10-Q 1 fhlbt3311910q.htm 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 March 31, 2019
 
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.)
 
500 SW Wanamaker Road
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.  x Yes  ¨ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  x  Yes  ¨  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ¨                    Accelerated filer ¨
Non-accelerated filer x                    Smaller reporting company ¨
Emerging growth company ¨

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. ¨

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange
on which registered
None
N/A
N/A
 
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
May 7, 2019
Class A Stock, par value $100 per share
3,879,855
Class B Stock, par value $100 per share
11,695,344




.FEDERAL HOME LOAN BANK OF TOPEKA
TABLE OF CONTENTS
 
 
 
PART I 
Item 1. 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.
Part II 
Item 1.
Item 1A. 
Item 2. 
Item 3. 
Item 4. 
Item 5. 
Item 6. 


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 all the 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 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 risks or uncertainties 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;
Changes in the FHLBank’s capital structure;
Changes in economic and market conditions, including conditions in our district and the U.S. and global economy, as well as the mortgage, housing and capital markets;
Changes in demand for FHLBank products and services or consolidated obligations of the FHLBank System;
Effects of derivative accounting treatment and other accounting rule requirements, or changes in such 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, changes in interest rates and indices and the timing and volume of market activity;
Membership changes, including changes resulting from member failures or mergers, changes due to member eligibility, or changes in the principal place of business of members;
Our ability to declare dividends or to pay dividends at rates consistent with past practices;
Soundness of other financial institutions, including FHLBank members, non-member borrowers, counterparties, and the other FHLBanks;
Changes in the value or liquidity of collateral underlying advances to FHLBank members or non-member 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 all products and services;
The ability of the FHLBank to keep pace with technological changes and the ability to develop and support technology and information systems, including the ability to securely 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 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®) Program). “Mortgage Partnership Finance,” “MPF,” “MPF Xtra,” and “MPF Direct” are registered trademarks of the FHLBank Chicago.


3


Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this quarterly 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, 2018, incorporated by reference herein.

All forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by reference to 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 to reflect events or circumstances after the date of this quarterly report.


4



PART I

Item 1: Financial Statements


5


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF CONDITION - Unaudited
 
 
(In thousands, except par value)
 
 
 
03/31/2019
12/31/2018
ASSETS
 
 
Cash and due from banks
$
12,917

$
15,060

Interest-bearing deposits
238,363

670,660

Securities purchased under agreements to resell (Note 10)
4,273,438

1,251,096

Federal funds sold
1,950,000

50,000

 
 
 
Investment securities:
 
 
Trading securities (Note 3)
3,907,002

2,151,113

Available-for-sale securities (Note 3)
3,911,021

1,725,640

Held-to-maturity securities1 (Note 3)
4,242,242

4,456,873

Total investment securities
12,060,265

8,333,626

 
 
 
Advances (Notes 4, 6)
29,862,995

28,730,113

Mortgage loans held for portfolio, net of allowance for credit losses of $824 and $812 (Notes 5, 6)
8,701,250

8,410,462

Accrued interest receivable
137,957

109,366

Derivative assets, net (Notes 7, 10)
85,015

36,095

Other assets
105,496

108,778

 
 
 
TOTAL ASSETS
$
57,427,696

$
47,715,256

 
 
 
LIABILITIES
 
 
Deposits (Note 8)
$
544,500

$
473,820

 
 
 
Consolidated obligations, net:
 
 
Discount notes (Note 9)
26,785,113

20,608,332

Bonds (Note 9)
27,400,165

23,966,394

Total consolidated obligations, net
54,185,278

44,574,726

 
 
 
Mandatorily redeemable capital stock (Note 11)
3,548

3,597

Accrued interest payable
104,921

87,903

Affordable Housing Program payable
44,962

43,081

Derivative liabilities, net (Notes 7, 10)
408

7,884

Other liabilities
65,229

69,993

 
 
 
TOTAL LIABILITIES
54,948,846

45,261,004

 
 
 
Commitments and contingencies (Note 14)


 
 
 

1    Fair value: $4,229,501 and $4,447,078 as of March 31, 2019 and December 31, 2018, respectively.
The accompanying notes are an integral part of these financial statements.


6




6


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF CONDITION - Unaudited
 
 
(In thousands, except par value)
 
 
 
03/31/2019
12/31/2018
CAPITAL
 
 
Capital stock outstanding - putable:
 
 
Class A ($100 par value; 1,981 and 2,473 shares issued and outstanding) (Note 11)
$
198,079

$
247,361

Class B ($100 par value; 13,103 and 12,772 shares issued and outstanding) (Note 11)
1,310,317

1,277,176

Total capital stock
1,508,396

1,524,537

 
 
 
Retained earnings:
 
 
Unrestricted
734,822

716,555

Restricted
208,018

197,467

Total retained earnings
942,840

914,022

 
 
 
Accumulated other comprehensive income (loss) (Note 12)
27,614

15,693

 
 
 
TOTAL CAPITAL
2,478,850

2,454,252

 
 
 
TOTAL LIABILITIES AND CAPITAL
$
57,427,696

$
47,715,256



The accompanying notes are an integral part of these financial statements.
7


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF INCOME - Unaudited
 
 
(In thousands)
 
 
 
Three Months Ended
 
03/31/2019
03/31/2018
INTEREST INCOME:
 
 
Interest-bearing deposits
$
5,170

$
2,236

Securities purchased under agreements to resell
27,930

11,430

Federal funds sold
10,324

10,589

Trading securities
21,944

16,587

Available-for-sale securities
15,396

8,862

Held-to-maturity securities
31,273

25,327

Advances
187,609

140,818

Mortgage loans held for portfolio
73,284

59,535

Other
384

409

Total interest income
373,314

275,793

 
 
 
INTEREST EXPENSE:
 
 
Deposits
2,688

1,614

Consolidated obligations:
 
 
Discount notes
148,991

94,978

Bonds
158,157

112,432

Mandatorily redeemable capital stock (Note 11)
43

61

Other
420

229

Total interest expense
310,299

209,314

 
 
 
NET INTEREST INCOME
63,015

66,479

(Reversal) provision for credit losses on mortgage loans (Note 6)
78

30

NET INTEREST INCOME AFTER LOAN LOSS (REVERSAL) PROVISION
62,937

66,449

 
 
 
OTHER INCOME (LOSS):
 
 
Net gains (losses) on trading securities (Note 3)
28,755

(26,950
)
Net gains (losses) on sale of held-to-maturity securities (Note 3)

34

Net gains (losses) on derivatives and hedging activities (Note 7)
(18,542
)
16,643

Standby bond purchase agreement commitment fees
566

848

Letters of credit fees
1,186

1,066

Other
709

1,372

Total other income (loss)
12,674

(6,987
)
 
 
 

The accompanying notes are an integral part of these financial statements.
8


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF INCOME - Unaudited
 
 
(In thousands)
 
 
 
Three Months Ended
 
03/31/2019
03/31/2018
OTHER EXPENSES:
 
 
Compensation and benefits
$
9,258

$
8,330

Other operating
4,255

4,185

Federal Housing Finance Agency
812

764

Office of Finance
849

784

Other
1,816

1,402

Total other expenses
16,990

15,465

 
 
 
INCOME BEFORE ASSESSMENTS
58,621

43,997

 
 
 
Affordable Housing Program
5,866

4,406

 
 
 
NET INCOME
$
52,755

$
39,591



The accompanying notes are an integral part of these financial statements.
9


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
 
 
(In thousands)
 
 
Three Months Ended
 
03/31/2019
03/31/2018
Net income
$
52,755

$
39,591

 
 
 
Other comprehensive income (loss):
 
 
Net unrealized gains (losses) on available-for-sale securities
11,848

4,142

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

301

Defined benefit pension plan
73

7

Total other comprehensive income (loss)
11,921

4,450

 
 
 
TOTAL COMPREHENSIVE INCOME
$
64,676

$
44,041

 


The accompanying notes are an integral part of these financial statements.
10


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
 
 
 
 
 
STATEMENTS OF CAPITAL - Unaudited
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
Capital Stock1
Retained Earnings
Accumulated
Total Capital
 
Other
 
Class A
Class B
Total
Comprehensive
 
Shares
Par Value
Shares
Par Value
Shares
Par Value
Unrestricted
Restricted
Total
Income (Loss)
Balance at December 31, 2017
2,351

$
235,134

14,049

$
1,404,905

16,400

$
1,640,039

$
676,993

$
163,413

$
840,406

$
25,658

$
2,506,103

Comprehensive income
 
 
 
 
 
 
31,673

7,918

39,591

4,450

44,041

Proceeds from issuance of capital stock
3

323

2,721

272,052

2,724

272,375

 
 
 
 
272,375

Repurchase/redemption of capital stock
(2,369
)
(236,937
)
(21
)
(2,037
)
(2,390
)
(238,974
)
 
 
 
 
(238,974
)
Net reclassification of shares to mandatorily redeemable capital stock
(391
)
(39,140
)
(613
)
(61,250
)
(1,004
)
(100,390
)
 
 
 
 
(100,390
)
Net transfer of shares between Class A and Class B
2,069

206,908

(2,069
)
(206,908
)


 
 
 
 

Dividends on capital stock (Class A - 1.5%, Class B - 6.7%):
 
 
 
 
 
 
 
 
 
 
 
Cash payment
 
 
 
 
 
 
(70
)
 
(70
)
 
(70
)
Stock issued
 
 
257

25,686

257

25,686

(25,686
)
 
(25,686
)
 

Balance at March 31, 2018
1,663

$
166,288

14,324

$
1,432,448

15,987

$
1,598,736

$
682,910

$
171,331

$
854,241

$
30,108

$
2,483,085

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital Stock1
Retained Earnings
Accumulated
Total Capital
 
Other
 
Class A
Class B
Total
Comprehensive
 
Shares
Par Value
Shares
Par Value
Shares
Par Value
Unrestricted
Restricted
Total
Income (Loss)
Balance at December 31, 2018
2,473

$
247,361

12,772

$
1,277,176

15,245

$
1,524,537

$
716,555

$
197,467

$
914,022

$
15,693

$
2,454,252

Comprehensive income
 
 
 
 
 
 
42,204

10,551

52,755

11,921

64,676

Proceeds from issuance of capital stock
1

52

3,377

337,706

3,378

337,758

 
 
 
 
337,758

Repurchase/redemption of capital stock
(3,388
)
(338,827
)
(150
)
(15,023
)
(3,538
)
(353,850
)
 
 
 
 
(353,850
)
Net reclassification of shares to mandatorily redeemable capital stock
(179
)
(17,911
)
(60
)
(6,004
)
(239
)
(23,915
)
 
 
 
 
(23,915
)
Net transfer of shares between Class A and Class B
3,074

307,404

(3,074
)
(307,404
)


 
 
 
 

Dividends on capital stock (Class A - 2.3%, Class B - 7.5%):
 
 
 
 




 
 
 
 
 

Cash payment
 
 
 
 




(71
)
 
(71
)
 
(71
)
Stock issued
 
 
238

23,866

238

23,866

(23,866
)
 
(23,866
)
 

Balance at March 31, 2019
1,981
$
198,079

13,103
$
1,310,317

15,084
$
1,508,396

$
734,822

$
208,018

$
942,840

$
27,614

$
2,478,850

                   
1    Putable


The accompanying notes are an integral part of these financial statements.
11


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF CASH FLOWS - Unaudited
 
 
(In thousands)
 
 
 
Three Months Ended
 
03/31/2019
03/31/2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
Net income
$
52,755

$
39,591

Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization:
 
 
Premiums and discounts on consolidated obligations, net
8,802

4,803

Concessions on consolidated obligations
2,478

1,369

Premiums and discounts on investments, net
919

783

Premiums, discounts and commitment fees on advances, net
(927
)
(1,304
)
Premiums, discounts and deferred loan costs on mortgage loans, net
3,989

4,184

Fair value adjustments on hedged assets or liabilities
1,267

453

Premises, software and equipment
753

791

Other
73

7

(Reversal) provision for credit losses on mortgage loans
78

30

Non-cash interest on mandatorily redeemable capital stock
42

61

Net realized (gains) losses on sale of held-to-maturity securities

(34
)
Net other-than-temporary impairment losses on held-to-maturity securities

22

Net realized (gains) losses on sale of premises and equipment
(3
)
(879
)
Other adjustments
(47
)
(132
)
Net (gains) losses on trading securities
(28,755
)
26,950

Net change in derivatives and hedging activities
(38,853
)
22,370

(Increase) decrease in accrued interest receivable
(28,624
)
(11,187
)
Change in net accrued interest included in derivative assets
(3,132
)
(3,989
)
(Increase) decrease in other assets
1,850

988

Increase (decrease) in accrued interest payable
16,911

18,464

Change in net accrued interest included in derivative liabilities
3,778

(273
)
Increase (decrease) in Affordable Housing Program liability
1,881

2,355

Increase (decrease) in other liabilities
(4,833
)
(9,117
)
Total adjustments
(62,353
)
56,715

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(9,598
)
96,306

 
 
 

The accompanying notes are an integral part of these financial statements.
12


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF CASH FLOWS - Unaudited
 
 
(In thousands)
 
 
 
Three Months Ended
 
03/31/2019
03/31/2018
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Net (increase) decrease in interest-bearing deposits
$
407,921

$
(440,909
)
Net (increase) decrease in securities purchased under resale agreements
(3,022,342
)
(44,599
)
Net (increase) decrease in Federal funds sold
(1,900,000
)
(3,107,000
)
Net (increase) decrease in short-term trading securities
(1,210,000
)
(715,000
)
Proceeds from maturities of and principal repayments on long-term trading securities
237,807

153,799

Purchases of long-term trading securities
(754,941
)

Proceeds from maturities of and principal repayments on long-term available-for-sale securities
2,902

2,260

Purchases of long-term available-for-sale securities
(2,135,066
)
(79,178
)
Proceeds from sale of held-to-maturity securities

8,406

Proceeds from maturities of and principal repayments on long-term held-to-maturity securities
214,456

203,664

Purchases of long-term held-to-maturity securities

(466,981
)
Advances repaid
100,696,593

102,395,193

Advances originated
(101,789,046
)
(103,131,501
)
Principal collected on mortgage loans
196,864

201,174

Purchases of mortgage loans
(491,056
)
(387,768
)
Proceeds from sale of foreclosed assets
703

1,722

Other investing activities
761

678

Proceeds from sale of premises, software and equipment

2,414

Purchases of premises, software and equipment
(300
)
(2,216
)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(9,544,744
)
(5,405,842
)
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Net increase (decrease) in deposits
7,352

217,732

Net proceeds from issuance of consolidated obligations:
 
 
Discount notes
251,204,917

260,985,732

Bonds
5,574,167

6,563,236

Payments for maturing and retired consolidated obligations:
 
 
Discount notes
(245,039,459
)
(258,807,777
)
Bonds
(2,154,000
)
(3,821,750
)
Net interest payments received (paid) for financing derivatives
(609
)
(2,951
)
Proceeds from issuance of capital stock
337,758

272,375

Payments for repurchase/redemption of capital stock
(353,850
)
(238,974
)
Payments for repurchase of mandatorily redeemable capital stock
(24,006
)
(100,734
)
Cash dividends paid
(71
)
(70
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
9,552,199

5,066,819

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(2,143
)
(242,717
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
15,060

268,050

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
12,917

$
25,333

 
 
 

The accompanying notes are an integral part of these financial statements.
13


FEDERAL HOME LOAN BANK OF TOPEKA
 
 
STATEMENTS OF CASH FLOWS - Unaudited
 
 
(In thousands)
 
 
 
Three Months Ended
 
03/31/2019
03/31/2018
Supplemental disclosures:
 
 
Interest paid
$
279,543

$
186,887

Affordable Housing Program payments
$
4,251

$
2,093

Net transfers of mortgage loans to other assets
$
350

$
1,658


The accompanying notes are an integral part of these financial statements.
14



FEDERAL HOME LOAN BANK OF TOPEKA
Notes to Financial Statements - Unaudited
March 31, 2019


NOTE 1BASIS OF PRESENTATION

Basis of Presentation: The accompanying interim financial statements of the 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, 2018. 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 18, 2019 (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.

Reclassifications: Certain immaterial amounts in the financial statements have been reclassified to conform to current period presentations.

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 and available-for-sale securities, the fair value of derivatives 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.

Derivatives and Hedging Activities: Beginning January 1, 2019, the FHLBank adopted new hedge accounting guidance, which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item. Net gains (losses) on derivatives and hedging activities for qualifying hedges recorded in net interest income include unrealized and realized gains (losses), which include net interest settlements.

Prior to January 1, 2019, fair value hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item) was recorded in non-interest income as net gains (losses) on derivatives and hedging activities.

Investment Securities: Securities that are not classified as trading or held-to-maturity are classified as available-for-sale and are carried at fair value. The change in fair value of available-for-sale securities is recorded in other comprehensive income (loss) (OCI) as net unrealized gains (losses) on available-for-sale securities. Beginning January 1, 2019, the FHLBank adopted new hedge accounting guidance, which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges, including fair value hedges of available-for-sale securities. For available-for-sale securities that have been hedged and qualify as a fair value hedge, the FHLBank records the portion of the change in the fair value of the investment related to the risk being hedged in available-for-sale interest income together with the related change in the fair value of the derivative, and records the remainder of the change in the fair value of the investment in OCI as net unrealized gains (losses) on available-for-sale securities.

Prior to January 1, 2019, for available-for-sale securities that were hedged and qualified as a fair value hedge, the FHLBank recorded the portion of the change in the fair value of the investment related to the risk being hedged in non-interest income as net gains (losses) on derivatives and hedging activities together with the related change in the fair value of the derivative, and recorded the remainder of the change in the fair value of the investment in OCI as net unrealized gains (losses) on available-for-sale securities.


15


Prepayment Fees on Advances: The FHLBank charges a borrower a prepayment fee when the borrower prepays certain advances before the original maturity. The FHLBank records prepayment fees net of basis adjustments related to hedging activities included in the carrying value of the advance as advance interest income in the Statements of Income.

If a new advance does not qualify as a modification of an existing advance, the existing advance is treated as an advance termination and any prepayment fee, net of hedging adjustments, is recorded to advance interest income in the Statements of Income.

If a new advance qualifies as a modification of an existing advance, any prepayment fee, net of hedging adjustments, is deferred, recorded in the basis of the modified advance, and amortized using a level-yield methodology over the life of the modified advance to advance interest income. If the modified advance is hedged and meets hedge accounting requirements, the modified advance is marked to benchmark or full fair value, depending on the risk being hedged, and subsequent fair value changes that are attributable to the hedged risk are recorded in advance interest income effective January 1, 2019. Prior to January 1, 2019, subsequent fair value changes were recorded in non-interest income as net gains (losses) on derivatives and hedging activities.


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

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (Accounting Standards Update (ASU) 2018-16). In October 2018, the Financial Accounting Standards Board (FASB) issued an amendment that permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the U.S. Treasury rate, the London Interbank Offered Rate (LIBOR) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate. The amendments were adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The amendment was effective concurrently with ASU 2017-12 (see below) for annual periods, and interim periods within those annual periods, beginning January 1, 2019. The adoption of this guidance did not materially affect the FHLBank's application of hedge accounting or utilization of hedging strategies.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). In August 2018, the FASB issued an amendment to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments in this ASU require an entity in a hosting arrangement that is a service contract to follow existing guidance relating to internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized also cannot be capitalized for a hosting arrangement that is a service contract. Therefore, an entity in a hosting arrangement that is a service contract determines to which project stage (that is, preliminary project stage, application development stage, or post-implementation stage) an implementation activity relates. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. The amendments in this ASU also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendments in this ASU will be effective for annual periods, and interim periods within those annual periods beginning after December 31, 2019, which is January 1, 2020 for the FHLBank. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The FHLBank does not plan on early adoption. The adoption of this guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.

Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). In August 2018, the FASB issued an amendment modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to improve disclosure effectiveness. The amendments in the ASU remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this ASU are effective for annual periods ending after December 15, 2020, which is December 31, 2020 for the FHLBank. Early adoption is permitted. The FHLBank does not plan on early adoption. The adoption of this guidance will not have a material impact on the disclosures related to defined benefit plans and will not impact the FHLBank’s financial condition, results of operations or cash flows.


16


Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). In August 2018, the FASB issued an amendment that modifies the disclosure requirements for fair value measurements. This ASU removes the requirement to disclose: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU will be effective for annual periods, and interim periods within those annual periods beginning after December 31, 2019, which is January 1, 2020 for the FHLBank. Early adoption is permitted. The FHLBank does not plan on early adoption. The adoption of this guidance will not have a material impact on the disclosures related to fair value measurements and will not impact the FHLBank’s financial condition, results of operations or cash flows.

Targeted Improvements to Accounting for Hedging Activities, as amended (ASU 2017-12). In August 2017, the FASB issued an amendment to simplify the application of hedge accounting guidance in current GAAP and 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. 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 can designate the variability in cash flows attributable to the contractually specified interest rate as the hedged risk; and
If an entity that applies the shortcut method determines that use of that method was not or is no longer appropriate, the entity may apply a long-haul method for assessing hedge effectiveness as long as the hedge is highly effective and the entity documents at inception which long-haul methodology it will use.

The amendment became effective for annual periods, and interim periods within those annual periods beginning on January 1, 2019 for the FHLBank. The guidance did not affect the FHLBank's application of hedge accounting for existing hedge strategies. For all short-cut hedge accounting trades, the FHLBank updated existing documentation to designate a long-haul method to be utilized in the event a hedge ceases to qualify for the short-cut method. The guidance may also provide opportunities to enhance risk management through new hedge strategies, including partial term hedges. The adoption of this guidance did not have a material effect on the FHLBank's financial condition, results of operations or cash flows beyond a prospective change in income statement presentation for fair value hedge relationships and new required disclosures.

Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). In March 2017, FASB issued an amendment to shorten the amortization period of any premium on callable debt securities to the first call date instead of over the contractual life of the instrument. The amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is intended to reduce diversity in practice in the amortization of premiums and the consideration of how the potential of a security being called is factored into current impairment assessments. The amendment also intends to more closely align the amortization of premiums and discounts to the expectations incorporated into the market pricing of the instrument. The amendment became effective for annual periods, and interim periods within those annual periods beginning on January 1, 2019 for the FHLBank. The adoption of this guidance did not have an impact on the FHLBank's financial condition, results of operations or cash flows.

Measurement of Credit Losses on Financial Instruments, as amended (ASU 2016-13). In June 2016, 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. Additionally, under the new guidance, a financial asset, or a group of financial assets, measured at amortized cost basis is required to be presented at the net amount expected to be collected.


17


The guidance also requires:
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;
The entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis in a similar manner to other financial assets measured at amortized cost basis. The initial allowance for credit losses is required to be added to the purchase price;
Credit losses relating to available-for-sale debt securities to be recorded 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; and
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).

The guidance is effective for the FHLBank for 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. The FHLBank does not plan on early adoption. The 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 debt securities for which an other-than-temporary impairment (OTTI) charge had been recognized before the effective date; however, the FHLBank currently does not have any OTTI debt securities. The FHLBank's internal working group continues its implementation efforts of identifying key interpretive issues and potential impacts to processes and systems that determine the magnitude of the impact on the FHLBank's financial condition, results of operations and cash flows. The FHLBank does not expect this guidance to impact certain financial instruments, including Advances, Agency and government-sponsored enterprise investments, securities purchased under agreements to resell, and other overnight investments due to the specific terms, issuer guarantees, and/or collateralized nature of the instruments that result in high credit quality holdings with no expected credit losses. Adoption of this guidance is not expected to have a material impact on the FHLBank's municipal securities and short-term investments. The FHLBank is still evaluating the impact that adoption of this guidance will have on its mortgage loans held for portfolio.

Leases (ASU 2016-02). In February 2016, FASB issued amendments to lease accounting guidance. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases in the statement of financial condition, which effectively removes a source of off-balance sheet financing for operating leases. A distinction remains between finance leases and operating leases, but the assets and liabilities arising from operating leases are now also required to be recognized in the statement of financial condition. Lessor accounting is largely unchanged. The amendments became effective for annual periods, and interim periods within those annual periods, beginning on January 1, 2019 for the FHLBank. The adoption of this guidance did not have a material effect on the FHLBank's financial condition, results of operations or cash flows.



18


NOTE 3INVESTMENT SECURITIES

Trading Securities: Trading securities by major security type as of March 31, 2019 and December 31, 2018 are summarized in Table 3.1 (in thousands):

Table 3.1
 
Fair Value
 
03/31/2019
12/31/2018
Non-mortgage-backed securities:
 
 
Certificates of deposit
$
1,210,086

$

U.S. Treasury obligations
1,014,067

252,377

GSE obligations1
806,702

1,000,495

Non-mortgage-backed securities
3,030,855

1,252,872

Mortgage-backed securities:
 
 
U.S. obligation MBS2
446

467

GSE MBS3
875,701

897,774

Mortgage-backed securities
876,147

898,241

TOTAL
$
3,907,002

$
2,151,113

                   
1 
Represents debentures issued by other FHLBanks, Federal National Mortgage Association (Fannie Mae), Federal Farm Credit Bank (Farm Credit) and Federal Agricultural Mortgage Corporation (Farmer Mac). GSE securities are not guaranteed by the U.S. government.
2 
Represents single-family MBS issued by Government National Mortgage Association (Ginnie Mae), which are guaranteed by the U.S. government.
3 
Represents single-family and multi-family MBS issued by Fannie Mae and Federal Home Loan Mortgage Corporation (Freddie Mac).

Net gains (losses) on trading securities during the three months ended March 31, 2019 and 2018 are shown in Table 3.2 (in thousands):

Table 3.2
 
Three Months Ended
 
03/31/2019
03/31/2018
Net gains (losses) on trading securities held as of March 31, 2019
$
28,804

$
(25,784
)
Net gains (losses) on trading securities sold or matured prior to March 31, 2019
(49
)
(1,166
)
NET GAINS (LOSSES) ON TRADING SECURITIES
$
28,755

$
(26,950
)

Available-for-sale Securities: Available-for-sale securities by major security type as of March 31, 2019 are summarized in Table 3.3 (in thousands):

Table 3.3
 
03/31/2019
 
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Non-mortgage-backed securities:
 
 
 
 
U.S. Treasury obligations
$
2,017,155

$
1,463

$
(33
)
$
2,018,585

Non-mortgage-backed securities
2,017,155

1,463

(33
)
2,018,585

Mortgage-backed securities:
 
 
 
 
GSE MBS1
1,862,950

33,011

(3,525
)
1,892,436

Mortgage-backed securities
1,862,950

33,011

(3,525
)
1,892,436

TOTAL
$
3,880,105

$
34,474

$
(3,558
)
$
3,911,021

                   
1 
Represents fixed rate multi-family MBS issued by Fannie Mae.


19


Available-for-sale securities by major security type as of December 31, 2018 are summarized in Table 3.4 (in thousands):

Table 3.4
 
12/31/2018
 
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Mortgage-backed securities:
 
 
 
 
GSE MBS1
$
1,706,572

$
25,815

$
(6,747
)
$
1,725,640

TOTAL
$
1,706,572

$
25,815

$
(6,747
)
$
1,725,640

                   
1 
Represents fixed rate multi-family MBS issued by Fannie Mae.

Table 3.5 summarizes the available-for-sale securities with unrealized losses as of March 31, 2019 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.5
 
03/31/2019
 
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. Treasury obligations
$
256,817

$
(33
)
$

$

$
256,817

$
(33
)
Non-mortgage-backed securities
256,817

(33
)


256,817

(33
)
Mortgage-backed securities:
 
 
 
 
 
 
GSE MBS1
145,633

(1,324
)
188,863

(2,201
)
334,496

(3,525
)
Mortgage-backed securities
145,633

(1,324
)
188,863

(2,201
)
334,496

(3,525
)
TOTAL TEMPORARILY IMPAIRED SECURITIES
$
402,450

$
(1,357
)
$
188,863

$
(2,201
)
$
591,313

$
(3,558
)
                   
1 
Represents fixed rate multi-family MBS issued by Fannie Mae.

Table 3.6 summarizes the available-for-sale securities with unrealized losses as of December 31, 2018 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.6
 
12/31/2018
 
Less Than 12 Months
12 Months or More
Total
 
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Mortgage-backed securities:
 
 
 
 
 
 
GSE MBS1
$
570,042

$
(6,747
)
$

$

$
570,042

$
(6,747
)
TOTAL TEMPORARILY IMPAIRED SECURITIES
$
570,042

$
(6,747
)
$

$

$
570,042

$
(6,747
)
                   
1 
Represents fixed rate multi-family MBS issued by Fannie Mae.


20


The amortized cost and fair values of available-for-sale securities by contractual maturity as of March 31, 2019 and December 31, 2018 are shown in Table 3.7 (in thousands). Expected maturities of MBS will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.7
 
03/31/2019
12/31/2018
 
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Non-mortgage-backed securities:
 
 
 
 
Due in one year or less
$

$

$

$

Due after one year through five years
2,017,155

2,018,585



Due after five years through ten years




Due after ten years




Non-mortgage-backed securities
2,017,155

2,018,585



Mortgage-backed securities
1,862,950

1,892,436

1,706,572

1,725,640

TOTAL
$
3,880,105

$
3,911,021

$
1,706,572

$
1,725,640


Held-to-maturity Securities: Held-to-maturity securities by major security type as of March 31, 2019 are summarized in Table 3.8 (in thousands):

Table 3.8
 
03/31/2019
 
Amortized
Cost
Carrying Value
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Non-mortgage-backed securities:
 
 
 
 
 
State or local housing agency obligations
$
86,430

$
86,430

$

$
(3,317
)
$
83,113

Non-mortgage-backed securities
86,430

86,430


(3,317
)
83,113

Mortgage-backed securities:
 
 
 
 
 
U.S. obligation MBS1
106,576

106,576


(364
)
106,212

GSE MBS2
4,049,236

4,049,236

10,456

(19,516
)
4,040,176

Mortgage-backed securities
4,155,812

4,155,812

10,456

(19,880
)
4,146,388

TOTAL
$
4,242,242

$
4,242,242

$
10,456

$
(23,197
)
$
4,229,501

                   
1 
Represents single-family MBS issued by Ginnie Mae.
2 
Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.


21


Held-to-maturity securities by major security type as of December 31, 2018 are summarized in Table 3.9 (in thousands):

Table 3.9
 
12/31/2018
 
Amortized
Cost
Carrying Value
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Non-mortgage-backed securities:
 
 
 
 
 
State or local housing agency obligations
$
86,430

$
86,430

$
1

$
(3,480
)
$
82,951

Non-mortgage-backed securities
86,430

86,430

1

(3,480
)
82,951

Mortgage-backed securities:
 
 
 
 
 
U.S. obligation MBS1
109,866

109,866

125

(99
)
109,892

GSE MBS2
4,260,577

4,260,577

12,164

(18,506
)
4,254,235

Mortgage-backed securities
4,370,443

4,370,443

12,289

(18,605
)
4,364,127

TOTAL
$
4,456,873

$
4,456,873

$
12,290

$
(22,085
)
$
4,447,078

                    
1 
Represents single-family MBS issued by Ginnie Mae.
2 
Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.

Table 3.10 summarizes the held-to-maturity securities with unrealized losses as of March 31, 2019 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.10
 
03/31/2019
 
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
$
56,426

$
(4
)
$
26,687

$
(3,313
)
$
83,113

$
(3,317
)
Non-mortgage-backed securities
56,426

(4
)
26,687

(3,313
)
83,113

(3,317
)
Mortgage-backed securities:
 
 
 
 
 
 
U.S. obligation MBS1
76,767

(231
)
29,445

(133
)
106,212

(364
)
GSE MBS2
1,264,935

(5,466
)
1,908,044

(14,050
)
3,172,979

(19,516
)
Mortgage-backed securities
1,341,702

(5,697
)
1,937,489

(14,183
)
3,279,191

(19,880
)
TOTAL TEMPORARILY IMPAIRED SECURITIES
$
1,398,128

$
(5,701
)
$
1,964,176

$
(17,496
)
$
3,362,304

$
(23,197
)
                    
1 
Represents single-family MBS issued by Ginnie Mae.
2 
Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.


22


Table 3.11 summarizes the held-to-maturity securities with unrealized losses as of December 31, 2018 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.11
 
12/31/2018
 
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:
 
 
 
 
 
 
State or local housing agency obligations
$

$

$
26,520

$
(3,480
)
$
26,520

$
(3,480
)
Non-mortgage-backed securities


26,520

(3,480
)
26,520

(3,480
)
Mortgage-backed securities:
 
 
 
 
 
 
U.S. obligation MBS1


30,702

(99
)
30,702

(99
)
GSE MBS2
1,655,048

(4,769
)
1,567,728

(13,737
)
3,222,776

(18,506
)
Mortgage-backed securities
1,655,048

(4,769
)
1,598,430

(13,836
)
3,253,478

(18,605
)
TOTAL TEMPORARILY IMPAIRED SECURITIES
$
1,655,048

$
(4,769
)
$
1,624,950

$
(17,316
)
$
3,279,998

$
(22,085
)
                    
1 
Represents single-family MBS issued by Ginnie Mae.
2 
Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.

The amortized cost, carrying value and fair values of held-to-maturity securities by contractual maturity as of March 31, 2019 and December 31, 2018 are shown in Table 3.12 (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.12
 
03/31/2019
12/31/2018
 
Amortized
Cost
Carrying
Value
Fair
Value
Amortized
Cost
Carrying
Value
Fair
Value
Non-mortgage-backed securities:
 
 
 
 
 
 
Due in one year or less
$

$

$

$

$

$

Due after one year through five years






Due after five years through ten years






Due after ten years
86,430

86,430

83,113

86,430

86,430

82,951

Non-mortgage-backed securities
86,430

86,430

83,113

86,430

86,430

82,951

Mortgage-backed securities
4,155,812

4,155,812

4,146,388

4,370,443

4,370,443

4,364,127

TOTAL
$
4,242,242

$
4,242,242

$
4,229,501

$
4,456,873

$
4,456,873

$
4,447,078



23


Net gains (losses) were realized on the sale of long-term held-to-maturity securities during the three months ended March 31, 2018 and are recorded as net gains (losses) on sale of held-to-maturity securities in other income (loss) on the Statements of Income. All securities sold had paid down below 15 percent of the principal outstanding at acquisition. Table 3.13 presents details of the sales (in thousands). No held-to-maturity securities were sold during the three months ended March 31, 2019.

Table 3.13
 
Three Months Ended
 
03/31/2018
Proceeds from sale of held-to-maturity securities
$
8,406

Carrying value of held-to-maturity securities sold
(8,372
)
NET REALIZED GAINS (LOSSES)
$
34


As of March 31, 2019, the fair value of a portion of the FHLBank's available-for-sale and held-to-maturity securities were below the amortized cost of the securities due to interest rate volatility and/or illiquidity. However, the decline in fair value of these securities is considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining securities in unrecognized loss positions and neither intends to sell these securities nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis.


NOTE 4ADVANCES

General Terms: The FHLBank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of March 31, 2019 and December 31, 2018, the FHLBank had advances outstanding at interest rates ranging from 0.88 percent to 7.41 percent. Table 4.1 presents advances summarized by redemption term as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands): 

Table 4.1
 
03/31/2019
12/31/2018
Redemption Term
Amount
Weighted Average Interest Rate
Amount
Weighted Average Interest Rate
Due in one year or less
$
13,806,679

2.60
%
$
14,844,804

2.60
%
Due after one year through two years
1,985,215

2.44

1,482,844

2.40

Due after two years through three years
1,261,938

2.63

1,442,333

2.53

Due after three years through four years
755,038

2.63

7,496,058

2.66

Due after four years through five years
9,287,897

2.67

816,702

2.68

Thereafter
2,773,434

2.59

2,695,008

2.58

Total par value
29,870,201

2.61
%
28,777,749

2.60
%
Discounts
(2,486
)
 
(3,413
)
 
Hedging adjustments
(4,720
)
 
(44,223
)
 
TOTAL
$
29,862,995

 
$
28,730,113

 

The FHLBank’s advances outstanding include advances that contain call options that may be exercised with or without prepayment fees at the borrower’s discretion on specific dates (call dates) before the stated advance maturities (callable advances). In exchange for receiving the right to call the advance on a predetermined call schedule, the borrower may pay a higher fixed rate for the advance relative to an equivalent maturity, non-callable, fixed rate advance. The borrower normally exercises its call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances).

Convertible advances allow the FHLBank to convert an advance from one interest payment term structure to another. When issuing convertible advances, the FHLBank purchases put options from a member that allow the FHLBank to convert the fixed rate advance to a variable rate advance at the current market rate or another structure after an agreed-upon lockout period. A convertible advance carries a lower interest rate than a comparable-maturity fixed rate advance without the conversion feature.

24



Table 4.2 presents advances summarized by redemption term or next call date (for callable advances) and by redemption term or next conversion date (for convertible advances) as of March 31, 2019 and December 31, 2018 (in thousands):

Table 4.2
 
Redemption Term
or Next Call Date
Redemption Term
or Next Conversion Date
Redemption Term
03/31/2019
12/31/2018
03/31/2019
12/31/2018
Due in one year or less
$
24,189,884

$
23,343,939

$
14,193,579

$
15,133,204

Due after one year through two years
1,695,174

1,271,660

2,198,365

1,683,644

Due after two years through three years
782,116

1,021,189

1,405,988

1,629,233

Due after three years through four years
471,460

555,901

1,011,038

7,752,058

Due after four years through five years
646,325

598,282

9,419,647

954,452

Thereafter
2,085,242

1,986,778

1,641,584

1,625,158

TOTAL PAR VALUE
$
29,870,201

$
28,777,749

$
29,870,201

$
28,777,749


Interest Rate Payment Terms:  Table 4.3 details additional interest rate payment terms for advances as of March 31, 2019 and December 31, 2018 (in thousands):

Table 4.3
 Redemption Term
03/31/2019
12/31/2018
Fixed rate:
 
 
Due in one year or less
$
1,507,165

$
1,635,464

Due after one year
5,701,810

5,455,193

Total fixed rate
7,208,975

7,090,657

Variable rate:
 

 

Due in one year or less
12,299,514

13,209,340

Due after one year
10,361,712

8,477,752

Total variable rate
22,661,226

21,687,092

TOTAL PAR VALUE
$
29,870,201

$
28,777,749


See Note 6 for information related to the FHLBank’s credit risk on advances and allowance for credit losses.


NOTE 5MORTGAGE LOANS

The MPF Program involves the FHLBank investing in mortgage loans, which have been funded by the FHLBank through or purchased from participating financial institutions (PFIs). These mortgage loans are government-guaranteed or -insured loans (by the Federal Housing Administration, the Department of Veterans Affairs, the Rural Housing Service of the Department of Agriculture and/or the Department of Housing and Urban Development) and conventional residential loans credit-enhanced by PFIs. Depending upon a member’s product selection, the servicing rights can be retained or sold by the participating member. The FHLBank does not buy or own any mortgage servicing rights.


25


Mortgage Loans Held for Portfolio: Table 5.1 presents information as of March 31, 2019 and December 31, 2018 on mortgage loans held for portfolio (in thousands):

Table 5.1
 
03/31/2019
12/31/2018
Real estate:
 
 
Fixed rate, medium-term1, single-family mortgages
$
1,160,821

$
1,179,087

Fixed rate, long-term, single-family mortgages
7,414,412

7,111,856

Total unpaid principal balance
8,575,233

8,290,943

Premiums
125,937

120,548

Discounts
(2,841
)
(2,936
)
Deferred loan costs, net
216

223

Other deferred fees
(47
)
(50
)
Hedging adjustments
3,576

2,546

Total before Allowance for Credit Losses on Mortgage Loans
8,702,074

8,411,274

Allowance for Credit Losses on Mortgage Loans
(824
)
(812
)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET
$
8,701,250

$
8,410,462

                   
1 
Medium-term defined as a term of 15 years or less at origination.

Table 5.2 presents information as of March 31, 2019 and December 31, 2018 on the outstanding unpaid principal balance (UPB) of mortgage loans held for portfolio (in thousands):

Table 5.2
 
03/31/2019
12/31/2018
Conventional loans
$
7,909,524

$
7,619,498

Government-guaranteed or -insured loans
665,709

671,445

TOTAL UNPAID PRINCIPAL BALANCE
$
8,575,233

$
8,290,943


See Note 6 for information related to the FHLBank’s credit risk on mortgage loans and allowance for credit losses.


NOTE 6ALLOWANCE FOR CREDIT LOSSES

The FHLBank has established an allowance methodology for each of its portfolio segments: credit products (advances, letters of credit and other extensions of credit to borrowers); government mortgage loans held for portfolio; conventional mortgage loans held for portfolio; the direct financing lease receivable; term Federal funds sold; and term securities purchased under agreements to resell. Based on management's analyses of each portfolio segment, the FHLBank has only established an allowance for credit losses on its conventional mortgage loans held for portfolio.


26


Allowance for Credit Losses: Table 6.1 presents a roll-forward of the allowance for credit losses for the three months ended March 31, 2019 and 2018 (in thousands):

Table 6.1
 
Three Months Ended
 
03/31/2019
03/31/2018
Balance, beginning of the period
$
812

$
1,208

Net (charge-offs) recoveries
(66
)
(181
)
(Reversal) provision for credit losses
78

30

Balance, end of the period
$
824

$
1,057


Table 6.2 presents the allowance for credit losses and the recorded investment as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of March 31, 2019 (in thousands). The recorded investment in a financing receivable is the UPB, adjusted for accrued interest, net deferred loan fees or costs, unamortized premiums or discounts, fair value hedging adjustments and direct write-downs. The recorded investment is not net of any valuation allowance.

Table 6.2
 
03/31/2019
 
Conventional
Loans
Government
Loans
Credit
Products1
Direct
Financing
Lease
Receivable
Total
Allowance for credit losses:
 

 

 

 

 

Individually evaluated for impairment
$
33

$

$

$

$
33

Collectively evaluated for impairment
791




791

TOTAL ALLOWANCE FOR CREDIT LOSSES
$
824

$

$

$

$
824

Recorded investment:
 

 

 

 

 

Individually evaluated for impairment
$
9,595

$

$
29,912,364

$
11,201

$
29,933,160

Collectively evaluated for impairment
8,059,526

678,006



8,737,532

TOTAL RECORDED INVESTMENT
$
8,069,121

$
678,006

$
29,912,364

$
11,201

$
38,670,692

                   
1 
The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.


27


Table 6.3 presents the allowance for credit losses and the recorded investment as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of March 31, 2018 (in thousands):

Table 6.3

 
03/31/2018
 
Conventional
Loans
Government
Loans
Credit
Products
1
Direct
Financing
Lease
Receivable
Total
Allowance for credit losses:
 

 

 

 

 

Individually evaluated for impairment
$
30

$

$

$

$
30

Collectively evaluated for impairment
1,027




1,027

TOTAL ALLOWANCE FOR CREDIT LOSSES
$
1,057

$

$

$

$
1,057

Recorded investment:
 

 

 

 

 
Individually evaluated for impairment
$
11,044

$

$
27,019,326

$
14,184

$
27,044,554

Collectively evaluated for impairment
6,768,397

723,476



7,491,873

TOTAL RECORDED INVESTMENT
$
6,779,441

$
723,476

$
27,019,326

$
14,184

$
34,536,427

                   
1 
The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.

Credit Quality Indicators: The FHLBank’s key credit quality indicators include the migration of: (1) past due loans; (2) non-accrual loans; (3) loans in process of foreclosure; and (4) impaired loans, all of which are used either on an individual or pool basis to determine the allowance for credit losses.


28


Table 6.4 summarizes the delinquency aging and key credit quality indicators for all of the FHLBank’s portfolio segments as of March 31, 2019 (dollar amounts in thousands):

Table 6.4
 
03/31/2019
 
Conventional
Loans
Government
Loans
Credit
Products1
Direct
Financing
Lease
Receivable
Total
Recorded investment:
 
 
 
 
 
Past due 30-59 days delinquent
$
47,073

$
17,406

$

$

$
64,479

Past due 60-89 days delinquent
8,948

4,703



13,651

Past due 90 days or more delinquent
8,321

7,899



16,220

Total past due
64,342

30,008



94,350

Total current loans
8,004,779

647,998

29,912,364

11,201

38,576,342

Total recorded investment
$
8,069,121

$
678,006

$
29,912,364

$
11,201

$
38,670,692

 
 
 
 
 
 
Other delinquency statistics:
 

 

 

 

 

In process of foreclosure, included above2
$
2,917

$
2,124

$

$

$
5,041

Serious delinquency rate3
0.1
%
1.2
%
%
%
%
Past due 90 days or more and still accruing interest
$

$
7,899

$

$

$
7,899

Loans on non-accrual status4
$
10,719

$

$

$

$
10,719

                   
1 
The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.
2 
Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.
3 
Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total recorded investment for the portfolio class.
4 
Loans on non-accrual status include $1,411,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which the FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.


29


Table 6.5 summarizes the key credit quality indicators for all of the FHLBank’s portfolio segments as of December 31, 2018 (dollar amounts in thousands):

Table 6.5
 
12/31/2018
 
Conventional
Loans
Government
Loans
Credit
Products1
Direct
Financing
Lease
Receivable
Total
Recorded investment:
 
 
 
 
 
Past due 30-59 days delinquent
$
34,020

$
14,790

$

$

$
48,810

Past due 60-89 days delinquent
6,750

6,114



12,864

Past due 90 days or more delinquent
8,169

7,898



16,067

Total past due
48,939

28,802



77,741

Total current loans
7,720,640

655,054

28,777,274

11,966

37,164,934

Total recorded investment
$
7,769,579

$
683,856

$
28,777,274

$
11,966

$
37,242,675

 
 
 
 
 
 
Other delinquency statistics:
 

 

 

 

 

In process of foreclosure, included above2
$
2,922

$
2,398

$

$

$
5,320

Serious delinquency rate3
0.1
%
1.2
%
%
%
%
Past due 90 days or more and still accruing interest
$

$
7,898

$

$

$
7,898

Loans on non-accrual status4
$
11,301

$

$

$

$
11,301

                   
1 
The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.
2 
Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.
3 
Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total recorded investment for the portfolio class.
4 
Loans on non-accrual status include $1,265,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which the FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

The FHLBank had $1,885,000 and $2,183,000 classified as real estate owned recorded in other assets as of March 31, 2019 and December 31, 2018, respectively.



30


NOTE 7DERIVATIVES AND HEDGING ACTIVITIES

Table 7.1 presents outstanding notional amounts and fair values of the derivatives outstanding by type of derivative and by hedge designation as of March 31, 2019 and December 31, 2018 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash collateral.

Table 7.1
 
03/31/2019
12/31/2018
 
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Derivatives designated as hedging instruments:
 

 

 

 

 

 

Interest rate swaps
$
11,606,188

$
51,605

$
29,264

$
8,345,925

$
73,969

$
24,177

Total derivatives designated as hedging relationships
11,606,188

51,605

29,264

8,345,925

73,969

24,177

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
2,884,035

4,090

12,020

2,151,920

12,907

17,322

Interest rate caps/floors
1,373,200

418


1,373,200

1,044


Mortgage delivery commitments
159,654

722

29

101,551

552

3

Consolidated obligation discount note commitments



525,000



Total derivatives not designated as hedging instruments
4,416,889

5,230

12,049

4,151,671

14,503

17,325

TOTAL
$
16,023,077

56,835

41,313

$
12,497,596

88,472

41,502

Netting adjustments and cash collateral1
 
28,180

(40,905
)
 
(52,377
)
(33,618
)
DERIVATIVE ASSETS AND LIABILITIES