Summary

Market and business conditions have impacted FHLBank performance

Deposit levels at FHLBank members remain strong as a continued result of COVID-19 government actions

Low Net Interest Margin (NIM) for FDIC-insured depositories

Low interest rate environment

Advance levels continued to decline

Remained focused on operational resilience and risk management

Serving members

Planning for safe, incremental return to office

For full FHLBank Combined Financial Report (CFR) for Q3 2021 see link below: https://www.fhlb-of.com/ofweb_userWeb/resources/2021Q3CFR.pdf

Market and Business Conditions

Elevated levels of deposits

Total deposits at all FDIC-insured banks rose from $17.1 trillion to $19.2 trillion from Q3 2020 to Q3 2021– a 12.1% increase

Total deposits at all federally-insured credit unions rose $219.9 billion, or 14.4%, since Q3 2020 to $1.75 trillion in the third quarter of 2021

Modest decline in the number of FDIC-insured banks and federally insured credit unions

Modest growth in loan demand

Total loans and leases at all FDIC-insured banks increased slightly by .1% year-over-year Q3 2020 to Q2 2021 – from $10.91 trillion to $10.92 trillion

Quarterly loan balances continued to grow, rising 2.5% from the previous quarter

Total loans at all federally-insured credit unions rose 5.2% year-over-year Q3 2020 to Q3 2021 – from $1.16 trillion to $1.22 trillion

Consumer and commercial loan demand remained weak in the third quarter of 2021

FDIC-ins
federally-ins

Modest Increase in Net Interest Margin at FDIC Banks

The average NIM at all FDIC insured banks improved to 2.56% in the third quarter, up 6 basis points from the record low in the second quarter but down 12 basis points overall from one year earlier

The FDIC notes that Quarterly NIM expansion was accompanied by a $5.2 billion (4% ) increase in net interest income from the prior quarter. The improvement was driven by a $4.6 billion increase in interest income and a $573 million decline in interest expense

From December 31, 2019, to September 30, 2021, the effective rate on Federal Funds fell from 1.55% to 0.08%

Rate was consistent from Q2 to Q3 2021

Over the same period the 1-year Constant Maturity Treasury (CMT) rates fell from 1.59% to 0.09%

CMT rates are the interpolated yields based on the yields of the recently auctioned treasury bills, notes, and bonds

QNIM

Financial Highlights – FHLBanks' Combined Statement of Income – Q3 Comparison (Unaudited)

($ in millions) Three months ended 9/30 blankOver / (Under)blank
20212020Amount%
Net interest income $ 894 $ 1,167 $ (273)-23%
Provision (benefit) for credit losses (6)1(7)-700
Other non-interest income (loss)(81) 108 (189) -175
Non-interest expense344 356 (12) -3
Net income before assessment475 918 (443) -48
AHP assessments4893 (45) -48
Net income427 825(398) -48
Net interest margin (bps)49501-2

Financial Highlights – FHLBanks’ Combined Statement of Income – YTD Comparison (Unaudited)

($ in millions) Nine months ended 9/30blankOver / (Under)blank
20212020Amount%
Net interest income$2,852$3,330$(478)-14%
Provision (benefit) for credit losses(16)52(68)-131
Other non-interest income (loss)(326)221(547)-248
Non-interest expense1,0551,123(68)-6
Net income before assessment1,4872,376(889)-37
AHP assessments151242(91)-38
Net income1,3362,134(798)-37
Net interest margin (bps)5042819

Financial Highlights – FHLBanks' Combined Balance Sheet (Unaudited)

($ in millions) As of blankOver / (Under)blank
9/30/202112/31/20 Amount%
Total assets $ 712,089 $ 820,740 $ (108,651) -13%
Total advances350,041 422,639 (72,598) -17
Total investment securities187,374 220,691 (33,317) -15
Total consolidated obligations641,838 748,518 (106,680) -14
Total capital stock24,814 27,398 (2,584) -9
Total retained earnings22,568 21,998 570 3

FHLBanks' Combined Net Income Trends (Unaudited)

FHLBanks reported combined net income of $427 million for third quarter of 2021 compared with $825 million for third quarter of 2020 – a decline of approximately 48%, primarily as a result of the low interest rate environment resulting from the COVID-19 pandemic and the reduced demand for advances due to elevated liquidity in the financial markets

Net income for the nine months ended September 30, 2021 declined 37% compared to the nine months ended September 30, 2020

NI-new

FHLBanks' Combined Balance Sheet Trends (Unaudited)

FHLBanks’ Combined Balance Sheets have seen an aggregate contraction over the last 5 quarters since September 30, 2020 to September 30, 2021

The contraction is primarily due to advance volumes

Capital levels remained strong

Asset-Liabilities-last5yrs
Liabilities-Capital-Assets

FHLBanks' Combined Advances (Unaudited)

FHLBanks’ Combined advances were $350 billion at September 30, 2021 compared with $479 billion at September 30, 2020, a decline of 27%

FHLBanks’ Combined Advances declined by 17% from $422.6 billion at December 31, 2020

96% of FHLBank advances were to members; the remaining advances were to non-members and housing associates

Insurance member usage has grown 44% since Q3 2015 and continues to be a stable borrowing base of the FHLBanks. At September 30, 2021, there were $114 billion of advances outstanding across 221 insurance members

Historical FHLBanks’ Combined Advances Trends (Unaudited)

FHLBanks' Combined Capital and Regulatory Requirements (Unaudited)

Total capital at 9/30/2021 was $48.8 billion or 6.9% of total System assets of $712.1 billion

Regulatory Capital Ratio for the System (4% minimum) increased to 6.71% as of 9/30/21 from 6.11% as of 12/31/20

Combined Leverage Capital Ratio for the System (5% minimum) increased to 10.0% as of 9/30/21 from 9.1% as of 12/31/20

Credit quality of FHLBank assets remained strong

($ in millions)As ofblankblank
9/30/202112/31/20Over / (Under)
Capital stock$ 24,814 $ 27,398 $ (2,584)
Retained earnings:
Unrestricted16,950 16,564 386
Restricted5,618 5,434 184
Total retained earnings22,568 21,998 570
Combined regulatory capital-to-assets ratios6.71% 6.11% 0.60%

FHLBanks' Affordable Housing Programs (Unaudited)

The FHLBanks’ Affordable Housing Programs (“AHP”) help members provide subsidized and other low-cost funding, as well as grants, to create affordable rental and homeownership opportunities through a 10% assessment on income subject to AHP assessment.

The FHLBanks’ Combined AHP assessments declined by 48% from third quarter of 2020 assessments of $93 million as a consequence of lower earnings

The FHLBanks’ Combined AHP assessments in Q3 2021 increased modestly as a result of slightly elevated net income compared to the previous quarter

AHP

FHLBanks' Combined Letters of Credit (Unaudited)

The notional amount of outstanding FHLBank Standby Letters of Credit (LOC) are near System highs, allowing members to maintain deposits from state and local governments as well as other public entities and support housing development and other initiatives

The notional amount of LOCs outstanding at September 30, 2021 was $152.44 billion utilized by over 1,400 members and housing associates

This represented a decline of 7% compared to the notional amount of LOCs outstanding at December 31, 2020 of $164.4 billion

The majority of LOCs were used for Public Unit Deposits as pictured in the chart below

LOC-combined

Disclaimer: Data presented in this section may not comport with CFR data and should be viewed independently

FHLBanks’ Historical Letters of Credit Trends (Unaudited)

FHLBanks' Combined Acquired Member Assets (Unaudited)

The FHLBanks, through their four separate Acquired Member Asset (AMA) programs, acquire mortgage assets from their members–providing them valuable liquidity. Through these programs the FHLBanks share credit risk with their members and housing associates, and the FHLBanks manage the interest rate and prepayment risks

In 2020, the FHLBanks purchased nearly $32 billion of mortgage assets across more than 150,000 loans from more than 1,000 Participating Financial Institutions [PFIs]. These PFIs are FHLBank members or housing associate that have been approved to participate in the AMA programs. As of Q3 2021, there were 1,018 PFIs, and of those that sold during the quarter, over 70% were CFIs, i.e., bank members with assets under $1.239 billion.

For Q3 2021 the FHLBanks purchased more than $5.1 billion of mortgage assets compared to $7.8 billion for Q3 2020, representing a 34.6% decline

During each respective quarter, the majority of the mortgage purchases were held on the balance sheets of the FHLBanks

During Q3 2021, the FHLBanks supported close to 3,400 first-time homebuyers through their loan acquisitions; and acquired loans in every US state and Puerto Rico

Disclaimer: Data presented in this section may not comport with CFR data and should be viewed independently