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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 September 30, 2023
 
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 of the United States
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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange
on which registered
NoneN/AN/A

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 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).  ☒  Yes  ☐  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒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  ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 Shares outstanding as of
October 31, 2023
Class A Stock, par value $100 per share3,106,935
Class B Stock, par value $100 per share22,973,997



.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 “FHLBank,” “FHLBank Topeka,” “we,” “us” and “our” mean Federal Home Loan Bank of Topeka, and “FHLBanks” mean all Federal Home Loan Banks, including 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 FHLBank, and in some cases, 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 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. 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:
•Changes in the general economy and capital markets, the rate of inflation, employment rates, housing market activity and pricing, the size and volatility of the residential mortgage market, geopolitical events, and global economic uncertainty;
•Governmental actions, including legislative, regulatory, judicial or other developments that affect FHLBank; its members, counterparties or investors; housing government-sponsored enterprises (GSE); or the FHLBank System in general;
•External events, such as economic, financial, or political disruptions, and/or wars, pandemics, and natural disasters, including disasters caused by climate change, which could damage our facilities or the facilities of our members, damage or destroy collateral pledged to secure advances, or mortgage-related assets, which could increase our risk exposure or loss experience;
•Effects of derivative accounting treatment and other accounting rule requirements, or changes in such requirements;
•Competitive forces, including competition for loan demand, purchases of mortgage loans and access to funding;
•The ability of FHLBank to introduce new products and services to meet market demand and to manage successfully the risks associated with all products and services;
•Changes in demand for FHLBank products and services or consolidated obligations of the FHLBank System;
•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;
•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;
•Soundness of other financial institutions, including FHLBank members, non-member borrowers, counterparties, and the other FHLBanks;
•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 FHLBank has joint and several liability;
•The volume and quality of eligible mortgage loans originated and sold by participating members to 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 FHLBank Chicago;
•Changes in the fair value and economic value of, impairments of, and risks associated with, FHLBank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and related credit enhancement protections;
•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;
•Volatility of market prices, changes in interest rates and indices and the timing and volume of market activity, including the effects of these factors on amortization/accretion;
•Gains/losses on derivatives or on trading investments and the ability to enter into effective derivative instruments on acceptable terms;
•Changes in FHLBank’s capital structure;
•FHLBank's ability to declare dividends or to pay dividends at rates consistent with past practices;
•The ability of FHLBank to keep pace with technological changes and the ability to develop and support technology and information systems, including the ability to manage cybersecurity risks and securely access the internet and internet-based systems and services, sufficient to effectively manage the risks of FHLBank’s business; and
•The ability of FHLBank to attract, onboard and retain skilled individuals, including qualified executive officers.

4

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, 2022, 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 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.

PART I

Item 1: Financial Statements


5
Table of Contents
FEDERAL HOME LOAN BANK OF TOPEKA  
STATEMENTS OF CONDITION - Unaudited  
(In thousands, except par value)  
 09/30/202312/31/2022
ASSETS  
Cash and due from banks $26,652 $25,964 
Interest-bearing deposits 1,698,340 2,039,852 
Securities purchased under agreements to resell (Note 9)1,825,000 2,350,000 
Federal funds sold 4,400,000 3,750,000 
Investment securities:  
Trading securities (Note 3)899,023 1,421,453 
Available-for-sale securities, amortized cost of $10,997,936 and $9,438,859 (Note 3)
10,868,344 9,354,416 
Held-to-maturity securities, fair value of $271,634 and $340,259 (Note 3)
276,457 345,430 
Total investment securities12,043,824 11,121,299 
Advances (Note 4)44,322,221 44,262,750 
Mortgage loans held for portfolio, net of allowance for credit losses of $6,212 and $6,378 (Note 5)
8,207,138 7,905,135 
Accrued interest receivable201,430 186,594 
Derivative assets, net (Notes 6, 9)331,896 272,076 
Other assets 79,791 79,172 
TOTAL ASSETS$73,136,292 $71,992,842 
LIABILITIES  
Deposits (Note 7)$751,952 $711,061 
Consolidated obligations, net:  
Discount notes (Note 8)17,892,734 24,775,405 
Bonds (Note 8)50,098,873 42,505,839 
Total consolidated obligations, net67,991,607 67,281,244 
Mandatorily redeemable capital stock (Note 10)253 280 
Accrued interest payable357,213 197,175 
Affordable Housing Program payable 72,735 53,635 
Derivative liabilities, net (Notes 6, 9)803 2,359 
Other liabilities 70,111 70,544 
TOTAL LIABILITIES69,244,674 68,316,298 
Commitments and contingencies (Note 13)
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA  
STATEMENTS OF CONDITION - Unaudited  
(In thousands, except par value)  
 09/30/202312/31/2022
CAPITAL  
Capital stock outstanding - putable:  
Class A ($100 par value; 3,580 and 2,388 shares issued and outstanding) (Note 10)
$357,963 $238,777 
Class B ($100 par value; 22,915 and 22,689 shares issued and outstanding) (Note 10)
2,291,488 2,268,932 
Total capital stock2,649,451 2,507,709 
Retained earnings:  
Unrestricted976,588 914,716 
Restricted 394,998 338,389 
Total retained earnings1,371,586 1,253,105 
Accumulated other comprehensive income (loss) (Note 11)(129,419)(84,270)
TOTAL CAPITAL3,891,618 3,676,544 
TOTAL LIABILITIES AND CAPITAL$73,136,292 $71,992,842 

The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
Three Months EndedNine Months Ended
09/30/202309/30/202209/30/202309/30/2022
INTEREST INCOME:
Interest-bearing deposits$37,569 $7,538 $104,953 $10,281 
Securities purchased under agreements to resell27,969 14,870 90,607 20,657 
Federal funds sold49,772 22,017 150,058 29,171 
Trading securities7,497 15,651 27,477 45,882 
Available-for-sale securities159,499 59,920 421,079 100,664 
Held-to-maturity securities3,866 2,559 12,140 5,062 
Advances634,899 211,173 1,785,223 326,928 
Mortgage loans held for portfolio66,871 58,045 190,515 168,982 
Other286 217 1,237 709 
Total interest income988,228 391,990 2,783,289 708,336 
INTEREST EXPENSE:
Deposits8,720 3,353 23,469 4,476 
Consolidated obligations:
Discount notes284,947 117,644 836,651 147,678 
Bonds579,352 175,920 1,581,173 292,252 
Mandatorily redeemable capital stock3 3 11 5 
Other298 275 1,007 829 
Total interest expense873,320 297,195 2,442,311 445,240 
NET INTEREST INCOME114,908 94,795 340,978 263,096 
Provision (reversal) for credit losses on mortgage loans(33)115 311 (300)
NET INTEREST INCOME AFTER LOAN LOSS PROVISION (REVERSAL)
114,941 94,680 340,667 263,396 
OTHER INCOME (LOSS):
Net gains (losses) on trading securities2,216 (30,249)6,599 (113,076)
Net gains (losses) on sale of held-to-maturity securities— (89)— (89)
Net gains (losses) on derivatives5,232 26,198 25,001 85,575 
Standby bond purchase agreement commitment fees715 682 2,085 1,958 
Letters of credit fees2,141 1,625 6,085 4,746 
Other623 659 1,795 2,551 
Total other income (loss)10,927 (1,174)41,565 (18,335)
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
Three Months EndedNine Months Ended
09/30/202309/30/202209/30/202309/30/2022
OTHER EXPENSES:
Compensation and benefits$11,892 $9,743 $35,368 $31,051 
Other operating6,988 5,112 18,261 14,976 
Federal Housing Finance Agency1,531 1,328 4,593 4,068 
Office of Finance1,195 1,080 3,254 3,223 
Mortgage loans transaction service fees1,618 1,523 4,768 4,566 
Other425 363 1,496 868 
Total other expenses23,649 19,149 67,740 58,752 
INCOME BEFORE ASSESSMENTS102,219 74,357 314,492 186,309 
Affordable Housing Program10,222 7,436 31,450 18,632 
NET INCOME$91,997 $66,921 $283,042 $167,677 

The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
Three Months EndedNine Months Ended
09/30/202309/30/202209/30/202309/30/2022
Net income$91,997 $66,921 $283,042 $167,677 
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities(45,590)(29,088)(45,149)(124,880)
Defined benefit pension plan— 63 — 187 
Total other comprehensive income (loss)(45,590)(29,025)(45,149)(124,693)
TOTAL COMPREHENSIVE INCOME (LOSS)$46,407 $37,896 $237,893 $42,984 
 

The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited
(In thousands)
Capital Stock1
Retained EarningsAccumulatedTotal Capital
Other
Class AClass BTotalComprehensive
SharesPar ValueSharesPar ValueSharesPar ValueUnrestrictedRestrictedTotalIncome (Loss)
Balance at June 30, 20222,716 $271,621 15,494 $1,549,395 18,210 $1,821,016 $886,710 $310,393 $1,197,103 $(23,353)$2,994,766 
Comprehensive income53,537 13,384 66,921 (29,025)37,896 
Proceeds from issuance of capital stock— — 9,963 996,320 9,963 996,320 996,320 
Repurchase/redemption of capital stock(5,198)(519,803)(689)(68,922)(5,887)(588,725)(588,725)
Net reclassification of shares to mandatorily redeemable capital stock
(168)(16,805)(1,279)(127,875)(1,447)(144,680)(144,680)
Net transfer of shares between Class A and Class B
5,403 540,283 (5,403)(540,283)— — — 
Dividends on capital stock (Class A - 2.3%, Class B - 7.7%):
Cash payment(66)(66)(66)
Stock issued364 36,342 364 36,342 (36,342)(36,342)— 
Balance at September 30, 20222,753 $275,296 18,450 $1,844,977 21,203 $2,120,273 $903,839 $323,777 $1,227,616 $(52,378)$3,295,511 
Capital Stock1
Retained EarningsAccumulatedTotal Capital
Other
Class AClass BTotalComprehensive
SharesPar ValueSharesPar ValueSharesPar ValueUnrestrictedRestrictedTotalIncome (Loss)
Balance at June 30, 20233,522 $352,169 22,920 $2,292,080 26,442 $2,644,249 $959,468 $376,598 $1,336,066 $(83,829)$3,896,486 
Comprehensive income73,597 18,400 91,997 (45,590)46,407 
Proceeds from issuance of capital stock15 1,504 8,459 845,924 8,474 847,428 847,428 
Repurchase/redemption of capital stock(7,035)(703,482)(419)(41,972)(7,454)(745,454)(745,454)
Net reclassification of shares to mandatorily redeemable capital stock
(544)(54,428)(987)(98,751)(1,531)(153,179)(153,179)
Net transfer of shares between Class A and Class B
7,622 762,200 (7,622)(762,200)— — — 
Dividends on capital stock (Class A - 4.5%, Class B - 9.2%):
 
Cash payment(70)(70)(70)
Stock issued564 56,407 564 56,407 (56,407)(56,407)— 
Balance at September 30, 20233,580 $357,963 22,915$2,291,488 26,495$2,649,451 $976,588 $394,998 $1,371,586 $(129,419)$3,891,618 
                   
1    Putable
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited
(In thousands)
Capital Stock1
Retained EarningsAccumulatedTotal Capital
Other
Class AClass BTotalComprehensive
SharesPar ValueSharesPar ValueSharesPar ValueUnrestrictedRestrictedTotalIncome (Loss)
Balance at December 31, 20212,342 $234,190 12,651 $1,265,111 14,993 $1,499,301 $852,408 $290,242 $1,142,650 $72,315 $2,714,266 
Comprehensive income134,142 33,535 167,677 (124,693)42,984 
Proceeds from issuance of capital stock20 2,019 25,494 2,549,443 25,514 2,551,462 2,551,462 
Repurchase/redemption of capital stock(12,102)(1,210,207)(1,997)(199,771)(14,099)(1,409,978)(1,409,978)
Net reclassification of shares to mandatorily redeemable capital stock
(2,796)(279,625)(3,234)(323,418)(6,030)(603,043)(603,043)
Net transfer of shares between Class A and Class B
15,289 1,528,919 (15,289)(1,528,919)— — — 
Dividends on capital stock (Class A - 1.2%, Class B - 6.7%):
Cash payment(180)(180)(180)
Stock issued825 82,531 825 82,531 (82,531)(82,531)— 
Balance at September 30, 20222,753 $275,296 18,450 $1,844,977 21,203 $2,120,273 $903,839 $323,777 $1,227,616 $(52,378)$3,295,511 
Capital Stock1
Retained EarningsAccumulatedTotal Capital
Other
Class AClass BTotalComprehensive
SharesPar ValueSharesPar ValueSharesPar ValueUnrestrictedRestrictedTotalIncome (Loss)
Balance at December 31, 20222,388 $238,777 22,689 $2,268,932 25,077 $2,507,709 $914,716 $338,389 $1,253,105 $(84,270)$3,676,544 
Comprehensive income226,433 56,609 283,042 (45,149)237,893 
Proceeds from issuance of capital stock35 3,491 25,073 2,507,310 25,108 2,510,801 2,510,801 
Repurchase/redemption of capital stock(17,157)(1,715,747)(1,710)(170,996)(18,867)(1,886,743)(1,886,743)
Net reclassification of shares to mandatorily redeemable capital stock
(3,569)(356,968)(2,898)(289,708)(6,467)(646,676)(646,676)
Net transfer of shares between Class A and Class B
21,883 2,188,410 (21,883)(2,188,410)— — — 
Dividends on capital stock (Class A - 4.1%, Class B - 9.0%):
 
Cash payment(201)(201)(201)
Stock issued1,644 164,360 1,644 164,360 (164,360)(164,360)— 
Balance at September 30, 20233,580 $357,963 22,915 $2,291,488 26,495 $2,649,451 $976,588 $394,998 $1,371,586 $(129,419)$3,891,618 
                   
1    Putable
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
Nine Months Ended
09/30/202309/30/2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$283,042 $167,677 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net59,694 79,424 
Concessions on consolidated obligations4,355 3,537 
Premiums and discounts on investments, net(18,821)1,279 
Premiums, discounts and commitment fees on advances, net(2,191)(2,876)
Premiums, discounts and deferred loan costs on mortgage loans, net9,930 16,484 
Fair value adjustments on hedged assets or liabilities(2,294)1,126 
Premises, software and equipment2,288 2,409 
Other— 187 
Provision (reversal) for credit losses on mortgage loans311 (300)
Non-cash interest on mandatorily redeemable capital stock10 3 
Net realized (gains) losses on sale of held-to-maturity securities— 89 
Net realized (gains) losses on disposal of premises, software and equipment9 16 
Other adjustments, net(7)(207)
Net (gains) losses on trading securities(6,599)113,076 
Net change in derivatives and hedging activities
271,936 706,873 
(Increase) decrease in accrued interest receivable(14,838)(46,922)
Change in net accrued interest included in derivative assets(103,031)(36,850)
(Increase) decrease in other assets1,339 949 
Increase (decrease) in accrued interest payable159,549 75,642 
Change in net accrued interest included in derivative liabilities(7,336)72 
Increase (decrease) in Affordable Housing Program liability19,100 5,640 
Increase (decrease) in other liabilities(409)(1,204)
Total adjustments372,995 918,447 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES656,037 1,086,124 
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
Nine Months Ended
09/30/202309/30/2022
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits$401,452 $(474,438)
Net (increase) decrease in securities purchased under resale agreements525,000 (1,750,000)
Net (increase) decrease in Federal funds sold(650,000)(1,345,000)
Proceeds from sale of trading securities
— 12,448 
Proceeds from maturities of and principal repayments on trading securities
529,029 2,830,436 
Purchases of trading securities— (2,790,000)
Proceeds from maturities of and principal repayments on available-for-sale securities
1,400,514 1,145,236 
Purchases of available-for-sale securities(3,015,515)(2,515,529)
Proceeds from sale of held-to-maturity securities— 19,930 
Proceeds from maturities of and principal repayments on held-to-maturity securities
68,945 65,164 
Advances repaid661,546,972 439,317,000 
Advances originated(661,737,932)(451,622,000)
Principal collected on mortgage loans575,207 970,568 
Purchases of mortgage loans(888,729)(858,581)
Net proceeds from sale of foreclosed assets251 687 
Other investing activities— 1,876 
Purchases of premises, software and equipment(3,774)(1,349)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES(1,248,580)(16,993,552)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits32,021 (223,283)
Net proceeds from issuance of consolidated obligations:
Discount notes316,686,971 245,269,000 
Bonds39,927,572 31,195,723 
Payments for maturing, retired and transferred consolidated obligations:
Discount notes(323,660,623)(229,225,000)
Bonds(31,386,663)(31,636,400)
Bonds transferred to other FHLBanks(999,987)— 
Net interest payments received (paid) for financing derivatives16,796 (10,507)
Proceeds from issuance of capital stock2,510,801 2,551,462 
Payments for repurchase/redemption of capital stock(1,886,743)(1,409,978)
Payments for repurchase of mandatorily redeemable capital stock(646,713)(603,336)
Cash dividends paid(201)(180)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES593,231 15,907,501 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS688 73 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD25,964 25,841 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$26,652 $25,914 
Supplemental disclosures:
Interest paid$827,474 $299,832 
Affordable Housing Program payments$12,624 $13,131 
Net transfers of mortgage loans to other assets$786 $213 
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
Notes to Financial Statements - Unaudited
September 30, 2023


NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation: The accompanying interim financial statements of 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 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.

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, 2022. The interim financial statements presented herein should be read in conjunction with FHLBank’s audited financial statements and notes thereto, which are included in FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 20, 2023 (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 and available-for-sale securities and the fair value of derivatives. 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.


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

Disclosure Improvements (Accounting Standards Update (ASU) 2023-06). In October 2023, the Financial Accounting Standards Board (FASB) issued amendments to modify the disclosure or presentation requirements in response to the SEC Release No. 33-10532, Disclosure Update and Simplification, issued August 17, 2018. The amendments represent clarifications or technical corrections of the current requirements to incorporate several SEC disclosure requirements into US GAAP. The ASU adds interim and annual disclosure requirements to a variety of topics, including those focusing on accounting changes, earnings per share, debt and repurchase agreements. For all entities subject to the SEC existing disclosure requirements, each amendment shall become effective on the date that the SEC’s removal of the related guidance from Regulation S-X or Regulation S-K becomes effective. FHLBank will adopt the guidance as it becomes effective with all pending content expected to transition by June 30, 2027. The adoption of this guidance is not expected to have a material effect on FHLBank’s current disclosures.

Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02). In March 2022, the FASB issued amendments to eliminate the accounting guidance for troubled debt restructurings by creditors in Accounting Standards Codification (ASC) 310 for entities that have adopted ASU 2016-13, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amended guidance requires that an entity apply the loan refinancing and restructuring guidance in ASC 310-20-35-9 through ASC 310-20-35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, the amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of ASC 326. FHLBank adopted this guidance as of January 1, 2023. While this guidance is intended to enhance disclosures, the adoption of this guidance did not have a material effect on FHLBank’s financial condition, results of operations, cash flows, or disclosures.

Fair Value Hedging – Portfolio Layer Method (ASU 2022-01). In March 2022, the FASB issued an amendment to clarify the application of the guidance in ASC 815 related to fair value hedging of interest rate risk for portfolios of financial assets. The ASU expands the scope and application of the portfolio layer method and provides guidance on the accounting for and disclosure of hedge basis adjustments. FHLBank adopted this guidance as of January 1, 2023. FHLBank does not currently hedge interest rate risk for portfolios of financial assets so adoption of this guidance had no effect on FHLBank’s financial condition, results of operations, cash flows, or disclosures given current strategies.
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Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). In March 2020, the FASB issued temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include: (1) contract modifications; (2) hedging relationships; and (3) sale or transfer of debt securities classified as held-to-maturity. This guidance was effective upon issuance and through December 31, 2024, as amended, except for certain optional expedients elected for hedging relationships, which should be retained for the duration of the hedge term. As of June 30, 2023, FHLBank transitioned all outstanding London Interbank Offered Rate (LIBOR) settings to convert to reference the secured overnight financing rate (SOFR), either to start or to fall back, beginning July 3, 2023 or at the beginning of the next reset period. As a result of finalizing transition, FHLBank adopted certain practical expedients in ASC 848 for qualifying contract modifications related to reference rate reform, including with respect to qualifying hedge relationships. Application of this guidance did not have a material impact on the FHLBank’s financial condition, results of operations, cash flows, or disclosures. For qualifying hedge relationships, FHLBank does not expect that the practical expedients elected for the duration of the hedge term will have a material impact on the financial statements. As all of FHLBank’s qualifying contracts transitioned at June 30, 2023, FHLBank does not expect to further elect provisions or expedients of this guidance through its ending date of December 31, 2024 because FHLBank has no outstanding LIBOR exposure.


NOTE 3 – INVESTMENTS

FHLBank's investment portfolio consists of interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, and debt securities.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold: FHLBank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by a Nationally Recognized Statistical Rating Organization (NRSRO). These may differ from internal ratings of the investments, if applicable. As of September 30, 2023, approximately 23 percent of these overnight investments were with counterparties not rated by an NRSRO. All transactions with unrated counterparties are secured transactions.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Federal Housing Finance Agency (FHFA) regulations include a limit on the amount of unsecured credit FHLBank may extend to a counterparty. As of September 30, 2023 and December 31, 2022, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. No allowance for credit losses was recorded for these assets as of September 30, 2023 and December 31, 2022. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $3,292,000 and $1,306,000, respectively, as of September 30, 2023, and $2,278,000 and $903,000, respectively, as of December 31, 2022.

Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). Based upon the collateral held as security and collateral maintenance provisions with its counterparties, FHLBank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell as of September 30, 2023 and December 31, 2022. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable of $541,000 and $565,000 as of September 30, 2023 and December 31, 2022, respectively.

Debt Securities: FHLBank invests in debt securities, which are classified as either trading, available-for-sale, or held-to-maturity. FHLBank is prohibited by FHFA regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities, but FHLBank is not required to divest instruments that experience credit deterioration after their purchase.

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FHLBank's debt securities include the following major security types, which are based on the issuer and the risk characteristics of the security:
▪U.S. Treasury obligations - sovereign debt of the United States;
▪GSE debentures - debentures issued by other FHLBanks, Federal National Mortgage Association (Fannie Mae), Federal Farm Credit Bank and Federal Agricultural Mortgage Corporation. GSE securities are not guaranteed by the U.S. government;
▪State or local housing agency obligations - municipal bonds issued by housing finance agencies;
▪U.S. obligation MBS - single-family MBS issued by Government National Mortgage Association (Ginnie Mae), which are guaranteed by the U.S. government; and
▪GSE MBS - single-family and multifamily MBS issued by Fannie Mae and Federal Home Loan Mortgage Corporation (Freddie Mac).

Trading Securities: Trading securities by major security type as of September 30, 2023 and December 31, 2022 are summarized in Table 3.1 (in thousands):

Table 3.1
Fair Value
09/30/202312/31/2022
Non-mortgage-backed securities:
U.S. Treasury obligations$— $396,233 
GSE debentures
285,509 388,955 
Non-mortgage-backed securities285,509 785,188 
Mortgage-backed securities:
GSE MBS
613,514 636,265 
Mortgage-backed securities613,514 636,265 
TOTAL$899,023 $1,421,453 

Net gains (losses) on trading securities during the three and nine months ended September 30, 2023 and 2022 are shown in Table 3.2 (in thousands):

Table 3.2
Three Months EndedNine Months Ended
09/30/202309/30/202209/30/202309/30/2022
Net gains (losses) on trading securities held as of September 30, 2023$717 $(25,177)$1,354 $(79,681)
Net gains (losses) on trading securities sold or matured prior to September 30, 20231,499 (5,072)5,245 (33,395)
NET GAINS (LOSSES) ON TRADING SECURITIES$2,216 $(30,249)$6,599 $(113,076)

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Available-for-sale Securities: Available-for-sale securities by major security type as of September 30, 2023 are summarized in Table 3.3 (in thousands). Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and fair value hedge accounting adjustments, and excludes accrued interest receivable of $36,238,000 as of September 30, 2023.

Table 3.3
09/30/2023
Amortized
Cost		Gross
Unrecognized
Gains		Gross
Unrecognized
Losses		Fair
Value
Non-mortgage-backed securities:
U.S. Treasury obligations
$2,925,749 $46 $(35,408)$2,890,387 
Non-mortgage-backed securities2,925,749 46 (35,408)2,890,387 
Mortgage-backed securities:
U.S. obligation MBS113,689 — (2,343)111,346 
GSE MBS
7,958,498 26,305 (118,192)7,866,611 
Mortgage-backed securities8,072,187 26,305 (120,535)7,977,957 
TOTAL$10,997,936 $26,351 $(155,943)$10,868,344 

Available-for-sale securities by major security type as of December 31, 2022 are summarized in Table 3.4 (in thousands). Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and fair value hedge accounting adjustments, and excludes accrued interest receivable of $28,784,000 as of December 31, 2022.

Table 3.4
12/31/2022
Amortized
Cost		Gross
Unrecognized
Gains		Gross
Unrecognized
Losses		Fair
Value
Non-mortgage-backed securities:
U.S. Treasury obligations
$3,332,244 $1,493 $(18,381)$3,315,356 
Non-mortgage-backed securities3,332,244 1,493 (18,381)3,315,356 
Mortgage-backed securities:
U.S. obligation MBS40,881 — (842)40,039 
GSE MBS
6,065,734 26,457 (93,170)5,999,021 
Mortgage-backed securities6,106,615 26,457 (94,012)6,039,060 
TOTAL$9,438,859 $27,950 $(112,393)$9,354,416 

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Table 3.5 summarizes the available-for-sale securities with gross unrealized losses as of September 30, 2023 (in thousands). The gross 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
09/30/2023
Less Than 12 Months12 Months or MoreTotal
Fair
Value		Gross Unrealized LossesFair
Value		Gross Unrealized LossesFair
Value		Gross Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations
$1,254,983 $(9,465)$1,385,882 $(25,943)$2,640,865 $(35,408)
Non-mortgage-backed securities1,254,983 (9,465)1,385,882 (25,943)2,640,865 (35,408)
Mortgage-backed securities:
U.S. obligation MBS74,703 (1,137)36,643 (1,206)111,346 (2,343)
GSE MBS
2,831,073 (30,513)3,149,749 (87,679)5,980,822 (118,192)
Mortgage-backed securities
2,905,776 (31,650)3,186,392 (88,885)6,092,168 (120,535)
TOTAL$4,160,759 $(41,115)$4,572,274 $(114,828)$8,733,033 $(155,943)

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Table 3.6 summarizes the available-for-sale securities with gross unrealized losses as of December 31, 2022 (in thousands). The gross 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
12/31/2022
Less Than 12 Months12 Months or MoreTotal
Fair
Value		Gross Unrealized LossesFair
Value		Gross Unrealized LossesFair
Value		Gross Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations
$1,540,880 $(6,384)$532,968 $(11,997)$2,073,848 $(18,381)
Non-mortgage-backed securities1,540,880 (6,384)532,968 (11,997)2,073,848 (18,381)
Mortgage-backed securities:
U.S. obligation MBS35,008 (766)5,032 (76)40,040 (842)
GSE MBS
3,743,089 (56,545)881,963 (36,625)4,625,052 (93,170)
Mortgage-backed securities
3,778,097 (57,311)886,995 (36,701)4,665,092 (94,012)
TOTAL$5,318,977 $(63,695)$1,419,963 $(48,698)$6,738,940 $(112,393)

The amortized cost and fair values of available-for-sale securities by contractual maturity as of September 30, 2023 and December 31, 2022 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
09/30/202312/31/2022
Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Non-mortgage-backed securities:
Due in one year or less$249,477 $249,522 $1,240,015 $1,241,508 
Due after one year through five years
2,676,272 2,640,865 1,876,301 1,858,697 
Due after five years through ten years
— — 215,928 215,151 
Due after ten years— — — — 
Non-mortgage-backed securities2,925,749 2,890,387 3,332,244 3,315,356 
Mortgage-backed securities8,072,187 7,977,957 6,106,615 6,039,060 
TOTAL$10,997,936 $10,868,344 $9,438,859 $9,354,416 

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Held-to-maturity Securities: Held-to-maturity securities by major security type as of September 30, 2023 are summarized in Table 3.8 (in thousands). Carrying value equals amortized cost, which includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivable of $631,000 as of September 30, 2023.

Table 3.8
09/30/2023
Amortized
Cost		Gross
Unrecognized
Gains		Gross
Unrecognized
Losses		Fair
Value
Non-mortgage-backed securities:
State or local housing agency obligations
$39,515 $— $(745)$38,770 
Non-mortgage-backed securities39,515 — (745)38,770 
Mortgage-backed securities:
GSE MBS
236,942 119 (4,197)232,864 
Mortgage-backed securities236,942 119 (4,197)232,864 
TOTAL$276,457 $119 $(4,942)$271,634 

Held-to-maturity securities by major security type as of December 31, 2022 are summarized in Table 3.9 (in thousands). Carrying value equals amortized cost, which includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivable of $896,000 as of December 31, 2022.

Table 3.9
12/31/2022
Amortized
Cost		Gross
Unrecognized
Gains		Gross
Unrecognized
Losses		Fair
Value
Non-mortgage-backed securities:
State or local housing agency obligations
$70,505 $— $(1,737)$68,768 
Non-mortgage-backed securities70,505 — (1,737)68,768 
Mortgage-backed securities:
GSE MBS
274,925 695 (4,129)271,491 
Mortgage-backed securities274,925 695 (4,129)271,491 
TOTAL$345,430 $695 $(5,866)$340,259 

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The amortized cost and fair values of held-to-maturity securities by contractual maturity as of September 30, 2023 and December 31, 2022 are shown in Table 3.10 (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 3.10
09/30/202312/31/2022
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
— — — — 
Due after five years through ten years
39,515 38,770 40,505 40,036 
Due after ten years— — 30,000 28,732 
Non-mortgage-backed securities39,515 38,770 70,505 68,768 
Mortgage-backed securities236,942 232,864 274,925 271,491 
TOTAL$276,457 $271,634 $345,430 $340,259 

Allowance for Credit Losses on Available-for-Sale and Held-to-Maturity Securities: FHLBank evaluates available-for-sale and held-to-maturity investment securities for credit losses on a quarterly basis. As of September 30, 2023 and 2022, FHLBank did not recognize a provision for credit losses associated with available-for-sale investments or held-to-maturity investments.

Although certain available-for-sale securities were in an unrealized loss position, these losses are considered temporary as FHLBank expects to recover the entire amortized cost basis on these available-for-sale investment securities. FHLBank neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis.

FHLBank's held-to-maturity and available-for-sale securities: (1) were all highly rated and/or had short remaining terms to maturity; (2) had not experienced, nor did FHLBank expect, any payment default on the instruments; (3) in the case of U.S. obligations, carry an explicit government guarantee such that FHLBank considers the risk of nonpayment to be zero; and (4) in the case of GSE debentures or MBS, the securities are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs.


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NOTE 4 – ADVANCES

General Terms: FHLBank offers fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of both September 30, 2023 and December 31, 2022, FHLBank had advances outstanding at interest rates ranging from 0.40 percent to 7.20 percent and 0.29 percent to 7.20 percent, respectively. Table 4.1 presents advances summarized by redemption term as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands). The redemption term represents the period in which principal amounts are contractually due. Carrying amounts exclude accrued interest receivable of $113,328,000 and $108,891,000 as of September 30, 2023 and December 31, 2022, respectively.

Table 4.1
 09/30/202312/31/2022
Redemption TermAmountWeighted Average Interest RateAmountWeighted Average Interest Rate
Due in one year or less$28,428,307 5.27 %$31,796,396 4.31 %
Due after one year through two years4,565,464 4.21 3,147,406 3.24 
Due after two years through three years3,640,809 3.72 2,784,200 3.30 
Due after three years through four years3,100,931 4.06 2,625,365 3.64 
Due after four years through five years3,153,385 3.98 1,894,308 3.52 
Thereafter1,956,778 3.04 2,407,040 3.07 
Total par value44,845,674 4.77 %44,654,715 4.03 %
Discounts(10,950) (13,141) 
Hedging adjustments(512,503) (378,824) 
TOTAL$44,322,221  $44,262,750  

FHLBank offers advances that may be prepaid without prepayment or termination fees on predetermined exercise dates (call dates) prior to the stated advance maturity (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 generally exercises its call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances). FHLBank also offers fixed rate advances that include a put option held by FHLBank. On the date FHLBank exercises its put option, the borrower has the option to prepay the advance in full without a fee or roll into another advance product. FHLBank would generally exercise its put option when interest rates increase. Other advances are prepayable with a prepayment fee that makes FHLBank economically indifferent to the prepayment.

Convertible advances allow FHLBank to convert an advance from one interest payment term structure to another. When issuing convertible advances, FHLBank purchases put options from a member that allow 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. Convertible advances are no longer a current product offering; however, $155,900,000 remain outstanding at September 30, 2023.

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Table 4.2 presents advances summarized by redemption term or next call date and by redemption term or next put or conversion date as of September 30, 2023 and December 31, 2022 (in thousands):

Table 4.2
 Redemption Term
or Next Call Date		Redemption Term or Next Put or Conversion Date
Redemption Term09/30/202312/31/202209/30/202312/31/2022
Due in one year or less$29,643,598 $33,289,458 $29,874,107 $31,992,646 
Due after one year through two years4,118,259 2,709,465 4,776,864 3,240,306 
Due after two years through three years3,524,932 2,552,756 3,730,809 2,801,700 
Due after three years through four years2,738,648 2,403,502 2,792,431 2,625,365 
Due after four years through five years2,993,229 1,568,168 2,063,885 1,884,308 
Thereafter1,827,008 2,131,366 1,607,578 2,110,390 
TOTAL PAR VALUE$44,845,674 $44,654,715 $44,845,674 $44,654,715 

Interest Rate Payment Terms: Table 4.3 details additional interest rate payment and redemption terms for advances as of September 30, 2023 and December 31, 2022 (in thousands):

Table 4.3
 Redemption Term09/30/202312/31/2022
Fixed rate:  
Due in one year or less$27,506,807 $31,307,096 
Due after one year through three years6,221,523 3,984,356 
Due after three years through five years5,070,706 3,050,314 
Due after five years through fifteen years1,831,206 2,050,428 
Due after fifteen years32,770 35,010 
Total fixed rate40,663,012 40,427,204 
Variable rate:  
Due in one year or less921,500 489,300 
Due after one year through three years1,984,750 1,947,250 
Due after three years through five years1,183,610 1,469,360 
Due after five years through fifteen years90,302 319,101 
Due after fifteen years2,500 2,500 
Total variable rate4,182,662 4,227,511 
TOTAL PAR VALUE$44,845,674 $44,654,715 

Credit Risk Exposure and Security Terms: FHLBank manages its credit exposure to advances through an integrated approach that includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower's financial condition, in conjunction with FHLBank's collateral and lending policies to limit risk of loss, while balancing borrowers' needs for a reliable source of funding. Using a risk-based approach and taking into consideration each borrower's financial strength, FHLBank considers the types and level of collateral to be the primary indicator of credit quality on advances. As of September 30, 2023 and December 31, 2022, FHLBank had rights to collateral on a borrower-by-borrower basis with an estimated value greater than its outstanding advances.

FHLBank continues to evaluate and make changes to its collateral guidelines, as necessary, based on current market conditions. As of September 30, 2023 and December 31, 2022, no advances were past due, on nonaccrual status, or considered impaired.

Based on the collateral held as security, FHLBank's credit extension and collateral policies, and repayment history on advances, no losses are expected on advances as of September 30, 2023 and December 31, 2022, and therefore no allowance for credit losses on advances was recorded.

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NOTE 5 – MORTGAGE LOANS

Mortgage loans held for portfolio consist of loans obtained through the MPF Program and are either conventional mortgage loans or government-guaranteed or -insured mortgage loans. Under the MPF Program, FHLBank purchases single-family mortgage loans that are originated or acquired by participating financial institutions (PFI). These mortgage loans are credit-enhanced by PFIs or are guaranteed or insured by Federal agencies.

Mortgage Loans Held for Portfolio: Table 5.1 presents information as of September 30, 2023 and December 31, 2022 on mortgage loans held for portfolio (in thousands). Carrying amounts exclude accrued interest receivable of $42,992,000 and $38,358,000 as of September 30, 2023 and December 31, 2022, respectively.

Table 5.1
 09/30/202312/31/2022
Real estate:  
Fixed rate, medium-term1, single-family mortgages
$1,080,329 $1,189,428 
Fixed rate, long-term, single-family mortgages7,058,115 6,640,750 
Total unpaid principal balance8,138,444 7,830,178 
Premiums94,040 97,210 
Discounts(4,981)(2,230)
Deferred loan costs, net41 46 
Hedging adjustments(14,194)(13,691)
Total before allowance for credit losses on mortgage loans8,213,350 7,911,513 
Allowance for credit losses on mortgage loans(6,212)(6,378)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET$8,207,138 $7,905,135 
                   
1    Medium-term defined as a term of 15 years or less at origination.
Table 5.2 presents information as of September 30, 2023 and December 31, 2022 on the outstanding unpaid principal balance of mortgage loans held for portfolio (in thousands):

Table 5.2
 09/30/202312/31/2022
Conventional loans$7,804,699 $7,486,591 
Government-guaranteed or -insured loans333,745 343,587 
TOTAL UNPAID PRINCIPAL BALANCE$8,138,444 $7,830,178 

Payment Status of Mortgage Loans: Payment status is the key credit quality indicator for conventional mortgage loans and allows FHLBank to monitor borrower performance. A past due loan is one where the borrower has failed to make a full payment of principal and interest within 30 days of its due date. Other delinquency statistics include nonaccrual loans and loans in process of foreclosure.

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Table 5.3 presents the payment status based on amortized cost as well as other delinquency statistics for FHLBank’s mortgage loans as of September 30, 2023 (dollar amounts in thousands):

Table 5.3
 09/30/2023
Conventional LoansGovernment
Loans		Total
Origination YearSubtotal
 Prior to 201920192020202120222023
Amortized Cost:1
   
Past due 30-59 days delinquent
$18,870 $7,262 $3,715 $7,197 $3,702 $2,035 $42,781 $8,996 $51,777 
Past due 60-89 days delinquent
4,476 1,979 1,115 280 2,391 — 10,241 2,717 12,958 
Past due 90 days or more delinquent
7,899 4,485 1,214 816 203 — 14,617 3,157 17,774 
Total past due31,245 13,726 6,044 8,293 6,296 2,035 67,639 14,870 82,509 
Total current loans1,828,719 998,957 1,540,115 1,752,186 856,909 830,859 7,807,745 323,096 8,130,841 
Total mortgage loans$1,859,964 $1,012,683 $1,546,159 $1,760,479 $863,205 $832,894 $7,875,384 $337,966 $8,213,350 
Other delinquency statistics:   
In process of foreclosure2
$4,598 $637 $5,235 
Serious delinquency rate3
0.2 %0.9 %0.2 %
Past due 90 days or more and still accruing interest
$— $3,157 $3,157 
Loans on nonaccrual status4
$18,332 $— $18,332 
                   
1    Excludes accrued interest receivable.
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 amortized cost for the portfolio class.
4    Includes $9,818,000 of conventional mortgage loans on nonaccrual status that did not have an associated allowance for credit losses because either these loans were previously charged off to the expected recoverable value or the fair value of the underlying collateral was greater than the amortized cost of the loans.



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Table 5.4 presents the payment status based on amortized cost as well as other delinquency statistics for FHLBank’s mortgage loans as of December 31, 2022 (dollar amounts in thousands):

Table 5.4
12/31/2022
Conventional LoansGovernment
Loans		Total
Origination YearSubtotal
Prior to 201820182019202020212022
Amortized Cost:1
   
Past due 30-59 days delinquent
$18,393 $3,969 $7,382 $4,264 $8,120 $4,437 $46,565 $10,381 $56,946 
Past due 60-89 days delinquent
3,586 1,125 1,023 674 920 698 8,026 1,460 9,486 
Past due 90 days or more delinquent
6,546 3,930 6,810 1,509 928 — 19,723 4,169 23,892 
Total past due28,525 9,024 15,215 6,447 9,968 5,135 74,314 16,010 90,324 
Total current loans1,744,631 280,448 1,074,312 1,646,404 1,857,020 886,268 7,489,083 332,106 7,821,189 
Total mortgage loans$1,773,156 $289,472 $1,089,527 $1,652,851 $1,866,988 $891,403 $7,563,397 $348,116 $7,911,513 
Other delinquency statistics:   
In process of foreclosure2
$8,431 $920 $9,351 
Serious delinquency rate3
0.3 %1.2 %0.3 %
Past due 90 days or more and still accruing interest
$— $4,169 $4,169 
Loans on nonaccrual status4
$22,542 $— $22,542 
                   
1    Excludes accrued interest receivable.
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 amortized cost for the portfolio class.
4    Includes $13,288,000 of conventional mortgage loans on nonaccrual status that did not have an associated allowance for credit losses because either these loans were previously charged off to the expected recoverable value or the fair value of the underlying collateral was greater than the amortized cost of the loans.
Allowance for Credit Losses:
Conventional Mortgage Loans: Conventional loans are evaluated collectively when similar risk characteristics exist. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. FHLBank determines its allowance for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current economic conditions, and reasonable and supportable forecasts of expected economic conditions. FHLBank uses a third-party projected cash flow model to estimate expected credit losses over the life of the loans. This model relies on a number of inputs, such as both current and forecasted property values and interest rates as well as historical borrower behavior. The forecasts used in the calculation of expected credit losses cover the contractual terms of the loans rather than a reversion to historical trends after a forecasted period. FHLBank also incorporates associated credit enhancements, as available, to determine its estimate of expected credit losses.

Certain conventional loans may be evaluated for credit losses using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be substantially through the sale of the underlying collateral. FHLBank may estimate the fair value of this collateral by applying an appropriate loss severity rate or by using third party estimates or property valuation model(s). The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. FHLBank records a direct charge-off of the loan balance if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.

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FHLBank established an allowance for credit losses on its conventional mortgage loans held for portfolio. Table 5.5 presents a roll-forward of the allowance for credit losses on mortgage loans for the three and nine months ended September 30, 2023 and 2022.

Table 5.5
Three Months EndedNine Months Ended
Conventional Loans09/30/202309/30/202209/30/202309/30/2022
Balance, beginning of the period$6,630 $5,202 $6,378 $5,317 
Net (charge-offs) recoveries(385)51 (477)351 
Provision (reversal) for credit losses(33)115 311 (300)
Balance, end of the period$6,212 $5,368 $6,212 $5,368 

Government-Guaranteed or -Insured Mortgage Loans: FHLBank invests in fixed rate mortgage loans that are insured or guaranteed 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. The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-guaranteed or -insured mortgage loans. Based on FHLBank's assessment of its servicers and the collateral backing the loans, the risk of loss was immaterial; consequently, no allowance for credit losses for government-guaranteed or -insured mortgage loans was recorded as of September 30, 2023 and December 31, 2022. Furthermore, none of these mortgage loans have been placed on nonaccrual status because of the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.


NOTE 6 – DERIVATIVES AND HEDGING ACTIVITIES

Table 6.1 presents outstanding notional amounts and fair values of the derivatives outstanding by type of derivative and by hedge designation as of September 30, 2023 and December 31, 2022 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash collateral.

Table 6.1
 09/30/202312/31/2022
 Notional
Amount		Derivative
Assets		Derivative
Liabilities		Notional
Amount		Derivative
Assets		Derivative
Liabilities
Derivatives designated as hedging instruments:      
Interest rate swaps$44,925,032 $213,040 $575,808 $34,967,420 $134,299 $609,555 
Total derivatives designated as hedging relationships
44,925,032 213,040 575,808 34,967,420 134,299 609,555 
Derivatives not designated as hedging instruments:
      
Interest rate swaps4,871,030 32,866 593 14,149,543 34,187 1,257 
Interest rate caps/floors304,000 1,811 — 304,000 1,727 — 
Mortgage delivery commitments48,915 27 135 33,882 24 173 
Total derivatives not designated as hedging instruments
5,223,945 34,704 728 14,487,425 35,938 1,430 
TOTAL$50,148,977 247,744 576,536 $49,454,845 170,237 610,985 
Netting adjustments and cash collateral1
 84,152 (575,733) 101,839 (608,626)
DERIVATIVE ASSETS AND LIABILITIES $331,896 $803  $272,076 $2,359 
                   
1    Amounts represent the application of the netting requirements that allow FHLBank to settle positive and negative positions and cash collateral, including accrued interest, held or placed with the same clearing agent and/or derivative counterparty. Cash collateral posted was $702,290,000 and $761,704,000 as of September 30, 2023 and December 31, 2022, respectively. Cash collateral received was $42,405,000 and $51,239,000 as of September 30, 2023 and December 31, 2022, respectively.
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FHLBank carries derivative instruments at fair value on its Statements of Condition. Changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item.

Gains (losses) on fair value hedges include unrealized changes in fair value as well as net interest settlements. For the three months ended September 30, 2023 and 2022, FHLBank recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on FHLBank’s net interest income as presented in Table 6.2 (in thousands):

Table 6.2
Three Months Ended
09/30/2023
Interest Income/Expense
AdvancesAvailable-for-sale SecuritiesConsolidated Obligation Discount NotesConsolidated Obligation Bonds
Total amounts presented in the Statements of Income$634,899 $159,499 $284,947 $579,352 
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$149,032 $134,941 $(2,660)$(66,086)
Hedged items2
(72,773)(85,579)(6,153)(26,480)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS
$76,259 $49,362 $(8,813)$(92,566)

Three Months Ended
09/30/2022
Interest Income/Expense
AdvancesAvailable-for-sale SecuritiesConsolidated Obligation Discount NotesConsolidated Obligation Bonds
Total amounts presented in the Statements of Income$211,173 $59,920 $117,644 $175,920 
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$184,879 $215,644 $(21,255)$(240,632)
Hedged items2
(174,839)(204,404)21,121 224,576 
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS
$10,040 $11,240 $(134)$(16,056)
                   
1    Includes net interest settlements in interest income/expense.
2    Includes amortization/accretion on closed fair value relationships in interest income.

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For the nine months ended September 30, 2023 and 2022, FHLBank recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on FHLBank’s net interest income as presented in Table 6.3 (in thousands):

Table 6.3
Nine Months Ended
09/30/2023
Interest Income/Expense
AdvancesAvailable-for-sale SecuritiesConsolidated Obligation Discount NotesConsolidated Obligation Bonds
Total amounts presented in the Statements of Income$1,785,223 $421,079 $836,651 $1,581,173 
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$311,358 $218,729 $(5,569)$(180,366)
Hedged items2
(133,680)(74,802)(23,902)(55,142)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS
$177,678 $143,927 $(29,471)$(235,508)

Nine Months Ended
09/30/2022
Interest Income/Expense
AdvancesAvailable-for-sale SecuritiesConsolidated Obligation Discount NotesConsolidated Obligation Bonds
Total amounts presented in the Statements of Income$326,928 $100,664 $147,678 $292,252 
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$462,228 $541,165 $(33,973)$(593,986)
Hedged items2
(474,731)(562,165)41,948 607,335 
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS$(12,503)$(21,000)$7,975 $13,349 
                   
1    Includes net interest settlements in interest income/expense.
2    Includes amortization/accretion on closed fair value relationships in interest income.
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Table 6.4 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of September 30, 2023 and December 31, 2022 (in thousands):

Table 6.4
09/30/2023
Line Item in Statements of Condition of Hedged Item
Carrying Value of Hedged Asset/(Liability)1
Basis Adjustments for Active Hedging Relationships2
Basis Adjustments for Discontinued Hedging Relationships2
Cumulative Amount of Fair Value Hedging Basis Adjustments2
Advances$12,633,547 $(502,711)$(9,792)$(512,503)
Available-for-sale securities6,052,223 (493,786)— (493,786)
Consolidated obligation discount notes(4,135,294)6,963 — 6,963 
Consolidated obligation bonds(20,709,096)555,487 (6,034)549,453 
12/31/2022
Line Item in Statements of Condition of Hedged Item
Carrying Value of Hedged Asset/(Liability)1
Basis Adjustments for Active Hedging Relationships2
Basis Adjustments for Discontinued Hedging Relationships2
Cumulative Amount of Fair Value Hedging Basis Adjustments2
Advances$8,161,351 $(387,377)$8,553 $(378,824)
Available-for-sale securities5,959,781 (418,984)— (418,984)
Consolidated discount notes(7,562,117)30,865 — 30,865 
Consolidated obligation bonds(11,657,093)604,595 — 604,595 
                   
1    Includes only the portion of carrying value representing the hedged items in fair value hedging relationships. For available-for-sale securities, amortized cost is considered to be carrying value (i.e., the fair value adjustment recorded in accumulated other comprehensive income (AOCI) is excluded).
2    Included in amortized cost of the hedged asset/liability.

Table 6.5 provides information regarding net gains (losses) on derivatives recorded in non-interest income (in thousands).

Table 6.5
 Three Months EndedNine Months Ended
 09/30/202309/30/202209/30/202309/30/2022
Derivatives not designated as hedging instruments:  
Economic hedges:  
Interest rate swaps$(2,202)$28,284 $882 $109,271 
Interest rate caps/floors(93)780 32 1,865 
Net interest settlements8,393 (1,201)25,948 (17,045)
Price alignment interest(216)(36)(607)(33)
Mortgage delivery commitments(650)(1,629)(1,254)(8,483)
NET GAINS (LOSSES) ON DERIVATIVES$5,232 $26,198 $25,001 $85,575 

For uncleared derivative transactions, FHLBank has entered into bilateral security agreements with its counterparties with bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to minimum transfer amounts.

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FHLBank utilizes two Derivative Clearing Organizations (Clearinghouse) for all cleared derivative transactions, LCH Limited and CME Clearing. At both Clearinghouses, initial margin is considered cash collateral. For cleared derivatives, the Clearinghouse determines initial margin requirements and generally, credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to credit rating downgrades. FHLBank was not required to post additional initial margin by its clearing agents as of September 30, 2023 and December 31, 2022.

FHLBank’s net exposure on derivative agreements is presented in Note 9.


NOTE 7 – DEPOSITS

FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. A member that services mortgage loans may also deposit funds collected in connection with the mortgage loans, pending disbursement of these funds to the owners of the mortgage loans. FHLBank classifies these funds as other deposits. Deposits classified as demand and overnight pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit.

Table 7.1 details the types of deposits held by FHLBank as of September 30, 2023 and December 31, 2022 (in thousands):

Table 7.1
 09/30/202312/31/2022
Interest-bearing:  
Demand$280,042 $301,073 
Overnight413,600 352,400 
Term5,700 12,000 
Total interest-bearing699,342 665,473 
Non-interest-bearing:
Other52,610 45,588 
Total non-interest-bearing52,610 45,588 
TOTAL DEPOSITS$751,952 $711,061 


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NOTE 8 – CONSOLIDATED OBLIGATIONS

Consolidated Obligation Bonds: Table 8.1 presents FHLBank’s participation in consolidated obligation bonds outstanding as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands):

Table 8.1
 09/30/202312/31/2022
Year of Contractual MaturityAmountWeighted
Average
Interest
Rate		AmountWeighted
Average
Interest
Rate
Due in one year or less$28,996,115 4.89 %$21,936,100 3.77 %
Due after one year through two years9,631,390 3.97 7,074,505 2.97 
Due after two years through three years3,289,220 1.84 3,508,370 1.95 
Due after three years through four years2,960,110 2.10 4,254,750 1.74 
Due after four years through five years1,466,350 2.92 1,694,660 1.79 
Thereafter4,306,650 2.41 4,638,150 1.99 
Total par value50,649,835 4.09 %43,106,535 3.02 %
Premiums13,563  18,950  
Discounts(3,818) (3,789) 
Concession fees(11,254)(11,262)
Hedging adjustments(549,453) (604,595) 
TOTAL$50,098,873  $42,505,839  

FHLBank issues optional principal redemption bonds (callable bonds) that may be redeemed in whole or in part at the discretion of FHLBank on predetermined call dates in accordance with terms of bond offerings. FHLBank’s consolidated obligation bonds outstanding as of September 30, 2023 and December 31, 2022 includes callable bonds totaling $22,663,000,000 and $16,008,000,000, respectively. Table 8.2 summarizes FHLBank’s consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of September 30, 2023 and December 31, 2022 (in thousands):

Table 8.2
Year of Maturity or Next Call Date09/30/202312/31/2022
Due in one year or less$42,513,115 $35,682,600 
Due after one year through two years5,843,390 4,789,005 
Due after two years through three years755,220 940,370 
Due after three years through four years679,110 1,067,750 
Due after four years through five years552,850 256,660 
Thereafter306,150 370,150 
TOTAL PAR VALUE$50,649,835 $43,106,535 

Table 8.3 summarizes interest rate payment terms for consolidated obligation bonds as of September 30, 2023 and December 31, 2022 (in thousands):

Table 8.3
09/30/202312/31/2022
Fixed rate$28,594,335 $19,194,535 
Simple variable rate20,218,500 21,625,000 
Step1,837,000 2,287,000 
TOTAL PAR VALUE$50,649,835 $43,106,535 

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Consolidated Discount Notes: Table 8.4 summarizes FHLBank’s participation in consolidated obligation discount notes, all of which are due within one year (dollar amounts in thousands):

Table 8.4
Carrying ValuePar Value
Weighted
Average
Interest
Rate1
September 30, 2023$17,892,734 $18,052,225 5.12 %
December 31, 2022$24,775,405 $24,997,018 3.81 %
                   
1    Represents yield to maturity excluding concession fees.


NOTE 9 – ASSETS AND LIABILITIES SUBJECT TO OFFSETTING

FHLBank presents certain financial instruments, including derivatives, repurchase agreements and securities purchased under agreements to resell, on a net basis by clearing agent by Clearinghouse, or by counterparty, when it has met the netting requirements. For these financial instruments, FHLBank has elected to offset its asset and liability positions, as well as cash collateral received or pledged, including associated accrued interest.

FHLBank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or clearing agent, or both. Based on this analysis, FHLBank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

Tables 9.1 and 9.2 present the fair value of financial assets, including the related collateral received from or pledged to clearing agents or counterparties, based on the terms of FHLBank’s master netting arrangements or similar agreements as of September 30, 2023 and December 31, 2022 (in thousands):

Table 9.1
09/30/2023
DescriptionGross Amounts
of Recognized
Assets		Gross Amounts
Offset
in the
Statements of
Condition		Net Amounts
of Assets
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative assets:     
Uncleared derivatives$244,197 $(241,265)$2,932 $(27)$2,905 
Cleared derivatives3,547 325,417 328,964 — 328,964 
Total derivative assets247,744 84,152 331,896 (27)331,869 
Securities purchased under agreements to resell1,825,000 — 1,825,000 (1,825,000)— 
TOTAL$2,072,744 $84,152 $2,156,896 $(1,825,027)$331,869 
                   
1    Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

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Table 9.2
12/31/2022
DescriptionGross Amounts
of Recognized
Assets		Gross Amounts
Offset
in the
Statements of
Condition		Net Amounts
of Assets
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative assets:     
Uncleared derivatives$154,844 $(153,125)$1,719 $(24)$1,695 
Cleared derivatives15,393 254,964 270,357 — 270,357 
Total derivative assets170,237 101,839 272,076 (24)272,052 
Securities purchased under agreements to resell2,350,000 — 2,350,000 (2,350,000)— 
TOTAL$2,520,237 $101,839 $2,622,076 $(2,350,024)$272,052 
                   
1    Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

Tables 9.3 and 9.4 present the fair value of financial liabilities, including the related collateral received from or pledged to counterparties, based on the terms of FHLBank’s master netting arrangements or similar agreements as of September 30, 2023 and December 31, 2022 (in thousands):

Table 9.3
09/30/2023
DescriptionGross Amounts
of Recognized
Liabilities		Gross Amounts
Offset
in the
Statements of
Condition		Net Amounts
of Liabilities
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative liabilities:     
Uncleared derivatives$560,769 $(559,966)$803 $(135)$668 
Cleared derivatives15,767 (15,767)— — — 
Total derivative liabilities576,536 (575,733)803 (135)668 
TOTAL$576,536 $(575,733)$803 $(135)$668 
                   
1    Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

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Table 9.4
12/31/2022
DescriptionGross Amounts
of Recognized
Liabilities		Gross Amounts
Offset
in the
Statements of
Condition		Net Amounts
of Liabilities
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative liabilities:     
Uncleared derivatives$609,169 $(606,810)$2,359 $(173)$2,186 
Cleared derivatives1,816 (1,816)— — — 
Total derivative liabilities610,985 (608,626)2,359 (173)2,186 
TOTAL$610,985 $(608,626)$2,359 $(173)$2,186 
                   
1    Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).


NOTE 10 – CAPITAL

Capital Requirements: FHLBank is subject to three capital requirements under the provisions of the Gramm-Leach-Bliley Act (GLB Act) and the FHFA's capital structure regulation. Regulatory capital does not include AOCI but does include mandatorily redeemable capital stock.
•Risk-based capital. FHLBank must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, market risk and operational risk capital requirements. The risk-based capital requirements are all calculated in accordance with the rules and regulations of the FHFA. Only permanent capital, defined as the amounts paid-in for Class B Common Stock and retained earnings, can be used by FHLBank to satisfy its risk-based capital requirement. The FHFA may require FHLBank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined, but the FHFA has not placed any such requirement on FHLBank to date.
•Total regulatory capital. The GLB Act requires FHLBank to maintain at all times at least a 4.0 percent total capital-to-asset ratio. Total regulatory capital is defined as the sum of permanent capital, Class A Common Stock, any general loss allowance, if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the FHFA as available to absorb losses.
•Leverage capital. FHLBank is required to maintain at all times a leverage capital-to-assets ratio of at least 5.0 percent, with the leverage capital ratio defined as the sum of permanent capital weighted 1.5 times and non-permanent capital (currently only Class A Common Stock) weighted 1.0 times, divided by total assets.

Table 10.1 illustrates that FHLBank was in compliance with its regulatory capital requirements as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands):

Table 10.1
 09/30/202312/31/2022
 RequiredActualRequiredActual
Regulatory capital requirements:    
Risk-based capital$754,537 $3,663,076 $481,076 $3,522,040 
Total regulatory capital-to-asset ratio4.0 %5.5 %4.0 %5.2 %
Total regulatory capital$2,925,452 $4,021,290 $2,879,714 $3,761,094 
Leverage capital ratio5.0 %8.0 %5.0 %7.7 %
Leverage capital$3,656,815 $5,852,828 $3,599,642 $5,522,115 

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Mandatorily Redeemable Capital Stock: FHLBank is a cooperative whose members own most of FHLBank’s capital stock. Former members (including certain non-members that own FHLBank capital stock as a result of merger or acquisition, relocation, charter termination, or involuntary termination of an FHLBank member) own the remaining capital stock to support business transactions still carried on FHLBank's Statements of Condition. Shares cannot be purchased or sold except between FHLBank and its members at a price equal to the $100 per share par value.

Table 10.2 presents a roll-forward of mandatorily redeemable capital stock for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Table 10.2
 Three Months EndedNine Months Ended
 09/30/202309/30/202209/30/202309/30/2022
Balance, beginning of period$263 $537 $280 $582 
Capital stock subject to mandatory redemption reclassified from equity during the period
153,179 144,680 646,676 603,043 
Redemption or repurchase of mandatorily redeemable capital stock during the period
(153,192)(144,926)(646,713)(603,336)
Stock dividend classified as mandatorily redeemable capital stock during the period
3 1 10 3 
Balance, end of period$253 $292 $253 $292 

Excess Capital Stock: Excess capital stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum stock purchase requirement. FHFA rules limit the ability of FHLBank to create excess member stock under certain circumstances. For example, FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if FHLBank’s excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause FHLBank’s excess stock to exceed one percent of its total assets. As of September 30, 2023, FHLBank’s excess stock was less than one percent of total assets.

Capital Classification Determination: The FHFA determines each FHLBank’s capital classification on at least a quarterly basis. If an FHLBank is determined to be other than adequately capitalized, that FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide an FHLBank with written notice of the proposed action and an opportunity to submit a response. As of the most recent review by the FHFA, FHLBank Topeka was classified as adequately capitalized.

Stock Dividends: FHLBank’s board of directors may declare and pay non-cumulative dividends, expressed as a percentage rate per annum based upon the par value of capital stock on shares of Class A Common Stock outstanding and on shares of Class B Common Stock outstanding, out of previously unrestricted retained earnings and current earnings in either cash or Class B Common Stock. There is no dividend preference between Class A Common Stockholders and Class B Common Stockholders up to the Dividend Parity Threshold (DPT). Dividend rates in excess of the DPT may be paid on Class A Common Stock or Class B Common Stock at the discretion of the board of directors, provided, however, that the dividend rate paid per annum on the Class B Common Stock equals or exceeds the dividend rate per annum paid on the Class A Common Stock for any dividend period. The DPT can be changed at any time by the board of directors but will only be effective for dividends paid at least 90 days after the date members are notified by FHLBank. The DPT effective for dividends paid during 2022 and the first quarter of 2023 was equal to the average overnight Federal funds effective rate minus 100 basis points. On March 24, 2023, the board of directors revised the DPT as the average effective overnight Federal funds rate for a dividend period minus 200 basis points. This DPT became effective for the second quarter of 2023 and will continue to be effective until such time as it may be changed by the board of directors. When the overnight Federal funds effective rate is below 2.00 percent, the DPT is zero for that dividend period (DPT is floored at zero).
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NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Table 11.1 summarizes the changes in AOCI for the three months ended September 30, 2023 and 2022 (in thousands):

Table 11.1
 Three Months Ended
 Net Unrealized Gains (Losses) on Available-for-sale SecuritiesDefined Benefit Pension PlanTotal AOCI
Balance at June 30, 2022$(21,103)$(2,250)$(23,353)
Other comprehensive income (loss) before reclassification:  
Unrealized gains (losses)(29,088)(29,088)
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan1
63 63 
Net current period other comprehensive income (loss)(29,088)63 (29,025)
Balance at September 30, 2022$(50,191)$(2,187)$(52,378)
Balance at June 30, 2023$(84,002)$173 $(83,829)
Other comprehensive income (loss) before reclassification:  
Unrealized gains (losses)
(45,590)(45,590)
Net current period other comprehensive income (loss)(45,590)— (45,590)
Balance at September 30, 2023$(129,592)$173 $(129,419)
                   
1    Recorded in “Other” non-interest expense on the Statements of Income. Amount represents a debit (increase to other expenses).

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Table 11.2 summarizes the changes in AOCI for the nine months ended September 30, 2023 and 2022 (in thousands):

Table 11.2
Nine Months Ended
Net Unrealized Gains (Losses) on Available-for-sale SecuritiesDefined Benefit Pension PlanTotal AOCI
Balance at December 31, 2021$74,689 $(2,374)$72,315 
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)(124,880)(124,880)
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan1
187 187 
Net current period other comprehensive income (loss)(124,880)187 (124,693)
Balance at September 30, 2022$(50,191)$(2,187)$(52,378)
Balance at December 31, 2022$(84,443)$173 $(84,270)
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)(45,149)(45,149)
Net current period other comprehensive income (loss)(45,149)— (45,149)
Balance at September 30, 2023$(129,592)$173 $(129,419)
                   
1    Recorded in “Other” non-interest expense on the Statements of Income. Amount represents a debit (increase to other expenses).

NOTE 12 – FAIR VALUES

The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by FHLBank using available market and other pertinent information and reflect FHLBank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Although FHLBank uses its best judgment in estimating the fair value of its financial instruments, there are inherent limitations in any valuation technique. Therefore, the fair values may not be indicative of the amounts that would have been realized in market transactions as of September 30, 2023 and December 31, 2022. Additionally, these values do not represent an estimate of the overall market value of FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

Subjectivity of Estimates: Estimates of the fair value of advances with options, mortgage instruments, and derivatives with embedded options are subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.

Fair Value Hierarchy: The fair value hierarchy requires FHLBank to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of the market observability of the fair value measurement for the asset or liability. FHLBank must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities.

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The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:
•Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that FHLBank can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 Inputs – Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets and liabilities in active markets; (2) quoted prices for similar assets and liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 Inputs – Unobservable inputs for the asset or liability. Valuations are derived from techniques that use significant assumptions not observable in the market, which include pricing models, discounted cash flow models using an unobservable discount rate, or similar techniques.

FHLBank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. There were no transfers of assets or liabilities between fair value levels during the three and nine months ended September 30, 2023 and 2022.

Tables 12.1 and 12.2 present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of September 30, 2023 and December 31, 2022. FHLBank records trading securities, available-for-sale securities, derivative assets, and derivative liabilities at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. FHLBank measures all other financial assets and liabilities at amortized cost. Further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis are presented in Tables 12.3 and 12.4.

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The carrying value, fair value and fair value hierarchy of FHLBank’s financial assets and liabilities as of September 30, 2023 and December 31, 2022 are summarized in Tables 12.1 and 12.2 (in thousands):

Table 12.1
 09/30/2023
 Carrying
Value		Total
Fair
Value		Level 1Level 2Level 3
Netting
Adjustment and Cash
Collateral1
Assets:      
Cash and due from banks$26,652 $26,652 $26,652 $— $— $— 
Interest-bearing deposits1,698,340 1,698,340 — 1,698,340 — — 
Securities purchased under agreements to resell
1,825,000 1,825,000 — 1,825,000 — — 
Federal funds sold4,400,000 4,400,000 — 4,400,000 — — 
Trading securities899,023 899,023 — 899,023 — — 
Available-for-sale securities10,868,344 10,868,344 — 10,868,344 — — 
Held-to-maturity securities276,457 271,634 — 232,864 38,770 — 
Advances44,322,221 44,281,186 — 44,281,186 — — 
Mortgage loans held for portfolio, net of allowance
8,207,138 6,901,866 — 6,899,367 2,499 — 
Accrued interest receivable201,430 201,430 — 201,430 — — 
Derivative assets331,896 331,896 — 247,744 — 84,152 
Liabilities:      
Deposits751,952 751,953 — 751,953 — — 
Consolidated obligation discount notes
17,892,734 17,892,180 — 17,892,180 — — 
Consolidated obligation bonds50,098,873 48,815,150 — 48,815,150 — — 
Mandatorily redeemable capital stock
253 253 253 — — — 
Accrued interest payable357,213 357,213 — 357,213 — — 
Derivative liabilities803 803 — 576,536 — (575,733)
Other Asset (Liability):      
Industrial revenue bonds35,000 31,643 — 31,643 — — 
Financing obligation payable(35,000)(31,643)— (31,643)— — 
                   
1    Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.

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Table 12.2
 12/31/2022
 Carrying
Value		Total
Fair
Value		Level 1Level 2Level 3
Netting
Adjustment
and Cash
Collateral1
Assets:      
Cash and due from banks$25,964 $25,964 $25,964 $— $— $— 
Interest-bearing deposits2,039,852 2,039,852 — 2,039,852 — — 
Securities purchased under agreements to resell
2,350,000 2,350,000 — 2,350,000 — — 
Federal funds sold3,750,000 3,750,000 — 3,750,000 — — 
Trading securities1,421,453 1,421,453 — 1,421,453 — — 
Available-for-sale securities9,354,416 9,354,416 — 9,354,416 — — 
Held-to-maturity securities345,430 340,259 — 271,491 68,768 — 
Advances44,262,750 44,173,791 — 44,173,791 — — 
Mortgage loans held for portfolio, net of allowance
7,905,135 6,639,257 — 6,638,132 1,125 — 
Accrued interest receivable186,594 186,594 — 186,594 — — 
Derivative assets272,076 272,076 — 170,237 — 101,839 
Liabilities:     
Deposits711,061 711,052 — 711,052 — — 
Consolidated obligation discount notes
24,775,405 24,630,686 — 24,630,686 — — 
Consolidated obligation bonds42,505,839 41,258,883 — 41,258,883 — — 
Mandatorily redeemable capital stock
280 280 280 — — — 
Accrued interest payable197,175 197,175 — 197,175 — — 
Derivative liabilities2,359 2,359 — 610,985 — (608,626)
Other Asset (Liability):      
Industrial revenue bonds35,000 31,948 — 31,948 — — 
Financing obligation payable(35,000)(31,948)— (31,948)— — 
                   
1    Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.

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Fair Value Measurements: Tables 12.3 and 12.4 present, for each hierarchy level, FHLBank’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition as of or for the periods ended September 30, 2023 and December 31, 2022 (in thousands).

Table 12.3
09/30/2023
TotalLevel 1Level 2Level 3
Netting
Adjustment and Cash
Collateral1
Recurring fair value measurements - Assets:
Trading securities:
GSE debentures$285,509 $— $285,509 $— $— 
GSE MBS
613,514 — 613,514 — — 
Total trading securities899,023 — 899,023 — — 
Available-for-sale securities:
U.S. Treasury obligations2,890,387 — 2,890,387 — — 
U.S. obligation MBS111,346 — 111,346 — — 
GSE MBS7,866,611 — 7,866,611 — — 
Total available-for-sale securities10,868,344 — 10,868,344 — — 
Derivative assets:     
Interest-rate related331,869 — 247,717 — 84,152 
Mortgage delivery commitments27 — 27 — — 
Total derivative assets331,896 — 247,744 — 84,152 
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS
$12,099,263 $— $12,015,111 $— $84,152 
Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related$668 $— $576,401 $— $(575,733)
Mortgage delivery commitments135 — 135 — — 
Total derivative liabilities803 — 576,536 — (575,733)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES
$803 $— $576,536 $— $(575,733)
Nonrecurring fair value measurements - Assets2:
Impaired mortgage loans$2,537 $— $— $2,537 $— 
Real estate owned43 — — 43 — 
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS
$2,580 $— $— $2,580 $— 
                   
1    Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral, including related accrued interest, held or placed with the same clearing agent or derivative counterparty.
2    Includes assets adjusted to fair value during the nine months ended September 30, 2023 and still outstanding as of September 30, 2023.

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Table 12.4
12/31/2022
TotalLevel 1Level 2Level 3
Netting
Adjustment
and Cash
Collateral1
Recurring fair value measurements - Assets:
Trading securities:
U.S. Treasury obligations$396,233 $— $396,233 $— $— 
GSE debentures388,955 — 388,955 — — 
GSE MBS
636,265 — 636,265 — — 
Total trading securities1,421,453 — 1,421,453 — — 
Available-for-sale securities:
U.S. Treasury obligations3,315,356 — 3,315,356 — — 
U.S. obligation MBS40,039 — 40,039 — — 
GSE MBS5,999,021 — 5,999,021 — — 
Total available-for-sale securities9,354,416 — 9,354,416 — — 
Derivative assets:
Interest-rate related272,052 — 170,213 — 101,839 
Mortgage delivery commitments24 — 24 — — 
Total derivative assets272,076 — 170,237 — 101,839 
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS
$11,047,945 $— $10,946,106 $— $101,839 
Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related$2,186 $— $610,812 $— $(608,626)
Mortgage delivery commitments173 — 173 — — 
Total derivative liabilities2,359 — 610,985 — (608,626)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES
$2,359 $— $610,985 $— $(608,626)
Nonrecurring fair value measurements - Assets2:
Impaired mortgage loans$1,164 $— $— $1,164 $— 
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS
$1,164 $— $— $1,164 $— 
                   
1    Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral, including related accrued interest, held or placed with the same clearing agent or derivative counterparty.
2    Includes assets adjusted to fair value during the year ended December 31, 2022 and still outstanding as of December 31, 2022.


NOTE 13 – COMMITMENTS AND CONTINGENCIES

Joint and Several Liability: As provided in the Bank Act or in FHFA regulations, consolidated obligations are backed only by the financial resources of the FHLBanks. FHLBank Topeka is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks. The par amounts for which FHLBank Topeka is jointly and severally liable were approximately $1,161,172,587,000 and $1,113,638,974,000 as of September 30, 2023 and December 31, 2022, respectively.

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Off-balance Sheet Commitments: Table 13.1 presents off-balance sheet commitments at September 30, 2023 and December 31, 2022 (in thousands). No allowance for credit losses was recorded on these commitments at September 30, 2023 and December 31, 2022.

Table 13.1
 09/30/202312/31/2022
Notional AmountExpire
Within
One Year		Expire
After
One Year		TotalExpire
Within
One Year		Expire
After
One Year		Total
Standby letters of credit outstanding$6,692,755 $9,516 $6,702,271 $6,475,917 $250 $6,476,167 
Advance commitments outstanding86,496 3,615 90,111 173,959 2,505 176,464 
Principal commitments for standby bond purchase agreements326,965 595,520 922,485 212,705 646,165 858,870 
Commitments to fund or purchase mortgage loans
48,915 — 48,915 33,882 — 33,882 
Commitments to issue consolidated bonds, at par
766,500 — 766,500 501,000 — 501,000 
Commitments to issue consolidated discount notes, at par
— — — 7,500 — 7,500 

Commitments to Extend Credit: FHLBank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. These standby letters of credit are subject to the same collateralization and borrowing limits that are applicable to advances and are fully collateralized at the time of issuance with assets allowed by FHLBank’s Member Products Policy (MPP). Standby letters of credit may be offered to assist members and non-member housing associates in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from federal and state government agencies. Standby letters of credit are executed for members for a fee. If FHLBank is required to make payment for a beneficiary's draw, the member either reimburses FHLBank for the amount drawn or, subject to FHLBank's discretion, the amount drawn may be converted into a collateralized advance to the member. However, standby letters of credit usually expire without being drawn upon. FHLBank's current outstanding standby letters of credit expire no later than 2027. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to $2,497,000 and $1,878,000 as of September 30, 2023 and December 31, 2022, respectively. Advance commitments legally bind and unconditionally obligate FHLBank for additional advances up to 24 months in the future. Based upon management’s credit analysis of members and collateral requirements under the MPP, FHLBank does not expect to incur any credit losses on the outstanding letters of credit or advance commitments.

Standby Bond-Purchase Agreements: FHLBank has entered into standby bond purchase agreements with state housing authorities whereby FHLBank, for a fee, agrees to purchase and hold the authorities’ bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require FHLBank to purchase the bond and typically allows FHLBank to terminate the agreement upon the occurrence of a default event of the issuer. The bond purchase commitments entered into by FHLBank expire no later than 2028, though some are renewable at the option of FHLBank. As of September 30, 2023 and December 31, 2022, the total commitments for bond purchases included agreements with two in-district state housing authorities. FHLBank was not required to purchase any bonds under any agreements during the nine months ended September 30, 2023 and 2022.

Commitments to Purchase Mortgage Loans: These commitments that unconditionally obligate FHLBank to purchase mortgage loans from participating FHLBank Topeka members in the MPF Program are generally for periods not to exceed 60 calendar days. Certain commitments are recorded as derivatives at their fair values on the Statements of Condition. FHLBank recorded mortgage delivery commitment net derivative asset (liability) balances of $(108,000) and $(149,000) as of September 30, 2023 and December 31, 2022, respectively.

Commitments to Issue Consolidated Obligations: FHLBank enters into commitments to issue consolidated obligation bonds and discount notes outstanding in the normal course of its business. Most settle within the shortest period possible and are considered regular way trades; however, certain commitments are recorded as derivatives at their fair values on the Statements of Condition.

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NOTE 14 – TRANSACTIONS WITH STOCKHOLDERS

FHLBank is a cooperative whose members own most of the capital stock of FHLBank and generally receive dividends on their investments. In addition, certain former members that still have outstanding transactions are also required to maintain their investments in FHLBank capital stock until the transactions mature or are paid off. Nearly all outstanding advances are with current members, and the majority of outstanding mortgage loans held for portfolio were purchased from current or former members. FHLBank also maintains demand deposit accounts for members primarily to facilitate settlement activities that are directly related to advances and mortgage loan purchases.

Transactions with members are entered into in the ordinary course of business. In instances where members also have officers or directors who are directors of FHLBank, transactions with those members are subject to the same eligibility and credit criteria, as well as the same terms and conditions, as other transactions with members. For financial reporting and disclosure purposes, FHLBank defines related parties as FHLBank directors’ financial institutions and members with capital stock investments in excess of 10 percent of FHLBank’s total regulatory capital stock outstanding, which includes mandatorily redeemable capital stock.

Activity with Members that Exceed a 10 Percent Ownership in FHLBank Regulatory Capital Stock: Tables 14.1 and 14.2 present information on members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands). None of the officers or directors of these members currently serve on FHLBank’s board of directors.

Table 14.1
09/30/2023
Member NameStateTotal Class A Stock Par ValuePercent of Total Class ATotal Class B Stock Par ValuePercent of Total Class BTotal Capital Stock Par ValuePercent of Total Capital Stock
MidFirst BankOK$24,133 6.7 %$482,957 21.1 %$507,090 19.1 %
BOKF, N.A.OK80,493 22.5 278,945 12.2 359,438 13.6 
TOTAL$104,626 29.2 %$761,902 33.3 %$866,528 32.7 %

Table 14.2
12/31/2022
Member NameStateTotal Class A Stock Par ValuePercent of Total Class ATotal Class B Stock Par ValuePercent of Total Class BTotal Capital Stock Par ValuePercent of Total Capital Stock
MidFirst BankOK$500 0.2 %$493,412 21.7 %$493,912 19.7 %
TOTAL$500 0.2 %$493,412 21.7 %$493,912 19.7 %

Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of September 30, 2023 and December 31, 2022 are summarized in Table 14.3 (dollar amounts in thousands).

Table 14.3
09/30/202312/31/202209/30/202312/31/2022
Member NameOutstanding AdvancesPercent of TotalOutstanding AdvancesPercent of TotalOutstanding DepositsPercent of TotalOutstanding DepositsPercent of Total
MidFirst Bank$10,530,000 23.5 %$10,740,000 24.1 %$760 0.1 %$530 0.1 %
BOKF, N.A.6,175,000 13.8 21,391 2.8 
TOTAL$16,705,000 37.3 %$10,740,000 24.1 %$22,151 2.9 %$530 0.1 %

BOKF, N.A. sold $5,905,000 and $15,989,000 mortgage loans into the MPF Program during the three and nine months ended September 30, 2023. MidFirst Bank did not sell any mortgage loans into the MPF Program during the same periods.
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Transactions with FHLBank Directors’ Financial Institutions: Table 14.4 presents information as of September 30, 2023 and December 31, 2022 for members that had an officer or director serving on FHLBank’s board of directors (dollar amounts in thousands). Information is only included for the period in which the officer or director served on FHLBank’s board of directors. Capital stock listed is regulatory capital stock, which includes mandatorily redeemable capital stock.

Table 14.4
 09/30/202312/31/2022
 Outstanding AmountPercent of TotalOutstanding AmountPercent of Total
Advances$250,516 0.6 %$185,535 0.4 %
Deposits$6,963 0.9 %$7,322 1.0 %
Class A Common Stock$4,335 1.2 %$4,151 1.7 %
Class B Common Stock14,099 0.6 11,793 0.5 
TOTAL CAPITAL STOCK$18,434 0.7 %$15,944 0.6 %

Table 14.5 presents mortgage loans acquired during the three and nine months ended September 30, 2023 and 2022 for members that had an officer or director serving on FHLBank’s board of directors in 2023 or 2022 (dollar amounts in thousands). Information is only included for the period in which the officer or director served on FHLBank’s board of directors.

Table 14.5
Three Months EndedNine Months Ended
09/30/202309/30/202209/30/202309/30/2022
AmountPercent of TotalAmountPercent of TotalAmountPercent of TotalAmountPercent of Total
Mortgage loans acquired$5,476 1.5 %$4,736 1.9 %$14,461 1.6 %$16,032 1.9 %


NOTE 15 – TRANSACTIONS WITH OTHER FHLBANKS

From time to time, one FHLBank may transfer to another FHLBank the consolidated obligations for which the transferring FHLBank was originally the primary obligor but upon transfer the assuming FHLBank becomes the primary obligor. During the first quarter of 2023, FHLBank Topeka transferred debt obligations with a par amount of $1,000,000,000 to another FHLBank. There were no transfers of debt obligations to other FHLBanks during the three months ended September, 30, 2023 or the three and nine months ended September 30, 2022.
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding our business and assessing our operations both historically and prospectively. This discussion should be read in conjunction with our interim financial statements and related notes presented under Part I, Item 1 of this quarterly report on Form 10-Q and the annual report on Form 10-K for the year ended December 31, 2022, which includes audited financial statements and related notes for the year ended December 31, 2022. Our MD&A includes the following sections:
•Selected Financial Data – a tabular summary of selected balances, financial ratios and other financial information;
•Executive Level Overview – a general description of our business and financial highlights;
•Financial Market Trends – a discussion of current trends in the financial markets and overall economic environment, including the related impact on our operations;
•Critical Accounting Policies and Estimates – a discussion of accounting policies that require critical estimates and assumptions;
•Results of Operations – an analysis of our operating results, including disclosures about the sustainability of our earnings;
•Financial Condition – an analysis of our financial position;
•Liquidity and Capital Resources – an analysis of our cash flows and capital position;
•Risk Management – a discussion of our risk management strategies;
•Recently Issued Accounting Standards; and
•Legislative and Regulatory Developments.

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Executive Level Overview
Table 1 presents selected financial data for the periods indicated (dollar amounts in thousands):

Table 1
09/30/202306/30/202303/31/202312/31/202209/30/2022
Statement of Condition (as of period end):
Total assets$73,136,292 $72,859,560 $74,838,195 $71,992,842 $63,500,273 
Investments1
19,967,164 20,184,671 19,831,466 19,261,151 19,720,136 
Advances44,322,221 43,957,361 46,456,748 44,262,750 35,318,980 
Mortgage loans, net8,207,138 8,064,228 7,925,256 7,905,135 7,998,911 
Total liabilities69,244,674 68,963,074 70,972,748 68,316,298 60,204,762 
Deposits751,952 539,157 955,321 711,061 667,970 
Consolidated obligations, net2
67,991,607 67,944,534 69,487,247 67,281,244 59,236,614 
Total capital3,891,618 3,896,486 3,865,447 3,676,544 3,295,511 
Capital stock2,649,451 2,644,249 2,662,089 2,507,709 2,120,273 
Retained earnings1,371,586 1,336,066 1,285,741 1,253,105 1,227,616 
Statement of Income (for the quarterly period ended):
Net interest income114,908 121,667 104,403 99,895 94,795 
Other income (loss)10,927 19,025 11,613 4,393 (1,174)
Other expenses23,649 21,946 22,145 22,102 19,149 
Income before assessments102,219 118,000 94,273 81,176 74,357 
Affordable Housing Program (AHP) assessments10,222 11,800 9,428 8,117 7,436 
Net income91,997 106,200 84,845 73,059 66,921 
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid56,477 55,875 52,209 47,570 36,408 
Weighted average dividend rate3
8.62 %8.31 %8.12 %7.79 %6.94 %
Dividend payout ratio4
61.39 %52.61 %61.53 %65.11 %54.40 %
Return on average equity9.39 %10.81 %8.96 %8.04 %8.07 %
Return on average assets0.49 %0.55 %0.46 %0.41 %0.42 %
Average equity to average assets5.18 %5.10 %5.09 %5.06 %5.21 %
Net interest margin5
0.61 %0.63 %0.56 %0.56 %0.60 %
Total capital ratio6
5.32 %5.35 %5.17 %5.11 %5.19 %
Regulatory capital ratio7
5.50 %5.46 %5.28 %5.22 %5.27 %
                   
1    Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold.
2    Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 13 to the financial statements for a description of the par amount of consolidated obligations of all FHLBanks for which we are jointly and severally liable.    
3    Dividends paid in cash and stock on both classes of stock as a percentage of average capital stock eligible for dividends.
4    Ratio disclosed represents dividends declared and paid during the period as a percentage of net income for the period presented. FHFA regulation requires dividends be paid out of known income prior to declaration date.
5    Net interest income as a percentage of average earning assets.
6    GAAP capital stock, which excludes mandatorily redeemable capital stock, plus retained earnings and AOCI as a percentage of total assets.
7    Regulatory capital (i.e., permanent capital and Class A Common Stock) as a percentage of total assets.

We are a regional wholesale bank that makes advances (loans) to, purchases mortgage loans from, and provides limited other financial services primarily to our members. Our mission is to be a reliable source of liquidity and low-cost funding for our members in support of residential mortgage lending and related housing and economic development needs of the communities served by our members. As an independent, member-owned cooperative, we seek to maintain a balance between our public purpose and our ability to provide adequate returns on the capital supplied by our members. Our members include commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions.


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In March and April 2023, members increased their on-balance sheet liquidity due to market turmoil caused by the financial difficulties and failures of multiple U.S. banks. The concern over stress in the banking sector kept the demand for liquidity elevated. The purpose and mission of the FHLBank System is to serve as a reliable source of liquidity for members, the demand for which can expand in times of uncertainty and market stress. As the stress caused by this specific event has eased, demand for advances as additional on-balance sheet liquidity has declined, along with the related funding. However, member banks have maintained elevated levels of advances due in part to deposit loss and the risk that the conditions that lead to the stress in March could return, as interest rates and inflation remain high.

Third Quarter 2023 Financial Highlights:
•Net interest income/margin: Net interest income increased $20.1 million to $114.9 million for the quarter ended September 30, 2023 compared to $94.8 million for the quarter ended September 30, 2022. The increase in net interest income resulted from increased average balances on advances and investments at higher interest rates, combined with the impact of higher interest rates on fair value hedges and a continued decline in premium amortization on mortgage-related assets. Net interest margin increased one basis point for the current quarter, from 0.60 percent for the quarter ended September 30, 2022 to 0.61 percent for the quarter ended September 30, 2023.
•Total assets: Total assets increased from $72.0 billion as of December 31, 2022 to $73.1 billion as of September 30, 2023, driven by the $0.7 billion increase in short- and long-term investments between periods and a $0.3 billion increase in the mortgage loan portfolio. The average balance of interest-earning assets increased $11.9 billion between the quarter ended September 30, 2023 and the same period in the prior year, driven by a $10.3 billion increase in the average balance of advances.
•Primary Mission Assets: Advances to members and housing associates and mortgage loans purchased from members are Primary Mission Assets because they are fundamental to the business and mission of FHLBank. The Primary Mission Asset ratio, as defined by the FHFA under its core mission achievement guidance, is calculated as average advances and average mortgage loans to average consolidated obligations (less certain U.S. Treasury securities), based on year-to-date averages. As of September 30, 2023 and December 31, 2022, our Primary Mission Asset ratio was 81 percent and 80 percent, respectively.
•Advances: Advances remained relatively flat between periods, at $44.3 billion for both December 31, 2022 and September 30, 2023, representing 60.6 percent of total assets as of September 30, 2023, compared to 61.5 percent as of December 31, 2022. The average balance of advances increased $10.3 billion, or 29.0 percent, for the three months ended September 30, 2023 when compared to the prior year period. The increase in the average balance of advances between periods was largely attributed to the funding needs of depository members as loan growth outpaced deposit growth through 2022 and into 2023. We continue to execute our liquidity mission by serving as a reliable source of liquidity and funding for members.
•Mortgage loans: Mortgage loans increased $0.3 billion from $7.9 billion at December 31, 2022 to $8.2 billion as of September 30, 2023, representing 11.2 percent of total assets as of September 30, 2023, compared to 11.0 percent as of December 31, 2022. The average balance of mortgage loans increased $0.1 billion, or 1.6 percent, for the three months ended September 30, 2023 when compared to the prior year period. Interest income continues to be positively impacted by lower premium amortization and originations at interest rates higher than that of the existing portfolio.
•Performance ratios: Return on average equity (ROE) increased to 9.39 percent for the quarter ended September 30, 2023 compared to 8.07 percent for the prior year quarter due to the increase in net income for the current quarter, partially offset by the increase in average capital.
•Dividends: The Class A Common Stock dividend rate of 4.5 percent per annum and the Class B Common Stock dividend rate of 9.25 percent per annum combined for a weighted average dividend rate for the quarter ended September 30, 2023 of 8.62 percent, which is 329 basis points above the average daily interest rate on reserve balances for the quarter.
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Financial Market Trends
The primary external factors that affect net interest income are market interest rates and the general state of the economy.

General discussion of the level of market interest rates:
Table 2 presents selected market interest rates as of the dates or for the periods shown.

Table 2
09/30/202309/30/202209/30/202309/30/202209/30/202312/31/2022
Market InstrumentThree-monthThree-monthNine-monthNine-monthEndingEnding
AverageAverageAverageAverageRateRate
Secured Overnight Financing Rate1
5.24 %2.15 %4.90 %0.99 %5.31 %4.30 %
Federal funds effective rate1
5.26 2.20 4.93 1.03 5.33 4.33 
Federal Reserve interest rate on reserve balances1
5.33 2.26 4.99 1.11 5.40 4.40 
3-month U.S. Treasury bill1
5.43 2.67 5.10 1.35 5.45 4.37 
2-year U.S. Treasury note1
4.93 3.38 4.53 2.51 5.04 4.43 
5-year U.S. Treasury note1
4.31 3.23 3.94 2.67 4.61 4.00 
10-year U.S. Treasury note1
4.14 3.10 3.80 2.66 4.57 3.88 
30-year residential mortgage note rate1,2
7.18 5.81 6.76 5.08 7.53 6.58 
                   
1    Source is Bloomberg.
2    Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate.

The deposit outflows and financial difficulties experienced by multiple U.S. banks at the end of the first quarter of 2023 created stress for the banking industry and the financial markets and kept demand for liquidity elevated into the third quarter, as some of the deposit loss members experienced during the first half of 2023 has persisted. On March 12, 2023, the Federal Reserve announced a plan to make available additional funding to eligible depository institutions to help assure that they have the ability to meet the needs of all their depositors, through eased access to the discount window and the creation of a new Bank Term Funding Program (BTFP). The BTFP offers eligible banks an additional source of liquidity collateralized with high-quality securities at par to eliminate the need to sell securities to meet the needs of depositors. The BTFP is currently scheduled to end on March 11, 2024. While the BTFP is a temporary measure and is intended to be utilized in conjunction with other liquidity sources to ensure banks have the ability meet liquidity needs resulting from the loss of deposits, it could replace advance demand for on-balance sheet liquidity for some members. Members also have access to other wholesale funding sources, such as brokered deposits or Fed funds, which may impact the demand for advances. Alternative funding sources had a minimal impact on advances during the quarter ended September 30, 2023. We continue to monitor these and related developments and assess any effect on our business, results of operations, and financial condition.

Treasury yields continued to increase across the curve, with the 10-year Treasury reaching its highest yield since 2007. While yields on U.S. Treasury obligations have increased, they remained inverted at the end of the third quarter of 2023, as the two-year Treasury note remained above the ten-year Treasury note, but the curve has become less inverted than in prior periods. The Federal Open Market Committee (FOMC) announced rate hikes of 25 basis points at the February, March, May, and July meetings while holding rates steady at the September and November meetings. The FOMC’s November statement indicated continued strength in economic indicators, despite continued elevated inflation and tighter financial and credit conditions for households and businesses. The FOMC remains attentive to inflation risks and remains committed to returning inflation to the two percent objective. Mortgage rates remained elevated compared to market conditions one year ago, resulting in declines in new mortgage origination activity and lower mortgage prepayments, which has reduced related premium amortization and increased yields on mortgage-related assets compared to the third quarter of 2022.

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We issue debt at a spread above U.S. Treasury securities; as a result, the level of interest rates impacts the cost of issuing FHLBank consolidated obligations and the cost of advances to our members and housing associates. The cost of issuing short-term debt has increased since the same period in the prior year, but the high demand for short-term Agency debt has kept this spread relatively narrow. Congress passed legislation for a short-term funding bill to fund the U.S. government through November 17, 2023; however, the U.S. continues to face a possible government shutdown. Historically, this event has not had a significant impact on our ability to issue debt. Volatility in the capital markets can also impact the demand for and cost of debt issued by the FHLBanks. Recent efforts of the Federal Reserve Board to ease inflation, such as continued increases in policy interest rates, have contributed to volatility in the financial markets, financial difficulties experienced by some depository institutions, and uncertainties about the economic outlook, including concerns about a possible recession. Robust consumer spending and low levels of unemployment are expected to keep inflation elevated throughout 2023 despite FOMC intervention, which could impact economic growth and member demand for advances. If the level of inflation and inflation expectations continue to trend higher, it could result in higher interest rates, especially short- and intermediate-term interest rates, although the heightened risk of recession could temper rate increases in 2024. For further discussion, see this Item 2 – “Financial Condition – Consolidated Obligations.”

The publication of LIBOR on a representative basis ceased for one-week and two-month LIBOR effective January 1, 2022, and the remaining LIBOR tenors ceased immediately after June 30, 2023. Any remaining variable rate investments, derivative assets, derivative liabilities, and related collateral that were indexed to LIBOR followed the contractual or statutory fallback provisions in subsequent rate resets. In accordance with the recommendations of our regulator and the Alternative Reference Rates Committee (AARC) and industry developments, we have selected SOFR as our preferred primary replacement rate for LIBOR-indexed financial instruments. For additional information on LIBOR transition, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect our reported results and disclosures. Several of our accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others in terms of their importance to results. These assumptions and assessments include: (1) the accounting related to derivatives and hedging activities; and (2) fair value determinations.

Changes in any of the estimates and assumptions underlying critical accounting policies could have a material effect on our financial statements.

The accounting policies that management believes are the most critical to an understanding of our financial results and condition and require complex management judgment are described under Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our annual report on Form 10-K, incorporated by reference herein. There were no material changes to our critical accounting policies and estimates during the quarter ended September 30, 2023.

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Results of Operations
Earnings Analysis: Table 3 presents changes in the major components of our net income (dollar amounts in thousands):

Table 3
Increase (Decrease) in Earnings Components
Three Months EndedNine Months Ended
09/30/2023 vs. 09/30/202209/30/2023 vs. 09/30/2022
Dollar ChangePercentage ChangeDollar ChangePercentage Change
Total interest income$596,238 152.1 %$2,074,953 292.9 %
Total interest expense576,125 193.9 1,997,071 448.5 
Net interest income20,113 21.2 77,882 29.6 
Provision (reversal) for credit losses on mortgage loans(148)(128.7)611 203.7 
Net interest income after mortgage loan loss provision20,261 21.4 77,271 29.3 
Net gains (losses) on trading securities32,465 107.3 119,675 105.8 
Net gains (losses) on derivatives(20,966)(80.0)(60,574)(70.8)
Other non-interest income602 20.9 799 8.7 
Total other income (loss)12,101 1,030.7 59,900 326.7 
Operating expenses4,025 27.1 7,602 16.5 
Other non-interest expenses475 11.1 1,386 10.9 
Total other expenses4,500 23.5 8,988 15.3 
AHP assessments2,786 37.5 12,818 68.8 
NET INCOME$25,076 37.5 %$115,365 68.8 %

Net income increased $25.1 million, or 37.5 percent, to $92.0 million for the three months ended September 30, 2023 compared to $66.9 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, net income increased $115.4 million, or 68.8 percent, to $283.0 million compared to $167.7 million for the same period in the prior year. The increase in net income is substantially attributed to increases in net interest income and to a lesser extent fluctuations in fair value of derivatives and trading securities, partially offset by increases in operating expenses driven by compensation and benefits and an increased allocation of funds available to members for affordable housing. For detailed discussion relating to these fluctuations, see “Net Interest Income and Net Interest Margin,” “Net Gains (Losses) on Derivatives,” and “Other Expenses” under this Item 2.

Net Interest Income and Net Interest Margin: Net interest income increased $20.1 million for the quarter, or 21.2 percent, from $94.8 million for the three months ended September 30, 2022 to $114.9 million for the three months ended September 30, 2023. Net interest income increased $77.9 million, or 29.6 percent, for the current year-to-date period, from $263.1 million for the nine months ended September 30, 2022 to $341.0 million for the nine months ended September 30, 2023. The increase for both the three- and nine-month periods was due to increased average balances on advances and investments at higher interest rates, combined with the impact of higher interest rates and spreads on fair value hedges. Additionally, prepayments continued to slow on mortgage-related assets, which also increased interest income due to less premium amortization between periods. Slower prepayments generally extend the weighted average life of lower-rate mortgages, which can contribute to interest rate spread compression.

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Net interest margin increased one basis point for the current quarter, from 0.60 percent for the quarter ended September 30, 2022 to 0.61 percent for the quarter ended September 30, 2023 (see Table 8). Net interest margin declined one basis point, from 0.61 percent to 0.60 percent for the nine months ended September 30, 2023 compared to the prior year period (see Table 10). Net interest margin held relatively steady for the current quarter and year-to-date period, despite the decreases in net interest spread between the yield on interest-earning assets and the cost of interest-bearing liabilities for both the quarter and year-to-date periods. This compression of net interest spread for both the three- and nine-month periods was due to changes in balance sheet composition, notably an increase in advances as a percentage of total assets from September 30, 2022 to September 30, 2023, and the increase in the cost of rate-sensitive liabilities, primarily as it relates to the mortgage loan portfolio, over the same period. Advances are typically one of our lowest spread assets, so net interest spread declines as short-term advance balances comprise a larger percentage of total assets. The mortgage loan portfolio is fixed rate and funded with a combination of callable debt, fixed rate debt, and short-term debt, and the increase in funding costs, especially short-term debt, reduced the net interest spread on the mortgage loan portfolio. The increase in funding costs was due to upward repricing of variable rate debt, including fixed rate debt swapped to a variable rate, and the issuance of fixed rate debt at higher market interest rates. For further discussion of advances, mortgage loans, and consolidated obligations, see this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.” Overnight investments also provided a positive contribution, as the yield increased more than the cost of the associated short-term debt.

Net interest income and net interest margin are also impacted by derivative and hedging activities, as net interest settlements on derivatives and the changes in fair values of hedged assets and liabilities and the corresponding derivative instruments designated in fair value hedging relationships are recorded in net interest income. For the current quarter, net interest income increased $40.5 million due to net interest settlements received on fair value hedges compared to net interest paid for the same period in the prior year due to increases in interest rates between periods. Tables 4 through 7 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):

Table 4
 Three Months Ended 09/30/2023
 AdvancesInvestmentsMortgage LoansConsolidated Obligation Discount NotesConsolidated Obligation BondsTotal
Unrealized gains (losses) due to fair value changes
$2,751 $4,115 $— $(2,758)$(5,444)$(1,336)
Net amortization/accretion of hedging activities
890 — 333 — 96 1,319 
Net interest received (paid)78,437 50,579 — (6,197)(87,413)35,406 
Price alignment amount(5,819)(5,332)— 142 195 (10,814)
TOTAL$76,259 $49,362 $333 $(8,813)$(92,566)$24,575 

Table 5
 Three Months Ended 09/30/2022
 AdvancesInvestmentsMortgage LoansConsolidated Obligation Discount NotesConsolidated Obligation BondsTotal
Unrealized gains (losses) due to fair value changes
$1,481 $6,606 $— $2,174 $3,821 $14,082 
Net amortization/accretion of hedging activities
(560)— 243 — — (317)
Net interest received (paid)10,478 5,877 — (2,429)(19,899)(5,973)
Price alignment amount(1,359)(1,243)— 121 22 (2,459)
TOTAL$10,040 $11,240 $243 $(134)$(16,056)$5,333 

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Table 6
 Nine Months Ended 09/30/2023
 AdvancesInvestmentsMortgage LoansConsolidated Obligation Discount NotesConsolidated Obligation BondsTotal
Unrealized gains (losses) due to fair value changes
$(1,735)$23,000 $— $353 $(4,082)$17,536 
Net amortization/accretion of hedging activities
1,309 — 793 — 193 2,295 
Net interest received (paid)191,163 133,552 — (30,435)(231,897)62,383 
Price alignment amount(13,059)(12,625)— 611 278 (24,795)
TOTAL$177,678 $143,927 $793 $(29,471)$(235,508)$57,419 

Table 7
 Nine Months Ended 09/30/2022
 AdvancesInvestmentsMortgage LoansConsolidated Obligation Discount NotesConsolidated Obligation BondsTotal
Unrealized gains (losses) due to fair value changes
$3,687 $12,193 $— $3,630 $5,511 $25,021 
Net amortization/accretion of hedging activities
(1,679)— 553 — — (1,126)
Net interest received (paid)(12,757)(31,613)— 4,214 7,811 (32,345)
Price alignment amount(1,754)(1,580)— 131 27 (3,176)
TOTAL$(12,503)$(21,000)$553 $7,975 $13,349 $(11,626)

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Average Balances and Yields: Table 8 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 8
 Three Months Ended
 09/30/202309/30/2022
 Average
Balance		Interest
Income/
Expense		YieldAverage
Balance		Interest
Income/
Expense		Yield
Interest-earning assets:      
Interest-bearing deposits$2,803,908 $37,569 5.32 %$1,383,035 $7,538 2.16 %
Securities purchased under agreements to resell
2,078,370 27,969 5.34 2,666,315 14,870 2.21 
Federal funds sold3,697,174 49,772 5.34 3,939,293 22,017 2.22 
Investment securities1,2
12,132,738 170,862 5.59 11,307,414 78,130 2.74 
Advances1,2
45,862,896 634,899 5.49 35,552,050 211,173 2.36 
Mortgage loans3,4
8,150,358 66,871 3.26 8,021,512 58,045 2.87 
Other interest-earning assets43,152 286 2.63 41,522 217 2.07 
Total earning assets74,768,596 988,228 5.24 62,911,141 391,990 2.47 
Other non-interest-earning assets182,623   221,691   
Total assets$74,951,219   $63,132,832   
Interest-bearing liabilities:      
Deposits$685,182 $8,720 5.05 %$694,256 $3,353 1.92 %
Consolidated obligations1:
      
Discount Notes21,345,764 284,947 5.30 23,390,351 117,644 2.00 
Bonds47,908,824 579,352 4.80 34,967,317 175,920 2.00 
Other borrowings43,469 301 2.74 43,539 278 2.52 
Total interest-bearing liabilities69,983,239 873,320 4.95 59,095,463 297,195 1.99 
Capital and other non-interest-bearing funds
4,967,980   4,037,369   
Total funding$74,951,219   $63,132,832   
Net interest income and net interest spread5
 $114,908 0.29 % $94,795 0.48 %
Net interest margin6
  0.61 %  0.60 %
                   
1    Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.
2    Interest income includes prepayment/yield maintenance fees.
3    Credit enhancement income payments made to PFIs are netted against interest earnings on the mortgage loans. The expense related to these payments was $1.7 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively.
4    Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.
5    Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
6    Net interest margin is defined as net interest income as a percentage of average interest-earning assets.

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Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 9 summarizes changes in interest income and interest expense (in thousands):

Table 9
 Three Months Ended
09/30/2023 vs. 09/30/2022
 Increase (Decrease) Due to
 
Volume1,2
Rate1,2
Total
Interest Income3:
   
Interest-bearing deposits$12,411 $17,620 $30,031 
Securities purchased under agreements to resell(3,904)17,003 13,099 
Federal funds sold(1,434)29,189 27,755 
Investment securities6,092 86,640 92,732 
Advances75,828 347,898 423,726 
Mortgage loans945 7,881 8,826 
Other assets9 60 69 
Total interest-earning assets89,947 506,291 596,238 
Interest Expense3:
   
Deposits(44)5,411 5,367 
Consolidated obligations:   
Discount notes(11,137)178,440 167,303 
Bonds84,178 319,254 403,432 
Other borrowings— 23 23 
Total interest-bearing liabilities72,997 503,128 576,125 
Change in net interest income$16,950 $3,163 $20,113 
                   
1    Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.
2    Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.
3    Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.

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Table 10 presents average balances and yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 10
Nine Months Ended
 09/30/202309/30/2022
 Average
Balance		Interest
Income/Expense		YieldAverage
Balance		Interest
Income/Expense		Yield
Interest-earning assets:      
Interest-bearing deposits$2,814,811 $104,953 4.99 %$1,264,653 $10,281 1.10 %
Securities purchased under agreements to resell
2,441,429 90,607 4.96 2,285,952 20,657 1.20 
Federal funds sold4,022,454 150,058 4.99 3,165,381 29,171 1.20 
Investment securities1,2
11,602,457 460,697 5.31 11,169,015 151,608 1.80 
Advances1,2
46,699,337 1,785,223 5.11 31,355,909 326,928 1.40 
Mortgage loans3,4
8,013,970 190,515 3.18 8,045,095 168,982 2.80 
Other interest-earning assets
55,018 1,237 3.01 51,568 709 1.80 
Total earning assets75,649,476 2,783,290 4.92 57,337,573 708,336 1.70 
Other non-interest-earning assets
254,818   218,225   
Total assets$75,904,294   $57,555,798   
Interest-bearing liabilities:      
Deposits$669,108 23,469 4.69 $819,807 4,476 0.70 
Consolidated obligations1:
      
Discount Notes22,936,918 836,651 4.88 15,963,013 147,678 1.20 
Bonds47,284,287 1,581,173 4.47 36,972,549 292,252 1.10 
Other borrowings47,217 1,019 2.88 47,819 834 2.30 
Total interest-bearing liabilities
70,937,530 2,442,312 4.60 53,803,188 445,240 1.09 
Capital and other non-interest-bearing funds
4,966,764   3,752,610   
Total funding$75,904,294   $57,555,798   
Net interest income and net interest spread5
 $340,978 0.32 % $263,096 0.61 %
Net interest margin6
  0.60 %  0.61 %
                   
1    Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.
2    Interest income includes prepayment/yield maintenance fees.
3    Credit enhancement income payments made to PFIs are netted against interest earnings on the mortgage loans. The expense related to these payments was $4.9 million and $4.8 million for the nine months ended September 30, 2023 and 2022, respectively.
4    Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.
5    Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
6    Net interest margin is defined as net interest income as a percentage of average interest-earning assets.

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Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 11 summarizes changes in interest income and interest expense (in thousands):

Table 11
 Nine Months Ended
09/30/2023 vs. 09/30/2022
 Increase (Decrease) Due to
 
Volume1,2
Rate1,2
Total
Interest Income3:
   
Interest-bearing deposits$24,115 $70,557 $94,672 
Securities purchased under agreements to resell
1,499 68,451 69,950 
Federal funds sold9,862 111,025 120,887 
Investment securities6,108 302,981 309,089 
Advances226,120 1,232,175 1,458,295 
Mortgage loans(656)22,189 21,533 
Other assets50 478 528 
Total earning assets267,098 1,807,856 2,074,954 
Interest Expense3:
   
Deposits(968)19,961 18,993 
Consolidated obligations:   
Discount notes89,060 599,913 688,973 
Bonds102,436 1,186,485 1,288,921 
Other borrowings(10)195 185 
Total interest-bearing liabilities190,518 1,806,554 1,997,072 
Change in net interest income$76,580 $1,302 $77,882 
                   
1    Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.
2    Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.
3    Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.


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Net Gains (Losses) on Derivatives: Tables 12 through 15 present the earnings impact of derivatives by financial instrument as recorded in other non-interest income (in thousands):


Table 12
 Three Months Ended 09/30/2023
 AdvancesInvestmentsMortgage LoansConsolidated Obligation Discount NotesConsolidated Obligation BondsTotal
Derivatives not designated as hedging instruments:
     
Economic hedges – unrealized gains (losses) due to fair value changes
$2,414 $(4,855)$— $(95)$241 $(2,295)
Mortgage delivery commitments— — (650)— — (650)
Economic hedges – net interest received (paid)
1,148 8,291 — (785)(261)8,393 
Price alignment amount(88)(140)— 5 7 (216)
Net gains (losses) on derivatives3,474 3,296 (650)(875)(13)5,232 
Net gains (losses) on trading securities hedged on an economic basis with derivatives
— 2,254 — — — 2,254 
TOTAL$3,474 $5,550 $(650)$(875)$(13)$7,486 

Table 13
 Three Months Ended 09/30/2022
 AdvancesInvestmentsMortgage LoansConsolidated
Obligation Discount Notes		Consolidated
Obligation Bonds		Total
Derivatives not designated as hedging instruments:
     
Economic hedges – unrealized gains (losses) due to fair value changes
$1,556 $30,014 $— $(1,584)$(922)$29,064 
Mortgage delivery commitments— — (1,629)— — (1,629)
Economic hedges – net interest received (paid)
2 (297)— (1,069)163 (1,201)
Price alignment amount(3)(50)— 16 1 (36)
Net gains (losses) on derivatives1,555 29,667 (1,629)(2,637)(758)26,198 
Net gains (losses) on trading securities hedged on an economic basis with derivatives
— (30,195)— — — (30,195)
TOTAL$1,555 $(528)$(1,629)$(2,637)$(758)$(3,997)

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Table 14
 Nine Months Ended 09/30/2023
 AdvancesInvestmentsMortgage LoansConsolidated Obligation Discount NotesConsolidated Obligation BondsTotal
Derivatives not designated as hedging instruments:
     
Economic hedges – unrealized gains (losses) due to fair value changes
$6,539 $(8,975)$— $2,713 $637 $914 
Mortgage delivery commitments— — (1,254)— — (1,254)
Economic hedges – net interest received (paid)
2,428 25,499 — (1,227)(752)25,948 
Price alignment amount(136)(489)— (6)24 (607)
Net gains (losses) on derivatives8,831 16,035 (1,254)1,480 (91)25,001 
Net gains (losses) on trading securities hedged on an economic basis with derivatives
— 6,622 — — — 6,622 
TOTAL$8,831 $22,657 $(1,254)$1,480 $(91)$31,623 

Table 15
 Nine Months Ended 09/30/2022
 AdvancesInvestmentsMortgage LoansConsolidated
Obligation Discount Notes		Consolidated
Obligation Bonds		Total
Derivatives not designated as hedging instruments:
     
Economic hedges – unrealized gains (losses) due to fair value changes
$4,916 $111,594 $— $(4,665)$(709)$111,136 
Mortgage delivery commitments— — (8,483)— — (8,483)
Economic hedges – net interest received (paid)(303)(17,034)— 108 184 (17,045)
Price alignment amount(4)(48)— 18 1 (33)
Net gains (losses) on derivatives4,609 94,512 (8,483)(4,539)(524)85,575 
Net gains (losses) on trading securities hedged on an economic basis with derivatives
— (112,592)— — — (112,592)
TOTAL$4,609 $(18,080)$(8,483)$(4,539)$(524)$(27,017)

For the three months ended September 30, 2023, net gains and losses on derivatives resulted in an increase in net income of $5.2 million compared to an increase of $26.2 million for the prior year period. For the nine months ended September 30, 2023 and 2022, net gains and losses on derivatives resulted in increases in net income of $25.0 million compared to $85.6 million for the prior year period. The change between periods was attributed to fair value fluctuations resulting from an increase in the level of swap index rates. The increase in swap index rates between September 30, 2022 and September 30, 2023 positively impacted the net interest settlements on economic hedges, as they were in a pay position of $1.2 million and $17.0 million for the prior year quarter and year-to-date period, respectively, and a receive position of $8.4 million and $25.9 million for the current quarter and year-to-date period, respectively.

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Tables 16 and 17 present the relationship between the hedged trading securities and the associated interest rate swaps that do not qualify for hedge accounting treatment by investment type (in thousands):

Table 16
Three Months Ended
09/30/202309/30/2022
Gains (Losses) on DerivativesGains (Losses) on Trading SecuritiesNetGains (Losses) on DerivativesGains (Losses) on Trading SecuritiesNet
U.S. Treasury obligations$(638)$593 $(45)$2,705 $(3,518)$(813)
GSE debentures(1,643)885 (758)6,798 (7,243)(445)
GSE MBS(2,481)776 (1,705)19,731 (19,434)297 
TOTAL$(4,762)$2,254 $(2,508)$29,234 $(30,195)$(961)

Table 17
Nine Months Ended
09/30/202309/30/2022
Gains (Losses) on DerivativesGains (Losses) on Trading SecuritiesNetGains (Losses) on DerivativesGains (Losses) on Trading SecuritiesNet
U.S. Treasury obligations$(4,384)$3,767 $(617)$20,436 $(21,883)$(1,447)
GSE debentures(3,874)2,053 (1,821)25,173 (26,674)(1,501)
GSE MBS(749)802 53 64,120 (64,035)85 
TOTAL$(9,007)$6,622 $(2,385)$109,729 $(112,592)$(2,863)

For additional detail regarding gains and losses on trading securities, see Table 18 and related discussion under this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.”

See Tables 40 and 41 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

Net Gains (Losses) on Trading Securities: Our trading portfolio is comprised primarily of fixed rate U.S. Treasury obligations, GSE debentures, and fixed rate multifamily GSE MBS, with a small percentage of variable rate single-family GSE MBS. Periodically, we also invest in short-term securities classified as trading. In general, the fixed rate securities are related to economic hedges in the form of interest rate swaps that convert fixed rates to variable rates on the fixed rate securities and the related economic hedges. The fair values of the fixed rate GSE debentures are affected by changes in intermediate term interest rates and credit spreads and are swapped on an economic basis to SOFR. The fair values of the fixed rate multifamily GSE MBS are affected by changes in mortgage rates and credit spreads are swapped on an economic basis to SOFR. The fair values of the U.S. Treasury obligations are affected by changes in intermediate term Treasury rates and swapped on an economic basis to the Overnight Index Swap rate (OIS) or SOFR.

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All unrealized gains and losses related to trading securities are recorded in other income (loss) as net gains (losses) on trading securities; however, only gains and losses relating to trading securities that are related to economic hedges are included in Tables 16 and 17. Unrealized gains (losses) fluctuate as the fair value of our trading portfolio fluctuates. There are a number of factors that can impact the fair value of a trading security including the movement in interest rates, changes in credit spreads, the passage of time, and changes in price volatility. Table 18 presents the major components of the net gains (losses) on trading securities (in thousands):

Table 18
 Three Months EndedNine Months Ended
 09/30/202309/30/202209/30/202309/30/2022
Trading securities not hedged:
U.S. obligation MBS and GSE MBS$(39)$(171)$(23)$(365)
Short-term securities— 117 — (119)
Total trading securities not hedged(39)(54)(23)(484)
Trading securities hedged on an economic basis with derivatives:
U.S. Treasury obligations594 (3,518)3,767 (21,883)
GSE debentures885 (7,243)2,053 (26,674)
GSE MBS776 (19,434)802 (64,035)
Total trading securities hedged on an economic basis with derivatives
2,255 (30,195)6,622 (112,592)
TOTAL$2,216 $(30,249)$6,599 $(113,076)

The unrealized losses on the securities in the trading portfolio for the current period reflect the increase in intermediate term Treasury and mortgage rates relative to the prevailing yields at the end of the prior period, especially relative to the losses recognized in the prior year periods. The increase in Treasury and mortgage rates was more substantial for the prior year period. In addition to interest rates and credit spreads, the value of these securities is affected by price convergence to par which results in a decrease in their current premium price (i.e., time decay).

Other Expenses: Other expenses, which includes compensation and benefits and other operating expenses, increased $4.5 million and $9.0 million compared to the prior year periods for the three and nine months ended September 30, 2023, respectively. The change between periods was attributed to an increase in compensation and benefits and other operating expenses. Compensation and benefits expense increased due to hiring for new and open positions and higher incentive accruals based on incentive plan goal attainment. Other operating expenses have increased due to a multi-year software implementation. For 2023, we have also committed $3.0 million to a voluntary grant program for Native American Tribes and Tribally Designated Housing Entities and announced an anticipated voluntary 50 percent increase to our annual contribution to affordable housing and community development initiatives throughout Colorado, Kansas, Nebraska, and Oklahoma in upcoming years.

Non-GAAP Measures: We believe that certain non-GAAP financial measures are helpful in understanding our operating results and provide meaningful period-to-period comparison of our long-term economic value in contrast to GAAP results, which are impacted by temporary fair value changes and other factors driven by market volatility, gains/losses on instrument sales, or transactions that are considered unpredictable or non-routine that reduce comparability between periods. We report the following non-GAAP financial measures that we believe are useful to stakeholders as key measures of our operating performance: (1) adjusted income; (2) adjusted net interest income; (3) adjusted net interest margin; (4) adjusted ROE; and (5) adjusted ROE spread. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are included below.

Although we calculate our non-GAAP financial measures consistently from period to period using appropriate GAAP components, non-GAAP financial measures are not required to be uniformly applied and are not audited. Another material limitation associated with the use of non-GAAP financial measures is that they have no standardized measurement prescribed by GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. While we believe the non-GAAP measures contained in this report are frequently used by our stakeholders in the evaluation of our performance, such non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of financial information prepared in accordance with GAAP.

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As part of evaluating our financial performance, we adjust net income reported in accordance with GAAP for the impact of: (1) AHP assessments (equivalent to an effective minimum income tax rate of 10 percent); (2) fair value changes on trading securities and derivatives and hedging activities (net interest settlements and interest paid or received on variation margin, which represent actual cash inflows or outflows and do not create fair value volatility, are not excluded); (3) non-routine items, such as prepayment and yield maintenance fees and gains/losses on sales of securities; and (4) unpredictable items, such as gains/losses on retirement of debt and gains/losses on mortgage loans held for sale. The results are referred to as “adjusted income” and “adjusted net interest income,” which are non-GAAP measures of income. Adjusted income is used to compute an adjusted ROE.

Table 19 presents a reconciliation of GAAP net income to adjusted income (a non-GAAP measure) (in thousands):

Table 19
 Three Months EndedNine Months Ended
 09/30/202309/30/202209/30/202309/30/2022
Net income, as reported under GAAP$91,997 $66,921 $283,042 $167,677 
AHP assessments10,222 7,436 31,450 18,632 
Income before AHP assessments102,219 74,357 314,492 186,309 
Derivative (gains) losses1
4,281 (41,518)(17,196)(127,675)
Trading (gains) losses(2,216)30,249 (6,599)113,076 
Prepayment/yield maintenance fees2
(6)(942)(43)(7,091)
Net (gains) losses on sale of held-to-maturity securities— 89 — 89 
Total excluded items2,059 (12,122)(23,838)(21,601)
Adjusted income (a non-GAAP measure)$104,278 $62,235 $290,654 $164,708 
                   
1    Consists of fair value changes on all derivatives and hedging activities excluding net interest settlements on economic hedges and price alignment amount.
2    Includes prepayment fees on advances and yield maintenance fees on debt securities.

Table 20 presents a reconciliation of GAAP net interest income and GAAP net interest margin to adjusted net interest income and adjusted net interest margin (non-GAAP measures) (in thousands):

Table 20
Three Months EndedNine Months Ended
09/30/202309/30/202209/30/202309/30/2022
Net interest income, as reported under GAAP$114,908 $94,795 $340,978 $263,096 
(Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income
1,336 (14,083)(17,536)(25,022)
Net interest received (paid) on derivatives not qualifying for hedge accounting8,393 (1,201)25,948 (17,045)
Prepayment/yield maintenance fees1
(6)(942)(43)(7,091)
Adjusted net interest income (a non-GAAP measure)$124,631 $78,569 $349,347 $213,938 
Net interest margin, as calculated under GAAP0.61 %0.60 %0.60 %0.61 %
Adjusted net interest margin (a non-GAAP measure)0.66 %0.50 %0.62 %0.50 %
                   
1    Includes prepayment fees on advances and yield maintenance fees on debt securities.

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Table 21 presents a comparison of adjusted ROE (a non-GAAP measure) to the average overnight Federal funds rate, which we use as a key measure of effective utilization and management of members’ capital. Adjusted ROE spread (a non-GAAP measure) is calculated as follows (dollar amounts in thousands):

Table 21
 Three Months EndedNine Months Ended
 09/30/202309/30/202209/30/202309/30/2022
Average GAAP total capital$3,884,942 $3,289,015 $3,888,761 $3,093,526 
ROE, based upon GAAP net income9.39 %8.07 %9.73 %7.25 %
Adjusted ROE, based upon adjusted income (a non-GAAP measure)10.65 %7.51 %9.99 %7.12 %
Average overnight Federal funds effective rate5.26 %2.20 %4.93 %1.03 %
GAAP ROE as a spread to average overnight Federal funds effective rate4.13 %5.87 %4.80 %6.22 %
Adjusted ROE as a spread to average overnight Federal funds effective rate (a non-GAAP measure)5.39 %5.31 %5.06 %6.09 %

Financial Condition
Overall: Table 22 presents the percentage concentration of the major components of our Statements of Condition:

Table 22
Component Concentration
09/30/202312/31/2022
Assets:
Cash and due from banks0.1 %0.1 %
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold10.8 11.3 
Investment securities16.5 15.4 
Advances60.6 61.5 
Mortgage loans, net11.2 11.0 
Other assets0.8 0.7 
Total assets100.0 %100.0 %
Liabilities:
Deposits1.0 %1.0 %
Consolidated obligation discount notes, net24.5 34.4 
Consolidated obligation bonds, net68.5 59.0 
Other liabilities0.7 0.5 
Total liabilities94.7 94.9 
Capital:
Capital stock outstanding3.6 3.5 
Retained earnings1.9 1.7 
Accumulated other comprehensive income (loss)(0.2)(0.1)
Total capital5.3 5.1 
Total liabilities and capital100.0 %100.0 %

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Table 23 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):

Table 23
Increase (Decrease)
in Components
09/30/2023 vs. 12/31/2022
Dollar
Change		Percent
Change
Assets:
Cash and due from banks$688 2.6 %
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold(216,512)(2.7)
Investment securities922,525 8.3 
Advances59,471 0.1 
Mortgage loans, net302,003 3.8 
Other assets75,275 14.0 
Total assets$1,143,450 1.6 %
Liabilities:  
Deposits$40,891 5.8 %
Consolidated obligation discount notes, net(6,882,671)(27.8)
Consolidated obligation bonds, net7,593,034 17.9 
Other liabilities177,122 54.7 
Total liabilities928,376 1.4 
Capital:
Capital stock outstanding141,742 5.7 
Retained earnings118,481 9.5 
Accumulated other comprehensive income (loss)(45,149)(53.6)
Total capital215,074 5.8 
Total liabilities and capital$1,143,450 1.6 %

Total assets increased between periods, from $72.0 billion at December 31, 2022 to $73.1 billion at September 30, 2023, driven by the increase in long-term investments between those periods. Asset composition remained relatively consistent from December 31, 2022 to September 30, 2023, with a slight increase in long-term investments to 16.5 percent of total assets compared to 15.4 percent as of December 31, 2022. Mortgage loans increased by $302.0 million from December 31, 2022 to September 30, 2023, and increased slightly as a percent of total assets, from 11.0 percent as of December 31, 2022 to 11.2 percent of total assets as of September 30, 2023. Advances declined slightly as a percent of total assets compared to December 31, 2022 as some members experienced deposit growth or shifted their use of wholesale funding from advances to alternative funding sources. Total liabilities increased $928.4 million from December 31, 2022 to September 30, 2023, which corresponded to the increase in assets, but the composition of debt shifted between periods. Consolidated obligation bonds and discount notes represented 63.2 percent and 36.8 percent of total consolidated obligations, respectively, at December 31, 2022 compared to 73.7 percent and 26.3 percent at September 30, 2023. This composition shift is mostly due to an increase in swapped callable and swapped bullet consolidated obligation bonds and a decrease in discount notes. Total capital increased $215.1 million, or 5.8 percent, from December 31, 2022 to September 30, 2023 due to an increase in excess capital stock and net income in excess of dividends paid.

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Advances: Advances are one of the primary ways we fulfill our mission of providing liquidity to our members and constituted the largest asset on our balance sheet at September 30, 2023 and December 31, 2022. Advance par value increased by 0.4 percent, from $44.7 billion at December 31, 2022 to $44.8 billion at September 30, 2023 (see Table 24). In March 2023, our members’ demand for advances increased temporarily in response to the stress placed on the banking industry and financial markets resulting from the financial difficulties experienced by some depository institutions. This stress has largely subsided; however, members continue to hold elevated levels of advances. Members are also shifting from overnight advances to term advances. We began offering a new putable advance product in April of 2023 to further expand fixed rate advance offerings. Despite the $3.8 billion growth in standard fixed rate advances with maturities longer than 93 days in the past nine months, the composition of the advance portfolio remains concentrated in advances that either reprice or mature on a relatively short-term basis.

As of September 30, 2023 and December 31, 2022, 65.0 percent and 64.4 percent, respectively, of our members carried outstanding advance balances. Additional volatility in advance balances may occur during the remainder of 2023 due to the impact of rising interest rates intended to curb inflationary pressures and the related inflationary effects on member balance sheets, including decreased loan demand and the inability to grow or retain deposit balances. Members also have access to other wholesale funding sources, including the BTFP, which may impact the demand for advances on the basis of relative cost.

Rather than match-funding long-term, fixed rate advances, we elect to swap a significant portion of advances with longer maturities to short-term indices to synthetically create adjustable rate advances. When coupled with the volume of our short-term advances, advances that effectively re-price at least every three months represent 95.2 percent and 92.9 percent of our total advance portfolio as of September 30, 2023 and December 31, 2022, respectively. We anticipate continuing the practice of swapping advances with longer maturities to short-term indices. As part of our LIBOR transition, we began offering adjustable rate advances indexed to SOFR in late 2020 and had $3.0 billion of SOFR-indexed advances outstanding as of September 30, 2023. For additional information on LIBOR transition, see “Risk Management – Interest Rate Risk Management” under this Item 2.

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Table 24 summarizes advances outstanding by product (dollar amounts in thousands). An individual advance may be reclassified to a different product type between periods due to the occurrence of a triggering event such as the passing of a call date (i.e., from fixed rate callable advance to regular fixed rate advance) or conversion of an advance (i.e., from fixed rate convertible advance to adjustable rate callable advance).
 
Table 24
 09/30/202312/31/2022
 DollarPercentDollarPercent
Line of Credit:
Overnight line of credit1
$8,641,938 19.3 %$15,682,310 35.1 %
Adjustable rate:    
Standard advance products:    
Regular adjustable rate advances2,680,750 6.0 2,504,950 5.6 
Adjustable rate callable advances1,479,650 3.3 1,700,299 3.8 
Standard housing and community development advances:    
Adjustable rate callable advances22,262 0.1 22,262 0.1 
Total adjustable rate term advances4,182,662 9.4 4,227,511 9.5 
Fixed rate:    
Standard advance products:    
Short-term fixed rate advances2
16,774,571 37.4 12,988,848 29.1 
Regular fixed rate advances12,060,272 26.9 10,290,760 23.1 
Fixed rate callable advances68,402 0.2 64,071 0.1 
Fixed rate putable advances1,979,800 4.4 — — 
Fixed rate convertible advances155,900 0.4 309,650 0.7 
Standard housing and community development advances:   
Regular fixed rate advances315,724 0.7 356,035 0.8 
Fixed rate callable advances458 — 458 — 
Total fixed rate term advances31,355,127 70.0 24,009,822 53.8 
Amortizing:    
Standard advance products:    
Fixed rate amortizing advances428,112 1.0 465,181 1.0 
Fixed rate callable amortizing advances18,828 — 19,370 — 
Standard housing and community development advances:   
Fixed rate amortizing advances207,601 0.3 238,773 0.6 
Fixed rate callable amortizing advances11,406 — 11,748 — 
Total amortizing advances665,947 1.3 735,072 1.6 
TOTAL PAR VALUE$44,845,674 100.0 %$44,654,715 100.0 %
                   
1    Represents fixed rate line of credit advances with daily maturities.
2    Represents non-amortizing, non-prepayable loans with terms to maturity from 3 to 93 days.

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Table 25 presents information on our five largest borrowers (dollar amounts in thousands). We do not expect to incur any credit losses on these advances based on our rights to collateral with an estimated fair value in excess of the book value of these advances. We have not experienced a credit loss on an advance since the inception of FHLBank.

Table 25
 09/30/202312/31/2022
Borrower NameAdvance
Par Value
Percent of Total
Advance Par
Advance
Par Value
Percent of Total
Advance Par
MidFirst Bank$10,530,000 23.5 %$10,740,000 24.1 %
BOKF, N.A.6,175,000 13.8 4,700,000 10.5 
Capitol Federal Savings Bank2,382,828 5.3 2,650,082 5.9 
United of Omaha Life Insurance Co.2,296,958 5.1 1,946,896 4.4 
First United Bank & Trust Co.1,734,387 3.9 
Security Life of Denver Insurance Co.1,650,000 3.7 
TOTAL$23,119,173 51.6 %$21,686,978 48.6 %

Table 26 presents the accrued interest income associated with the five borrowers with the highest interest income for the periods presented (dollar amounts in thousands). If the borrower was not one of our top five borrowers for whom we accrued the highest amount of interest income for one of the periods presented, the applicable columns are left blank.

Table 26
 Three Months Ended
 09/30/202309/30/2022
Borrower NameAdvance Income
Percent of Total
Advance Income1
Advance Income
Percent of Total
Advance Income1
MidFirst Bank$148,537 26.5 %$50,449 25.2 %
BOKF, N.A.95,813 17.1 8,728 4.3 
Capitol Federal Savings Bank23,984 4.3 23,763 11.9 
United of Omaha Life Insurance Co.21,426 3.8 
Security Life of Denver Insurance Co.20,636 3.8 8,017 4.0 
Pacific Life Insurance Co.  11,568 5.8 
TOTAL$310,396 55.5 %$102,525 51.2 %
                   
1    Total advance income by borrower excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the advances; and (3) prepayment fees received.

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Table 27 presents accrued interest income associated with the five borrowers with the highest interest income for the periods presented (dollar amounts in thousands). If the borrower was not one of our top five borrowers for whom we accrued the highest amount of interest income for one of the periods presented, the applicable columns are left blank.

Table 27
Nine Months Ended
09/30/202309/30/2022
Borrower NameAdvance Income
Percent of Total
Advance Income1
Advance Income
Percent of Total
Advance Income1
MidFirst Bank$447,233 27.8 %$75,080 22.4 %
BOKF, N.A.215,003 13.4 
Capitol Federal Savings Bank86,294 5.4 39,446 11.8 
United of Omaha Life Insurance Co.57,646 3.6 12,650 3.7 
Security Life of Denver Insurance Co.57,114 3.5 13,126 3.9 
Pacific Life Insurance Co.   16,433 4.9 
TOTAL$863,290 53.7 %$156,735 46.7 %
                   
1    Total advance income by borrower excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the advances; and (3) prepayment fees received.

MPF Program: The MPF Program is a secondary mortgage market alternative for our members, predominately utilized by the smaller institutions in our district. We participate in the MPF Program through the MPF Provider, a division of FHLBank Chicago. Under the MPF Program, participating members can sell us conventional and government residential mortgage loans.

The mortgage loan portfolio increased $0.3 billion between periods, from $7.9 billion at December 31, 2022 to $8.2 billion at September 30, 2023. Mortgage rates continued to trend upward in response to market conditions, which has reduced origination volume and refinancing incentive for borrowers and slowed prepayments in recent periods, although purchase volume has exceeded principal repayments during 2023. Net mortgage loans as a percentage of total assets increased, from 11.0 percent as of December 31, 2022 to 11.2 percent as of September 30, 2023. Mortgage loans are generally one of the highest net spread assets on our balance sheet so shifts in the balance sheet concentration of mortgage loans will impact net interest income. The principal amount of new mortgage loans acquired and held on our balance sheet from our PFIs during the nine months ended September 30, 2023 was $0.9 billion.

Future growth in the MPF portfolio is a function of asset size and composition, most notably the balance of advances, and capital level, as growth in advances impacts our total assets and capital level, which allows the balance of mortgage loans to increase while maintaining our targeted Acquired Member Assets (AMA) risk tolerance. The other factors that may influence future growth in our mortgage loans held for portfolio include: (1) the level of interest rates and the shape of the yield curve; (2) the mortgage loan origination volume of current PFIs; (3) refinancing activity; (4) the relative competitiveness of MPF pricing to the prices offered by other buyers of residential mortgage loans; (5) a PFI's level of excess risk-based capital relative to the required risk-based capital charge associated with the PFI's credit enhancement obligations on MPF mortgage loans; and (6) the number of new and delivering PFIs.

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Table 28 presents the outstanding balances of mortgage loans sold to us, net of participations, from our top five PFIs and the percentage of those loans to total mortgage loans outstanding (dollar amounts in thousands). If the borrower was not one of our top five PFIs for one of the periods presented, the applicable columns are left blank.

Table 28
 09/30/202312/31/2022
 Mortgage
Loan Balance
Percent of Total
Mortgage Loans
Mortgage
Loan Balance
Percent of Total
Mortgage Loans
Fidelity Bank$362,137 4.4 %$325,530 4.2 %
Farmers Bank & Trust326,362 4.0 
Tulsa Teachers Credit Union307,182 3.8 326,491 4.2 
West Gate Bank259,188 3.2 227,649 2.9 
Community National Bank & Trust227,269 2.8 233,975 3.0 
Mid-America Bank  176,792 2.3 
TOTAL$1,482,138 18.2 %$1,290,437 16.6 %

Two indications of credit quality are scores provided by Fair Isaac Corporation (FICO®) and loan-to-value (LTV) ratios. FICO is a widely used credit industry indicator to assess borrower credit quality with scores typically ranging from 300 to 850 with the low end of the scale indicating greater credit risk. The MPF Program requires a minimum FICO score of 620 for all conventional loans. LTV is a primary variable in credit performance. Generally speaking, a higher LTV ratio means greater risk of loss in the event of a default and also means higher loss severity. The weighted average FICO score and LTV recorded at origination for conventional mortgage loans outstanding as of September 30, 2023 was 750 and 74.4 percent, respectively. See Note 5 of the Notes to Financial Statements under Part I, Item 1 for additional information regarding credit quality indicators.

Allowance for Credit Losses on Mortgage Loans Held for Portfolio – The allowance for credit losses on mortgage loans decreased $0.2 million from December 31, 2022 to September 30, 2023. Delinquencies of conventional loans remained at low levels relative to the portfolio, at 0.9 percent of the amortized cost of total conventional loans at September 30, 2023 and 1.0 percent at December 31, 2022. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held for portfolio. See Note 5 of the Notes to Financial Statements under Part I, Item 1 for a summary of the allowance for credit losses on mortgage loans as well as payment status and other delinquency statistics for our mortgage loan portfolio.

Investments: Investments are used to manage interest rate and duration risk, enhance income, and provide liquidity and primary and secondary market support for the U.S. housing securities market. Total investments increased $0.7 billion from December 31, 2022 to September 30, 2023 primarily due to an increase in MBS, partially offset by a decline in U.S. Treasury obligations.

Short-term Investments – Short-term investments, which are used to provide funds for our members, maintain liquidity, meet other financial obligations such as debt servicing, and enhance income, consist primarily of reverse repurchase agreements, interest-bearing deposits, Federal funds sold, and certificates of deposit.

Within our portfolio of short-term investments, counterparty credit risk arises from unsecured exposures. Our short-term unsecured credit investments have maturities generally ranging between overnight and three months and may include the following types:
•Interest-bearing deposits. Unsecured deposits that earn interest.
•Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions that are made on either an overnight or term basis, but typically made on an overnight basis.
•Certificates of deposit. Unsecured negotiable promissory notes issued by banks and payable to the bearer at maturity.

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Table 29 presents the carrying value of our unsecured credit exposure with private counterparties by investment type (in thousands). The unsecured investment credit exposure presented may not reflect the average or maximum exposure during the period as the balances presented reflect the balances at period end.

Table 29
09/30/202312/31/2022
Interest-bearing deposits$1,698,118 $2,039,333 
Federal funds sold4,400,000 3,750,000 
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1
$6,098,118 $5,789,333 
                   
1    Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies, instrumentalities, GSEs and supranational entities and does not include related accrued interest.
 
We actively monitor our credit exposures and the credit quality of our counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, sovereign support and the current market perceptions of the counterparties. General macro-economic, political and market conditions may also be considered when deciding on unsecured exposure. As a result, we may further limit existing exposures.

We manage our credit risk by conducting pre-purchase credit due diligence and ongoing surveillance described previously and generally investing in unsecured investments of highly-rated counterparties. From time to time, we extend unsecured credit to qualified members by investing in overnight Federal funds issued by them. As of September 30, 2023, all unsecured investments were rated as investment grade based on NRSROs (see Table 32).

Table 30 presents the amount of our unsecured investment credit exposure by remaining contractual maturity and by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks as of September 30, 2023 (in thousands). We also mitigate the credit risk on investments by purchasing instruments that have short-term maturities.

Table 30
Domicile of CounterpartyOvernight
Domestic$2,048,118 
U.S. Branches and agency offices of foreign commercial banks: 
Australia1,075,000 
Canada1,075,000 
Germany700,000 
United Kingdom700,000 
Netherlands500,000 
Total U.S. Branches and agency offices of foreign commercial banks
4,050,000 
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1
$6,098,118 
                   
1    Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies, instrumentalities, GSEs and supranational entities, and does not include related accrued interest.

Unsecured credit exposure continues to be conservatively placed. In addition, we anticipate continued future investment in reverse repurchase agreements, which are secured investments. To enhance our liquidity position, we classify our unsecured short-term investment securities in our trading portfolio, which allows us to sell these securities if necessary.

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Long-term investments – Our long-term investment portfolio consists primarily of GSE MBS and U.S. Treasury obligations. Our Risk Management Policy (RMP) restricts the acquisition of investments to highly rated long-term securities. Generally, fixed rate U.S. Treasury obligations are either classified as trading securities and economically swapped to variable rates or classified as available-for-sale securities and swapped to variable rates in qualifying fair value hedging relationships. In addition to serving as excellent collateral, U.S. Treasury obligations also help satisfy regulatory liquidity requirements. We also purchase fixed rate securities for duration and interest rate risk management. A significant portion of our variable rate investment securities were indexed to LIBOR for the first half of 2023; however, LIBOR ceased publication on June 30, 2023. As such, all LIBOR-indexed investments converted to reference SOFR, either to start or fall back, beginning July 3, 2023 or at the beginning of the next reset period. For additional information on LIBOR transition, see “Risk Management – Interest Rate Risk Management” under this Item 2.

According to FHFA regulation, no additional MBS purchases may be made if the aggregate value of our MBS exceeds 300 percent of our regulatory capital. Further, quarterly increases in holdings of MBS are restricted to no more than 50 percent of regulatory capital. As of September 30, 2023, the aggregate value of our MBS portfolio represented 231 percent of our regulatory capital. We are below our regulatory threshold primarily due to an increase in regulatory capital despite increased MBS purchases in 2023. We expect to be below our regulatory limit in the near-term but continue to remain opportunistic about future MBS purchases.

Major Security Types – Securities for which we have the ability and intent to hold to maturity are classified as held-to-maturity securities and recorded at carrying value, which is the net total of par, premiums, and discounts. We classify certain investments as trading or available-for-sale securities and carry them at fair value, generally for liquidity purposes, to provide a fair value offset to the gains (losses) on the interest rate swaps associated with swapped securities, and for asset/liability management purposes. Liquidity or other asset/liability management strategies may require periodic sale of these securities but they are not actively traded; most often, they are held until maturity or call date. Securities acquired as asset/liability management tools to manage duration risk, which may be sold when the duration exposure is within risk tolerances, are classified as trading or available-for-sale securities. Changes in the fair values of investments classified as trading are recorded through other income and the original premiums/discounts on these investments are not amortized.

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See Note 3 of the Notes to Financial Statements under Part I, Item 1 of this quarterly report for additional information on our different investment classifications including the types of securities held under each classification. The carrying values by contractual maturities of our investments as of September 30, 2023 are summarized by security type in Table 31 (dollar amounts in thousands) with certain weighted average yield metrics along with carrying values as of December 31, 2022. 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 yield maintenance fees.

Table 31
 09/30/202312/31/2022
 Due in
one year
or less
Due after
one year
through five years
Due after
five years
through 10 years
Due after
10 years		Carrying
Value		Carrying
Value
Trading securities:     
U.S. Treasury obligations$—$—$—$—$— $396,233 
GSE debentures268,17817,331——285,509 388,955 
GSE MBS13,960588,0166,8234,715613,514 636,265 
Total trading securities282,138605,3476,8234,715899,023 1,421,453 
Available-for-sale securities:
U.S. Treasury obligations249,5222,640,865——2,890,387 3,315,356 
U.S. obligation MBS———111,346111,346 40,039 
GSE MBS40,8711,595,3383,844,5532,385,8497,866,611 5,999,021 
Total available-for-sale securities290,3934,236,2033,844,5532,497,19510,868,344 9,354,416 
Held-to-maturity securities:     
State or local housing agency obligations——39,515—39,515 70,505 
GSE MBS—46,4911,998188,453236,942 274,925 
Total held-to-maturity securities—46,49141,513188,453276,457 345,430 
Total securities572,5314,888,0413,892,8892,690,36312,043,824 11,121,299 
Interest-bearing deposits1,698,340———1,698,340 2,039,852 
Federal funds sold4,400,000———4,400,000 3,750,000 
Securities purchased under agreements to resell
1,825,000———1,825,000 2,350,000 
TOTAL INVESTMENTS$8,495,871$4,888,041$3,892,889$2,690,363$19,967,164 $19,261,151 
Weighted average yields1:
Available-for-sale securities2.41 %2.64 %3.56 %4.45 %
Held-to-maturity securities— %2.74 %2.51 %1.70 %
                   
1    The weighted average yields are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the impact of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable portfolio. The result is then multiplied by 100 to express it as a percentage.

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Securities Ratings – Tables 32 and 33 present the carrying value of our investments by rating as of September 30, 2023 and December 31, 2022 (in thousands). The ratings presented are the lowest ratings available for the security, issuer, or counterparty based on NRSROs, where available. Some counterparties for collateralized overnight borrowing are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. We also utilize other credit quality factors when analyzing potential investments including, but not limited to, collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, and/or the financial health of the underlying issuer.

Table 32
09/30/2023
 
Carrying Value1
 Investment GradeUnratedTotal
 Triple-ADouble-ASingle-A
Interest-bearing deposits2
$— $222 $1,698,118 $— $1,698,340 
Federal funds sold2
— — 4,400,000 — 4,400,000 
Securities purchased under agreements to resell3
— — — 1,825,000 1,825,000 
Investment securities:     
Non-mortgage-backed securities:     
U.S. Treasury obligations— 2,890,387 — — 2,890,387 
GSE debentures— 285,509 — — 285,509 
State or local housing agency obligations
39,515 — — — 39,515 
Total non-mortgage-backed securities
39,515 3,175,896 — — 3,215,411 
Mortgage-backed securities:
     
U.S. obligation MBS— 111,346 — — 111,346 
GSE MBS— 8,717,067 — — 8,717,067 
Total mortgage-backed securities— 8,828,413 — — 8,828,413 
TOTAL INVESTMENTS$39,515 $12,004,531 $6,098,118 $1,825,000 $19,967,164 
                   
1    Investment amounts represent the carrying value and do not include related accrued interest receivable of $44.5 million at September 30, 2023.
2    Amounts include unsecured credit exposure with overnight maturities.
3    Amounts represent collateralized overnight borrowings.


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Table 33
12/31/2022
 
Carrying Value1
 Investment GradeUnratedTotal
 Triple-ADouble-ASingle-A
Interest-bearing deposits2
$— $519 $2,039,333 $— $2,039,852 
Federal funds sold2
— 250,000 3,500,000 — 3,750,000 
Securities purchased under agreements to resell3
— 150,000 — 2,200,000 2,350,000 
Investment securities:     
Non-mortgage-backed securities:     
U.S. Treasury obligations— 3,711,589 — — 3,711,589 
GSE debentures— 388,955 — — 388,955 
State or local housing agency obligations
40,505 30,000 — — 70,505 
Total non-mortgage-backed securities
40,505 4,130,544 — — 4,171,049 
Mortgage-backed securities:
     
U.S. obligation MBS— 40,039 — — 40,039 
GSE MBS— 6,910,211 — — 6,910,211 
Total mortgage-backed securities— 6,950,250 — — 6,950,250 
TOTAL INVESTMENTS$40,505 $11,481,313 $5,539,333 $2,200,000 $19,261,151 
                   
1    Investment amounts represent the carrying value and do not include related accrued interest receivable of $39.3 million at December 31, 2022.
2    Amounts include unsecured credit exposure with overnight maturities.
3    Amounts represent collateralized overnight borrowings.

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Table 34 details interest rate payment terms for the carrying value of our investment securities as of September 30, 2023 and December 31, 2022 (in thousands). We generally manage the interest rate risk associated with our fixed rate trading and available-for-sale securities by entering into interest rate swaps that convert the investment's fixed rate to a variable rate index (see Tables 40 and 41 under Part I, Item 3 – “Quantitative and Qualitative Disclosures About Market Risk).”

Table 34
09/30/202312/31/2022
Trading securities:
Non-mortgage-backed securities:
Fixed rate$285,509 $785,188 
Non-mortgage-backed securities285,509 785,188 
Mortgage-backed securities:
Fixed rate601,976 622,984 
Variable rate11,538 13,281 
Mortgage-backed securities613,514 636,265 
Total trading securities899,023 1,421,453 
Available-for-sale securities:
Non-mortgage-backed securities:
Fixed rate2,890,387 3,315,356 
Non-mortgage-backed securities2,890,387 3,315,356 
Mortgage-backed securities:
Fixed rate3,467,561 3,193,215 
Variable rate4,510,396 2,845,845 
Mortgage-backed securities7,977,957 6,039,060 
Total available-for-sale securities10,868,344 9,354,416 
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate39,515 70,505 
Non-mortgage-backed securities39,515 70,505 
Mortgage-backed securities:
Fixed rate25,849 33,741 
Variable rate211,093 241,184 
Mortgage-backed securities236,942 274,925 
Total held-to-maturity securities276,457 345,430 
TOTAL$12,043,824 $11,121,299 

Deposits: Deposits are generally an insignificant source of funding. Total deposits increased $40.9 million from December 31, 2022 to September 30, 2023 primarily due to an increase in overnight deposits. The level of deposits is driven by member demand for deposit products, which in turn is a function of the liquidity position of members. Factors that influence deposit levels include turnover in member investment and loan portfolios, changes in members’ customer deposit balances, changes in members’ demand for liquidity, and our deposit pricing as compared to other short-term market rates. Further declines in the level of deposits could occur during the remainder of 2023 if the level of member liquidity should decrease due to loan demand outpacing deposit funding growth at member institutions, or if depositor investment options improve as interest rates rise. Fluctuations in deposits have little impact on our ability to obtain liquidity. Historically, we have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with similarly or even lower priced borrowings.

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Consolidated Obligations: Consolidated obligations are the joint and several debt obligations of the FHLBanks and consist of bonds and discount notes. Consolidated obligations represent the primary source of liabilities we use to fund advances, mortgage loans and investments. As noted under Part I, Item 3 – “Quantitative and Qualitative Disclosures About Market Risk,” we use debt with a variety of maturities and option characteristics to manage our interest rate risk profile and maintain sufficient levels of liquidity. We make use of derivative transactions, executed in conjunction with specific consolidated obligation debt issues, to synthetically structure funding terms and costs.

Table 35 presents the carrying value of consolidated obligation bonds and discounts notes as of September 30, 2023 and December 31, 2022 (in thousands).

Table 35
09/30/202312/31/2022
Bonds:
Par value$50,649,835 $43,106,535 
Premiums13,563 18,950 
Discounts(3,818)(3,789)
Concession fees(11,254)(11,262)
Hedging adjustments(549,453)(604,595)
Total bonds50,098,873 42,505,839 
Discount Notes:
Par value18,052,225 24,997,018 
Discounts(152,109)(190,034)
Concession fees(419)(714)
Hedging adjustments(6,963)(30,865)
Total discount notes17,892,734 24,775,405 
TOTAL$67,991,607 $67,281,244 

Total consolidated obligations increased $0.7 billion, or 1.1 percent, from December 31, 2022 to September 30, 2023 aligning with growth in total assets. The distribution between consolidated obligation bonds and discount notes shifted between periods, from 63.2 percent and 36.8 percent, respectively, at December 31, 2022 to 73.7 percent and 26.3 percent at September 30, 2023, respectively, mostly due to an increase in swapped callable bonds and swapped bullet bonds and a decrease in discount notes. The decline in discount notes was primarily due to a decline in swapped discount notes that was partially offset by an increase in unswapped discount notes. Management increased issuance of swapped fixed rate debt due to advantageous funding opportunities relative to other SOFR debt. Issuance of swapped callable bonds increased during 2023 due to favorable funding spreads and increased demand from investors driven by market volatility.. Callable bonds are typically fixed or structured rate debt that pay higher coupons to investors because of the optionality held by the issuer. When a swap is called by the counterparty in a swapped callable bond transaction, we call the hedged bond. Unswapped callable bonds provide us with options to replace the bonds at lower costs if interest rates decline. Our funding mix generally is driven by asset composition, but we may also shift our debt composition as a result of market conditions that impact the cost of unswapped consolidated obligations and the cost of consolidated obligations swapped or indexed to SOFR or OIS. All floating rate bonds issued since 2021 have been indexed to SOFR as we transitioned away from LIBOR and maintain an allocation of floating rate bonds funding advances and investments. For additional information on market trends impacting the cost of issuing debt, including discussion of the transition from LIBOR to SOFR, see “Financial Market Trends”, “Liquidity and Capital Resources – Liquidity – Sources of Liquidity” and “Risk Management – Interest Rate Risk Management” under this Item 2.

Liquidity and Capital Resources
Liquidity: We maintain high levels of liquidity to achieve our mission of serving as an economical funding source for our members and housing associates. As part of fulfilling our mission, we also maintain minimum liquidity requirements in accordance with certain FHFA regulations and guidelines and in accordance with policies established by management and the board of directors. Our business model enables us to manage the levels of our assets, liabilities, and capital in response to member credit demand, membership composition, and market conditions. As such, assets and liabilities utilized for liquidity purposes can vary significantly in the normal course of business due to the amount and timing of cash flows as a result of these factors.

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Sources and Uses of Liquidity – A primary source of our liquidity is the issuance of consolidated obligations. The capital markets traditionally have treated FHLBank obligations as U.S. government agency debt. As a result, even though the U.S. government does not guarantee FHLBank debt, we generally have comparatively stable access to funding at relatively favorable spreads to U.S. Treasury rates. We are primarily and directly liable for our portion of consolidated obligations (i.e., those obligations issued on our behalf). In addition, we are jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all FHLBanks. Our uses of liquidity primarily include repaying called and maturing consolidated obligations for which we are the primary obligor, issuing advances, and purchasing investments and mortgage loans. We also use liquidity to repay member deposits, pledge collateral to derivative counterparties, and redeem or repurchase capital stock. Our other sources of liquidity include our short-term liquidity portfolio, deposit inflows, repayments of advances and mortgage loans, maturing investments, trading and available-for-sale investments, interest income, or the sale of unencumbered assets.

During the nine months ended September 30, 2023, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were $39.9 billion and $316.7 billion, respectively, compared to $31.2 billion and $245.3 billion for the nine months ended September 30, 2022. The difference between the proceeds from bonds and discount notes reflects the cumulative effect of using short-term discount notes to fund short-term advances and our short-term liquidity portfolio. High demand for short-term Agency debt has kept the spread to U.S. Treasury obligations relatively narrow. Our ability to issue debt remains robust, but volatility in the capital markets can impact the demand for and cost of debt issued by the FHLBanks.

Our short-term liquidity portfolio consists of cash, short-term investments, and long-term investments with remaining maturities of one year or less. Short-term investments may include Federal funds sold, interest-bearing demand deposits, certificates of deposit, and reverse repurchase agreements. The short-term liquidity portfolio decreased between periods, from $10.0 billion as of December 31, 2022 to $8.5 billion as of September 30, 2023. The maturities of our short-term investments are structured to provide periodic cash flows to support our ongoing liquidity needs. To enhance our liquidity position, short-term investment securities (i.e., marketable certificates of deposit) are also classified as trading when held so that they can be readily sold should liquidity be needed immediately.

Investment securities on our balance sheet are also a source of potential liquidity. U.S. Treasury obligations, GSE debentures, and GSE MBS can be sold or pledged as collateral for financing in the securities repurchase agreement market. In addition to balance sheet sources of liquidity, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. We expect to maintain a sufficient level of liquidity for the foreseeable future.

During the nine months ended September 30, 2023, advance disbursements totaled $661.7 billion compared to $451.6 billion for the prior year period which reflects increased member utilization of advances, especially short-term advances. During the nine months ended September 30, 2023, investment purchases (excluding overnight investments) totaled $3.0 billion compared to $5.4 billion for the same period in the prior year. During the nine months ended September 30, 2023, payments on maturing and retired consolidated obligation bonds and discount notes were $31.4 billion and $323.7 billion, respectively, compared to $31.6 billion and $229.2 billion for the prior year period.

Capital: Total capital increased $215.1 million, or 5.8 percent, from December 31, 2022 to September 30, 2023 due to an increase in capital stock (see Table 36) and retained earnings. We strive to manage our average capital ratio above our minimum regulatory and RMP requirements in an effort to ensure that we have the ability to issue additional consolidated obligations should the need arise. Excess capital capacity ensures we are able to meet the liquidity needs of our members and/or repurchase excess stock either upon the submission of a redemption request by a member or at our discretion for balance sheet or capital management purposes.

Our activity-based stock purchase requirements are consistent with our cooperative structure; members’ stock ownership requirements and the dollar amount of dividends paid to members generally increase as their activities with us increase. To the extent that a member’s asset-based stock purchase requirement is insufficient to cover the member’s activity-based stock purchase requirement, the member is required to purchase Class B Common Stock. We believe the value of our products and services is enhanced by dividend yields that exceed the return available from other investments with similar terms and credit quality. Factors that affect members’ willingness to enter into activity with us and purchase additional required activity-based stock include, but are not limited to, our dividend rates, the risk-based capital weighting of our capital stock, and alternative investment or borrowing opportunities available to our members.

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Table 36 provides a summary of member capital requirements under our current capital plan as of September 30, 2023 and December 31, 2022 (in thousands):

Table 36
Requirement09/30/202312/31/2022
Asset-based (Class A Common Stock only)$184,329 $179,450 
Activity-based (additional Class B Common Stock)1
2,141,059 2,125,885 
Total Required Stock2
2,325,388 2,305,335 
Excess Stock (Class A and B Common Stock)324,316 202,654 
Total Regulatory Capital Stock2
$2,649,704 $2,507,989 
Activity-based Requirements:
  
Advances3
$2,013,503 $2,005,795 
Letters of credit16,756 16,190 
AMA assets (mortgage loans)4
243,009 233,793 
Total Activity-based Requirement2,273,268 2,255,778 
Asset-based Requirement (Class A Common Stock) not supporting member activity1
52,120 49,557 
Total Required Stock2
$2,325,388 $2,305,335 
                   
1    Class A Common Stock, up to a member’s asset-based stock requirement, will be used to satisfy a member’s activity-based stock requirement before any Class B Common Stock is purchased by the member.
2    Includes mandatorily redeemable capital stock.
3    Advances to housing associates have no activity-based requirements because housing associates cannot own FHLBank stock.
4    Non-members previously required to purchase AMA activity-based stock are subject to the stock requirement in place at the time their membership ended as long as there are unpaid principal balances outstanding.

We are subject to various capital requirements under provisions of the GLB Act, the FHFA’s capital structure regulation and our RMP. See Item 1 – “Business – Capital, Capital Rules and Dividends” in our annual report on Form 10-K for the year ended December 31, 2022 for details on the various capital requirements. We have been in compliance with each of the capital rules and requirements at all times, as applicable, since the implementation of our capital plan. See Note 10 of the Notes to Financial Statements under Part I, Item 1 for additional information and compliance as of September 30, 2023 and December 31, 2022.

Capital Distributions: Dividends may be paid in cash or capital stock as authorized by our board of directors. Quarterly dividends can be paid out of current and previous unrestricted retained earnings, subject to FHFA regulation and our capital plan.

Dividends paid to members totaled $164.6 million for the nine months ended September 30, 2023 compared to $82.7 million for the same period in the prior year. The weighted average dividend rate was 8.62 percent and 8.35 percent for the three and nine months September 30, 2023, respectively, which represented a dividend payout ratio of 61.4 percent and 58.1 percent, respectively. For the three and nine months ended September 30, 2022, the weighted average dividend rate was 6.94 percent and 5.90 percent, respectively, which represented a dividend payout ratio of 54.4 percent and 49.3 percent, respectively. The dividend payout ratio represents dividends declared and paid during a period as a percentage of net income for the period, although FHFA regulation requires dividends be paid out of known income prior to the declaration date. For example, dividends declared and paid in September 2023 were based on income during the three months ended August 31, 2023. (See Part I, Item 1 – “Business – Capital, Capital Rules and Dividends” in our annual report on Form 10-K for the year ended December 31, 2022 for other factors that contribute to the level of dividends paid.)

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In accordance with our capital plan, we must pay holders of Class A Common Stock the DPT rate before paying a higher rate to holders of Class B Common Stock. The DPT effective for dividends paid during 2022 and the first quarter of 2023 was equal to the average overnight Federal funds effective rate minus 100 basis points. On March 24, 2023, the board of directors revised the DPT as the average effective overnight Federal funds rate for a dividend period minus 200 basis points. This DPT was effective for the second quarter of 2023 and will continue to be effective until such time as it may be changed by the board of directors. When the overnight Federal funds effective rate is below 2.00 percent, the DPT is zero for that dividend period (DPT is floored at zero). Table 37 presents the dividend rates per annum paid on capital stock under our capital plan for the quarterly periods listed below:

Table 37
Applicable Rate per Annum09/30/202306/30/202303/31/202312/31/202209/30/2022
Class A Common Stock4.50 %4.00 %3.75 %3.00 %2.25 %
Class B Common Stock9.25 9.00 8.75 8.50 7.75 
Weighted Average1
8.62 8.31 8.12 7.79 6.94 
Dividend Parity Threshold:
Average effective overnight Federal funds rate5.26 %4.99 %4.52 %3.65 %2.20 %
Spread to index(2.00)(2.00)(1.00)(1.00)(1.00)
TOTAL (floored at zero percent)3.26 %2.99 %3.52 %2.65 %1.20 %
                   
1    Weighted average dividend rates are dividends paid in cash and stock on both classes of stock divided by the average of capital stock eligible for dividends.

We anticipate that our stock dividends on Class A Common Stock and Class B Common Stock will remain at or near current dividend rates for the remainder of 2023. Historically, dividend rates have moved directionally with short-term interest rates. Based on current market expectations of short-term interest rates, we anticipate paying dividend rates in ranges between 4.50 to 4.75 percent for Class A Common Stock and 9.00 to 9.50 percent for Class B Common Stock for the fourth quarter of 2023. Market conditions and movements in short-term interest rates can be unpredictable, and adverse market conditions may result in lower dividend rates in future quarters. If there is a change to the DPT in the future, the capital plan requires that we provide members notice of that change 90 days prior to a dividend payment.

Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. We expect to continue paying dividends primarily in the form of capital stock, but future dividends may be paid in cash. The payment of cash dividends instead of stock dividends should not have a significant impact from a liquidity perspective, as the subsequent redemption of excess stock created by stock dividends would utilize liquidity resources in the same manner as a cash dividend. FHFA regulation prohibits any FHLBank from paying a stock dividend if excess stock outstanding will exceed one percent of its total assets after payment of the stock dividend.

Risk Management
Active risk management continues to be an essential part of our operations and a key determinant of our ability to maintain earnings to return an acceptable dividend to our members, support our affordable housing mission, and meet retained earnings thresholds. See Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in our Form 10-K for information on our enterprise risk management program. A separate discussion of market risk is included under Part I, Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” of this Form 10-Q.

Interest Rate Risk Management: Interest rate risk is the risk that relative and absolute changes in interest rates may adversely affect an institution's financial condition and performance. The goal of an interest rate risk management strategy is not necessarily to eliminate interest rate risk, but to manage it by setting, and operating within, an appropriate framework and limits. We generally manage interest rate risk by acquiring and maintaining a portfolio of assets and liabilities and entering into related derivative transactions to limit the expected mismatches in duration and market value of equity (MVE) sensitivity. See Part I, Item 3 - “Quantitative and Qualitative Disclosures About Market Risk” for additional information on interest rate risk measurement.

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Transition from LIBOR to an Alternative Reference Rate – Historically, many of our adjustable rate investments, derivatives, and collateral pledged were indexed to LIBOR with exposure extending past June 30, 2023. We assessed our LIBOR exposure, which included evaluating the fallback language of derivative and investment contracts indexed to LIBOR, and executed a transition plan for the replacement of LIBOR that included strategies to manage and reduce exposure, operating under the assumption that SOFR will become the dominant replacement in the capital markets. The publication of LIBOR on a representative basis ceased for one-week and two-month LIBOR as of January 1, 2022, and the remaining LIBOR tenors ceased immediately after June 30, 2023. During the first half of 2023, we had LIBOR exposure related to investment securities and derivatives with interest rates indexed to LIBOR. We transitioned all outstanding instruments referencing LIBOR to reference SOFR or these instruments reference SOFR as the fallback index. As such, we have no further variable LIBOR exposure.

Recently Issued Accounting Standards
See Note 2 of the Notes to Financial Statements under Part I, Item 1 – "Financial Statements" for a discussion of recently issued accounting standards.

Legislative and Regulatory Developments
Significant regulatory actions and developments for the period covered by this report not previously disclosed are summarized below.

FHFA’s Review and Analysis of the FHLBank System. In the fall of 2022, and over a period of several months, the FHFA undertook a review and analysis of the FHLBank System, in part through a series of public listening sessions, regional roundtable discussions, and receipt of comments from stakeholders. This review covered such areas as the FHLBanks’ mission and purpose in a changing marketplace; their organization, operational efficiency, and effectiveness; their role in promoting affordable, sustainable, equitable, and resilient housing and community investment; their role in addressing the unique needs of rural and financially vulnerable communities; member products, services, collateral requirements; and membership eligibility and requirements.

On November 7, 2023, the FHFA issued its written report presenting its review and analysis of the FHLBank System and the actions and recommendations that it plans to pursue in service of its vision for the future of the FHLBank System. FHFA stated that it can implement some of the recommendations from the report through supervision, as well as through rulemaking or other forms of guidance, and some other recommendations can only be fully implemented through Congressional action. The report is focused on four broad themes: (1) mission of the FHLBank System; (2) stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure and governance. Among other things, the FHFA has indicated that it plans to:

•Update and clarify its regulatory statement of the FHLBanks’ mission to explicitly incorporate its view of the core objectives of the FHLBanks’ mission, which are (1) providing stable and reliable liquidity to members, and (2) supporting housing and community development;
•Clarify the FHLBanks’ liquidity role and take steps that FHFA believes will better position the FHLBanks to perform their liquidity function;
•Expand the FHLBanks’ housing and community development focus by requiring the establishment of mission-oriented collateral programs, re-evaluating the definition of long-term advances, exploring revisions to the Community Support Requirements, and reviewing the Affordable Housing Program, Community Investment Programs, and Community Investment Cash Advance Programs to encourage greater use in a safe and sound manner. FHFA will also recommend that Congress consider amending the FHLBank Act to at least double the statutory minimum required annual AHP contributions by the FHLBanks.
•Review the FHLBanks’ operational efficiencies through encouraging collaboration among the FHLBanks, evaluating the size and structure of FHLBank boards, considering the structure of FHLBank districts and composition of their membership, and studying whether realignment or consolidation are necessary for the efficiency of the System. The FHFA also plans to require certain members have at least 10 percent of their assets in residential mortgage loans or equivalent mission assets to remain eligible for FHLBank financing.

FHLBank is continuing to evaluate the report and is not able to predict what actions will ultimately result from the FHFA’s recommendations in the report or the ultimate impact on FHLBank in the future. For a further discussion of related risks, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk that changes in market value may adversely affect our financial condition and performance. Interest rate risk is a component of market risk and represents our most significant market risk exposure. Interest rate risk is the risk that the market value of our asset, liability, and derivative portfolios will be negatively impacted by interest rate volatility or that earnings will be affected significantly by interest rate changes. We manage interest rate risk through the characteristics of our portfolio of assets and liabilities and by using derivative transactions to limit duration mismatches and reduce MVE sensitivity. Matching the duration of assets with the duration of liabilities funding those assets is accomplished through the use of different debt maturities and embedded option
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characteristics, as well as the use of derivatives, primarily interest rate swaps, interest rate caps, and interest rate floors. Interest rate swaps increase the flexibility of our funding alternatives by providing cash flows or characteristics that might not be as readily available or cost-effective if obtained in the standard GSE debt market.

Duration of Equity: DOE aggregates the estimated sensitivity of market value for each of our financial assets and liabilities to changes in interest rates. A positive DOE results when the duration of assets and designated derivatives is greater than the duration of liabilities and designated derivatives, indicating a degree of interest rate risk exposure in a rising interest rate environment. A negative DOE results in the opposite scenario, indicating a degree of interest rate risk exposure in a declining interest rate environment. Higher DOE numbers, whether positive or negative, indicate greater volatility of market value in response to changing interest rates. A decline in market value does not necessarily translate directly into a decline in income, especially for entities that do not trade financial instruments. Changes in market value may indicate trends in income over longer periods, and knowing the sensitivity of our market value to changes in interest rates provides a measure of the interest rate risk we take.

Under the RMP, our DOE is generally limited to a range of ±5.0 assuming current interest rates. In addition, our DOE is generally limited to a range of ±7.0 assuming an instantaneous parallel increase or decrease in interest rates of 200 basis points. During periods of extremely low interest rates, the FHFA requires that the FHLBanks employ a constrained down shock analysis to limit the evolution of forward interest rates to positive non-zero values. Since our market risk model imposes a positive non-zero boundary on post-shock interest rates, no additional calculations are necessary in order to meet this FHFA requirement when applicable. When DOE exceeds the limits established by the RMP, corrective actions taken may include: (1) the purchase of interest rate caps, interest rate floors, or other derivatives; (2) the sale of assets; and/or (3) the addition to the balance sheet of assets or liabilities having characteristics that are such that they counterbalance the excessive duration observed.

Table 38 presents our DOE in the base and the up and down 200 basis point interest rate shock scenarios:

Table 38
Duration of Equity
DateUp 200 Basis PointsBaseDown 200 Basis Points
09/30/20233.22.21.9
06/30/20232.31.62.0
03/31/20231.81.82.4
12/31/20221.71.72.1
09/30/20221.61.82.6

The primary factors contributing to the net changes in duration from June 30, 2023 to September 30, 2023 were: (1) the significant increase in longer-term interest rates and the relative level of mortgage rates during the period along with variable rate collateralized mortgage obligation (CMO) investments and their effective cap levels; (2) the increase in percent of total assets represented by the fixed rate mortgage loan portfolio during the period; and (3) asset/liability actions taken by management throughout the period, including the continued issuance of discount notes and short-term variable rate consolidated obligations to fund advance activity. The significant increase in interest rates during the period caused the mortgage loan portfolio contribution to duration to lengthen more than the associated liabilities, contributing to the increase in the asset sensitive DOE profile in the base case. The mortgage loan portfolio generally has a longer duration profile in the interest rate shock scenarios contributing to the asset-sensitive DOE in the up and down 200 basis point shock scenarios, including the increasing asset-sensitive DOE in the up 200 basis point scenario. However, the prepayment sensitivity and market value changes in our mortgage portfolio currently align well with our non-swapped callable debt portfolio in these scenarios generating a relatively stable sensitivity profile in the interest rate shock scenarios. In addition, the significant increase in short-term and long-term interest rates impacts implied forward rates and the valuation of our variable rate CMO investments with lower effective interest rate caps. This results in a longer duration profile on the base and +200 rate shock scenarios.

The increase in interest rates since June 30, 2023 generally lengthened the duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. With the slight increase in our mortgage loan portfolio balance, the net impact was a slight increase as a percentage of total assets during this period, as discussed in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program” so the duration profile changed as expected since a general increase in interest rates typically generates slower prepayments for both new production mortgage loans, as well as the outstanding fixed rate mortgage loan portfolio. Generally, higher interest rates indicate a relative decrease in refinancing incentive for borrowers.
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To effectively manage these changes in the mortgage loan portfolio (including new production and prepaid loans) and related sensitivity to changes in market conditions, unswapped callable consolidated obligation bonds that either matured or were called were generally replaced with reissuance of unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three months to one year). This liability extension corresponds with the expected longer duration profile of the new fixed rate mortgage loans, all else being equal, and positions the balance sheet for future changes in rates, including further interest rate increases where the mortgage loan portfolio will likely lengthen in duration as expected prepayments slow. For further discussion of the call and reissuance of consolidated obligation bonds, see Item 7 – “Management's Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Consolidated Obligations.” The combination of these factors contributed to the net DOE changes in all scenarios during the period.

Duration gap is the difference between the duration of our assets and the duration of our liabilities. Our base duration gap was 1.4 month and 1.1 months for September 30, 2023 and December 31, 2022, respectively.

Market Value of Equity
MVE is the net value of our assets and liabilities. Estimating sensitivity of MVE to changes in interest rates is another measure of interest rate risk. The RMP measures our market value risk in terms of the MVE in relation to total regulatory capital stock outstanding (TRCS). TRCS includes all capital stock outstanding, including stock subject to mandatory redemption. As a cooperative, we believe using the TRCS results is an appropriate measure because it reflects our market value relative to the book value of our capital stock. Our RMP stipulates MVE shall not be less than: (1) 100 percent of TRCS under the base case scenario; or (2) 90 percent of TRCS under a ±200 basis point instantaneous parallel shock in interest rates. Table 39 presents MVE as a percent of TRCS. As of September 30, 2023, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan and associated funding portfolio market values along with the relative level of outstanding capital.

The MVE to TRCS ratios can be impacted by the market value of equity sensitivity and level of capital outstanding based on our capital management approach. The relative level of advance, mortgage loan, and letters of credit balances, which trigger required stock, and excess stock as of September 30, 2023 (see Table 36 under Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital”) contributed to the MVE levels as of September 30, 2023. These relationships and associated risk sensitivity primarily generate the changes in the MVE/TRCS levels and produce the changes in the ratios in all interest rate scenarios in the table below.

Generally, a positive duration position accompanied by rising interest rates would negatively impact the base market value of equity (numerator). Likewise, as capital increases, the MVE/TRCS ratio declines since the capital level is the denominator in the ratio. While the change in interest rates contributed to the overall impact on base MVE during the quarter, the changes were limited with the ratio maintaining consistent levels in the base case and interest rate shock scenarios during the quarter.

Table 39
Market Value of Equity as a Percent of Total Regulatory Capital Stock
DateUp 200 Basis PointsBaseDown 200 Basis Points
09/30/2023136144150
06/30/2023143148154
03/31/2023143148154
12/31/2022143148154
09/30/2022147151158

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Detail of Derivative Instruments by Type of Instrument by Type of Risk
Various types of derivative instruments are utilized to mitigate the interest rate risks described in the preceding sections as well as to better match the terms of assets and liabilities. Tables 40 and 41 present the notional amount and fair value amount (fair value includes net accrued interest receivable or payable on the derivative) for derivative instruments by hedged item, hedging instrument, hedging objective and accounting designation (in thousands):

Table 40
09/30/2023
Hedged ItemHedging InstrumentHedging ObjectiveAccounting DesignationNotional AmountFair Value Amount
Advances
Fixed rate non-callable advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate indexFair Value Hedge $10,741,067 $(4,538)
Fixed rate convertible advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate index and offset option risk in the advanceFair Value Hedge 155,900 6,259 
Fixed rate putable advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate index and offset option risk in the advanceFair Value Hedge 1,979,800 24,894 
Fixed rate non-callable advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate indexEconomic Hedge211,253 1,227 
Firm commitment to issue a fixed rate advanceForward settling interest rate swapProtect against fair value riskFair Value Hedge90,111 4 
Investments
Fixed rate non-MBS available-for-sale investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexFair Value Hedge3,050,000 (5,957)
Fixed rate MBS available-for-sale investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexFair Value Hedge3,646,230 71,687 
Fixed rate non-MBS trading investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexEconomic Hedge 293,000 (29)
Fixed rate MBS trading investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexEconomic Hedge 630,891 31,384 
Adjustable rate MBS with embedded capsInterest rate capOffset the interest rate cap embedded in a variable rate investmentEconomic Hedge 304,000 1,811 
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitmentsMortgage purchase commitmentProtect against fair value riskEconomic Hedge 48,915 (108)
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors less than 6 monthsReceive fixed, pay variable interest rate swapConvert the discount note's fixed rate to a variable rateEconomic Hedge3,685,886 (310)
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 monthsReceive fixed, pay variable interest rate swapConvert the discount note's fixed rate to a variable rateFair Value Hedge 4,014,924 2,214 
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bondsReceive fixed, pay variable interest rate swapConvert the bond’s fixed rate to a variable rate indexFair Value Hedge 4,988,000 (31,099)
Fixed rate callable consolidated obligation bondsReceive fixed, pay variable interest rate swapConvert the bond’s fixed rate to a variable rate index and offset option risk in the bondFair Value Hedge 14,812,000 (310,914)
Variable rate consolidated obligation bondsReceive variable interest rate, pay variable interest rate swapReduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate indexEconomic Hedge 50,000 1 
Callable step-up/step-down consolidated obligation bondsReceive variable interest rate with embedded features, pay variable interest rate swapReduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bondFair Value Hedge 1,432,000 (115,295)
Firm commitment to issue a consolidated obligation bondReceive fixed, pay variable interest rate swapProtect against fair value riskFair Value Hedge15,000 (23)
TOTAL$50,148,977 $(328,792)

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Table 41
12/31/2022
Hedged ItemHedging InstrumentHedging ObjectiveAccounting DesignationNotional AmountFair Value Amount
Advances
Fixed rate non-callable advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate indexFair Value Hedge$8,219,720 $39,770 
Fixed rate convertible advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate index and offset option risk in the advanceFair Value Hedge309,650 9,795 
Firm commitment to issue a fixed rate advanceForward settling interest rate swapProtect against fair value riskFair Value Hedge176,464 234 
Fixed rate non-callable advancesPay fixed, receive variable interest rate swapConvert the advance’s fixed rate to a variable rate indexEconomic Hedge34,257 1,107 
Investments
Fixed rate MBS available-for-sale investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexFair Value Hedge3,243,924 74,972 
Fixed rate non-MBS available-for-sale investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexFair Value Hedge3,250,000 770 
Fixed rate non-MBS trading investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexEconomic Hedge 798,500 43 
Fixed rate MBS trading investmentsPay fixed, receive variable interest rate swapConvert the investment’s fixed rate to a variable rate indexEconomic Hedge 652,700 32,883 
Adjustable rate MBS with embedded capsInterest rate capOffset the interest rate cap embedded in a variable rate investmentEconomic Hedge 304,000 1,727 
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitmentsMortgage purchase commitmentProtect against fair value riskEconomic Hedge 33,882 (149)
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 monthsReceive fixed, pay floating interest rate swapConvert the discount note's fixed rate to a variable rateFair Value Hedge7,508,162 1,003 
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 monthsReceive fixed, pay floating interest rate swapConvert the discount note's fixed rate to a variable rateEconomic Hedge12,564,086 (1,095)
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bondsReceive fixed, pay variable interest rate swapConvert the bond’s fixed rate to a variable rate indexFair Value Hedge2,304,500 (18,280)
Fixed rate callable consolidated obligation bondsReceive fixed, pay variable interest rate swapConvert the bond’s fixed rate to a variable rate index and offset option risk in the bondFair Value Hedge8,053,000 (458,805)
Callable step-up/step-down consolidated obligation bondsReceive variable interest rate with embedded features, pay variable interest rate swapReduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bondFair Value Hedge1,902,000 (124,715)
Variable rate non-callable consolidated obligation bondsReceive variable interest rate, pay variable interest rate swapReduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate indexEconomic Hedge100,000 (8)
TOTAL$49,454,845 $(440,748)

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Item 4: Controls and Procedures

Disclosure Controls and Procedures
Senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance in achieving their desired objectives; however, in designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management, with the participation of the President and Chief Executive Officer (CEO), our principal executive officer, and the Chief Financial Officer (CFO), our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2023. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023.

Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1: Legal Proceedings
We are subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations. Additionally, management does not believe that we are subject to any material pending legal proceedings outside of ordinary litigation incidental to our business.

Item 1A: Risk Factors
There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K filed on March 20, 2023, and such risk factors are incorporated by reference herein.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.

Item 3: Defaults Upon Senior Securities
Not applicable.

Item 4: Mine Safety Disclosures
Not applicable.

Item 5: Other Information
None.

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Item 6: Exhibits
Exhibit
No.		Description
Exhibit 3.1 to the FHLBank’s registration statement on Form 10, filed May 15, 2006, and made effective on July 14, 2006 (File No. 000-52004), Federal Home Loan Bank of Topeka Articles and Organization Certificate, is incorporated herein by reference as Exhibit 3.1.
Exhibit 3.1 to the Current Report on Form 8-K, filed October 26, 2022, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
Exhibit 4.1 to the Annual Report on Form 10-K, filed March 20, 2020, Federal Home Loan Bank of Topeka Capital Plan.
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*     Represents a management contract or a compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 Federal Home Loan Bank of Topeka
  
  
November 9, 2023By: /s/ Mark E. Yardley
DateMark E. Yardley
 President and Chief Executive Officer
November 9, 2023By: /s/ Jeffrey B. Kuzbel
DateJeffrey B. Kuzbel
Executive Vice President and Chief Financial Officer

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