,490,016 
Retained earnings:
Unrestricted793,150 783,072 
Restricted521,054 509,719 
Total retained earnings1,314,204  1,292,791 
Accumulated other comprehensive income (loss) (33,648) 13,094 
Total capital5,695,085  3,795,901 
TOTAL LIABILITIES AND CAPITAL$103,057,117  $60,617,585 
(a)Fair values: $12,024,830 and $10,269,821 at June 30, 2022 and December 31, 2021, respectively.

The accompanying notes are an integral part of these financial statements.
3
Table of Contents
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF INCOME
(Unaudited)

(In thousands)Three Months Ended June 30,Six Months Ended June 30,
 2022 202120222021
INTEREST INCOME:   
Advances$120,653  $31,371 $165,971 $72,531 
Prepayment fees on Advances, net304  5,060 3,003 6,400 
Interest-bearing deposits1,924  164 2,103 381 
Securities purchased under agreements to resell2,404  53 3,332 267 
Federal funds sold19,982  1,204 23,207 2,546 
Investment securities:
Trading securities29,744  53,670 67,570 111,722 
Available-for-sale securities16,944  344 21,962 1,679 
Held-to-maturity securities33,909 24,412 57,817 54,143 
Total investment securities80,597 78,426 147,349 167,544 
Mortgage loans held for portfolio50,848  38,430 99,424 82,844 
Loans to other FHLBanks112  — 112 — 
Total interest income276,824  154,708 444,501 332,513 
INTEREST EXPENSE:   
Consolidated Obligations:
Discount Notes83,780  1,761 94,582 7,229 
Bonds119,330  86,589 194,405 182,775 
Total Consolidated Obligations203,110 88,350 288,987 190,004 
Deposits1,760  97 1,939 248 
Mandatorily redeemable capital stock831  110 1,662 204 
Total interest expense205,701  88,557 292,588 190,456 
NET INTEREST INCOME71,123  66,151 151,913 142,057 
NON-INTEREST INCOME (LOSS):   
Net gains (losses) on investment securities(87,823)(15,389)(247,986)(154,249)
Net gains (losses) on financial instruments held under fair value option
60,753 2,602 79,431 6,507 
Net gains (losses) on derivatives20,369  (36,079)117,474 61,065 
Letters of Credit fees6,470 6,632 12,631 12,443 
Other, net331  394 1,357 829 
Total non-interest income (loss)100  (41,840)(37,093)(73,405)
NON-INTEREST EXPENSE:   
Compensation and benefits13,020  12,086 27,126 24,989 
Other operating expenses5,831  5,232 11,993 11,184 
Finance Agency1,650  1,879 3,447 3,758 
Office of Finance1,405  1,171 3,164 2,442 
Other4,151  3,543 5,930 5,061 
Total non-interest expense26,057  23,911 51,660 47,434 
INCOME BEFORE ASSESSMENTS45,166  400 63,160 21,218 
Affordable Housing Program assessments4,599  51 6,482 2,142 
NET INCOME$40,567  $349 $56,678 $19,076 
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 June 30,Six Months Ended June 30,
2022202120222021
Net income$40,567 $349 $56,678 $19,076 
Other comprehensive income (loss) adjustments:
Net unrealized gains (losses) on available-for-sale securities
(9,988)8,960 (47,760)11,647 
Pension and postretirement benefits509 676 1,018 1,352 
Total other comprehensive income (loss) adjustments
(9,479)9,636 (46,742)12,999 
Comprehensive income$31,088 $9,985 $9,936 $32,075 

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

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FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CAPITAL
(Unaudited)
(In thousands)Capital Stock
Class B - Putable		Retained EarningsAccumulated Other ComprehensiveTotal
 SharesPar ValueUnrestrictedRestrictedTotalLossCapital
BALANCE, MARCH 31, 202127,479 $2,747,938 $803,806 $505,066 $1,308,872 $(11,622)$4,045,188 
Comprehensive income (loss)279 70 349 9,636 9,985 
Proceeds from sale of capital stock6,289 628,894 628,894 
Repurchase of capital stock(5,984)(598,402)(598,402)
Net shares reclassified to mandatorily redeemable capital stock(600)(60,000)(60,000)
Cash dividends on capital stock(12,695)(12,695)(12,695)
BALANCE, JUNE 30, 202127,184 $2,718,430 $791,390 $505,136 $1,296,526 $(1,986)$4,012,970 
BALANCE, MARCH 31, 202230,005 $3,000,535 $783,592 $512,941 $1,296,533 $(24,169)$4,272,899 
Comprehensive income (loss)  32,454 8,113 40,567 (9,479)31,088 
Proceeds from sale of capital stock14,322 1,432,185  1,432,185 
Net shares reclassified to mandatorily
   redeemable capital stock		(182)(18,191) (18,191)
Cash dividends on capital stock  (22,896)(22,896) (22,896)
BALANCE, JUNE 30, 202244,145 $4,414,529 $793,150 $521,054 $1,314,204 $(33,648)$5,695,085 
(In thousands)Capital Stock
Class B - Putable		Retained EarningsAccumulated Other ComprehensiveTotal
 SharesPar ValueUnrestrictedRestrictedTotalLossCapital
BALANCE, DECEMBER 31, 202026,409 $2,640,863 $802,715 $501,321 $1,304,036 $(14,985)$3,929,914 
Comprehensive income (loss)15,261 3,815 19,076 12,999 32,075 
Proceeds from sale of capital stock10,049 1,004,972 1,004,972 
Repurchase of capital stock(8,664)(866,402)(866,402)
Net shares reclassified to mandatorily redeemable capital stock(610)(61,003)(61,003)
Cash dividends on capital stock(26,586)(26,586)(26,586)
BALANCE, JUNE 30, 202127,184 $2,718,430 $791,390 $505,136 $1,296,526 $(1,986)$4,012,970 
BALANCE, DECEMBER 31, 202124,900 $2,490,016 $783,072 $509,719 $1,292,791 $13,094 $3,795,901 
Comprehensive income (loss)  45,343 11,335 56,678 (46,742)9,936 
Proceeds from sale of capital stock33,439 3,343,863  3,343,863 
Net shares reclassified to mandatorily redeemable capital stock(14,194)(1,419,350) (1,419,350)
Cash dividends on capital stock  (35,265)(35,265) (35,265)
BALANCE, JUNE 30, 202244,145 $4,414,529 $793,150 $521,054 $1,314,204 $(33,648)$5,695,085 

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)Six Months Ended June 30,
 2022 2021
OPERATING ACTIVITIES:   
Net income$56,678  $19,076 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
   
Depreciation and amortization/(accretion)79,455  47,699 
Net change in derivative and hedging activities
889,605  96,090 
Net change in fair value adjustments on trading securities247,986  154,249 
Net change in fair value adjustments on financial instruments held under fair value option
(79,431)(6,507)
Other adjustments, net460  447 
Net change in:  
Accrued interest receivable(46,903) 16,981 
Other assets4,885  4,868 
Accrued interest payable40,285  (19,376)
Other liabilities(7,193) (13,293)
Total adjustments1,129,149  281,158 
Net cash provided by (used in) operating activities1,185,827  300,234 
INVESTING ACTIVITIES:   
Net change in:   
Interest-bearing deposits(639,919) 232,472 
Securities purchased under agreements to resell(1,244,990) 1,381,768 
Federal funds sold(4,665,000) (1,935,000)
Premises, software, and equipment(606) (501)
Trading securities:   
Proceeds from maturities and paydowns2,975,051  750,062 
Proceeds from sales500,976 256,346 
Available-for-sale securities:   
Purchases(2,965,670)(1,649,104)
Held-to-maturity securities:   
Proceeds from maturities and paydowns873,299  1,582,303 
Purchases(2,706,277) (616,065)
Advances:   
Repaid547,226,216  254,966,449 
Originated(580,273,996) (253,337,180)
Mortgage loans held for portfolio:   
Principal collected708,097  2,205,296 
Purchases(547,855) (432,636)
Net cash provided by (used in) investing activities(40,760,674) 3,404,210 
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)Six Months Ended June 30,
2022 2021
FINANCING ACTIVITIES:   
Net change in deposits and pass-through reserves$(188,052) $9,718 
Net proceeds from issuance of Consolidated Obligations:   
Discount Notes164,158,139  99,552,017 
Bonds30,512,545  19,762,205 
Payments for maturing and retiring Consolidated Obligations:   
Discount Notes(136,942,872) (105,864,700)
Bonds(17,135,750) (20,058,000)
Proceeds from issuance of capital stock3,343,863  1,004,972 
Payments for repurchase of capital stock
— (866,402)
Payments for repurchase/redemption of mandatorily redeemable capital stock
(1,420,863) (66,738)
Cash dividends paid(35,265) (26,586)
Net cash provided by (used in) financing activities42,291,745  (6,553,514)
Net increase (decrease) in cash and due from banks2,716,898  (2,849,070)
Cash and due from banks at beginning of the period167,822  2,984,073 
Cash and due from banks at end of the period$2,884,720  $135,003 
Supplemental Disclosures:   
Interest paid$216,905  $214,794 
Affordable Housing Program payments, net$11,510  $11,190 


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

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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, 2021 filed with the Securities and Exchange Commission (SEC). Results for the six months ended June 30, 2022 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 2021 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

Troubled Debt Restructurings and Vintage Disclosures. On March 31, 2022, the Financial Accounting Standards Board (FASB) issued guidance that eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses methodology while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases. The guidance becomes effective for the FHLB for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted. The FHLB does not intend to adopt this guidance early. The FHLB is in the process of evaluating this guidance, but its effect on the FHLB’s financial condition, results of operations, and cash flows is not expected to be material.
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Fair Value Hedging - Portfolio Layer Method. On March 28, 2022, the FASB issued guidance that expands fair value hedging under the current last-of-layer method by allowing multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. Additionally, among other things, this guidance (1) expands the scope of the portfolio layer method to include nonprepayable assets, (2) specifies eligible hedging instruments in a single-layer hedge, (3) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, and (4) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. The guidance becomes effective for the FHLB for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted. The FHLB does not intend to adopt this guidance early. The FHLB is in the process of evaluating this guidance, and its effect on the FHLB’s financial condition, results of operations, and cash flows has not yet been determined.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. On March 12, 2020, the 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, and the effect on the FHLB's financial condition, results of operations and cash flows is not expected to be material. In particular, during the fourth quarter of 2021, the FHLB elected optional practical expedients specific to fair value hedging relationships, 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 June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable, which was immaterial for the periods presented.

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 June 30, 2022 and December 31, 2021. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable, which was immaterial for the periods presented.

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.

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Trading Securities

Table 3.1 - Trading Securities by Major Security Types (in thousands)
Fair ValueJune 30, 2022 December 31, 2021
Non-mortgage-backed securities (non-MBS):
U.S. Treasury obligations$1,486,849 $5,030,946 
GSE obligations1,569,799  1,749,661 
Total non-MBS3,056,648 6,780,607 
Mortgage-backed securities (MBS):   
U.S. obligation single-family155  210 
Total MBS155 210 
Total$3,056,803  $6,780,817 

Table 3.2 - Net Gains (Losses) on Trading Securities (in thousands)
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Net unrealized gains (losses) on trading securities held at period end$(82,502)$(16,223)$(225,331)$(143,842)
Net gains (losses) on trading securities sold/matured during the period(5,321)834 (22,655)(10,407)
Net gains (losses) on trading securities$(87,823)$(15,389)$(247,986)$(154,249)

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Available-for-Sale Securities

Table 3.3 - Available-for-Sale Securities by Major Security Types (in thousands)
 June 30, 2022
 
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Non-MBS:
U.S. Treasury obligations$6,302,589  $2,239  $(4,170)$6,300,658 
GSE obligations122,413 972 (42)123,343 
Total non-MBS6,425,002 3,211 (4,212)6,424,001 
MBS:
GSE multi-family1,250,040 295 (20,929)1,229,406 
Total MBS1,250,040 295 (20,929)1,229,406 
Total$7,675,042 $3,506 $(25,141)$7,653,407 
 December 31, 2021
 
Amortized
Cost (1)
 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Non-MBS:
U.S. Treasury obligations$4,475,664  $23,206  $— $4,498,870 
GSE obligations133,058 2,250 — 135,308 
Total non-MBS4,608,722 25,456 — 4,634,178 
MBS:
GSE multi-family632,276 2,961 (2,292)632,945 
Total MBS632,276 2,961 (2,292)632,945 
Total$5,240,998 $28,417 $(2,292)$5,267,123 
(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) $28,123 and $13,014 at June 30, 2022 and December 31, 2021.

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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)
June 30, 2022
Less than 12 Months12 Months or moreTotal
 Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Non-MBS:
U.S. Treasury obligations$3,163,534 $(4,170)$— $— $3,163,534 $(4,170)
GSE obligations4,695 (42)— — 4,695 (42)
Total non-MBS3,168,229 (4,212)— — 3,168,229 (4,212)
MBS:
GSE multi-family MBS1,076,366 (20,929)— — 1,076,366 (20,929)
Total MBS1,076,366 (20,929)— — 1,076,366 (20,929)
Total$4,244,595 $(25,141)$— $— $4,244,595 $(25,141)
December 31, 2021
Less than 12 Months12 Months or moreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
GSE multi-family MBS$489,983 $(2,292)$— $— $489,983 $(2,292)
Total $489,983 $(2,292)$— $— $489,983 $(2,292)

Table 3.5 - Available-for-Sale Securities by Contractual Maturity (in thousands)
 June 30, 2022 December 31, 2021
Year of MaturityAmortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
Non-MBS:
Due in 1 year or less$—  $—  $—  $— 
Due after 1 year through 5 years2,356,294 2,356,367 81,194 82,185 
Due after 5 years through 10 years4,057,951 4,056,870 4,515,054 4,538,945 
Due after 10 years10,757 10,764 12,474 13,048 
Total non-MBS6,425,002 6,424,001 4,608,722 4,634,178 
MBS (1)
1,250,040 1,229,406 632,276 632,945 
Total$7,675,042 $7,653,407 $5,240,998 $5,267,123 
(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)
 June 30, 2022 December 31, 2021
Amortized cost of non-MBS:   
Fixed-rate$6,425,002  $4,608,722 
Total amortized cost of non-MBS6,425,002 4,608,722 
Amortized cost of MBS:
Fixed-rate1,250,040 632,276 
Total amortized cost of MBS1,250,040 632,276 
Total$7,675,042 $5,240,998 

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The FHLB had no sales of securities out of its available-for-sale portfolio for the six months ended June 30, 2022 or 2021.

Held-to-Maturity Securities

Table 3.7 - Held-to-Maturity Securities by Major Security Types (in thousands)
June 30, 2022
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:
U.S. Treasury obligations
$46,087 $— $(46)$46,041 
Total non-MBS46,087 — (46)46,041 
MBS:    
U.S. obligation single-family1,017,413 — (92,459)924,954 
GSE single-family1,587,723 1,572 (60,005)1,529,290 
GSE multi-family9,548,808 699 (24,962)9,524,545 
Total MBS12,153,944 2,271 (177,426)11,978,789 
Total$12,200,031 $2,271 $(177,472)$12,024,830 
 
 December 31, 2021
 
Amortized Cost (1)
Gross Unrecognized Holding
Gains		Gross Unrecognized Holding LossesFair Value
Non-MBS:
U.S. Treasury obligations$46,879 $— $— $46,879 
Total non-MBS46,879 — — 46,879 
MBS:   
U.S. obligation single-family1,056,729 11,553 (8,337)1,059,945 
GSE single-family1,860,197 49,026 — 1,909,223 
GSE multi-family7,252,951 4,841 (4,018)7,253,774 
Total MBS10,169,877 65,420 (12,355)10,222,942 
Total$10,216,756 $65,420 $(12,355)$10,269,821 
 
(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) $12,979 and $7,461 as of June 30, 2022 and December 31, 2021.

Table 3.8 - Held-to-Maturity Securities by Contractual Maturity (in thousands)
June 30, 2022December 31, 2021
Year of Maturity
Amortized Cost (1)
Fair Value
Amortized Cost (1)
Fair Value
Non-MBS:    
Due in 1 year or less$46,087 $46,041 $46,879 $46,879 
Due after 1 year through 5 years— — — — 
Due after 5 years through 10 years— — — — 
Due after 10 years— — — — 
Total non-MBS46,087 46,041 46,879 46,879 
MBS (2)
12,153,944 11,978,789 10,169,877 10,222,942 
Total$12,200,031 $12,024,830 $10,216,756 $10,269,821 
(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.
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Table 3.9 - Interest Rate Payment Terms of Held-to-Maturity Securities (in thousands)
 June 30, 2022December 31, 2021
Amortized cost of non-MBS:   
Fixed-rate$46,087  $46,879 
Total amortized cost of non-MBS46,087  46,879 
Amortized cost of MBS:   
Fixed-rate2,437,023  2,718,127 
Variable-rate9,716,921  7,451,750 
Total amortized cost of MBS12,153,944  10,169,877 
Total$12,200,031  $10,216,756 

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 six months ended June 30, 2022 and 2021, 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 June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021, certain available-for-sale securities were in an unrealized loss position. These losses are considered temporary as the FHLB expects to recover the entire amortized cost basis on these available-for-sale investment securities and does not intend to sell these securities nor considers it more likely than not that it will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. Further, the FHLB has not experienced any payment defaults on the instruments. In addition, all of these securities carry an implicit or explicit government guarantee. As a result, no allowance for credit losses was recorded on these available-for-sale securities at June 30, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021, 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 expect, any payment default on the instruments, (3) in the case of U.S. obligations, the securities carry an explicit government guarantee such that the FHLB considered the risk of nonpayment to be zero, and (4) in the case of GSE obligations or MBS, the securities are purchased under an assumption that the U.S. government is willing and able to intervene on behalf of investors during a financial crisis.


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.

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Table 4.1 - Advances by Redemption Term (dollars in thousands)
June 30, 2022December 31, 2021
Redemption TermAmountWeighted Average Interest
Rate		AmountWeighted Average Interest
Rate
Overdrawn demand deposit accounts$155 2.12 %$— — %
Due in 1 year or less39,506,285 1.67 11,608,264 0.49 
Due after 1 year through 2 years6,046,984 1.84 1,451,741 2.06 
Due after 2 years through 3 years2,649,195 1.71 1,832,622 1.89 
Due after 3 years through 4 years3,506,459 1.97 2,486,809 0.97 
Due after 4 years through 5 years1,813,139 2.54 2,168,145 0.98 
Thereafter2,479,981 2.08 3,406,837 1.49 
Total principal amount56,002,198 1.76 22,954,418 0.95 
Commitment fees(110) (156) 
Discount on Affordable Housing Program (AHP) Advances
(1,056) (1,382) 
Discounts(1,539) (1,838) 
Hedging adjustments(225,850) 104,401  
Fair value option valuation adjustments and accrued interest
(2,979)(695)
Total (1)
$55,770,664  $23,054,748  
(1)Carrying values exclude accrued interest receivable of (in thousands) $55,271 and $18,823 as of June 30, 2022 and December 31, 2021.

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 DateJune 30, 2022December 31, 2021
Overdrawn demand deposit accounts$155 $— 
Due in 1 year or less42,533,686 14,642,697 
Due after 1 year through 2 years6,024,434 1,444,659 
Due after 2 years through 3 years2,644,344 1,809,871 
Due after 3 years through 4 years527,959 1,003,709 
Due after 4 years through 5 years1,813,139 668,145 
Thereafter2,458,481 3,385,337 
Total principal amount$56,002,198 $22,954,418 

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 DateJune 30, 2022December 31, 2021
Overdrawn demand deposit accounts$155 $— 
Due in 1 year or less40,696,285 13,995,514 
Due after 1 year through 2 years6,071,984 1,511,741 
Due after 2 years through 3 years2,674,195 1,818,372 
Due after 3 years through 4 years3,506,459 2,471,809 
Due after 4 years through 5 years1,748,139 2,160,145 
Thereafter1,304,981 996,837 
Total principal amount$56,002,198 $22,954,418 

Table 4.4 - Advances by Interest Rate Payment Terms (in thousands)                    
June 30, 2022December 31, 2021
Total fixed-rate (1)
$42,686,073 $19,372,859 
Total variable-rate (1)
13,316,125 3,581,559 
Total principal amount$56,002,198 $22,954,418 
(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, can be reliably discounted to account for liquidation and other risks, can be liquidated in due course and 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” to evaluate 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
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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 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 June 30, 2022 and December 31, 2021, 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 six months ended June 30, 2022 or 2021. At June 30, 2022 and December 31, 2021, 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 June 30, 2022 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, 2021.

Advance Concentrations

The FHLB's Advances are concentrated in commercial banks, savings institutions, and insurance companies. Advance borrower concentrations can change significantly because of 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)
June 30, 2022 December 31, 2021
 Principal% of Total Principal Amount of Advances  Principal% of Total Principal Amount of Advances
U.S. Bank, N.A.$14,772 26 %U.S. Bank, N.A.$3,272 14 %
Keybank National Association7,950 14 
Third Federal Savings and Loan Association
3,179 14 
Fifth Third Bank6,252 11 Protective Life Insurance Company2,800 12 
Third Federal Savings and Loan Association
4,243 8 Nationwide Life Insurance Company2,702 12 
Protective Life Insurance Company3,220 6 Western-Southern Life Assurance Co.1,487 6 
Total$36,437 65 %Total$13,440 58 %


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)
 June 30, 2022December 31, 2021
Fixed rate medium-term single-family mortgage loans (1)
$588,101 $649,052 
Fixed rate long-term single-family mortgage loans6,645,740 6,752,858 
Total unpaid principal balance7,233,841 7,401,910 
Premiums160,047 168,993 
Discounts(1,949)(1,088)
Hedging basis adjustments (2)
8,658 18,602 
Total mortgage loans held for portfolio (3)
7,400,597 7,588,417 
Allowance for credit losses on mortgage loans(264)(233)
Mortgage loans held for portfolio, net
$7,400,333 $7,588,184 
(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) $22,161 and $22,847 at June 30, 2022 and December 31, 2021.

Table 5.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)
 June 30, 2022December 31, 2021
Conventional mortgage loans$7,110,611 $7,262,740 
Federal Housing Administration (FHA) mortgage loans123,230 139,170 
Total unpaid principal balance$7,233,841 $7,401,910 

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)
 June 30, 2022 December 31, 2021
 Principal% of Total Principal% of Total
Union Savings Bank$1,752 24 %Union Savings Bank$1,841 25 %
FirstBank704 10 FirstBank565 8 
Guardian Savings Bank FSB464 6 Guardian Savings Bank FSB524 7 

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 primarily supported by some combination of credit enhancements (primary mortgage insurance (PMI) 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. 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)
Six Months Ended
June 30, 2022
LRA at beginning of year$252,310 
Additions6,013 
Claims(2)
Scheduled distributions(4,263)
LRA at end of period$254,058 

Payment Status of Mortgage Loans. The key credit quality indicator for conventional mortgage loans is payment status, which allows the FHLB to monitor borrower performance. 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. Table 5.5 presents the payment status of conventional mortgage loans.

Table 5.5 - Credit Quality Indicator of Conventional Mortgage Loans (in thousands)
June 30, 2022
Origination Year
Payment status, at amortized cost:Prior to 20182018 to June 30, 2022Total
Past due 30-59 days$14,796 $10,379 $25,175 
Past due 60-89 days3,869 695 4,564 
Past due 90 days or more10,494 6,398 16,892 
Total past due mortgage loans29,159 17,472 46,631 
Current mortgage loans2,591,225 4,638,566 7,229,791 
Total conventional mortgage loans$2,620,384 $4,656,038 $7,276,422 
December 31, 2021
Origination Year
Payment status, at amortized cost:Prior to 20172017 to 2021Total
Past due 30-59 days$16,105 $11,557 $27,662 
Past due 60-89 days3,703 2,533 6,236 
Past due 90 days or more12,185 11,623 23,808 
Total past due mortgage loans31,993 25,713 57,706 
Current mortgage loans2,542,107 4,848,339 7,390,446 
Total conventional mortgage loans$2,574,100 $4,874,052 $7,448,152 

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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)
June 30, 2022
Amortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
$8,781 $569 $9,350 
Serious delinquency rate (2)
0.24 %1.55 %0.26 %
Past due 90 days or more still accruing interest (3)
$16,706 $1,833 $18,539 
Loans on non-accrual status (4)
$1,142 $— $1,142 
December 31, 2021
Amortized Cost:Conventional MPP LoansFHA LoansTotal
In process of foreclosure (1)
$4,424 $501 $4,925 
Serious delinquency rate (2)
0.32 %2.00 %0.35 %
Past due 90 days or more still accruing interest (3)
$23,169 $2,812 $25,981 
Loans on non-accrual status (4)
$1,617 $— $1,617 
(1)Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(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.
(4)At June 30, 2022 and December 31, 2021, (in thousands) $1,142 and $1,617, respectively, of conventional MPP loans on non-accrual status do not have a related allowance because these loans were either previously charged off to their expected recoverable value and/or the fair value of the underlying collateral, including any credit enhancements, is greater than the amortized cost of the loans.

The FHLB did not have any real estate owned at June 30, 2022 or December 31, 2021.

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, but in such instance, the FHLB would have recourse against the servicer for such failure. 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 when the borrower is experiencing financial difficulty and repayment is expected to be substantially through the sale of the underlying collateral. The FHLB may estimate the fair value of this
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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 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. At June 30, 2022 and December 31, 2021 the FHLB's allowance for credit losses on its conventional mortgage loans held for portfolio was (in thousands) $264 and $233, respectively.

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 2021 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)
 June 30, 2022
 Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:   
Interest rate swaps$17,049,420 $5,626 $91,240 
Derivatives not designated as hedging instruments:   
Interest rate swaps39,332,742 5,436 36,115 
Interest rate swaptions205,000 3,259 — 
Mortgage delivery commitments55,385 229 137 
Total derivatives not designated as hedging instruments39,593,127 8,924 36,252 
Total derivatives before adjustments$56,642,547 14,550 127,492 
Netting adjustments and cash collateral (1)
 321,358 (126,819)
Total derivative assets and total derivative liabilities $335,908 $673 
 December 31, 2021
 Notional Amount of DerivativesDerivative AssetsDerivative Liabilities
Derivatives designated as fair value hedging instruments:   
Interest rate swaps$13,720,290 $710 $77,992 
Derivatives not designated as hedging instruments:
Interest rate swaps24,059,664 1,919 291 
Interest rate swaptions1,219,000 532 — 
Mortgage delivery commitments249,581 77 829 
Total derivatives not designated as hedging instruments25,528,245 2,528 1,120 
Total derivatives before adjustments$39,248,535 3,238 79,112 
Netting adjustments and cash collateral (1)
 294,498 (75,821)
Total derivative assets and total derivative liabilities $297,736 $3,291 
 
(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) $450,881 and $370,779 at June 30, 2022 and December 31, 2021. Cash collateral received, including accrued interest, was (in thousands) $2,704 and $460 at June 30, 2022 and December 31, 2021.

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 June 30, 2022
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$120,653 $16,944 $(119,330)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(12,694)$(10,392)$2,289 
Gain (loss) on derivatives111,768 204,402 (11,999)
Gain (loss) on hedged items (110,048)(205,960)12,046 
Effect on net interest income$(10,974)$(11,950)$2,336 

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Three Months Ended June 30, 2021
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$31,371 $344 $(86,589)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(27,851)$(2,829)$269 
Gain (loss) on derivatives(2,194)(11,891)(451)
Gain (loss) on hedged items(993)11,295 445 
Effect on net interest income$(31,038)$(3,425)$263 

 
Six Months Ended June 30, 2022
AdvancesAvailable-for-sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$165,971 $21,962 $(194,405)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(34,389)$(23,926)$2,705 
Gain (loss) on derivatives334,259 541,563 (22,778)
Gain (loss) on hedged items(330,223)(543,229)22,740 
Effect on net interest income$(30,353)$(25,592)$2,667 

 Six Months Ended June 30, 2021
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Total interest income (expense) recorded in the Statements of Income
$72,531 $1,679 $(182,775)
Impact of Fair Value Hedging Relationships
Interest rate swaps:
Net interest settlements$(60,695)$(3,708)$520 
Gain (loss) on derivatives146,420 4,716 (826)
Gain (loss) on hedged items(145,802)(4,479)815 
Effect on net interest income$(60,077)$(3,471)$509 
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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)
June 30, 2022
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Amortized cost of hedged asset or liability (1)
$7,300,203 $7,666,217 $1,241,515 
Fair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost$(226,579)$(604,685)$(23,844)
Basis adjustments for discontinued hedging relationships included in amortized cost729 8,288 — 
Total amount of fair value hedging basis adjustments$(225,850)$(596,397)$(23,844)
December 31, 2021
AdvancesAvailable-for-Sale SecuritiesConsolidated Bonds
Amortized cost of hedged asset or liability (1)
$8,089,716 $5,238,549 $450,369 
Fair value hedging adjustments
Basis adjustments for active hedging relationships included in amortized cost$103,468 $(61,734)$(1,104)
Basis adjustments for discontinued hedging relationships included in amortized cost933 2,627 — 
Total amount of fair value hedging basis adjustments$104,401 $(59,107)$(1,104)
(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 June 30,
20222021
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps$16,596 $8,066 
Interest rate swaptions5,470 (3,375)
Net interest settlements(267)(44,587)
Mortgage delivery commitments(1,441)3,804 
Total net gains (losses) related to derivatives not designated as hedging instruments
20,358 (36,092)
Price alignment amount (1)
11 13 
Net gains (losses) on derivatives$20,369 $(36,079)
Six Months Ended June 30,
20222021
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps$149,642 $148,846 
Interest rate swaptions6,558 414 
Net interest settlements(31,441)(88,795)
Mortgage delivery commitments(7,324)540 
Total net gains (losses) related to derivatives not designated as hedging instruments
117,435 61,005 
Price alignment amount (1)
39 60 
Net gains (losses) on derivatives$117,474 $61,065 
(1)    This amount is for derivatives for which variation margin is characterized as a daily settled contract.

Credit Risk on Derivatives

The FHLB is subject to credit risk given the risk of non-performance by counterparties to its derivative transactions, and manages credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.

For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in these contracts to mitigate the risk. The FHLB requires collateral agreements on its uncleared derivatives with the collateral delivery threshold set to zero.

For cleared derivatives, the Clearinghouse is the FHLB's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent in turn notifies the FHLB. The FHLB utilizes two Clearinghouses for all cleared derivative transactions, LCH Ltd. and CME Clearing. At both Clearinghouses, variation margin is characterized as daily settlement payments, while initial margin is considered to be collateral. The requirement that the FHLB post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the FHLB to credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the value of cleared derivatives is posted daily through a clearing agent. On the Statements of Cash Flows, the variation margin cash payments, or daily settlement payments, are included in net change in derivative and hedging activities, as an operating activity.

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For cleared derivatives, the Clearinghouse determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. At June 30, 2022, the FHLB was not required to post additional initial margin by its clearing agents based on credit considerations.

Offsetting of Derivative Assets and Derivative Liabilities

The FHLB presents derivative instruments, related cash collateral received or pledged, and associated accrued interest, on a net basis by clearing agent and/or by counterparty when it has met the netting requirements.

The FHLB has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions, and it expects that the exercise of those offsetting rights by a non-defaulting party under these transactions would be upheld under applicable law upon an event of default including bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the FHLB's clearing agent, or both. Based on this analysis, the FHLB presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

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Table 6.5 presents separately the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral. At June 30, 2022 and December 31, 2021, the FHLB did not receive or pledge any non-cash collateral. Any over-collateralization under an individual clearing agent and/or counterparty level is not included in the determination of the net unsecured amount.

Table 6.5 - Offsetting of Derivative Assets and Derivative Liabilities (in thousands)
June 30, 2022
Derivative Instruments Meeting Netting Requirements
Gross Recognized AmountGross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements (1)
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:
Uncleared$10,469 $(865)$229 $9,833 
Cleared3,852 322,223 — 326,075 
Total$335,908 
Derivative Liabilities:
Uncleared$45,821 $(45,285)$137 $673 
Cleared81,534 (81,534)— — 
Total$673 
December 31, 2021
Derivative Instruments Meeting Netting Requirements
Gross Recognized AmountGross Amount of Netting Adjustments and Cash Collateral
Derivative Instruments Not Meeting Netting Requirements (1)
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets:
Uncleared$1,892 $(1,748)$77 $221 
Cleared1,269 296,246 — 297,515 
Total$297,736 
Derivative Liabilities:
Uncleared$77,126 $(74,664)$829 $3,291 
Cleared1,157 (1,157)— — 
Total$3,291 
(1)    Represents mortgage delivery commitments that are not subject to an enforceable netting agreement.


Note 7 - Consolidated Obligations

Table 7.1 - Consolidated Discount Notes Outstanding (dollars in thousands)
 Carrying Value Principal Amount 
Weighted Average Interest Rate (1)
June 30, 2022$57,077,477  $57,328,383  1.37 %
December 31, 2021$29,837,696  $29,843,992  0.05 %
(1)Represents an implied rate without consideration of concessions.

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Table 7.2 - Consolidated Bonds Outstanding by Original Contractual Maturity (dollars in thousands)
 June 30, 2022 December 31, 2021
Year of Original Contractual MaturityAmountWeighted Average Interest Rate AmountWeighted Average Interest Rate
Due in 1 year or less$23,946,080 1.63 % $12,828,885 0.55 %
Due after 1 year through 2 years4,563,580 2.09  3,836,120 1.91 
Due after 2 years through 3 years2,470,000 2.15  1,724,405 2.23 
Due after 3 years through 4 years2,025,000 1.45  2,095,000 1.39 
Due after 4 years through 5 years1,123,000 1.98  870,000 1.86 
Thereafter3,842,140 2.41  3,235,000 2.17 
Total principal amount37,969,800 1.80  24,589,410 1.21 
Premiums27,252   31,181  
Discounts(20,563)  (17,709) 
Hedging adjustments(23,844)  (1,104) 
Fair value option valuation adjustment and accrued interest(29,614)60 
Total$37,923,031   $24,601,838  

Table 7.3 - Consolidated Bonds Outstanding by Call Features (in thousands)
 June 30, 2022 December 31, 2021
Principal Amount of Consolidated Bonds:   
Non-callable$26,242,800  $19,689,410 
Callable11,727,000  4,900,000 
Total principal amount$37,969,800  $24,589,410 

Table 7.4 - Consolidated Bonds Outstanding by Original Contractual Maturity or Next Call Date (in thousands)

Year of Original Contractual Maturity or Next Call DateJune 30, 2022 December 31, 2021
Due in 1 year or less$31,142,080  $17,518,885 
Due after 1 year through 2 years2,552,580  3,085,120 
Due after 2 years through 3 years1,246,000  1,262,405 
Due after 3 years through 4 years799,000  728,000 
Due after 4 years through 5 years177,000  547,000 
Thereafter2,053,140  1,448,000 
Total principal amount$37,969,800  $24,589,410 

Table 7.5 - Consolidated Bonds by Interest-rate Payment Type (in thousands)
 June 30, 2022 December 31, 2021
Principal Amount of Consolidated Bonds:   
Fixed-rate$20,940,800  $23,739,410 
Variable-rate17,029,000 850,000 
Total principal amount$37,969,800 $24,589,410 


Note 8 - Affordable Housing Program (AHP)

The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidies in the form of direct grants or below-market interest rate AHP Advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Each FHLBank is required to contribute to its
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AHP the greater of 10 percent of its previous year's income subject to assessment, or the prorated sum required to ensure the aggregate contribution by the FHLBanks is no less than $100 million for each year. For purposes of the AHP calculation, income subject to assessment is defined as net income before AHP assessments, plus interest expense related to mandatorily redeemable capital stock. The FHLB accrues AHP expense monthly based on its income subject to assessment. The FHLB reduces the AHP liability as members use subsidies.

Table 8.1 - Rollforward of the AHP Liability (in thousands)
Balance at December 31, 2021$84,504 
Assessments (current year additions)6,482 
Subsidy uses, net(11,510)
Balance at June 30, 2022$79,476 


Note 9 - Capital

Table 9.1 - Capital Requirements (dollars in thousands)
 June 30, 2022December 31, 2021
 Minimum RequirementActualMinimum RequirementActual
Risk-based capital$995,945 $5,748,431 $856,322 $3,804,018 
Capital-to-assets ratio (regulatory)4.00 %5.58 %4.00 %6.28 %
Regulatory capital$4,122,285 $5,748,431 $2,424,703 $3,804,018 
Leverage capital-to-assets ratio (regulatory)5.00 %8.37 %5.00 %9.41 %
Leverage capital$5,152,856 $8,622,647 $3,030,879 $5,706,027 

Restricted Retained Earnings. At June 30, 2022 and December 31, 2021 the FHLB had (in thousands) $521,054 and $509,719, respectively, in restricted retained earnings. These restricted retained earnings are not available to pay dividends but are available to absorb unexpected losses, if any, that an FHLBank may experience.

Table 9.2 - Rollforward of Mandatorily Redeemable Capital Stock (in thousands)
Balance, December 31, 2021$21,211 
Capital stock subject to mandatory redemption reclassified from equity
1,419,350 
Repurchase/redemption of mandatorily redeemable capital stock
(1,420,863)
Balance, June 30, 2022$19,698 

Table 9.3 - Mandatorily Redeemable Capital Stock by Contractual Year of Redemption (in thousands)
Contractual Year of RedemptionJune 30, 2022 December 31, 2021
Year 1$577  $1,091 
Year 2 684  1,427 
Year 315  270 
Year 4 120  5 
Year 5 10,514  10,791 
Past contractual redemption date due to remaining activity (1)
7,788 7,627 
Total$19,698  $21,211 
(1)Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.


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Note 10 - Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021.

Table 10.1 - Accumulated Other Comprehensive Income (Loss) (in thousands)
Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, MARCH 31, 2021$7,405 $(19,027)$(11,622)
Other comprehensive income before reclassification:
Net unrealized gains (losses)8,960 — 8,960 
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits (1)
— 676 676 
Net current period other comprehensive income (loss)8,960 676 9,636 
BALANCE, JUNE 30, 2021$16,365 $(18,351)$(1,986)
BALANCE, MARCH 31, 2022$(11,647)$(12,522)$(24,169)
Other comprehensive income before reclassification:
Net unrealized gains (losses)(9,988)— (9,988)
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits (1)
— 509 509 
Net current period other comprehensive income (loss)(9,988)509 (9,479)
BALANCE, JUNE 30, 2022$(21,635)$(12,013)$(33,648)
Net unrealized gains (losses) on available-for-sale securitiesPension and postretirement benefitsTotal accumulated other comprehensive income (loss)
BALANCE, DECEMBER 31, 2020$4,718 $(19,703)$(14,985)
Other comprehensive income before reclassification:
Net unrealized gains (losses)11,647 — 11,647 
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits (1)
—1,352 1,352 
Net current period other comprehensive income (loss)
11,647 1,352 12,999 
BALANCE, JUNE 30, 2021$16,365 $(18,351)$(1,986)
BALANCE, DECEMBER 31, 2021$26,125 $(13,031)$13,094 
Other comprehensive income before reclassification:
Net unrealized gains (losses)(47,760)— (47,760)
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement benefits (1)
— 1,018 1,018 
Net current period other comprehensive income (loss)(47,760)1,018 (46,742)
BALANCE, JUNE 30, 2022$(21,635)$(12,013)$(33,648)
(1)Included in Non-Interest Expense - Other in the Statements of Income.
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Note 11 - Segment Information

The FHLB has identified two primary operating segments based on its method of internal reporting: Traditional Member Finance and the MPP. These segments reflect the FHLB's two primary Mission Asset Activities and the manner in which they are managed from the perspective of development, resource allocation, product delivery, pricing, credit risk and operational administration. The segments identify the principal ways the FHLB provides services to member stockholders.

Table 11.1 - Financial Performance by Operating Segment (in thousands)
 Three Months Ended June 30,
 Traditional Member
Finance		MPPTotal
2022   
Net interest income (loss)$59,827 $11,296 $71,123 
Non-interest income (loss)(2,534)2,634 100 
Non-interest expense23,371 2,686 26,057 
Income (loss) before assessments33,922 11,244 45,166 
Affordable Housing Program assessments3,475 1,124 4,599 
Net income (loss)$30,447 $10,120 $40,567 
2021   
Net interest income (loss)$80,863 $(14,712)$66,151 
Non-interest income (loss)(43,205)1,365 (41,840)
Non-interest expense21,342 2,569 23,911 
Income (loss) before assessments16,316 (15,916)400 
Affordable Housing Program assessments1,643 (1,592)51 
Net income (loss)$14,673 $(14,324)$349 
 Six Months Ended June 30,
 Traditional Member
Finance		MPPTotal
2022   
Net interest income (loss)$137,202 $14,711 $151,913 
Non-interest income (loss)(34,646)(2,447)(37,093)
Non-interest expense46,122 5,538 51,660 
Income (loss) before assessments56,434 6,726 63,160 
Affordable Housing Program assessments5,810 672 6,482 
Net income (loss)$50,624 $6,054 $56,678 
2021   
Net interest income (loss)$168,245 $(26,188)$142,057 
Non-interest income (loss)(74,231)826 (73,405)
Non-interest expense42,066 5,368 47,434 
Income (loss) before assessments51,948 (30,730)21,218 
Affordable Housing Program assessments5,215 (3,073)2,142 
Net income (loss)$46,733 $(27,657)$19,076 

Table 11.2 - Asset Balances by Operating Segment (in thousands)
Assets
Traditional Member
Finance		MPPTotal
June 30, 2022$93,296,895 $9,760,222 $103,057,117 
December 31, 202150,086,904 10,530,681 60,617,585 
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Note 12 - Fair Value Disclosures

The fair value amounts recorded on the Statements of Condition and presented in the related note disclosures have been determined by the FHLB using available market information and the FHLB's best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair values reflect the FHLB's judgment of how a market participant would estimate the fair values.

Fair Value Hierarchy. GAAP establishes a fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the measurement is determined. This overall level is an indication of how market observable the fair value measurement is.

The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

Level 1 Inputs - Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Inputs - Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for the asset or liability, which are supported by limited to no market activity and reflect the FHLB's own assumptions.

The FHLB reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain financial assets or liabilities. The FHLB did not have any transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2022 or 2021.

Table 12.1 presents the carrying value, fair value, and fair value hierarchy of financial assets and liabilities of the FHLB. The FHLB records trading securities, available-for-sale securities, derivative assets, derivative liabilities, certain Advances and certain Consolidated Obligations at fair value on a recurring basis, and on occasion, certain mortgage loans held for portfolio on a nonrecurring basis. The FHLB records all other financial assets and liabilities at amortized cost. Refer to Table 12.2 for further details about the financial assets and liabilities held at fair value on either a recurring or nonrecurring basis.

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Table 12.1 - Fair Value Summary (in thousands)
June 30, 2022
Fair Value
Financial Instruments
Carrying Value (1)
TotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (2)
Assets:  
Cash and due from banks$2,884,720 $2,884,720 $2,884,720 $— $— $— 
Interest-bearing deposits900,128 900,128 — 900,128 — — 
Securities purchased under agreements to resell
2,527,430 2,527,432 — 2,527,432 — — 
Federal funds sold10,170,000 10,170,000 — 10,170,000 — — 
Trading securities3,056,803 3,056,803 — 3,056,803 — — 
Available-for-sale securities7,653,407 7,653,407 — 7,653,407 — — 
Held-to-maturity securities12,200,031 12,024,830 — 12,024,830 — — 
Advances (3)
55,770,664 55,759,362 — 55,759,362 — — 
Mortgage loans held for portfolio
7,400,333 6,841,247 — 6,824,136 17,111 — 
Accrued interest receivable135,412 135,412 — 135,412 — — 
Derivative assets335,908 335,908 — 14,550 — 321,358 
Liabilities:  
Deposits1,225,359 1,224,476 — 1,224,476 — — 
Consolidated Obligations: 
Discount Notes (4)
57,077,477 57,064,231 — 57,064,231 — — 
Bonds (5)
37,923,031 37,376,090 — 37,376,090 — — 
Mandatorily redeemable capital stock
19,698 19,698 19,698 — — — 
Accrued interest payable87,219 87,219 — 87,219 — — 
Derivative liabilities673 673 — 127,492 — (126,819)
(1)For certain financial instruments, the amounts represent net carrying value, which include an allowance for credit losses.
(2)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(3)Includes (in thousands) $23,521 of Advances recorded under the fair value option at June 30, 2022.
(4)Includes (in thousands) $29,385,898 of Consolidated Obligation Discount Notes recorded under the fair value option at June 30, 2022.
(5)Includes (in thousands) $6,236,386 of Consolidated Obligation Bonds recorded under the fair value option at June 30, 2022.

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December 31, 2021
Fair Value
Financial Instruments
Carrying Value (1)
TotalLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral (2)
Assets:  
Cash and due from banks$167,822 $167,822 $167,822 $— $— $— 
Interest-bearing deposits340,147 340,147 — 340,147 — — 
Securities purchased under agreements to resell
1,282,440 1,282,440 — 1,282,440 — — 
Federal funds sold5,505,000 5,505,000 — 5,505,000 — — 
Trading securities6,780,817 6,780,817 — 6,780,817 — — 
Available-for-sale securities5,267,123 5,267,123 — 5,267,123 — — 
Held-to-maturity securities10,216,756 10,269,821 — 10,269,821 — — 
Advances (3)
23,054,748 23,191,040 — 23,191,040 — — 
Mortgage loans held for portfolio7,588,184 7,728,670 — 7,705,035 23,635 — 
Accrued interest receivable88,672 88,672 — 88,672 — — 
Derivative assets297,736 297,736 — 3,238 — 294,498 
Liabilities:  
Deposits1,415,651 1,415,456 — 1,415,456 — — 
Consolidated Obligations:  
Discount Notes (4)
29,837,696 29,837,184 — 29,837,184 — — 
Bonds (5)
24,601,838 24,906,306 — 24,906,306 — — 
Mandatorily redeemable capital stock
21,211 21,211 21,211 — — — 
Accrued interest payable60,682 60,682 — 60,682 — — 
Derivative liabilities3,291 3,291 — 79,112 — (75,821)
(1)For certain financial instruments, the amounts represent net carrying value, which include an allowance for credit losses.
(2)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.
(3)Includes (in thousands) $25,805 of Advances recorded under the fair value option at December 31, 2021.
(4)Includes (in thousands) $10,420,974 of Consolidated Obligation Discount Notes recorded under the fair value option at December 31, 2021.
(5)Includes (in thousands) $7,175,060 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2021.

Summary of Valuation Methodologies and Primary Inputs.

The valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statement of Condition are disclosed in Note 15 - Fair Value Disclosures in the FHLB's 2021 Annual Report on Form 10-K. There have been no significant changes in the valuation methodologies during 2022.
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Fair Value Measurements.

Table 12.2 presents the fair value of financial assets and liabilities that are recorded on a recurring basis at June 30, 2022 and December 31, 2021, by level within the fair value hierarchy.

Table 12.2 - Fair Value Measurements (in thousands)
Fair Value Measurements at June 30, 2022
 Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets
     
Trading securities:     
U.S. Treasury obligations$1,486,849 $— $1,486,849 $— $— 
GSE obligations
1,569,799 — 1,569,799 — — 
U.S. obligation single-family MBS
155 — 155 — — 
Total trading securities3,056,803 — 3,056,803 — — 
Available-for-sale securities:     
U.S. Treasury obligations6,300,658 — 6,300,658 — — 
GSE obligations123,343 — 123,343 — — 
GSE multi-family MBS1,229,406 — 1,229,406 — — 
Total available-for-sale securities7,653,407 — 7,653,407 — — 
Advances23,521 — 23,521 — — 
Derivative assets:     
Interest rate related335,679 — 14,321 — 321,358 
Mortgage delivery commitments229 — 229 — — 
Total derivative assets335,908 — 14,550 — 321,358 
Total assets at fair value$11,069,639 $— $10,748,281 $— $321,358 
Recurring fair value measurements - Liabilities
     
Consolidated Obligations:
Discount Notes$29,385,898 $— $29,385,898 $— $— 
Bonds6,236,386 — 6,236,386 — — 
Total Consolidated Obligations35,622,284 — 35,622,284 — — 
Derivative liabilities:     
Interest rate related536 — 127,355 — (126,819)
Mortgage delivery commitments137 — 137 — — 
Total derivative liabilities673 — 127,492 — (126,819)
Total liabilities at fair value$35,622,957 $— $35,749,776 $— $(126,819)
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.


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Fair Value Measurements at December 31, 2021
 Total  Level 1Level 2Level 3
Netting Adjustments and Cash Collateral (1)
Recurring fair value measurements - Assets
     
Trading securities:     
U.S. Treasury obligations$5,030,946 $— $5,030,946 $— $— 
GSE obligations
1,749,661 — 1,749,661 — — 
U.S. obligation single-family MBS
210 — 210 — — 
Total trading securities6,780,817 — 6,780,817 — — 
Available-for-sale securities:     
U.S. Treasury obligations4,498,870 — 4,498,870 — — 
GSE obligations135,308 — 135,308 — — 
GSE multi-family MBS632,945 — 632,945 — — 
Total available-for-sale securities5,267,123 — 5,267,123 — — 
Advances25,805 — 25,805 — — 
Derivative assets:     
Interest rate related297,659 — 3,161 — 294,498 
Mortgage delivery commitments77 — 77 — — 
Total derivative assets297,736 — 3,238 — 294,498 
Total assets at fair value$12,371,481 $— $12,076,983 $— $294,498 
Recurring fair value measurements - Liabilities
     
Consolidated Obligations:
Discount Notes
$10,420,974 $— $10,420,974 $— $— 
   Bonds7,175,060 — 7,175,060 — — 
Total Consolidated Obligations17,596,034 — 17,596,034 — — 
Derivative liabilities:     
Interest rate related2,462 — 78,283 — (75,821)
Mortgage delivery commitments829 — 829 — — 
Total derivative liabilities3,291 — 79,112 — (75,821)
Total liabilities at fair value$17,599,325 $— $17,675,146 $— $(75,821)
(1)Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.

Fair Value Option. The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires a company to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities and commitments, with the changes in fair value recognized in net income. If elected, interest income and interest expense on Advances and Consolidated Obligations carried at fair value are recognized based solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized into other non-interest income or other non-interest expense.

The FHLB has elected the fair value option for certain financial instruments that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements. These fair value elections were made primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value.

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Table 12.3 presents net gains (losses) recognized in earnings related to financial assets and liabilities in which the fair value option was elected during the three and six months ended June 30, 2022 and 2021.

Table 12.3 – Fair Value Option - Financial Assets and Liabilities (in thousands)
Three Months Ended June 30,Six Months Ended June 30,
Net Gains (Losses) from Changes in Fair Value Recognized in Earnings
2022202120222021
Advances
$(842)$165 $(2,282)$(1,135)
Consolidated Discount Notes
29,094 55 38,294 50 
Consolidated Bonds
32,501 2,382 43,419 7,592 
Total net gains (losses)
$60,753 $2,602 $79,431 $6,507 

For instruments recorded under the fair value option, the related contractual interest income, contractual interest expense and the discount amortization on Discount Notes are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments in which the fair value option has been elected are recorded as “Net gains (losses) on financial instruments held under fair value option” in the Statements of Income, except for changes in fair value related to instrument specific credit risk, which are recorded in accumulated other comprehensive income in the Statement of Condition. The FHLB has determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the six months ended June 30, 2022 or 2021. In determining that there has been no change in instrument-specific credit risk period to period, the FHLB primarily considered the following factors:

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

▪The FHLB is jointly and severally liable with the other 10 FHLBanks for the payment of principal and interest on all Consolidated Obligations of each of the other FHLBanks.

The following table reflects the difference between the aggregate unpaid principal balance outstanding and the aggregate fair value for Advances and Consolidated Obligations for which the fair value option has been elected.

Table 12.4 – Aggregate Unpaid Balance and Aggregate Fair Value (in thousands)
June 30, 2022December 31, 2021
Aggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal BalanceAggregate Unpaid Principal BalanceAggregate Fair ValueAggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Advances
$26,500 $23,521 $(2,979)$26,500 $25,805 $(695)
Consolidated Discount Notes
29,553,478 29,385,898 (167,580)10,426,400 10,420,974 (5,426)
Consolidated Bonds
6,266,000 6,236,386 (29,614)7,175,000 7,175,060 60 

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Note 13 - Commitments and Contingencies

Off-Balance Sheet Commitments. Table 13.1 represents off-balance sheet commitments at June 30, 2022 and December 31, 2021. The FHLB has deemed it unnecessary to record any liabilities for credit losses on these commitments at June 30, 2022 and December 31, 2021.

Table 13.1 - Off-Balance Sheet Commitments (in thousands)
June 30, 2022December 31, 2021
Notional AmountExpire within one yearExpire after one yearTotalExpire within one yearExpire after one yearTotal
Letters of Credit$36,773,970 $234,747 $37,008,717 $34,281,457 $355,646 $34,637,103 
Commitments for standby bond purchases11,555 — 11,555 14,035 12,885 26,920 
Commitments to purchase mortgage loans55,385 — 55,385 249,581 — 249,581 
Unsettled Consolidated Bonds, principal amount (1)
30,000 — 30,000 — — — 
Unsettled Consolidated Discount Notes, principal amount (1)
703,461 — 703,461 — — — 
(1)Expiration is based on settlement period rather than underlying contractual maturity of Consolidated Obligations.

The carrying value of guarantees related to Letters of Credit are recorded in other liabilities and were (in thousands) $7,526 and $8,751 at June 30, 2022 and December 31, 2021.

Legal Proceedings. From time to time, the FHLB is subject to legal proceedings arising in the normal course of business. The FHLB would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount could be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability and the range of reasonably possible losses, if any, arising out of any matters will have a material effect on the FHLB's financial condition or results of operations.


Note 14 - Transactions with Other FHLBanks

The FHLB notes all transactions with other FHLBanks on the face of its financial statements. Occasionally, the FHLB loans short-term funds to and borrows short-term funds from other FHLBanks. These loans and borrowings are transacted at then current market rates when traded. There were no such loans or borrowings outstanding at June 30, 2022 or December 31, 2021. The following table details the average daily balance of lending and borrowing between the FHLB and other FHLBanks for the six months ended June 30, 2022 and 2021.

Table 14.1 - Lending and Borrowing Between the FHLB and Other FHLBanks (in thousands)
Average Daily Balances for the Six Months Ended June 30,
 2022 2021
Loans to other FHLBanks$16,851  $— 

In addition, the FHLB may, from time to time, assume the outstanding primary liability for Consolidated Obligations of another FHLBank (at then current market rates on the day when the transfer is traded) rather than issuing new debt for which the FHLB is the primary obligor. The FHLB then becomes the primary obligor on the transferred debt. There were no Consolidated Obligations transferred to the FHLB during the six months ended June 30, 2022 or 2021. The FHLB had no Consolidated Obligations transferred to other FHLBanks during these periods.

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Note 15 - Transactions with Stockholders

As a cooperative, the FHLB's capital stock is owned by its members, by former members that retain the stock as provided in the FHLB's Capital Plan and by nonmember institutions that have acquired members and must retain the stock to support Advances or other activities with the FHLB. All Advances are issued to members and all mortgage loans held for portfolio are purchased from members. The FHLB also maintains demand deposit accounts for members, primarily to facilitate settlement activities that are directly related to Advances and mortgage loan purchases. Additionally, the FHLB may enter into interest rate swaps with its stockholders. The FHLB may not invest in any equity securities issued by its stockholders and it has not purchased any MBS securitized by, or other direct long-term investments in, its stockholders.

For financial statement purposes, the FHLB defines related parties as those members with more than 10 percent of the voting interests of the FHLB capital stock outstanding. Federal statute prescribes the voting rights of members in the election of both Member and Independent directors. For Member directorships, the Finance Agency designates the number of Member directorships in a given year and an eligible voting member may vote only for candidates seeking election in its respective state. For Independent directors, the FHLB's Board of Directors nominates candidates to be placed on the ballot in an at-large election. For both Member and Independent director elections, a member is entitled to vote one share of required capital stock, subject to a statutory limitation, for each applicable directorship. Under this limitation, the total number of votes that a member may cast is limited to the average number of shares of the FHLB's capital stock that were required to be held by all members in that state as of the record date for voting. Nonmember stockholders are not eligible to vote in director elections. Due to these statutory limitations, no member owned more than 10 percent of the voting interests of the FHLB at June 30, 2022 or December 31, 2021.

All transactions with stockholders are entered into in the ordinary course of business. Finance Agency regulations require the FHLB to offer the same pricing for Advances and other services to all members regardless of asset or transaction size, charter type, or geographic location. However, the FHLB may, in pricing its Advances, distinguish among members based upon its assessment of the credit and other risks to the FHLB of lending to any particular member or upon other reasonable criteria that may be applied equally to all members. The FHLB's policies and procedures require that such standards and criteria be applied consistently and without discrimination to all members applying for Advances.

Transactions with Directors' Financial Institutions. In the ordinary course of its business, the FHLB provides products and services to members whose officers or directors serve as directors of the FHLB (Directors' Financial Institutions). Finance Agency regulations require that transactions with Directors' Financial Institutions be made on the same terms as those with any other member. The following table reflects balances with Directors' Financial Institutions for the items indicated below. The FHLB had no MBS or derivatives transactions with Directors' Financial Institutions at June 30, 2022 or December 31, 2021.
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Table 15.1 - Transactions with Directors' Financial Institutions (dollars in millions)
 June 30, 2022December 31, 2021
 Balance
% of Total (1)
Balance
% of Total (1)
Advances$17,865 31.9 %$6,131 26.7 %
MPP58 0.8 166 2.2 
Regulatory capital stock1,419 32.0 393 15.7 
(1)Percentage of total principal (Advances), unpaid principal balance (MPP), and regulatory capital stock.

Concentrations. The following table shows regulatory capital stock balances, outstanding Advance principal balances, and unpaid principal balances of mortgage loans held for portfolio of stockholders holding five percent or more of regulatory capital stock and includes any known affiliates that are members of the FHLB.

Table 15.2 - Stockholders Holding Five Percent or more of Regulatory Capital Stock (dollars in millions)
Regulatory Capital StockAdvanceMPP Unpaid
June 30, 2022Balance% of Total PrincipalPrincipal Balance
U.S. Bank, N.A.$1,200 27 %$14,772 $9 
Keybank National Association377 9 7,950 — 
Fifth Third Bank313 7 6,252 1 
Regulatory Capital StockAdvanceMPP Unpaid
December 31, 2021Balance% of TotalPrincipalPrincipal Balance
U.S. Bank, N.A.$186 7 %$3,272 $10 
Third Federal Savings & Loan Association163 6 3,179 29 
Protective Life Insurance Company143 6 2,800 — 
Nationwide Life Insurance Company143 6 2,702 — 

Nonmember Affiliates. The FHLB has relationships with three nonmember affiliates, the Kentucky Housing Corporation, the Ohio Housing Finance Agency and the Tennessee Housing Development Agency. The FHLB had no investments in or borrowings to any of these nonmember affiliates at June 30, 2022 or December 31, 2021. The FHLB has executed standby bond purchase agreements with the Ohio Housing Finance Agency whereby the FHLB, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. During the first six months of 2022 and 2021, the FHLB was not required to purchase any bonds under these agreements.



Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

This document contains forward-looking statements that describe the objectives, expectations, estimates, and assessments of the Federal Home Loan Bank of Cincinnati (the FHLB). These statements use words such as “anticipates,” “expects,” “believes,” “could,” “estimates,” “may,” and “should.” By their nature, forward-looking statements relate to matters involving risks or uncertainties, some of which we may not be able to know, control, or completely manage. Actual future results could differ materially from those expressed or implied in forward-looking statements or could affect the extent to which we are able to realize an objective, expectation, estimate, or assessment. Some of the risks and uncertainties that could affect our forward-looking statements include the following:

▪the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions, inflation and deflation, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, and members' mergers and consolidations, deposit flows, liquidity needs, and loan demand;

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▪political, national, or world events, including acts of war, civil unrest, terrorism, natural disasters, climate change, pandemics, including the current COVID-19 pandemic, or other catastrophic events, and legislative, regulatory, government, judicial or other developments that could affect us, our members, our counterparties, other Federal Home Loan Banks (FHLBanks) and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System) unsecured debt securities, which are called Consolidated Obligations or Obligations;

▪competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;

▪the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on favorable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;

▪changes in ratings assigned to FHLBank System Obligations or the FHLB that could raise our funding cost;

▪changes in investor demand for Obligations;

▪the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;

▪uncertainties relating to the phasing out of the London InterBank Offered Rate (LIBOR) that could impact our mortgage-backed securities (MBS) investments, Advances, derivatives, and collateral;

▪the ability to attract and retain skilled management and other key employees;

▪the ability to develop, secure and support technology and information systems that help effectively manage the risks we face (including cybersecurity risks);

▪the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;

▪the ability to successfully manage new products and services; and

▪the risk of loss arising from litigation filed against us or one or more other FHLBanks.

We do not undertake any obligation to update any forward-looking statements made in this document.

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EXECUTIVE OVERVIEW
Recent Developments

During the first six months of 2022, concerns about inflation, the impact of the Federal Reserve raising the target overnight Federal funds rate as well as speculation about its future actions, potential recession in the U.S., and further market volatility caused by Russia’s invasion of Ukraine were dominant themes. Additionally, the COVID-19 pandemic has caused lasting impacts on communities and businesses worldwide, including those in the Fifth District. Despite these challenges, we have continued to fulfill our mission of providing robust access to a key source of readily available and competitively priced wholesale funding to member financial institutions and supporting our commitment to affordable housing and community investment. Our capital and liquidity positions remained strong, as did our overall ability to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. Additionally, overall residual credit risk exposure from our Credit Services, mortgage loan portfolio, investments, and derivative transactions has remained de minimis. We continue to monitor the changing economic landscape and effects of the COVID-19 pandemic, including any future variants, and are committed to assisting members and their communities as impacts related to the pandemic continue to unfold.

Financial Condition

Mission Assets and Activities
Primary Mission Assets (i.e., principal balances of Advances and mortgage loans held for portfolio) and Supplemental Mission Activities (i.e., Letters of Credit, Mandatory Delivery Contracts and standby bond purchase agreements) are the primary means by which we fulfill our mission with direct connections to members and what we refer to as Mission Assets and Activities. We regularly monitor our concentration of Mission Assets and Activities. One measure we use to assess mission achievement is our Primary Mission Asset ratio, which measures the sum of average Advances and mortgage loans as a percentage of average Consolidated Obligations (adjusted for certain high-quality liquid assets, as permitted by regulation). In the first six months of 2022, the Primary Mission Asset ratio averaged 71 percent, slightly above the Finance Agency's preferred ratio of 70 percent. In assessing overall mission achievement, we also consider supplemental sources of Mission Assets and Activities, the most significant of which is Letters of Credit issued for the benefit of members.

The following table summarizes our Mission Assets and Activities.
 Ending BalancesAverage Balances
June 30, December 31,Six Months Ended June 30,Year Ended December 31,
(In millions)202220212021 202220212021
Primary Mission Assets (1):
Advances$56,002 $23,378 $22,954 $38,678 $24,836 $23,721 
Mortgage loans held for portfolio7,234 7,531 7,402 7,391 8,393 7,931 
Total Primary Mission Assets$63,236 $30,909 $30,356 $46,069 $33,229 $31,652 
Supplemental Mission Activities (2):
Letters of Credit (notional)$37,009 $35,166 $34,637 $35,238 $33,630 $33,922 
Mandatory Delivery Contracts (notional)55 513 250 62 141 249 
Standby bond purchase agreements (notional)12 31 27 19 32 31 
Total Supplemental Mission Activities$37,076 $35,710 $34,914 $35,319 $33,803 $34,202 
(1)Amounts represent principal balances.
(2)Amounts represent off-balance sheet commitments.

Advance principal balances increased $33.0 billion (144 percent) from year-end 2021. Additionally, average principal Advance balances for the six months ended June 30, 2022 increased $13.8 billion (56 percent) compared to the same period of 2021. The increase in Advances was primarily due to members' higher demand for liquidity, especially short-term Advances, in light of the increasing interest rate environment and uncertainties in the financial markets. Advance demand may continue to rise as reductions in government liquidity programs or changes in the Federal Reserve monetary policy take place.
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Advance balances are often volatile because of members' ability to quickly, normally on the same day, increase or decrease their amount of Advances. We believe that a key benefit of membership comes from our business model as a wholesale lender GSE, which provides members flexibility in their Advance funding levels and helps support their asset-liability management needs. We act as a readily available source of funding for our members. Our business model is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that our Capital Plan provides for additional capital when Advances grow and the opportunity for us to retire capital when Advances decline, thereby acting, along with our efficient level of operating expenses, to preserve competitive profitability.

The MPP principal balance declined $0.2 billion (two percent) from the year-end 2021 balance, ending the second quarter of 2022 at $7.2 billion. During the first six months of 2022, we purchased $0.5 billion of mortgage loans, while principal reductions were $0.7 billion. Principal reductions in the first six months of 2022 trended much lower than the reductions in 2021 reflecting the rise in mortgage rates.

Letters of Credit rose seven percent compared to year-end 2021, ending the second quarter of 2022 at $37.0 billion. Letters of Credit balances began increasing in the second half of 2020 and have remained strong primarily because of members using them to secure elevated levels of public unit deposits. We normally earn fees on Letters of Credit based on the actual average amount of the Letters utilized, which generally is less than the notional amount issued.

Investments
The balance of investments at June 30, 2022 was $36.5 billion, an increase of $7.1 billion (24 percent) from year-end 2021. At June 30, 2022, investments included $13.4 billion of MBS and $23.1 billion of other investments, which consisted primarily of highly-rated short-term instruments and longer-term U.S. Treasury and GSE obligations held for liquidity. All of our MBS held at June 30, 2022 were issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

Investments averaged $35.6 billion in the first six months of 2022, an increase of $7.4 billion (26 percent) compared to the average during the same period of 2021, which was driven by higher liquidity investments and MBS. The increases in average and ending liquidity investments were driven by holding more liquidity in light of the increased Advance demand, which has been concentrated in short-term Advances and somewhat volatile. The ending and average balances of MBS were also higher as we purchased $3.5 billion of new MBS in the first six months of 2022. The majority of these purchases were variable-rate MBS indexed to the Secured Overnight Financing Rate (SOFR). Liquidity investments can vary significantly on a daily basis during times of volatility in Advance balances. We maintained a robust amount of asset liquidity throughout the first six months of 2022 across a variety of liquidity measures, as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

Capital
Capital adequacy surpassed all minimum regulatory capital requirements in the first six months of 2022. The GAAP and regulatory capital-to-assets ratios at June 30, 2022 were 5.53 percent and 5.58 percent, respectively. Both ratios exceeded the regulatory required minimum of four percent. Regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under GAAP. GAAP and regulatory capital both increased $1.9 billion in the first six months of 2022. The increase in capital was driven by purchases of capital stock to support Advance activity in the first six months of 2022. Retained earnings totaled $1.3 billion at June 30, 2022, an increase of two percent from year-end 2021. We believe the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment in the FHLB and to provide the opportunity to stabilize or increase future dividends.
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Results of Operations

Overall Results
Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key market driven factors that can cause significant periodic volatility in our profitability are changes in the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization from accelerated prepayments of mortgage assets, and fair value adjustments related to the use of derivatives and the associated hedged items. Our profitability may also be affected by our members' overall Advance demand, which is largely influenced by the monetary policies of the U.S. government and its agencies, including the Federal Reserve, and general economic conditions. The table below summarizes our results of operations.
 Three Months Ended June 30,Six Months Ended June 30,Year Ended December 31,
(Dollars in millions)20222021202220212021
Net income$41 $— $57 $19 $42 
Affordable Housing Program assessments4 — 6 2 5 
Return on average equity (ROE)3.38 %0.03 %2.48 %0.97 %1.08 %
Return on average assets0.19 — 0.14 0.06 0.07 
Weighted average dividend rate3.00 2.00 2.56 2.00 2.00 
Dividend payout ratio (1)
56.4 3,637.5 62.2 139.4 126.8 
Average overnight interest rates (2)
0.74 0.04 0.42 0.05 0.06 
ROE spread to average overnight interest rates2.64 (0.01)2.06 0.92 1.02 
Dividend rate spread to average overnight interest rates2.26 1.96 2.14 1.95 1.94 
(1)Dividend payout ratio is dividends declared in the period as a percentage of net income.
(2)Average overnight interest rates consist of SOFR and the Federal funds effective rate.

Net income increased $41 million in the three-month comparison period and $38 million in the six-month comparison period. Profitability in both comparison periods increased primarily because of lower premium amortization and higher average Advance balances. Premium amortization declined because of lower volumes of mortgage refinance activity given the rise in mortgage rates. The increase in profitability in the year-to-date comparison period was partially offset by unrealized losses on certain derivatives and other financial instruments carried at fair value.

In the first six months of 2022, we accrued $6 million for the Affordable Housing Program (AHP) pool of funds, which will be available to members in 2023. In addition to the required AHP assessment, we provided voluntary sponsorship of two other housing programs. These programs provided funds to cover accessibility and emergency repairs for special needs and elderly homeowners and funds for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District.
In June 2022, we paid stockholders a quarterly dividend at a 3.00 percent annualized rate on their capital investment in our company, which is 2.26 percentage points above second quarter average overnight interest rates.

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Effect of Interest Rate Environment
Trends in market interest rates and the resulting shapes of the market yield curves strongly influence our results of operations and profitability because of how they affect members' demand for Mission Assets and Activities, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).
Six Months Ended June 30,
Quarter 2 2022Quarter 1 202220222021Year 2021
 EndingAverageEndingAverageAverageAverageEndingAverage
Federal funds effective
1.58 %0.77 %0.33 %0.12 %0.45 %0.07 %0.07 %0.08 %
Secured Overnight Financing Rate (SOFR)
1.50 0.71 0.29 0.09 0.40 0.03 0.05 0.04 
3-month LIBOR2.29 1.51 0.96 0.51 1.01 0.18 0.21 0.16 
2-year LIBOR3.28 3.03 2.55 1.63 2.33 0.25 0.94 0.38 
10-year LIBOR3.09 2.99 2.41 2.01 2.50 1.46 1.58 1.45 
2-year U.S. Treasury2.96 2.71 2.34 1.43 2.08 0.15 0.73 0.26 
10-year U.S. Treasury
3.02 2.92 2.34 1.93 2.43 1.45 1.51 1.43 
15-year mortgage current coupon (1)
3.69 3.49 2.82 2.17 2.84 1.15 1.41 1.21 
30-year mortgage current coupon (1)
4.38 4.16 3.49 2.83 3.50 1.77 2.07 1.84 
(1)     Current coupon rate of Fannie Mae par MBS indications.

The Federal Reserve has responded to inflationary concerns by increasing the target overnight Federal funds rate and indicating further expected rate hikes throughout 2022. At June 30, 2022 the target overnight Federal funds rate was in the range of 1.50 to 1.75 percent, a significant increase from the range of 0.25 to 0.50 percent at March 31, 2022. In July 2022, the Federal Reserve increased the target overnight Federal funds rate by 0.75 percent to a range of 2.25 to 2.50 percent.

Average overnight rates were approximately 35 to 40 basis points higher in the first six months of 2022 compared to the same period of 2021, while average mortgage rates increased approximately 170 basis points. The substantial increase in mortgage rates in the first six months of 2022 benefited net income as it resulted in fewer homeowners refinancing, which decreased the amount of principal prepayments and lowered the associated premium amortization. Additionally, the increase in short-term rates improved our earnings from capital by $8 million in both the three and six months ended June 30, 2022.

During the first six months of 2022, and all of 2021, the market risk exposure to changing interest rates was moderate overall and well within policy limits. We believe that longer-term profitability will be competitive, unless interest rates were to further increase significantly for a sustained period of time. In the short-term, profitability could decrease if long-term interest rates decline more than 200 basis points, leading to faster prepayments of mortgage assets.

Regulatory and Legislative Developments

Significant regulatory and legislative actions and developments for the period covered by this Report not previously disclosed are summarized below.

Finance Agency Director’s Testimony to the House Financial Services Committee on a Planned Review of the FHLBank System
On July 20, 2022, Finance Agency Director Sandra Thompson gave testimony to the House Financial Services Committee indicating that the Finance Agency intends to review the FHLBank System. The Director’s testimony indicated that the review would examine matters ranging from the System’s membership base, operational efficiency, and effectiveness to more foundational questions about their mission, purpose, and organization. At this time, it is not possible to determine when this review will occur, whether any actions will result from it, and how it will ultimately impact us or the System as a whole.

LIBOR Transition
We are planning for the replacement of LIBOR and the establishment of SOFR as the recommended alternative to LIBOR. Under the July 2017 and March 2021 announcements by the United Kingdom's Financial Conduct Authority (FCA), the one-week and two-month U.S. dollar LIBOR settings ceased to be provided by any administrator and were no longer representative
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as of January 1, 2022. The remaining U.S. dollar LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after June 30, 2023. Although the FCA does not expect these remaining LIBOR settings to become unrepresentative before the cessation date, there is no assurance that any of them will continue to be published or be representative through any particular date.

In March 2022, the Adjustable Interest Rate (LIBOR) Act (LIBOR Act) was signed into law. The LIBOR Act provides a national, uniform approach to legacy contracts with inadequate or unworkable fallback provisions commencing from the LIBOR replacement date. For relevant contracts, the LIBOR Act will automatically impose a rate selected by the Federal Reserve Board based upon SOFR including any applicable tenor spread adjustment. The legislation also includes a safe harbor against liability for parties with contractual discretion who choose the Federal Reserve Board's SOFR-based rate to replace LIBOR. In July 2022, the Federal Reserve Board published a proposed rule that would implement the LIBOR Act. For example, the proposed rule identifies separate Federal Reserve Board-selected replacement rates for derivatives transactions, covered GSE contracts, and all other covered contracts. The proposed rule defines covered GSE contracts to include FHLBank Advances. We are reviewing the proposed rule, including the impact it may have on the fallback language we added to our Advance contracts noted below; however, it is not possible to determine the extent to which the rule will be adopted as proposed and, as a result, the impact the final rule may have.

In preparation for the replacement of LIBOR, we have developed and implemented a LIBOR transition plan to remediate our LIBOR-linked financial instruments and contracts. We have added or adjusted fallback language for our Advances and have worked with our counterparties to address over-the-counter derivative agreements referencing U.S. dollar LIBOR as part of our LIBOR transition efforts. As the market activity in SOFR-linked financial instruments has continued to develop, we have offered SOFR-linked Consolidated Obligations and SOFR-linked Advances on an ongoing basis. In addition, we have been using SOFR-based derivatives to manage interest-rate risk, purchasing SOFR-linked MBS, and converting certain LIBOR-based derivatives to SOFR. We expect to continue to convert certain LIBOR-based derivatives, in particular those with maturities after June 30, 2023, to an alternative reference rate prior to the cessation of LIBOR. Collectively, we believe these efforts have reduced our LIBOR exposure and have kept us on track for the full replacement of LIBOR.

The following table presents our remaining LIBOR-indexed Advances, investment securities and derivatives at June 30, 2022. At June 30, 2022, all of our variable rate Consolidated Obligations were linked to SOFR.
(In millions)Maturing on or before June 30, 2023Maturing after June 30, 2023
LIBOR-Indexed Variable Rate Financial Instruments
Advances by redemption term$284 $3,008 
MBS by contractual maturity (1)
— 4,111 
Total principal amount$284 $7,119 
Derivatives, notional amount by termination date$397 $1,035 
(1)MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

The market transition away from LIBOR towards SOFR is complicated, including the possible development of term structures and credit adjustments to accommodate differences between LIBOR and SOFR and the potential introduction of other alternative reference rates. However, we believe our LIBOR transition plan has positioned us for the full replacement of LIBOR and has reduced the risk of adverse effects the transition may have on our business.

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ANALYSIS OF FINANCIAL CONDITION

Credit Services

Credit Activity and Advance Composition
The table below shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.
(Dollars in millions)June 30, 2022March 31, 2022December 31, 2021
 Balance
Percent(1)
Balance
Percent(1)
Balance
Percent(1)
Adjustable/Variable-Rate Indexed:
  
LIBOR$3,292 6 %$3,292 10 %$3,295 14 %
SOFR7,169 13 426 1 123 1 
Other2,855 5 174 1 163 1 
Total13,316 24 3,892 12 3,581 16 
Fixed-Rate:  
Repurchase based (REPO)24,852 44 14,496 43 3,980 17 
Regular Fixed-Rate13,061 23 9,656 29 9,773 42 
Putable (2)
1,240 2 2,342 7 2,467 11 
Amortizing/Mortgage Matched
1,433 3 1,464 4 1,533 7 
Other2,100 4 1,800 5 1,620 7 
Total42,686 76 29,758 88 19,373 84 
Total Advances Principal$56,002 100 %$33,650 100 %$22,954 100 %
Letters of Credit (notional) (3)
$37,009 $33,813 $34,637 
(1)As a percentage of total Advances principal.    
(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.
(3)Represents the amount of an off-balance sheet obligation.

Advance principal balances at June 30, 2022 increased 144 percent compared to year-end 2021. Members' demand for Advances accelerated quickly in the first half of 2022. Demand increased as interest rates rose, some members' deposit balances began to decline and overall uncertainty in the financial markets existed. Although Advance balances have increased, much of the demand has been for short-term Advances, which are often volatile as members' funding needs may change quickly. The future levels of Advance balances will depend on many factors, including but not limited to, changes in interest rates, governmental stimulus actions, and changes in the Federal Reserve's monetary policy.

Letters of Credit are issued on behalf of members to support certain obligations of members (or members' customers) to third-party beneficiaries. Letters of Credit were elevated throughout 2021 and balances have remained high through the first six months of 2022 as members continue to primarily use them to secure higher levels of public unit deposits. Letters of Credit usually expire without being drawn upon.

Advance Usage
In addition to analyzing Advance balances by dollar trends, we monitor the degree to which members use Advances to fund their balance sheets. The following table shows the unweighted, average ratio of each member's Advance balance to its most-recently available figures for total assets.
 June 30, 2022December 31, 2021
Average Advances-to-assets for members 
Assets less than $1.0 billion (490 members)1.66 %1.46 %
Assets over $1.0 billion (127 members)2.13 1.50 
All members1.75 1.47 
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The following tables present principal balances for the five members with the largest Advance borrowings.
(Dollars in millions)
June 30, 2022 December 31, 2021
NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances NamePrincipal Amount of AdvancesPercent of Total Principal Amount of Advances
U.S. Bank, N.A.$14,772 26 % U.S. Bank, N.A.$3,272 14 %
Keybank National Association7,950 14  
Third Federal Savings and Loan Association
3,179 14 
Fifth Third Bank6,252 11  Protective Life Insurance Company2,800 12 
Third Federal Savings and Loan Association
4,243 8  Nationwide Life Insurance Company2,702 12 
Protective Life Insurance Company3,220 6  Western-Southern Life Assurance Co.1,487 6 
Total of Top 5$36,437 65 % Total of Top 5$13,440 58 %

We believe that having large financial institutions that actively use our products augments the value of membership to all members. For example, such activity improves our operating efficiency, increases our earnings and thereby contributions to housing and community investment programs. This activity may enable us to obtain more favorable funding costs, and helps us maintain competitively priced products.

Mortgage Loans Held for Portfolio (Mortgage Purchase Program, or MPP)

The table below shows principal purchases and reductions of loans in the MPP for the first six months of 2022. All loans acquired in the first six months of 2022 were conventional loans.
(In millions)MPP Principal
Balance at December 31, 2021$7,402 
Principal purchases540 
Principal reductions(708)
Balance at June 30, 2022$7,234 
We closely track the refinancing incentives of our mortgage assets (including loans in the MPP and MBS) because the option for homeowners to change their principal payments normally represents the largest portion of our market risk exposure and can affect MPP balances. MPP principal paydowns decreased in the first six months of 2022 to a 15 percent annual constant prepayment rate, compared to the 34 percent rate for all of 2021, driven by the increase in mortgage rates. Although the increase in mortgage rates slowed the purchases of new MPP loans in the first six months of 2022, we continued to earn favorable returns on these purchases.

Overall, MPP yields on existing portfolio balances, relative to their market and credit risks, are expected to continue to generate a profitable long-term return.

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Investments

The table below presents the ending and average balances of our investment portfolio.
Six Months EndedYear Ended
(In millions)June 30, 2022 December 31, 2021
 Ending Balance Average Balance Ending Balance Average Balance
Liquidity investments$23,124  $23,363  $18,589  $18,576 
MBS13,384  11,823  10,803  9,186 
Other investments (1)
— 372 —340 
Total investments$36,508 $35,558 $29,392 $28,102 
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

Liquidity investments are either short-term (primarily overnight), or longer-term investments that can be easily sold and converted to cash. Under the regulatory requirements, liquidity includes certain high-quality liquid assets, which are defined as U.S. Treasury obligations with remaining maturities of 10 years or less held as trading securities or available-for-sale securities. It is normal for liquidity investments to vary by up to several billion dollars on a daily basis. Liquidity investment levels can vary significantly based on changes in the amount of actual Advances, anticipated demand for Advances, liquidity needs, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria. The average balance of liquidity investments for the six months ended June 30, 2022 grew $4.8 billion (26 percent) from the average balance for all of 2021 because of additional liquidity investments being held in light of the increased Advance demand as previously described. Likewise, the ending balance of liquidity investments at June 30, 2022 grew 24 percent compared to year-end 2021.

Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was 2.35 at June 30, 2022. The MBS ratio was below our preference to hold it near the 3.00 regulatory maximum primarily because of the rapid increase in regulatory capital as we issued $3.3 billion of capital stock to members in support of Advance borrowings in the first six months of 2022.

The balance of MBS at June 30, 2022 consisted of $12.4 billion of securities issued by Fannie Mae or Freddie Mac (of which $9.7 billion were floating-rate securities), and $1.0 billion of securities issued by Ginnie Mae (which are primarily fixed rate).
The table below shows principal purchases and paydowns of our MBS for the first six months of 2022. The majority of the purchases were variable-rate MBS linked to SOFR.
(In millions)MBS Principal
Balance at December 31, 2021$10,795 
Principal purchases3,537 
Principal paydowns(827)
Balance at June 30, 2022$13,505 

As mortgage rates rose in the first six months of 2022, MBS principal paydowns decreased to a 14 percent annual constant prepayment rate from the 26 percent rate experienced in all of 2021.

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Consolidated Obligations

We fund variable-rate assets with Discount Notes (a portion of which may be swapped), adjustable-rate Bonds, and swapped fixed-rate Bonds because they give us the ability to effectively match the underlying rate reset periods embedded in these assets. The balances and composition of our Consolidated Obligations tend to fluctuate with changes in the balances and composition of our assets. In addition, changes in the amount and composition of our funding may be necessary from time to time to meet the days of positive liquidity and asset/liability maturity funding gap requirements discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

The table below presents the ending and average balances of our participations in Consolidated Obligations.
Six Months EndedYear Ended
(In millions)June 30, 2022 December 31, 2021
 Ending Balance Average Balance Ending Balance Average Balance
Discount Notes:       
Unswapped$27,775  $25,547  $19,418  $22,933 
Swapped29,554 13,860 10,426 3,156 
Total par Discount Notes57,329 39,407 29,844 26,089 
Other items (1)
(251) (57) (6) (1)
Total Discount Notes57,078  39,350  29,838  26,088 
Bonds:       
Unswapped fixed-rate13,409  14,719  16,112  18,840 
Unswapped adjustable-rate (2)
17,029  14,359  850  6,710 
Swapped fixed-rate7,532  5,884  7,627  2,737 
Total par Bonds37,970  34,962  24,589  28,287 
Other items (1)
(47) (6) 13  24 
Total Bonds37,923  34,956  24,602  28,311 
Total Consolidated Obligations (3)
$95,001  $74,306  $54,440  $54,399 
(1)Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.
(2)At June 30, 2022 and December 31, 2021, all unswapped adjustable-rate Bonds were indexed to SOFR.
(3)The 11 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amount of the outstanding Consolidated Obligations for all of the FHLBanks was (in millions) $882,481 and $652,862 at June 30, 2022 and December 31, 2021, respectively.

The balances of Discount Notes and unswapped adjustable-rate Bonds in the first six months of 2022 were higher compared to the balances at year-end 2021 because of the growth in short-term and variable-rate Advances during the first six months of 2022 as some members sought funding given the rise in interest rates and uncertainties in the financial markets.

The ending and average balances of swapped Discount Notes at June 30, 2022 were higher than year-end 2021 because the market environment at the end of the second quarter of 2022 favored swapped debt. We swap term Discount Notes and fixed-rate bonds to adjustable-rates in order to match the underlying rate reset periods to the assets the Discount Notes and Bonds are funding, as well as to reduce the repricing risk of Discount Notes.
Deposits

Total deposits with us are normally a relatively minor source of low-cost funding. Total interest-bearing deposits at June 30, 2022 were $1.2 billion, a decrease of $0.2 billion compared to the balance at year-end 2021.

Derivatives Hedging Activity and Liquidity

Our use of derivatives is discussed in the "Effect of the Use of Derivatives on Net Interest Income" and "Non-Interest Income (Loss)" sections in "Results of Operations." Liquidity is discussed in the "Liquidity Risk" section in “Quantitative and Qualitative Disclosures About Risk Management.”

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Capital Resources

The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same manner as GAAP capital stock and retained earnings.
Six Months EndedYear Ended
(In millions)June 30, 2022 December 31, 2021
Period End Average Period End Average
GAAP and Regulatory Capital
GAAP Capital Stock$4,414  $3,316  $2,490  $2,585 
Mandatorily Redeemable Capital Stock20  112  21  19 
Regulatory Capital Stock4,434  3,428  2,511  2,604 
Retained Earnings1,314  1,302  1,293  1,304 
Regulatory Capital$5,748  $4,730  $3,804  $3,908 
Six Months EndedYear Ended
June 30, 2022 December 31, 2021
 Period EndAverage Period EndAverage
GAAP and Regulatory Capital-to-Assets Ratio
GAAP5.53 % 5.61 % 6.26 % 6.40 %
Regulatory (1)
5.58  5.75  6.28  6.44 
(1)    At all times, the FHLB must maintain at least a four percent minimum regulatory capital-to-assets ratio.

Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in the first six months of 2022, we issued $3.3 billion of capital stock to members in support of Advance borrowings, some of which were subsequently repaid prior to June 30, 2022. As such, certain members requested the redemption of $1.4 billion of capital stock that was no longer required to support Advance borrowings. These redemptions requests were reclassified to mandatorily redeemable capital stock and were subsequently redeemed in the first six months of 2022.

A portion of our capital stock is excess, meaning it is not required as a condition to being a member and is not currently capitalizing Mission Assets and Activities. Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augments loss protections for bondholders, and may be used to capitalize a portion of growth in Mission Assets and Activities. At June 30, 2022, the amount of excess stock, as defined by our Capital Plan, was $996 million, an increase of $570 million compared to the balance at year-end 2021. The balance of excess stock increased in the first six months of 2022 given the volatility in short-term Advance borrowings.

See the "Capital Adequacy" section in “Quantitative and Qualitative Disclosures About Risk Management” for discussion of our retained earnings.

Membership and Stockholders

In the first six months of 2022, we added three new member stockholders and lost four member stockholders, ending the quarter at 617 member stockholders. Of the four members lost, two merged with other Fifth District members and the other two merged out of district.


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RESULTS OF OPERATIONS

Components of Earnings and Return on Equity

The following table is a summary income statement for the three and six months ended June 30, 2022 and 2021. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period.

Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions)2022202120222021
 Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Amount
ROE (1)
Net interest income$71 5.92 %$66 6.51 %$152 6.64 %$142 7.21 %
Non-interest income (loss):
Net gains (losses) on investment securities(88)(7.31)(15)(1.51)(248)(10.85)(154)(7.83)
Net gains (losses) on derivatives20 1.69 (36)(3.55)118 5.14 61 3.10 
Net gains (losses) on financial instruments held under fair value option61 5.06 2 0.25 79 3.48 7 0.33 
Other non-interest income, net7 0.57 7 0.69 14 0.61 13 0.68 
Total non-interest income (loss)
— 0.01 (42)(4.12)(37)(1.62)(73)(3.72)
Total income71 5.93 24 2.39 115 5.02 69 3.49 
Non-interest expense26 2.17 24 2.35 52 2.26 48 2.41 
Affordable Housing Program assessments
4 0.38 — 0.01 6 0.28 2 0.11 
Net income$41 3.38 %$— 0.03 %$57 2.48 %$19 0.97 %
(1)The ROE amounts have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may produce nominally different results.

Details on the individual factors contributing to the level and changes in profitability are explained in the sections below.

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Net Interest Income

Components of Net Interest Income
The following table shows selected components of net interest income.
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions)2022202120222021
 Amount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning AssetsAmount% of Earning Assets
Components of net interest rate spread:
Net (amortization)/accretion (1) (2)
$(8)(0.04)%$(28)(0.18)%$(19)(0.05)%$(56)(0.18)%
Prepayment fees on Advances, net (2)
— — 5 0.03 3 0.01 6 0.02 
Other components of net interest rate spread
64 0.30 82 0.54 146 0.36 178 0.58 
Total net interest rate spread56 0.26 59 0.39 130 0.32 128 0.42 
Earnings from funding assets with interest-free capital
15 0.07 7 0.04 22 0.05 14 0.04 
Total net interest income/net interest margin (3)
$71 0.33 %$66 0.43 %$152 0.37 %$142 0.46 %
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Net Amortization/Accretion (generally referred to as "amortization"): Net amortization can become substantial and volatile with changes in interest rates. When mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. In the three and six months ended June 30, 2022, mortgage rates increased and reduced mortgage refinance activity, which decreased net amortization. Net amortization was higher in the 2021 periods given the historically low mortgage rates that existed at the end of 2020 and continued into the first half of 2021.

Prepayment Fees on Advances: Fees for members' early repayment of certain Advances, which are included in net interest income, are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. Advance prepayment fees were minimal in the three and six months ended June 30, 2022. The higher Advance prepayment fees in the three and six months ended June 30, 2021 reflected prepayments of a portion of the Advances that provided certain large-asset members access to temporary liquidity.

Other Components of Net Interest Rate Spread: The total other components of net interest rate spread decreased $18 million and $32 million in the three- and six-months comparisons periods, respectively. The net decreases were primarily due to the factors below.

Six-Months Comparison
▪Lower spreads on shorter-term and floating-rate investments-Unfavorable: Lower spreads on shorter-term and floating-rate investments (including those that have been swapped to a floating rate) lowered net interest income by an estimated $64 million. However, the decrease in net interest income was mostly offset by lower non-interest losses primarily because of a $58 million decrease in the net interest settlements being paid on related derivatives not receiving hedge accounting.
▪Lower average balances of mortgage loans held for portfolio-Unfavorable: The $1.0 billion decrease in the average balance of mortgage loans held for portfolio lowered net interest income by an estimated $3 million. Mortgage balances declined because of the acceleration of principal cash flows driven by historically low mortgage interest rates in 2021.
▪Higher average Advance balances-Favorable: The $13.5 billion increase in the average balance of Advances improved net interest income by an estimated $22 million.
▪Higher average balances of investments-Favorable: Increases of $2.7 billion in average MBS and $4.6 billion in average liquidity investment balances improved net interest income by an estimated $7 million.
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▪Higher spreads earned on mortgage assets-Favorable: Higher spreads on the mortgage assets portfolio increased net interest income by an estimated $4 million. Spreads improved primarily because of the rising interest rate environment.
▪Higher net unrealized gains on designated fair value hedges-Favorable: Net unrealized gains on hedged items and derivatives in qualifying fair value hedge relationships were higher by $2 million.

Three-Months Comparison
The same factors generally affected the other components of net interest rate spread as in the six-months comparison and by approximately the same relative magnitude.

Earnings from Capital: Earnings from capital increased $8 million in both the three and six months ended June 30, 2022, compared to the same periods of 2021 primarily because of higher average short-term interest rates.

Average Balance Sheet and Rates
The following tables provide average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. Interest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.

In addition, the net interest settlements of interest receivables or payables associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables are recorded in “Non-interest income (loss)” as “Net gains (losses) on derivatives” and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
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(Dollars in millions)Three Months EndedThree Months Ended
June 30, 2022June 30, 2021
 Average Balance Interest 
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:     
Advances$43,796 $121 1.11 %$25,646  $37  0.57 %
Mortgage loans held for portfolio (2)
7,492 51 2.72 8,111  38  1.90 
Federal funds sold and securities purchased under resale agreements
11,814 22 0.76 7,748  1  0.07 
Interest-bearing deposits in banks (3)
1,224 2 0.63 679  —  0.10 
MBS (4)
12,545 37 1.18 8,736  24  1.10 
Other investments (4)
10,536 44 1.67 10,350  55  2.11 
Loans to other FHLBanks33 — 1.34 —  —  — 
Total interest-earning assets87,440 277 1.27 61,270  155  1.01 
Other assets484 660     
Total assets$87,924 $61,930     
Liabilities and Capital:     
Term deposits$90 — 0.50 $75  —  0.21 
Other interest bearing deposits (3)
1,408 2 0.47 1,423  —  0.02 
Discount Notes41,853 84 0.80 25,805  2  0.03 
Unswapped fixed-rate Bonds13,800 70 2.04 20,901  83  1.60 
Unswapped adjustable-rate Bonds18,736 32 0.70 7,622  1  0.04 
Swapped Bonds5,392 17 1.24 1,192  3  0.86 
Mandatorily redeemable capital stock50 1 6.69 22  —  1.99 
Other borrowings— — — —  —  — 
Total interest-bearing liabilities81,329 206 1.01 57,040  89  0.62 
Other liabilities1,777 812     
Total capital4,818 4,078     
Total liabilities and capital$87,924 $61,930     
Net interest rate spread0.26 %   0.39 %
Net interest income and net interest margin (5)
$71 0.33 %  $66  0.43 %
Average interest-earning assets to interest-bearing liabilities
107.51 %    107.42 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Non-accrual loans are included in average balances used to determine average rate.
(3)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(5)Net interest margin is net interest income as a percentage of average total interest-earning assets.
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(Dollars in millions)Six Months EndedSix Months Ended
June 30, 2022June 30, 2021
 Average Balance Interest 
Average Rate (1)
Average Balance Interest 
Average Rate (1)
Assets:     
Advances$38,612 $169 0.88 %$25,099  $79  0.63 %
Mortgage loans held for portfolio (2)
7,566 99 2.65 8,601  83  1.94 
Federal funds sold and securities purchased under resale agreements
11,806 27 0.45 7,934  3  0.07 
Interest-bearing deposits in banks (3)
981 2 0.43 770  —  0.10 
MBS (4)
11,833 62 1.05 9,077  54  1.21 
Other investments (4)
10,934 86 1.58 10,398  113  2.19 
Loans to other FHLBanks17 — 1.34 —  —  — 
Total interest-earning assets81,749 445 1.10 61,879  332  1.08 
Other assets445 615     
Total assets$82,194 $62,494     
Liabilities and Capital:     
Term deposits$85 — 0.36 $92  —  0.29 
Other interest bearing deposits (3)
1,518 2 0.24 1,388  —  0.02 
Discount Notes39,350 95 0.48 26,225  7  0.06 
Unswapped fixed-rate Bonds14,730 140 1.92 19,232  171  1.79 
Unswapped adjustable-rate Bonds14,359 36 0.50 9,324  4  0.07 
Swapped Bonds5,867 18 0.62 1,376  8  1.21 
Mandatorily redeemable capital stock112 2 2.99 21  —  2.00 
Other borrowings— — — —  —  — 
Total interest-bearing liabilities76,021 293 0.78 57,658  190  0.66 
Other liabilities1,563 863     
Total capital4,610 3,973     
Total liabilities and capital$82,194 $62,494     
Net interest rate spread0.32 %   0.42 %
Net interest income and net interest margin (5)
$152 0.37 %  $142  0.46 %
Average interest-earning assets to interest-bearing liabilities
107.53 %    107.32 %
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Non-accrual loans are included in average balances used to determine average rate.
(3)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(4)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(5)Net interest margin is net interest income as a percentage of average total interest-earning assets.

Rates and corresponding levels of interest income and expense on most of our interest-bearing assets and liabilities increased in the three and six months ended June 30, 2022 compared to the same periods of 2021 as these assets and liabilities have repriced to the higher interest rates.

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Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
(In millions)
Three Months Ended
June 30, 2022 over 2021
Six Months Ended
June 30, 2022 over 2021
 
Volume (1)(3)
Rate (2)(3)
Total
Volume (1)(3)
Rate (2)(3)
Total
Increase (decrease) in interest income   
Advances$36 $48 $84 $52 $38 $90 
Mortgage loans held for portfolio(3)16 13 (11)27 16 
Federal funds sold and securities purchased under resale agreements
1 20 21 2 22 24 
Interest-bearing deposits in banks— 2 2 — 2 2 
MBS11 2 13 16 (8)8 
Other investments1 (12)(11)6 (33)(27)
Loans to other FHLBanks— — — — — — 
Total46 76 122 65 48 113 
Increase (decrease) in interest expense    
Term deposits— — — — — — 
Other interest-bearing deposits— 2 2 — 2 2 
Discount Notes2 80 82 6 82 88 
Unswapped fixed-rate Bonds
(32)19 (13)(42)11 (31)
Unswapped adjustable-rate Bonds
2 29 31 2 30 32 
Swapped Bonds12 2 14 16 (6)10 
Mandatorily redeemable capital stock
— 1 1 1 1 2 
Other borrowings— — — — — — 
Total(16)133 117 (17)120 103 
Increase (decrease) in net interest income
$62 $(57)$5 $82 $(72)$10 
(1)Volume changes are calculated as the change in volume multiplied by the prior year rate.
(2)Rate changes are calculated as the change in rate multiplied by the prior year average balance.
(3)Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.

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Effect of the Use of Derivatives on Net Interest Income
The following table shows the impact on net interest income from the effect of derivatives and hedging activities. As noted above, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the “Non-Interest Income (Loss)” section below.

(In millions)Three Months Ended June 30,Six Months Ended June 30,
2022 202120222021
Advances:
Gains (losses) on designated fair value hedges
$2 $(3)$4 $1 
Net interest settlements included in net interest income
(13)(28)(35)(61)
Investment securities:
Gains (losses) on designated fair value hedges
(1)(1)(1)— 
Net interest settlements included in net interest income
(10)(3)(24)(4)
Mortgage loans:
Amortization of derivative fair value adjustments in net interest income
(1)(4)(2)(8)
Consolidated Obligation Bonds:
Net interest settlements included in net interest income
2 — 3 1 
Increase (decrease) to net interest income$(21)$(39)$(55)$(71)

Most of our use of derivatives is to synthetically convert the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., LIBOR, the Federal funds effective rate, or SOFR). The conversion of certain Advances' and investments' fixed interest rates to adjustable-coupon rates resulted in net interest settlements being paid in each of the periods presented. However, the recent increase in short-term interest rates lowered the amount of net interest settlements paid on derivatives hedging Advances in the three and six months ended June 30, 2022. The larger negative effect on net interest income from hedging certain investment securities in the three and six months ended June 30, 2022 was primarily due to the increased usage of fair value hedge accounting for these hedging relationships. The fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure by matching actual cash flows between assets and liabilities more closely and efficiently than would otherwise occur.
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Non-Interest Income (Loss)

Non-interest income (loss) consists of certain realized and unrealized gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). The effects of derivatives and hedging activities on non-interest income (loss) relate only to derivatives not qualifying for fair value hedge accounting.

(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Three Months Ended June 30, 2022
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
$1 $78 $(1)$(30)$(33)$5 $— $20 
Net interest settlements on derivatives not receiving hedge accounting
— (17)— 7 10 — — — 
Price alignment amount
— — — — — — — — 
Net gains (losses) on derivatives1 61 (1)(23)(23)5 — 20 
Gains (losses) on trading securities (2)
— (88)— — — — — (88)
Gains (losses) on financial instruments held under fair value option (3)
(1)— — 33 29 — — 61 
Total net effect on non-interest income$— $(27)$(1)$10 $6 $5 $— $(7)
Three Months Ended June 30, 2021
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
$(1)$11 $4 $(2)$— $(3)$— $9 
Net interest settlements on derivatives not receiving hedge accounting
— (47)— 2 — — — (45)
Price alignment amount— — — — — — — — 
Net gains (losses) on derivatives(1)(36)4 — — (3)— (36)
Gains (losses) on trading securities (2)
— (15)— — — — — (15)
Gains (losses) on financial instruments held under fair value option (3)
— — — 2 — — — 2 
Total net effect on non-interest income$(1)$(51)$4 $2 $— $(3)$— $(49)
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(In millions)AdvancesInvestment SecuritiesMortgage LoansBondsDiscount Notes
Balance Sheet (1)
OtherTotal
Six Months Ended June 30, 2022
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
$2 $224 $(7)$(35)$(42)$7 $— $149 
Net interest settlements on derivatives not receiving hedge accounting
— (49)— 7 11 — — (31)
Price alignment amount
— — — — — — — — 
Net gains (losses) on derivatives2 175 (7)(28)(31)7 — 118 
Gains (losses) on trading securities (2)
— (248)— — — — — (248)
Gains (losses) on financial instruments held under fair value option (3)
(2)— — 43 38 — — 79 
Total net effect on non-interest income$— $(73)$(7)$15 $7 $7 $— $(51)
Six Months Ended June 30, 2021
Net effect of derivatives and hedging activities
Gains (losses) on derivatives not receiving hedge accounting
$1 $154 $1 $(6)$— $— $— $150 
Net interest settlements on derivatives not receiving hedge accounting
— (95)— 6 — — — (89)
Price alignment amount
— — — — — — — — 
Net gains (losses) on derivatives1 59 1 — — — — 61 
Gains (losses) on trading securities (2)
— (154)— — — — — (154)
Gains (losses) on financial instruments held under fair value option (3)
(1)— — 8 — — — 7 
Total net effect on non-interest income$— $(95)$1 $8 $— $— $— $(86)
(1)Balance sheet includes synthetic basis swaps and swaptions, which are not designated as hedging a specific financial instrument.
(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statement of Income.
(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."
The effect of derivatives and hedging activities on earnings in the three and six months ended June 30, 2022 improved primarily because of the increase in short-term rates, which lowered the net interest settlements being paid on derivatives related to investments where the fixed interest rates were converted to adjustable-coupon rates. However, this improvement in the six-months comparison was partially offset by higher net unrealized losses on investments and their related derivatives that we expect to hold to maturity. As noted above, the fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure.

In the table above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations that have been swapped to a variable rate. Trading securities are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, including changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the gains or losses on the associated interest rate swaps.

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Non-Interest Expense

The following table presents non-interest expense.

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2022 202120222021
Non-interest expense  
Compensation and benefits$13 $12 $27 $25 
Other operating expense6 5 12 11 
Finance Agency2 2 4 4 
Office of Finance1 1 3 3 
Other4 4 6 5 
Total non-interest expense$26 $24 $52 $48 

Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. Accordingly, the components of non-interest expense remained stable for the three and six months ended June 30, 2022 compared to the same periods of 2021.
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Segment Information

Note 11 of the Notes to Unaudited Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.
(Dollars in millions)Traditional Member Finance MPP Total
Three Months Ended June 30, 2022     
Net interest income (loss)$60  $11  $71 
Net income (loss)$31  $10  $41 
Average assets$77,949  $9,975  $87,924 
Assumed average capital allocation$4,271  $547  $4,818 
Return on average assets (1)
0.16 % 0.41 % 0.19 %
Return on average equity (1)
2.86 % 7.43 % 3.38 %
Three Months Ended June 30, 2021     
Net interest income (loss)$81  $(15) $66 
Net income (loss)$14 $(14)$— 
Average assets$50,494  $11,436  $61,930 
Assumed average capital allocation$3,324  $754  $4,078 
Return on average assets (1)
0.12 % (0.50)% — %
Return on average equity (1)
1.77 % (7.62)% 0.03 %
(Dollars in millions)Traditional Member Finance MPP Total
Six Months Ended June 30, 2022
Net interest income (loss)$137  $15  $152 
Net income (loss)$51 $6 $57 
Average assets$72,023  $10,171  $82,194 
Assumed average capital allocation$4,038  $572  $4,610 
Return on average assets (1)
0.14 % 0.12 % 0.14 %
Return on average equity (1)
2.53 % 2.14 % 2.48 %
Six Months Ended June 30, 2021
Net interest income (loss)$168 $(26)$142 
Net income (loss)$47 $(28)$19 
Average assets$50,877 $11,617 $62,494 
Assumed average capital allocation$3,235 $738 $3,973 
Return on average assets (1)
0.19 %(0.48)%0.06 %
Return on average equity (1)
2.91 %(7.55)%0.97 %
(1)Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
Traditional Member Finance Segment
Net income improved in the three- and six-months comparison periods primarily because of higher average balances of Advances and investments and an increase in earnings from capital. The increase in profitability in the year-to-date comparison period was partially offset by unrealized losses on certain derivatives and other financial instruments carried at fair value.

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MPP Segment
Earnings from the MPP segment improved significantly in the three and six months of June 30, 2022 compared to the same periods of 2021 because of higher net interest income. Net interest income increased primarily because of lower net amortization, as refinancing activity fell given the rise in mortgage rates.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Market Risk

Market Value of Equity and Duration of Equity - Entire Balance Sheet
Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables, as presented in the following tables for various instantaneous and permanent interest rate shocks (in basis points). The mortgage assets portfolio normally accounts for almost all market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining sufficient net spreads. We compiled average results using data for each month end. Given the current level of rates, some down rate shocks are nonparallel scenarios, with short-term rates decreasing less than long-term rates such that no rate falls below zero.

Market Value of Equity
(Dollars in millions)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2022 Year-to-Date       
Market Value of Equity$5,090 $4,967 $4,895 $4,831 $4,730 $4,626 $4,543 
% Change from Flat Case5.4 %2.8 %1.3 %— (2.1)%(4.2)%(5.9)%
2021 Full Year       
Market Value of Equity$3,916 $3,920 $3,921 $3,942 $3,878 $3,771 $3,705 
% Change from Flat Case(0.6)%(0.6)%(0.5)%— (1.6)%(4.3)%(6.0)%
Month-End Results
June 30, 2022
Market Value of Equity$5,840 $5,646 $5,607 $5,528 $5,428 $5,333 $5,246 
% Change from Flat Case5.6 %2.1 %1.4 %— (1.8)%(3.5)%(5.1)%
December 31, 2021
Market Value of Equity$3,977 $3,977 $3,865 $3,858 $3,767 $3,628 $3,525 
% Change from Flat Case3.1 %3.1 %0.2 %— (2.4)%(6.0)%(8.6)%
Duration of Equity
 
(In years)Down 300Down 200Down 100Flat RatesUp 100Up 200Up 300
Average Results       
2022 Year-to-Date2.4 1.7 0.8 1.8 2.4 2.1 1.7 
2021 Full Year(0.1)(0.2)(0.6)1.0 2.6 2.5 1.0 
Month-End Results       
June 30, 20223.4 0.7 1.0 1.8 1.9 1.8 1.6 
December 31, 2021— 0.7 2.0 1.4 3.4 3.6 2.1 

The overall market risk exposure to changing interest rates was well within policy limits during the periods presented. At June 30, 2022, market risk exposure to falling rate shocks benefited from the rapid increase in mortgage interest rates in the first six months of 2022 while exposure to rising rates remained stable. The duration of equity, which provides an estimate of the change in market value of equity to further changes in interest rates, remained well within policy limits.

Based on the totality of our risk analysis, we expect that overall profitability, defined as the level of ROE compared with short-term market rates, will be competitive over the long term unless interest rates increase further by large amounts in a short period of time. Substantial declines in long-term interest rates could decrease income temporarily before reverting to average levels. This temporary reduction in income would be driven by additional recognition of mortgage asset premiums as the incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets. However, we believe the
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mortgage assets portfolio will continue to provide an acceptable risk-adjusted return consistent with our risk appetite philosophy.
Capital Adequacy

Retained Earnings
We must hold sufficient capital to protect against exposure to various risks, including market, credit, and operational risks. We regularly conduct a variety of measurements and assessments for capital adequacy. At June 30, 2022, our capital management policy set forth approximately $510 million as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk.

The following table presents retained earnings.

(In millions)June 30, 2022December 31, 2021
Unrestricted retained earnings$793 $783 
Restricted retained earnings (1)
521 510 
Total retained earnings$1,314 $1,293 
(1)     Pursuant to the FHLBank System's Joint Capital Enhancement Agreement we are not permitted to distribute as dividends.

As indicated in the table above, our current balance of retained earnings exceeds the policy minimum, which we expect will continue to be the case as we bolster capital adequacy over time by allocating a portion of earnings to the restricted retained earnings account.
Market Capitalization Ratios
We measure two sets of market capitalization ratios. One measures the market value of equity (i.e., total capital) relative to the par value of regulatory capital stock (which is GAAP capital stock and mandatorily redeemable capital stock). The other measures the market value of total capital relative to the book value of total capital, which includes all components of capital, and mandatorily redeemable capital stock. The measures provide a point-in-time indication of the FHLB's liquidation or franchise value and can also serve as a measure of realized or potential market risk exposure.

The following table presents the market value of equity to regulatory capital stock (excluding retained earnings) for several interest rate environments.
June 30, 2022December 31, 2021
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario
125 %154 %
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)
127 154 
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)
120 145 
(1)    Represents down shocks of 200 basis points and 100 basis points for June 30, 2022 and December 31, 2021, respectively.
(2)    Represents an up shock of 200 basis points.

A base case value below 100 percent could indicate that, in the remote event of an immediate liquidation scenario involving redemption of all capital stock, capital stock may be returned to stockholders at a value below par. This could be due to experiencing risks that lower the market value of capital and/or to having an insufficient amount of retained earnings. In the first six months of 2022, the market capitalization ratios in the scenarios presented continued to be above our policy requirements. The decline in these ratios during the first six months of 2022 was driven by the rapid capital growth to support Advance demand. The base case ratio at June 30, 2022 was still well above 100 percent because retained earnings were 30 percent of regulatory capital stock and we maintained stable market risk exposure.

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The following table presents the market value of equity to the book value of total capital and mandatorily redeemable capital stock.
June 30, 2022December 31, 2021
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)
97 %101 %
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)
99 101 
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)
93 95 
(1)    Capital includes total capital and mandatorily redeemable capital stock.
(2)    Represents down shocks of 200 basis points and 100 basis points for June 30, 2022 and December 31, 2021, respectively.
(3)    Represents an up shock of 200 basis points.

A base-case value below 100 percent indicates that we have realized or could realize risks (especially market risk), such that the market value of total capital owned by stockholders is below the book value of total capital. The base-case ratio of 97 percent at June 30, 2022 indicates that the market value of total capital is $187 million below the book value of total capital. In a scenario in which interest rates increase 200 basis points, the market value of total capital would be $382 million below the book value of total capital. This indicates that in a liquidation scenario, stockholders would not receive the full sum of their total equity ownership in the FHLB. We believe the likelihood of a liquidation scenario is extremely remote; and therefore, we accept the risk of diluting equity ownership in such a scenario. Both ratios remained stable relative to the prior period as they are unaffected by large swings in capital stock balances.

Credit Risk

Overview
We believe our risk management practices, discussed below, minimize residual credit risk levels. We have no loan loss reserves or impairment recorded for Credit Services, investments and derivatives. We have a minimal amount of legacy credit risk exposure in the MPP.

Credit Services
Overview: We have policies and practices to manage credit risk exposure from our secured lending activities, which include Advances and Letters of Credit. The objective of our credit risk management activities is to equalize risk exposure across members and counterparties to a zero level of expected losses. This approach is consistent with our conservative risk management principles and desire to have no residual credit risk related to Advances and Letters of Credit.

Collateral: We require each member to provide a security interest in eligible collateral before it can undertake any secured borrowing. Eligible loan collateral types include the following: single- and multi-family residential, home equity, commercial real estate, government guaranteed and farm real estate. Eligible security types include those that are government or agency backed, along with highly-rated private-label residential and commercial mortgage-backed securities. We have conservative eligibility criteria within each of the above asset types. The estimated value of pledged collateral is discounted in order to offset market, credit, and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. At June 30, 2022, total collateral pledged of $427.6 billion resulted in total borrowing capacity of $348.9 billion of which $93.0 billion was used to support outstanding Advances and Letters of Credit. Borrowers often pledge collateral in excess of their collateral requirement to demonstrate access to liquidity and to have the ability to borrow additional amounts in the future. Over-collateralization by one member is not applied to another member.

Borrowing Capacity/Lendable Value: Lendable Value Rates (LVRs) represent the percent of collateral value net of the discount, or haircut, we apply for purposes of determining borrowing capacity. LVRs are determined by statistical analysis and management assumptions relating to historical price volatility, inherent credit risks, liquidation costs, and the current credit and economic environment. We apply LVR results to the estimated values of pledged assets. LVRs vary among pledged assets and members based on the member institution type, the financial strength of the member institution, the form of valuation, lien position, the issuer of bond collateral or the quality of securitized assets, the quality of the loan collateral as reflected in the manner in which it was underwritten, and the marketability of the pledged assets.
 
Internal Credit Ratings: We perform credit underwriting of our members and nonmember institutions and assign them an internal credit rating. These credit ratings are based on internal and third-party ratings models, credit analyses and consideration of credit ratings from independent credit rating organizations. Credit ratings are used in conjunction with other measures of credit risk in managing secured credit risk exposure.

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Member Failures, Closures, and Receiverships: There have been no member failures in 2022 through the date of this filing.

MPP
Overview: The residual amount of credit risk exposure to loans in the MPP is minimal, based on the same factors described in the 2021 Annual Report on Form 10-K. We believe, based on our analysis, that future credit losses will not harm capital adequacy and will not significantly affect profitability except under the most extreme and unlikely credit conditions.

Conventional Loan Portfolio Characteristics: The levels of loan-to-value ratios are consistent with the portfolio's excellent credit quality. At June 30, 2022, the weighted average loan-to-value ratios for conventional loans based on origination values and estimated current values were 73 percent and 46 percent, respectively. The estimated weighted average current loan-to-value ratio decreased three percent compared to the ratio at December 31, 2021 as home values have continued to rise.

Credit Performance: The table below provides an analysis of conventional loans delinquent or in the process of foreclosure, along with the national average serious delinquency rate.
Conventional Loan Delinquencies
(Dollars in millions)June 30, 2022 December 31, 2021
Early stage delinquencies - unpaid principal balance (1)
$29  $33 
Serious delinquencies - unpaid principal balance (2)
$17  $24 
Early stage delinquency rate (3)
0.4 %0.5 %
Serious delinquency rate (4)
0.2 % 0.3 %
National average serious delinquency rate (5)
1.7 % 2.3 %
(1)Includes conventional loans 30 to 89 days delinquent and not in foreclosure.
(2)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(3)Early stage delinquencies expressed as a percentage of the total conventional loan portfolio.
(4)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.
(5)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The June 30, 2022 rate is based on March 31, 2022 data.

Overall, the MPP has experienced a minimal amount of delinquencies, with delinquency rates continuing to be well below national averages. This further supports our view that the portfolio is comprised of high-quality, well-performing loans.

Credit Enhancements: Conventional mortgage loans are primarily supported against credit losses by some combination of credit enhancements (primary mortgage insurance (PMI) and the Lender Risk Account (LRA)). The LRA is a hold back of a portion of the initial purchase price to cover expected credit losses for a specific pool of loans. Starting after five years from the loan purchase date, we may return the hold back to Participating Financial Institutions (PFIs) if they manage credit risk to predefined acceptable levels of exposure on the pools of loans they sell to us. As a result, some pools of loans may have sufficient credit enhancements to recapture all losses while other pools of loans may not. The LRA had balances of $254 million and $252 million at June 30, 2022 and December 31, 2021, respectively. For more information, see Note 5 of the Notes to Unaudited Financial Statements.

Credit Losses: Residual credit risk exposure depends on the actual and potential credit performance of the loans in each pool compared to the pool's equity (on individual loans) and credit enhancements. Our available credit enhancements at June 30, 2022 were ample and able to cover nearly all of the estimated gross credit losses. As a result, estimated credit losses at June 30, 2022 were less than $1 million. Estimated credit losses, after credit enhancements, are accounted for in the allowance for credit losses or as a charge off (i.e., a reduction to the principal of mortgage loans held for portfolio).
Separate from our allowance for credit losses analysis, we regularly analyze potential adverse scenarios of lifetime credit risk exposure for the loans in the MPP. Even under adverse macroeconomic scenarios, we expect credit losses to remain minimal.

Investments
Liquidity Investments: We purchase liquidity investments from counterparties that have a strong ability to repay principal and interest. These investments can be easily converted to cash and may be unsecured, guaranteed or supported by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the debt securities of highly rated, investment-grade institutions, have appropriate and conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices, including active monitoring of credit quality of our counterparties and
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of the environment in which they operate. In addition, we believe the portion of our liquidity investments for which the investments are secured with collateral (secured resale agreements) present no credit risk exposure to us.

The following table presents the carrying value of liquidity investments outstanding in relation to the counterparties' lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services. For resale agreements, the ratings shown are based on ratings of the associated collateral. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.

(In millions)June 30, 2022
Long-Term Rating
AAATotal
Unsecured Liquidity Investments
Interest-bearing deposits$— $900 $900 
Federal funds sold3,235 6,935 10,170 
Total unsecured liquidity investments3,235 7,835 11,070 
Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell2,277 250 2,527 
U.S. Treasury obligations7,834 — 7,834 
GSE obligations1,693 — 1,693 
Total guaranteed/secured liquidity investments11,804 250 12,054 
Total liquidity investments$15,039 $8,085 $23,124 
December 31, 2021
Long-Term Rating
AAATotal
Unsecured Liquidity Investments
Interest-bearing deposits$— $340 $340 
Federal funds sold975 4,530 5,505 
Total unsecured liquidity investments975 4,870 5,845 
Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell1,282 — 1,282 
U.S. Treasury obligations9,577 — 9,577 
GSE obligations1,885 — 1,885 
Total guaranteed/secured liquidity investments12,744 — 12,744 
Total liquidity investments$13,719 $4,870 $18,589 



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The following table presents the lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services of our unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty's immediate parent for U.S. branches and agency offices of foreign commercial banks. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.

(In millions)June 30, 2022
Counterparty Rating
Domicile of CounterpartyAAATotal
Domestic$— $1,820 $1,820 
U.S. branches and agency offices of foreign commercial banks:
Canada2,435 1,545 3,980 
Australia— 1,435 1,435 
Sweden— 1,435 1,435 
Netherlands— 900 900 
Finland600 — 600 
Germany— 400 400 
France— 300 300 
Norway200 — 200 
Total U.S. branches and agency offices of foreign commercial banks
3,235 6,015 9,250 
Total unsecured investment credit exposure$3,235 $7,835 $11,070 
We are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities. Furthermore, we restrict a significant portion of unsecured lending to overnight maturities, which further limits credit risk exposure.

MBS:
GSE MBS
At June 30, 2022, $12.4 billion of MBS held were GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest. We believe that the conservatorships of Fannie Mae and Freddie Mac lower the chance that they would not be able to fulfill their credit guarantees. In addition, based on the data available to us and our purchase practices, we believe that most of the mortgage loans backing our GSE MBS are of high quality with acceptable credit performance.

MBS Issued by Other Government Agencies
We also invest in MBS issued and guaranteed by Ginnie Mae. These investments totaled $1.0 billion at June 30, 2022. We believe that the strength of Ginnie Mae's guarantee and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.

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Derivatives
Credit Risk Exposure: We mitigate most of the credit risk exposure resulting from derivative transactions through collateralization or use of daily settled contracts. The table below presents the lowest long-term counterparty credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services for derivative positions to which we had credit risk exposure at June 30, 2022. The historical or current ratings displayed in this table should not be taken as an indication of future ratings.
(In millions) 
Total NotionalNet Derivatives Fair Value Before CollateralCash Collateral Pledged to (from) CounterpartiesNet Credit Exposure to Counterparties
Nonmember counterparties:
Asset positions with credit exposure:
Uncleared derivatives:
A-rated$295 $3 $(1)$2 
Total uncleared derivatives295 3 (1)2 
Cleared derivatives (1)
713 — 3 3 
Liability positions with credit exposure:
Uncleared derivatives:
A-rated4,509 (16)22 6 
BBB-rated1,962 (12)14 2 
Total uncleared derivatives6,471 (28)36 8 
Cleared derivatives (1)
47,652 (78)401 323 
Total derivative positions with credit exposure to nonmember counterparties
55,131 (103)439 336 
Member institutions (2)
36 — — — 
Total$55,167 $(103)$439 $336 
(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated Aa3 by Moody's and AA- by Standard & Poor's.
(2)Represents Mandatory Delivery Contracts.

Our exposure to cleared derivatives is primarily associated with the requirement to post initial margin through the clearing agent to the Derivatives Clearing Organizations. We pledge cash as collateral to satisfy this initial margin requirement. However, the use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties.

At June 30, 2022, the net exposure of uncleared derivatives with residual credit risk exposure was less than $10 million. If interest rates rise or the composition of our derivatives change resulting in an increase to our gross exposure to uncleared derivatives, the contractual collateral provisions in these derivatives would limit our net exposure to acceptable levels.
Although we cannot predict if we will realize credit risk losses from any of our derivatives counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and, more generally, to continue to satisfy the terms and conditions of their derivative contracts with us. As of June 30, 2022, we had a $50 million notional amount of interest rate swaps with a subsidiary of our member, JPMorgan Chase Bank, N.A., which also had outstanding credit services with us. Due to the amount of market value collateralization, we had no outstanding credit exposure to this counterparty related to interest rate swaps outstanding.

Liquidity Risk

Liquidity Overview
We strive to be in a liquidity position at all times to meet the borrowing needs of our members and to meet all current and future financial commitments. This objective is achieved by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of assets and liabilities. Our liquidity position complies with the FHLBank Act, Finance Agency regulations, and internal policies.
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The FHLBank System's primary source of funds is the sale of Consolidated Obligations in the capital markets. Our ability to obtain funds through the sale of Consolidated Obligations at acceptable interest costs depends on the financial market's perception of the riskiness of the Obligations and on prevailing conditions in the capital markets, particularly the short-term capital markets. The System's favorable debt ratings, the implicit U.S. government backing of our debt, and our effective risk management practices are instrumental in ensuring stable and satisfactory access to the capital markets.

We believe our liquidity position, as well as that of the System, continued to be strong during the first six months of 2022. Our overall ability to effectively fund our operations through debt issuances remained sufficient. Investor demand for System debt was robust in the first six months of 2022, as investors continued to prefer short-term, high-quality money market instruments. We believe the possibility of a liquidity or funding crisis in the System that would impair our ability to participate, on a cost-effective basis, in issuances of debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends is remote.

The System works collectively to manage and monitor the System-wide liquidity and funding risks. Liquidity risk includes the risk that the System could have difficulty rolling over short-term Obligations when market conditions change, also called refinancing risk. The System has a large reliance on short-term funding; therefore, it has a sharp focus on managing liquidity risk to very low levels. As shown on the unaudited Statements of Cash Flows, in the first six months of 2022, our portion of the System's debt issuances totaled $164.2 billion for Discount Notes and $30.5 billion for Bonds. Access to short-term debt markets has been reliable because investors, driven by liquidity preferences and risk aversion, have sought the System’s short-term debt, which has resulted in strong demand for debt maturing in one year or less.

See the Notes to Unaudited Financial Statements for more detailed information regarding maturities of certain financial assets and liabilities which are instrumental in determining the amount of liquidity risk. In addition to contractual maturities, other assumptions regarding cash flows such as estimated prepayments, embedded call optionality, and scheduled amortization are considered when managing liquidity risks.

Liquidity Management and Regulatory Requirements
We manage liquidity risk by ensuring compliance with our regulatory liquidity requirements and regularly monitoring other metrics.

The Finance Agency establishes the expectations with respect to the maintenance of sufficient liquidity without access to the capital markets for a specified number of days, which was set as a period of between 10 to 30 calendar days in the base case. Under these expectations, all Advance maturities are assumed to renew, unless the Advances relate to former members who are ineligible to borrow new Advances. The maintenance of sufficient liquidity is intended to provide additional assurance that we can continue to provide Advances and Letters of Credit to members over an extended period without access to the capital markets. As of June 30, 2022, the number of days our daily cash balances were positive was within these expectations.

The Finance Agency also provides guidance related to asset/liability maturity funding gap limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. Although subject to change depending on conditions in the financial markets, the current regulatory requirement for funding gaps is between -10 percent to -20 percent for the three-month maturity horizon and is between -25 percent to -35 percent for the one-year maturity horizon. As of June 30, 2022, we were operating within those limits.

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To support our member deposits, we also must meet a statutory deposit reserve requirement. The sum of our investments in obligations of the United States, deposits in eligible banks or trust companies, and Advances with a final maturity not exceeding five years must equal or exceed the current amount of member deposits. The following table presents the components of this liquidity requirement.

(In millions)June 30, 2022December 31, 2021
Deposit Reserve Requirement
Total Eligible Deposit Reserves$75,343 $35,230 
Total Member Deposits(1,226)(1,416)
Excess Deposit Reserves$74,117 $33,814 

Member Concentration Risk

We regularly assess concentration risks from business activity. We believe that the concentration of Advance activity is consistent with our risk management philosophy, and the impact of borrower concentration on market risk, credit risk, and operational risk, after considering mitigating controls, is minimal.

Operational Risks

There were no material developments regarding our operational risk exposure during the first six months of 2022.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes in the first six months of 2022 to our critical accounting policies and estimates. Our critical accounting policies and estimates are described in detail in our 2021 Annual Report on Form 10-K.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Information required by this Item is set forth under the caption “Quantitative and Qualitative Disclosures About Risk Management” in Part I, Item 2, of this Report.

Item 4.    Controls and Procedures.


DISCLOSURE CONTROLS AND PROCEDURES

The FHLB's management, including its principal executive officer and principal financial officer, evaluate the effectiveness of the FHLB's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, these two officers each concluded that, as of June 30, 2022, the FHLB maintained effective disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files under the Exchange Act is (1) accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The FHLB's management, including its principal executive officer and principal financial officer, evaluate the FHLB's internal control over financial reporting. Based upon that evaluation, these two officers each concluded that there were no changes in the FHLB's internal control over financial reporting that occurred during the quarter ended June 30, 2022 that materially affected, or are reasonably likely to materially affect, the FHLB's internal control over financial reporting.


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PART II - OTHER INFORMATION



Item 1.    Legal Proceedings.

Information regarding legal proceedings is set forth in Note 13 - Commitments and Contingencies in Part I, Item 1, of this Report.

Item 1A.    Risk Factors.        

For a discussion of our risk factors, see Part I, Item 1A. "Risk Factors" in our 2021 Annual Report on Form 10-K. There have been no material changes from the risk factors in our 2021 Annual Report on Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

None.
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Item 6.    Exhibits.
Exhibit
Number (1)
 Description of exhibit Document filed or
furnished, as indicated below
    
  Filed Herewith
     
  Filed Herewith
     
  Furnished Herewith
101.INSXBRL Instance DocumentThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCHXBRL Taxonomy Extension Schema DocumentFiled Herewith
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled Herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled Herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled Herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled Herewith
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)Filed Herewith
(1)     Numbers coincide with Item 601 of Regulation S-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 9th day of August 2022.

FEDERAL HOME LOAN BANK OF CINCINNATI
(Registrant)

By: /s/ Andrew S. Howell
Andrew S. Howell
President and Chief Executive Officer
(principal executive officer)
By: /s/ Stephen J. Sponaugle
Stephen J. Sponaugle
Executive Vice President - Chief Financial Officer
(principal financial officer)

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Document

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Andrew S. Howell, certify that:

1.I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Cincinnati;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 9, 2022

  /s/ Andrew S. Howell
Andrew S. Howell
President and Chief Executive Officer

Document

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Stephen J. Sponaugle, certify that:

1.I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Cincinnati;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 9, 2022

/s/ Stephen J. Sponaugle
Stephen J. Sponaugle
Executive Vice President, Chief Financial Officer

Document

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report of the Federal Home Loan Bank of Cincinnati (the FHLB) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers certifies, to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the FHLB.


  /s/ Andrew S. Howell
Andrew S. Howell
President and Chief Executive Officer
August 9, 2022
 
  /s/ Stephen J. Sponaugle
Stephen J. Sponaugle
Executive Vice President, Chief Financial Officer
August 9, 2022

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