Federal Home Loan Bank of Boston

03/14/2025 | Press release | Distributed by Public on 03/14/2025 10:15

Annual Report for Fiscal Year Ending 12/31, 2024 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report includes statements describing anticipated developments, projections, estimates, or predictions of ours that are "forward-looking statements." These statements may involve matters related to, but not limited to, projections of revenues, income, earnings, capital expenditures, dividends, capital structure, or other financial items; repurchases of excess stock, our minimum retained earnings target, or the interest-rate environment in which we do business; statements of management's plans or objectives for future operations; expectations of effects or changes in fiscal and monetary policies and our future economic performance; or statements of assumptions underlying certain of the foregoing types of statements. These statements may use forward-looking terminology such as, but not limited to, "anticipates," "believes," "continued," "expects," "plans," "intends,"
"may," "could," "estimates," "assumes," "should," "will," "likely," or their negatives or other variations of these terms. We caution that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the risk factors set forth in Part I - Item 1A - Risk Factorsand the risks set forth below. Actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements.
These forward-looking statements involve risks and uncertainties including, but not limited to, the following:
•the effects of economic, financial, credit, and market conditions on our financial and regulatory condition and results of operations, including changes in economic growth, general liquidity conditions, inflation and deflation, employment rates, interest rates, interest-rate spreads, interest-rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, members' deposit flows, liquidity needs, and loan demand; changes in the general economy, including changes resulting from U.S. fiscal and monetary policy, actions of the Federal Open Market Committee (FOMC), or changes in credit ratings of the U.S. federal government; and the condition of the mortgage and housing markets on our mortgage-related assets; and the condition of the capital markets on our COs;
•political events, including legislative, regulatory, judicial, government actions, including executive orders, or other developments that affect the Bank, its members, investors in the consolidated obligations of the FHLBanks, the FHFA, the organization and structure of the FHLBank System, our ability to access the capital markets, or our counterparties, such as any GSE legislative reforms, any changes resulting from the FHFA's comprehensive review and analysis of the FHLBank System, changes to the FHLBank Act, or changes to other statutes or regulations applicable to the FHLBanks;
•our ability to declare and pay dividends consistent with past practices as well as any plans to repurchase excess capital stock, and any amendments to our Capital Plan;
•competitive forces including, without limitation, other sources of funding available to our members and other entities borrowing funds in the capital markets;
•changes in the value and liquidity of collateral we hold as security for obligations of our members and counterparties;
•the impact of new accounting standards and the application of accounting rules, including the impact of regulatory guidance on our application of such standards and rules;
•changes in the fair value and economic value of, impairments of, and risks associated with the Bank's investments in mortgage loans and MBS or other assets and the related credit-enhancement protections;
•membership conditions and changes, including changes resulting from member failures, mergers or changing financial health, changes due to member eligibility, changes in the principal place of business of members, or the addition of new members;
•external events, such as general economic and financial instabilities, political instability, wars, pandemics and other health emergencies, and natural disasters, including disasters caused by significant climate change, which, among other things, could damage our facilities or the facilities of our members, damage or destroy collateral that members have pledged to secure advances or mortgages that we hold for our portfolio, and which could cause us to experience losses or be exposed to a greater risk that pledged collateral would be inadequate in the event of a default;
•the pace of technological change and our ability to develop and support internal controls, information systems, and other operating technologies that effectively manage the risks we face including, but not limited to, failures, interruptions, or security breaches and other cybersecurity incidents; and
•our ability to attract and retain skilled employees, including our key personnel.
These forward-looking statements speak only as of the date they are made, and we do not undertake to update any forward- looking statement herein or that may be made from time to time on our behalf.
EXECUTIVE SUMMARY
Net income for the year ended December 31, 2024, totaled $290.5 million, an increase of $33.2 million from net income of $257.3 million for 2023. The increase in net income was primarily due to an increase of $58.1 million in net interest income after provision for credit losses, partially offset by a $12.0 million increase in expenses related to our discretionary housing and community investment programs, $4.1 million increase in compensation and benefits expense, $3.7 million increase in AHP assessment, and a $2.4 million decrease in noninterest income.
Net interest income after reduction of credit losses for the year ended December 31, 2024, was $433.3 million, compared with $375.2 million for 2023. The $58.1 million increase in net interest income after provision for credit losses was primarily driven by a $19.9 million favorable variance in net unrealized gains and losses on fair value hedge ineffectiveness, attributable to
changes in intermediate- and long-term interest rates during the year ended December 31, 2024, and increases of $2.0 billion and $511.1 million in our average mortgage-backed securities and average mortgage loan portfolios, respectively.
Total assets increased $4.9 billion to $72.0 billion over the year ended December 31, 2024. Advances totaled $45.2 billion at December 31, 2024, an increase of $3.2 billion from December 31, 2023. At December 31, 2024, investment securities and short-term money-market investments totaled $22.5 billion, an increase of $1.3 billion from December 31, 2023, comprised primarily of a $1.0 billion increase in MBS and a $219.8 million increase in short-term investments. Mortgage loans totaled $3.7 billion, an increase of $619.8 million from December 31, 2023.
Our retained earnings grew to $1.9 billion at December 31, 2024, an increase of $122.0 million from December 31, 2023, equaling 2.7 percent of total assets at December 31, 2024. We continue to satisfy all regulatory capital requirements as of December 31, 2024.
On February 14, 2025, our board of directors declared a cash dividend that was equivalent to an annual yield of 7.74 percent on the average daily balance of capital stock outstanding during the fourth quarter of 2024. The yield is equivalent to the approximate daily average of SOFR for the fourth quarter of 2024 plus 300 basis points.
Our overall results of operations are influenced by the economy, interest rates, members' demand for liquidity, and our ability to maintain sufficient access to funding at relatively favorable costs.
Generally, investor demand for high credit quality, fixed-income investments, including COs, continued to be strong relative to other investments. Yield spreads on CO debt relative to benchmark yields for comparable debt remained relatively stable during the period covered by this report. Our flexibility in utilizing various funding tools, in combination with a diverse investor base and our status as a government-sponsored enterprise, have helped provide reliable market access and demand for COs throughout fluctuating market environments and regulatory changes affecting dealers of and investors in COs. The Bank has continued to meet all funding needs during the year ended December 31, 2024.
Net Interest Margin and Spread
Net interest spread was 0.29 percent for the year ended December 31, 2024, an increase of eight basis points from the year ended December 31, 2023, and net interest margin was 0.63 percent, an increase of eight basis points from the year ended December 31, 2023. The increase in net interest spread and margin was primarily attributable to the improvements in net interest income after reduction of provision for credit losses discussed above, resulting from net increases in intermediate- and long-term interest rates during the year.
Housing and Community Investment Programs
In addition to providing a readily available, competitively-priced source of funds to members, one of our core missions is to support affordable housing and community investment. We administer a number of programs that are targeted to fulfill that mission, some of which are statutory, and some are discretionary. For additional information on these specific programs, see Part I - Item 1 - Business - Targeted Housing and Community Investment Programs.
We are required to annually set aside a portion of our earnings for our Affordable Housing Program. These funds assist members serving very low-, low-, and moderate-income households and support community economic development. The Bank's net income for the year ended December 31, 2024, resulted in an accrual of $32.3 million to the AHP pool of funds that will be available to members in 2025. Contributions made to our discretionary housing and community investment program reduce the Bank's net income for the year, therefore reducing our statutory accrual of funds to the AHP pool. Beginning in 2024, the Bank's board of directors affirmed its commitment to affordable housing by making a voluntary AHP contribution of $2.8 million for the year ended December 31, 2024, to make the Bank's AHP contribution economically neutral to the impact of our discretionary housing and community investment programs, as shown in Table 5 below.
Table 5 - Statutory AHP Assessment and Voluntary AHP Contributions
(dollars in thousands)
For the Year Ended December 31, 2024
Net income subject to AHP statutory assessment $ 323,217
Statutory AHP percentage 10 %
Statutory AHP assessment $ 32,322
AHP voluntary contributions 2,767
Total contribution to the AHP $ 35,089
Net income subject to AHP statutory assessment $ 323,217
Discretionary housing and community investment program expense 24,906
AHP voluntary contributions 2,767
Net income subject to assessment, as adjusted $ 350,890
Statutory AHP percentage 10 %
AHP Assessment without discretionary housing and community investment expense and voluntary AHP contributions $ 35,089
The combined amounts of our required AHP assessments and voluntary contributions to AHP totaled $35.1 million for 2024, $30.6 million for 2023, and $26.0 million for 2022. Since inception of the AHP in 1990, the Bank has provided over $435.2 million in subsidies and grants towards the creation of affordable housing.
Discretionary housing and community investment program expenses are shown in the table below, by program.
Table 6 - Voluntary Housing and Community Investment Program Subsidy Expenses
(dollars in thousands)
Program
For the Year Ended December 31, 2024
Affordable housing
LUH program $ 5,000
HOW program 5,000
MPF permanent rate buy-down program 4,906
14,906
Economic development
JNE program 4,818
CDFIs
CDFI advance program 5,182
Total discretionary housing and community investment program expenses 24,906
AHP voluntary contributions 2,767
Total $ 27,673
Legislative and Regulatory Developments
Legislation has been proposed or enacted, and the FHFA and others with authority over the economy, our industry, and our business activities have taken action during 2024 as described in Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments. Such developments affect the way we conduct business and could impact how we satisfy our mission as well as the value of membership in the Bank.
ECONOMIC CONDITIONS
Economic Environment
Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the fourth quarter of 2024. This expansion was driven mainly by consumer spending and federal government spending.
Employment remained steady with job gains of 125,000 and 151,000 in January and February 2025, respectively. In February 2025, the unemployment rate was 4.1 percent. The unemployment rate for the New England region in December 2024 was 3.7 percent, ranging from 2.5 percent in Vermont to 4.5 percent in Rhode Island.
In February 2025, the Consumer Price Index (CPI) increased 0.2 percent from the preceding month, representing a year-over- year increase of 2.8 percent. The CPI increase was driven mainly by an increase in the cost of shelter, energy, and food. The FHFA reported that housing prices rose 4.5 percent across the U.S. from the fourth quarter of 2023 to the fourth quarter of 2024. Over the same period, housing prices in New England rose 7.0 percent.
Interest-Rate Environment
On January 29, 2025, the FOMC announced that it would maintain the federal funds rate in a target range of 425 to 450 basis points. The FOMC stated that in considering any additional adjustments to the target range for the federal funds rate, the FOMC will carefully assess incoming data, the evolving outlook, and the balance of risks. The FOMC also stated that it would continue reducing its holdings of U.S. Treasury securities, agency debt, and agency mortgage-backed securities, and is strongly committed to supporting maximum employment and returning inflation to its two percent objective.
In the fourth quarter of 2024, short-term rates remained elevated, consistent with the FOMC's target range for the federal funds rate. Long-term rates fluctuated, along with expectations regarding the timing and magnitude of potential rate cuts by the FOMC. In December 2024, the difference between 10-year and 3-month U.S. Treasury yields became positive after being negative, or inverted, for 25 consecutive months.
Table 7 - Key Interest Rates(1)
2024 2023 2022
Ending Average Ending Average Ending Average
SOFR 4.49% 5.15% 5.38% 5.01% 4.30% 1.64%
Federal funds effective rate 4.33% 5.15% 5.33% 5.03% 4.33% 1.68%
3-month U.S. Treasury yield 4.31% 5.09% 5.33% 5.17% 4.34% 2.01%
2-year U.S. Treasury yield 4.24% 4.38% 4.25% 4.60% 4.43% 2.99%
5-year U.S. Treasury yield 4.38% 4.13% 3.85% 4.06% 4.00% 3.00%
10-year U.S. Treasury yield 4.57% 4.21% 3.88% 3.96% 3.87% 2.95%
________________
(1) Source: Bloomberg
SELECTED FINANCIAL DATA
We derived the selected results of operations for the years ended December 31, 2024, 2023, and 2022, and the selected statement of condition data as of December 31, 2024 and 2023, from financial statements included elsewhere herein. We derived the selected results of operations for the years ended December 31, 2021 and 2020, and the selected statement of condition data as of December 31, 2022, 2021, and 2020, from financial statements not included herein. This selected financial data should be read in conjunction with the financial statements and the related notes appearing in this report.
Table 8 - Selected Financial Data
(dollars in thousands)
December 31,
2024 2023 2022 2021 2020
Statement of Condition
Total assets $ 71,992,966 $ 67,142,274 $ 62,897,549 $ 32,545,292 $ 38,461,035
Investments(1)
22,499,068 21,167,632 17,918,781 16,372,499 13,341,538
Advances 45,163,175 41,958,583 41,599,581 12,340,020 18,817,002
Mortgage loans held for portfolio, net(2)
3,679,150 3,059,331 2,758,429 3,120,159 3,930,252
Deposits and other borrowings 877,081 922,879 655,487 884,032 1,088,987
Consolidated obligations:
Bonds
48,192,171 40,248,743 31,565,543 26,613,032 21,471,590
Discount notes
18,546,504 22,000,546 26,975,260 2,275,320 12,878,310
Total consolidated obligations
66,738,675 62,249,289 58,540,803 28,888,352 34,349,900
Mandatorily redeemable capital stock 5,086 6,083 10,290 13,562 6,282
Class B capital stock outstanding-putable(3)
2,195,167 2,042,453 2,031,178 953,638 1,267,172
Unrestricted retained earnings 1,403,455 1,339,546 1,290,873 1,179,986 1,130,222
Restricted retained earnings 509,245 451,154 399,695 368,420 368,420
Total retained earnings 1,912,700 1,790,700 1,690,568 1,548,406 1,498,642
Accumulated other comprehensive (loss) income (255,022) (294,539) (306,425) 28,967 16,139
Total capital 3,852,845 3,538,614 3,415,321 2,531,011 2,781,953
Results of Operations
Net interest income after provision for credit losses $ 433,286 $ 375,232 $ 282,291 $ 212,163 $ 194,566
Litigation settlements - 693 - 505 26,096
Other income (loss), net 12,447 14,111 13,644 (47,387) 14,831
Other expense 122,956 104,096 91,203 88,081 101,857
AHP assessments 32,322 28,648 20,521 7,739 13,386
Net income $ 290,455 $ 257,292 $ 184,211 $ 69,461 $ 120,250
Other Information
Dividends declared $ 168,455 $ 157,160 $ 42,049 $ 19,697 $ 80,958
Dividend payout ratio 58.00 % 61.08 % 22.83 % 28.36 % 67.32 %
Weighted-average dividend rate(4)
8.40 7.67 3.53 1.66 4.64
Return on average equity(5)
7.99 7.33 6.47 2.62 4.00
Return on average assets 0.42 0.37 0.37 0.19 0.24
Net interest margin(6)
0.63 0.55 0.57 0.60 0.39
Average equity to average assets 5.20 5.03 5.68 7.43 6.03
Total regulatory capital ratio(7)
5.71 5.72 5.93 7.73 7.21
_______________________
(1)Investments include available-for-sale securities, held-to-maturity securities, trading securities, interest-bearing deposits, securities purchased under agreements to resell and federal funds sold.
(2)The allowance for credit losses for mortgage loans amounted to $2.2 million, $2.0 million, $1.9 million, $1.7 million, and $3.1 million, as of December 31, 2024, 2023, 2022, 2021, and 2020, respectively.
(3)Capital stock is putable at the option of a member upon five years' written notice, subject to applicable restrictions. For additional information see Liquidity and Capital Resources - Internal Capital Practices and Policies.
(4)Weighted-average dividend rate is the dividend amount declared divided by the average daily balance of capital stock eligible for dividends. See Part II - Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securitiesfor additional information.
(5)Return on average equity is net income divided by the total of the average daily balance of outstanding Class B capital stock, accumulated other comprehensive income and total retained earnings.
(6)Net interest margin is net interest income before provision for credit losses as a percentage of average earning assets.
(7)Total regulatory capital ratio is capital stock (including mandatorily redeemable capital stock) plus total retained earnings as a percentage of total assets. See Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 11 - Capital.
RESULTS OF OPERATIONS
The following table presents the Bank's significant statements of operations line items for the years ended December 31, 2024, 2023, and 2022 and provides information regarding the changes during those years. These items are discussed in more detail below.
Table 9 - Statements of Operations Summary
(dollars in thousands)
Change
For the Years Ended December 31, 2024 vs. 2023 2023 vs. 2022
2024 2023 2022 Amount Percent Amount Percent
Net Interest Income after provision for credit losses
$ 433,286 $ 375,232 $ 282,291 $ 58,054 15.47 % $ 92,941 32.92 %
Noninterest income
12,447 14,804 13,644 (2,357) (15.92) 1,160 8.50
Noninterest expense
122,956 104,096 91,203 18,860 18.12 12,893 14.14
AHP assessment
32,322 28,648 20,521 3,674 12.82 8,127 39.60
Net Income
$ 290,455 $ 257,292 $ 184,211 $ 33,163 12.89 % $ 73,081 39.67 %
Net income increased $33.2 million to $290.5 million for the year ended December 31, 2024, from $257.3 million for the same period in 2023. The increase in net income was primarily due to an increase of $58.1 million in net interest income after provision for credit losses partially offset by a $12.0 million increase in expenses related to our discretionary housing and community investment programs, $4.1 million increase in compensation and benefits expense, $3.7 million increase in AHP assessment, and a $2.4 million decrease in noninterest income.
Net interest income after provision for credit losses for the year ended December 31, 2024, was $433.3 million, compared with $375.2 million for 2023. The $58.1 million increase in net interest income after provision for credit losses was driven by an increase in average daily yields resulting from higher average short-term market interest rates in the year ended December 31, 2024, compared to the corresponding prior year period as well as increases of $2.0 billion and $511.1 million in our average mortgage-backed securities portfolio and average mortgage loan portfolio, respectively, moderated by a $1.1 billion decline in our average advances portfolio and a $975.2 million decline in average short-term money-market investments. In addition, there was a $19.9 million favorable variance in net unrealized gains and losses on fair value hedge ineffectiveness, attributable to net increases in intermediate- and long-term interest rates during the year ended December 31, 2024, that were greater than the net increases in intermediate- and long-term interest rates during 2023. Net interest spread was 0.29 percent for the year ended December 31, 2024, an increase of eight basis points from the same period in 2023, and net interest margin was 0.63 percent, an increase of eight basis points from the same period in 2023.
Table 10 presents major categories of average balances, related interest income/expense, and average yields/rates for interest-earning assets and interest-bearing liabilities. Our primary source of earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments less interest paid on COs, deposits, and other sources of funds.
Table 10 - Net Interest Spread and Margin
(dollars in thousands)
For the Year Ended December 31,
2024 2023 2022
Average
Balance 		Interest
Income /
Expense 		Average
Yield/Rate 		Average
Balance 		Interest
Income /
Expense 		Average
Yield/Rate 		Average
Balance 		Interest
Income /
Expense 		Average
Yield/Rate
Assets
Advances $ 41,056,756 $ 2,142,343 5.22 % $ 42,159,728 $ 2,113,732 5.01 % $ 25,529,926 $ 635,147 2.49 %
Interest-bearing deposits 2,649,478 139,108 5.25 2,847,402 145,358 5.10 1,401,024 34,869 2.49
Securities purchased under agreements to resell 1,358,943 70,504 5.19 1,980,425 99,404 5.02 1,722,816 25,065 1.45
Federal funds sold 3,800,153 198,834 5.23 3,941,871 200,021 5.07 4,027,978 88,071 2.19
Investment securities(1)
16,610,426 940,561 5.66 14,708,175 798,290 5.43 13,656,397 358,187 2.62
Mortgage loans(1)(2)
3,357,259 131,258 3.91 2,846,178 93,198 3.27 2,910,762 85,431 2.94
Other earning assets 14 1 4.91 14,109 716 5.07 5,205 194 3.73
Total interest-earning assets 68,833,029 3,622,609 5.26 68,497,888 3,450,719 5.04 49,254,108 1,226,964 2.49
Other non-interest-earning assets 1,361,834 1,635,888 1,086,175
Fair-value adjustments on investment securities (320,012) (358,081) (174,954)
Total assets $ 69,874,851 $ 3,622,609 5.18 % $ 69,775,695 $ 3,450,719 4.95 % $ 50,165,329 $ 1,226,964 2.45 %
Liabilities and capital
Consolidated obligations
Discount notes $ 19,079,836 $ 993,701 5.21 % $ 24,054,759 $ 1,200,138 4.99 % $ 14,369,248 $ 344,370 2.40 %
Bonds 44,326,807 2,159,454 4.87 38,788,537 1,837,365 4.74 30,491,534 591,546 1.94
Other interest-bearing liabilities 801,569 35,972 4.49 863,542 37,907 4.39 799,824 8,586 1.07
Total interest-bearing liabilities 64,208,212 3,189,127 4.97 63,706,838 3,075,410 4.83 45,660,606 944,502 2.07
Other non-interest-bearing liabilities 2,032,111 2,556,752 1,657,737
Total capital 3,634,528 3,512,105 2,846,986
Total liabilities and capital $ 69,874,851 $ 3,189,127 4.56 % $ 69,775,695 $ 3,075,410 4.41 % $ 50,165,329 $ 944,502 1.88 %
Net interest income $ 433,482 $ 375,309 $ 282,462
Net interest spread 0.29 % 0.21 % 0.42 %
Net interest margin 0.63 % 0.55 % 0.57 %
_________________________
(1) Average balances are reflected at amortized cost.
(2) Nonaccrual loans are included in the average balances used to determine average yield.
Rate and Volume Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income and net interest margin. Table 11 summarizes changes in interest income and interest expense for the years ended December 31, 2024, 2023, and 2022. Changes in interest income and interest expense that are not identifiable as either volume or rate-related, but equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.
Table 11 - Rate and Volume Analysis
(dollars in thousands)
For the Year Ended
December 31, 2024 vs. 2023 		For the Year Ended
December 31, 2023 vs. 2022
Increase (Decrease) due to Increase (Decrease) due to
Volume Rate Total Volume Rate Total
Interest income
Advances $ (56,181) $ 84,792 $ 28,611 $ 577,890 $ 900,695 $ 1,478,585
Interest-bearing deposits (10,308) 4,058 (6,250) 54,747 55,742 110,489
Securities purchased under agreements to resell (32,142) 3,242 (28,900) 4,276 70,063 74,339
Federal funds sold (7,311) 6,124 (1,187) (1,922) 113,872 111,950
Investment securities 106,594 35,677 142,271 29,568 410,535 440,103
Mortgage loans 18,296 19,764 38,060 (1,931) 9,698 7,767
Other earning assets (693) (22) (715) 431 91 522
Total interest income 18,255 153,635 171,890 663,059 1,560,696 2,223,755
Interest expense
Consolidated obligations
Discount notes (257,194) 50,757 (206,437) 328,518 527,250 855,768
Bonds 268,566 53,523 322,089 197,810 1,048,009 1,245,819
Other interest-bearing liabilities (2,767) 832 (1,935) 737 28,584 29,321
Total interest expense 8,605 105,112 113,717 527,065 1,603,843 2,130,908
Change in net interest income $ 9,650 $ 48,523 $ 58,173 $ 135,994 $ (43,147) $ 92,847
Average Balance of Advances
The average balance of total advances decreased slightly by $1.1 billion, or 2.6 percent, for the year ended December 31, 2024, compared with the same period in 2023. This decrease in the average balance of advances was primarily concentrated in short-term fixed rate advances and variable-rate advances, partially offset by an increase in long-term fixed rate advances. We cannot predict future member demand for advances.
Average Balance of Investments
Average short-term money-market investments, consisting of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, and loans to other FHLBanks, decreased $975.2 million, or 11.1 percent, for the year ended December 31, 2024, compared with the same period in 2023, as liquidity needs were greater in 2023 compared to 2024 due to increased advances borrowing activity in the year ended December 31, 2023. The yield earned on short-term money-market investments is highly correlated to short-term market interest rates. As a result of increases during 2023 in the FOMC's target range for the federal funds rate, average yields on overnight federal funds sold increased from 5.07 percent during the years ended December 31, 2023, to 5.23 percent during the year ended December 31, 2024, while average yields on securities purchased under agreements to resell increased from 5.02 percent for the year ended December 31, 2023, to 5.19 percent for the year ended December 31, 2024. These investments are used for liquidity management.
Average investment-securities balances increased $1.9 billion, or 12.9 percent for the year ended December 31, 2024, compared with the same period in 2023. The increase was primarily the result of a $2.0 billion increase in average MBS.
Average Balance of COs
Average CO balances increased $563.3 million, or 0.9 percent, for the year ended December 31, 2024, compared with the same period in 2023. This increase consisted of a $5.5 billion increase in CO bonds, offset by a $5.0 billion decline in CO discount notes.
The average balance of CO discount notes represented approximately 30.1 percent of total average COs for the year ended December 31, 2024, compared with 38.3 percent of total average COs for the year ended December 31, 2023. The average
balance of CO bonds represented 69.9 percent and 61.7 percent of total average COs outstanding during the years ended December 31, 2024 and 2023, respectively.
Impact of Derivatives and Hedging Activities
Net interest income includes interest accrued on interest-rate-exchange agreements that are associated with advances, investments, and debt instruments that qualify for hedge accounting. The fair value gains and losses of derivatives and hedged items designated in fair-value hedge relationships are also recognized as interest income or interest expense. We enter into derivatives to manage the interest-rate-risk exposures inherent in otherwise unhedged assets and liabilities and to achieve our risk-management objectives. We generally use derivative instruments that qualify for hedge accounting as interest-rate risk-management tools. These derivatives serve to stabilize net income when interest rates fluctuate by better matching the rate repricing characteristics of financial assets and liabilities. Accordingly, the impact of derivatives on net interest income and net interest margin, as well as other income, should be viewed in the overall context of our risk-management strategy.
Table 12 provides a summary of the impact of derivatives and hedging activities on our earnings.
Table 12 - Effect of Derivative and Hedging Activities
(dollars in thousands)
For the Year Ended December 31, 2024
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds CO Discount Notes Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (880) $ 2,035 $ (102) $ 8,710 $ - $ 9,763
Gains (losses) on designated fair-value hedges 2,241 5,209 - (1,548) - 5,902
Net interest settlements (2)
211,453 465,397 - (580,642) - 96,208
Price alignment interest (3)
(5,535) (48,771) - 1,482 - (52,824)
Total net interest income 207,279 423,870 (102) (571,998) - 59,049
Net gains (losses) on derivatives and hedging activities
Gains on derivatives not receiving hedge accounting 15 - - - 156 171
Mortgage delivery commitments - - (1,493) - - (1,493)
Price alignment interest (3)
- - - - 177 177
Net gains (losses) on derivatives and hedging activities 15 - (1,493) - 333 (1,145)
Total net effect of derivatives and hedging activities $ 207,294 $ 423,870 $ (1,595) $ (571,998) $ 333 $ 57,904
For the Year Ended December 31, 2023
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (1,701) $ - $ (237) $ (6,522) $ (8,460)
(Losses) gains on designated fair-value hedges (3,459) (11,877) - 1,370 (13,966)
Net interest settlements (2)
181,022 465,478 - (639,270) 7,230
Price alignment interest (3)
(8,267) (51,573) - 1,505 (58,335)
Total net interest income 167,595 402,028 (237) (642,917) (73,531)
Net gains (losses) on derivatives and hedging activities
Gains on derivatives not receiving hedge accounting 2 - - - 2
Mortgage delivery commitments - - (710) - (710)
Net gains (losses) on derivatives and hedging activities 2 - (710) - (708)
Total net effect of derivatives and hedging activities $ 167,597 $ 402,028 $ (947) $ (642,917) $ (74,239)
For the Year Ended December 31, 2022
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total
Net interest income
Amortization / accretion of hedging activities (1)
$ (990) $ - $ (431) $ (3,494) $ (4,915)
Gains on designated fair-value hedges 3,217 41,134 - 985 45,336
Net interest settlements (2)
7,704 33,981 - (114,582) (72,897)
Price alignment interest (3)
(2,285) (12,540) - 391 (14,434)
Total net interest income 7,646 62,575 (431) (116,700) (46,910)
Net losses on derivatives and hedging activities
Losses on derivatives not receiving hedge accounting (8) (2) - (520) (530)
CO bond firm commitments - - - 520 520
Mortgage delivery commitments - - (668) - (668)
Net losses on derivatives and hedging activities (8) (2) (668) - (678)
Total net effect of derivatives and hedging activities $ 7,638 $ 62,573 $ (1,099) $ (116,700) $ (47,588)
________________________
(1) Represents the amortization/accretion of hedging fair-value adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive income.
(2) Represents interest income/expense on derivatives included in net interest income.
(3) Relates to derivatives for which variation margin payments are characterized as daily settled contracts.
Comparison of the year ended December 31, 2023, versus the year ended December 31, 2022
For discussion and analysis of our results of operations for 2023 compared to 2022, see Results of Operations in the Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2023 Annual Report on Form 10-K.
FINANCIAL CONDITION
Advances
At December 31, 2024, the advances portfolio totaled $45.2 billion, an increase of $3.2 billion from $42.0 billion at December 31, 2023.
Table 13 - Advances Outstanding by Product Type
(dollars in thousands)
December 31, 2024 December 31, 2023
Par Value Percent of Total Par Value Percent of Total
Fixed-rate advances
Long-term $ 11,909,336 26.3 % $ 11,550,277 27.5 %
Short-term 10,604,134 23.4 11,725,587 27.9
Putable 7,488,170 16.5 5,896,570 14.0
Overnight 2,221,057 4.9 3,599,404 8.6
Amortizing 984,750 2.2 1,058,714 2.5
Callable - - 2,500,000 5.9
33,207,447 73.3 36,330,552 86.4
Variable-rate advances
Simple variable (1)
12,065,070 26.7 5,650,195 13.4
Putable 15,000 - 80,000 0.2
All other variable-rate indexed advances 4,709 - 5,909 -
12,084,779 26.7 5,736,104 13.6
Total par value $ 45,292,226 100.0 % $ 42,066,656 100.0 %
________________________
(1) Includes floating-rate advances that may be contractually prepaid by the borrower on a floating-rate reset date without incurring prepayment or termination fees.
See Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 5 - Advancesfor disclosures relating to redemption terms of advances.
Advances Credit Risk
We manage credit risk on advances by monitoring the financial condition of our borrowers and by holding sufficient collateral to protect the Bank from credit losses. All pledged collateral is subject to collateral discounts, or haircuts, to the market value or par value, as applicable, based on our opinion of the risk such collateral presents. We are prohibited by Section 10(a) of the FHLBank Act from making advances without sufficient collateral. We have never experienced a credit loss on an advance.
We monitor the financial condition of all members and housing associates by reviewing available financial data, such as regulatory call reports filed by depository institution members, regulatory financial statements filed with the appropriate state insurance departments by insurance company members, audited financial statements of housing associates, SEC filings, and rating-agency reports to ensure that potentially troubled members are identified as soon as possible. In addition, we have access to most members' regulatory examination reports. We analyze this information on a regular basis.
Our depository members generally experienced modest deterioration in key financial metrics over the 12 months ending December 31, 2024, principally as a result of ongoing pressure on net interest margin and to a lesser extent on increased credit costs. Although rates moderated in 2024, the general economic outlook was tenuous over the past few years due to elevated interest rates and their potential impact on unemployment. To date, however, the increase in interest rates has not caused a material change in unemployment, particularly in the New England region, and prospects of a recession seem less likely than earlier in the year. Aggregate nonperforming assets reported publicly by depository institution members in their regulatory filings increased modestly during the twelve months ending December 31, 2024, and were 0.56 percent of assets at December 31, 2024, compared to 0.43 percent at December 31, 2023. The overall financial condition of our insurance company members was stable over the 12 months ending December 31, 2024.
We experienced no member failures during 2024. All Bank members except for one had positive tangible capital as of December 31, 2024, measured in accordance with accounting principles generally accepted in the United States of America (GAAP), though higher interest rates present increased potential for more of our members (those that can experience material unrealized losses on available-for-sale securities) to have negative tangible capital. All extensions of credit to members are fully secured by eligible collateral as noted herein. However, we could incur losses if a member were to default, the value of the
collateral pledged by the member declined to a point such that we were unable to realize sufficient value from the pledged collateral to cover the member's obligations, and we were unable to obtain additional collateral to make up for the reduction in value of such collateral.
We manage credit risk on advances by monitoring the financial condition of our borrowers and by holding sufficient collateral to protect the Bank from credit losses. The Bank has an internal credit rating methodology that estimates each borrower's credit risk utilizing call report data and other quantitative factors as well as qualitative considerations including, but not limited to, regulatory examination reports. Based on its rating, we assign each member and non-member housing associate to one of the four credit categories below to allow the Bank to leverage risk mitigation strategies across groups of similarly rated members. Each credit category reflects increasing limitations on borrowing capacity and terms to maturity, as well as our increasing level of Bank control over the collateral pledged by the borrower.
•Credit category one (Credit Category-1) a borrower is generally in a satisfactory financial condition.
•Credit category two (Credit Category-2) a borrower shows financial weakness or weakening financial trends.
•Credit category three (Credit Category-3) a borrower demonstrates financial weaknesses that present an elevated level of concern.
•Credit category four (Credit Category-4) a borrower shows significant financial weaknesses and an increased likelihood of failure over the next 12 months.
The Bank may impose different borrowing capacity limitations or collateral pledging requirements on a borrower if the Bank determines that doing so mitigates risks to the Bank and/or the borrower.
The following table presents a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank's borrowers as of December 31, 2024.
Table 14 - Credit Outstanding and Collateral Borrowing Capacity by Credit Category
(dollars in thousands)
December 31, 2024
Borrowers with Credit Outstanding
Number
Other Credit Outstanding(1)
Total Credit Outstanding
Collateral Borrowing Capacity(2)
Borrower Credit Category Advances Total Used
Member borrowers(3)
Credit Category-1 292 $ 43,302,626 $ 9,408,555 $ 52,711,181 $ 147,073,282 35.8 %
Credit Category-2 37 1,534,622 56,946 1,591,568 3,475,166 45.8
Credit Category-3 7 352,418 5,715 358,133 448,099 79.9
Credit Category-4 1 3,000 45,459 48,459 60,199 80.5
Nonmember borrowers(4)
Former members 7 61,986 2,623 64,609 137,609 47.0
Housing associates 5 37,574 42 37,616 45,233 83.2
Total 349 $ 45,292,226 $ 9,519,340 $ 54,811,566 $ 151,239,588 36.2 %
_______________________
(1) Includes accrued interest on advances, letters of credit, unused line of credit, and the credit enhancement obligation on purchased mortgage loans.
(2) Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.
(3) Because they are subject to different laws and regulations than depository institutions, non-depository members are obligated to deliver eligible collateral regardless of their assigned credit category.
(4) Nonmember borrowers, consisting of housing associates and institutions that are former members or have acquired former members, are obligated to deliver all required collateral. Other than housing associates, nonmember borrowers may not request new advances and are not permitted to extend or renew any advances they have assumed.
The Bank may adjust the credit category of a member from time to time based on the financial reviews and other information pertinent to that member.
We have not recorded any allowance for credit losses on advances as of December 31, 2024, and December 31, 2023, for the reasons discussed in Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 5 - Advances.
To mitigate the credit risk, market risk, liquidity risk, model risk, and operational risk associated with collateral, we discount the book value or market value of pledged collateral to establish the lending value. Collateral that we have determined to contain a low level of risk, such as U.S. government obligations, is discounted at a lower rate than collateral that carries a higher level of risk, such as commercial real estate mortgage loans. We periodically analyze the discounts applied to all eligible collateral types to verify that current discounts are sufficient to secure us against losses in the event of a borrower default.
We generally require our members and housing associates to execute a security agreement that grants us a blanket lien on all unencumbered assets of such borrowers that consist of, among other things: fully disbursed whole first-mortgage loans and deeds of trust constituting first liens against real property; U.S. federal, state, and municipal obligations; GSE securities; corporate debt obligations; commercial paper; funds placed in deposit accounts with us; such other items or property that are offered to us by the borrower as collateral; and all proceeds of all of the foregoing. In the case of insurance companies, housing associates, and CDFIs, in some instances we establish a specific lien instead of a blanket lien subject to additional safeguards including, among other things, larger haircuts on collateral. We protect our security interests in pledged assets by filing a Uniform Commercial Code (UCC) financing statement in the appropriate jurisdiction, or by taking possession or control of such collateral, or by taking other appropriate steps. such as delivering the security to an approved safekeeping agent or to be held by the borrower's securities corporation in custodial account with us. We have control agreements with approved safekeeping agents which are intended to give us appropriate control over the related collateral. We conduct reviews of loan collateral pledged by borrowers to determine that the pledged collateral conforms to our eligibility requirements, and to adjust, if warranted, the lendable value of loan collateral pledged. We may conduct collateral reviews at any time. See Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 5 - Advancesfor the types of assets we generally accept as collateral.
Our agreements with borrowers require each borrower to have sufficient eligible collateral pledged to us to fully secure all outstanding extensions of credit, including advances, accrued interest receivable, standby letters of credit, MPF-credit enhancement obligations, and lines of credit (collectively, extensions of credit). Further, our agreements with borrowers allow us, at our sole discretion, to refuse to make extensions of credit against any collateral, restrict the maturity on the extension of credit, require substitution of collateral, or adjust the discounts applied to collateral at any time based on our assessment of the borrower's financial condition, the quality of collateral pledged, or the overall volatility of the value of the collateral. We also may require members to pledge additional collateral regardless of whether the collateral would be eligible to originate a new extension of credit. Our agreements with borrowers also afford us the right, at our sole discretion, to declare any borrower to be in default if we deem ourselves to be insecure.
Beyond our practice of taking security interests in collateral, Section 10(e) of the FHLBank Act affords any security interest granted to us by a federally-insured depository institution member or such member's affiliate priority over the claims or rights of any other party, including any receiver, conservator, trustee, or similar entity that has the rights of a lien creditor, unless these claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that are secured by actual perfected security interests. In this regard, the priority granted to our security interests under Section 10(e) may not apply when lending to insurance company members due to the anti-preemption provision contained in the McCarran-Ferguson Act in which Congress declared that federal law would not preempt state insurance law unless the federal law expressly regulates the business of insurance. Thus, if state law conflicts with Section 10(e) of the FHLBank Act, the protection afforded by this provision may not be available to us.
However, we protect our security interests in the collateral pledged by our borrowers, including insurance company members, by filing UCC financing statements, by taking possession or control of such collateral, or by taking other appropriate steps. We have not experienced any rehabilitation, conservatorship, receivership, liquidation or other insolvency event for an insurance company member and therefore have continuing uncertainty on the potential inapplicability of Section 10(e). Additionally, we note that in certain states where our insurance company members are domiciled, the relevant state insolvency authority could take actions that impede our ability to sell collateral that any such insolvent insurance company member has pledged to us. To protect ourselves from the potential inapplicability of Section 10(e), we require the delivery of collateral from non-depository members, which currently encompass insurance companies and CDFIs, as well as nonmember housing associates.
Table 15 - Top Five Advance-Borrowing Institutions
(dollars in thousands)
December 31, 2024
Name Par Value of Advances Percent of Total Par Value of Advances
Weighted-Average Rate (1)
State Street Bank and Trust Company $ 9,815,000 21.7 % 4.84 %
Webster Bank, N.A. 2,110,108 4.7 4.51
Massachusetts Mutual Life Insurance Company 2,100,000 4.6 1.78
Hingham Institution for Savings 1,497,000 3.3 4.34
Institution for Savings in Newburyport and its Vicinity 1,321,080 2.9 3.77
Total of top five advance-borrowing institutions $ 16,843,188 37.2 %
December 31, 2023
Name Par Value of Advances Percent of Total Par Value of Advances
Weighted-Average Rate (1)
Citizens Bank, N.A. $ 4,286,128 10.2 % 5.57 %
State Street Bank and Trust Company 2,500,000 6.0 5.27
Webster Bank, N.A. 2,360,018 5.6 5.52
Massachusetts Mutual Life Insurance Company 2,100,000 5.0 1.78
Hingham Institution for Savings 1,692,675 4.0 4.75
Total of top five advance-borrowing institutions $ 12,938,821 30.8 %
_______________________
(1) Weighted-average rates are based on the contract rate of each advance without taking into consideration the effects of interest-rate-exchange agreements that we may use as hedging instruments.
Investments
At December 31, 2024, investment securities and short-term money-market instruments totaled $22.5 billion, an increase of $1.3 billion from $21.2 billion at December 31, 2023.
Short-term money-market investments increased $219.8 million to $6.0 billion at December 31, 2024, compared with December 31, 2023. The increase was attributable to an increase of $314.8 million in interest bearing deposits, partially offset by a $100.0 million decrease in securities purchased under agreements to resell.
Investment securities increased $1.1 billion to $16.5 billion at December 31, 2024, compared with $15.4 billion at December 31, 2023. The increase was primarily due to the $1.0 billion increase in MBS.
Held-to-Maturity Securities
Certain investments for which we have both the ability and intent to hold to maturity are classified as held-to-maturity.
Table 16 - Held-to-Maturity Securities
(dollars in thousands)
December 31,
2024 2023 2022
Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total Carrying Value Total Carrying Value Total Carrying Value
MBS (1)
U.S. government guaranteed - single-family $ - $ - $ - $ 2,738 $ 2,738 $ 3,123 $ 3,614
GSEs - single-family 485 170 9,664 50,261 60,580 75,782 95,454
Total MBS $ 485 $ 170 $ 9,664 $ 52,999 $ 63,318 $ 78,905 $ 99,068
Yield on held-to-maturity securities (2)
2.74 % 5.95 % 5.84 % 5.21 %
________________________
(1) Maturity ranges are based on the contractual final maturity of the security.
(2) The weighted average yields are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the effect of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable portfolio.
Available-for-Sale Securities
We classify certain investment securities as available-for-sale to enable liquidation at a future date or to enable the application of hedge accounting using interest-rate swaps. By classifying investments as available-for-sale, we can consider these securities to be a source of short-term liquidity, if needed. Additionally, we own certain fixed rate available-for-sale securities for which the interest earned is converted to a floating rate basis through the use of interest-rate swaps, a strategy we employ consistent with overall balance sheet management objectives and in alignment with variable rate funding.
Table 17 - Available-for-Sale Securities
(dollars in thousands)
December 31,
2024 2023 2022
Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total Carrying Value Total Carrying Value Total Carrying Value
Non-MBS
U.S. Treasury obligations $ 1,711,545 $ 4,096,120 $ - $ - $ 5,807,665 $ 5,664,452 $ 5,723,562
HFA securities - 6,651 - - 6,651 21,805 32,774
Supranational institutions 92,947 244,405 - - 337,352 346,375 350,352
U.S. government corporations - - - 221,769 221,769 235,191 227,200
GSEs - 37,984 - 56,630 94,614 99,421 97,666
Total non-MBS 1,804,492 4,385,160 - 278,399 6,468,051 6,367,244 6,431,554
MBS (1)
U.S. government guaranteed - single-family - - - 179,052 179,052 14,433 16,148
U.S. government guaranteed - multifamily - - - 464,823 464,823 477,676 476,730
GSEs - single-family - 16,974 9,856 1,926,323 1,953,153 904,456 765,526
GSEs - multifamily - 3,715,213 3,199,084 491,532 7,405,829 7,579,936 5,936,958
Total MBS - 3,732,187 3,208,940 3,061,730 10,002,857 8,976,501 7,195,362
Total available-for-sale securities $ 1,804,492 $ 8,117,347 $ 3,208,940 $ 3,340,129 $ 16,470,908 $ 15,343,745 $ 13,626,916
Yield on available-for-sale securities (2)
1.75 % 2.14 % 3.14 % 5.27 %
________________________
(1) MBS maturity ranges are based on the contractual final maturity of the security.
(2) The weighted average yields are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the effect of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable portfolio.
Investments Credit Risk
We are subject to credit risk on unsecured investments consisting primarily of short-term (meaning one year or less to maturity) money-market instruments issued by high-quality financial institutions and long-term (original maturity greater than one year) debentures issued or guaranteed by U.S. agencies, U.S government-owned corporations, GSEs, and supranational institutions.
We place short-term funds with large, high-quality financial institutions that must be rated in at least the third-highest internal rating category on a rating scale of FHFA1 through FHFA7, reflecting progressively lower credit quality. The internal rating categories of FHFA1 through FHFA4 are considered to be investment quality. As of December 31, 2024, all of these placements either expired within one day or were payable upon demand. See Part I - Item 1 - Business - Business Lines - Investmentsfor additional information.
In addition to these unsecured investments, we also make secured investments in the form of securities purchased under agreements to resell secured by U.S. Treasury, U.S. government guaranteed, or agency obligations with current term limits of up to 95 days to maturity and in the form of MBS and HFA securities that are directly or indirectly supported by underlying mortgage loans.
We actively monitor our investment credit exposures and the credit quality of our counterparties, including assessments of each counterparty's financial performance, capital adequacy, sovereign support, and collateral quality and performance, as well as related market signals such as equity prices and credit default swap spreads. We may reduce or suspend credit limits and/or seek to reduce existing exposures, as appropriate, as a result of these monitoring activities.
Table 18 - Credit Ratings of Investments at Carrying Value
(dollars in thousands)
As of December 31, 2024
Long-Term Credit Rating
Investment Category Triple-A Double-A Single-A Unrated
Money-market instruments: (1)
Interest-bearing deposits $ - $ 541,150 $ 1,417,203 $ -
Securities purchased under agreements to resell - - 1,500,000 -
Federal funds sold - 755,000 1,750,000 -
Total money-market instruments - 1,296,150 4,667,203 -
Investment securities:(2)
Non-MBS:
U.S. Treasury obligations - 5,807,665 - -
Corporate bonds - - - 1,489
U.S. government-owned corporations - 221,769 - -
GSE - 94,614 - -
Supranational institutions 337,352 - - -
HFA securities 6,651 - - -
Total non-MBS 344,003 6,124,048 - 1,489
MBS:
U.S. government guaranteed - single-family - 181,790 - -
U.S. government guaranteed - multifamily - 464,823 - -
GSE - single-family - 2,013,733 - -
GSE - multifamily - 7,405,829 - -
Total MBS - 10,066,175 - -
Total investment securities 344,003 16,190,223 - 1,489
Total investments $ 344,003 $ 17,486,373 $ 4,667,203 $ 1,489
_______________________
(1) The counterparty NRSRO rating is used for money-market instruments. Counterparty ratings are obtained from Moody's, Fitch, Inc. (Fitch), and S&P and are each as of December 31, 2024. If there is a split rating, the lowest rating is used. In certain instances where a counterparty is unrated, the Bank may assign a deemed rating to the counterparty and that deemed rating is used.
(2) The issue rating is used for investment securities. Issue ratings are obtained from Moody's, Fitch, and S&P. If there is a split rating, the lowest rating is used.
Table 19 - Unsecured Credit Related to Money-Market Instruments and Debentures by Carrying Value
(dollars in thousands)
Carrying Value
December 31, 2024 December 31, 2023
Federal funds sold $ 2,505,000 $ 2,500,000
Interest bearing deposits 1,958,353 1,643,587
Supranational institutions 337,352 346,375
U.S. government-owned corporations 221,769 235,191
GSEs 94,614 99,421
Corporate bonds 1,489 1,395
FHFA regulations include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties based on a percentage of regulatory capital and an internal credit rating determined by each FHLBank. Under these regulations, the level of regulatory capital is determined as the lesser of our total regulatory capital or the regulatory capital of the counterparty. The applicable regulatory capital is then multiplied by a specified percentage for each counterparty, the product of which is the maximum amount of unsecured credit exposure we may extend to that counterparty. The percentage that we may offer for extensions of unsecured credit other than overnight sales of federal funds ranges from one to 15 percent based on the counterparty's credit rating. Extensions of unsecured credit for overnight sales of federal funds range from one to 30 percent based on the counterparty's credit rating. From time to time, we may establish internal credit limits lower than permitted by regulation for individual counterparties.
FHFA regulations allow additional unsecured credit for sales of overnight federal funds. The specified percentage of regulatory capital used for determining the maximum amount of unsecured credit exposure we may offer to a counterparty for overnight sales of federal funds is twice the amount that we may extend to that counterparty for extensions of credit other than overnight sales of federal funds reduced by the amount of any other unsecured credit exposure attributable to other than overnight sales of federal funds.
We are generally prohibited by FHFA regulations 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. We are also prohibited by FHFA regulations from investing in financial instruments issued by foreign sovereign governments. Our unsecured money-market credit risk to U.S. branches and agency offices of foreign commercial banks includes, among other things, the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet its contractual repayment obligations. Notwithstanding the foregoing credit limits based on FHFA regulations, from time to time, we impose internal limits on all or specific individual counterparties that are lower than the maximum credit limits allowed by regulation.
Table 20 - Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty
(dollars in thousands)
December 31, 2024(1)
Credit Rating
Domicile of Counterparty
Double-A
Single-A
Total
Domestic - interest bearing deposits
$ 541,150 $ 1,417,203 $ 1,958,353
U.S branches and agency offices of foreign commercial banks - federal funds
Canada
- 850,000 850,000
France - 600,000 600,000
Australia
400,000 - 400,000
Finland
355,000 - 355,000
The Netherlands - 300,000 300,000
Total U.S branches and agency offices of foreign commercial banks
755,000 1,750,000 2,505,000
Total unsecured investment credit exposure
$ 1,296,150 $ 3,167,203 $ 4,463,353
____________________________
(1) Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies, government instrumentalities, government-sponsored enterprises, and supranational entities, and does not include related accrued interest.
Table 21 - Issuers / Counterparties Representing Greater Than 10 Percent of Total Unsecured Credit Related to Money-Market Instruments and to Debentures
Issuer / counterparty As of December 31, 2024
Toronto Dominion 11.7 %
Credit Agricole S.A. 11.7
JPMorgan Chase Bank N.A. 10.5
Bank of America N.A. 10.5
Mortgage Loans
We invest in mortgages through the MPF Program. The MPF Program is further described under - Mortgage Loans Credit Risk and in Part I - Item 1 - Business - Business Lines - Mortgage Loan Finance.
As of December 31, 2024, our mortgage loan investment portfolio totaled $3.7 billion, an increase of $619.8 million from December 31, 2023. This increase is the result of an increase in mortgage loan purchase volume during 2024. We expect continued competition from Fannie Mae and Freddie Mac, as well as from private mortgage loan acquirers, for loan investment opportunities.
Table 22 - Par Value of Mortgage Loans Held for Portfolio
(dollars in thousands)
December 31,
2024 2023 2022 2021 2020
Conventional mortgage loans
MPF Original
$ 566,665 $ 633,857 $ 714,461 $ 860,818 $ 1,235,220
MPF 125
44,247 50,157 58,048 70,544 105,916
MPF Plus
26,689 32,493 40,232 53,486 74,739
MPF 35 2,871,653 2,160,602 1,744,489 1,895,506 2,208,682
Total conventional mortgage loans 3,509,254 2,877,109 2,557,230 2,880,354 3,624,557
Government mortgage loans 134,283 146,314 163,121 191,721 246,150
Total $ 3,643,537 $ 3,023,423 $ 2,720,351 $ 3,072,075 $ 3,870,707
Mortgage Loans Credit Risk
We are subject to credit risk from the mortgage loans in which we invest due to our exposure to the credit risk of the underlying borrowers and the credit risk of the participating financial institutions when the participating financial institutions retain credit-enhancement and/or servicing obligations.
Table 23 - Mortgage Loans by Contractual Repayment Term
(dollars in thousands)
Redemption Term December 31, 2024 December 31, 2023
Due in 1 year or less $ 112,158 $ 105,181
Due after 1 year through 5 years 474,624 442,553
Due after 5 years through 15 years 1,310,880 1,167,537
Thereafter 1,745,875 1,308,152
Total par value 3,643,537 3,023,423
Other adjustments, net (1)
37,813 37,908
Total mortgage loans held for portfolio 3,681,350 3,061,331
Allowance for credit losses on mortgage loans (2,200) (2,000)
Mortgage loans held for portfolio, net $ 3,679,150 $ 3,059,331
_______________________
(1)Consists of premiums, discounts, and deferred derivative gains, net.
Although our mortgage loan portfolio includes loans throughout the U.S., concentrations of 5 percent or greater of the par value of our conventional mortgage loan portfolio are shown in Table 24.
Table 24 - State Concentrations by Par Value
Percentage of Total Par Value of Conventional Mortgage Loans
December 31, 2024 December 31, 2023
Massachusetts 58 % 62 %
Maine 16 13
Vermont 7 5
Connecticut 6 7
All others 13 13
Total 100 % 100 %
We place conventional mortgage loans on nonaccrual status when the collection of interest or principal is doubtful or contractual principal or interest is 90 days or more past due. Accrued interest on nonaccrual loans is excluded from interest income. We monitor the delinquency levels of the mortgage loan portfolio on a monthly basis.
Although delinquent loans in our portfolio are spread throughout the U.S., delinquent loan concentrations by state of 5 percent or greater of the par value of our total conventional mortgage loans delinquent by more than 30 days are shown in Table 25.
Table 25 - State Concentrations of Delinquent Conventional Mortgage Loans
December 31,
Percentage of Par Value of Delinquent Conventional Mortgage Loans 2024 2023
Massachusetts 55 % 65 %
Connecticut 11 10
Maine 5 4
Vermont 5 3
All others 24 18
Total 100 % 100 %
Table 26 - Characteristics of Our Investments in Mortgage Loans(1)
December 31,
2024 2023
Loan-to-value ratio at origination
< 60.00% 21 % 22 %
60.01% to 70.00% 15 17
70.01% to 80.00% 18 19
80.01% to 90.00% 35 31
Greater than 90.00% 11 11
Total 100 % 100 %
Weighted average loan-to-value ratio 72 % 71 %
FICO score at origination
< 620 - % - %
620 to < 660 3 4
660 to < 700 10 11
700 to < 740 16 17
≥ 740 71 68
Total 100 % 100 %
Weighted average FICO score 760 756
_______________________
(1)Percentages are calculated based on par value at the end of each period.
Table 27 - Mortgage Loans - Risk Elements and Credit Losses
(dollars in thousands)
December 31, 2024 December 31, 2023
Average par value of mortgage loans outstanding during the period ending $ 3,317,835 $ 2,807,813
Mortgage loans held for portfolio, par value 3,643,537 3,023,423
Nonaccrual loans, par value 6,083 7,871
Allowance for credit losses on mortgage loans 2,200 2,000
Net recoveries 4 23
Net charge-offs to average loans outstanding during the year ending - % - %
Allowance for credit losses to mortgage loans held for portfolio 0.06 0.07
Nonaccrual loans to mortgage loans held for portfolio 0.17 0.26
Allowance for credit losses to nonaccrual loans 36.17 25.41
Government mortgage loans may not exceed the loan-to-value limits set by the applicable federal agency. Conventional mortgage loans with loan-to-value ratios greater than 80 percent require certain amounts of primary mortgage insurance from a mortgage insurance company rated at least triple-B (or equivalent rating).
Higher-Risk Loans. Our portfolio includes certain higher-risk subprime conventional mortgage loans. The higher-risk subprime loans represent a relatively small portion of our conventional mortgage loan portfolio (4.3 percent by par value), but a disproportionately higher portion of the conventional mortgage loan portfolio delinquencies (25.8 percent by par value).
Table 28 - Summary of Higher-Risk Conventional Mortgage Loans
(dollars in thousands)
As of December 31, 2024
High-Risk Loan Type Total Par Value Percent Delinquent 30 Days Percent Delinquent 60 Days Percent Delinquent 90 Days or More and Nonaccruing
Subprime loans (1)
$ 148,880 4.34 % 0.96 % 1.19 %
High loan-to-value loans (2)
1,000 - - -
Total high-risk loans $ 149,880 4.31 % 0.95 % 1.18 %
_______________________
(1) Subprime loans are loans to borrowers with FICO®credit scores of 660 or lower.
(2) High loan-to-value loans are loans with an estimated current loan-to-value ratio greater than 100 percent.
Our portfolio of higher-risk loans consists solely of fixed-rate conventionally amortizing first-mortgage loans. The portfolio does not include adjustable-rate mortgage loans, pay-option adjustable-rate mortgage loans, interest-only mortgage loans, junior lien mortgage loans, or loans with initial teaser rates.
Mortgage Insurance Companies.We are exposed to credit risk from primary mortgage insurance (PMI) coverage on individual loans. As of December 31, 2024, we were the beneficiary of PMI coverage of $128.2 million on $492.8 million of conventional mortgage loans. These amounts relate to loans originated with PMI and for which current loan-to-value ratios exceed 78 percent (determined by recalculating the original loan-to-value ratio using the current par value divided by the appraised home value at the time of loan origination).
We have analyzed our potential loss exposure to all of the mortgage insurance companies and do not expect incremental losses based on these exposures at this time.
Deposits
We offer demand and overnight deposits and custodial mortgage accounts to our members. Deposit programs are intended to provide members with a low-risk earning asset that satisfies liquidity requirements. Deposit balances depend on members' needs to place excess liquidity and can fluctuate significantly. Due to the relatively small size of our deposit base and the unpredictable nature of member demand for deposits, we do not rely on deposits as a core component of our funding. At December 31, 2024, and December 31, 2023, deposits totaled $877.1 million and $922.9 million, respectively.
Consolidated Obligations
See Liquidity and Capital Resourcesfor information regarding our COs.
Derivative Instruments
All derivatives are recorded on the statement of condition at fair value and classified as either derivative assets or derivative liabilities. Bilateral and cleared derivatives outstanding are classified as assets or liabilities according to the net fair value of derivatives aggregated by each counterparty. Derivative assets' net fair value, net of cash collateral and accrued interest, totaled $301.9 million and $383.1 million as of December 31, 2024, and December 31, 2023, respectively. Derivative liabilities' net fair value, net of cash collateral and accrued interest, totaled $4.7 million and $3.0 million as of December 31, 2024, and December 31, 2023, respectively.
We offset fair-value amounts recognized for derivative instruments with fair-value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivatives recognized at fair value executed with the same counterparty under a master-netting arrangement as well as arising from derivatives cleared through a DCO.
We base the estimated fair values of these agreements on the fair value of interest-rate-exchange agreements with similar terms or available market prices. Consequently, fair values for these instruments must be estimated using techniques such as discounted cash-flow analysis and comparison with similar instruments. Estimates developed using these methods are subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. We formally establish hedging relationships
associated with balance-sheet items and forecasted transactions to obtain desired economic results. These hedge relationships may include fair-value and cash-flow hedges, as well as economic hedges.
All commitments to invest in mortgage loans are recorded at fair value on the statement of condition as derivatives. Upon satisfaction of the commitment, the recorded fair value is then reclassified as a basis adjustment of the purchased mortgage assets. We had commitments for which we were obligated to invest in mortgage loans with par values totaling $32.7 million and $30.0 million at December 31, 2024 and 2023, respectively.
The following table presents a summary of the notional amounts and estimated fair values of our outstanding derivatives, excluding accrued interest, and related hedged item by product and type of accounting treatment as of December 31, 2024, and December 31, 2023. The notional amount represents the hypothetical principal basis used to determine periodic interest payments received and paid. However, the notional amount does not represent an actual amount exchanged or our overall exposure to credit and market risk.
Table 29 - Derivatives and Hedge-Accounting Treatment
(dollars in thousands)
December 31, 2024 December 31, 2023
Hedged Item Derivative
Designation(2)
Notional
Amount 		Fair
Value 		Notional
Amount 		Fair
Value
Advances (1)
Swaps Fair value $ 12,157,089 $ (83,874) $ 12,534,180 $ (120,326)
Swaps Economic - - 90,000 (793)
Total associated with advances 12,157,089 (83,874) 12,624,180 (121,119)
Available-for-sale securities Swaps Fair value 11,790,008 (154,592) 12,391,160 (197,733)
COs Swaps Fair value 22,285,710 (595,614) 26,662,140 (876,631)
Swaps Economic 2,987,274 723 - -
Forward starting swaps Cash Flow 741,000 224 1,391,000 83
Total associated with COs 26,013,984 (594,667) 28,053,140 (876,548)
Total 49,961,081 (833,133) 53,068,480 (1,195,400)
Mortgage delivery commitments 32,729 (100) 29,995 290
Total derivatives $ 49,993,810 (833,233) $ 53,098,475 (1,195,110)
Accrued interest 241,767 262,631
Cash collateral, including related accrued interest 888,593 1,312,535
Net derivatives $ 297,127 $ 380,056
Derivative asset $ 301,873 $ 383,073
Derivative liability (4,746) (3,017)
Net derivatives $ 297,127 $ 380,056
_______________________
(1) As of December 31, 2023, embedded derivatives separated from certain advance contracts with an aggregate notional amount of $90.0 million and fair value of $790 thousand are not included in the table.
(2) The hedge designation "fair value" represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge changes in fair value attributable to changes in the designated benchmark interest rate. The hedge designation "cash flow" represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge the exposure to variability in expected future cash flows. The hedge designation "economic" represents derivatives hedging specific or nonspecific assets, liabilities, or firm commitments that do not qualify or were not documented as fair-value or cash-flow hedges but are documented as serving a non-speculative use and are hedging strategies under our risk-management policy.
Table 30 - Hedging Strategies
(dollars in thousands)
Notional Amount
Hedged Item / Hedging Instrument Hedging Objective Hedge Designation December 31, 2024 December 31, 2023
Advances
Pay fixed, receive floating interest-rate swap (without options) Converts the advance's fixed rate to a variable rate index Fair value $ 4,558,918 $ 4,132,610
Economic - 15,000
Pay fixed, receive floating interest-rate swap (with options) Converts the advance's fixed rate to a variable rate index and offsets embedded options in the advance Fair value 7,583,171 8,391,570
Economic - 5,000
Pay floating with embedded coupon features, receive floating interest-rate swap (noncallable) Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable rate to a different variable rate index and/or offsets embedded coupon features in the advance Fair value 15,000 -
Pay floating with embedded features, receive floating interest-rate swap (callable) Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable-rate to a different variable-rate index and/or offsets embedded option risk in the advance. Fair value - 10,000
Pay floating, receive floating basis swap Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable-rate to a different variable-rate Economic - 70,000
12,157,089 12,624,180
Investments
Pay fixed, receive floating interest-rate swap Converts the investment's fixed rate to a variable rate index Fair value 11,790,008 12,391,160
CO Bonds
Receive fixed, pay floating interest-rate swap (without options) Converts the bond's fixed rate to a variable rate index Fair value 2,343,710 5,730,000
Receive fixed, pay floating interest-rate swap (with options) Converts the bond's fixed rate to a variable rate index and offsets option risk in the bond Fair value 19,942,000 20,932,140
Forward-starting interest-rate swap To lock in the cost of funding on anticipated issuance of debt Cash flow 741,000 1,391,000
23,026,710 28,053,140
CO Discount Notes
Receive-fixed, pay float interest-rate swap Converts the discount notes fixed rate to a variable rate index Economic 2,987,274 -
Stand-Alone Derivatives
Mortgage delivery commitments N/A 32,729 29,995
Total $ 49,993,810 $ 53,098,475
Derivative Instruments Credit Risk. We are subject to credit risk on derivatives. This risk arises from the risk of counterparty default on the derivative contract. The amount of unsecured credit exposure to derivative counterparty default is the amount by which the replacement cost of the defaulted derivative contract exceeds the value of any collateral held by us (if the counterparty is the net obligor on the derivative contract) or is exceeded by the value of collateral pledged by us to counterparties (if we are the net obligor on the derivative contract). We accept cash and securities collateral in accordance with the terms of the applicable master netting agreement for uncleared derivatives (principal-to-principal derivatives that are not centrally cleared) from counterparties with whom we are in a current positive fair-value position. We pledge cash and securities collateral in accordance with the terms of the applicable master netting agreement for uncleared derivatives to counterparties with whom we are in a current negative fair-value position. We currently pledge only cash collateral, including initial and variation margin, for cleared derivatives, but may also pledge securities for initial margin as allowed by the applicable DCO and clearing member.
Our daily average aggregate notional amount for uncleared derivatives transactions between June 2023 and August 2023 exceeded $8 billion and, as a result, we remained subject to two-way initial margin obligations as required by the Wall Street
Reform and Consumer Protection Act. For uncleared derivatives transactions executed on or after September 1, 2022, a party whose initial margin requirement exceeds a specified threshold (which may not exceed $50 million) would be required to deliver collateral in the amount by which the initial margin requirement exceeds such specified threshold. Initial margin is required to be held at a third-party custodian for the benefit of the secured party, which can only assert ownership of such collateral upon the occurrence of certain events, which may include an event of default due to bankruptcy, insolvency, or similar proceeding. As of December 31, 2024, all initial margin requirements owed to our uncleared derivative counterparties by us or owed to us by our uncleared derivative counterparties were less than specified delivery thresholds.
From time to time, due to timing differences or derivatives-valuation differences, between our calculated derivatives values and those of our counterparties, and to the contractual haircuts applied to securities, we receive from (or pledge to) our counterparties cash or securities collateral whose fair value is less (or more) than the current net positive (or net negative) fair-value of derivatives positions outstanding with them.
Table 31 - Credit Exposure to Derivatives Counterparties
(dollars in thousands)
As of December 31, 2024
Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged to Counterparty Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
Single-A $ 2,460,000 $ 1,044 $ (995) $ 49
Cleared derivatives 21,920,910 3,380 297,500 300,880
Liability positions with credit exposure:
Uncleared derivatives
Double-A 78,500 (609) 622 13
Single-A 7,691,900 (136,077) 137,000 923
Total interest-rate swap positions with nonmember counterparties to which we had credit exposure 32,151,310 (132,262) 434,127 301,865
Mortgage delivery commitments (1)
32,729 8 - 8
Total $ 32,184,039 $ (132,254) $ 434,127 $ 301,873
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(1) Total fair-value exposures related to commitments to invest in mortgage loans are offset by certain pair-off fees. Commitments to invest in mortgage loans are reflected as derivatives. We do not collateralize these commitments. However, should the participating financial institution fail to deliver the mortgage loans as agreed, the participating financial institution is charged a fee to compensate us for the nonperformance.
Uncleared derivatives. The credit risk arising from unsecured credit exposure on derivatives is mitigated by the credit quality of the counterparties and by the early termination ratings triggers contained in all master derivatives agreements. We enter into new uncleared derivatives only with nonmember institutions that are at or above our third highest internal rating, although risk-reducing trades could be approved for counterparties whose ratings had fallen below these ratings. See Part I - Item 1 - Business - Business Lines - Investmentsfor additional information on our internal ratings. We actively monitor these exposures and the credit quality of our counterparties, using stress testing of counterparty exposures and assessments of each counterparty's financial performance, capital adequacy, sovereign support, and related market signals such as credit default swap spreads. We can reduce or suspend credit limits and/or seek to reduce existing exposures, as appropriate, as a result of these monitoring activities. We do not enter into interest-rate-exchange agreements with other FHLBanks. We use master-netting agreements to reduce our credit exposure from counterparty defaults. The master agreements contain bilateral-collateral-exchange provisions that require credit exposures to be secured by U.S. federal government, U.S. government guaranteed, GSE securities, or cash. Exposures are measured daily, and adjustments to collateral positions are made daily. These agreements may require us to deliver additional collateral to certain of our counterparties if our credit rating is downgraded by an NRSRO, which could increase our exposure to loss in the event of a default by a counterparty to which we were the net creditor at the time of any such default, as further detailed in Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 7 - Derivatives and Hedging Activities.
We may deposit funds with certain of these counterparties and their affiliates for short-term money-market investments, including overnight federal funds, term federal funds, and interest-bearing deposits. We may also engage in short-term secured reverse repurchase agreements with affiliates of these counterparties. Some of these counterparties have affiliates that buy, sell, and distribute our COs.
Cleared derivatives.The credit risk from unsecured credit exposure on cleared swaps is principally mitigated by the DCO's structural risk protections. We actively monitor these exposures and the credit quality of our DCO counterparties, using stress testing of DCO counterparties exposures and assessments of the DCO's structural risk protections. We can reduce existing exposures to a DCO by unwinding any trade, entering into an offsetting trade, or by moving trades to another DCO.
LIQUIDITY AND CAPITAL RESOURCES
Our financial structure is designed to enable us to expand and contract our assets, liabilities, and capital in response to changes in membership composition and member credit needs. Our primary source of liquidity is our access to the capital markets through CO issuance, which is described in Part I - Item 1 - Business - Consolidated Obligations. Outstanding COs and the condition of the market for COs are discussed below under - Debt Financing - Consolidated Obligations. Our equity capital resources are governed by our Capital Plan, certain portions of which are described under - Capital below as well as by applicable legal and regulatory requirements.
Liquidity
We are required to maintain liquidity in accordance with the FHLBank Act, FHFA regulations and guidance, and policies established by our management and board of directors. We seek to be in a position to meet the credit and liquidity needs of our members and all current and future financial commitments by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of our assets and liabilities.
We are unable to predict future trends in member credit needs because they are driven by complex interactions among several factors, including, but not limited to, increases and decreases in members assets and deposits, and the attractiveness of advances compared to other sources of wholesale funding. We regularly monitor current trends and anticipate future debt issuance needs and maintain a portfolio of highly liquid assets to be prepared to fund member credit needs and investment opportunities. We are generally able to expand our CO debt issuance in response to members' increased need for advances and to increase our acquisitions of mortgage loans. Alternatively, in response to reduced member credit needs, we may shrink our balance sheet by allowing our COs to mature without replacement, transferring debt to another FHLBank, repurchasing and retiring outstanding COs, or redeeming callable COs on eligible redemption dates.
Sources and Uses of Liquidity.Our primary sources of liquidity are proceeds from the issuance of COs and advance repayments, and maturing short-term investments, as well as cash and investment holdings that are primarily high-quality, short- and intermediate-term financial instruments that can be sold or pledged as collateral under a repurchase agreement. During the year ended December 31, 2024, we maintained continuous access to funding and adapted our debt issuance to meet the needs of our members.
Secondary sources of liquidity include payments collected on mortgage loans, proceeds from the issuance of capital stock, and member deposits. In addition, under the FHLBank Act, the U.S. Treasury may purchase up to $4 billion of FHLBank COs. The terms, conditions, and interest rates in such a purchase would be determined by the U.S. Treasury. This authority may be exercised at the discretion of the U.S. Treasury with the agreement of the FHFA only if alternative means cannot be effectively employed to permit members of the FHLBanks to continue to supply reasonable amounts of funds to the mortgage market, and the ability to supply such funds is substantially impaired because of monetary stringency and high interest rates. There were no such purchases by the U.S. Treasury during the year ended December 31, 2024.
Our uses of liquidity are advance originations and consolidated obligation principal and interest payments. Other uses of liquidity are mortgage loan and investment purchases, dividend payments, general operating expenses, and other contractually obligated payments. We also maintain liquidity to redeem or repurchase excess capital stock, through our daily excess stock repurchases, upon the request of a member or as required under our Capital Plan.
For information and discussion of our guarantees and other commitments we may have, see Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 15 - Commitments and Contingencies. For further information and discussion of the joint and several liability for FHLBank COs, see below - Debt Financing - Consolidated Obligations.
Internal Liquidity Sources / Liquidity Management
Liquidity Reserves for Deposits.Applicable law requires us to hold cash, obligations of the U.S., and advances with maturities of less than five years, in a total amount not less than the amount of total member deposits with us. We have complied with this requirement during the year ended December 31, 2024.
Projected Net Cash Flow.We define projected net cash flow as projected sources of funds less projected uses of funds based on contractual maturities or expected option exercise periods, and settlement of committed assets and liabilities, as applicable. For mortgage-related cash flows and callable debt, we incorporate projected prepayments and call exercise.
Liquidity Management Action Trigger. We maintain a liquidity management action trigger pertaining to projected net cash flow: if projected net cash flow falls below zero on or before the 21stday following the measurement date, then management of the Bank is notified and determines whether any corrective action is necessary. We did not breach this threshold at any time during the year ended December 31, 2024. Table 32 below shows this calculation as of December 31, 2024.
Table 32 - Projected Net Cash Flow
(dollars in thousands)
As of December 31, 2024
21 Days
Uses of funds
Interest payable $ 209,107
Maturing or expected option exercise of liabilities 9,078,532
Committed asset settlements 56,670
Capital outflow 42,922
MPF delivery commitments 32,729
Projected Calls 110,000
Gross uses of funds 9,529,960
Sources of funds
Interest receivable 254,613
Maturing or projected amortization of assets 13,407,572
Committed liability settlements 1,277,699
Cash and due from banks and interest bearing deposits 1,960,702
Other 3,130
Gross sources of funds 16,903,716
Projected net cash flow $ 7,373,756
Base Case Liquidity Requirement. The Bank is subject to FHFA guidance on liquidity, including Advisory Bulletin 2018-07 (Liquidity Guidance AB), which communicates the FHFA's expectations with respect to the maintenance of sufficient liquidity to enable us to provide advances and fund standby letters of credit for members for a specified time without access to the capital markets or other unsecured funding sources.
The Liquidity Guidance AB provides guidance on the level of on-balance sheet liquid assets related to base case liquidity. As part of the base case liquidity measure, the guidance also includes a separate provision covering off-balance sheet commitments from standby letters of credit. In addition, the Liquidity Guidance AB provides guidance related to asset/liability maturity funding gap limits.
Under the Liquidity Guidance AB, FHLBanks are required to maintain sufficient liquid assets to achieve positive projected net cash flow while rolling over maturing advances to all members and assuming no access to capital markets for a period of time between 10 and 30 calendar days, with a specific measurement period set forth in a supervisory letter. The Liquidity Guidance AB also sets forth the initial cash flow assumptions and formula to calculate base case liquidity. With respect to standby letters
of credit, the guidance states that FHLBanks should maintain a liquidity reserve of between one percent and 20 percent of its outstanding standby letters of credit commitments, as specified in a supervisory letter.
We were in compliance with the Base Case Liquidity Requirement at all times during the year ended December 31, 2024.
Balance Sheet Funding Gap Policy. We may use a portion of the short-term COs issued to fund assets with longer terms, including longer-term floating-rate assets. Funding longer-term floating-rate assets with shorter-term liabilities generally does not expose us to significant interest-rate risk because the interest rates on both the floating-rate assets and liabilities typically reset similarly (either through rate resets or re-issuance of the obligations). However, deviations in the cost of our short-term liabilities relative to resetting assets can cause fluctuations in our net interest margin.
Additionally, the Bank is exposed to refinancing risk since, over certain time horizons, it has more liabilities than assets maturing. In order to manage the Bank's refinancing risk, we maintain a policy that limits the potential difference between the amount of financial assets and the amount of financial liabilities expected to mature within three-month and one-year time horizons inclusive of projected mortgage-related prepayment activity. We measure this difference, or gap, as a percentage of total assets over three-month and one-year time horizons. In conformity with the provisions of the Liquidity Guidance AB, the Bank has instituted a limit and management action trigger framework around these metrics as follows:
Table 33 - Funding Gap Metric
Funding Gap Metric (1)
Limit Management Action Trigger Three-Month Average
December 31, 2024 		Three-Month Average
December 31, 2023
3-month Funding Gap 15% 13% 4.9% 3.8%
1-year Funding Gap 30% 25% 11.1% 17.5%
_______________________
(1) The funding gap metric is a positive value when maturing liabilities exceed maturing assets, as defined, within the given period. Compliance with Limits and Management Action Triggers are evaluated against the rolling three-month average of the month-end funding gaps.
External Sources of Liquidity
Amended and Restated FHLBanks P&I Funding Contingency Plan Agreement. We have a source of emergency external liquidity through the Amended and Restated FHLBanks P&I Funding Contingency Plan Agreement. Under the terms of that agreement, in the event we do not fund principal and interest payments due with respect to any CO for which issuance proceeds were allocated to us within deadlines established in the agreement, the other FHLBanks will be obligated to fund any shortfall to the extent that any of the other FHLBanks has a net positive settlement balance (that is, the amount by which end-of-day proceeds received by such FHLBank from the sale of COs exceeds payments by such FHLBank on COs on the same day) in its account with the Office of Finance on the day the shortfall occurs. We would then be required to repay the funding to the other FHLBanks. We have never drawn funding under this agreement, nor have we ever been required to provide funding to another FHLBank under this agreement.
Debt Financing -Consolidated Obligations
Our primary source of liquidity is through CO issuances. At December 31, 2024, and December 31, 2023, outstanding COs for which we are primarily liable, including both CO bonds and CO discount notes, totaled $66.7 billion and $62.2 billion, respectively. CO bonds are generally issued with either fixed-rate coupon-payment terms or variable-rate coupon-payment terms that use a variety of indices for interest-rate resets. Some of the fixed-rate bonds that we have issued are callable bonds that may be redeemed at par on one or more dates prior to their maturity date. In addition, to meet our needs and the needs of certain investors in COs, fixed- and variable-rate bonds may also contain certain provisions that may result in complex coupon-payment terms and call or amortization features. When such COs (structured bonds) are issued, we enter into interest-rate-exchange agreements containing offsetting features, which effectively change the characteristics of the bond to those of a simple variable-rate bond.
The Office of Finance has established a methodology for the allocation of the proceeds from the issuance of COs when COs cannot be issued in sufficient amounts to satisfy all FHLBank demand for funding during periods of financial distress and when its existing allocation processes are deemed insufficient. See Part I - Item 1 - Business - Consolidated Obligationsfor additional information on the methodology.
See Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 9 - Consolidated Obligationsfor a summary of CO bonds by contractual maturity dates and call dates as of December 31, 2024, and December 31, 2023. CO bonds outstanding for which we are primarily liable at December 31, 2024, and December 31, 2023, include issued callable bonds totaling $18.0 billion and $22.2 billion, respectively.
CO discount notes are also a significant funding source for us. CO discount notes are short-term instruments with maturities ranging from overnight to one year. We use CO discount notes primarily to fund short-term advances and investments, and longer-term advances and investments with short-term variable coupon repricing intervals. CO discount notes comprised 27.8 percent and 35.3 percent of the outstanding COs for which we are primarily liable at December 31, 2024, and December 31, 2023, respectively, but accounted for 67.3 percent and 81.6 percent of the proceeds from the issuance of such COs during the years ended December 31, 2024 and 2023, respectively.
Although we are primarily liable for the portion of COs allocated to us, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on COs issued by all of the FHLBanks. The par amounts of the FHLBanks' outstanding COs were $1.2 trillion at both December 31, 2024 and 2023. COs are backed only by the combined financial resources of the FHLBanks. We have never repaid the principal or interest on any COs on behalf of another FHLBank.
We have evaluated the financial condition of the other FHLBanks based on known regulatory actions, publicly-available financial information, and individual long-term credit rating downgrades as of each period presented. Based on this evaluation, as of December 31, 2024, and through the filing of this report, we do not believe it is likely that we will be required to repay the principal or interest on any CO on behalf of another FHLBank.
Overall, we continued to experience strong demand for COs among investors. During the period covered by this report, the capital markets have supported our funding needs and we have been able to issue debt in the amounts and structures required to satisfy the demand for advances and meet our funding and risk-management needs.
Capital
Total capital at December 31, 2024, was $3.9 billion compared with $3.5 billion at December 31, 2023.
The FHLBank Act and FHFA regulations specify that each FHLBank is required to satisfy certain minimum regulatory capital requirements. We were in compliance with these requirements at December 31, 2024, as discussed in Part II -Item 8 - Financial Statements - Notes to the Financial Statements - Note 11 - Capital.
Table 34 - Capital Stock Outstanding by Member Institution Type
(dollars in thousands)
December 31, 2024
Savings institutions $ 819,425
Commercial banks 780,608
Insurance companies 323,136
Credit unions 271,238
Community development financial institutions 760
Total GAAP capital stock 2,195,167
Mandatorily redeemable capital stock 5,086
Total regulatory capital stock $ 2,200,253
Capital stock subject to a stock redemption period is reclassified to mandatorily redeemable capital stock, a liability in the statement of condition. Mandatorily redeemable capital stock totaled $5.1 million and $6.1 million at December 31, 2024, and December 31, 2023, respectively. For additional information on the redemption of our capital stock, see Part I- Item 1 - Business - Capital Resources - Redemption of Excess Stockand Item 8 - Financial Statements -Notes to the Financial Statements - Note 2 - Summary of Significant Accounting Policies - Mandatorily Redeemable Capital Stock.
Capital Rule
The Capital Rule, among other things, establishes criteria for capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An FHLBank is adequately capitalized if it
has sufficient permanent and total capital to meet or exceed its risk-based and minimum capital requirements. FHLBanks that are adequately capitalized have no corrective action requirements. FHLBanks that are not adequately capitalized must submit capital restoration plans, are subject to corrective action requirements and are prohibited from paying dividends, redeeming or repurchasing excess stock, and are subject to certain asset growth restrictions. The FHFA may place critically undercapitalized FHLBanks into conservatorship or receivership.
The Director of the FHFA has discretion to add to or modify the corrective action requirements for each capital classification other than adequately capitalized if the Director of the FHFA determines that such action is necessary to ensure the safe and sound operation of the FHLBank and the FHLBank's compliance with its risk-based and minimum capital requirements.
If we become classified into a capital classification other than adequately capitalized, we could be adversely impacted by the corrective action requirements for that capital classification.
The Capital Rule requires the Director of the FHFA to determine on no less than a quarterly basis the capital classification of each FHLBank. By letter dated December 10, 2024, the Director of the FHFA notified us that, based on financial information as of September 30, 2024, we met the definition of adequately capitalized under the Capital Rule.
Internal Capital Practices and Policies
We also take steps as we believe prudent beyond legal or regulatory requirements in an effort to ensure capital adequacy, reflected in our internal minimum capital requirement, which exceeds regulatory requirements, our minimum retained earnings target, and limitations on our dividends.
Internal Minimum Capital Requirement in Excess of Regulatory Requirements
In an effort to provide protection for our capital base, we maintain an internal minimum capital requirement whereby the amount of paid-in capital stock and retained earnings (together, our actual regulatory capital) must be at least equal to the sum of 4 percent of our total assets plus an amount we measure as our risk exposure with 99 percent confidence using our economic capital model (together, our internal minimum capital requirement). As of December 31, 2024, this internal minimum capital requirement equaled $3.5 billion, which was satisfied by our actual regulatory capital of $4.1 billion.
Minimum Retained Earnings Target
In the third quarter of 2024, we implemented a management action trigger and a limit for our minimum level of retained earnings, both of which are determined monthly using rolling three-month averages:
•Management action trigger: retained earnings must be at least 4.5 percent of our total assets less outstanding capital stock plus the higher of (a) the risk-based capital requirement or (b) the economic capital requirement; and
•Limit: retained earnings must be at least 4.0 percent of our total assets less outstanding capital stock plus the higher of (a) the risk-based capital requirement or (b) the economic capital requirement.
At December 31, 2024, we had total retained earnings of $1.9 billion, which exceeded both the management action trigger of $1.7 billion and the limit of $1.3 billion. This method for determining our minimum amount of retained earnings replaced our previous target of $700.0 million in July 2024. In the event that the Bank's balance of retained earnings is below the limit, dividends may not exceed 40 percent of the prior quarter's net income.
Our minimum retained earnings trigger and/or limit could be superseded by FHFA mandates, either in the form of an order specific to us or by promulgation of new regulations requiring a level of retained earnings that is different from our current target. Moreover, we may, at any time, change our methodology or assumptions for modeling our minimum retained earnings target and will do so when prudent or when other reasons warrant such a change. Either of these events could result in us increasing our minimum retained earnings target and, in turn, reducing or eliminating dividends, as necessary.
For information on limitations on dividends, including limitations when we are under our minimum retained earnings target, see Part II - Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Repurchases of Excess Stock
We have the authority, but are not obliged, to repurchase excess stock, as discussed under Part I - Item 1 - Business - Capital Resources - Repurchase of Excess Stock.
Table 35 - Capital Stock Requirements and Excess Capital Stock
(dollars in thousands)
Membership Stock
Investment
Requirement 		Activity-Based
Stock Investment
Requirement
Total Stock
Investment
Requirement (1)
Outstanding Class B
Capital Stock (2)
Excess Class B
Capital Stock
December 31, 2024 $ 348,504 $ 1,808,806 $ 2,157,331 $ 2,200,253 $ 42,922
December 31, 2023 335,004 1,666,987 2,002,011 2,048,536 46,525
_______________________
(1) Total stock investment requirement is rounded up to the nearest $100 on an individual member basis.
(2) Class B capital stock outstanding includes mandatorily redeemable capital stock.
To facilitate our ability to maintain a prudent level of capitalization and an efficient capital structure, while providing for an equitable allocation of excess stock ownership among members, we conduct daily repurchases of excess stock from any shareholder whose excess stock exceeds the lesser of $3 million or 3 percent of the shareholder's total stock investment requirement, subject to the minimum repurchase of $100,000. We plan to continue this practice, subject to regulatory requirements and our liquidity or capital management needs, although repurchase decisions remain at our sole discretion, and we retain authority to adjust our excess stock repurchase practices subject to notice requirements defined in our Capital Plan, or to suspend repurchases of excess stock from any shareholder or all shareholders without prior notice.
Restricted Retained Earnings and the Joint Capital Agreement
Our Capital Plan and the Joint Capital Agreement require us to allocate a certain percentage of quarterly net income to a restricted retained earnings account, which we refer to as restricted retained earnings. The Joint Capital Agreement, the terms of which are reflected in the Capital Plans of the 11 FHLBanks, is a voluntary contractual agreement among the FHLBanks, intended to build greater safety and soundness in the FHLBank System. Generally, the Joint Capital Agreement requires each FHLBank to allocate a certain amount, at least 20 percent of each of its quarterly net income (net of that FHLBank's obligation to its AHP) and adjustments to prior net income, to a restricted retained earnings account until the total amount in that account is equal to 1 percent of the daily average carrying value of that FHLBank's outstanding total COs (excluding fair-value adjustments) for the calendar quarter (total required contribution). The percentage of the required allocation is subject to adjustment when an FHLBank has had an adjustment to a prior calendar quarter's net income.
At December 31, 2024, our total required contribution to the restricted retained earnings account was $663.5 million compared with the current restricted retained earnings account balance of $509.2 million.
The Joint Capital Agreement refers to the period of required contributions to the restricted retained earnings account as the "dividend restriction period." Additionally, the agreement provides that:
•amounts held in an FHLBank's unrestricted retained earnings account may not be transferred into the restricted retained earnings account;
•during the dividend restriction period, an FHLBank shall redeem or repurchase capital stock only at par value, and shall only conduct such redemption or repurchase if it would not result in the FHLBank's total regulatory capital falling below its aggregate paid in amount of capital stock;
•any quarterly net losses will be netted against the FHLBank's other quarters' net income during the same calendar year so that the minimum required annual allocation into the FHLBank's restricted retained earnings account is satisfied;
•if the FHLBank sustains a net loss for a calendar year, the net loss will be applied to reduce the FHLBank's retained earnings that are not in the FHLBank's restricted retained earnings account to zero prior to application of such net loss to reduce any balance in the FHLBank's restricted retained earnings account;
•if the FHLBank incurs net losses for a cumulative year-to-date period resulting in a decline to the balance of its restricted retained earnings account, the FHLBank's required allocation percentage will increase from 20 percent to 50 percent of quarterly net income until its restricted retained earnings account balance is restored to an amount equal to the regular required allocation (net of the amount of the decline);
•if the balance in the FHLBank's restricted retained earnings account exceeds 150 percent of its total required contribution to the account, the FHLBank may release such excess from the account;
•in the event of the liquidation of the FHLBank, or the taking of the FHLBank's retained earnings by future federal action, such event will not affect the rights of the FHLBank's Class B stockholders under the FHLBank Act in the FHLBank's retained earnings, including those held in the restricted retained earnings account;
•the payment of dividends from amounts in the restricted retained earnings account be restricted for at least one year following the termination of the Joint Capital Agreement; and
•certain procedural mechanisms be followed for determining when an automatic termination event has occurred.
The agreement will terminate upon an affirmative vote of two-thirds of the boards of directors of the then existing FHLBanks, or automatically if a change in the FHLBank Act, FHFA regulations, or other applicable law has the effect of:
•creating any new or higher assessment or taxation on the net income or capital of any FHLBank;
•requiring the FHLBanks to retain a higher level of restricted retained earnings than what is required under the agreement; or
•establishing general restrictions on dividend payments requiring a new or higher mandatory allocation of an FHLBank's net income to any retained earnings account than the amount specified in the agreement or prohibiting dividend payments from any portion of an FHLBank's retained earnings not held in the restricted retained earnings account.
Off-Balance-Sheet Arrangements
Our significant off-balance-sheet arrangements consist of the following:
• commitments that obligate us for additional advances;
• standby letters of credit;
• commitments for unused lines-of-credit advances; and
• unsettled COs.
Off-balance-sheet arrangements are more fully discussed in Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 15 - Commitments and Contingencies.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, income and expense. To understand the Bank's financial position and results of operations, it is important to understand the Bank's most significant accounting policies and the extent to which management uses judgment, estimates and assumptions in applying those policies. The Bank's critical accounting estimates include:
•Estimation of Fair Values, for derivatives, hedged items in a fair-value hedge relationship, and available-for-sale investment securities; and
•Amortization of Premiums and Accretion of Discounts Associated with Prepayable MBS.
Management considers these policies to be critical because they require us to make subjective and complex judgments about matters that are inherently uncertain. Management bases its judgment and estimates on current market conditions and industry practices, historical experience, changes in the business environment and other factors that it believes to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and/or conditions. The Audit Committee of our board of directors has reviewed these estimates. For additional discussion regarding the application of these and other accounting policies, see Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 2 - Summary of Significant Accounting Policies.
Estimation of Fair Values
Overview.
Certain assets and liabilities, including investment securities classified as available-for-sale or trading, as well as all derivatives, are presented in the Statements of Condition at fair value. Management also estimates the changes in fair value of hedged items in fair-value hedge relationships (e.g., advance, investment security, or consolidated obligation) that are attributable to changes in the designated benchmark interest rate (hereinafter referred to as "changes in the benchmark fair value"), which we have designated as either the overnight-index swap rate based on SOFR (SOFR-OIS) or the overnight-index swap rate based on the federal funds effective rate (Federal Funds-OIS) at the inception of each hedge relationship. Finally, management also estimates the fair value of some of the collateral that borrowers pledge against advance borrowings to confirm that collateral is sufficient to meet regulatory requirements and to protect against losses.
Fair value is defined under GAAP 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. GAAP establishes a fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The fair values of the Bank's assets and liabilities that are carried at fair value are estimated based on quoted market prices when available. However, some of these instruments lack an available trading market characterized by frequent transactions between a willing buyer and willing seller engaging in an exchange transaction (for example, derivatives). In these cases, such values are generally estimated using a valuation model and inputs that are observable for the asset or liability, either directly or indirectly. The assumptions and inputs used have a significant effect on the reported carrying values of assets and liabilities and the related income and expense. The use of different assumptions or inputs could result in materially different net income and reported carrying values.
The book values and fair values of our financial assets and liabilities, along with a description of the fair value hierarchy and the valuation methodologies used to determine the fair values of these financial instruments, is disclosed in Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 14 - Fair Values.
Valuation of Derivatives and Hedged Items.
All derivatives are required to be carried on the statement of condition at fair value. Changes in the fair value of all derivatives, excluding those designated as cash-flow hedges, are recorded each period in current earnings, while changes in the fair value of derivatives that are designated and qualify as cash-flow hedges are recorded in accumulated other comprehensive income (AOCI) until earnings are affected by the variability of the cash flows of the hedged transaction. We are required to recognize unrealized gains and losses on derivative positions whether or not the transaction qualifies for hedge accounting. The judgments and assumptions that are most critical to the application of this accounting policy are the estimation of fair values of derivatives and hedged items, which have a significant impact on the actual results being reported.
Fair-value hedge accounting.If the transaction is designated and qualifies for fair-value hedge accounting, offsetting losses or gains on the hedged assets or liabilities may also be recognized each period in current earnings. Therefore, to the extent certain derivative instruments do not qualify for fair-value hedge accounting, or changes in the fair values of derivatives are not exactly offset by changes in fair values of the associated hedged items, the accounting framework introduces the potential for a considerable mismatch between the timing of income and expense recognition for assets and liabilities being hedged and their associated hedging instruments. As a result, during periods of significant changes in market prices and interest rates, our reported earnings may exhibit considerable variability.
At inception of each fair-value hedge transaction, the Bank formally documents the hedge relationship and the 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. In all cases involving a recognized asset, liability or firm commitment, the designated risk being hedged is the risk of changes in its benchmark fair value.
For hedging relationships that are designated as fair-value hedges and qualify for hedge accounting, the change in the benchmark fair value of the hedged item is recorded in earnings, thereby providing some offset to the change in fair value of the associated derivative. The difference between the change in fair value of the derivative and the change in the benchmark fair value of the hedged item represents hedge ineffectiveness. All of our fair-value hedge relationships are treated as long-haul fair-value hedge relationships, where the change in the benchmark fair value of the hedged item must be measured separately from the change in fair value of the derivative. See Table 7.2 - Net Gains (Losses) on Fair Value Hedging Relationships in Part II - Item 8 - Financial Statements - Notes to the Financial Statements - Note 7 - Derivatives and Hedging Activitiesfor a summary of our fair-value hedge ineffectiveness for the three years ended December 31, 2024, 2023, and 2022.
For derivative transactions to qualify for long-haul fair-value hedge-accounting treatment, hedge effectiveness testing is performed at the inception of each hedging relationship to determine whether the hedge is expected to be highly effective in offsetting the identified risk, and at each month-end thereafter to ensure that the hedge relationship has been effective historically and to determine whether the hedge is expected to be highly effective in the future. We perform testing at hedge inception based on regression analysis of the hypothetical performance of the hedge relationship using historical market data. We then perform regression testing each month thereafter using accumulated actual values in conjunction with hypothetical values. Each month we use a consistently applied statistical methodology that uses a sample of at least 31 historical interest-rate environments and includes an R-square test, a slope test, and an F-statistic test. These tests measure the degree of correlation of movements in estimated fair values between the derivative and the related hedged item. For the hedging relationship to be considered effective, the R-square must be greater than 0.8, the slope must be between -0.8 and -1.25, and the computed F-statistic test significance must be less than 0.05.
If a hedge fails the effectiveness test at inception, we do not apply hedge accounting. If the hedge fails the effectiveness test during the life of the transaction, we discontinue hedge accounting prospectively. In that case, we will continue to carry the derivative on the statement of condition at fair value, recognize the changes in fair value of that derivative in current earnings, cease to adjust the hedged item for changes in its benchmark fair value, and amortize the cumulative basis adjustment of the formerly hedged item into earnings over its remaining term. Unless and until the derivative is redesignated in a qualifying fair value hedging relationship for accounting purposes, changes in its fair value are recorded in current earnings without an offsetting change in the benchmark fair value from a hedged item.
For purposes of estimating the fair value of derivatives and hedged items for which we are hedging changes in the benchmark fair value, we employ a valuation model that uses market data from the Eurodollar futures, U.S. Treasury obligations, federal funds rates, Federal Funds-OIS, SOFR-OIS, and the U.S. dollar interest-rate-swap markets to construct discount and forward-yield curves using standard financial market techniques. This valuation model is subject to external validation approximately every three years. In those years when an external validation is not performed, the valuation model is subject to an internal model validation review. We periodically review and refine, as appropriate, the assumptions and valuation methodologies to reflect market indications as closely as possible. Additionally, for derivatives, we compare the fair values obtained from our valuation model to clearinghouse valuations (in the case of cleared derivatives) and non-binding dealer estimates (in the case of bilateral derivatives), and may also compare derivative fair values to those of similar instruments, to ensure such fair values are reasonable.
We use an applicable interest-rate index as the discount rate for the valuation of derivatives. For all derivatives cleared through a DCO, the discount rate used is SOFR-OIS, while for our bilateral, non-cleared interest-rate derivatives the discount rate used is either Federal Funds-OIS or SOFR-OIS. For the valuation of hedged assets or liabilities in fair-value hedging relationships where the hedged risk is changes in the benchmark fair value, we use either SOFR-OIS or Federal Funds-OIS as the discount rate, depending on which interest-rate index was designated as the benchmark rate at inception of the hedge relationship.
Depending upon the spreads between Federal Funds-OIS and SOFR-OIS rates, the use of the one interest-rate index as the discount rate for valuing our interest-rate exchange agreements and a different interest-rate index (plus or minus a constant spread) as the discount rate for valuing our hedged items can result in increased fair-value hedge ineffectiveness. In addition, while not likely, this valuation methodology has the potential to lead to the loss of hedge accounting for some of these hedging relationships. Either of these outcomes could result in increased earnings volatility, which could potentially be material. However, through December 31, 2024, no hedge relationships failed our hedge effectiveness criteria as a result of using different interest-rate indices as the discount rate for the derivative and the discount rate for the hedged item.
Economic hedges.We generally employ hedging techniques that qualify for and are effective under GAAP hedge-accounting requirements. However, not all of our hedging relationships meet these requirements. In some cases, we have elected to retain or enter into derivatives that are economically effective at reducing risk but do not meet the hedge-accounting requirements, either because the cost of the hedge was economically superior to nonderivative hedging alternatives or because no nonderivative hedging alternative was available, and available hedge strategies did not meet hedge accounting requirements. As required by FHFA regulation and our policy, derivatives that do not qualify as hedging instruments pursuant to GAAP may be used only if we document a nonspeculative purpose.
For derivatives where no identified hedged item qualifies for hedge accounting, changes in the fair value of the derivative are reflected in current earnings. As of December 31, 2024, we held $3.0 billion notional of interest-rate swaps with a fair value of $723 thousand that are economically hedging $3.0 billion of CO discount notes. Additionally, as of December 31, 2024, we held $32.7 million notional of mortgage-delivery commitments with a fair value of $(100) thousand. The following table shows
the estimated changes in the fair value of the interest-rate swaps under alternative parallel interest-rate shifts (for example the same change to interest rates on short-, intermediate-, and long-term fixed income maturities):
Table 36 - Estimated Change in Fair Value of Undesignated Derivatives
(dollars in thousands)
As of December 31, 2024
-200 basis points -150 basis points -100 basis points -50 basis points +50 basis points +100 basis points +150 basis points +200 basis points
Change from base case
Interest-rate swaps $ 15,581 $ 11,668 $ 7,767 $ 3,878 $ (3,866) $ (7,720) $ (11,562) $ (15,392)
Valuation of Investment Securities.
To value our holdings of investment securities, other than HFA floating-rate securities, we obtain prices from three designated third-party pricing vendors when available. The pricing vendors use various proprietary models to price these securities. The inputs to those models are derived from various sources including, but not limited to, benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers and other market-related data. Because many 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 challenge process in place for all security valuations, which facilitates resolution of potentially erroneous prices identified by the Bank. Recently, we conducted reviews of the three pricing vendors to reconfirm our understanding of the vendors' pricing processes, methodologies and control procedures and were satisfied that those processes, methodologies, and control procedures were adequate and appropriate.
As of December 31, 2024, multiple vendor prices were received for substantially all of our investment securities and the final prices for substantially all of those securities were computed by averaging those prices. Based on our review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or, in those instances in which there were outliers or significant yield variances, our additional analyses), we believe the final prices used are reasonably likely to be exit prices and further that the fair-value measurements are classified appropriately in the fair-value hierarchy.
The following table provides the estimated valuation of our available-for-sale investment securities, other than HFA floating-rate securities, as of December 31, 2024, under three different pricing scenarios: the lowest vendor price received for each security, the fair values reported in our financial statements based on the methodology described above, and the highest vendor price received for each security.
Table 37 - Estimated Valuation of Available-for-Sale Securities Under Alternative Pricing Scenarios
(dollars in thousands)
December 31, 2024
Lowest Price Fair
Value 		Highest Price
U.S. Treasury obligations $ 5,807,139 $ 5,807,665 $ 5,808,169
Supranational institutions 336,147 337,352 339,160
U.S. government-owned corporations 220,893 221,769 222,798
GSE 94,388 94,614 95,026
6,458,567 6,461,400 6,465,153
MBS
U.S. government guaranteed - single-family 178,467 179,052 179,570
U.S. government guaranteed - multifamily 462,415 464,823 468,167
GSE - single-family 1,944,332 1,953,153 1,962,647
GSE - multifamily 7,375,549 7,405,829 7,433,031
9,960,763 10,002,857 10,043,415
Total $ 16,419,330 $ 16,464,257 $ 16,508,568
Amortization of Premiums and Accretion of Discounts Associated with Prepayable MBS
When we purchase MBS, we often pay an amount that is different from the par value. The difference between the purchase price and the contractual note amount is a premium if the purchase price is higher, and a discount if the purchase price is lower. Accounting guidance permits us to incorporate estimates of prepayments when we amortize (or accrete) these premiums (or discounts) in a manner such that the yield recognized on the underlying asset is constant over the asset's estimated life.
We typically pay more than the par value when the interest rates on the purchased MBS are greater than prevailing market yields for similar MBS on the transaction date. The net purchase premiums paid are then amortized using the constant-effective-yield method over the expected lives of the MBS as a reduction in their book yields (that is, interest income). Similarly, if we pay less than the par value due to interest rates on the purchased MBS being lower than prevailing market yields on similar MBS on the transaction date, the net discount is accreted in the same manner as the premiums, resulting in an increase in the MBS's book yields. The constant-effective-yield amortization method is applied using expected cash flows that incorporate prepayment projections that are based on mathematical models that describe the likely rate of consumer refinancing activity in response to incentives created (or removed) by changes in interest rates as well as other factors. While changes in interest rates have the greatest effect on the extent to which mortgages underlying the MBS may prepay, in general prepayment behavior can also be affected by factors not contingent on interest rates. Moreover, many of the MBS that we purchase are part of a multi-tranche securitization through which our exposure to cash flow timing uncertainty is mitigated. In addition, many of the MBS that we purchase are backed by commercial mortgage loans secured by multi-family housing, which may have embedded prepayment penalty fees that serve as a mitigant to prepayment risk.
We estimate prepayment speeds on each individual security using the most recent three months of historical constant prepayment rates, as available, or may subscribe to third-party data services that provide prepayment estimates used to calculate cash flows, from which we determine expected asset lives. The constant-effective-yield method uses actual historical prepayments received and projected future prepayment speeds, as well as scheduled principal payments, to determine the amount of premium/discount that should be recognized so that the book yield of each MBS is constant for each month until maturity.
In general, for MBS comprised of single-family residential mortgage loans that contain no prepayment fees, lower prevailing interest rates are expected to result in the acceleration of premium and discount amortization and accretion, compared with the effect of higher prevailing interest rates that would tend to decelerate the amortization and accretion of premiums and discounts. Exact trends will depend on the relationship between market interest rates and coupon rates on outstanding mortgage assets, the historical evolution of mortgage interest rates, the age of the mortgage loans, demographic and population trends, and other market factors, as well as the structural design of our security within the overall group of securities backed by the underlying pool of mortgage loans. Changes in amortization will also be impacted by differences between projected prepayments and actual experience. Prepayment projections are inherently subject to uncertainty because it is difficult to accurately predict future market conditions and the response of borrowing consumers in terms of refinancing activity to future market conditions even if the market conditions were known. However, actual prepayment speeds observed in these rate environments can be influenced by factors such as home price trends and lender credit underwriting standards.
The effect on interest income from the amortization and accretion of premiums and discounts on MBS, including MBS in both the held-to-maturity and available-for-sale portfolios, for the years ended December 31, 2024, 2023 and 2022, was a net (decrease) increase to income of $(3.5) million, $(3.9) million, and $24.3 million, respectively.
RECENT ACCOUNTING DEVELOPMENTS
None.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
We summarize certain significant legislative and regulatory actions and related developments for the period covered by this report below.
Regulatory Environment.We are subject to various legal and regulatory requirements and regulatory expectations. Changes in the regulatory environment under the current federal executive administration, including regulatory priorities and areas of focus, could affect our business operations, results of operations and reputation. Certain early actions by the executive administration suggest that our regulatory environment is changing. For example, on January 20, 2025, the new administration ordered all executive departments and agencies to, among other things, not propose or issue any rule until a department or agency head appointed or designated by the president reviews and approves the rule. This order applies to proposed rules, among other
regulatory actions, including those discussed in this Legislative and Regulatory Developments section. As a result, there is uncertainty with respect to the ultimate result of the impacted regulatory actions and their ultimate effects on us and the FHLBank System.
Finance Agency's Review and Analysis of the FHLBank System.On November 7, 2023, the FHFA issued a written report titled "FHLBank System at 100: Focusing on the Future," (System at 100 Report) presenting its review and analysis of the FHLBank System and the actions and recommendations that it plans to pursue in service of its vision for the future of the FHLBank System. The report focuses on four broad themes as part of a multi-year collaborative effort with the FHLBanks, their member institutions, and other stakeholders to: update and clarify its regulatory statement of the FHLBanks' mission; clarify the FHLBanks' liquidity role; expand the FHLBanks' housing and community development focus and promote the FHLBanks' operational efficiency.
The FHFA has since issued rulemakings and requests for input and made legislative recommendations for the FHLBank System in its 2023 Report to Congress issued on June 14, 2024, consistent with proposed plans and actions included in the System at 100 Report.
Given the current regulatory environment, we are unable to predict what actions, if any, will ultimately result from the FHFA's recommendations in the report, the timing of any such actions, the extent of any changes to us or the FHLBank System, or the ultimate effect on the Bank or the FHLBank System of any such actions. For discussion of the related risks, see Part I - Item 1A - Risk Factors.
Advisory Bulletin Federal Home Loan Bank System Climate-Related Risk Management.On September 30, 2024, the FHFA issued an advisory bulletin setting forth the FHFA's expectation that each FHLBank should integrate climate-related risk management into its existing enterprise risk management framework over time. The advisory bulletin provides that an effective framework should address climate-related risk governance, such as selection of the related risk appetite and setting strategy and objectives, establishing and implementing plans to mitigate and monitor and report material exposures to such risks, and establishing roles and responsibilities for the board of directors and management. The advisory bulletin requires the FHLBanks to establish metrics that track exposure to climate-related risks and collect related data to quantify risk exposures, conduct climate-related scenario analyses, implement processes to report and communicate climate-related risks to internal stakeholders, and have a plan to respond to natural disasters and support climate resiliency. The advisory bulletin also requires the Bank to identify and incorporate climate-related legal and compliance risk into its existing enterprise risk management framework, including applicable climate-related regulations and federal and state disclosure requirements.
Relatedly, we continue to monitor developments relevant to the SEC's final rule on the enhancement and standardization of climate-related disclosures and note recent statements from the Acting SEC Chair that indicate that the SEC could take steps to rescind the rule. We also continue to monitor the status of certain climate-related state laws to assess their possible impacts on us.
Advisory Bulletin on FHLBank Member Credit Risk Management.On September 27, 2024, the FHFA issued an advisory bulletin setting forth their expectations that an FHLBank's underwriting and credit decisions should reflect a member's financial condition and not rely solely on the collateral securing the member's credit obligations. The advisory bulletin provides guidance for the FHLBanks to implement policies for credit risk governance, member credit assessment, and monitoring of credit conditions, among other considerations. It also provides guidance on the oversight of members in financial distress by recommending implementation of escalation policies, processes for coordination with members' prudential regulators, and management policies addressing default, failure, and insolvency situations. We have implemented appropriate adjustments to our relevant policies and procedures.
Finance Agency Final Rule on Fair Lending, Fair Housing, and Equitable Housing Finance Plans.On May 16, 2024, the FHFA published its final rule that specifies requirements related to the FHLBanks' compliance with fair housing and fair lending laws and related regulations, including the Fair Housing Act and the Equal Credit Opportunity Act, and prohibitions on unfair or deceptive acts or practices under the Federal Trade Commission Act (the FTC Act). The final rule: (i) addresses the enforcement authority of the FHFA; (ii) articulates standards related to boards of directors' oversight of fair housing, fair lending, and the prohibitions on unfair or deceptive acts or practices under the FTC Act; and (iii) requires each FHLBank to annually report actions it voluntarily takes to address barriers to sustainable housing opportunities for underserved communities (Equitable Housing Report Requirements). The final rule became effective on July 15, 2024, except that the Equitable Housing Report Requirements will become effective on February 15, 2026. The Finance Agency has since issued advisory bulletins setting forth its expectations regarding the FHLBanks' compliance with the final rule. We have reviewed this rule and related advisory bulletins and expect to continue developing our program to comply with the requirements and proceed in accordance
with the guidance. We continue to review the final rule and related guidance and evaluate the impact it may have on our financial condition and results of operations.
Agreements Regarding Process to End the Conservatorships of Fannie Mae and Freddie Mac (the Enterprises).The Enterprises have been in conservatorship since September 2008. On January 2, 2025, the FHFA and the U.S. Department of the Treasury entered into certain agreements one of which, among other things, sets out a process that would govern the resolution of the conservatorships of the Enterprises other than in the instances of receivership of the Enterprises.
The resolution of the Enterprises' conservatorships could result in heightened competition with the Enterprises for the purchase of mortgage loans. For example, the Enterprises currently operate subject to certain asset and indebtedness limitations. However, the resolution of their conservatorships could result in such limitations being lifted resulting in increases of their purchases of mortgage loans, which could result in upward pressure on mortgage loan prices. As a result, our opportunities to purchase mortgage loans or the profitability from our investments in mortgage loans could be reduced. Further, the ultimate resolution of their conservatorships could result in an actual or perceived competitive advantage to the Enterprises in the issuance of unsecured debt relative to the FHLBanks thereby resulting in less favorable debt funding costs for us.
Proposed Rule on FHLBank System Boards of Directors and Executive Management.On November 4, 2024, the FHFA published a notice of proposed rulemaking that would revise regulations addressing boards of directors and overall corporate governance of the FHLBanks and the Office of Finance. If adopted as proposed, it would, among other things: (1) affect director compensation by allowing the Director of the FHFA to establish an annual amount of director compensation that the Director determines is reasonable; (2) require the FHLBanks to complete and submit background checks to the FHFA on every nominee for a directorship; (3) change public interest independent director qualifications, in part, by requiring a person to have advocated for, or otherwise acted primarily on behalf of or for the direct benefit of, consumers or the community to meet the representation requirement; (4) expand the list of qualifying experiences for all Bank independent directors to include artificial intelligence, information technology and security, climate-related risk, Community Development Financial Institutions business models, and modeling; and (5) establish a review process for director performance and participation, together with a process for removing FHLBank directors for cause. Other proposed revisions address, among other things, Bank conflicts of interest policies, covering all our employees, including specific limitations on executive officers and senior management, and record retention.
Several of the proposed revisions would result in significant changes to the nomination, election, and retention of directors on our board if adopted as proposed. Additional director eligibility requirements and limitations on, and potential reductions or limitations to, director compensation resulting from the proposed rule could hinder our ability to recruit and retain the talent and expertise that are critical to our ability to satisfy our mission, particularly given the growing complexities of the finance industry. We continue to consider the effect that the proposed rule could have on us.
CREDIT RATING AGENCY DEVELOPMENTS
As of February 28, 2025, Moody's long- and short-term credit ratings for us and the 10 other FHLBanks are Aaa and P-1, with a negative outlook.
As of February 28, 2025, S&P's long- and short-term credit ratings for us and the 10 other FHLBanks are AA+ and A-1+, with a stable outlook.