Fair Value Disclosures

The fair value amounts recorded on the Statements of Condition and presented in the related note disclosures have been determined by the FHLB using available market information and the FHLB's best judgment of appropriate valuation methods. The fair values reflect the FHLB's judgment of how a market participant would estimate the fair values.

Fair Value Hierarchy. The FHLB records trading securities, available-for-sale securities, derivative assets, derivative liabilities, certain Advances and certain Consolidated Obligation Bonds at fair value on a recurring basis, and on occasion, certain mortgage loans held for portfolio on a nonrecurring basis. GAAP establishes a fair value hierarchy and requires an entity 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 measurement is determined. This overall level is an indication of how market observable the fair value measurement is. An entity must disclose the level within the fair value hierarchy in which the measurements are classified.

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 an active market that the reporting entity can access on the measurement date.

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 or liabilities in active markets; (2) quoted prices for identical or similar assets or 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.

The FHLB reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out at fair value as of the beginning of the quarter in which the changes occur. The FHLB did not have any transfers of assets or liabilities recorded at fair value on a recurring basis during the six months ended June 30, 2017 or 2016.

Table 18.1 presents the carrying value, fair value, and fair value hierarchy of financial assets and liabilities of the FHLB. These values do not represent an estimate of the overall market value of the FHLB as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

Table 18.1 - Fair Value Summary (in thousands)



	June 30, 2017
			Fair Value
Financial Instruments	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments, Cash Collateral, and Variation Margin for Daily Settled Contracts⁽¹⁾
Assets:
Cash and due from banks	$	370,216	$	370,216	$	370,216	$	—	$	—	$	—
Interest-bearing deposits	190		190		—		190		—		—
Securities purchased under agreements to resell	5,865,699		5,865,703		—		5,865,703		—		—
Federal funds sold	7,030,000		7,030,000		—		7,030,000		—		—
Trading securities	882		882		—		882		—		—
Available-for-sale securities	350,004		350,004		—		350,004		—		—
Held-to-maturity securities	14,687,378		14,634,113		—		14,634,113		—		—
Advances ⁽²⁾	71,088,071		71,146,618		—		71,146,618		—		—
Mortgage loans held for portfolio, net	9,447,220		9,487,449		—		9,468,253		19,196		—
Accrued interest receivable	118,472		118,472		—		118,472		—		—
Derivative assets	78,149		78,149		—		39,666		—		38,483
Liabilities:
Deposits	713,124		712,986		—		712,986		—		—
Consolidated Obligations:
Discount Notes	49,359,582		49,359,067		—		49,359,067		—		—
Bonds ⁽³⁾	53,359,309		53,513,451		—		53,513,451		—		—
Mandatorily redeemable capital stock	35,969		35,969		35,969		—		—		—
Accrued interest payable	127,328		127,328		—		127,328		—		—
Derivative liabilities	5,942		5,942		—		75,804		—		(69,862		)
Other:
Standby bond purchase agreements	—		725		—		725		—		—

(1)

Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions, cash collateral and related accrued interest held or placed by the FHLB with the same counterparty, and effective January 3, 2017, includes fair value adjustments on derivatives for which variation margin is characterized as a daily settled contract. Variation margin for daily settled contracts was (in thousands) $54,630 at June 30, 2017.


(2)	Includes (in thousands) $15,063 of Advances recorded under the fair value option at June 30, 2017.


(3)	Includes (in thousands) $5,605,291 of Consolidated Obligation Bonds recorded under the fair value option at June 30, 2017.



	December 31, 2016
			Fair Value
Financial Instruments	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral⁽¹⁾
Assets:
Cash and due from banks	$	8,737	$	8,737	$	8,737	$	—	$	—	$	—
Interest-bearing deposits	129		129		—		129		—		—
Securities purchased under agreements to resell	5,229,487		5,229,487		—		5,229,487		—		—
Federal funds sold	4,257,000		4,257,000		—		4,257,000		—		—
Trading securities	970		970		—		970		—		—
Available-for-sale securities	1,300,023		1,300,023		—		1,300,023		—		—
Held-to-maturity securities	14,546,979		14,413,231		—		14,413,231		—		—
Advances⁽²⁾	69,882,074		69,842,730		—		69,842,730		—		—
Mortgage loans held for portfolio, net	9,148,718		9,174,790		—		9,152,186		22,604		—
Accrued interest receivable	109,886		109,886		—		109,886		—		—
Derivative assets	104,753		104,753		—		53,849		—		50,904
Liabilities:
Deposits	765,879		765,628		—		765,628		—		—
Consolidated Obligations:
Discount Notes	44,689,662		44,689,594		—		44,689,594		—		—
Bonds ⁽³⁾	53,190,866		53,278,571		—		53,278,571		—		—
Mandatorily redeemable capital stock	34,782		34,782		34,782		—		—		—
Accrued interest payable	119,322		119,322		—		119,322		—		—
Derivative liabilities	17,874		17,874		—		102,065		—		(84,191		)
Other:
Standby bond purchase agreements	—		708		—		708		—		—


(1)	Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.


(2)	Includes (in thousands) $15,093 of Advances recorded under the fair value option at December 31, 2016.


(3)	Includes (in thousands) $7,895,510 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2016.

Summary of Valuation Methodologies and Primary Inputs.

A description of the valuation methodologies and primary inputs is disclosed in Note 19 - Fair Value Disclosures in the FHLB's 2016 Annual Report on Form 10-K. There have been no significant changes in the valuation methodologies during 2017.

Fair Value Measurements.

Table 18.2 presents the fair value of financial assets and liabilities that are recorded on a recurring or nonrecurring basis at June 30, 2017 or December 31, 2016, by level within the fair value hierarchy. The FHLB records nonrecurring fair value adjustments to reflect partial write-downs on certain mortgage loans.

Table 18.2 - Fair Value Measurements (in thousands)



	Fair Value Measurements at June 30, 2017
	Total		Level 1		Level 2		Level 3		Netting Adjustments, Cash Collateral, and Variation Margin for Daily Settled Contracts⁽¹⁾
Recurring fair value measurements - Assets
Trading securities:
Other U.S. obligation single-family mortgage-backed securities	$	882	$	—	$	882	$	—	$	—
Available-for-sale securities:
Certificates of deposit	350,004		—		350,004		—		—
Advances	15,063		—		15,063		—		—
Derivative assets:
Interest rate related	77,538		—		39,055		—		38,483
Forward rate agreements	237		—		237		—		—
Mortgage delivery commitments	374		—		374		—		—
Total derivative assets	78,149		—		39,666		—		38,483
Total assets at fair value	$	444,098	$	—	$	405,615	$	—	$	38,483

Recurring fair value measurements - Liabilities
Consolidated Obligation Bonds	$	5,605,291	$	—	$	5,605,291	$	—	$	—
Derivative liabilities:
Interest rate related	4,804		—		74,666		—		(69,862		)
Forward rate agreement	566		—		566		—		—
Mortgage delivery commitments	572		—		572		—		—
Total derivative liabilities	5,942		—		75,804		—		(69,862		)
Total liabilities at fair value	$	5,611,233	$	—	$	5,681,095	$	—	$	(69,862	)

Nonrecurring fair value measurements - Assets ⁽²⁾
Mortgage loans held for portfolio	$	409	$	—	$	—	$	409

(1)


(2)	The fair value information presented is as of the date the fair value adjustment was recorded during the six months ended June 30, 2017.



	Fair Value Measurements at December 31, 2016
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral ⁽¹⁾
Recurring fair value measurements - Assets
Trading securities:
Other U.S. obligation single-family mortgage-backed securities	$	970	$	—	$	970	$	—	$	—
Available-for-sale securities:
Certificates of deposit	1,300,023		—		1,300,023		—		—
Advances	15,093		—		15,093		—		—
Derivative assets:
Interest rate related	103,753		—		52,849		—		50,904
Forward rate agreements	681		—		681		—		—
Mortgage delivery commitments	319		—		319		—		—
Total derivative assets	104,753		—		53,849		—		50,904
Total assets at fair value	$	1,420,839	$	—	$	1,369,935	$	—	$	50,904

Recurring fair value measurements - Liabilities
Consolidated Obligation Bonds	$	7,895,510	$	—	$	7,895,510	$	—	$	—
Derivative liabilities:
Interest rate related	7,080		—		91,271		—		(84,191		)
Forward rate agreements	166		—		166		—		—
Mortgage delivery commitments	10,628		—		10,628		—		—
Total derivative liabilities	17,874		—		102,065		—		(84,191		)
Total liabilities at fair value	$	7,913,384	$	—	$	7,997,575	$	—	$	(84,191	)

Nonrecurring fair value measurements - Assets ⁽²⁾
Mortgage loans held for portfolio	$	1,388	$	—	$	—	$	1,388


(1)	Amounts represent the application of the netting requirements that allow the FHLB to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLB with the same counterparty.


(2)	The fair value information presented is as of the date the fair value adjustment was recorded during the year ended December 31, 2016.

Fair Value Option. The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires a company to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities and commitments, with the changes in fair value recognized in net income. If elected, interest income and interest expense on Advances and Consolidated Bonds carried at fair value are recognized based solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized into other non-interest income or other non-interest expense.

The FHLB has elected the fair value option for certain financial instruments that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements. These fair value elections were made primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value.

For instruments recorded under the fair value option, the related contractual interest income and contractual interest expense are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments in which the fair value option has been elected are recorded as “Net losses on financial instruments held under fair value option” in the Statements of Income. The net losses on financial instruments held under the fair value option were (in thousands) $(6,397) and $(19,290) for the three months ended June 30, 2017 and 2016, and (in thousands) $(12,458) and $(32,947) for the six months ended June 30, 2017 and 2016. The FHLB has determined that no adjustments to the fair values of its instruments recorded under the fair value option for instrument-specific credit risk were necessary as of June 30, 2017 or December 31, 2016.

The following table reflects the difference between the aggregate unpaid principal balance outstanding and the aggregate fair value for Advances and Consolidated Bonds for which the fair value option has been elected.

Table 18.3 – Aggregate Unpaid Balance and Aggregate Fair Value (in thousands)



	June 30, 2017							December 31, 2016
	Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance			Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Advances ⁽¹⁾	$	15,000	$	15,063	$	63		$	15,000	$	15,093	$	93
Consolidated Bonds	5,629,265		5,605,291		(23,974		)	7,926,000		7,895,510		(30,490		)


(1)	At June 30, 2017 and December 31, 2016, none of the Advances were 90 days or more past due or had been placed on non-accrual status.