10-Q 1 c878-20140331x10q.htm 10-Q bf906458a4c241d

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

 

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

 

Commission File Number 000-52004

 

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)

 

 

 

 

Federally chartered corporation

   

48-0561319

(State or other jurisdiction of

incorporation or organization)

   

(I.R.S. Employer

Identification No.)

 

One Security Benefit Pl. Suite 100

Topeka, KS

   

 

66606

(Address of principal executive offices)

   

(Zip Code)

 

Registrant’s telephone number, including area code: 785.233.0507

 

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.   Yes   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 (§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).    Yes    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer   Accelerated filer   Non-accelerated filer   Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes   No

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

 

 

 

Shares outstanding

as of 05/07/2014

Class A Stock, par value $100

2,507,895

Class B Stock, par value $100

7,456,752

 

 

 

 

1

 


 

.FEDERAL HOME LOAN BANK OF TOPEKA

 

TABLE OF CONTENTS

 

 

 

PART I 

FINANCIAL INFORMATION

3

Item 1. 

Financial Statements

4

 

Statements of Condition

5

 

Statements of Income

7

 

Statements of Comprehensive Income

8

 

Statements of Capital

9

 

Statements of Cash Flows

10

 

Notes to Financial Statements

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

44

 

Executive Level Overview

44

 

Financial Market Trends

47

 

Critical Accounting Policies and Estimates

48

 

Results of Operations

48

 

Financial Condition

56

 

Liquidity and Capital Resources

71

 

Risk Management

75

 

Recently Issued Accounting Standards

80

 

Recent Regulatory and Legislative Developments

80

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

81

Item 4.

Controls and Procedures

87

Part II 

OTHER INFORMATION

88

Item 1.

Legal Proceedings

88

Item 1A. 

Risk Factors

88

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

88

Item 3. 

Defaults Upon Senior Securities

88

Item 4. 

Mine Safety Disclosures

88

Item 5. 

Other Information

88

Item 6. 

Exhibits

88

 

2

 


 

Important Notice about Information in this Quarterly Report

 

In this quarterly report, unless the context suggests otherwise, references to the “FHLBank,” “FHLBank Topeka,” “we,” “us” and “our” mean the Federal Home Loan Bank of Topeka, and “FHLBanks” mean the 12 Federal Home Loan Banks, including the FHLBank Topeka.

 

The information contained in this quarterly report is accurate only as of the date of this quarterly report and as of the dates specified herein.

 

The product and service names used in this quarterly report are the property of the FHLBank, and in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services and company names mentioned in this quarterly report are the property of their respective owners.

 

Special Cautionary Notice Regarding Forward-looking Statements

 

The information contained in this Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements describing the objectives, projections, estimates or future predictions of the FHLBank’s operations. These statements may be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “may,” “is likely,” “could,” “estimate,” “expect,” “will,” “intend,” “probable,” “project,” “should,” or their negatives or other variations of these terms. The FHLBank cautions that by their nature forward-looking statements involve risk or uncertainty and that actual results may differ materially from those expressed in any forward-looking statements as a result of such risks and uncertainties, including but not limited to:

Governmental actions, including legislative, regulatory, judicial or other developments that affect the FHLBank; its members, counterparties or investors; housing government sponsored enterprises (GSE); or the FHLBank System in general;

Regulatory actions and determinations, including those resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act);

Changes in the FHLBank’s capital structure;

Changes in economic and market conditions, including conditions in the mortgage, housing, and capital markets;

Changes in demand for advances or consolidated obligations of the FHLBank and/or of the FHLBank System;

Effects of derivative accounting treatment, other-than-temporary impairment (OTTI) accounting treatment, and other accounting rule requirements;

The effects of amortization/accretion;

Gains/losses on derivatives or on trading investments and the ability to enter into effective derivative instruments on acceptable terms;

Volatility of market prices, interest rates and indices and the timing and volume of market activity;

Membership changes, including changes resulting from member failures or mergers, changes in the principal place of business of members or changes in the Federal Housing Finance Agency (Finance Agency) regulations on membership standards;

Our ability to declare dividends or to pay dividends at rates consistent with past practices;

Soundness of other financial institutions, including FHLBank members, nonmember borrowers, and the other FHLBanks;

Changes in the value or liquidity of collateral underlying advances to FHLBank members or nonmember borrowers or collateral pledged by reverse repurchase and derivative counterparties;

Competitive forces, including competition for loan demand, purchases of mortgage loans and access to funding;

The ability of the FHLBank to introduce new products and services to meet market demand and to manage successfully the risks associated with new products and services;

Our ability to keep pace with technological changes and the ability of the FHLBank to develop and support technology and information systems, including the ability to access the internet and internet-based systems and services, sufficient to effectively manage the risks of the FHLBank’s business;

The ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the FHLBank has joint and several liability;

Changes in the U.S. government’s long-term debt rating and the long-term credit rating of the senior unsecured debt issues of the FHLBank System;

Changes in the fair value and economic value of, impairments of, and risks associated with, the FHLBank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and related credit enhancement (CE) protections; and

The volume and quality of eligible mortgage loans originated and sold by participating members to the FHLBank through its various mortgage finance products (Mortgage Partnership Finance® (MPF®) Program1).

3

 


 

Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under Item 1A – “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2013, incorporated by reference herein.

 

All forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by this cautionary notice. The reader should not place undue reliance on such forward-looking statements, since the statements speak only as of the date that they are made and the FHLBank has no obligation and does not undertake publicly to update, revise or correct any forward-looking statement for any reason.

 

PART I

 

Item 1: Financial Statements

 

4

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

STATEMENTS OF CONDITION - Unaudited

 

 

 

 

 

 

(In thousands, except par value)

 

 

 

 

 

 

 

March 31,

December 31,

 

2014

2013

ASSETS

 

 

 

 

 

 

Cash and due from banks

$

337,578 

 

$

1,713,940 

 

Interest-bearing deposits

 

309 

 

 

1,116 

 

Securities purchased under agreements to resell (Note 11)

 

1,000,000 

 

 

 -

 

Federal funds sold

 

1,215,000 

 

 

575,000 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

Trading securities (Note 3)

 

2,110,714 

 

 

2,704,777 

 

Held-to-maturity securities1 (Note 3)

 

5,198,161 

 

 

5,423,659 

 

Total investment securities

 

7,308,875 

 

 

8,128,436 

 

 

 

 

 

 

 

 

Advances (Notes 4, 6)

 

16,112,925 

 

 

17,425,487 

 

 

 

 

 

 

 

 

Mortgage loans held for portfolio, net:

 

 

 

 

 

 

Mortgage loans held for portfolio (Notes 5, 6)

 

5,991,532 

 

 

5,956,228 

 

Less allowance for credit losses on mortgage loans (Note 6)

 

(6,877)

 

 

(6,748)

 

Mortgage loans held for portfolio, net

 

5,984,655 

 

 

5,949,480 

 

 

 

 

 

 

 

 

Accrued interest receivable

 

62,415 

 

 

72,526 

 

Premises, software and equipment, net

 

11,076 

 

 

11,146 

 

Derivative assets, net (Notes 7, 11)

 

22,347 

 

 

27,957 

 

Other assets

 

43,912 

 

 

45,216 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

32,099,092 

 

$

33,950,304 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits (Notes 8)

$

1,020,230 

 

$

961,888 

 

 

 

 

 

 

 

 

Consolidated obligations, net:

 

 

 

 

 

 

Discount notes (Note 9)

 

9,356,707 

 

 

10,889,565 

 

Bonds (Note 9)

 

19,765,733 

 

 

20,056,964 

 

Total consolidated obligations, net

 

29,122,440 

 

 

30,946,529 

 

 

 

 

 

 

 

 

Mandatorily redeemable capital stock (Note 12)

 

4,641 

 

 

4,764 

 

Accrued interest payable

 

71,330 

 

 

62,447 

 

Affordable Housing Program payable (Note 10)

 

36,466 

 

 

35,264 

 

Derivative liabilities, net (Notes 7, 11)

 

88,418 

 

 

108,353 

 

Other liabilities

 

25,483 

 

 

29,839 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

30,369,008 

 

 

32,149,084 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

                    

1Fair value: $5,197,040 and $5,415,205 as of March 31, 2014 and December 31, 2013, respectively.

 

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

 

5

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

STATEMENTS OF CONDITION - Unaudited (continued)

 

 

 

 

 

 

(In thousands, except par value)

 

 

 

 

 

 

 

March 31,

December 31,

 

2014

2013

CAPITAL

 

 

 

 

 

 

Capital stock outstanding - putable:

 

 

 

 

 

 

Class A ($100 par value; 4,106 and 4,300 shares issued and outstanding) (Note 12)

$

410,589 

 

$

430,063 

 

Class B ($100 par value; 7,552 and 8,222 shares issued and outstanding) (Note 12)

 

755,220 

 

 

822,186 

 

Total capital stock

 

1,165,809 

 

 

1,252,249 

 

 

 

 

 

 

 

 

Retained earnings:

 

 

 

 

 

 

Unrestricted

 

525,228 

 

 

515,589 

 

Restricted

 

56,197 

 

 

51,743 

 

Total retained earnings

 

581,425 

 

 

567,332 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss) (Note 13)

 

(17,150)

 

 

(18,361)

 

 

 

 

 

 

 

 

TOTAL CAPITAL

 

1,730,084 

 

 

1,801,220 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND CAPITAL

$

32,099,092 

 

$

33,950,304 

 

 

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

6

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

STATEMENTS OF INCOME - Unaudited

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

Three-month Period Ended
March 31,

 

2014

2013

INTEREST INCOME:

 

 

 

 

 

 

Interest-bearing deposits

$

37 

 

$

113 

 

Securities purchased under agreements to resell

 

14 

 

 

527 

 

Federal funds sold

 

249 

 

 

421 

 

Trading securities

 

13,036 

 

 

14,371 

 

Held-to-maturity securities

 

12,311 

 

 

15,402 

 

Advances

 

28,788 

 

 

32,249 

 

Prepayment fees on terminated advances

 

275 

 

 

1,163 

 

Mortgage loans held for portfolio

 

50,761 

 

 

48,102 

 

Other

 

390 

 

 

426 

 

Total interest income

 

105,861 

 

 

112,774 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

Deposits

 

238 

 

 

313 

 

Consolidated obligations:

 

 

 

 

 

 

Discount notes

 

1,844 

 

 

2,437 

 

Bonds

 

49,240 

 

 

57,898 

 

Mandatorily redeemable capital stock (Note 12)

 

 

 

 

Other

 

41 

 

 

36 

 

Total interest expense

 

51,367 

 

 

60,690 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

54,494 

 

 

52,084 

 

Provision for credit losses on mortgage loans (Note 6)

 

295 

 

 

1,947 

 

NET INTEREST INCOME AFTER MORTGAGE LOAN LOSS PROVISION

 

54,199 

 

 

50,137 

 

 

 

 

 

 

 

 

OTHER INCOME (LOSS):

 

 

 

 

 

 

Total other-than-temporary impairment losses on held-to-maturity securities

 

 -

 

 

(14)

 

Net amount of impairment losses on held-to-maturity securities reclassified to/(from) accumulated other comprehensive income (loss)

 

(361)

 

 

(65)

 

Net other-than-temporary impairment losses on held-to-maturity securities (Note 3)

 

(361)

 

 

(79)

 

Net gain (loss) on trading securities (Note 3)

 

(5,334)

 

 

(9,696)

 

Net gain (loss) on derivatives and hedging activities (Note 7)

 

(13,979)

 

 

(3,058)

 

Standby bond purchase agreement commitment fees

 

1,556 

 

 

1,168 

 

Letters of credit fees

 

785 

 

 

785 

 

Other

 

660 

 

 

406 

 

Total other income (loss)

 

(16,673)

 

 

(10,474)

 

 

 

 

 

 

 

 

OTHER EXPENSES:

 

 

 

 

 

 

Compensation and benefits

 

7,141 

 

 

6,520 

 

Other operating

 

3,479 

 

 

3,391 

 

Federal Housing Finance Agency

 

727 

 

 

736 

 

Office of Finance

 

539 

 

 

654 

 

Other

 

898 

 

 

974 

 

Total other expenses

 

12,784 

 

 

12,275 

 

 

 

 

 

 

 

 

INCOME BEFORE ASSESSMENTS

 

24,742 

 

 

27,388 

 

 

 

 

 

 

 

 

Affordable Housing Program (Note 10)

 

2,475 

 

 

2,740 

 

 

 

 

 

 

 

 

NET INCOME

$

22,267 

 

$

24,648 

 

 

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

7

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

STATEMENTS OF COMPREHENSIVE INCOME - Unaudited

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

Three-month Period Ended
March 31,

 

2014

2013

Net income

$

22,267 

 

$

24,648 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:

 

 

 

 

 

 

Non-credit portion

 

 -

 

 

(14)

 

Reclassification of non-credit portion included in net income

 

361 

 

 

79 

 

Accretion of non-credit portion

 

805 

 

 

1,416 

 

Total net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities

 

1,166 

 

 

1,481 

 

 

 

 

 

 

 

 

Defined benefit pension plan:

 

 

 

 

 

 

Amortization of net loss

 

45 

 

 

101 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

1,211 

 

 

1,582 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

$

23,478 

 

$

26,230 

 

 

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

 

 

8

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF CAPITAL - Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Capital Stock1

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Class A

Class B

Total

Retained Earnings

Comprehensive

Total

 

Shares

Par Value

Shares

Par Value

Shares

Par Value

Unrestricted

Restricted

Total

Income (Loss)

Capital

BALANCE - DECEMBER 31, 2012

 

4,053 

 

$

405,304 

 

 

8,592 

 

$

859,152 

 

 

12,645 

 

$

1,264,456 

 

$

453,346 

 

$

27,936 

 

$

481,282 

 

$

(25,257)

 

$

1,720,481 

 

Proceeds from issuance of capital stock

 

 -

 

 

 -

 

 

1,584 

 

 

158,432 

 

 

1,584 

 

 

158,432 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

158,432 

 

Repurchase/redemption of capital stock

 

(456)

 

 

(45,556)

 

 

(23)

 

 

(2,299)

 

 

(479)

 

 

(47,855)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,855)

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,719 

 

 

4,929 

 

 

24,648 

 

 

1,582 

 

 

26,230 

 

Net reclassification of shares to mandatorily redeemable capital stock

 

(86)

 

 

(8,635)

 

 

(296)

 

 

(29,632)

 

 

(382)

 

 

(38,267)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,267)

 

Net transfer of shares between Class A and Class B

 

807 

 

 

80,684 

 

 

(807)

 

 

(80,684)

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -

 

Dividends on capital stock (Class A - 0.3%, Class B - 3.5%):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash payment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68)

 

 

 

 

 

(68)

 

 

 

 

 

(68)

 

Stock issued

 

 

 

 

 

 

 

77 

 

 

7,690 

 

 

77 

 

 

7,690 

 

 

(7,690)

 

 

 

 

 

(7,690)

 

 

 

 

 

 -

 

BALANCE MARCH 31, 2013

 

4,318 

 

$

431,797 

 

 

9,127 

 

$

912,659 

 

 

13,445 

 

$

1,344,456 

 

$

465,307 

 

$

32,865 

 

$

498,172 

 

$

(23,675)

 

$

1,818,953 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Capital Stock1

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Class A

Class B

Total

Retained Earnings

Comprehensive

Total

 

Shares

Par Value

Shares

Par Value

Shares

Par Value

Unrestricted

Restricted

Total

Income (Loss)

Capital

BALANCE - DECEMBER 31, 2013

 

4,300 

 

$

430,063 

 

 

8,222 

 

$

822,186 

 

 

12,522 

 

$

1,252,249 

 

$

515,589 

 

$

51,743 

 

$

567,332 

 

$

(18,361)

 

$

1,801,220 

 

Proceeds from issuance of capital stock

 

 

 

237 

 

 

609 

 

 

60,868 

 

 

611 

 

 

61,105 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61,105 

 

Repurchase/redemption of capital stock

 

(817)

 

 

(81,746)

 

 

(24)

 

 

(2,353)

 

 

(841)

 

 

(84,099)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(84,099)

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,813 

 

 

4,454 

 

 

22,267 

 

 

1,211 

 

 

23,478 

 

Net reclassification of shares to mandatorily redeemable capital stock

 

(44)

 

 

(4,412)

 

 

(671)

 

 

(67,129)

 

 

(715)

 

 

(71,541)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,541)

 

Net transfer of shares between Class A and Class B

 

665 

 

 

66,447 

 

 

(665)

 

 

(66,447)

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -

 

Dividends on capital stock (Class A - 0.3%, Class B - 4.0%):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash payment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79)

 

 

 

 

 

(79)

 

 

 

 

 

(79)

 

Stock issued

 

 

 

 

 

 

 

81 

 

 

8,095 

 

 

81 

 

 

8,095 

 

 

(8,095)

 

 

 

 

 

(8,095)

 

 

 

 

 

 -

 

BALANCE MARCH 31, 2014

 

4,106 

 

$

410,589 

 

 

7,552 

 

$

755,220 

 

 

11,658 

 

$

1,165,809 

 

$

525,228 

 

$

56,197 

 

$

581,425 

 

$

(17,150)

 

$

1,730,084 

 

                    

1Putable

 

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

 

 

9

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

STATEMENTS OF CASH FLOWS - Unaudited

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

Three-month Period Ended March 31,

 

2014

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

$

22,267 

 

$

24,648 

 

Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

Premiums and discounts on consolidated obligations, net

 

(6,332)

 

 

(11,493)

 

Concessions on consolidated obligations

 

1,627 

 

 

1,795 

 

Premiums and discounts on investments, net

 

(195)

 

 

(323)

 

Premiums, discounts and commitment fees on advances, net

 

(3,507)

 

 

(4,146)

 

Premiums, discounts and deferred loan costs on mortgage loans, net

 

3,219 

 

 

6,445 

 

Fair value adjustments on hedged assets or liabilities

 

3,296 

 

 

3,475 

 

Premises, software and equipment

 

466 

 

 

516 

 

Other

 

45 

 

 

101 

 

Provision for credit losses on mortgage loans

 

295 

 

 

1,947 

 

Non-cash interest on mandatorily redeemable capital stock

 

 

 

 

Net other-than-temporary impairment losses on held-to-maturity securities

 

361 

 

 

79 

 

Other (gains) losses

 

(2)

 

 

33 

 

Net (gain) loss on trading securities

 

5,334 

 

 

9,696 

 

(Gain) loss due to change in net fair value adjustment on derivative and hedging activities

 

42,100 

 

 

8,118 

 

(Increase) decrease in accrued interest receivable

 

10,146 

 

 

11,181 

 

Change in net accrued interest included in derivative assets

 

(1,745)

 

 

(14,962)

 

(Increase) decrease in other assets

 

1,087 

 

 

1,033 

 

Increase (decrease) in accrued interest payable

 

8,882 

 

 

4,819 

 

Change in net accrued interest included in derivative liabilities

 

(13,926)

 

 

(4,286)

 

Increase (decrease) in Affordable Housing Program liability

 

1,202 

 

 

1,346 

 

Increase (decrease) in other liabilities

 

(4,493)

 

 

(3,833)

 

Total adjustments

 

47,864 

 

 

11,546 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

70,131 

 

 

36,194 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Net (increase) decrease in interest-bearing deposits

 

39,290 

 

 

45,206 

 

Net (increase) decrease in securities purchased under resale agreements

 

(1,000,000)

 

 

1,300,308 

 

Net (increase) decrease in Federal funds sold

 

(640,000)

 

 

(200,000)

 

Net (increase) decrease in short-term trading securities

 

60,017 

 

 

(414,838)

 

Proceeds from maturities of and principal repayments on long-term trading securities

 

528,725 

 

 

179,506 

 

Purchases of long-term trading securities

 

 -

 

 

(368,455)

 

Proceeds from maturities of and principal repayments on long-term held-to-maturity securities

 

226,484 

 

 

404,885 

 

Purchases of long-term held-to-maturity securities

 

 -

 

 

(360,713)

 

Principal collected on advances

 

11,157,299 

 

 

12,034,399 

 

Advances made

 

(9,863,570)

 

 

(13,082,626)

 

Principal collected on mortgage loans

 

158,825 

 

 

404,166 

 

Purchase or origination of mortgage loans

 

(198,858)

 

 

(398,701)

 

Proceeds from sale of foreclosed assets

 

929 

 

 

444 

 

Principal collected on other loans made

 

515 

 

 

481 

 

Purchases of premises, software and equipment

 

(396)

 

 

(541)

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

469,260 

 

 

(456,479)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEDERAL HOME LOAN BANK OF TOPEKA

 

 

 

 

 

 

10

 


 

STATEMENTS OF CASH FLOWS - Unaudited (continued)

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

Three-month Period Ended March 31,

 

2014

2013

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase (decrease) in deposits

$

61,802 

 

$

182,067 

 

Net proceeds from issuance of consolidated obligations:

 

 

 

 

 

 

Discount notes

 

10,692,650 

 

 

21,019,755 

 

Bonds

 

2,448,995 

 

 

1,814,371 

 

Payments for maturing and retired consolidated obligations:

 

 

 

 

 

 

Discount notes

 

(12,224,918)

 

 

(20,484,245)

 

Bonds

 

(2,764,000)

 

 

(2,437,000)

 

Proceeds from financing derivatives

 

 -

 

 

44 

 

Net interest payments received (paid) for financing derivatives

 

(35,541)

 

 

(22,613)

 

Proceeds from issuance of capital stock

 

61,105 

 

 

158,432 

 

Payments for repurchase/redemption of capital stock

 

(84,099)

 

 

(47,855)

 

Payments for repurchase of mandatorily redeemable capital stock

 

(71,668)

 

 

(38,958)

 

Cash dividends paid

 

(79)

 

 

(68)

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

(1,915,753)

 

 

143,930 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(1,376,362)

 

 

(276,355)

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

1,713,940 

 

 

369,997 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

337,578 

 

$

93,642 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

Interest paid

$

82,755 

 

$

64,833 

 

 

 

 

 

 

 

 

Affordable Housing Program payments

$

1,360 

 

$

1,440 

 

 

 

 

 

 

 

 

Net transfers of mortgage loans to real estate owned

$

1,722 

 

$

1,289 

 

 

 

 

 

 

 

 

 

 

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

11

 


 

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements - Unaudited

March 31, 2014

 

NOTE 1 – BASIS OF PRESENTATION

 

Basis of Presentation: The accompanying interim financial statements of the Federal Home Loan Bank of Topeka (FHLBank) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instruction provided by Article 10, Rule 10-01 of Regulation S-X. The financial statements contain all adjustments which are, in the opinion of management, necessary for a fair statement of the FHLBank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period. 

 

The FHLBank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2013. The interim financial statements presented herein should be read in conjunction with the FHLBank’s audited financial statements and notes thereto, which are included in the FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 14, 2014 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K. 

 

Use of Estimates: The preparation of financial statements under GAAP requires management to make estimates and assumptions as of the date of the financial statements in determining the reported amounts of assets, liabilities and estimated fair values and in determining the disclosure of any contingent assets or liabilities. Estimates and assumptions by management also affect the reported amounts of income and expense during the reporting period. The most significant of these estimates include the fair value of trading securities, the fair value of derivatives, the determination of other-than-temporary impairment (OTTI) on investments and the allowance for credit losses. Many of the estimates and assumptions, including those used in financial models, are based on financial market conditions as of the date of the financial statements. Because of the volatility of the financial markets, as well as other factors that affect management estimates, actual results may vary from these estimates.

 

Reclassifications: Certain amounts in the financial statements and related footnotes have been reclassified to conform to current period presentations. These reclassifications have no impact on total assets, net income, total comprehensive income, total capital or cash flows.

 

 

NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS AND CHANGES IN AND ADOPTIONS OF ACCOUNTING PRINCIPLES

 

Receivables - Troubled Debt Restructurings by Creditors. In January 2014, the Financial Accounting Standards Board (FASB) issued amendments intended to clarify when a creditor should be considered to have received physical possession of the residential real estate property collateralizing a consumer mortgage loan. These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, when either: (a) the creditor obtains legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveys all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments are effective for interim and annual periods beginning after December 15, 2014 (January 1, 2015 for the FHLBank). Early adoption is permitted. The guidance may be adopted using a modified retrospective transition method or a prospective transition method. The adoption of this amendment is not expected to a have a material impact on the FHLBank's financial condition, results of operations, or cash flows.

 

Joint and Several Liability: In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This guidance requires an entity to measure these obligations as the sum of: (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, this guidance requires an entity to disclose the nature and amount of the obligation as well as other information about these obligations. This guidance was effective for interim and annual periods beginning on or after December 15, 2013 (January 1, 2014 for the FHLBank) and was applied retrospectively to obligations with joint and several liabilities existing at the beginning of the current fiscal year. The adoption of this guidance did not have a material effect on the FHLBank’s financial condition, results of operations or cash flows.

 

 

12

 


 

NOTE 3 – INVESTMENT SECURITIES

 

Major Security Types: Trading and held-to-maturity securities as of March 31, 2014 are summarized in Table 3.1 (in thousands):

 

Table 3.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/31/2014

 

Trading

Held-to-maturity

 

Fair Value

Carrying Value

OTTI Recognized
in OCI

Amortized Cost

Gross Unrecognized
Gains

Gross Unrecognized
Losses

Fair Value

Non-mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

$

49,998 

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

Certificates of deposit

 

149,999 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

U.S. Treasury obligations

 

25,026 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Government-sponsored enterprise obligations1,2

 

1,723,668 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

State or local housing agency obligations

 

 -

 

 

62,237 

 

 

 -

 

 

62,237 

 

 

25 

 

 

8,206 

 

 

54,056 

 

Non-mortgage-backed securities

 

1,948,691 

 

 

62,237 

 

 

 -

 

 

62,237 

 

 

25 

 

 

8,206 

 

 

54,056 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. obligation residential3

 

1,060 

 

 

66,459 

 

 

 -

 

 

66,459 

 

 

130 

 

 

75 

 

 

66,514 

 

Government-sponsored enterprise residential4

 

160,963