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Capital
 12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
Capital [Text Block] Capital

We are subject to capital requirements under our capital plan, the FHLBank Act, and FHFA regulations and guidance:

1.
Risk-based capital. We are required to maintain at all times permanent capital, defined as Class B stock, including Class B stock classified as mandatorily redeemable capital stock, and retained earnings, in an amount at least equal to the sum of our credit-risk capital requirement, market-risk capital requirement, and operations-risk capital requirement, calculated in accordance with FHFA rules and regulations, referred to herein as the risk-based capital requirement. Only permanent capital satisfies the risk-based capital requirement.

2.
Total regulatory capital. We are required to maintain at all times a total capital-to-assets ratio of at least four percent. Total regulatory capital is the sum of permanent capital, the amount paid-in for Class A stock, the amount of 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. We have never issued Class A stock.
 
3.
Leverage capital. We are required to maintain at all times a leverage capital-to-assets ratio of at least five percent. Leverage capital is defined as the sum of permanent capital weighted 1.5 times and all other capital without a weighting factor.

The FHFA has authority to require us to maintain a greater amount of permanent capital than is required as defined by the risk-based capital requirements.

Table 16.1 - Regulatory Capital Requirements
(dollars in thousands)

Risk-Based Capital Requirements
December 31,
2019
 
December 31,
2018
 
 
 
 
Permanent capital
 

 
 

Class B capital stock
$
1,869,130

 
$
2,528,854

Mandatorily redeemable capital stock
5,806

 
31,868

Retained earnings
1,463,154

 
1,395,012

Total permanent capital
$
3,338,090

 
$
3,955,734

Risk-based capital requirement
 

 
 

Credit-risk capital
$
235,213

 
$
289,080

Market-risk capital
207,426

 
187,183

Operations-risk capital
132,792

 
142,879

Total risk-based capital requirement
$
575,431

 
$
619,142

Permanent capital in excess of risk-based capital requirement
$
2,762,659

 
$
3,336,592

 
 
December 31, 2019
 
December 31, 2018
 
 
Required
 
Actual
 
Required
 
Actual
Capital Ratio
 
 
 
 
 
 
 
 
Risk-based capital
 
$
575,431

 
$
3,338,090

 
$
619,142

 
$
3,955,734

Total regulatory capital
 
$
2,226,512

 
$
3,338,090

 
$
2,543,733

 
$
3,955,734

Total capital-to-asset ratio
 
4.0
%
 
6.0
%
 
4.0
%
 
6.2
%
 
 
 
 
 
 
 
 
 
Leverage Ratio
 
 
 
 
 
 
 
 
Leverage capital
 
$
2,783,141

 
$
5,007,135

 
$
3,179,666

 
$
5,933,601

Leverage capital-to-assets ratio
 
5.0
%
 
9.0
%
 
5.0
%
 
9.3
%


We are a cooperative whose members own most of our capital stock. Former members (including certain nonmembers that own our capital stock as a result of merger or acquisition, relocation, or involuntary termination of membership) own the remaining capital stock to support business transactions still carried on our statement of condition. Shares of capital stock cannot be purchased or sold except between us and our members at $100 per share par value. We have only issued Class B stock and each member is required to purchase Class B stock equal to the sum of 0.20 percent of certain member assets eligible to secure advances under the FHLBank Act (the membership stock investment requirement), and 3.00 percent for overnight advances, 4.00 percent for all other advances, and 0.25 percent for outstanding letters of credit (collectively, the activity-based stock-investment requirement). Prior to January 16, 2019, the membership stock investment requirement was equal to 0.35 percent of certain member assets eligible to secure advances under the FHLBank Act.

Members may redeem Class B stock after no sooner than five years' notice provided in accordance with our capital plan (the redemption-notice period). The effective date of termination of membership for any member that voluntarily withdraws from membership is the end of the redemption-notice period, at which time any stock that is held as a condition of membership shall be divested, subject to any other applicable restrictions. At that time, any stock held pursuant to activity-based stock investment requirements shall remain outstanding until such requirements are eliminated by disposition of the related business activity. Any member that withdraws from membership may not be readmitted to membership in any FHLBank until five years from the divestiture date for all capital stock that is held as a condition of membership. This restriction does not apply if the member is transferring its membership from one FHLBank to another on an uninterrupted basis.

The redemption-notice period can also be triggered by the involuntary termination of membership of a member by our board of directors or by the FHFA, the merger or acquisition of a member into a nonmember institution, or the relocation of a member to a principal location outside our district. At the end of the redemption-notice period, if the former member's activity-based stock
investment requirement is greater than zero, we may require the associated remaining obligations to us to be satisfied in full prior to allowing the member to redeem the remaining shares.

Because our Class B stock is subject to redemption in certain instances, we can experience a reduction in our capital, particularly due to membership terminations due to merger and acquisition activity. However, there are several mitigants to this risk, including, but not limited to, the following:

•
the activity-based stock-investment requirement allows us to retain stock beyond the redemption-notice period if the associated member-related activity is still outstanding, until the obligations are paid in full;
•
the redemption notice period allows for a significant period in which we can restructure our balance sheet to accommodate a reduction in capital;
•
our board of directors may modify the membership stock-investment requirement (MSIR) or the activity-based stock-investment requirement (ABSIR), or both, to address expected shortfalls in capitalization due to membership termination;
•
our board of directors or the FHFA may suspend redemptions in the event that such redemptions would cause us not to meet our minimum regulatory capital requirements; and
•
the growth in our retained earnings, which are included in our equity capital, helps offset the risk that our capital could be reduced by redemptions.

Our board of directors may declare and pay dividends in either cash or capital stock, subject to limitations in applicable law and our capital plan.

Restricted Retained Earnings. At December 31, 2019, our contribution requirement totaled $502.4 million. As of December 31, 2019 and 2018, restricted retained earnings totaled $348.8 million and $310.7 million, respectively. These restricted retained earnings are not available to pay dividends.

Mandatorily Redeemable Capital Stock. We will reclassify capital stock subject to redemption from equity to liability once a member exercises a written notice of redemption, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or involuntary termination from membership. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense in the statement of operations. If a member cancels its written notice of redemption or notice of withdrawal, we will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.

Redemption of capital stock is subject to the redemption-notice period and our satisfaction of applicable minimum capital requirements. For the years ended December 31, 2019, 2018, and 2017, dividends on mandatorily redeemable capital stock of $974 thousand, $1.9 million, and $1.6 million, respectively, were recorded as interest expense.

Table 16.2 - Mandatorily Redeemable Capital Stock
(dollars in thousands)

 
 
2019
 
2018
 
2017
Balance at beginning of year
 
$
31,868

 
$
35,923

 
$
32,687

Capital stock subject to mandatory redemption reclassified from capital
 
—

 
309

 
8,670

Redemption/repurchase of mandatorily redeemable capital stock
 
(26,062
)
 
(4,364
)
 
(5,434
)
Balance at end of year
 
$
5,806

 
$
31,868

 
$
35,923



The number of stockholders holding mandatorily redeemable capital stock was nine, ten, and nine at December 31, 2019, 2018, and 2017, respectively.

Consistent with our capital plan, we are not required to redeem membership stock until the expiration of the redemption-notice period. Furthermore, we are not required to redeem activity-based stock until the later of the expiration of the redemption-notice period or the activity to which the capital stock relates no longer remains outstanding. If activity-based stock becomes excess stock as a result of an activity-based asset no longer outstanding, we may repurchase such shares, in our sole discretion, subject to the statutory and regulatory restrictions on excess capital-stock redemption. The year of redemption in the following table represents the end of the redemption-notice period. However, as discussed above, if activity to which the capital stock
relates remains outstanding beyond the redemption-notice period, the activity-based stock associated with this activity will remain outstanding until the activity no longer remains outstanding.

Table 16.3 - Mandatorily Redeemable Capital Stock by Expiry of Redemption Notice Period
(dollars in thousands)

 
 
December 31, 2019
 
December 31, 2018
Past redemption date (1)
 
$
5,663

 
$
4,076

Due in one year or less
 
—

 
27,379

Due after one year through two years
 
—

 
—

Due after two years through three years
 
93

 
—

Due after three years through four years
 
40

 
363

Due after four years through five years
 
—

 
40

Thereafter (2)
 
10

 
10

Total
 
$
5,806

 
$
31,868

_______________________
(1)
Amount represents mandatorily redeemable capital stock that has reached the end of the five-year redemption-notice period but the member-related activity (for example, advances) remains outstanding. Accordingly, these shares of stock will not be redeemed until the activity is no longer outstanding.
(2)
Amount represents reclassifications to mandatorily redeemable capital stock resulting from an FHFA rule effective February 19, 2016, that makes captive insurance companies ineligible for membership. Captive insurance company members that were admitted as members prior to September 12, 2014, will have their memberships terminated no later than February 19, 2021.

A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership prior to the end of the redemption-notice period. Our capital plan provides that we will charge the member a cancellation fee in the amount of 2.0 percent of the par amount of the shares of Class B stock that is the subject of the redemption notice. We will assess a redemption-cancellation fee unless the board of directors decides that it has a bona fide business purpose for waiving the imposition of the fee, and such a waiver is consistent with the FHLBank Act.

Excess Capital Stock. Our capital plan provides us with the discretion to repurchase capital stock from a member at par value if that stock is not required by the member to meet its total stock investment requirement (excess capital stock) subject to all applicable limitations. In conducting any repurchases, we repurchase any shares that are the subject of an outstanding redemption notice from the member from whom we are repurchasing prior to repurchasing any other shares that are in excess of the member's total stock-investment requirement (TSIR). On June 1, 2017, we began daily repurchases of excess stock held by any shareholder whose excess stock exceeds the lesser of $10.0 million or 25 percent of the shareholder's total stock investment requirement, subject to a minimum repurchase of $100,000. On August 11, 2017, we began repurchasing excess stock held by any shareholder whose excess stock exceeds the lesser of $10.0 million or 10 percent of the shareholder’s total stock investment requirement, subject to a minimum repurchase of $100,000. In addition to these daily repurchases, shareholders may request that we voluntarily repurchase excess stock shares at any time. We may also allow the member to sell the excess capital stock at par value to another one of our members.

At December 31, 2019 and 2018, members and nonmembers with capital stock outstanding held excess capital stock totaling $79.7 million and $88.7 million, respectively, representing approximately 4.3 percent and 3.5 percent, respectively, of total capital stock outstanding. FHFA rules limit our ability to create member excess capital stock under certain circumstances. We may not pay dividends in the form of capital stock or issue new excess capital stock to members if our excess capital stock exceeds one percent of our total assets or if the issuance of excess capital stock would cause our excess capital stock to exceed one percent of our total assets. At December 31, 2019, we had excess capital stock outstanding totaling 0.1 percent of our total assets. For the year ended December 31, 2019, we complied with the FHFA's excess capital stock rule.

Capital Classification Determination. We are subject to the FHFA's regulation on FHLBank capital classification and critical capital levels (the Capital Rule). The Capital Rule, among other things, defines criteria for four capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An adequately capitalized FHLBank is one that has sufficient permanent and total capital to satisfy its risk-based and minimum capital requirements. We satisfied these requirements at December 31, 2019. However, pursuant to the Capital Rule, the FHFA has discretion to reclassify an FHLBank and modify or add to corrective action requirements for a particular capital
classification. If we become classified into a capital classification other than adequately capitalized, we will be subject to the corrective action requirements for that capital classification in addition to being subject to prohibitions on declaring dividends and redeeming or repurchasing capital stock. By letter dated March 19, 2020, the Director of the FHFA notified us that, based on December 31, 2019 financial information, we met the definition of adequately capitalized under the Capital Rule.