QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Federally chartered corporation | 42-6000149 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) | |||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
Shares outstanding as of April 30, | |||
Class B Stock, par value $100 | |||
Table of Contents | |||
March 31, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||||
ASSETS | ||||||||||||||||
Cash and due from banks | $ | 81 | $ | 119 | $ | 611 | $ | 1,029 | ||||||||
Interest-bearing deposits | 1 | 1 | ||||||||||||||
Securities purchased under agreements to resell | 8,000 | 4,700 | ||||||||||||||
Federal funds sold | 7,985 | 4,150 | ||||||||||||||
Investment securities | ||||||||||||||||
Trading securities (Note 3) | 918 | 915 | ||||||||||||||
Available-for-sale securities (Note 4) | 18,493 | 19,019 | ||||||||||||||
Held-to-maturity securities (fair value of $2,918 and $3,021) (Note 5) | 2,874 | 2,992 | ||||||||||||||
Interest-bearing deposits (Note 3) | 1 | 1 | ||||||||||||||
Securities purchased under agreements to resell (Note 3) | 6,550 | 13,950 | ||||||||||||||
Federal funds sold (Note 3) | 8,935 | 4,605 | ||||||||||||||
Investment securities (Note 3) | ||||||||||||||||
Trading securities | 1,728 | 888 | ||||||||||||||
Available-for-sale securities (amortized cost of $16,282 and $16,603) | 16,166 | 16,651 | ||||||||||||||
Held-to-maturity securities (fair value of $2,346 and $2,439) | 2,254 | 2,370 | ||||||||||||||
Total investment securities | 22,285 | 22,926 | 20,148 | 19,909 | ||||||||||||
Advances (Note 7) | 99,228 | 106,323 | ||||||||||||||
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1 (Notes 8 and 9) | 7,943 | 7,835 | ||||||||||||||
Advances (Note 4) | 79,757 | 80,360 | ||||||||||||||
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1 (Note 5) | 9,546 | 9,334 | ||||||||||||||
Accrued interest receivable | 314 | 290 | 179 | 195 | ||||||||||||
Derivative assets, net (Note 10) | 92 | 58 | ||||||||||||||
Derivative assets, net (Note 6) | 233 | 102 | ||||||||||||||
Other assets | 114 | 113 | 108 | 118 | ||||||||||||
TOTAL ASSETS | $ | 146,043 | $ | 146,515 | $ | 126,068 | $ | 129,603 | ||||||||
LIABILITIES | ||||||||||||||||
Deposits | ||||||||||||||||
Interest-bearing | $ | 834 | $ | 976 | $ | 1,076 | $ | 987 | ||||||||
Non-interest-bearing | 128 | 94 | 191 | 125 | ||||||||||||
Total deposits | 962 | 1,070 | 1,267 | 1,112 | ||||||||||||
Consolidated obligations (Note 11) | ||||||||||||||||
Consolidated obligations (Note 7) | ||||||||||||||||
Discount notes | 44,994 | 42,879 | 33,071 | 29,531 | ||||||||||||
Bonds | 91,979 | 93,772 | 84,266 | 91,553 | ||||||||||||
Total consolidated obligations | 136,973 | 136,651 | 117,337 | 121,084 | ||||||||||||
Borrowings from other FHLBanks | — | 500 | ||||||||||||||
Mandatorily redeemable capital stock (Note 12) | 237 | 255 | ||||||||||||||
Mandatorily redeemable capital stock (Note 8) | 96 | 206 | ||||||||||||||
Accrued interest payable | 299 | 268 | 258 | 252 | ||||||||||||
Affordable Housing Program payable | 159 | 153 | 161 | 157 | ||||||||||||
Derivative liabilities, net (Note 10) | 2 | 9 | ||||||||||||||
Derivative liabilities, net (Note 6) | 9 | 1 | ||||||||||||||
Other liabilities | 52 | 61 | 207 | 65 | ||||||||||||
TOTAL LIABILITIES | 138,684 | 138,967 | 119,335 | 122,877 | ||||||||||||
Commitments and contingencies (Note 14) | ||||||||||||||||
CAPITAL (Note 12) | ||||||||||||||||
Capital stock - Class B putable ($100 par value); 52 and 54 issued and outstanding shares | 5,182 | 5,414 | ||||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||||||
CAPITAL (Note 8) | ||||||||||||||||
Capital stock - Class B putable ($100 par value); 47 and 45 issued and outstanding shares | 4,653 | 4,517 | ||||||||||||||
Retained earnings | ||||||||||||||||
Unrestricted | 1,643 | 1,623 | 1,677 | 1,661 | ||||||||||||
Restricted | 449 | 427 | 522 | 504 | ||||||||||||
Total 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 | ||||||||||||
TOTAL LIABILITIES AND CAPITAL | $ | 146,043 | $ | 146,515 | $ | 126,068 | $ | 129,603 |
The accompanying notes are an integral part of these financial statements. |
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
INTEREST INCOME | ||||||||||||||||
Advances | $ | 715 | $ | 502 | $ | 399 | $ | 715 | ||||||||
Interest-bearing deposits | 1 | — | ||||||||||||||
Securities purchased under agreements to resell | 32 | 12 | 30 | 32 | ||||||||||||
Federal funds sold | 43 | 23 | 27 | 43 | ||||||||||||
Trading securities | 8 | 8 | 9 | 8 | ||||||||||||
Available-for-sale securities | 143 | 110 | 75 | 143 | ||||||||||||
Held-to-maturity securities | 22 | 21 | 14 | 22 | ||||||||||||
Mortgage loans held for portfolio | 69 | 60 | 78 | 69 | ||||||||||||
Total interest income | 1,032 | 736 | 633 | 1,032 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Consolidated obligations - Discount notes | 271 | 124 | 110 | 271 | ||||||||||||
Consolidated obligations - Bonds | 595 | 448 | 410 | 595 | ||||||||||||
Deposits | 4 | 3 | 1 | 4 | ||||||||||||
Mandatorily redeemable capital stock | 3 | 4 | 3 | 3 | ||||||||||||
Total interest expense | 873 | 579 | 524 | 873 | ||||||||||||
NET INTEREST INCOME | 159 | 157 | 109 | 159 | ||||||||||||
OTHER INCOME (LOSS) | ||||||||||||||||
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 EXPENSE | ||||||||||||||||
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 | ||||||||||||
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 | ||||||||||||
NET INCOME BEFORE ASSESSMENTS | 125 | 132 | 102 | 125 | ||||||||||||
Affordable Housing Program assessments | 13 | 14 | 10 | 13 | ||||||||||||
NET INCOME | $ | 112 | $ | 118 | $ | 92 | $ | 112 |
The accompanying notes are an integral part of these financial statements. |
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Net income | $ | 112 | $ | 118 | $ | 92 | $ | 112 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Net unrealized gains (losses) on available-for-sale securities | 1 | 45 | (164 | ) | 1 | |||||||||||
Pension and postretirement benefits | 1 | — | ||||||||||||||
Total other comprehensive income (loss) | 1 | 45 | (163 | ) | 1 | |||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 113 | $ | 163 | $ | (71 | ) | $ | 113 |
The accompanying notes are an integral part of these financial statements. |
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 |
The accompanying notes are an integral part of these financial statements. |
Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Capital | |||||||||||||||||||||||||||||||||||
Unrestricted | Restricted | Total | ||||||||||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2017 | $ | 1,504 | $ | 335 | $ | 1,839 | $ | 114 | $ | 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 | ||||||||||||||||||||||||
Comprehensive income (loss) | 90 | 22 | 112 | 1 | 113 | 90 | 22 | 112 | 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. |
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 112 | $ | 118 | $ | 92 | $ | 112 | ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||||||||
Depreciation and amortization | 16 | (22 | ) | (6 | ) | 16 | ||||||||||
Net (gains) losses on trading securities | (10 | ) | 16 | (26 | ) | (10 | ) | |||||||||
Net change in derivatives and hedging activities | (33 | ) | 33 | (262 | ) | (33 | ) | |||||||||
Other adjustments | 6 | — | ||||||||||||||
Net change in: | ||||||||||||||||
Accrued interest receivable | (52 | ) | (38 | ) | (7 | ) | (52 | ) | ||||||||
Other assets | (2 | ) | 4 | 10 | (2 | ) | ||||||||||
Accrued interest payable | 32 | 14 | 5 | 32 | ||||||||||||
Other liabilities | (3 | ) | 7 | 2 | (3 | ) | ||||||||||
Total adjustments | (52 | ) | 14 | (278 | ) | (52 | ) | |||||||||
Net cash provided by (used in) operating activities | 60 | 132 | (186 | ) | 60 | |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Net change in: | ||||||||||||||||
Interest-bearing deposits | (29 | ) | 50 | (346 | ) | (29 | ) | |||||||||
Securities purchased under agreements to resell | (3,300 | ) | 1,100 | 7,400 | (3,300 | ) | ||||||||||
Federal funds sold | (3,835 | ) | (1,410 | ) | (4,330 | ) | (3,835 | ) | ||||||||
Trading securities | ||||||||||||||||
Proceeds from maturities of long-term | 8 | 209 | ||||||||||||||
Proceeds from maturities | 57 | 8 | ||||||||||||||
Purchases | (871 | ) | — | |||||||||||||
Available-for-sale securities | ||||||||||||||||
Proceeds from maturities of long-term | 640 | 895 | ||||||||||||||
Proceeds from maturities | 772 | 640 | ||||||||||||||
Held-to-maturity securities | ||||||||||||||||
Proceeds from maturities of long-term | 115 | 195 | ||||||||||||||
Proceeds from maturities | 113 | 115 | ||||||||||||||
Advances | ||||||||||||||||
Repaid | 67,845 | 74,565 | 79,358 | 67,845 | ||||||||||||
Originated or purchased | (60,649 | ) | (80,328 | ) | ||||||||||||
Originated | (78,332 | ) | (60,649 | ) | ||||||||||||
Mortgage loans held for portfolio | ||||||||||||||||
Principal collected | 216 | 223 | 357 | 216 | ||||||||||||
Originated or purchased | (327 | ) | (245 | ) | ||||||||||||
Other investing activities | (2 | ) | (2 | ) | ||||||||||||
Purchased | (571 | ) | (327 | ) | ||||||||||||
Other investing activities, net | (2 | ) | (2 | ) | ||||||||||||
Net cash provided by (used in) investing activities | 682 | (4,748 | ) | 3,605 | 682 |
The accompanying notes are an integral part of these financial statements. |
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 |
The accompanying notes are an integral part of these financial statements. |
March 31, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||
Non-mortgage-backed securities | ||||||||||||||
U.S. obligations1 | $ | 155 | $ | 159 | ||||||||||
U.S. Treasury obligations | $ | 873 | $ | — | ||||||||||
Other U.S. obligations1 | 140 | 150 | ||||||||||||
GSE and Tennessee Valley Authority obligations | 59 | 57 | 64 | 60 | ||||||||||
Other2 | 268 | 266 | 262 | 259 | ||||||||||
Total non-mortgage-backed securities | 482 | 482 | 1,339 | 469 | ||||||||||
Mortgage-backed securities | ||||||||||||||
GSE multifamily | 436 | 433 | 389 | 419 | ||||||||||
Total fair value | $ | 918 | $ | 915 | $ | 1,728 | $ | 888 |
1 | Represents investment securities backed by the full faith and credit of the U.S. Government. |
2 | Consists of taxable municipal bonds. |
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 |
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||
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 | $ | 2,597 | $ | 8 | $ | (3 | ) | $ | 2,602 | |||||||||||||||||||||
Other U.S. obligations2 | $ | 2,122 | $ | 6 | $ | (1 | ) | $ | 2,127 | |||||||||||||||||||||
GSE and Tennessee Valley Authority obligations | 1,012 | 26 | — | 1,038 | 1,034 | 26 | — | 1,060 | ||||||||||||||||||||||
State or local housing agency obligations | 820 | — | (6 | ) | 814 | 761 | — | (5 | ) | 756 | ||||||||||||||||||||
Other3 | 264 | 11 | — | 275 | 276 | 9 | — | 285 | ||||||||||||||||||||||
Total non-mortgage-backed securities | 4,693 | 45 | (9 | ) | 4,729 | 4,193 | 41 | (6 | ) | 4,228 | ||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||||||||
U.S. obligations single-family2 | 4,459 | 25 | (1 | ) | 4,483 | 4,044 | 17 | (2 | ) | 4,059 | ||||||||||||||||||||
GSE single-family | 794 | 6 | (4 | ) | 796 | 646 | 4 | (1 | ) | 649 | ||||||||||||||||||||
GSE multifamily | 8,986 | 36 | (11 | ) | 9,011 | 7,720 | 13 | (18 | ) | 7,715 | ||||||||||||||||||||
Total mortgage-backed securities | 14,239 | 67 | (16 | ) | 14,290 | 12,410 | 34 | (21 | ) | 12,423 | ||||||||||||||||||||
Total | $ | 18,932 | $ | 112 | $ | (25 | ) | $ | 19,019 | $ | 16,603 | $ | 75 | $ | (27 | ) | $ | 16,651 |
1 | Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting |
2 | Represents investment securities backed by the full faith and credit of the U.S. Government. |
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 | ) |
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 533 | $ | (1 | ) | $ | 311 | $ | (2 | ) | $ | 844 | $ | (3 | ) | |||||||||||||||||||||||||||||||
Other U.S. obligations1 | $ | 196 | $ | — | $ | 706 | $ | (1 | ) | $ | 902 | $ | (1 | ) | ||||||||||||||||||||||||||||||||
State or local housing agency obligations | 211 | — | 586 | (6 | ) | 797 | (6 | ) | 57 | — | 344 | (5 | ) | 401 | (5 | ) | ||||||||||||||||||||||||||||||
Total non-mortgage-backed securities | 744 | (1 | ) | 897 | (8 | ) | 1,641 | (9 | ) | 253 | — | 1,050 | (6 | ) | 1,303 | (6 | ) | |||||||||||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||||
U.S. obligations single-family1 | 646 | (1 | ) | — | — | 646 | (1 | ) | 169 | — | 564 | (2 | ) | 733 | (2 | ) | ||||||||||||||||||||||||||||||
GSE single-family | 115 | — | 209 | (4 | ) | 324 | (4 | ) | 133 | — | 104 | (1 | ) | 237 | (1 | ) | ||||||||||||||||||||||||||||||
GSE multifamily | 3,239 | (8 | ) | 718 | (3 | ) | 3,957 | (11 | ) | 2,001 | (8 | ) | 2,766 | (10 | ) | 4,767 | (18 | ) | ||||||||||||||||||||||||||||
Total mortgage-backed securities | 4,000 | (9 | ) | 927 | (7 | ) | 4,927 | (16 | ) | 2,303 | (8 | ) | 3,434 | (13 | ) | 5,737 | (21 | ) | ||||||||||||||||||||||||||||
Total | $ | 4,744 | $ | (10 | ) | $ | 1,824 | $ | (15 | ) | $ | 6,568 | $ | (25 | ) | $ | 2,556 | $ | (8 | ) | $ | 4,484 | $ | (19 | ) | $ | 7,040 | $ | (27 | ) |
1 | Represents investment securities backed by the full faith and credit of the U.S. Government. |
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 |
March 31, 2019 | |||||||||||||||
Amortized Cost1 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Non-mortgage-backed securities | |||||||||||||||
GSE and Tennessee Valley Authority obligations | $ | 387 | $ | 57 | $ | — | $ | 444 | |||||||
State or local housing agency obligations | 373 | 1 | (1 | ) | 373 | ||||||||||
Total non-mortgage-backed securities | 760 | 58 | (1 | ) | 817 | ||||||||||
Mortgage-backed securities | |||||||||||||||
U.S. obligations single-family2 | 8 | — | — | 8 | |||||||||||
U.S. obligations commercial2 | 1 | — | — | 1 | |||||||||||
GSE single-family | 2,096 | 3 | (16 | ) | 2,083 | ||||||||||
Private-label residential | 9 | — | — | 9 | |||||||||||
Total mortgage-backed securities | 2,114 | 3 | (16 | ) | 2,101 | ||||||||||
Total | $ | 2,874 | $ | 61 | $ | (17 | ) | $ | 2,918 |
March 31, 2020 | |||||||||||||||
Amortized Cost1 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Non-mortgage-backed securities | |||||||||||||||
GSE and Tennessee Valley Authority obligations | $ | 383 | $ | 96 | $ | — | $ | 479 | |||||||
State or local housing agency obligations | 212 | 2 | (1 | ) | 213 | ||||||||||
Total non-mortgage-backed securities | 595 | 98 | (1 | ) | 692 | ||||||||||
Mortgage-backed securities | |||||||||||||||
U.S. obligations single-family2 | 4 | — | — | 4 | |||||||||||
U.S. obligations commercial2 | 1 | — | — | 1 | |||||||||||
GSE single-family | 1,647 | 7 | (12 | ) | 1,642 | ||||||||||
Private-label | 7 | — | — | 7 | |||||||||||
Total mortgage-backed securities | 1,659 | 7 | (12 | ) | 1,654 | ||||||||||
Total | $ | 2,254 | $ | 105 | $ | (13 | ) | $ | 2,346 |
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||
Amortized Cost1 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost1 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||
Non-mortgage-backed securities | ||||||||||||||||||||||||||||||
GSE and Tennessee Valley Authority obligations | $ | 389 | $ | 48 | $ | (2 | ) | $ | 435 | $ | 384 | $ | 72 | $ | — | $ | 456 | |||||||||||||
State or local housing agency obligations | 391 | 1 | (1 | ) | 391 | 221 | 1 | (1 | ) | 221 | ||||||||||||||||||||
Total non-mortgage-backed securities | 780 | 49 | (3 | ) | 826 | 605 | 73 | (1 | ) | 677 | ||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||||||||
U.S. obligations single-family2 | 9 | — | — | 9 | 5 | — | — | 5 | ||||||||||||||||||||||
U.S. obligations commercial2 | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||||||||||||||||
GSE single-family | 2,192 | 4 | (21 | ) | 2,175 | 1,752 | 4 | (7 | ) | 1,749 | ||||||||||||||||||||
Private-label residential | 10 | — | — | 10 | ||||||||||||||||||||||||||
Private-label | 7 | — | — | 7 | ||||||||||||||||||||||||||
Total mortgage-backed securities | 2,212 | 4 | (21 | ) | 2,195 | 1,765 | 4 | (7 | ) | 1,762 | ||||||||||||||||||||
Total | $ | 2,992 | $ | 53 | $ | (24 | ) | $ | 3,021 | $ | 2,370 | $ | 77 | $ | (8 | ) | $ | 2,439 |
1 | Amortized cost includes adjustments made to the cost basis of an investment for accretion or |
2 | Represents investment securities backed by the full faith and credit of the U.S. Government. |
March 31, 2019 | |||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Non-mortgage-backed securities | |||||||||||||||||||||||
State or local housing agency obligations | $ | 8 | $ | — | $ | 151 | $ | (1 | ) | $ | 159 | $ | (1 | ) | |||||||||
Total non-mortgage-backed securities | 8 | — | 151 | (1 | ) | 159 | (1 | ) | |||||||||||||||
Mortgage-backed securities | |||||||||||||||||||||||
U.S. obligations single-family1 | 8 | — | — | — | 8 | — | |||||||||||||||||
U.S. obligations commercial1 | — | — | 1 | — | 1 | — | |||||||||||||||||
GSE single-family | 625 | (2 | ) | 965 | (14 | ) | 1,590 | (16 | ) | ||||||||||||||
Private-label residential | — | — | 5 | — | 5 | — | |||||||||||||||||
Total mortgage-backed securities | 633 | (2 | ) | 971 | (14 | ) | 1,604 | (16 | ) | ||||||||||||||
Total | $ | 641 | $ | (2 | ) | $ | 1,122 | $ | (15 | ) | $ | 1,763 | $ | (17 | ) |
December 31, 2018 | |||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Non-mortgage-backed securities | |||||||||||||||||||||||
GSE and Tennessee Valley Authority obligations | $ | 69 | $ | (2 | ) | $ | — | $ | — | $ | 69 | $ | (2 | ) | |||||||||
State or local housing agency obligations | 50 | — | 152 | (1 | ) | 202 | (1 | ) | |||||||||||||||
Total non-mortgage-backed securities | 119 | (2 | ) | 152 | (1 | ) | 271 | (3 | ) | ||||||||||||||
Mortgage-backed securities | |||||||||||||||||||||||
U.S. obligations single-family1 | 3 | — | — | — | 3 | — | |||||||||||||||||
U.S. obligations commercial1 | — | — | 1 | — | 1 | — | |||||||||||||||||
GSE single-family | 611 | (1 | ) | 1,008 | (20 | ) | 1,619 | (21 | ) | ||||||||||||||
Private-label residential | — | — | 6 | — | 6 | — | |||||||||||||||||
Total mortgage-backed securities | 614 | (1 | ) | 1,015 | (20 | ) | 1,629 | (21 | ) | ||||||||||||||
Total | $ | 733 | $ | (3 | ) | $ | 1,167 | $ | (21 | ) | $ | 1,900 | $ | (24 | ) |
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 | $ | 9 | $ | 9 | $ | 9 | $ | 9 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Due after one year through five years | 59 | 59 | 64 | 65 | — | — | — | — | ||||||||||||||||||||||||
Due after five years through ten years | 328 | 356 | 332 | 353 | 411 | 457 | 412 | 446 | ||||||||||||||||||||||||
Due after ten years | 364 | 393 | 375 | 399 | 184 | 235 | 193 | 231 | ||||||||||||||||||||||||
Total non-mortgage-backed securities | 760 | 817 | 780 | 826 | 595 | 692 | 605 | 677 | ||||||||||||||||||||||||
Mortgage-backed securities | 2,114 | 2,101 | 2,212 | 2,195 | 1,659 | 1,654 | 1,765 | 1,762 | ||||||||||||||||||||||||
Total | $ | 2,874 | $ | 2,918 | $ | 2,992 | $ | 3,021 | $ | 2,254 | $ | 2,346 | $ | 2,370 | $ | 2,439 |
March 31, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||
Redemption Term | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate | Amount1 | Weighted Average Interest Rate | Amount1 | Weighted Average Interest Rate | ||||||||||||||||||||
Overdrawn demand deposit accounts | $ | 1 | 3.62 | % | $ | 2 | 3.63 | % | $ | 5 | 1.36 | % | $ | 1 | 2.73 | % | ||||||||||||
Due in one year or less | 43,818 | 2.63 | 50,561 | 2.61 | 33,669 | 1.05 | 35,432 | 1.97 | ||||||||||||||||||||
Due after one year through two years | 28,427 | 2.75 | 23,946 | 2.61 | 19,305 | 1.71 | 21,959 | 2.23 | ||||||||||||||||||||
Due after two years through three years | 14,541 | 2.82 | 17,582 | 2.73 | 10,264 | 2.07 | 8,693 | 2.33 | ||||||||||||||||||||
Due after three years through four years | 4,514 | 2.79 | 4,091 | 2.73 | 5,244 | 2.36 | 5,109 | 2.51 | ||||||||||||||||||||
Due after four years through five years | 4,449 | 2.94 | 6,814 | 2.76 | 7,231 | 1.93 | 5,978 | 2.17 | ||||||||||||||||||||
Thereafter | 3,467 | 3.00 | 3,417 | 2.96 | 3,441 | 2.43 | 3,013 | 2.72 | ||||||||||||||||||||
Total par value | 99,217 | 2.73 | % | 106,413 | 2.66 | % | 79,159 | 1.57 | % | 80,185 | 2.16 | % | ||||||||||||||||
Premiums | 35 | 38 | 24 | 25 | ||||||||||||||||||||||||
Discounts | (7 | ) | (8 | ) | (5 | ) | (6 | ) | ||||||||||||||||||||
Fair value hedging adjustments | (17 | ) | (120 | ) | 579 | 156 | ||||||||||||||||||||||
Total | $ | 99,228 | $ | 106,323 | $ | 79,757 | $ | 80,360 |
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 | December 31, 2019 | ||||||
Fixed rate, long-term single-family mortgage loans | $ | 8,335 | $ | 8,192 | |||
Fixed rate, medium-term1 single-family mortgage loans | 1,079 | 1,016 | |||||
Total unpaid principal balance | 9,414 | 9,208 | |||||
Premiums | 128 | 125 | |||||
Discounts | (4 | ) | (4 | ) | |||
Basis adjustments from mortgage loan purchase commitments | 9 | 6 | |||||
Total mortgage loans held for portfolio2 | 9,547 | 9,335 | |||||
Allowance for credit losses | (1 | ) | (1 | ) | |||
Total mortgage loans held for portfolio, net | $ | 9,546 | $ | 9,334 |
1 | Medium-term is defined as a term of 15 years or less. |
2 | Excludes accrued interest receivable of $49 million and $48 million as of March 31, 2020 and December 31, 2019. |
March 31, 2020 | December 31, 2019 | ||||||
Conventional mortgage loans | $ | 8,917 | $ | 8,712 | |||
Government-insured mortgage loans | 497 | 496 | |||||
Total unpaid principal balance | $ | 9,414 | $ | 9,208 |
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 |
December 31, 2019 | |||
Past due 30 - 59 days | $ | 57 | |
Past due 60 - 89 days | 14 | ||
Past due 90 - 179 days | 10 | ||
Past due 180 days or more | 10 | ||
Total past due mortgage loans | 91 | ||
Total current mortgage loans | 8,783 | ||
Total recorded investment of mortgage loans1 | $ | 8,874 |
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. |
March 31, 2019 | December 31, 2018 | ||||||
Allowance for credit losses | |||||||
Collectively evaluated for impairment | $ | 1 | $ | 1 | |||
Recorded investment1 | |||||||
Collectively evaluated for impairment | $ | 7,421 | $ | 7,306 | |||
Individually evaluated for impairment, without a related allowance | 54 | 54 | |||||
Total recorded investment | $ | 7,475 | $ | 7,360 |
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 |
March 31, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
Notional Amount | Derivative Assets | Derivative Liabilities | Notional Amount | Derivative Assets | Derivative Liabilities | Notional Amount | Derivative Assets | Derivative Liabilities | Notional Amount | Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments (fair value hedges) | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 43,732 | $ | 73 | $ | 113 | $ | 47,316 | $ | 83 | $ | 115 | $ | 37,610 | $ | 55 | $ | 360 | $ | 37,684 | $ | 31 | $ | 159 | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments (economic hedges) | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | 1,298 | 15 | 32 | 1,321 | 20 | 24 | 1,858 | 12 | 89 | 1,038 | 8 | 43 | ||||||||||||||||||||||||||||||||||||
Forward settlement agreements (TBAs) | 152 | — | 1 | 98 | — | — | 342 | — | 7 | 122 | — | — | ||||||||||||||||||||||||||||||||||||
Mortgage loan purchase commitments | 163 | 1 | — | 101 | 1 | — | 348 | 4 | — | 127 | — | — | ||||||||||||||||||||||||||||||||||||
Total derivatives not designated as hedging instruments | 1,613 | 16 | 33 | 1,520 | 21 | 24 | 2,548 | 16 | 96 | 1,287 | 8 | 43 | ||||||||||||||||||||||||||||||||||||
Total derivatives before netting and collateral adjustments | $ | 45,345 | 89 | 146 | $ | 48,836 | 104 | 139 | $ | 40,158 | 71 | 456 | $ | 38,971 | 39 | 202 | ||||||||||||||||||||||||||||||||
Netting adjustments and cash collateral1 | 3 | (144 | ) | (46 | ) | (130 | ) | 162 | (447 | ) | 63 | (201 | ) | |||||||||||||||||||||||||||||||||||
Total derivative assets and derivative liabilities | $ | 92 | $ | 2 | $ | 58 | 9 | $ | 233 | $ | 9 | $ | 102 | $ | 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. At March 31, |
For the Three Months Ended March 31, 2019 | For the Three Months Ended March 31, 2020 | |||||||||||||||||||||||
Interest Income (Expense) | Interest Income (Expense) | |||||||||||||||||||||||
Advances | Available-for-Sale Securities | Consolidated Obligation Bonds | Advances | Available-for-Sale Securities | Consolidated Obligation Bonds | |||||||||||||||||||
Total interest income (expense) recorded in the Statements of Income1 | $ | 715 | $ | 143 | $ | (595 | ) | |||||||||||||||||
Total interest income (expense) recorded on the Statements of Income1 | $ | 399 | $ | 75 | $ | (410 | ) | |||||||||||||||||
Net interest income effect from fair value hedging relationships | ||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||
Derivatives2 | (78 | ) | (81 | ) | 67 | $ | (435 | ) | $ | (316 | ) | $ | 237 | |||||||||||
Hedged items3 | 103 | 86 | (135 | ) | 423 | 290 | (233 | ) | ||||||||||||||||
Total net interest income effect from fair value hedging relationships | $ | 25 | $ | 5 | $ | (68 | ) | $ | (12 | ) | $ | (26 | ) | $ | 4 |
For the Three Months Ended March 31, 2018 | For the Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||
Interest Income (Expense) | Other Income | Interest Income (Expense) | ||||||||||||||||||||||||||
Advances | Available-for-Sale Securities | Consolidated Obligation Bonds | Net Gains (Losses) on Derivatives and Hedging Activities | Advances | Available-for-Sale Securities | Consolidated Obligation Bonds | ||||||||||||||||||||||
Total income (expense) recorded in the Statements of Income1 | $ | 502 | $ | 110 | $ | (448 | ) | $ | 20 | |||||||||||||||||||
Total income (expense) recorded on the Statements of Income1 | $ | 715 | $ | 143 | $ | (595 | ) | |||||||||||||||||||||
Net income effect from fair value hedging relationships | ||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||
Derivatives4 | (1 | ) | (13 | ) | (32 | ) | 123 | |||||||||||||||||||||
Hedged items5 | 4 | 1 | — | (123 | ) | |||||||||||||||||||||||
Derivatives2 | $ | (78 | ) | $ | (81 | ) | $ | 67 | ||||||||||||||||||||
Hedged items3 | 103 | 86 | (135 | ) | ||||||||||||||||||||||||
Total net income effect from fair value hedging relationships | $ | 3 | $ | (12 | ) | $ | (32 | ) | $ | — | $ | 25 | $ | 5 | $ | (68 | ) |
1 | Amounts shown to give context to the disclosure and include total interest income (expense) of the products indicated, including coupon, prepayment fees, amortization, and derivative net interest settlements. |
2 | Includes changes in fair value, net interest settlements on derivatives, and amortization of the financing element of off-market derivatives. |
3 | Includes changes in fair value and The following
1 Includes The following table summarizes the components of “Net gains (losses) on derivatives and hedging activities” as presented
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 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, 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 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):
1 Note 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, DISCOUNT NOTES The following table summarizes the Bank’s discount notes (dollars in millions):
BONDS The following table summarizes the Bank’s bonds outstanding by contractual maturity (dollars in millions):
The following table summarizes the Bank’s bonds outstanding by call features (dollars in millions):
The following table summarizes the Bank’s bonds outstanding by year of contractual maturity or next call date (dollars in millions):
Note 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 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, 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 At March 31, 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
The following table summarizes the Bank’s mandatorily redeemable capital stock by year of contractual redemption (dollars in millions):
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 ACCUMULATED OTHER COMPREHENSIVE INCOME The following table summarizes changes in AOCI (dollars in millions):
REGULATORY CAPITAL REQUIREMENTS The Bank is subject to
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):
Note 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., The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:
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. The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments at March 31,
The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments at December 31,
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 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, 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 The fair values of the Bank’s derivative assets and derivative liabilities include accrued interest receivable/payable and related cash 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:
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:
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
The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value
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 Note 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, The following table summarizes additional off-balance sheet commitments for the Bank (dollars in millions):
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. 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. 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 Commitments to Purchase Mortgage Loans. The Bank enters into commitments that unconditionally obligate it to purchase mortgage loans from its members. 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, Commitments to Fund Advances. The Bank enters into commitments 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 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, On October 3, 2019, the Washington Supreme Court 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. The Bank records legal expenses related to litigation settlements as incurred in other expenses Note 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 31st. 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):
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,
Note 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,
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
At March 31, Note Subsequent events have been evaluated from April 1, 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,
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; 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 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 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 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, Net interest income We recorded net gains of During the three months ended March 31, During the three months ended March 31, 2020, we recorded net losses of Our total assets decreased to 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 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 The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):
The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income (dollars in millions):
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, 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, We are 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):
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):
For a summary of our 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 In
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:
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 Funding Spreads The following table reflects our funding spreads to LIBOR (basis points)1:
The following table reflects our funding spreads to U.S. Treasuries (basis points)1:
As a result of our credit quality and SELECTED FINANCIAL DATA The following tables present selected financial data for the periods indicated (dollars in millions):
RESULTS OF OPERATIONS Net Income The following table presents comparative highlights of our net income for the three months ended March 31,
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
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).
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, 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, Advances Interest income on advances Investments Interest income on investments Bonds Interest expense on bonds Discount Notes Interest expense on discount notes 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):
Other income (loss) can be volatile from period to period depending on the type of activity recorded. We recorded During the three months ended March 31, During the three months ended March 31, 2020, we recorded net losses of 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. 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):
The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):
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 NET GAINS (LOSSES) ON FAIR VALUE HEDGES NET GAINS (LOSSES) ON ECONOMIC HEDGES We utilize economic derivatives to manage certain risks 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):
Other Expense The following table shows the components of other expense (dollars in millions):
Other expense increased for the three months ended March 31, STATEMENTS OF CONDITION Financial Highlights Our total assets decreased to Cash and Due from Banks At March 31, Advances The following table summarizes our advances by type of institution (dollars in millions):
Our total advance par value decreased 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, The following table summarizes our advances by product type (dollars in millions):
Fair value hedging adjustments changed At March 31, At March 31,
We Mortgage Loans The following tables summarize information on our mortgage loans held for portfolio (dollars in millions):
Our total mortgage loans 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):
Our investments 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 We evaluate 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, DISCOUNT NOTES The following table summarizes our discount notes, all of which are due within one year (dollars in millions):
Our discount notes increased BONDS The following table summarizes information on our bonds (dollars in millions):
Our bonds decreased 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):
Our 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):
The notional amount of our derivative contracts 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, 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, 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, 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 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, During the three months ended March 31, 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, In addition to the liquidity measures previously discussed, the Finance Agency The Capital CAPITAL REQUIREMENTS We are subject to 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. At March 31, 2020, we were in compliance with the Capital Stock AB. Refer to “Item 1. Financial Statements — Note 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 31st, 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, The following table summarizes our regulatory capital stock by type of member (dollars in millions):
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, 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, 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 The following table summarizes dividend-related information (dollars in millions):
CRITICAL ACCOUNTING POLICIES AND ESTIMATES For a discussion of our critical accounting policies and estimates, refer to our LEGISLATIVE AND REGULATORY DEVELOPMENTS On On The results of our most recent annual severely adverse economic conditions stress test were published to 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 As a result of the recent market volatility triggered in part by COVID-19, the FHLBanks’ authority to We continue to evaluate the potential impact of the 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 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 If this rule is adopted as proposed, it may have an effect on member demand for 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, 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 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,
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,
Our base case MVCS was
PROJECTED INCOME SENSITIVITY 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 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 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 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 fully disbursed whole first mortgages on improved residential real property or securities representing a whole interest in such 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 cash deposited with 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 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, The following table shows our total exposure, including advances, as well as the collateralization percentage of outstanding exposure by borrower type (dollars in millions):
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 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. The following table presents the unpaid principal balance of our mortgage loan portfolio by product type (dollars in millions):
We manage the credit risk on mortgage loans We evaluate mortgage loans for credit losses on a quarterly basis and Conventional Mortgage Loans. 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, Refer to “Item 1. Financial Statements — Note 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, 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, 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, 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 We
At March 31,
Investment Ratings The following table summarizes the carrying value of our investments by credit rating (dollars in millions):
The following table summarizes the carrying value of our investments by credit rating (dollars in millions):
credit losses on financial instruments on January 1, 2020. At March 31, Mortgage-Backed Securities We limit our 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) 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):
The following table shows our derivative counterparty credit exposure (dollars in millions):
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. 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 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 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 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 As previously reported in our
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 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 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, On October 3, 2019, the Washington Supreme Court 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 We record legal expenses related to litigation settlements as incurred in other expenses 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, ITEM 1A. RISK FACTORS 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 Executive Changes On ITEM 6. EXHIBITS
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.
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