Includes changes in fair value and ~~amortization/accretion of basis adjustments on closed hedge relationships.~~


4	Interest income (expense) amounts include net interest settlements on derivatives and amortization of the financing element of off-market derivatives. Other income amounts include changes in fair value.


5	~~Interest income (expense) amounts include~~ amortization/accretion of basis adjustments on closed hedge relationships. ~~Other income amounts include changes in fair value.~~

The following ~~table summarizes~~tables summarize cumulative fair value hedging adjustments and the related amortized cost of the hedged items (dollars in millions):


	March 31, 2019											March 31, 2020
Line Item in Statements of Condition	Amortized Cost of Hedged Asset (Liability)¹			Changes in Fair Value for Active Hedging Relationships Included in Amortized Cost			Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost		Cumulative Amount of Fair Value Hedging Adjustments
Line Item on Statements of Condition												Amortized Cost of Hedged Asset/ Liability¹		Changes in Fair Value for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost			Cumulative Amount of Fair Value Hedging Adjustments
Advances	$	14,416		$	(20	)	$	3	$	(17	)	$	18,330	$	557	$	22		$	579
Available-for-sale securities	6,564			30			—		30			6,539		458		—			458
Consolidated obligation bonds	(25,923		)	204			17		221			16,339		247		(13		)	234



	December 31, 2019
Line Item on Statements of Condition	Amortized Cost of Hedged Asset/ Liability¹		Changes in Fair Value for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost			Cumulative Amount of Fair Value Hedging Adjustments
Advances	$	14,806	$	146	$	10		$	156
Available-for-sale securities	6,221		167		—			167
Consolidated obligation bonds	20,256		16		(15		)	1

1 Includes ~~only~~ the portion of amortized cost representing the hedged items in fair value hedging relationships.

The following table summarizes the components of “Net gains (losses) on derivatives and hedging activities” as presented inon the Statements of Income (dollars in millions). For periods prior to January 1, 2019, net gains (losses) representing hedge ineffectiveness for fair value hedging relationships were recorded in “Net gains (losses) on derivatives and hedging activities.” Beginning on January 1, 2019, changes in the fair value of the derivative and the hedged item in a fair value hedge relationship are recorded in net interest income.


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
Derivatives designated as hedging instruments (fair value hedges)
Interest rate swaps¹				$	—
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	$	(12	)	21			$	(45	)	(12		)
Forward settlement agreements (TBAs)	(1		)	1			(8		)	(1		)
Mortgage loan purchase commitments	1			(1		)	7			1
Net interest settlements	—			(2		)	(2		)	—
Total net gains (losses) related to derivatives not designated as hedging instruments	(12		)	19
Price alignment amount²	—			1
Net gains (losses) on derivatives and hedging activities	$	(12	)	$	20		$	(48	)	$	(12	)


1	~~Amount for the three months ended March 31, 2018 was less than $1 million.~~


2	~~This amount represents interest on variation margin which is a component of the derivative fair value for cleared transactions.~~

MANAGING CREDIT RISK ON DERIVATIVES

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative contracts. The Bank manages credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in the Bank’s policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.

The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty (uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., clearings agent) with a Derivative Clearing Organization (cleared derivatives). Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearinghouse), the derivative transaction is novated and the executing counterparty is replaced with the Clearinghouse. The Bank is not a derivative dealer and does not trade derivative for short-term profit.

For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in the derivative contracts to mitigate the risk. The Bank requires collateral agreements on its uncleared derivatives.

Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by a ~~nationally recognized statistical rating organization (NRSRO),~~NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions, unless the collateral delivery threshold is set to zero. The aggregate fair value of all uncleared derivative instruments with credit-risk related contingent features that were in a net liability position (before cash collateral and related accrued interest) at March 31, ~~2019~~2020 was $2$7 million, for which the Bank was not required to post collateral in the normal course of business. If the Bank’s credit rating had been lowered from its current rating to the next lower rating, the Bank would not have been required to deliver additional collateral to its uncleared derivative counterparties at March 31, ~~2019.~~2020.

For cleared derivatives, the Clearinghouse is the Bank’s counterparty. The Bank utilizes one Clearinghouse, CME Clearing for all cleared derivative transactions. CME Clearing notifies the clearing agent of the required initial margin and daily variation margin requirements, and the clearing agent in turn notifies the Bank.

The Clearinghouse determines initial margin requirements which are considered cash collateral. 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. The Bank was not required to post additional initial margin by its clearing agent, based on credit considerations, at March 31, ~~2019.~~2020. Variation margin requirements with CME Clearing are based on changes in the fair value of cleared derivatives and are legally characterized as daily settlement payments, rather than cash collateral.

The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the fair value of cleared derivatives is posted daily through a clearing agent.

OFFSETTING OF DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES

The Bank presents derivative instruments, related cash collateral received or pledged, and associated accrued interest on a net basis by clearing agent and/or by counterparty when it has met the netting requirements. Additional information regarding these agreements is provided in “Note 1 — Summary of Significant Accounting Policies” in the ~~2018~~2019 Form 10-K.

The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and has 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 the clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

The following tables present the fair value of derivative instruments meeting or not meeting the netting requirements and the related collateral received from or pledged to counterparties (dollars in millions):

March 31, 2019
Derivative Instruments
Gross Amount Recognized²
Gross Amount of Netting Adjustments and Cash Collateral Total Derivative Assets and Total Derivative Liabilities
Derivative Assets Meeting Netting Requirements
   Uncleared derivatives $ 70
$ (61 ) $ 9
   Cleared derivatives 18
64
82
Total Derivative Assets Meeting Netting Requirements 88
3
91
Derivative Assets Not Meeting Netting Requirements¹
1
—
1
Total Derivative Assets $ 89
$ 3
$ 92
Derivative Liabilities Meeting Netting Requirements
   Uncleared derivatives $ 133
$ (131 ) $ 2
   Cleared derivatives 13
(13 ) —
Total Derivative Liabilities $ 146
$ (144 ) $ 2



	March 31, 2020
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized¹		Gross Amount of Netting Adjustments and Cash Collateral			Derivative Instruments Not Meeting Netting Requirements²		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives	$	49	$	(43	)	$	4	$	10
Cleared derivatives	18		205			—		223
Total	$	67	$	162		$	4	$	233
Derivative Liabilities
Uncleared derivatives	$	447	$	(438	)	$	—	$	9
Cleared derivatives	9		(9		)	—		—
Total	$	456	$	(447	)	$	—	$	9

December 31, 2018
Derivative Instruments
Gross Amount Recognized²
Gross Amount of Netting Adjustments and Cash Collateral Total Derivative Assets and Total Derivative Liabilities
Derivative Assets Meeting Netting Requirements
   Uncleared derivatives $ 96
$ (96 ) $ —
   Cleared derivatives 7
50
57
Total Derivative Assets Meeting Netting Requirements 103
(46 ) 57
Derivative Assets Not Meeting Netting Requirements¹
1
—
1
Total Derivative Assets $ 104
$ (46 ) $ 58
Derivative Liabilities Meeting Netting Requirements
   Uncleared derivatives $ 119
$ (110 ) $ 9
   Cleared derivatives 20
(20 ) —
Total Derivative Liabilities $ 139
$ (130 ) $ 9



	December 31, 2019
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized¹		Gross Amount of Netting Adjustments and Cash Collateral			Derivative Instruments Not Meeting Netting Requirements²		Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared derivatives	$	34	$	(28	)	$	—	$	6
Cleared derivatives	5		91			—		96
Total	$	39	$	63		$	—	$	102
Derivative Liabilities
Uncleared derivatives	$	199	$	(198	)	$	—	$	1
Cleared derivatives	3		(3		)	—		—
Total	$	202	$	(201	)	$	—	$	1

1 ~~Represents mortgage loan purchase commitments not subject to enforceable master netting requirements.~~

2 Represents derivative assets and derivative liabilities prior to netting adjustments and cash collateral.

2 Represents mortgage loan purchase commitments not subject to enforceable master netting requirements.

Note 117 — Consolidated Obligations

Consolidated obligations consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. Bonds are issued primarily to raise intermediate- and long-term funds for the Bank and are not subject to any statutory or regulatory limits on their maturity. Discount notes are issued primarily to raise short-term funds for the Bank and have original maturities of up to one year. Discount notes sell at or below their face amount and are redeemed at par value when they mature.

Although the Bank is primarily liable for the portion of consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all FHLBank System consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the total par value of outstanding consolidated obligations of the FHLBanks was ~~$1,010.9~~$1,174.7 billion and ~~$1,031.6~~$1,025.9 billion.

DISCOUNT NOTES

The following table summarizes the Bank’s discount notes (dollars in millions):


	March 31, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Par value	$	45,150		2.43	%	$	43,052		2.34	%	$	33,114		1.08	%	$	29,592		1.65	%
Discounts and concessions¹	(156		)			(173		)			(43		)			(61		)
Total	$	44,994				$	42,879				$	33,071				$	29,531


1	Concessions represent fees paid to dealers in connections with the issuance of certain consolidated obligation discount notes.

BONDS

The following table summarizes the Bank’s bonds outstanding by contractual maturity (dollars in millions):


	March 31, 2019					December 31, 2018					March 31, 2020					December 31, 2019
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	56,081		2.25	%	$	53,247		2.08	%	$	53,646		1.08	%	$	58,106		1.81	%
Due after one year through two years	17,227			2.52		22,326			2.50		14,221			1.82		16,997			1.91
Due after two years through three years	9,503			1.97		9,478			1.97		3,961			2.30		3,907			2.35
Due after three years through four years	2,055			2.54		1,881			2.53		2,841			2.64		3,083			2.53
Due after four years through five years	2,336			2.77		2,224			2.58		3,415			2.96		3,503			3.03
Thereafter	4,893			3.55		4,868			3.51		5,753			2.87		5,777			3.00
Total par value	92,095			2.36	%	94,024			2.26	%	83,837			1.52	%	91,373			1.99	%
Premiums	148					152					231					217
Discounts and concessions¹	(43		)			(48		)			(35		)			(38		)
Fair value hedging adjustments	(221		)			(356		)			233					1
Total	$	91,979				$	93,772				$	84,266				$	91,553


1	Concessions represent fees paid to dealers in connections with the issuance of certain consolidated obligation bonds.

The following table summarizes the Bank’s bonds outstanding by call features (dollars in millions):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Non-callable or non-putable	$	87,458	$	89,549	$	80,454	$	87,246
Callable	4,637		4,475		3,383		4,127
Total par value	$	92,095	$	94,024	$	83,837	$	91,373

The following table summarizes the Bank’s bonds outstanding by year of contractual maturity or next call date (dollars in millions):


Year of Contractual Maturity or Next Call Date	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Due in one year or less	$	58,836	$	55,672	$	55,514	$	60,639
Due after one year through two years	17,383		22,696		15,104		17,643
Due after two years through three years	9,379		9,333		4,443		4,410
Due after three years through four years	1,920		1,656		2,746		2,788
Due after four years through five years	1,891		1,864		3,385		3,376
Thereafter	2,686		2,803		2,645		2,517
Total par value	$	92,095	$	94,024	$	83,837	$	91,373

Note 128 — Capital

CAPITAL STOCK

The Bank’s capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. The Bank generally issues a single class of capital stock (Class B stock) and has ~~two~~2 subclasses of capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31^st, subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding in the Bank’s Statements of Condition. All capital stock issued is subject to a notice of redemption period of five years.

The capital stock requirements established in the Bank’s Capital Plan are designed so that the Bank can remain adequately capitalized as member activity changes. The Bank’s Board of Directors may make adjustments to the capital stock requirements within ranges established in the Capital Plan.

EXCESS STOCK

Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under its Capital Plan, the Bank, at its discretion and upon 15 days’ written notice, may repurchase excess membership capital stock. The Bank, at its discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank’s excess capital stock outstanding was less than $1 million.

MANDATORILY REDEEMABLE CAPITAL STOCK

The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Dividends on mandatorily redeemable capital stock are classified as interest expense inon the Statements of Income.

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank’s mandatorily redeemable capital stock totaled ~~$237~~$96 million and ~~$255~~$206 million. During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, interest expense on mandatorily redeemable capital stock was $3 ~~million~~ ~~and~~$4 million.

As a result of the final rule on membership issued by the Finance Agency effective February 19, 2016, the eligibility requirements for FHLBank members were changed rendering captive insurance companies ineligible for FHLBank 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. On the effective date of the final rule, the Bank reclassified the total outstanding capital stock held by all of the captive insurance companies that were Bank members, to mandatorily redeemable capital stock.

The following ~~table~~tables summarize changes in mandatorily redeemable capital stock (dollars in millions):


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2019			2018			2020			2019
Balance, beginning of period	$	255		$	385		$	206		$	255
Capital stock reclassified to (from) mandatorily redeemable capital stock, net	2			3			6			2
Net payments for repurchases/redemptions of mandatorily redeemable capital stock	(20		)	(32		)	(116		)	(20		)
Balance, end of period	$	237		$	356		$	96		$	237

The following table summarizes the Bank’s mandatorily redeemable capital stock by year of contractual redemption (dollars in millions):


Year of Contractual Redemption¹	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Due in one year or less	$	2	$	2	$	1	$	—
Due after one year through two years	1		—		10		1
Due after two years through three years	10		1		1		11
Due after three years through four years	1		10		5		5
Due after four years through five years	5		18		—		—
Thereafter²	204		210		65		175
Past contractual redemption date due to outstanding activity with the Bank	14		14		14		14
Total	$	237	$	255	$	96	$	206


1	At the Bank’s election, the mandatorily redeemable capital stock may be redeemed prior to the expiration of the five year redemption period that commences on the date of the notice of redemption, or in the case of captive insurance company members, on the date of the membership termination.


2	Represents mandatorily redeemable capital stock resulting from the Finance Agency rule previously discussed that makes captive insurance companies ineligible for FHLBank membership. The related mandatorily redeemable capital stock is not required to be redeemed until five years after the member's termination.

RESTRICTED RETAINED EARNINGS

The Bank entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other FHLBanks in 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the Bank over time. Under the JCE Agreement, each FHLBank is required to allocate 20 percent of its quarterly net income to a separate restricted retained earnings account until the balance of that account equals at least ~~one~~1 percent of its average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank’s restricted retained earnings account totaled ~~$449~~$522 million and ~~$427~~$504 million.

ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes changes in AOCI (dollars in millions):


	Net unrealized gains (losses) on AFS securities (Note 4)		Pension and postretirement benefits			Total AOCI
Balance, December 31, 2017	$	118	$	(4	)	$	114
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	45		—			45
Net current period other comprehensive income (loss)	45		—			45
Balance, March 31, 2018	$	163	$	(4	)	$	159
								Net unrealized gains (losses) on AFS securities (Note 3)			Pension and postretirement benefits			Total AOCI
Balance, December 31, 2018	$	87	$	(3	)	$	84	$	87		$	(3	)	$	84
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities	1		—			1		1			—			1
Net current period other comprehensive income (loss)	1		—			1		1			—			1
Balance, March 31, 2019	$	88	$	(3	)	$	85	$	88		$	(3	)	$	85

Balance, December 31, 2019								$	48		$	(4	)	$	44
Other comprehensive income (loss) before reclassifications
Net unrealized gains (losses) on AFS securities								(164		)	—			(164		)
Reclassifications from AOCI to net income
Amortization - pension and postretirement								—			1			1
Net current period other comprehensive income (loss)								(164		)	1			(163		)
Balance, March 31, 2020								$	(116	)	$	(3	)	$	(119	)

REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to ~~three~~3 regulatory capital requirements:

•

Risk-based capital. The Bank must maintain at all times permanent capital greater than or equal to the sum of its credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B stock (including mandatorily redeemable capital stock), and retained earnings can satisfy this risk-based capital requirement.


•	Regulatory capital. The Bank is required to maintain a minimum ~~four~~4 percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B stock (including mandatorily redeemable capital stock) and retained earnings. It does not include AOCI.


•	Leverage capital. The Bank is required to maintain a minimum five percent leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. The Bank did not hold any nonpermanent capital at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

In addition to the requirements previously discussed, during 2019, the Finance Agency finalized an Advisory Bulletin on capital stock (the Capital Stock AB) which required each FHLBank to maintain at all times a ratio of at least two percent of capital stock to total assets, effective February 2020. For purposes of the Capital Stock AB, capital stock includes mandatorily redeemable capital stock. The capital stock to total assets ratio is measured on a daily average basis at month end.

If the Bank’s capital falls below the required levels, the Finance Agency has authority to take actions necessary to return it to levels that it deems to be consistent with safe and sound business operations.

The following table shows the Bank’s compliance with the Finance Agency’s regulatory capital requirements (dollars in millions):

March 31, 2019 December 31, 2018
Required Actual Required Actual
Regulatory capital requirements
Risk-based capital $ 1,248
$ 7,511
$ 1,146
$ 7,719
Regulatory capital $ 5,842
$ 7,511
$ 5,861
$ 7,719
Leverage capital $ 7,302
$ 11,266
$ 7,326
$ 11,579
Capital-to-assets ratio 4.00 % 5.14 % 4.00 % 5.27 %
Leverage ratio 5.00 % 7.71 % 5.00 % 7.90 %



	March 31, 2020						December 31, 2019
	Required			Actual			Required			Actual
Regulatory capital requirements
Risk-based capital	$	673		$	6,948		$	1,138		$	6,888
Regulatory capital	$	5,043		$	6,948		$	5,184		$	6,888
Leverage capital	$	6,303		$	10,421		$	6,480		$	10,332
Capital-to-assets ratio	4.00		%	5.51		%	4.00		%	5.31		%
Capital stock-to-assets ratio	2.00		%	3.72		%	N/A¹			N/A¹
Leverage ratio	5.00		%	8.27		%	5.00		%	7.97		%


1	The Capital Stock AB became effective in February 2020.

Note 139 — Fair Value

Fair value amounts are determined by the Bank using available market information and reflect the Bank’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., ~~and~~ exit price). The fair value hierarchy requires an entity to maximize the use of significant observable inputs and minimize the use of significant 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 market observability of the fair value measurement for the asset or liability.

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 Bank can access on the measurement date. An active market for an 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: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) 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 (iv) market-corroborated inputs.


•	Level 3 Inputs. Unobservable inputs for the asset or liability.

The Bank 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. ~~These reclassifications would be reported as transfers in/out as of the beginning of the quarter in which the changes occur.~~ The Bank had no transfers of assets or liabilities between fair value levels during the three months ended March 31, ~~2019~~2020 and ~~2018~~2019.

The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments at March 31, ~~2019~~2020 (dollars in millions). The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio on a non-recurring basis. The Bank records all other financial assets and liabilities at amortized cost. The fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.


				Fair Value																Fair Value
Financial Instruments	Carrying Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral¹		Total			Carrying Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral¹		Total
Assets
Cash and due from banks	$	81		$	81		$	—		$	—	$	—	$	81		$	611		$	611		$	—		$	—	$	—	$	611
Interest-bearing deposits	1			—			1			—		—		1			1			—			1			—		—		1
Securities purchased under agreements to resell	8,000			—			8,000			—		—		8,000			6,550			—			6,550			—		—		6,550
Federal funds sold	7,985			—			7,985			—		—		7,985			8,935			—			8,935			—		—		8,935
Trading securities	918			—			918			—		—		918			1,728			—			1,728			—		—		1,728
Available-for-sale securities	18,493			—			18,493			—		—		18,493			16,166			—			16,166			—		—		16,166
Held-to-maturity securities	2,874			—			2,909			9		—		2,918			2,254			—			2,339			7		—		2,346
Advances	99,228			—			99,309			—		—		99,309			79,757			—			80,270			—		—		80,270
Mortgage loans held for portfolio, net	7,943			—			7,948			56		—		8,004			9,546			—			9,837			49		—		9,886
Accrued interest receivable	314			—			314			—		—		314			179			—			179			—		—		179
Derivative assets, net	92			—			89			—		3		92			233			—			71			—		162		233
Other assets	30			30			—			—		—		30			28			28			—			—		—		28
Liabilities
Deposits	(962		)	—			(962		)	—		—		(962		)	(1,267		)	—			(1,267		)	—		—		(1,267		)
Consolidated obligations
Discount notes	(44,994		)	—			(44,988		)	—		—		(44,988		)	(33,071		)	—			(33,109		)	—		—		(33,109		)
Bonds	(91,979		)	—			(92,227		)	—		—		(92,227		)	(84,266		)	—			(85,331		)	—		—		(85,331		)
Total consolidated obligations	(136,973		)	—			(137,215		)	—		—		(137,215		)	(117,337		)	—			(118,440		)	—		—		(118,440		)
Mandatorily redeemable capital stock	(237		)	(237		)	—			—		—		(237		)	(96		)	(96		)	—			—		—		(96		)
Accrued interest payable	(299		)	—			(300		)	—		—		(300		)	(258		)	—			(258		)	—		—		(258		)
Derivative liabilities, net	(2		)	—			(146		)	—		144		(2		)	(9		)	—			(456		)	—		447		(9		)


1	Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments at December 31, ~~2018~~2019 (dollars in millions):


				Fair Value																	Fair Value
Financial Instruments	Carrying Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral¹			Total			Carrying Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral¹		Total
Assets
Cash and due from banks	$	119		$	119		$	—		$	—	$	—		$	119		$	1,029		$	1,029		$	—		$	—	$	—	$	1,029
Interest-bearing deposits	1			—			1			—		—			1			1			—			1			—		—		1
Securities purchased under agreements to resell	4,700			—			4,700			—		—			4,700			13,950			—			13,950			—		—		13,950
Federal funds sold	4,150			—			4,150			—		—			4,150			4,605			—			4,605			—		—		4,605
Trading securities	915			—			915			—		—			915			888			—			888			—		—		888
Available-for-sale securities	19,019			—			19,019			—		—			19,019			16,651			—			16,651			—		—		16,651
Held-to-maturity securities	2,992			—			3,011			10		—			3,021			2,370			—			2,432			7		—		2,439
Advances	106,323			—			106,317			—		—			106,317			80,360			—			80,576			—		—		80,576
Mortgage loans held for portfolio, net	7,835			—			7,749			57		—			7,806			9,334			—			9,458			52		—		9,510
Accrued interest receivable	290			—			290			—		—			290			195			—			195			—		—		195
Derivative assets, net	58			—			104			—		(46		)	58			102			—			39			—		63		102
Other assets	27			27			—			—		—			27			34			34			—			—		—		34
Liabilities
Deposits	(1,070		)	—			(1,070		)	—		—			(1,070		)	(1,112		)	—			(1,112		)	—		—		(1,112		)
Borrowings from other FHLBanks	(500		)	—			(500		)	—		—			(500		)
Consolidated obligations
Discount notes	(42,879		)	—			(42,870		)	—		—			(42,870		)	(29,531		)	—			(29,532		)	—		—		(29,532		)
Bonds	(93,772		)	—			(93,828		)	—		—			(93,828		)	(91,553		)	—			(92,002		)	—		—		(92,002		)
Total consolidated obligations	(136,651		)	—			(136,698		)	—		—			(136,698		)	(121,084		)	—			(121,534		)	—		—		(121,534		)
Mandatorily redeemable capital stock	(255		)	(255		)	—			—		—			(255		)	(206		)	(206		)	—			—		—		(206		)
Accrued interest payable	(268		)	—			(268		)	—		—			(268		)	(252		)	—			(252		)	—		—		(252		)
Derivative liabilities, net	(9		)	—			(139		)	—		130			(9		)	(1		)	—			(202		)	—		201		(1		)


1	Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

SUMMARY OF VALUATION TECHNIQUES AND PRIMARY INPUTS

The valuation techniques and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or non-recurring basis inon the Statements of Condition are outlined below.

Trading and AFS Investment Securities. The Bank’s valuation technique incorporates prices from multiple designated third-party pricing vendors, when available. The pricing vendors generally use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, benchmark securities and yields, reported trades, dealer estimates, issuer spreads, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established process in place to challenge investment valuations, which facilitates resolution of questionable prices identified by the Bank. Annually, the Bank conducts reviews of its pricing vendors to confirm and further augment its understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities.

The Bank’s valuation technique for estimating the fair values of its investment securities first requires the establishment of a median price for each security. All prices that are within a specified tolerance threshold of the median price are included in the cluster of prices that are averaged to compute a default price. All prices that are outside the threshold (outliers) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier (or outliers) is (are) in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security. In limited instances, when no prices are available from one of the designated pricing services, the Bank obtains prices from dealers.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, multiple prices were received for the majority of the Bank’s trading and AFS investment securities. Based on the Bank’s review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the Bank believes its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further, that the fair value measurements are classified appropriately in the fair value hierarchy.

Impaired Mortgage Loans Held for Portfolio. The fair value of impaired mortgage loans held for portfolio is estimated by obtaining property values from an external pricing vendor. This vendor utilizes multiple pricing models that generally factor in market observable inputs, including actual sales transactions and home price indices. The Bank applies an adjustment to these values to capture certain limitations in the estimation process and takes into consideration estimated selling costs and expected PMI proceeds. In limited instances, the Bank may estimate the fair value of an impaired mortgage loan by calculating the present value of expected future cash flows discounted at the loan’s effective interest rate.

Derivative Assets and ~~Liabilities.~~Liabilities and the Related Hedged Items. The fair value of derivatives is generally estimated using standard valuation techniques such as discounted cash flow analyses and comparisons to similar instruments, and includes variation margin payments for daily settled contracts. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data. The Bank is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. To mitigate credit risk on uncleared derivatives, the Bank enters into master netting agreements with its counterparties as well as collateral agreements that have collateral delivery thresholds. The Bank has evaluated the potential for the fair value of its derivatives to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.

The fair values of the Bank’s derivative assets and derivative liabilities include accrued interest receivable/payable and related cash ~~collateral remitted to/received from clearing agents and/or counterparties.~~collateral. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. The fair values of derivatives are netted by clearing agent and/or counterparty if the netting requirements are met. If these netted amounts ~~are positive,~~result in a receivable to the Bank, they are classified as an asset and, if ~~negative,~~classified as a payable to the clearing agent or counterparty, they are classified as a liability.

The Bank’s discounted cash flow model utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). The Bank uses the following inputs for measuring the fair value of interest-related derivatives:


•	Discount rate assumption. The Bank utilizes the ~~Overnight-Index Swap (OIS)~~Federal Funds OIS curve.


•	Forward interest rate assumption. The Bank utilizes the ~~London Interbank Offered Rate (LIBOR)~~LIBOR swap curve or Federal Funds OIS curve.


•	Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

For forward settlement agreements (TBAs), the Bank utilizes TBA securities prices that are determined by coupon class and expected term until settlement. For mortgage loan purchase commitments, the Bank utilizes TBA securities prices adjusted for factors such as credit risk and servicing spreads.

For the related hedged items, the fair value is estimated using a discounted cash flow analyses which typically considers the following inputs:


•	Discount rate assumption. The Bank utilizes the designated benchmark interest rate curve.


•	Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

Other Assets. These represent grantor trust assets, which are carried at estimated fair value based on quoted market prices as of the last business day of the reporting period.

Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods previously described are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, 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 ON A RECURRING BASIS

The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value inon the Statements of Condition at March 31, ~~2019~~2020 (dollars in millions):


Recurring Fair Value Measurements	Level 1		Level 2			Level 3		Netting Adjustments and Cash Collateral¹		Total			Level 1		Level 2			Level 3		Netting Adjustments and Cash Collateral¹		Total
Assets
Trading securities
U.S. obligations	$	—	$	155		$	—	$	—	$	155
U.S. Treasury obligations													$	—	$	873		$	—	$	—	$	873
Other U.S. obligations													—		140			—		—		140
GSE and Tennessee Valley Authority obligations	—		59			—		—		59			—		64			—		—		64
Othernon-MBS	—		268			—		—		268			—		262			—		—		262
GSE multifamily MBS	—		436			—		—		436			—		389			—		—		389
Total trading securities	—		918			—		—		918			—		1,728			—		—		1,728
Available-for-sale securities
U.S. obligations	—		2,495			—		—		2,495
Other U.S. obligations													—		1,975			—		—		1,975
GSE and Tennessee Valley Authority obligations	—		1,054			—		—		1,054			—		1,107			—		—		1,107
State or local housing agency obligations	—		812			—		—		812			—		760			—		—		760
Other non-MBS	—		279			—		—		279			—		292			—		—		292
U.S. obligations single-family MBS	—		4,399			—		—		4,399			—		3,892			—		—		3,892
GSE single-family MBS	—		764			—		—		764			—		609			—		—		609
GSE multifamily MBS	—		8,690			—		—		8,690			—		7,531			—		—		7,531
Total available-for-sale securities	—		18,493			—		—		18,493			—		16,166			—		—		16,166
Derivative assets, net
Interest-rate related	—		88			—		3		91			—		67			—		162		229
Mortgage delivery commitments	—		1			—		—		1
Mortgage loan purchase commitments													—		4			—		—		4
Total derivative assets, net	—		89			—		3		92			—		71			—		162		233
Other assets	30		—			—		—		30			28		—			—		—		28
Total recurring assets at fair value	$	30	$	19,500		$	—	$	3	$	19,533		$	28	$	17,965		$	—	$	162	$	18,155
Liabilities
Derivative liabilities, net
Interest-rate related	—		(145		)	—		144		(1		)	—		(449		)	—		447		(2		)
Forward settlement agreements (TBAs)	—		(1		)	—		—		(1		)	—		(7		)	—		—		(7		)
Total derivative liabilities, net	—		(146		)	—		144		(2		)	—		(456		)	—		447		(9		)
Total recurring liabilities at fair value	$	—	$	(146	)	$	—	$	144	$	(2	)	$	—	$	(456	)	$	—	$	447	$	(9	)


1	Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value inon the Statements of Condition at December 31, ~~2018~~2019 (dollars in millions):


Recurring Fair Value Measurements	Level 1		Level 2			Level 3		Netting Adjustments and Cash Collateral¹			Total			Level 1		Level 2			Level 3		Netting Adjustments and Cash Collateral¹		Total
Assets
Trading securities
U.S. obligations	$	—	$	159		$	—	$	—		$	159
Other U.S. obligations														$	—	$	150		$	—	$	—	$	150
GSE and Tennessee Valley Authority obligations	—		57			—		—			57			—		60			—		—		60
Othernon-MBS	—		266			—		—			266			—		259			—		—		259
GSE multifamily MBS	—		433			—		—			433			—		419			—		—		419
Total trading securities	—		915			—		—			915			—		888			—		—		888
Available-for-sale securities
U.S. obligations	—		2,602			—		—			2,602
Other U.S. obligations														—		2,127			—		—		2,127
GSE and Tennessee Valley Authority obligations	—		1,038			—		—			1,038			—		1,060			—		—		1,060
State or local housing agency obligations	—		814			—		—			814			—		756			—		—		756
Other non-MBS	—		275			—		—			275			—		285			—		—		285
U.S. obligations single-family MBS	—		4,483			—		—			4,483			—		4,059			—		—		4,059
GSE single-family MBS	—		796			—		—			796			—		649			—		—		649
GSE multifamily MBS	—		9,011			—		—			9,011			—		7,715			—		—		7,715
Total available-for-sale securities	—		19,019			—		—			19,019			—		16,651			—		—		16,651
Derivative assets, net
Interest-rate related	—		103			—		(46		)	57			—		39			—		63		102
Mortgage delivery commitments	—		1			—		—			1
Total derivative assets, net	—		104			—		(46		)	58
Other assets	27		—			—		—			27			34		—			—		—		34
Total recurring assets at fair value	$	27	$	20,038		$	—	$	(46	)	$	20,019		$	34	$	17,578		$	—	$	63	$	17,675
Liabilities
Derivative liabilities, net
Interest-rate related	—		(139		)	—		130			(9		)	—		(202		)	—		201		(1		)
Total recurring liabilities at fair value	$	—	$	(139	)	$	—	$	130		$	(9	)	$	—	$	(202	)	$	—	$	201	$	(1	)


1	Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

FAIR VALUE ON A NON-RECURRING BASIS

The Bank measures certain impaired mortgage loans held for portfolio at level 3 fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances. At ~~both~~ March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, impaired mortgage loans held for portfolio recorded at fair value as a result of a non-recurring change in fair value were $1 million and $2 million. These fair values were as of the date the fair value adjustment was recorded during the three months ended March 31, ~~2019~~2020 and year-ended December 31, ~~2018.~~

2019.

Note 1410 — Commitments and Contingencies

Joint and Several Liability. The FHLBanks have joint and several liability for all consolidated obligations issued. Accordingly, if an FHLBank were unable to repay any consolidated obligation for which it is the primary obligor, each of the other FHLBanks could be called upon by the Finance Agency to repay all or part of such obligations. No FHLBank has ever been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank. At March 31, ~~2019~~2020 and December 31, ~~2018~~2019, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which the Bank is jointly and severally liable was approximately ~~$873.7~~$1,057.7 billion and ~~$894.5~~$904.9 billion.

The following table summarizes additional off-balance sheet commitments for the Bank (dollars in millions):


	March 31, 2019						December 31, 2018		March 31, 2020						December 31, 2019
	Expire within one year		Expire after one year		Total		Total		Expire within one year		Expire after one year		Total¹		Total¹
Standby letters of credit¹	$	8,553	$	151	$	8,704	$	9,094
Standby letters of credit²									$	9,530	$	121	$	9,651	$	10,193
Standby bond purchase agreements	227		425		652		675		42		774		816		819
Commitments to purchase mortgage loans	163		—		163		101		348		—		348		127
Commitments to issue bonds	1,492		—		1,492		60		133		—		133		—
Commitments to fund advances	26		6		32		50		954		—		954		527


1	The Bank has deemed it unnecessary to record any liability for credit losses on these agreements.


2	Excludes commitments to issue standby letters of credit of ~~less than $1~~$9 million and $3$34 million at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

Standby Letters of Credit. The Bank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. ~~All standby letters of credit, similar to advances, are fully collateralized at the time of issuance and subject to member borrowing limits as established by the Bank.~~ Standby letters of credit may be offered to assist members 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 with members for a fee. If the Bank is required to make payment for a beneficiary’s draw, the member either reimburses the Bank for the amount drawn or, subject to the Bank’s discretion, the amount drawn may be converted into a collateralized advance to the member. The original terms of standby letters of credit outstanding at March 31, 2020, range from less than one month to 13 years, currently no later than 2025. The carrying value of guarantees related to standby letters of credit are recorded in “Other liabilities” inon the Statements of Condition and amounted to $2 million at both March 31, ~~2019~~2020 and December 31, ~~2018~~2019.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of its borrowers. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit. ~~Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have any provision for credit losses on these standby letters of credit.~~ All standby letters of credit, ~~are subject~~similar to ~~the same collateralization and borrowing limits that apply to~~ advances, ~~and~~ are fully collateralized at the time of ~~issuance.~~issuance and subject to member borrowing limits as established by the Bank.

Standby Bond Purchase Agreements. The Bank has entered into standby bond purchase agreements with state housing associates within its district whereby, for a fee, it agrees to serve as a standby liquidity provider if required, to purchase and hold the housing associate’s bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which the Bank would be required to purchase the ~~bonds.~~bonds and typically allows the Bank to terminate the agreement upon the occurrence of a default event of the issuer. At March 31, ~~2019~~2020, the Bank had standby bond purchase agreements with ~~seven~~7 housing associates. The standby bond purchase commitments entered into by the Bank have original expiration periods of up to seven years, currently no later than ~~2024.~~2025. During both the three months ended March 31, ~~2019~~2020 and ~~2018~~2019, the Bank was not required to purchase any bonds under these agreements.

Commitments to Purchase Mortgage Loans. The Bank enters into commitments that unconditionally obligate it to purchase mortgage loans from its members. ~~Commitments are generally for periods not to exceed 45 days.~~ These commitments are considered derivatives and their estimated fair value at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 is reported in “Note 106 — Derivatives and Hedging Activities” as mortgage ~~delivery~~loan purchase commitments.

Commitments to Issue Bonds. The Bank enters into commitments to issue consolidated obligation bonds and discount notes outstanding in the normal course of its business. At March 31, ~~2019~~2020 ~~and December 31, 2018,~~, the Bank had commitments to issue ~~$1.5 billion and $60~~$133 million of consolidated obligation bonds. At December 31, 2019, the Bank had no commitments to issue consolidated obligation bonds.

Commitments to Fund Advances. The Bank enters into commitments ~~that legally bind it~~ to fund additional advances up to 24 months in the future. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had commitments to fund advances of ~~$32~~$954 million and ~~$50~~$527 million.

Other Commitments. For each MPF master commitment, the Bank’s potential loss exposure prior to the PFI’s credit enhancement obligation is estimated and tracked in a memorandum account called the ~~FLA.~~first loss account (FLA). For absorbing certain losses in excess of the FLA, PFIs are paid a credit enhancement fee, a portion of which may be performance-based. To the extent the Bank experiences losses under the FLA, it may be able to recapture performance-based credit enhancement fees paid to the PFI to offset these losses. The FLA balance for all MPF master commitments with a PFI credit enhancement obligation was ~~$117~~$142 million and ~~$115~~$138 million at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

Legal Proceedings. As a result of the merger with the Federal Home Loan Bank of Seattle (Seattle Bank), the Bank has been involved in a number of legal proceedings initiated by the Seattle Bank against various entities relating to its purchases and subsequent impairment of certain private-label MBS. Of the 11 cases initially filed, one has been dismissed, two have been settled in part and dismissed in part, and eight have been settled. The Bank appealed the one complete dismissal and two partial dismissals covering the claims related to five certificates across three different cases. The appellate court affirmed the dismissal of the claims related to four certificates in December 2017 and affirmed the dismissal of the remaining certificate in May 2018. In January 2018, the Bank filed petitions for discretionary review of the appellate court’s rulings in December 2017 related to four of the certificates with the Washington Supreme Court. On May 3, 2018, the Court granted those petitions. The aggregate consideration paid for these four certificates is $567 million. Oral arguments were heard on October 9, ~~2018 and the Bank is currently awaiting the Court’s decision.~~2018. In June 2018, the Bank filed a petition for discretionary review of the appellate court’s ruling in May 2018 on the fifth certificate. The aggregate consideration paid for that one certificate is $200 million. ~~The~~

On October 3, 2019, the Washington Supreme Court ~~has not yet acted~~reversed the judgment of the appellate court on ~~that petition.~~the four certificates

covered by the Bank’s petition of January 2018 and reinstated the Bank’s claims on those four certificates. Trials for the two cases relating to these reinstated claims have been scheduled for July and August of 2020. With respect to the fifth certificate, on January 30, 2020, the Washington Supreme Court remanded the case to the appellate court for reconsideration in light of the Court’s reversal on the claims for the other four certificates. On March 16, 2020, the appellate court remanded the case to the trial court. On March 25, 2020, the Bank entered into a settlement agreement with one of the defendants in connection with two of the certificates for the aggregate amount of approximately $56 million (after netting certain legal fees and expenses). Other than the private-label MBS litigation, the Bank does not believe any legal proceedings to which it is a party could have a material impact on its financial condition, results of operations, or cash flows.

Litigation settlement gains are considered realized and recorded when the Bank receives cash or assets that are readily convertible to known amounts of cash or claims to cash. In addition, litigation settlement gains are considered realizable and recorded when the Bank enters into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized or realizable, the Bank considers potential litigation settlement gains to be gain contingencies, and therefore they are not recorded in the Statements of Income.

The Bank records legal expenses related to litigation settlements as incurred in other expenses inon the Statements of Income with the exception of certain legal expenses related to litigation settlement awards that are contingent based fees for the attorneys representing the Bank. The Bank incurs and recognizes these contingent based legal fees only when litigation settlement awards are realized, at which time these fees are netted against the gains recognized on the litigation settlement. During the three months ended March 31, ~~2019~~2020 ~~and 2018,~~, the Bank recognized $56 million in net gains on litigation settlements through other income (loss), due to the settlement of one of the Bank’s private-label MBS claims. During the three months ended March 31, 2019, the Bank did not recognize net gains on litigation settlements.

Note 1511 — Activities with Stockholders

The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31^st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank. All transactions with stockholders are entered into in the ordinary course of business.

TRANSACTIONS WITH DIRECTORS’ FINANCIAL INSTITUTIONS

In the normal course of business, the Bank extends credit to its members whose directors and officers serve as Bank directors (Directors’ Financial Institutions). Finance Agency regulations require that transactions with Directors’ Financial Institutions be made on the same terms and conditions as those with any other member.

The following table summarizes the Bank’s outstanding transactions with Directors’ Financial Institutions (dollars in millions):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Advances	$	4,613	5	$	6,991	7	$	4,613	6	$	3,337	4
Mortgage loans	113		1	96		1	211		2	208		2
Deposits	10		1	12		1	10		1	27		2
Capital stock	229		4	328		6	235		5	182		4

BUSINESS CONCENTRATIONS

The Bank considers itself to have business concentrations with stockholders owning 10 percent or more of its total capital stock outstanding (including mandatorily redeemable capital stock). At March 31, ~~2019~~2020, and December 31, 2019, the Bank had the following business concentrations with stockholders (dollars in millions):



	March 31, 2020
	Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total¹	Advances		Loans		Income²
Wells Fargo Bank, N.A.	$	709	15	$	17,450	$	20	$	113
Superior Guaranty Insurance Company³	14		—	—		334		—
Total	$	723	15	$	17,450	$	354	$	113

Capital Stock Mortgage Interest
Stockholder Amount
% of Total¹
Advances Loans
Income²
Wells Fargo Bank, N.A. $ 1,954
36 $ 48,575
$ 24
$ 341
Superior Guaranty Insurance Company³
17
— —
404
—
Total $ 1,971
36 $ 48,575
$ 428
$ 341


1	Pursuant to applicable Finance Agency regulations, the Bank’s voting structure limits the voting rights of these stockholders and other members holding a significant amount of the Bank’s capital stock.


2	Represents interest income earned on advances during the three months ended March 31, 2019. Interest income on mortgage loans is excluded from this table as this interest relates to the borrower, not to the stockholder.


3	~~Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.~~

At ~~December 31, 2018, the Bank had the following business concentrations with stockholders (dollars in millions):~~


										December 31, 2019
	Capital Stock					Mortgage		Interest		Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total¹	Advances		Loans		Income²		Amount		% of Total¹	Advances		Loans		Income²
Wells Fargo Bank, N.A.	$	1,994	35	$	49,575	$	25	$	1,167	$	1,029	22	$	25,450	$	21	$	1,059
Superior Guaranty Insurance Company³	18		—	—		420		—		15		—	—		350		—
Total	$	2,012	35	$	49,575	$	445	$	1,167	$	1,044	22	$	25,450	$	371	$	1,059


1	Pursuant to applicable Finance Agency regulations, the Bank’s voting structure limits the voting rights of these stockholders and other members holding a significant amount of the Bank’s capital stock.


2	Represents interest income earned on advances during the three months ended March 31, 2020 and the year ended December 31, ~~2018.~~2019. Interest income on mortgage loans is excluded from this table as this interest relates to the borrower, not to the stockholder.


3	Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.

Note 1612 — Activities with Other FHLBanks

Overnight Funds. The Bank may lend or borrow unsecured overnight funds to or from other FHLBanks. All such transactions are at current market rates. The following table summarizes loan activity to other FHLBanks during the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (dollars in millions):


Other FHLBank	Beginning Balance		Loans		Principal Repayment			Ending Balance		Beginning Balance		Loans		Principal Repayment			Ending Balance
2020
Boston										$	—	$	250	$	(250	)	$	—

2019
Atlanta	$	—	$	565	$	(565	)	$	—	$	—	$	565	$	(565	)	$	—

2018
Boston	$	—	$	200	$	(200	)	$	—
San Francisco	—		300		(300		)	—
Dallas	—		500		(500		)	—
	$	—	$	1,000	$	(1,000	)	$	—

During the three months ended March 31, 2020, the Bank did not borrow funds from other FHLBanks. The following table summarizes borrowing activity from other FHLBanks during the three months ended March 31, 2019 ~~and 2018~~ (dollars in millions):


Other FHLBank	Beginning Balance		Borrowing		Principal Payment			Ending Balance		Beginning Balance		Borrowing		Principal Payment			Ending Balance
2019
Atlanta	$	500	$	—	$	(500	)	$	—	$	500	$	—	$	(500	)	$	—

2018
Atlanta	$	200	$	—	$	(200	)	$	—
Boston	400		—		(400		)	—
	$	600	$	—	$	(600	)	$	—

At March 31, ~~2019~~2020 and ~~2018,~~2019, none of the previous transactions were outstanding on the Bank’s Statements of Condition. The interest income and expense related to this activity were immaterial.

Note 1713 — Subsequent Events

Subsequent events have been evaluated from April 1, ~~2019,~~2020, through the time of the Form 10-Q filing with the Securities and Exchange Commission. No material subsequent events requiring disclosure were identified.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations should be read in conjunction with our financial statements and condensed notes at the beginning of this Form 10-Q and in conjunction with our MD&A and Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission (SEC) on March ~~15, 2019 (2018~~11, 2020 (2019 Form 10-K). Our MD&A is designed to provide information that will help the reader develop a better understanding of our financial statements, key financial statement changes from quarter to quarter, and the primary factors driving those changes. Our MD&A is organized as follows:

FORWARD-LOOKING INFORMATION

Statements contained in this report, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should, may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements. These risks and uncertainties include, but are not limited to, the following:

general economic and market conditions that could impact the business we do with our members, including, but not limited to, the timing and volatility of market activity, the continued impact of the coronavirus pandemic (COVID-19), inflation/deflation, employment rates, housing prices, the condition of the mortgage and housing markets on our mortgage-related assets, including the level of mortgage prepayments, the valuation of pledged collateral, and the condition of the capital markets on our consolidated obligations;

the ability to develop and support internal controls, business processes, information systems, and other operating technologies that effectively manage the risks we face, including but not limited to, cyber-attacks, widespread health emergencies such as COVID-19, and other business interruptions;

political or economic events, including legislative, regulatory, monetary, judicial, or other developments that affect us, our members, our counterparties, and/or our investors in the consolidated obligations of the 11 Federal Home Loan Banks (FHLBanks);

the ability to meet capital and other regulatory requirements;

~~disruptions in the credit and debt markets and the effect on future funding costs, sources, and availability;~~

the ability to develop and support internal controls, information systems, and other operating technologies that effectively manage the risks we face, including but not limited to, cyber-attacks and other business interruptions;

~~risks related to the other FHLBanks that could trigger our joint and several liability for debt issued by the other FHLBanks;~~

general economic and market conditions that could impact the volume of business we do with our members, including, but not limited to, the timing and volatility of market activity, inflation/deflation, employment rates, housing prices, the condition of the mortgage and housing markets on our mortgage-related assets, including the level of mortgage prepayments, and the condition of the capital markets on our consolidated obligations;

~~ineffective use of hedging strategies or the availability of derivative instruments in the types and quantities needed for risk management purposes from acceptable counterparties;~~

~~changes in the relative attractiveness of consolidated obligations due to actual or perceived changes in the FHLBanks’ credit ratings as well as the U.S. Government’s long-term credit rating;~~

competitive forces, including without limitation, other sources of funding available to our borrowers that could impact the demand for our advances, other entities purchasing mortgage loans in the secondary mortgage market, and other entities borrowing funds in the capital markets;

reliance on a relatively small number of member institutions for a large portion of our advance business;

replacement of the London Interbank Offered Rate (LIBOR) benchmark interest rate and transition to an alternative benchmark;

member consolidations and failures;

disruptions in the credit and debt markets and the effect on future funding costs, sources, and availability;

ineffective use of hedging strategies or the availability of derivative instruments in the types and quantities needed for risk management purposes from acceptable counterparties;

the volatility of reported results due to changes in the fair value of certain assets, liabilities, and derivative instruments;

risks related to the other FHLBanks that could trigger our joint and several liability for debt issued by the other FHLBanks;

changes in the relative attractiveness of consolidated obligations due to actual or perceived changes in the FHLBanks’ credit ratings as well as the U.S. Government’s long-term credit rating;

increases in delinquency or loss estimates on mortgage loans;

the ability to attract and retain key personnel;

significant business interruptions resulting from third party failures; and

the volatility of credit quality, market prices, interest rates, and other indices that could affect the value of collateral held by us as security for borrower and counterparty ~~obligations;~~

~~reliance on a relatively small number of member institutions for a large portion of our advance business;~~

~~the ability to attract and retain key personnel;~~

~~significant business interruptions resulting from third party failures;~~

~~the volatility of reported results due to changes in the fair value of certain assets, liabilities, and derivative instruments;~~

~~member consolidations and failures;~~

~~increases in delinquency or loss estimates on mortgage loans; and~~

~~replacement of the London Interbank Offered Rate (LIBOR) benchmark interest rate and transition to an alternative benchmark.~~

obligations.

For additional information regarding these and other risks and uncertainties that could cause our actual results to differ materially from the expectations reflected in our forward-looking statements, see “Item 1A. Risk Factors” in this quarterly report and in our ~~2018~~2019 Form 10-K. ~~You are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.~~ Forward-looking statements apply only as of the date they are made, and we undertake no obligation to update or revise any forward-looking statement.

EXECUTIVE OVERVIEW

Our Bank is a member-owned cooperative serving shareholder members in our district. Our mission is to be a reliable provider of funding, liquidity, and services for our members so that they can meet the housing, business, and economic development needs of the communities they serve. We strive to achieve our mission within an operating ~~principle~~model that balances the trade-off between attractively priced products, reasonable returns on capital stock, maintaining an adequate level of capital to meet regulatory capital requirements, and maintaining adequate retained earnings to preserve the par value of member-owned capital stock. Our members include commercial banks, savings institutions, credit unions, insurance companies, and ~~CDFIs.~~community development financial institutions (CDFIs).

COVID-19

The effects of COVID-19 and the response to the virus have negatively impacted financial markets and overall economic conditions. We strive to be a readily available and reliable source of liquidity in all economic environments and remain dedicated to meeting the needs of members through these challenging and unusual times. We are focused on both the health and safety of our employees. As such, employees who are designated essential continue to work in our offices, while employees considered non-essential are working remotely. We do not expect the change in working arrangements to impair our ability to meet the needs of our members. The effects of COVID-19 are rapidly evolving, and the full impact and duration of the virus are unknown. As a result of the recent market volatility, our financial performance has been adversely impacted. The extent of the impact to our future performance will depend upon how long the current conditions persist. For additional information, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Conditions in the Financial Markets — Economy and Financial Markets” and “Item 1A. Risk Factors.”

Financial Results

For the three months ended March 31, ~~2019,~~2020, we reported net income of ~~$112~~$92 million compared to ~~$118~~$112 million for the same period in ~~2018.~~2019. The decline in our net income for the three months ended March 31, ~~2019,~~2020, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was primarily driven by ~~an increase in other expense mainly due to an increase in professional fees and other operating expenses, as further described below. Net income was also impacted by~~ a ~~slight improvement~~decrease in net interest income, offset in part by ~~a decline~~an increase in other income.

Net interest income ~~increased to $159~~totaled $109 million for the three months ended March 31, ~~2019~~2020 compared to ~~$157~~$159 million for the same period last year. The ~~improvement in net interest income~~decline during the three months ended March 31, 2020 was primarily due to ~~an increase~~a decrease in net interest margin ~~offset in part by~~and a decline in average advance volumes. Our net interest margin was ~~0.45~~0.35 percent during the three months ended March 31, ~~2019~~2020 compared to ~~0.42~~0.45 percent for the same period in ~~2018.~~2019. The ~~increase~~decrease in net interest margin was primarily attributable to ~~the higher interest rate environment offset in part by~~ lower asset liability spreads ~~due to increased costs~~and declining interest rates. In addition, we incurred losses of $12 million on our ~~interest-bearing liabilities.~~fair value hedge relationships which stemmed from market volatility caused by COVID-19.

We recorded net gains of $5$36 million in other income (loss) for the three months ended March 31, ~~2019~~2020 compared to net gains of $8$5 million for the same period last year. ~~Other~~During the three months ended March 31, 2020, other income (loss) was primarily impacted by net gains on litigation settlements of $56 million as a result of a settlement with a defendant in our private-label MBS litigation. We did not record any litigation settlements during the three months ended March 31, 2019. Other factors impacting other income (loss) included net gains (losses) on trading securities and net gains (losses) on derivatives and hedging activities, ~~and net gains (losses) on trading securities,~~ as described below.

During the three months ended March 31, ~~2019,~~2020, we recorded net gains on trading securities of $26 million compared to net gains of $10 million for the same period last year. These changes in fair value were primarily due to the impact of changes in interest rates and credit spreads on our fixed rate trading securities which stemmed from market volatility caused by COVID-19.

During the three months ended March 31, 2020, we recorded net losses of ~~$12~~$48 million on our derivatives and hedging activities through other income (loss) compared to net ~~gains~~losses of ~~$20~~$12 million during the same period last year. The fair value changes were primarily driven by changes in interest rates which impacted the fair value ~~on our~~of interest rate swaps used to economically hedge our investment securities portfolio. During the three months ended March 31, 2019, we recorded net gains on trading securities of $10 million compared to net losses of $16 million for the same period in 2018. These changes in fair value were primarily due to the impact ofThe changes in interest rates ~~and credit spreads on our fixed rate trading securities.~~were primarily driven by market volatility caused by COVID-19.

Other expense totaled $39 million for the three months ended March 31, 2019 compared to $33 million for the same period in 2018, primarily due to increased professional fees and other operating expenses. The increase in professional fees was the result of hiring external resources to assist with multiple ongoing technology and operational initiatives. The increase in other operating expenses was primarily due to an increase in depreciation expense, mainly due to the depreciation of furnishings associated with the new building we moved into in 2018 and increased amortization due to a reduction in useful life of one of the Bank’s information technology systems.

Our total assets decreased to ~~$146.0~~$126.1 billion at March 31, ~~2019,~~2020, from ~~$146.5~~$129.6 billion at December 31, ~~2018, driven by~~2019, primarily due to a decrease in ~~advances,~~investments of $2.8 billion. Money market investments decreased by $3.1 billion from December 31, 2019. This decline was offset in part by an increase in ~~investments. Advances at March 31, 2019 decreased by $7.1~~U.S. Treasuries of $0.9 billion from advances at December 31, 2018 due primarily to a decrease in borrowings by large depository institution members. Investments increased by $6.5 billion from December 31, 2018 primarily due to an increase in money market investments as a result of increasedthat we purchased and utilized for liquidity ~~holdings~~management during the first quarter of ~~2019.~~2020.

Our total liabilities decreased to $119.3 billion at March 31, 2020, from $122.9 billion at December 31, 2019, primarily driven by a decrease in the amount of consolidated obligations needed to fund our assets.

Total capital remained relatively stable at ~~$138.7~~$6.7 billion at March 31, ~~2019, from $139.0 billion at~~2020 compared to December 31, ~~2018.~~

~~Total capital decreased to $7.4 billion at March 31, 2019 from $7.5 billion at December 31, 2018, primarily due to a decrease in activity-based stock resulting from a decline in member activity.~~2019. Our regulatory capital ratio ~~decreased~~increased to ~~5.14~~5.51 percent at March 31, ~~2019,~~2020, from ~~5.27~~5.31 percent at December 31, ~~2018,~~2019, and was above the required regulatory limit at each period end. Regulatory capital includes all capital stock, mandatorily redeemable capital stock, and retained earnings.

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition” for additional discussion on our financial condition.

Adjusted Earnings

As part of evaluating our financial performance, we adjust GAAP net interest income and GAAP net income before assessments for the impact of (i) market adjustments relating to derivative and hedging activities and instruments held at fair value, (ii) realized gains (losses) on investment securities, and (iii) other non-routine and unpredictable items, including net asset prepayment fee income, mandatorily redeemable capital stock interest expense, and net gains on litigation settlements. The resulting non-GAAP measure, referred to as our adjusted earnings, reflects both adjusted net interest income and adjusted net income.

Because our business model is primarily one of holding assets and liabilities to maturity, management believes that the adjusted earnings measure is helpful in understanding our operating results and provides a meaningful period-to-period comparison of our economic performance in contrast to GAAP results, which can be impacted by fair value changes driven by market volatility on financial instruments recorded at fair value or transactions that are considered to be unpredictable or not routine. As a result, management uses the adjusted earnings measure to assess performance under our incentive compensation plans. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. While these non-GAAP measures can be used to assist in understanding the components of our earnings, they should not be considered a substitute for results reported under GAAP.

The adjusted net income methodology is calculated on a post Affordable Housing Program (AHP) assessment basis. Management believes AHP assessments are a fundamental component of our business and believes this assessment should be included in our adjusted net income calculation. In addition, this treatment aligns the adjusted net income results to our strategic business plan which is calculated on a post AHP assessment basis.

As indicated in the tables that follow, our adjusted net interest income and adjusted net income ~~increased~~decreased during the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018.~~2019. The ~~improvement in~~decline was driven by lower adjusted net interest income ~~was primarily~~ due to ~~an increase~~a decrease in net interest margin ~~offset by lower~~and a decline in average advance volumes as previously noted.

The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
GAAP net interest income	$	159		$	157		$	109		$	159
Exclude:
Prepayment fees on advances, net¹	—			5			4			—
Prepayment fees on investments, net²	3			3			1			3
Mandatorily redeemable capital stock interest expense	(3		)	(4		)	(3		)	(3		)
Market value adjustments on fair value hedges³							(12		)	—
Total adjustments	—			4			(10		)	—
Include items reclassified from other income (loss):
Net interest expense on economic hedges	—			(2		)	(1		)	—
Adjusted net interest income	$	159		$	151		$	118		$	159
Adjusted net interest margin	0.45		%	0.40		%	0.37		%	0.45		%


1	Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.


2	Prepayment fees on investments, net includes basis adjustment amortization and premium and/or discount amortization.


3	Represents gains (losses) on derivatives and hedged items in qualifying hedging relationships. Amounts do not include the amortization of the financing element of off-market derivatives.

The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income (dollars in millions):


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
GAAP net income before assessments	$	125		$	132		$	102		$	125
Exclude:
Prepayment fees on advances, net¹	—			5			4			—
Prepayment fees on investments, net²	3			3			1			3
Mandatorily redeemable capital stock interest expense	(3		)	(4		)	(3		)	(3		)
Market value adjustments on fair value hedges³							(12		)	—
Net gains (losses) on trading securities	10			(16		)	26			10
Net gains (losses) on derivatives and hedging activities	(12		)	20			(48		)	(12		)
Gains on litigation settlements, net							56			—
Include:
Net interest expense on economic hedges	—			(2		)	(1		)	—
Adjusted net income before assessments	127			122			77			127
Adjusted AHP assessments³	13			12
Adjusted AHP assessments⁴							8			13
Adjusted net income	$	114		$	110		$	69		$	114


1	Prepayment fees on advances, net includes basis adjustment amortization and premium and/or discount amortization.


2	Prepayment fees on investments, net includes basis adjustment amortization and premium and/or discount amortization.


3	Represents gains (losses) on derivatives and hedged items in qualifying hedging relationships. Amounts do not include the amortization of the financing element of off-market derivatives.


4	Adjusted AHP assessments for this non-GAAP measure are calculated as 10 percent of adjusted net income before assessments. For additional discussion on AHP assessments, refer to “Item 8. Financial Statements and Supplementary Data — Note 14 — Affordable Housing Program” in our 2019 10-K.

For additional discussion on items impacting our GAAP earnings, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

Replacement of the LIBOR Benchmark Interest Rate

In July 2017, the United Kingdom’s Financial Conduct Authority, ~~(FCA), a regulator of financial services firms and financial markets in the U.K.,~~which regulates LIBOR, announced that after 2021 it will no longer ~~persuade or~~ compel banks to submit rates for the calculation of LIBOR. ~~The~~In response, the Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee to identify a set of alternative reference interest rates for possible use as market benchmarks. This committee has proposed Secured Overnight Financing Rate (SOFR) as its recommended alternative to U.S. dollar LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in ~~April~~the second quarter of 2018. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities.

On September 27, 2019, the Finance Agency issued a Supervisory Letter to all FHLBanks providing LIBOR transition guidance. The Supervisory Letter stated that by March 31, 2020, the FHLBanks should no longer enter into new financial assets, liabilities, and derivatives that reference LIBOR and mature after December 31, 2021 for all product types other than investments. For investments, the Supervisory Letter indicated the FHLBanks, by December 31, 2019, should stop purchasing investments that reference LIBOR and mature after December 31, 2021. We ceased purchasing investments that reference LIBOR in 2018. As a result of market volatility triggered in part by COVID-19, on March 16, 2020, the Finance Agency extended from March 31, 2020 to June 30, 2020 the FHLBanks’ ability to enter into instruments referencing LIBOR that mature after December 31, 2021, except for investments and option embedded products. For additional information on the Finance Agency’s supervisory letter, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments.”

As noted throughout this report, many of our advances, investments, consolidated obligation bonds, ~~derivative assets, derivative liabilities,~~derivatives, and related collateral are indexed to LIBOR. Some of these assets and liabilities and related collateral have maturity dates that extend beyond 2021.

We are ~~evaluating the potential impact of the replacement of the~~preparing for a transition away from LIBOR as a benchmark interest rate ~~including the possibility of~~and plan to utilize SOFR as the dominant replacement on an ongoing basis. We have ~~offered SOFR indexed advances and issued SOFR indexed debt. We have also~~ developed ~~an evolving~~a transition plan that will change with market developments and member ~~needs.~~ needs and addresses considerations such as LIBOR exposure, member products, fallback language, which provides for contractual alternatives to the use of LIBOR when LIBOR cannot be determined based on the method provided in the agreement, operational preparedness, and balance sheet management.

In assessing our current exposure to LIBOR, we have developed an inventory of financial instruments impacted and identified contracts that may require adding or adjusting the fallback language. We have added or adjusted fallback language to our advance agreements with members and added fallback language to our consolidated obligation agreements. We continue to monitor the market-wide efforts to address fallback language related to derivatives and investment securities as well as fallback language for new activities and issuances of financial instruments. We are in the process of ensuring we are operationally ready, including updating our processes and information technology systems to support the transition from LIBOR to an alternative reference rate.

Market activity in SOFR-indexed financial instruments continues to increase and we continue to offer SOFR-indexed advances and issue SOFR-indexed debt. While we have reduced our use of LIBOR-indexed derivatives, we continue to execute LIBOR-indexed derivatives to manage interest-rate risk and to monitor market wide efforts to address fallback language related to LIBOR-linked derivative transactions. In 2020, we began utilizing the Federal Funds Overnight Index Swap (OIS) rate as an interest-rate hedge strategy for certain financial instruments as an alternative to using LIBOR when entering into new derivative transactions.

The following tables summarize our variable rate advances, investments, consolidated obligation bonds and derivatives by interest-rate index at March 31, 2020 and December 31, 2019 (in millions):



	March 31, 2020
	LIBOR		SOFR		OIS		Other		Total
Advances, principal amount	$	17,742	$	500	$	—	$	12,672	$	30,914
Investment securities
Non-mortgage-backed securities, principal amount	2,052		—		—		—		2,052
Mortgage-backed securities, principal amount	8,698		—		—		1		8,699
Total investment securities	10,750		—		—		1		10,751
Consolidated bonds, principal amount	38,548		10,967		—		—		49,515
Total variable rate financial instruments amount	$	67,040	$	11,467	$	—	$	12,673	$	91,180

Derivatives
Pay leg, notional amount	14,220		—		—		—		14,220
Receive leg, notional amount	19,665		—		5,583		—		25,248



	December 31, 2019
	LIBOR		SOFR		Other		Total
Advances, principal amount	$	22,919	$	500	$	17,605	$	41,024
Investment securities
Non-mortgage-backed securities, principal amount	2,120		—		—		2,120
Mortgage-backed securities, principal amount	9,345		—		1		9,346
Total investment securities	11,465		—		1		11,466
Consolidated obligation bonds, principal amount	48,970		3,967		—		52,937
Total variable rate financial instruments amount	$	83,354	$	4,467	$	17,606	$	105,427

Derivatives
Pay leg, notional amount	17,473		—		—		17,473
Receive leg, notional amount	21,249		—		—		21,249

The following tables present our exposure to LIBOR-indexed advances, investments, consolidated obligation bonds and derivatives at March 31, 2020 and December 31, 2019 (in millions):



	March 31, 2020
	Due in 2020		Due in 2021		Thereafter		Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term	$	6,168	$	10,936	$	638	$	17,742
Investment securities, by contractual maturity¹
Non-mortgage-backed securities, principal amount	8		—		2,044		2,052
Mortgage-backed securities, principal amount	—		12		8,686		8,698
Derivatives, receive leg
Cleared, notional amount	2,531		2,655		9,186		14,372
Uncleared, notional amount	92		505		4,696		5,293
Total Principal/Notional Amount	$	8,799	$	14,108	$	25,250	$	48,157

Liabilities Indexed to LIBOR
Consolidated obligation bonds, principal amount by contractual maturity	$	33,608	$	4,940	$	—	$	38,548
Derivatives, pay leg
Cleared, notional amount	3,644		8,837		1,004		13,485
Uncleared, notional amount	164		168		403		735
Total Principal/Notional Amount	$	37,416	$	13,945	$	1,407	$	52,768


1	MBS are presented by contractual maturity, however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.



	December 31, 2019
	Due in 2020		Due in 2021		Thereafter		Total
Assets Indexed to LIBOR
Advances, principal amount by redemption term	$	10,445	$	11,886	$	588	$	22,919
Investment securities, by contractual maturity¹
Non-mortgage-backed securities, principal amount	8		—		2,112		2,120
Mortgage-backed securities, principal amount	—		12		9,333		9,345
Derivatives, receive leg
Cleared, notional amount	3,425		2,763		9,445		15,633
Uncleared, notional amount	157		514		4,945		5,616
Total Principal/Notional Amount	$	14,035	$	15,175	$	26,423	$	55,633

Liabilities Indexed to LIBOR
Consolidated obligation bonds, principal amount by contractual maturity	$	44,780	$	4,190	$	—	$	48,970
Derivatives, pay leg
Cleared, notional amount	6,882		8,837		1,004		16,723
Uncleared, notional amount	179		168		403		750
Total Principal/Notional Amount	$	51,841	$	13,195	$	1,407	$	66,443


1	MBS are presented by contractual maturity, however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

For a summary of our ~~risk factor~~risks on the ~~possible~~ replacement of the LIBOR benchmark interest rate, refer to “Item 1A. Risk Factors” in our ~~2018~~2019 Form 10-K.

CONDITIONS IN THE FINANCIAL MARKETS

Economy and Financial Markets

COVID-19 has harmed communities and disrupted economic activity in many countries, including the U.S. Available economic data show that the U.S. economy came into this challenging period on a strong footing. Economic and market data received since the Federal Open Market Committee (FOMC or Committee) meeting in January of ~~2019~~2020 indicates that the labor market ~~remains~~remained strong ~~but growth of~~through February and economic activity ~~has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job~~rose at a moderate rate. Job gains ~~have~~had been solid, on average, ~~in recent months. Recent indicators point to slower growth of~~through February, and the unemployment rate remained low. Although household spending ~~and~~rose at a moderate pace, business fixed investment inand exports remained weak. More recently, the ~~first quarter.~~energy sector has come under stress. On a 12-month basis, overall inflation ~~has declined, largely a result of lower energy prices; inflation for items other than~~and measures excluding food and energy ~~remains near~~prices are running below the FOMC’s target of two percent. Market-based measures of inflation compensation have ~~remained low in recent months,~~declined, and survey-based measures of longer-term inflation expectations are little changed.

In ~~its~~ March ~~20, 2019 statement,~~2020, the FOMC stated it continues to seek to foster maximum employment and price stability. The effects of COVID-19 will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee ~~continues~~stated that it decided to ~~view sustained expansion of~~lower the target range for the Federal funds rate by 150 basis points, to zero to 0.25 percent. The Committee stated that it expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action is expected to help support economic activity, strong labor market conditions, and inflation ~~near~~returning to the Committee’s two percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the Federal funds rate may be appropriate to support these outcomes.objective.

~~Mortgage Markets~~

~~The housing market softened in sales and prices during the first quarter of 2019, due to the slowing of economy activity and the seasonality of home sales.~~

Mortgage rates decreased slightly during the first quarter, but were higher on average than rates observed in the prior year. The decrease in rates during the first quarter has resulted in a slight increase in refinance activity versus purchase activity.

~~Interest Rates~~

~~The following table shows information on key market interest rates~~¹:

First Quarter 2019
3-Month Average

First Quarter 2018
3-Month Average

March 31, 2019
Ending Rate

December 31, 2018
Ending Rate
Federal funds 2.40 % 1.45 % 2.43 % 2.40 %
Three-month LIBOR 2.69
1.93
2.60
2.81
2-year U.S. Treasury 2.49
2.16
2.26
2.49
10-year U.S. Treasury 2.65
2.76
2.41
2.69
30-year residential mortgage note 4.39
4.27
4.06
4.55


1	~~Source is Bloomberg.~~

In its March 2019 meeting, the FOMC decided to maintain the Federal Reserve’s key target interest rate, the Federal funds rate, at a range of 2.25 to 2.50 percent compared to a range of 1.50 to 1.75 percent for the same period in 2018. In determining the timing and size of future adjustments to the target range for the Federal funds rate, the FOMC stated that it will assess realized and expected economic conditions relative to its maximum employment and ~~its~~a two percent inflation ~~objective.~~rate. The assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures, inflation expectations, and financial and international developments.

Throughout March, as the spread of COVID-19 and the expected economic impact increased, the Federal Reserve and Congress implemented a multitude of programs to help stabilize market conditions. The Federal Reserve announced the implementation of many 2008/2009 tools, including but not limited to expanded repurchase facilities, the purchase of U.S. Treasuries, agency MBS, and commercial MBS, a commercial paper liquidity facility, and discount window changes. Congress signed a record $2.2 trillion Coronavirus Aid, Recovery and Economic Stability (CARES) Act. This fiscal stimulus included provisions to support small businesses, unemployment benefits, the health care system, state municipalities, and more. Funding for the Paycheck Protection Program (PPP), which was created by the CARES Act, was increased on April 24, 2020 with the enactment of the Paycheck Protection Program and Healthcare Enhancement Act.For additional information, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments.”

Mortgage Markets

The housing market started strong during the first quarter of 2020 with an increase in home prices and new home sales; however those trends reversed in March due to the slowing of economic activity as a result of COVID-19. Home sales are expected to decline during the remainder of 2020 due to an increase in unemployment and frictions in the mortgage origination process as a result of social distancing. Mortgage rates declined during the first quarter of 2020, but lagged Treasury rates. Refinancing was the primary driver of mortgage activity, but is expected to slow due to higher unemployment, tighter credit standards, and delays in the closing process.

The federal government has implemented several programs to assist homeowners affected by the pandemic, including temporary mortgage payment forbearance and a temporary moratorium on foreclosures and evictions.

Interest Rates

The following table shows information on key market interest rates¹:



	First Quarter 2020 3-Month Average		First Quarter 2019 3-Month Average		March 31, 2020 Ending Rate		12/31/2019
Federal funds	1.23	%	2.40	%	0.08	%	1.55	%
Three-month LIBOR	1.52		2.69		1.45		1.91
SOFR	1.23		2.43		0.01		1.55
2-year U.S. Treasury	1.09		2.49		0.25		1.57
10-year U.S. Treasury	1.37		2.65		0.67		1.92
30-year residential mortgage note	3.52		4.39		3.50		3.74


1	Source: Bloomberg.

In March 2020, the FOMC announced two emergency decreases to the Federal funds rate, bringing the target range of the Federal funds rate to zero to 0.25 percent, noting that COVID-19 has harmed communities and disrupted economic activity in many countries, including the U.S., and has significantly affected global financial conditions.

The 10-year U.S. Treasury yields have declined to historically low levels and mortgage rates were ~~higher~~lower on average in the first quarter of ~~2019~~2020 when compared to the same period in the prior year. ~~Interest~~The global concerns related to COVID-19 and the impact on economic activity have led to lower interest rates. As interest rates ~~decreased as the FOMC projected fewer interest rate increases for the remainder of 2019.~~declined, our net income was negatively impacted.

Funding Spreads

The following table reflects our funding spreads to LIBOR (basis points)¹:


	First Quarter 2019 3-Month Average		First Quarter 2018 3-Month Average			March 31, 2019 Ending Spread		December 31, 2018 Ending Spread		First Quarter 2020 3-Month Average		First Quarter 2019 3-Month Average		March 31, 2020 Ending Spread		December 31, 2019 Ending Spread
3-month	(24.2	)	(32.6	)		(17.5	)	(33.2	)	(35.1	)	(24.2	)	(131.5	)	(32.7	)
2-year	(6.5	)	(15.7	)		(5.3	)	(8.9	)	4.9		(6.5	)	(8.5	)	(7.4	)
5-year	7.1		(1.0	)		2.7		11.8		17.4		7.1		22.3		2.4
10-year	41.1		29.7		��	35.3		45.4		48.1		41.1		78.4		28.7


1	~~Source is the~~Source: The Office of Finance.

The following table reflects our funding spreads to U.S. Treasuries (basis points)¹:



	First Quarter 2020 3-Month Average	First Quarter 2019 3-Month Average	March 31, 2020 Ending Spread	December 31, 2019 Ending Spread
3-month	8.4	4.8	0.5	5.1
2-year	12.4	5.2	16.2	3.6
5-year	20.4	14.0	37.0	5.2
10-year	44.4	43.2	82.0	26.0


1	Source: The Office of Finance.

As a result of our credit quality and ~~government sponsored~~government-sponsored enterprise (GSE) status, we generally have ready access to funding at relatively competitive interest rates. During the first quarter of ~~2019,~~2020, our funding spreads were mixed relative to LIBOR. Short-term spreads ~~deteriorated~~improved, on average, when compared to ~~spreads at December 31, 2018,~~the same period in prior year, while long-term spreads ~~improved when compared~~deteriorated, on average. This was due to ~~December 31, 2018. During~~LIBOR rates remaining elevated even after the FOMC interest rate declines. Our funding spreads to U.S. Treasuries deteriorated, on average, during the first quarter of ~~2019,~~2020 when compared to the same period in the prior year, particularly on longer maturities. The FOMC decision to purchase U.S. Treasuries in March was one driver of differences between our funding spreads and U.S. Treasuries. During the three months ended March 31, 2020, we utilized ~~fixed term and floating rate, callable, and step-up consolidated obligation bonds~~short-term discount notes in ~~addition to consolidated obligation discount notes~~an effort to capture attractive funding, match the repricing structures on floating rate assets, and meet our liquidity requirements.

SELECTED FINANCIAL DATA

The following tables present selected financial data for the periods indicated (dollars in millions):


Statements of Condition	March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		March 31, 2018		March 31, 2020			December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019
Cash and due from banks	$	81	$	119	$	155	$	201	$	194	$	611		$	1,029	$	209	$	218	$	81
Investments¹	38,271		31,777		35,139		33,019		33,370		35,634			38,465		34,402		39,140		38,271
Advances	99,228		106,323		100,787		109,963		108,253		79,757			80,360		85,009		101,288		99,228
Mortgage loans held for portfolio, net²	7,943		7,835		7,549		7,310		7,112		9,546			9,334		8,952		8,324		7,943
Total assets	146,043		146,515		144,095		150,981		149,347		126,068			129,603		129,148		149,474		146,043
Consolidated obligations
Discount notes	44,994		42,879		42,101		43,122		33,930		33,071			29,531		26,716		36,934		44,994
Bonds	91,979		93,772		92,998		98,468		106,204		84,266			91,553		93,611		103,223		91,979
Total consolidated obligations³	136,973		136,651		135,099		141,590		140,134		117,337			121,084		120,327		140,157		136,973
Mandatorily redeemable capital stock	237		255		277		373		356		96			206		202		203		237
Total liabilities	138,684		138,967		136,790		143,442		141,912		119,335			122,877		122,305		141,997		138,684
Capital stock — Class B putable	5,182		5,414		5,163		5,420		5,372		4,653			4,517		4,676		5,304		5,182
Retained earnings	2,092		2,050		2,019		1,977		1,904		2,199			2,165		2,131		2,120		2,092
Accumulated other comprehensive income (loss)	85		84		123		142		159		(119		)	44		36		53		85
Total capital	7,359		7,548		7,305		7,539		7,435		6,733			6,726		6,843		7,477		7,359
Regulatory capital ratio⁴	5.14		5.27		5.18		5.15		5.11		5.51			5.31		5.43		5.10		5.14

For the Three Months Ended
Statements of Income⁵
March 31,
2019 December 31,
2018 September 30,
2018 June 30,
2018 March 31,
2018
Net interest income $ 159
$ 155
$ 156
$ 167
$ 157
Other income (loss)⁶
5
(3 ) 7
8
8
Other expense⁷
39
41
36
32
33
AHP assessments 13
11
14
14
14
Net income 112
100
113
129
118
Selected Financial Ratios^5,8

Net interest spread⁹
0.31 % 0.31 % 0.31 % 0.34 % 0.35 %
Net interest margin¹⁰
0.45
0.42
0.42
0.44
0.42
Return on average equity 6.16
5.31
6.16
6.83
6.56
Return on average capital stock 8.70
7.47
8.69
9.46
9.05
Return on average assets 0.31
0.27
0.31
0.34
0.32
Average equity to average assets 5.08
5.14
4.98
4.98
4.85
Dividend payout ratio¹¹
62.02
68.85
62.85
43.25
44.86



	For the Three Months Ended
Statements of Income	March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Net interest income	$	109		$	141		$	129		$	147		$	159
Other income (loss)⁵	36			9			3			3			5
Other expense⁶	43			43			43			43			39
AHP assessments	10			11			9			11			13
Net income	92			96			80			96			112
Selected Financial Ratios⁷
Net interest spread⁸	0.25		%	0.33		%	0.25		%	0.27		%	0.31		%
Net interest margin⁹	0.35			0.43			0.38			0.40			0.45
Return on average equity (annualized)	5.51			5.67			4.57			5.13			6.16
Return on average capital stock (annualized)	8.26			8.41			6.66			7.23			8.70
Return on average assets (annualized)	0.29			0.29			0.23			0.26			0.31
Average equity to average assets	5.27			5.13			5.13			5.05			5.08
Dividend payout ratio¹⁰	63.50			64.69			87.28			70.34			62.02


1	Investments include interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale (AFS) securities, and held-to-maturity (HTM) securities.


2	Includes an allowance for credit losses of $1 million at March 31, ~~2019,~~2020, December 31, ~~2018,~~2019, September 30, ~~2018 and~~2019, June 30, ~~2018~~2019, and ~~$2 million at~~ March 31, ~~2018.~~2019.


3	The total par value of outstanding consolidated obligations of the 11 FHLBanks was ~~$1,010.9~~$1,174.7 billion, ~~$1,031.6~~$1,025.9 billion, ~~$1,019.1~~$1,010.3 billion, ~~$1,059.9~~$1,048.4 billion, and ~~$1,019.2~~$1,010.9 billion at March 31, ~~2019,~~2020, December 31, ~~2018,~~2019, September 30, ~~2018,~~2019, June 30, ~~2018~~2019, and March 31, ~~2018,~~2019, respectively.


4	Represents period-end regulatory capital expressed as a percentage of period-end total assets. Regulatory capital includes Class B capital stock (including mandatorily redeemable capital stock), and retained earnings.


5	Beginning January 1, 2019, the fair value gains and losses of derivatives and hedged items designated in fair value hedge relationships are reported in net interest income. Prior to January 1, 2019, these amounts were reported in other income (loss).

Other income (loss) includes, among other things, net gains (losses) on investment securities, ~~and~~ net gains (losses) on derivatives and hedging ~~activities.~~activities, and gains on litigation settlements, net. During the three months ended March 31, 2020, other income (loss) was impacted by net gains on litigation settlements. The Bank did not record any litigation settlements during the three months ended December 31, 2019, September 30, 2019, June 30, 2019, and March 31, 2019.


76	Other expense includes, among other things, compensation and benefits, professional fees and contractual ~~services, and gains and losses on real estate owned (REO).~~services.


87	Amounts used to calculate selected financial ratios are based on numbers in actuals. Accordingly, recalculations using numbers in millions may not produce the same results.


98	Represents annualized yield on total interest-earning assets minus annualized cost of total interest-bearing liabilities.


109	Represents net interest income expressed as a percentage of average interest-earning assets.


1110	Represents dividends declared and paid in the stated period expressed as a percentage of net income in the stated period. Amount excludes cash dividends paid on mandatorily redeemable capital stock. For financial reporting purposes, these dividends were recorded as interest expense inon our Statements of Income.

RESULTS OF OPERATIONS

Net Income

The following table presents comparative highlights of our net income for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (dollars in millions). See further discussion of these items in the sections that follow.


	For the Three Months Ended									For the Three Months Ended
	March 31,									March 31,
	2019		2018		$ Change			% Change		2020		2019		$ Change			% Change
Net interest income	$	159	$	157	$	2		1	%	$	109	$	159	$	(50	)	(31	)%
Other income (loss)	5		8		(3		)	(38	)	36		5		31			620
Other expense	39		33		6			18		43		39		4			10
AHP assessments	13		14		(1		)	(7	)	10		13		(3		)	(23	)
Net income	$	112	$	118	$	(6	)	(5	)%	$	92	$	112	$	(20	)	(18	)%

Net Interest Income

Our net interest income is impacted by changes in average interest-earning asset and interest-bearing liability balances, and the related yields and costs. The following table presents average balances and ~~rates~~annualized yields/costs of major asset and liability categories (dollars in millions):


	For the Three Months Ended March 31,												For the Three Months Ended March 31,
	2019¹						2018¹						2020¹						2019¹
	Average Balance²		Yield/Cost		Interest Income/ Expense		Average Balance²		Yield/Cost		Interest Income/ Expense		Average Balance²		Yield/Cost		Interest Income/ Expense		Average Balance²		Yield/Cost		Interest Income/ Expense
Interest-earning assets
Interest-bearing deposits	$	125	1.33	%	$	—	$	155	0.91	%	$	—	$	384	0.84	%	$	1	$	125	1.33	%	$	—
Securities purchased under agreements to resell	5,212		2.46		32		3,514		1.40		12		8,709		1.41		30		5,212		2.46		32
Federal funds sold	7,187		2.43		43		6,315		1.47		23		8,718		1.25		27		7,187		2.43		43
Mortgage-backed securities^3,4	16,615		3.05		125		17,934		2.21		98		14,396		2.00		72		16,615		3.05		125
Other investments^3,4,5	5,884		3.31		48		6,803		2.47		41		5,447		1.92		26		5,884		3.31		48
Advances⁴	101,763		2.85		715		107,860		1.89		502		78,875		2.04		399		101,763		2.85		715
Mortgage loans⁶	7,890		3.57		69		7,098		3.41		60		9,403		3.33		78		7,890		3.57		69
Loans to other FHLBanks	6		2.45		—		11		1.53		—		8		1.61		—		6		2.45		—
Total interest-earning assets	144,682		2.89		1,032		149,690		2.00		736		125,940		2.02		633		144,682		2.89		1,032
Non-interest-earning assets	949		—		—		1,169		—		—		1,053		—		—		949		—		—
Total assets	$	145,631	2.88	%	$	1,032	$	150,859	1.98	%	$	736	$	126,993	2.01	%	$	633	$	145,631	2.88	%	$	1,032
Interest-bearing liabilities
Deposits	$	906	1.95	%	$	4	$	949	1.07	%	$	3	$	969	0.44	%	$	1	$	906	1.95	%	$	4
Consolidated obligations
Discount notes	44,569		2.46		271		35,636		1.41		124		28,695		1.54		110		44,569		2.46		271
Bonds³	91,488		2.64		595		105,480		1.72		448
Bonds⁴													89,139		1.85		410		91,488		2.64		595
Other interest-bearing liabilities⁷	256		5.45		3		375		4.84		4		200		5.54		3		256		5.45		3
Total interest-bearing liabilities	137,219		2.58		873		142,440		1.65		579		119,003		1.77		524		137,219		2.58		873
Non-interest-bearing liabilities	1,015		—		—		1,109		—		—		1,304		—		—		1,015		—		—
Total liabilities	138,234		2.56		873		143,549		1.64		579		120,307		1.75		524		138,234		2.56		873
Capital	7,397		—		—		7,310		—		—		6,686		—		—		7,397		—		—
Total liabilities and capital	$	145,631	2.43	%	$	873	$	150,859	1.56	%	$	579	$	126,993	1.66	%	$	524	$	145,631	2.43	%	$	873
Net interest income and spread⁸			0.31	%	$	159			0.35	%	$	157			0.25	%	$	109			0.31	%	$	159
Net interest margin⁹			0.45	%					0.42	%					0.35	%					0.45	%
Average interest-earning assets to interest-bearing liabilities			105.44	%					105.09	%					105.83	%					105.44	%


1	~~For 2019, interest~~Interest income and expense amounts reported for advances, ~~mortgage-backed securities (MBS),~~MBS, other investments, and consolidated obligation bonds include gains (losses) on hedged items and derivatives in qualifying hedge relationships. ~~Prior period amounts do not conform to new hedge accounting guidance adopted on January 1, 2019.~~


2	Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.


3	The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.


4	Average balances reflect the impact of fair value hedging ~~adjustments and/or fair value option~~ adjustments.


5	Other investments primarily include U.S. Treasury obligations, ~~government-sponsored enterprise (GSE)~~other U.S. obligations, GSE obligations and Tennessee Valley Authority obligations, state or local housing agency obligations, taxable municipal bonds, and Private Export Funding Corporation (PEFCO) bonds.


6	Non-accrual loans are included in the average balance used to determine the average yield.


7	Other interest-bearing liabilities consists primarily of mandatorily redeemable capital stock.


8	Represents annualized yield on total interest-earning assets minus annualized yield on total interest-bearing liabilities.


9	Represents net interest income expressed as a percentage of average interest-earning assets.

The following table presents changes in interest income and interest expense. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather equally attributable to both volume and rate changes, are allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes (dollars in millions).


	Three Months Ended									Three Months Ended
	March 31, 2019 vs. March 31, 2018									March 31, 2020 vs. March 31, 2019
	Total Increase (Decrease) Due to						Total Increase (Decrease)			Total Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate						Volume			Rate
Interest income
Interest-bearing deposits										$	1		$	—		$	1
Securities purchased under agreements to resell	$	8		$	12		$	20		15			(17		)	(2		)
Federal funds sold	3			17			20			8			(24		)	(16		)
Mortgage-backed securities	(8		)	35			27			(15		)	(38		)	(53		)
Other investments	(6		)	13			7			(3		)	(19		)	(22		)
Advances	(30		)	243			213			(140		)	(176		)	(316		)
Mortgage loans	6			3			9			14			(5		)	9
Total interest income	(27		)	323			296			(120		)	(279		)	(399		)
Interest expense
Deposits	—			1			1			—			(3		)	(3		)
Consolidated obligations
Discount notes	37			110			147			(79		)	(82		)	(161		)
Bonds	(66		)	213			147			(15		)	(170		)	(185		)
Other interest-bearing liabilities	(2		)	1			(1		)
Total interest expense	(31		)	325			294			(94		)	(255		)	(349		)
Net interest income	$	4		$	(2	)	$	2		$	(26	)	$	(24	)	$	(50	)

NET INTEREST SPREAD

Net interest spread equals the annualized yield on total interest-earning assets minus the annualized cost of total interest-bearing liabilities. For the three months ended March 31, ~~2019,~~2020, our net interest spread was ~~0.31~~0.25 percent compared to ~~0.35~~0.31 percent during the same period in ~~2018. Our~~2019. The decline in net interest spread ~~decreased~~ during the three months ended March 31, ~~2019 compared~~2020 was primarily impacted by our interest-earning assets repricing to ~~the same period in 2018 primarily due to~~lower interest rates at a ~~higher cost on total~~quicker pace than our interest-bearing liabilities ~~partially offset by a higher yield on total interest-earning assets.~~during the first quarter of 2020. The primary components of our interest income and interest expense are discussed below.

NET INTEREST MARGIN

Net interest margin equals net interest income expressed as a percentage of average interest-earning assets. For the three months ended March 31, ~~2019,~~2020, our net interest margin was ~~0.45~~0.35 percent compared to ~~0.42~~0.45 percent during the same period in ~~2018.~~2019. Our net interest margin ~~increased~~decreased during the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018~~2019 and was primarily ~~due~~attributable to ~~the higher interest rate environment offset in part by~~ lower asset ~~and~~ liability spreads ~~due to increased costs~~and declining interest rates. In addition, we incurred losses of $12 million on our ~~interest-bearing liabilities.~~fair value hedge relationships which stemmed from market volatility caused by COVID-19.

Advances

Interest income on advances ~~increased~~decreased during the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due primarily to the ~~higher~~lower interest rate environment ~~partially offset by~~and lower average advance balances. The decrease in average advance balances ~~due primarily to~~from prior year was a result of a decline in advances from ~~large depository~~Wells Fargo, Bank N.A. and captive insurance company members, partially offset by an increase in borrowings by certain other institution ~~members.~~types.

Investments

Interest income on investments ~~increased~~decreased during the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due primarily to the ~~higher~~lower interest rate ~~environment, partially offset~~environment. In addition, we incurred $12 million in losses on our investment fair value hedge relationships which stemmed from market volatility caused by ~~lower average MBS and other investment balances.~~COVID-19.

Bonds

Interest expense on bonds ~~increased~~decreased during the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due primarily to the ~~higher~~lower interest rate environment.

Discount Notes

Interest expense on discount notes ~~increased~~decreased during the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018~~2019 primarily due to the ~~higher~~lower interest rate ~~environment.~~environment and lower average discount note balances. While period end discount note balances increased from December 31, 2019, average discount note balances decreased from the prior year primarily due to a reduction in total assets.

For additional information on how we manage the difference between our asset and liability maturities, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

Other Income (Loss)

The following table summarizes the components of other income (loss) (dollars in millions):


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
Net gains (losses) on trading securities	$	10		$	(16	)	$	26		$	10
Net gains (losses) on derivatives and hedging activities	(12		)	20			(48		)	(12		)
Gains on litigation settlements, net							56			—
Other, net	7			4			2			7
Total other income (loss)	$	5		$	8		$	36		$	5

Other income (loss) can be volatile from period to period depending on the type of activity recorded. We recorded ~~other income~~net gains of $5$36 million during the three months ended March 31, ~~2019~~2020 compared to ~~other income~~net gains of $8$5 million during the same period in ~~2018. Other~~2019. During the three months ended March 31, 2020, other income (loss) was primarily impacted by net gains on litigation settlements of $56 million as a ~~decline~~result of a settlement with a defendant in our private-label MBS litigation. We did not record any litigation settlements during the three months ended March 31, 2019. Other factors impacting other income (loss) included net gains (losses) on trading securities and net gains (losses) on derivatives and hedging activities, ~~and net gains (losses) on trading securities combined of $6 million, offset in part by an improvement in other, net of $3 million.~~as described below.

During the three months ended March 31, ~~2019,~~2020, we recorded net gains on trading securities of $26 million compared to net gains of $10 million during the same period in 2019. These changes in fair value were primarily due to the impact of interest rates and credit spreads on our fixed rate trading securities which stemmed from market volatility caused by COVID-19. Trading securities are recorded at fair value with changes in fair value reflected through other income (loss).

During the three months ended March 31, 2020, we recorded net losses of ~~$12~~$48 million on our derivatives and hedging activities through other income (loss) compared to net ~~gains~~losses of ~~$20~~$12 million during the same period in ~~2018.~~2019. The fair value changes were primarily driven by changes in interest rates which impacted the fair value ~~on our~~of interest rate swaps used to economically hedge our investment securities portfolio. The changes in interest rates were primarily driven by market volatility caused by COVID-19. Accounting rules require all derivatives to be recorded at fair value and therefore we may be subject to income statement volatility. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities” for additional discussion on our derivatives and hedging activities, including the net impact of economic hedge relationships.

During the three months ended March 31, 2019, we recorded net gains on trading securities of $10 million compared to net losses of $16 million during the same period in 2018. These changes in fair value were primarily due to the impact of interest rates and credit spreads on our fixed rate trading securities. Trading securities are recorded at fair value with changes in fair value reflected through other income (loss).

During the three months ended March 31, 2019, we recorded other income, net of $7 million compared to other income, net of $4 million for the same period in 2018. The increase was primarily driven by an increase in the market value of our Benefit Equalization defined benefit plan.

Hedging Activities

We use derivatives to manage interest rate risk. Accounting rules affect the timing and recognition of income and expense on derivatives and therefore we may be subject to income statement volatility.

If a hedging activity qualifies for hedge accounting treatment (fair value hedge), the net interest settlements of interest receivables or payables related to the derivative are recognized as interest income or expense in the relevant income statement caption consistent with the hedged asset or liability. ~~Beginning January 1, 2019, as a result of the adoption of ASU 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities,~~ ~~the~~The fair value gains and losses of derivatives and hedged items designated in fair value hedge relationships are also recognized as interest income or expense. Prior to January 1, 2019, any hedge ineffectiveness, or the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedge item, was recorded in other income (loss). Amortization of basis adjustments from terminated hedges and the amortization of the financing element of off-market derivatives are recorded in interest income or ~~expense or other income (loss).~~expense.

If a hedging activity does not qualify for hedge accounting treatment (economic hedge), the net interest settlements of interest receivables or payables related to the derivative as well as the fair value gains and losses on the derivative are recorded as a component of other income (loss) in “Net gains (losses) on derivatives and hedging activities;” however, there is no fair value adjustment for the corresponding asset or liability being hedged unless changes in the fair value of the asset or liability are normally marked to fair value through earnings (i.e., trading securities and fair value option instruments).

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):


	For the Three Months Ended March 31, 2019											For the Three Months Ended March 31, 2020
Net Effect of Hedging Activities	Advances		Investments			Bonds			Total			Advances			Investments			Mortgage Loans			Bonds			Total
Net interest income:
Net amortization/accretion¹	$	—	$	2		$	(1	)	$	1		$	(6	)	$	(1	)	$	—		$	(1	)	$	(8	)
Net gains (losses) on fair value hedges²	1		2			(2		)	1			1			(13		)	—			1			(11		)
Net interest settlements on derivatives	24		1			(65		)	(40		)
Net interest settlements on derivatives³												(7		)	(12		)	—			4			(15		)
Total impact to net interest income	25		5			(68		)	(38		)	(12		)	(26		)	—			4			(34		)
Other income (loss):
Net gains (losses) on economic hedges³	—		(12		)	—			(12		)
Net gains (losses) on trading securities⁴	—		10			—			10
Net gains (losses) on economic hedges⁴												—			(47		)	(1		)	—			(48		)
Net gains (losses) on trading securities⁵												—			26			—			—			26
Total impact to other income (loss)	—		(2		)	—			(2		)	—			(21		)	(1		)	—			(22		)
Total net effect of hedging activities⁵	$	25	$	3		$	(68	)	$	(40	)
Total net effect of hedging activities⁶												$	(12	)	$	(47	)	$	(1	)	$	4		$	(56	)


1	Represents the amortization/accretion of basis adjustments on closed hedge relationships.


2	~~Effective January 1, 2019, gains~~Gains (losses) on derivatives and hedged items in qualifying ~~fair value~~ hedging relationships are reported in net interest income. Net gains (losses) on fair value hedges also includes the amortization of the financing element of off-market derivatives.


3	Represents the interest component on derivatives that qualify for fair value hedge accounting.


4	Represents amounts recorded in “Net gains (losses) on derivatives and hedging activities” inon the Statements of Income.


45	Represents the net gains (losses) on those trading securities in which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value. As a result, this line item may not agree to the Statements of Income.


56	The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):

For the Three Months Ended March 31, 2018
Net Effect of Hedging Activities Advances Investments Bonds Other Total
Net interest income:
Net amortization/accretion¹
$ 5
$ 3
$ (3 ) $ —
$ 5
Net interest settlements (2 ) (15 ) (29 ) —
(46 )
Total impact to net interest income 3
(12 ) (32 ) —
(41 )
Other income (loss):
Net gains (losses) on derivatives and hedging activities:
Net gains (losses) on fair value hedges —
(3 ) 3
—
—
Net gains (losses) on economic hedges —
19
—
—
19
Price alignment amount on derivatives²
—
—
—
1
1
Total net gains (losses) on derivatives and hedging activities —
16
3
1
20
Net gains (losses) on trading securities³
—
(16 ) —
—
(16 )
Total impact to other income (loss) —
—
3
1
4
Total net effect of hedging activities⁴
$ 3
$ (12 ) $ (29 ) $ 1
$ (37 )



	For the Three Months Ended March 31, 2019
Net Effect of Hedging Activities	Advances		Investments			Bonds			Total
Net interest income:
Net amortization/accretion¹	$	—	$	2		$	(1	)	$	1
Net gains (losses) on fair value hedges²	1		2			(2		)	1
Net interest settlements on derivatives³	24		1			(65		)	(40		)
Total impact to net interest income	25		5			(68		)	(38		)
Other income (loss):
Net gains (losses) on economic hedges⁴	—		(12		)	—			(12		)
Net gains (losses) on trading securities⁵	—		10			—			10
Total impact to other income (loss)	—		(2		)	—			(2		)
Total net effect of hedging activities⁶	$	25	$	3		$	(68	)	$	(40	)


1	Represents the amortization/accretion of basis adjustments on closed hedge relationships.


2	Gains (losses) on derivatives and hedged items in qualifying hedging relationships ~~and~~are reported in net interest income. Net gains (losses) on fair value hedges also includes the amortization of the financing element of off-market derivatives.


23	~~This amount represents~~Represents the interest component on ~~variation margin which is a component of the derivative~~derivatives that qualify for fair value ~~for cleared transactions.~~hedge accounting.


34	Represents amounts recorded in “Net gains (losses) on derivatives and hedging activities” on the Statements of Income.


5	Represents the net gains (losses) on those trading securities in which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value. As a result, this line item may not agree to the Statements of Income.


46	The hedging activity tables do not include the interest component on the related hedged items or the gross prepayment fee income on terminated advance or investment hedge relationships.

NET AMORTIZATION/ACCRETION

Amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships.

NET INTEREST SETTLEMENTS

Net interest settlements represent the interest component on ~~derivatives that qualify for fair value hedge accounting.~~derivatives. These amounts vary from period to period depending on our hedging activities and interest rates and are partially offset by the interest component on the related hedged item within net interest income. The hedging activity tables do not include the impact of the interest component on the related hedged item.

NET GAINS (LOSSES) ON FAIR VALUE HEDGES

~~Beginning January 1, 2019, the~~The fair value gains and losses of derivatives and hedged items in designated fair value hedge relationships are recorded in net interest income. ~~Prior to January 1, 2019, the portion of fair value gains and losses of derivatives and hedged items representing hedge ineffectiveness were recorded in other income (loss).~~ Gains (losses) on fair value hedges are driven by changes in the benchmark interest rate, volatility, and the divergence in the valuation curves used to value our assets, liabilities, and derivatives. During the first quarter of 2020, we incurred losses of $12 million on our fair value hedge relationships which stemmed from market volatility caused by COVID-19.

NET GAINS (LOSSES) ON ECONOMIC HEDGES

We utilize economic derivatives to manage certain risks inon our Statements of Condition. Gains and losses on economic derivatives are driven primarily by changes in interest rates and volatility and include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. During the first quarter of 2020, we recorded net losses of $48 million on our economic derivatives. The fair value changes were primarily driven by changes in interest rates which impacted the fair value of interest rate swaps used to economically hedge our investment securities portfolio as highlighted in the table below. The changes in interest rates were primarily driven by market volatility caused by COVID-19.

The following discussion highlights key items impacting gains and losses on economic investment derivatives.

Investments

We utilize interest rate swaps to economically hedge a portion of our trading securities against changes in fair value. Gains and losses on these economic derivatives are due primarily to changes in interest rates. Gains and losses on our trading securities are also due primarily to changes in interest rates and credit spreads.

The following table summarizes gains and losses on these economic derivatives as well as the related trading securities (dollars in millions):


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
Gains (losses) on interest rate swaps economically hedging our investments	$	(12	)	$	21		$	(45	)	$	(12	)
Interest settlements	—			(2		)	(2		)	—
Net gains (losses) on investment derivatives	(12		)	19			(47		)	(12		)
Net gains (losses) on related trading securities	10			(16		)	26			10
Net gains (losses) on economic investment hedge relationships	$	(2	)	$	3		$	(21	)	$	(2	)

Other Expense

The following table shows the components of other expense (dollars in millions):


	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2019		2018		2020		2019
Compensation and benefits	$	16	$	17	$	18	$	16
Contractual services	4		3		4		4
Professional fees	7		3		8		7
Other operating expenses	7		5		6		7
Total operating expenses	34		28		36		34
Federal Housing Finance Agency	2		2		3		2
Office of Finance	2		2		2		2
Other, net	1		1		2		1
Total other expense	$	39	$	33	$	43	$	39

Other expense increased for the three months ended March 31, ~~2019~~2020 compared to the same period last year. The increase in other expense was driven primarily by an increase in ~~professional~~compensation and other operating expenses. The increase in professional fees was the result of hiring external resources to assist with multiple ongoing technology and operational initiatives. The increase in other operating expenses was primarily due to an increase in depreciation expense, mainly due to the depreciation of furnishings associated with the new building we moved into in 2018 and increased amortization due to a reduction in useful life of one of the Bank’s information technology systems.benefits.

STATEMENTS OF CONDITION

Financial Highlights

Our total assets decreased to ~~$146.0~~$126.1 billion at March 31, ~~2019~~2020 from ~~$146.5~~$129.6 billion at December 31, ~~2018~~2019. Our total liabilities decreased to $~~138.7~~119.3 billion at March 31, ~~2019~~2020 from ~~$139.0~~$122.9 billion at December 31, ~~2018~~2019. Total capital ~~decreased to~~remained stable at $~~7.4~~6.7 billion at March 31, ~~2019~~2020 ~~from $7.5 billion at~~when compared to December 31, ~~2018~~2019. See further discussion of changes in our financial condition in the appropriate sections that follow.

Cash and Due from Banks

At March 31, ~~2019,~~2020, our total cash balance was ~~$81~~$611 million compared to ~~$119 million~~$1.0 billion at December 31, ~~2018.~~2019. Our cash balance is influenced by our liquidity needs, member advance activity, market conditions, and the availability of attractive investment opportunities.

Advances

The following table summarizes our advances by type of institution (dollars in millions):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Commercial banks	$	70,552	$	75,561	$	45,645	$	47,835
Savings institutions	988		1,318		1,980		1,376
Credit unions	4,679		5,801		6,039		5,976
Non-captive insurance companies	18,148		18,604		24,267		20,821
Captive insurance companies	4,453		4,453		905		3,798
Community development financial institutions	3		4
CDFIs					16		14
Total member advances	98,823		105,741		78,852		79,820
Housing associates	103		58		43		100
Non-member borrowers	291		614		264		265
Total par value	$	99,217	$	106,413	$	79,159	$	80,185

Our total advance par value decreased ~~$7.2~~$1.0 billion or ~~seven~~one percent at March 31, ~~2019~~2020 when compared to December 31, ~~2018~~2019. The decrease in total par value was primarily due to a decrease in borrowings of $8.0 billion by ~~large depository~~Wells Fargo Bank, N.A and $2.9 billion by captive insurance company members. This decrease was partially offset by an increase in borrowings by certain other institution ~~members.~~types. Wells Fargo Bank, N.A. has continued to pay down advances after the end of the first quarter of 2020 and this trend may continue during the second quarter of 2020 and for the remainder of the year. If we continue to experience additional decreases in the amount of business with certain of our top borrowers, our financial condition and results of operations could be negatively affected.

As a result of the final rule on membership issued by the Federal Housing Finance Agency (Finance Agency) effective February 19, 2016, the eligibility requirements for FHLBank members were changed rendering captive insurance company members ineligible for FHLBank 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. The magnitude of the impact of the final rule at that date will depend, in part, on our size and profitability at the time of membership termination or maturity of the related advances. As of March 31, ~~2019,~~2020, we had ~~six~~five captive insurance company members with total advances outstanding of ~~$4.5 billion,~~$905 million, which represented ~~four~~one percent of our total advances outstanding. One captive insurance company member was included in our five largest member borrowers at March 31, 2019 within this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Advances.”

The following table summarizes our advances by product type (dollars in millions):


	March 31, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Amount			% of Total	Amount			% of Total	Amount			% of Total	Amount			% of Total
Variable rate	$	63,574		64	$	66,561		62	$	30,914		39	$	41,024		51
Fixed rate	33,799			34	38,039			36	45,768			58	37,007			46
Amortizing	1,844			2	1,813			2	2,477			3	2,154			3
Total par value	99,217			100	106,413			100	79,159			100	80,185			100
Premiums	35				38				24				25
Discounts	(7		)		(8		)		(5		)		(6		)
Fair value hedging adjustments	(17		)		(120		)		579				156
Total advances	$	99,228			$	106,323			$	79,757			$	80,360

Fair value hedging adjustments changed ~~$103~~$423 million at March 31, ~~2019~~2020 when compared to December 31, ~~2018~~2019 due to the impact of interest rates on our cumulative fair value adjustments on advances in hedge relationships.

At March 31, ~~2019~~2020 and December 31, ~~2018, 32~~2019, 24 percent and 3331 percent of our advances were variable rate callable advances. Callable advances may be prepaid by borrowers on pertinent dates (call dates) and therefore provide borrowers a source of long-term financing with prepayment flexibility. Interest rates on our variable rate callable advances reset at each call date to be consistent with either the underlying index or our current offering rate of our underlying cost of funds. In addition, we retain the flexibility to adjust the spread relative to our cost of funds for a material percentage of these variable rate advances on each reset date. We generally fund our variable rate callable advances with either discount notes ~~LIBOR indexed debt,~~ or ~~debt swapped to a LIBOR index.~~short-term floating rate debt. For additional discussion on our funding strategies, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

At March 31, ~~2019~~2020 and December 31, ~~2018~~2019, advances outstanding to our five largest member borrowers totaled ~~$61.8~~$32.7 billion and ~~$64.2~~$39.3 billion, representing 6241 and 6049 percent of our total advances outstanding. The following table summarizes advances outstanding to our five largest member borrowers at March 31, ~~2019~~2020 (dollars in millions):


	Amount		% of Total	Amount		% of Total
Wells Fargo Bank, N.A.	$	48,575	49	$	17,450	22
TCF National Bank				5,000		6
Principal Life Insurance Company	3,750		4	4,100		5
Truman Insurance Company¹	3,588		3
Zions Bancorporation, National Association	3,250		3
Washington Federal, National Association	2,610		3
Midland National Life Insurance Company¹				3,073		4
Washington Federal Bank, National Association				3,050		4
Total par value	$	61,773	62	$	32,673	41


1	~~Represents a captive insurance company whose membership will terminate within five years~~Excludes $1.5 billion of ~~the Finance Agency’s final rule on membership that became effective February 19, 2016.~~advances with North American Company for Life and Health Insurance, an affiliate of Midland National Life Insurance Company.

We ~~manage our credit exposure to~~evaluate advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower’s financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the Federal Home Loan Bank Act of 1932 (FHLBank Act), Finance Agency regulations, and other applicable laws and regulations.

The FHLBank Act requires that we obtain sufficient collateral on advances to protect against losses. We have never experienced a credit loss on an advance to a member or eligible housing associate. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no probable credit losses on our advances as of ~~March 31, 2019~~ ~~and~~ ~~December 31, 2018. Accordingly, we have not recorded any allowance~~ for credit losses on ~~our advances. See~~a quarterly basis. For additional discussion ~~regarding~~on our ~~collateral requirements in~~advance credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”

Mortgage Loans

The following tables summarize information on our mortgage loans held for portfolio (dollars in millions):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Fixed rate conventional loans	$	7,341		$	7,231		$	8,917		$	8,712
Fixed rate government-insured loans	498			503			497			496
Total unpaid principal balance	7,839			7,734			9,414			9,208
Premiums	107			105			128			125
Discounts	(5		)	(5		)	(4		)	(4		)
Basis adjustments from mortgage loan purchase commitments	3			2			9			6
Total mortgage loans held for portfolio	7,944			7,836			9,547			9,335
Allowance for credit losses	(1		)	(1		)	(1		)	(1		)
Total mortgage loans held for portfolio, net	$	7,943		$	7,835		$	9,546		$	9,334

Our total mortgage loans ~~remained relatively stable~~increased $0.2 billion or two percent at March 31, ~~2019~~2020 when compared to December 31, ~~2018~~2019~~. The slight increase was~~ due to loan purchases exceeding principal paydowns. Loan purchases increased due to the addition of new participating financial institutions (PFIs) and higher refinance activity driven by lower rates.

We evaluate mortgage loans for credit losses on a quarterly basis. For additional discussion on our mortgage loan credit risk, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Mortgage Assets.”

Investments

The following table summarizes the carrying value of our investments (dollars in millions):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Short-term investments¹
Interest-bearing deposits	$	1	—	$	1	—	$	1	—	$	1	—
Securities purchased under agreements to resell	8,000		21	4,700		15	6,550		18	13,950		36
Federal funds sold	7,985		21	4,150		13	8,935		25	4,605		12
Total short-term investments	15,986		42	8,851		28	15,486		43	18,556		48
Long-term investments²
Mortgage-backed securities
GSE single-family	2,860		7	2,988		9	2,256		7	2,401		6
GSE multifamily	9,126		24	9,444		30	7,920		22	8,134		21
U.S. obligations single-family³	4,407		12	4,492		14	3,896		11	4,064		11
U.S. obligations commercial³	1		—	1		—	1		—	1		—
Private-label residential	9		—	10		—	7		—	7		—
Total mortgage-backed securities	16,403		43	16,935		53	14,080		40	14,607		38
Non-mortgage-backed securities
U.S. obligations³	2,650		7	2,761		9
U.S. Treasury obligations³							873		2	—		—
Other U.S. obligations³							2,115		6	2,277		6
GSE and Tennessee Valley Authority obligations	1,500		4	1,484		5	1,554		4	1,504		4
State or local housing agency obligations	1,185		3	1,205		4	972		3	977		3
Other	547		1	541		1	554		2	544		1
Total non-mortgage-backed securities	5,882		15	5,991		19	6,068		17	5,302		14
Total long-term investments	22,285		58	22,926		72	20,148		57	19,909		52
Total investments	$	38,271	100	$	31,777	100	$	35,634	100	$	38,465	100


1	Short-term investments have original maturities equal to or less than one year.


2	Long-term investments have original maturities of greater than one year.


3	Represents investment securities backed by the full faith and credit of the U.S. Government.

Our investments ~~increased $6.5~~decreased $2.8 billion or 20seven percent at March 31, ~~2019~~2020 when compared to December 31, ~~2018.~~2019. Investments ~~increased~~decreased primarily due to ~~an increase~~a decline in money market investments ~~as a result~~ of ~~increased~~$3.1 billion, offset in part by an increase in U.S. Treasuries of $0.9 billion that we purchased and utilized for liquidity ~~holdings~~management during the first quarter of ~~2019.~~2020. At March 31, 2020, we had GSE MBS with a total par value of $137 million that were traded but not yet settled. These investments have been recorded as “available-for-sale” on our Statements of Condition with a corresponding payable recorded in “other liabilities.”

The Finance Agency limits our investments in MBS by requiring that the total book value of our MBS not exceed three times regulatory capital at the time of purchase. Our ratio of MBS to regulatory capital was ~~2.18~~2.04 and ~~2.19~~2.12 at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

We evaluate ~~AFS and HTM securities in an unrealized loss position~~investments for ~~other-than-temporary-impairment (OTTI)~~credit losses on ~~at least~~ a quarterly basis. ~~As part of~~For additional discussion on our OTTI evaluation, we consider our intent to sell each debt security and whether it is more likely than not that we will be required to sell the security before its anticipated recovery. If either of these conditions is met, we will recognize an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the reporting date. For securities in an unrealized loss position that meet neither of these conditions, we perform analyses to determine if any of these securities are other-than-temporarily impaired. At March 31, 2019 and December 31, 2018 we did not consider any of these securities to be other-than-temporarily-impaired. Referinvestment credit risk, refer to “Item 1.2. Management’s Discussion and Analysis of Financial ~~Statements~~Condition and Results of Operations — ~~Note 6~~Risk Management — ~~Other-Than-Temporary Impairment” for additional information on our OTTI analysis performed at~~ ~~March 31, 2019~~.Credit Risk — Investments.”

Consolidated Obligations

Consolidated obligations, which include bonds and discount notes, are the primary source of funds to support our advances, mortgage loans, and investments. At March 31, ~~2019~~2020 and December 31, ~~2018~~2019, the carrying value of consolidated obligations for which we are primarily liable totaled ~~$137.0~~$117.3 billion and ~~$136.7~~$121.1 billion.

DISCOUNT NOTES

The following table summarizes our discount notes, all of which are due within one year (dollars in millions):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Par value	$	45,150		$	43,052		$	33,114		$	29,592
Discounts and concession fees¹	(156		)	(173		)	(43		)	(61		)
Total	$	44,994		$	42,879		$	33,071		$	29,531


1	Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation discount notes.

Our discount notes increased ~~$2.1~~$3.5 billion or ~~five~~12 percent at March 31, ~~2019~~2020 when compared to December 31, ~~2018. As a result of increased liquidity holdings and changes in our advance product mix, we~~2019. We increased our ~~utilization~~usage of shorter-term discount notes ~~during~~in an effort to capture attractive funding, match the ~~first quarter.~~repricing structures on floating rate assets, and meet our liquidity requirements.

BONDS

The following table summarizes information on our bonds (dollars in millions):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Total par value	$	92,095		$	94,024		$	83,837		$	91,373
Premiums	148			152			231			217
Discounts and concession fees¹	(43		)	(48		)	(35		)	(38		)
Fair value hedging adjustments	(221		)	(356		)	233			1
Total bonds	$	91,979		$	93,772		$	84,266		$	91,553


1	Concessions represent fees paid to dealers in connection with the issuance of certain consolidated obligation bonds.

Our bonds decreased ~~$1.8~~$7.3 billion or ~~two~~eight percent at March 31, ~~2019~~2020, when compared to December 31, ~~2018~~2019. The decrease was ~~primarily due~~driven by a reduction in total assets. During the first quarter of 2020, we increased our usage of shorter-term discount notes relative to ~~increased~~bonds in an effort to capture attractive funding, match the repricing structures on floating rate assets, and meet our liquidity ~~holdings and changes in our advance product mix.~~requirements. Fair value hedging adjustments changed ~~$135~~$232 million at March 31, ~~2019~~2020 when compared to December 31, ~~2018~~2019 due to the impact of interest rates on our cumulative fair value adjustments on bonds in hedge relationships.

For additional information on our bonds, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition

and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

Mandatorily Redeemable Capital Stock

We reclassify capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of redemption, gives notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership.

At March 31, 2020 and December 31, 2019, our mandatorily redeemable capital stock totaled $96 million and $206 million.

Our total mandatorily redeemable capital stock balance decreased $110 million at March 31, 2020 when compared to December 31, 2019 due primarily to the repurchase of capital stock outstanding to captive insurance company members during the first quarter driven by repayment of their advance balances.

Capital

The following table summarizes information on our capital (dollars in millions):


	March 31, 2019		December 31, 2018		March 31, 2020			December 31, 2019
Capital stock	$	5,182	$	5,414	$	4,653		$	4,517
Retained earnings	2,092		2,050		2,199			2,165
Accumulated other comprehensive income (loss)	85		84		(119		)	44
Total capital	$	7,359	$	7,548	$	6,733		$	6,726

Our capital ~~decreased~~remained stable at March 31, ~~2019~~2020 when compared to December 31, 2018. The decrease was primarily due to a decrease in capital stock resulting from a decline in member activity. The decrease was partially offset by an increase retained earnings due to net income, partially offset by dividends paid.2019. Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — ~~Capital — Capital Stock”~~Capital” for additional information on our ~~capital stock.~~capital.

Derivatives

We use derivatives to manage interest rate risk. The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor our overall exposure to credit and market risk.

The following table categorizes the notional amount of our derivatives by type (dollars in millions):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Interest rate swaps
Noncallable	$	43,150	$	46,671	$	37,827	$	37,017
Callable by counterparty	1,675		1,773		1,441		1,495
Callable by the Bank	205		193		200		210
Total interest rate swaps	45,030		48,637		39,468		38,722
Forward settlement agreements (TBAs)	152		98		342		122
Mortgage delivery commitments	163		101
Mortgage loan purchase commitments					348		127
Total notional amount	$	45,345	$	48,836	$	40,158	$	38,971

The notional amount of our derivative contracts ~~declined~~remained relatively stable at March 31, ~~2019~~2020 when compared to December 31, ~~2018. During~~2019. Consistent with the ~~first quarter of 2019,~~move to an alternative benchmark rate other than LIBOR, we ~~further reduced our use of swapped consolidated obligation bonds in response~~started using OIS rate-based interest rate swaps to ~~market conditions, and increased our utilization of discount notes and LIBOR indexed debt to capture attractive funding, match repricing structures on advances, and provide additional liquidity.~~economically hedge certain fixed rate investments during the quarter. For additional discussion regarding our use of derivatives, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Derivatives.”

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital positions are actively managed in an effort to preserve stable, reliable, and cost-effective sources of funds to meet current and projected future operating financial commitments, as well as regulatory, liquidity, and capital requirements.

Liquidity

SOURCES OF LIQUIDITY

We utilize several sources of liquidity to carry out our business activities. These include, but are not limited to, proceeds from the issuance of consolidated obligations, payments collected on advances and mortgage loans, proceeds from investment securities, member deposits, the issuance of capital stock, and current period earnings.

Our primary source of liquidity is proceeds from the issuance of consolidated obligations (bonds and discount notes) in the capital markets. During the three months ended March 31, ~~2019,~~2020, proceeds from the issuance of bonds and discount notes were $17.7 billion and $32.2 billion compared to $14.9 billion and $37.1 ~~billion compared to $16.4 billion and $45.5~~ billion for the same period in ~~2018.~~2019. We continued to ~~issue term fixed and floating rate, callable, and step-up rate consolidated obligation bonds as well as~~focus on issuing shorter-term discount notes in an effort to capture attractive funding, match repricing structures on advances, and provide additional liquidity.

WeAs the COVID-19 outbreak developed during the first quarter of 2020, the capital markets became more volatile and investor preferences changed. Despite the increased market volatility, we were operationally prepared, maintained continual access to funding, and issued debt to meet the needs of our ~~members, which generally favored the issuance of shorter-term debt.~~members. Access to debt markets has been reliable because investors, driven by increased liquidity preference and our government affiliation, have sought the FHLBanks’ debt as an asset of ~~choice, which has led to advantageous funding opportunities.~~choice. However, due to the short-term maturity of the debt, we may be exposed to additional risks associated with refinancing and our ability to access the capital markets. For additional information on our risks associated with our access to the capital markets, refer to “Item 1A. Risk Factors.”

We are focused on maintaining an adequate liquidity balance and a funding balance between our financial assets and financial liabilities and work collectively with the other FHLBanks to manage the system-wide liquidity and funding needs. We monitor our debt refinancing risk and liquidity position primarily by tracking the maturities of financial assets and financial liabilities. In managing and monitoring the amounts of assets that require refunding, we consider contractual maturities of our financial assets, as well as certain assumptions regarding expected cash flows (i.e. estimated prepayments). External factors, including member borrowing needs, supply and demand in the debt markets, and other factors may affect liquidity balances and the funding balances between financial assets and financial liabilities. Refer to “Item 1. Financial Statements” for additional information regarding the contractual maturities of certain of our financial assets and liabilities.

Our ability to raise funds in the capital markets as well as our cost of borrowing may be affected by our credit ratings. As of April 30, ~~2019,~~2020, our consolidated obligations were rated AA+/A-1+ by Standard and Poor’s and Aaa/P-1 by Moody’s and both ratings had a stable outlook. For further discussion of how credit rating changes and our ability to access the capital markets may impact us in the future, refer to “Item 1A. Risk ~~Factors” in our 2018 Form 10-K.~~Factors.”

Although we are primarily liable for the portion of consolidated obligations that are issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations issued by the FHLBank System. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the total par value of outstanding consolidated obligations for which we are primarily liable was ~~$137.2~~$117.0 billion and ~~$137.1~~$121.0 billion. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which we are jointly and severally liable was approximately ~~$873.7~~$1,057.7 billion and ~~$894.5~~$904.9 billion.

The Office of Finance and FHLBanks have contingency plans in place that prioritize the allocation of proceeds from the issuance of consolidated obligations during periods of financial distress if consolidated obligations cannot be issued in sufficient amounts to satisfy all FHLBank demand. In the event of significant market disruptions or local disasters, our President or ~~his~~ designee is authorized to establish interim borrowing relationships with other FHLBanks. To provide further access to funding, the FHLBank Act also authorizes the U.S. Treasury to directly purchase new issue consolidated obligations of the GSEs, including FHLBanks, up to an aggregate principal amount of $4.0 billion. As of April 30, ~~2019,~~2020, no purchases had been made by the U.S. Treasury under this authorization.

USES OF LIQUIDITY

We use our available liquidity, including proceeds from the issuance of consolidated obligations, primarily to repay consolidated obligations, fund advances, and purchase investments. During the three months ended March 31, ~~2019,~~2020, repayments of consolidated obligations totaled $~~51.8~~53.9 billion compared to ~~$57.2~~$51.8 billion for the same period in ~~2018.~~2019. A portion of these payments were due to the call of certain bonds in an effort to better match our projected asset cash flows. During the three months ended March 31, 2020, we called bonds with a total par value of $1.3 billion. We did not call any bonds during the three months ended March 31 2019.

During the three months ended March 31, ~~2019,~~2020, advance disbursements totaled ~~$60.6~~$78.3 billion compared to ~~$80.3~~$60.6 billion for the same period in ~~2018.~~2019. Advance disbursements will vary from period to period depending on member needs. During the three months ended March 31, ~~2019,~~2020, investment purchases (excluding overnight investments) totaled ~~$24.5~~$7.8 billion compared to ~~$24.3~~$24.5 billion for the same period in ~~2018.~~2019. Investment purchases during each period were primarily driven by the purchase of money market investments, including secured resale agreements in an effort to manage our liquidity position.

We also use liquidity to purchase mortgage loans, redeem member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, pay expenses, and pay dividends.

LIQUIDITY REQUIREMENTS

Finance Agency regulations mandate three liquidity requirements. First, we are required to maintain contingent liquidity sufficient to meet our liquidity needs, which shall, at a minimum, cover five calendar days of inability to access the consolidated obligation debt markets. Second, we are required to have available at all times an amount greater than or equal to members’ current deposits invested in advances with maturities not to exceed five years, deposits in banks or trust companies, and obligations of the U.S. Treasury. Third, we are required to maintain, in the aggregate, unpledged qualifying assets in an amount at least equal to the amount of our participation in total consolidated obligations outstanding. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we were in compliance with all three of the Finance Agency liquidity requirements.

In addition to the liquidity measures previously discussed, the Finance Agency previously provided us with guidance to maintain sufficient liquidity in an amount at least equal to our anticipated cash outflows under two different scenarios. One scenario (roll-off scenario) assumes that we cannot access the capital markets to issue debt for a period of 10 to 20 days with initial guidance set at 15 days, and that during that time members do not renew any maturing, prepaid, and called advances. The second scenario (renew scenario) assumes that we cannot access the capital markets to issue debt for a period of three to seven days with initial guidance set at five days, and that during that time we will automatically renew maturing and called advances for all members except very large, highly-rated members. This guidance was designed to protect against temporary disruptions in the debt markets that could lead to a reduction in market liquidity and thus the inability for us to provide advances to our members. At December 31, 2018, we were in compliance with this liquidity guidance.

~~During 2018, the Finance Agency finalized a new~~ Advisory Bulletin on FHLBank liquidity (the Liquidity Guidance AB) and other guidance ~~which specifies the~~outlines an additional scenario required for measuring liquidity. ~~Beginning at March 31, 2019, we began reporting only one scenario, “Base Case Scenario.”~~ The Base Case Scenario assumes that we cannot access the capital markets to issue debt, and during that time we will automatically renew maturing and called advances for all members, including very large highly-rated members, and we hold additional liquid assets equal to one percent of ~~Letters~~our letters of ~~Credit~~credit balances. As a result of the recent deterioration in financial market conditions due to COVID-19, the Finance Agency temporarily issued revised guidance with respect to base case liquidity. On March 3, 2020, the Finance Agency indicated that the FHLBanks should maintain no less than 10 calendar days of positive daily cash balances ~~are reserved. We~~through April 30, 2020 and that the FHLBanks should then return to 20 calendar days or more of positive daily cash balances by September 30, 2020. As a result of this guidance, we were required to hold a minimum of 10 days of liquidity aton March 31, ~~2019 and will be required to hold a minimum of~~2020, lower than the 20 days ~~of liquidity at~~required on December 31, 2019. At March 31, 2020 and December 31, 2019, we were in compliance with ~~this~~Finance Agency liquidity guidance.

The ~~new~~ Liquidity Guidance AB also ~~specifies~~specified new guidance for appropriate funding gap limits to address the risks associated with a FHLBank having too large a mismatch between the contractual maturities of its assets and liabilities. A funding gap measures the difference between assets and liabilities that are scheduled to mature during a specified period and is expressed as a percentage of our total assets. The Liquidity Guidance AB ~~provides~~provided funding gap limits within the range of negative 10 percent to negative 20 percent for a three-month horizon and negative 25 percent to negative 35 percent for a one-year horizon. Initial guidance was set at a trailing three-month average of negative 15 percent for the three-month horizon and a trailing three-month average of negative 30 percent for the one-year horizon. In addition to the relief provided for base case liquidity, on March 12, 2020, the Finance Agency also increased (through July 30, 2020) the funding gap ratios for the three-month and one-year time horizons to negative 25 percent or better and negative 40 percent or better, respectively. According to the guidance, by September 30, 2020, the funding gap ratios for the three-month and one-year time horizons should not exceed negative 20 percent and negative 35 percent, respectively. By December 31, 2020, the funding gap ratios should not exceed the limits that were in place prior to COVID-19. At March 31, ~~2019~~2020 and December 31, ~~2018~~2019 we adhered to ~~this~~Finance Agency liquidity guidance. For a discussion of this ~~Liquidity Guidance AB,~~revised guidance issued by the Finance Agency, refer to “Item 7.2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory ~~Developments” in our 2018 Form 10-K.~~Developments.”

Capital

CAPITAL REQUIREMENTS

We are subject to ~~three~~certain regulatory capital requirements. First, the FHLBank Act requires that we maintain at all times permanent capital greater than or equal to the sum of our credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock, (including mandatorily redeemable capital stock), and retained earnings can satisfy this risk-based capital requirement. Second, the FHLBank Act requires a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes Class B capital stock (including mandatorily redeemable capital stock) and retained earnings. It does not include accumulated other comprehensive income (AOCI). Third, the FHLBank Act imposes a five percent minimum leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we did not hold any nonpermanent capital. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we were in compliance with all three of the Finance Agency’s regulatory capital requirements.

CAPITAL STOCK

Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. We generally issue a single class of capital stock (Class B stock) and have two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31^st, subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding. All Class B capital issued is subject to a notice of redemption period of five years.

We reclassify capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) when a member provides written notice of redemption, gives notice of intention to withdraw from membership, becomes ineligible for continuing membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership.

The capital stock requirements established in our Capital Plan are designed so that we can remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan.

Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under our Capital Plan, we, at our discretion and upon 15 days’ written notice, may repurchase excess membership capital stock. We, at our discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, our excess capital stock outstanding was less than $1 million.

The following table summarizes our regulatory capital stock by type of member (dollars in millions):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Commercial banks	$	3,651	$	3,829	$	2,709	$	2,767
Savings institutions	95		104		145		113
Credit unions	467		495		569		547
Non-captive insurance companies	765		775		1,164		914
Captive insurance companies	204		210		65		175
Community development financial institutions	—		1
CDFIs					1		1
Total GAAP capital stock	5,182		5,414		4,653		4,517
Mandatorily redeemable capital stock	237		255		96		206
Total regulatory capital stock	$	5,419	$	5,669	$	4,749	$	4,723

~~The decrease in regulatory capital stock held at March 31, 2019 when compared to December 31, 2018 was primarily due to a decrease in capital stock resulting from a decline in member activity.~~

Retained Earnings

Our risk management policies include a target level of retained earnings based on the amount we believe necessary to help protect the redemption value of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend. We monitor our achievement of this target and may utilize tools such as restructuring our balance sheet, generating additional income, reducing our risk exposures, increasing capital stock requirements, or reducing our dividends to achieve our targeted level of retained earnings. At March 31, ~~2019,~~2020, our actual retained earnings exceeded our retained earnings target.

We entered into a Joint Capital Enhancement Agreement (JCE Agreement) with all of the other Federal Home Loan Banks in 2011. Under the JCE Agreement, ~~as amended,~~ we are required to allocate 20 percent of our quarterly net income to a restricted retained earnings account until the balance of that account equals at least one percent of our average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends and are presented separately inon our Statements of Condition. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, our restricted retained earnings balance totaled ~~$449~~$522 million and ~~$427~~$504 million. One percent of our average balance of outstanding consolidated obligations for the three months ended December 31, ~~2018~~2019 was ~~$1.4~~$1.2 billion.

Dividends

Our current dividend philosophy is to pay a membership capital stock dividend similar to a reference rate of interest, such as average three-month LIBOR over time, and an activity-based capital stock dividend, when possible, at a level above the membership capital stock dividend. We have historically used average three-month LIBOR as our reference rate; however, beginning with the second quarter dividend we will move to using SOFR as our reference rate.

Our dividend rates seek to strike a balance between providing reasonable returns to members while preserving our financial position, flexibility, and ability to serve as a long-term liquidity provider. Our actual dividend is determined quarterly by our Board of Directors, based on policies, regulatory requirements, actual performance, and other ~~considerations.~~considerations that the Board determines to be appropriate.

The following table summarizes dividend-related information (dollars in millions):


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
Aggregate cash dividends paid¹	$	70		$	53		$	59		$	70
Effective combined annualized dividend rate paid on capital stock²	5.25		%	4.03		%	5.14		%	5.25		%
Annualized dividend rate paid on membership capital stock	3.25		%	2.00		%	3.25		%	3.25		%
Annualized dividend rate paid on activity-based capital stock	5.75		%	4.50		%	5.75		%	5.75		%
Average three-month LIBOR	2.69		%	1.93		%	1.52		%	2.69		%


1	Includes aggregate cash dividends paid during the period. Amount excludes cash dividends paid on mandatorily redeemable capital stock. For financial reporting purposes, these dividends were recorded as interest expense inon our Statements of Income.


2	Effective combined annualized dividend rate is paid on total capital stock, including mandatorily redeemable capital stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our critical accounting policies and estimates, refer to our ~~2018~~2019 Form 10-K. There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, ~~2019, with the exception of the policy noted below.~~

~~Derivatives and Hedging Activities~~2020.

~~Accounting for Fair Value Hedges~~. If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the fair value hedging relationship and an expectation to be highly effective, they qualify for fair value hedge accounting. Beginning January 1, 2019, we adopted new hedge accounting guidance, which impacted the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item. Prior to January 1, 2019, any hedge ineffectiveness, or the amount by which the change in the fair value of the derivative differed from the change in fair value of the hedged item, was recorded in other income (loss) as “Net gains (losses) on derivatives and hedging activities.”

LEGISLATIVE AND REGULATORY DEVELOPMENTS

~~Interim Final Rule on~~ Margin and Capital Requirements for Covered Swap Entities

On ~~March 19, 2019,~~April 9, 2020, the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration and the Finance Agency (collectively, the Agencies) jointly adopted interimCommodities Futures Trading Commission (CFTC) issued a final rule, effective May 11, 2020, to amend its rules ~~(the Interim Rule) amending the Agencies’ regulations that established~~requiring minimum margin and capital requirements ~~(the Margin Rules)~~ for ~~registered~~uncleared swaps for covered swap ~~dealers, major swap participants, security-based swap dealers, and major security-based swap participants (Covered Swap Entities) under~~entities for which there is no prudential regulator by extending the jurisdiction of one of the Agencies. The Interim Rule was adopted to assist Covered Swap Entities and their counterparties upon the expected withdrawal, currently delayed until October 31, 2019, of the United Kingdom (UK) from the European Union (EU), commonly referred to as “Brexit.” If the UK withdraws from the EU without a negotiated agreement between the UK and the EU, Covered Swap Entities located within the UK may not be authorized to continue providing certain financial services to swap counterparties that are located in the EU. The Interim Rule would permit Covered Swap Entities located within the UK to transfer their non-cleared swap portfolios to affiliates or other related entities located within the EU or the United States without subjecting legacy swaps (those swaps entered into before thephase-in compliance date ~~of the Margin Rules) to the~~for initial margin requirements ~~of the Margin Rules, provided that the transfer is made within a year of a non-negotiated Brexit and there are no other amendments~~from September 1, 2020, to ~~the transactions.~~

~~We have a UK-based non-cleared swap counterparty that may choose to transfer its non-cleared swap portfolios, including any such swaps~~September 1, 2021, for counterparties with ~~us, to a related entity in the EU or the United States. If any~~an average daily aggregate notional amount of ~~our legacy~~ non-cleared swaps ~~are transferred in accordance with the Interim Rule, those swaps will retain legacy status under the Margin Rules.~~

On April 1, 2019, the Commodity Futures Trading Commission (CFTC) adopted its own version of the Interim Rule, which is substantially similar to the Agencies’ Interim Rule, but which applies to Covered Swap Entities that are not subject to the jurisdiction of one of the Agencies. Comments on the Interim Rule were due April 18, 2019between $8 billion and ~~are due on the CFTC’s version of the Interim Rule on May 31, 2019.~~$50 billion. We do not expect ~~the Interim Rule or the CFTC’s version of the Interim Rule to materially affect our financial condition or results of operations.~~

~~Final Rule on FHLBank Capital Requirements~~

~~On February 20, 2019, the Finance Agency published a~~this final rule, effective January 1, 2020, that adopts, with amendments, the regulations of the Federal Housing Finance Board (predecessor to the Finance Agency) (the Finance Board) pertaining to the capital requirements for the FHLBanks. The final rule carries over most of the prior Finance Board regulations without material change but substantively revises the credit risk component of the risk-based capital requirement, as well as the limitations on extensions of unsecured credit. The main revisions remove requirements that we calculate credit risk capital charges and unsecured credit limits based on ratings issued by a Nationally Recognized Statistical Rating Organization (NRSRO), and instead require that we establish and use our own internal rating methodology (which may include, but not solely rely on, NRSRO ratings). The rule imposes a new credit risk capital charge for cleared derivatives. The final rule also revises the percentages used in the regulation’s tables to calculate credit risk capital charges for advances and for non-mortgage assets. The final rule also rescinds certain contingency liquidity requirements that were part of the Finance Board regulations, as these requirements are now addressed in an Advisory Bulletin on FHLB Liquidity Guidance issued by the Finance Agency in 2018. We do not expect this rule to materially affect our financial condition or results of operations.

~~FDIC~~Finance Agency Final Rule on ~~Reciprocal Deposits~~Stress Testing

On ~~February 4, 2019,~~March 24, 2020, the ~~FDIC published~~Finance Agency issued a final rule, effective ~~March 6, 2019, related~~upon issuance, to ~~the treatment of reciprocal deposits, which implements Section 202~~amend its stress testing rule, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection ~~Act.~~Act of 2018 (EGRRCPA). The final rule ~~exempts,~~(i) raises the minimum threshold for ~~certain insured depository institutions (depositories), certain reciprocal deposits (deposits acquired~~entities regulated by ~~a depository~~the Finance Agency to conduct periodic stress tests from ~~a network~~$10 billion to $250 billion or more in total consolidated assets; (ii) removes the requirements for FHLBanks to conduct stress testing; and (iii) removes the adverse scenario from the list of ~~participating depositories~~required scenarios. FHLBanks are currently excluded from this regulation because no FHLBank has total consolidated assets over $250 billion, but the Finance Agency reserved its discretion to require an FHLBank with total consolidated assets below the $250 billion threshold to conduct stress testing. These amendments align the Finance Agency’s stress testing rule with rules adopted by other financial institution regulators that ~~enables depositors~~implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) stress testing requirements, as amended by EGRRCPA.

The results of our most recent annual severely adverse economic conditions stress test were published to ~~receive FDIC insurance coverage~~our public website, www.fhlbdm.com, on November 15, 2019. This rule will eliminate these stress testing requirements for the ~~entire amount~~Bank, unless the Finance Agency exercises its discretion to require stress testing in the future. We do not expect this rule to have a material effect on our financial condition or results of operations.

Finance Agency Supervisory Letter - Planning for LIBOR Phase-Out

On September 27, 2019, the Finance Agency issued a Supervisory Letter (Supervisory Letter) to the FHLBanks that the Finance Agency stated is designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. The Supervisory Letter provided that the FHLBanks should, by March 31, 2020, cease entering into new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021 for all product types except investments. With respect to investments, the FHLBanks were required, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates do not apply to collateral accepted by the FHLBanks. The Supervisory Letter also directed the FHLBanks to update their ~~deposits) from being~~pledged collateral certification reporting requirements by March 31, 2020, in an effort to encourage members to distinguish LIBOR-linked collateral maturing after December 31, 2021. The FHLBanks were expected to cease entering into LIBOR-indexed financial instruments maturing after December 31, 2021, by the deadlines specified in the Supervisory Letter, subject to ~~FDIC restrictions on brokered deposits. Under~~limited exceptions granted by the ~~rule, well-capitalized~~FHFA for LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes that do not currently have readily available alternatives. We have already ceased purchasing investments that reference LIBOR and ~~well-rated depositories are not required~~mature after December 31, 2021.

As a result of the recent market volatility triggered in part by COVID-19, the FHLBanks’ authority to ~~treat reciprocal deposits as brokered deposits up~~enter into LIBOR-based instruments that mature after December 31, 2021 has been extended from March 31, 2020 to June 30, 2020, except for investments and option embedded products. In addition, the ~~lesser of twenty percent of their total liabilities or $5 billion. Reciprocal deposits held by depositories that are not well-capitalized and well-rated may also be excluded~~requirement to update pledged collateral certification reporting requirements was extended from ~~brokered deposit treatment in certain circumstances.~~March 31, 2020, to September 30, 2020.

We continue to evaluate the potential impact of the ~~final rule,~~Supervisory Letter and the related subsequent guidance on our financial condition and results of operations, but ~~currently~~we may experience lower overall demand or increased costs for our advances, which in turn may negatively impact the future composition of our balance sheet, capital stock levels, core mission asset ratio, net income and dividend.

Finance Agency Advisory Bulletin 2020-01 Federal Home Loan Bank Risk Management of Acquired Member Assets (AMA) Risk Management

On January 31, 2020, the Finance Agency released guidance on risk management of AMA. The guidance communicates the Finance Agency’s expectations with respect to an FHLBank’s funding of its members through the purchase of eligible mortgage loans and includes expectations that an FHLBank will have board-established limits on AMA portfolios and management-established thresholds to serve as monitoring tools to manage AMA-related risk exposure. The guidance provides that the board of an FHLBank should ensure that the bank serves as a liquidity source for members, and an FHLBank should ensure that its portfolio limits do not result in the FHLBank’s acquisition of mortgages from smaller members being “crowded out” by the acquisition of mortgages from larger members. The advisory bulletin contains the expectation that the board of an FHLBank should set limits on the size and growth of portfolios and on acquisitions from a single participating financial institution. In addition, the guidance provides that the board of an FHLBank should consider concentration risk in the areas of geographic area, high-balance loans, and in third-party loan originations.

We continue to evaluate the potential impact of this advisory bulletin but do not expect ~~the rule~~it to materially affect our financial condition or results of operations.

FDIC Brokered Deposits Restrictions

On February 10, 2020, the FDIC published a proposed rule to amend its brokered deposits restrictions that apply to less than well capitalized insured depository institutions. The FDIC states that the proposed amendments are intended to modernize its brokered deposit regulations and would establish a new framework for analyzing whether deposits placed through deposit placement arrangements qualify as brokered deposits. These deposit placement arrangements include those between insured depository institutions and third parties, such as financial technology companies, for a variety of business purposes, including access to deposits. By creating a new framework for analyzing certain provisions of the deposit broker definition, including shortening the list of activities considered facilitating and expanding the scope of the primary purpose exception, the proposed rule ~~could, however, enhance depositories’ liquidity by increasing~~would narrow the ~~attractiveness~~definition of deposit broker and exclude more deposits ~~that exceed FDIC insurance limits. This could affect~~from treatment as brokered deposits. The proposed rule would also establish an application and reporting process with respect to the primary purpose exception.

If this rule is adopted as proposed, it may have an effect on member demand for ~~certain advance products.~~advances, but we cannot predict the extent of the impact. We do not expect this rule, if adopted as proposed, to materially affect our financial condition or results of operations.

Legislative and Regulatory Developments Related to COVID-19

Finance Agency Supervisory Letter - PPP Loans as Collateral for FHLBank Advances

On April 23, 2020, the Finance Agency issued a Supervisory Letter (PPP Supervisory Letter) permitting the FHLBanks to accept PPP loans as collateral for advances as “Agency Securities,” given the Small Business Administration’s (SBA) 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA published its third interim final rule related to PPP loans, which explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral, which conditions focus on the financial condition of members, collateral discounts, and pledge dollar limits.

We are evaluating the potential impact of the PPP Supervisory Letter, but do not expect the PPP Supervisory Letter to materially affect our financial condition or results of operations.

CARES Act

The CARES Act was passed by the Senate on March 25, 2020, and by the House on March 27, 2020, and the President signed it into law the same day. The $2.2 trillion package is the largest stimulus bill in U.S. history. The CARES Act is in addition to previous relief legislation passed by Congress in March 2020. The legislation provides the following:

Assistance to businesses, states, and municipalities.

Creates a loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives.

Provides the Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act.

Direct payments to eligible taxpayers and their families.

Expands eligibility for unemployment insurance and payment amounts.

Includes mortgage forbearance provisions and a foreclosure moratorium.

Funding for the PPP, which was created by the CARES Act, was increased on April 24, 2020 with the enactment of the Paycheck Protection Program and Healthcare Enhancement Act. Additional phases of the CARES Act or other COVID-19 relief legislation may be enacted by Congress. We are evaluating the potential impact of the CARES Act on our business, including its impact to the U.S. economy, which is unknown; and impacts to mortgages held or serviced by our members and that we accept as collateral.

Additional COVID-19 Legislative and Regulatory Developments

In light of COVID-19, governmental agencies, including the Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Association, CFTC and the Finance Agency, as well as state governments and agencies, have taken actions to provide various forms of relief from and guidance regarding the financial, operational, credit, market and other effects of the pandemic, some of which may have a direct or indirect impact on us and/or our members. Many of these actions are temporary in nature. We are monitoring these actions and guidance and evaluating their potential impact on us.

RISK MANAGEMENT

We have risk management policies, established by our Board of Directors, that monitor and control our exposure to market, liquidity, credit, operational, model, information security, compliance, and strategic risk, as well as capital adequacy. Our primary risk management objective is to manage our assets and liabilities in ways that protect the par redemption value of our capital stock. We periodically evaluate our risk management policies in order to respond to changes in our financial position and general market conditions.

Market Risk

We define market risk as the risk that changes in market prices may adversely affect our financial condition and performance. Interest rate risk is the principal type of market risk to which we are exposed as our cash flows, and therefore earnings and equity value, can change significantly as interest rates change. Our general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets, liabilities, and derivatives, which, taken together, limit our expected exposure to interest rate risk. Management regularly reviews our sensitivity to interest rate changes by monitoring our market risk measures in parallel and non-parallel interest rate changes and spread and volatility movements.

Our key risk measures are Market Value of Capital Stock (MVCS) Sensitivity and Projected Income Sensitivity.

MARKET VALUE OF CAPITAL STOCK SENSITIVITY

We define MVCS as an estimate of the market value of assets minus the market value of liabilities (excluding mandatorily redeemable capital stock) divided by the total shares of capital stock (including mandatorily redeemable capital stock) outstanding. It represents an estimation of the “liquidation value” of one share of our capital stock if all assets and liabilities were liquidated at current market prices. MVCS does not represent our long-term value, as it takes into account short-term market price fluctuations. These fluctuations are often unrelated to the long-term value of the cash flows from our assets and liabilities.

The MVCS calculation uses market prices which are computed using interest rates, spreads, and volatilities, and assumes a run-off balance sheet. The timing and variability of balance sheet cash flows are calculated by an internal model. To ensure the accuracy of the MVCS calculation, we reconcile the computed market prices of complex instruments, such as derivatives and mortgage assets, to market observed prices or dealers’ quotes.

Interest rate risk stress tests of MVCS involve instantaneous parallel and non-parallel changes in interest rates. The resulting percentage change in MVCS from the base case value is an indication of longer-term repricing risk and option risk embedded in the balance sheet.

In an effort to protect the MVCS from large interest rate swings, we manage the interest rate risk of our balance sheet by using hedging transactions, such as issuing consolidated obligation bonds, including floating rate, simple bullet, callable, or other structured features and entering into or canceling interest rate swaps, caps, floors, and swaptions.

We monitor and manage to the MVCS policy limits in an effort to ensure the stability of the Bank’s value. Our policy limits are based on declines from the base case in parallel and non-parallel interest rate change scenarios. Any policy limit breach requires a prompt action to address the measure outside of the policy limit and the breach must be reported to the Enterprise Risk Committee of the Bank and the Risk Committee of the Board of Directors. We were in compliance with the MVCS policy limits at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

Our down 200 basis point policy limit is suspended when the 10-year swap rate is below 2.50 percent and remains so for five consecutive days. At both March 31, 2020 and December 31, 2019, the 10-year swap rate ~~was 2.41~~had been below 2.50 percent for five consecutive days, and therefore the associated policy limit was suspended. ~~At December 31, 2018, the 10-year swap rate was 2.71 percent and the associated policy limit was in effect.~~

The following tables show our policy limits and base case and change from base case MVCS in dollars per share and percent change respectively, based on outstanding shares of capital stock, including shares classified as mandatorily redeemable, assuming instantaneous parallel changes in interest rates at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

Market Value of Capital Stock Assuming Parallel Changes (dollars per share)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
March 31, 2019 $ 136.6
$ 138.7
$ 139.3
$ 139.2
$ 138.7
$ 137.8
$ 135.6
December 31, 2018 $ 135.3
$ 137.2
$ 137.3
$ 136.8
$ 136.1
$ 135.0
$ 132.6



	Market Value of Capital Stock Assuming Parallel Changes (dollars per share)
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
March 31, 2020	$	142.3	$	141.9	$	141.2	$	141.1	$	141.4	$	140.5	$	138.0
December 31, 2019	$	144.7	$	145.2	$	146.7	$	147.2	$	146.8	$	145.9	$	143.4

% Change from Base Case
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
March 31, 2019 (1.9 )% (0.4 )% — % — % (0.4 )% (1.1 )% (2.6 )%
December 31, 2018 (1.1 )% 0.2 % 0.3 % — % (0.6 )% (1.3 )% (3.1 )%



	% Change from Base Case
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
March 31, 2020	0.8	%	0.5	%	0.1	%	—	%	0.2	%	(0.4	)%	(2.2	)%
December 31, 2019	(1.7	)%	(1.3	)%	(0.3	)%	—	%	(0.3	)%	(0.9	)%	(2.6	)%

Policy Limits (declines from base case)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
March 31, 2019 and December 31, 2018 (9.0 )% (5.0 )% (2.2 )% — % (2.2 )% (5.0 )% (9.0 )%



	Policy Limits (declines from base case)
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
March 31, 2020 and December 31, 2019	(9.0	)%	(5.0	)%	(2.2	)%	—	%	(2.2	)%	(5.0	)%	(9.0	)%

The following tables show our policy limits and base case and change from base case MVCS in dollars per share and percent change respectively, based on outstanding shares of capital stock, including shares classified as mandatorily redeemable, assuming instantaneous non-parallel changes in interest rates at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

Market Value of Capital Stock Assuming Non-Parallel Changes (dollars per share)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
March 31, 2019 $ 137.8
$ 138.8
$ 139.2
$ 139.2
$ 138.8
$ 137.9
$ 135.4
December 31, 2018 $ 136.1
$ 137.0
$ 137.1
$ 136.8
$ 136.2
$ 135.2
$ 132.6



	Market Value of Capital Stock Assuming Non-Parallel Changes (dollars per share)
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
March 31, 2020	$	139.5	$	139.0	$	139.4	$	141.1	$	141.9	$	142.2	$	141.6
December 31, 2019	$	143.2	$	145.0	$	146.3	$	147.2	$	147.6	$	147.3	$	145.8

% Change from Base Case
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
March 31, 2019 (1.1 )% (0.3 )% — % — % (0.3 )% (0.9 )% (2.8 )%
December 31, 2018 (0.5 )% 0.1 % 0.2 % — % (0.5 )% (1.2 )% (3.1 )%



	% Change from Base Case
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
March 31, 2020	(1.2	)%	(1.5	)%	(1.2	)%	—	%	0.6	%	0.7	%	0.3	%
December 31, 2019	(2.8	)%	(1.5	)%	(0.6	)%	—	%	0.2	%	0.1	%	(1.0	)%

Policy Limits (declines from base case)
Down 200 Down 100 Down 50 Base Case Up 50 Up 100 Up 200
March 31, 2019 and December 31, 2018 (9.0 )% (5.0 )% (2.2 )% — % (2.2 )% (5.0 )% (9.0 )%



	Policy Limits (declines from base case)
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
March 31, 2020 and December 31, 2019	(9.0	)%	(5.0	)%	(2.2	)%	—	%	(2.2	)%	(5.0	)%	(9.0	)%

Our base case MVCS was ~~139.2~~141.1 at March 31, ~~2019~~2020 when compared to ~~136.8~~147.2 at December 31, ~~2018.~~2019. The ~~change~~decline was primarily attributable to the following factors:


•	Option-adjusted spread: The spread between mortgage interest rates and LIBOR, adjusted for the mortgage prepayment option, increased at March 31, 2020 when compared to December 31, 2019. This had a negative impact on MVCS as it decreased the value of mortgage-related assets.

•

Increase in retained earnings:We recorded net income of ~~$112~~$92 million during the three months ended March 31, ~~2019,~~2020, which was primarily driven by net interest income of ~~$159~~$109 million. Dividend payments for the three months ended March 31, ~~2019~~2020 totaled ~~$70~~$59 million. The earnings in excess of ~~dividends paid~~dividend payments had a positive impact on the market value of our assets, thereby increasing MVCS.


•	~~Decreased Shares of Capital Stock:~~ Our capital stock balance decreased at March 31, 2019 when compared to December 31, 2018 due primarily to a decrease in member activity. As we repurchased this capital stock at par, which is below our current MVCS value, our MVCS was positively impacted.

PROJECTED INCOME SENSITIVITY

~~During~~Projected income sensitivity is measured as the ~~first quarter of 2019, we monitored the Bank’s~~change in spread between projected 24-month ~~income sensitivity through our review of the projected~~ return on average capital stock ~~measure. Projected return on capital stock is computed as an annualized ratio of projected net income over a 24 month period to~~(ROACS) and average projected ~~capital stock over the same period.~~

three-month LIBOR. We monitored and managed projected 24-month income sensitivity in an effort to limit the short-term earnings volatility of the Bank. The projected 24-month income sensitivity was based on the forward interest rates, business, and risk management assumptions.

Our primary income sensitivity policy ~~limits specified~~specifies a ~~floor~~limit on our change in 24-month projected ~~return on capital stock of no less than 50 percent of~~ROACS spread to average projected ~~3-month~~three-month LIBOR ~~over 24 months~~from base spread for the up and down 100 and 200 basis ~~point~~points parallel interest rate change ~~scenarios as well as~~scenarios. In addition, our income sensitivity policy specifies a limit for the up and down 100 basis ~~point~~points non-parallel interest rate ~~changes~~change scenarios. Additionally, there is a limit on our change from base ROACS for ~~each~~certain basis shock ~~scenario.~~scenarios to limit basis risk exposure. Any policy limit breach requires a prompt action to address the measure outside of the policy limit. We were in compliance with the projected 24-month income sensitivity policy limits atas of both March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. For more information on our Projected Income Sensitivity, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market Risk — Projected Income Sensitivity” in our ~~2018~~2019 Form 10-K.

Effective May 1, 2019, we revised our key risk measures to align our risk metrics with the Bank’s internal business profitability objectives and measurements. As a result, after May 1, 2019, projected income sensitivity will no longer be monitored through the review of the projected return on capital stock measure. The new projected income sensitivity measure will be projected return on average capital stock over average three-month LIBOR. Projected return on average capital stock over average three-month LIBOR is calculated as the spread between 24-month projected return on average capital stock and the average three-month LIBOR rate.

CAPITAL ADEQUACY

An adequate capital position is necessary for providing safe and sound operations of the Bank. Our key capital adequacy measures are MVCS and regulatory capital in order to maintain capital levels in accordance with Finance Agency regulations. In addition, we monitor retained earnings. For a discussion of our key capital adequacy measure, MVCS, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market Risk — Market Value of Capital Stock Sensitivity.”

RETAINED EARNINGS TARGET LEVEL AND REGULATORY CAPITAL REQUIREMENTS

Our risk management policies include a target level of retained earnings based on the amount we believe necessary to protect the redemption value of capital stock, facilitate safe and sound operations, maintain regulatory capital ratios, and support our ability to pay a relatively stable dividend. We are also subject to ~~three~~certain regulatory capital requirements. For additional information on our compliance with these requirements, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Liquidity Risk

We define liquidity risk as the risk that we will be unable to meet our financial obligations as they come due or meet the credit needs of our members ~~and housing associates~~ in a timely and cost efficient manner. To manage this risk, we maintain liquidity in accordance with Finance Agency regulations. For additional information on our compliance with these requirements, refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Liquidity Requirements.”

Credit Risk

We define credit risk as the potential that our borrowers or counterparties will fail to meet their obligations in accordance with agreed upon terms. Our primary credit risks arise from our ongoing lending, investing, and hedging activities. Our overall objective in managing credit risk is to operate a sound credit granting process and to maintain appropriate credit administration, measurement, and monitoring practices.

ADVANCES

We manage our credit exposure to advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower’s financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers’ needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

We are required by regulation to obtain sufficient collateral to fully secure our advances and other credit products. The estimated value of the collateral required to secure each borrower’s credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal or market value, if available, of the collateral. We also have policies and procedures for validating the reasonableness of our collateral valuations. In addition, we perform collateral verifications and on-site reviews based on the risk profile of the borrower. Management believes that these policies effectively manage our credit risk from advances.

Eligible collateral ~~includes (i)~~ includes:

fully disbursed whole first mortgages on improved residential real property or securities representing a whole interest in such ~~mortgages, (ii)~~ mortgages;

loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie ~~Mae and Federal Family Education Loan Program guaranteed student loans, (iii)~~ Mae;

cash deposited with ~~us,~~us; and ~~(iv)~~

other real estate-related collateral acceptable to us, such as second lien mortgages, home equity lines of credit, tax-exempt municipal securities, and commercial real estate mortgages, provided such collateral has a readily ascertainable value and we can perfect a security interest in such collateral.

Community Financial Institutions (CFIs) may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that we have a lien on each borrower’s capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.

Borrowers may pledge collateral to us by executing a blanket pledge agreement, specifically assigning collateral, or placing physical possession of collateral with us or our custodians. We perfect our security interest in all pledged collateral by filing Uniform Commercial Code financing statements or taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to us by our members, or any affiliates of our members, has priority over the claims and rights of any other party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims

and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket pledge agreement, we are granted a security interest in all financial assets of the borrower to fully secure the borrower’s obligation. Other than securities and cash deposits, we do not initially take delivery of collateral ~~pledged by~~from blanket ~~pledge~~ agreement borrowers. In the event of deterioration in the financial condition of a blanket pledge agreement borrower, we have the ability to require delivery of pledged collateral sufficient to secure the borrower’s obligation. With respect to non-blanket pledge agreement borrowers that are federally insured, we generally require collateral to be specifically assigned. With respect to non-blanket pledge agreement borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), we generally take control of collateral through the delivery of cash, securities, or loans to us or our custodians.

Although management has policies and procedures in place to manage credit risk, we may be exposed to this risk if our outstanding advance value exceeds the liquidation value of our collateral. We mitigate this risk by applying collateral discounts or haircuts to the unpaid principal balance or market value, if available, of the collateral to determine the advance equivalent value of the collateral securing each borrower’s obligation. The amount of these discounts will vary based on the type of collateral and security agreement. We determine these discounts or haircuts using data based upon historical price changes, discounted cash flow analyses, and loan level modeling.

As a result of recent stressed market conditions stemming from COVID-19, we are taking additional steps to monitor our credit risk on advances. These steps include increased frequency of collateral valuation and identifying, analyzing, and monitoring borrowers with higher risk profiles.

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, borrowers pledged ~~$337.7~~$327.6 billion and ~~$333.5~~$329.4 billion of collateral (net of applicable discounts) to support activity with us, including advances. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, all of our advances met the requirement to be collateralized at a minimum of 100 percent, net of applicable discounts. Borrowers pledge collateral in excess of their collateral requirement mainly to demonstrate available liquidity and to borrow additional amounts in the future.

The following table shows our total exposure, including advances, as well as the collateralization percentage of outstanding exposure by borrower type (dollars in millions):


	March 31, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Sum of Total Exposure		% Collateralized		Sum of Total Exposure		% Collateralized		Sum of Total Exposure		% Collateralized		Sum of Total Exposure		% Collateralized
Commercial banks	$	78,869	324	%	$	84,072	303	%	$	54,587	434	%	$	57,455	421	%
Savings institutions	1,070		664		1,396		597		2,043		407		1,431		432
Credit unions	5,346		363		6,479		305		6,862		369		6,678		360
Non-captive insurance companies	18,173		150		18,644		143		24,291		140		20,846		145
Captive insurance companies	4,453		100		4,453		100		906		120		3,798		100
Community development financial institutions	3		201		3		313
CDFIs									16		141		14		170
Housing associates	103		222		59		252		44		355		100		172
Non-member borrowers	293		143		615		121		283		132		273		146
Total borrowers	$	108,310	290	%	$	115,721	272	%	$	89,032	344	%	$	90,595	339	%

We evaluate advances for credit losses on a quarterly basis. We adopted new accounting guidance for the measurement of credit losses on financial instruments on January 1, 2020. We have never experienced a credit loss on our advances. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on ~~credit products,~~advances, management has determined that there were no ~~probable~~expected credit losses on our ~~credit products~~advances as of March 31, ~~2019~~2020 ~~and December 31, 2018. Accordingly,~~. For the same reasons, we ~~have~~did not ~~recorded~~record any allowance for credit losses onfor our ~~credit products.~~advances at December 31, 2019. Refer to “Item 1. Financial Statements — Note 4 — Advances” for additional information.

MORTGAGE LOANS

We are exposed to credit risk through our participation in the Mortgage Partnership Finance (MPF) program and the Mortgage Purchase Program (MPP). Mortgage loan credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage loans is affected by a number of factors, including loan type, borrower’s credit history, and other factors such as home price fluctuations, unemployment levels, and other economic factors in the local market or nationwide.

~~Through~~As a result of recent deteriorating market and economic conditions stemming from COVID-19, we may be subject to increased credit risk on our ~~participation~~mortgage loan portfolio. To assist homeowners affected by the current economic conditions, the federal government has implemented several programs through the CARES Act, including temporary mortgage payment forbearance and a temporary moratorium on foreclosures and evictions. We are closely monitoring our mortgage loan portfolio. The extent these programs will impact our mortgage portfolio and results of operations will depend on the number of homeowners who partake in these programs in the ~~MPF program, which represents 97 percent~~months to come. For additional information, refer to “Item 2. Management’s Discussion and Analysis of ~~our mortgage loans held for portfolio at March 31, 2019, we invest in conventional~~Financial Condition and ~~government-insured residential mortgage loans that are acquired through or purchased from a participating financial institution (PFI). In addition, MPF Xtra, MPF Direct,~~Results of Operations — Legislative and ~~MPF Government MBS are off-balance sheet loan products that are passed through to a third-party investor and are not maintained in our Statements of Condition.~~

Under the MPP, we acquired single-family mortgage loans that were purchased directly from MPP PFIs. Similar to the MPF program, MPP PFIs generally originated, serviced, and credit enhanced the mortgage loans sold to us. The MPP represented three percent of our mortgage loans held for portfolio at March 31, 2019. We currently do not purchase mortgage loans under this program. All loans in this portfolio were originated prior to 2006.Regulatory Developments.”

The following table presents the unpaid principal balance of our mortgage loan portfolio by product type (dollars in millions):


Product Type	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Conventional	$	7,341	$	7,231	$	8,917	$	8,712
Government	498		503		497		496
Total mortgage loan unpaid principal balance	$	7,839	$	7,734	$	9,414	$	9,208

We manage the credit risk on mortgage loans ~~acquired in the MPF program and MPP~~ by (i) adhering to our underwriting standards, (ii) using agreements to establish credit risk sharing responsibilities with our PFIs, and (iii) monitoring the performance of the mortgage loan portfolio and creditworthiness of ~~PFIs,~~PFIs.

We evaluate mortgage loans for credit losses on a quarterly basis and ~~(iv) establishing~~establish an allowance for credit losses to reflect management’s estimate of ~~probable~~expected credit losses inherent in the portfolio.

~~Government-Insured Mortgage Loans. For our government-insured mortgage loans, our loss protection consists~~ We adopted new accounting guidance for the measurement of the loan guarantee, the ability of the loan servicer to repurchase any government-insured loan once it reaches 90 days delinquent, and the contractual obligation of the loan servicer to liquidate a government-insured loan in full upon sale of the REO property if not repurchased previously. Therefore, we have not recorded any allowance for credit losses on ~~government-insured mortgage loans.~~financial instruments on January 1, 2020.

Conventional Mortgage Loans. ~~For~~We determine our 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 conditions, and reasonable and supportable forecasts of expected economic conditions. Conventional mortgage loans are evaluated collectively when similar risk characteristics exists. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. In limited instances, we may incorporate a management adjustment in the allowance for credit losses for conventional mortgage loans ~~we have several layers of legal loss protection~~due to changes in economic and business conditions or other factors that ~~are defined~~may not be fully captured in ~~agreements among us and~~ our PFIs. These loss layers may vary depending on the product alternatives selected and credit profile of the loans. Loss layers may consist of (i) homeowner equity, (ii) primary mortgage insurance (PMI), (iii) a first loss account (FLA), if applicable, and (iv) a credit enhancement obligation of the PFI, if applicable. For a detailed discussion of these loss layers, refermodel. Refer to “Item 1. Financial Statements — Note 95 — ~~Allowance~~Mortgage Loans Held for ~~Credit Losses.”~~Portfolio” for additional information.

~~Allowance for Credit Losses.~~ ~~We utilize an allowance for credit losses to reserve for estimated losses in our conventional mortgage loan portfolio at~~At both March 31, 2020 and December 31, 2019, the balance sheet date. The measurement of our allowance for credit losses is determined by (i) reviewing similar conventional mortgage loans for impairment on a collective basis, (ii) reviewing conventional mortgage loans for impairment on an individual basis, and (iii) estimating additional credit losses in the conventional mortgage loan portfolio. The allowance for credit losses on our conventional ~~mortgage~~ loans was $1 ~~million at both~~million.

Government-Insured Mortgage Loans. We invest in government-insured fixed rate mortgage loans that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI 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-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, we only have credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance.

We have never experienced a credit loss on our government-insured mortgage loans. At March 31, ~~2019~~2020 and December 31, ~~2018.~~2019, we determined no allowance for credit losses was necessary on our government-insured mortgage loans.

Refer to “Item 1. Financial Statements — Note 95 — ~~Allowance~~Mortgage Loans Held for ~~Credit Losses”~~Portfolio” for additional information on our allowance for credit ~~losses.~~

~~Non-Accrual Loans~~losses and ~~Delinquencies. We place a~~the payment status of our conventional mortgage loan on non-accrual status if it is determined that either the collection of interest or principal is doubtful or interest or principal is 90 days or more past due. We do not place a government-insured mortgage loan on non-accrual status due to the U.S. Government guarantee of the loan and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. Refer to “Item 1. Financial Statements — Note 9 — Allowance for Credit Losses” for a summary of our non-accrual loans and mortgage loan delinquencies.loans.

INVESTMENTS

We maintain an investment portfolio primarily to provide investment income and liquidity. Our primary credit risk on investments is the counterparties’ ability to meet repayment terms. We mitigate this credit risk by purchasing investment quality securities. We define investment quality as a security with adequate financial backings so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. We consider a variety of credit quality factors when analyzing potential investments, including collateral performance,

marketability, asset class or sector considerations, local and regional economic conditions, ~~NRSRO~~nationally recognized statistical rating organization (NRSRO) credit ratings, and/or the financial health of the underlying issuer.

In light of recent market volatility stemming from COVID-19, we are taking additional steps to monitor our credit risk on investments. These steps include temporarily suspending business to Bank counterparties with increased credit risk and performing additional analysis on our unsecured portfolios. In addition, we will continue to monitor market volatility and counterparty ratings, counterparty pricing, news, sovereign and counterparty research, market research and articles, and COVID-19 predictions and analysis.

Finance Agency regulations limit the type of investments we may purchase. We are prohibited from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks, unless otherwise approved by the Finance Agency. Our unsecured credit exposures to U.S. branches and agency offices of foreign commercial banks include the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual repayment obligations. Our unsecured credit exposures to domestic counterparties and U.S. subsidiaries of foreign commercial banks include the risk that these counterparties have extended credit to foreign counterparties. At March 31, ~~2019,~~2020, we were in compliance with the above regulation and did not own any financial instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks, and those approved by the Finance Agency.

Finance Agency regulations also include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties. These limits are based on a percentage of eligible regulatory capital and the counterparty’s overall credit rating. Under these regulations, the level of eligible regulatory capital is determined as the lesser of our total regulatory capital or the eligible amount of regulatory capital of the counterparty. The eligible amount of regulatory capital is then multiplied by a stated percentage. The percentage that we may offer for extensions of unsecured credit, excluding overnight Federal funds sold, ranges from three to 15 percent based on the counterparty’s credit rating. Our total unsecured exposure to a counterparty, including overnight Federal funds sold, may not exceed twice that amount, or a total of six to 30 percent of the eligible amount of regulatory capital, based on the counterparty’s credit rating. At March 31, ~~2019~~2020, we were in compliance with the regulatory limits established for unsecured credit.

Our short-term portfolio may include, but is not limited to, interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, certificates of deposit, commercial paper, and U.S. Treasury bill obligations. Our long-term portfolio may include, but is not limited to, U.S. Treasury obligations, other U.S. obligations, GSE and Tennessee Valley Authority obligations, state or local housing agency obligations, taxable municipal bonds, and MBS. We ~~face credit risk from unsecured exposures primarily within~~consider our ~~short-term portfolio. We consider~~long-term investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the FDIC to be of the highest credit quality and therefore those exposures are not monitored with other unsecured investments. Given the credit quality of our unsecured long-term investments, our unsecured credit risk is primarily in the short-term portfolio.

We ~~generally~~primarily limit short-term unsecured credit exposure to the following overnight investment types:


•	Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions.


•	Commercial paper. Unsecured debt issued by corporations, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.

At March 31, ~~2019~~2020, our unsecured short-term investment exposure consisted of overnight Federal funds sold. The following table presents our unsecured short-term investment exposure by counterparty credit rating and domicile at March 31, ~~2019~~2020 (excluding accrued interest receivable) (dollars in millions):


	Credit Rating^1,2								Credit Rating^1,2
Domicile of Counterparty	AA		A		BBB		Total		AA		A		Total
Domestic	$	—	$	810	$	375	$	1,185	$	—	$	1,025	$	1,025
U.S subsidiaries of foreign commercial banks	700		—		—		700		600		—		600
Total domestic and U.S. subsidiaries of foreign commercial banks	700		810		375		1,885
U.S. branches and agency offices of foreign commercial banks
Australia	700		—		—		700		1,350		—		1,350
Canada	—		1,000		—		1,000		—		1,870		1,870
Finland	700		—		—		700		670		—		670
France	—		700		—		700
Germany	700		—		—		700		700		—		700
Japan									—		330		330
Netherlands	—		550		—		550		—		670		670
Norway	700		—		—		700		400		—		400
Sweden	700		—		—		700		670		650		1,320
United Kingdom	—		350		—		350
Total U.S. branches and agency offices of foreign commercial banks	3,500		2,600		—		6,100		3,790		3,520		7,310
Total unsecured investment exposure	$	4,200	$	3,410	$	375	$	7,985
Total unsecured short-term investment exposure									$	4,390	$	4,545	$	8,935


1	Represents either the lowest credit rating available for each ~~investment~~counterparty based on an ~~NRSRO. If an~~ NRSRO, ~~rating is not available for the investment,~~or the guarantor credit rating, ~~is used,~~ if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.


2	Table excludes investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the FDIC.

Investment Ratings

The following table summarizes the carrying value of our investments by credit rating (dollars in millions):


	March 31, 2019														March 31, 2020
	Credit Rating¹														Credit Rating¹
	AAA		AA		A		BBB		BB or Lower		Unrated		Total		AAA		AA		A		BBB		BB or Lower		Unrated²		Total
Interest-bearing deposits	$	—	$	1	$	—	$	—	$	—	$	—	$	1	$	—	$	1	$	—	$	—	$	—	$	—	$	1
Securities purchased under agreements to resell	—		—		1,750		—		—		6,250		8,000		—		—		—		—		—		6,550		6,550
Federal funds sold	—		4,200		3,410		375		—		—		7,985		—		4,390		4,545		—		—		—		8,935
Investment securities:
Mortgage-backed securities
GSE single-family	—		2,860		—		—		—		—		2,860		—		2,256		—		—		—		—		2,256
GSE multifamily	—		9,126		—		—		—		—		9,126		—		7,920		—		—		—		—		7,920
U.S. obligations single-family²	—		4,407		—		—		—		—		4,407
U.S. obligations commercial²	—		1		—		—		—		—		1
U.S. obligations single-family³															—		3,896		—		—		—		—		3,896
U.S. obligations commercial³															—		1		—		—		—		—		1
Private-label residential	—		5		1		2		1		—		9		—		4		1		1		1		—		7
Total mortgage-backed securities	—		16,399		1		2		1		—		16,403		—		14,077		1		1		1		—		14,080
Non-mortgage-backed securities
U.S. obligations²	—		2,650		—		—		—		—		2,650
U.S. Treasury obligations³															—		873		—		—		—		—		873
Other U.S. obligations³															—		2,115		—		—		—		—		2,115
GSE and Tennessee Valley Authority obligations	—		1,500		—		—		—		—		1,500		—		1,554		—		—		—		—		1,554
State or local housing agency obligations	956		229		—		—		—		—		1,185		772		200		—		—		—		—		972
Other	449		98		—		—		—		—		547		455		99		—		—		—		—		554
Total non-mortgage-backed securities	1,405		4,477		—		—		—		—		5,882		1,227		4,841		—		—		—		—		6,068
Total investments³	$	1,405	$	25,077	$	5,161	$	377	$	1	$	6,250	$	38,271
Total investments															$	1,227	$	23,309	$	4,546	$	1	$	1	$	6,550	$	35,634


1	Represents either the lowest credit rating available for each investment based on an ~~NRSRO. If an~~ NRSRO, ~~rating is not available for the investment,~~or the guarantor credit rating, ~~is used,~~ if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.


2	Represents secured securities purchased under agreements to resell with no NRSRO or guarantor rating.


3	Represents investment securities backed by the full faith and credit of the U.S. Government.


3	~~At March 31, 2019, 21 percent of our total investments were unsecured.~~

The following table summarizes the carrying value of our investments by credit rating (dollars in millions):


	December 31, 2018														December 31, 2019
	Credit Rating¹														Credit Rating¹
	AAA		AA		A		BBB		BB		Unrated		Total		AAA		AA		A		BBB		BB		Unrated²		Total
Interest-bearing deposits	$	—	$	1	$	—	$	—	$	—	$	—	$	1	$	—	$	1	$	—	$	—	$	—	$	—	$	1
Securities purchased under agreements to resell	—		200		250		500		—		3,750		4,700		—		1,500		2,200		—		—		10,250		13,950
Federal funds sold	—		1,700		2,080		370		—		—		4,150		—		1,700		2,905		—		—		—		4,605
Investment securities:
Mortgage-backed securities
GSE single-family	—		2,988		—		—		—		—		2,988		—		2,401		—		—		—		—		2,401
GSE multifamily	—		9,444		—		—		—		—		9,444		—		8,134		—		—		—		—		8,134
U.S. obligations single-family²	—		4,492		—		—		—		—		4,492
U.S. obligations commercial²	—		1		—		—		—		—		1
U.S. obligations single-family³															—		4,064		—		—		—		—		4,064
U.S. obligations commercial³															—		1		—		—		—		—		1
Private-label residential	—		4		—		5		1		—		10		—		4		1		1		1		—		7
Total mortgage-backed securities	—		16,929		—		5		1		—		16,935		—		14,604		1		1		1		—		14,607
Non-mortgage-backed securities
U.S. obligations²	—		2,761		—		—		—		—		2,761
Other U.S. obligations³															—		2,277		—		—		—		—		2,277
GSE and Tennessee Valley Authority obligations	—		1,484		—		—		—		—		1,484		—		1,504		—		—		—		—		1,504
State or local housing agency obligations	967		238		—		—		—		—		1,205		769		208		—		—		—		—		977
Other	443		98		—		—		—		—		541		445		99		—		—		—		—		544
Total non-mortgage-backed securities	1,410		4,581		—		—		—		—		5,991		1,214		4,088		—		—		—		—		5,302
Total investments³	$	1,410	$	23,411	$	2,330	$	875	$	1	$	3,750	$	31,777
Total investments															$	1,214	$	21,893	$	5,106	$	1	$	1	$	10,250	$	38,465


1	Represents either the lowest credit rating available for each investment based on an ~~NRSRO. If an~~ NRSRO, ~~rating is not available for the investment,~~or the guarantor credit rating, ~~is used,~~ if applicable. In instances where an NRSRO rating or guarantor rating is not available for the investment, the investment is classified as unrated.


2	Represents secured securities purchased under agreements to resell with no NRSRO or guarantor rating.


3	Represents investment securities backed by the full faith and credit of the U.S. Government.


3	~~At December 31, 2018, 13 percent of our total investments were unsecured.~~

~~Our total~~We evaluate investments ~~increased $6.5 billion or 20 percent at March 31, 2019 when compared to December 31, 2018. Investments increased primarily due to an increase in money market investments as~~for credit losses on a ~~result~~quarterly basis. We adopted new accounting guidance for the measurement of ~~increased liquidity holdings during the first quarter of 2019.~~

credit losses on financial instruments on January 1, 2020. At March 31, ~~2019 and December 31, 2018,~~2020, we ~~did not consider any of our investments to be other-than-temporarily impaired. For more information~~determined no allowance for credit losses was necessary on our ~~evaluation of OTTI, refer~~investments. Refer to “Item 1. Financial Statements — Note 63 — ~~Other-Than-Temporary Impairment.”~~Investments” for additional information our allowance for credit losses.

Mortgage-Backed Securities

We limit our ~~investments in~~purchases of MBS to those guaranteed by the U.S. Government or issued by a GSE. ~~Further, our~~Our risk management policies prohibit new purchases of private-label MBS. We perform ongoing analysis on these investments to determine potential credit issues. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we owned ~~$16.4~~$14.1 billion and ~~$16.9~~$14.6 billion of MBS, of which approximately 99.9 percent were guaranteed by the U.S. Government or issued by GSEs and 0.1 percent were private-label MBS at each period end.

We are exposed to mortgage asset credit risk through our investments in MBS. Mortgage asset credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage assets is affected by a number of factors, including the strength and ability to guarantee the payments from the agency that created the structure, underlying loan performance, and other economic factors in the local market or nationwide.

DERIVATIVES

We execute most of our derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty (uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent), with a Derivative Clearing Organization (cleared derivatives).

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in our policies and Finance Agency regulations.

Uncleared Derivatives. Due to risk of nonperformance by the counterparties to our derivative agreements, we generally require collateral on uncleared derivative agreements. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty or a contractually established threshold level. A counterparty generally must deliver collateral to us if the total market value of our exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, we do not anticipate any credit losses on our uncleared derivative agreements.

Cleared Derivatives. For cleared derivatives, the Derivative Clearing Organization (Clearinghouse) is our counterparty. We are subject to risk of nonperformance by the Clearinghouse and clearing agent. The requirement that we post initial and variation margin through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. However, the use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. We do not anticipate any credit losses on our cleared derivatives.

The contractual or notional amount of derivatives reflects our involvement in the various classes of financial instruments. Our maximum credit risk is the estimated cost of replacing derivatives if there is a default, minus the value of any related collateral. In determining maximum credit risk, we consider accrued interest receivables and payables as well as our ability to net settle positive and negative positions with the same counterparty and/or clearing agent when netting requirements are met.

The following table shows our derivative counterparty credit exposure (dollars in millions):

March 31, 2019
Credit Rating¹
Notional Amount
Net Derivatives
Fair Value Before Collateral

Cash Collateral Pledged
To (From) Counterparty

Net Credit Exposure
to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives
A $ 3,193
$ 4
$ —
$ 4
Cleared derivatives 14,454
7
63
70
Liability positions with credit exposure
Uncleared derivatives
AA²
146
(20 ) 20
—
A 2,805
(25 ) 28
3
BBB 1,373
(19 ) 21
2
Cleared derivatives³
22,972
(2 ) 14
12
Total derivative positions with credit exposure to non-member counterparties 44,943
(55 ) 146
91
Member institutions⁴
116
1
—
1
Total 45,059
$ (54 ) $ 146
$ 92
Derivative positions without credit exposure 286

Total notional $ 45,345


1	~~Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable.~~


2	~~Net credit exposure is less than $1 million.~~


3	Represents derivative transactions cleared with CME Clearing, our clearinghouse, who is not rated. CME Clearing's parent, CME Group Inc. was rated Aa3 by Moody's and AA- by Standard and Poor's at March 31, 2019.


4	~~Represents mortgage delivery commitments with our member institutions.~~

~~The following table shows our derivative counterparty credit exposure (dollars in millions):~~


	December 31, 2018									March 31, 2020
Credit Rating¹	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure to Counterparties		Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Cleared derivatives²										$	33,342	$	9		$	214	$	223
Liability positions with credit exposure
Cleared derivatives²	$	40,940	$	(13	)	$	70	$	57
Uncleared derivatives
AA										104		(49		)	50		1
A										2,858		(196		)	200		4
BBB										224		(38		)	39		1
Total derivative positions with credit exposure to non-member counterparties	40,940		(13		)	70		57		36,528		(274		)	503		229
Member institutions³	100		1			—		1		296		4			—		4
Total	41,040		$	(12	)	$	70	$	58	36,824		$	(270	)	$	503	$	233
Derivative positions without credit exposure	7,796									3,334
Total notional	$	48,836								$	40,158


1	Represents either the lowest credit rating available for each counterparty based on an NRSRO, or the guarantor credit rating, if applicable.


2	Represents derivative transactions cleared with CME Clearing, our clearinghouse, who is not rated. CME Clearing's parent, CME Group Inc. was rated Aa3 by Moody's and AA- by Standard and Poor's at March 31, 2020.


3	Represents mortgage loan purchase commitments with our member institutions.

The following table shows our derivative counterparty credit exposure (dollars in millions):



	December 31, 2019
Credit Rating¹	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives
BBB²	$	3	$	—		$	—	$	—
Cleared derivatives³	20,881		2			83		85
Liability positions with credit exposure
Uncleared derivatives
AA	137		(29		)	30		1
A	4,448		(98		)	102		4
BBB	1,763		(37		)	38		1
Cleared derivatives³	$	11,475	$	—		$	11	$	11
Total derivative positions with credit exposure to non-member counterparties	38,707		(162		)	264		102
Member institutions^2,4	118		—			—		—
Total	38,825		$	(162	)	$	264	$	102
Derivative positions without credit exposure	146
Total notional	$	38,971


1	Represents either the lowest credit rating available for counterparty based on an NRSRO, or the guarantor, credit rating, if applicable.


2	Net credit exposure is less than $1 million


3	Represents derivative transactions cleared with CME Clearing, our clearinghouse, who is not rated. CME Clearing’s parent, CME Group Inc. was rated Aa3 by Moody’s and AA- by Standard and Poor’s at December 31, ~~2018.~~2019.


34	Represents mortgage ~~delivery~~loan purchase commitments with our member institutions.

Consistent with the additional analysis and monitoring on our other Bank products, we are taking additional steps to monitor our derivatives’ credit risk given the recent market volatility stemming from COVID-19. In addition, we will continue to monitor market volatility and counterparty ratings, counterparty pricing, news, sovereign and counterparty research, market research and articles, and COVID-19 predictions and analysis.

Operational Risk

We define operational risk as the risk arising from inadequate or failed processes, people, and/or systems, including those emanating from external sources. All of our activities and processes generate operational risk, including legal risk. ~~Operational risk is inherent in all of our business activities, processes, and systems.~~ Management has established policies, procedures, and ~~procedures~~controls to reduce the likelihood of operational ~~risk and designed our~~risk. We perform annual risk ~~assessment process~~assessments to ~~provide ongoing identification, measurement,~~identify, assess, mitigate, and ~~monitoring~~report on operational risks outside of ~~operational risk.~~the Board’s risk appetite. Due to the manual nature of many of our processes, our operational risk exposure is closely monitored. As previously ~~disclosed~~reported in our ~~2018~~2019 Form 10-K, we identified two material weaknesses in our internal ~~control~~controls over financial reporting resulting from control deficiencies in our ~~information technology~~IT general controls ~~(ITGCs)~~ in the areas of user access and IT change management. We are actively working to remediate the identified material weaknesses and strengthen our internal ~~control~~controls over financial reporting. As

In response to the recent outbreak of COVID-19, the majority of our employees are working remotely, with only operationally essential employees working on site at our offices. In addition, many of our members, vendors, and regulators are working remotely. While our operations have changed as a result of the ~~control deficiencies and our remediation efforts,~~global pandemic, we currently do not believe our operational risk ~~is elevated.~~to be elevated as a result of the current working arrangements. Refer to “Item 1A. Risk Factors” for additional information.

Model Risk

We define model risk as the risk of adverse consequences from decisions based on incorrect and misused model outputs. Throughout the course of our day-to-day activities, we utilize external and internal pricing and financial models as important inputs into business and risk management decision-making processes.

Information Security Risk

We define information security risk as the risk arising from unauthorized access, use, disclosure, disruption, modification, or destruction of information or information systems. Importantly, this definition includes the security of both digital and non-digital information as well as associated information systems and processes.

Information security risk includes the risk that cyber incidents could result in a failure or interruption of our business operations. We have not experienced any such disruption with a material adverse impact. However, we do rely heavily on internal and third-party information systems and other technology to conduct and manage our business and any disruptions to those items could have a material adverse impact on our financial condition and results of operations. We mitigate cybersecurity risk utilizing the concept of defense in depth, where multiple layers of security controls are implemented. Administrative, physical, and logical controls are in place for identifying, monitoring, and controlling system access, sensitive data, and system changes. In addition, we employ thorough security testing and training that includes regular third party facilitated penetration testing, as well as mandatory staff training on cyber risks. Given the importance of cybersecurity and ever-increasing sophistication of potential cyber-attacks, we expect to continue to strengthen our cyber-defenses. As a result of the control deficiencies previously ~~disclosed, our~~discussed, two material weaknesses remain related to information ~~security risk is elevated.~~security. For additional information, refer to “Item 4. Controls and Procedures.”

Compliance Risk

We define compliance risk as the risk of violations of laws, rules, regulations, regulatory and supervisory guidance, and internal policies and procedures. Our Legal and Compliance departments are responsible for coordinating with our various business units in connection with its identification, evaluation, and mitigation of our compliance risks.

Strategic Risk

We define strategic risk as the risk arising from adverse strategic business decisions, poor implementation of strategic business ~~decisions,~~plan, or a ~~lack of responsiveness~~disproportionate response to changes in the industry and operating environment. We consider ~~member concentration,~~ legislative and reputational risks to be components of strategic risk. From time to time, proposals are made, or legislative and regulatory changes are considered, which could affect our cost of doing business or other aspects of our business. We mitigate strategic risk through strategic business planning and monitoring of our external and internal environment. ~~As a result of the material weaknesses previously disclosed in our 2018 Form 10-K, our strategic risk may be elevated due to the reputational risk associated with material weaknesses.~~ For additional information on some of the more important risks we face, refer to “Item 1A. Risk ~~Factors” in our 2018 Form 10-K.~~Factors.”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market Risk” and the sections referenced therein for quantitative and qualitative disclosures about market risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our President and chief executive officer (CEO), and chief financial officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

Management, with the participation of our President and CEO, and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this report. Based on that evaluation, and management’s ~~previous~~ identification of material weaknesses in our internal control over financial reporting ~~at December 31, 2018,~~described below, our President and CEO, and CFO have concluded that our disclosure controls and procedures were not effective as of March 31, ~~2019.~~2020.

As previously reported in our ~~2018~~2019 Form 10-K, management identified two material weaknesses in our internal control over financial reporting:

We did not maintain effective user access controls to ensure appropriate segregation of duties and adequate restrictions on user and privileged access to the Bank’s ~~information technology (IT)~~IT applications, programs, and data. Specifically, we identified control deficiencies related to the provisioning, internal transfer, and removal of user access. Accordingly, our management has determined these deficiencies in the aggregate constitute a material weakness.

We did not maintain effective control over IT change management, including controls to monitor developers’ access to production and testing of program changes. These controls are necessary to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately. We identified control deficiencies related to the approval of changes, execution of quality assurance reviews, and the monitoring of unauthorized system changes. Accordingly, our management has determined these deficiencies in the aggregate constitute a material weakness.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

Management is committed to improving our overall system of internal control over financial reporting, including taking necessary steps to fully remediate the identified material weaknesses. The following briefly describes certain remediation actions we have taken or plan to take to address these material weaknesses:

Management ~~plans to re-evaluate~~is re-evaluating IT governance and controls and ~~update~~has updated procedures related to user access management. ~~In addition,~~During 2019, we designed enhanced user access controls. These controls are ~~in the process~~designed to ensure appropriate segregation of ~~implementing an automated access management system to facilitate the provisioning, deprovisioning,~~duties and ~~certification of~~adequate restrictions on user and privileged access to ~~Bank systems,~~the Bank’s IT applications, programs, and data. During the first quarter of 2020, we implemented these controls; however, they have not been tested.

Management ~~plans to re-evaluate~~is re-evaluating IT governance and controls and ~~update~~has updated procedures related to IT change management. During 2019, we designed and implemented enhanced IT change management controls. These controls are designed to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately. While these controls have been implemented and management expects the change in controls to address the material weakness related to effective control over IT change management, testing has not been completed.


3.	~~Training will be~~During 2019, training was provided to IT personnel and business process owners focusing on controls related to user access and ~~change-management over~~ IT ~~systems. In addition,~~change management. Continued training will be provided focusing on the execution of IT change management controls, intended to ensure understanding of Bank policies and procedures.

Management believes that the measures described above should be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting. We cannot assure you, however, that these steps will remediate such weaknesses, nor can we be certain of the timing or whether additional actions will be required or the costs of any such actions.

Changes in Internal Control over Financial Reporting

~~During~~The remediation activities related to the ~~quarter ended March 31, 2019, management began to take the steps described above to remediate the material weaknesses identified at December 31, 2018. There~~implementation of user access controls were no changes in our internal control over financial reporting during the quarter ended March 31, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As a result of the merger with the Federal Home Loan Bank of Seattle (Seattle Bank), the Bank has been involved in certain legal proceedings initiated by the Seattle Bank against various entities relating to its purchases and subsequent impairments of certain private-label MBS, as described below. The private-label MBS litigation is described below. After consultation with legal counsel, other than the private-label MBS litigation, we do not believe any legal proceedings to which we are a party could have a material impact on our financial condition, results of operations, or cash flows.

Private-Label MBS Litigation

As the Seattle Bank previously reported, in December of 2009, it filed 11 complaints in the Superior Court of Washington for King County relating to private-label MBS that it purchased from various dealers and financial institutions in an aggregate original principal amount of approximately $4 billion. The Seattle Bank’s complaints under Washington State law requested rescission of its purchases of the securities and repurchases of the securities by the defendants for the original purchase prices plus eight percent per annum (plus related costs), minus distributions on the securities received by the Seattle Bank. The Seattle Bank asserted that the defendants made untrue statements and omitted important information in connection with their sales of the securities to the Seattle Bank.

Of the 11 cases initially filed, one has been dismissed, two have been settled in part and dismissed in part, and eight have been settled. We appealed the one complete dismissal and two partial dismissals covering the claims related to five certificates across three different cases. The appellate court affirmed the dismissal of the claims related to four certificates in December 2017 and affirmed the dismissal of the remaining certificate in May 2018. In January 2018, we filed petitions for discretionary review of the appellate court’s rulings in December 2017 related to four of the certificates with the Washington Supreme Court. On May 3, 2018, the Court granted those petitions. The aggregate consideration paid for these four certificates is $567 million. Oral arguments were heard on October 9, ~~2018 and we are currently awaiting the Court’s decision.~~2018. In June 2018, we filed a petition for discretionary review of the appellate court’s ruling in May 2018 on the fifth certificate. The aggregate consideration paid for that one certificate is $200 million. ~~The~~

On October 3, 2019, the Washington Supreme Court ~~has not yet acted~~reversed the judgment of the appellate court on ~~that petition.~~the four certificates covered by our petition of January 2018 and reinstated our claims on those four certificates. Trials for the two cases relating to these reinstated claims have been scheduled for July and August of 2020. With respect to the fifth certificate, on January 30, 2020, the Washington Supreme Court remanded the case to the appellate court for reconsideration in light of the Court’s reversal on the claims for the other four certificates. On March 16, 2020, the appellate court remanded the case to the trial court. On March 25, 2020, we entered into a settlement agreement with one of the defendants in connection with two of the certificates for the aggregate amount of approximately $56 million (after netting certain legal fees and expenses).

Litigation Settlement Gains

Litigation settlement gains are considered realized and recorded when we receive cash or assets that are readily convertible to known amounts of cash or claims to cash. In addition, litigation settlement gains are considered realizable and recorded when we enter into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized or realizable, we consider potential litigation settlement gains to be gain contingencies, and therefore they are not recorded inon the Statements of Income.

We record legal expenses related to litigation settlements as incurred in other expenses inon the Statements of Income with the exception of certain legal expenses related to litigation settlement awards that are contingent based fees for the attorneys representing the Bank. We incur and recognize these contingent based legal fees only when litigation settlement awards are realized, at which time these fees are netted against the gains recognized on the litigation settlement.

During the three months ended March 31, 2020, we settled a private-label MBS claim and recognized $56 million in net gains on litigation settlements. During the three months ended March 31, 2019, ~~and 2018,~~ we did not record any net gains on litigation settlements.

ITEM 1A. RISK FACTORS

~~For a discussion of our~~Other than the risk ~~factors, refer to our 2018 Form 10-K. There~~factor described below, there have been no material changes to our risk factors set forth in our 2019 10-K during the three months ended March 31, ~~2019.~~2020.

COVID-19 and related developments have created and may continue to create substantial economic and financial disruptions and uncertainties as well as operational challenges, which could heighten many of the risks we face and adversely impact our business, financial condition, and results of operations.

The recent outbreak of COVID-19, and governmental and public actions taken in response (such as shelter-in-place, stay-at-home, or similar orders, travel restrictions, and business shutdowns), have significantly reduced economic activity and created substantial uncertainty about the future economic environment. In addition, COVID-19 and related developments have resulted in substantial disruptions in the financial markets, including dramatic increases in market volatilities from time to time. There are no comparable recent events that provide guidance as to the effect that COVID-19 may have and, as a result, the ultimate impact of the outbreak, including the depth of the economic downturn and the timing and shape of the economic recovery, is highly uncertain. This could heighten many of the risks we face, as described in Item 1A. Risk Factors in our 2019 Form 10-K, and adversely impact our business, financial condition and results of operations.

A prolonged economic downturn, or periods of significant economic and financial disruptions and uncertainties, resulting from COVID-19 may lead to an increased risk of our Bank’s credit losses, in particular due to declines in the value of collateral securing our advances or of mortgage loans or due to member financial difficulties or member failures. For example, due to the recent turmoil in the financial markets associated with COVID-19, some financial institutions have experienced financial difficulties. Our risk of credit losses may be exacerbated by a downturn in the housing markets, including higher delinquencies from rising unemployment and the effect of mortgage forbearance and other relief.

The disruptions to interest rates, credit spreads, and the availability of funds in the fixed income market in connection with the coronavirus pandemic have also adversely affected, and may continue to adversely affect, our cost of funding or access to funding, as well as the valuation of and the yields on our assets. This, coupled with changes in member demand for advances from time to time, may result in challenges in our ability to manage our assets and liabilities, including the pricing of advances and the funding gap, and may adversely impact our profitability and liquidity.

In addition, the shelter-in-place, stay-at-home, or similar orders, travel restrictions, and business shutdowns as a result of COVID-19 have led to substantial changes in normal business practices (such as the implementation of widespread work-from-home arrangements) for us as well as many of our members, vendors, and regulator. Although we are operating effectively under these current working arrangements, any breakdown or disruption in our information and computer systems, operating processes, member relations, or vendor services as a result of these working arrangements could have an adverse impact on our financial condition and results of operations.

The extent to which COVID-19 impacts our business, financial condition, and results of operations will depend on many factors that are highly uncertain and difficult to predict, including, but not limited to, the duration, spread and severity of COVID-19, the actions taken to contain COVID-19, and how quickly and to what extent normal economic and operating conditions can resume.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

There were no material changes to the disclosure related to the Rule 2-01 (c)(1)(ii)(A) of SEC Regulation S-X (the Loan Rule) included in our 2018 Form 10-K. Refer to “Part II. Item 9B — Other Information” in our 2018 Form 10-K for additional information.

Executive Changes

On ~~April 8, 2019, Michael L. Wilson, President and CEO (CEO)~~March 11, 2020, we announced the appointment of ~~the Bank, notified the Bank’s Board of Directors (Board) that he intends to retire from the Bank during the second quarter of~~Kevin T. Larkin as Chief Information Officer effective March 23, 2020. Mr. Wilson has served as the Bank’s CEO since April 2016. The Board has formed a committee to conduct a search for Mr. Wilson’s successor. Mr. Wilson will continue to lead the Bank until his successor is in place.Larkin oversees our information technology and information security departments.

Also, on April 8, 2019, Joseph E. Amato notified the Bank that he will resign effective June 7, 2019. Mr. Amato has served as the Bank’s Executive Vice President and Chief Financial Officer (CFO) since May 2016. Mr. Amato has responsibility for the Treasury, Accounting, Corporate Strategy and Portfolio Strategy functions. The Bank expects to appoint an interim CFO prior to Mr. Amato’s last day of employment with the Bank.

ITEM 6. EXHIBITS



3.1	Organization Certificate of the Federal Home Loan Bank of Des Moines, as amended and restated effective May 31, 2015¹
3.2	Bylaws of the Federal Home Loan Bank of Des Moines, as amended and restated effective December 13, 2018²
4.1	Federal Home Loan Bank of Des Moines Capital Plan, as amended and approved by the Federal Housing Finance Agency on May 31, 2015¹
31.1	Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the ~~Executive~~Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the ~~Executive~~Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document - The instance document does not appear in the ~~interactive data file~~Interactive Data File because its XBRL tags are embedded within the ~~inline~~Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


1	Incorporated by reference to our Form 8-K filed with the SEC on June 1, 2015 (Commission File No. 000-51999).


2	Incorporated by reference to our Form 8-K filed with the SEC on December 17, 2018 (Commission File No. 000-51999).

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 DES MOINES
(Registrant)

Date:		May ~~9, 2019~~11, 2020


By:		/s/ ~~Michael L. Wilson~~Kristina K. Williams
		~~Michael L. Wilson~~Kristina K. Williams President and Chief Executive Officer

By:		/s/ Donna S. Stone
		Donna S. Stone Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

9096



	Federally chartered corporation		42-6000149
	(State or other jurisdiction of incorporation or organization)		~~42-6000149~~ (I.R.S. employer identification number)

	~~909 Locust Street~~ ~~Des Moines, IA~~ ~~(Address of principal executive offices)~~		~~50309~~ ~~(Zip code)~~



Large accelerated filero	☐	Accelerated filero	☐
Non-accelerated filerx	☒	Smaller reporting companyo	☐
		Emerging growth companyo	☐



Table of Contents

Part I - Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Statements of Condition	3

	Statements of Income	4

	Statements of Comprehensive Income	5

	Statements of Capital	6

	Statements of Cash Flows	8

	Condensed Notes to the Unaudited Financial Statements	10

	Background Information	10

	Note 1 - Basis of Presentation	11

	Note 2 - Recently Adopted and Issued Accounting Guidance	1213

	Note 3 - ~~Trading Securities~~Investments	1514

	Note 4 ~~- Available-for-Sale Securities~~	16

	~~Note 5 - Held-to-Maturity Securities~~	18

	~~Note 6 - Other-Than-Temporary Impairment~~	20

	~~Note 7~~ - Advances	21

	Note 85 - Mortgage Loans Held for Portfolio	22

	~~Note 9 - Allowance for Credit Losses~~	23

	Note 106 - Derivatives and Hedging Activities	2726

	Note 117 - Consolidated Obligations	32

	Note 8 - Capital	34

	Note 129 - ~~Capital~~Fair Value	3536

	Note 1310 - ~~Fair Value~~Commitments and Contingencies	3742

	Note 1411 - ~~Commitments and Contingencies~~Activities with Stockholders	43

	Note 1512 - Activities with ~~Stockholders~~Other FHLBanks	4445

	Note ~~16 - Activities with Other FHLBanks~~	46

	~~Note 17~~13 - Subsequent Events	4645

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4746

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8590

Item 4.	Controls and Procedures	8590

Part II - Other Information

Item 1.	Legal Proceedings	8792

Item 1A.	Risk Factors	8893

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8893

Item 3.	Defaults Upon Senior Securities	8894

Item 4.	Mine Safety Disclosures	8894

Item 5.	Other Information	8894

Item 6.	Exhibits	8995

Signatures		9096


	For the Three Months Ended						For the Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
FINANCING ACTIVITIES
Net change in deposits	(142		)	(58		)	155			(142		)
Borrowings from other FHLBanks	(500		)	(600		)	—			(500		)
Net proceeds from issuance of consolidated obligations
Discount notes	37,073			45,511			32,197			37,073
Bonds	14,926			16,385			17,706			14,926
Payments for maturing and retiring consolidated obligations
Discount notes	(34,973		)	(48,244		)	(28,645		)	(34,973		)
Bonds	(16,844		)	(8,909		)	(25,217		)	(16,844		)
Proceeds from issuance of capital stock	1,551			2,013			2,074			1,551
Proceeds from issuance of mandatorily redeemable capital stock							19			1
Payments for repurchases/redemptions of capital stock	(1,781		)	(1,706		)	(1,932		)	(1,781		)
Net payments for repurchases/redemptions of mandatorily redeemable capital stock	(20		)	(32		)
Payments for repurchases/redemptions of mandatorily redeemable capital stock							(135		)	(21		)
Cash dividends paid	(70		)	(53		)	(59		)	(70		)
Net cash provided by (used in) financing activities	(780		)	4,307			(3,837		)	(780		)
Net increase (decrease) in cash and due from banks	(38		)	(309		)	(418		)	(38		)
Cash and due from banks at beginning of the period	119			503			1,029			119
Cash and due from banks at end of the period	$	81		$	194		$	611		$	81

SUPPLEMENTAL DISCLOSURES
Cash Transactions:
Interest paid	$	853		$	604		$	569		$	853
Affordable Housing Program payments	7			6			6			7
Non-Cash Transactions:
Capitalized interest on reverse mortgage investment securities	32			18			22			32
Traded but not yet settled investment security purchases							139			—
Transfers of mortgage loans to other assets	1			1			—			1
Capital stock reclassified to (from) mandatorily redeemable capital stock, net	2			3			6			2
Initial right-of-use lease asset recognition	3			—			—			3
Initial lease liability recognition	3			—			—			3


	March 31, 2019				December 31, 2018				March 31, 2020				December 31, 2019
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due in one year or less	$	74	$	74	$	74	$	74	$	92	$	92	$	92	$	92
Due after one year through five years	1,809		1,818		1,314		1,323		2,104		2,096		2,099		2,110
Due after five years through ten years	1,949		1,961		2,497		2,506		1,200		1,187		1,294		1,302
Due after ten years	774		787		808		826		775		759		708		724
Total non-mortgage-backed securities	4,606		4,640		4,693		4,729		4,171		4,134		4,193		4,228
Mortgage-backed securities	13,799		13,853		14,239		14,290		12,111		12,032		12,410		12,423
Total	$	18,405	$	18,493	$	18,932	$	19,019	$	16,282	$	16,166	$	16,603	$	16,651



	x☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	o☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Title of each class	Trading Symbol(s)	Name of each exchange on which registered



~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~



		Shares outstanding as of April 30, ~~2019~~2020
Class B Stock, par value $100		~~56,284,893~~42,192,609


	Capital Stock Class B (putable)					Capital Stock Class B (putable)
	Shares		Par Value
BALANCE, DECEMBER 31, 2017	51		$	5,068
Comprehensive income (loss)	—		—
Proceeds from issuance of capital stock	20		2,013
Repurchases/redemptions of capital stock	(17	)	(1,706		)
Net shares reclassified (to) from mandatorily redeemable capital stock	—		(3		)
Cash dividends on capital stock	—		—
BALANCE, MARCH 31, 2018	54		$	5,372
						Shares		Par Value
BALANCE, DECEMBER 31, 2018	54		$	5,414		54		$	5,414
Comprehensive income (loss)	—		—			—		—
Proceeds from issuance of capital stock	16		1,551			16		1,551
Repurchases/redemptions of capital stock	(18	)	(1,781		)	(18	)	(1,781		)
Net shares reclassified (to) from mandatorily redeemable capital stock	—		(2		)	—		(2		)
Cash dividends on capital stock	—		—			—		—
BALANCE, MARCH 31, 2019	52		$	5,182		52		$	5,182

BALANCE, DECEMBER 31, 2019						45		$	4,517
Adjustment for cumulative effect of accounting change (Note 2)						—		—
Comprehensive income (loss)						—		—
Proceeds from issuance of capital stock						21		2,074
Repurchases/redemptions of capital stock						(19	)	(1,932		)
Net shares reclassified (to) from mandatorily redeemable capital stock						—		(6		)
Cash dividends on capital stock						—		—
BALANCE, MARCH 31, 2020						47		$	4,653


	Retained Earnings								Accumulated Other Comprehensive Income (Loss)			Total Capital			Retained Earnings								Accumulated Other Comprehensive Income (Loss)			Total Capital
	Unrestricted			Restricted		Total																	Accumulated Other Comprehensive Income (Loss)			Total Capital
BALANCE, DECEMBER 31, 2017	$	1,504		$	335	$	1,839		Accumulated Other Comprehensive Income (Loss)	$	114	Total Capital			$	7,021
Comprehensive income (loss)	95			23		118			45			163
Proceeds from issuance of capital stock	—			—		—			—			2,013
Repurchases/redemptions of capital stock	—			—		—			—			(1,706		)
Net shares reclassified (to) from mandatorily redeemable capital stock	—			—		—			—			(3		)
Cash dividends on capital stock	(53		)	—		(53		)	—			(53		)
BALANCE, MARCH 31, 2018	$	1,546		$	358	$	1,904		$	159		$	7,435
															Unrestricted			Restricted		Total			Accumulated Other Comprehensive Income (Loss)			Total Capital
BALANCE, DECEMBER 31, 2018	$	1,623		$	427	$	2,050		$	84		$	7,548		$	1,623		$	427	$	2,050					Total Capital
Comprehensive income (loss)	90			22		112			1			113			90			22		112			Accumulated Other Comprehensive Income (Loss)	1			113
Proceeds from issuance of capital stock	—			—		—			—			1,551			—			—		—			—			1,551
Repurchases/redemptions of capital stock	—			—		—			—			(1,781		)	—			—		—			—			(1,781		)
Net shares reclassified (to) from mandatorily redeemable capital stock	—			—		—			—			(2		)	—			—		—			—			(2		)
Cash dividends on capital stock	(70		)	—		(70		)	—			(70		)	(70		)	—		(70		)	—			(70		)
BALANCE, MARCH 31, 2019	$	1,643		$	449	$	2,092		$	85		$	7,359		$	1,643		$	449	$	2,092		$	85		$	7,359

BALANCE, DECEMBER 31, 2019															$	1,661		$	504	$	2,165		$	44		$	6,726
Adjustment for cumulative effect of accounting change (Note 2)															1			—		1			—			1
Comprehensive income (loss)															74			18		92			(163		)	(71		)
Proceeds from issuance of capital stock															—			—		—			—			2,074
Repurchases/redemptions of capital stock															—			—		—			—			(1,932		)
Net shares reclassified (to) from mandatorily redeemable capital stock															—			—		—			—			(6		)
Cash dividends on capital stock															(59		)	—		(59		)	—			(59		)
BALANCE, MARCH 31, 2020															$	1,677		$	522	$	2,199		$	(119	)	$	6,733



The accompanying notes are an integral part of these financial statements.


	March 31, 2019									March 31, 2020
	Amortized Cost¹		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost¹		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Non-mortgage-backed securities
U.S. obligations²	$	2,489	$	7	$	(1	)	$	2,495
Other U.S. obligations²										$	2,000	$	2	$	(27	)	$	1,975
GSE and Tennessee Valley Authority obligations	1,030		24		—			1,054		1,118		5		(16		)	1,107
State or local housing agency obligations	819		—		(7		)	812		761		—		(1		)	760
Other³	268		11		—			279		292		1		(1		)	292
Total non-mortgage-backed securities	4,606		42		(8		)	4,640		4,171		8		(45		)	4,134
Mortgage-backed securities
U.S. obligations single-family²	4,379		22		(2		)	4,399		3,917		1		(26		)	3,892
GSE single-family	761		5		(2		)	764		609		3		(3		)	609
GSE multifamily	8,659		39		(8		)	8,690		7,585		2		(56		)	7,531
Total mortgage-backed securities	13,799		66		(12		)	13,853		12,111		6		(85		)	12,032
Total	$	18,405	$	108	$	(20	)	$	18,493	$	16,282	$	14	$	(130	)	$	16,166


1	Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting ~~adjustments.~~adjustments, and excludes accrued interest receivable of $33 million and $42 million at March 31, 2020 and December 31, 2019.


3	Consists of taxable municipal bonds and/or Private Export Funding Corporation (PEFCO) bonds.


	March 31, 2019															March 31, 2020
	Less than 12 Months					12 Months or More					Total					Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities
U.S. obligations¹	$	747	$	(1	)	$	300	$	—		$	1,047	$	(1	)
Other U.S. obligations¹																$	998	$	(15	)	$	818	$	(12	)	$	1,816	$	(27	)
GSE and Tennessee Valley Authority obligations																326		(16		)	—		—			326		(16		)
State or local housing agency obligations	139		—			510		(7		)	649		(7		)	210		—			314		(1		)	524		(1		)
Other																128		(1		)	—		—			128		(1		)
Total non-mortgage-backed securities	886		(1		)	810		(7		)	1,696		(8		)	1,662		(32		)	1,132		(13		)	2,794		(45		)
Mortgage-backed securities
U.S. obligations single-family¹	653		(2		)	—		—			653		(2		)	3,052		(19		)	558		(7		)	3,610		(26		)
GSE single-family	119		—			203		(2		)	322		(2		)	212		(1		)	98		(2		)	310		(3		)
GSE multifamily	1,493		(2		)	2,132		(6		)	3,625		(8		)	4,811		(42		)	2,486		(14		)	7,297		(56		)
Total mortgage-backed securities	2,265		(4		)	2,335		(8		)	4,600		(12		)	8,075		(62		)	3,142		(23		)	11,217		(85		)
Total	$	3,151	$	(5	)	$	3,145	$	(15	)	$	6,296	$	(20	)	$	9,737	$	(94	)	$	4,274	$	(36	)	$	14,011	$	(130	)


1	~~Represents investment securities backed by the full faith and credit of the U.S. Government.~~


1	Excludes accrued interest receivable of $69 million and $91 million as of March 31, 2020 and December 31, 2019.


	Redemption Term or Next Call Date				Redemption Term or Next Put Date				Redemption Term or Next Call Date				Redemption Term or Next Put Date
	March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Overdrawn demand deposit accounts	$	1	$	2	$	1	$	2	$	5	$	1	$	5	$	1
Due in one year or less	71,511		77,931		43,876		50,617		48,177		53,156		34,633		36,278
Due after one year through two years	9,814		11,087		28,631		24,060		12,855		11,967		19,360		22,101
Due after two years through three years	10,709		10,423		14,497		17,628		6,617		5,427		10,320		8,730
Due after three years through four years	2,770		2,357		4,501		4,078		3,924		3,802		5,036		5,004
Due after four years through five years	2,420		2,444		4,255		6,722		4,558		3,461		6,375		5,069
Thereafter	1,992		2,169		3,456		3,306		3,023		2,371		3,430		3,002
Total par value	$	99,217	$	106,413	$	99,217	$	106,413	$	79,159	$	80,185	$	79,159	$	80,185



	March 31, 2019			December 31, 2018
Fixed rate, long-term single-family mortgage loans	$	6,991		$	6,860
Fixed rate, medium-term¹ single-family mortgage loans	848			874
Total unpaid principal balance	7,839			7,734
Premiums	107			105
Discounts	(5		)	(5		)
Basis adjustments from mortgage loan purchase commitments	3			2
Total mortgage loans held for portfolio	7,944			7,836
Allowance for credit losses	(1		)	(1		)
Total mortgage loans held for portfolio, net	$	7,943		$	7,835



	March 31, 2019		December 31, 2018
Conventional mortgage loans	$	7,341	$	7,231
Government-insured mortgage loans	498		503
Total unpaid principal balance	$	7,839	$	7,734



	March 31, 2020
	Origination Year
	Prior to 2016		2016 to 2020		Total
Past due 30 - 59 days	$	35	$	16	$	51
Past due 60 - 89 days	12		2		14
Past due 90 - 179 days	6		3		9
Past due 180 days or more	8		1		9
Total past due mortgage loans	61		22		83
Total current mortgage loans	2,726		6,231		8,957
Total amortized cost of mortgage loans¹	$	2,787	$	6,253	$	9,040


1	Amortized cost represents the unpaid principal balance adjusted for unamortized premiums, discounts, basis adjustments, and direct write-downs. Recorded investment at December 31, 2019 includes accrued interest receivable whereas the amortized cost at March 31, 2020 excludes accrued interest receivable.



	March 31, 2020
Amortized Cost	Conventional			Government-Insured			Total
In process of foreclosure¹	$	5		$	1		$	6
Serious delinquency rate²	—		%	2		%	—		%
Past due 90 days or more and still accruing interest³	$	—		$	8		$	8
Non-accrual mortgage loans⁴	$	29		$	—		$	29



	December 31, 2019
Recorded Investment	Conventional			Government- Insured			Total
In process of foreclosure¹	$	5		$	1		$	6
Serious delinquency rate²	—		%	1		%	—		%
Past due 90 days or more and still accruing interest³	$	—		$	7		$	7
Non-accrual mortgage loans⁴	$	31		$	—		$	31


1	Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported.


2	Represents mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total mortgage loans.


3	Represents government-insured mortgage loans that are 90 days or more past due.


4	Represents conventional mortgage loans that are 90 days or more past due or TDRs. As of March 31, 2020, none of these conventional mortgage loans on non-accrual status had an associated allowance for expected credit losses.


•	~~Primary Mortgage Insurance (PMI).~~ At the time of origination, PMI is required on all loans with homeowner equity of less than 20 percent of the original purchase price or appraised value, whichever is less and as applicable to the specific loan.


•	~~First Loss Account (FLA).~~ ~~For each MPF master commitment, the Bank’s potential loss exposure prior to the PFI’s credit enhancement obligation is estimated and tracked in a memorandum account called the FLA.~~


•	~~Credit Enhancement Obligation of PFI.~~ PFIs have a credit enhancement obligation at the time an MPF mortgage loan is purchased to absorb certain losses in excess of the FLA in order to limit the Bank’s loss exposure to that of an investor in an investment grade MBS. PFIs pledge collateral to secure this obligation.



	March 31, 2019
	Conventional MPF/MPP			Government-Guaranteed or -Insured⁶			Total
Past due 30 - 59 days	$	52		$	18		$	70
Past due 60 - 89 days	16			5			21
Past due 90 - 179 days	10			4			14
Past due 180 days or more	11			4			15
Total past due mortgage loans	89			31			120
Total current mortgage loans	7,386			480			7,866
Total recorded investment of mortgage loans¹	$	7,475		$	511		$	7,986

In process of foreclosure (included above)²	$	8		$	1		$	9
Serious delinquency rate³	—		%	1		%	—		%
Past due 90 days or more and still accruing interest⁴	$	—		$	8		$	8
Non-accrual mortgage loans⁵	$	34		$	—		$	34



	December 31, 2018
	Conventional MPF/MPP			Government- Guaranteed or -Insured⁶			Total
Past due 30 - 59 days	$	49		$	17		$	66
Past due 60 - 89 days	14			5			19
Past due 90 - 179 days	11			4			15
Past due 180 days or more	13			4			17
Total past due mortgage loans	87			30			117
Total current mortgage loans	7,273			486			7,759
Total recorded investment of mortgage loans¹	$	7,360		$	516		$	7,876

In process of foreclosure (included above)²	$	8		$	2		$	10
Serious delinquency rate³	—		%	2		%	—		%
Past due 90 days or more and still accruing interest⁴	$	—		$	8		$	8
Non-accrual mortgage loans⁵	$	36		$	—		$	36