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Capital
 3 Months Ended
Mar. 31, 2020
Banking Regulation, Total Capital [Abstract]  
Capital [Text Block] 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 stock) and has two subclasses of 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 in 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 March 31, 2020 and December 31, 2019, the Bank’s excess capital stock outstanding was less than $1 million.

MANDATORILY REDEEMABLE CAPITAL STOCK

The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Dividends on mandatorily redeemable capital stock are classified as interest expense on the Statements of Income.

At March 31, 2020 and December 31, 2019, the Bank’s mandatorily redeemable capital stock totaled $96 million and $206 million. During the three months ended March 31, 2020 and 2019, interest expense on mandatorily redeemable capital stock was $3 million.

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.

The following tables summarize changes in mandatorily redeemable capital stock (dollars in millions):
 
For the Three Months Ended March 31,
 
2020
 
2019
Balance, beginning of period
$
206

 
$
255

Capital stock reclassified to (from) mandatorily redeemable capital stock, net
6

 
2

Net payments for repurchases/redemptions of mandatorily redeemable capital stock
(116
)
 
(20
)
Balance, end of period
$
96

 
$
237



The following table summarizes the Bank’s mandatorily redeemable capital stock by year of contractual redemption (dollars in millions):
Year of Contractual Redemption1
 
March 31,
2020
 
December 31, 2019
Due in one year or less
 
$
1

 
$
—

Due after one year through two years
 
10

 
1

Due after two years through three years
 
1

 
11

Due after three years through four years
 
5

 
5

Due after four years through five years
 
—

 
—

Thereafter2
 
65

 
175

Past contractual redemption date due to outstanding activity with the Bank
 
14

 
14

Total
 
$
96

 
$
206


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 Joint Capital Enhancement Agreement (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 March 31, 2020 and December 31, 2019, the Bank’s restricted retained earnings account totaled $522 million and $504 million.

ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes changes in AOCI (dollars in millions):
 
Net unrealized gains (losses) on AFS securities (Note 3)
 
Pension and postretirement benefits
 
Total AOCI
Balance, December 31, 2018
$
87

 
$
(3
)
 
$
84

Other comprehensive income (loss) before reclassifications
 
 
 
 
 
Net unrealized gains (losses) on AFS securities
1

 
—

 
1

Net current period other comprehensive income (loss)
1

 
—

 
1

Balance, March 31, 2019
$
88

 
$
(3
)
 
$
85

 
 
 
 
 
 
Balance, December 31, 2019
$
48

 
$
(4
)
 
$
44

Other comprehensive income (loss) before reclassifications
 
 
 
 
 
Net unrealized gains (losses) on AFS securities
(164
)
 
—

 
(164
)
Reclassifications from AOCI to net income
 
 
 
 

Amortization - pension and postretirement
—

 
1

 
1

Net current period other comprehensive income (loss)
(164
)
 
1

 
(163
)
Balance, March 31, 2020
$
(116
)
 
$
(3
)
 
$
(119
)


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 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 March 31, 2020 and December 31, 2019.

In addition to the requirements previously discussed, during 2019, the Finance Agency finalized an Advisory Bulletin on capital stock (the Capital Stock AB) which required each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets, effective February 2020. For purposes of the Capital Stock AB, capital stock includes mandatorily redeemable capital stock. The capital stock to total assets ratio is measured on a daily average basis at month end.

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):
 
March 31, 2020
 
December 31, 2019
 
Required
 
Actual
 
Required
 
Actual
Regulatory capital requirements
 
 
 
 
 
 
 
Risk-based capital
$
673

 
$
6,948

 
$
1,138

 
$
6,888

Regulatory capital
$
5,043

 
$
6,948

 
$
5,184

 
$
6,888

Leverage capital
$
6,303

 
$
10,421

 
$
6,480

 
$
10,332

Capital-to-assets ratio
4.00
%
 
5.51
%
 
4.00
%
 
5.31
%
Capital stock-to-assets ratio
2.00
%
 
3.72
%
 
N/A1

 
N/A1

Leverage ratio
5.00
%
 
8.27
%
 
5.00
%
 
7.97
%

1
The Capital Stock AB became effective in February 2020.