Advances

9 Months Ended

Sep. 30, 2020

General Terms. The Bank offers a wide-range of fixed- and variable-rate advance products with different maturities, interest rates, payment characteristics and optionality. Fixed-rate advances generally have maturities ranging from overnight to 30 years. Variable-rate advances generally have maturities ranging from overnight to 10 years, and the interest rates reset periodically at a fixed spread to LIBOR, SOFR or other specified indices.

At September 30, 2020 and December 31, 2019, the Bank had advances outstanding with interest rates ranging from 0.03% to 6.77% and 1.15% to 7.40%, respectively.

The following table details the Bank’s advances portfolio by year of redemption as of September 30, 2020 and December 31, 2019.


(dollars in thousands)	September 30, 2020				December 31, 2019
Year of Redemption	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Due in 1 year or less	$	22,167,019	0.78	%	$	41,261,372	1.97	%
Due after 1 year through 2 years	7,958,117		2.20		15,285,269		2.31
Due after 2 years through 3 years	2,686,918		2.34		6,065,460		2.52
Due after 3 years through 4 years	1,226,558		1.95		1,305,453		2.50
Due after 4 years through 5 years	1,235,193		1.99		869,892		2.10
Thereafter	208,778		2.57		651,673		2.76
Total par value	35,482,583		1.31	%	65,439,119		2.12	%
Deferred prepayment fees	(2,744)				(1,814)
Hedging adjustments	361,197				172,770
Total book value (1)	$	35,841,036			$	65,610,075

Notes:

(1) Amounts exclude accrued interest receivable of $49.2 million and $119.7 million at September 30, 2020 and December 31, 2019.

The Bank also offers convertible advances. Convertible advances allow the Bank to convert an advance from one interest rate structure to another. When issuing convertible advances, the Bank may purchase put options from a member that allow the Bank 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. In addition, the Bank offers certain advances to members that provide a member the right, based upon predetermined exercise dates, to prepay the advance prior to maturity without incurring prepayment or termination fees (returnable advances).

At September 30, 2020 and December 31, 2019, the Bank did not have any advances with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative.

The following table summarizes advances by the earlier of (i) year of redemption or next call date and (ii) year of redemption or next convertible date as of September 30, 2020 and December 31, 2019.


	Year of Redemption or Next Call Date				Year of Redemption or Next Convertible Date
(in thousands)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Due in 1 year or less	$	22,267,019	$	42,556,372	$	22,187,019	$	41,281,372
Due after 1 year through 2 years	7,898,117		14,060,269		7,958,117		15,285,269
Due after 2 years through 3 years	2,686,918		6,035,460		2,680,918		6,065,460
Due after 3 years through 4 years	1,186,558		1,305,453		1,226,558		1,299,453
Due after 4 years through 5 years	1,235,193		829,892		1,221,193		864,892
Thereafter	208,778		651,673		208,778		642,673
Total par value	$	35,482,583	$	65,439,119	$	35,482,583	$	65,439,119

Interest Rate Payment Terms. The following table details interest rate payment terms by year of redemption for advances as of September 30, 2020 and December 31, 2019.


(in thousands)	September 30, 2020		December 31, 2019
Fixed-rate – overnight	$	711,891	$	3,847,547
Fixed-rate – term:
Due in 1 year or less	8,783,285		18,059,289
Thereafter	12,437,464		16,424,647
Total fixed-rate	21,932,640		38,331,483
Variable-rate:
Due in 1 year or less	12,671,843		19,354,536
Thereafter	878,100		7,753,100
Total variable-rate	13,549,943		27,107,636
Total par value	$	35,482,583	$	65,439,119

Credit Risk Exposure and Security Terms. The Bank’s potential credit risk from advances is primarily concentrated in commercial banks. As of September 30, 2020, the Bank had advances of $24.4 billion outstanding to the five largest borrowers, which represented 68.9% of the total principal amount of advances outstanding. Of these five, three had outstanding advance balances that were each in excess of 10% of the total portfolio at September 30, 2020.

As of December 31, 2019, the Bank had advances of $50.8 billion outstanding to the five largest borrowers, which represented 77.7% of the total principal amount of advances outstanding. Of these five, four had outstanding advance balances that were each in excess of 10% of the total portfolio at December 31, 2019.

Advances ACL. The Bank manages its total credit exposure (TCE), which includes advances, letters of credit, advance commitments, and other credit product exposure, through an integrated approach. This approach generally requires a credit limit to be established for each borrower and an ongoing review of each borrower’s financial condition in conjunction with the Bank's collateral and lending policies to limit risk of loss while balancing each borrower's need for a reliable source of funding. Eligible collateral and collateral requirements can vary based on the type of member: commercial banks, insurance companies, credit unions, de novo banks and CDFIs.

In addition, the Bank lends to its members in accordance with the FHLBank Act and Finance Agency regulations. Specifically, the FHLBank Act requires the Bank to obtain collateral to fully secure credit products. The estimated value of the collateral required to secure each member’s credit products is calculated by applying collateral weightings, or haircuts, to the value of the collateral. The Bank primarily accepts cash, certain investment securities, residential mortgage loans, deposits, and other real estate related assets as collateral. In addition, Community Financial Institutions (CFIs) are eligible to utilize expanded statutory collateral provisions for small business, agriculture, and community development loans. The Bank’s capital stock owned by the borrowing member is pledged as secondary collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower.

The Bank can require additional or substitute collateral to help ensure that credit products continue to be secured by adequate collateral. Management of the Bank believes that these policies effectively manage the Bank’s credit risk from credit products.

Based upon the financial condition of the member, the Bank either allows a member to retain physical possession of the collateral assigned to the Bank or requires the member to specifically deliver physical possession or control of the collateral to the Bank or its custodians. However, regardless of the member's financial condition, the Bank always takes possession or control of securities used as collateral. The Bank perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the Bank by a member (or an affiliate of a member) priority over the claims or rights of any other party, except for claims or rights of a third party that would be otherwise entitled to priority under applicable law and that are held by a bona fide purchaser for value or by a secured party holding a prior perfected security interest.

Using a risk-based approach, the Bank considers the payment status, collateral types and concentration levels, and borrower’s financial condition to be indicators of credit quality on its credit products. At September 30, 2020 and December 31, 2019, the Bank had rights to collateral on a member-by-member basis with a value in excess of its outstanding extensions of credit.

The Bank continues to evaluate and, as necessary, make changes to its collateral guidelines based on current market conditions. At September 30, 2020 and December 31, 2019, the Bank did not have any credit products that were past due, on nonaccrual status, or considered impaired. In addition, the Bank did not have any credit products considered to be TDRs.

The Bank evaluates its advances for an ACL on a collective, or pooled basis unless an individual assessment is deemed necessary because the instruments do not possess similar risk characteristics. The Bank pools advances by member type, as noted above. Based on the collateral held as security, the Bank's credit extension and collateral policies and repayment history on advances, including that the Bank has not incurred any credit losses since inception, the Bank has not recorded any ACL at September 30, 2020 or December 31, 2019.