Advances

3 Months Ended

Mar. 31, 2020

Federal Home Loan Bank, Advances [Text Block]

Advances

General Terms. At March 31, 2020, and December 31, 2019, we had advances outstanding with interest rates ranging from (1.08) percent to 7.72 percent and (0.35) percent to 7.72 percent, respectively. Advances with negative interest rates contain embedded interest-rate features that have met the requirements to be separated from the host contract and are recorded as stand-alone derivatives, and which we economically hedge with derivatives containing offsetting interest-rate features.

Table 5.1 - Advances Outstanding by Year of Contractual Maturity (dollars in thousands)

	March 31, 2020					December 31, 2019
	Amount			Weighted Average Rate		Amount			Weighted Average Rate
Overdrawn demand-deposit accounts	$	2,841		0.57	%	$	5,101		2.05	%
Due in one year or less	25,324,147			1.09		18,972,466			1.96
Due after one year through two years	11,478,292			1.05		8,600,922			2.16
Due after two years through three years	2,653,833			2.15		2,200,019			2.16
Due after three years through four years	1,756,774			2.44		1,766,314			2.71
Due after four years through five years	2,335,849			1.75		1,726,754			2.15
Thereafter	1,364,666			2.62		1,312,311			2.68
Total par value	44,916,402			1.28	%	34,583,887			2.10	%
Premiums	3,227					3,397
Discounts	(41,391		)			(41,744		)
Fair value of bifurcated derivatives ⁽¹⁾	53,783					29,983
Hedging adjustments	144,202					19,840
Total ⁽²⁾	$	45,076,223				$	34,595,363

_________________________


(1)	At March 31, 2020, and December 31, 2019, we had certain advances with embedded features that met the requirements to be separated from the host contract and designated as stand-alone derivatives.


(2)	Excludes accrued interest receivable of $46.4 million and $48.1 million at March 31, 2020, and December 31, 2019.

Table 5.2 - Advances Outstanding by Year of Contractual Maturity or Next Call Date (dollars in thousands)

	March 31, 2020		December 31, 2019
Overdrawn demand-deposit accounts	$	2,841	$	5,101
Due in one year or less	34,501,542		25,116,961
Due after one year through two years	3,328,292		3,450,922
Due after two years through three years	2,300,413		1,949,499
Due after three years through four years	1,266,774		1,461,314
Due after four years through five years	2,173,774		1,309,679
Thereafter	1,342,766		1,290,411
Total par value	$	44,916,402	$	34,583,887

We currently hold putable advances that provide us with the right to require repayment prior to maturity of the advance (and thereby extinguish the advance) on predetermined exercise dates (put dates). Generally, we would exercise the put options when interest rates increase relative to contractual rates.

Table 5.3 - Advances Outstanding by Year of Contractual Maturity or Next Put Date (dollars in thousands)

	March 31, 2020		December 31, 2019
Overdrawn demand-deposit accounts	$	2,841	$	5,101
Due in one year or less	27,048,822		20,240,466
Due after one year through two years	11,616,542		8,603,422
Due after two years through three years	2,119,533		2,001,019
Due after three years through four years	1,248,574		965,814
Due after four years through five years	1,657,924		1,598,254
Thereafter	1,222,166		1,169,811
Total par value	$	44,916,402	$	34,583,887

Table 5.4 - Advances by Current Interest Rate Terms (dollars in thousands)

	March 31, 2020		December 31, 2019
Fixed-rate	$	35,460,466	$	28,106,591
Variable-rate	9,455,936		6,477,296
Total par value	$	44,916,402	$	34,583,887

Credit Risk Exposure and Security Terms. Our advances are principally concentrated in commercial banks, insurance companies, savings institutions, and credit unions. We manage our credit exposure to secured member credit products through an integrated approach that generally includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower's financial condition, and collateral and lending policies that are intended to limit risk of loss while balancing borrowers' needs for a reliable source of funding.

In addition, we lend to eligible borrowers in accordance with federal law and FHFA regulations. Specifically, we are required to obtain sufficient collateral to fully secure credit products up to the counterparty’s total credit limit. Collateral eligible to secure new or renewed advances includes:


•	fully disbursed, first-mortgage loans on improved residential property (provided that the borrower is not in arrears by two or more payments), or securities representing a whole interest in such mortgages;


•	securities issued, insured, or guaranteed by the U.S. government or any agency thereof (including without limitation, MBS issued or guaranteed by Freddie Mac, Fannie Mae, and Ginnie Mae);


•	cash or deposits in a collateral account with us; and


•	other real-estate-related collateral acceptable to us if such collateral has a readily ascertainable value and we can perfect our security interest in the collateral.

Residential mortgage loans are the principal form of collateral for advances. The estimated value of the collateral pledged to secure each borrower's credit products is calculated by applying collateral discounts, or haircuts, to the market value or unpaid principal balance of the collateral, as applicable. We require all borrowers that pledge securities collateral to place physical possession of such securities collateral with our safekeeping agent, the borrower's approved designated agent, or the borrower's securities corporation, subject to a control agreement giving us appropriate control over such collateral. In addition, community financial institutions are eligible to use expanded statutory collateral provisions for small-business and agriculture loans. Members also pledge their Bank capital stock as collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition, performance, borrowing capacity, and our overall credit exposure to the borrower. We can call for additional or substitute collateral to further safeguard our security interest. We also have policies and procedures for validating the reasonableness of our collateral valuations. In addition, we perform collateral verifications based on the risk profile of the borrower. Management believes that these policies effectively manage our credit risk from advances.

We either allow the borrower to retain possession of loan collateral pledged to us while agreeing to hold such collateral for our benefit or require the borrower to specifically assign or place physical possession of such loan collateral with us or a third-party custodian that we approve.

We are provided an additional safeguard for our security interests by Section 10(e) of the FHLBank Act, which generally affords any security interest granted by a borrower to the Bank priority over the claims and rights of any other party. The exceptions to this prioritization are limited to claims that would be entitled to priority under otherwise applicable law and are held by bona fide purchasers for value or by secured parties with higher priority perfected security interests. The priority granted to our security interests under Section 10(e) of the FHLBank Act may not apply when lending to insurance company members due to the anti-preemption provision contained in the McCarran-Ferguson Act, which provides that federal law does not preempt state insurance law unless the federal law expressly regulates the business of insurance. Thus, if state law conflicts with Section 10(e) of the FHLBank Act, the protection afforded by this provision may not be available to us. However, we perfect our security interests in the collateral pledged by our members, including insurance company members, by filing Uniform Commercial Code (UCC)-1 financing statements, taking possession or control of such collateral, or taking other appropriate steps.

Using a risk-based approach and taking into consideration each borrower's financial strength, we consider the types and level of collateral to be the primary indicator of credit quality on our credit products. At March 31, 2020, and December 31, 2019, we had rights to collateral, on a borrower-by-borrower basis, with an estimated value in excess of our outstanding extensions of credit.

We continue to evaluate and make changes to our collateral guidelines based on market conditions. At March 31, 2020, and December 31, 2019, none of our advances were past due, on nonaccrual status, or considered impaired. In addition, there were no troubled debt restructurings related to advances during the three months ended March 31, 2020, and March 31, 2019.

Based upon the collateral held as security, our credit extension and collateral policies, management's credit analysis, and the repayment history on advances, we have not recorded any allowance for credit losses on our advances at March 31, 2020, and December 31, 2019.

Prepayment Fees.

Table 5.5 - Advances Prepayment Fees (dollars in thousands)

	For the Three Months Ended March 31,
	2020		2019
Prepayment fees received from borrowers	$	838	$	26,186
Hedging fair-value adjustments on prepaid advances	—		527
Net discounts associated with prepaid advances	—		218
Advance prepayment fees recognized in income, net	$	838	$	26,931