EDGAR 10-K Filing

Company CIK: 1325814
Filing Year: 2023
Filename: 1325814_10-K_2023_0001325814-23-000047.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
OVERVIEW
The Federal Home Loan Bank of Des Moines (the Bank, we, us, or our) is a federally chartered corporation that is exempt from all federal, state, and local taxation (except real property taxes and certain employer payroll taxes) and is one of 11 district FHLBanks. The FHLBanks are government-sponsored enterprises (GSEs) and were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act) to serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank is regulated by the Federal Housing Finance Agency (Finance Agency).
We are a cooperative, meaning we are owned by our customers, whom we call members. As a condition of membership, all members must purchase and maintain capital stock to support business activities with us. In return, we provide a readily available source of funding and liquidity to our member institutions and eligible housing associates in Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. While not considered members, we also conduct certain business activities with state and local housing associates meeting certain statutory criteria.
BUSINESS MODEL
Our mission is to be a reliable provider of funding, liquidity, and services for our members so that they can meet the housing, business, and economic development needs of the communities they serve. Our operating model balances the trade-off between attractively priced products, reasonable returns on capital stock, maintaining an adequate level of capital to meet regulatory capital requirements, and maintaining adequate retained earnings to preserve the par value of member-owned capital stock.
We are capitalized through the purchase of capital stock by our members. As a condition of membership, all of our members must purchase and maintain membership capital stock based on a percentage of their total assets as of the preceding December 31st subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with us. Member demand for our products expands and contracts with economic and market conditions. Our self-capitalizing capital structure, which allows us to repurchase or require additional capital stock based on member activity, provides us with the flexibility to effectively and efficiently meet the changing needs of our membership. While eligible to borrow, housing associates are not members and, as such, are not permitted to purchase capital stock.
Our capital stock is not publicly traded. It is purchased and redeemed by members or repurchased by us at a par value of $100 per share. Our current and former members own all of our outstanding capital stock. Former members own capital stock (included in mandatorily redeemable capital stock or MRCS) to support business transactions still outstanding with us. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by our Board of Directors.
Our primary business activities are providing collateralized loans, known as advances, to members and housing associates and acquiring residential mortgage loans from our members. In addition, we maintain a portfolio of investments, all of which we believe are investment quality at the time of purchase. Our primary source of funding and liquidity is the issuance of debt securities, referred to as consolidated obligations, in the capital markets. Consolidated obligations are the joint and several obligations of all FHLBanks and are backed only by the financial resources of the FHLBanks. A critical component to the success of our operations is the ability to issue consolidated obligations regularly in the capital markets under a wide range of maturities, structures, and amounts, and at relatively favorable spreads to market interest rates.
Our net income is primarily attributable to the difference between the interest income we earn on our advances, mortgage loans, and investments, and the interest expense we pay on our consolidated obligations. A portion of our annual net income is used to fund our Affordable Housing Program (AHP), which provides grants and subsidized advances to members to support housing for very low-, low-, or moderate-income households. By regulation, we recognize AHP assessment expense equal to the greater of 10 percent of our annual income subject to assessment, or our prorated sum required to ensure the aggregate contribution by the FHLBanks is no less than $100 million for each year. For purposes of the AHP assessment, income subject to assessment is defined as net income before AHP assessments, plus interest expense related to MRCS. For additional details on our AHP, refer to the “Affordable Housing Program Assessments” section of Item 1.
We have risk management policies, established by our Board of Directors, that allow us to monitor and control our exposure to various risks, including interest rate, liquidity, credit, operational, model, information security, legal, regulatory and compliance, diversity, equity, and inclusion (DEI), strategic, and reputational risk, as well as capital adequacy. Our primary risk management objective is to manage our assets and liabilities in ways that ensure liquidity is available to our members and protect the par redemption value of our capital stock. For additional information on our risk management practices, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management.”
MEMBERSHIP
Our membership includes commercial banks, savings institutions, credit unions, insurance companies, and CDFIs. The majority of depository institutions in our district that are eligible for membership are currently members.
The following table summarizes our membership by type of institution:
December 31,
Institutional Entity 2022 2021 2020
Commercial banks 894 912 952
Savings institutions 32 37 38
Credit unions 257 256 256
Insurance companies 69 69 72
CDFIs 6 6 6
Total 1,258 1,280 1,324
The following table summarizes our membership by asset size:
December 31,
Membership Asset Size1
2022 2021 2020
Depository institutions2
Less than $100 million 17 % 18 % 20 %
$100 million to $500 million 47 48 48
Greater than $500 million 31 29 26
Insurance companies
Less than $100 million3
- - 1
$100 million to $500 million 1 1 1
Greater than $500 million 4 4 4
Total 100 % 100 % 100 %
1 Membership asset size is based on September 30, 2022 financial information received from members.
2 Depository institutions consist of commercial banks, savings institutions, credit unions, and CDFIs.
3 Membership asset size as of December 31, 2022 and 2021 was less than one percent.
Our membership level decreased during 2022 primarily due to member consolidations. At December 31, 2022, approximately 65 percent of our members were Community Financial Institutions (CFIs). For 2022, CFIs were defined under the FHLBank Act to include all Federal Deposit Insurance Corporation (FDIC) insured institutions with average total assets over the previous three-year period of less than $1.323 billion. In addition to collateral types eligible for all members, CFIs may also pledge collateral consisting of secured small business, small agri-business, or small farm loans.
BUSINESS SEGMENTS
We manage our operations as one business segment. Management and our Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.
PRODUCTS AND SERVICES
Advances
We carry out our mission primarily through lending funds, which we call advances, to our members and eligible housing associates (collectively, borrowers). Our advance products are designed to provide liquidity and help borrowers meet the credit needs of their communities while competing effectively in their markets. Borrowers generally use our advance products as sources of wholesale funding and general asset-liability management.
Our advance products currently offered include the following:
•Overnight Advances. These advances have a maturity of one business day and are renewed automatically until the borrower pays off the advance. Interest rates are set daily.
•Fixed Rate Advances. These advances are available over a variety of terms in amortizing and non-amortizing structures. Using an amortizing advance, a borrower makes predetermined principal and interest payments at scheduled intervals throughout the term of the advance. Forward starting advances are a type of fixed rate non-amortizing advance with settlement dates up to two years in the future, allowing members to lock in an interest rate at the outset, while delaying the receipt of funding and principal and interest payments. Delayed amortizing advances are a type of fixed rate advance with a feature that delays commencement of the repayment of the principal up to five years, allowing members control over the principal cash flows and the repayment of the advance. Certain long-term fixed rate and amortizing advances contain a symmetrical prepayment feature. This feature allows borrowers to prepay an advance and potentially realize a gain if interest rates rise to a level greater than those existing when the advance was originated.
•Variable Rate Advances. These advances have interest rates that reset periodically to a specified interest rate index such as SOFR or to consolidated obligation yields.
•Callable Advances. These advances may be prepaid by borrowers on predetermined dates (call dates) without incurring a prepayment fee and therefore provide borrowers a source of long-term financing with prepayment flexibility. Callable advances can be either fixed or variable in nature. Variable rate callable advances may reset at different frequencies generally ranging from one to six months and are callable at each rate reset date. For certain variable rate callable advances, we retain the flexibility to adjust the spread relative to our cost of funds on each rate reset date. Fixed rate callable advances may have different call schedules based on member specifications, and principal balances may be amortizing in nature.
•Community Investment Advances. These advances are below-market rate funds used by borrowers in both eligible housing projects and community development. Interest rates on these advances represent our cost of funds plus a mark-up to cover our administrative expenses.
For the years ended December 31, 2022, 2021, and 2020, advances represented 59, 54, and 57 percent of our total average assets and generated 63, 56, and 61 percent of our total interest income. For additional information on our advances, including our top five borrowers, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition - Advances.” In addition, refer to “Item 1A. Risk Factors” for a discussion on our exposure to customer concentration risk.
COLLATERAL
We are required by regulation to obtain sufficient collateral to fully secure our advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products). The estimated value of the collateral required to secure each borrower’s credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal balance or market value, as applicable, of the collateral.
Borrowers may pledge collateral to us by executing a blanket pledge agreement, specifically assigning collateral, or placing physical possession of collateral with us or our custodians. We perfect our security interest in all pledged collateral by filing Uniform Commercial Code financing statements or by taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to us by our members, or any affiliates of our members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.
For additional information on our collateral requirements, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk - Advances.”
HOUSING ASSOCIATES
The FHLBank Act permits us to provide advances to eligible housing associates. Housing associates are eligible if they are approved mortgagees under Title II of the National Housing Act that meet certain criteria, including: (i) chartered under law and have succession, (ii) subject to inspection and supervision by some governmental agency, and (iii) lend their own funds as their principal activity in the mortgage field. The same regulatory lending requirements that apply to our members generally apply to housing associates. Because housing associates are not members, they are not subject to certain provisions of the FHLBank Act applicable to members and cannot own our capital stock. In addition, they may only pledge certain types of collateral including, but not limited to: (i) Federal Housing Administration (FHA) mortgages, (ii) Government National Mortgage Association (Ginnie Mae) securities backed by FHA mortgages, (iii) certain residential mortgage loans, and (iv) cash deposited with us.
PREPAYMENT FEES
We generally charge a prepayment fee for advances that a borrower elects to terminate prior to the stated maturity or outside of a predetermined call or put date. The fees charged are priced to make us financially indifferent to the prepayment of the advance. For certain advances with symmetrical prepayment features, we may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid.
Standby Letters of Credit
We may issue standby letters of credit on behalf of our members to support certain obligations of the members to third-party beneficiaries. Standby letters of credit may be offered to assist members and non-member housing associates in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from federal and state government agencies. For additional details on our standby letters of credit, refer to “Item 8. Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies.”
Mortgage Loans
We invest in mortgage loans through the Mortgage Partnership Finance (MPF) program, a secondary mortgage market structure developed by the FHLBank of Chicago to help fulfill the housing mission of the FHLBanks. Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago. We also acquired mortgage loans purchased under the Mortgage Purchase Program (MPP); however, we currently do not purchase mortgage loans under this program. For the years ended December 31, 2022, 2021, and 2020, mortgage loans represented seven, nine, and eight percent of our total average assets and generated nine, 24, and 16 percent of our total interest income.
Under the MPF program, we purchase eligible mortgage loans (MPF loans) from members or housing associates called participating financial institutions (PFIs). We may also acquire MPF loans through participations with other FHLBanks. MPF loans are conforming conventional or government-insured fixed rate mortgage loans secured by one-to-four family residential properties.
The FHLBank of Chicago (in this capacity, the MPF Provider) provides the infrastructure and operational support for the MPF program and is responsible for publishing and maintaining the MPF Guides, which detail the requirements PFIs must follow in originating, selling, and servicing MPF loans. In exchange for providing these services, the MPF Provider receives a fee from each of the FHLBanks participating in the MPF program. The MPF Provider has engaged Computershare Limited as the master servicer for the MPF program. Throughout the servicing process, the master servicer monitors each PFI’s compliance with certain MPF program requirements and makes periodic reports to the MPF Provider.
Participating Financial Institutions
Our members and eligible housing associates must apply to become a PFI. In order to do MPF business with us, each member or eligible housing associate must meet certain eligibility standards and sign a PFI Agreement. The PFI Agreement provides the terms and conditions for the sale of MPF loans, including the servicing of MPF loans.
PFIs may either retain the servicing of MPF loans or sell the servicing to an approved third-party provider. If a PFI chooses to retain the servicing, it receives a servicing fee to manage the servicing activities. If a PFI chooses to sell the servicing rights to an approved third-party provider, the servicing is transferred concurrently with the sale of the MPF loans and a servicing fee is paid to the third-party provider.
MPF Loan Types
We currently offer MPF closed loan products in which we purchase loans acquired or originated by the PFI. In addition, we offer certain off-balance sheet loan products. MPF Xtra is an off-balance sheet loan product in which we assign 100 percent of our interest in PFI master commitments to the FHLBank of Chicago. The FHLBank of Chicago then purchases mortgage loans from our PFIs and sells MPF Xtra loans to Federal National Mortgage Association (Fannie Mae). MPF Government Mortgage-Backed Securities (MBS) is an off-balance sheet loan product where our PFIs sell government loans directly to the FHLBank of Chicago where they are pooled and securitized into Ginnie Mae MBS. Under these off-balance sheet products, we receive a small fee for our continued management of the PFI relationship.
The PFI performs all traditional retail loan origination functions on our MPF loan products. We are responsible for managing the interest rate risk and liquidity risk associated with the MPF loans we purchase and carry on our Statements of Condition. In order to limit our credit risk exposure to approximately that of an investor in an investment grade MBS, we require a credit risk sharing arrangement with the PFI on all MPF loans at the time of purchase.
MPF Loan Volume
Our member base for MPF loans is primarily a diverse mix of commercial banks and credit unions. Our ability to price MPF loans, coupled with changes in the interest rate environment, has allowed us to serve the liquidity needs of a broad range of members and maintain relatively stable mortgage loan volumes. During the years ended December 31, 2022, 2021, and 2020, we purchased $1.9 billion, $1.9 billion, and $2.3 billion of MPF loan products (excluding off-balance sheet loan products). In addition, during the years ended December 31, 2022, 2021, and 2020, we had off-balance sheet loan volumes of $0.7 billion, $3.2 billion, and $6.2 billion.
LOAN MODIFICATION PLANS
We offer loan modification plans for our PFIs. Under these plans, we generally permit the capitalization of past due amounts up to the original loan amount and/or reduce the interest rate for a specified period of time. We may also grant a forbearance period or offer payment deferrals in limited circumstances. No other terms of the original loan, including contractual maturity, are generally modified.
For additional discussion on our mortgage loans and their related credit risk, refer to “Item 8. Financial Statements and Supplementary Data - Note 6 - Mortgage Loans Held for Portfolio” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk - Mortgage Loans.”
Investments
We maintain an investment portfolio primarily to provide investment income and liquidity. Our investment portfolio consists of both short- and long-term investments. Our short-term investments may include, but are not limited to, interest-bearing deposits, federal funds sold, securities purchased under agreements to resell, certificates of deposit, commercial paper, and U.S. Treasury obligations. Our long-term investments may include, but are not limited to, U.S. Treasury obligations, other U.S. obligations, GSE and Tennessee Valley Authority (TVA) obligations, state or local housing agency obligations, taxable municipal bonds, and agency MBS. Our long-term investments generally provide higher spreads than our short-term investments. For the years ended December 31, 2022, 2021, and 2020, investments represented 32, 36, and 34 percent of our total average assets and generated 28, 20, and 23 percent of our total interest income.
Finance Agency regulations limit the type of investments we may purchase, and we do not have any subsidiaries or equity positions in any partnerships, corporations, or off-balance sheet special purpose entities. The Finance Agency further limits our investments in MBS by requiring that the balance of our MBS not exceed three times regulatory capital at the time of purchase. For details on our compliance with this regulatory requirement, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition - Investments.” For additional discussion on our investments and their related credit risk, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk - Investments.”
Standby Bond Purchase Agreements
We currently hold standby bond purchase agreements with state housing associates within our district pursuant to which, for a fee, we agree to serve as a standby liquidity provider if required, to purchase and hold the housing associate’s bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which we would be required to purchase the bonds and typically allows the Bank to terminate the agreement upon the occurrence of a default event of the issuer. If purchased, the bonds would be classified as available-for-sale (AFS) or trading securities on our Statements of Condition. For additional details on our standby bond purchase agreements, refer to “Item 8. Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies.”
Deposits
We accept uninsured deposits from our members, eligible housing associates, and/or counterparties. We offer deposit programs, including demand, overnight, and term deposits. Deposit programs provide us funding while providing members a low-risk, interest-earning asset.
Consolidated Obligations
Our primary source of funding and liquidity is the issuance of debt securities, referred to as consolidated obligations, in the capital markets. Consolidated obligations (bonds and discount notes) are the joint and several obligations of all FHLBanks and are backed only by the financial resources of the FHLBanks. They are not obligations of the U.S. Government, and the U.S. Government does not guarantee them. At February 28, 2023, S&P Global Ratings (S&P) and Moody’s Investors Service, Inc. (Moody’s) rated the consolidated obligations AA+/A-1+ and Aaa/P-1, both with a stable outlook.
The FHLBanks’ Office of Finance (Office of Finance) issues all consolidated obligations on behalf of the FHLBanks. It is also responsible for servicing all outstanding debt, coordinating transfers of debt between the FHLBanks, serving as a source of information for the FHLBanks on capital market developments, managing the FHLBank System’s relationship with the rating agencies with respect to consolidated obligations, and preparing and making available the FHLBank System’s Combined Financial Reports.
Although we are primarily responsible for the portion of consolidated obligations issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority.
To the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the FHLBank otherwise responsible for the payment. However, if the Finance Agency determines that an FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that it may determine.
The Finance Agency also requires each FHLBank to maintain unpledged qualifying assets, as defined by regulation, in an amount at least equal to the amount of that FHLBank’s participation in the total consolidated obligations outstanding. For details on our compliance with this regulatory requirement, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - Liquidity Requirements.”
BONDS
Bonds are generally issued to satisfy our short-, intermediate-, and long-term funding needs. They may have maturities ranging up to 30 years, although there is no statutory or regulatory limitation as to their maturity. Bonds are issued with either fixed or variable rate payment terms, such as SOFR. To meet the specific needs of investors, both fixed and variable rate bonds may also contain certain embedded features, which result in complex coupon payment terms and/or call features. When bonds are issued on our behalf, we may concurrently enter into a derivative agreement to effectively convert the fixed rate payment stream to variable or to offset the embedded features in the bond.
Depending on the amount and type of funding needed, bonds may be issued through negotiated or competitively bid transactions with approved underwriters or selling group members (i.e., TAP Issue Program, auction, and Global Debt Program), or through debt transfers between FHLBanks.
The TAP Issue Program is used to issue fixed rate, non-callable bonds with maturities ranging up to 30 years. The goal of the TAP Issue Program is to aggregate frequent smaller bond issues into a larger bond issue that may have greater market liquidity.
An auction process is used to issue fixed rate, callable bonds. Auction structures are determined by the FHLBanks in consultation with the Office of Finance and the securities dealer community. We may receive zero to 100 percent of the proceeds of the bonds issued via the callable auction depending on (i) the amounts and costs for the bonds bid by underwriters, (ii) the maximum costs we or other FHLBanks participating in the same issue, if any, are willing to pay for the obligations, and (iii) the guidelines for allocation of bond proceeds among multiple participating FHLBanks administered by the Office of Finance.
The Global Debt Program allows the FHLBanks to diversify their funding sources to include overseas investors. Global Debt Program bonds may be issued in maturities ranging up to 30 years and can be customized with different terms and currencies. The FHLBanks approve the terms of the individual issues under the Global Debt Program.
DISCOUNT NOTES
Discount notes are generally issued to satisfy our short-term funding needs. They have maturities of up to one year and are offered daily through a discount note selling group and other authorized underwriters. Discount notes are generally sold at a discount and mature at par.
On a daily basis, we may request that specific amounts of discount notes with specific maturity dates be offered by the Office of Finance for sale through certain securities dealers. We may receive zero to 100 percent of the proceeds of the discount notes issued via this sales process depending on (i) the time of the request, (ii) the maximum costs we or other FHLBanks participating in the same issue, if any, are willing to pay for the discount notes, and (iii) the amount of orders for the discount notes submitted by dealers.
Twice weekly, we may request that specific amounts of discount notes with fixed maturities of four to 26 weeks be offered by the Office of Finance through competitive auctions conducted with securities dealers in the discount note selling group. One or more of the FHLBanks may also request that amounts of those same discount notes be offered for sale for their benefit through the same auction. The discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. We may receive zero to 100 percent of the proceeds of the discount notes issued through a competitive auction depending on the amounts of the discount notes bid by underwriters and the guidelines for allocation of discount note proceeds among multiple participating FHLBanks administered by the Office of Finance.
For additional information on our consolidated obligations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition - Consolidated Obligations” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - Sources of Liquidity.”
Derivatives
We use derivatives to manage interest rate risk. Finance Agency regulations and our risk management policies establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives. The goal of our interest rate risk management strategy is not to eliminate interest rate risk, but to manage it within appropriate limits.
We can use interest rate swaps, swaptions, interest rate caps and floors, options, and future/forward contracts as part of our interest rate risk management strategies. These derivatives can be used as either a fair value hedge of a financial instrument or firm commitment or an economic hedge to manage certain defined risks. We use economic hedges primarily to (i) manage mismatches between the coupon features of our assets and liabilities, (ii) offset prepayment risk in certain assets, (iii) mitigate the income statement volatility that occurs when financial instruments are recorded at fair value and hedge accounting is not permitted by accounting guidance, or (iv) reduce exposure to reset risk.
Additional information on our derivatives can be found in “Item 8. Financial Statements and Supplementary Data - Note 7 - Derivatives and Hedging Activities” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition - Derivatives.”
CAPITAL AND DIVIDENDS
Capital Stock
Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. We issue a single class of capital stock (Class B capital stock) and have two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding on our Statements of Condition and 0.10 percent of its standby letters of credit. All capital stock issued is subject to a notice of redemption period of five years.
The capital stock requirements established in our Capital Plan are designed so that we can remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan.
Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under our Capital Plan, we, at our discretion and upon 15 days written notice, may repurchase excess membership capital stock. We, at our discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock.
We reclassify capital stock subject to redemption from equity to a liability, which represents MRCS, when a member provides written notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Dividends on MRCS are classified as interest expense on the Statements of Income.
Retained Earnings
Our risk management policies require a minimum level of retained earnings based on the amount we believe necessary to help protect the redemption value of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend. We monitor our achievement of this minimum level and may utilize tools such as restructuring our balance sheet, generating additional income, reducing our risk exposures, increasing capital stock requirements, or reducing our dividends to achieve this level of retained earnings. At December 31, 2022 and 2021, our actual retained earnings exceeded our required minimum level of retained earnings.
We entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other FHLBanks in 2011. Under the JCE Agreement, we are required to allocate 20 percent of our quarterly net income to a separate restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar quarter, equals at least one percent of our average balance of outstanding consolidated obligations for the calendar quarter. These restricted retained earnings are not available to pay dividends.
Dividends
Our Board of Directors may declare and pay different dividends for each subclass of capital stock. Dividend payments may be made in the form of cash and/or additional shares of capital stock. Historically, we have only paid cash dividends. By regulation, we may only pay dividends from current earnings or unrestricted retained earnings. We are prohibited from paying a dividend in the form of additional shares of capital stock if, after the issuance, the outstanding excess capital stock would be greater than one percent of our total assets. Our Board of Directors may not declare or pay dividends if it would result in our non-compliance with regulatory capital requirements.
For additional information on our capital stock, retained earnings, and dividends, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Capital.”
HUMAN CAPITAL RESOURCES
Our human capital is a significant contributor to the success of our strategic business objectives. In managing our human capital, we focus on our workforce profile and the various programs and philosophies described below.
Workforce Profile
Our workforce is primarily comprised of corporate employees, with our principal operations in one location. As of December 31, 2022, we had 357 employees, 354 full-time and three part-time. As of December 31, 2022, approximately 48 percent of our workforce is female, 52 percent male, 81 percent non-minority and 19 percent minority, based on employees who chose to self-identify. We strive to both develop talent from within the organization and supplement with external hires. We believe that developing talent internally results in institutional strength and continuity and promotes loyalty and commitment in our employee base, which furthers our success, while adding new employees contributes to new ideas, continuous improvement, and our goals of a diverse and inclusive workforce. As of December 31, 2022, the average tenure of our employees was seven years. There are no collective bargaining agreements with our employees.
Total Rewards
We seek to attract, develop, retain, and engage talented employees to create and implement strategies that are critical to our long-term success and ensuring we bring value for our members. We affect this objective through a combination of development programs, benefits and employee wellness programs, and recognizing and rewarding performance. Specifically, our programs include:
•Cash compensation - includes competitive salary, other cash subsidies, and performance-based incentives;
•Benefits - health insurance, life and accidental death and dismemberment insurance, supplemental life insurance, 401(k) retirement savings plans with employer match, and healthcare concierge;
•Wellness program - fitness reimbursement, employee assistance program, interactive education sessions, online wellness portal, on-site gym, wellness incentive program, and ergonomic work environment;
•Time away from work - including paid time off (PTO), holidays, and volunteer opportunities;
•Culture - DEI Council, Wellness Council, Community Relations Council, business resource groups, community involvement, as well as various cultural and inclusion initiatives;
•Work/Life balance - short-term disability, parental and military leave, bereavement, jury duty, and court appearance leaves, as well as flexible scheduling and remote working options, including a hybrid working model with most employees working from our headquarters three days or more a week;
•Development programs and training - leadership development, mentoring program, employee engagement, educational assistance programs, online learning portal, professional competency exam reimbursement, internal education and development opportunities, fee reimbursement for external education, professional organization memberships, and development programs, including goals for developmental activities as part of performance management; and
•Management succession planning - our Board of Directors and leadership actively engage in management succession planning, with a defined plan for executive leadership roles.
Our Performance Management framework includes performance planning and goal-setting, ongoing coaching and feedback, and a mid-year and annual performance review. Overall annual performance ratings are calibrated and merit and incentive payments are differentiated for our highest performers.
Diversity, Equity, and Inclusion Program
DEI is a strategic business priority for the Bank. It is an integral part of who we are as a company, how we operate, how we see our future, and how we interact with each other, our members, suppliers, and broker-dealers. As an organization, we are committed to integrating and promoting DEI as a key aspect of our culture and in all relevant business functions, financial transactions, and activities, especially those in service to our members, suppliers, and broker-dealers.
Our Chief DEI Officer is a member of the executive team, reports to the President and Chief Executive Officer (CEO) and serves as a liaison to the Board of Directors. We recognize that diversity increases capacity for innovation and creativity and that inclusion allows us to leverage the unique perspectives of all employees and strengthens our retention efforts. We operationalize our commitment through the development and execution of a three-year DEI strategic plan that includes quantifiable metrics to measure our success, and we report regularly on our performance to management and the Board of Directors. We offer a range of opportunities for our employees to connect and grow personally and professionally through our Office of Minority and Women Inclusion Committee, DEI Council, business resource groups, internal training, and community involvement. We consider learning an important component of our DEI strategy and regularly offer educational opportunities to our employees and evaluate inclusive behaviors as part of our annual goal setting, performance management, and succession planning processes. We also incorporate DEI as a key component of our incentive plan framework to ensure organizational focus and accountability.
COMPETITION
Advances
One of our primary businesses is to make advances to members and housing associates. Demand for our advances is affected by, among other things, the cost of other available sources of funding for our borrowers. We compete with other suppliers of secured and unsecured wholesale funding including, but not limited to, investment banks, commercial banks, other GSEs, and U.S. Government agencies. We may compete with other FHLBanks to the extent that member institutions have affiliated institutions located outside of our district. Furthermore, our members may have access to customer deposits, brokered or reciprocal deposits, and resale agreements, all of which represent competitive alternatives to our advances. Many of our competitors are not subject to the same body of regulation that we are, which may enable them to offer products and terms that we cannot. Efforts to effectively compete with other suppliers of wholesale funding by changing the pricing of our advances may result in a decrease in our profitability.
Mortgage Loans
The purchase of mortgage loans through the MPF program is subject to competition on the basis of prices paid for mortgage loans, customer service, and ancillary services, such as automated underwriting and loan servicing options. We compete primarily with other GSEs, such as Fannie Mae, Federal Home Loan Mortgage Corporation (Freddie Mac), other financial institutions, and private investors for acquisition of fixed rate mortgage loans.
Consolidated Obligations
Our primary source of funds is through the issuance of consolidated obligations. We compete with the U.S. Government, Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for raising funds through the issuance of debt in the national and global markets.
TAXATION
Under the FHLBank Act, we are exempt from all federal, state, and local taxation (except real property taxes and certain employer payroll taxes).
AFFORDABLE HOUSING PROGRAM ASSESSMENTS
The FHLBank Act requires each FHLBank to establish and fund an AHP, which provides subsidies in the form of direct grants or below-market interest rates on advances to members who provide the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, or moderate-income households. Annually, the FHLBanks recognize AHP assessment expense equal to the greater of 10 percent of their annual income subject to assessment, or their prorated sum required to ensure the aggregate contribution by the FHLBanks is no less than $100 million. In addition to the required AHP assessment, our Board may elect to make voluntary contributions to the AHP. For purposes of the AHP assessment, income subject to assessment is defined as net income before AHP assessments, plus interest expense related to MRCS. The exclusion of interest expense related to MRCS is a regulatory interpretation of the Finance Agency. We accrue the AHP assessment monthly based on our income subject to assessment and reduce our AHP liability as program funds are distributed. For additional information on our AHP, refer to “Item 8. Financial Statements and Supplementary Data - Note 10 - Affordable Housing Program.”
OVERSIGHT, AUDITS, AND EXAMINATIONS
Our business is subject to extensive regulation and supervision. The laws and regulations to which we are subject cover all key aspects of our business, including, but not limited to, our product and service offerings, pricing, competitive position and strategic plan, relationships with members and third parties, capital structure, liquidity, and information security. Our primary regulatory oversight is summarized below.
The Finance Agency supervises and regulates the FHLBanks and the Office of Finance. The Finance Agency has a statutory responsibility and corresponding authority to ensure that the FHLBanks operate in a safe and sound manner. Consistent with that duty, the Finance Agency has an additional responsibility to ensure the FHLBanks carry out their housing and community development finance mission. In order to carry out those responsibilities, the Finance Agency establishes regulations governing the FHLBanks, conducts ongoing off-site monitoring and supervisory reviews, performs annual on-site examinations and periodic interim on-site reviews, and requires the FHLBanks to submit monthly and quarterly information regarding their financial condition, results of operations, and risk metrics.
The Comptroller General of the United States (Comptroller General) has authority under the FHLBank Act to audit or examine the Finance Agency and the FHLBanks and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of an FHLBank’s financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General may also conduct his or her own audit of the financial statements of any FHLBank.
As required by federal regulation, we have an internal audit department and an audit committee of our Board. An independent public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) audits our annual financial statements. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, must adhere to PCAOB and Government Auditing Standards, as issued by the Comptroller General, when conducting our audits. Our Board, our senior management, and the Finance Agency receive these audit reports. We also submit annual management reports to Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General. These reports include audited financial statements, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on the financial statements.
For further discussion on the potential impacts of legislative and regulatory developments, refer to “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments.”
AVAILABLE INFORMATION
We are required to file with the Securities and Exchange Commission (SEC) an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains a website containing these reports and other information regarding our electronic filings located at www.sec.gov.
We also make our annual reports, quarterly reports, current reports, and amendments to all such reports filed with or furnished to the SEC available, free of charge, on our website at www.fhlbdm.com as soon as reasonably practicable after such reports are available. Annual and quarterly reports for the FHLBanks on a combined basis are also available, free of charge, at the website of the Office of Finance as soon as reasonably practicable after such reports are available. The website address to obtain these reports is www.fhlb-of.com.
Information contained in the previously mentioned websites, or that can be accessed through those websites, is not incorporated by reference into this annual report on Form 10-K and does not constitute a part of this or any report filed with the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
The following discussion summarizes some of the more significant risks we face. This discussion is not exhaustive, and there may be other risks we face, which are not described below. The risks described below, if realized, could negatively affect our business operations, financial condition, future results of operations, and among other things, could result in our inability to pay dividends on our capital stock or repurchase capital stock or adversely impact our reputation.
BUSINESS AND REGULATORY RISK
WE ARE SUBJECT TO A COMPLEX BODY OF LAWS AND REGULATIONS THAT COULD CHANGE IN A MANNER DETRIMENTAL TO OUR BUSINESS OPERATIONS
The FHLBanks are GSEs, organized under the authority of the FHLBank Act and, as such, are governed by federal laws and regulations adopted and applied by the Finance Agency. Congress may amend the FHLBank Act or other statutes in ways that significantly affect the rights and obligations of the FHLBanks or the manner in which the FHLBanks carry out their mission and business operations. In addition, new or modified legislation enacted by Congress or changes in regulatory requirements applied or imposed by the Finance Agency could affect the composition of our membership and the extent to which members engage in business with us. There continues to be uncertainties surrounding our legislative and regulatory environment, and new or modified legislation enacted by Congress or regulations adopted or guidance issued by the Finance Agency or other financial services regulators. Recently, the Finance Agency initiated a comprehensive review of the FHLBank System, covering such areas as the FHLBanks’ adequate fulfillment of their mission and purpose in a changing marketplace; their organization, operational efficiency, and effectiveness; their role in promoting affordable, sustainable, equitable, and resilient housing and community investment; addressing the unique needs of rural and financially vulnerable communities; member products, services, and collateral requirements; and membership eligibility and requirements. It remains uncertain what legislative, regulatory, or other actions, if any, may be proposed or implemented as a result of the Finance Agency’s review, or what their potential effect on the FHLBanks may be. Any of these factors could negatively affect our business operations, financial condition, results of operations, and the value of FHLBank membership.
Additionally, the Financial Accounting Standards Board (FASB) or SEC may amend financial accounting and reporting standards that govern our accounting and disclosure practices, such as standards on climate change and environmental, social, and governance (ESG) matters. Specifically, policy or regulatory changes relating to ESG matters, as well as market and stakeholder expectations, are evolving and may result in additional responsibilities or costs for us, such as compliance requirements, operational or technological changes, and increased disclosures.
For a discussion of new and proposed legislative and regulatory developments that could affect us, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments.”
FAILURE TO MEET MINIMUM CAPITAL AND OTHER REGULATORY REQUIREMENTS COULD ADVERSELY AFFECT OUR ABILITY TO REDEEM OR REPURCHASE CAPITAL STOCK, PAY DIVIDENDS, AND ATTRACT NEW MEMBERS
We are regulated by the Finance Agency and if we fail to meet regulatory requirements, we could be subject to corrective action that could adversely impact our financial condition and results of operations.
For example, we are required to maintain capital to meet specific minimum requirements, as defined by the Finance Agency. Historically, our capital has exceeded all capital requirements and we have maintained adequate capital and leverage ratios. If we fail to meet any of these requirements or if our Board of Directors or the Finance Agency determines that we have incurred, or are likely to incur, losses resulting in, or losses that are expected to result in, a charge against capital, we would not be able to redeem or repurchase any capital stock while such charges are continuing or expected to continue. In addition, failure to meet our capital requirements could result in the Finance Agency’s imposition of restrictions pertaining to dividend payments, lending, investing, or other business activities. Additionally, the Finance Agency could require that we call upon our members to purchase additional capital stock to meet our minimum regulatory capital requirements. Members may be unable or unwilling to satisfy such calls for additional capital, which could lead to a member’s involuntary termination of membership as a result of noncompliance with our Capital Plan, which could adversely impact our financial condition and results of operations.
WE FACE COMPETITION FOR ADVANCES, MORTGAGE LOANS, AND FUNDING
Our primary business activities are providing advances to members and housing associates and acquiring residential mortgage loans from our members. Demand for our advances is affected by, among other things, the cost of other available sources of funding for our borrowers. We may from time to time compete with other suppliers of secured and unsecured wholesale funding including, but not limited to, investment banks, commercial banks, other GSEs, and U.S. Government agencies. We may compete with other FHLBanks to the extent that member institutions have affiliated institutions located outside of our district. Furthermore, our members may have access to customer deposits, brokered or reciprocal deposits, and resale agreements, all of which represent competitive alternatives to our advances.
Many of our competitors are not subject to the same body of regulation that we are, which may enable them to offer products and terms that we cannot. Efforts to effectively compete with other suppliers of wholesale funding by changing the pricing of our advances may result in a decrease in our profitability. The availability of alternative funding sources for our members could also change their perception of the value of FHLBank membership. A decrease in the demand for advances or a decrease in the profitability on advances could negatively affect our financial condition and results of operations.
The purchase of mortgage loans through the MPF program is subject to competition on the basis of prices paid for mortgage loans, customer service, and ancillary services, such as automated underwriting and loan servicing options. We compete primarily with other GSEs, such as Fannie Mae, Freddie Mac, other financial institutions, and private investors for acquisition of fixed rate mortgage loans. Increased competition could result in a reduction in the amount of mortgage loans we are able to purchase, which could negatively affect our financial condition and results of operations.
We also compete with the U.S. Government, Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for raising funds through the issuance of debt in the national and global markets. In the absence of increased demand, increased supply of competing debt products may result in higher debt costs or lesser amounts of debt issued at the same cost. An increase in funding costs would negatively affect our financial condition and results of operations.
WE COULD BE ADVERSELY AFFECTED BY OUR EXPOSURE TO CUSTOMER CONCENTRATION RISK
We are subject to customer concentration risk as a result of our reliance on a relatively small number of member institutions for a large portion of our total advances and resulting interest income. At December 31, 2022 and 2021, advances outstanding to our top five borrowers totaled $50.9 billion and $17.0 billion, representing 45 and 39 percent of our total advances outstanding. At December 31, 2022, our single largest borrower, Wells Fargo Bank, N.A., accounted for 28 percent of total advances outstanding and for 20 percent of interest income for the year ended December 31, 2022. At December 31, 2021, we did not have any individual borrower in excess of 10 percent of total advances. Advance balances with members could change due to factors such as a change in member demand or borrowing capacity, which can be influenced by economic conditions, relocation of members out of our district, or members with affiliated institutions located outside of our district choosing to do business with another FHLBank. In addition, advance balances could change as a result of new or modified legislation impacting us or our members or regulations or other directives adopted by the Finance Agency or other financial services regulators. If we experience a decrease in the amount of business with our top five borrowers, our financial condition and results of operations could be negatively affected. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition - Advances” for additional information on our top five borrowers.
REPLACEMENT OF THE LIBOR BENCHMARK INTEREST RATE COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS
In March 2021, the Financial Conduct Authority announced that LIBOR would either cease to be provided by any administrator or no longer be representative for the more frequently used LIBOR settings, after June 30, 2023. As such,we ceased all LIBOR-indexed transactions. However, as noted throughout this report, certain of our advances, investments, derivatives, and related collateral are still indexed to LIBOR and have maturity dates that extend beyond June 30, 2023. We are in the process of transitioning away from LIBOR and are utilizing SOFR as our dominant replacement rate on an ongoing basis. We have a transition plan in place that addresses considerations such as LIBOR exposure, member products, fallback language, operational readiness, and balance sheet management. In addition, we continue to offer SOFR-indexed advances, issue SOFR-indexed debt, and utilize derivatives indexed to the federal funds or SOFR overnight index swap (OIS) rate.
As the market transitions, LIBOR may experience increased volatility, and the overnight Treasury repurchase market underlying SOFR may also experience disruptions from time to time. In addition, we may experience decreased flexibility in our access to funding, higher funding costs, lower overall demand or increased costs for our advances, and/or limited investment opportunities; which may, in turn, negatively impact our business operations, financial condition, and results of operations.
Furthermore, there are complexities associated with the changes to our risk profiles and models, systems, valuation tools, and effectiveness of hedging strategies that may not be anticipated and could impact our transition. Although we are in the process of ensuring we are operationally ready for LIBOR transition activities, including updating our processes and IT systems, any of these risks, if realized, could adversely impact our business, financial condition, and results of operations. For a summary of our LIBOR exposure, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview.”
MEMBER CONSOLIDATIONS AND FAILURES COULD ADVERSELY AFFECT OUR BUSINESS
Member consolidations and failures could reduce the number of current and potential members in our district. During 2022, we experienced a net decline of 22 members, due primarily to member consolidations. If the number of member consolidations and/or failures were to accelerate, we could experience a reduction in the level of our members’ advance and other business activities. This loss of business could negatively impact our business operations, financial condition, and results of operations.
MARKET AND LIQUIDITY RISK
WE COULD BE ADVERSELY AFFECTED BY OUR INABILITY TO ACCESS THE CAPITAL MARKETS
Our primary source of funds is through the issuance of consolidated obligations in the capital markets. Our ability to obtain funds through the issuance of consolidated obligations depends in part on our real and perceived relationship to the U.S. Government, prevailing market conditions in the capital markets, and rating agency actions, all of which are beyond our control. In addition, changes to the regulatory environment that affect bank counterparties, debt underwriters, and investors could adversely affect our ability to access the capital markets and the cost of that funding. We cannot make any assurance that we will be able to obtain funding on terms acceptable to us, if at all. For example, previous money market fund reform resulted in a significant increase in demand for U.S. government and agency debt, including our short-term consolidated obligations. While this increased demand benefited our ability to access short-term funding at attractive costs, there could be a scenario in which regulatory change may cause a decrease in demand that could lead to significant investor outflows and unfavorable market conditions due to our concentration in money market investors. Any further change in regulatory requirements governing money market funds, including any reversal of money market fund reforms, could negatively impact our short term funding costs and strategies.
If we cannot access funding when needed, our ability to support and continue business operations, including our ability to refund maturing debt and maintain compliance with regulatory liquidity requirements, could be adversely impacted, which could adversely impact our financial condition and results of operations. Although our debt issuances have historically kept pace with the funding needs of our members and eligible housing associates, there can be no assurance that this will continue.
CHANGES IN ECONOMIC CONDITIONS OR FEDERAL FISCAL AND MONETARY POLICY COULD ADVERSELY IMPACT OUR BUSINESS
We operate with narrow margins and our net income is sensitive to changes in market conditions that can impact the interest we earn and pay and introduce volatility in net income. These conditions include, but are not limited to, the following:
•volatility in interest rates;
•fluctuations in both debt and equity capital markets;
•changes in the fair value of our assets;
•conditions in the financial, credit, mortgage, and housing markets;
•the willingness and ability of financial institutions to expand lending; and
•the strength of the U.S. economy and the local economies in which we conduct business, which may be impacted by inflation/deflation, labor shortages, supply chain disruptions, and geopolitical instability or conflicts.
Our financial condition, results of operations, and ability to pay dividends could be negatively affected by changes in one or more of these conditions. Additionally, our business and results of operations may be affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve, which regulates the supply of money and credit in the U.S. The Federal Reserve’s policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities. For example, in response to high inflation, in March 2022, the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 0.25 percent, followed by seven more rate hikes throughout 2022 and into 2023. This brought the target range to 4.50 to 4.75 percent as of February 28, 2023. While we expect these rate hikes to slow, any future rate changes will continue to impact our business as well as the business of our members.
Further events impacting market conditions, such as civil unrest, climate change, or other natural disasters, may impact the economy and require actions by the federal government and its agencies in an effort to stabilize market conditions. Responses to those actions and the resulting impact on demand for advances could adversely affect our financial condition, results of operations, and ability to pay dividends. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Conditions in the Financial Markets” for additional information on recent market activity.
WE COULD BE ADVERSELY AFFECTED BY INEFFECTIVE USE OF HEDGING STRATEGIES OR OUR INABILITY TO ENTER INTO DERIVATIVE INSTRUMENTS ON ACCEPTABLE TERMS
We use derivatives to manage interest rate risk. Our effective use of derivative instruments depends upon management’s ability to determine the appropriate hedging strategies and positions in light of our assets and liabilities as well as prevailing and anticipated market conditions. In addition, the effectiveness of our hedging strategies depends upon our ability to enter into derivatives with acceptable counterparties, on terms desirable to us, and in quantities necessary to hedge our corresponding assets and liabilities. Further, the cost of entering into derivative instruments could increase as a result of changes in legislation and regulations regarding over-the-counter derivatives, including increased margin and capital requirements, and increased regulatory costs and transaction fees associated with clearing and custodial agreements. If we are unable to manage our hedging positions properly, or are unable to enter into derivative instruments on desirable terms, we may incur higher funding costs and be unable to effectively manage our interest rate risk and other risks, which could negatively affect our financial condition and results of operation.
EXPOSURE TO OPTION RISK IN OUR FINANCIAL ASSETS AND LIABILITIES COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS
Our mortgage assets provide homeowners the option to prepay their mortgages prior to maturity. The effect of changes in interest rates can exacerbate prepayment or extension risk, which is the risk that mortgage assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer than expected at below-market yields when interest rates increase. Our advances, consolidated obligations, and derivatives may provide us, the borrower, the issuer, or the counterparty with the option to call or put the asset or liability. These options leave us susceptible to unpredictable cash flows associated with our financial assets and liabilities. The exercise of the option and the prepayment or extension risk is dependent upon general market conditions and could have an adverse effect on our financial condition and results of operations.
CREDIT RISK
WE COULD BE ADVERSELY AFFECTED BY OUR EXPOSURE TO CREDIT RISK
We are exposed to credit risk based on the deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. We assume unsecured and secured credit risk exposure in that a borrower or counterparty could default and we may suffer a loss if we are not able to fully recover amounts owed to us in a timely manner. Our risk of credit losses may be exacerbated by economic conditions, such as a downturn in the housing markets, including a reduction in home prices, higher delinquencies due in part to the effects of inflation, as well as financial difficulties or failures of mortgage servicers. In addition, increased risk of credit losses may be the result of a decrease in the value of collateral securing our advances or mortgage loans, which could be due to the effects of climate change or other catastrophic events.
We attempt to mitigate unsecured credit risk by limiting the terms of unsecured investments and the borrowing capacity of our counterparties. We attempt to mitigate secured credit risk through collateral requirements and credit analysis of our borrowers and counterparties. We require collateral on advances, standby letters of credit, certain mortgage loan credit enhancements provided by PFIs, certain investments, and derivatives. All advances, standby letters of credit, and applicable mortgage loan credit enhancements are required to be fully collateralized. We evaluate the types of collateral pledged by our borrowers and counterparties and assign a borrowing capacity to the collateral, generally based on a percentage of its unpaid principal balance or estimated market value, if available. We generally have the ability to call for additional or substitute collateral during the life of an obligation to ensure we are fully collateralized. Notwithstanding these mitigating factors, we may suffer losses that could adversely impact our financial condition and results of operations.
If a borrower or counterparty fails or does not meet its obligations to us, we have the right to liquidate or take ownership of the collateral covering the obligation. However, if the liquidation value of the collateral is less than the value of the outstanding obligation, we may incur losses that could adversely affect our financial condition and results of operations. If we are unable to secure the obligations of borrowers and counterparties, this could negatively impact our financial condition and results of operations.
WE ARE JOINTLY AND SEVERALLY LIABLE FOR THE CONSOLIDATED OBLIGATIONS OF OTHER FHLBANKS AND MAY BE REQUIRED TO PROVIDE FINANCIAL ASSISTANCE TO OTHER FHLBANKS
Each of the FHLBanks relies upon the issuance of consolidated obligations as a primary source of funds. Consolidated obligations are the joint and several obligations of the 11 FHLBanks and are backed only by the financial resources of the FHLBanks. They are not obligations of the U.S. Government, and the U.S. Government does not guarantee them. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. Furthermore, if the Finance Agency determines that an FHLBank is unable to satisfy its obligations, it may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that it may determine. Accordingly, we could incur liability beyond our primary obligation under consolidated obligations, which could negatively affect our financial condition and results of operations. Moreover, we may not pay dividends to, or redeem or repurchase capital stock from, any of our members if timely payment of principal and interest on all FHLBank consolidated obligations has not been made. Accordingly, our ability to pay dividends or to redeem or repurchase capital stock may be affected not only by our financial condition, but by the financial condition of the other FHLBanks.
Due to our relationship with other FHLBanks, we could also be impacted by events other than the default on a consolidated obligation. Events that impact other FHLBanks include, but are not limited to, member failures and capital deficiencies. These events may cause the Finance Agency, at its discretion, to require any FHLBank to either provide capital to or buy assets of any other FHLBank. If we are called upon by the Finance Agency to do either of these items, it may negatively impact our financial condition.
Additionally, the FHLBank Act requires each FHLBank to establish and fund an AHP. Annually, the FHLBanks recognize AHP assessment expense, in aggregate, equal to the greater of 10 percent of their current year earnings or $100 million. If the FHLBanks do not make the minimum $100 million AHP contribution in a given year (i.e., a shortfall), we could be required to contribute more than 10 percent of our current year net earnings. An increase in our AHP contributions due to a shortfall or other legislative or regulatory actions could adversely impact our financial condition and results of operations as well as our ability to pay dividends.
ACTUAL OR PERCEIVED CHANGES IN THE FHLBANKS’ CREDIT RATINGS AS WELL AS THE U.S. GOVERNMENT’S CREDIT RATING COULD ADVERSELY AFFECT OUR BUSINESS
Our consolidated obligations are currently rated AA+/A-1+ by S&P and Aaa/P-1 by Moody’s, both with a stable outlook. These ratings are subject to reduction or withdrawal at any time by a nationally recognized statistical rating organization (NRSRO), and the FHLBank System may not be able to maintain these credit ratings. Adverse rating agency actions on the FHLBank System or U.S. Government may reduce investor confidence and negatively affect our cost of funds and ability to issue consolidated obligations on acceptable terms, which could adversely impact our financial condition and results of operations. For example, downgrades to the U.S. Government’s credit rating or outlook may occur if the U.S. Government fails to adequately address, based on the credit rating agencies’ criteria, its fiscal budget deficit or statutory debt limit (which was most recently reached in January 2023).
Certain products and transactions that we offer or use may be impacted by rating downgrades. Demand for certain Bank products, including, but not limited to, standby letters of credit and standby bond purchase agreements, is influenced by our credit rating. A reduction in our credit rating could weaken or eliminate demand for such products, and our financial condition and results of operations could be adversely affected. For certain uncleared derivative contracts, we are required to deliver additional collateral on derivatives in a net liability position to counterparties if there is a deterioration in our credit rating. For cleared derivatives, the Derivative Clearing Organization (Clearinghouse) determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to, credit rating downgrades.
INCREASES IN DELINQUENCY OR LOSS ESTIMATES ON OUR MORTGAGE LOANS MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condition of the U.S. housing market can have a significant impact on the Bank. If economic conditions weaken and result in increased unemployment and a decline in home prices, we could see an increase in loan delinquencies or loss estimates and decide to increase our allowance for credit losses on mortgage loans. In addition, the occurrence of weather-related events, other natural or environmental disasters, civil unrest, widespread health emergencies, or other disruptive events could impact the ability of borrowers to continue to make principal and interest payments on mortgage loans or cause a decline in the underlying value of the mortgage loans, resulting in additional loss estimates. Further, to the extent that mortgage insurance providers fail to fulfill their obligations to pay us for claims, we could bear additional losses on certain mortgage loans with outstanding mortgage insurance coverage. As a result, our financial condition and results of operations could be adversely impacted.
OPERATIONAL RISK
FAILURES OR INTERRUPTIONS IN INTERNAL CONTROLS, INFORMATION SYSTEMS, AND OTHER OPERATING TECHNOLOGIES COULD HARM OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, REPUTATION, AND RELATIONS WITH MEMBERS
Control failures, including failures in our controls over financial reporting, or business interruptions with members, could result from human error, fraud, breakdowns in information and computer systems, lapses in operating processes, and natural or man-made disasters, including those resulting from the effects of climate change, civil unrest, or widespread health emergencies. If a significant control failure or business interruption were to occur, it could materially damage our financial condition and results of operations. We may not be able to foresee, prevent, mitigate, reverse, or repair the negative effects of such failures or interruptions.
We rely heavily upon information systems and other operating technologies to conduct and manage our business. To the extent that our technology fails to keep up with our changing environment, we may be unable to conduct and manage our business effectively. In addition, any technical failures or interruptions in key systems or other operating technologies, including any “cyberattacks” or other breaches of technical security, could jeopardize the confidentiality or integrity of our information, or otherwise cause interruptions in our operations. These threats may increase as a result of geopolitical instability or conflicts. Although we have implemented a disaster recovery and business continuity plan, we can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of all technical failures or interruptions. Any technical failure or interruption could harm our member relations, risk management, and profitability, and could adversely impact our financial condition and results of operations. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Information Security Risk” for additional information on our information security risk management.
RELIANCE ON THIRD PARTIES COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS
As part of our business, we rely on third parties for certain services essential to ongoing operations, including but not limited to, IT infrastructure and software services, administration of our mortgage loan program, and servicing of our consolidated obligations, and could be adversely impacted by disruptions in those services. In addition, we utilize professional and contractual services to support certain strategic initiatives. The success or timing of those initiatives could be adversely impacted if services are not performed or executed as expected.
We participate in the MPF program with the FHLBank of Chicago. In its role as MPF Provider, the FHLBank of Chicago provides the infrastructure and operational support for the MPF program and is responsible for publishing and maintaining the MPF Guides, which detail the requirements PFIs must follow in originating, selling, and servicing MPF loans. If the FHLBank of Chicago changes its MPF Provider role, ceases to operate the MPF program, or experiences a failure or interruption in its information systems and other technology, our mortgage purchase business could be adversely affected, and we could experience a related decrease in our net interest margin and profitability. In the same way, we could be adversely affected if any of the FHLBank of Chicago’s third-party vendors supporting the operation of the MPF program were to experience operational or technical difficulties.
We also rely on the Office of Finance for, among other things, the issuance of consolidated obligations, servicing of all outstanding debt, and managing the FHLBank System’s relationship with the rating agencies with respect to consolidated obligations. A disruption in any of these services due to events such as information technology (IT) or operational failures, civil unrest, climate change, or other natural disasters, could affect our ability to access funding, and could negatively impact our business operations, financial condition, and results of operations.
THE IMPACT OF FINANCIAL MODELS AND THE UNDERLYING ASSUMPTIONS USED TO VALUE FINANCIAL INSTRUMENTS AND COLLATERAL MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The degree of management judgment involved in determining the fair value of financial instruments or collateral is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments and collateral that are actively traded and have quoted market prices or parameters readily available, there is little to no subjectivity in determining fair value. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. We utilize external and internal pricing models to determine the fair value of certain financial instruments and collateral. For prices obtained externally, as per our established procedure, we review the prices and compare them to other vendors for reasonableness. In addition, on an annual basis, we conduct reviews of our pricing vendors to confirm and further augment our understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities. For prices determined by internal pricing models, the underlying assumptions are based on management’s best estimates for discount rates, prepayments, market volatility, and other factors.
The assumptions used in both external and internal pricing models could have a significant effect on the reported fair values of assets and liabilities or collateral, the related income and expense, and the expected future behavior of assets and liabilities or collateral. While models we use to value financial instruments and collateral are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of our financial instruments and collateral. For example, the transition away from LIBOR has been and is expected to continue to be complicated, and may cause increased market volatility, which may affect our financial valuation model inputs and assumptions and may have an adverse effect on our model outputs. The use of different models and assumptions, as well as changes in market conditions, could impact our financial condition and results of operations as well as the amount of collateral we require from borrowers and counterparties.
The information provided by our internal financial models is also used in making business decisions relating to strategies, initiatives, transactions, and products. We have adopted controls, procedures, and policies to monitor and manage assumptions used in our internal models. However, models are inherently imperfect predictors of actual results because they are based on assumptions about future performance or activities. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different. If the results are not reliable due to inaccurate assumptions, we could make poor business decisions, including asset and liability management, or other decisions, which could result in an adverse financial impact.
GENERAL RISK FACTORS
THE INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD ADVERSELY IMPACT OUR BUSINESS
We rely heavily upon our employees in order to successfully execute our business and strategies. The success of our business mission depends, in large part, on our ability to attract and retain certain key personnel with required talents and skills. We may be unable to hire or retain key personnel with the needed talents or skills if we fail to offer a competitive employment package and work arrangements, which is increasingly important during periods in which economic conditions drive labor shortages and/or high rates of employee turnover. For example, increased remote working opportunities have increased competition in hiring and retaining skilled key personnel. In addition, if we lack a diverse, equitable, and inclusive working environment, or fail to develop and execute a succession plan, our business operations could be adversely impacted.
NATURAL DISASTERS, INCLUDING THOSE FROM SIGNIFICANT CLIMATE CHANGE, COULD ADVERSELY AFFECT OUR MEMBERS AND OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS
The occurrence of weather-related events and other natural or environmental disasters, especially ones affecting our district, could negatively impact our members and business, financial condition, and results of operations. The frequency, intensity, and duration of extreme weather and climate-related disaster events have increased. These natural disasters, including those resulting from significant climate change, could destroy or damage our facilities or other properties of our members (such as collateral that members have pledged to secure advances or mortgages), disrupt business, increase the probability of power or other outages, negatively affect the livelihood of borrowers of members, or otherwise cause significant economic dislocation in the affected regions. Any of these situations may adversely affect our financial condition and results of operations.
There is also an increasing focus from investors, policy makers, regulators, and other stakeholders on climate change and other ESG matters. Enhanced governmental, regulatory, and societal attention to climate change and other ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure, could expand the nature, scope, complexity, and cost of matters that we are required to control, assess, and report.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our headquarters is located at 909 Locust Street, Des Moines, Iowa. We currently occupy 94,000 of the approximate 226,000 square feet of office space, and have leased or are in the process of leasing the remaining space. We also lease an off-site back-up facility with approximately 3,500 square feet in Urbandale, Iowa and approximately 3,000 square feet of office space in Washington, D.C. to support government relations, which is shared with two other FHLBanks.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
Refer to “Item 8. Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies” for information regarding legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
We are a cooperative. This means we are owned by our customers, whom we call members. Our current and former members own all of our outstanding capital stock. Our capital stock is not publicly traded and has a par value of $100 per share. All shares are issued, redeemed, or repurchased by us at the stated par value. Our capital stock may be redeemed with a five year notice from the member or voluntarily repurchased by us at par value, subject to certain limitations set forth in our Capital Plan. At February 28, 2023, we had 1,257 current members that held 63 million shares of capital stock and 13 former members that held less than one million shares of MRCS.
For information on our dividends, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Capital - Dividends.”

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis (MD&A) is designed to provide information that will help the reader develop a better understanding of our financial statements, changes in our financial statements from year to year, and the primary factors driving those changes. Unless expressly stated otherwise, the comparisons presented in this MD&A refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the years ended December 31, 2022 and December 31, 2021. Discussion of 2020 items and the year-over-year comparison of changes in our financial condition and results of operations as of and for the years ended December 31, 2021 and December 31, 2020 can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022.
Our MD&A is organized as follows:
CONTENTS
Forward-Looking Information
Executive Overview
Conditions in the Financial Markets
Selected Financial Data
Results of Operations
Net Interest Income
Other Income (Loss)
Hedging Activities
Other Expense
Statements of Condition
Financial Highlights
Cash and Due from Banks
Advances
Mortgage Loans
Investments
Consolidated Obligations
Deposits
Capital
Derivatives
Liquidity and Capital Resources
Critical Accounting Estimates
Legislative and Regulatory Developments
Off-Balance Sheet Arrangements
Risk Management
FORWARD-LOOKING INFORMATION
Statements contained in this annual report on Form 10-K, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should, may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements. A detailed discussion of risks and uncertainties is included under “Item 1A. Risk Factors.”
EXECUTIVE OVERVIEW
Our Bank is a member-owned cooperative serving shareholder members in our district. Our mission is to be a reliable provider of funding, liquidity, and services for our members so that they can meet the housing, business, and economic development needs of the communities they serve. Our operating model balances the trade-off between attractively priced products, reasonable returns on capital stock, maintaining an adequate level of capital to meet regulatory capital requirements, and maintaining adequate retained earnings to preserve the par value of member-owned capital stock. Our members include commercial banks, savings institutions, credit unions, insurance companies, and CDFIs.
Our financial condition and results of operations are influenced by global and national economies, local economies within our district, and the conditions in the financial, housing, and credit markets, all of which impact the interest rate environment. The interest rate environment significantly impacts our profitability. During 2022, in response to higher inflation, the Federal Open Markets Committee (FOMC or Committee) raised the target range for the federal funds rate by 4.25 percent, which led to higher interest rates that bolstered our net interest income. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Conditions in the Financial Markets” for additional discussion on economic conditions impacting our financial results.
Financial Results
In 2022, we reported net income of $430 million compared to $206 million in the prior year. The increase in net income, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was primarily driven by net interest income and other income (loss).
Net interest income increased $302 million when compared to the prior year primarily driven by higher interest rates, which improved earnings on invested capital, and growth in advance balances.
Other income (loss) decreased $44 million when compared to the prior year primarily driven by changes in the fair value of our trading securities, fair value option instruments, and economic derivatives due to rising interest rates, as well as changes in credit spreads on our fixed rate trading securities.
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” for additional discussion on our results of operations.
Our total assets increased to $164.2 billion at December 31, 2022, from $85.9 billion at December 31, 2021, driven primarily by an increase in advances and investments. Advances increased $67.1 billion due mainly to an increase in borrowings by large depository institution members. Investments increased $9.9 billion driven by increased money market investments and the purchase of U.S. Treasury obligations and agency MBS.
Total capital increased to $8.8 billion at December 31, 2022, from $5.8 billion at December 31, 2021, primarily due to an increase in activity-based capital stock resulting from an increase in advance balances. Our regulatory capital ratio decreased to 5.41 percent at December 31, 2022, from 6.74 percent at December 31, 2021; but remained above the required regulatory minimum at each period end. Regulatory capital includes capital stock, MRCS, and retained earnings.
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition” for additional discussion on our financial condition.
Adjusted Earnings
As part of evaluating our financial performance, we adjust GAAP net interest income and GAAP net income before assessments for the impact of (i) unpredictable items, including, but not limited to, market adjustments relating to derivative and hedging activities and instruments held at fair value, net asset prepayment fee income, MRCS interest expense, and discretionary pension contributions, and (ii) other non-routine items, if applicable. The resulting non-GAAP measure, referred to as our adjusted earnings, reflects both adjusted net interest income and adjusted net income.
Because our business model is primarily one of holding assets and liabilities to maturity, management believes that the adjusted earnings measure is helpful in understanding our operating results and provides a meaningful period-to-period comparison of our economic performance in contrast to GAAP results, which can be impacted by fair value changes driven by market volatility on financial instruments recorded at fair value or transactions that are considered to be unpredictable or not routine. As a result, management uses the adjusted earnings measure to assess performance under our incentive compensation plans. Non-GAAP financial measures have inherent limitations, and are not audited. While these non-GAAP measures can be used to assist in understanding the components of our earnings, they should not be considered a substitute for results reported under GAAP.
The adjusted net income methodology is calculated on a post-AHP assessment basis. Management believes AHP assessments are a fundamental component of our business and believes this assessment should be included in our adjusted net income calculation.
As indicated in the tables that follow, our adjusted net interest income and adjusted net income increased during 2022 when compared to 2021. Our adjusted net interest income was impacted primarily by higher interest rates, which improved earnings on invested capital, as well as growth in advance balances. The increase was also due to reduced net premium amortization on mortgage loans driven by a slowdown in prepayment activity.
The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):
For the Years Ended December 31,
2022 2021
GAAP net interest income $ 683 $ 381
Exclude:
Prepayment fees on advances, net1
9 48
Prepayment fees on investments, net2
21 -
MRCS interest expense (1) (2)
Market value adjustments on fair value hedges3
9 5
Total adjustments 38 51
Include items reclassified from other income (loss):
Net interest income (expense) on economic hedges (58) (17)
Adjusted net interest income $ 587 $ 313
GAAP net interest margin 0.61 % 0.44 %
Adjusted net interest margin 0.53 % 0.36 %
1 Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.
2 Prepayment fees on investments, net includes basis adjustment amortization, as well as premium and/or discount amortization on non-MBS.
3 Represents market value gains (losses) on derivatives and hedged items in qualifying hedging relationships.
The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income (dollars in millions):
For the Years Ended December 31,
2022 2021
GAAP net income before assessments
$ 478 $ 229
Exclude:
Prepayment fees on advances, net1
9 48
Prepayment fees on investments, net2
21 -
MRCS interest expense (1) (2)
Market value adjustments on economic hedges3
(6) 31
Market value adjustments on fair value hedges4
9 5
Net gains (losses) on financial instruments held under fair value option 106 1
Net gains (losses) on trading securities (95) (38)
Discretionary pension contributions - (8)
Adjusted net income before assessments 435 192
Adjusted AHP assessments5
44 19
Adjusted net income $ 391 $ 173
1 Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.
2 Prepayment fees on investments, net includes basis adjustment amortization, as well as premium and/or discount amortization on non-MBS.
3 Represents market value gains (losses) on economic derivatives.
4 Represents market value gains (losses) on derivatives and hedged items in qualifying hedging relationships.
5 Adjusted AHP assessments for this non-GAAP measure are calculated as 10 percent of adjusted net income before assessments. For additional discussion on AHP assessments, refer to “Item 8. Financial Statements and Supplementary Data - Note 10 - Affordable Housing Program.”
For additional discussion on items impacting our GAAP earnings, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations.”
Replacement of the LIBOR Benchmark Interest Rate
In March 2021, the Financial Conduct Authority announced that LIBOR would either cease to be provided by any administrator or no longer be representative for the more frequently used LIBOR settings, after June 30, 2023. The Financial Conduct Authority’s announcement constituted an index cessation event under the 2006 International Swaps and Derivatives Association, Inc. (ISDA) Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol), which we adhered to in October 2020. As a result, the fallback spread adjustment for each tenor is fixed as of the date of the announcement.
We have ceased all LIBOR-indexed transactions. However, as noted throughout this report, certain of our advances, investments, derivatives, and related collateral are still indexed to LIBOR and have maturity dates that extend beyond June 30, 2023. We are in the process of transitioning away from LIBOR and are utilizing SOFR as our dominant replacement rate on an ongoing basis. In addition, we continue to offer SOFR-indexed advances, issue SOFR-indexed debt, and utilize derivatives indexed to the federal funds or SOFR OIS rate.
We are working to ensure we are operationally ready for LIBOR transition activities, including updating our processes and IT systems. During the first quarter of 2023, we began updating our asset contracts and/or replacing our LIBOR-indexed derivatives with SOFR-indexed derivatives and elected the optional expedients set forth under Accounting Standards Update 2020-04 for contract modifications and hedging relationships. The election of these expedients has not had a material effect on our financial condition, results of operations, or cash flows.
For additional information on regulatory action related to LIBOR, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments.”
The following table summarizes our variable rate advances, investments, consolidated obligation bonds, and derivatives by interest-rate index (in millions):
December 31, 2022
LIBOR SOFR Federal Funds
OIS Other1
Total
Advances, principal amount $ 267 $ 23,568 $ - $ 23,364 $ 47,199
Investment securities
Non-MBS, principal amount 855 - - - 855
MBS, principal amount 4,702 1,477 - - 6,179
Total investment securities 5,557 1,477 - - 7,034
Consolidated obligation bonds, principal amount - 53,153 - - 53,153
Total variable rate financial instruments amount $ 5,824 $ 78,198 $ - $ 23,364 $ 107,386
Derivatives
Pay leg, notional amount $ 1,224 $ 65,611 $ 375 $ - $ 67,210
Receive leg, notional amount 6,205 4,785 23,283 - 34,273
1 Consists primarily of advances indexed in part to consolidated obligation yields.
The following table presents our exposure to LIBOR-indexed advances, investments, and derivatives (in millions):
December 31, 2022
LIBOR Tenors That Cease or Will no Longer be Representative Immediately After June 30, 2023
Due/Terminates through June 30, 2023 Due/Terminates Thereafter Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term $ 50 $ 217 $ 267
Investment securities, by contractual maturity1
Non-MBS, principal amount 28 827 855
MBS, principal amount 4 4,698 4,702
Derivatives, receive leg
Cleared, notional amount 1,312 3,278 4,590
Uncleared, notional amount 394 1,221 1,615
Total principal/notional amount $ 1,788 $ 10,241 $ 12,029
Liabilities Indexed to LIBOR
Derivatives, pay leg
Cleared, notional amount $ 264 $ 660 $ 924
Uncleared, notional amount 50 250 300
Total principal/notional amount $ 314 $ 910 $ 1,224
1 MBS are presented by contractual maturity, however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
For a summary of our risks on the replacement of the LIBOR benchmark interest rate, refer to “Item 1A. Risk Factors.”
CONDITIONS IN THE FINANCIAL MARKETS
Economy and Financial Markets
Recent economic indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated. The invasion of Ukraine by Russia and the related events are causing economic hardship and is contributing to elevated economic uncertainty.
In March 2022, the FOMC raised the target range for the federal funds rate by 0.25 percent, followed by seven more rate hikes throughout 2022 and into 2023. This brought the target range to 4.50 to 4.75 percent as of February 28, 2023. In its February 1, 2023 statement, the Committee stated that it anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time. In addition, the Committee stated that it will continue reducing its holdings of Treasury securities and agency debt and agency MBS.
In January 2023, the United States reached its statutory debt limit and, since then, the U.S. Treasury has been taking measures to prevent the United States from defaulting on its obligations. The failure by the U.S. Government to adequately address its statutory debt limit in a timely manner, or continued uncertainty relating to the debt limit, could result in downgrades to the U.S. Government credit rating or outlook and cause significant harm to the U.S. economy and global financial stability. In addition, because of our GSE status, the credit ratings of the FHLBank System and our consolidated obligations are directly influenced by the U.S. Government credit rating. Future downgrades in credit ratings or outlook may result in higher funding costs, higher volatilities, or other disruptions in our access to the capital markets.
Mortgage Markets
During 2022, mortgage rates increased compared to 2021. In 2022, new and existing home sales slowed, while home prices continued to rise during the first half of the year due to low housing inventories. Home prices declined in the second half of 2022 as interest rates increased, but still remained higher when compared to 2021. The primary driver of mortgage activity during 2022 was purchase activity.
Interest Rates
The following table shows information on key market interest rates1:
Fourth Quarter 2022
3-Month
Average Fourth Quarter 2021
3-Month
Average 2022
12-Month
Average 2021
12-Month
Average 2022
Ending Rate 2021
Ending Rate
Federal funds 3.65 % 0.08 % 1.68 % 0.08 % 4.33 % 0.07 %
Three-month LIBOR 4.52 0.17 2.39 0.16 4.77 0.21
SOFR 3.62 0.05 1.63 0.04 4.30 0.05
2-year U.S. Treasury 4.39 0.52 2.99 0.26 4.43 0.73
10-year U.S. Treasury 3.82 1.53 2.95 1.44 3.88 1.51
30-year residential mortgage note 6.64 3.08 5.28 2.95 6.41 3.11
1 Source: Bloomberg.
In response to higher inflation, the FOMC raised the target range for the federal funds rate, which led to higher interest rates during 2022 when compared to the prior year.
SELECTED FINANCIAL DATA
The following tables present selected financial data for the periods indicated (dollars in millions):
December 31,
Statements of Condition 2022 2021 2020 2019 2018
Cash and due from banks $ 89 $ 295 $ 978 $ 1,029 $ 119
Investments1
43,381 33,442 31,497 38,465 31,777
Advances 111,202 44,111 46,530 80,360 106,323
Mortgage loans held for portfolio, net2
8,348 7,578 8,242 9,334 7,835
Total assets 164,169 85,852 87,691 129,603 146,515
Consolidated obligations
Discount notes 69,170 22,348 27,345 29,531 42,879
Bonds 84,337 55,205 52,254 91,553 93,772
Total consolidated obligations3
153,507 77,553 79,599 121,084 136,651
MRCS 15 29 52 206 255
Total liabilities 155,418 80,014 81,951 122,877 138,967
Capital stock - Class B putable 6,250 3,364 3,341 4,517 5,414
Retained earnings 2,618 2,390 2,351 2,165 2,050
Accumulated other comprehensive income (loss) (117) 84 48 44 84
Total capital 8,751 5,838 5,740 6,726 7,548
Regulatory capital ratio4
5.41 6.74 6.55 5.31 5.27
For the Years Ended December 31,
Statements of Income 2022 2021 2020 2019 2018
Net interest income $ 683 $ 381 $ 472 $ 576 $ 635
Provision (reversal) for credit losses on mortgage loans 4 - 1 - -
Other income (loss)5
(40) 4 121 20 20
Other expense6
161 156 189 168 142
AHP assessments 48 23 41 44 53
Net income 430 206 362 384 460
Selected Financial Ratios7
Net interest spread8
0.48 % 0.39 % 0.38 % 0.29 % 0.32 %
Net interest margin9
0.61 0.44 0.45 0.42 0.43
Return on average equity 6.33 3.48 5.88 5.38 6.21
Return on average capital stock 9.78 5.92 9.33 7.75 8.67
Return on average assets 0.38 0.23 0.34 0.27 0.31
Average equity to average assets 6.02 6.73 5.73 5.10 4.98
1 Investments include interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, trading securities, AFS securities, and held-to-maturity (HTM) securities.
2 Includes an allowance for credit losses of $5 million at December 31, 2022 and $1 million at December 31, 2021, 2020, 2019, and 2018.
3 The total par value of outstanding consolidated obligations of the 11 FHLBanks was $1,181.7 billion, $652.9 billion, $746.8 billion, $1,025.9 billion, and $1,031.6 billion at December 31, 2022, 2021, 2020, 2019, and 2018.
4 Represents period-end regulatory capital expressed as a percentage of period-end total assets. Regulatory capital includes Class B capital stock (including MRCS) and retained earnings.
5 Other income (loss) includes, among other things, net gains (losses) on investment securities, net gains (losses) on derivatives, and net gains (losses) on financial instruments held under fair value option. Other income (loss) may also be impacted by net gains on litigation settlements.
6 Other expense includes, among other things, compensation and benefits, professional fees, and contractual services.
7 Amounts used to calculate selected financial ratios are based on numbers in actuals. Accordingly, recalculations using numbers in millions may not produce the same results.
8 Represents yield on total interest-earning assets minus cost of total interest-bearing liabilities.
9 Represents net interest income expressed as a percentage of average interest-earning assets.
RESULTS OF OPERATIONS
Net Interest Income
Our net interest income is impacted by changes in average interest-earning asset and interest-bearing liability balances, and the related yields and costs. The following table presents average balances and yields/costs of major asset and liability categories (dollars in millions):
For the Years Ended December 31,
2022 2021 2020
Average
Balance1
Yield/Cost Interest
Income/
Expense2
Average
Balance1
Yield/Cost Interest
Income/
Expense2
Average
Balance1
Yield/Cost Interest
Income/
Expense2
Interest-earning assets
Interest-bearing deposits $ 1,639 1.95 % $ 32 $ 810 0.11 % $ 1 $ 747 0.19 % $ 1
Securities purchased under agreements to resell 5,213 1.97 103 3,230 0.07 2 5,192 0.63 33
Federal funds sold 12,431 1.85 230 9,505 0.07 7 7,545 0.41 31
MBS3,4,5
12,356 2.53 313 12,497 0.73 92 14,465 1.26 182
Other investments3,4,5,6
4,836 2.20 107 5,714 1.21 69 8,062 1.36 110
Advances4,7
66,562 2.63 1,750 47,796 0.99 472 60,897 1.56 950
Mortgage loans8
7,971 3.00 239 7,714 2.65 204 9,089 2.84 258
Loans to other FHLBanks 11 0.64 - 1 0.12 - 2 1.60 -
Total interest-earning assets 111,019 2.50 2,774 87,267 0.97 847 105,999 1.48 1,565
Non-interest-earning assets 1,817 - - 935 - - 1,284 - -
Total assets $ 112,836 2.46 % $ 2,774 $ 88,202 0.96 % $ 847 $ 107,283 1.46 % $ 1,565
Interest-bearing liabilities
Deposits $ 1,559 0.89 % $ 14 $ 1,945 0.01 % $ - $ 1,314 0.09 % $ 1
Consolidated obligations
Discount notes4
50,842 1.87 948 21,793 0.06 12 27,678 0.62 172
Bonds4
50,931 2.21 1,128 57,265 0.79 452 70,098 1.31 915
Other interest-bearing liabilities9
21 5.75 1 36 4.96 2 101 4.92 5
Total interest-bearing liabilities 103,353 2.02 2,091 81,039 0.58 466 99,191 1.10 1,093
Non-interest-bearing liabilities 2,691 - - 1,225 - - 1,943 - -
Total liabilities 106,044 1.97 2,091 82,264 0.57 466 101,134 1.08 1,093
Capital 6,792 - - 5,938 - - 6,149 - -
Total liabilities and capital $ 112,836 1.85 % $ 2,091 $ 88,202 0.53 % $ 466 $ 107,283 1.02 % $ 1,093
Net interest income and spread10
0.48 % $ 683 0.39 % $ 381 0.38 % $ 472
Net interest margin11
0.61 % 0.44 % 0.45 %
Average interest-earning assets to interest-bearing liabilities 107.42 % 107.68 % 106.86 %
1 Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.
2 Interest income and expense amounts reported for advances, MBS, other investments, and consolidated obligation bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.
3 The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.
4 Average balances reflect the impact of fair value hedging adjustments and/or fair value option adjustments.
5 Interest income on investment securities includes prepayment fees, net of related amortization, of $21 million, less than $1 million, and ($2 million) for the years ended December 31, 2022, 2021, and 2020.
6 Other investments primarily include U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, and taxable municipal bonds.
7 Interest income on advances includes prepayment fees, net of related amortization, of $9 million, $48 million, and $75 million for the years ended December 31, 2022, 2021, and 2020.
8 Non-accrual loans are included in the average balance used to determine the average yield.
9 Other interest-bearing liabilities consists of MRCS and/or borrowings from other FHLBanks.
10 Represents yield on total interest-earning assets minus cost of total interest-bearing liabilities.
11 Represents net interest income expressed as a percentage of average interest-earning assets.
The following table presents changes in interest income and interest expense. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather attributable to both volume and rate changes, are allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes (dollars in millions).
2022 vs. 2021
2021 vs. 2020
Total Increase
(Decrease) Due to Total Increase
(Decrease) Total Increase
(Decrease) Due to Total Increase
(Decrease)
Volume Rate Volume Rate
Interest income
Interest-bearing deposits $ 2 $ 29 $ 31 $ - $ - $ -
Securities purchased under agreements to resell 2 99 101 (9) (22) (31)
Federal funds sold 3 220 223 7 (31) (24)
MBS (1) 222 221 (22) (68) (90)
Other investments (12) 50 38 (30) (11) (41)
Advances 245 1,033 1,278 (177) (301) (478)
Mortgage loans 7 28 35 (37) (17) (54)
Total interest income 246 1,681 1,927 (268) (450) (718)
Interest expense
Deposits - 14 14 - (1) (1)
Consolidated obligations
Discount notes 40 896 936 (30) (130) (160)
Bonds (55) 731 676 (146) (317) (463)
Other interest-bearing liabilities (1) - (1) (3) - (3)
Total interest expense (16) 1,641 1,625 (179) (448) (627)
Net interest income $ 262 $ 40 $ 302 $ (89) $ (2) $ (91)
NET INTEREST SPREAD AND MARGIN
Net interest spread represents the yield on total interest-earning assets minus the cost of total interest-bearing liabilities. Net interest margin equals net interest income expressed as a percentage of average interest-earning assets. During 2022, our net interest spread and margin both increased when compared to 2021 primarily due to higher interest rates, which improved earnings on invested capital, as well as growth in advance balances.
The primary components of our interest income and interest expense are discussed below.
Advances
Interest income on advances increased during 2022 when compared to 2021, due primarily to the higher interest rate environment, as well as higher average advance balances. The increase was partially offset by a decline in net advance prepayment fee income of $39 million.
Investments
Interest income on investments increased during 2022 when compared to 2021 due primarily to the higher interest rate environment, an increase in net investment prepayment fee income of $21 million, and an increase in net gains on investment fair value hedge relationships of $17 million. The increase was partially offset by lower average other investment balances resulting from maturities and/or paydowns.
Mortgage Loans
Interest income on mortgage loans increased during 2022 when compared to 2021 primarily due to the higher interest rate environment and decreased net premium amortization resulting from a slowdown in prepayment activity.
Consolidated Obligations
Interest expense on bonds increased during 2022 when compared to 2021 due primarily to the higher interest rate environment, offset in part by lower average balances. Interest expense on discount notes increased during 2022 when compared to 2021 due primarily to the higher interest rate environment and our increased utilization of discount notes to fund our increase in assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.
Other Income (Loss)
The following table summarizes the components of other income (loss) (dollars in millions):
For the Years Ended
December 31,
2022 2021
Net gains (losses) on trading securities $ (95) $ (38)
Net gains (losses) on financial instruments held under fair value option 106 1
Net gains (losses) on derivatives (64) 14
Standby letter of credit fees 9 10
Other, net 4 17
Total other income (loss) $ (40) $ 4
Other income (loss) declined $44 million during 2022 when compared to 2021. During 2022, we recorded net combined losses of $53 million on our trading securities, fair value option instruments, and economic derivatives, including the related interest settlements, compared to net losses of $23 million in 2021. These changes were primarily driven by rising interest rates, as well as credit spreads on our fixed rate trading securities. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Hedging Activities” for additional discussion on our economic derivatives. The decrease in other, net during 2022 was driven primarily by a decrease in the market value of our Benefit Equalization defined benefit plan assets.
Hedging Activities
We use derivatives to manage interest rate risk. Accounting rules affect the timing and recognition of income and expense on derivatives and therefore we may be subject to income statement volatility. If a hedging activity qualifies for hedge accounting treatment (fair value hedge), the net interest settlements of interest receivables or payables related to the derivative are recognized as interest income or expense in the relevant income statement caption consistent with the hedged asset or liability. The net fair value gains and losses of derivatives and hedged items designated in fair value hedge relationships are also recognized as interest income or expense. Amortization of basis adjustments from terminated hedges is also recorded in interest income or expense.
If a hedging activity does not qualify for hedge accounting treatment (economic hedge), the net interest settlements of interest receivables or payables related to the derivative as well as the fair value gains and losses on the derivative are recorded as a component of other income (loss) in “Net gains (losses) on derivatives;” however, there is no fair value adjustment for the corresponding asset or liability being hedged unless changes in the fair value of the asset or liability are normally marked to fair value through earnings (i.e., trading securities and fair value option instruments).
The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):
For the Year Ended December 31, 2022
Net Effect of Hedging Activities Advances Investments Mortgage
Loans Discount Notes Bonds Other Total
Net interest income:
Net amortization/accretion1
$ 22 $ 14 $ - $ - $ (4) $ - $ 32
Net gains (losses) on derivatives and hedged items (6) 30 - - (10) - 14
Net interest settlements on derivatives2
73 (16) - - (32) - 25
Total impact to net interest income 89 28 - - (46) - 71
Other income (loss):
Net gains (losses) on derivatives3
- 108 (1) (160) - - (53)
Net gains (losses) on trading securities4
- (95) - - - - (95)
Net gains (losses) on financial instruments held under fair value option4
- - - 106 - - 106
Price alignment amount on derivatives5
- - - - - (11) (11)
Total impact to other income (loss) - 13 (1) (54) - (11) (53)
Total net effect of hedging activities6
$ 89 $ 41 $ (1) $ (54) $ (46) $ (11) $ 18
1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.
2 Represents the interest component on derivatives that qualify for fair value hedge accounting.
3 Represents net gains (losses) on economic derivatives and the related interest settlements.
4 Represents the net gains (losses) on those trading securities and fair value option instruments for which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value.
5 Includes the price alignment amount on derivatives for which variation margin is characterized as a daily settled contract, which is included in net gains (losses) on derivatives on our Statements of Income.
6 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.
The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):
For the Year Ended December 31, 2021
Net Effect of Hedging Activities Advances Investments Mortgage
Loans Discount Notes Bonds Total
Net interest income:
Net amortization/accretion1
$ (36) $ (23) $ (4) $ - $ (5) $ (68)
Net gains (losses) on derivatives and hedged items 2 13 - - (3) 12
Net interest settlements on derivatives2
(187) (129) - - 131 (185)
Total impact to net interest income (221) (139) (4) - 123 (241)
Other income (loss):
Net gains (losses) on derivatives3
- 16 - (2) - 14
Net gains (losses) on trading securities4
- (38) - - - (38)
Net gains (losses) on financial instruments held under fair value option4
- - - 1 - 1
Total impact to other income (loss) - (22) - (1) - (23)
Total net effect of hedging activities5
$ (221) $ (161) $ (4) $ (1) $ 123 $ (264)
1 Represents the amortization/accretion of basis adjustments on closed hedge relationships.
2 Represents the interest component on derivatives that qualify for fair value hedge accounting.
3 Represents net gains (losses) on economic derivatives and the related interest settlements.
4 Represents the net gains (losses) on those trading securities and fair value option instruments for which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value.
5 The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.
NET AMORTIZATION/ACCRETION
Net amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships. During 2022, the change in amortization activity when compared to the prior year was driven primarily by the prepayment of advances and investments that were previously in a hedge relationship, as well as the termination of certain advance fair value hedge relationships.
NET GAINS (LOSSES) ON DERIVATIVES AND HEDGED ITEMS
Net gains and losses on derivatives and hedged items designated in fair value hedge relationships are recorded in net interest income. Gains (losses) on derivatives and hedged items are primarily driven by rising interest rates and remained relatively stable during 2022 when compared to 2021.
NET INTEREST SETTLEMENTS ON DERIVATIVES
Net interest settlements represent the interest component on derivatives that qualify for fair value hedge accounting. These amounts vary from period to period depending on our hedging activities and interest rates and are partially offset by the interest component on the related hedged item within net interest income. The hedging activity tables do not include the impact of the interest component on the related hedged item.
NET GAINS (LOSSES) ON DERIVATIVES
We utilize economic derivatives to manage certain risks on our Statements of Condition. Gains and losses on economic derivatives include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. During 2022, we recorded net losses of $64 million on our economic derivatives, compared to net gains of $14 million during 2021. These changes were primarily driven by rising interest rates.
Other Expense
The following table shows the components of other expense (dollars in millions):
For the Years Ended
December 31,
2022 2021
Compensation and benefits $ 72 $ 80
Contractual services 20 19
Professional fees 16 14
Other operating expenses 19 19
Total operating expenses 127 132
Federal Housing Finance Agency 10 9
Office of Finance 8 7
Other, net 16 8
Total other expense $ 161 $ 156
Other expense remained relatively stable during 2022 when compared to 2021; but was impacted by an increase in other, net expense offset by a decrease in compensation and benefits. The increase in other, net expense was due primarily to increased concession expense on discount notes recorded under the fair value option of $5 million and a $3 million voluntary contribution to our Member Impact Fund, a discretionary non-AHP program intended to support affordable housing and community development. The decrease in compensation and benefits was due to the Bank making a discretionary pension contribution of $8 million in 2021.
STATEMENTS OF CONDITION
Financial Highlights
Our total assets increased to $164.2 billion at December 31, 2022, from $85.9 billion at December 31, 2021. Our total liabilities increased to $155.4 billion at December 31, 2022, from $80.0 billion at December 31, 2021. Total capital increased to $8.8 billion at December 31, 2022, from $5.8 billion at December 31, 2021. See further discussion of changes in our financial condition in the sections that follow.
Cash and Due from Banks
At December 31, 2022, our total cash balance was $89 million compared to $295 million at December 31, 2021, a decrease of $206 million. Our cash balance is influenced by our liquidity needs, member advance activity, market conditions, and the availability of attractive investment opportunities.
Advances
The following table summarizes our advances by type of institution (dollars in millions):
December 31,
2022 2021
Commercial banks $ 66,303 $ 9,095
Savings institutions 1,498 671
Credit unions 12,989 4,054
Insurance companies 31,433 29,681
CDFIs 12 16
Total member advances 112,235 43,517
Housing associates 74 515
Non-member borrowers 65 107
Total par value $ 112,374 $ 44,139
Our total advance par value increased $68.2 billion or 155 percent at December 31, 2022 when compared to December 31, 2021, primarily due to an increase in borrowings by large depository institution members, with the most significant increase of $32.0 billion from Wells Fargo Bank, N.A.
INTEREST RATE PAYMENT AND REDEMPTION TERMS
The following table summarizes advances by interest rate payment and redemption terms (dollars in millions):
December 31, 2022 December 31, 2021
Amount % of Total Amount % of Total
Fixed rate
Due in one year or less $ 43,716 39 $ 10,164 23
Due after one year through three years 10,196 9 8,969 20
Due after three years through five years 7,219 7 5,143 12
Due after five years through 15 years 2,533 2 2,738 6
Thereafter 29 - 39 -
Total par value 63,693 57 27,053 61
Fixed rate, putable
Due in one year or less - - 142 -
Due after one year through three years 160 - 937 2
Due after three years through five years - - 49 -
Due after five years through 15 years 8 - 11 -
Total par value 168 - 1,139 2
Variable rate
Due in one year or less 6,463 6 781 2
Due after one year through three years 16,341 14 320 1
Due after three years through five years 151 - 111 -
Due after five years through 15 years 953 1 - -
Total par value 23,908 21 1,212 3
Variable rate, callable1
Due in one year or less 11,097 10 1,066 2
Due after one year through three years 6,701 6 6,679 15
Due after three years through five years 5,493 5 5,574 13
Due after five years through 15 years - - - -
Total par value 23,291 21 13,319 30
Other2
Due in one year or less 302 - 288 1
Due after one year through three years 418 1 466 1
Due after three years through five years 333 - 337 1
Due after five years through 15 years 253 - 315 1
Thereafter 7 - 10 -
Total par value 1,313 1 1,416 4
Overdrawn demand deposit accounts 1 - - -
Total advance par value 112,374 100 44,139 100
Premiums 11 14
Discounts - (2)
Fair value hedging adjustments (1,183) (40)
Total $ 111,202 $ 44,111
1 Callable advances are those advances that may be contractually prepaid by the borrower on predetermined dates without incurring prepayment or termination fees. Interest rates on our variable rate callable advances reset at each call date to be consistent with either the underlying index or our current offering rate in line with our underlying cost of funds.
2 Includes fixed-rate amortizing and fixed-rate callable advances.
Fair value hedging adjustments changed $1.1 billion at December 31, 2022 when compared to December 31, 2021, due primarily to the impact of interest rates on our cumulative fair value adjustments on advances in active hedge relationships, coupled with the recognition of closed basis adjustments on terminated advance hedge relationships.
At December 31, 2022 and 2021, advances outstanding to our five largest member borrowers totaled $50.9 billion and $17.0 billion, representing 45 percent and 39 percent of our total advances outstanding. The following table summarizes advances outstanding to our five largest member borrowers at December 31, 2022 (dollars in millions):
Amount % of Total Advances
Wells Fargo Bank, N.A. $ 32,000 28
Zions Bancorporation, National Association 7,100 6
Principal Life Insurance Company 4,250 4
EquiTrust Life Insurance Company 4,150 4
Athene Annuity and Life Company1
3,406 3
Total par value $ 50,906 45
1 Excludes $0.3 billion of advances with Athene Annuity & Life Assurance Company, an affiliate of Athene Annuity and Life Company.
We evaluate advances for credit losses on a quarterly basis and have never experienced a credit loss on our advances. For additional discussion on our advance credit risk, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk - Advances.”
Mortgage Loans
The following table summarizes information on our mortgage loans held for portfolio (dollars in millions):
December 31,
2022 2021
Fixed rate conventional loans $ 7,890 $ 7,063
Fixed rate government-insured loans 387 416
Total unpaid principal balance 8,277 7,479
Premiums 96 96
Discounts (11) (2)
Basis adjustments from mortgage loan purchase commitments (9) 6
Total mortgage loans held for portfolio 8,353 7,579
Allowance for credit losses (5) (1)
Total mortgage loans held for portfolio, net $ 8,348 $ 7,578
Our total mortgage loans increased $0.8 billion or 10 percent at December 31, 2022 when compared to December 31, 2021. The increase was primarily due to new loan purchases exceeding principal paydowns, driven in part by a decrease in prepayment activity resulting from an increase in mortgage rates.
We evaluate mortgage loans for credit losses on a quarterly basis. During the year ended December 31, 2022, we projected an increase in expected credit losses on collectively evaluated loans due primarily to an upward revision in forecasted mortgage rates, a deceleration in forecasted regional home price appreciation, and increased loan volumes.
REDEMPTION TERMS
The following table summarizes our fixed rate mortgage loans held for portfolio by redemption terms (dollars in millions):
December 31,
Redemption Term 2022 2021
Due in one year or less $ 308 $ 297
Due after one year through five years 1,288 1,246
Due after five years through fifteen years 3,166 3,020
Thereafter 3,515 2,916
Total unpaid principal balance $ 8,277 $ 7,479
For additional discussion on our mortgage loan credit risk, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk - Mortgage Loans.”
Investments
The following table summarizes the carrying value of our investments (dollars in millions):
December 31, 2022 December 31, 2021
Amount % of Total Amount % of Total
Short-term investments1
Interest-bearing deposits $ 2,031 4 $ 416 1
Securities purchased under agreements to resell 12,590 29 12,450 37
Federal funds sold 9,415 22 4,690 14
Total short-term investments 24,036 55 17,556 52
Long-term investments2
MBS
GSE single-family 767 2 1,037 3
GSE multifamily 9,805 23 7,598 23
U.S. obligations single-family3
3,678 8 2,911 9
Private-label residential 4 - 5 -
Total MBS 14,254 33 11,551 35
Non-MBS
U.S. Treasury obligations3
2,501 6 496 1
Other U.S. obligations3
834 2 1,258 4
GSE and TVA obligations 888 2 1,417 4
State or local housing agency obligations 482 1 675 2
Other4
386 1 489 2
Total non-MBS 5,091 12 4,335 13
Total long-term investments 19,345 45 15,886 48
Total investments $ 43,381 100 $ 33,442 100
1 Short-term investments have original maturities equal to or less than one year.
2 Long-term investments have original maturities of greater than one year.
3 Represents investment securities backed by the full faith and credit of the U.S. Government.
4 Consists primarily of taxable municipal bonds.
Our investments increased $9.9 billion or 30 percent at December 31, 2022 when compared to December 31, 2021. The increase was driven by increased money market investments and the purchase of U.S. Treasury obligations and agency MBS. At December 31, 2022 and 2021, we had GSE MBS with a total par value of $181 million and $289 million that were traded but not yet settled. These investments were recorded as “available-for-sale” on our Statements of Condition with a corresponding payable recorded in “other liabilities.”
The Finance Agency limits our investments in MBS by requiring that the balance of our MBS not exceed three times regulatory capital at the time of purchase. At December 31, 2022, our ratio of MBS to regulatory capital was 1.69 compared to 1.99 at December 31, 2021.
REDEMPTION TERMS AND YIELDS
The following table summarizes the carrying value and yield characteristics of our AFS and HTM investment portfolios on the basis of remaining terms to contractual maturity. Expected maturities of some securities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
December 31,
2022 2021
Due in one year or less Due after one year through five years Due after five years through 10 years Due after 10 years Carrying Value Carrying Value
AFS securities
Non-MBS
Other U.S. obligations1
$ 131 $ 627 $ - $ - $ 758 $ 1,156
GSE and TVA obligations 133 31 28 278 470 983
State or local housing agency obligations 12 19 240 178 449 488
Other2
19 156 65 - 240 288
Total non-MBS 295 833 333 456 1,917 2,915
MBS
U.S. obligations
single-family1
- - - 3,676 3,676 2,909
GSE single-family - - - 210 210 277
GSE multifamily 1,104 2,250 6,085 321 9,760 7,288
Total MBS 1,104 2,250 6,085 4,207 13,646 10,474
Total AFS securities 1,399 3,083 6,418 4,663 15,563 13,389
HTM securities
Non-MBS
GSE and TVA obligations - 243 69 57 369 374
State or local housing agency obligations - 11 2 20 33 187
Total non-MBS - 254 71 77 402 561
MBS
U.S. obligations
single-family1
- - - 2 2 2
GSE single-family - 18 52 487 557 760
Private-label - - 1 3 4 5
Total MBS - 18 53 492 563 767
Total HTM securities3
$ - $ 272 $ 124 $ 569 $ 965 $ 1,328
Weighted-average yields on:
AFS securities4
3.13 % 3.89 % 3.35 % 4.48 %
HTM securities4
4.82 % 4.40 % 4.13 % 4.73 %
1 Represents investment securities backed by the full faith and credit of the U.S. Government.
2 Consists primarily of taxable municipal bonds.
3 Amount of HTM securities due in one year or less was less than $1 million.
4 The weighted average yields on AFS and HTM securities are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate, divided by the total debt securities in the applicable HTM or AFS portfolio. The result is then multiplied by 100 to express it as a percentage.
INTEREST RATE PAYMENT TERMS
The following table summarizes the interest rate payment terms of investment securities (dollars in millions):
December 31,
2022 2021
Trading securities at fair value
Fixed rate $ 2,817 $ 1,169
Total trading securities $ 2,817 $ 1,169
AFS securities at amortized cost
Fixed rate $ 9,128 $ 6,755
Variable rate 6,549 6,546
Total AFS securities $ 15,677 $ 13,301
HTM securities at amortized cost
Fixed rate $ 480 $ 538
Variable rate 485 790
Total HTM securities $ 965 $ 1,328
We evaluate investments for credit losses on a quarterly basis. For additional discussion on our investment credit risk, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk - Investments.”
Consolidated Obligations
Consolidated obligations, which include bonds and discount notes, are the primary source of funds to support our advances, mortgage loans, and investments. At December 31, 2022 and 2021, the carrying value of consolidated obligations for which we are primarily liable totaled $153.5 billion and $77.6 billion.
DISCOUNT NOTES
The following table summarizes our discount notes, all of which are due within one year (dollars in millions):
December 31,
2022 2021
Par value $ 70,002 $ 22,355
Discounts and concession fees1
(725) (6)
Fair value option adjustments (107) (1)
Total $ 69,170 $ 22,348
1 Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation discount notes.
Our discount notes increased $46.8 billion or 210 percent at December 31, 2022 when compared to December 31, 2021. During 2022, we increased our utilization of discount notes to fund our increase in assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.
BONDS
The following table summarizes information on our bonds (dollars in millions):
December 31,
2022 2021
Par value $ 84,572 $ 55,079
Premiums 86 138
Discounts and concession fees1
(23) (17)
Fair value hedging adjustments (298) 5
Total $ 84,337 $ 55,205
1 Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation bonds.
Our bonds increased $29.1 billion or 53 percent at December 31, 2022 when compared to December 31, 2021. During 2022, we primarily utilized short-term consolidated obligation bonds in an effort to fund our increase in assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements. Fair value hedging adjustments changed $303 million at December 31, 2022 when compared to December 31, 2021, due primarily to the impact of interest rates on our cumulative fair value adjustments on bonds in active hedge relationships.
INTEREST RATE PAYMENT TERMS
Bonds are issued with fixed or variable rate payment terms, such as SOFR. The following table summarizes our bonds by interest rate payment terms (dollars in millions):
December 31,
2022 2021
Fixed rate $ 34,520 $ 47,253
Simple variable rate 50,052 7,786
Step-up1
- 40
Total par value $ 84,572 $ 55,079
1 These bonds pay interest at increasing fixed rates for specified intervals over the life of the bond. These bonds generally contain provisions enabling us to call the bonds at our option on the step-up dates.
For additional information on our consolidated obligations, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - Sources of Liquidity.”
Deposits
Deposits represent a relatively small portion of our funding, totaling $1.1 billion at December 31, 2022, a decline of $771 million from December 31, 2021. All of our deposits are uninsured and the balance of deposits varies depending on market factors, such as the attractiveness of our deposit pricing relative to rates available on alternative money market instruments, our members’ investment preferences and the availability of alternative short-term investments, and our members’ liquidity levels.
Interest-bearing demand and overnight deposits pay interest based on a daily interest rate. The average balances of demand and overnight deposits were $1.4 billion, $1.8 billion, and $1.2 billion, and the weighted-average interest rates paid on demand and overnight deposits were 0.83 percent, 0.01 percent, and 0.08 percent during the years ended December 31, 2022, 2021, and 2020. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit. The average balances of term deposits were $185 million, $97 million, and $85 million, and the weighted-average interest rates paid on term deposits were 1.17 percent, 0.02 percent, and 0.21 percent during the years ended December 31, 2022, 2021, and 2020.
The following table summarizes our uninsured term deposits (dollars in millions):
December 31,
2022 2021
Three months or less $ 26 $ 51
Over three months through six months 3 5
Over six months through 12 months - 3
Total $ 29 $ 59
Capital
The following table summarizes information on our capital (dollars in millions):
December 31,
2022 2021
Capital stock $ 6,250 $ 3,364
Retained earnings 2,618 2,390
Accumulated other comprehensive income (loss) (117) 84
Total capital $ 8,751 $ 5,838
Our capital increased at December 31, 2022 when compared to December 31, 2021, primarily due to an increase in activity-based capital stock resulting from an increase in advance balances. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Capital” for additional information on our capital.
Derivatives
We use derivatives to manage interest rate risk. The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor our overall exposure to credit and market risk.
The following table categorizes the notional amount of our derivatives by type (dollars in millions):
December 31,
2022 2021
Interest rate swaps
Non-callable $ 94,582 $ 77,770
Callable by counterparty 6,901 3,396
Total interest rate swaps 101,483 81,166
Forward settlement agreements 46 115
Mortgage loan purchase commitments 46 115
Total notional amount $ 101,575 $ 81,396
The notional amount of our derivative contracts increased $20.2 billion or 25 percent at December 31, 2022 when compared to December 31, 2021. This was primarily due to increased utilization of non-callable swaps to economically hedge our discount notes in an effort to manage our interest rate risk and capture attractive funding opportunities. For additional discussion regarding our use of derivatives, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Interest Rate Risk - Derivatives.”
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital positions are actively managed in an effort to preserve stable, reliable, and cost-effective sources of funds to meet current and projected future operating financial commitments, as well as regulatory, liquidity, and capital requirements.
Liquidity
SOURCES OF LIQUIDITY
We utilize several sources of liquidity to carry out our business activities. These include, but are not limited to, proceeds from the issuance of consolidated obligations, payments collected on advances and mortgage loans, proceeds from investment securities, member deposits, the issuance of capital stock, and current period earnings.
Our primary source of liquidity is proceeds from the issuance of consolidated obligations (bonds and discount notes) in the capital markets. During 2022, proceeds from the issuance of bonds and discount notes were $83.8 billion and $1,022.9 billion compared to $65.4 billion and $325.5 billion in 2021. During 2022, we increased our utilization of discount notes and shorter-term consolidated obligation bonds compared to the prior year to fund our increase in assets, capture attractive funding, match the repricing structures on certain assets, and/or meet our liquidity requirements.
Access to debt markets has been reliable because investors, driven by increased liquidity preference and our GSE status, have sought the FHLBanks’ debt as an asset of choice. However, due to the short-term maturity of the debt, we may be exposed to additional risks associated with refinancing and our ability to access the capital markets.
We are focused on maintaining an adequate liquidity balance and a funding balance between our financial assets and financial liabilities and work collectively with the other FHLBanks to manage the system-wide liquidity and funding needs. We monitor our debt refinancing risk and liquidity position primarily by tracking the maturities of financial assets and financial liabilities. In managing and monitoring the amounts of assets that require refunding, we consider contractual maturities of our financial assets and liabilities, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments). External factors, including member borrowing needs, supply and demand in the debt markets, and other factors may affect liquidity balances and the funding balances between financial assets and financial liabilities. Refer to “Item 8. Financial Statements and Supplementary Data” for additional information regarding the contractual maturities or redemption terms of certain of our financial assets and liabilities.
Our ability to raise funds in the capital markets as well as our cost of borrowing may be affected by our credit ratings. As of February 28, 2023, our consolidated obligations were rated AA+/A-1+ by S&P and Aaa/P-1 by Moody’s and both ratings had a stable outlook. For further discussion of how credit rating changes and our ability to access the capital markets may impact us in the future, refer to “Item 1A. Risk Factors.”
Although we are primarily liable for the portion of consolidated obligations that are issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations issued by the FHLBank System. At December 31, 2022 and 2021, the total par value of outstanding consolidated obligations for which we are primarily liable was $154.6 billion and $77.4 billion. At December 31, 2022 and 2021, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which we are jointly and severally liable was $1,027.1 billion and $575.5 billion.
The Office of Finance and FHLBanks have contingency plans in place that prioritize the allocation of proceeds from the issuance of consolidated obligations during periods of financial distress if consolidated obligations cannot be issued in sufficient amounts to satisfy all FHLBank demand. In the event of significant market disruptions or local disasters, our President and CEO or designee is authorized to establish interim borrowing relationships with other FHLBanks. To provide further access to funding, the FHLBank Act also authorizes the U.S. Treasury to directly purchase new issue consolidated obligations of the GSEs, including FHLBanks, up to an aggregate principal amount of $4.0 billion. As of February 28, 2023, no purchases had been made by the U.S. Treasury under this authorization.
USES OF LIQUIDITY
We use our available liquidity, including proceeds from the issuance of consolidated obligations, primarily to repay consolidated obligations, fund advances, and purchase investments. During 2022, repayments of consolidated obligations totaled $1,030.8 billion compared to $392.7 billion in 2021.
During 2022, advance disbursements totaled $424.9 billion compared to $136.5 billion in 2021. Advance disbursements will vary from period to period depending on member needs. During 2022, investment purchases (excluding overnight investments) totaled $9.3 billion compared to $8.9 billion in 2021. We purchased money market investments and U.S. Treasury securities in an effort to manage our liquidity position, and also purchased agency MBS during 2022.
We also use liquidity to purchase mortgage loans, redeem member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, pay expenses, and pay dividends.
LIQUIDITY REQUIREMENTS
We are subject to certain liquidity requirements set forth by the Finance Agency, as further outlined below. We also maintain a liquidity contingency funding plan designed to enable us to meet our obligations and the liquidity needs of our members in the event of short-term capital market disruptions, or operational disruptions at our Bank and/or the Office of Finance.
Finance Agency Advisory Bulletin on FHLBank Liquidity (the Liquidity Guidance AB) - This guidance requires us to maintain sufficient liquidity for a period of 10 to 30 calendar days. The base case scenario requires 20 days of positive daily cash balances and assumes that we cannot access the capital markets to issue debt, and during that time we will automatically renew maturing and called advances for all members, including very large highly-rated members, and we hold additional liquid assets equal to one percent of our letters of credit balances. At December 31, 2022 and 2021, we were in compliance with this base case liquidity guidance.
The Liquidity Guidance AB also specifies appropriate funding gap limits to address the risks associated with an FHLBank having too large a mismatch between the contractual maturities of its assets and liabilities. A funding gap measures the difference between assets and liabilities that are scheduled to mature during a specified period and is expressed as a percentage of total assets. Prior guidance, which was in effect at December 31, 2021, provided funding gap maximums of negative 20 percent for a three-month horizon and negative 35 percent for a one-year horizon. Effective December 31, 2022, the Finance Agency reduced the recommended funding gap maximums to negative 15 percent at the three-month horizon and negative 30 percent at the one-year horizon. At December 31, 2022 and 2021, we adhered to these funding gap requirements.
Liquidity Reserves for Deposits - We are required to have available at all times an amount greater than or equal to members’ current deposits invested in advances with maturities not to exceed five years, deposits in banks or trust companies, and obligations of the U.S. Treasury. At December 31, 2022 and 2021, we were in compliance with this liquidity guidance.
Unpledged Qualifying Assets - We are required to maintain, in the aggregate, unpledged qualifying assets in an amount at least equal to the amount of our participation in total consolidated obligations outstanding. The following table shows our compliance with this requirement (dollars in billions):
December 31,
2022 2021
Qualifying assets free of lien or pledge $ 163.4 $ 85.5
Consolidated obligations outstanding 153.5 77.6
Excess liquidity $ 9.9 $ 7.9
Capital
CAPITAL REQUIREMENTS
We are subject to certain regulatory capital requirements. First, the FHLBank Act requires that we maintain at all times permanent capital greater than or equal to the sum of our credit, market, and operational risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as the amounts paid-in for Class B capital stock (including MRCS), and retained earnings can satisfy this risk-based capital requirement. Second, the FHLBank Act requires a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes all Class B capital stock (including MRCS) and retained earnings. Third, the FHLBank Act imposes a five percent minimum leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. At December 31, 2022 and 2021, we did not hold any nonpermanent capital. At December 31, 2022 and 2021, we were in compliance with all three of the Finance Agency’s regulatory capital requirements.
In addition to the requirements previously discussed, the Finance Agency Advisory Bulletin on capital stock (the Capital Stock AB) requires each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets. For purposes of the Capital Stock AB, capital stock includes MRCS. The capital stock to total assets ratio is measured on a daily average basis at month end. At December 31, 2022 and 2021, we were in compliance with the Capital Stock AB.
Refer to “Item 8. Financial Statements and Supplementary Data - Note 11 - Capital” for additional information on our regulatory capital requirements.
CAPITAL STOCK
Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. We issue a single class of capital stock (Class B capital stock) and have two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding and 0.10 percent of its standby letters of credit. All Class B capital stock issued is subject to a notice of redemption period of five years.
The capital stock requirements established in our Capital Plan are designed so that we can remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan.
Because membership is voluntary, a member can provide a notice of withdrawal from membership at any time. If a member provides a notice of withdrawal from membership, we will not repurchase or redeem any membership stock until five years from the date of receipt of a notice of withdrawal. To the extent membership is terminated involuntarily, we may elect to repurchase that institution’s membership stock prior to the end of the five-year redemption period. If a member withdraws or is involuntarily terminated from membership and holds activity-based capital stock, we will repurchase any such stock that is not required to support remaining business activity with the institution.
A member may cancel any pending notice of redemption before the completion of the five-year redemption period by providing a written notice of cancellation. We charge a cancellation fee equal to a percentage of the par value of the shares of capital stock subject to redemption. This fee is currently set at a range of one to five percent depending on when we receive notice of cancellation from the member. Our Board of Directors retains the right to change the cancellation fee at any time. We will provide at least 15 days’ written notice to each member of any adjustment or amendment to our cancellation fee.
We cannot repurchase or redeem any membership or activity-based capital stock if the repurchase or redemption would cause a member to be out of compliance with its required investment. In addition, there are statutory and regulatory restrictions on our obligation or right to redeem outstanding capital stock.
First, in no case may we redeem any capital stock if, following such redemption, we would fail to satisfy our minimum regulatory capital requirements. By law, all member holdings of our capital stock immediately become nonredeemable if we become undercapitalized.
Second, we are precluded by regulation from redeeming any capital stock without the prior approval of the Finance Agency if either our Board of Directors or the Finance Agency determines that we incurred or are likely to incur losses resulting in or likely to result in a charge against capital.
Third, we cannot redeem shares of capital stock from any member if the principal or interest on any consolidated obligation is not paid in full when due, or under certain circumstances if (i) we project, at any time, that we will fail to comply with statutory or regulatory liquidity requirements, or will be unable to timely and fully meet all of our current obligations, (ii) we actually fail to comply with statutory or regulatory liquidity requirements or to timely and fully meet all of our current obligations, or enter or negotiate to enter into an agreement with one or more other FHLBanks to obtain financial assistance to meet our current obligations, or (iii) the Finance Agency determines that we will cease to be in compliance with statutory or regulatory liquidity requirements, or will lack the capacity to timely or fully meet all of our current obligations.
If we are liquidated, after payment in full to our creditors, our stockholders will be entitled to receive the par value of their capital stock as well as any retained earnings, in an amount proportional to the stockholder’s share of the total shares of capital stock. In the event of a merger or consolidation, our Board of Directors shall determine the rights and preferences of our stockholders, subject to applicable Finance Agency regulations, as well as any terms and conditions imposed by the Finance Agency.
Regulatory Capital Stock
The following table summarizes our regulatory capital stock by type of member (dollars in millions):
December 31,
2022 2021
Commercial banks $ 3,659 $ 1,305
Savings institutions 119 86
Credit unions 926 519
Insurance companies 1,545 1,453
CDFIs 1 1
Total GAAP capital stock 6,250 3,364
MRCS 15 29
Total regulatory capital stock $ 6,265 $ 3,393
The increase in regulatory capital stock at December 31, 2022 when compared to December 31, 2021 was primarily due to an increase in activity-based capital stock resulting from an increase in advance balances. For additional information on our capital stock, refer to “Item 8. Financial Statements and Supplementary Data - Note 11 - Capital.”
RETAINED EARNINGS
Our risk management policies require a minimum level of retained earnings based on the amount we believe necessary to help protect the redemption value of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend. We monitor our achievement of this minimum level and may utilize tools such as restructuring our balance sheet, generating additional income, reducing our risk exposures, increasing capital stock requirements, or reducing our dividends to achieve this level of retained earnings. At December 31, 2022 and 2021, our actual retained earnings exceeded our required minimum level of retained earnings.
Under the JCE Agreement, we are required to allocate 20 percent of our quarterly net income to a separate restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar quarter, equals at least one percent of our average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends and are presented separately on our Statements of Condition. At December 31, 2022 and 2021, our restricted retained earnings account totaled $703 million and $617 million. One percent of our average balance of outstanding consolidated obligations for the three months ended December 31, 2022 was $1.4 billion.
DIVIDENDS
Our Board of Directors may declare and pay different dividends for each subclass of capital stock. Dividend payments may be made in the form of cash and/or additional shares of capital stock. Historically, we have only paid cash dividends. By regulation, we may only pay dividends from current earnings or unrestricted retained earnings. We are prohibited from paying a dividend in the form of additional shares of capital stock if, after the issuance, the outstanding excess capital stock would be greater than one percent of our total assets. Our Board of Directors may not declare or pay dividends if it would result in our non-compliance with regulatory capital requirements.
Our dividend philosophy is to pay a consistent dividend equal to or greater than the current market rate for a highly-rated investment (i.e. SOFR), and at a rate that the Board of Directors believes is sustainable under current and projected earnings to maintain an appropriate level of capital and retained earnings. Our actual dividend is determined quarterly by our Board of Directors, based on policies, regulatory requirements, actual performance, and other considerations that the Board determines to be appropriate.
The following table summarizes dividend-related information (dollars in millions):
For the Years Ended
December 31,
2022 2021
Aggregate cash dividends paid1
$ 202 $ 167
Effective combined annualized dividend rate paid on capital stock2
5.27 % 4.82 %
Annualized dividend rate paid on membership capital stock 3.00 % 3.00 %
Annualized dividend rate paid on activity-based capital stock 6.57 % 5.88 %
Average SOFR 1.63 % 0.04 %
1 Includes aggregate cash dividends paid during the period. Amount excludes cash dividends paid on MRCS. For financial reporting purposes, these dividends were recorded as interest expense on our Statements of Income.
2 Effective combined annualized dividend rate is paid on total capital stock, including MRCS.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect our reported results and disclosures. Given the assumptions and judgment used, we have identified fair value measurements and derivatives and hedging activities as our critical accounting estimates.
We evaluate our critical accounting estimates on an ongoing basis. While management believes our estimates and assumptions are reasonable based on historical experience and other factors, actual results could differ from those estimates and differences could be material to the financial statements.
For a discussion of recently adopted or issued accounting standards, refer to “Item 8. Financial Statements and Supplementary Data - Note 2 - Recently Adopted and Issued Accounting Guidance.”
Fair Value Measurements
We record trading securities, AFS securities, derivative assets, derivative liabilities, financial instruments held under the fair value option, and certain other assets at fair value on a recurring basis, and on occasion certain impaired mortgage loans held for portfolio on a non-recurring basis. Fair value is a market-based measurement and is defined as the price received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under current market conditions. In general, the transaction price will equal the exit price and, therefore, represent the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, we are required to consider factors specific to the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom we would transact in that market.
Fair values play an important role in our valuation of certain assets, liabilities, and hedging instruments. Fair value is first determined based on quoted market prices or market-based prices, where available. If quoted market prices or market-based prices are not available, fair values are determined based on external or internal pricing models that generally use (i) discounted cash flows using market estimates of interest rates and volatility, (ii) dealer prices, or (iii) prices of similar instruments.
For prices obtained externally, we have control processes in place to ensure fair value measurements are appropriate and reliable. These processes include, but are not limited to: challenging a price when it falls out of our tolerance parameters and identifying a stale price, significantly changed price, or other anomalies that may indicate that a price may not be accurate. In addition, on an annual basis, we conduct reviews of our pricing vendors to confirm and further augment our understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities. For internal pricing models, the underlying assumptions are based on management’s best estimates for discount rates, prepayments, market volatility, and other factors. The assumptions used in both external and internal pricing models could have a significant effect on the reported fair values of assets and liabilities, including the related income and expense. The use of different assumptions, as well as changes in market conditions, could result in materially different values.
We categorize our financial instruments carried at fair value into a three-level hierarchy. The hierarchy is based upon the transparency (observable or unobservable) of inputs used to value the asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. At December 31, 2022 and 2021, we did not carry any financial assets or liabilities, measured on a recurring basis, at fair value on our Statements of Condition based on unobservable inputs.
Throughout 2022, there were no material changes in our valuation techniques or primary inputs used to develop fair value measurements. Refer to “Item 8. Financial Statements and Supplementary Data - Note 13 - Fair Value” for additional discussion on our fair value measurements, including the quantitative impact these fair value estimates had on our financial statements and disclosures at December 31, 2022 and 2021. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Hedging Activities” for details on changes in the fair value of our trading securities, economic derivatives, and financial instruments held under the fair value option.
Derivatives and Hedging Activities
We use derivatives to manage interest rate risk. All derivatives are recognized on the Statements of Condition at their fair values, and we record changes in these fair values in current period earnings. The fair value of derivatives is generally estimated using standard valuation techniques such as a discounted cash flow analysis and comparisons to similar instruments, and includes variation margin payments for daily settled contracts. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data.
FAIR VALUE HEDGES
If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the fair value hedging relationship and an expectation to be highly effective, they qualify for fair value hedge accounting. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability (or firm commitment) that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item. For hedged items, the fair value is estimated using a discounted cash flow analysis which typically considers inputs such as a discount rate and volatility assumptions.
ECONOMIC HEDGES
An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that does not qualify or was not designated for fair value hedge accounting, but is an acceptable hedging strategy under our risk management program. Changes in the fair value of derivatives that are designated as economic hedges are recorded in other income (loss) as “Net gains (losses) on derivatives” with no offsetting fair value adjustments for the underlying assets, liabilities, or firm commitments, unless changes in the fair value of the assets or liabilities are normally marked to fair value through earnings (e.g., trading securities and fair value option instruments).
The assumptions used for our derivatives and related hedged items could have a significant effect on the reported fair values, including the related income and expense. The use of different assumptions, as well as changes in market conditions, could result in materially different values.
Refer to “Item 8. Financial Statements and Supplementary Data - Note 7 - Derivatives and Hedging Activities” or “Item 7. Management’s Discussion and Analysis - Results of Operations - Hedging Activities” for additional discussion on our derivatives and hedging activities, including the quantitative impact these fair value estimates had on our financial statements.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
Proposed SEC Rule on Climate-related Disclosures
On March 21, 2022, the SEC proposed a new rule that would require us to make specific climate-related disclosures in our periodic reports. The proposed rule would require us to account for and disclose certain direct, indirect, and third-party greenhouse gas emissions, provide additional disclosures of material impact of climate-change risks on our strategy, business model, and outlook, disclose climate-event impacts, discuss board and management governance and oversight of climate-related risks, climate-change risk management framework considering both physical and transitional risks, and plans to reduce such risks, and provide and discuss climate-related financial impact metrics and expenditure metrics. We are unable to predict when a rule will be finalized and the extent to which a final rule will apply or deviate from the proposal. Should the rule become final in its current form, we anticipate a significant increase in our compliance costs given the complexity of these proposed obligations.
Finance Agency’s Review and Analysis of the Federal Home Loan Bank System (FHLBank System)
On July 20, 2022, Finance Agency Director Sandra L. Thompson provided testimony to the U.S. House Committee on Financial Services, indicating that the Finance Agency would conduct a review and analysis of the FHLBank System. As part of its review and analysis, the Finance Agency has held a series of public listening sessions and regional roundtable discussions, and has requested written comments from stakeholders. The review has been examining matters covering such areas as the FHLBanks’ adequate fulfillment of their mission and purpose in a changing marketplace; their organization, operational efficiency, and effectiveness; their role in promoting affordable, sustainable, equitable, and resilient housing and community investment; their role in addressing the unique needs of rural and financially vulnerable communities; member products, services, collateral requirements; and membership eligibility and requirements. We anticipate that the Finance Agency’s review and analysis will culminate in a written report. The report may involve recommendations for changes related to a number of areas such as the FHLBanks’ fulfillment of their mission, membership requirements, contributions to affordable housing, and support to community investment and may lead to recommendations for statutory revisions, proposals for new or modified regulations, regulatory guidance under existing regulations, and/or other regulatory or supervisory actions consistent with the Finance Agency’s statutory authority.
Final Rule Implementing the Adjustable Interest Rate (LIBOR) Act
On December 16, 2022, the Federal Reserve Board of Governors adopted a final rule that implements the Adjustable Interest Rate (LIBOR) Act, enacted in March 2022. The rule, which went into effect on February 27, 2023, establishes benchmark replacement rates based on SOFR for certain contracts, to apply following the first London banking day after June 30, 2023 (the “LIBOR replacement date”). Generally, the rule provides that Board-selected benchmark replacements will apply by operation of law to contracts governed by U.S. law which have the following characteristics: (a) contain no fallback provisions; (b) contain fallback provisions but fail to specify either the fallback rate or the party that can determine the fallback rate; or (c) contain a fallback provision that identifies the party that can determine the fallback rate, but the determining party has failed to do so before (i) the LIBOR replacement date or (ii) the latest date to select a benchmark replacement according to the contract terms. For FHLBank advances, that have any of the above characteristics, the final rule sets the replacement benchmark rate as the Fallback Rate (SOFR) in the ISDA 2020 IBOR Fallbacks Protocol. For any other FHLBank contract with the above characteristics, references to overnight LIBOR would be replaced with SOFR and one-, three-, six-, or 12-month LIBOR will be replaced with 30-day average SOFR, in each case plus the applicable tenor spread adjustment specified in the LIBOR Act. We do not expect this rule to have a material effect on our financial condition or results of operations but continue to monitor these actions and guidance as they evolve and to evaluate their potential impact on us.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in financial transactions that, in accordance with GAAP, are not recorded on our Statements of Condition or may be recorded on our Statements of Condition in amounts that are different from the full contract or notional amount of the transactions. For additional information on our off-balance sheet arrangements, refer to “Item 8 - Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies.”
RISK MANAGEMENT
We have risk management policies, established by our Board of Directors, that allow us to monitor and control our exposure to various risks, including interest rate, liquidity, credit, operational, model, information security, legal, regulatory and compliance, DEI, strategic, and reputational risk, as well as capital adequacy. Our primary risk management objective is to manage our assets and liabilities in ways that ensure liquidity is available to our members and protect the par redemption value of our capital stock. We periodically evaluate our risk management policies in order to respond to changes in our financial position and general market conditions.
Interest Rate Risk
We define interest rate risk as the risk that changes in interest rates or spreads will adversely affect our financial condition (market value) or performance (income). Interest rate risk is the principal type of risk to which we are exposed, as our cash flows, and therefore earnings and equity value, can change significantly as interest rates change. Our general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets, liabilities, and derivatives which, taken together, limit our expected exposure to interest rate risk. Our key interest rate risk measures are Market Value of Equity (MVE) and Projected 24-Month Income. Management regularly monitors these key measures, as discussed further in the sections below.
MARKET VALUE OF EQUITY
MVE measures the net present value of the Bank by either marking positions to market or discounting all future cash flows using market discount rates. MVE is measured as the market value of our assets minus the market value of our liabilities (excluding MRCS). MVE is an estimate of the Bank’s value and takes into account short-term market price fluctuations.
The MVE calculation is derived by a model that uses market prices which are computed using interest rates. This model allows for items such as spreads and volatilities, and assumes a run-off balance sheet. To ensure the accuracy of the MVE calculation, we benchmark the computed market prices of complex instruments, such as derivatives and mortgage assets, to market observed prices or dealers’ quotes.
Interest rate risk stress tests of MVE involve instantaneous parallel and non-parallel changes in interest rates. The resulting percentage change in MVE from the base case value is an indication of longer-term repricing risk and option risk embedded in the balance sheet.
In an effort to protect MVE from large interest rate swings, we manage the interest rate risk of our balance sheet by using hedging transactions, such as issuing consolidated obligation bonds, including floating rate, simple bullet, callable, or other structured features, and entering into or canceling interest rate swaps, caps, floors, and swaptions.
We monitor and manage to MVE policy limits in an effort to ensure the stability of the Bank’s value. Our policy limits are based on declines from the base case in parallel and non-parallel interest rate change scenarios. Any policy limit breach must be reported to the Enterprise Risk Committee of the Bank and the Risk and Compliance Committee of the Board of Directors and be remediated in a timely manner.
Effective May 1, 2022, our MVE policy limits were revised to reflect new base case decline limits on our 100 and 200 basis point parallel and non-parallel interest rate change scenarios. Specifically, the limit on our up and down 100 basis point parallel and non-parallel interest rate change scenarios is a 4.0 percent decline from base case MVE, and the limit on our up and down 200 basis point parallel and non-parallel interest rate change scenarios is a 7.5 percent decline from base case MVE. For MVE policy limits in effect prior to May 1, 2022, refer to the table below. At December 31, 2022 and 2021, we were in compliance with all MVE policy limits.
Market Value of Capital Stock (MVCS) represents our MVE divided by the total outstanding shares of our capital stock (including MRCS). To ensure we remain adequately capitalized, we must ensure our MVCS remains at or above our $100 par value.
The following tables show our base case and change from base case MVE in percent change, MVE policy limits, and MVCS, assuming instantaneous parallel changes in interest rates at December 31, 2022 and 2021:
MVE Assuming Parallel Changes (dollars in millions)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 $ 8,716 $ 8,648 N/A1
$ 8,563 N/A1
$ 8,477 $ 8,392
2021 $ 6,100 $ 5,991 $ 6,014 $ 6,022 $ 6,002 $ 5,966 $ 5,870
% Change from Base Case
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 1.8 % 1.0 % N/A1
- % N/A1
(1.0) % (2.0) %
2021 1.3 % (0.5) % (0.1) % - % (0.3) % (0.9) % (2.5) %
Policy Limits (declines from base case)
Down 2002
Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 (7.5) % (4.0) % N/A1
- % N/A1
(4.0) % (7.5) %
(9.0) % (5.0) % (2.2) % - % (2.2) % (5.0) % (9.0) %
MVCS Assuming Parallel Changes (dollars per share)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 $ 139.1 $ 138.1 N/A1
$ 136.7 N/A1
$ 135.3 $ 134.0
2021 $ 179.8 $ 176.6 $ 177.2 $ 177.5 $ 176.9 $ 175.8 $ 173.0
1 Effective May 1, 2022, we no longer have policy limits for the up and down 50 basis point parallel interest rate change scenarios.
2 The down 200 basis point policy limit is suspended when the 10-year swap rate falls below an established threshold for five consecutive days. At December 31, 2022 and 2021, the threshold was 1.50 percent and the 10-year swap rate was above this level; as such, the associated policy limits were in effect.
The following tables show our base case and change from base case MVE in percent change, MVE policy limits, and MVCS, assuming instantaneous non-parallel changes in interest rates at December 31, 2022 and 2021:
MVE Assuming Non-Parallel Changes (dollars in millions)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 $ 8,577 $ 8,606 N/A1
$ 8,563 N/A1
$ 8,486 $ 8,409
2021 $ 5,831 $ 5,899 $ 5,972 $ 6,022 $ 6,043 $ 6,041 $ 5,999
% Change from Base Case
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 0.2 % 0.5 % N/A1
- % N/A1
(0.9) % (1.8) %
2021 (3.2) % (2.0) % (0.8) % - % 0.4 % 0.3 % (0.4) %
Policy Limits (declines from base case)
Down 2002
Down 100 Down 50 Base Case Up 50 Up 100 Up 200
(7.5) % (4.0) % N/A1
- % N/A1
(4.0) % (7.5) %
2021 (9.0) % (5.0) % (2.2) % - % (2.2) % (5.0) % (9.0) %
MVCS Assuming Non-Parallel Changes (dollars per share)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
2022 $ 136.9 $ 137.4 N/A1
$ 136.7 N/A1
$ 135.5 $ 134.2
2021 $ 171.9 $ 173.9 $ 176.0 $ 177.5 $ 178.1 $ 178.0 $ 176.8
1 Effective May 1, 2022, we no longer have policy limits for the up and down 50 basis point non-parallel interest rate change scenarios.
2 The down 200 basis point policy limit is suspended when the 10-year swap rate falls below an established threshold for five consecutive days. At December 31, 2022 and 2021, the threshold was 1.50 percent and the 10-year swap rate was above this level; as such, the associated policy limits were in effect.
Our base case MVE increased at December 31, 2022 when compared to December 31, 2021, primarily due to an increase in activity-based capital stock and retained earnings. During 2022, we recorded net income of $430 million and our dividends totaled $202 million. The earnings in excess of our dividend payments had a positive impact on MVE. Our base case MVCS decreased at December 31, 2022 when compared to December 31, 2021, due primarily to an increase in activity-based capital stock when compared to December 31, 2021 due to higher advance activity. As we issued this capital stock at par, which is below our current MVCS, our MVCS was negatively impacted.
PROJECTED 24-MONTH INCOME
The projected 24-month income simulation measures our short-term earnings forecast over a two-year horizon based on forward interest rates and business assumptions. The spread between our projected adjusted return on capital stock (AROCS) and average SOFR is used as the primary measure of our profitability. For additional information on our adjusted earnings measure, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Adjusted Earnings.”
We monitor and manage to policy limits, which are based on the spread between our projected AROCS and average SOFR in parallel and non-parallel interest rate change scenarios. Additionally, there is a limit on the decline in projected AROCS from base case AROCS for certain basis shock scenarios to limit basis risk exposure. Any policy limit breach must be reported to the Enterprise Risk Committee of the Bank and the Risk and Compliance Committee of the Board of Directors and be remediated in a timely manner.
Effective May 1, 2022, our policy limits for the up and down 100 and 200 basis point parallel interest rate change scenarios, as well as the up and down 100 basis point non-parallel interest rate change scenarios, were updated to SOFR plus 175 basis points over a 24-month horizon. We were in compliance with these policy limits at December 31, 2022. As previously noted in our 2021 Form 10-K, in October 2021, our Board of Directors approved an exception to all projected 24-month income policy limits at December 31, 2021.
The following tables show our projected 24-month AROCS spread to average SOFR and associated policy limits, assuming instantaneous parallel shifts in interest rates at December 31, 2022 and 2021:
Projected AROCS Spread to SOFR
Down 200 Down 100 Base Case Up 100 Up 200
2022 6.71 % 6.53 % 6.40 % 6.27 % 6.09 %
2021 4.38 % 3.62 % 4.19 % 4.23 % 4.17 %
Policy Limits1
Down 2001
Down 100 Base Case Up 100 Up 200
2022 1.75 % 1.75 % - % 1.75 % 1.75 %
2.50 % 2.50 % - % 2.50 % 2.50 %
1 The down 200 basis point policy limit is suspended when the 10-year swap rate falls below an established threshold for five consecutive days. At December 31, 2022, the threshold was 1.50 percent and the 10-year swap rate was above this level; as such, the associated policy limit was in effect.
2 In October 2021, our Board of Directors approved an exception to all projected 24-month income policy limits at December 31, 2021.
The following tables show our projected 24-month AROCS spread to average SOFR and associated policy limits, assuming instantaneous non-parallel shifts in interest rates at December 31, 2022 and 2021:
Projected AROCS Spread to SOFR
Down 100 Base Case Up 100
2022 6.43 % 6.40 % 6.35 %
3.32 % 4.19 % 4.46 %
Policy Limits
Down 100 Base Case Up 100
2022 1.75 % - % 1.75 %
2.50 % - % 2.50 %
1 In October 2021, our Board of Directors approved an exception to all projected 24-month income policy limits at December 31, 2021.
The following tables show our change from base projected 24-month AROCS for index specific shock scenarios and our associated policy limits at December 31, 2022 and 2021:
Projected AROCS
% Change from Base Case
2022 (0.51) %
(1.20) %
Policy Limit1
Base Case
2022 (1.75) %
(2.50) %
1 In October 2021, our Board of Directors approved an exception to all projected 24-month income policy limits at December 31, 2021.
DERIVATIVES
We use derivatives to manage interest rate risk. Finance Agency regulations and our risk management policies establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives. Our hedging strategies include hedges of specific assets and liabilities that qualify for fair value hedge accounting and economic hedges that are used to reduce overall market risk exposure. All new hedging strategies are approved by our Asset-Liability Committee. See additional discussion regarding our derivative contracts in “Item 8. Financial Statements and Supplementary Data - Note 7 - Derivatives and Hedging Activities.”
The following table summarizes our interest rate exchange agreements by type of hedged item, hedging instrument, associated hedging strategy, hedge accounting designation, and notional amount (dollars in millions):
December 31,
Hedged Item / Hedging Instrument Hedging Strategy Hedge Accounting Designation 2022
Notional Amount
Notional Amount
Advances
Pay-fixed, receive floating interest rate swap (without options) Converts the advance’s fixed rate to a variable rate index. Fair Value $ 21,750 $ 16,963
Economic 6 -
Pay-fixed, receive floating interest rate swap (with options) Converts the advance’s fixed rate to a variable rate index and offsets option risk in the advance. Fair Value 168 1,139
Investments
Pay-fixed, receive floating interest rate swap Converts the investment’s fixed rate to a variable rate index. Fair Value 9,316 6,414
Economic 2,934 1,109
Mortgage Loans
Mortgage loan purchase commitment Represents a stand-alone derivative that exposes us to fair value risk due to the fixed rate purchase commitment. Economic 46 115
Forward settlement agreement Protects against changes in market value of fixed rate mortgage loan purchase commitments resulting from changes in interest rates. Economic 46 115
Bonds
Receive-fixed or structured, pay floating interest rate swap (without options) Converts the bond’s fixed or structured rate to a variable rate index. Fair Value 15,169 30,729
Receive-fixed or structured, pay floating interest rate swap (with options) Converts the bond’s fixed or structured rate to a variable rate index and offsets option risk in the bond. Fair Value 6,733 2,257
Discount Notes
Receive-fixed, pay-float interest rate swap Converts the discount note’s fixed rate to a variable rate index. Economic 45,207 22,355
Offsetting Positions
Pay-fixed, receive-float interest rate swap and receive-fixed, pay-float interest rate swap Represents offsetting positions on interest rate swaps. Economic 200 200
Total $ 101,575 $ 81,396
Advances
We offer a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics, and optionality. We may use derivatives to adjust the repricing and/or option characteristics of advances in an effort to manage interest rate risk. For example, we may hedge a fixed rate advance with an interest rate swap where we pay a fixed rate coupon and receive a variable rate coupon, effectively converting the fixed rate advance to a variable rate advance. This type of hedge is typically treated as a fair value hedge. In addition, we may hedge a callable advance, which gives the borrower the option to extinguish the fixed rate advance prior to maturity, by entering into a cancelable interest rate swap.
We may hedge a firm commitment for a forward-starting advance through the use of an interest-rate swap, which gets treated as a fair value hedge. We may also enter into economic derivatives in an effort to mitigate the income statement volatility that occurs when an advance or firm commitment for a forward-starting advance is recorded under the fair value option and hedge accounting is not permitted.
Investments
We primarily invest in U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, and agency MBS, and classify them as either trading, AFS, or HTM. The interest rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. We may fund investment securities with fixed rate long-term and callable consolidated obligations or utilize interest rate swaps, caps, floors, or swaptions to manage interest rate risk.
The prepayment options embedded in MBS can result in extensions or contractions in the expected maturities of these investments, depending on changes in and levels of interest rates, as well as other factors related to the mortgage market. The Finance Agency limits this source of interest rate risk by restricting the types of MBS we may own to those with limited average life changes under certain interest rate shock scenarios.
Mortgage Loans
We invest in fixed rate mortgage loans and certain mortgage loan purchase commitments with our PFIs that are considered derivatives. We normally hedge these commitments by selling TBA MBS for forward settlement. A TBA represents a forward contract for the sale of MBS at a future agreed-upon date for an established price. Upon expiration of the mortgage loan purchase commitment, we purchase the TBA to close the hedged position.
Consolidated Obligations
We may enter into derivatives to hedge the interest rate risk associated with our consolidated obligations. For example, we may issue and hedge a fixed rate consolidated obligation with an interest rate swap where we receive a fixed rate coupon and pay a variable rate coupon, effectively converting the fixed rate consolidated obligation to a variable rate consolidated obligation. This type of hedge is typically treated as a fair value hedge. We may also issue variable interest rate consolidated obligations and simultaneously execute interest rate swaps to hedge the basis risk of the variable interest rate debt. Interest rate swaps used to hedge variable interest rate debt do not qualify for hedge accounting and as a result, this type of hedge is treated as an economic hedge. We may also enter into economic derivatives in an effort to mitigate the income statement volatility that occurs when consolidated obligations are recorded under the fair value option and hedge accounting is not permitted.
This strategy of issuing consolidated obligations while simultaneously entering into derivatives enables us to offer a wider range of attractively priced advances to our borrowers and may allow us to reduce our funding costs. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank serves as sole counterparty to derivative agreements associated with specific debt issues for which it is the primary obligor.
Balance Sheet
We may enter into certain economic derivatives as macro balance sheet hedges to protect against changes in interest rates, including prepayments on mortgage assets. These economic derivatives may include interest rate caps, floors, swaps, and swaptions.
Capital Adequacy
An adequate capital position is necessary for facilitating safe and sound business operations, protecting the redemption value of our capital stock, maintaining regulatory capital ratios, and supporting our ability to pay dividends and redeem excess capital stock. To ensure capital adequacy, we maintain a minimum level of retained earnings to accomplish business imperatives and cover unexpected losses. Our key capital adequacy measures are regulatory capital and minimum retained earnings in order to maintain capital levels in accordance with Finance Agency regulations. In addition, our risk management policies require that we maintain MVCS at or above our $100 par value.
For additional information on our compliance with regulatory capital requirements as well as our minimum retained earnings, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
For additional information on MVCS, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Interest Rate Risk - Market Value of Equity.”
Liquidity Risk
We define liquidity risk as the risk that we will be unable to meet our financial obligations as they come due or meet the credit needs of our members in a timely and cost efficient manner. To manage this risk, we maintain liquidity in accordance with Finance Agency regulations. For additional information on our compliance with these requirements, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - Liquidity Requirements.”
Credit Risk
We define credit risk as the risk that a member or counterparty will fail to meet its financial obligations. Our primary credit risks arise from our ongoing lending, investing, and hedging activities. Our overall objective in managing credit risk is to operate a sound credit granting process and to maintain appropriate credit administration, measurement, and monitoring practices.
ADVANCES
We manage our credit exposure to advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower’s financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.
We are required by regulation to obtain sufficient collateral to fully secure our advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products). The estimated value of the collateral required to secure each borrower’s credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal or market value, as applicable, of the collateral. We also have policies and procedures for validating the reasonableness of our collateral valuations. In addition, we perform collateral verifications and on-site reviews based on the risk profile of the borrower. Management believes that these policies effectively manage our credit risk from advances.
At December 31, 2022 and 2021, borrowers pledged $350.2 billion and $294.3 billion of collateral (net of applicable discounts) to support activity with us, including advances. At December 31, 2022 and 2021, all of our advances met the requirement to be collateralized at a minimum of 100 percent, net of applicable discounts. Borrowers pledge collateral in excess of their collateral requirement mainly to demonstrate available liquidity and to borrow additional amounts in the future.
The following table shows the amount of collateral pledged to us (net of applicable discounts) (dollars in billions):
December 31, 2022
Collateral Type Discount Range1
Amount % of Total
Single-family loans 21-32 $ 183.2 52
Multi-family loans 25 24.5 7
Other real estate 22-57 106.3 30
Securities
Cash, agency securities and residential MBS 0-26 26.0 8
Commercial MBS 16 6.2 2
Government-insured loans 15-25 0.9 -
Secured small business and agribusiness loans 35 3.1 1
Total $ 350.2 100
1 Represents the discount or the range of discounts applied to the unpaid principal balance or market value of collateral pledged.
We evaluate advances for credit losses on a quarterly basis and have never experienced a credit loss on our advances. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no expected credit losses on our advances as of December 31, 2022 and 2021. Refer to “Item 8. Financial Statements and Supplementary Data - Note 5 - Advances” for additional information on our collateral practices and allowance for credit losses.
MORTGAGE LOANS
Mortgage loan credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage loans is affected by a number of factors, including loan type, borrower’s credit history, and other factors such as home price fluctuations, unemployment levels, and other economic factors in the local market or nationwide.
The following table presents the unpaid principal balance of our mortgage loans by product type (dollars in millions):
December 31,
Product Type 2022 2021
Conventional $ 7,890 $ 7,063
Government 387 416
Total unpaid principal balance $ 8,277 $ 7,479
We manage the credit risk on mortgage loans by (i) adhering to our underwriting standards, (ii) using agreements to establish credit risk sharing responsibilities with our PFIs, and (iii) monitoring the performance of the mortgage loan portfolio and creditworthiness of PFIs.
We evaluate mortgage loans for credit losses on a quarterly basis and establish an allowance for credit losses to reflect management’s estimate of expected credit losses inherent in the portfolio. At December 31, 2022 and 2021, the allowance for credit losses on our conventional mortgage loans was $5 million and $1 million. At December 31, 2022, over 99 percent of our conventional loan portfolio was performing (i.e. current payment status) and charge-offs recorded during the year ended December 31, 2022 were less than one percent of the total conventional portfolio.
We have never experienced a credit loss on our government-insured mortgage loans. At December 31, 2022 and 2021, we determined no allowance for credit losses was necessary on our government-insured mortgage loans.
Refer to “Item 8. Financial Statements and Supplementary Data - Note 6 - Mortgage Loans Held for Portfolio” for additional information on our allowance for credit losses and the payment status of our conventional mortgage loans.
The following table presents supplemental information on our mortgage loans (dollars in millions):
December 31,
Unpaid Principal Balance 2022 2021
Average mortgage loans outstanding during the period $ 7,888 $ 7,608
Mortgage loans held for portfolio 8,277 7,479
Non-accrual loans 40 85
Allowance for credit losses on mortgage loans held for portfolio (5) (1)
Net charge-offs (recoveries)1
(1) -
Ratio of net charge-offs (recoveries) to average mortgage loans outstanding during the period1
0.01 % 0.00 %
Ratio of allowance for credit losses to mortgage loans held for portfolio 0.06 % 0.01 %
Ratio of non-accrual loans to mortgage loans held for portfolio 0.48 % 1.14 %
Ratio of allowance for credit losses to non-accrual loans 12.59 % 1.18 %
1 Net charge-offs were less than $1 million at December 31, 2021.
The following table shows our conventional mortgage loans by FICO® score. All percentages are calculated based on unpaid principal balances as of the period end.
FICO® Score1
December 31, 2022
620 to < 660 5 %
660 to < 700 14
700 to < 740 21
>= 740 60
Total 100 %
Weighted average FICO score 745
1 Represents the lowest original FICO® score of the borrowers and co-borrowers.
The following table shows our conventional mortgage loans by loan-to-value ratio. All percentages are calculated based on unpaid principal balances as of the period end.
Loan-to-Value1
December 31, 2022
<= 60% 14 %
> 60% to 70% 14
> 70% to 80% 51
> 80% to 90%2
> 90%2
Total 100 %
Weighted average loan-to-value 75 %
1 Represents the loan-to-value at origination for the related loan.
2 These conventional loans were required to have primary mortgage insurance (PMI) at origination.
The following table shows the five largest state concentrations of our conventional mortgage loan portfolio. All percentages are calculated based on unpaid principal balances as of the period end.
December 31, 2022
Iowa 28 %
Missouri 22
Minnesota 21
South Dakota 7
Oregon 4
All others 18
Total 100 %
INVESTMENTS
We maintain an investment portfolio primarily to provide investment income and liquidity. Our primary credit risk on investments is the counterparties’ ability to meet repayment terms. We mitigate this credit risk by purchasing investment quality securities. We define investment quality as a security with adequate financial backings so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. We consider a variety of credit quality factors when analyzing potential investments, including collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, NRSRO credit ratings, and/or the financial health of the underlying issuer. We limit our purchases of MBS to those guaranteed by the U.S. Government or issued by a GSE. We perform ongoing analysis on these investments in an effort to determine potential credit issues.
Finance Agency regulations also limit the type of investments we may purchase. We are prohibited from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks, unless otherwise approved by the Finance Agency. Our unsecured credit exposures to U.S. branches and agency offices of foreign commercial banks include the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual repayment obligations. Our unsecured credit exposures to domestic counterparties and U.S. subsidiaries of foreign commercial banks include the risk that these counterparties have extended credit to foreign counterparties. At December 31, 2022, we were in compliance with the above regulation and did not own any financial instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks, and those approved by the Finance Agency.
In addition, Finance Agency regulations include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties. These limits are based on a percentage of regulatory capital and the counterparty’s overall credit rating. Under these regulations, the level of regulatory capital is determined as the lesser of our total regulatory capital or the amount of regulatory capital of the counterparty. The amount of regulatory capital is then multiplied by a stated percentage. The percentage that we may offer for extensions of unsecured credit, excluding overnight federal funds sold, ranges from one to 15 percent based on the counterparty’s credit rating. Our total unsecured exposure to a counterparty, including overnight federal funds sold, may not exceed twice that amount, or a total of two to 30 percent of the amount of regulatory capital, based on the counterparty’s credit rating. At December 31, 2022, we were in compliance with the regulatory limits established for unsecured credit.
Our short-term portfolio may include, but is not limited to, interest-bearing deposits, federal funds sold, securities purchased under agreements to resell, certificates of deposit, commercial paper, and U.S. Treasury obligations. Our long-term portfolio may include, but is not limited to, U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, taxable municipal bonds, and agency MBS. We consider our long-term investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the FDIC to be of the highest credit quality and therefore those exposures are not monitored with other unsecured investments. Given the credit quality of our unsecured long-term investments, our unsecured credit risk is primarily in the short-term portfolio.
We limit short-term unsecured credit exposure primarily to the following overnight investment types:
•Interest-bearing deposits. Primarily consists of unsecured deposits that earn interest.
•Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions.
•Commercial paper. Unsecured debt issued by corporations, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.
At December 31, 2022, our unsecured short-term investment exposure consisted of overnight interest-bearing deposits and federal funds sold. The following table presents our unsecured short-term investment exposure by counterparty credit rating and domicile (dollars in millions):
December 31, 2022
Credit Rating1,2
Domicile of Counterparty AA A Total
Domestic $ - $ 2,880 $ 2,880
U.S. branches and agency offices of foreign commercial banks
Australia 1,200 - 1,200
Belgium - 600 600
Canada - 3,240 3,240
Finland 1,200 - 1,200
France - 200 200
Germany 650 - 650
Netherlands - 625 625
United Kingdom - 850 850
Total U.S. branches and agency offices of foreign commercial banks 3,050 5,515 8,565
Total unsecured short-term investment exposure $ 3,050 $ 8,395 $ 11,445
1 Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.
2 Table excludes investments issued or guaranteed by the U.S. Government, U.S. government agencies, government instrumentalities, GSEs, and supranational entities, and does not include related accrued interest.
The following table summarizes the carrying value of our investments by credit rating (dollars in millions):
December 31, 2022
Credit Rating1
AAA AA A BBB Unrated Total
Interest-bearing deposits $ - $ 1 $ 2,030 $ - $ - $ 2,031
Securities purchased under agreements to resell - 9,400 1,040 - 2,150 12,590
Federal funds sold - 3,050 6,365 - - 9,415
Investment securities:
MBS
GSE single-family - 767 - - - 767
GSE multifamily - 9,805 - - - 9,805
U.S. obligations single-family2
- 3,678 - - - 3,678
Private-label residential - 1 1 2 - 4
Total MBS - 14,251 1 2 - 14,254
Non-MBS
U.S. Treasury obligations2
- 2,501 - - - 2,501
Other U.S. obligations2
- 834 - - - 834
GSE and TVA obligations - 888 - - - 888
State or local housing agency obligations 452 30 - - - 482
Other3
343 43 - - - 386
Total non-MBS 795 4,296 - - - 5,091
Total investments $ 795 $ 30,998 $ 9,436 $ 2 $ 2,150 $ 43,381
1 Represents either the lowest credit rating available for each investment based on an NRSRO, or the guarantor credit rating, if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.
2 Represents investment securities backed by the full faith and credit of the U.S. Government.
3 Consists primarily of taxable municipal bonds.
We evaluate investments for credit losses on a quarterly basis. At December 31, 2022 and 2021, we determined no allowance for credit losses was necessary on our investments. Refer to “Item 8. Financial Statements and Supplementary Data - Note 4 - Investments” for additional information our allowance for credit losses.
DERIVATIVES
We execute most of our derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty, referred to as uncleared derivatives, or cleared through a clearing agent with a Clearinghouse, referred to as cleared derivatives.
We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in our policies and Finance Agency regulations.
Uncleared Derivatives. Due to risk of nonperformance by the counterparties to our derivative agreements, we generally require collateral on uncleared derivative agreements. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty or a contractually established threshold level. A counterparty generally must deliver collateral to us if the total market value of our exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, we do not anticipate any credit losses on our uncleared derivative agreements.
Cleared Derivatives. For cleared derivatives, the Clearinghouse is our counterparty. We are subject to risk of nonperformance by the Clearinghouse and clearing agent. The requirement that we post initial and variation margin through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. However, the use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments are posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. We do not anticipate any credit losses on our cleared derivatives.
The contractual or notional amount of derivatives reflects our involvement in the various classes of financial instruments. Our maximum credit risk is the estimated cost of replacing derivatives if there is a default, minus the value of any related collateral. In determining maximum credit risk, we consider accrued interest receivables and payables as well as our ability to net settle positive and negative positions with the same counterparty and/or clearing agent when netting requirements are met.
The following table shows our derivative counterparty credit exposure (dollars in millions):
December 31, 2022
Credit Rating1
Notional Amount Net Derivatives
Fair Value Before Collateral Cash Collateral Pledged
To (From) Counterparty Net Credit Exposure
to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives
AA2
$ 173 $ 36 $ (36) $ -
A2
1,191 71 (71) -
Cleared derivatives 51,894 28 555 583
Liability positions with credit exposure
Cleared derivatives3
40,167 (4) 64 60
Total derivative positions with credit exposure to non-member counterparties 93,425 131 512 643
Member institutions2,4
12 - - -
Total 93,437 $ 131 $ 512 $ 643
Derivative positions without credit exposure 8,138
Total notional $ 101,575
1 Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable.
2 Net credit exposure is less than $1 million.
3 Represents derivative transactions cleared with CME Clearing and London Clearing House (LCH) Ltd., our Clearinghouses. CME Clearing is not rated, but its parent, CME Group Inc. was rated Aa3 by Moody’s and AA- by S&P at December 31, 2022. LCH Ltd. was rated AA- by S&P at December 31, 2022.
4 Represents mortgage loan purchase commitments with our member institutions.
Operational Risk
We define operational risk as the risk of loss arising from inadequate or failed processes, people, and/or systems, including those emanating from external sources. All of our activities and processes generate operational risk. Management has established policies, procedures, and controls to reduce the level of operational risk. We perform annual risk assessments to identify, assess, mitigate, and report on operational risks outside of the Board’s risk appetite. Due to the manual nature of many of our processes, our operational risk exposure is closely monitored. Refer to “Item 1A. Risk Factors” for additional information.
Model Risk
We define model risk as the risk of adverse consequences from decisions based on incorrect and misused model outputs. Throughout the course of our day-to-day activities, we utilize external and internal pricing and financial models as important inputs into business and risk management decision-making processes.
Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different. Refer to “Item 1A. Risk Factors” for additional information.
Information Security Risk
We define information security risk as the risk arising from unauthorized access, use, disclosure, disruption, modification, or destruction of information or information systems. Importantly, this definition includes the confidentiality, integrity, and availability of both digital and non-digital information managed within information systems and processes.
Information security risk includes the risk that cyber incidents could result in a failure or interruption of our business operations. We have not experienced any such disruption with a material adverse impact. However, we do rely heavily on internal and third-party information systems and other technology to conduct and manage our business and any disruptions to those items could have a material adverse impact on our business operations.
In an effort to mitigate cybersecurity risk, we utilize a widely adopted industry framework to guide and benchmark the activities of our information security program in alignment with our risk appetite statement. Administrative, physical, and logical controls are in place for identifying, monitoring, and controlling system access, sensitive data, and system changes. An independent assessment of our environment relating to the framework guidance is performed periodically and presented to our Board of Directors. To further mitigate our risk, we also maintain cyber insurance coverage in an effort to reduce financial losses stemming from a security incident.
Our Board of Directors is responsible for the oversight of our information security program, establishing our information security risk appetite, and approving our information security policy. The Technology Committee of our Board delegates or directly approves Bank-wide governing policies, standards, guidelines, and procedures for IT and information security, and the Risk and Compliance Committee of our Board has oversight responsibility for information security risk. Our Chief Information Officer establishes our strategic direction and provides executive support for our information security program, and the Director of Information Security is responsible for our information security program.
In addition, we employ an information security training program that includes security training lessons and phishing exercises for all employees, mandatory staff training on cyber risks, and security testing that includes regular third-party facilitated penetration testing. Our Board of Directors is also required to complete cybersecurity training and participate in a cloud computing education session annually.
Given the importance of cybersecurity and ever-increasing sophistication of potential cyber-attacks, we will continue to invest in and strengthen our cyber-defenses.
Legal, Regulatory, and Compliance Risk
We define legal, regulatory, and compliance risk as the risk of violations of laws, rules, regulations, regulatory and supervisory guidance, and internal enterprise governing documents. Our legal and compliance departments are responsible for coordinating with various business units in connection with the identification, evaluation, and mitigation of our legal, regulatory, and compliance risks. We manage compliance risk by the development of, and adherence to, appropriate policies, procedures, and controls.
Diversity, Equity, and Inclusion Risk
We define DEI risk as the risk of not achieving the key objectives in our DEI Plan. The DEI Plan is internally-developed to layout DEI-related goals, help achieve our strategic business plan, and comply with all Finance Agency regulations. We actively monitor progress against the goals established in our DEI Plan. Our Board of Directors actively oversees management’s efforts and remains steadfast in its commitment to further developing our DEI program. The DEI Office maintains collaborative lines of communication with our Board of Directors, executive team, business units, and the compliance risk and internal audit departments in an effort to ensure the appropriate level of risk is maintained.
Strategic Risk
We define strategic risk as the risk arising from adverse strategic business decisions, poor implementation of strategic plans, or a lack of responsiveness to changes in the industry and operating environment. Strategic risk includes legislative risk. From time to time, proposals are made, or legislative changes are considered, which could affect our cost of doing business or other aspects of our business. To support our mission, we endeavor to manage and mitigate strategic risk through the business planning process and by monitoring the external environment.
Reputational Risk
We define reputational risk as the risk arising from negative publicity that could adversely affect our reputation and consequently our financial performance or ability to meet our key business objectives. We manage reputational risk by the identification of emerging risks, development of crisis response and contingency plans, and monitoring the effectiveness of the overall risk management processes.
For additional information on some of the more important risks we face, refer to “Item 1A. Risk Factors.”

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Interest Rate Risk” and the sections referenced therein for quantitative and qualitative disclosures about market risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITED FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Statements of Condition
Statements of Income
Statements of Comprehensive Income
Statements of Capital
Statements of Cash Flows
Notes to the Financial Statements
Background Information
Note 1 - Summary of Significant Accounting Policies
Note 2 - Recently Adopted and Issued Accounting Guidance
Note 3 - Cash and Due from Banks
Note 4 - Investments
Note 5 - Advances
Note 6 - Mortgage Loans Held for Portfolio
Note 7 - Derivatives and Hedging Activities
Note 8 - Deposits
Note 9 - Consolidated Obligations
Note 10 - Affordable Housing Program
Note 11 - Capital
Note 12 - Pension and Postretirement Benefit Plans
Note 13 - Fair Value
Note 14 - Commitments and Contingencies
Note 15 - Activities with Stockholders
Note 16 - Activities with Other FHLBanks
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of the Federal Home Loan Bank of Des Moines
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying statements of condition of the Federal Home Loan Bank of Des Moines (the “Bank”) as of December 31, 2022 and 2021, and the related statements of income, comprehensive income, capital and cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “financial statements”). We also have audited the Bank's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Bank's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Bank’s financial statements and on the Bank's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Interest-Rate Derivatives and Related Hedged Items
As described in Notes 7 and 13 to the financial statements, the Bank uses derivatives to manage its exposure to interest-rate risks and to reduce funding costs, among other objectives. The total notional amount of derivatives as of December 31, 2022 was $102 billion, of which 52 percent were designated as hedging instruments, and the fair value of derivative assets and liabilities as of December 31, 2022 was $643 million and $4 million, respectively. The fair values of interest-rate derivatives and related hedged items are generally estimated using standard valuation techniques such as discounted cash flow analyses and comparisons to similar instruments. The discounted cash flow model uses market-observable inputs, such as discount rate, forward interest rate, and volatility assumptions.
The principal considerations for our determination that performing procedures relating to the valuation of interest-rate derivatives and related hedged items is a critical audit matter are the significant audit effort in evaluating the discount rate, forward interest rate, and volatility assumptions used to fair value these derivatives and related hedged items, and the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to the valuation of interest-rate derivatives and hedged items, including controls over the model, data and assumptions. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of interest rate derivatives and related hedged items and comparison of management’s estimate to the independently developed ranges. Developing the independent range of prices involved testing the completeness and accuracy of data provided by management and independently developing the discount rate, forward interest rate, and volatility assumptions.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 8, 2023
We have served as the Bank’s auditor since 1990.
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CONDITION
(dollars and shares in millions, except capital stock par value)
December 31,
2022 2021
ASSETS
Cash and due from banks (Note 3) $ 89 $ 295
Interest-bearing deposits (Note 4) 2,031 416
Securities purchased under agreements to resell (Note 4) 12,590 12,450
Federal funds sold (Note 4) 9,415 4,690
Investment securities (Note 4)
Trading securities 2,817 1,169
Available-for-sale securities (amortized cost of $15,677 and $13,301)
15,563 13,389
Held-to-maturity securities (fair value of $959 and $1,405)
965 1,328
Total investment securities 19,345 15,886
Advances (Note 5) 111,202 44,111
Mortgage loans held for portfolio, net of allowance for credit losses of $5 and $1 (Note 6)
8,348 7,578
Accrued interest receivable 389 84
Derivative assets, net (Note 7) 643 221
Other assets, net 117 121
TOTAL ASSETS $ 164,169 $ 85,852
LIABILITIES
Deposits (Note 8)
Interest-bearing $ 1,006 $ 1,718
Non-interest-bearing 70 129
Total deposits 1,076 1,847
Consolidated obligations (Note 9)
Discount notes (includes $44,531 and $22,348 at fair value held under fair value option)
69,170 22,348
Bonds 84,337 55,205
Total consolidated obligations 153,507 77,553
Mandatorily redeemable capital stock (Note 11) 15 29
Accrued interest payable 436 97
Affordable Housing Program payable (Note 10) 135 131
Derivative liabilities, net (Note 7) 4 3
Other liabilities 245 354
TOTAL LIABILITIES 155,418 80,014
Commitments and contingencies (Note 14)
CAPITAL (Note 11)
Capital stock - Class B putable ($100 par value); 63 and 34 issued and outstanding shares
6,250 3,364
Retained earnings
Unrestricted 1,915 1,773
Restricted 703 617
Total retained earnings 2,618 2,390
Accumulated other comprehensive income (loss) (117) 84
TOTAL CAPITAL 8,751 5,838
TOTAL LIABILITIES AND CAPITAL $ 164,169 $ 85,852
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF INCOME
(dollars in millions)
For the Years Ended December 31,
2022 2021 2020
INTEREST INCOME
Advances $ 1,750 $ 472 $ 950
Interest-bearing deposits 32 1 1
Securities purchased under agreements to resell 103 2 33
Federal funds sold 230 7 31
Trading securities 34 34 48
Available-for-sale securities 354 101 206
Held-to-maturity securities 32 26 38
Mortgage loans held for portfolio 239 204 258
Total interest income 2,774 847 1,565
INTEREST EXPENSE
Consolidated obligations - Discount notes 948 12 172
Consolidated obligations - Bonds 1,128 452 915
Deposits 14 - 1
Mandatorily redeemable capital stock 1 2 5
Total interest expense 2,091 466 1,093
NET INTEREST INCOME 683 381 472
Provision (reversal) for credit losses on mortgage loans 4 - 1
NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES 679 381 471
OTHER INCOME (LOSS)
Net gains (losses) on trading securities (95) (38) 17
Net gains (losses) on financial instruments held under fair value option 106 1 -
Net gains (losses) on derivatives (64) 14 (48)
Gains on litigation settlements, net - - 120
Standby letter of credit fees 9 10 12
Other, net 4 17 20
Total other income (loss) (40) 4 121
OTHER EXPENSE
Compensation and benefits 72 80 103
Contractual services 20 19 16
Professional fees 16 14 25
Other operating expenses 19 19 22
Federal Housing Finance Agency 10 9 10
Office of Finance 8 7 6
Other, net 16 8 7
Total other expense 161 156 189
NET INCOME BEFORE ASSESSMENTS 478 229 403
Affordable Housing Program assessments 48 23 41
NET INCOME $ 430 $ 206 $ 362
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
For the Years Ended December 31,
2022 2021 2020
Net income $ 430 $ 206 $ 362
Other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities (202) 36 4
Pension and postretirement benefits 1 - -
Total other comprehensive income (loss) (201) 36 4
TOTAL COMPREHENSIVE INCOME (LOSS) $ 229 $ 242 $ 366
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CAPITAL
(dollars and shares in millions)
Capital Stock
Class B (putable) Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Capital
Shares Par Value Unrestricted Restricted Total
BALANCE, DECEMBER 31, 2019 45 $ 4,517 $ 1,661 $ 504 $ 2,165 $ 44 $ 6,726
Adjustment for cumulative effect of accounting change - - 1 - 1 - 1
Comprehensive income (loss) - - 290 72 362 4 366
Proceeds from issuance of capital stock 34 3,376 - - - - 3,376
Repurchases/redemptions of capital stock (45) (4,545) - - - - (4,545)
Net shares reclassified (to) from mandatorily redeemable capital stock - (7) - - - - (7)
Partial recovery of prior capital distribution to Financing Corporation - - 26 - 26 - 26
Cash dividends on capital stock - - (203) - (203) - (203)
BALANCE, DECEMBER 31, 2020 34 $ 3,341 $ 1,775 $ 576 $ 2,351 $ 48 $ 5,740
Comprehensive income (loss) - - 165 41 206 36 242
Proceeds from issuance of capital stock 28 2,763 - - - - 2,763
Repurchases/redemptions of capital stock (27) (2,659) - - - - (2,659)
Net shares reclassified (to) from mandatorily redeemable capital stock (1) (81) - - - - (81)
Cash dividends on capital stock - - (167) - (167) - (167)
BALANCE, DECEMBER 31, 2021 34 $ 3,364 $ 1,773 $ 617 $ 2,390 $ 84 $ 5,838
Comprehensive income (loss) - - 344 86 430 (201) 229
Proceeds from issuance of capital stock 95 9,524 - - - - 9,524
Repurchases/redemptions of capital stock (66) (6,633) - - - - (6,633)
Net shares reclassified (to) from mandatorily redeemable capital stock - (5) - - - - (5)
Cash dividends on capital stock - - (202) - (202) - (202)
BALANCE, DECEMBER 31, 2022 63 $ 6,250 $ 1,915 $ 703 $ 2,618 $ (117) $ 8,751
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS
(dollars in millions)
For the Years Ended December 31,
2022 2021 2020
OPERATING ACTIVITIES
Net income $ 430 $ 206 $ 362
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization/(accretion) 436 58 19
Net (gains) losses on trading securities 95 38 (17)
Net (gains) losses on financial instruments held under fair value option (106) (1) -
Net change in derivatives and hedging activities 1,516 360 (251)
Other adjustments, net 4 17 8
Net change in:
Accrued interest receivable (356) (7) 45
Other assets 7 (7) (4)
Accrued interest payable 340 (48) (107)
Other liabilities 4 (29) 4
Total adjustments 1,940 381 (303)
Net cash provided by (used in) operating activities 2,370 587 59
INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits (2,012) 149 (643)
Securities purchased under agreements to resell (140) (7,650) 9,150
Federal funds sold (4,725) (995) 910
Trading securities
Proceeds from sales 549 - 3,449
Proceeds from maturities and paydowns 299 4,766 1,759
Purchases (2,591) (1,098) (9,178)
Available-for-sale securities
Proceeds from maturities and paydowns 3,316 2,693 2,423
Purchases (6,498) (115) (1,437)
Held-to-maturity securities
Proceeds from maturities and paydowns 357 478 539
Advances
Repaid 356,629 138,435 180,921
Originated (424,864) (136,486) (146,824)
Mortgage loans held for portfolio
Principal collected 1,056 2,506 3,345
Purchased (1,861) (1,885) (2,295)
Other investing activities, net (9) (2) (6)
Net cash provided by (used in) investing activities (80,494) 796 42,113
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS (continued from previous page)
(dollars in millions)
For the Years Ended December 31,
2022 2021 2020
FINANCING ACTIVITIES
Net change in deposits (674) (48) 803
Net proceeds from issuance of consolidated obligations
Discount notes 1,022,899 325,463 178,910
Bonds 83,778 65,424 42,545
Payments for maturing and retiring consolidated obligations
Discount notes (976,460) (330,458) (181,023)
Bonds (54,295) (62,280) (81,951)
Proceeds from issuance of capital stock 9,524 2,763 3,376
Proceeds from issuance of mandatorily redeemable capital stock - - 18
Payments for repurchases/redemptions of capital stock (6,633) (2,659) (4,545)
Payments for repurchases/redemptions of mandatorily redeemable capital stock (19) (104) (179)
Partial recovery of prior capital distribution to Financing Corporation - - 26
Cash dividends paid (202) (167) (203)
Net cash provided by (used in) financing activities 77,918 (2,066) (42,223)
Net increase (decrease) in cash and due from banks (206) (683) (51)
Cash and due from banks at beginning of the period 295 978 1,029
Cash and due from banks at end of the period $ 89 $ 295 $ 978
SUPPLEMENTAL DISCLOSURES
Cash transactions:
Interest paid $ 1,292 $ 528 $ 1,307
Affordable Housing Program payments 44 54 36
Non-cash transactions:
Capitalized interest on reverse mortgage investment securities 54 20 51
Capital stock reclassified to (from) mandatorily redeemable capital stock, net 5 81 7
Traded but not settled investment security purchases 181 291 18
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF DES MOINES
NOTES TO THE FINANCIAL STATEMENTS
Background Information
The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation that is exempt from all federal, state, and local taxation (except real property taxes and certain employer payroll taxes) and is one of 11 district Federal Home Loan Banks (FHLBanks). The FHLBanks are government-sponsored enterprises (GSEs) and were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act) in order to serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank is regulated by the Federal Housing Finance Agency (Finance Agency).
The Bank is a cooperative, meaning it is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain capital stock to support business activities with the Bank. In return, the Bank provides a readily available source of funding and liquidity to its member institutions and eligible housing associates in Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank’s Board of Directors.
Note 1 - Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The Bank prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP).
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make subjective assumptions and estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. The most significant of these estimates include those used in conjunction with fair value estimates and derivatives and hedging activities. Actual results could significantly differ from these estimates.
Fair Value. The fair value amounts, recorded on the Bank’s Statements of Condition and presented in the footnote disclosures, have been determined by the Bank using available market information and management’s best judgment of appropriate valuation methods. Although management uses its best judgment in estimating the fair value of financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values may not be indicative of the amounts that would have been realized in market transactions at the reporting dates. See “Note 13 - Fair Value” for more information.
Financial Instruments Meeting Netting Requirements
The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that may be presented on a net basis when there is a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). The Bank has elected to offset its derivative instruments, related cash collateral, and associated accrued interest when it has met the netting requirements.
The net exposure for these financial instruments can change on a daily basis and, therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the requirements for netting, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in “Note 7 - Derivatives and Hedging Activities.”
At December 31, 2022 and 2021, the Bank had $12.6 billion and $12.5 billion in securities purchased under agreements to resell. There were no offsetting liabilities related to these securities at December 31, 2022 and 2021.
Interest-Bearing Deposits, Securities Purchased Under Agreements to Resell, and Federal Funds Sold
The Bank invests in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold. Interest-bearing deposits include deposits held with banks or counterparties that do not meet the definition of a security. The Bank treats securities purchased under agreements to resell as short-term collateralized loans. Federal funds sold consist of short-term, unsecured loans generally transacted by counterparties that are considered investment quality by the Bank. All of these investments provide short-term liquidity and are carried at amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition.
These investments are evaluated quarterly for expected credit losses. If applicable, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The Bank uses the collateral maintenance provision practical expedient for securities purchased under agreements to resell. Consequently, a credit loss would be recognized if there is a collateral shortfall which the Bank does not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the fair value of the collateral and the investment’s amortized cost. See “Note 4 - Investments” for details on the allowance methodologies relating to these investments.
Debt Securities
The Bank classifies investment securities as trading, available-for-sale (AFS), or held-to-maturity (HTM) at the date of acquisition. Purchases and sales of investment securities are recorded on a trade date basis. The Bank records interest on investment securities to interest income as earned. The Bank generally amortizes/accretes premiums and discounts on AFS and HTM investment securities to income using the contractual level-yield method (level-yield method). In addition, the Bank uses this method to amortize/accrete fair value hedging adjustments. The level-yield method recognizes the income effects of these adjustments over the contractual life of the securities based on the actual behavior of the underlying assets, including adjustments for actual prepayment activities, and reflects the contractual terms of the securities without regard to changes in estimated prepayments based on assumptions about future borrower behavior. For callable AFS and HTM non-mortgage-backed securities (MBS) purchased at a premium, the Bank amortizes the premium to the next contractual call date. The Bank computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in other income (loss).
Trading. Securities classified as trading are carried at fair value and generally entered into for liquidity purposes. In addition, the Bank classifies certain securities as trading that do not qualify for hedge accounting, primarily in an effort to mitigate the potential income statement volatility that can arise when an economic derivative is adjusted for changes in fair value but the related hedged item is not. The Bank records changes in the fair value of these securities through other income (loss) as “Net gains (losses) on trading securities.” The Bank does not participate in speculative trading practices and generally holds these investments until maturity, except to the extent management deems necessary to manage the Bank’s liquidity portfolio.
Available-for-Sale. Securities that are not classified as trading or HTM are classified as AFS and carried at fair value. The Bank records changes in the fair value of these securities through accumulated other comprehensive income (loss) (AOCI) as “Net unrealized gains (losses) on available-for-sale securities.” For AFS securities that have been hedged and qualify as a fair value hedge, the Bank records the portion of the change in the fair value of the security related to the risk being hedged in AFS interest income together with the related change in fair value of the derivative, and records the remainder of the change in fair value through AOCI as “Net unrealized gains (losses) on available-for-sale securities.”
The Bank evaluates its individual AFS securities for impairment quarterly by comparing the security’s fair value to its amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, the Bank considers whether there would be a shortfall in receiving all cash flows contractually due. When a shortfall is considered possible, the Bank compares the present value of cash flows to be collected from the security with the amortized cost basis of the security. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance is limited by the amount of the unrealized loss. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately, if applicable.
If management intends to sell an impaired security classified as AFS, or more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in other income (loss). If management does not intend to sell an impaired security classified as AFS and it is not more likely than not that management will be required to sell the debt security, then the credit portion of the difference is recognized as an allowance for credit losses and any remaining difference between the security’s fair value and amortized cost is recorded to
“Net unrealized gains (losses) on available-for-sale securities” within AOCI.
Held-to-Maturity. Securities that the Bank has both the ability and intent to hold to maturity are classified as HTM and carried at amortized cost, which represents the amount at which an investment is acquired, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts. Accrued interest receivable is recorded separately on the Statements of Condition.
Certain changes in circumstances may cause the Bank to change its intent to hold a security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a HTM security due to certain changes in circumstances, such as evidence of significant deterioration in the issuer’s creditworthiness or changes in regulatory requirements, is not considered to be inconsistent with its original classification. Other events that are isolated, non-recurring, and unusual for the Bank that could not have been reasonably anticipated may cause the Bank to sell or transfer an HTM security without necessarily calling into question its intent to hold other debt securities to maturity. In addition, the sale of a debt security that meets either of the following two conditions would not be considered inconsistent with the original classification of that security: (i) the sale occurs near enough to its maturity date (for example, within three months of maturity), or call date if exercise of the call is probable, that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security’s fair value or (ii) the sale occurs after the Bank has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on the debt security payable in equal installments (both principal and interest) over its term.
The Bank evaluates its HTM securities for impairment quarterly on a collective, or pooled, basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately, if applicable. If management intends to sell an impaired security classified as HTM, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in other income (loss).
See “Note 4 - Investments” for details on the allowance methodologies relating to AFS and HTM securities.
Advances
Advances (secured loans to members, former members, or eligible housing associates) are carried at amortized cost,
which is net of premiums, discounts, and fair value hedging adjustments unless the Bank has elected the fair value option, in which case, the advances are carried at fair value. For advances carried at amortized cost, accrued interest receivable is recorded separately on the Statements of Condition. The Bank records interest on advances to interest income as earned. The Bank amortizes/accretes premiums, discounts, and fair value hedging adjustments on advances to income using the level-yield method over the contractual life of the advances.
Advances carried at amortized cost are evaluated quarterly for expected credit losses. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately, if applicable. See “Note 5 - Advances” for details on the allowance methodology relating to advances.
Past Due and Non-Accrual Advances. An advance is considered past due for financial reporting purposes if default of contractual principal or interest exists for a period of 30 days or more. Past due advances may consist of advances still accruing interest or advances on non-accrual status. An advance is placed on non-accrual status when full payment of principal and interest is not reasonably assured, regardless of delinquency status, or when principal or interest has been in default for a period of 90 days or more, unless the advance is both well-secured and in the process of collection. In general, the Bank would not expect advances to be placed on non-accrual status as they are required by regulation to be fully secured by underlying collateral.
Prepayment Fees. The Bank charges a borrower a prepayment fee when the borrower prepays certain advances before the original maturity. For advances with symmetrical prepayment features, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Prepayment fees and credits are recorded net of the hedged item fair value hedging adjustments, if applicable, in advance interest income on the Statements of Income.
Advance Modifications. In cases in which the Bank funds a new advance to a borrower concurrently with or within a short period of time before or after the prepayment of an existing advance, the Bank evaluates whether the new advance meets the accounting criteria to qualify as a modification of an existing advance or whether it constitutes a new advance. The Bank compares the present value of cash flows on the new advance to the present value of cash flows remaining on the existing advance. If there is at least a ten percent difference in the present value of the cash flows or if the Bank concludes the difference between the advances is more than minor based on a qualitative assessment of the modifications made to the original contractual terms, then the advance is accounted for as a new advance and all prepayment fees or credits net of fair value hedging adjustments are recognized immediately to advance interest income on the Statements of Income. In all other instances, the advance is accounted for as a modification.
When a new advance qualifies as a modification of an existing advance, any prepayment fee, net of the hedged item fair value hedging adjustments, as well as any outstanding premiums, discounts, or other adjustments on the prepaid advance, are deferred, recorded in the basis of the modified advance, and amortized over the contractual life of the modified advance using a level-yield methodology to advance interest income.
Mortgage Loans Held for Portfolio
The Bank classifies mortgage loans that it has the intent and ability to hold for the foreseeable future, or until maturity or payoff, as held for portfolio. Accordingly, these mortgage loans are reported net of premiums, discounts, basis adjustments from mortgage loan purchase commitments, charge-offs, and the allowance for credit losses. The Bank records interest on mortgage loans to interest income as earned. The Bank amortizes/accretes premiums, discounts, and basis adjustments on mortgage loan purchase commitments to income using the level-yield method over the contractual life of the mortgage loans. Accrued interest receivable is recorded separately on the Statements of Condition.
The Bank performs a quarterly assessment of its mortgage loans held for portfolio to estimate expected credit losses. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses.
The Bank measures expected credit losses on mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a mortgage loan no longer shares risk characteristics with other loans, it is removed from the pool and evaluated for expected credit losses on an individual basis. When developing the allowance for credit losses, the Bank measures the estimated loss over the remaining life of a mortgage loan, which also considers how the Bank’s credit enhancements mitigate credit losses. The Bank includes estimates of expected recoveries within the allowance for credit losses. The allowance excludes uncollectible accrued interest receivable, as the Bank writes off accrued interest receivable by reversing interest income if a mortgage loan is placed on non-accrual status. The Bank does not purchase mortgage loans with credit deterioration at the time of purchase. See “Note 6 - Mortgage Loans” for details on the allowance methodology relating to mortgage loans.
Past Due and Non-Accrual Loans. A mortgage loan is considered past due if the borrower has failed to make contractual principal and/or interest payments for a period of 30 days or more. The Bank places a conventional mortgage loan on non-accrual status if it is determined that either the collection of interest or principal is doubtful or interest or principal is 90 days or more past due. The Bank does not place a government-insured mortgage loan on non-accrual status due to the U.S. Government guarantee or insurance on the loan and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. For those mortgage loans placed on non-accrual status, accrued but uncollected interest is reversed against interest income and cash payments received are recorded as a reduction of principal. In addition, premiums, discounts, and basis adjustments from mortgage loan purchase commitments are not amortized while a loan is on non-accrual status. A loan on non-accrual status may be restored to accrual status when none of its contractual principal and interest is due and unpaid and the Bank expects repayment of the remaining contractual principal and interest.
Troubled Debt Restructurings. The Bank considers a troubled debt restructuring (TDR) to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties and that concession would not have been considered otherwise. The Bank’s TDRs generally include loans granted under its loan modification plans and loans discharged under Chapter 7 bankruptcy that have not been reaffirmed by the borrower. The Bank does not consider government-insured mortgage loans to be TDRs due to the U.S. Government guarantee or insurance on the loan and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. The Bank places all TDRs on non-accrual status at the time of modification; however, TDRs may be subsequently restored to accrual status if they meet the criteria noted in the non-accrual section above.
Individually Evaluated Loans. The Bank individually evaluates all collateral-dependent loans for expected credit losses. Collateral-dependent loans are loans in which repayment is expected to be provided solely by the sale of the underlying collateral. The Bank’s collateral-dependent loans include loans in process of foreclosure, loans 180 days or more past due, bankruptcy loans 60 days or more past due, and TDRs on non-accrual status. The Bank measures these individually evaluated loans for expected credit loss based on the estimated fair value of the underlying property, less estimated selling costs and expected proceeds from primary mortgage insurance (PMI). All collateral-dependent loans are initially placed on non-accrual status; however, they may be subsequently restored to accrual status if they meet the criteria noted in the non-accrual section above.
Charge-Off Policy. A charge-off is recorded if it is estimated that the amortized cost in a loan will not be recovered. The Bank evaluates whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include but are not limited to, the occurrence of foreclosure or when a loan is deemed collateral-dependent. The Bank charges-off the portion of the outstanding conventional mortgage loan balance in excess of the fair value of the underlying collateral, which is determined using property values, less estimated selling costs and expected proceeds from PMI.
Loans to/from Other FHLBanks
The Bank may lend or borrow unsecured overnight funds to or from other FHLBanks. All such transactions are at current market rates.
Derivatives
All derivatives are recognized on the Statements of Condition at their fair values and reported as either derivative assets or derivative liabilities, net of cash collateral and accrued interest received from or pledged to clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent and/or counterparty when the netting requirements have been met. If these netted amounts result in a receivable to the Bank, they are classified as a derivative asset and, if classified as a payable to the clearing agent or counterparty, they are classified as a derivative liability. Cash flows associated with a derivative are reflected as cash flows from operating activities on the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative.
The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty (uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., a clearing agent) with a Derivative Clearing Organization (cleared derivatives). For cleared derivatives, the Derivative Clearing Organization (Clearinghouse) is the Bank’s counterparty. The Bank utilizes two clearinghouses, CME Clearing and London Clearing House (LCH) Ltd., for all cleared derivative transactions. CME Clearing and LCH Ltd. notify the clearing agent of the required initial margin and daily variation margin payments, and the clearing agent in turn notifies the Bank. Each Clearinghouse determines initial margin requirements which are considered cash collateral. Variation margin requirements with each Clearinghouse are based on changes in the fair value of cleared derivatives and are legally characterized as daily settlement payments, which are a component of the derivative fair value, rather than cash collateral.
Derivative Designations. Derivative instruments are designated by the Bank as:
•a fair value hedge of an associated financial instrument or firm commitment (fair value hedge); or
•an economic hedge to manage certain defined risks on the Bank’s Statements of Condition (economic hedge). These hedges are primarily used to: (i) manage mismatches between the coupon features of the Bank’s assets and liabilities, (ii) offset prepayment risk in certain assets, (iii) mitigate the income statement volatility that occurs when financial instruments are recorded at fair value and hedge accounting is not permitted by accounting guidance, or (iv) reduce exposure to interest reset risk.
Accounting for Fair Value Hedges. If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the fair value hedging relationship and an expectation to be highly effective, they qualify for fair value hedge accounting. At the inception of each fair value hedge transaction, the Bank formally documents the hedge relationship and its risk management objective and strategy for undertaking the hedge, including identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value attributable to the hedged risk will be assessed. This process includes linking all derivatives that are designated as fair value hedges to assets and liabilities on the Statements of Condition and firm commitments.
Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability (or firm commitment) that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item.
Two approaches to fair value hedge accounting include:
•Long-haul hedge accounting. The application of long-haul hedge accounting requires the Bank to formally assess (both at the hedge’s inception and at least quarterly) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value of hedged items due to benchmark interest rate changes and whether those derivatives are expected to remain highly effective in future periods. The Bank uses regression analyses to assess the effectiveness of its long-haul hedges.
•Short-cut hedge accounting. Transactions that meet certain criteria qualify for short-cut hedge accounting in which an assumption can be made that the change in fair value of a hedged item due to changes in the hedged risk, exactly offsets the change in fair value of the related derivative. Under the short-cut method, the entire change in fair value of the interest rate swap is considered to be highly effective at achieving offsetting changes in fair value of the hedged asset or liability. If documented at the time of hedge designation, a derivative relationship no longer qualifying for short-cut hedge accounting can fall back to the long-haul accounting method.
Derivatives are typically executed at the same time as the hedged item, and the Bank designates the hedged item in a fair value hedging relationship at the trade date. In many hedging relationships, the Bank may designate the fair value hedging relationship upon its commitment to disburse an advance, or trade a consolidated obligation in which settlement occurs within the shortest period of time possible for the type of instrument based on market settlement conventions. The Bank then records the changes in fair value of the derivative and the hedged item beginning on the trade date.
Accounting for Economic Hedges. An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that does not qualify or was not designated for fair value hedge accounting, but is an acceptable hedging strategy under the Bank’s risk management program. Changes in the fair value of derivatives that are designated as economic hedges are recorded in other income (loss) as “Net gains (losses) on derivatives” with no offsetting fair value adjustments for the underlying assets, liabilities, or firm commitments, unless changes in the fair value of the those items are normally marked to fair value through earnings (e.g., trading securities and fair value option instruments).
Accrued Interest Receivables and Payables. The net settlements of interest receivables and payables related to derivatives designated as fair value hedges are recognized as adjustments to the interest income or interest expense of the designated hedged item. The net settlements of interest receivables and payables related to derivatives designated as economic hedges are recognized in other income (loss) as “Net gains (losses) on derivatives.”
Discontinuance of Hedge Accounting. The Bank discontinues fair value hedge accounting prospectively when either (i) it determines that the derivative is no longer highly effective in offsetting changes in the fair value of a hedged item due to changes in the benchmark interest rate, (ii) the derivative and/or the hedged item expires or is sold, terminated, or exercised, or (iii) management determines that designating the derivative as a hedging instrument is no longer appropriate.
When fair value hedge accounting is discontinued, the Bank either terminates the derivative or continues to carry the derivative on the Statements of Condition at its fair value. For any remaining hedged item, the Bank ceases to adjust the hedged item for changes in fair value and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining contractual life of the hedged item using the level-yield method.
Embedded Derivatives. The Bank may issue debt, make advances, or purchase financial instruments in which a derivative instrument is “embedded.” Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the debt, advance, or purchased financial instrument (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If the Bank determines that the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as an economic derivative instrument. However, if the Bank elects to carry the entire contract (the host contract and the embedded derivative) at fair value on the Statements of Condition, changes in fair value of the entire contract will be reported in current period earnings.
Premises, Software, and Equipment
Premises, software, and equipment are included in other assets on the Statements of Condition. The Bank records premises, software, and equipment at cost less accumulated depreciation and amortization and computes depreciation and amortization using the straight-line method over the estimated useful lives of assets, which range from approximately three years to 40 years. Leasehold improvements, if applicable, are amortized using the straight-line method over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The Bank may capitalize improvements and major renewals but expenses ordinary maintenance and repairs when incurred. The Bank may capitalize and amortize the cost of computer software developed or obtained for internal use over future periods. The Bank includes gains and losses on the disposal of premises, software, and equipment in other income (loss) on the Statements of Income.
At December 31, 2022 and 2021, premises, software, and equipment totaled $65 million and $59 million, which was net of accumulated depreciation and amortization of $42 million and $36 million. For the years ended December 31, 2022, 2021, and 2020, depreciation and amortization expense for premises, software, and equipment was $6 million, $7 million, and $8 million.
Consolidated Obligations
The Bank reports consolidated obligations at amortized cost, which is net of premiums, discounts, concessions, and fair value hedging adjustments unless the Bank has elected the fair value option, in which case the consolidated obligations are carried at fair value. The Bank records interest on consolidated obligations bonds to interest expense as incurred. The Bank amortizes/accretes premiums, discounts, concessions, and fair value hedging adjustments on consolidated obligations to expense using the level-yield method over the contractual life of the consolidated obligations.
Concessions. The Bank pays concessions to dealers in connection with the issuance of certain consolidated obligations. The Office of Finance prorates the amount of the concession to each FHLBank, based upon the percentage of the debt issued that is attributed to that FHLBank. Concessions paid on consolidated obligations designated under the fair value option are expensed as incurred and recorded in other expense. Concessions paid on consolidated obligations not designated under the fair value option are deferred and amortized over the contractual life of the consolidated obligations using the level-yield method. Unamortized concessions are included as a direct deduction from the carrying amount of “Consolidated obligation discount notes” or “Consolidated obligation bonds” on the Statements of Condition and the amortization of those concessions is included in consolidated obligation interest expense.
Off-Balance Sheet Credit Exposures
The Bank evaluates its off-balance sheet credit exposures on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses on these off-balance sheet exposures is recorded in other liabilities, with a corresponding adjustment to the provision (reversal) for credit losses. See “Note 14 - Commitments and Contingencies” for additional information.
Mandatorily Redeemable Capital Stock
The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock or MRCS) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of redemption, gives notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Shares meeting this definition are reclassified to a liability at fair value. Dividends on MRCS are classified as interest expense on the Statements of Income. The repurchase or redemption of MRCS is transacted at par value and is reflected as a cash outflow in the financing activities section of the Statements of Cash Flows. If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify MRCS from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.
Restricted Retained Earnings
The Bank entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other FHLBanks in 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the FHLBanks over time. Under the JCE Agreement, each FHLBank is required to allocate 20 percent of its quarterly net income to a restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar quarter, equals at least one percent of its average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.
Gains on Litigation Settlement, Net
Litigation settlement gains are considered realized and recorded when the Bank receives cash or assets that are readily convertible to known amounts of cash or claims to cash. In addition, litigation settlement gains are considered realizable and recorded when the Bank enters into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized or realizable, the Bank considers potential litigation settlement gains to be gain contingencies, and therefore they are not recorded on the Statements of Income.
The Bank records legal expenses related to litigation settlements as incurred in other expense on the Statements of Income, with the exception of certain legal expenses related to litigation settlement awards that are contingent-based fees for the attorneys representing the Bank. The Bank incurs and recognizes these contingent-based legal fees only when litigation settlement awards are realized, at which time these fees are netted against the gains recognized on the litigation settlement through other income (loss) on the Statements of Income.
Finance Agency Expenses
The FHLBanks are assessed for a portion of the costs of operating the Finance Agency. Each FHLBank is required to pay their pro-rata share of the annual assessment based on the ratio between each FHLBank’s minimum required regulatory capital and the minimum required regulatory capital of all FHLBanks.
Office of Finance Expenses
The Bank is assessed for a portion of the costs of operating the Office of Finance. The Office of Finance allocates its operating and capital expenditures to the FHLBanks as follows: (i) two-thirds based on each FHLBank’s share of total consolidated obligations outstanding and (ii) one-third based upon an equal pro-rata allocation.
Affordable Housing Program Assessments
The FHLBank Act requires each FHLBank to establish and fund an Affordable Housing Program (AHP), which provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, or moderate-income households. Annually, each FHLBank must set aside for the AHP the greater of 10 percent of its annual income subject to assessment, or its prorated sum required to ensure the aggregate contribution by the FHLBanks is no less than $100 million per year. For purposes of the AHP assessment, income subject to assessment is defined as net income before assessments, plus interest expense related to MRCS. The Bank accrues this expense monthly based on its income subject to assessment. In addition to the required AHP assessment, the Bank’s Board of Directors may elect to make voluntary contributions to the AHP. The Bank reduces its AHP liability as program funds are distributed.
Note 2 - Recently Adopted and Issued Accounting Guidance
Troubled Debt Restructurings and Vintage Disclosures (Accounting Standards Update (ASU) 2022-02)
On March 31, 2022, the Financial Accounting Standards Board (FASB) issued guidance eliminating the accounting requirements for troubled debt restructurings (TDRs) by creditors that have adopted the current expected credit losses methodology, while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2023, and was adopted on a prospective basis. The adoption of this guidance did not have a material effect on the Bank’s financial condition, results of operations, or cash flows.
Fair Value Hedging - Portfolio Layer Method (ASU 2022-01)
On March 28, 2022, the FASB issued guidance expanding the current last-of-layer method to apply fair value hedging by allowing multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed “the portfolio layer method”. Among other things, this guidance (i) expands the scope of the portfolio layer method to include non-prepayable assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. This guidance became effective for the interim and annual periods beginning on January 1, 2023. The Bank does not currently utilize the last-of-layer hedging method and therefore this guidance did not have any impact on the Bank’s financial condition, results of operations, or cash flows.
Reference Rate Reform (ASU 2020-04)
On March 12, 2020, the FASB issued temporary guidance to ease the potential burden in accounting for reference rate reform related to the transition from LIBOR. The guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform, if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale/transfer of HTM debt securities. This guidance became effective immediately and remains in effect until December 31, 2024. The Bank began electing the contractual modification and hedging relationship optional expedients in the first quarter of 2023. The election of these expedients has not had a material effect on the Bank’s financial condition, results of operations, or cash flows.
Note 3 - Cash and Due from Banks
Cash and due from banks includes cash on hand, cash items in the process of collection, compensating balances, and amounts due from the Federal Reserve Bank.
COMPENSATING BALANCES
The Bank maintains collected cash balances with commercial banks in return for certain services. These arrangements contain no legal restrictions on the withdrawal of funds. Average collected cash balances were $36 million and $43 million for the years ended December 31, 2022 and 2021.
Note 4 - Investments
The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold, and makes other investments in debt securities, which are classified as either trading, AFS, or HTM.
INTEREST-BEARING DEPOSITS, SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL, AND FEDERAL FUNDS SOLD
The Bank invests in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by a nationally recognized statistical rating organization (NRSRO). At December 31, 2022 and 2021, none of these investments were with counterparties rated below triple-B; however, as of December 31, 2022, approximately nine percent were secured securities purchased under agreements to resell with unrated counterparties. At December 31, 2021, the Bank held no unrated investments. These NRSRO ratings may differ from any internal ratings of the investments by the Bank.
Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At December 31, 2022 and 2021, no allowance for credit losses was recorded for interest-bearing deposits and federal funds sold, as all assets were repaid or expected to be repaid according to their contractual terms. The carrying values of interest-bearing deposits and federal funds sold exclude accrued interest receivable of $11 million and less than $1 million at December 31, 2022 and 2021.
Securities purchased under agreements to resell are secured, short-term, and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at December 31, 2022 and 2021. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of $3 million and less than $1 million at December 31, 2022 and 2021.
DEBT SECURITIES
The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. The Bank is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality. A security is considered to be investment quality if it has adequate financial backing so that full and timely payment of principal and interest is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. Exceptions are allowed for certain investments targeted at low-income persons or communities, and instruments that experience credit deterioration after their purchase by the Bank.
Trading Securities
Trading securities by major security type were as follows (dollars in millions):
December 31,
2022 2021
Non-mortgage-backed securities
U.S. Treasury obligations1
$ 2,501 $ 496
Other U.S. obligations1
76 102
GSE and Tennessee Valley Authority obligations 49 60
Other2
146 201
Total non-mortgage-backed securities 2,772 859
Mortgage-backed securities
GSE multifamily 45 310
Total fair value $ 2,817 $ 1,169
1 Represents investment securities backed by the full faith and credit of the U.S. Government.
2 Consists of taxable municipal bonds.
Net Gains (Losses) on Trading Securities
The following table summarizes the components of “Net gains (losses) on trading securities” as presented on the Statements of Income (dollars in millions):
For the Years Ended December 31,
2022 2021 2020
Net unrealized gains (losses) on trading securities held at period-end $ (85) $ (28) $ 17
Net gains (losses) on trading securities no longer held at period-end (10) (10) -
Net gains (losses) on trading securities $ (95) $ (38) $ 17
AFS Securities
AFS securities by major security type were as follows (dollars in millions):
December 31, 2022
Amortized
Cost1
Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Non-mortgage-backed securities
Other U.S. obligations2
$ 759 $ 1 $ (2) $ 758
GSE and Tennessee Valley Authority obligations 459 12 (1) 470
State or local housing agency obligations 454 - (5) 449
Other3
234 6 - 240
Total non-mortgage-backed securities 1,906 19 (8) 1,917
Mortgage-backed securities
U.S. obligations single-family2
3,693 1 (18) 3,676
GSE single-family 212 1 (3) 210
GSE multifamily 9,866 10 (116) 9,760
Total mortgage-backed securities 13,771 12 (137) 13,646
Total $ 15,677 $ 31 $ (145) $ 15,563
December 31, 2021
Amortized
Cost1
Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Non-mortgage-backed securities
Other U.S. obligations2
$ 1,152 $ 5 $ (1) $ 1,156
GSE and Tennessee Valley Authority obligations 953 30 - 983
State or local housing agency obligations 492 - (4) 488
Other3
277 11 - 288
Total non-mortgage-backed securities 2,874 46 (5) 2,915
Mortgage-backed securities
U.S. obligations single-family2
2,890 19 - 2,909
GSE single-family 273 4 - 277
GSE multifamily 7,264 42 (18) 7,288
Total mortgage-backed securities 10,427 65 (18) 10,474
Total $ 13,301 $ 111 $ (23) $ 13,389
1 Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments, and excludes accrued interest receivable of $49 million and $28 million at December 31, 2022 and 2021.
2 Represents investment securities backed by the full faith and credit of the U.S. Government.
3 Consists primarily of taxable municipal bonds.
Unrealized Losses
The following tables summarize AFS securities with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.
December 31, 2022
Less than 12 Months 12 Months or More Total
Fair
Value Gross Unrealized
Losses Fair
Value Gross Unrealized
Losses Fair
Value Gross Unrealized
Losses
Non-mortgage-backed securities
Other U.S. obligations1
$ 428 $ (1) $ 63 $ (1) $ 491 $ (2)
GSE and Tennessee Valley Authority obligations 84 (1) - - 84 (1)
State or local housing agency obligations 35 (1) 403 (4) 438 (5)
Total non-mortgage-backed securities 547 (3) 466 (5) 1,013 (8)
Mortgage-backed securities
U.S. obligations single-family1
3,094 (17) 122 (1) 3,216 (18)
GSE single-family 138 (3) - - 138 (3)
GSE multifamily 5,471 (97) 2,012 (19) 7,483 (116)
Total mortgage-backed securities 8,703 (117) 2,134 (20) 10,837 (137)
Total $ 9,250 $ (120) $ 2,600 $ (25) $ 11,850 $ (145)
December 31, 2021
Less than 12 Months 12 Months or More Total
Fair
Value Gross Unrealized
Losses Fair
Value Gross Unrealized
Losses Fair
Value Gross Unrealized
Losses
Non-mortgage-backed securities
Other U.S. obligations1
$ 80 $ - $ 115 $ (1) $ 195 $ (1)
GSE and Tennessee Valley Authority obligations 355 - - - 355 -
State or local housing agency obligations - - 451 (4) 451 (4)
Total non-mortgage-backed securities 435 - 566 (5) 1,001 (5)
Mortgage-backed securities
U.S. obligations single-family1
89 - 87 - 176 -
GSE single-family 2 - - - 2 -
GSE multifamily 1,831 (3) 2,917 (15) 4,748 (18)
Total mortgage-backed securities 1,922 (3) 3,004 (15) 4,926 (18)
Total $ 2,357 $ (3) $ 3,570 $ (20) $ 5,927 $ (23)
1 Represents investment securities backed by the full faith and credit of the U.S. Government.
Contractual Maturity
The following table summarizes AFS securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
December 31, 2022 December 31, 2021
Year of Contractual Maturity Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Non-mortgage-backed securities
Due in one year or less $ 293 $ 295 $ 422 $ 422
Due after one year through five years 832 833 1,538 1,548
Due after five years through ten years 330 333 348 356
Due after ten years 451 456 566 589
Total non-mortgage-backed securities 1,906 1,917 2,874 2,915
Mortgage-backed securities 13,771 13,646 10,427 10,474
Total $ 15,677 $ 15,563 $ 13,301 $ 13,389
HTM Securities
HTM securities by major security type were as follows (dollars in millions):
December 31, 2022
Amortized
Cost1
Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair
Value
Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations $ 369 $ 10 $ (4) $ 375
State or local housing agency obligations 33 - - 33
Total non-mortgage-backed securities 402 10 (4) 408
Mortgage-backed securities
U.S. obligations single-family2
2 - - 2
GSE single-family 557 - (12) 545
Private-label 4 - - 4
Total mortgage-backed securities 563 - (12) 551
Total $ 965 $ 10 $ (16) $ 959
December 31, 2021
Amortized
Cost1
Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair
Value
Non-mortgage-backed securities
GSE and Tennessee Valley Authority obligations $ 374 $ 71 $ - $ 445
State or local housing agency obligations 187 1 (1) 187
Total non-mortgage-backed securities 561 72 (1) 632
Mortgage-backed securities
U.S. obligations single-family2
2 - - 2
GSE single-family 760 6 - 766
Private-label 5 - - 5
Total mortgage-backed securities 767 6 - 773
Total $ 1,328 $ 78 $ (1) $ 1,405
1 Amortized cost includes adjustments made to the cost basis of an investment for accretion or amortization and excludes accrued interest receivable of $5 million at both December 31, 2022 and 2021.
2 Represents investment securities backed by the full faith and credit of the U.S. Government.
Contractual Maturity
The following table summarizes HTM securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
December 31, 2022 December 31, 2021
Year of Contractual Maturity Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Non-mortgage-backed securities
Due after one year through five years $ 254 $ 254 $ 257 $ 287
Due after five years through ten years 71 73 196 204
Due after ten years 77 81 108 141
Total non-mortgage-backed securities 402 408 561 632
Mortgage-backed securities 563 551 767 773
Total $ 965 $ 959 $ 1,328 $ 1,405
ALLOWANCE FOR CREDIT LOSSES ON AFS AND HTM SECURITIES
The Bank evaluates AFS and HTM investment securities for credit losses on a quarterly basis. The Bank’s AFS and HTM securities may include, but are not limited to, certificates of deposit, commercial paper, U.S. obligations, GSE and Tennessee Valley Authority (TVA) obligations, state or local housing agency obligations, taxable municipal bonds, and MBS. The Bank only purchases securities considered investment quality. At both December 31, 2022 and 2021, over 99 percent of the Bank’s AFS and HTM securities, based on amortized cost, were rated single-A or above by an NRSRO, based on the lowest long-term credit rating for each security. These NRSRO ratings may differ from any internal ratings of the securities by the Bank.
The Bank evaluates its individual AFS securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). At December 31, 2022 and 2021, certain AFS securities held by the Bank were in an unrealized loss position. These losses are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. In addition, substantially all of these securities are high-quality GSE securities or carry an explicit government guarantee. In the case of GSE securities, they are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs. As a result, no allowance for credit losses was recorded on these AFS securities at December 31, 2022 and 2021.
The Bank evaluates its HTM securities for impairment on a collective, or pooled, basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. At December 31, 2022 and 2021, the Bank had no allowance for credit losses recorded on its HTM securities because the securities: (i) were all highly-rated, (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, (iii) in the case of U.S. obligations, carry an explicit government guarantee such that the Bank considers the risk of nonpayment to be zero, and (iv) in the case of GSE securities, they are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs.
Note 5 - Advances
The Bank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics, and optionality. Fixed rate advances generally have maturities ranging from overnight to 30 years. Variable rate advances generally have maturities ranging from one month to five years, where the interest rates reset periodically to a specified interest rate index such as the Secured Overnight Financing Rate (SOFR) or to consolidated obligation yields.
REDEMPTION TERM
The following table summarizes the Bank’s advances outstanding by redemption term (dollars in millions):
December 31, 2022 December 31, 2021
Redemption Term Amount1
Weighted
Average
Interest
Rate Amount1
Weighted
Average
Interest
Rate
Overdrawn demand deposit accounts $ 1 6.10 % $ - - %
Due in one year or less 61,578 4.26 12,441 1.18
Due after one year through two years 23,026 4.25 7,415 1.72
Due after two years through three years 10,790 3.47 9,956 1.04
Due after three years through four years 7,149 3.03 4,939 0.94
Due after four years through five years 6,047 3.89 6,275 0.95
Thereafter 3,783 3.03 3,113 2.07
Total par value 112,374 4.04 % 44,139 1.24 %
Premiums 11 14
Discounts - (2)
Fair value hedging adjustments (1,183) (40)
Total $ 111,202 $ 44,111
1 Excludes accrued interest receivable of $271 million and $13 million at December 31, 2022 and 2021.
The following table summarizes advances by year of redemption term or next call date for callable advances, and by year of redemption term or next put date for putable advances (dollars in millions):
Redemption Term
or Next Call Date Redemption Term
or Next Put Date
December 31,
2022 December 31,
2021 December 31,
2022 December 31,
Overdrawn demand deposit accounts $ 1 $ - $ 1 $ -
Due in one year or less 73,765 24,690 61,745 13,270
Due after one year through two years 20,883 6,253 22,890 7,429
Due after two years through three years 6,218 4,429 10,767 9,173
Due after three years through four years 4,468 2,357 7,149 4,889
Due after four years through five years 3,228 3,273 6,047 6,276
Thereafter 3,811 3,137 3,775 3,102
Total par value $ 112,374 $ 44,139 $ 112,374 $ 44,139
The Bank offers advances to members and eligible housing associates that may be prepaid on predetermined dates (call dates) prior to maturity without incurring prepayment fees (callable advances). Other advances may require a prepayment fee or credit that makes the Bank financially indifferent to the prepayment of the advance. At December 31, 2022 and 2021, the Bank had callable advances outstanding totaling $23.4 billion and $13.4 billion.
The Bank also holds putable advances. With a putable advance, the Bank has the right to terminate the advance from the borrower on predetermined exercise dates. Generally these put options are exercised when interest rates increase relative to contractual rates. At December 31, 2022 and 2021, the Bank had putable advances outstanding totaling $168 million and $1.1 billion.
PREPAYMENT FEES
The Bank generally charges a prepayment fee for advances that a borrower elects to terminate prior to the stated maturity or outside of a predetermined call or put date. The fees charged are priced to make the Bank financially indifferent to the prepayment of the advance. For certain advances with symmetrical prepayment features, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Prepayment fees and credits are recorded net of the hedged item fair value hedging adjustments, if applicable, in advance interest income on the Statements of Income. The Bank recorded net prepayment fees on advances of $9 million, $47 million, and $75 million for the years ended December 31, 2022, 2021, and 2020.
ADVANCE CONCENTRATIONS
The Bank’s advances are primarily concentrated in commercial banks and insurance companies. At December 31, 2022, the Bank had outstanding advances of $32.0 billion to Wells Fargo Bank, N.A., which represented 28 percent of the total principal amount of outstanding advances. At December 31, 2021, the Bank did not have any members who individually held 10 percent or more of the Bank’s advances.
ALLOWANCE FOR CREDIT LOSSES
The Bank evaluates advances for credit losses on a quarterly basis and manages its credit exposure to advances through an approach that includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower’s financial condition in conjunction with the Bank’s collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, the Bank lends to eligible borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.
The Bank is required by regulation to obtain sufficient collateral to fully secure its advances. The estimated value of the collateral required to secure each borrower’s advances is calculated by applying collateral discounts, or haircuts, to the unpaid principal balance or market value, as applicable, of the collateral. The Bank also has policies and procedures for validating the reasonableness of the Bank’s collateral valuations. In addition, collateral verifications and on-site reviews are performed by the Bank based on the risk profile of the borrower. Management believes that these policies effectively manage the Bank’s credit risk from advances.
Eligible collateral includes:
•fully disbursed whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages;
•loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association;
•cash deposited with the Bank; and
•other real estate-related collateral acceptable to the Bank, such as second lien mortgages, home equity lines of credit, tax-exempt municipal securities, and commercial real estate mortgages, provided such collateral has a readily ascertainable value and the Bank can perfect a security interest in it.
Community financial institutions may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that the Bank has a lien on each member’s capital stock investment; however, capital stock cannot be pledged as collateral to secure advances.
Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower. The Bank can also require additional or substitute collateral to protect its security interest. The Bank periodically evaluates and makes changes to its collateral guidelines and collateral haircuts.
Borrowers may pledge collateral to the Bank by executing a blanket pledge agreement, specifically assigning collateral, or placing physical possession of collateral with the Bank or its custodians. The Bank perfects its security interest in all pledged collateral by filing Uniform Commercial Code financing statements or by taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to the Bank by its members, or any affiliates of its members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.
Under a blanket pledge agreement, the Bank is granted a security interest in all financial assets of the borrower to fully secure the borrower’s obligation. Other than securities and cash deposits, the Bank does not initially take delivery of collateral from blanket pledge agreement borrowers. In the event of a default or a deterioration in the financial condition of a blanket pledge agreement borrower, the Bank has the ability to require delivery of pledged collateral sufficient to secure the borrower’s obligation. With respect to non-blanket pledge agreement borrowers that are federally insured, the Bank generally requires collateral to be specifically assigned. With respect to non-blanket pledge agreement borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), the Bank generally takes control of collateral through the delivery of cash, securities, or loans to the Bank or its custodians.
Using a risk-based approach and taking into consideration each borrower’s financial strength, the Bank considers the types and level of collateral to be the primary indicator of credit quality on its advances. At December 31, 2022 and 2021, the Bank had rights to collateral on a borrower-by-borrower basis with an unpaid principal balance or market value, as applicable, in excess of its outstanding advances.
At December 31, 2022 and 2021, none of the Bank’s advances were past due, on non-accrual status, or considered impaired. The Bank considers its advances past due if a default of contractual principal or interest exists for a period of 30 days or more. In addition, there were no TDRs related to advances during the years ended December 31, 2022 and 2021.
The Bank has never experienced a credit loss on its advances. Based upon the Bank’s collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no expected credit losses on its advances as of December 31, 2022 and 2021.
Note 6 - Mortgage Loans Held for Portfolio
Mortgage loans held for portfolio include conventional mortgage loans and government-guaranteed or -insured mortgage loans obtained primarily through the Mortgage Partnership Finance (MPF) program (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago). The Bank’s mortgage loan program involves investment by the Bank in single-family mortgage loans held for portfolio that are purchased from participating financial institutions (PFIs). Mortgage loans may also be acquired through participations in pools of eligible mortgage loans purchased from other FHLBanks. The Bank’s PFIs generally originate, service, and credit enhance mortgage loans that are sold to the Bank. PFIs participating in the servicing release program do not service the loans owned by the Bank. The servicing on these loans is sold concurrently by the PFI to a designated mortgage service provider.
The following table presents information on the Bank’s mortgage loans held for portfolio (dollars in millions):
December 31,
2022 2021
Fixed rate, long-term single-family mortgage loans $ 7,244 $ 6,307
Fixed rate, medium-term1 single-family mortgage loans
1,033 1,172
Total unpaid principal balance 8,277 7,479
Premiums 96 96
Discounts (11) (2)
Basis adjustments from mortgage loan purchase commitments (9) 6
Total mortgage loans held for portfolio2
8,353 7,579
Allowance for credit losses (5) (1)
Total mortgage loans held for portfolio, net $ 8,348 $ 7,578
1 Medium-term is defined as an original term of 15 years or less.
2 Excludes accrued interest receivable of $42 million and $34 million at December 31, 2022 and 2021.
The following table presents the Bank’s mortgage loans held for portfolio by collateral or guarantee type (dollars in millions):
December 31,
2022 2021
Conventional mortgage loans $ 7,890 $ 7,063
Government-insured mortgage loans 387 416
Total unpaid principal balance $ 8,277 $ 7,479
PAYMENT STATUS OF MORTGAGE LOANS
Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor borrower performance. Past due loans are those where the borrower has failed to make contractual principal and/or interest payments for a period of 30 days or more. Other delinquency statistics include non-accrual loans and loans in process of foreclosure.
The following tables present the payment status for conventional mortgage loans (dollars in millions):
December 31, 2022
Origination Year
Prior to 2018 2018 to 2022 Total
Past due 30 - 59 days $ 21 $ 22 $ 43
Past due 60 - 89 days 5 6 11
Past due 90 - 179 days 3 2 5
Past due 180 days or more 7 2 9
Total past due mortgage loans 36 32 68
Total current mortgage loans 1,764 6,128 7,892
Total amortized cost of mortgage loans1
$ 1,800 $ 6,160 $ 7,960
December 31, 2021
Origination Year
Prior to 2017 2017 to 2021 Total
Past due 30 - 59 days $ 19 $ 17 $ 36
Past due 60 - 89 days 5 3 8
Past due 90 - 179 days 7 2 9
Past due 180 days or more 16 3 19
Total past due mortgage loans 47 25 72
Total current mortgage loans 1,826 5,257 7,083
Total amortized cost of mortgage loans1
$ 1,873 $ 5,282 $ 7,155
1 Amortized cost represents the unpaid principal balance adjusted for unamortized premiums, discounts, price adjustment fees, basis adjustments, and direct write-downs. Amortized cost excludes accrued interest receivable.
The following tables present other delinquency statistics for mortgage loans (dollars in millions):
December 31, 2022
Amortized Cost Conventional Government-Insured Total
In process of foreclosure1
$ 4 $ 1 $ 5
Serious delinquency rate2
- % 2 % - %
Past due 90 days or more and still accruing interest3
$ - $ 8 $ 8
Non-accrual mortgage loans4
$ 40 $ - $ 40
December 31, 2021
Amortized Cost Conventional Government- Insured Total
In process of foreclosure1
$ 4 $ 1 $ 5
Serious delinquency rate2
- % 3 % 1 %
Past due 90 days or more and still accruing interest3
$ - $ 11 $ 11
Non-accrual mortgage loans4
$ 86 $ - $ 86
1 Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported.
2 Represents mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total mortgage loans. Serious delinquency rate on conventional loans was less than one percent at December 31, 2022 and 2021.
3 Represents government-insured mortgage loans that are 90 days or more past due.
4 Represents conventional mortgage loans that are 90 days or more past due or for which the collection of interest or principal is doubtful. At December 31, 2022 and 2021, $29 million and $74 million of conventional mortgage loans on non-accrual status were evaluated individually and do not have a related allowance for credit losses because these loans were either previously charged off to the expected recoverable value and/or the fair value of the underlying collateral is greater than the amortized cost of the loans.
ALLOWANCE FOR CREDIT LOSSES
The Bank evaluates mortgage loans for credit losses on a quarterly basis.
Conventional Mortgage Loans
Conventional mortgage loans are evaluated collectively when similar risk characteristics exists. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. The Bank determines its allowances for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions.
For collectively evaluated loans, the Bank uses a projected cash flow model to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as current and projected property values and interest rates, as well as historical borrower behavior experience. The Bank also incorporates associated credit enhancements when determining its estimate of expected credit losses. The Bank may incorporate a management adjustment in the allowance for credit losses for conventional mortgage loans due to changes in economic and business conditions or other factors that may not be fully captured in its model.
For individually evaluated loans, the Bank uses the practical expedient for collateral-dependent assets. A mortgage loan is considered collateral-dependent when repayment is expected to be provided solely by the sale of the underlying collateral. The Bank estimates the fair value of this collateral using a property valuation model. The expected credit loss of a collateral- dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs and expected proceeds from PMI. The Bank records a direct charge-off of the loan balance if certain triggering criteria are met. Expected recoveries of prior charge-offs are included in the allowance for credit losses.
At December 31, 2022 and 2021, the Bank’s allowance for credit losses on conventional mortgage loans was $5 million and $1 million. During the year ended December 31, 2022, the Bank projected an increase in expected credit losses on collectively evaluated loans due primarily to an upward revision in forecasted mortgage rates, a deceleration in forecasted regional home price appreciation, and increased loan volumes. The increase in loan volumes was due to new purchases as well as certain individually evaluated loans returning to accrual status during the period. As a result of loans returning to accrual status, the Bank also saw a decline in expected property value recoveries on individually evaluated loans during the period.
Government-Insured Mortgage Loans
The Bank invests in government-insured fixed rate mortgage loans portfolios that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, Department of Housing and Urban Development, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, the Bank only has credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance, but in such instance, the Bank would have recourse against the servicer for such failure.
The Bank has never experienced a credit loss on its government-insured mortgage loans. At December 31, 2022 and 2021, the Bank assessed its servicers and determined there was no expectation that a servicer would fail to remit payments due until paid in full. As a result, the Bank did not establish an allowance for credit losses for its government-insured mortgage loans at December 31, 2022 and 2021. Furthermore, none of these mortgage loans have been placed on non-accrual status because of the U.S. Government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.
Note 7 - Derivatives and Hedging Activities
NATURE OF BUSINESS ACTIVITY
The Bank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and its related funding sources. The goal of the Bank’s interest rate risk management strategy is not to eliminate interest rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures which include guidelines on the amount of exposure to interest rate changes it is willing to accept.
The Bank enters into derivative contracts to manage the interest rate risk exposures inherent in its otherwise unhedged assets and funding positions. Finance Agency regulations and the Bank’s risk management policies establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.
Derivative financial instruments are used by the Bank to achieve its financial and risk management objectives. The Bank reevaluates its hedging strategies periodically and may change the hedging techniques it uses or may adopt new strategies. The most common ways in which the Bank uses derivatives are to:
•reduce the interest rate sensitivity and repricing gaps of assets and liabilities;
•preserve an interest rate spread between the yield of an asset and the cost of the related liability. Without the use of derivatives, this interest rate spread could be reduced or eliminated when a change in the interest rate on the asset does not match a change in the interest rate on the liability;
•mitigate the adverse earnings effects of the shortening or extension of certain assets and liabilities;
•manage embedded options in assets and liabilities; and
•reduce funding costs by combining a derivative with a consolidated obligation, as the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation.
TYPES OF DERIVATIVES
The Bank may use the following derivative instruments:
•Interest Rate Swaps. An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be exchanged and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional amount at a variable interest rate index for the same period of time. The variable interest rate received or paid by the Bank in derivative transactions is primarily the overnight index swap (OIS) rate, based on either federal funds or SOFR.
•Options. An option is an agreement between two entities that conveys the right, but not the obligation, to engage in a future transaction on some underlying security or other financial asset at an agreed-upon price during a certain period of time or on a specific date. Premiums or swap fees paid to acquire options are considered the fair value of the option at inception of the hedge and are reported as derivative assets on the Statements of Condition.
•Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank against future interest rate changes. The Bank may enter into both payer and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.
•Interest Rate Caps and Floors. In an interest rate cap agreement, a cash flow is generated if the price or interest rate of an underlying variable rises above a certain threshold (or “cap”) price. In an interest rate floor agreement, a cash flow is generated if the price or interest rate of an underlying variable falls below a certain threshold (or “floor”) price. Interest rate caps and floors are designed as protection against the interest rate on a variable rate asset or liability rising above or falling below a certain level.
•Futures/Forwards Contracts. Futures and forwards contracts give the buyer the right to buy or sell a specific type of asset at a specific time at a given price. For example, certain mortgage loan purchase commitments entered into by the Bank are considered derivatives. The Bank may hedge these commitments by selling “to-be-announced” (TBA) MBS for forward settlement. A TBA MBS represents a forward contract for the sale of MBS at a future agreed-upon date for an established price.
TYPES OF HEDGED ITEMS
The Bank may have the following types of hedged items:
•Investment Securities. The Bank primarily invests in U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, and agency MBS, and classifies them as either trading, AFS, or HTM. The interest rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. To manage interest rate risk, the Bank may fund investment securities with callable consolidated obligations or utilize interest rate swaps, caps, floors, or swaptions. Derivatives held by the Bank that are associated with trading and HTM securities, if applicable, are designated as economic hedges and derivatives held by the Bank associated with AFS securities are generally designated as fair value hedges.
•Advances. The Bank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics, and optionality. The Bank may use derivatives to adjust the repricing and/or option characteristics of advances in order to more closely match the characteristics of its funding liabilities. In general, whenever a borrower executes a fixed rate advance or a variable rate advance with embedded options, the Bank may simultaneously execute a derivative with terms that offset the terms and embedded options, if any, in the advance. For example, the Bank may hedge a fixed rate advance with an interest rate swap where the Bank pays a fixed rate coupon and receives a variable rate coupon, effectively converting the fixed rate advance to a variable rate advance. This type of hedge is typically treated as a fair value hedge. In addition, the Bank may hedge a callable advance, which gives the borrower the option to extinguish the fixed rate advance, by entering into a cancelable interest rate swap.
•Mortgage Loans. The Bank invests in fixed rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in actual and estimated prepayment speeds. The Bank manages the interest rate risk associated with mortgage loans through a combination of debt issuance and derivatives. The Bank may issue both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may also purchase interest rate caps, floors, or swaptions to minimize the interest rate risk embedded in mortgage assets. Although these derivatives are valid economic hedges, they are not specifically linked to individual mortgage assets and, therefore, do not receive fair value hedge accounting.
•Consolidated Obligations. The Bank may enter into derivatives to hedge the interest rate risk associated with its consolidated obligations. For example, the Bank may issue and hedge a fixed rate consolidated obligation with an interest rate swap where the Bank receives a fixed rate coupon and pays a variable rate coupon, effectively converting the fixed rate consolidated obligation to a variable rate consolidated obligation. This type of hedge is typically treated as a fair value hedge. The Bank may also issue variable interest rate consolidated obligations and simultaneously execute interest rate swaps to hedge the basis risk of the variable interest rate debt. Interest rate swaps used to hedge variable interest rate debt do not qualify for hedge accounting and are treated as economic hedges. This strategy of issuing consolidated obligations while simultaneously entering into derivatives enables the Bank to offer a wider range of attractively priced advances to its borrowers and may allow the Bank to reduce its funding costs.
•Firm Commitments. Certain mortgage loan purchase commitments are considered derivatives. The Bank normally hedges these commitments by selling TBA MBS for forward settlement. A TBA MBS represents a forward contract for the sale of MBS at a future agreed-upon date for an established price. The mortgage loan purchase commitment and the TBA used in the firm commitment hedging strategy are considered economic hedges. When the mortgage loan purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized over the contractual life of the mortgage loan using the level-yield method. The Bank may also hedge a firm commitment for a forward-starting advance through the use of an interest-rate swap, which is considered a fair value hedge.
For additional information on the Bank’s derivatives, see “Note 1 - Summary of Significant Accounting Policies.”
FINANCIAL STATEMENT EFFECT AND ADDITIONAL FINANCIAL INFORMATION
The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.
The following table summarizes the Bank’s notional amount and fair value of derivative instruments and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest (dollars in millions):
December 31, 2022 December 31, 2021
Notional
Amount Derivative
Assets Derivative
Liabilities Notional
Amount Derivative
Assets Derivative
Liabilities
Derivatives designated as hedging instruments (fair value hedges)
Interest rate swaps $ 53,136 $ 226 $ 205 $ 57,502 $ 68 $ 136
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps 48,347 11 13 23,664 7 43
Forward settlement agreements 46 - - 115 - -
Mortgage loan purchase commitments 46 - - 115 - -
Total derivatives not designated as hedging instruments 48,439 11 13 23,894 7 43
Total derivatives before netting and collateral adjustments $ 101,575 237 218 $ 81,396 75 179
Netting adjustments and cash collateral1
406 (214) 146 (176)
Total derivative assets and derivative liabilities $ 643 $ 4 $ 221 $ 3
1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral, including accrued interest, held or placed with the same clearing agent and/or counterparty. At December 31, 2022 and 2021, cash collateral, including accrued interest, posted by the Bank was $739 million and $342 million. At December 31, 2022 and 2021, the Bank held cash collateral, including accrued interest, from clearing agents and/or counterparties of $119 million and $20 million.
The following tables summarize the net gains (losses) on qualifying and discontinued fair value hedging relationships recorded in net interest income, including the net interest settlements on derivatives, as well as total income (expense) by hedged product recorded on the Statements of Income (dollars in millions):
For the Year Ended December 31, 2022
Interest Income (Expense)
Advances AFS Securities Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1
$ 1,750 $ 354 $ (1,128)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2
$ 1,232 $ 773 $ (350)
Hedged items3
(1,143) (745) 304
Net gains (losses) on fair value hedging relationships $ 89 $ 28 $ (46)
For the Year Ended December 31, 2021
Interest Income (Expense)
Advances AFS Securities Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1
$ 472 $ 101 $ (452)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2
$ 246 $ 127 $ (23)
Hedged items3
(467) (267) 146
Net gains (losses) on fair value hedging relationships $ (221) $ (140) $ 123
For the Year Ended December 31, 2020
Interest Income (Expense)
Advances AFS Securities Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1
$ 950 $ 206 $ (915)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2
$ (455) $ (283) $ 261
Hedged items3
271 173 (150)
Net gains (losses) on fair value hedging relationships $ (184) $ (110) $ 111
1 Amounts shown to give context to the disclosure and include total interest income (expense) of the products indicated, including coupon, prepayment fees, amortization, and derivative net interest settlements. Interest income (expense) amounts also include gains and losses on derivatives and hedged items in fair value hedging relationships.
2 Includes changes in fair value and net interest settlements on derivatives.
3 Includes changes in fair value and amortization/accretion of basis adjustments on closed hedge relationships.
The following tables summarize cumulative fair value hedging adjustments and the related amortized cost of the hedged items (dollars in millions):
December 31, 2022
Advances AFS Securities Consolidated Obligation Bonds
Amortized cost of hedged asset/liability1
$ 21,832 $ 8,606 $ 22,205
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost $ (1,109) $ (671) $ (297)
Basis adjustments for discontinued hedging relationships included in amortized cost (74) (1) (1)
Total amount of fair value hedging adjustments $ (1,183) $ (672) $ (298)
December 31, 2021
Advances AFS Securities Consolidated Obligation Bonds
Amortized cost of hedged asset/liability1
$ 17,598 $ 6,547 $ 34,271
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost $ (54) $ 73 $ 11
Basis adjustments for discontinued hedging relationships included in amortized cost 14 - (5)
Total amount of fair value hedging adjustments $ (40) $ 73 $ 6
1 Represents the portion of amortized cost designated as a hedged item in an active or discontinued fair value hedging relationship.
The following table summarizes the components of “Net gains (losses) on derivatives” as presented on the Statements of Income (dollars in millions):
For the Years Ended December 31,
2022 2021 2020
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps $ 6 $ 31 $ (32)
Forward settlement agreements 14 3 (13)
Mortgage loan purchase commitments (15) (3) 11
Net interest settlements (58) (17) (14)
Total net gains (losses) related to derivatives not designated as hedging instruments (53) 14 (48)
Price alignment amount1
(11) - -
Net gains (losses) on derivatives $ (64) $ 14 $ (48)
1 This amount represents interest on variation margin, which is a component of the derivative fair value for cleared transactions, and reflects the price alignment amount on variation margin for daily settled derivative contracts not designated as hedging instruments. The price alignment amount on variation margin for daily settled derivative contracts designated as hedging instruments are recorded in the same line item as the earnings effect of the hedged item.
MANAGING CREDIT RISK ON DERIVATIVES
The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative contracts. The Bank manages credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in the Bank’s policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.
The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty, referred to as uncleared derivatives, or cleared through a clearing agent with a Clearinghouse, referred to as cleared derivatives. Once a derivative transaction has been accepted for clearing by a Clearinghouse, the derivative transaction is novated and the executing counterparty is replaced with the Clearinghouse. The Bank is not a derivative dealer and does not trade derivatives for short-term profit.
For uncleared derivatives, the degree of credit risk is impacted by the extent to which master netting arrangements are included in the derivative contracts to mitigate the risk. The Bank requires collateral agreements on its uncleared derivatives.
Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by an NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions, unless the collateral delivery threshold is set to zero. The aggregate fair value of all uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) at December 31, 2022 was less than $1 million, and the Bank was not required to post collateral in the normal course of business. If the Bank’s credit rating had been lowered from its current rating to the next lower rating, the Bank would not have been required to deliver additional collateral to its uncleared derivative counterparties at December 31, 2022.
For cleared derivatives, the Clearinghouse is the Bank’s counterparty. The Bank utilizes two Clearinghouses, CME Clearing and LCH Ltd., for all cleared derivative transactions. CME Clearing and LCH Ltd. notify the clearing agent of the required initial margin and daily variation margin requirements, and the clearing agent in turn notifies the Bank.
Each Clearinghouse determines initial margin requirements which are considered cash collateral. Generally, credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. The Bank was not required to post additional initial margin by its clearing agent, based on credit considerations, at December 31, 2022. Variation margin requirements with each Clearinghouse are based on changes in the fair value of cleared derivatives and are legally characterized as daily settlement payments, rather than cash collateral.
The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the fair value of cleared derivatives is posted daily through a clearing agent.
OFFSETTING OF DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES
The Bank presents derivative instruments, related cash collateral received or pledged, and associated accrued interest on a net basis by clearing agent and/or by counterparty when it has met the netting requirements. Additional information regarding these agreements is provided in “Note 1 - Summary of Significant Accounting Policies.”
The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and has determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default, including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.
The following tables present the fair value of derivative instruments meeting or not meeting the netting requirements and the related collateral received from or pledged to counterparties (dollars in millions):
December 31, 2022
Derivative Instruments Meeting Netting Requirements
Gross Amount Recognized1
Gross Amounts of Netting Adjustments and Cash Collateral Derivative Instruments Not Meeting Netting Requirements2
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives $ 195 $ (194) $ - $ 1
Cleared derivatives 42 600 - 642
Total $ 237 $ 406 $ - $ 643
Derivative Liabilities
Uncleared derivatives $ 200 $ (196) $ - $ 4
Cleared derivatives 18 (18) - -
Total $ 218 $ (214) $ - $ 4
December 31, 2021
Derivative Instruments Meeting Netting Requirements
Gross Amount Recognized1
Gross Amounts of Netting Adjustments and Cash Collateral Derivative Instruments Not Meeting Netting Requirements2
Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives $ 74 $ (73) $ - $ 1
Cleared derivatives 1 219 - 220
Total $ 75 $ 146 $ - $ 221
Derivative Liabilities
Uncleared derivatives $ 172 $ (170) $ - $ 2
Cleared derivatives 7 (6) - 1
Total $ 179 $ (176) $ - $ 3
1 Represents derivative assets and derivative liabilities prior to netting adjustments and cash collateral, including accrued interest.
2 Represents mortgage loan purchase commitments not subject to enforceable netting requirements.
Note 8 - Deposits
The Bank offers demand and overnight deposits as well as short-term interest-bearing deposits to members and to qualifying non-members. Deposits classified as demand and overnight pay interest based on a daily interest rate. Short-term interest-bearing deposits pay interest based on a fixed rate determined at the issuance of the deposit.
The following table details the Bank’s interest-bearing and non-interest-bearing deposits (dollars in millions):
December 31,
2022 2021
Interest-bearing
Demand and overnight $ 977 $ 1,659
Term 29 59
Non-interest-bearing
Demand 70 129
Total $ 1,076 $ 1,847
Note 9 - Consolidated Obligations
Consolidated obligations consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. Bonds are issued primarily to raise intermediate- and long-term funds for the Bank and are not subject to any statutory or regulatory limits on their maturity. Discount notes are issued primarily to raise short-term funds for the Bank and have original maturities of up to one year. Discount notes sell at or below their face amount and are redeemed at par value when they mature.
Although the Bank is primarily liable for the portion of consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all FHLBank System consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority. At December 31, 2022 and 2021, the total par value of outstanding consolidated obligations of the FHLBanks was $1,181.7 billion and $652.9 billion.
DISCOUNT NOTES
The following table summarizes the Bank’s discount notes (dollars in millions):
December 31, 2022 December 31, 2021
Amount Weighted
Average
Interest
Rate Amount Weighted
Average
Interest
Rate
Par value $ 70,002 3.79 % $ 22,355 0.08 %
Discounts and concessions1
(725) (6)
Fair value option adjustments (107) (1)
Total $ 69,170 $ 22,348
1 Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation discount notes.
BONDS
The following table summarizes the Bank’s bonds outstanding by contractual maturity (dollars in millions):
December 31, 2022 December 31, 2021
Year of Contractual Maturity Amount Weighted
Average
Interest
Rate Amount Weighted
Average
Interest
Rate
Due in one year or less $ 55,421 4.01 % $ 38,778 0.30 %
Due after one year through two years 20,665 3.79 3,928 2.06
Due after two years through three years 1,175 2.23 5,073 2.41
Due after three years through four years 1,210 1.97 1,010 2.11
Due after four years through five years 865 2.42 1,185 1.97
Thereafter 5,236 2.61 5,105 2.27
Total par value 84,572 3.80 % 55,079 0.87 %
Premiums 86 138
Discounts and concessions1
(23) (17)
Fair value hedging adjustments (298) 5
Total $ 84,337 $ 55,205
1 Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation bonds.
Bonds are issued with fixed or variable rate payment terms, such as SOFR. To meet the specific needs of certain investors, both fixed and variable rate bonds may also contain certain embedded features, which result in complex coupon payment terms and call features. When these consolidated bonds are issued, the Bank may enter into derivatives containing features that offset the terms and embedded options, if any, of the consolidated bond obligations.
The following table summarizes the Bank’s bonds outstanding by call features (dollars in millions):
December 31,
2022 2021
Non-callable or non-putable $ 73,578 $ 49,422
Callable 10,994 5,657
Total par value $ 84,572 $ 55,079
The following table summarizes the Bank’s bonds outstanding by year of contractual maturity or next call date (dollars in millions):
December 31,
Year of Contractual Maturity or Next Call Date 2022 2021
Due in one year or less $ 62,033 $ 44,071
Due after one year through two years 19,141 3,908
Due after two years through three years 850 3,831
Due after three years through four years 753 805
Due after four years through five years 324 753
Thereafter 1,471 1,711
Total par value $ 84,572 $ 55,079
Note 10 - Affordable Housing Program
The FHLBank Act requires each FHLBank to establish and fund an AHP, which provides subsidies in the form of direct grants or below-market interest rates on advances to members who provide the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, or moderate-income households. Each FHLBank recognizes AHP assessment expense equal to the greater of 10 percent of its annual income subject to assessment, or its prorated sum required to ensure the aggregate contribution by the FHLBanks is no less than $100 million for each year. For purposes of the AHP assessment, income subject to assessment is defined as net income before AHP assessments, plus interest expense related to MRCS. The exclusion of interest expense related to MRCS is a regulatory interpretation of the Finance Agency. The Bank accrues the AHP assessment monthly based on its income subject to assessment and reduces the AHP liability as program funds are distributed.
If the Bank experienced a net loss for a full year, it would have no obligation to the AHP for the year, because its required annual AHP contribution is limited to its annual income subject to assessment. If the aggregate 10 percent AHP calculation previously discussed was less than $100 million for the FHLBanks (i.e., a shortfall), each FHLBank would be required to contribute a prorated sum to ensure that the aggregate contribution by the FHLBanks equals $100 million. The pro-ration would be made on the basis of an FHLBank’s income in relation to the income of all FHLBanks for the year, subject to the annual income limitation previously discussed. In addition to the required AHP assessment, the Bank’s Board of Directors may elect to make voluntary contributions to the AHP.
There was no contribution shortfall, as described above, in 2022, 2021, or 2020. If an FHLBank finds that its required contributions are contributing to its financial instability, it may apply to the Finance Agency for a temporary suspension of its contributions under the FHLBank Act. The Bank did not make any such application in 2022, 2021, or 2020.
The following table presents a rollforward of the Bank’s AHP liability (dollars in millions):
For the Years Ended December 31,
2022 2021 2020
Balance, beginning of year $ 131 $ 162 $ 157
Assessments 48 23 41
Disbursements (44) (54) (36)
Balance, end of year $ 135 $ 131 $ 162
.
Note 11 - Capital
CAPITAL STOCK
The Bank’s capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. The Bank issues a single class of capital stock (Class B capital stock) and has two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding on the Bank’s Statements of Condition and 0.10 percent of its standby letters of credit. All capital stock issued is subject to a notice of redemption period of five years.
The capital stock requirements established in the Bank’s Capital Plan are designed so that the Bank can remain adequately capitalized as member activity changes. The Bank’s Board of Directors may make adjustments to the capital stock requirements within ranges established in the Capital Plan.
EXCESS STOCK
Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under its Capital Plan, the Bank, at its discretion and upon 15 days written notice, may repurchase excess membership capital stock. The Bank, at its discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At December 31, 2022, the Bank had no excess capital stock outstanding. At December 31, 2021, the Bank’s excess capital stock outstanding was less than $1 million.
MANDATORILY REDEEMABLE CAPITAL STOCK
The Bank reclassifies capital stock subject to redemption from equity to a liability, which represents MRCS, at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Dividends on MRCS are classified as interest expense on the Statements of Income. The Bank recorded interest expense on MRCS of $1 million, $2 million, and $5 million for the years ended December 31, 2022, 2021, and 2020.
As a result of the final rule on membership issued by the Finance Agency effective February 19, 2016, the eligibility requirements for FHLBank members were changed, rendering captive insurance companies ineligible for FHLBank membership. On the effective date of the final rule, the Bank reclassified the total outstanding capital stock held by all of the captive insurance companies that were Bank members to MRCS. On February 19, 2021, all remaining captive insurance company members that were admitted as members prior to September 12, 2014 had their membership terminated. The Bank immediately redeemed all membership stock from these captive insurance companies; however, the remaining activity-based stock is subject to the five year redemption period.
The following table summarizes changes in MRCS (dollars in millions):
For the Years Ended December 31,
2022 2021 2020
Balance, beginning of period $ 29 $ 52 $ 206
Capital stock reclassified to (from) MRCS, net 5 81 7
Net payments for repurchases/redemptions of MRCS (19) (104) (161)
Balance, end of period $ 15 $ 29 $ 52
The following table summarizes the Bank’s MRCS by year of contractual redemption (dollars in millions):
December 31,
Year of Contractual Redemption1
2022 2021
Due in one year or less $ - $ 10
Due after one year through two years - 1
Due after three years through four years 8 1
Due after four years through five years - 9
Past contractual redemption date due to outstanding activity with the Bank 7 8
Total $ 15 $ 29
1 At the Bank’s election, MRCS may be redeemed prior to the expiration of the five year redemption period that commences on the date of the notice of redemption, or in the case of captive insurance company members, on the date of the membership termination.
RESTRICTED RETAINED EARNINGS
The Bank entered into a JCE Agreement with all of the other FHLBanks in 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the FHLBanks over time. Under the JCE Agreement, each FHLBank is required to allocate 20 percent of its quarterly net income to a separate restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar, equals at least one percent of its average balance of outstanding consolidated obligations for the calendar quarter. The restricted retained earnings are not available to pay dividends. At December 31, 2022 and 2021, the Bank’s restricted retained earnings account totaled $703 million and $617 million.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes changes in AOCI (dollars in millions):
Net unrealized gains (losses) on AFS securities (Note 4) Pension and postretirement benefits Total AOCI
Balance, December 31, 2019 $ 48 $ (4) $ 44
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities 4 - 4
Net current period other comprehensive income (loss) 4 - 4
Balance, December 31, 2020 52 (4) 48
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities 36 - 36
Net current period other comprehensive income (loss) 36 - 36
Balance, December 31, 2021 88 (4) 84
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities (202) - (202)
Net actuarial gains (losses) - 1 1
Net current period other comprehensive income (loss) (202) $ 1 $ (201)
Balance, December 31, 2022 $ (114) $ (3) $ (117)
REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to three regulatory capital requirements:
•Risk-based capital. The Bank must maintain at all times permanent capital greater than or equal to the sum of its credit, market, and operational risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as the amounts paid-in for Class B capital stock (including MRCS), and retained earnings can satisfy this risk-based capital requirement.
•Regulatory capital. The Bank is required to maintain a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B stock (including MRCS) and retained earnings.
•Leverage capital. The Bank is required to maintain a minimum five percent leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. The Bank did not hold any nonpermanent capital at December 31, 2022 and 2021.
In addition to the requirements previously discussed, the Finance Agency Advisory Bulletin on capital stock (the Capital Stock AB) requires each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets. For purposes of the Capital Stock AB, capital stock includes MRCS. The capital stock to total assets ratio is measured on a daily average basis at month end.
If the Bank’s capital falls below the required levels, the Finance Agency has authority to take actions necessary to return it to levels that it deems to be consistent with safe and sound business operations.
The following table shows the Bank’s compliance with the Finance Agency’s regulatory capital requirements (dollars in millions):
December 31, 2022 December 31, 2021
Required Actual Required Actual
Regulatory capital requirements
Risk-based capital $ 737 $ 8,883 $ 585 $ 5,783
Regulatory capital $ 6,567 $ 8,883 $ 3,434 $ 5,783
Leverage capital $ 8,208 $ 13,323 $ 4,293 $ 8,675
Capital-to-assets ratio 4.00 % 5.41 % 4.00 % 6.74 %
Capital stock-to-assets ratio 2.00 % 3.73 % 2.00 % 4.08 %
Leverage ratio 5.00 % 8.12 % 5.00 % 10.10 %
CAPITAL CLASSIFICATION DETERMINATION
The Finance Agency determines each FHLBank’s capital classification on at least a quarterly basis. If an FHLBank is determined to be other than adequately capitalized, that FHLBank becomes subject to additional supervisory authority by the Finance Agency. Before implementing a reclassification, the Director of the Finance Agency is required to provide the FHLBank with written notice of the proposed action and an opportunity to submit a response. As of the most recent notification date by the Finance Agency, the Bank was classified as adequately capitalized.
Note 12 - Pension and Postretirement Benefit Plans
QUALIFIED DEFINED BENEFIT MULTIEMPLOYER PLAN
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB Plan), a tax-qualified defined benefit pension plan. In August of 2016, the Bank’s Board of Directors elected to freeze the Pentegra DB Plan effective January 1, 2017. After the freeze, participants no longer accrue new benefits under the Pentegra DB Plan.
The Pentegra DB Plan is treated as a multiemployer plan for accounting purposes, but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures are not applicable to the Pentegra DB Plan. Under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately.
The Bank has two defined benefit pension plans under the same multiemployer plan. Prior to the plan freeze, employees of the Des Moines Bank were eligible to participate in the Des Moines Pentegra Defined Benefit Pension Plan (Des Moines Bank DB Plan) if hired on or before December 31, 2010. Employees previously employed by the Seattle Bank were eligible to participate in the Seattle Pentegra Defined Benefit Pension Plan (Seattle Bank DB Plan) if they were hired before January 1, 2005.
The Pentegra DB Plan operates on a fiscal year from July 1 through June 30. The Pentegra DB Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333. There are no collective bargaining agreements in place that require contributions to the Plan.
The Pentegra DB Plan’s annual valuation process includes calculating the Plan’s funded status and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra DB Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the market value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.
The most recent Form 5500 available for the Pentegra DB Plan is for the year ended June 30, 2021. The Bank’s contributions for the plan years ended June 30, 2021 and June 30, 2020 were not more than five percent of the total contributions to the Pentegra DB Plan.
The following table summarizes the net pension cost and funded status of the Pentegra DB Plan (dollars in millions):
2022 2021 2020
Net pension cost1
$ - $ 9 $ 34
Pentegra DB Plan’s funded status as of July 12
118.87 % 130.59 % 108.50 %
Des Moines Bank DB Plan’s funded status as of July 1 137.81 % 144.35 % 99.57 %
Seattle Bank DB Plan’s funded status as of July 1 132.98 % 139.03 % 99.81 %
1 Represents the net pension cost charged to compensation and benefits expense on the Statements of Income for the years ended December 31, 2022, 2021, and 2020. During 2022, this amount was less than $1 million. During 2021 and 2020, the Bank made a $8 million and $32 million discretionary contribution to the plan.
2 The Pentegra DB Plan’s funded status is preliminary and may further increase because plan participants are permitted to make contributions through March 15 of the following year. The final funded status as of July 1, 2022 will not be available until the Form 5500 for the plan year July 1, 2022 through June 30, 2023 is filed (this Form 5500 is due to be filed no later than April 2024). The final funded status as of July 1, 2021 will not be available until the Form 5500 for the plan year July 1, 2021 through June 30, 2022 is filed (this Form 5500 is due to be filed no later than April 2023).
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Pension Plan, the Bank has one qualified defined contribution benefit plan, the Federal Home Loan Bank of Des Moines 401(k) Savings Plan. The Bank also offers the Benefit Equalization Plan (BEP), a nonqualified retirement plan which includes both a nonqualified defined contribution plan and a nonqualified defined benefit plan. In August of 2016, the Bank’s Board of Directors elected to freeze the BEP defined benefit plan effective January 1, 2017. After the freeze, participants no longer accrue new benefits under the BEP defined benefit plan.
Note 13 - Fair Value
Fair value amounts are determined by the Bank using available market information and reflect the Bank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The fair value hierarchy requires an entity to maximize the use of significant observable inputs and minimize the use of significant unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability.
The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:
•Level 1 Inputs. Quoted prices (unadjusted) for identical assets or liabilities in an active market that the Bank can access on the measurement date. An active market for an asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 Inputs. Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals and implied volatilities), and (iv) market-corroborated inputs.
•Level 3 Inputs. Unobservable inputs for the asset or liability. Valuations are derived from techniques that use significant assumptions not observable in the market, which may include pricing models, discounted cash flow models, or similar techniques.
The Bank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. The Bank had no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2022, 2021, or 2020.
The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments (dollars in millions). The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, financial instruments held under the fair value option, and certain other assets at fair value on a recurring basis, and on occasion certain impaired mortgage loans held for portfolio on a non-recurring basis. The Bank records all other financial assets and liabilities at amortized cost. The fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.
December 31, 2022
Fair Value
Financial Instruments Carrying Value Level 1 Level 2 Level 3 Netting Adjustment and Cash Collateral1
Total
Assets
Cash and due from banks $ 89 $ 89 $ - $ - $ - $ 89
Interest-bearing deposits 2,031 - 2,031 - - 2,031
Securities purchased under agreements to resell 12,590 - 12,590 - - 12,590
Federal funds sold 9,415 - 9,415 - - 9,415
Trading securities 2,817 - 2,817 - - 2,817
Available-for-sale securities 15,563 - 15,563 - - 15,563
Held-to-maturity securities 965 - 955 4 - 959
Advances 111,202 - 110,909 - - 110,909
Mortgage loans held for portfolio, net 8,348 - 7,316 36 - 7,352
Accrued interest receivable 389 - 389 - - 389
Derivative assets, net 643 - 237 - 406 643
Other assets 35 35 - - - 35
Liabilities
Deposits (1,076) - (1,076) - - (1,076)
Consolidated obligations
Discount notes (69,170) - (69,162) - - (69,162)
Bonds (84,337) - (83,238) - - (83,238)
Total consolidated obligations (153,507) - (152,400) - - (152,400)
MRCS (15) (15) - - - (15)
Accrued interest payable (436) - (436) - - (436)
Derivative liabilities, net (4) - (218) - 214 (4)
1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.
The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments (dollars in millions):
December 31, 2021
Fair Value
Financial Instruments Carrying Value Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral1
Total
Assets
Cash and due from banks $ 295 $ 295 $ - $ - $ - $ 295
Interest-bearing deposits 416 - 416 - - 416
Securities purchased under agreements to resell 12,450 - 12,450 - - 12,450
Federal funds sold 4,690 - 4,690 - - 4,690
Trading securities 1,169 - 1,169 - - 1,169
Available-for-sale securities 13,389 - 13,389 - - 13,389
Held-to-maturity securities 1,328 - 1,400 5 - 1,405
Advances 44,111 - 44,397 - - 44,397
Mortgage loans held for portfolio, net 7,578 - 7,694 81 - 7,775
Accrued interest receivable 84 - 84 - - 84
Derivative assets, net 221 - 75 - 146 221
Other assets 44 44 - - - 44
Liabilities
Deposits (1,847) - (1,847) - - (1,847)
Consolidated obligations
Discount notes (22,348) - (22,348) - - (22,348)
Bonds (55,205) - (55,581) - - (55,581)
Total consolidated obligations (77,553) - (77,929) - - (77,929)
MRCS (29) (29) - - - (29)
Accrued interest payable (97) - (97) - - (97)
Derivative liabilities, net (3) - (179) - 176 (3)
1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.
SUMMARY OF VALUATION TECHNIQUES AND PRIMARY INPUTS
The valuation techniques and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or non-recurring basis on the Statements of Condition are outlined below.
Trading and AFS Investment Securities. The Bank’s valuation technique incorporates prices from multiple designated third-party pricing vendors, when available. The pricing vendors generally use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, benchmark securities and yields, reported trades, dealer estimates, issuer spreads, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established process in place to challenge investment valuations, which facilitates resolution of questionable prices identified by the Bank. Annually, the Bank conducts reviews of its pricing vendors to confirm and further augment its understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities.
The Bank’s valuation technique for estimating the fair values of its investment securities first requires the establishment of a median price for each security. All prices that are within a specified tolerance threshold of the median price are included in the cluster of prices that are averaged to compute a default price. All prices that are outside the threshold (outliers) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier (or outliers) is (are) in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security. In limited instances, when no prices are available from the designated pricing services, the Bank obtains prices from dealers or uses the purchase price if the investment security is unsettled.
As of December 31, 2022 and 2021, multiple prices were received for the majority of the Bank’s trading and AFS investment securities. Based on the Bank’s review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the Bank believes its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further, that the fair value measurements are classified appropriately in the fair value hierarchy.
Impaired Mortgage Loans Held for Portfolio. The fair value of impaired mortgage loans held for portfolio is estimated by obtaining property values from an external pricing vendor. This vendor utilizes multiple pricing models that generally factor in market observable inputs, including actual sales transactions and home price indices. The Bank applies an adjustment to these values to capture certain limitations in the estimation process and takes into consideration estimated selling costs and expected PMI proceeds.
Derivative Assets and Liabilities and the Related Hedged Items. The fair value of derivatives is generally estimated using standard valuation techniques such as a discounted cash flow analysis and comparisons to similar instruments, and includes variation margin payments for daily settled contracts. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data. The Bank is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. To mitigate credit risk on uncleared derivatives, the Bank enters into master netting agreements with its counterparties as well as collateral agreements that have collateral delivery thresholds. The Bank has evaluated the potential for the fair value of its derivatives to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.
The fair values of the Bank’s derivative assets and derivative liabilities include accrued interest receivable/payable and related cash collateral. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. The fair values of derivatives are netted by clearing agent and/or counterparty if the netting requirements are met. If these netted amounts result in a receivable to the Bank, they are classified as an asset and, if classified as a payable to the clearing agent or counterparty, they are classified as a liability.
The Bank’s discounted cash flow model utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). The Bank uses the following inputs for measuring the fair value of interest-related derivatives:
•Discount rate assumption. The Bank utilizes the federal funds OIS or SOFR OIS curve depending on the terms of the derivative agreement.
•Forward interest rate assumption. The Bank utilizes the swap curve of the instrument’s index rate.
•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.
For forward settlement agreements, the Bank utilizes TBA security prices that are determined by coupon class and expected term until settlement. For mortgage loan purchase commitments, the Bank utilizes TBA security prices adjusted for factors such as credit risk and servicing spreads.
For the related hedged items, the fair value is estimated using a discounted cash flow analysis which typically considers the following inputs:
•Discount rate assumption. The Bank utilizes the designated benchmark interest rate curve.
•Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.
Other Assets. These represent grantor trust assets, which are carried at estimated fair value based on quoted market prices as of the last business day of the reporting period.
Consolidated Obligation Discount Notes Recorded under the Fair Value Option. The fair value of consolidated obligation discount notes recorded under the fair value option is determined by calculating the present value of the expected future cash flows. The discount rates used in the present value calculations are for consolidated obligations with similar terms. The Bank uses the consolidated obligation curve for measuring the fair value of these consolidated obligations, which is a market-observable curve constructed by the Office of Finance. This curve is constructed using the U.S. Treasury curve as a base curve which is then adjusted by adding indicative spreads obtained largely from market-observable sources.
Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods previously described are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.
FAIR VALUE ON A RECURRING BASIS
The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition (dollars in millions):
December 31, 2022
Recurring Fair Value Measurements Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral1
Total
Assets
Trading securities
U.S. Treasury obligations $ - $ 2,501 $ - $ - $ 2,501
Other U.S. obligations - 76 - - 76
GSE and TVA obligations - 49 - - 49
Other non-MBS
- 146 - - 146
GSE multifamily MBS - 45 - - 45
Total trading securities - 2,817 - - 2,817
Available-for-sale securities
Other U.S. obligations - 758 - - 758
GSE and TVA obligations - 470 - - 470
State or local housing agency obligations - 449 - - 449
Other non-MBS - 240 - - 240
U.S. obligations single-family MBS - 3,676 - - 3,676
GSE single-family MBS - 210 - - 210
GSE multifamily MBS - 9,760 - - 9,760
Total available-for-sale securities - 15,563 - - 15,563
Derivative assets, net
Interest-rate related - 237 - 406 643
Other assets 35 - - - 35
Total recurring assets at fair value $ 35 $ 18,617 $ - $ 406 $ 19,058
Liabilities
Discount notes2
$ - $ (44,531) $ - $ - $ (44,531)
Derivative liabilities, net
Interest-rate related - (218) - 214 (4)
Total recurring liabilities at fair value $ - $ (44,749) $ - $ 214 $ (44,535)
1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.
2 Represents financial instruments recorded under the fair value option.
The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition (dollars in millions):
December 31, 2021
Recurring Fair Value Measurements Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral1
Total
Assets
Trading securities
U.S Treasury obligations $ - $ 496 $ - $ - $ 496
Other U.S. obligations - 102 - - 102
GSE and TVA obligations - 60 - - 60
Other non-MBS
- 201 - - 201
GSE multifamily MBS - 310 - - 310
Total trading securities - 1,169 - - 1,169
Available-for-sale securities
Other U.S. obligations - 1,156 - - 1,156
GSE and TVA obligations - 983 - - 983
State or local housing agency obligations - 488 - - 488
Other non-MBS - 288 - - 288
U.S. obligations single-family MBS - 2,909 - - 2,909
GSE single-family MBS - 277 - - 277
GSE multifamily MBS - 7,288 - - 7,288
Total available-for-sale securities - 13,389 - - 13,389
Derivative assets, net
Interest-rate related - 75 - 146 221
Other assets 44 - - - 44
Total recurring assets at fair value $ 44 $ 14,633 $ - $ 146 $ 14,823
Liabilities
Discount notes2
$ - $ (22,348) $ - $ - $ (22,348)
Derivative liabilities, net
Interest-rate related - (179) - 176 (3)
Total recurring liabilities at fair value $ - $ (22,527) $ - $ 176 $ (22,351)
1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.
2 Represents financial instruments recorded under the fair value option.
FAIR VALUE ON A NON-RECURRING BASIS
The Bank measures certain impaired mortgage loans held for portfolio at Level 3 fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances. At December 31, 2022 and 2021, impaired mortgage loans held for portfolio recorded at fair value as a result of a non-recurring change in fair value were $1 million and $4 million. These fair values were as of the date the fair value adjustment was recorded during the years ended December 31, 2022 and 2021.
FAIR VALUE OPTION
The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires entities to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income.
The Bank elects the fair value option for certain financial instruments when a hedge relationship does not qualify for hedge accounting. These fair value elections are made primarily in an effort to mitigate the potential income statement volatility that can arise when an economic derivative is adjusted for changes in fair value but the related hedged item is not.
For financial instruments recorded under the fair value option, the related contractual interest income, interest expense, and the discount amortization on fair value option discount notes are recorded as part of net interest income on the Statements of Income. The remaining changes are recorded as “Net gains (losses) on financial instruments held under fair value option” on the Statements of Income.
For the years ended December 31, 2022 and 2021, net gains on financial instruments held under fair value option (i.e., discount notes) were $106 million and $1 million. The Bank determined no credit risk adjustments for nonperformance were necessary. In determining that no credit risk adjustments were necessary, the Bank considered the following factors:
•The Bank is a federally chartered GSE, and as a result of this status, the Bank’s consolidated obligations have historically received the same credit rating as the government bond credit rating of the United States, even though they are not obligations of the United States and are not guaranteed by the United States.
•The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations of the FHLBanks.
The following table summarizes the difference between the unpaid principal balance and fair value of outstanding instruments for which the fair value option has been elected (dollars in millions):
December 31, 2022
Unpaid Principal Balance Fair Value Fair Value Over (Under) Unpaid Principal
Discount notes $ 45,244 $ 44,531 $ (713)
December 31, 2021
Unpaid Principal Balance Fair Value Fair Value Over (Under) Unpaid Principal
Discount notes $ 22,355 $ 22,348 $ (7)
The Bank had no financial instruments held at fair value under the fair value option during 2020.
Note 14 - Commitments and Contingencies
Joint and Several Liability. The FHLBanks have joint and several liability for all consolidated obligations issued. Accordingly, if an FHLBank were unable to repay any consolidated obligation for which it is the primary obligor, each of the other FHLBanks could be called upon by the Finance Agency to repay all or part of such obligations. No FHLBank has ever been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank. At December 31, 2022 and 2021, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which the Bank is jointly and severally liable was $1,027.1 billion and $575.5 billion.
The following table summarizes additional off-balance sheet commitments for the Bank (dollars in millions):
December 31, 2022 December 31, 2021
Expire
within one year Expire
after one year Total Total
Standby letters of credit1,2
$ 6,474 $ 92 $ 6,566 $ 8,159
Standby bond purchase agreements2
60 676 736 497
Commitments to purchase mortgage loans 46 - 46 115
Commitments to issue bonds 3,200 - 3,200 -
Commitments to issue discount notes 202 - 202 -
Commitments to fund advances2
126 2 128 1,728
1 Excludes commitments to issue standby letters of credit, when applicable. At both December 31, 2022 and 2021, the Bank had no commitments to issue standby letters of credit.
2 The Bank has deemed it unnecessary to record any liability for credit losses on these agreements at December 31, 2022 and 2021.
Standby Letters of Credit. The Bank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. Standby letters of credit may be offered to assist members and non-member housing associates in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from federal and state government agencies. Standby letters of credit are executed with members for a fee. If the Bank is required to make payment for a beneficiary’s draw, the member either reimburses the Bank for the amount drawn or, subject to the Bank’s discretion, the amount drawn may be converted into a collateralized advance to the member. The maturities of standby letters of credit outstanding at December 31, 2022 are currently no later than 2028. The carrying values of guarantees related to standby letters of credit are recorded in “Other liabilities” on the Statements of Condition and amounted to $2 million at both December 31, 2022 and 2021.
The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of its borrowers. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit. All standby letters of credit, similar to advances, are fully collateralized at the time of issuance and subject to member borrowing limits as established by the Bank.
Standby Bond Purchase Agreements. The Bank has entered into standby bond purchase agreements with state housing associates within its district pursuant to which, for a fee, it agrees to serve as a standby liquidity provider if required, to purchase and hold the housing associate’s bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which the Bank would be required to purchase the bonds and typically allows the Bank to terminate the agreement upon the occurrence of a default event of the issuer. At December 31, 2022, the Bank had standby bond purchase agreements with seven housing associates. The maturities of standby bond purchase agreements outstanding at December 31, 2022 are currently no later than 2027. During the years ended December 31, 2022, 2021, and 2020, the Bank was not required to purchase any bonds under these agreements.
Commitments to Purchase Mortgage Loans. The Bank enters into commitments that unconditionally obligate it to purchase mortgage loans from its members. These commitments are considered derivatives and their estimated fair value at December 31, 2022 and 2021 is reported in “Note 7 - Derivatives and Hedging Activities” as mortgage loan purchase commitments.
Commitments to Issue Consolidated Obligations. The Bank enters into commitments to issue consolidated obligations in the normal course of its business, generally that settle within 30 calendar days. At December 31, 2022, the Bank had commitments to issue $3.2 billion and $202 million of consolidated obligation bonds and discount notes. At December 31, 2021, the Bank had no commitments to issue consolidated obligation bonds and discount notes.
Commitments to Fund Advances. The Bank enters into commitments to fund additional advances up to 24 months in the future. At December 31, 2022 and 2021, the Bank had commitments to fund advances of $128 million and $1.7 billion.
Other Commitments. For each MPF master commitment, the Bank’s potential loss exposure prior to the PFI’s credit enhancement obligation is estimated and tracked in a first loss account (FLA). For absorbing certain losses in excess of the FLA, PFIs are paid a credit enhancement fee, a portion of which may be performance-based. To the extent the Bank experiences losses under the FLA, it may be able to recapture performance-based credit enhancement fees paid to the PFI to offset these losses. The FLA balance for all MPF master commitments with a PFI credit enhancement obligation was $162 million and $163 million at December 31, 2022 and 2021.
Legal Proceedings. The Bank is subject to various pending legal proceedings arising in the normal course of business. As previously noted in the Bank’s 2020 Form 10-K, certain of these legal proceedings involved pending litigation with a current member of the Bank stemming from alleged breaches by the member under the Bank’s MPF program. After consultation with legal counsel, management does not anticipate that the ultimate resolution arising out of the MPF litigation with this member bank will have a material effect on the Bank’s financial condition or results of operations.
The Bank records legal expenses related to litigation settlements as incurred in other expense on the Statements of Income with the exception of certain legal expenses related to litigation settlement awards that are contingent based fees for the attorneys representing the Bank. The Bank incurs and recognizes these contingent-based legal fees only when litigation settlement awards are realized, at which time these fees are netted against the gains recognized on the litigation settlement. During the year ended December 31, 2022, the Bank recognized net gains on litigation settlements of less than $1 million. During the year ended December 31, 2021, the Bank did not recognize any gains on litigation settlements. During the year ended December 31, 2020, the Bank settled all of its remaining private-label MBS claims, as previously discussed in its 2020 Form 10-K, and recognized $120 million in net gains on litigation settlements through other income (loss).
The Bank is not currently aware of any pending or threatened legal proceedings to which it is a party that it believes could have a material impact on its financial condition, results of operations, or cash flows.
Note 15 - Activities with Stockholders
The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank. All transactions with stockholders are entered into in the ordinary course of business.
TRANSACTIONS WITH DIRECTORS’ FINANCIAL INSTITUTIONS
In the normal course of business, the Bank extends credit to its members whose directors and officers serve as Bank directors (Directors’ Financial Institutions). Finance Agency regulations require that transactions with Directors’ Financial Institutions be made on the same terms and conditions as those with any other member.
The following table summarizes the Bank’s outstanding transactions with Directors’ Financial Institutions (dollars in millions):
December 31, 2022 December 31, 2021
Amount % of Total Amount % of Total
Advances $ 317 - $ 17 -
Mortgage loans 143 2 119 2
Deposits 4 - 15 1
Capital stock 40 1 43 1
BUSINESS CONCENTRATIONS
The Bank considers itself to have business concentrations with stockholders owning 10 percent or more of its total capital stock outstanding (including MRCS). At December 31, 2022, the Bank had the following business concentrations with stockholders (dollars in millions):
December 31, 2022
Capital Stock Mortgage Interest
Stockholder Amount % of Total1
Advances Loans Income2
Wells Fargo Bank, N.A.3
$ 1,290 21 $ 32,000 $ 9 $ 336
Superior Guaranty Insurance Company3,4
7 - - 162 -
Total $ 1,297 21 $ 32,000 $ 171 $ 336
1 Pursuant to applicable Finance Agency regulations, the Bank’s voting structure limits the voting rights of these stockholders and other members holding a significant amount of the Bank’s capital stock.
2 Represents interest income earned on advances during the year ended December 31, 2022. Interest income on mortgage loans is excluded from this table as this interest relates to the borrower, not to the stockholder.
3 This stockholder had no standby letters of credit outstanding with the Bank as of December 31, 2022.
4 Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.
The Bank had no stockholders owning 10 percent or more of total capital stock outstanding (including MRCS) at December 31, 2021.
Note 16 - Activities with Other FHLBanks
Overnight Funds. The Bank may lend or borrow unsecured overnight funds to or from other FHLBanks. All such transactions are at current market rates. The following table summarizes loan activity to other FHLBanks during the years ended December 31, 2022, 2021, and 2020 (dollars in millions):
Other FHLBank Beginning
Balance Loans Principal
Repayment Ending
Balance
Chicago $ - $ 1 $ (1) $ -
San Francisco - 2,030 (2,030) -
$ - $ 2,031 $ (2,031) $ -
Chicago $ - $ 301 $ (301) $ -
Boston $ - $ 250 $ (250) $ -
Pittsburgh - 5 (5) -
$ - $ 255 $ (255) $ -
The following table summarizes borrowing activity from other FHLBanks during the years ended December 31, 2022, 2021, and 2020 (dollars in millions):
Other FHLBank Beginning
Balance Borrowing Principal
Payment Ending
Balance
Chicago $ - $ 250 $ (250) $ -
San Francisco - 500 (500) -
$ - $ 750 $ (750) $ -
Chicago $ - $ 5 $ (5) $ -
Pittsburgh $ - $ 5 $ (5) $ -
For the years ended December 31, 2022, 2021, and 2020, the interest income and expense related to these transactions was immaterial.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management is responsible for establishing and maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our President and CEO, and chief financial officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of our President and CEO, and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the annual period covered by this report. Based on that evaluation, our President and CEO, and CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are made only in accordance with authorizations of management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework established in “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its assessment, management determined that our internal control over financial reporting was effective as of December 31, 2022. Additionally, the effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP (PwC), our independent registered public accounting firm. Refer to “Item 8. Financial Statements and Supplementary Data - Report of Independent Registered Public Accounting Firm” for their audit report.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The Board of Directors is responsible for monitoring our compliance with Finance Agency regulations and establishing policies and programs that carry out our mission. The Board of Directors adopts, reviews, and oversees the implementation of policies governing our advance, mortgage loan, investment, and funding activities. Additionally, the Board of Directors adopts, reviews, and oversees the implementation of policies that are designed to manage our exposure to various risks, including interest rate, liquidity, credit, operational, model, information security, legal, regulatory and compliance, DEI, strategic, and reputational risk, as well as capital adequacy.
Our Board is comprised of Member Directors elected by our member institutions on a state-by-state basis and Independent Directors elected by all of our members. Our Board includes thirteen Member Directors and nine Independent Directors, two of whom serve as public interest directors. Under the FHLBank Act, the only matters submitted to shareholders for votes are (i) the annual election of our Directors and (ii) any proposed agreement to merge with one or more FHLBanks. Finance Agency regulations generally require all of our Directors to be elected by our members. In the event of a vacancy, Finance Agency regulations require the Board of Directors to elect a director to serve the remaining term. No member of management may serve as a director of an FHLBank.
Pursuant to the passage of the Housing and Economic Recovery Act of 2008 (Housing Act), both Member and Independent Directors serve four-year terms. If any person has been elected to three consecutive full terms as a Member or Independent Director of our Board of Directors, the individual is not eligible for election to a Member or Independent Directorship for a term which begins earlier than two years after the expiration of the last expiring four-year term.
Member Directorships are allocated by the Finance Agency to the 13 states in our district and a member institution is eligible to participate in the election for the state in which it is located. Candidates for Member Directorships are not nominated by the Board. As provided for in the FHLBank Act, Member Directors are nominated by the members eligible to participate in the election in the relevant state. A member is entitled to cast, for each applicable Member Directorship, one vote for each share of capital stock that the member is required to hold as of the record date for voting, subject to a statutory limitation. Under this limitation, the total number of votes that each member may cast is limited to the average number of shares of our capital stock that were required to be held by all members in that state as of the record date for voting.
Member Directors are required, by statute and regulation, to meet certain eligibility requirements to serve as a director. To qualify as a Member Director an individual must (i) be an officer or director of a member institution in compliance with the minimum capital requirements established by its regulator and located in the state in which there is an open directorship and (ii) be a U.S. citizen. We are not permitted to establish additional qualifications to define eligibility criteria for Member Directors or nominees. Because of the structure of FHLBank Member Director nominations and elections, we may not know what factors our member institutions considered in selecting Member Director nominees or electing Member Directors.
Independent Directors are nominated by our Board of Directors after consultation with our Advisory Council, and then voted upon by all members within our 13 state district. For each Independent Directorship, a member is entitled to cast the same number of votes as it would for a Member Directorship.
In order to be eligible to serve as an Independent Director on our Board, an individual must (i) be a U.S. citizen and (ii) maintain a principal residence in a state in our district (or own or lease a residence in the district and be employed in the district). In addition, the individual may not be an officer of any FHLBank or a director, officer, or employee of any member institution or of any recipient of our advances. By regulation, we are required to have at least two public interest Independent Directors, each of whom must have more than four years of personal experience in representing consumer or community interests in banking services, credit needs, housing, or financial consumer protection. Each Independent Director, other than a public interest Independent Director, must have knowledge of, or experience in, financial management, auditing or accounting, risk management practices, derivatives, project development, organizational management, or the law.
On an annual basis, our Board of Directors performs an assessment of the directors’ backgrounds, expertise, and qualifications against the skills and qualifications it desires on the Board of Directors. Furthermore, each director annually certifies that he/she continues to meet all applicable statutory and regulatory eligibility and qualification requirements. In connection with the election or appointment of Independent Directors, the Independent Director completes an application to serve on the Board of Directors. As a result of the assessment and as of the filing date of this Form 10-K, nothing has come to the attention of the Board of Directors or management to indicate that any of the current directors do not continue to possess the necessary experience, qualifications, attributes, or skills, as described in each director’s biography.
Information regarding our current directors and executive officers is provided in the following sections. There are no family relationships among our directors or executive officers. The table below shows membership information for our Board of Directors at February 28, 2023:
Expiration of
Current Term As
Member or Director as of Board
Director Age Independent Director Since December 31 Committees
Ellen Z. Lamale (chair) 69 Independent January 1, 2012 2023 a, c
Karl A. Bollingberg (vice chair) 60 Member January 1, 2019 2026 a
Ruth B. Bennett 70 Independent June 1, 2015 2024 a, b, d, h
Steven L. Bumann 69 Member January 1, 2015 2025 c, e, h
Cleon P. Butterfield * 68 Independent January 1, 2020 2023 b, d, h
Douglas L. DeFries 66 Member January 1, 2022 2025 d, e, f
Kim R. DeVore 52 Member January 1, 2023 2026 f, g
Edward A. Garding 73 Independent August 30, 2021 2023 b, c
Chris D. Grimm 64 Member January 1, 2010 2023 e, f
James W. Hunt 58 Member January 1, 2021 2024 b. c
Amy K. Johnson 57 Independent January 1, 2020 2023 d, g, h
Jon M. Jones 61 Member January 1, 2021 2024 e, f
Teresa J. Keegan 60 Member January 1, 2012 2023 a, e, f
Joe R. Kesler 67 Member March 9, 2018 2023 a, e, h
John A. Klebba 66 Member January 1, 2018 2025 a, b, c
Wan-Chong Kung 62 Independent January 19, 2022 2026 e, h
Russell J. Lau 70 Member January 1, 2022 2025 b, d, h
Lauren M. MacVay 54 Member January 1, 2018 2025 a, c, g
Elsie M. Meeks * 69 Independent January 1, 2015 2026 a, b, d, f
Jason A. Meyerhoeffer 56 Member June 25, 2019 2026 a, g, h
Siva G. Narendra 51 Independent January 1, 2022 2025 c, g
Carol K. Nelson 66 Independent January 1, 2021 2024 f, g
a) Executive and Governance Committee
b) Audit Committee
c) Risk and Compliance Committee
d) Housing and Community Investment Committee
e) Member Committee
f) Human Resources and Compensation Committee (Compensation Committee)
g) Technology Committee
h) Finance Committee
* Public Interest Independent Director
The following describes the principal occupation, business experience, qualifications, and skills, among other matters of the 22 directors who currently serve on our Board of Directors. Except as otherwise indicated, each Director has been engaged in the principal occupation indicated for at least the past five years.
Ellen Z. Lamale, the Board’s chair, retired from her position as senior vice president and chief risk officer (CRO) of The Principal Financial Group (The Principal Financial Group is a registered trademark) (Principal) in March of 2011. Prior to her retirement, she served as senior vice president and CRO of Principal since 2008. Ms. Lamale held executive positions at Principal for more than 10 years, and her responsibilities during her 34-year career at Principal included risk management, financial analysis, capital management, strategic planning, and internal audit. She received a bachelor’s and master’s degree in math from Ohio University and a master’s degree in actuarial science from University of Michigan. Ms. Lamale is a Fellow of the Society of Actuaries, a member of the American Academy of Actuaries, and a Chartered Enterprise Risk Analyst. Ms. Lamale has served on several community boards, including West Des Moines Youth Soccer Club, Iowa United Soccer Club, Des Moines Symphony Second Strings, and Des Moines Public Library Foundation. Currently, she is a volunteer with the West Des Moines Youth Justice Initiative. Ms. Lamale’s involvement in and knowledge of accounting, auditing, finance, and risk management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors. She currently serves as chair of the Executive and Governance Committee.
Karl A. Bollingberg, the Board’s vice chair, has served as a director for Cornerstone Bank in Fargo, North Dakota, since June 2022. Mr. Bollingberg retired from Alerus Financial in July 2022, after 34 years of service. During that time, Mr. Bollingberg served as loan participation advisor from 2018 to 2022. Mr. Bollingberg previously served as director of lending from 2016 to 2018, as well as various other roles at Alerus since 1987. Mr. Bollingberg worked for U.S. Bank, N.A. from 1985 to 1987. Mr. Bollingberg is active in a number of civic organizations including advisory board member and chair for the Bank of North Dakota, board member and past chair of the Regional Airport Authority in Grand Forks, North Dakota, and was campaign chairperson for the Community Violence and Intervention Center Shelter Project in Grand Forks, North Dakota. Mr. Bollingberg previously served more than 20 years on the board of the Regional Economic Development Corporation in Grand Forks, North Dakota. He earned his bachelor’s degree in agricultural economics from North Dakota State University and completed Louisiana State University School of Banking in 2000. Mr. Bollingberg’s position as a director of a member institution and his involvement in and knowledge of banking and business development, as indicated by his background, support his qualifications to serve on our Board of Directors. He currently serves as the vice chair of the Executive and Governance Committee.
Ruth B. Bennett has served as principal of RB Bennett Enterprises LLC, a real estate brokerage firm and property development company in Oregon and Washington, since 2008. In her role at RB Bennett Enterprises LLC, she develops, builds, and manages affordable housing. From 1973 to 2007, she served in various capacities at the Bonneville Power Administration, a federal electrical utility in Portland, Oregon, including chief operating officer (COO) from 2003 to 2007. She is a former board member of Vancouver Affordable Housing, Pacific Northern Environmental, First Independent Bank, the regional Columbia-Willamette YMCA, and Pacific Health SW Medical Center where she was a hospital board chair for three years. Ms. Bennett was elected to the board of the Federal Home Loan Bank of Seattle (Seattle Bank) in 2014 and served on the Seattle Bank’s board until the merger with the Bank in 2015. Ms. Bennett’s experience in strategic planning, organizational and enterprise risk management, finance, and accounting, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors. She currently serves as chair of the Audit Committee.
Steven L. Bumann has served as chief investment officer at BankWest, Inc. in Pierre, South Dakota, since January of 2022. He previously served as CFO from 1995 to 2021. Mr. Bumann has more than 38 years of banking experience and has held various leadership roles within the financial industry, including vice president and senior vice president roles at BankWest, Inc. He also earned his Certified Public Accountant (CPA) license while working for a local CPA firm and spent time working for the South Dakota Department of Legislative Audit. Mr. Bumann served as chairman of the board of directors of the South Dakota Bankers Association in 2021. Past leadership roles include the Pierre School Board, the Pierre Chamber of Commerce and the South Dakota Retirement System Board of Trustees. Mr. Bumann’s position as an officer of a member institution and his involvement and knowledge of finance, accounting, and auditing, as indicated by his background, support his qualifications to serve on our Board of Directors.
Cleon P. Butterfield has served as a senior vice president and CFO for the Utah Housing Corporation (UHC) since 2001. Mr. Butterfield joined UHC in 1979 and has held various leadership capacities during his tenure including treasurer, director of operations, and director of program development among others. Mr. Butterfield is a licensed CPA. Mr. Butterfield has served on multiple affordable housing councils and committees. He is also a former member of the State of Utah Alternative Dispute Resolution Council. Additionally, he is a guest lecturer teaching about how low-income housing tax credits and tax-exempt bond financing produce a viable solution for low-income housing needs. Mr. Butterfield’s involvement in and knowledge of affordable housing, his experience in financial management, and his leadership and management skills, as indicated by his background, support his qualifications to serve as a Public Interest Independent Director on our Board of Directors. He currently serves as vice chair of the Housing and Community Investment Committee.
Douglas L. DeFries retired as the president and CEO of both BOU Bancorp, Inc. and the Bank of Utah in December 2022, positions he held since 2011. Mr. DeFries continues to serve as a director of both BOU Bancorp, Inc. and the Bank of Utah. Mr. DeFries joined Bank of Utah in 1986 as vice president-controller and was named executive vice president and CFO in 1992. In 2005, he was elected to the board of directors of Bank of Utah. From 1984 to 1986, Mr. DeFries served as vice president-controller at American Savings and Loan Association. Mr. DeFries was a staff accountant and manager with Peat Marwick, Mitchell & Co (now KPMG LLC) from 1980 to 1984. His finance industry service includes involvement in several state and national organizations. Mr. DeFries has served on the Community Bank Council of the American Bankers Association as Utah Representative and administrative committee member from 2016 to present. Mr. DeFries is the current chairman of the Money Management Council for the Utah State Treasurer. Over the past 30 years, Mr. DeFries has had multiple appointments on the board of directors for the Utah Bankers Association including chairman in 2018 to 2019. Mr. DeFries has served on the Board of Trustees of Utah Housing Corporation from 2011 to 2016 and as chairman in 2016. Mr. DeFries was also the chairman of the American Institute of Banking from 1995 to 1996. Mr. DeFries is also actively involved in the community and volunteers on several boards and organizations. Mr. DeFries’ past contributions include serving on the board of directors of the Ogden/Weber Chamber of Commerce, United Way of Northern Utah, and the Institutional Review Board for Intermountain Healthcare (IHC). Mr. DeFries holds a Bachelor of Arts (BA) degree in Accounting from Utah State University, graduating magna cum laude. He also earned a Master of Business Administration (MBA) degree from Utah State University. Mr. DeFries’ position as a director of a member institution and involvement in and knowledge of finance and accounting, as indicated by his background, support his qualification to serve on our Board of Directors. He currently serves as vice chair of the Compensation Committee.
Kim R. DeVore has served as the President and CEO of Jonah Bank in Cheyenne, Wyoming since 2020. Ms. DeVore previously served as CFO of Jonah Bank, since 2006. Ms. DeVore’s previous banking responsibilities include teller, operations, new accounts, cash management, as well as numerous other positions. Ms. DeVore is active in community organizations including the Two Fly Foundation, The Lyric, and the Central Wyoming Boys & Girls Club. She was the chair of the capital fundraising and development of WyoTowne at AmeriTowne; a program to teach fifth graders about civic and financial responsibility along with America’s free enterprise system and their important role in its success. Ms. DeVore has served on the Wyoming Business Council since 2015 and is a representative on the Federal Reserve Bank’s Community Depository Institution Advisory Council. Ms. DeVore’s position as an officer of a member institution and her involvement in and knowledge of financial management, as indicated by her background, support her qualifications to serve on our Board of Directors.
Edward A. Garding retired as President and CEO of First Interstate BancSystems, in Billings, MT in 2016. Mr. Garding spent more than 40 years with First Interstate BancSystems during which he held many management positions including chief credit officer, CRO, COO and corporate and government relations officer. Mr. Garding has served on several banking industry boards including serving as chairman of the Wyoming Bankers Association, Pacific Coast Banking School Board, and Montana Bankers Association. He was also a member of the Fannie Mae Western Region Advisory Board. He is currently the Interim Dean of the College of Business at Montana State University Billings, a position he held previously during the 2018-2019 fiscal year. Mr. Garding’s involvement in and knowledge of operations and financial management, as indicated by his background, support his qualifications to serve as an Independent Director on our Board of Directors.
Chris D. Grimm joined BANK, Wapello, Iowa, as its president and CEO in 2001. Prior to accepting his current role at BANK, Mr. Grimm held a number of positions unrelated to the financial services industry. Mr. Grimm’s position as an officer of a member institution and his involvement in and knowledge of financial management, as indicated by his background, support his qualifications to serve on our Board of Directors.
James W. Hunt has served as senior vice president and CFO of OnPoint Community Credit Union in Portland, Oregon, since May of 2009. Prior to joining OnPoint, Mr. Hunt spent eight years serving in several positions within the finance division of Washington Mutual in Seattle, most recently as a senior vice president within the treasury department. From 1987 to 2001, he held a variety of finance positions within Fleet Mortgage Group in Columbia, South Carolina. For seven years, Mr. Hunt served on the board of directors of Financial Beginnings, a non-profit financial education organization benefiting students and young adults in Oregon and Washington. He earned a Bachelor of Business Administration in Finance from Francis Marion College in South Carolina in 1987, and is a CPA (inactive) in Oregon and Chartered Financial Analyst (CFA). Mr. Hunt’s position as an officer of a member institution and his involvement in and knowledge of finance and accounting, as indicated by his background, support his qualifications to serve on our Board of Directors.
Amy K. Johnson retired from her position as global head of operations for Columbia Threadneedle Investments (CTI), the investment management division of Ameriprise Financial, Inc. in Minneapolis, Minnesota, in June 2019. Ms. Johnson held her position as global head of operations for CTI from April 2016 to June 2019 and previously served in several positions at CTI and its predecessors and affiliates since 2001. Her most recent roles included president of Ameriprise Trust Company from November 2006 to April 2017 and CTI COO - North America from May 2010 to April 2016. Ms. Johnson has been a board member of Friends of Ngong Road since 2009 and currently serves as COO, a volunteer position. Based in Minneapolis, Minnesota, its mission is to transform the lives of children impacted by AIDS and HIV in Nairobi, Kenya, through education and support. Ms. Johnson’s involvement in and knowledge of operations and financial management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors.
Jon M. Jones has served as the president and CEO of Washington Business Bank in Olympia, Washington since 2007. Prior to joining Washington Business Bank, Mr. Jones worked for his own company, Jones Financial Strategies, as a bank consultant and commodities trader. He previously worked for Venture Bank in Olympia, Washington in various roles for 15 years. Mr. Jones started his career in finance at Peoples Bank and Trust in Waterloo, Iowa, where he worked as a credit analyst. Mr. Jones then moved on to be a commercial lending officer at Northwest Bank and Trust in Davenport, Iowa before moving to Washington in 1990. Mr. Jones is currently the chairman of the board of the Washington Bankers Association. Additionally, he is the current treasurer of the Olympia Master Builders and a past chairman of both the Thurston County Chamber of Commerce and the South Sound YMCA. Mr. Jones continues to serve on the board of the South Sound YMCA and is a member of the Olympia Roundtable. Mr. Jones is a 1984 graduate of the University of Northern Iowa with a BA in Finance and is a 1996 graduate of the Pacific Coast Banking School at the University of Washington. Mr. Jones’ position as an officer of a member institution and his involvement in and knowledge of finance, as indicated by his background, support his qualifications to serve on our Board of Directors. He currently serves as vice chair of the Member Committee.
Teresa J. Keegan has served as executive vice president and CFO of Fidelity Bank in Edina, Minnesota since 2018. Ms. Keegan previously served as senior vice president and CFO since 2002. Ms. Keegan has over 30 years of financial management experience in the areas of finance, IT, human resources, audit, and compliance. Ms. Keegan previously served on the board of Habitat for Humanity of Minnesota and Minnesota Bankers Association Insurance and Services, Inc. Ms. Keegan’s position as an executive officer of a member institution and her involvement in and knowledge of finance, as indicated by her background, support her qualifications to serve on our Board of Directors. She currently serves as chair of the Compensation Committee.
Joe R. Kesler has served as a director of First Montana Bank in Missoula, Montana, and its holding company, First National Bancorp, Inc., since 2005. Mr. Kesler served as the president and CEO of First Montana Bank from 2005 to February 2018 and has over 40 years of experience in the banking industry. Mr. Kesler has served in various community leadership roles, including president of the Chamber of Commerce, director of a small business incubator, director of business development corporations, director of state banking trade associations, member of service clubs such as Rotary, and leader or director for community nonprofits like symphony boards and churches. Mr. Kesler’s position as a director of a member institution and his involvement in and knowledge of finance and accounting, as indicated by his background, support his qualifications to serve on our Board of Directors. He currently serves as chair of the Member Committee.
John A. Klebba has been the CEO and chairman of the board of Legends Bank in Linn, Missouri, and its holding company, Linn Holding Company, since April 2018. He previously served as the president, CEO, and chairman of the board of Legends Bank and its holding company, Linn Holding Company, since February 2004. Mr. Klebba has been with Legends Bank since 1991. Prior to that he was a partner in the Kansas City office of the law firm of Lewis Rice and Fingersh, where his practice concentrated on corporate and banking law. He is also the managing member of JHK Farm, LLC, a family-owned cow/calf operation in Osage County, Missouri. Mr. Klebba is a former member of the board of the American Bankers Association and a former chairman of the Missouri Bankers Association. He is currently the chairman of the Board of Regents of the State Technical College of Missouri, a member of the board of the Missouri Higher Education Savings Program, as well as a board member of a number of charitable organizations. Mr. Klebba holds both a Juris Doctor degree and MBA degree from the University of Notre Dame. Mr. Klebba’s position as an officer of a member institution and his involvement in and knowledge of finance, as indicated by his background, support his qualifications to serve on our Board of Directors. He currently serves as chair of the Risk and Compliance Committee and vice chair of the Audit Committee.
Wan-Chong Kung has served as funds director of Securian Funds Trust since October 2022. Ms. Kung has served as an independent trustee on the US Bancorp Global Fund Services board of directors, where she has been a member of the audit and governance committees, since 2020. Ms. Kung served as the senior vice president, senior fund manager, head of rates strategy at Nuveen Asset Management from 2011 to 2019. Prior to that, Ms. Kung spent 12 years serving as a managing director and fund manager at US Bancorp Asset Management. Ms. Kung is a CFA and holds an MBA and a master’s degree in management information systems from the University of Minnesota. Ms. Kung’s involvement in and knowledge of capital markets and her leadership and management skills, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors. She currently serves as vice chair of the Finance Committee.
Russell J. Lau has served as the chairman and CEO of Finance Factors Limited, a minority depository FDIC insured institution based in Honolulu, Hawaii, since 1998. Mr. Lau serves as the chairman, president, and CEO of Finance Enterprises, Ltd., the parent company, since 2004. In connection with his service with Finance Enterprises, he is the chairman and CEO of Finance Insurance, Ltd., a Hawaii independent insurance agency and chairman and CEO of Finance Realty, Ltd., and Waipono Inc., real estate investment/development and management companies. Mr. Lau previously served on the boards of both the Federal Home Loan Bank of Seattle from 2005 to 2015 and Des Moines from 2015 to 2017. Mr. Lau is a member and former president of the Hawaii Bankers Association Executive Committee and has been a member of the Financial Executives Institute. Mr. Lau is active in the community and serves on the American Judicature Society (treasurer), Palolo Chinese Home, St. Andrew’s Schools (former chair), Assets School (former treasurer), and is the current president of the Chinese Chamber of Commerce of Hawaii. Mr. Lau was formerly the chair of the East West Center Foundation and secretary of Catholic Charities, and member of Aloha Council Boy Scouts of America, American Youth Soccer Organization, The Early School, and Junior Achievement. Mr. Lau became a member of the FDIC’s Minority Depository Institutions Subcommitteee to the Advisory Committee on Community Bank in May 2022. Mr. Lau has a bachelor’s and master’s degree in finance from the University of Puget Sound and the University of Oregon, respectively. He also graduated from Pacific Coast Banking School at the University of Washington. Mr. Lau’s position as an officer of a member institution and his involvement in and knowledge of financial management, as indicated by his background, support his qualifications to serve on our Board of Directors.
Lauren M. MacVay is currently the CEO of True North Federal Credit Union in Juneau, Alaska, a position she has held since 2004. Ms. MacVay has 27 years of banking experience. Prior to her current role, she held various leadership and management roles after joining True North Federal Credit Union in 1995. Before relocating to Alaska and beginning her banking career, Ms. MacVay was a practicing attorney in Pennsylvania for several years. Ms. MacVay has held numerous board positions and currently serves on the board of directors of the Alaska Credit Union League and the Financial Reality Foundation. Ms. MacVay’s position as an officer of a member institution and her involvement in and knowledge of finance, as indicated by her background, support her qualifications to serve on our Board of Directors. She currently serves as chair of the Technology Committee and vice chair of the Risk and Compliance Committee.
Elsie M. Meeks served as state director of the United States Department of Agriculture (USDA) in South Dakota from July of 2009 to 2015. Prior to joining the USDA, Ms. Meeks was the president and CEO of First Nations Oweesta Corporation. She was active in the development and management of Lakota Funds, a small business and micro-enterprise development financial institution on the Pine Ridge Indian Reservation in South Dakota and has served as its board chair since 2015. Ms. Meeks served on the U.S. Commission on Civil Rights, completing a six-year term. She currently serves on the board of the Native American Agricultural Fund, a national trust established through the federal court as a result of proven discrimination by USDA against Native American ranchers and farmers. She is a recent past director of the Northwest Area Foundation based in St. Paul, Minnesota. She has served as a director or council member of several national Native American organizations. Ms. Meeks’ involvement in and knowledge of economic development and community management, as indicated by her background, support her qualifications to serve as a Public Interest Independent Director on our Board of Directors. She currently serves as chair of the Housing and Community Investment Committee.
Jason A. Meyerhoeffer has served as president and CEO of First Federal Savings Bank of Twin Falls in Twin Falls, Idaho since 2017. Prior to his current position, Mr. Meyerhoeffer held various leadership roles at First Federal Savings Bank of Twin Falls since 1996, including serving as executive vice president and chief lending officer from 2002 to 2016. Mr. Meyerhoeffer has a nearly 25-year career in banking that began in 1995 as a regional credit officer with West One Bank N.A. Mr. Meyerhoeffer has served as director of several business development corporations and state banking trade associations. Mr. Meyerhoeffer’s position as an officer of a member institution and his experience in financial and risk management and his leadership and management skills, as indicated by his background, support his qualifications to serve on our Board of Directors. He currently serves as chair of the Finance Committee.
Siva G. Narendra is CEO of tyfone, Inc., a digital banking technology company in Portland, Oregon, he co-founded in 2004. Dr. Narendra has served as its CEO since 2011. Dr. Narendra is an inventor with more than 100 patents. Inventions he patented have led to the launch of OneIDLab, a digital security company, and iCashe, a digital payment fintech. Prior to becoming an entrepreneur, Dr. Narendra was a Senior Staff Scientist at Intel’s Corporate Technology Group where his contributions led to the issuance of 75 patents. Dr. Narendra is a published author and has more than 60 peer-reviewed papers. In addition to serving on the boards of the two technology companies he co-founded, tyfone, Inc. and iCashe, Dr. Narendra was a board member at OnPoint Community Credit Union from 2017 to 2020. Dr. Narendra holds a Ph.D. in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts. Dr. Narendra’s involvement in and knowledge of finance and technology, as indicated by his background, support his qualifications to serve as an Independent Director on our Board of Directors.
Carol K. Nelson served as CEO and president of Monzo, Inc. from 2021 to 2022. Ms. Nelson served as a strategic advisor to Monzo in its application for a national bank charter for Monzo Bank USA N.A from 2019 to 2021. She was an executive for KeyBank from 2015 to 2019. Ms. Nelson served as KeyBank’s pacific region executive and market president, was a member of KeyBank’s executive council, and director and trustee for the KeyBank Foundation. Ms. Nelson was appointed by Governor Inslee to serve as the CEO of the Washington State Department of Revenue from January 2013 to 2015. She served as the CEO and president of Cascade Bank in Everett, Washington from January 2001 to June 2011. She began her banking career at Seafirst Bank which was acquired by Bank of America in 1982 and served in several positions culminating as senior vice president and northern region executive. Ms. Nelson currently serves on the board for United Way of King County and as chair of the board of the Washington State Major League Baseball Public Facilities District. She is a former director of the Federal Reserve Bank of San Francisco, Seattle Branch, serving two terms (2007 to 2009 and 2015 to 2017). She is a past board member of Pacific Coast Banking School and a past board chair of the Washington Bankers Association. She earned a BA in Finance from Seattle University and an MBA from Seattle University. Ms. Nelson’s involvement in and knowledge of financial management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors. She currently serves as vice chair of the Technology Committee.
Executive Officers
The following persons currently serve as executive officers of the Bank:
Position Held
Executive Officer Age Position Held Since
Kristina K. Williams 58 President and Chief Executive Officer January 2020
James G. Livingston 57 Chief Financial Officer January 2023
Joelyn R. Jensen-Marren 57 Chief Risk and Compliance Officer January 2023
William W. Osborn 57 Chief Business Officer August 2020
Kevin T. Larkin 54 Chief Information Officer March 2020
Katherine A. Steinke 54 Chief Human Resources Officer December 2021
Robert W. Dixon 48 General Counsel and Corporate Secretary September 2022
Kelly E. Rasmuson 60 Chief Audit Executive June 2016
Deborah G. Baldwin 61 Chief Diversity, Equity, and Inclusion Officer May 2020
Jennifer J. Fox 63 Regulatory Relations Director May 2020
Cherie Schuler 58 Senior Director of Member and Financial Operations June 2022
Kristina K. Williams is currently serving as President and CEO, a position she has held since January 2020. She began her association with the Federal Home Loan Bank System in 2004. Prior to her current role, she served as the COO of the Federal Home Loan Bank of Pittsburgh (Pittsburgh Bank), a position she held from 2011 to 2019. In that role, Ms. Williams had responsibility for all member-facing departments, including community investment, communications, product delivery, member services, and IT. In her 15 years with the Pittsburgh Bank she also held positions of chief accounting officer, CFO, and acting CRO. Prior to working for the Pittsburgh Bank, Ms. Williams spent 12 years with PNC Financial Services in its wholesale bank and six years in public accounting. She is currently serving on the boards of Greater Des Moines Habitat for Humanity and the Greater Des Moines Partnership. She formerly served as vice chair of the West Liberty University (WLU) Board of Governors. Ms. Williams also previously served as the development committee chair of the board of directors for Strong Women Strong Girls of Pittsburgh. Ms. Williams has an undergraduate degree from WLU and Masters of Professional Accountancy from West Virginia University. She is also a CPA (inactive) and received an honorary Doctor of Humane Letters degree from WLU in 2015.
James G. Livingston is currently serving as CFO, a position he has held since January 2023. In his role, Mr. Livingston has management responsibility for the accounting and financial reporting, capital markets, financial controls, and strategic planning functions. He previously served as executive vice president and Director of Municipal & Institutional Services, senior vice president, and vice president at Zions Bancorporation, National Association, located in Salt Lake City, Utah, since 2017, 2011 and 2005, respectively. Prior to joining Zions in 2005, Mr. Livingston worked for Ziff Brothers Investments, in New York City, as a quantitative strategist and as Director of Financial Research. Mr. Livingston was elected to the Seattle Bank’s board from the state of Utah in 2007. After the merger with the Bank in 2015, he served as a director on the Bank’s Board until 2021. Mr. Livingston served as the Board Chair from 2020 to 2021. He also previously served as an assistant professor of accounting at Southern Methodist University in Dallas, Texas.
Joelyn R. Jensen-Marren is currently serving as Chief Risk and Compliance Officer (CRCO), a position she has held since January 2023. In her role, Ms. Jensen-Marren has responsibility for the Bank’s enterprise risk management area, including credit risk, market risk, operational risk, and model risk. Ms. Jensen-Marren previously served as the CFO beginning in June 2019. Prior to serving as CFO, Ms. Jensen-Marren served as senior vice president, director of portfolio strategy from 2014 to 2019. Ms. Jensen-Marren joined the Bank in 1999 and has served in various leadership roles including market risk manager and financial risk officer. Prior to joining the Bank, Ms. Jensen-Marren served as manager of portfolio investments at Centura Bank in Rocky Mount, North Carolina. She currently serves on the Polk County Housing Trust Fund Board. Ms. Jensen-Marren received her undergraduate degree from Iowa State University with a Master’s degree from the University of Colorado, Denver.
William W. Osborn is currently serving as Chief Business Officer (CBO), a position he has held since August 2020. Mr. Osborn is responsible for the Bank’s member-facing departments, including community investment, funding product group, member strategies and marketing, and the mortgage product group. Prior to joining the Bank, he served as senior vice president and CFO of the Federal Home Loan Bank of Topeka (Topeka Bank), a position he held from 2010 to 2020. Mr. Osborn also served as director of product profitability and pricing of the Topeka Bank from 2006 to 2007. Mr. Osborn was promoted to director of banking strategies in January 2008, to first vice president in April 2008, and to senior vice president in April 2009. Mr. Osborn is a CFA and member of the CFA Institute. Mr. Osborn received his undergraduate degree from Brigham Young University and MBA degree from Westminster College.
Kevin T. Larkin is currently serving as Chief Information Officer (CIO), a position he has held since March 2020. Mr. Larkin oversees the Bank’s IT, information security, enterprise procurement and vendor management, and business resiliency and facility management departments. Prior to joining the Bank, Mr. Larkin served as vice president, managing director, IT operations of the Federal Home Loan Bank of Chicago (Chicago Bank) since 2019. He previously served as the vice president, managing director, IT risk, compliance, and administration of the Chicago Bank from 2018 to 2019. Prior to joining the Chicago Bank, Mr. Larkin served as assistant vice president of business systems and IT governance for Illinois Mutual Life Insurance from 2014 to 2018. In addition, Mr. Larkin previously served as the director of business solutions for the Pittsburgh Bank from 2001 to 2014. He has earned a bachelors degree from Gannon University and both an MBA degree and Master’s in Information Systems Management from Duquesne University.
Katherine A. Steinke is currently serving as Chief Human Resources Officer (CHRO), a position she has held since December 2021. Ms. Steinke has management responsibility for the human resources department. Prior to joining the Bank, Ms. Steinke previously served as vice president, human resources, for Farm Credit Services of America in Omaha, Nebraska from 2017 to 2021. Prior to her tenure at Farm Credit Services of America, she served as director, human resources at Glacial Lakes Energy in Watertown, South Dakota from 2011 to 2017. Ms. Steinke earned her undergraduate degree from the University of Nebraska Medical Center and a Master’s in HR Management/Labor and Employment Relations from Penn State University.
Robert W. Dixon is currently serving as General Counsel and Corporate Secretary, a position he has held since September 2022. Mr. Dixon has management responsibility for the Bank’s legal department. He advises management and the Board of Directors on all legal matters impacting the Bank, including those involved with establishing or changing business direction, as well as all matters concerning SEC reporting and corporate governance. Mr. Dixon previously served as Vice President and Deputy General Counsel from 2021 to 2022 and Vice President and Associate General Counsel from 2013 to 2021. Prior to joining the Bank, Mr. Dixon practiced law at Davis Brown Law Firm in Des Moines, Iowa from 2010 to 2013 and at Vedder Price P.C. in Chicago, Illinois from 2001 to 2010. Mr. Dixon received his undergraduate degree from the University of Iowa and his Juris Doctor degree from Drake University Law School. He graduated from the Greater Des Moines Leadership Institute in 2013 and currently serves as Board President for Big Brothers Big Sisters of Central Iowa.
Kelly E. Rasmuson is currently serving as Chief Audit Executive, a position he has held since 2016. Mr. Rasmuson joined the Bank in 2006 as director of Internal Audit and became Senior Vice President in 2007. Mr. Rasmuson has management responsibility for the internal audit department. Prior to joining the Bank, Mr. Rasmuson held positions of increasing responsibility with the internal audit department at Principal Financial Group in Des Moines, Iowa from 1997 to 2006. Before moving to Iowa, he worked in a variety of positions at multiple companies in Columbus, Ohio, including audit roles with one of the large international accounting firms. Mr. Rasmuson received his undergraduate degree from the University of Northern Iowa and his MBA from Xavier University. He is also a Certified Internal Auditor and CPA.
Deborah G. Baldwin is currently serving as Chief DEI Officer, a position she has held since May 2020. In this role, Ms. Baldwin oversees all aspects of the Banks’ DEI efforts, as well as the Bank’s Office of Minority and Women Inclusion (OMWI). Prior to joining the Bank, she consulted on diversity and inclusion strategy development and execution from 2018 to 2020. Prior to consulting, Ms. Baldwin was the deputy director, OMWI, at the National Credit Union Administration from 2016 to 2018. In addition, Ms. Baldwin previously served as assistant vice president, diversity and inclusion, at the Federal Reserve Bank of Chicago from 2011 to 2014. Ms. Baldwin received her undergraduate degree from Georgia State University and holds certifications in unconscious bias training and the Intercultural Development Inventory designed to assess cross-cultural competence.
Jennifer J. Fox is currently serving as Regulatory Relations Senior Director, a position she has held since May 2020. Ms. Fox leads regulatory relations with the Finance Agency, Board, and Executive Team and is responsible for formal communications with the Finance Agency on behalf of the Bank. Ms. Fox has served in the Banks’ internal audit department since joining the Bank in 1998, holding various positions of increased responsibility, most recently as the Bank’s vice president and director of internal audit from April 2018 to May 2020. Ms. Fox received her undergraduate degree from Iowa State University and holds several internal auditing certifications, including Certified Internal Auditor.
Cherie Schuler is currently serving as the Senior Director of Member and Financial Operations, a position she has held since June 2022. Ms. Schuler previously served as Director of Member Financial Operations from 2018 to 2022, and has held various roles since joining the Bank in 1984. In her role, Ms. Schuler oversees the member and financial operations of the Bank, which includes the advance funding desk, membership, collateral management, business process mapping, and other bank operations. She also serves as the Office of Foreign Assets Control (OFAC) officer. Ms. Schuler earned her business degree from Upper Iowa University and is certified in Banking Operations and Technology from Vanderbilt University. Ms. Schuler is also an Accredited Automated Clearing House Professional.
Code of Ethics
We have adopted a Code of Ethics (Code) that sets forth the guiding principles and rules of conduct by which we operate and conduct our daily business with our customers, vendors, shareholders, and fellow employees. The Code applies to all of our directors, officers, and employees. The purpose of the Code is to promote honest and ethical conduct and compliance with the law, particularly as it relates to the maintenance of our financial books and records and the preparation of our financial statements. The Code can be found on our website at www.fhlbdm.com. We disclose on our website any amendments to, or waivers of, the Code. The information contained in or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this or any report filed with the SEC.
Audit Committee
The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its review and oversight responsibilities for (i) the integrity of the Bank’s financial statements and financial reporting process and systems of internal accounting and financial reporting controls, (ii) the independence, scope of audit services, and performance of the Bank’s internal audit function as well as the appointment or replacement of the Bank’s chief audit executive, (iii) the selection and replacement, qualifications, independence, scope of audit, and performance of the Bank’s external auditor, (iv) the Bank’s compliance with laws, regulations and policies, including the Code of Ethics, and (v) the policy for complaints regarding questionable accounting, internal accounting controls, and auditing matters, and oversight of fraud investigations. The Audit Committee has adopted a charter outlining its roles and responsibilities, which is available on our website at www.fhlbdm.com. The information contained in or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this or any report filed with the SEC.
The members of our Audit Committee for 2023 are Ruth Bennett (chair), John Klebba (vice chair), Cleon Butterfield, Edward Garding, James Hunt, Russell Lau, and Elsie Meeks. The Audit Committee held a total of 13 meetings in 2022. As of February 28, 2023, the Audit Committee has held one meeting in 2023 and is scheduled to hold 11 meetings throughout the remainder of 2023. Refer to Exhibit 99.1 of this 2022 Annual Report for the Audit Committee Report.
Audit Committee Financial Expert
Our Board of Directors determined that all of the members of its Audit Committee qualify as audit committee financial experts under Item 407(d)(5) of Regulation S-K. Refer to “Item 13. Certain Relationships and Related Transactions, and Director Independence” for details on our director independence. For information concerning the experience through which these individuals acquired the attributes required to be deemed financial experts, refer to the biographical information in this Item 10.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis section provides information related to the administration of our executive compensation policies and programs. We believe we have historically taken a prudent and effective approach to executive compensation with practices aligned with the Finance Agency’s guidance on FHLBank executive compensation.
This section describes and analyzes our 2022 executive compensation program for:
•the executive officer serving as CEO during 2022;
•the executive officer serving as CFO during 2022; and
•the three other most highly compensated executive officers who were serving as executive officers on December 31, 2022.
These executive officers are collectively referred to as our named executive officers (NEOs).
This Compensation Discussion and Analysis includes the following parts:
CONTENTS
Compensation Philosophy
Elements of Executive Compensation
Finance Agency Oversight - Executive Compensation
Roles and Responsibilities of the Board of Directors, Compensation Committee and Management in Establishing Executive Compensation
Analysis Tools the Compensation Committee Uses
Compensation Decisions in 2022
Benefits and Retirement Philosophy
CEO Compensation Pay Ratio
Potential Payments upon Termination or Change of Control
Director Compensation
Compensation Committee Report
Compensation Philosophy
Our compensation philosophy, practices, and principles are important to our business strategy. Our philosophy assists us in attracting, retaining, and engaging employees with the skills and talent we need to create and implement strategies critical to our long-term success and ensuring we bring value for our members. Our executive compensation practices provide a framework to ensure an appropriately balanced approach to compensation through a combination of base salary, benefits, and annual and deferred cash incentive awards. Although we refine our compensation programs as economic conditions and competitive practices change, we strive to maintain consistency in our philosophy and approach with respect to executive compensation.
We believe our current employees and those individuals in our potential talent pool are highly marketable and can be attracted to opportunities across a broad spectrum of U.S. financial services businesses. Our competition for talent primarily includes FHLBanks, commercial banks, and other financial services companies, such as insurance companies.
We have designed our executive compensation program to motivate our NEOs to achieve our objectives for delivering value to our members, as customers and as shareholders, without taking undue risk.
Our executive compensation program is designed to do the following:
i.Attract, motivate, reward, and retain the talent and skill sets important to run our business and execute our short- and long-term strategic objectives.
ii. Link executive compensation to Bank performance while monitoring the Bank’s exposure to risk.
iii. Structure our total compensation package for NEOs so that it is competitive relative to market. Our competitive market primarily consists of FHLBanks, commercial banks, and other financial services companies. We consider total compensation to be competitive at the 50th percentile of the market data.
iv. Align with the Bank’s mission and culture.
In 2022, we executed on our executive compensation philosophy to provide competitive compensation to our NEOs that was aligned to the achievement of business objectives and Bank performance.
Elements of Executive Compensation
Our executive compensation program is comprised of the following elements: (i) base salary, (ii) an executive incentive plan (EIP) that includes a 50 percent annual cash award and a 50 percent deferral of the incentive award, (iii) retirement benefits, (iv) health and welfare benefits, (v) the potential for payments in the event of termination for our CEO, (vi) limited perquisites, and (vii) other amounts as defined. The following discussion provides more detail for each of these elements.
BASE SALARY
Base salary is a fixed component of our NEOs’ total compensation that is intended to provide a level of compensation necessary to attract and retain highly qualified executives. The Compensation Committee generally reviews the level of base salaries annually for all of our NEOs and approves and recommends to the Board of Directors adjustments to base salary for our President and CEO.
Our President and CEO is the only NEO with an employment agreement with us that sets forth minimum base salary. This employment agreement provides that we shall initially pay our President and CEO an annualized base salary of not less than the amount set forth in the agreement. Base salary may only be adjusted upward based on an annual review by the Board of Directors and may not be adjusted downward unless such downward adjustment is part of a nondiscriminatory cost reduction plan applicable to our total compensation budget. Base salary for all other NEOs is established by the President and CEO. For additional information regarding base salary, see the section entitled “Base Salary Levels” in this Item 11.
EXECUTIVE INCENTIVE PLAN
In November 2021, the Compensation Committee approved the 2022 EIP, and in February 2022, approved the Bank-wide goal measures. In addition, we received a non-objection letter from the Finance Agency for our 2022 EIP in May of 2022. The EIP includes an annual cash incentive and a deferred cash incentive. The Compensation Committee considers a variety of safety and soundness measures to determine the appropriate incentive payouts, such as (i) operational errors or omissions that result in material revisions to the financial results, information submitted to the Finance Agency, or data used to determine incentive payouts, (ii) whether submission of information to the SEC, Office of Finance, or Finance Agency is untimely, (iii) whether the organization fails to make sufficient and timely progress, as determined by the Finance Agency, in the remediation of examination, monitoring, and other supervisory findings and matters requiring attention, (iv) failure to make sufficient progress in improving Finance Agency examination ratings, or (v) whether the Bank has sufficient capital to pay dividends and repurchase member stock. If one of the above occurs, the Compensation Committee will consider the facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to our financial and operational performance and financial reporting responsibilities.
Under the EIP, our NEOs are required to defer 50 percent of their total cash incentive for three years following the end of the performance plan period. Beginning in 2021, the deferred opportunities are subject to the Bank’s sustained achievement of the safety and soundness measures described above and approvals by the Compensation Committee and Board of Directors. The 2022 deferred opportunities are payable in 2026. The total deferred award payout may include a four percent interest rate, calculated annually, also subject to the Bank’s sustained achievement of the safety and soundness measures. Prior to 2021, the deferred opportunities were also subject to the quarterly average of our MVCS. For more information on the calculation of deferred awards prior to 2021, refer to “Item 11. Executive Compensation - Elements of Executive Compensation” in our 2020 Form 10-K.
The 2022 EIP provides that unless otherwise directed by the Compensation Committee, payments under the EIP shall be made in a lump sum through regular payroll distribution, typically within 75 days after the end of the calendar year for which the performance or deferral period is ended, but in any event by the end of the calendar year following the performance or deferral period.
Under the EIP, the Compensation Committee may determine an NEO is not eligible to receive an incentive payout if the respective NEO (i) has not achieved a performance level of “meets expectations” or higher evaluation of overall performance during a performance period or deferred performance period, (ii) is subject to any disciplinary action or probationary status at the time of payout, or (iii) fails to comply with regulatory requirements or standards, internal control standards, professional standards or any internal standard, or fails to perform responsibilities assigned under our Strategic Business Plan.
For additional information about our EIP, see “EIP Award Opportunities” and “EIP Performance Measures and Results” in this Item 11.
RETIREMENT BENEFITS
We participate in the Pentegra Defined Benefit Plan for Financial Institutions (DB Plan), a tax-qualified defined benefit pension plan. In August of 2016, our Board of Directors elected to freeze the DB Plan effective January 1, 2017. After the freeze, participants no longer accrue new benefits under the DB Plan.
In addition to the qualified DB Plan, we have one qualified defined contribution benefit plan, the Federal Home Loan Bank of Des Moines 401(k) Savings Plan (DC Plan). We also offer the Benefit Equalization Plan (BEP), a nonqualified retirement plan which includes both a nonqualified defined contribution plan and a nonqualified defined benefit plan. The BEP allows the NEOs to receive amounts they would have been entitled to receive under the DB Plan and/or the DC Plan had the plans not been subject to Internal Revenue Code contribution limitations. In August of 2016, our Board of Directors elected to freeze the BEP defined benefit plan effective January 1, 2017 in conjunction with the freeze of the DB Plan. After the freeze, participants no longer accrue new benefits under the BEP defined benefit plan.
The table below shows which retirement plans each NEO participates in:
NEO Principal Position Retirement Plans
Kristina K. Williams President and CEO b, c
Joelyn R. Jensen-Marren1
CFO a, b
William W. Osborn CBO b, c
Duane V. Creel CRCO b, c
Kevin T. Larkin CIO b, c
1 Ms. Jensen-Marren was eligible to participate in the BEP DC Plan; however, she did not elect to participate during 2022.
a) DB Plan
b) DC Plan
c) BEP DC Plan
For additional information about our retirement benefits, see “Benefits and Retirement Philosophy” in this Item 11.
HEALTH AND WELFARE BENEFITS
Our NEOs are eligible for the same medical, dental, life insurance, and other benefits available to our full-time employees.
PAYMENTS IN THE EVENT OF TERMINATION
Our President and CEO has an employment agreement with us, which provides for payments in the event of termination based on certain triggering events. All other NEOs are subject to Bank policies. For additional details, see “Potential Payments Upon Termination or Change of Control” in this Item 11.
PERQUISITES
Our NEOs are eligible to receive perquisites as a convenience associated with their overall duties and responsibilities. Our President and CEO was eligible to receive a monthly car allowance. All NEOs generally qualify for certain other perquisites, such as financial planning assistance and/or relocation reimbursements. For additional details, see “Components of All Other Compensation” in this Item 11.
OTHER
Our NEOs may be eligible to receive a hiring bonus and other benefits. Ms. Williams received a hiring bonus in 2020, and she received an additional contribution to her BEP DC Plan in 2021 after the completion of her first year of employment. Mr. Osborn received a bonus in 2021 after the completion of his first year of employment. Mr. Larkin received a hiring bonus in 2020 and received an additional bonus in 2021 after the completion of his first year of employment.
Finance Agency Oversight - Executive Compensation
In addition to our internal processes, the Finance Agency has oversight authority over our executive compensation. The FHLBanks provide all compensation actions affecting their NEOs to the Finance Agency for review.
Applicable rules also establish the following principles for executive compensation:
i.executive compensation must be reasonable and comparable to that offered to executives in similar positions at comparable financial institutions;
ii. executive compensation should be consistent with sound risk management and preservation of the par value of the FHLBank’s capital stock;
iii. a significant percentage of an executive’s incentive-based compensation should be tied to longer-term performance and outcome indicators and be deferred and made contingent upon performance over several years; and
iv. the Board of Directors should promote accountability and transparency in the process of setting compensation.
Roles and Responsibilities of the Board of Directors, Compensation Committee and Management in Establishing Executive Compensation
The Compensation Committee recommends to the Board of Directors all compensation decisions for our President and CEO. The Compensation Committee generally reviews compensation recommendations for the other NEOs made by our President and CEO and shares the recommendations with the Board of Directors. Throughout the year, our President and CEO, and the Compensation Committee, review, on an informal basis, the performance of our NEOs, future management changes, and other matters relating to compensation. Any employment or severance agreement for our President and CEO is also approved by the Board of Directors.
Throughout the year, the Board of Directors reviews our Bank-wide goals and achievement levels. When final Bank performance metrics for a calendar year are determined, the Compensation Committee reviews the performance results to determine the level of performance that has been achieved for purposes of making incentive compensation decisions for our NEOs. Our Compensation Committee approves the Bank-wide goals framework and approves and recommends the incentive awards comprised of Bank-wide goals to the Board of Directors for their approval.
Merit increases are based upon an evaluation of an NEO’s overall performance. Because of our size and the number of NEOs involved, our President and CEO recommends to the Compensation Committee merit increases for the other NEOs. The Board of Directors completes an evaluation of our President and CEO’s performance and the Compensation Committee recommends compensation for our President and CEO to the Board of Directors. The Compensation Committee and our President and CEO consider overall performance in key focus areas aligned with our Strategic Business Plan for the year, and review NEO compensation relative to the market, in analyzing merit increases.
Analysis Tools the Compensation Committee Uses
For 2022, the Compensation Committee engaged McLagan Partners to conduct an assessment and make recommendations regarding compensation for our executives based on the results of their competitive analysis. This included identification of sources of market data for purposes of the competitive compensation assessments of base pay and annual and deferred cash incentives. This analysis compared the compensation of our executives utilizing the following sources:
•Public disclosures (e.g., proxy statements and annual reports) for the top five highest paid executives at banks with assets between $10 billion and $20 billion;
•the FHLBank System; and
•Commercial banks included in the McLagan assessment.
The primary market comparison for their assessment was commercial banks from the McLagan data and the other FHLBanks. This was used to determine the market median for each position, which the Compensation Committee and President and CEO used to inform themselves regarding trends in compensation practices and as a comparison check against general market data. When using FHLBank System comparisons, our executives are compared to the same position within the FHLBanks. When using commercial bank comparisons, our executive positions are compared to roles with similar overall responsibility to our positions.
Compensation Decisions in 2022
How we compensate our NEOs sets the tone for how we administer pay throughout the entire Bank. For 2022, our Compensation Committee considered numerous factors (including those previously discussed) before deciding on the appropriate total compensation for our NEOs, in the context of the current business, operating, and regulatory environment, which are more fully described in the following narrative.
BASE SALARY LEVELS
The Compensation Committee followed its historical practice of adjusting base salaries after a review of individual performance and current compensation of our NEOs compared to survey data. The Compensation Committee determined increases in our President and CEO’s base salary for 2022 and, based on the President and CEO’s recommendations, that increases for the other NEOs were appropriate based on (i) our NEOs’ individual performance, contributions to the Bank, length of time in position, and changes in responsibilities, if applicable, and (ii) a review of the McLagan Partners’ executive compensation survey data.
For 2022, the following base salary increases were approved for our NEOs. These increases were reviewed by, and received non-objection from, the Finance Agency:
NEO Principal Position 2022 Base Salary Increase from 2021
Kristina K. Williams President and CEO 6.0 %
Joelyn R. Jensen-Marren CFO 5.2
William W. Osborn CBO 5.9
Duane V. Creel1
CRCO N/A
Kevin T. Larkin CIO 7.4
1 Mr. Creel was appointed as the Bank’s CRCO on November 1, 2021 and retired on December 31, 2022; therefore, he was not subject to a merit increase for 2022.
EIP AWARD OPPORTUNITIES
EIP pay targets established for our NEOs take into consideration total compensation practices (base salary and incentives) of the survey data reviewed. Under the EIP, our NEOs are assigned target award opportunities, stated as percentages of base salary. The target award opportunities are determined based on market data and level of responsibility and are approved by our Compensation Committee.
Awards are paid to our NEOs based upon the achievement level of Bank-wide goals as determined by the Compensation Committee. In addition, 50 percent of the incentive award for NEOs is deferred for three years following the end of the performance period, and subject to the Bank’s sustained achievement of the applicable safety and soundness measures, as defined in the EIP, and Compensation Committee’s and Board of Directors’ approvals at the time of payment.
The annual and deferred EIP award opportunities for our NEOs in 2022 were a percentage of base salary as follows:
Title Incentive
Plan Threshold Target Maximum
President and CEO Annual 25.0% 42.5% 50.0%
Deferred 25.0% 42.5% 50.0%
Other NEOs Annual 20.0% 30.0% 40.0%
Deferred 20.0% 30.0% 40.0%
The following table provides estimated potential payouts under our EIP:
2022 Grants of Plan-Based Awards
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards1
NEO Threshold Target Maximum
Kristina K. Williams $ 477,530 $ 811,801 $ 955,060
Joelyn R. Jensen-Marren 148,000 222,000 296,000
William W. Osborn 180,000 270,000 360,000
Duane V. Creel2
172,288 258,433 344,577
Kevin T. Larkin 146,000 219,000 292,000
1 Amounts consist of the annual incentive (50 percent of total incentive) and deferred incentive (50 percent of total incentive). The total deferred award payout may include four percent interest, calculated annually, which is not included in the table above. All deferred incentive and interest payments are subject to the Bank’s sustained achievement of the 2022 safety and soundness measures and Compensation Committee’s and Board of Directors’ approvals at the time of payment.
2 Mr. Creel’s estimated future payouts under the EIP are calculated based on his base salary; however, also include his vacation payout as this was paid out prior to his retirement on December 31, 2022 and was deemed a component of eligible wages.
EIP PERFORMANCE MEASURES AND RESULTS
In November 2021, the Compensation Committee approved the Bank-wide goals framework for 2022. In February 2022, the Compensation Committee approved the Bank-wide goal measures for 2022, which are summarized below:
i.Improvement of Advance Penetration is measured by the dollar amount of advance usage relative to each member’s total assets in the Bank’s district. The goal will be measured in comparison to the other Federal Home Loan Banks.
ii.Reduction of Operational Risk is measured by the completion of projects and initiatives in 2022 according to scope, timelines and success measures approved by management.
iii.Enhancement of Corporate Governance is measured by our efforts to remediate outstanding examination findings and enhance our risk, IT, project, and process management practices.
iv.Spread Between Adjusted Return on Capital Stock and SOFR While Maintaining Market Value Sensitivity within Limits is a measure of profitability in which GAAP net income is adjusted for certain non-routine or unpredictable items. For additional information on our adjusted earnings measure, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Adjusted Earnings.”
v.Diversity, Equity, and Inclusion is a measure of our progress on DEI initiatives.
The Bank’s EIP design has historically included Bank-wide goals. This plan design has resulted in reasonable payouts to our NEOs. We believe this plan design has accomplished and driven the behaviors of all employees, including our NEOs, in accordance with our Board of Directors’ expectations.
For 2022, NEO incentive awards are tied entirely to the achievement of Bank-wide goals. This weighting was determined by the Compensation Committee based upon the need for our NEOs to focus on certain strategic imperatives and/or strategies contained in our Strategic Business Plan.
When establishing the Bank-wide goals, the Compensation Committee and the Board of Directors anticipated that we would reasonably achieve the target level of performance aligned with objectives contained in our Strategic Business Plan. The maximum level provides a goal that is anticipated to be more challenging to reach, based on the previous year’s performance results and current market trends and conditions. The Bank-wide goal incentive awards are paid based on the actual results we achieve. The weightings for each goal area are generally aligned with our Strategic Business Plan and areas of key focus. The 2022 to 2024 Strategic Business Plan was approved by the Board of Directors in December of 2021.
On a regular basis during 2022, management provided updates to the Board of Directors on the status of performance relative to Bank-wide goals. The following table provides the 2022 EIP Bank-wide goals for our NEOs as well as our performance results, which were approved by the Board of Directors in February 2023:
Bank-wide Goals 2022 Results
Threshold Target Maximum
Improvement of Advance Penetration (20% Weight) 7th in the FHLBank System 9th in the FHLBank System 7th in the FHLBank System 5th in the FHLBank System
Reduction of Operational Risk (35% Weight) 6/7 2/7 4/7 6/7
Enhancement of Corporate Governance (15% Weight) 3/3 1/3 2/3 3/3
Spread Between Adjusted Return on Capital Stock and SOFR While Maintaining Market Value Sensitivity within Limits (20% Weight) 7.23 % 3.50 % 4.50 % 5.50 %
Diversity, Equity, and Inclusion (10% Weight) 5/5 2/5 3/5 5/5
The overall weighted achievement of the Bank-wide goals was 114.12 percent of target for our President and CEO and 126.67 percent of target for all other NEOs. Based on these results, the Compensation Committee awarded each NEO the amounts identified in the following table. We received a non-objection letter from the Finance Agency for the Bank-wide Performance awards in March 2023:
NEO Annual Incentive Deferred Incentive Interest Earned on Deferred Incentive1
Total Bank-wide Performance Award2
Percent of
Salary3
Kristina K. Williams $ 463,214 $ 463,214 $ 13,991 $ 940,419 97 %
Joelyn R. Jensen-Marren 140,604 140,604 4,281 285,489 76
William W. Osborn 171,005 171,005 5,172 347,182 76
Duane V. Creel4
163,678 - - 163,678 39
Kevin T. Larkin 138,704 138,704 4,137 281,545 76
1 Represents four percent interest earned on the 2021 deferred incentive, which will be paid in 2025, subject to the Bank’s sustained achievement of the 2022 safety and soundness measures and Compensation Committee’s and Board of Directors’ approvals at the time of payment.
2 The Bank-wide Performance Award consists of annual incentive (50 percent of total incentive), paid in 2023, deferred incentive (50 percent of total incentive), and interest earned on deferred incentive, as footnoted above. The deferred incentive amounts were earned as of December 31, 2022, but will not be paid until 2026, and remain subject to the Bank’s sustained achievement of the 2022 safety and soundness measures and Compensation Committee’s and Board of Directors’ approvals at the time of payment.
3 Represents annual and deferred incentive, excluding interest earned on deferred incentive, as a percent of salary.
4 Mr. Creel retired from the Bank on December 31, 2022, and his age and tenure of employment did not meet the requirements of a qualified retirement under the terms of the EIP. As a result, he was not eligible to receive a deferred incentive for 2022.
The following table illustrates for each NEO the maximum amount of unpaid deferred awards as of December 31, 2022 distributable under the EIP for 2019, 2020, 2021, and 2022, assuming the Bank achieved all applicable safety and soundness measures and no additional discretion is exercised by the Board of Directors:
NEO Amount Distributable in 20231
Amount Distributable in 20241
Amount Distributable in 20252
Amount Distributable in 20262
Total
Kristina K. Williams $ - $ 404,713 $ 393,480 $ 521,052 $ 1,319,245
Joelyn R. Jensen-Marren 70,175 131,364 120,407 158,159 480,105
William W. Osborn - 68,419 145,485 192,357 406,261
Duane V. Creel3
- - - - -
Kevin T. Larkin - 98,724 116,354 156,023 371,101
1 Represents the 2019 and 2020 deferred incentive awards payable in 2023 and 2024, and includes the maximum MVCS multiplier of 110 percent.
2 Represents the 2021 and 2022 deferred incentive awards payable in 2025 and 2026, and includes four percent interest, compounded annually, over the three-year deferral period.
3 Mr. Creel retired from the Bank on December 31, 2022, and his age and tenure of employment did not meet the requirements of a qualified retirement under the terms of the EIP. As a result, he was not eligible to receive a deferred incentive for 2022.
SUMMARY COMPENSATION TABLE
The following table provides compensation information for our NEOs, as applicable, for the years ended December 31, 2022, 2021, and 2020:
Summary Compensation Table
Name and Principal Position Year Salary Bonus Non-Equity Incentive Plan Compensation1
Change in Pension Value and Non-Qualified Deferred Compensation Earnings2
All Other
Compensation3
Total
Kristina K. Williams4
2022 $ 955,060 $ - $ 940,419 $ - $ 94,851 $ 1,990,330
President and CEO 2021 901,000 - 699,604 - 623,518 2,224,122
2020 811,413 500,000 735,842 - 205,410 2,252,665
Joelyn R. Jensen-Marren 2022 370,000 - 285,489 - 30,500 685,989
CFO 2021 351,740 - 214,084 - 29,000 594,824
2020 340,000 - 238,844 267,000 28,500 874,344
William W. Osborn5
2022 450,000 - 347,182 - 53,856 851,038
CBO 2021 425,000 50,000 258,672 - 41,375 775,047
Duane V. Creel6
2022 425,000 - 163,678 - 55,198 643,876
CRCO
Kevin T. Larkin7
2022 365,000 - 281,545 - 39,038 685,583
CIO 2021 339,900 125,000 206,876 - 31,000 702,776
2020 255,521 125,000 179,498 - 69,816 629,835
1 The components of this column for 2022 consist of annual incentive (50 percent of total incentive), paid in 2023, deferred incentive (50 percent of total incentive), and four percent interest earned on the 2021 deferred incentive. The deferred incentive amounts were earned as of December 31, 2022, but will not be paid until 2026. Both the deferred incentive and interest remain subject to the Bank’s sustained achievement of the 2022 safety and soundness measures and Compensation Committee’s and Board of Directors’ approvals at the time of payment.
2 Represents the change in value of the DB Plan. During 2022, Ms. Jensen-Marren’s pension value decreased by $517,000. In accordance with SEC disclosure requirements, negative amounts are not included in this table. All earnings on non-qualified deferred compensation are at the market rate and therefore are also not required to be included in this table.
3 The components of this column for 2022 are provided in the “Components of All Other Compensation” table within this Item 11.
4 Ms. Williams’ 2020 salary, non-equity incentive, and all other compensation are based on the period of her employment with the Bank from January 20, 2020 through December 31, 2020. Ms. Williams also received a one-time bonus in 2020 related to the start of her employment with the Bank. Ms. Williams received an additional BEP DC Plan contribution of $525,000 in 2021 following the completion of one year of employment with the Bank, which is reflected in the “All Other Compensation” column.
5 Mr. Osborn was appointed CBO on August 3, 2020 and was not an NEO in 2020. Mr. Osborn received a one-time bonus in 2021 following the completion of one year of employment with the Bank.
6 Mr. Creel served as CRCO from November 1, 2021 until his retirement on December 31, 2022. Mr. Creel’s age and tenure of employment did not meet the requirements of a qualified retirement under the terms of the EIP. As a result, he was not eligible to receive a deferred incentive for 2022. He was not an NEO in 2021.
7 Mr. Larkin’s 2020 salary, non-equity incentive, and all other compensation are based on the period of his employment with the Bank from March 23, 2020 through December 31, 2020. Mr. Larkin also received a one-time bonus in 2020 related to the start of his employment with the Bank and a one-time bonus in 2021 following the completion of one year of employment with the Bank.
COMPONENTS OF ALL OTHER COMPENSATION
Bank Contributions to Vested Defined Contribution Plans
NEO DC Plan BEP DC Plan Retirement1
Perquisites and Other Personal Benefits Total
Kristina K. Williams $ 16,856 $ 68,646 $ - $ 9,349 $ 94,851
Joelyn R. Jensen-Marren2
30,500 - - - 30,500
William W. Osborn 29,382 24,474 - - 53,856
Duane V. Creel 20,074 29,403 5,721 - 55,198
Kevin T. Larkin 30,500 6,538 - 2,000 39,038
1 Mr. Creel retired from the Bank on December 31, 2022. He received a payout of $5,721 for unused vacation.
2 Ms. Jensen-Marren did not participate in the BEP DC Plan during 2022.
Benefits and Retirement Philosophy
We consider benefits to be an important aspect of our ability to attract and retain qualified employees and therefore we design our programs to be competitive with other financial services businesses. The following is a summary of the retirement benefits that certain NEOs were eligible to receive.
QUALIFIED DEFINED BENEFIT PLANS
All employees who have met the eligibility requirements participate in our DB Plan, administered by Pentegra. In 2016, our Board of Directors elected to freeze the DB Plan effective January 1, 2017. After the plan freeze, participants no longer accrue any new benefits under the DB Plan. Our CFO participated in our DB Plan prior to the freeze.
The pension benefits payable under the DB Plan for the CFO were determined using a pre-established formula that provides a retirement benefit payable at age 65 or normal retirement under the plan. The benefit formula is 2.25 percent per each year of the benefit service multiplied by the highest three consecutive years’ average compensation. Average compensation is defined as the total taxable compensation as reported on the IRS Form W-2 (excluding deferred award payouts). In the event of retirement prior to attainment of age 65, a reduced pension benefit is payable under the plan. Upon termination of employment prior to age 65, participants meeting the five-year vesting and age 55 early retirement eligibility criteria, or in certain instances age 45 if employed prior to 2004, are entitled to an early retirement benefit. The regular form of retirement benefits provides a single life annuity or additional payment options are also available. The benefits are not subject to offset for Social Security or any other retirement benefits received.
CURRENT ACCRUED RETIREMENT BENEFITS
The following table provides the present value of the current accrued benefits payable from the DB Plan to our participating NEOs upon retirement at age 65, and is calculated in accordance with the formula currently in effect for specified years-of-service and remuneration for participating in this plan. Our pension benefits do not include any reduction for a participant’s Social Security benefits. The vesting period for the pension plan is five years. See “Item 8. Financial Statements and Supplementary Data - Note 12 - Pension and Postretirement Benefit Plans” for additional details.
2022 Pension Benefits Table
NEO Plan Name Number of Years
Credited Service 12/31/21 Present Value of Accumulated Benefit 12/31/22 Present Value of Accumulated Benefit Change in Present Value of Accumulated Benefit
Kristina K. Williams DB Plan - $ - $ - $ -
Joelyn R. Jensen-Marren DB Plan 16.67 1,660,000 1,143,000 (517,000)
William W. Osborn DB Plan - - - -
Duane V. Creel DB Plan - - - -
Kevin T. Larkin DB Plan - - - -
QUALIFIED DEFINED CONTRIBUTION PLANS
All employees who have met the eligibility requirements may elect to participate in our DC Plan, a retirement savings plan qualified under the Internal Revenue Code. Employees (including NEOs) may receive a match on employee contributions at 100 percent up to six percent of eligible compensation. Employees are eligible for the match immediately and all matching contributions are immediately 100 percent vested. Effective January 1, 2017, in conjunction with the freeze of the DB Plan, all employees began receiving an additional Bank contribution of eligible compensation (generally four percent) to the DC Plan following the end of each calendar year. Vesting in the additional contribution is 100 percent at the completion of three years of service.
NON-QUALIFIED DEFINED CONTRIBUTION PLAN
Our NEOs are eligible to participate in the BEP DC Plan, a non-qualified defined contribution plan that is similar to the DC Plan. The BEP DC Plan ensures, among other things, that participants whose benefits under the DC Plan would otherwise be restricted by certain provisions of the Internal Revenue Code are able to make elective pre-tax deferrals and to receive a matching contribution relating to such deferrals. The investment returns credited to a participating NEO’s account are at the market rate for the NEO’s selected investment. The selections may be altered at any time. Aggregate earnings are calculated by subtracting the 2021 year-end balance from the 2022 year-end balance, less the NEO’s and Bank’s contributions. The Bank immediately matches 100 percent of NEOs’ contributions up to six percent of salary for salary and incentive deferrals (except for the deferred component of the incentive). Effective January 1, 2021, participants were eligible to receive an additional Bank contribution (generally four percent) of eligible compensation above the limits set forth by the Internal Revenue Code into the BEP DC Plan following the end of each calendar year. In addition, we may elect to provide a discretionary contribution to an executive upon approval by the Board of Directors and subject to non-objection by the Finance Agency.
2022 Non-Qualified Deferred Compensation Table
NEO Executive
Contributions
In Last FY1
Bank
Contributions
In Last FY2
Aggregate
Earnings (Losses)
In Last FY3
Aggregate
Balance
At Last FYE4
Kristina K. Williams $ 334,271 $ 68,646 $ (116,793) $ 1,878,118
Joelyn R. Jensen-Marren5
- - - -
William W. Osborn 27,000 24,474 (11,496) 89,694
Duane V. Creel 297,500 29,403 (1,037) 318,138
Kevin T. Larkin5
- 6,538 (332) 1,737
1 Amounts represent NEOs’ contributions for 2022, which include the base salary deferral into the BEP during 2022 as well as the amount of the 2022 incentive the NEO has deferred into the BEP in 2023. Amounts shown are included in both the “Salary” and “Non-Equity Incentive” columns of the “Summary Compensation Table” in this Item 11.
2 Amounts represent the Bank’s contributions for 2022, which includes the base salary match into the BEP during 2022 as well as the amount of the 2022 incentive the Bank has matched and will deposit into the BEP in 2023, and a discretionary contribution deposited into the BEP in 2023. Amounts shown are included in the “All Other Compensation” column of the “Summary Compensation Table” in this Item 11.
3 All earnings on non-qualified deferred compensation are at the market rate. As a result, these amounts are not shown in the “Summary Compensation Table” in this Item 11.
4 Amounts represent the NEOs’ balances on December 31, 2022. Ms. Williams’ aggregate balance includes $1,555,039 of contributions reported in a prior year “Summary Compensation Table”. Mr. Osborn’s aggregate balance includes $51,178 of contributions reported in a prior year “Summary Compensation Table”. Mr. Larkin’s aggregate balance includes $2,069 of contributions reported in a prior year “Summary Compensation Table”.
5 Ms. Jensen-Marren did not participate in the BEP DC Plan during 2022.
CEO Compensation Pay Ratio
As required by Item 402(u) of Regulation S-K, we are providing the following information:
For 2022, our last completed fiscal year:
i.The median of the annual total compensation of all employees of the Bank (other than Ms. Williams), was $141,478; and
ii.The annual total compensation of Ms. Williams, our President and CEO, was $1,990,330.
Based on this information, the ratio for 2022 of the annual total compensation of our President and CEO to the median of the annual total compensation of all employees is 14 to 1.
We identified our median employee and calculated our pay ratio in accordance with SEC rules and methods for disclosure as described below. This methodology is consistent with the methodology used for the year ended December 31, 2021.
i.SEC rules allow us to identify our median employee once every three years unless there has been a change in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change in our pay ratio disclosure. We believe there have been no changes in our employee population or employee compensation arrangements that would result in a significant change to this pay ratio disclosure.
ii.We last identified our employee population as of December 31, 2021, including any full-time, part-time, temporary, and seasonal employees employed on that date. This date was selected because it aligned with the calendar and fiscal year end and allowed us to identify employees in a reasonably efficient manner.
iii.To find the median of the annual total compensation of all our employees (other than our President and CEO), we used wages from our payroll records as reported to the Internal Revenue Service on Form W-2 for 2021. In making this determination, we annualized the compensation of full-time and part-time permanent employees who were employed on December 31, 2021, but did not work for us the entire year. No full-time equivalent adjustments were made for part-time employees.
iv.We identified our median employee using this compensation measure and methodology, which was consistently applied to all our employees included in the calculation.
v.For 2022, based on use of the same median employee identified in 2021, we reviewed 2022 compensation for this identified median employee, which was calculated by adding together all of the elements of this employee’s compensation for 2022 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $141,478.
vi.With respect to the annual total compensation of our President and CEO, we used the 2022 amount reported in the “Total” column of our “Summary Compensation Table” in this Item 11.
Potential Payments Upon Termination or Change of Control
The definitions below are applicable to our President and CEO, who is the only NEO with an employment agreement. For purposes of the following discussion regarding potential payments upon termination or change of control, the following are the definitions of “Cause,” “Good Reason,” “Disability,” and “Change of Control.”
“Cause” generally means a felony conviction, a willful act of misconduct that materially impairs the Bank’s business or goodwill or causes material damage, a willful breach of certain representations in the employment agreement, a willful and continued failure to perform material duties, a willful material violation of the Bank’s Code of Ethics, or receipt by the Bank of any regulatory order that the NEO be terminated or the NEO’s authority be materially reduced.
“Good Reason” generally means a reduction in the NEO’s base salary or incentive plan bonus opportunity, unless as part of a nondiscriminatory cost reduction applicable to the Bank’s total compensation budget; a reduction in the NEO’s corporate officer title, a material change by the Bank in the geographic location in which the NEO is required to perform services, or a material breach of the employment agreement, as applicable, by the Bank.
“Disability” means the NEO is receiving benefits under a disability plan sponsored by the Bank for a period of not less than three months by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months and which has rendered the NEO incapable of performing their duties.
“Change of Control” means a merger, reorganization, or consolidation of the Bank with or into another FHLBank or other entity, a sale or transfer of all or substantially all of the business or assets of the Bank to another FHLBank or other entity, the purchase by the Bank or transfer to the Bank of all or substantially all of the business or assets of another FHLBank, or the liquidation of the Bank.
A copy of the employment agreement for our President and CEO is set forth in “Item 15. Exhibits and Financial Statements Schedules”, and is also summarized further below.
All other NEOs were subject to Bank policies during 2022, and the tables set forth the compensation payable to them under such policies, specifically related to incentive plan awards and unused vacation payouts.
TERMINATION FOR CAUSE OR WITHOUT GOOD REASON
If an NEO’s employment is terminated by us for cause or by the NEO without good reason, the NEO may be entitled to the following:
i. Base salary accrued through the date of termination;
ii. Accrued but unpaid incentive plan award(s) earned in a year prior to the year of termination and due to be paid in the year in which termination occurs;
iii. Accrued and earned vacation through the date of termination; and/or
iv. All other vested benefits under the terms of our employee benefit plans, subject to the terms of such plans.
Assuming one or more of the previously discussed events triggering receipt of termination payments had occurred as of December 31, 2022, the total amounts payable to our NEOs are outlined in the table below:
Termination For Cause or Without Good Reason
NEO Severance Pay1
Annual Incentive2
Deferred Incentive2
Vacation Payout3
Total
Kristina K. Williams $ - $ - $ - $ 44,080 $ 44,080
Joelyn R. Jensen-Marren4
- - - 8,538 8,538
William W. Osborn4
- - - 34,615 34,615
Duane V. Creel4,5
- - - - -
Kevin T. Larkin4
- - - 3,861 3,861
1 Termination under these circumstances would not result in severance payments from the Bank but would result in payment of salary earned through December 31, 2022, as reflected under the “Salary” column of the “Summary Compensation Table” in this Item 11.
2 Termination under these circumstances would not result in an incentive award payment since the award would have already been received as of December 31, 2022.
3 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.
4 As of December 31, 2022, no employment agreement was in force between the Bank and the NEO. However, all employees are eligible to receive a payout in connection with unused vacation according to Bank policies.
5 Mr. Creel retired from the Bank on December 31, 2022, and his unused vacation was paid out prior to his retirement.
TERMINATION WITHOUT CAUSE, FOR GOOD REASON, OR FOLLOWING A CHANGE IN CONTROL
If, however, the NEO’s employment is terminated by us without cause, by the NEO for good reason, or following a change in control, in addition to the payouts previously mentioned, the NEO may be entitled to severance payments equal to a multiple of the NEO’s base salary and otherwise as follows:
i. Two times the annual base salary in effect on the date of termination for the President and CEO, or, in the case that the termination occurs within 24 months following a Change of Control, 2.99 times the annual base salary in effect on the date of termination for the President and CEO;
ii. One times the participating NEO’s targeted non-deferred EIP award in effect for the calendar year in which the date of termination occurs, or, in the case that the termination occurs within 24 months following a Change of Control, 2.99 times the targeted non-deferred plan award in effect for the calendar year in which the date of termination occurs for the President and CEO;
iii. The EIP award for the calendar year in which the date of termination occurs and prorated for the portion of the calendar year in which the NEO was employed;
iv. The accrued but unpaid incentive plan awards covering periods prior to the one in which the NEO’s employment was terminated, calculated in accordance with the terms of the incentive plan as if termination was due to death or disability; and
v. Any benefits mandated under any applicable health care continuation laws, provided that the continuing bank will continue paying its portion of the medical and/or dental insurance premiums for the NEO for the one-year period following the date of termination.
Payments of all accrued amounts, other than EIP award amounts, shall be paid in lump sum within ten days or no later than first payroll date on or after the NEO’s date of termination. Payment of all EIP award amounts, if any, shall be paid as otherwise provided under the EIP.
Assuming one or more of the previously discussed events triggering receipt of termination payments had occurred as of December 31, 2022, the total amounts payable to our NEOs are outlined in the table below:
Termination Without Cause or For Good Reason
NEO Severance Pay Annual Incentive Deferred Incentive Vacation Payout1
Total
Kristina K. Williams $ 1,910,120 $ 869,114 $ 1,319,245 $ 44,080 $ 4,142,559
Joelyn R. Jensen-Marren2
- - - 8,538 8,538
William W. Osborn2
- - - 34,615 34,615
Duane V. Creel2,3
- - - - -
Kevin T. Larkin2
- - - 3,861 3,861
1 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.
2 As of December 31, 2022, no employment agreement was in force between the Bank and the NEO. However, all employees are eligible to receive a payout in connection with unused vacation in accordance with Bank policies.
3 Mr. Creel retired from the Bank on December 31, 2022, and his unused vacation was paid out prior to his retirement.
Assuming one or more of the previously discussed events triggering receipt of termination payments had occurred as of December 31, 2022, the total amounts payable to our NEOs are outlined in the table below:
Termination Following Change in Control
NEO Severance Pay Annual Incentive Deferred Incentive Vacation Payout1
Total
Kristina K. Williams $ 2,855,629 $ 1,676,856 $ 1,319,245 $ 44,080 $ 5,895,810
Joelyn R. Jensen-Marren2
- - - 8,538 8,538
William W. Osborn2
- - - 34,615 34,615
Duane V. Creel2,3
- - - - -
Kevin T. Larkin2
- - - 3,861 3,861
1 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.
2 As of December 31, 2022, no employment agreement was in force between the Bank and the NEO. However, all employees are eligible to receive a payout in connection with unused vacation in accordance with Bank policies.
3 Mr. Creel retired from the Bank on December 31, 2022, and his unused vacation was paid out prior to his retirement.
TERMINATION FOR DEATH, DISABILITY, OR RETIREMENT
If the NEO’s employment is terminated due to death, disability, or qualifying retirement, in addition to the payouts previously mentioned under the section entitled “Termination For Cause or Without Good Reason,” the NEO may be entitled to the following:
i. The EIP award for the calendar year in which the date of termination occurs and prorated for the portion of the calendar year in which the NEO was employed;
ii. To the extent not already paid to the NEO, the accrued but unpaid incentive plan awards covering periods prior to the one in which the NEO’s employment was terminated; and
iii. Other coverage continuation rights that are available to such employees upon death, disability, or retirement, as provided for under the terms of such plans.
Payment of all accrued amounts, other than EIP award amounts, shall be paid in lump sum within ten days or no later than the first payroll date on or after the NEO’s date of termination. Payment of all EIP award amounts, if any, shall be paid as otherwise provided under the applicable EIP.
Assuming one or more of the previously discussed events for the receipt of termination payments had occurred as of December 31, 2022, the total amounts payable to our NEOs are outlined in the table below:
Termination by Death, Disability, or Retirement
NEO Severance Pay Annual Incentive Deferred Incentive Vacation Payout1
Total
Kristina K. Williams $ - $ 463,214 $ 1,319,245 $ 44,080 $ 1,826,539
Joelyn R. Jensen-Marren2
- 140,604 480,105 8,538 629,247
William W. Osborn2
- 171,005 406,261 34,615 611,881
Duane V. Creel2,3
- 163,678 - - 163,678
Kevin T. Larkin2
- 138,704 371,101 3,861 513,666
1 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.
2 As of December 31, 2022, no employment agreement was in force between the Bank and the NEO. However, all employees are eligible to receive the amounts disclosed in accordance with Bank policies.
3 Mr. Creel retired from the Bank on December 31, 2022, and his vacation payout was paid out prior to his retirement. Mr. Creel’s age and tenure of employment did not meet the requirements of a qualified retirement under the terms of the EIP. As a result, he was not eligible to receive a deferred incentive payout.
EMPLOYMENT AGREEMENT BETWEEN KRISTINA K. WILLIAMS AND THE BANK
The Bank entered into an employment agreement with Kristina K. Williams, effective on January 20, 2020, in order to establish her duties and compensation and to provide for her employment as President and CEO of the Bank.
The employment agreement provides that the Bank would initially pay Ms. Williams a base salary of $850,000, subject to adjustment as described in the employment agreement.
Ms. Williams’ incentive target will generally not be set lower than 85 percent of her base salary. The Bank paid, or reimbursed Ms. Williams for, all reasonable relocation expenses incurred by Ms. Williams in relocation to the Des Moines area up to the maximum of $250,000. Ms. Williams is also eligible for certain perquisites, including a car allowance in the amount of $750 per month.
Ms. Williams’ employment agreement provides that:
•the Bank or Ms. Williams may terminate employment for any reason (other than Good Reason or Cause) following 60 days’ written notice to the other party;
•the Bank may terminate for Cause immediately following written notice to Ms. Williams; and
•Ms. Williams may terminate for Good Reason following written notice to the Bank;
in each case, in accordance with the procedures set forth in the employment agreement.
Amounts payable under the employment agreement are subject to reduction in the event the amounts constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code.
Termination for Cause or Without Good Reason
If Ms. Williams’ employment is terminated by the Bank for Cause or by Ms. Williams without Good Reason, the employment agreement entitles Ms. Williams to the benefits set forth under the heading “Termination for Cause or Without Good Reason.”
Termination Without Cause, for Good Reason, Following a Change of Control, or Within a Specified Period of Time Following the Effective Date of the Employment Agreement
If Ms. Williams’ employment is terminated by the Bank without Cause or by Ms. Williams for Good Reason, in addition to the payouts previously mentioned under “Termination for Cause or Without Good Reason,” the employment agreement entitles Ms. Williams to additional amounts, including the benefits set forth under the heading “Termination without Cause, for Good Reason, or following a Change in Control.”
Termination for Death, Disability, or Retirement
If Ms. Williams’ employment is terminated due to death, disability, or qualifying retirement, in addition to the payouts described in the section entitled “Termination for Cause or Without Good Reason,” she would also be entitled to the benefits set forth under the heading “Termination for Death, Disability or Retirement.”
Director Compensation
During 2022, the Board of Directors held 12 board meetings and 65 committee meetings. Pursuant to our Director Fee Policy, Directors receive one quarter of the annual compensation following the end of each calendar quarter. If it is determined at the end of the calendar year that a Director has attended less than 75 percent of the meetings they were required to attend during the year, the Director will not receive the fourth quarter payment for such calendar year.
Directors are expected to attend all Board meetings and meetings of the Committees on which they serve, and to remain engaged and actively participate in all meetings. In addition to our right to withhold fourth quarter annual compensation from a Director, the Board of Directors directs the Corporate Secretary to make any other appropriate adjustments in the payments to any Director who regularly fails to attend Board meetings or meetings of Committees on which the Director serves, or who consistently demonstrates a lack of participation in or preparation for such meetings, to ensure that no Director is paid fees that do not reflect that Director’s performance of his/her duties. To assist the Board in making such determinations, the Corporate Secretary will, on a quarterly basis and prior to payment of the most recently completed quarter’s Director fees, review the attendance of each Director during the quarter and raise any attendance issues identified with the Board Chair. In the event the potential issue involves the Board Chair, the Corporate Secretary will raise such issue with the Board Vice Chair.
Directors are eligible to participate in the Bank’s Deferral Plan for Directors. Under this plan, directors may elect to defer all or a portion of their directors’ fees.
The total expenses paid on behalf of the Board of Directors for travel and other reimbursed expenses for 2022 was $295 thousand and annual compensation paid to the Board of Directors, by position, for 2022 was as follows:
Board of Director Position 2022
Chair $ 146,000
Vice Chair 135,000
Audit Committee Chair 130,000
Committee Chairs 125,000
Other Directors 112,000
The following table sets forth each Director’s compensation for the year ended December 31, 2022:
Director Compensation
Director Name Fees Earned Or
Paid In Cash
Ellen Z. Lamale (Chair) $ 146,000
Karl A. Bollingberg (Vice Chair) 135,000
Ruth B. Bennett 130,000
Steven L. Bumann 112,000
Cleon P. Butterfield 112,000
Douglas L. DeFries 112,000
David J. Ferries 112,000
Edward A. Garding 112,000
Chris D. Grimm 125,000
James W. Hunt 112,000
Amy K. Johnson 112,000
Jon M. Jones 112,000
Teresa J. Keegan 125,000
Joe R. Kesler 125,000
John A. Klebba 125,000
Wan-Chong Kung1
106,400
Russell J. Lau 112,000
Lauren M. MacVay 125,000
Elsie M. Meeks 125,000
Jason A. Meyerhoeffer 125,000
Siva G. Narendra 112,000
Carol K. Nelson 112,000
1 Ms. Kung was elected to the Board of Directors effective January 19, 2022.
In October of 2022, the Compensation Committee approved the Director Fee Policy for 2023. Under the policy, the 2023 Director compensation fees increased from 2022. This policy is listed as an exhibit to this annual report on Form 10-K. Refer to “Item 15. Exhibits and Financial Statement Schedules” for additional information.
Compensation Committee Report
The Compensation Committee reviewed and discussed the 2022 Compensation Discussion and Analysis set forth in Item 11 with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report on Form 10-K. The Compensation Committee includes the following individuals:
Compensation Committee
Teresa J. Keegan (Chair)
Douglas L. DeFries (Vice Chair)
Kim R. DeVore
Chris D. Grimm
Jon M. Jones
Elsie M. Meeks
Carol K. Nelson

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table presents members (or combination of members within the same holding company) holding five percent or more of our outstanding capital stock at February 28, 2023 (shares in thousands):
Name Address City State Shares of Capital Stock % of Total Capital Stock
Wells Fargo Bank, N.A. 101 N. Phillips Ave Sioux Falls SD 11,303 18.0 %
Superior Guaranty Insurance Company1
76 Saint Paul St. Burlington VT 65 0.1
11,368 18.1
All others 51,601 81.9
Total capital stock 62,969 100.0 %
1 Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.
Additionally, due to the fact that a majority of our Board of Directors is nominated and elected from our membership, these member directors are officers or directors of member institutions that own our capital stock. The following table presents total outstanding capital stock owned by those members who had an officer or director serving on our Board of Directors at February 28, 2023 (shares in thousands):
Name Address City State Shares of Capital Stock % of Total Capital Stock
OnPoint Community Credit Union 2701 N.W. Vaughn St. Portland OR 100 0.16
First Federal Savings Bank of Twin Falls 383 Shoshone Street N Twin Falls ID 84 0.13
BankWest, Inc. 420 S. Pierre St. Pierre SD 52 0.08
Bank of Utah 2605 Washington Blvd. Ogden UT 35 0.06
Finance Factors, Ltd 1164 Bishop St. Honolulu HI 32 0.05
Cornerstone Bank 2280 45th Street S Fargo ND 25 0.04
First Montana Bank 201 N Higgins Ave Missoula MT 16 0.03
BANK 409 Hwy 61 S Wapello IA 8 0.01
Fidelity Bank 7600 Parklawn Ave Edina MN 8 0.01
Jonah Bank of Wyoming 777 W. 1st Street Casper WY 6 0.01
Legends Bank 200 E Main St. Linn MO 6 0.01
Washington Business Bank 223 5th Ave. SE Olympia WA 3 *
True North Federal Credit Union 2777 Postal Way Juneau AK 2 *
377 0.59
All others 62,592 99.41
Total capital stock 62,969 100.00 %
* Amount is less than 0.01 percent.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
TRANSACTIONS WITH RELATED PERSONS
The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank. All transactions with stockholders are entered into in the ordinary course of business.
In the normal course of business, the Bank extends credit to its members whose directors and officers serve as Bank directors (Directors’ Financial Institutions). Finance Agency regulations require that transactions with Directors’ Financial Institutions be made on the same terms and conditions as those with any other member.
For the year ended December 31, 2022, the review and approval of transactions with related persons was governed by our Code. Under the Code, each director is required to disclose to the Board all actual or apparent conflicts of interest, including any personal financial interest that he or she has, as well as such interests of any immediate family member or business associate of the director known to the director, in any matter to be considered by the Board or in which another person does, or proposes to do, business with the Bank. Following such disclosure, the Board is empowered to determine whether an actual conflict exists. In the event the Board determines the existence of a conflict with respect to any matter, the affected director is required to be recused from all further considerations relating to that matter. The Bank’s General Counsel, CHRO, Chief Audit Executive, or the Board, as appropriate, shall be responsible for interpreting the Code and rendering final rulings regarding violations of this Code.
The Code requires that all directors and employees avoid conflicts of interest, or the appearance of conflicts of interest. In particular, subject to limited exceptions for interests arising through ownership of mutual funds and certain financial interests acquired prior to employment by the Bank, no employee may have a financial interest in or financial relationship with any of our members or other company doing business or considering doing business with the Bank that is not transacted in the ordinary course of the member's business or, in the case of an extension of credit, involves more than the normal risk of repayment or of loss to the member. In addition, the Code also provides that employees and directors are expected to perform their duties fairly and impartially and without discrimination in favor of or against any member institution. Employees are required to annually certify compliance with these and all other Code provisions.
DIRECTOR INDEPENDENCE
General
As of the date of this annual report on Form 10-K, we have 22 directors, all of whom were generally elected by our member institutions in accordance with Finance Agency regulations. All directors are independent of management from the standpoint they are not our employees, officers, or stockholders. Only member institutions can own our capital stock. Thus, our directors do not personally own our stock. In addition, we are required to determine whether our directors are independent under three distinct director independence standards. Finance Agency regulations and the Exchange Act provide independence criteria for directors who serve as members of our Audit Committee. Additionally, SEC rules require our Board of Directors to apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of our directors.
Finance Agency Regulations
The Finance Agency director independence standards prohibit individuals from serving as members of our Audit Committee if they have one or more “disqualifying relationships” with us or our management that would interfere with the exercise of that individual’s independent judgment. Disqualifying relationships considered by our Board are (i) employment with us at any time during the last five years, (ii) acceptance of compensation from us other than for service as a director, (iii) being a consultant, advisor, promoter, underwriter, or legal counsel for us at any time within the last five years, and (iv) being an immediate family member of an individual who is or who has been, within the past five years, one of our executive officers. The Board assesses the independence of all directors under the Finance Agency’s independence standards, regardless of whether they serve on our Audit Committee. As of February 28, 2023, all of our directors, including all members of our Audit Committee, were independent under these criteria.
Exchange Act
Section 10A(m) of the Exchange Act sets forth the independence requirements of directors serving on the Audit Committee of a reporting company. Under Section 10A(m), in order to be considered independent, a member of the Audit Committee may not, other than in his or her capacity as a member of the Board or any other Board Committee (i) accept any consulting, advisory, or other compensation from us or (ii) be an affiliated person of the Bank. As of February 28, 2023, all of our directors, including all members of our Audit Committee, were independent under these criteria.
SEC Rules
In addition, pursuant to SEC rules, we adopted the independence standards of the New York Stock Exchange (NYSE) to determine which of our directors are independent for SEC disclosure purposes. In making an affirmative determination of the independence of each director, the Board first applied the objective measures of the NYSE independence standards to assist the Board in determining whether a particular director has a material relationship with us.
Based upon the fact that each of our Member Directors are officers or directors of member institutions, and that each such member routinely engages in transactions with us, the Board affirmatively determined none of the Member Directors on the Board meet the NYSE independence standards. In making this determination, the Board recognized a Member Director could meet the NYSE objective standards on any particular day. However, because the volume of business between a Member Director’s institution and us can change frequently, and because we generally encourage increased business with all members, the Board determined to avoid distinguishing among the Member Directors based upon the amount of business conducted with us and our respective members at a specific time, resulting in the Board’s categorical finding that no Member Director is independent under an analysis using the NYSE standards.
With regard to our Independent Directors, the Board affirmatively determined Ruth Bennett, Cleon Butterfield, Edward Garding, Amy Johnson, Wan-Chong Kung, Ellen Lamale, Elsie Meeks, Siva Narendra, and Carol Nelson are each independent in accordance with NYSE standards. In concluding our nine Independent Directors are independent under the NYSE rules, the Board first determined all Independent Directors met the objective NYSE independence standards. In further determining none of its Independent Directors had a material relationship with us, the Board noted the Independent Directors are specifically prohibited from being an officer of the Bank or an officer or director of a member.
Our Board has a standing Audit Committee. All Audit Committee members are independent under the Finance Agency’s independence standards and the independence standards under Section 10A(m) of the Exchange Act in accordance with the Housing Act. For the reasons described above, our Board determined none of the current Member Directors serving on the Audit Committee are independent using the NYSE independence standards. The Member Directors serving on the Audit Committee are James Hunt, John Klebba, and Russell Lau. Our Board determined, however, the Independent Directors serving on the Audit Committee are independent under the NYSE independence standards. The Independent Directors serving on the Audit Committee are Ruth Bennett, Cleon Butterfield, Edward Garding, and Elsie Meeks.
Compensation Committee
The Board has a standing Compensation Committee. Our Board determined all members of the Compensation Committee are independent under the Finance Agency’s independence standards. For the reasons described above, our Board determined none of the current Member Directors serving on the Compensation Committee are independent using the NYSE independence standards. The Member Directors serving on the Compensation Committee are Douglas DeFries, Kim DeVore, Chris Grimm, Jon Jones, and Teresa Keegan. Our Board determined the Independent Directors serving on the Compensation Committee are independent under the NYSE independence standards. The Independent Directors serving on the Compensation Committee are Elsie Meeks and Carol Nelson.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Audit Committee pre-approves all audit and permitted non-audit services performed by the Bank’s external audit firm. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee for services with fees below $10,000; however any decisions made must be presented to the Audit Committee at its next regularly scheduled meeting.
The following table sets forth the aggregate fees billed or to be billed by PwC (dollars in thousands):
For the Years Ended December 31,
2022 2021
Audit fees1
$ 941 $ 918
Audit-related fees2
75 76
All other fees 3 1
Total $ 1,019 $ 995
1 Represents fees incurred in connection with the annual audit of our financial statements and internal control over financial reporting and quarterly review of our financial statements. In addition to these fees, we incurred assessments of $53 thousand and $61 thousand from the Office of Finance for audit fees on the Combined Financial Report for the years ended December 31, 2022 and 2021.
2 Primarily represents fees for participation in and presentations at conferences and/or technical accounting consultations.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The financial statements are set forth in Item 8 of this annual report on Form 10-K.
(b) Exhibits
3.1 Organization Certificate of the Federal Home Loan Bank of Des Moines, as amended and restated effective May 31, 20151
3.2 Bylaws of the Federal Home Loan Bank of Des Moines, as amended and restated effective December 8, 20212
4.1 Federal Home Loan Bank of Des Moines Capital Plan, as amended, approved by the Federal Housing Finance Agency on May 31, 20153
4.2 Description of Federal Home Loan Bank of Des Moines Capital Stock4
10.1 Employment Agreement with Kristina K. Williams, effective January 20, 20205
10.2 Form of Indemnification Agreement4
10.3 Joint Capital Enhancement Agreement, as amended, effective August 5, 20116
10.4 Federal Home Loan Bank of Des Moines Seventh Amended and Restated Benefit Equalization Plan, effective January 1, 20217
10.5 Federal Home Loan Bank of Des Moines 2022 Executive Incentive Plan Document, effective January 1, 20228
10.6 2023 Director Fee Policy, effective January 1, 20239
10.7 2022 Director Fee Policy, effective January 1, 202210
10.8 Federal Home Loan Bank of Des Moines Deferral Plan for Directors, effective June 1, 201511
10.9 Separation Agreement and General Release with Aaron B. Lee12
31.1 Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Federal Home Loan Bank of Des Moines Audit Committee Report
101.INS XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
1 Incorporated by reference from our Form 8-K filed with the SEC on June 1, 2015 (Commission File No. 000-51999).
2 Incorporated by reference from our Form 8-K filed with the SEC on December 14, 2021 (Commission File No. 000-51999).
3 Incorporated by reference from our Form 10-Q filed with the SEC on August 10, 2022 (Commission File No. 000-51999).
4 Incorporated by reference from our Form 10-K filed with the SEC on March 9, 2022 (Commission File No. 000-51999).
5 Incorporated by reference from our Form 8-K/A (Amendment No. 1) filed with the SEC on August 3, 2020 (Commission File No. 000-51999).
6 Incorporated by reference from our Form 8-K filed with the SEC on August 5, 2011 (Commission File No. 000-51999).
7 Incorporated by reference from our Form 10-K filed with the SEC on March 10, 2021 (Commission File No. 000-51999).
8 Incorporated by reference from our Form 8-K filed with the SEC on May 10, 2022 (Commission File No. 000-51999).
9 Incorporated by reference from our Form 8-K filed with the SEC on November 30, 2022 (Commission File No. 000-51999).
10 Incorporated by reference from our Form 8-K filed with the SEC on November 5, 2021 (Commission File No. 000-51999).
11 Incorporated by reference from our Form 10-K filed with the SEC on March 21, 2016 (Commission File No. 000-51999).
12 Incorporated by reference from our Form 8-K filed with the SEC on October 20, 2022 (Commission File No. 000-51999).