Investments | Investments The Bank has short-term investments and may make other investments in debt securities, which are classified as trading, AFS, or HTM as further described below. Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of BBB or greater (investment grade) by an NRSRO. Interest-bearing deposits and Federal funds sold are unsecured investments. Federal funds sold are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At December 31, 2022 and December 31, 2021, all investments in interest-bearing deposits and Federal funds sold were repaid according to the contractual terms; no ACL was recorded for these assets at December 31, 2022 and December 31, 2021. Carrying values of interest-bearing deposits and Federal funds exclude accrued interest receivable which was immaterial for all periods presented. At December 31, 2022 and December 31, 2021, none of these investments were with counterparties rated below BBB or with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable. Securities purchased under agreements to resell are secured investments. Securities purchased under agreements to resell are generally transacted on an overnight term and have standard market practices that include collateral maintenance provisions. As such, they are evaluated regularly to determine that the securities purchased under agreements to resell are fully collateralized. The counterparty is required to deliver additional collateral if the securities purchased under agreements to resell become under-collateralized, generally by the next business day. At December 31, 2022 and December 31, 2021, all investments in securities purchased under agreements to resell were repaid according to the contractual terms; no ACL was recorded for these assets at December 31, 2022 and December 31, 2021. Carrying value of securities purchased under agreements to resell exclude accrued interest receivable which was immaterial for all periods presented. At December 31, 2022 and December 31, 2021, none of these investments were with counterparties rated below BBB or with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable. Debt Securities The Bank invests in debt securities, which are classified as trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk related to private label MBS that are supported by underlying mortgage or asset-backed loans. In 2007, the Bank discontinued the purchase of private label MBS. The Bank is prohibited by Finance Agency regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities. Trading Securities. The following table presents the fair value of trading securities by major security type at December 31, 2022 and December 31, 2021. (in thousands) December 31, 2022 December 31, 2021 GSE obligations $ 214,008 $ 243,262 Total $ 214,008 $ 243,262 The following table presents net gains (losses) on trading securities for the years ended December 31, 2022, 2021 and 2020. Year ended December 31, (in thousands) 2022 2021 2020 Net unrealized gains (losses) on trading securities held at year-end $ (29,502) $ (13,423) $ 22,099 Net gains (losses) on trading securities sold/matured during the year — (8,017) 25,228 Net gains (losses) on trading securities $ (29,502) $ (21,440) $ 47,327 AFS Securities. The following tables presents AFS securities by major security type at December 31, 2022 and December 31, 2021. December 31, 2022 (in thousands) Amortized Cost (1) Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Non-MBS: U.S. Treasury obligations $ 5,246,937 $ — $ 3,963 $ (18,407) $ 5,232,493 GSE and TVA obligations 1,111,674 — 16,879 (2,810) 1,125,743 State or local agency obligations 184,310 — 21 (14,068) 170,263 Total non-MBS $ 6,542,921 $ — $ 20,863 $ (35,285) $ 6,528,499 MBS: U.S. obligations single-family $ 490,952 $ — $ 1,999 $ (9,969) $ 482,982 GSE single-family 1,925,950 — 5,852 (50,765) 1,881,037 GSE multifamily 3,164,964 — 1,364 (10,557) 3,155,771 Private label 140,222 (8,532) 12,443 (1,862) 142,271 Total MBS $ 5,722,088 $ (8,532) $ 21,658 $ (73,153) $ 5,662,061 Total AFS securities $ 12,265,009 $ (8,532) $ 42,521 $ (108,438) $ 12,190,560 December 31, 2021 (in thousands) Amortized Cost (1) Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Non-MBS: U.S. Treasury obligations $ 5,069,716 $ — $ 6,213 $ (697) $ 5,075,232 GSE and TVA obligations 1,449,717 — 43,935 — 1,493,652 State or local agency obligations 198,775 — 8,422 — 207,197 Total non-MBS $ 6,718,208 $ — $ 58,570 $ (697) $ 6,776,081 MBS: U.S. obligations single-family $ 394,985 $ — $ 3,876 $ (54) $ 398,807 GSE single-family 2,075,683 — 18,377 (991) 2,093,069 GSE multifamily 3,001,730 — 4,526 (1,345) 3,004,911 Private label 164,050 (2,378) 32,826 (73) 194,425 Total MBS $ 5,636,448 $ (2,378) $ 59,605 $ (2,463) $ 5,691,212 Total AFS securities $ 12,354,656 $ (2,378) $ 118,175 $ (3,160) $ 12,467,293 Notes : (1) Includes adjustments made to the cost basis of an investment for accretion, amortization and/or fair value hedge accounting adjustments, and excludes accrued interest receivable The following tables summarize the AFS securities with gross unrealized losses as of December 31, 2022 and December 31, 2021. The gross unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position. December 31, 2022 Less than 12 Months Greater than 12 Months Total (in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Non-MBS: U.S. Treasury obligations $ 2,460,913 $ (8,532) $ 388,509 $ (9,875) $ 2,849,422 $ (18,407) GSE and TVA obligations 39,276 (2,810) — — 39,276 (2,810) State or local agency obligations 160,372 (14,068) — — 160,372 (14,068) Total non-MBS $ 2,660,561 $ (25,410) $ 388,509 $ (9,875) $ 3,049,070 $ (35,285) MBS: U.S. obligations single-family $ 315,111 $ (9,511) $ 15,293 $ (458) $ 330,404 $ (9,969) GSE single-family 1,406,666 (33,614) 146,908 (17,151) 1,553,574 (50,765) GSE multifamily 2,310,965 (6,738) 548,201 (3,819) 2,859,166 (10,557) Private label 34,918 (1,682) 2,357 (180) 37,275 (1,862) Total MBS $ 4,067,660 $ (51,545) $ 712,759 $ (21,608) $ 4,780,419 $ (73,153) Total $ 6,728,221 $ (76,955) $ 1,101,268 $ (31,483) $ 7,829,489 $ (108,438) December 31, 2021 Less than 12 Months Greater than 12 Months Total (in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Non-MBS: U.S. Treasury obligations $ 586,346 $ (697) $ — $ — $ 586,346 $ (697) MBS: U.S. obligations single-family $ 20,188 $ (54) $ — $ — $ 20,188 $ (54) GSE single-family 188,235 (991) — — 188,235 (991) GSE multifamily 634,032 (517) 524,002 (828) 1,158,034 (1,345) Private label — — 2,476 (73) 2,476 (73) Total MBS $ 842,455 $ (1,562) $ 526,478 $ (901) $ 1,368,933 $ (2,463) Total $ 1,428,801 $ (2,259) $ 526,478 $ (901) $ 1,955,279 $ (3,160) Redemption Terms. The amortized cost and fair value of AFS securities by contractual maturity as of December 31, 2022 and December 31, 2021 are presented below. Expected maturities of some securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. MBS are not presented by contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. (in thousands) December 31, 2022 December 31, 2021 Year of Maturity Amortized Cost Fair Value Amortized Cost Fair Value Non-MBS: Due in one year or less $ 1,566,430 $ 1,560,311 $ 554,080 $ 555,481 Due after one year through five years 2,629,759 2,632,374 3,281,393 3,289,730 Due after five years through ten years 2,204,799 2,206,358 2,685,727 2,723,861 Due after ten years 141,933 129,456 197,008 207,009 Total non-MBS 6,542,921 6,528,499 6,718,208 6,776,081 MBS 5,722,088 5,662,061 5,636,448 5,691,212 Total AFS securities $ 12,265,009 $ 12,190,560 $ 12,354,656 $ 12,467,293 Interest Rate Payment Terms. The following table details interest payment terms at December 31, 2022 and December 31, 2021. (in thousands) December 31, 2022 December 31, 2021 Amortized cost of AFS non-MBS: Fixed-rate $ 6,542,921 $ 6,718,208 Variable-rate — — Total non-MBS $ 6,542,921 $ 6,718,208 Amortized cost of AFS MBS: Fixed-rate $ 1,069,749 $ 765,556 Variable-rate 4,652,339 4,870,892 Total MBS $ 5,722,088 $ 5,636,448 Total amortized cost of AFS securities $ 12,265,009 $ 12,354,656 Realized Gains (Losses) on AFS Securities. The following table provides a summary of proceeds, gross gains and losses on sales of AFS securities for 2022, 2021, and 2020. Year Ended December 31, (in thousands) 2022 2021 2020 Proceeds from sale of AFS securities $ 577,197 $ — $ — Gross gains on AFS securities 509 — — Gross losses on AFS securities — — — HTM Securities. The following tables presents HTM securities by major security type at December 31, 2022 and December 31, 2021. December 31, 2022 (in thousands) Amortized Cost (1) Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value MBS: U.S. obligations single-family $ 162,366 $ 155 $ (5,352) $ 157,169 GSE single-family 435,129 74 (63,200) 372,003 GSE multifamily 305,306 — (10,248) 295,058 Private label 53,670 — (3,618) 50,052 Total MBS $ 956,471 $ 229 $ (82,418) $ 874,282 Total HTM securities (2) $ 956,471 $ 229 $ (82,418) $ 874,282 December 31, 2021 (in thousands) Amortized Cost (1) Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value MBS: U.S. obligations single-family 83,154 1,029 — 84,183 GSE single-family 566,032 7,597 (7,978) 565,651 GSE multifamily 494,472 33,651 — 528,123 Private label 70,214 710 (518) 70,406 Total MBS $ 1,213,872 $ 42,987 $ (8,496) $ 1,248,363 Total HTM securities (2) $ 1,213,872 $ 42,987 $ (8,496) $ 1,248,363 Notes : (1) Includes adjustments made to the cost basis of an investment for accretion and amortization and excludes accrued interest receivable (2) No ACL was recorded for these securities as of December 31, 2022 and December 31, 2021. Redemption Terms. The amortized cost and fair value of HTM securities by contractual maturity as of December 31, 2022 and December 31, 2021 are presented below. MBS are not presented by contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. December 31, 2022 December 31, 2021 (in thousands) Amortized Cost Fair Value Amortized Cost Fair Value MBS 956,471 874,282 1,213,872 1,248,363 Total HTM securities $ 956,471 $ 874,282 $ 1,213,872 $ 1,248,363 Interest Rate Payment Terms. The following table details interest rate payment terms at December 31, 2022 and December 31, 2021. (in thousands) December 31, 2022 December 31, 2021 Amortized cost of HTM MBS: Fixed-rate $ 824,791 $ 1,042,367 Variable-rate 131,680 171,505 Total MBS $ 956,471 $ 1,213,872 Total HTM securities $ 956,471 $ 1,213,872 Debt Securities ACL. For HTM securities, there was no ACL at December 31, 2022 and December 31, 2021. For AFS securities, the Bank recorded an ACL only on its private label MBS at December 31, 2022 and December 31, 2021. AFS Debt Securities - Rollforward of ACL. The following table presents a rollforward of the ACL on AFS securities for the years ended December 31, 2022 and December 31, 2021. Private label MBS (in thousands) December 31, 2022 December 31, 2021 Balance, beginning of period $ 2,378 $ 2,417 Increases (decreases) for securities in which a previous ACL or OTTI was recorded 6,154 (36) Reductions for securities sold or matured during the period — (3) Balance, end of period $ 8,532 $ 2,378 Debt Securities ACL Methodology. To evaluate investment securities for credit losses at December 31, 2022, the Bank employs the following methodologies by major security type. GSE and Other U.S. Obligations. The Bank invests in GSE and other U.S. obligations, which includes Tennessee Valley Authority obligations, single-family MBS, and GSE single-family and multifamily MBS. These securities are issued by Federal Agencies or U.S. government corporations and include MBS issued by these same entities that are directly supported by underlying mortgage loans. All of these securities are highly-rated. In the case of U.S. obligations, they carry an explicit government guarantee. In the case of GSE securities, they are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored. As a result, no ACL was recorded on GSE and other U.S. obligations at December 31, 2022 and December 31, 2021. The Bank only purchases GSE and other U.S. obligations considered investment quality. At December 31, 2022, all of these GSE and other U.S. obligations, based on amortized cost, were rated BBB or above by a NRSRO, based on the lowest long-term credit rating for each security. These may differ from any internal ratings of the securities by the Bank, if applicable. State or Local Agency Obligations. The Bank invests in state or local agency obligations, such as municipal securities. These securities are subject to credit risk related to a portfolio of state and local agency obligations (i.e., Housing Finance Agency bonds). The Bank has not experienced any payment defaults on these instruments. The Bank only purchases state or local agency obligations considered investment quality. At December 31, 2022, all of these state or local agency obligations, based on amortized cost, were rated BBB or above by a NRSRO, based on the lowest long-term credit rating for each security. These may differ from any internal ratings of the securities by the Bank, if applicable. The Bank evaluates AFS state or local agency obligations for an ACL based on a credit assessment of the issuer, or guarantor. If the Bank determines that an ACL should be recognized, it is limited to the unrealized loss of the state or local agency obligation, including zero if it is in an unrealized gain position. At December 31, 2022 and December 31, 2021, the Bank expected to receive all cash flows contractually due, and no ACL was recorded on AFS state or local agency obligations. Private Label MBS. The Bank also holds investments in private label MBS. The Bank has not purchased any private label MBS since 2007. However, many of these securities have subsequently experienced significant credit deterioration. As of December 31, 2022, 18.6% of private label MBS (AFS and HTM combined, based on amortized cost) were rated BBB or above by a NRSRO and the remaining securities were either rated less than BBB or were unrated. To determine whether an ACL is necessary on these securities, the Bank uses cash flow analyses. The Bank's evaluation includes estimating the projected cash flows that the Bank is likely to collect based on an assessment of available information, including the structure of the applicable security and certain assumptions such as: • the remaining payment terms for the security; • prepayment speeds based on underlying loan-level borrower and loan characteristics; • expected default rates based on underlying borrower and loan characteristics; • expected loss severity based on underlying borrower and loan characteristics; • expected housing price changes; and • expected interest-rate assumptions. |