10-Q 1 fhlb06301810q.htm FORM 10-Q Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 

For the quarterly period ended June 30, 2018
OR
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 

Commission File Number: 000-51999
 

FEDERAL HOME LOAN BANK OF DES MOINES
(Exact name of registrant as specified in its charter)
 
Federally chartered corporation
(State or other jurisdiction of incorporation or organization)
 
42-6000149
(I.R.S. employer identification number)
 
 
 
 
 
 
 
Financial Center
666 Walnut Street
Des Moines, IA
(Address of principal executive offices)
 


50309
(Zip code)
 

Registrant’s telephone number, including area code: (515) 281-1000
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Shares outstanding as of July 31, 2018
 
Class B Stock, par value $100
 
56,603,795
 
 
 
 
 
 
 
 
 




Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 15 - Activities with Stockholders
 
 
 
 
 
 
Note 16 - Activities with Other FHLBanks
 
 
 
 
 
 
Note 17 - Subsequent Events
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CONDITION
(dollars and shares in millions, except capital stock par value)
(Unaudited)
 
 
June 30,
2018
 
December 31,
2017
ASSETS
 
 
 
 
Cash and due from banks
 
$
201

 
$
503

Interest-bearing deposits
 
1

 
1

Securities purchased under agreements to resell
 
4,900

 
4,600

Federal funds sold
 
4,435

 
4,250

Investment securities
 
 
 
 
Trading securities (Note 3)
 
937

 
1,177

Available-for-sale securities (Note 4)
 
19,451

 
20,796

Held-to-maturity securities (fair value of $3,325 and $3,686) (Note 5)
 
3,295

 
3,628

Total investment securities
 
23,683

 
25,601

Advances (includes $15 and $0 at fair value under the fair value option) (Note 7)
 
109,963

 
102,613

Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $2 (Notes 8 and 9)
 
7,310

 
7,096

Accrued interest receivable
 
305

 
223

Derivative assets, net (Note 10)
 
83

 
100

Other assets
 
100

 
112

TOTAL ASSETS
 
$
150,981

 
$
145,099

LIABILITIES
 
 
 
 
Deposits
 
 
 
 
Interest-bearing
 
$
914

 
$
1,013

Non-interest-bearing
 
114

 
94

Total deposits
 
1,028

 
1,107

Consolidated obligations (Note 11)
 
 
 
 
Discount notes
 
43,122

 
36,682

Bonds
 
98,468

 
98,893

Total consolidated obligations
 
141,590

 
135,575

Borrowings from other FHLBanks
 

 
600

Mandatorily redeemable capital stock (Note 12)
 
373

 
385

Accrued interest payable
 
238

 
210

Affordable Housing Program payable
 
155

 
142

Derivative liabilities, net (Note 10)
 
2

 
6

Other liabilities
 
56

 
53

TOTAL LIABILITIES
 
143,442

 
138,078

Commitments and contingencies (Note 14)
 

 

CAPITAL (Note 12)
 
 
 
 
Capital stock - Class B putable ($100 par value); 54 and 51 issued and outstanding shares
 
5,420

 
5,068

Retained earnings
 
 
 
 
Unrestricted
 
1,593

 
1,504

Restricted
 
384

 
335

Total retained earnings
 
1,977

 
1,839

Accumulated other comprehensive income (loss)
 
142

 
114

TOTAL CAPITAL
 
7,539

 
7,021

TOTAL LIABILITIES AND CAPITAL
 
$
150,981

 
$
145,099

The accompanying notes are an integral part of these financial statements.

3


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF INCOME
(dollars in millions)
(Unaudited)
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
626

 
$
381

 
$
1,128

 
$
714

Interest-bearing deposits
 
1

 
1

 
1

 
1

Securities purchased under agreements to resell
 
16

 
8

 
28

 
16

Federal funds sold
 
22

 
15

 
45

 
27

Trading securities
 
8

 
12

 
16

 
23

Available-for-sale securities
 
122

 
89

 
232

 
168

Held-to-maturity securities
 
22

 
20

 
43

 
40

Mortgage loans held for portfolio
 
61

 
59

 
121

 
117

Total interest income
 
878

 
585


1,614

 
1,106

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations - Discount notes
 
170

 
124

 
294

 
233

Consolidated obligations - Bonds
 
534

 
286

 
982

 
539

Deposits
 
2

 
1

 
5

 
2

Mandatorily redeemable capital stock
 
5

 
4

 
9

 
9

Total interest expense
 
711

 
415


1,290

 
783

NET INTEREST INCOME
 
167

 
170


324

 
323

OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
Net gains (losses) on trading securities
 
(8
)
 
4

 
(24
)
 
9

Net gains (losses) on derivatives and hedging activities
 
14

 
(3
)
 
34

 
3

Gains on litigation settlements, net
 

 

 

 
21

Other, net
 
2

 
5

 
6

 
8

Total other income (loss)
 
8


6


16

 
41

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
14

 
14

 
31

 
27

Contractual services
 
3

 
3

 
6

 
6

Professional fees
 
4

 
5

 
7

 
10

Other operating expenses
 
6

 
5

 
11

 
10

Federal Housing Finance Agency
 
3

 
2

 
5

 
5

Office of Finance
 
1

 
2

 
3

 
4

Other, net
 
1

 

 
2

 
1

Total other expense
 
32

 
31


65

 
63

NET INCOME BEFORE ASSESSMENTS
 
143

 
145


275


301

Affordable Housing Program assessments
 
14

 
15

 
28

 
31

NET INCOME
 
$
129

 
$
130


$
247


$
270

The accompanying notes are an integral part of these financial statements.

4



FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
(Unaudited)
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
129

 
$
130

 
$
247

 
$
270

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities
 
(17
)
 
41

 
28

 
105

Pension and postretirement benefits
 

 
1

 

 
2

Total other comprehensive income (loss)
 
(17
)
 
42


28


107

TOTAL COMPREHENSIVE INCOME (LOSS)
 
$
112

 
$
172


$
275


$
377

The accompanying notes are an integral part of these financial statements.




5


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CAPITAL
(dollars and shares in millions)
(Unaudited)

 
Capital Stock Class B (putable)
 
Additional Capital from Merger
 
Shares
 
Par Value
 
BALANCE, DECEMBER 31, 2016
59

 
$
5,917

 
$
52

Comprehensive income (loss)

 

 

Proceeds from issuance of capital stock
29

 
2,905

 

Repurchases/redemptions of capital stock
(32
)
 
(3,171
)
 

Net shares reclassified (to) from mandatorily redeemable capital stock

 
(28
)
 

Cash dividends on capital stock

 

 
(52
)
BALANCE, JUNE 30, 2017
56

 
$
5,623

 
$

 
 
 
 
 
 
BALANCE, DECEMBER 31, 2017
51

 
$
5,068

 
$

Comprehensive income (loss)

 

 

Proceeds from issuance of capital stock
40

 
4,015

 

Repurchases/redemptions of capital stock
(37
)
 
(3,624
)
 

Net shares reclassified (to) from mandatorily redeemable capital stock

 
(39
)
 

Cash dividends on capital stock

 

 


BALANCE, JUNE 30, 2018
54

 
$
5,420

 
$

The accompanying notes are an integral part of these financial statements.

6


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CAPITAL (continued from previous page)
(dollars and shares in millions)
(Unaudited)
 
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Capital
 
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, DECEMBER 31, 2016
 
$
1,219

 
$
231

 
$
1,450

 
$
(18
)
 
$
7,401

Comprehensive income (loss)
 
216

 
54

 
270

 
107

 
377

Proceeds from issuance of capital stock
 

 

 

 

 
2,905

Repurchases/redemptions of capital stock
 

 

 

 

 
(3,171
)
Net shares reclassified (to) from mandatorily redeemable capital stock
 

 

 

 

 
(28
)
Cash dividends on capital stock
 
(36
)
 

 
(36
)
 

 
(88
)
BALANCE, JUNE 30, 2017
 
$
1,399

 
$
285

 
$
1,684

 
$
89

 
$
7,396

 
 
 
 
 
 
 
 
 
 
 
BALANCE, DECEMBER 31, 2017
 
$
1,504

 
$
335

 
$
1,839

 
$
114

 
$
7,021

Comprehensive income (loss)
 
198

 
49

 
247

 
28

 
275

Proceeds from issuance of capital stock
 

 

 

 

 
4,015

Repurchases/redemptions of capital stock
 

 

 

 

 
(3,624
)
Net shares reclassified (to) from mandatorily redeemable capital stock
 

 

 

 

 
(39
)
Cash dividends on capital stock
 
(109
)
 

 
(109
)
 

 
(109
)
BALANCE, JUNE 30, 2018
 
$
1,593

 
$
384

 
$
1,977

 
$
142

 
$
7,539

The accompanying notes are an integral part of these financial statements.


7


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS
(dollars in millions)
(Unaudited)
 
 
For the Six Months Ended
 
 
June 30,
 
 
2018
 
2017
OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
247

 
$
270

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
Depreciation and amortization
 
18

 
16

Net (gains) losses on trading securities
 
24

 
(9
)
Net change in derivatives and hedging activities
 
87

 
(1
)
Other adjustments
 
1

 
(1
)
Net change in:
 
 
 
 
Accrued interest receivable
 
(121
)
 
(36
)
Other assets
 
2

 
(4
)
Accrued interest payable
 
27

 
29

Other liabilities
 
15

 
(15
)
Total adjustments
 
53

 
(21
)
Net cash provided by (used in) operating activities
 
300

 
249

INVESTING ACTIVITIES
 
 
 
 
Net change in:
 
 
 
 
Interest-bearing deposits
 
63

 
17

Securities purchased under agreements to resell
 
(300
)
 
2,425

Federal funds sold
 
(185
)
 
(5
)
Premises, software, and equipment
 
(11
)
 
(21
)
Loans to other FHLBanks
 

 
200

Trading securities
 
 
 
 
Proceeds from maturities of long-term
 
215

 
13

Available-for-sale securities
 
 
 
 
Proceeds from maturities of long-term
 
1,703

 
1,002

Purchases of long-term
 
(497
)
 
(402
)
Held-to-maturity securities
 
 
 
 
Proceeds from maturities of long-term
 
344

 
457

Advances
 
 
 
 
Repaid
 
149,512

 
142,862

Originated or purchased
 
(157,016
)
 
(130,163
)
Mortgage loans held for portfolio
 
 
 
 
Principal collected
 
445

 
516

Originated or purchased
 
(669
)
 
(566
)
Proceeds from sales of foreclosed assets
 
3

 
4

Net cash provided by (used in) investing activities
 
(6,393
)
 
16,339

The accompanying notes are an integral part of these financial statements.

8


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS (continued from previous page)
(dollars in millions)
(Unaudited)
 
 
For the Six Months Ended
 
 
June 30,
 
 
2018
 
2017
FINANCING ACTIVITIES
 
 
 
 
Net change in deposits
 
(11
)
 
(150
)
Borrowings from other FHLBanks
 
(600
)
 

Net payments on derivative contracts with financing elements
 

 
(2
)
Net proceeds from issuance of consolidated obligations
 
 
 
 
Discount notes
 
91,697

 
118,084

Bonds
 
21,052

 
26,848

Payments for maturing and retiring consolidated obligations
 
 
 
 
Discount notes
 
(85,275
)
 
(132,486
)
Bonds
 
(21,303
)
 
(27,575
)
Proceeds from issuance of capital stock
 
4,015

 
2,905

Payments for repurchases/redemptions of capital stock
 
(3,624
)
 
(3,171
)
Net payments for repurchases/redemptions of mandatorily redeemable capital stock
 
(51
)
 
(212
)
Cash dividends paid
 
(109
)
 
(88
)
Net cash provided by (used in) financing activities
 
5,791

 
(15,847
)
Net increase (decrease) in cash and due from banks
 
(302
)
 
741

Cash and due from banks at beginning of the period
 
503

 
223

Cash and due from banks at end of the period
 
$
201

 
$
964

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES
 
 
 
 
Cash Transactions:
 
 
 
 
Interest paid
 
$
1,249

 
$
769

Affordable Housing Program payments
 
16

 
15

Non-Cash Transactions:
 
 
 
 
Capitalized interest on reverse mortgage investment securities
 
39

 
27

Mortgage loan charge-offs
 

 
1

Transfers of mortgage loans to other assets
 
3

 
3

Capital stock reclassified to (from) mandatorily redeemable capital stock, net
 
39

 
28

The accompanying notes are an integral part of these financial statements.

9


FEDERAL HOME LOAN BANK OF DES MOINES
CONDENSED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation organized on October 31, 1932, that is exempt from all federal, state, and local taxation (except real property taxes) and is one of 11 district Federal Home Loan Banks (FHLBanks). The FHLBanks were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act). With the passage of the Housing and Economic Recovery Act of 2008 (Housing Act), the Federal Housing Finance Agency (Finance Agency) was established and became the new independent federal regulator of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), as well as the FHLBanks and FHLBanks’ Office of Finance, effective July 30, 2008. The Finance Agency’s mission is to ensure that the Enterprises and FHLBanks operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. The Finance Agency establishes policies and regulations governing the operations of the Enterprises and FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.

The FHLBanks are government-sponsored enterprises (GSEs) that serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank provides a readily available source of funding and liquidity to its member institutions and eligible housing associates in Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock.

The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank.

The Bank’s current and former members own all of the outstanding capital stock of the Bank. Former members own capital stock (included in mandatorily redeemable capital stock) to support business transactions still carried on the Bank’s Statements of Condition. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank’s Board of Directors.




10


Note 1 — Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements for the year ended December 31, 2017, which are contained in the Bank’s 2017 Annual Report on Form 10-K filed with the SEC on March 12, 2018 (2017 Form 10-K).

In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.

Reclassifications

Certain amounts in the Bank’s 2017 financial statements and footnotes have been reclassified to conform to the presentation as of June 30, 2018. In particular, due to the change in current presentation, variation margin on cleared derivatives has been allocated to the individual derivative instruments. Previously, this amount was included as a component of netting adjustments and cash collateral. For additional details regarding this reclassification, refer to “Note 10 Derivatives and Hedging Activities.”

SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Bank’s significant accounting policies during the six months ended June 30, 2018. Descriptions of all significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” in the 2017 Form 10-K.










11


Note 2 — Recently Adopted and Issued Accounting Guidance

ADOPTED ACCOUNTING GUIDANCE

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07)
On March 10, 2017, the FASB issued amended guidance that requires an employer to disaggregate the service cost component from the other components of net periodic pension cost and net periodic postretirement benefit cost (net benefit cost). The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2018 and was adopted retrospectively. The adoption of this guidance resulted in a reclassification of other net benefit costs from “Compensation and Benefits” to “Other Expense, Net” in the Bank’s Statements of Income. The adoption of this guidance did not have a material effect on the Bank’s financial condition, result of operations, or cash flows.
Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15)

On August 26, 2016, the FASB issued amendments to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2018 and was adopted retrospectively. The adoption of this guidance did not have a direct effect on the Bank’s financial condition, results of operations, or cash flows. However, the Bank did revise its previously reported supplemental interest paid disclosure to align with the clarified accounting guidance.
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)

On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes, but is not limited to, the following:

Requires equity investments (with certain exceptions) to be measured at fair value with changes in fair value recognized in income.

Requires an entity to present separately in other comprehensive income (OCI) the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the statements of condition or the accompanying notes to the financial statements.

Eliminates the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the statements of condition.

This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2018 and was adopted using the modified retrospective approach. The adoption of this guidance affected the Bank’s fair value disclosures. However, the guidance did not have any effect on the Bank’s financial condition, results of operations, or cash flows.

Revenue from Contracts with Customers (ASU 2014-09)

On May 28, 2014, the FASB issued guidance on revenue from contracts with customers. This guidance outlines a single comprehensive model for recognizing revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, and lease contracts. The guidance provides entities with the option of using either of the following adoption methods: a full retrospective method, retrospectively to each prior reporting period presented; or a modified retrospective method, retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application.


12


On August 12, 2015, the FASB issued an amendment to defer the effective date of this guidance issued in May 2014 by one year. In 2016, the FASB issued additional amendments to clarify certain aspects of the new revenue guidance. However, these amendments did not change the core principle in the new revenue standard.

This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2018, and was adopted retrospectively. Given that the majority of the Bank’s financial instruments and other contractual rights that generate revenue are covered by other U.S. GAAP, the adoption of this guidance did not have a material effect on the Bank’s financial condition, results of operations, and cash flows.

ISSUED ACCOUNTING GUIDANCE
Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)
On August 28, 2017, the FASB issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in OCI. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:
Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.
Measurement of the hedged item in a partial-term fair value hedge of interest-rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.
Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest-rate risk.
For a cash flow hedge of interest-rate risk of a variable-rate financial instrument, an entity could designate as the hedged risk the variability in cash flows attributable to the contractually specified interest-rate.
This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early adoption is permitted. For all cash flow hedges existing on the date of adoption, this guidance should be applied through a cumulative-effect adjustment to accumulated other comprehensive income (AOCI) with a corresponding adjustment to retained earnings as of the beginning of the year of adoption. The amended presentation and disclosure guidance is required only prospectively. The Bank does not intend to adopt this guidance early. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.
Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)

On March 30, 2017, the FASB issued guidance to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, this guidance requires the premium to be amortized to the earliest call date. This guidance does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance is effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early adoption is permitted. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Bank does not intend to adopt this guidance early. The Bank has evaluated this guidance and its effect on the Bank’s financial condition, results of operations, and cash flows is not expected to be material.

Measurement of Credit Losses on Financial Instruments (ASU 2016-13)

On June 16, 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The new guidance requires a financial asset, or a group of financial assets, measured at amortized cost to be presented at the net amount expected to be collected. The guidance also requires, among other things, the following:

13


The statement of income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.

Entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (PCD) that are measured at amortized cost in a similar manner to other financial assets measured at amortized cost. The initial allowance for credit losses is required to be added to the purchase price of the assets acquired.

Entities to record credit losses relating to available-for-sale (AFS) debt securities through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost.

Public entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).

This guidance is effective for the Bank for the interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. This guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for PCD assets upon adoption and for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Bank does not intend to adopt the new guidance early. While the Bank is in the process of evaluating this guidance, the Bank expects the adoption of the guidance may result in an increase in the allowance for credit losses and corresponding expense, including an allowance for debt securities, given the requirement to assess losses for the entire estimated life of the financial asset. The effect on the Bank’s financial condition, results of operations, and cash flows will depend upon the composition of financial assets held by the Bank at the adoption date as well as the economic conditions and forecasts at that time.
Leases (ASU 2016-02)

On February 25, 2016, the FASB issued guidance which requires recognition of lease assets and lease liabilities on the statement of condition and disclosure of key information about leasing arrangements. Specifically, this guidance requires a lessee, of operating or finance leases, to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Under previous GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the statement of condition. While this guidance does not fundamentally change lessor accounting, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP.

This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early application is permitted. In July 2018, the FASB issued amendments that, among other things, provide entities with an additional transition method to adopt the guidance. The new transition method allows entities an option to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Bank does not intend to adopt this new guidance early. Upon adoption, the Bank expects to report higher assets and liabilities as a result of recording right-of-use assets and lease liabilities on its statements of condition. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.


14


Note 3 — Trading Securities

MAJOR SECURITY TYPES

Trading securities were as follows (dollars in millions):
 
June 30,
2018
 
December 31,
2017
Non-mortgage-backed securities
 
 
 
U.S. obligations1
$
182

 
$
197

GSE and Tennessee Valley Authority obligations
57

 
260

Other2
265

 
272

     Total non-mortgage-backed securities
504

 
729

Mortgage-backed securities
 
 
 
GSE multifamily
433

 
448

Total fair value
$
937

 
$
1,177


1
Represents investment securities backed by the full faith and credit of the U.S. Government.

2
Consists of taxable municipal bonds.

NET GAINS (LOSSES) ON TRADING SECURITIES

The Bank did not sell any trading securities during the three and six months ended June 30, 2018 and 2017. During the three and six months ended June 30, 2018, the Bank recorded net holding losses of $8 million and $24 million on its trading securities compared to net holding gains of $4 million and $9 million for the same periods in 2017.


15


Note 4 — Available-for-Sale Securities

MAJOR SECURITY TYPES

AFS securities were as follows (dollars in millions):
 
June 30, 2018
 
Amortized
Cost
1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 

Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
U.S. obligations2
$
2,808

 
$
13

 
$
(1
)
 
$
2,820

GSE and Tennessee Valley Authority obligations
1,001

 
38

 

 
1,039

State or local housing agency obligations
908

 

 
(2
)
 
906

Other3
260

 
12

 

 
272

Total non-mortgage-backed securities
4,977

 
63

 
(3
)
 
5,037

Mortgage-backed securities
 
 
 
 
 
 
 
U.S. obligations single-family2
4,065

 
33

 
(1
)
 
4,097

GSE single-family
883

 
7

 
(5
)
 
885

GSE multifamily
9,380

 
59

 
(7
)
 
9,432

Total mortgage-backed securities
14,328

 
99

 
(13
)
 
14,414

Total
$
19,305

 
$
162

 
$
(16
)
 
$
19,451


 
December 31, 2017
 
Amortized
Cost
1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 

Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
U.S. obligations2
$
3,096

 
$
8

 
$
(5
)
 
$
3,099

GSE and Tennessee Valley Authority obligations
1,197

 
39

 

 
1,236

State or local housing agency obligations
935

 

 
(1
)
 
934

Other3
269

 
9

 

 
278

Total non-mortgage-backed securities
5,497

 
56

 
(6
)
 
5,547

Mortgage-backed securities
 
 
 
 
 
 
 
U.S. obligations single-family2
3,716

 
11

 
(1
)
 
3,726

GSE single-family
983

 
7

 
(2
)
 
988

GSE multifamily
10,482

 
57

 
(4
)
 
10,535

Total mortgage-backed securities
15,181

 
75

 
(7
)
 
15,249

Total
$
20,678

 
$
131

 
$
(13
)
 
$
20,796


1
Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments.

2
Represents investment securities backed by the full faith and credit of the U.S. Government.

3
Consists of taxable municipal bonds and/or Private Export Funding Corporation (PEFCO) bonds.



16


UNREALIZED LOSSES

The following tables summarize AFS securities with unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.
 
June 30, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. obligations1
$
316

 
$

 
$
338

 
$
(1
)
 
$
654

 
$
(1
)
State or local housing agency obligations
13

 

 
594

 
(2
)
 
607

 
(2
)
Total non-mortgage-backed securities
329

 

 
932

 
(3
)
 
1,261

 
(3
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. obligations single-family1
497

 
(1
)
 

 

 
497

 
(1
)
GSE single-family
297

 
(5
)
 
48

 

 
345

 
(5
)
GSE multifamily
2,653

 
(4
)
 
859

 
(3
)
 
3,512

 
(7
)
Total mortgage-backed securities
3,447

 
(10
)
 
907

 
(3
)
 
4,354

 
(13
)
Total
$
3,776

 
$
(10
)
 
$
1,839

 
$
(6
)
 
$
5,615

 
$
(16
)

 
December 31, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. obligations1
$
29

 
$

 
$
1,783

 
$
(5
)
 
$
1,812

 
$
(5
)
State or local housing agency obligations
6

 

 
655

 
(1
)
 
661

 
(1
)
Total non-mortgage-backed securities
35

 

 
2,438

 
(6
)
 
2,473

 
(6
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. obligations single-family1
111

 

 
887

 
(1
)
 
998

 
(1
)
GSE single-family
222

 
(2
)
 
53

 

 
275

 
(2
)
GSE multifamily
224

 
(1
)
 
1,756

 
(3
)
 
1,980

 
(4
)
Total mortgage-backed securities
557

 
(3
)
 
2,696

 
(4
)
 
3,253

 
(7
)
Total
$
592

 
$
(3
)
 
$
5,134

 
$
(10
)
 
$
5,726

 
$
(13
)

1
Represents investment securities backed by the full faith and credit of the U.S. Government.





17


CONTRACTUAL MATURITY

The following table summarizes AFS securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
 
 
June 30, 2018
 
December 31, 2017
Year of Contractual Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
Due in one year or less
 
$
26

 
$
26

 
$
158

 
$
159

Due after one year through five years
 
969

 
976

 
750

 
755

Due after five years through ten years
 
3,160

 
3,181

 
3,574

 
3,583

Due after ten years
 
822

 
854

 
1,015

 
1,050

Total non-mortgage-backed securities
 
4,977

 
5,037

 
5,497

 
5,547

Mortgage-backed securities
 
14,328

 
14,414

 
15,181

 
15,249

Total
 
$
19,305

 
$
19,451

 
$
20,678

 
$
20,796




18


Note 5 — Held-to-Maturity Securities

MAJOR SECURITY TYPES

Held-to-maturity (HTM) securities were as follows (dollars in millions):
 
June 30, 2018
 
Amortized
Cost
1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
GSE and Tennessee Valley Authority obligations
$
391

 
$
49

 
$
(2
)
 
$
438

State or local housing agency obligations
427

 
1

 
(2
)
 
426

Total non-mortgage-backed securities
818

 
50

 
(4
)
 
864

Mortgage-backed securities
 
 
 
 
 
 
 
U.S. obligations single-family2
11

 

 

 
11

U.S. obligations commercial2
2

 

 

 
2

GSE single-family
2,453

 
8

 
(24
)
 
2,437

Private-label residential
11

 

 

 
11

Total mortgage-backed securities
2,477

 
8

 
(24
)
 
2,461

Total
$
3,295

 
$
58

 
$
(28
)
 
$
3,325


 
December 31, 2017
 
Amortized
Cost
1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
GSE and Tennessee Valley Authority obligations
$
393

 
$
65

 
$

 
$
458

State or local housing agency obligations
454

 
2

 
(2
)
 
454

Total non-mortgage-backed securities
847

 
67

 
(2
)
 
912

Mortgage-backed securities
 
 
 
 
 
 
 
U.S. obligations single-family2
15

 

 

 
15

U.S. obligations commercial2
2

 

 

 
2

GSE single-family
2,752

 
7

 
(14
)
 
2,745

Private-label residential
12

 

 

 
12

Total mortgage-backed securities
2,781

 
7

 
(14
)
 
2,774

Total
$
3,628

 
$
74

 
$
(16
)
 
$
3,686


1
Amortized cost includes adjustments made to the cost basis of an investment for accretion or amortization.

2
Represents investment securities backed by the full faith and credit of the U.S. Government.



19


UNREALIZED LOSSES

The following tables summarize HTM securities with unrealized losses by major security type and the length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.
 
June 30, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
GSE and Tennessee Valley Authority obligations
$
90

 
$
(2
)
 
$

 
$

 
$
90

 
$
(2
)
State or local housing agency obligations
$
17

 
$

 
$
162

 
$
(2
)
 
$
179

 
$
(2
)
Total non-mortgage-backed securities
107

 
(2
)
 
162

 
(2
)
 
269

 
(4
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. obligations single-family1

 

 
5

 

 
5

 

U.S. obligations commercial1
1

 

 
1

 

 
2

 

GSE single-family
12

 

 
1,200

 
(24
)
 
1,212

 
(24
)
Private-label residential

 

 
7

 

 
7

 

Total mortgage-backed securities
13

 

 
1,213

 
(24
)
 
1,226

 
(24
)
Total
$
120

 
$
(2
)
 
$
1,375

 
$
(26
)
 
$
1,495

 
$
(28
)

 
December 31, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
State or local housing agency obligations
$
2

 
$

 
$
168

 
$
(2
)
 
$
170

 
$
(2
)
Total non-mortgage-backed securities
2

 

 
168

 
(2
)
 
170

 
(2
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. obligations single-family1
7

 

 
1

 

 
8

 

U.S. obligations commercial1
1

 

 
1

 

 
2

 

GSE single-family
42

 

 
1,427

 
(14
)
 
1,469

 
(14
)
Private-label residential

 

 
8

 

 
8

 

Total mortgage-backed securities
50

 

 
1,437

 
(14
)
 
1,487

 
(14
)
Total
$
52

 
$

 
$
1,605

 
$
(16
)
 
$
1,657

 
$
(16
)

1
Represents investment securities backed by the full faith and credit of the U.S. Government.


20


CONTRACTUAL MATURITY

The following table summarizes HTM securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
 
 
June 30, 2018
 
December 31, 2017
Year of Contractual Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
Due in one year or less
 
$
14

 
$
14

 
$
20

 
$
20

Due after one year through five years
 
71

 
71

 
72

 
72

Due after five years through ten years
 
340

 
362

 
344

 
376

Due after ten years
 
393

 
417

 
411

 
444

Total non-mortgage-backed securities
 
818

 
864

 
847

 
912

Mortgage-backed securities
 
2,477

 
2,461

 
2,781

 
2,774

Total
 
$
3,295

 
$
3,325

 
$
3,628

 
$
3,686


Note 6 — Other-Than-Temporary Impairment

The Bank evaluates its individual AFS and HTM securities in an unrealized loss position for other-than-temporary impairment (OTTI) on a quarterly basis. As part of its evaluation of securities for OTTI, the Bank considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, the Bank will recognize an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the reporting date. For securities in an unrealized loss position that meet neither of these conditions, the Bank performs analyses to determine if any of these securities are other-than-temporarily impaired. The analysis of the Bank’s AFS and HTM investment securities in an unrealized loss position at June 30, 2018 is discussed below:

U.S. obligations and GSE and Tennessee Valley Authority obligations. The unrealized losses were due primarily to changes in interest rates and not to a significant deterioration in the fundamental credit quality of the obligations. The strength of the issuers’ guarantees through direct obligations or support from the U.S. Government was sufficient to protect the Bank from losses based on current expectations. The Bank expects to recover the amortized cost bases on these securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before recovery of their amortized cost bases. As such, the Bank did not consider these securities to be other-than-temporarily impaired at June 30, 2018.

State or local housing agency obligations. The unrealized losses were due to changes in interest rates and illiquidity in the credit markets, and not to a significant deterioration in the fundamental credit quality of the obligations. The creditworthiness of the issuers and the strength of the underlying collateral and credit enhancements were sufficient to protect the Bank from losses based on current expectations. The Bank does not intend to sell these securities nor is it more likely than not that it will be required to sell these securities before recovery of their amortized cost bases. As such, the Bank did not consider these securities to be other-than-temporarily impaired at June 30, 2018.

Private-label residential mortgage-backed securities. On a quarterly basis, the Bank engages other designated FHLBanks to perform cash flow analyses on its private-label mortgage-backed securities (private-label MBS). As of June 30, 2018, the Bank compared the present value of cash flows expected to be collected with respect to its private-label MBS to the amortized cost bases of the securities to determine whether a credit loss existed. At June 30, 2018, the Bank’s cash flow analyses for private-label MBS did not project any credit losses. The Bank does not intend to sell its private-label MBS nor is it more likely than not that the Bank will be required to sell its private-label MBS before recovery of their amortized cost bases. As a result, the Bank did not consider any of its private-label MBS to be other-than-temporarily impaired at June 30, 2018.


21


Note 7 — Advances

CONTRACTUAL MATURITY

The following table summarizes the Bank’s advances outstanding by contractual maturity (dollars in millions):
 
 
June 30, 2018
 
December 31, 2017
Year of Contractual Maturity
 
Amount
 
Weighted
Average
Interest
Rate
 
Amount
 
Weighted
Average
Interest
Rate
Overdrawn demand deposit accounts
 
$
34

 
3.10
%
 
$
1

 
3.63
%
Due in one year or less
 
52,016

 
2.16

 
45,310

 
1.62

Due after one year through two years
 
18,954

 
2.25

 
17,094

 
1.79

Due after two years through three years
 
20,620

 
2.31

 
14,222

 
1.64

Due after three years through four years
 
10,543

 
2.51

 
17,561

 
1.79

Due after four years through five years
 
3,918

 
2.51

 
3,089

 
1.91

Thereafter
 
4,097

 
2.83

 
5,401

 
2.28

Total par value
 
110,182

 
2.28
%
 
102,678

 
1.73
%
Premiums
 
44

 
 
 
53

 
 
Discounts
 
(10
)
 
 
 
(12
)
 
 
Fair value hedging adjustments
 
(253
)
 
 
 
(106
)
 
 
Total
 
$
109,963

 
 
 
$
102,613

 
 

The following table summarizes all advances by year of contractual maturity or next call date for callable advances, and by year of contractual maturity or next put date for putable advances (dollars in millions):