Capital

12 Months Ended

Dec. 31, 2019

Capital

CAPITAL STOCK

The Bank’s capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. The Bank generally issues a single class of capital stock (Class B capital stock) and has two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding on the Bank’s Statements of Condition. All capital stock issued is subject to a notice of redemption period of five years.

The capital stock requirements established in the Bank’s Capital Plan are designed so that the Bank can remain adequately capitalized as member activity changes. The Bank’s Board of Directors may make adjustments to the capital stock requirements within ranges established in the Capital Plan.

EXCESS STOCK

Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under its Capital Plan, the Bank, at its discretion and upon 15 days’ written notice, may repurchase excess membership capital stock. The Bank, at its discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At December 31, 2019 and 2018, the Bank’s excess capital stock outstanding was less than $1 million.

MANDATORILY REDEEMABLE CAPITAL STOCK

At December 31, 2019 and 2018, the Bank’s mandatorily redeemable capital stock totaled $206 million and $255 million. The Bank recorded interest expense on mandatorily redeemable capital stock of $12 million, $18 million, and $17 million for the years ended December 31, 2019, 2018, and 2017.

As a result of the final rule on membership issued by the Finance Agency effective February 19, 2016, the eligibility requirements for FHLBank members were changed rendering captive insurance companies ineligible for FHLBank membership. Captive insurance company members that were admitted as members prior to September 12, 2014, will have their memberships terminated no later than February 19, 2021. On the effective date of the final rule, the Bank reclassified the total

outstanding capital stock held by all of the captive insurance companies that were Bank members, to mandatorily redeemable

capital stock. For more information on the Bank’s mandatorily redeemable capital stock, see “Note 1 — Summary of Significant Accounting Policies.”

The following table summarizes changes in mandatorily redeemable capital stock (dollars in millions):



	For the Years Ended December 31,
	2019			2018			2017
Balance, beginning of period	$	255		$	385		$	664
Capital stock reclassified to (from) mandatorily redeemable capital stock, net	11			53			44
Net payments for repurchases/redemptions of mandatorily redeemable capital stock	(60		)	(183		)	(323		)
Balance, end of period	$	206		$	255		$	385

The following table summarizes the Bank’s mandatorily redeemable capital stock by year of contractual redemption (dollars in millions):



	December 31,
Year of Contractual Redemption¹	2019		2018
Due in one year or less	$	—	$	2
Due after one year through two years	1		—
Due after two years through three years	11		1
Due after three years through four years	5		10
Due after four years through five years	—		18
Thereafter²	175		210
Past contractual redemption date due to outstanding activity with the Bank	14		14
Total	$	206	$	255


1	At the Bank’s election, the mandatorily redeemable capital stock may be redeemed prior to the expiration of the five year redemption period that commences on the date of the notice of redemption, or in the case of captive insurance company members, on the date of the membership termination.


2	Represents mandatorily redeemable capital stock resulting from the Finance Agency rule previously discussed that makes captive insurance companies ineligible for FHLBank membership. The related mandatorily redeemable capital stock is not required to be redeemed until five years after the member’s termination.

RESTRICTED RETAINED EARNINGS

The Bank entered into a JCE Agreement with all of the other FHLBanks in 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the Bank over time. Under the JCE Agreement, each FHLBank is required to allocate 20 percent of its quarterly net income to a separate restricted retained earnings account until the balance of that account equals at least one percent of its average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends. At December 31, 2019 and 2018, the Bank’s restricted retained earnings account totaled $504 million and $427 million.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes changes in AOCI (dollars in millions):



	Net unrealized gains (losses) on AFS securities (Note 5)			Pension and postretirement benefits (Note 16)			Total AOCI
Balance, December 31, 2016	$	(14	)	$	(4	)	$	(18	)
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	132			—			132
Net current period other comprehensive income (loss)	132			—			132
Balance, December 31, 2017	118			(4		)	114
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(31		)	—			(31		)
Reclassification from AOCI to net income
Amortization - pension and postretirement	—			1			1
Net current period other comprehensive income (loss)	(31		)	1			(30		)
Balance, December 31, 2018	87			(3		)	84
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	(39		)	—			(39		)
Reclassification from AOCI to net income
Amortization - pension and postretirement	—			(1		)	(1		)
Net current period other comprehensive income (loss)	(39		)	(1		)	(40		)
Balance, December 31, 2019	$	48		$	(4	)	$	44

REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to three regulatory capital requirements:

•

Risk-based capital. The Bank must maintain at all times permanent capital greater than or equal to the sum of its credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock (including mandatorily redeemable capital stock), and retained earnings can satisfy this risk-based capital requirement.


•	Regulatory capital. The Bank is required to maintain a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B stock (including mandatorily redeemable capital stock) and retained earnings. It does not include AOCI.


•	Leverage capital. The Bank is required to maintain a minimum five percent leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. The Bank did not hold any nonpermanent capital at December 31, 2019 and 2018.

If the Bank’s capital falls below the required levels, the Finance Agency has authority to take actions necessary to return it to levels that it deems to be consistent with safe and sound business operations.

The following table shows the Bank’s compliance with the Finance Agency’s regulatory capital requirements (dollars in millions) as of December 31, 2019 and 2018:



	December 31, 2019						December 31, 2018
	Required			Actual			Required			Actual
Regulatory capital requirements
Risk-based capital	$	1,138		$	6,888		$	1,146		$	7,719
Regulatory capital	$	5,184		$	6,888		$	5,861		$	7,719
Leverage capital	$	6,480		$	10,332		$	7,326		$	11,579
Capital-to-assets ratio	4.00		%	5.31		%	4.00		%	5.27		%
Leverage ratio	5.00		%	7.97		%	5.00		%	7.90		%

CAPITAL CLASSIFICATION DETERMINATION

The Bank is subject to the Finance Agency’s regulation on FHLBank capital classification and critical capital levels (the Capital Rule). The Capital Rule, among other things, establishes criteria for four capital classifications (adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An adequately capitalized FHLBank is one that has sufficient permanent and total capital to satisfy its risk-based and minimum capital requirements. The Bank satisfied these requirements at December 31, 2019, and was classified as adequately capitalized. If the Bank becomes classified into a capital classification other than adequately capitalized, it will be subject to the corrective action requirements for that capital classification in addition to being subject to prohibitions on declaring dividends and redeeming or repurchasing capital stock.