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 Number: 000-51395

FEDERAL HOME LOAN BANK OF PITTSBURGH

(Exact name of registrant as specified in its charter) 

Federally Chartered Corporation		25-6001324
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
601 Grant Street
Pittsburgh,	PA	15219
(Address of principal executive offices)		(Zip Code)

412 288-3400 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
—	—	—

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [x]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).  [x] 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.

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

There were 20,842,914 shares of common stock with a par value of $100 per share outstanding at July 29, 2022.

FEDERAL HOME LOAN BANK OF PITTSBURGH

TABLE OF CONTENTS

Part I - FINANCIAL INFORMATION	1
Item 1: Financial Statements (unaudited)	38
Notes to Financial Statements (unaudited)	44
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations	1
Risk Management	22
Item 3: Quantitative and Qualitative Disclosures about Market Risk	78
Item 4: Controls and Procedures	78
Part II - OTHER INFORMATION	78
Item 1: Legal Proceedings	78
Item 1A: Risk Factors	78
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 3: Defaults upon Senior Securities	78
Item 4: Mine Safety Disclosures	78
Item 5: Other Information	78
Item 6: Exhibits	79
Signatures	79

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PART I - FINANCIAL INFORMATION

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

Forward-Looking Information

Statements contained in this Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of Pittsburgh (the Bank), may be “forward-looking statements.” These statements may use forward-looking terms, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: economic and market conditions, including, but not limited to real estate, credit and mortgage markets; volatility of market prices, rates, and indices related to financial instruments; including but not limited to, the discontinuance of the London Interbank Offered Rate (LIBOR) and the related effect on the Bank's LIBOR-based financial products, investments and contracts; the occurrence of man-made or natural disasters, endemics, global pandemics, conflicts or terrorist attacks or other geopolitical events; political, legislative, regulatory, litigation, or judicial events or actions, including those relating to environmental, social and governance matters; risks related to mortgage-backed securities (MBS); changes in the assumptions used to estimate credit losses; changes in the Bank’s capital structure; changes in the Bank’s capital requirements; changes in expectations regarding the Bank’s payment of dividends; membership changes; changes in the demand by Bank members for Bank advances; an increase in advance prepayments; competitive forces, including the availability of other sources of funding for Bank members; changes in investor demand for consolidated obligations and/or the terms of interest rate exchange agreements and similar agreements; changes in the Federal Home Loan Bank (FHLBank) System’s debt rating or the Bank’s rating; the ability of the Bank to introduce new products and services to meet market demand and to manage successfully the risks associated with new products and services; the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability; applicable Bank policy requirements for retained earnings and the ratio of the market value of equity to par value of capital stock; the Bank’s ability to maintain adequate capital levels (including meeting applicable regulatory capital requirements); business and capital plan adjustments and amendments; technology and cyber-security risks; and timing and volume of market activity. Forward-looking statements in this Form 10-Q should not be relied on as representing the Bank’s expectations or assumptions as of any time subsequent to the time this Form 10-Q is filed with the Securities and Exchange Commission. Forward looking statements speak only as of the date made and the Bank has no obligation, and does not undertake publicly, to update or revise any forward-looking statement for any reason.

This Management's Discussion and Analysis (MD&A) should be read in conjunction with the Bank's unaudited interim financial statements and notes and any Risk Factors included in Part II, Item 1A of this Form 10-Q and all risks and uncertainties addressed throughout this report, as well as the Bank's 2021 Form 10-K (2021 Form 10-K), including Risk Factors included in Part I, Item 1A of that report. Information on the Bank's websites referred to in this Form 10-Q is not incorporated in, or a part of, this Form 10-Q.

Executive Summary

Overview. The Bank's financial condition and results of operations are influenced by global and national economies, local economies within its three-state district, and the conditions in the financial, housing and credit markets, all of which impact the interest rate environment.

The interest rate environment significantly impacts the Bank's profitability. Net interest income is affected by several external factors, including market interest rate levels and volatility, credit spreads and the general state of the economy. To manage interest rate risk in connection with advances and debt, the Bank executes interest-rate derivatives. Short-term interest rates also directly affect the Bank's earnings on invested capital. Finally, the Bank's mortgage-related assets make it sensitive to changes in mortgage rates. The Bank earns relatively narrow spreads between yields on assets (particularly advances, its largest asset) and the rates paid on corresponding liabilities.

The Bank's earnings are affected not only by rising or falling interest rates but also by the particular path and volatility of changes in market interest rates and the prevailing shape of the yield curve. The flattening of the yield curve tends to compress the Bank's net interest margin, while steepening of the curve offers better opportunities to purchase assets with wider net interest spreads. The performance of the Bank's mortgage asset portfolios is particularly affected by shifts in the 10-year

1

maturity range of the yield curve, which is the point that heavily influences mortgage rates and potential refinancings. Yield curve shape can also influence the pace at which borrowers refinance or prepay their existing loans, as borrowers may select shorter-duration mortgage products.

During the second quarter of 2022, rising inflation, Federal Reserve Board (Federal Reserve) actions during their May and June meetings to raise the Federal funds rate as well as speculation about future actions, and further market volatility caused by ongoing hostilities between Russia and Ukraine were dominant themes. At its May meeting, the Federal Reserve raised the Federal funds rate to a range of 0.75% and 1.00%. At its meeting in June, the Federal Reserve raised the target for the Federal funds rate to a range of 1.50% and 1.75%, due to improved economic indicators and rising future inflation expectations. During the second quarter of 2022, yields on U.S. Treasuries were higher relative to the prevailing yields at the end of the first quarter of 2022. Term debt spreads relative to U.S. Treasuries were higher during the quarter due to rising inflation.

Results of Operations. The Bank's net income totaled $37.5 million for the second quarter of 2022, compared to $11.7 million for the second quarter of 2021. Higher net interest income was the primary driver for the year-over-year change. The net interest margin was 50 basis points in the second quarter of 2022 and 41 basis points in the second quarter of 2021. The increase in net interest margin was primarily due to an increase in yield. For the six months ended June 30, 2022, the Bank’s net income totaled $56.2 million, compared to $49.8 million for the same prior-year period. The $6.4 million increase was driven primarily by higher net interest income and lower expenses, partially offset by higher mark to market losses in derivative and trading securities. The net interest margin was 48 basis points for the first six months of 2022 and 47 basis points for the first six months of 2021. The increase in net interest margin was primarily due to lower funding costs and higher rates.

Financial Condition. Advances. Advances totaled $35.2 billion at June 30, 2022, an increase of $21.1 billion compared to $14.1 billion at December 31, 2021. In addition, the par value of advances that had a remaining maturity of more than one year also increased to 50% at June 30, 2022 compared to 39% at December 31, 2021. Although advance levels increased driven by member demand, it is not uncommon for the Bank to experience variances in the overall advance portfolio driven primarily by changes in member needs.

The ability to grow and/or maintain the advance portfolio is affected by, among other things, the following: (1) the liquidity demands of the Bank's borrowers; (2) the composition of the Bank's membership; (3) members' regulatory requirements; (4) current and future credit market conditions; (5) housing market trends; (6) the shape of the yield curve and (7) advance pricing.

Liquidity. The Bank maintains liquidity to meet member borrowing needs and regulatory standards. Liquidity is comprised of cash, interest-bearing deposits, certificates of deposits, Federal funds sold, securities purchased under agreements to resell, and U.S. Treasury obligations classified as trading or available-for-sale (AFS). At June 30, 2022, the Bank held $13.9 billion of liquid assets compared to $9.7 billion at December 31, 2021. The $4.2 billion increase in liquid assets reflects the increase in Federal funds and securities purchased under agreements to resell in response to increased advance activity.

Investments. To enhance earnings, the Bank maintains investments classified as AFS and held-to-maturity (HTM) as well as certain trading securities, excluding those investments designated as liquidity. The Bank held $7.8 billion in its investment portfolio at June 30, 2022 compared with $8.8 billion at December 31, 2021, a decrease of $1.0 billion. Paydowns associated with the Bank's Agency MBS portfolio contributed to this decline. During the first six months of 2022, the Bank’s MBS purchases were limited by narrow mortgage spreads.

Consolidated Obligations. The Bank's consolidated obligations totaled $57.5 billion at June 30, 2022, an increase of $23.9

billion from December 31, 2021. At June 30, 2022, bonds represented 57% of the Bank's consolidated obligations, compared with 69% at December 31, 2021. Discount notes represented 43% of the Bank's consolidated obligations at June 30, 2022 compared with 31% at year-end 2021. The overall increase in consolidated obligations outstanding is consistent with the increased advances, investments and total asset balances.

Capital Position and Regulatory Requirements. Total capital at June 30, 2022 was $3.5 billion, compared to $2.7 billion at December 31, 2021. The increase was primarily due to increased capital stock as a result of higher advances. Total retained earnings at June 30, 2022 were $1.4 billion, relatively unchanged from year-end 2021. Accumulated other comprehensive income (AOCI) was $5.0 million at June 30, 2022, a decrease of $105.2 million from December 31, 2021. This decrease was primarily due to declines in the fair values of securities within the AFS portfolio.

In July 2022, the Bank paid quarterly dividends of 6.25% annualized on activity stock and 2.25% annualized on membership stock. In both February and April 2022, the Bank paid quarterly dividends of 5.25% annualized on activity stock and 1.25% annualized on membership stock. The dividends paid were based on stockholders' average balances for the fourth quarter of 2021 (February dividend), the first quarter of 2022 (April dividend), and the second quarter of 2022 (July dividend).

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The dividend rates demonstrate that FHLBank continues to return value to its member shareholders. Looking forward, market and business conditions can impact the FHLBank's overall performance, as well as the levels of future dividends. These conditions include projected increases to short-term interest rates, which could favorably impact dividends.

The Bank met all of its capital requirements as of June 30, 2022, and in the Federal Housing Finance Agency's (Finance Agency) most recent determination, as of March 31, 2022, the Bank was deemed "adequately capitalized."

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Earnings Performance

    The following is Management's Discussion and Analysis of the Bank's earnings performance for the three and six months ended June 30, 2022 and 2021, which should be read in conjunction with the Bank's unaudited interim financial statements included in this Form 10-Q as well as the audited financial statements included in Item 8. Financial Statements and Supplementary Financial Data in the Bank's 2021 Form 10-K.

Summary of Financial Results

The Bank's net income totaled $37.5 million for the second quarter of 2022, compared to $11.7 million for the second quarter of 2021. The $25.8 million increase in net income was driven primarily by the following:

•Net interest income was $67.0 million for the second quarter of 2022, an increase of $28.1 million from $38.9 million during the same prior-year period.

◦Interest income was $182.6 million for the second quarter of 2022, compared to $98.9 million in the same prior-year period. This increase was the result of higher average advance balances and higher yields driven by higher short-term interest rates.

◦Interest expense was $115.6 million for the second quarter of 2022, compared to $60.0 million in the same prior-year period. This increase was the result of higher average consolidated obligations and higher short-term interest rates.

•Other noninterest income was $0.5 million for the second quarter of 2022 compared to a loss of $3.0 million in the same prior-year period. This $3.5 million increase was due primarily to valuation changes in FHLBank's derivative and trading security portfolios as a result of market volatility.

•Other expense was $24.6 million for the second quarter of 2022 compared to $23.1 million in the same period in prior-year, an increase of $1.5 million. The Bank made a $2.0 million voluntary contribution to its defined benefit pension plan in the second quarter 2022 and no such contribution was made in the second quarter of 2021.

The Bank’s net income totaled $56.2 million for the six months ended June 30, 2022, compared to $49.8 million for the same prior-year period. The $6.4 million increase was driven primarily by the following:

▪Net interest income was $111.1 million for the six months ended June 30, 2022, an increase of $14.2 million from $96.9 million in the same prior-year period.

◦Interest income was $277.0 million for the six months ended June 30, 2022, compared with $223.5 million for the same prior-year period. This increase was the result of higher average advance balances, and higher yields driven by higher short-term interest rates.

◦Interest expense was $165.9 million for the six months ended June 30, 2022, compared with $126.6 million in the same prior-year period. This increase was the result of higher rates paid, driven by higher short-term interest rates.

▪Interest income also included net prepayment fees on advances of $1.9 million for the six months ended June 30, 2022, compared to $8.8 million for the same prior-year period.

▪Other non-interest income was $0.5 million for the six months ended June 30, 2022, compared with $6.4 million in the same prior-year period. This $5.9 million decrease was due primarily to higher net losses on derivatives and trading securities in 2022. Movements in the interest rates in 2022 have led to volatility in the mark to market portfolio.

▪Other expense was $46.9 million for the six months ended June 30, 2022, compared with $49.1 million for the same prior-year period, a decrease of $2.2 million. The decrease is driven by market value changes of deferred compensation agreements and lower Federal Housing Finance Agency (FHFA) assessments.

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Net Interest Income

The following table summarizes the yields and rates paid on interest-earning assets and interest-bearing liabilities, respectively, the average balance for each of the primary balance sheet classifications, and the net interest margin for the three months and six months ended June 30, 2022 and 2021.

Average Balances and Interest Yields/Rates Paid

	Three months ended June 30,
	2022					2021
(dollars in millions)	Average Balance		Interest Income/ Expense		Avg. Yield/ Rate (%)	Average Balance		Interest Income/ Expense		Avg. Yield/ Rate (%)
Assets:
Securities purchased under agreements to resell (1)	$	2,135.8	$	4.5	0.84	$	780.2	$	0.1	0.07
Federal funds sold (1)	4,031.7		8.1		0.80	2,747.7		0.4		0.07
Interest-bearing deposits (2)	1,507.1		3.0		0.80	652.9		0.2		0.13
Investment securities (3)	13,427.2		49.5		1.48	13,168.3		36.1		1.10
Advances (4)	27,960.3		84.3		1.21	15,760.2		31.3		0.80
Mortgage loans held for portfolio (5)	4,680.2		33.2		2.85	4,830.8		30.8		2.56
Total interest-earning assets	53,742.3		182.6		1.36	37,940.1		98.9		1.05
Other assets (6)	817.7					997.0
Total assets	$	54,560.0				$	38,937.1
Liabilities and capital:
Deposits (2)	$	812.5	$	1.4	0.71	$	994.2	$	—	—
Consolidated obligation discount notes	21,683.6		36.0		0.67	11,501.4		1.4		0.05
Consolidated obligation bonds (7)	27,740.1		77.9		1.13	22,953.9		57.7		1.01
Other borrowings	22.4		0.3		6.15	65.1		0.9		5.32
Total interest-bearing liabilities	50,258.6		115.6		0.92	35,514.6		60.0		0.68
Other liabilities	1,096.6					653.0
Total capital	3,204.8					2,769.5
Total liabilities and capital	$	54,560.0				$	38,937.1
Net interest spread					0.44					0.37
Impact of noninterest-bearing funds					0.06					0.04
Net interest income/net interest margin(8)			$	67.0	0.50			$	38.9	0.41

Notes:

(1) The average balance of Federal funds sold and securities purchased under agreements to resell and the related interest income and average yield calculations may include loans to other FHLBanks.

(2) Average balances of deposits (assets and liabilities) include cash collateral received from/paid to counterparties which is reflected in the Statements of Condition as derivative assets/liabilities.

(3) Investment securities include trading, AFS and HTM securities. The average balances of AFS and HTM are reflected at amortized cost.

(4) Average balances reflect noninterest-earning hedge accounting adjustments of ($164.4) million in 2022 and $153.1 million in 2021.

(5) Nonaccrual mortgage loans are included in average balances in determining the average rate.

(6) Other assets include allowance for credit losses on investment securities and MPF.

(7) Average balances reflect noninterest-bearing hedge accounting adjustments of ($564.6) million in 2022 and $14.4 million in 2021.

(8) Net interest margin is net interest income before provision (reversal) for credit losses as a percentage of average interest-earning assets.

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	Six months ended June 30,
	2022					2021
(dollars in millions)	Average Balance		Interest Income/ Expense		Avg. Yield/ Rate (%)	Average Balance		Interest Income/ Expense		Avg. Yield/ Rate (%)
Assets:
Securities purchased under agreements to resell (1)	$	1,475.1	$	4.7	0.64	$	748.6	$	0.2	0.07
Federal funds sold (1)	4,114.8		9.3		0.45	3,558.9		1.3		0.07
Interest-bearing deposits (2)	1,229.6		3.4		0.55	844.9		0.6		0.14
Investment securities (3)	13,560.9		82.9		1.23	12,817.7		77.0		1.21
Advances (4)	21,247.9		111.0		1.05	19,057.1		81.3		0.86
Mortgage loans held for portfolio (5)	4,695.4		65.7		2.82	4,841.8		63.1		2.63
Total interest-earning assets	46,323.7		277.0		1.21	41,869.0		223.5		1.08
Other assets (6)	859.2					1,021.1
Total assets	$	47,182.9				$	42,890.1
Liabilities and capital:
Deposits (2)	$	939.8	$	1.6	0.36	$	993.5	$	—	—
Consolidated obligation discount notes	17,027.8		39.2		0.46	11,795.8		4.1		0.07
Consolidated obligation bonds (7)	25,286.2		124.5		0.99	26,486.8		119.7		0.91
Other borrowings	22.4		0.6		5.66	97.3		2.8		5.74
Total interest-bearing liabilities	43,276.2		165.9		0.77	39,373.4		126.6		0.65
Other liabilities	932.4					651.0
Total capital	2,974.3					2,865.7
Total liabilities and capital	$	47,182.9				$	42,890.1
Net interest spread					0.44					0.43
Impact of noninterest-bearing funds					0.04					0.04
Net interest income/net interest margin(8)			$	111.1	0.48			$	96.9	0.47

Notes:

(1) The average balance of Federal funds sold and securities purchased under agreements to resell and the related interest income and average yield calculations may include loans to other FHLBanks.

(2) Average balances of deposits (assets and liabilities) include cash collateral received from/paid to counterparties which is reflected in the Statements of Condition as derivative assets/liabilities.

(3) Investment securities include trading, AFS and HTM securities. The average balances of AFS and HTM are reflected at amortized cost.

(4) Average balances reflect noninterest-earning hedge accounting adjustments of ($81.0) million in 2022 and $187.8 million in 2021.

(5) Nonaccrual mortgage loans are included in average balances in determining the average rate.

(6) Other assets include allowance for credit losses on investment securities and MPF.

(7) Average balances reflect noninterest-bearing hedge accounting adjustments of ($366.5) million in 2022 and $18.2 million in 2021.

(8) Net interest margin is net interest income before provision (reversal) for credit losses as a percentage of average interest-earning assets.

The Bank’s business model is designed to protect the net interest spread earned by the Bank and withstand fluctuations in both the level of interest rates and volume of business. Interest income and interest expense increased, increasing the Bank's net interest margin by nine basis point to 50 basis points during second quarter of 2022, compared to 41 basis points during second quarter of 2021. This increase was primarily due to the impact of higher yields.

Net interest income increased $28.1 million for the second quarter of 2022 compared to second quarter of 2021 due to an increase in interest income, partially offset by higher interest expense. Interest-earning assets increased 42% primarily due to higher average advances. The yield earned on interest-earning assets increased 31 basis points due to higher yields across all categories. Interest income on interest-earning assets increased due to higher volumes and higher rates in most categories. The rate paid on interest-bearing liabilities increased 24 basis points primarily due to higher rates in most categories. The impact of noninterest-bearing funds increased two basis points.

Net interest income for the first six months of 2022 increased $14.2 million from the same prior-year period due to an increase in interest income, partially offset by higher interest expense. Interest-earning assets increased 11% primarily due to higher average advances. The yield earned on interest-earning assets increased 13 basis points due to higher yields across all categories. Interest income on advances increased due to higher rates and volumes. Interest income on interest-earning assets increased due to higher volumes and higher rates in most categories. The rate paid on interest-bearing liabilities increased 12 basis points primarily due to higher rates in most categories. The impact of noninterest-bearing funds was consistent with the prior period.

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Rate/Volume Analysis. Changes in both volume and interest rates influence changes in net interest income and net interest margin. The following table presents and attribution of net interest income between volume and rate for the three and six months ended June 30, 2022 and 2021.

	Increase (Decrease) in Interest Income/Expense Due to Changes in Rate/Volume 2022 compared to 2021
	Three months ended June 30,						Six months ended June 30,
(in millions)	Volume		Rate		Total		Volume		Rate		Total
Securities purchased under agreements to resell	$	0.6	$	3.8	$	4.4	$	0.5	$	4.0	$	4.5
Federal funds sold	0.3		7.4		7.7		0.2		7.8		8.0
Interest-bearing deposits	0.5		2.3		2.8		0.4		2.4		2.8
Investment securities	0.7		12.7		13.4		4.5		1.4		5.9
Advances	31.7		21.3		53.0		10.1		19.6		29.7
Mortgage loans held for portfolio	(1.0)		3.4		2.4		(2.0)		4.6		2.6
Total interest-earning assets	$	32.8	$	50.9	$	83.7	$	13.7	$	39.8	$	53.5
Deposits	$	—	$	1.4	$	1.4	$	—	$	1.6	$	1.6
Consolidated obligation discount notes	2.3		32.3		34.6		2.6		32.5		35.1
Consolidated obligation bonds	12.9		7.3		20.2		(5.6)		10.4		4.8
Other borrowings	(0.6)		—		(0.6)		(2.1)		(0.1)		(2.2)
Total interest-bearing liabilities	$	14.6	$	41.0	$	55.6	$	(5.1)	$	44.4	$	39.3
Total increase in net interest income	$	18.2	$	9.9	$	28.1	$	18.8	$	(4.6)	$	14.2

Interest income increased in both quarter-over-quarter and year-over-year comparisons. Higher rates and higher volume drove the increase in interest income. The rate increase was primarily due to an increase in yield on advances. Higher volumes were primarily due to increases in member advance activity as market liquidity and recent Fed actions to increase short-term interest rates impacted members' need for advances.

Interest expense on the average consolidated obligations portfolio increased in both quarter-over-quarter and year-over-year comparisons. The quarter-over-quarter growth was primarily due to higher rates and higher volumes. The rate increase was primarily due to increased rates on discount notes as increases to short-term interest rates have had a significant impact . Higher volumes were primarily due to increases to average outstanding balances of bonds in relation to increased advance balances. The year-over-year growth was primarily due to higher rates on discount notes as increases to short-term interest rates have had a significant impact. A portion of the bond portfolio is currently swapped to a variable rate; therefore, as the variable rate (decreases) increases, interest expense on swapped bonds, including the impact of swaps, (decreases) increases. See details regarding the impact of swaps on the rates paid in the “Derivatives Effects on Interest Income” discussion below.

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    Derivative Effects on Net Interest Income. The following tables quantify the effects of the Bank's derivative activities on net interest income for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022	Advances		Investments		Mortgage Loans		Bonds		Total
Amortization/accretion of hedging activities in net interest income	$	—	$	(0.1)	$	(0.4)	$	0.1	$	(0.4)
Gains (losses) on designated fair value hedges	(0.1)		0.6		—		(0.9)		(0.4)
Net interest settlements included in net interest income	(18.9)		(5.3)		—		26.2		2.0
Total effect on net interest income	$	(19.0)	$	(4.8)	$	(0.4)	$	25.4	$	1.2
Six Months Ended June 30, 2022	Advances		Investments		Mortgage Loans		Bonds		Total
Amortization/accretion of hedging activities in net interest income	$	—	$	(0.1)	$	(0.9)	$	0.1	$	(0.9)
Gains (losses) on designated fair value hedges	(0.1)		2.0		—		(0.1)		1.8
Net interest settlements included in net interest income	(49.3)		(19.3)		—		52.1		(16.5)
Total effect on net interest income	$	(49.4)	$	(17.4)	$	(0.9)	$	52.1	$	(15.6)
Three Months Ended June 30, 2021	Advances		Investments		Mortgage Loans		Bonds		Total
Amortization/accretion of hedging activities in net interest income	$	—	$	(0.1)	$	(1.1)	$	0.1	$	(1.1)
Gains (losses) on designated fair value hedges	—		(0.8)		—		—		(0.8)
Net interest settlements included in net interest income	(35.2)		(10.5)		—		8.7		(37.0)
Total effect on net interest income	$	(35.2)	$	(11.4)	$	(1.1)	$	8.8	$	(38.9)
Six Months Ended June 30, 2021	Advances		Investments		Mortgage Loans		Bonds		Total
Amortization/accretion of hedging activities in net interest income			$	(0.1)	$	(2.0)	$	0.1	$	(2.0)
Gains (losses) on designated fair value hedges	—		1.4		—		—		1.4
Net interest settlements included in net interest income	(74.8)		(18.1)		—		16.1		(76.8)
Total effect on net interest income	$	(74.8)	$	(16.8)	$	(2.0)	$	16.2	$	(77.4)

The Bank generally uses interest rate swaps to hedge a portion of fixed rate assets and fixed rate bonds, which convert the interest rates on those instruments from a fixed rate to a variable rate. The purpose of this strategy is to protect the net interest spread. Using derivatives to convert interest rates from fixed to variable can increase or decrease net interest income. The variances in the derivative impacts from period to period are driven by the change in the average variable rate, the timing of interest rate resets and the average hedged portfolio balances outstanding during any given period. The Bank uses derivatives to hedge the fair market value changes attributable to the change in the benchmark interest rates.

In addition, the Bank uses many different funding and hedging strategies. These strategies involve closely match-funding bullet advances with bullet debt. This is designed in part to avoid the use of derivatives where prudent and reduce the Bank's reliance on short-term funding.

Provision (reversal) for Credit Losses. The provision for credit losses in the second quarter of 2022 was $1.2 million compared with a reversal of $(0.3) million in the second quarter of 2021. For the six months ended June 30, 2022, the provision for credit losses was $2.2 million compared with a reversal of $(1.4) million for the same prior-year period. The provision in the second quarter of 2022 was driven by private label MBS classified as AFS due to a decline in market values, which was partially offset by reversals for the Bank's BOB and MPF portfolios. The provision for the six months ended June 30, 2022 was primarily driven by the Bank's private label MBS classified as AFS. The reversal reflected in 2021 was driven primarily by the MPF portfolio due to improvements in the Bank's assumptions used to estimate expected credit losses, including forecasted housing prices.

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Other Noninterest Income

	Three months ended June 30,				Six months ended June 30,
(in millions)	2022		2021		2022		2021
Net gains (losses) on investment securities	$	(6.4)	$	(1.8)	$	(19.9)	$	(12.7)
Net gains (losses) on derivatives and hedging activities	1.2		(8.0)		8.7		5.7
Standby letters of credit fees	5.6		5.7		11.3		11.6
Other, net	0.1		1.1		0.4		1.8
Total other noninterest income (loss)	$	0.5	$	(3.0)	$	0.5	$	6.4

    The Bank's change in total other noninterest income for the second quarter of 2022 compared to the same prior year period was primarily due to valuation changes in the Bank's derivative and trading security portfolios as a result of market volatility. The Bank's change in total other noninterest income for the six months ended June 30, 2022 compared to the same prior year period was primarily due to higher net losses due to investment securities offset by gains on derivatives and hedging activities. Movements in the interest rates in 2022 have led to volatility in the mark-to-market portfolio. The activity related to derivatives and hedging is discussed in more detail below.

Derivatives and Hedging Activities. The Bank enters into interest rate swaps, TBAs, interest rate caps and floors and swaption agreements, referred to as derivatives transactions. The Bank enters into derivatives transactions to offset all or portions of the financial risk exposures inherent in its member lending, investment and funding activities. All derivatives are recorded on the balance sheet at fair value. Changes in derivatives' fair values are recorded in the Statements of Income.

Economic hedges address specific risks inherent in the Bank's balance sheet, but either they do not qualify for hedge accounting or the Bank does not elect to apply hedge accounting. As a result, income recognition on the derivatives in economic hedges may vary considerably compared to the timing of income recognition on the underlying asset or liability. The Bank does not enter into derivatives for speculative purposes nor does it have any cash flow hedges.

Regardless of the hedge strategy employed, the Bank's predominant hedging instrument is an interest rate swap. At the time of inception, the fair market value of an interest rate swap generally equals or is close to zero. Notwithstanding the exchange of interest payments made during the life of the swap, which are recorded as either interest income/expense or as a gain (loss) on derivatives, depending upon the accounting classification of the hedging instrument, the fair value of an interest rate swap returns to zero at the end of its contractual term. Therefore, although the fair value of an interest rate swap is likely to change over the course of its full term, upon maturity any unrealized gains and losses generally net to zero.

The following tables detail the net effect of derivatives and hedging activities on noninterest income for the three and six months ended June 30, 2022 and 2021.

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	Three months ended June 30, 2022
(in millions)	Advances		Investments		Mortgage Loans		Bonds		Discount Notes		Other		Total
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements	$	0.7	$	8.3	$	1.4	$	(4.9)	$	(3.9)	$	—	$	1.6
Other (1)	—		—		—		—		—		(0.4)		(0.4)
Total net gains (losses) on derivatives and hedging activities	$	0.7	$	8.3	$	1.4	$	(4.9)	$	(3.9)	$	(0.4)	$	1.2
	Six months ended June 30, 2022
(in millions)	Advances		Investments		Mortgage Loans		Bonds		Discount Notes		Other		Total
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements	$	3.2	$	26.3	$	0.8	$	(17.3)	$	(3.9)	$	—	$	9.1
Other (1)	—		—		—		—		—		(0.4)		(0.4)
Total net gains (losses) on derivatives and hedging activities	$	3.2	$	26.3	$	0.8	$	(17.3)	$	(3.9)	$	(0.4)	$	8.7

	Three months ended June 30, 2021
(in millions)	Advances		Investments		Mortgage Loans		Bonds		Discount Notes		Other		Total
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements	$	—	$	(5.3)	$	(3.2)	$	0.7	$	—	$	—	$	(7.8)
Other (1)	—		—		—		—		—		(0.2)		(0.2)
Total net gains (losses) on derivatives and hedging activities	$	—	$	(5.3)	$	(3.2)	$	0.7	$	—	$	(0.2)	$	(8.0)
	Six months ended June 30, 2021
(in millions)	Advances		Investments		Mortgage Loans		Bonds		Discount Notes		Other		Total
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on derivatives not receiving hedge accounting, including net interest settlements	$	—	$	7.1	$	(1.1)	$	(0.3)	$	—	$	—	$	5.7
Total net gains (losses) on derivatives and hedging activities	$	—	$	7.1	$	(1.1)	$	(0.3)	$	—	$	—	$	5.7

Notes:

(1) Represents the price alignment amount on derivatives for which variation margin is characterized as a daily settled contract.

Derivatives not receiving hedge accounting. For derivatives not receiving hedge accounting (i.e., economic hedges and mortgage delivery commitments), the Bank includes the net interest settlements and the fair value changes in the "Net gains (losses) on derivatives and hedging activities" financial statement line item. For economic hedges, the Bank recorded net gains of $1.6 million in the second quarter of 2022 compared to net losses of $(7.8) million for the second quarter of 2021. The net gains observed during the second quarter of 2022 were primarily due to an increase in market value on the Bank’s asset swaps resulting from rising interest rates in the second quarter of 2022. In contrast, the market value on the Bank's asset swaps fell during the second quarter of 2021 as a result of a decrease in interest rates. For the six months ended June 30, 2022, the Bank recorded net gains of $9.1 million compared to net gains of $5.7 million for the six months ended June 30, 2021. Interest rates increased steadily over the first and second quarters of 2022 compared to offsetting rate increases and decreases throughout the first two quarters of 2021, resulting in larger market value gains on the Bank's economic asset swaps in the first six months of 2022 compared to the same period in 2021. The total notional amount of economic hedges, which includes mortgage delivery commitments, increased to $5.0 billion at June 30, 2022 from $2.1 billion at December 31, 2021.

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Other Expense

The Bank's total other expense increased $1.5 million to $24.6 million for the second quarter of 2022, compared with the same prior-year period. The Bank made a $2.0 million voluntary contribution to its defined benefit pension plan in the second quarter of 2022 and no such contribution was made in the second quarter of 2021. Total other expense for the first half of 2022 was $46.9 million, down $2.2 million from the first half of 2021. The decrease is driven by market value changes of deferred compensation agreements and lower FHFA assessments.

Financial Condition

    The following should be read in conjunction with the Bank's unaudited interim financial statements in this Form 10-Q and the audited financial statements in the Bank's 2021 Form 10-K.

Assets

    Total assets were $62.0 billion at June 30, 2022, compared with $37.7 billion at December 31, 2021. The increase of $24.3 billion was primarily due to an increase in advances. Advances totaled $35.2 billion at June 30, 2022, an increase of $21.1 billion compared to $14.1 billion at December 31, 2021. The Bank's return on average assets for the three and six months ended June 30, 2022 was 0.28% and 0.24%. The Bank's return on average assets for the three and six months ended June 30, 2021 was 0.12% and 0.23%.

    The Bank's core mission activities include the issuance of advances and acquiring member assets through the MPF® program. The core mission asset ratio, defined as the ratio of par amount of advances and MPF loans relative to consolidated obligations adjusted for certain U.S. Treasury securities using full year average balances, was 70.0% as of June 30, 2022 and 64.1% as of December 31, 2021. The increase in core ratio is primarily due to higher average advance balances.

    Advances. Advances (par) totaled $35.5 billion at June 30, 2022 compared to $14.1 billion at December 31, 2021. At June 30, 2022, the Bank had advances to 145 borrowing members, compared to 122 borrowing members at December 31, 2021. Advances outstanding to the Bank’s five largest borrowers increased to 77.3% of total advances as of June 30, 2022, compared to 64.0% at December 31, 2021.

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The following table provides information on advances at par by redemption terms at June 30, 2022 and December 31, 2021.

(in millions)	June 30, 2022		December 31, 2021
Fixed-rate
Due in 1 year or less (1)	$	16,118.1	$	8,299.5
Due after 1 year through 3 years	5,661.3		3,928.8
Due after 3 years through 5 years	1,454.6		1,209.3
Due after 5 years through 15 years	75.4		78.8
Thereafter	74.8		74.7
Total par value	$	23,384.2	$	13,591.1
Fixed-rate, callable or prepayable(2)
Due after 1 year through 3 years	$	250.0	$	—
Total par value	$	250.0	$	—
Variable-rate
Due in 1 year or less (1)	$	1,513.0	$	140.1
Due after 1 year through 3 years	1,057.1		53.1
Due after 3 years through 5 years	9,010.0		—
Total par value	$	11,580.1	$	193.2
Variable-rate, callable or prepayable(2)
Due in 1 year or less	$	—	$	10.0
Due after 1 year through 3 years	40.0		40.0
Total par value	$	40.0	$	50.0
Other(3)
Due in 1 year or less	$	58.3	$	89.7
Due after 1 year through 3 years	70.2		86.3
Due after 3 years through 5 years	42.2		44.0
Due after 5 years through 15 years	29.9		22.1
Thereafter	0.7		2.8
Total par value	$	201.3	$	244.9
Total par balance	$	35,455.6	$	14,079.2

Notes:

(1) Includes overnight advances.

(2) Prepayable advances are those advances that may be contractually prepaid by the borrower on specified dates without incurring prepayment or termination fees.

(3) Includes fixed-rate amortizing/mortgage matched, convertible, and other advances.

The Bank had no putable advances at June 30, 2022 or December 31, 2021.

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The following table provides a distribution of the number of members, categorized by individual member asset size (as reported quarterly), that had an outstanding advance balance during the six months ended June 30, 2022 and 2021. Commercial Bank, Savings Institution members are classified by asset size as follows: Super-Regional (over $150 billion), Regional ($25 billion to $150 billion), Mid-size ($1.2 billion to $25 billion) and Community Financial Institutions (CFIs) (under $1.2 billion). Credit Union and Insurance members are classified separately.

Member Classification	June 30, 2022		June 30, 2021
Super-Regional	2		2
Regional	4		3
Mid-size	33		37
CFI	107		104
Credit Union	27		21
Insurance	19		13
Total borrowing members during the period	192		180
Total membership	285		282
Percentage of members borrowing during the period	67.4	%	63.8	%

The following table provides information at par on advances by member classification at June 30, 2022 and December 31, 2021.

(in millions)	June 30, 2022		December 31, 2021
Member Classification
Super-Regional	$	23,075.0	$	6,275.0
Regional	3,680.0		1,280.0
Mid-size	3,267.2		2,397.2
CFI	2,286.6		1,888.6
Credit Union	1,285.1		875.4
Insurance	1,353.9		853.4
Non-member	507.8		509.6
Total	$	35,455.6	$	14,079.2

    As of June 30, 2022, advances increased 150% compared with balances at December 31, 2021. It is not uncommon for the Bank to experience variances in the overall advance portfolio driven primarily by changes in member needs. Market liquidity, as well as recent Fed actions to increase short-term interest rates, continued to impact members' need for advances. Deposit balances remain elevated at our members and has kept advance balances below pre-pandemic levels; however, the Bank has recorded two consecutive quarters of increased advance levels.

See the “Credit and Counterparty Risk - TCE and Collateral” discussion in the Risk Management section of this Item 2 for further information on collateral policies and practices and details regarding eligible collateral, including amounts and percentages of eligible collateral securing member advances as of June 30, 2022.

    Allowance for Credit Losses (ACL) - Advances. The Bank evaluates its advances for an allowance for credit losses on a collective, or pooled basis unless an individual assessment is deemed necessary because the instruments do not possess similar risk characteristics. The Bank pools advances by member type. Based on the collateral held as security, the Bank's credit extension and collateral policies and repayment history on advances, including that the Bank has not incurred any credit losses since inception, the Bank has not recorded an ACL at June 30, 2022 or December 31, 2021. For additional information on the allowance methodology, see Note 3 - Advances in this Form 10-Q.

Mortgage Loans Held for Portfolio, Net. Mortgage loans held for portfolio, net of ACL, was $4.7 billion at both June 30, 2022 and December 31, 2021.

The Bank places conventional mortgage loans that are 90 days or more delinquent on nonaccrual status. In addition, the Bank records cash payments received as a reduction of principal until the remaining principal amount due is expected to be collected and then as a recovery of any charge-off, if applicable, followed by the recording of interest income. However, government mortgage loans that are 90 days or more delinquent remain in accrual status due to government guarantees or insurance. The Bank has a loan modification program for participating financial institutions (PFIs) under the MPF Program.

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The Bank considers loan modifications or Chapter 7 bankruptcies where the obligation is discharged under the MPF Program to be troubled debt restructurings (TDRs), since some form of concession has been made by the Bank.

Through the MPF Program, the Bank granted a forbearance period to borrowers due to COVID-19-related difficulties. The Bank continues to apply its accounting policy for determining days past due, non-accrual, and charge-offs during the forbearance period. For MPF loans that have received COVID-19-related forbearance and meet certain criteria, the Bank may not charge-off the MPF loan, including when it is 180 or more days delinquent, if the Bank expects to recover its amortized cost. After the forbearance period the Bank may modify the borrower's MPF loan. The Bank elected to suspend TDR accounting for eligible modifications under Section 4013 of the CARES Act, for which the applicable period expired on January 1, 2022. As such, loans for which forbearance was granted to borrowers on or after January 1, 2022 are not eligible for the TDR accounting or charge-off relief discussed above. For additional information, refer to Note 4 - Mortgage Loans Held for Portfolio in this Form 10-Q.

Foregone interest represents income the Bank would have recorded if the loan was paying according to its contractual terms. Foregone interest was immaterial for the Bank's mortgage loans for both the six months ended June 30, 2022 and June 30, 2021.

The following table provides certain balances related to the Bank’s Mortgage loans held for portfolio.

(in millions)	June 30, 2022		December 31, 2021
Nonaccrual mortgage loans (1)	$	23.4	$	30.4
Mortgage loans 90 days or more delinquent and still accruing interest (2)	$	3.3	$	3.1

Notes:

(1) Nonaccrual mortgage loans are reported net of interest applied to principal and do not include performing TDRs.

(2) Only government-insured or -guaranteed loans continue to accrue interest after becoming 90 days or more delinquent.

The performance of the mortgage loans in the Bank’s MPF Program improved compared to December 31, 2021, and the MPF Original portfolio continues to outperform the market based on national delinquency statistics. As of June 30, 2022, the Bank’s seriously delinquent mortgage loans (90 days or more delinquent or in the process of foreclosure) represented 0.3% of the MPF Original portfolio, 1.3% of the MPF Plus portfolio, and 0.5% of the MPF 35 portfolio, compared with 0.3%, 1.7%, and 0.7%, respectively, at December 31, 2021. The amount of seriously delinquent loans decreased compared to December 31, 2021 as loans continued to exit forbearance and the related repayment programs provided as a result of COVID-19.

    ACL - Conventional MPF. The Bank’s conventional mortgage loan portfolio is comprised of large groups of smaller-balance homogeneous loans made to borrowers of PFIs that are secured by residential real estate. Expected credit losses are evaluated based on either an individual or collective assessment of the loans, depending on whether the loans share similar risk characteristics. The Bank purchases government-guaranteed and/or insured and conventional fixed-rate residential mortgage loans. Because the credit risk on the government-guaranteed/insured loans is predominantly assumed by other entities, only conventional mortgage loans are evaluated for an ACL.

The Bank determines its ACL through consideration of various loan portfolio and collateral-related characteristics, including past performance, current conditions, and reasonable and supportable forecasts of economic conditions. To estimate credit losses, the Bank uses a third-party model which incorporates certain assumptions, including forecasted housing prices and interest rates, as well as historical borrower behavior experience. The estimate of the expected credit losses includes coverage of certain losses by primary mortgage insurance (PMI), if applicable. The Bank may incorporate a qualitative adjustment to the model results, if deemed appropriate, based on current market conditions or results. For loans determined to be collateral dependent, the Bank charges-off the estimated credit loss against the reserve. However, if the estimated loss can be recovered through credit enhancement (CE), a receivable is established, resulting in a net charge-off. The expected credit loss of a collateral dependent mortgage loan to determine the charge-off is equal to the difference between the amortized cost basis of the loan and the estimated fair value of the underlying collateral, less selling costs.

The Bank recognizes a recovery when expected credit losses, including credit losses charged-off for collateral dependent loans, are less than the amounts previously charged-off. Expected recoveries of prior charge-offs, if any, are included as a reduction to the ACL through the Bank's provision for credit losses. The reduction to the ACL is partially offset by a reversal of expected CE, resulting in a net impact to the Bank's provision for credit losses.

    The Bank's conventional MPF loans held for portfolio are required to be credit enhanced as determined through the use of a validated model so the risk of loss is limited to the losses within the Bank's risk tolerance. Credit losses on a mortgage loan may only be absorbed by the CE amount in the master commitment related to the loan. In addition, the CE structure of the MPF

14

Program is designed such that initial losses on mortgage loans are incurred by the Bank up to an agreed upon amount, referred to as the First Loss Account (FLA). Additional eligible credit losses are covered by CE provided by PFIs (available CE) until exhausted. Certain losses incurred by the Bank on MPF 35 and MPF Plus can be recaptured by withholding fees paid to the PFI for its retention of credit risk. All additional losses are incurred by the Bank.

The following table presents certain ratios as it relates to mortgage loans held for portfolio.

	June 30, 2022		December 31, 2021
Ratio of net charge-offs (recoveries) to average loans outstanding during the period	—	%	(0.02)	%
Ratio of ACL to mortgage loans held for portfolio	0.08	%	0.07	%
Ratio of nonaccrual loans to mortgage loans held for portfolio	0.50	%	0.65	%
Ratio of ACL to nonaccrual loans	14.94	%	11.24	%

The following table presents the impact of the CE structure on the ACL and the balance of the FLA and available CE at June 30, 2022 and December 31, 2021.

	MPF CE structure June 30, 2022				ACL June 30, 2022
(in millions)	FLA		Available CE		Estimate of Credit Loss		Estimate of Recovery (1)		Charge-offs		Reduction to the ACL due to CE		ACL
MPF Original	$	7.7	$	100.0	$	1.4	$	(2.1)	$	(0.3)	$	(0.2)	$	(1.2)
MPF 35	17.2		140.2		2.1		(0.8)		—		(2.0)		(0.7)
MPF Plus	15.0		2.1		7.0		(1.2)		—		(0.4)		5.4
Total	$	39.9	$	242.3	$	10.5	$	(4.1)	$	(0.3)	$	(2.6)	$	3.5

	MPF CE structure December 31, 2021				ACL December 31, 2021
(in millions)	FLA		Available CE		Estimate of Credit Loss		Estimate of Recovery (1)		Charge-offs		Reduction to the ACL due to CE		ACL
MPF Original	$	7.3	$	105.8	$	1.7	$	(2.3)	$	(0.3)	$	(0.3)	$	(1.2)
MPF 35	16.1		148.2		2.4		(0.7)		—		(2.4)		(0.7)
MPF Plus	15.0		2.9		6.9		(1.4)		—		(0.2)		5.3
Total	$	38.4	$	256.9	$	11.0	$	(4.4)	$	(0.3)	$	(2.9)	$	3.4

Note:

(1) Expected recoveries of amounts previously charged-off based on the Bank's quarterly estimate of expected lifetime credit losses.

    The ACL on mortgage loans increased by $0.1 million during the first six months of 2022 primarily due to higher expected credit losses and a decline in estimated recoveries for the MPF Plus product.

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Cash and Investments. The Bank's strategy is to maintain its short-term liquidity position in part to be able to meet members' loan demand and regulatory liquidity requirements. Excess cash is typically invested in overnight investments. The Bank also maintains an investment portfolio to enhance earnings. These investments may be classified as trading, AFS or HTM.

The Bank maintains a liquidity portfolio comprised of cash, interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, certificates of deposits and U.S. Treasury obligations classified as trading or AFS. The liquidity portfolio at June 30, 2022 increased by approximately $4.2 billion compared to December 31, 2021. The $4.2 billion increase in liquid assets reflects the increase in Federal funds and securities purchased under agreements to resell in response to increased advance activity.

The Bank's investment portfolio is comprised of trading, AFS and HTM investments (excluding those investments included in the liquidity portfolio). The investments must meet the Bank's risk guidelines and certain other requirements, such as yield. The Bank's investment portfolio totaled $7.8 billion at June 30, 2022 and $8.8 billion at December 31, 2021. Paydowns associated with the Bank's Agency MBS portfolio contributed to this decline. During the first six months of 2022, the Bank’s MBS purchases were limited by narrow mortgage spreads.

Investment securities, including all trading, AFS, and HTM securities, totaled $13.4 billion at June 30, 2022, compared to $13.9 billion at December 31, 2021. Details of the investment securities portfolio follow.

	Carrying Value
(in millions)	June 30, 2022			December 31, 2021
Trading securities:
Non-MBS:
U.S. Treasury obligations	$	14.8		$	—
Government-sponsored enterprises (GSE)	223.4			243.2
Total trading securities	$	238.2		$	243.2
Yield on trading securities	3.11		%	3.18		%
AFS securities:
U.S. Treasury obligations	$	5,623.2		$	5,075.2
GSE and Tennessee Valley Authority (TVA) obligations	1,291.6			1,493.7
State or local agency obligations	181.9			207.2
MBS:
U.S. obligations single-family	366.1			398.8
GSE single-family	1,753.1			2,093.1
GSE multifamily	2,737.1			3,004.9
Private label	162.2			194.4
Total AFS securities	$	12,115.2		$	12,467.3
Yield on AFS securities	1.60		%	1.20		%
HTM securities:
MBS:
U.S. obligations single-family	$	172.5		$	83.2
GSE single-family	476.0			566.0
GSE multifamily	365.6			494.5
Private label	59.5			70.2
Total HTM securities	$	1,073.6		$	1,213.9
Yield on HTM securities	3.00		%	2.74		%
Total investment securities	$	13,427.0		$	13,924.4
Yield on investment securities	1.68		%	1.37		%

For additional information on the credit risk of the investment portfolio, see the Credit and Counterparty Risk - Investments discussion in the Risk Management section of this Item 2.

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ACL - Investments. The Bank invests in interest-bearing deposits and Federal funds sold which are unsecured investments. The Bank also invests in securities purchased under agreements to resell which are secured investments. At June 30, 2022 and December 31, 2021, these investments were repaid according to the contractual terms. No ACL was recorded for these assets at June 30, 2022 or December 31, 2021.

AFS securities are evaluated quarterly for expected credit losses on an individual security basis. In assessing whether a credit loss exists, the Bank considers whether there would be a shortfall in receiving all cash flows contractually due. The allowance is limited to the amount of the AFS security’s unrealized loss, if any. If the AFS security is in an unrealized gain, the ACL is zero. The ACL on AFS private label MBS was $5.0 million at June 30, 2022 and $2.4 million at December 31, 2021. The increase in the ACL reflected a higher provision for credit losses, which was driven by a decline in market values.

HTM securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. An ACL is recorded with a corresponding adjustment to the provision for credit losses. There was no ACL at June 30, 2022 or December 31, 2021.

    For additional information on the allowance methodology, see Note 2 - Investments in this Form 10-Q.

Liabilities and Capital

Deposits. The Bank offers demand, overnight and term deposits for members and qualifying nonmembers. Total deposits at June 30, 2022 decreased to $736.3 million from $1,087.5 million at December 31, 2021.

    Consolidated Obligations. Consolidated obligations consist of bonds and discount notes. The Bank's consolidated obligations totaled $57.5 billion at June 30, 2022, an increase of $23.9 billion from December 31, 2021. The overall increase in consolidated obligations outstanding is consistent with the increased advances and total asset balances. At June 30, 2022, the Bank’s bonds outstanding increased to $32.7 billion compared to $23.1 billion at December 31, 2021. Discount notes outstanding at June 30, 2022 increased to $24.8 billion from $10.5 billion at December 31, 2021.

The Bank primarily uses noncallable bonds as a source of funding but also utilizes structured notes such as callable bonds. Unswapped callable bonds primarily fund the Bank’s mortgage portfolio while swapped callable bonds fund other floating rate assets.

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The following table provides information on consolidated obligations by product type and contractual maturity at June 30, 2022 and December 31, 2021.

(in millions)	June 30, 2022		December 31, 2021
Discount Notes
Overnight	$	1,406.9	$	413.3
Due after 1 day through 30 days	10,835.1		4,197.6
Due after 30 days through 90 days	10,228.2		3,647.3
Due after 90 days though 1 Year	2,401.2		2,236.7
Total par value	$	24,871.4	$	10,494.9
Fixed-rate, non-callable
Due in 1 year or less	$	6,789.9	$	4,898.6
Due after 1 year through 3 years	3,087.4		2,878.3
Due after 3 years through 5 years	1,101.0		1,303.5
Thereafter	1,410.1		1,446.0
Total par value	$	12,388.4	$	10,526.4
Fixed-rate, callable
Due in 1 year or less	$	2,821.0	$	—
Due after 1 year through 3 years	5,649.0		2,506.0
Due after 3 years through 5 years	5,865.0		5,635.0
Thereafter	2,041.0		1,983.0
Total par value	$	16,376.0	$	10,124.0
Variable- rate, non-callable
Due in 1 year or less	$	1,595.0	$	825.0
Due after 1 year through 3 years	—		100.0
Total par value	$	1,595.0	$	925.0
Step-up, non-callable
Due in 1 year or less	$	—	$	25.0
Due after 1 year through 3 years	50.0		—
Due after 3 years through 5 years	170.0		—
Total par value	$	220.0	$	25.0
Step-up, callable
Due in 1 year or less	$	941.0	$	—
Due after 1 year through 3 years	$	773.0	279.0
Due after 3 years through 5 years	$	845.0	1,046.0
Thereafter	200.0		210.0
Total par value	$	2,759.0	$	1,535.0
Other Adjustments (1)	$	(678.3)	$	(31.0)
Total consolidated obligations	$	57,531.5	$	33,599.3

    Notes:

(1)Consists of premiums, discounts, and other adjustments.

For additional information on the Bank's consolidated obligations, refer to Note 9 to the audited financial statements in Item 8. Financial Statements and Supplementary Financial Data of the Bank's 2021 Form 10-K.

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Commitments and Off-Balance Sheet Items. As of June 30, 2022, the Bank was obligated to fund approximately $3.3 million in additional advances and Banking on Business (BOB) loans, $14.1 million of mortgage loans, and to issue $555.6 million in consolidated obligations. In addition, the Bank had $19.7 billion in outstanding standby letters of credit as of June 30, 2022. The Bank does not consolidate any off-balance sheet special purpose entities or other off-balance sheet conduits.

Capital and Retained Earnings. The Bank’s return on average equity for the three and six months ended June 30, 2022 was 4.69% and 3.81%. The Bank's return on average equity for the three and six months ended June 30, 2021 was 1.70% and 3.50%. Capital adequacy, including the level of retained earnings, is monitored through the evaluation of market value of equity to par value of capital stock (MV/CS) as well as other risk metrics. Details regarding these metrics are discussed in the Risk Management portion of this Item 2.

The Bank's capital stock is owned by its members. The concentration of the Bank's capital stock by institution type is presented below.

(dollars in millions)	June 30, 2022			December 31, 2021
Commercial banks	130	$	1,753.8	131	$	966.5
Savings institutions	51	120.1		51	107.6
Insurance companies	39	105.9		35	88.7
Credit unions	63	82.8		62	63.8
Community Development Financial Institution (CDFI)	2	0.4		2	0.5
Total member institutions / total GAAP capital stock	285	$	2,063.0	281	$	1,227.1
Mandatorily redeemable capital stock		22.3			22.5
Total capital stock		$	2,085.3		$	1,249.6

    The total number of members as of June 30, 2022 increased by four members compared to December 31, 2021. The Bank added six new members and lost two members. One member merged with another institution within the Bank's district and one member merged its charter with an entity outside the Bank's district.

The following tables present member holdings of 10% or more of the Bank’s total capital stock, including mandatorily redeemable capital stock, outstanding as of June 30, 2022 and December 31, 2021.

(dollars in millions)	June 30, 2022
Member	Capital Stock		% of Total
Ally Bank, Midvale, UT (1)	$	548.0	26.3	%
PNC Bank, N.A., Wilmington, DE (1)	425.0		20.4

(dollars in millions)	December 31, 2021
Member	Capital Stock		% of Total
Ally Bank, Midvale, UT (1)	$	288.8	23.1	%
TD Bank N.A., Wilmington, DE	159.8		12.8

Note:

(1) For Bank membership purposes, the principal place of business for Ally Bank, is Horsham, PA. For PNC Bank, the principal place of business is Pittsburgh, PA

The Finance Agency has issued regulatory guidance to the FHLBanks relating to capital management and retained earnings. The guidance directs each FHLBank to assess, at least annually, the adequacy of its retained earnings with consideration given to future possible financial and economic scenarios. The guidance also outlines the considerations that each FHLBank should undertake in assessing the adequacy of its retained earnings.

The Bank developed a framework for evaluating retained earnings adequacy, consistent with regulatory guidance and requirements. Retained earnings are intended to cover unexpected losses and protect members' par value of capital stock. The framework includes four risk elements that comprise the Bank's total retained earnings target: (1) market risk; (2) credit risk; (3)

19

operational risk; and (4) accounting risk. The retained earnings target generated from this framework is sensitive to changes in the Bank's risk profile, whether favorable or unfavorable. In addition to the retained earnings target for risk, the framework considers the amount of retained earnings needed for compliance with the capital-to-asset ratio regulatory minimum in determining an overall retained earnings need. The framework also assists management in its overall analysis of the level of future dividends. The framework generated a retained earnings target of $304.0 million and an overall retained earnings need of $701.0 million as of June 30, 2022.

The following table presents retained earnings information for the current and prior year.

	June 30, 2022		December 31, 2021
Unrestricted Retained Earnings	965.1		$	941.0
Restricted Retained Earnings (RRE)	464.9		457.4
Total Retained Earnings	$	1,430.0	$	1,398.4

Retained earnings increased $31.6 million compared to December 31, 2021. The increase reflected net income that was largely offset by dividends paid. In accordance with the Joint Capital Enhancement Agreement (JCEA), entered into by the Bank and as result of increased consolidated obligations, an allocation of net income was made to RRE during the second quarter of 2022. For additional information, see Note 7 - Capital in this Form 10-Q.

Dividends. The Bank declares dividends based on an annualized yield and differentiates between membership and activity capital stock. The dividend received by the member is calculated based on the average capital stock owned by the member for the previous quarter. Historically, the Bank has paid cash dividends although dividends may be paid in capital stock. Details regarding the Bank’s payment of dividends, including annual yields, for current and prior year periods are provided in Note 7 - Capital in this Form 10-Q. The following table summarizes dividends paid and related information for the three and six months ended June 30, 2022 and 2021.

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
Dividends (in millions)	$	12.6		$	17.6		$	24.6		$	39.4
Dividends per share	0.72			1.41			1.63			2.94
Dividend payout ratio (1)	33.74		%	150.15		%	43.81		%	79.18		%
Weighted average dividend rate	4.14		%	5.05		%	4.11		%	5.10		%
Average Fed Funds rate	0.80		%	0.07		%	0.45		%	0.07		%
Dividend spread to Fed Funds	3.34		%	4.98		%	3.66		%	5.03		%

Notes:

(1) Represents dividends paid as a percentage of net income for the respective periods presented.

Capital Resources

The following should be read in conjunction with the unaudited interim financial statements included in this Form 10-Q, the audited financial statements in Item 8. Financial Statements and Supplementary Financial Data and the Capital Resources section of Item 1. Business in the Bank's 2021 Form 10-K.

Risk-Based Capital (RBC)

The Finance Agency’s RBC regulatory framework requires the Bank to maintain sufficient permanent capital, defined as retained earnings plus capital stock, to meet its combined credit risk, market risk and operations risk. Each of these components is computed as specified in regulations and directives issued by the Finance Agency.

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(in millions)	June 30, 2022		December 31, 2021
Permanent capital:
Capital stock (1)	$	2,085.3	$	1,249.6
Retained earnings	1,430.0		1,398.4
Total permanent capital	$	3,515.3	$	2,648.0
RBC requirement:
Credit risk capital	$	182.8	$	160.4
Market risk capital	120.8		152.5
Operations risk capital	91.0		93.8
Total RBC requirement	$	394.6	$	406.7
Excess permanent capital over RBC requirement	$	3,120.7	$	2,241.3

Note:

(1) Capital stock includes mandatorily redeemable capital stock.

The decrease in the total RBC requirement as of June 30, 2022 is mainly related to the decrease in the market risk capital requirement. The decrease was primarily driven by changes to the Finance Agency's scenarios used to determine the required market risk capital, as a result of the market changes during the first six months of 2022. The Bank continues to maintain significant excess permanent capital over the RBC requirement. The increase in permanent capital and excess permanent capital was driven by the increase in capital stock associated with higher advance levels.

On June 16, 2022, the Bank received final notification from the Finance Agency that it was considered "adequately capitalized" for the quarter ended March 31, 2022. As of the date of this filing, the Bank has not received final notice from the Finance Agency regarding its capital classification for the quarter ended June 30, 2022.

Critical Accounting Policies and Estimates

The Bank's financial statements are prepared by applying certain accounting policies. Note 1 - Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Financial Data in the Bank's 2021 Form 10-K describes the most significant accounting policies used by the Bank. In addition, the Bank's critical accounting policies and estimates are presented in Item 7. Management's Discussion and Analysis in the Bank's 2021 Form 10-K. Certain of these policies require management to make estimates or economic assumptions that may prove inaccurate or be subject to variations that may significantly affect the Bank's reported results and financial position for the period or in future periods. Management views these policies as critical accounting policies.

The Bank made no changes to its critical accounting policies during the six months ended June 30, 2022.

See Note 1 - Changes in Accounting Principle and Recently Issued Accounting Standards and Interpretations to the unaudited financial statements in this Form 10-Q for information on new accounting pronouncements impacting the financial statements or becoming effective for the Bank in future periods.

Legislative and Regulatory Developments

FHFA 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. Director Thompson’s testimony indicated that the Finance Agency plans to engage a variety of stakeholders in addition to holding public listening sessions throughout the country as part of the review. The Director’s testimony also indicated that the review would examine matters ranging from the System’s membership base, operational efficiency, and effectiveness to more foundational questions about its mission, purpose, and organization. At this time, it is not possible to determine when these events will occur, whether any actions will result from these events, and how these events will ultimately impact the Bank or the System as a whole.

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Proposed Rule Implementing the Adjustable Interest Rate (LIBOR) Act.

On July 28, 2022, the Board of Governors of the Federal Reserve System (the Federal Reserve) published a proposed rule with a comment deadline of August 29, 2022 that would implement the LIBOR Act. The proposed rule would provide default rules for certain contracts (covered contracts) that: reference LIBOR, are governed by U.S. law, do not mature on or before the LIBOR replacement date, and lack adequate provisions to identify a replacement rate for LIBOR. The LIBOR replacement date is currently July 3, 2023. The proposed rule identifies separate Federal Reserve-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. The Bank is reviewing the proposed rule, 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 on the Bank.

Risk Management

    The Bank employs a corporate governance and internal control framework designed to support the effective management of the Bank’s business activities and the related inherent risks. As part of this framework, the Board has approved a Risk Governance Policy and a Member Products Policy, both of which are reviewed regularly and re-approved at least annually. The Risk Governance Policy establishes risk guidelines, limits (if applicable), and standards for credit risk, market risk, liquidity risk, business risk and various forms of operational and technology risk, in accordance with Finance Agency regulations and consistent with the Bank’s risk appetite. The Member Products Policy establishes the eligibility and authorization requirements, policy limits and restrictions, and the terms applicable to each type of Bank product or service, as well as collateral requirements. The risk appetite is established by the Board, as are other applicable guidelines in connection with the Bank’s Capital Plan and overall risk management.

Risk Governance

The Bank’s lending, investment and funding and hedging activities expose the Bank to a number of risks that include, market and interest rate risk, credit and counterparty risk, liquidity and funding risk, and operational and business risks. These include risks such as use and reliance on models and end-user computing tools, technology and information security risk, among others. In addition, the Bank’s risks are affected by current and projected financial and residential mortgage market trends, including those described in Item 1A. Risk Factors in the Bank's 2021 Form 10-K. Details regarding the Bank's risk governance framework and processes are included in the "Risk Governance" discussion in Risk Management in Item 7. Management's Discussion and Analysis in the Bank's 2021 Form 10-K.

Capital Adequacy Measures. MV/CS provides a current assessment of the liquidation value of the balance sheet and measures the Bank's current ability to honor the par put redemption feature of its capital stock. This is one of the risk metrics used to evaluate the adequacy of retained earnings, which is used to develop dividend payment recommendations and support the repurchase of excess capital stock.

The current Board-approved floor for MV/CS is 90.0%. MV/CS is measured against the floor monthly. When MV/CS is below the established floor, excess capital stock repurchases and dividend payouts are restricted. See the “Capital and Retained Earnings” discussion in Financial Condition in this Item 2 for details regarding the Bank’s retained earnings policy.
The MV/CS ratio was 165.1% at June 30, 2022 and 221.8% at December 31, 2021. The decrease was primarily due to the increase in capital stock as a result of higher advances.

Qualitative and Quantitative Disclosures Regarding Market Risk

Managing Market Risk. The Bank's market risk management objective is to protect member/shareholder and bondholder value consistent with the Bank's housing mission and safe and sound operations across a wide range of interest rate environments. Management believes that a disciplined approach to market risk management is essential to maintaining a strong capital base and uninterrupted access to the capital markets.

The Bank's Market Risk Model. Significant resources are devoted to ensuring that the level of market risk in the balance sheet is accurately measured, thus allowing management to monitor the risk against policy and regulatory limits. The Bank uses externally developed models to evaluate its financial position and market risk. One of the most critical market-based models relates to the prepayment of principal on mortgage-related instruments. Management regularly reviews the major assumptions

22

and methodologies used in its models, as well as the performance of the models relative to empirical results, so that appropriate changes to the models can be made. The recessionary conditions of the pandemic or certain dynamics of future economic recovery, such as inflationary pressures and rising interest rates, may impact the performance of the Bank's models used to measure market risk. Management will consider the additional impact of the pandemic on key market risk measures and may make further changes as deemed appropriate in future periods.

The Bank regularly validates the models used to measure market risk. Such model validations are performed by the Bank's model risk management department, which is separate from the model owner. These model validations may include third-party specialists when appropriate. The model validations are supplemented by performance monitoring by the model owner which is reported to the Bank's model risk management department. In addition, the Bank benchmarks model-derived fair values to those provided by third-party services or alternative internal valuation models. The benchmarking analysis is performed by a group that is separate from the model owner. Results of the model validations and benchmarking analysis, as well as any changes to the valuation methodologies and inputs, are reported to the Bank's Asset and Liability Committee (ALCO) (or subcommittee of), which is responsible for overseeing market risk.

Duration of Equity. One key risk metric used by the Bank is duration. Duration is a measure of the sensitivity of a financial instrument's value, or the value of a portfolio of instruments, to a 100 basis point parallel shift in interest rates. Duration (typically expressed in years) is commonly used by investors throughout the fixed income securities market as a measure of financial instrument price sensitivity.

The Bank's asset/liability management policy approved by the Board calls for actual duration of equity to be maintained within a + 4.5 year range in the base case. In addition, the duration of equity exposure limit in an instantaneous parallel interest rate shock of + 200 basis points is + 7 years. Management analyzes the duration of equity exposure against this policy limit on a daily basis and regularly evaluates its market risk management strategies.

The following table presents the Bank's duration of equity exposure at June 30, 2022 and December 31, 2021. Due to the increase in interest rates, additional down rate shock scenarios are being evaluated by the Bank for re-introduction in future reporting periods.

(in years)	Base Case	Up 100  basis points	Up 200  basis points
Actual Duration of Equity:
June 30, 2022	0.8	1.0	1.2
December 31, 2021	(0.4)	0.5	1.3

    Duration of equity changes in the first six months of 2022 were mainly the result of interest rate increases and the offsetting impact of funding mix changes and higher equity due to capital stock increases. The Bank continues to monitor the mortgage and related fixed-income markets, including the impact that changes in the market or anticipated modeling changes may have on duration of equity and other market risk measures and may take actions to reduce market risk exposures as needed. Management believes that the Bank's current market risk profile is reasonable given the current market conditions.

Return on Equity (ROE) Spread Volatility. Interest rate risk is also measured based on the volatility in the Bank’s projected return on capital in excess of the return of an established benchmark market index. ROE spread is defined as the Bank's return on average equity, including capital stock and retained earnings, in excess of the average of the projected Federal funds rate.

ROE spread volatility is a measure of the variability of the Bank’s projected ROE spread in response to shifts in interest rates and represents the change in ROE spread compared to an ROE spread that is generated by the Bank in its base forecasting scenario. ROE spread volatility is measured over a rolling forward 12 month period for selected interest rate scenarios and excludes the income sensitivity resulting from mark-to-market changes, which are separately described below.

        The ROE spread volatility presented in the table below reflects spreads relative to the projected Federal funds rate. Management uses both parallel and non-parallel rate scenarios to assess interest rate risk. The steeper and flatter yield curve shift scenarios are represented by appropriate increases and decreases in short-term and long-term interest rates using the three-year point on the yield curve as the pivot point. Due to the increase in interest rates, additional down rate shock scenarios are

23

being evaluated by the Bank for re-introduction in future reporting periods.

ROE Spread Volatility Increase/(Decline)
(in basis points)	Down 100 bps Longer Term Rate Shock	100 bps Flatter	Up 200 bps Parallel Shock
June 30, 2022	(4)	(13)	(21)
December 31, 2021	(49)	23	56

    Changes in ROE spread volatility in the first six months of 2022 primarily reflect the impact of funding mix changes and interest rate increases. For each scenario, the Board's limit on the decline in ROE spread is set at no greater than 100 basis points. The Bank was in compliance with the ROE spread volatility limit across all selected interest rate shock scenarios at June 30, 2022 and December 31, 2021.

    Mark-to-Market Risk. The Bank measures earnings risk associated with certain mark-to-market positions, including economic hedges. This framework measures forward-looking, scenario-based exposure based on interest rate and volatility shocks that are applied to any existing transaction that is marked to market through the income statement without an offsetting mark arising from a qualifying hedge relationship. In addition, the Bank's Capital Markets and Corporate Risk Management departments monitor the actual profit/loss change on a daily, monthly cumulative, and quarterly cumulative basis. The Bank's ALCO monitors mark-to-market risk through a daily exposure guideline and quarterly profit/loss reporting trigger.

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Credit and Counterparty Risk - Total Credit Exposure (TCE) and Collateral

TCE. The Bank manages the credit risk of each member on the basis of the member’s total credit exposure (TCE) to the Bank, which includes advances and related accrued interest, fees, basis adjustments and estimated prepayment fees; letters of credit; forward-dated advance commitments; and MPF credit enhancement and related obligations. This credit risk is managed by monitoring the financial condition of borrowers and by requiring all borrowers (and, where applicable in connection with member affiliate pledge arrangements approved by the Bank, their affiliates) to pledge sufficient eligible collateral for all borrower obligations to the Bank to ensure that all potential forms of credit-related exposures are covered by sufficient eligible collateral. At June 30, 2022, aggregate TCE was $59.4 billion, comprised of approximately $35.5 billion in advance principal outstanding, $23.5 billion in letters of credit (including forward commitments), $2.0 million in advance commitments, and $353.7 million in accrued interest, prepayment fees, MPF credit enhancement obligations and other fees.

The Bank establishes a maximum borrowing capacity (MBC) for each member based on collateral weightings applied to eligible collateral as described in the Bank’s Member Products Policy. Details regarding this policy are available in the Advance Products discussion in Item 1. Business in the Bank's 2021 Form 10-K. According to the Policy, eligible collateral is weighted to help ensure that the collateral value will exceed the amount that may be owed to the Bank in the event of a default. The Bank also has the ability to call for additional or substitute collateral while any indebtedness is outstanding to protect the Bank’s fully secured position. At June 30, 2022 and December 31, 2021, on a borrower-by-borrower basis, the Bank had a perfected security interest in eligible collateral with an estimated collateral value (after collateral weightings) in excess of the book value of all members’ and nonmember housing associates’ obligations to the Bank.

The financial condition of all members and eligible non-member housing associates is closely monitored for compliance with financial criteria as set forth in the Bank’s credit policies. The Bank has developed an internal credit rating (ICR) system that calculates financial scores and rates member institutions on a quarterly basis using a numerical rating scale from one to ten, with one being the best rating. Generally, scores are objectively calculated based on financial ratios computed from publicly available data. The scoring system gives the highest weighting to the member’s asset quality and capitalization. Other key factors include earnings and balance sheet composition. Operating results which include net income, capital levels, reserve coverage and other factors for the previous four quarters are used. The most recent quarter’s results are given a higher weighting. Additionally, a member’s credit score can be adjusted for various qualitative factors, such as the financial condition of the member’s holding company. A higher number (i.e., worse) rating indicates that a member exhibits well defined financial weaknesses. Members in these categories are reviewed for potential change to their collateral delivery status. Other uses of the ICR include the scheduling of on-site collateral reviews. Insurance company members are rated on the same numerical rating scale as depository institutions, but the analysis includes both quantitative and qualitative factors. While depository institution member analysis is based on standardized regulatory Call Report data and risk modeling, insurance company credit risk analysis is based on various forms of financial data, including, but not limited to, statutory reporting filed by insurance companies with state insurance regulators, which requires specialized methodologies and dedicated underwriting resources.

As noted above, the Bank monitors member credit quality on a regular basis. Management believes that it has adequate policies and procedures in place to effectively manage credit risk exposure related to member TCE. These credit and collateral policies balance the Bank’s dual goals of meeting members’ needs as a reliable source of liquidity and limiting credit loss by adjusting the credit and collateral terms in response to deterioration in creditworthiness. The Bank has never experienced a loss on its advance exposure.

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The following table presents the Bank’s top five financial entities with respect to their TCE at June 30, 2022.

	June 30, 2022
(dollars in millions)	TCE		% of Total
TD Bank, National Association, DE	$	18,804.9	31.7	%
Ally Bank, UT (1)	13,090.1		22.0
PNC Bank, National Association, DE(2)	10,024.6		16.9
Santander Bank, National Association, DE(3)	2,762.7		4.7
Fulton Bank, National Association, PA	1,569.0		2.6
	46,251.3		77.9
Other financial institutions	13,149.6		22.1
Total TCE outstanding	$	59,400.9	100.0	%

Notes:

(1) For Bank membership purposes, principal place of business is Horsham, PA.

(2)For Bank membership purposes, principal place of business is Pittsburgh, PA.

(3)Santander Bank, N.A. is a subsidiary of Banco Santander, which is located in Spain.

    Member Advance Concentration Risk. The following table lists the Bank’s top five borrowers based on advance balances at par as of June 30, 2022.

	June 30, 2022
(dollars in millions)	Advance Balance		% of Total
Ally Bank, UT (1)	$	13,075.0	36.9	%
PNC Bank, National Association, DE(2)	10,000.0		28.2
Santander Bank, National Association, DE(3)	2,750.0		7.8
First National Bank of Pennsylvania, PA	930.0		2.6
Customers Bank, PA	635.0		1.8
	27,390.0		77.3
Other borrowers	8,065.6		22.7
Total advances	$	35,455.6	100.0	%

Notes:

(1) For Bank membership purposes, principal place of business is Horsham, PA.

(2)For Bank membership purposes, principal place of business is Pittsburgh, PA.

(3)Santander Bank, N.A. is a subsidiary of Banco Santander, which is located in Spain.

The average year-to-date June 30, 2022 balances for the five largest borrowers totaled $14.8 billion, or 69% of total average advances. The advances made by the Bank to each of these borrowers are secured by collateral with an estimated value, after collateral weightings, in excess of the book value of the advances. The Bank has implemented specific credit and collateral review monitoring for these members.

Letters of Credit. The letter of credit product is collateralized under the same policies, procedures and guidelines that apply to advances. Outstanding letters of credit totaled $19.7 billion at June 30, 2022 and $19.4 billion at December 31, 2021, primarily related to public unit deposits. Not included in these totals are additional authorized but unused standby letters of credit of $3.5 billion at June 30, 2022 and $2.3 billion at December 31, 2021. The Bank had a concentration of letters of credit with one member (TD Bank) of $16.2 billion or 82% of the total at June 30, 2022 and $14.7 billion or 76% of the total at December 31, 2021.

Collateral Policies and Practices. All members are required to maintain eligible collateral to secure their TCE as described in the Member Products Policy effective January 1, 2022. Refer to the Risk Management section of the Bank's 2021 Form 10-K for additional information related to the Bank’s Collateral Policy.

Collateral Agreements and Valuation. The Bank provides members with two types of collateral agreements: a blanket lien collateral pledge agreement and a specific collateral pledge agreement. Under a blanket lien agreement, the Bank obtains a lien against all of the member’s unencumbered eligible collateral assets and most ineligible assets to secure the member’s obligations with the Bank. Under a specific collateral pledge agreement, the Bank obtains a lien against specific eligible collateral assets of the member or its affiliate (if applicable) to secure the member’s obligations with the Bank. The member

26

provides a detailed listing, as an addendum to the specific collateral agreement, identifying those assets pledged as collateral or delivered to the Bank or its third-party custodian. Details regarding average lending values provided under both blanket liens and specific liens and delivery arrangements are available in the "Credit and Counterparty Risk - TCE and Collateral" discussion in Risk Management in Item 7. Management's Discussion and Analysis in the Bank's 2021 Form 10-K.

Consistent with previous policy stipulations, high quality investment securities are defined as U.S. Treasury and U.S. Agency securities, REFCORP bonds, GSE MBS, commercial and residential private label MBS with a minimum credit rating of single A-minus, which the Bank considers as part of its evaluation of the collateral. In addition, municipal securities (or portions thereof) with a real estate nexus (e.g. proceeds primarily used for real estate development) with a minimum credit rating of single A-minus are included. Members have the option to deliver such high-quality investment securities to the Bank to increase their maximum borrowing capacity. Upon delivery, these securities are valued daily and all non-government or agency securities are subject to weekly ratings reviews. Reported amount also includes pledged FHLBank cash deposits with the Bank.

    For member borrowers, the following tables present information on a combined basis regarding the type of collateral securing their outstanding credit exposure and the collateral status as of June 30, 2022 and December 31, 2021.

	June 30, 2022
(dollars in millions)	Blanket Lien				Listing				Delivery			Total
	Amount		%		Amount		%		Amount		%	Amount	%
One-to-four single-family residential   mortgage loans	$	106,172.6	47.4	%	$	189.5	7.7	%	$	1.2	0.1