UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2020

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

For the transition period from ________ to ________

Commission File Number 000-52004

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)



Federally chartered corporation		48-0561319
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~One Security Benefit Pl. Suite 100~~500 SW Wanamaker Road Topeka, KS		66606
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 785.233.0507

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~large~~"large accelerated filer, ~~accelerated~~" "accelerated filer, ~~smaller~~" "smaller reporting company," and ~~emerging~~"emerging growth ~~company~~company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer x ~~(Do not check if a smaller reporting company)~~ Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the ~~registrant’s~~issuer’s classes of common stock, as of the latest practicable date.



	Shares outstanding as of
	~~November 7, 2017~~August 6, 2020
Class A Stock, par value $100 per share	~~1,945,677~~4,761,443
Class B Stock, par value $100 per share	~~14,444,350~~11,433,517

.FEDERAL HOME LOAN BANK OF TOPEKA

TABLE OF CONTENTS




PART I	FINANCIAL INFORMATION	45
Item 1.	Financial Statements	45
	Statements of Condition	56
	Statements of Income	78
	Statements of Comprehensive Income	910
	Statements of Capital	1012
	Statements of Cash Flows	1113
	Notes to Financial Statements	1416
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5053
	Executive Level Overview	5053
	Financial Market Trends	5357
	Critical Accounting Policies and Estimates	5458
	Results of Operations	5459
	Financial Condition	6974
	Liquidity and Capital Resources	8589
	Risk Management	8992
	Recently Issued Accounting Standards	9399
	Legislative and Regulatory Developments	9499
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	95100
Item 4.	Controls and Procedures	~~101~~105
Part II	OTHER INFORMATION	~~101~~105
Item 1.	Legal Proceedings	~~101~~105
Item 1A.	Risk Factors	~~101~~105
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~101~~106
Item 3.	Defaults Upon Senior Securities	~~101~~106
Item 4.	Mine Safety Disclosures	~~101~~106
Item 5.	Other Information	~~101~~106
Item 6.	Exhibits	~~102~~107

Important Notice about Information in this Quarterly Report

In this quarterly report, unless the context suggests otherwise, references to ~~the~~ “FHLBank,” “FHLBank Topeka,” “we,” “us” and “our” mean ~~the~~ Federal Home Loan Bank of Topeka, and “FHLBanks” mean all ~~the~~ Federal Home Loan Banks, including ~~the~~ FHLBank Topeka.

The information contained in this quarterly report is accurate only as of the date of this quarterly report and as of the dates specified herein.

The product and service names used in this quarterly report are the property of ~~the~~ FHLBank, and in some cases, ~~the~~ other FHLBanks. Where the context suggests otherwise, the products, services and company names mentioned in this quarterly report are the property of their respective owners.

Special Cautionary Notice Regarding Forward-looking Statements

The information in this Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements describing the objectives, projections, estimates or future predictions of ~~the~~ FHLBank’s operations. These statements may be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “may,” “is likely,” “could,” “estimate,” “expect,” “will,” “intend,” “probable,” “project,” “should,” or their negatives or other variations of these terms. ~~The~~ FHLBank cautions that by their nature forward-looking statements involve risks or uncertainties and that actual results may differ materially from those expressed in any forward-looking statements as a result of such risks and uncertainties, including but not limited to:

Governmental actions, including legislative, regulatory, judicial or other developments that affect the FHLBank; its members, counterparties or investors; housing government-sponsored enterprises (GSE); or the FHLBank System in general;

~~Changes in the FHLBank’s capital structure;~~

Changes in economic and market conditions, including conditions in our district and the U.S. and global economy, as well as the mortgage, housing and capital markets;

~~Changes in demand for FHLBank products and services or consolidated obligations~~The impact of the Coronavirus Disease 2019 (COVID-19) pandemic or other pandemics on our members and our business;

Governmental actions, including legislative, regulatory, judicial or other developments that affect FHLBank; its members, counterparties or investors; housing government-sponsored enterprises (GSE); or the FHLBank ~~System;~~System in general;

Effects of derivative accounting treatment and other accounting rule requirements, or changes in such requirements;

Competitive forces, including competition for loan demand, purchases of mortgage loans and access to funding;

The ~~effects~~ability of ~~amortization/accretion;~~FHLBank to introduce new products and services to meet market demand and to manage successfully the risks associated with all products and services;

~~Gains/losses on derivatives~~Changes in demand for FHLBank products and services or ~~on trading investments and~~consolidated obligations of the ~~ability to enter into effective derivative instruments on acceptable terms;~~

~~Volatility of market prices, interest rates and indices and the timing and volume of market activity;~~FHLBank System;

Membership changes, including changes resulting from member failures or mergers, changes due to member eligibility, or changes in the principal place of business of members;

~~Our ability to declare dividends or to pay dividends at rates consistent with past practices;~~Changes in the U.S. government’s long-term debt rating and the long-term credit rating of the senior unsecured debt issues of the FHLBank System;

Soundness of other financial institutions, including FHLBank members, non-member borrowers, counterparties, and the other FHLBanks;

The ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which FHLBank has joint and several liability;


•	The volume and quality of eligible mortgage loans originated and sold by participating members to FHLBank through its various mortgage finance products (Mortgage Partnership Finance^® (MPF^®) Program). “Mortgage Partnership Finance,” “MPF,” “MPF Xtra,” and “MPF Direct” are registered trademarks of FHLBank Chicago.

Changes in the fair value and economic value of, impairments of, and risks associated with, FHLBank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and related credit enhancement protections;

Changes in the value or liquidity of collateral underlying advances to FHLBank members or non-member borrowers or collateral pledged by reverse repurchase and derivative counterparties;

~~Competitive forces, including competition for loan demand, purchases~~Volatility of ~~mortgage loans~~market prices, changes in interest rates and ~~access~~indices and the timing and volume of market activity;

Gains/losses on derivatives or on trading investments and the ability to ~~funding;~~enter into effective derivative instruments on acceptable terms;

The effects of amortization/accretion;

The upcoming discontinuance of the London Interbank Offered Rate (LIBOR) and the related effect on FHLBank's LIBOR-based financial products, investments, and contracts;

Changes in FHLBank’s capital structure;

FHLBank's ability to declare dividends or to pay dividends at rates consistent with past practices; and

The ability of ~~the FHLBank to introduce new products and services to meet market demand and to manage successfully the risks associated with all products and services;~~

~~The ability of the~~ FHLBank to keep pace with technological changes and the ability to develop and support technology and information systems, including the ability to securely access the internet and internet-based systems and services, sufficient to effectively manage the risks of ~~the~~ FHLBank’s business;

The ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the FHLBank has joint and several liability;

~~Changes in the U.S. government’s long-term debt rating and the long-term credit rating of the senior unsecured debt issues of the FHLBank System;~~

Changes in the fair value and economic value of, impairments of, and risks associated with, the FHLBank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and related credit enhancement (CE) protections; and


•	~~The volume and quality of eligible mortgage loans originated and sold by participating members to the FHLBank through its various mortgage finance products (Mortgage Partnership Finance~~^® ~~(MPF~~^®~~) Program). “Mortgage Partnership Finance,” “MPF,” and “MPF Xtra” are registered trademarks of the FHLBank of Chicago.~~

Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this quarterly report, as well as those discussed under Part II Item lA – Risk Factors and Item 1A – Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2019, incorporated by reference herein.

All forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by reference to this cautionary notice. The reader should not place undue reliance on such forward-looking statements, since the statements speak only as of the date that they are made and ~~the~~ FHLBank has no obligation and does not undertake publicly to update, revise or correct any forward-looking statement for any reason to reflect events or circumstances after the date of this quarterly report.

PART I

Item 1: Financial Statements


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	09/30/2017			12/31/2016			06/30/2020		12/31/2019
ASSETS
Cash and due from banks	$	7,803		$	207,254		$	28,283	$	1,917,166
Interest-bearing deposits	301,208			387,920			1,017,972		921,453
Securities purchased under agreements to resell (Note 10)	2,595,589			2,400,000
Securities purchased under agreements to resell (Note 9)							4,450,000		4,750,000
Federal funds sold	1,692,000			2,725,000			1,520,000		850,000

Investment securities:
Trading securities (Note 3)	2,973,383			2,502,788			2,904,643		2,812,562
Available-for-sale securities (Note 3)	1,464,472			1,091,721			7,558,676		7,182,500
Held-to-maturity securities¹ (Note 3)	4,740,532			4,502,224
Held-to-maturity securities, fair value of $3,176,712 and $3,556,938 (Note 3)							3,182,136		3,569,958
Total investment securities	9,178,387			8,096,733			13,645,455		13,565,020

Advances (Notes 4, 6)	28,319,226			23,985,835

Mortgage loans held for portfolio, net:
Mortgage loans held for portfolio (Notes 5, 6)	7,056,647			6,642,399
Less allowance for credit losses on mortgage loans (Note 6)	(1,408		)	(1,674		)
Mortgage loans held for portfolio, net	7,055,239			6,640,725

Overnight loans to other FHLBanks	—			600,000
Advances (Note 4)							21,528,991		30,241,315
Mortgage loans held for portfolio, net of allowance for credit losses of $7,790 and $985 (Note 5)							10,945,717		10,633,009
Accrued interest receivable	79,854			68,400			113,448		143,765
Premises, software and equipment, net	36,034			16,205
Derivative assets, net (Notes 7, 10)	50,496			60,900
Derivative assets, net (Notes 6, 9)							191,539		154,804
Other assets	45,353			27,777			92,531		100,122

TOTAL ASSETS	$	49,361,189		$	45,216,749		$	53,533,936	$	63,276,654

LIABILITIES
Deposits (Note 8)	$	550,627		$	598,931
Deposits (Note 7)							$	988,292	$	790,640

Consolidated obligations, net:
Discount notes (Note 9)	21,280,938			21,775,341
Bonds (Note 9)	25,070,225			20,722,335
Discount notes (Note 8)							13,560,839		27,447,911
Bonds (Note 8)							36,445,676		32,013,314
Total consolidated obligations, net	46,351,163			42,497,676			50,006,515		59,461,225

Mandatorily redeemable capital stock (Note 11)	5,439			2,670
Mandatorily redeemable capital stock (Note 10)							2,308		2,415
Accrued interest payable	61,616			49,808			75,097		117,580
Affordable Housing Program payable	42,533			33,242			40,399		43,027
Derivative liabilities, net (Notes 7, 10)	640			7,171
Derivative liabilities, net (Notes 6, 9)							672		202
Other liabilities	50,563			64,803			65,715		70,514

TOTAL LIABILITIES	47,062,581			43,254,301			51,178,998		60,485,603

Commitments and contingencies (Note 14)
Commitments and contingencies (Note 13)

¹~~Fair value:~~ ~~$4,740,231~~ ~~and~~ ~~$4,487,252~~ ~~as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively.~~

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


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	09/30/2017		12/31/2016		06/30/2020			12/31/2019

CAPITAL
Capital stock outstanding - putable:
Class A ($100 par value; 1,730 and 1,621 shares issued and outstanding) (Note 11)	$	172,996	$	162,143
Class B ($100 par value; 12,940 and 10,645 shares issued and outstanding) (Note 11)	1,294,005		1,064,532
Class A ($100 par value; 5,007 and 4,476 shares issued and outstanding) (Note 10)					$	500,679		$	447,610
Class B ($100 par value; 8,913 and 13,188 shares issued and outstanding) (Note 10)					891,324			1,318,846
Total capital stock	1,467,001		1,226,675		1,392,003			1,766,456

Retained earnings:
Unrestricted	662,401		611,226		755,700			765,295
Restricted	153,740		123,970		240,929			234,514
Total retained earnings	816,141		735,196		996,629			999,809

Accumulated other comprehensive income (loss) (Note 12)	15,466		577
Accumulated other comprehensive income (loss) (Note 11)					(33,694		)	24,786

TOTAL CAPITAL	2,298,608		1,962,448		2,354,938			2,791,051

TOTAL LIABILITIES AND CAPITAL	$	49,361,189	$	45,216,749	$	53,533,936		$	63,276,654


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016			06/30/2020			06/30/2019			06/30/2020			06/30/2019
INTEREST INCOME:
Interest-bearing deposits	$	1,285		$	614		$	2,928		$	1,400		$	560		$	5,048		$	5,265		$	10,218
Securities purchased under agreements to resell	6,735			3,370			15,902			8,947			938			29,568			15,528			57,498
Federal funds sold	8,396			1,221			20,071			4,033			454			9,555			3,942			19,879
Trading securities	15,317			15,410			45,412			51,540			18,083			25,925			38,272			47,869
Available-for-sale securities	6,865			3,420			16,489			8,239			9,871			15,487			34,165			30,883
Held-to-maturity securities	20,684			11,874			53,082			35,205			7,416			28,859			24,484			60,132
Advances	113,673			57,961			281,806			167,882			60,265			189,562			191,152			377,171
Prepayment fees on terminated advances, net	161			1,137			1,331			1,746
Mortgage loans held for portfolio	54,548			50,164			157,074			153,457			73,664			75,185			158,770			148,469
Other	344			306			928			947			300			367			654			751
Total interest income	228,008			145,477			595,023			433,396			171,551			379,556			472,232			752,870

INTEREST EXPENSE:
Deposits	988			237			2,366			697			77			2,473			1,631			5,161
Consolidated obligations:
Discount notes	69,556			25,323			162,539			70,502			21,760			150,802			114,711			299,793
Bonds	88,306			56,681			228,788			169,728			92,744			176,714			243,486			334,871
Mandatorily redeemable capital stock (Note 11)	69			22			135			63
Mandatorily redeemable capital stock (Note 10)													14			40			38			83
Other	162			74			319			214			279			297			603			717
Total interest expense	159,081			82,337			394,147			241,204			114,874			330,326			360,469			640,625

NET INTEREST INCOME	68,927			63,140			200,876			192,192			56,677			49,230			111,763			112,245
(Reversal) provision for credit losses on mortgage loans (Note 6)	(171		)	329			(196		)	(140		)
NET INTEREST INCOME AFTER LOAN LOSS (REVERSAL) PROVISION	69,098			62,811			201,072			192,332
Provision (reversal) for credit losses on mortgage loans (Note 5)													1,337			38			601			116
NET INTEREST INCOME AFTER LOAN LOSS PROVISION (REVERSAL)													55,340			49,192			111,162			112,129

OTHER INCOME (LOSS):
Total other-than-temporary impairment losses on held-to-maturity securities	(84		)	—			(94		)	(65		)
Net amount of impairment losses on held-to-maturity securities reclassified to/(from) accumulated other comprehensive income (loss)	(256		)	(30		)	(370		)	3
Net other-than-temporary impairment losses on held-to-maturity securities (Note 3)	(340		)	(30		)	(464		)	(62		)
Net gain (loss) on trading securities (Note 3)	3,319			(3,826		)	16,400			63,904
Net gain (loss) on derivatives and hedging activities (Note 7)	(322		)	9,557			(9,681		)	(84,225		)
Net gains (losses) on trading securities (Note 3)													5,375			41,843			99,764			70,598
Net gains (losses) on sale of available-for-sale securities (Note 3)													—			—			1,523			—
Net gains (losses) on sale of held-to-maturity securities (Note 3)													—			(46		)	—			(46		)
Net gains (losses) on derivatives and hedging activities (Note 6)													(15,355		)	(40,011		)	(137,607		)	(58,553		)
Net gains (losses) on disposal of premises, software and equipment													(3,469		)	—			(3,469		)	3
Standby bond purchase agreement commitment fees	1,165			1,344			3,506			4,056			535			553			1,100			1,119
Letters of credit fees	979			911			2,889			2,666			1,639			1,205			3,042			2,391
Other	660			752			1,844			1,966			1,023			824			2,166			1,530
Total other income (loss)	5,461			8,708			14,494			(11,695		)	(10,252		)	4,368			(33,481		)	17,042


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	09/30/2017		09/30/2016		09/30/2017		09/30/2016		06/30/2020		06/30/2019		06/30/2020		06/30/2019
OTHER EXPENSES:
Compensation and benefits	$	12,030	$	11,798	$	29,396	$	28,260	$	9,058	$	9,559	$	19,519	$	18,817
Other operating	4,612		3,749		12,477		11,379		4,795		5,045		9,475		9,300
Federal Housing Finance Agency	697		697		2,145		2,204		1,022		813		2,045		1,625
Office of Finance	717		683		2,179		2,035		846		896		1,853		1,745
Advance subsidy									4,497		—		4,497		—
Other	1,479		1,008		3,967		2,975		2,378		2,000		4,650		3,816
Total other expenses	19,535		17,935		50,164		46,853		22,596		18,313		42,039		35,303

INCOME BEFORE ASSESSMENTS	55,024		53,584		165,402		133,784		22,492		35,247		35,642		93,868

Affordable Housing Program	5,510		5,361		16,554		13,385		2,250		3,529		3,568		9,395

NET INCOME	$	49,514	$	48,223	$	148,848	$	120,399	$	20,242	$	31,718	$	32,074	$	84,473

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Net income $ 49,514
$ 48,223
$ 148,848
$ 120,399

Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities:
Unrealized gain (loss) 1,452
8,434
13,319
10,736
Total net unrealized gain (loss) on available-for-sale securities 1,452
8,434
13,319
10,736

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:
Non-credit portion (26 ) —
(30 ) (62 )
Reclassification of non-credit portion included in net income 282
30
400
59
Accretion of non-credit portion 321
479
1,027
1,554
Total net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities 577
509
1,397
1,551

Defined benefit pension plan:
Amortization of net loss 58
47
173
142
Total defined benefit pension plan 58
47
173
142

Total other comprehensive income (loss) 2,087
8,990
14,889
12,429

TOTAL COMPREHENSIVE INCOME $ 51,601
$ 57,213
$ 163,737
$ 132,828



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
	Three Months Ended				Six Months Ended
	06/30/2020		06/30/2019		06/30/2020			06/30/2019
Net income	$	20,242	$	31,718	$	32,074		$	84,473

Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities	35,597		4,227		(58,534		)	16,075
Defined benefit pension plan	28		72		54			145
Total other comprehensive income (loss)	35,625		4,299		(58,480		)	16,220

TOTAL COMPREHENSIVE INCOME	$	55,867	$	36,017	$	(26,406	)	$	100,693


FEDERAL HOME LOAN BANK OF TOPEKA	FEDERAL HOME LOAN BANK OF TOPEKA																													FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited	STATEMENTS OF CAPITAL - Unaudited																													STATEMENTS OF CAPITAL - Unaudited
(In thousands)	(In thousands)																													(In thousands)
	Capital Stock¹															Retained Earnings								Accumulated			Total Capital			Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other																													Other
	Class A					Class B					Total													Comprehensive						Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)						Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2015	1,797		$	179,683		10,293		$	1,029,264		12,090		$	1,208,947		$	560,166		$	91,616	$	651,782		$	(18,977	)	$	1,841,752
Balance at March 31, 2019																														1,981		$	198,079		13,103		$	1,310,317		15,084		$	1,508,396		$	734,822		$	208,018	$	942,840		$	27,614		$	2,478,850
Comprehensive income																96,319			24,080		120,399			12,429			132,828																		25,375			6,343		31,718			4,299			36,017
Proceeds from issuance of capital stock	25		2,537			9,998		999,834			10,023		1,002,371														1,002,371			11		1,119			4,250		425,023			4,261		426,142														426,142
Repurchase/redemption of capital stock	(4,158	)	(415,853		)	(29	)	(2,880		)	(4,187	)	(418,733		)												(418,733		)	(2,341	)	(234,064		)	(915	)	(91,463		)	(3,256	)	(325,527		)												(325,527		)
Net reclassification of shares to mandatorily redeemable capital stock	(244	)	(24,408		)	(4,750	)	(475,037		)	(4,994	)	(499,445		)												(499,445		)	(346	)	(34,627		)	(1	)	(94		)	(347	)	(34,721		)												(34,721		)
Net transfer of shares between Class A and Class B	4,170		417,025			(4,170	)	(417,025		)	—		—														—			2,850		285,029			(2,850	)	(285,029		)	—		—														—
Dividends on capital stock (Class A - 1.0%, Class B - 6.0%):
Dividends on capital stock (Class A - 2.5%, Class B - 7.5%):
Cash payment																(218		)			(218		)				(218		)																(68		)			(68		)				(68		)
Stock issued						587		58,734			587		58,734			(58,734		)			(58,734		)				—								243		24,214			243		24,214			(24,214		)			(24,214		)				—
Balance at September 30, 2016	1,590		$	158,984		11,929		$	1,192,890		13,519		$	1,351,874		$	597,533		$	115,696	$	713,229		$	(6,548	)	$	2,058,555
Balance at June 30, 2019																														2,155		$	215,536		13,830		$	1,382,968		15,985		$	1,598,504		$	735,915		$	214,361	$	950,276		$	31,913		$	2,580,693

	Capital Stock¹															Retained Earnings								Accumulated			Total Capital			Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other																													Other
	Class A					Class B					Total													Comprehensive						Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)						Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2016	1,621		$	162,143		10,645		$	1,064,532		12,266		$	1,226,675		$	611,226		$	123,970	$	735,196		$	577		$	1,962,448
Balance at March 31, 2020																														4,484		$	448,404		13,539		$	1,353,892		18,023		$	1,802,296		$	743,731		$	236,881	$	980,612		$	(69,319	)	$	2,713,589
Comprehensive income																119,078			29,770		148,848			14,889			163,737																		16,194			4,048		20,242			35,625			55,867
Proceeds from issuance of capital stock	9		852			13,268		1,326,782			13,277		1,327,634														1,327,634			8		766			2,958		295,822			2,966		296,588														296,588
Repurchase/redemption of capital stock	(5,270	)	(527,051		)	(15	)	(1,453		)	(5,285	)	(528,504		)												(528,504		)	—		—			(202	)	(20,197		)	(202	)	(20,197		)												(20,197		)
Net reclassification of shares to mandatorily redeemable capital stock	(161	)	(16,075		)	(6,104	)	(610,433		)	(6,265	)	(626,508		)												(626,508		)	(4,696	)	(469,580		)	(2,318	)	(231,801		)	(7,014	)	(701,381		)												(701,381		)
Net transfer of shares between Class A and Class B	5,531		553,127			(5,531	)	(553,127		)	—		—														—			5,211		521,089			(5,211	)	(521,089		)	—		—														—
Dividends on capital stock (Class A - 1.1%, Class B - 6.5%):
Partial recovery of prior capital distribution to Financing Corporation																																													10,543			—		10,543						10,543
Dividends on capital stock (Class A - 0.5%, Class B - 5.5%):
Cash payment																(199		)			(199		)				(199		)																(71		)			(71		)				(71		)
Stock issued						677		67,704			677		67,704			(67,704		)			(67,704		)				—								147		14,697			147		14,697			(14,697		)			(14,697		)				—
Balance at September 30, 2017	1,730		$	172,996		12,940		$	1,294,005		14,670		$	1,467,001		$	662,401		$	153,740	$	816,141		$	15,466		$	2,298,608
Balance at June 30, 2020																														5,007		$	500,679		8,913		$	891,324		13,920		$	1,392,003		$	755,700		$	240,929	$	996,629		$	(33,694	)	$	2,354,938

¹Putable

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
Nine Months Ended
09/30/2017 09/30/2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,848
$ 120,399
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net 6,187
(3,769 )
Concessions on consolidated obligations 4,194
11,904
Premiums and discounts on investments, net 3,087
1,972
Premiums, discounts and commitment fees on advances, net (4,389 ) (4,963 )
Premiums, discounts and deferred loan costs on mortgage loans, net 17,082
15,029
Fair value adjustments on hedged assets or liabilities 3,664
4,405
Premises, software and equipment 1,732
1,535
Other 173
142
(Reversal) provision for credit losses on mortgage loans (196 ) (140 )
Non-cash interest on mandatorily redeemable capital stock 133
59
Net other-than-temporary impairment losses on held-to-maturity securities 464
62
Net realized (gain) loss on sale of premises and equipment 71
(39 )
Other adjustments 166
(568 )
Net (gain) loss on trading securities (16,400 ) (63,904 )
(Gain) loss due to change in net fair value adjustment on derivative and hedging activities 12,766
101,545
(Increase) decrease in accrued interest receivable (11,503 ) 11,535
Change in net accrued interest included in derivative assets (3,627 ) (4,355 )
(Increase) decrease in other assets (3,107 ) (3,064 )
Increase (decrease) in accrued interest payable 11,811
(1,630 )
Change in net accrued interest included in derivative liabilities (2,497 ) (11,517 )
Increase (decrease) in Affordable Housing Program liability 9,291
4,437
Increase (decrease) in other liabilities (2,178 ) (2,143 )
Total adjustments 26,924
56,533
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 175,772
176,932



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited
(In thousands)
	Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other
	Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2018	2,473		$	247,361		12,772		$	1,277,176		15,245		$	1,524,537		$	716,555		$	197,467	$	914,022		$	15,693		$	2,454,252
Comprehensive income																67,579			16,894		84,473			16,220			100,693
Proceeds from issuance of capital stock	12		1,171			7,627		762,729			7,639		763,900														763,900
Repurchase/redemption of capital stock	(5,729	)	(572,891		)	(1,065	)	(106,486		)	(6,794	)	(679,377		)												(679,377		)
Net reclassification of shares to mandatorily redeemable capital stock	(525	)	(52,538		)	(61	)	(6,098		)	(586	)	(58,636		)												(58,636		)
Net transfer of shares between Class A and Class B	5,924		592,433			(5,924	)	(592,433		)	—		—														—
Dividends on capital stock (Class A - 2.4%, Class B - 7.5%):
Cash payment																(139		)			(139		)				(139		)
Stock issued						481		48,080			481		48,080			(48,080		)			(48,080		)				—
Balance at June 30, 2019	2,155		$	215,536		13,830		$	1,382,968		15,985		$	1,598,504		$	735,915		$	214,361	$	950,276		$	31,913		$	2,580,693

	Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other
	Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2019	4,476		$	447,610		13,188		$	1,318,846		17,664		$	1,766,456		$	765,295		$	234,514	$	999,809		$	24,786		$	2,791,051
Adjustment for cumulative effect of accounting change																(6,123		)	—		(6,123		)				(6,123		)
Comprehensive income																25,659			6,415		32,074			(58,480		)	(26,406		)
Proceeds from issuance of capital stock	8		813			5,505		550,526			5,513		551,339														551,339
Repurchase/redemption of capital stock	—		—			(586	)	(58,634		)	(586	)	(58,634		)												(58,634		)
Net reclassification of shares to mandatorily redeemable capital stock	(6,621	)	(662,140		)	(2,445	)	(244,551		)	(9,066	)	(906,691		)												(906,691		)
Net transfer of shares between Class A and Class B	7,144		714,396			(7,144	)	(714,396		)	—		—														—
Partial recovery of prior capital distribution to Financing Corporation																10,543			—		10,543						10,543
Dividends on capital stock (Class A - 1.2%, Class B - 6.5%):
Cash payment																(141		)			(141		)				(141		)
Stock issued						395		39,533			395		39,533			(39,533		)			(39,533		)				—
Balance at June 30, 2020	5,007		$	500,679		8,913		$	891,324		13,920		$	1,392,003		$	755,700		$	240,929	$	996,629		$	(33,694	)	$	2,354,938

¹Putable



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Six Months Ended
	06/30/2020			06/30/2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	32,074		$	84,473
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net	(27,858		)	12,355
Concessions on consolidated obligations	17,768			5,432
Premiums and discounts on investments, net	10,090			2,731
Premiums, discounts and commitment fees on advances, net	(1,686		)	(1,152		)
Premiums, discounts and deferred loan costs on mortgage loans, net	28,139			9,714
Fair value adjustments on hedged assets or liabilities	2,293			2,108
Premises, software and equipment	1,647			1,532
Other	54			145
Provision (reversal) for credit losses on mortgage loans	601			116
Non-cash interest on mandatorily redeemable capital stock	37			81
Net realized (gains) losses on sale of available-for-sale securities	(1,523		)	—
Net realized (gains) losses on sale of held-to-maturity securities	—			46
Net realized (gains) losses on disposal of premises, software and equipment	3,469			(3		)
Other adjustments	4,441			(93		)
Net (gains) losses on trading securities	(99,764		)	(70,598		)
Net change in derivatives and hedging activities	(312,613		)	(84,826		)
(Increase) decrease in accrued interest receivable	30,950			(33,290		)
Change in net accrued interest included in derivative assets	14,713			(1,891		)
(Increase) decrease in other assets	1,320			924
Increase (decrease) in accrued interest payable	(42,834		)	25,952
Change in net accrued interest included in derivative liabilities	(62		)	1,554
Increase (decrease) in Affordable Housing Program liability	(2,628		)	447
Increase (decrease) in other liabilities	(5,323		)	(3,623		)
Total adjustments	(378,769		)	(132,339		)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(346,695		)	(47,866		)


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended						Six Months Ended
	09/30/2017			09/30/2016			06/30/2020			06/30/2019
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits	$	110,278		$	(292,718	)	$	(421,226	)	$	1,288
Net (increase) decrease in securities purchased under resale agreements	(195,589		)	615,000			300,000			(2,742,904		)
Net (increase) decrease in Federal funds sold	1,033,000			750,000			(670,000		)	(2,410,000		)
Net (increase) decrease in short-term trading securities	(675,000		)	(280,000		)
Proceeds from maturities of and principal repayments on long-term trading securities	220,806			666,092
Purchases of long-term trading securities	—			(843,423		)
Proceeds from maturities of and principal repayments on long-term available-for-sale securities	4,103			2,210
Purchases of long-term available-for-sale securities	(361,295		)	(573,012		)
Proceeds from maturities of and principal repayments on long-term held-to-maturity securities	824,497			639,881
Purchases of long-term held-to-maturity securities	(1,092,421		)	(415,744		)
Principal collected on advances	387,903,973			103,603,233
Advances made	(392,261,039		)	(106,716,569		)
Proceeds from sale of trading securities							275,186			429
Proceeds from maturities of and principal repayments on trading securities							332,497			1,551,440
Purchases of trading securities							(600,000		)	(3,174,941		)
Proceeds from sale of available-for-sale securities							289,045			—
Proceeds from maturities of and principal repayments on available-for-sale securities							47,240			5,760
Purchases of available-for-sale securities							(430,610		)	(2,716,448		)
Proceeds from sale of held-to-maturity securities							—			9,442
Proceeds from maturities of and principal repayments on held-to-maturity securities							386,780			445,378
Advances repaid							149,038,996			212,991,221
Advances originated							(140,053,196		)	(215,243,175		)
Principal collected on mortgage loans	714,847			783,915			1,680,347			503,412
Purchases of mortgage loans	(1,147,274		)	(962,663		)	(2,036,535		)	(1,293,351		)
Proceeds from sale of foreclosed assets	1,888			3,782			1,157			1,643
Purchases of other long-term assets	(16,500		)	—
Principal collected on other loans made	1,887			1,765
Net (increase) decrease in loans to other FHLBanks	600,000			—
Proceeds from sale of premises, software and equipment	48			1
Other investing activities							1,640			1,534
Purchases of premises, software and equipment	(20,655		)	(5,152		)	(480		)	(741		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(4,354,446		)	(3,023,402		)	8,140,841			(12,070,013		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	(42,291		)	(99,107		)	197,952			38,264
Net proceeds from issuance of consolidated obligations:
Discount notes	701,800,511			389,032,517			317,940,542			453,966,178
Bonds	14,266,201			14,348,306			22,150,583			12,087,946
Payments for maturing and retired consolidated obligations:
Discount notes	(702,310,944		)	(385,334,143		)	(331,811,195		)	(447,428,963		)
Bonds	(9,909,180		)	(15,829,890		)	(17,754,850		)	(6,571,750		)
Net increase (decrease) in other borrowings	16,500			—
Proceeds from financing derivatives	1,921			16,784			3,470			—
Net interest payments received (paid) for financing derivatives	(18,554		)	(50,091		)	(5,803		)	(1,714		)
Proceeds from issuance of capital stock	1,327,634			1,002,371			551,339			763,900
Payments for repurchase/redemption of capital stock	(528,504		)	(418,733		)	(58,634		)	(679,377		)
Payments for repurchase of mandatorily redeemable capital stock	(623,872		)	(499,218		)	(906,835		)	(59,564		)
Cash dividends paid	(199		)	(218		)	(141		)	(139		)
Partial recovery of prior capital distribution to Financing Corporation							10,543			—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	3,979,223			2,168,578			(9,683,029		)	12,114,781
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(199,451		)	(677,892		)	(1,888,883		)	(3,098		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	207,254			682,670			1,917,166			15,060
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,803		$	4,778		$	28,283		$	11,962


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended				Six Months Ended
	09/30/2017		09/30/2016		06/30/2020		06/30/2019
Supplemental disclosures:
Interest paid	$	372,036	$	232,433	$	428,134	$	595,671
Affordable Housing Program payments	$	7,749	$	9,357	$	6,245	$	9,217
Net transfers of mortgage loans to other assets	$	1,808	$	1,596	$	582	$	605
Change in capital expenditures incurred but reserved for construction holdback	$	1,025	$	—

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements - Unaudited

~~September~~June 30, ~~2017~~2020

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation: The accompanying interim financial statements of ~~the Federal Home Loan Bank of Topeka (FHLBank or~~ FHLBank ~~Topeka)~~ are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instruction provided by Article 10, Rule 10-01 of Regulation S-X. The financial statements contain all adjustments which are, in the opinion of management, necessary for a fair statement of ~~the~~ FHLBank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.

~~The~~ FHLBank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, ~~2016.~~2019. The interim financial statements presented herein should be read in conjunction with ~~the~~ FHLBank’s audited financial statements and notes thereto, which are included in ~~the~~ FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March ~~9, 2017~~20, 2020 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K.

Out-of-Period Adjustment: Included in net income for the nine months ended September 30, 2019 was an out-of-period adjustment of $14,336,000, of which $2,545,000 and $11,791,000 related to income that should have been recorded during the three months ended March 31, 2019 and June 30, 2019, respectively. The out-of-period adjustment related to hedged item valuations for certain available-for-sale securities in fair value hedging relationships and resulted in an increase in available-for-sale interest income and a reduction in other comprehensive income. Consequently, available-for-sale interest income was understated by $11,791,000 and $14,336,000 for the three and six months ended June 30, 2019. FHLBank has assessed the impact of this error and concluded that the amounts were not material, either individually or in the aggregate, to any prior period financial statements.

Use of Estimates: The preparation of financial statements under GAAP requires management to make estimates and assumptions as of the date of the financial statements in determining the reported amounts of assets, liabilities and estimated fair values and in determining the disclosure of any contingent assets or liabilities. Estimates and assumptions by management also affect the reported amounts of income and expense during the reporting period. The most significant of these estimates include the fair value of trading and available-for-sale securities and the fair value of ~~derivatives and the allowance for credit losses.~~derivatives. Many of the estimates and assumptions, including those used in financial models, are based on financial market conditions as of the date of the financial statements. Because of the volatility of the financial markets, as well as other factors that affect management estimates, actual results may vary from these estimates.

~~Derivatives:~~Allowance for Credit Losses: ~~All derivatives~~Beginning January 1, 2020, FHLBank adopted new accounting guidance pertaining to the measurement of credit losses on financial instruments that requires a financial asset or group of financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new guidance also requires credit losses relating to these financial instruments as well as available-for-sale securities to be recorded through an allowance for credit losses. Key changes as compared to prior accounting guidance are ~~recognized~~detailed below. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting. See Note 1 of the Notes to the Financial Statements included in the annual report on Form 10-K for information on the prior accounting treatment.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold: FHLBank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold. These investments provide short-term liquidity and are carried at amortized cost. Accrued interest receivable is recorded separately on the Statements of ~~Condition at their~~Condition.

These investments are evaluated quarterly for expected credit losses. If applicable, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. FHLBank uses the collateral maintenance provision practical expedient for securities purchased under agreements to resell. Consequently, a credit loss would be recognized if there is a collateral shortfall which FHLBank does not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the fair ~~values (including net~~value of the collateral and the investment’s amortized cost. See Note 3 for details on the allowance methodologies relating to these investments.

Investment Securities:

Available-for-Sale: For securities classified as available-for-sale, FHLBank evaluates an individual security for impairment on a quarterly basis by comparing the security’s fair value to its amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition. Impairment exists when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, FHLBank considers whether there would be a shortfall in receiving all cash flows contractually due. When a shortfall is considered possible, FHLBank compares the present value of cash flows to be collected from the security with the amortized cost basis of the security. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance is limited by the amount of the unrealized loss. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately.

If management intends to sell an impaired security classified as available-for-sale, or ~~payable~~more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in earnings as net gains (losses) on available-for-sale securities. If management does not intend to sell an impaired security classified as available-for-sale and it is not more likely than not that management will be required to sell the ~~derivatives)~~debt security, then the credit portion of the difference is recognized as an allowance for credit losses and ~~are reported as either derivative assets or derivative liabilities,~~any remaining difference between the security’s fair value and amortized cost is recorded to net ~~of cash collateral, including initial~~unrealized gains (losses) on available-for-sale securities within other comprehensive income (loss) (OCI).

Held-to-Maturity: Securities that FHLBank has both the ability and variation margin, and accrued interest received or pledged by clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent or counterparty when the netting requirements have been met. If these netted amounts are positive, theyintent to hold to maturity are classified as ~~an asset~~held-to-maturity and ~~if negative, they~~ are ~~classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities in~~carried at amortized cost, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts. Accrued interest receivable is recorded separately on the Statements of ~~Cash Flows unless the derivative meets the criteria to be a financing derivative.~~Condition.

Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately.

See Note 3 for details on the allowance methodologies relating to available-for-sale and held-to-maturity securities.

Advances: Advances are carried at amortized cost, which is original cost adjusted for periodic principal repayments, amortization of premiums, accretion of discounts, and fair value hedge adjustments. Accrued interest receivable is recorded separately on the Statements of Condition. Advances are evaluated quarterly for expected credit losses. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. See Note 4 for details on the allowance methodology relating to advances.

Mortgage Loans Held for Portfolio: Mortgage loans held for portfolio are recorded at amortized cost, which is original cost adjusted for periodic principal repayments, amortization of premiums, accretion of discounts, hedging adjustments, other fees, and direct write-downs. Accrued interest receivable is recorded separately on the Statements of Condition. FHLBank ~~utilizes two Derivative Clearing Organizations (Clearinghouses)~~performs a quarterly assessment of its mortgage loans held for ~~all cleared derivative transactions, LCH.Clearnet LLC~~portfolio to estimate expected credit losses. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses.

FHLBank measures expected credit losses on mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a mortgage loan no longer shares risk characteristics with other loans, it is removed from the pool and ~~CME Clearing. Effective January 3, 2017, CME Clearing made certain amendments~~evaluated for expected credit losses on an individual basis.

When developing the allowance for credit losses, FHLBank measures the estimated loss over the remaining life of a mortgage loan, which also considers how credit enhancements mitigate credit losses. If a loan is purchased at a discount, the discount does not offset the allowance for credit losses. The allowance excludes uncollectible accrued interest receivable, as FHLBank writes off accrued interest receivable by reversing interest income if a mortgage loan is placed on nonaccrual status.

FHLBank does not purchase mortgage loans with credit deterioration present at the time of purchase. FHLBank includes estimates of expected recoveries within the allowance for credit losses. See Note 5 for details on the allowance methodologies relating to its rulebook changing the legal characterization of variation margin payments to be daily settlement payments rather than collateral. Variation margin payments related to LCH.Clearnet LLC contracts continue to be characterized as cash collateral. At both Clearinghouses, initial margin is considered cash collateral.mortgage loans.

Off-Balance Sheet Credit Exposures: FHLBank evaluates off-balance sheet credit exposures on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses on these off-balance sheet exposures is recorded in other liabilities with a corresponding adjustment to the provision (reversal) for credit losses. See Note 13 for details on the allowance methodologies relating to off-balance sheet credit exposures.

NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS AND CHANGES IN AND ADOPTIONS OF ACCOUNTING PRINCIPLES

~~Targeted Improvements to Accounting for Hedging Activities.~~Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In ~~August 2017,~~March 2020, the CARES Act was signed into law to provide relief from the economic impact of the COVID-19 pandemic to a variety of sectors of the U.S. economy, including businesses, individuals, health care, education, and state and local governments. The CARES Act also includes provisions that provide optional relief from certain accounting and reporting requirements related to troubled debt restructurings (TDRs). TDR relief applies to COVID-19-related modifications made from March 1, 2020 until the earlier of December 31, 2020 or 60 days following the termination of the national emergency declared by the President of the United States for borrowers that were current as of December 31, 2019. FHLBank has elected the optional relief but does not expect it to have a material effect on FHLBank's financial condition, results of operations, cash flows, or disclosures.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Accounting Standard Update (ASU) 2020-04). In March 2020, the Financial Accounting Standards Board (FASB) issued ~~an amendment~~temporary optional guidance to ~~simplify~~ease the ~~application~~potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include: (1) contract modifications; (2) hedging relationships; and (3) sale or transfer of hedge accounting guidance in current GAAP and to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements.debt securities classified as held-to-maturity. This guidance ~~requires that,~~was effective immediately for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition,FHLBank, and the amendments ~~include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:~~

~~Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception;~~

~~Measurement of the hedged item in a partial-term fair value hedge of interest rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged;~~

Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest rate risk; and

For a cash flow hedge of interest rate risk of a variable rate financial instrument, an entity could designate the variability in cash flows attributable to the contractually specified interest rate as the hedged risk.

The amendment will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is January 1, 2019 for the FHLBank, and early adoption is permitted in any interim period or fiscal year prior to the effective date. The FHLBank does not plan on early adoption. This guidance shouldmay be applied prospectively through ~~a cumulative-effect adjustment directly to retained earnings as of the beginning of the fiscal year of adoption. The~~December 31, 2022. FHLBank is in the process of evaluating ~~this~~the guidance, and its effect on ~~the~~ FHLBank's financial condition, results of operations and cash ~~flows.~~flows has not yet been determined.

~~Premium Amortization on Purchased Callable Debt Securities.~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). In ~~March 2017,~~August 2018, the FASB issued an amendment to ~~shorten~~align the ~~amortization period of any premium on callable debt securities~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments in this ASU require an entity in a hosting arrangement that is a service contract to follow existing guidance relating to internal-use software to determine which implementation costs to capitalize as an asset related to the ~~first call date instead~~service contract and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized also cannot be capitalized for a hosting arrangement that is a service contract. Therefore, an entity in a hosting arrangement that is a service contract determines to which project stage (that is, preliminary project stage, application development stage, or post-implementation stage) an implementation activity relates. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. The amendments in this ASU also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the ~~contractual life~~term of the ~~instrument.~~hosting arrangement. The ~~amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is intended to reduce diversity~~amendments in practice in the amortization of premiums and the consideration of how the potential of a security being called is factored into current impairment assessments. The amendment also intends to more closely align the amortization of premiums and discounts to the expectations incorporated into the market pricing of the instrument. The amendment will bethis ASU were effective ~~for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is~~ January 1, ~~2019~~2020 for the FHLBank, and early adoption is permitted. The FHLBank does not plan on early adoption. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.FHLBank. The adoption of this guidance isdid not ~~expected to have a material effect on the~~materially impact FHLBank's financial condition, results of operations or cash flows.

~~Improving~~Changes to the ~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement~~Disclosure Requirements for Defined Benefit ~~Cost.~~Plans (ASU 2018-14). In ~~March 2017,~~August 2018,the FASB issued an amendment modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to improve disclosure effectiveness. The amendments in the ~~presentation~~ASU remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of ~~net periodic pension cost~~disclosures, and ~~net periodic postretirement benefit cost.~~add disclosure requirements identified as relevant. The amendment requires that the employer disaggregate the service cost component and the other components of net benefit cost and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendment is intended to provide transparency, consistency, and usefulness to users of financial statements. The amendment will beamendments in this ASU are effective for annual periods ~~and interim periods within those annual periods, beginning~~ending after December 15, ~~2017,~~2020, which is ~~January 1, 2018~~the year ending December 31, 2020 for ~~the FHLBank. This guidance should~~FHLBank, and will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.all comparative periods presented. The adoption of this guidance iswill not ~~expected to~~ have a material ~~effect~~impact on the ~~FHLBank's~~disclosures related to defined benefit plans and will not impact FHLBank’s financial condition, results of operations or cash flows.

~~Classification of Certain Cash Receipts and Cash Payments.~~Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). In August ~~2016,~~2018,the FASB issued ~~amendments~~an amendment that modifies the disclosure requirements for fair value measurements. This ASU removes the requirement to ~~clarify guidance on~~disclose: (1) the ~~classification~~amount of ~~certain cash receipts~~ and ~~payments~~reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in ~~the statement of cash flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts~~unrealized gains and ~~cash payments are presented and classified in the statement of cash flows. This guidance is effective~~losses for the ~~FHLBank~~period included in OCI for ~~interim~~recurring Level 3 fair value measurements held at the end of the reporting period and ~~annual periods beginning on~~the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU were effective January 1, ~~2018. This~~2020 for FHLBank. The adoption of this guidance ~~should be applied using a retrospective transition method to each period presented. This guidance is~~did not ~~expected to~~ have an impact on the ~~FHLBank's statement~~disclosures related to fair value measurements and did not impact FHLBank’s financial condition, results of operations or cash flows.

Measurement of Credit Losses on Financial ~~Instruments.~~Instruments, as amended (ASU 2016-13). In June 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Additionally, under the new guidance, a financial asset, or a group of financial assets, measured at amortized cost basis is required to be presented at the net amount expected to be collected.

The guidance also requires:

The statement of income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period;

The entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis in a similar manner to other financial assets measured at amortized cost basis. The initial allowance for credit losses is required to be added to the purchase price;

Credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost; and

~~Public entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).~~


▪	The statement of income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period;


▪	The entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis in a similar manner to other financial assets measured at amortized cost basis. The initial allowance for credit losses is required to be added to the purchase price;


▪	Credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost; and


▪	Public entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).

The guidance isbecame effective for ~~the~~ FHLBank ~~for interim and annual periods beginning~~ on January 1, ~~2020. Early application is permitted as of the interim~~2020 and ~~annual reporting periods beginning after December 15, 2018. The FHLBank does not plan on early adoption. The guidance should be~~was applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for debt securities for which an other-than-temporary impairment (OTTI) charge had been recognized before the effective date. The FHLBank has formed an internal working group that has begun its implementation efforts by identifying key interpretive issues and potential impacts to processes and systems that will eventually determine the magnitude of the impact on the FHLBank's financial condition, results of operations and cash flows.

~~Contingent Put and Call Options in Debt Instruments.~~ In March 2016, FASB issued amendments to resolve current diversity in practice by clarifying the steps required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments became effective for annual periods, and interim periods within those annual periods, beginning on January 1, 2017. The adoptionearnings. Adoption of this guidance ~~had no effect on the FHLBank's~~did not materially impact FHLBank’s financial condition, results of operations, or cash flows.

~~Leases.~~ In February 2016, FASB issued amendments to lease accounting guidance. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases in the statement of financial condition, which effectively removes a source of off-balance sheet financing for operating leases. A distinction remains between finance leases and operating leases, but the assets and liabilities arising from operating leases are now also required to be recognized in the statement of financial condition. Lessor accounting is largely unchanged. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is January 1, 2019 for the FHLBank. The FHLBank does not plan on early adoption. The FHLBank has a limited number of lease agreements and has concluded that the impact of the guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.

~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~ In January 2016, FASB issued amendments to improve the recognition, measurement, presentation and disclosure of financial instruments through changes to existing GAAP. The provisions impacting the FHLBank include the elimination of the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost, the requirement to use the notion of exit price when measuring the fair value of financial instruments for disclosure purposes, and the separate presentation of financial assets and financial liabilities by measurement category and form of asset (i.e., securities or loans and receivables) on the statement of financial condition or in the notes to financial statements. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, which is January 1, 2018 for the FHLBank. The FHLBank has concluded that this guidance will impact disclosures related to the fair value of financial instruments. However, this guidance is not expected to have an impact on the FHLBank's financial condition, results of operations or cash flows.

~~Revenue Recognition.~~ In May 2014, FASB issued guidance to introduce a new revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In July 2015, FASB voted to defer the effective date of the new standard by one year. Inaddition, in March 2016, FASB issued amendments to clarify the implementation guidance on principal versus agent considerations, in particular, relating to how an entity should determine whether the entity is a principal or an agent for each specified good or service promised to the customer and the nature of each specified good or service. The amendments do not change the core principle in the new revenue standard. The standard is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017, which is January 1, 2018 for the FHLBank. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the adoption of this guidance has limited potential for impact to the FHLBank. The FHLBank has completed an analysis of its sources of revenue that fall within the scope of the guidance and does not expect the new guidance to have a material impact on its financial condition, results of operations or cash flows.

NOTE 3 – ~~INVESTMENT SECURITIES~~INVESTMENTS

FHLBank's investment portfolio consists of interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, and debt securities.

~~Trading Securities:~~Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold: ~~Trading~~FHLBank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by ~~major security type as~~a nationally recognized statistical rating organization (NRSRO). These may differ from internal ratings of ~~September~~the investments, if applicable. As of June 30, ~~2017~~2020, approximately 64 percent of these overnight investments were with unrated counterparties.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Federal Housing Finance Agency (FHFA) regulations include a limit on the amount of unsecured credit FHLBank may extend to a counterparty. As of June 30, 2020 and December 31, ~~2016~~2019, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. No allowance for credit losses was recorded for these assets as of June 30, 2020 and December 31, 2019. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $74,000 and $3,000, respectively, as of June 30, 2020, and $589,000 and $30,000, respectively, as of December 31, 2019.

Securities purchased under agreements to resell are ~~summarized~~short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with its counterparties, FHLBank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell as of June 30, 2020 and December 31, 2019. The carrying value of securities purchased under agreements excludes accrued interest receivable of $16,000 and $424,000 as of June 30, 2020 and December 31, 2019, respectively.

Debt Securities: FHLBank invests in ~~Table 3.1 (in thousands):~~debt securities, which are classified as either trading, available-for-sale, or held-to-maturity. FHLBank is prohibited by FHFA regulations from purchasing certain higher-risk securities, such as equity securities and debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities and instruments that experienced credit deterioration after their purchase by FHLBank.

~~Table 3.1~~

Fair Value
09/30/2017 12/31/2016
Non-mortgage-backed securities:
Certificates of deposit $ 675,027
$ —
GSEobligations¹
1,357,859
1,563,351
Non-mortgage-backed securities 2,032,886
1,563,351
Mortgage-backed securities:
U.S. obligation MBS²
604
690
GSE MBS³
939,893
938,747
Mortgage-backed securities 940,497
939,437
TOTAL $ 2,973,383
$ 2,502,788

FHLBank's debt securities include the following major security types, which are based on the issuer and the risk characteristics of the security:


▪	Certificates of deposit - unsecured negotiable promissory notes issued by banks;


▪	U.S. Treasury obligations - sovereign debt of the United States;


▪	¹GSE obligations -	~~Represents~~ debentures issued by other FHLBanks, Federal National Mortgage Association (Fannie Mae), Federal ~~Home Loan Mortgage Corporation (Freddie Mac), Federal~~ Farm Credit Bank ~~(Farm Credit)~~ and Federal Agricultural Mortgage ~~Corporation (Farmer Mac).~~Corporation. GSE securities are not guaranteed by the U.S. ~~government.~~government;


▪	State or local housing agency obligations - municipal bonds issued by housing finance agencies;


▪	²U.S. obligation MBS -	~~Represents~~ single-family MBS issued by Government National Mortgage Association (Ginnie Mae), which are guaranteed by the U.S. ~~government.~~government; and


▪	³GSE MBS -	~~Represents~~ single-family and ~~multi-family~~multifamily MBS issued by Fannie Mae and ~~Freddie Mac.~~Federal Home Loan Mortgage Corporation (Freddie Mac).

Trading Securities: Trading securities by major security type as of June 30, 2020 and December 31, 2019 are summarized in Table 3.1 (in thousands):

Table 3.1



	Fair Value
	06/30/2020		12/31/2019
Non-mortgage-backed securities:
U.S. Treasury obligations	$	1,565,218	$	1,530,518
GSEobligations	435,008		416,025
Non-mortgage-backed securities	2,000,226		1,946,543
Mortgage-backed securities:
GSE MBS	904,417		866,019
Mortgage-backed securities	904,417		866,019
TOTAL	$	2,904,643	$	2,812,562

Net gains (losses) on trading securities during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are shown in Table 3.2 (in thousands):

Table 3.2

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Net gains (losses) on trading securities held as of September 30, 2017 $ 3,890
$ 363
$ 21,444
$ 80,983
Net gains (losses) on trading securities sold or matured prior to September 30, 2017 (571 ) (4,189 ) (5,044 ) (17,079 )
NET GAIN (LOSS) ON TRADING SECURITIES $ 3,319
$ (3,826 ) $ 16,400
$ 63,904



	Three Months Ended					Six Months Ended
	06/30/2020			06/30/2019		06/30/2020		06/30/2019
Net gains (losses) on trading securities held as of June 30, 2020	$	5,430		$	41,533	$	99,578	$	70,192
Net gains (losses) on trading securities sold or matured prior to June 30, 2020	(55		)	310		186		406
NET GAINS (LOSSES) ON TRADING SECURITIES	$	5,375		$	41,843	$	99,764	$	70,598

Available-for-sale Securities: Available-for-sale securities by major security type as of ~~September~~June 30, ~~2017~~2020 are summarized in Table 3.3 (in thousands):. Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and fair value hedge accounting adjustments, and excludes accrued interest receivable of $30,140,000 as of June 30, 2020.

Table 3.3


	09/30/2017									06/30/2020
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
U.S. Treasury obligations										$	4,336,512	$	1,563	$	(689	)	$	4,337,386
Non-mortgage-backed securities										4,336,512		1,563		(689		)	4,337,386
Mortgage-backed securities:
GSE MBS¹	$	1,441,808	$	24,420	$	(1,756	)	$	1,464,472
GSE MBS										3,253,910		18,845		(51,465		)	3,221,290
Mortgage-backed securities										3,253,910		18,845		(51,465		)	3,221,290
TOTAL	$	1,441,808	$	24,420	$	(1,756	)	$	1,464,472	$	7,590,422	$	20,408	$	(52,154	)	$	7,558,676


¹	~~Represents fixed rate multi-family~~ ~~MBS~~ ~~issued by Fannie Mae.~~

Available-for-sale securities by major security type as of December 31, ~~2016~~2019 are summarized in Table 3.4 (in thousands):. Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and fair value hedge accounting adjustments, and excludes accrued interest receivable of $30,321,000 as of December 31, 2019.

Table 3.4


	12/31/2016									12/31/2019
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
U.S. Treasury obligations										$	4,258,608	$	3,580	$	(397	)	$	4,261,791
Non-mortgage-backed securities										4,258,608		3,580		(397		)	4,261,791
Mortgage-backed securities:
GSE MBS¹	$	1,082,376	$	9,396	$	(51	)	$	1,091,721
GSE MBS										2,897,104		28,353		(4,748		)	2,920,709
Mortgage-backed securities										2,897,104		28,353		(4,748		)	2,920,709
TOTAL	$	1,082,376	$	9,396	$	(51	)	$	1,091,721	$	7,155,712	$	31,933	$	(5,145	)	$	7,182,500


¹	~~Represents fixed rate multi-family~~ ~~MBS~~ ~~issued by Fannie Mae.~~

Table 3.5 summarizes the available-for-sale securities with unrealized losses as of ~~September~~June 30, ~~2017~~2020 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.5

09/30/2017
Less Than 12 Months 12 Months or More Total

Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Mortgage-backed securities:
GSE MBS¹
$ 359,138
$ (1,756 ) $ —
$ —
$ 359,138
$ (1,756 )
TOTAL TEMPORARILY IMPAIRED SECURITIES $ 359,138
$ (1,756 ) $ —
$ —
$ 359,138
$ (1,756 )


¹	~~Represents fixed rate multi-family~~ ~~MBS~~ ~~issued by Fannie Mae.~~



	06/30/2020
	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:
U.S. Treasury obligations	$	1,561,377	$	(587	)	$	502,245	$	(102	)	$	2,063,622	$	(689	)
Non-mortgage-backed securities	1,561,377		(587		)	502,245		(102		)	2,063,622		(689		)
Mortgage-backed securities:
GSE MBS	1,833,749		(43,488		)	322,819		(7,977		)	2,156,568		(51,465		)
Mortgage-backed securities	1,833,749		(43,488		)	322,819		(7,977		)	2,156,568		(51,465		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	3,395,126	$	(44,075	)	$	825,064	$	(8,079	)	$	4,220,190	$	(52,154	)

Table 3.6 summarizes the available-for-sale securities with unrealized losses as of December 31, ~~2016~~2019 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.6


	12/31/2016														12/31/2019
	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. Treasury obligations															$	1,579,004	$	(397	)	$	—	$	—		$	1,579,004	$	(397	)
Non-mortgage-backed securities															1,579,004		(397		)	—		—			1,579,004		(397		)
Mortgage-backed securities:
GSE MBS¹	$	—	$	—	$	33,509	$	(51	)	$	33,509	$	(51	)
GSE MBS															787,809		(932		)	301,161		(3,816		)	1,088,970		(4,748		)
Mortgage-backed securities															787,809		(932		)	301,161		(3,816		)	1,088,970		(4,748		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	—	$	—	$	33,509	$	(51	)	$	33,509	$	(51	)	$	2,366,813	$	(1,329	)	$	301,161	$	(3,816	)	$	2,667,974	$	(5,145	)


¹	~~Represents fixed rate multi-family~~ ~~MBS~~ ~~issued by Fannie Mae.~~

~~All~~

The amortized cost and fair values of available-for-sale securities by contractual maturity as of June 30, 2020 and December 31, 2019 are ~~GSE MBS and as such do not have a single maturity date. The expected~~shown in Table 3.7 (in thousands). Expected maturities of ~~these securities~~MBS will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.7



	06/30/2020				12/31/2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	1,771,930	$	1,772,277	$	754,003	$	753,891
Due after one year through five years	2,564,582		2,565,109		3,504,605		3,507,900
Due after five years through ten years	—		—		—		—
Due after ten years	—		—		—		—
Non-mortgage-backed securities	4,336,512		4,337,386		4,258,608		4,261,791
Mortgage-backed securities	3,253,910		3,221,290		2,897,104		2,920,709
TOTAL	$	7,590,422	$	7,558,676	$	7,155,712	$	7,182,500

Net gains (losses) realized on the sale of available-for-sale securities are recorded in other income (loss) on the Statements of Income. Table 3.8 presents details of the sales for the three and six months ended June 30, 2020 (in thousands). There were no sales of available-for-sale securities during the three and six months ended June 30, 2019.

Table 3.8



	Three Months Ended		Six Months Ended
	06/30/2020		06/30/2020
Proceeds from sale of available-for-sale securities	$	—	$	289,045

Gross gains on sale of available-for-sale securities	$	—	$	1,526
Gross losses on sale of available-for-sale securities	—		(3		)
NET GAINS (LOSSES) ON SALE OF AVAILABLE-FOR-SALE SECURITIES	$	—	$	1,523

Held-to-maturity Securities: Held-to-maturity securities by major security type as of ~~September~~June 30, ~~2017~~2020 are summarized in Table ~~3.7~~3.9 (in thousands):. Amortized cost includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivable of $1,393,000 as of June 30, 2020.

Table ~~3.7~~3.9

09/30/2017

Amortized
Cost
OTTI
Recognized
in AOCI
Carrying Value
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Non-mortgage-backed securities:
State or local housing agency obligations $ 94,625
$ —
$ 94,625
$ 87
$ (5,409 ) $ 89,303
Non-mortgage-backed securities 94,625
—
94,625
87
(5,409 ) 89,303
Mortgage-backed securities:
U.S. obligation MBS¹
133,342
—
133,342
200
(120 ) 133,422
GSE MBS²
4,429,372
—
4,429,372
15,542
(13,792 ) 4,431,122
Private-label residential MBS 87,637
(4,444 ) 83,193
5,310
(2,119 ) 86,384
Mortgage-backed securities 4,650,351
(4,444 ) 4,645,907
21,052
(16,031 ) 4,650,928
TOTAL $ 4,744,976
$ (4,444 ) $ 4,740,532
$ 21,139
$ (21,440 ) $ 4,740,231


¹	~~Represents single-family MBS issued by Ginnie Mae.~~


²	~~Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.~~



	06/30/2020
	Amortized Cost		Net Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	81,995	$	81,995	$	—	$	(3,615	)	$	78,380
Non-mortgage-backed securities	81,995		81,995		—		(3,615		)	78,380
Mortgage-backed securities:
U.S. obligation MBS	85,268		85,268		17		(164		)	85,121
GSE MBS	3,014,873		3,014,873		8,074		(9,736		)	3,013,211
Mortgage-backed securities	3,100,141		3,100,141		8,091		(9,900		)	3,098,332
TOTAL	$	3,182,136	$	3,182,136	$	8,091	$	(13,515	)	$	3,176,712

Held-to-maturity securities by major security type as of December 31, ~~2016~~2019 are summarized in Table ~~3.8 (in thousands):~~

~~Table 3.8~~

12/31/2016

Amortized
Cost
OTTI
Recognized
in AOCI
Carrying Value
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Non-mortgage-backed securities:
State or local housing agency obligations $ 105,780
$ —
$ 105,780
$ 98
$ (5,707 ) $ 100,171
Non-mortgage-backed securities 105,780
—
105,780
98
(5,707 ) 100,171
Mortgage-backed securities:
U.S obligation MBS¹
36,331
—
36,331
—
(201 ) 36,130
GSE MBS²
4,250,547
—
4,250,547
12,044
(22,071 ) 4,240,520
Private-label residential MBS 115,407
(5,841 ) 109,566
4,869
(4,004 ) 110,431
Mortgage-backed securities 4,402,285
(5,841 ) 4,396,444
16,913
(26,276 ) 4,387,081
TOTAL $ 4,508,065
$ (5,841 ) $ 4,502,224
$ 17,011
$ (31,983 ) $ 4,487,252


¹	~~Represents single-family MBS issued by Ginnie Mae.~~


²	~~Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.~~

~~Table 3.9 summarizes the held-to-maturity securities with unrealized losses as of September 30, 2017~~3.10 (in thousands). ~~The unrealized losses are aggregated by major security type~~Amortized cost includes adjustments made to the cost basis of an investment for accretion and ~~length~~amortization, and excludes accrued interest receivable of ~~time that individual securities have been in a continuous unrealized loss position.~~

~~Table 3.9~~

09/30/2017
Less Than 12 Months 12 Months or More Total

Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses¹
Non-mortgage-backed securities:
State or local housing agency obligations $ —
$ —
$ 24,591
$ (5,409 ) $ 24,591
$ (5,409 )
Non-mortgage-backed securities —
—
24,591
(5,409 ) 24,591
(5,409 )
Mortgage-backed securities:
U.S. obligation MBS²
40,515
(110 ) 17,302
(10 ) 57,817
(120 )
GSE MBS³
570,234
(583 ) 1,585,259
(13,209 ) 2,155,493
(13,792 )
Private-label residential MBS 38
(1 ) 67,998
(2,988 ) 68,036
(2,989 )
Mortgage-backed securities 610,787
(694 ) 1,670,559
(16,207 ) 2,281,346
(16,901 )
TOTAL TEMPORARILY IMPAIRED SECURITIES $ 610,787
$ (694 ) $ 1,695,150
$ (21,616 ) $ 2,305,937
$ (22,310 )


¹	Total unrealized losses in Table 3.9 will not agree to total gross unrecognized losses in Table 3.7. Total unrealized losses in Table 3.9 include non-credit-related OTTI recognized in accumulated other comprehensive income (AOCI) and gross unrecognized gains on previously other-than-temporarily impaired securities.


²	~~Represents single-family MBS issued by Ginnie Mae.~~


³	~~Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.~~

~~Table 3.10 summarizes the held-to-maturity securities with unrealized losses~~$4,324,000 as of December 31, ~~2016 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.~~2019.

Table 3.10


	12/31/2016
	Less Than 12 Months					12 Months or More					Total					12/31/2019
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses¹			Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	—	$	—		$	34,348	$	(5,707	)	$	34,348	$	(5,707	)	$	82,805	$	82,805	$	5	$	(1,956	)	$	80,854
Non-mortgage-backed securities	—		—			34,348		(5,707		)	34,348		(5,707		)	82,805		82,805		5		(1,956		)	80,854
Mortgage-backed securities:
U.S obligation MBS²	—		—			35,998		(201		)	35,998		(201		)
GSE MBS³	1,097,379		(2,612		)	2,025,394		(19,459		)	3,122,773		(22,071		)
Private-label residential MBS	1,903		(3		)	85,984		(6,263		)	87,887		(6,266		)
U.S. obligation MBS																93,375		93,375		—		(496		)	92,879
GSE MBS																3,393,778		3,393,778		6,558		(17,131		)	3,383,205
Mortgage-backed securities	1,099,282		(2,615		)	2,147,376		(25,923		)	3,246,658		(28,538		)	3,487,153		3,487,153		6,558		(17,627		)	3,476,084
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	1,099,282	$	(2,615	)	$	2,181,724	$	(31,630	)	$	3,281,006	$	(34,245	)
TOTAL																$	3,569,958	$	3,569,958	$	6,563	$	(19,583	)	$	3,556,938


¹	Total unrealized losses in Table 3.10 will not agree to total gross unrecognized losses in Table 3.8. Total unrealized losses in Table 3.10 include non-credit-related OTTI recognized in AOCI and gross unrecognized gains on previously other-than-temporarily impaired securities.


²	~~Represents single-family MBS issued by Ginnie Mae.~~


³	~~Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.~~

The amortized cost, carrying value and fair values of held-to-maturity securities by contractual maturity as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are shown in Table 3.11 (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.11


	09/30/2017						12/31/2016						06/30/2020						12/31/2019
	Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Net Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Due after one year through five years	2,270		2,270		2,270		2,710		2,710		2,710		—		—		—		—		—		—
Due after five years through 10 years	—		—		—		10,055		10,055		10,048
Due after 10 years	92,355		92,355		87,033		93,015		93,015		87,413
Due after five years through ten years													—		—		—		—		—		—
Due after ten years													81,995		81,995		78,380		82,805		82,805		80,854
Non-mortgage-backed securities	94,625		94,625		89,303		105,780		105,780		100,171		81,995		81,995		78,380		82,805		82,805		80,854
Mortgage-backed securities	4,650,351		4,645,907		4,650,928		4,402,285		4,396,444		4,387,081		3,100,141		3,100,141		3,098,332		3,487,153		3,487,153		3,476,084
TOTAL	$	4,744,976	$	4,740,532	$	4,740,231	$	4,508,065	$	4,502,224	$	4,487,252	$	3,182,136	$	3,182,136	$	3,176,712	$	3,569,958	$	3,569,958	$	3,556,938

~~Other-than-temporary Impairment:~~ ~~For~~Net gains (losses) were realized on the 21sale of held-to-maturity securities as presented below and are recorded as net gains (losses) on sale of held-to-maturity securities in other income (loss) on the Statements of Income. All securities sold had paid down below 15 percent of the principal outstanding ~~private-label residential MBS with OTTI~~at acquisition and were therefore considered maturities under GAAP. Table 3.12 presents details of the sales (in thousands). There were no sales of held-to-maturity securities during the ~~lives of the securities, the FHLBank’s reported balances as of September~~three and six months ended June 30, ~~2017 are presented in Table 3.12 (in thousands):~~2020.

Table 3.12

09/30/2017

Unpaid
Principal
Balance
Amortized
Cost
Carrying
Value
Fair
Value
Private-label residential MBS:
Prime $ 8,104
$ 7,145
$ 6,584
$ 7,553
Alt-A 25,965
23,046
19,163
23,377
TOTAL $ 34,069
$ 30,191
$ 25,747
$ 30,930



	Three Months Ended			Six Months Ended
	06/30/2019			06/30/2019
Proceeds from sale of held-to-maturity securities	$	9,442		$	9,442
Carrying value of held-to-maturity securities sold	(9,488		)	(9,488		)
NET REALIZED GAINS (LOSSES)	$	(46	)	$	(46	)

~~Table 3.13 presents~~

Allowance for Credit Losses on Available-for-Sale and Held-to-Maturity Securities: FHLBank evaluates available-for-sale and held-to-maturity investment securities for credit losses on a ~~roll-forward~~quarterly basis. FHLBank adopted new accounting guidance for the measurement of ~~OTTI activity~~credit losses on financial instruments on January 1, 2020. See Note 2 for additional information.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016 related to~~2020, FHLBank did not recognize a provision for credit losses ~~recognized in earnings (in thousands):~~associated with available-for-sale investments or held-to-maturity investments. To evaluate investment securities for credit loss as of June 30, 2020, FHLBank employed the following methodologies, based on the type of security.

~~Table 3.13~~FHLBank's available-for-sale and held-to-maturity securities are principally certificates of deposit, U.S. obligations, GSE obligations, state or local housing agency obligations, and MBS issued by Ginnie Mae, Freddie Mac, and Fannie Mae that are backed by single-family or multifamily mortgage loans. FHLBank only purchases securities considered investment quality. As of June 30, 2020, all of FHLBank's available-for-sale securities and held-to-maturity securities were rated single-A or above by an NRSRO, based on the lowest long-term credit rating for each security. These may differ from any internal ratings of the securities, if applicable.

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Balance, beginning of period $ 7,420
$ 7,596
$ 7,502
$ 7,785
Additional charge on securities for which OTTI was not previously recognized 57
—
63
1
Additional charge on securities for which OTTI was previously recognized¹
283
30
401
61
Amortization of credit component of OTTI²
(38 ) 20
(244 ) (201 )
Balance, end of period $ 7,722
$ 7,646
$ 7,722
$ 7,646


¹	For the three months ended September 30, 2017 and 2016, securities previously impaired represent all securities that were impaired prior to July 1, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, securities previously impaired represent all securities that were impaired prior to January 1, 2017 and 2016, respectively.

The FHLBank amortizes the credit component based on estimated cash flows prospectively up to the amount of expected principal to be recovered. The discounted cash flows will move from the discounted loss value to the ultimate principal to be written off at the projected date of loss. If the expected cash flows improve, the amount of expected loss decreases which causes a corresponding decrease in the calculated amortization. Based on the level of improvement in the cash flows, the amortization could become a positive adjustment to income.

~~As of September 30, 2017,~~

FHLBank evaluates available-for-sale securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of ~~a portion of~~ the ~~FHLBank's available-for-sale and held-to-maturity MBS were below the~~investment is less than its amortized cost (i.e., in an unrealized loss position). As of ~~the~~June 30, 2020, certain available-for-sale securities ~~due to interest rate volatility and/or illiquidity. However, the decline~~were in ~~fair value of these securities is~~an unrealized loss position. These losses are considered temporary as ~~the~~ FHLBank expects to recover the entire amortized cost basis on ~~the remaining securities in unrecognized loss positions and~~these available-for-sale investment securities. FHLBank neither intends to sell these securities nor isconsiders it more likely than not that ~~the FHLBank~~it will be required to sell these securities before its anticipated recovery of ~~the~~each security's remaining amortized cost basis. ~~For state and local housing agency obligations,~~Further, FHLBank has not experienced any payment defaults on the ~~FHLBank determined that~~instruments. In addition, all of ~~the gross unrealized~~these securities carry an implicit or explicit government guarantee. As a result, no allowance for credit losses was recorded on these ~~bonds were temporary~~available-for-sale securities as of June 30, 2020.

FHLBank evaluates its held-to-maturity securities for impairment on a collective or pooled basis unless an individual assessment is deemed necessary because the ~~strength~~securities do not possess similar risk characteristics. As of June 30, 2020, FHLBank had not established an allowance for credit loss on any held-to-maturity securities because the ~~underlying collateral~~securities: (1) were all highly-rated and/or had short remaining terms to maturity; (2) had not experienced, nor did FHLBank expect, any payment default on the instruments; and ~~credit enhancements was sufficient~~(3) in the case of U.S. or GSE obligations, carry an implicit or explicit government guarantee such that FHLBank considers the risk of nonpayment to ~~protect the FHLBank from losses based on current expectations.~~be zero.

NOTE 4 – ADVANCES

General Terms: ~~The~~ FHLBank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016, the~~2019, FHLBank had advances outstanding at interest rates ranging from ~~0.66~~0.17 percent to 7.20 percent and 0.96 percent to 7.41 percent, ~~and 0.46 percent to 7.41 percent, respectively.~~respectively, for traditional advances (excludes COVID-19 Relief Advances described below). Table 4.1 presents advances summarized by ~~year of contractual maturity~~redemption term as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollar amounts in thousands): . Carrying amounts exclude accrued interest receivable of $17,354,000 and $45,637,000 as of June 30, 2020 and December 31, 2019, respectively.

Table 4.1


	09/30/2017					12/31/2016					06/30/2020					12/31/2019
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Redemption Term											Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	16,017,562		1.39	%	$	12,601,183		1.03	%	$	12,157,479		0.58	%	$	13,188,118		1.88	%
Due after one year through two years	1,715,493			1.66		2,019,260			1.96		1,972,758			1.26		10,448,433			1.96
Due after two years through three years	915,753			2.01		1,073,881			1.47		1,278,379			1.42		1,254,153			2.27
Due after three years through four years	1,136,194			2.09		781,339			1.96		1,137,591			1.86		1,067,662			2.42
Due after four years through five years	925,576			1.93		848,112			2.15		1,387,893			1.43		1,208,854			2.22
Thereafter	7,607,138			1.58		6,636,740			1.19		3,259,138			1.98		3,004,835			2.25
Total par value	28,317,716			1.52	%	23,960,515			1.24	%	21,193,238			1.04	%	30,172,055			1.99	%
Discounts	(9,724		)			(13,977		)			(11,602		)			(1,807		)
Hedging adjustments	11,234					39,297					347,355					71,067
TOTAL	$	28,319,226				$	23,985,835				$	21,528,991				$	30,241,315

During the three months ended June 30, 2020, FHLBank issued subsidized COVID-19 Relief Advances to help members serve their customers affected by the COVID-19 pandemic. The zero-cost advances have a term of six months and the low-cost advances have terms between 6 and 24 months. As of June 30, 2020, FHLBank had $556,951,000 and $512,890,000 of zero-cost and low-cost advances outstanding, respectively. Discounts of $4,530,000 were initially recorded on these advances and are accreted using the interest method over the life of the advances resulting in the recognition of periodic interest income on the advances at the effective interest rate (i.e., yield recorded equals a prevailing rate) in net interest income, of which $3,682,000 remains outstanding as of June 30, 2020.

FHLBank’s advances outstanding include advances that contain call options that may be exercised with or without prepayment fees at the borrower’s discretion on specific dates (call dates) before the stated advance maturities (callable advances). In exchange for receiving the right to call the advance on a predetermined call schedule, the borrower may pay a higher fixed rate for the advance relative to an equivalent maturity, non-callable, fixed rate advance. The borrower normally exercises its call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances). The FHLBank’s advances as of September 30, 2017 and December 31, 2016 include callable advances totaling $7,310,460,000 and $6,336,280,000, respectively. Of these callable advances, there were $7,263,662,000 and $6,260,837,000 of variable rate advances as of September 30, 2017 and December 31, 2016, respectively.

Convertible advances allow ~~the~~ FHLBank to convert an advance from one interest payment term structure to another. When issuing convertible advances, ~~the~~ FHLBank purchases put options from a member that allow ~~the~~ FHLBank to convert the fixed rate advance to a variable rate advance at the current market rate or another structure after an agreed-upon lockout period. A convertible advance carries a lower interest rate than a comparable-maturity fixed rate advance without the conversion feature. ~~As of September 30, 2017 and December 31, 2016, the FHLBank had convertible advances outstanding totaling $884,950,000 and $1,147,392,000, respectively.~~

Table 4.2 presents advances summarized by ~~contractual maturity~~redemption term or next call date (for callable advances) and by ~~contractual maturity~~redemption term or next conversion date (for convertible advances) as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table 4.2


	Year of Contractual Maturity or Next Call Date				Year of Contractual Maturity or Next Conversion Date				Redemption Term or Next Call Date				Redemption Term or Next Conversion Date
Redemption Term	09/30/2017		12/31/2016		09/30/2017		12/31/2016		06/30/2020		12/31/2019		06/30/2020		12/31/2019
Due in one year or less	$	22,938,453	$	18,411,727	$	16,121,062	$	12,897,983	$	14,396,016	$	24,271,238	$	13,172,929	$	14,053,068
Due after one year through two years	1,381,255		1,752,403		1,746,493		1,800,460		1,357,838		1,133,077		2,234,358		10,637,833
Due after two years through three years	788,426		750,126		1,025,853		1,168,381		778,493		728,429		1,517,329		1,524,153
Due after three years through four years	951,274		666,059		1,245,744		808,139		741,297		764,990		1,246,591		1,215,412
Due after four years through five years	523,503		755,753		1,161,576		945,462		902,643		686,594		1,475,793		1,304,254
Thereafter	1,734,805		1,624,447		7,016,988		6,340,090		3,016,951		2,587,727		1,546,238		1,437,335
TOTAL PAR VALUE	$	28,317,716	$	23,960,515	$	28,317,716	$	23,960,515	$	21,193,238	$	30,172,055	$	21,193,238	$	30,172,055

Interest Rate Payment Terms: Table 4.3 details additional interest rate payment terms for advances as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table 4.3


	09/30/2017		12/31/2016
Redemption Term					06/30/2020		12/31/2019
Fixed rate:
Due in one year or less	$	2,139,820	$	2,400,382	$	9,025,705	$	2,691,528
Due after one year	5,288,792		5,589,805		6,723,647		5,912,124
Total fixed rate	7,428,612		7,990,187		15,749,352		8,603,652
Variable rate:
Due in one year or less	13,877,742		10,200,801		3,131,774		10,496,590
Due after one year	7,011,362		5,769,527		2,312,112		11,071,813
Total variable rate	20,889,104		15,970,328		5,443,886		21,568,403
TOTAL PAR VALUE	$	28,317,716	$	23,960,515	$	21,193,238	$	30,172,055

~~See Note 6~~

Credit Risk Exposure and Security Terms: FHLBank's advances are primarily made to member financial institutions, including commercial banks and insurance companies. FHLBank manages its credit exposure to advances through an integrated approach that includes establishing a credit limit for ~~information~~each borrower. This approach includes an ongoing review of each borrower's financial condition, in conjunction with FHLBank's collateral and lending policies to limit risk of loss, while balancing borrowers' needs for a reliable source of funding.

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


▪	One-to-four family and multifamily mortgage loans (delinquent for no more than 90 days) and securities representing such mortgages;


▪	Loans and securities issued, insured, or guaranteed by the U.S. government or any U.S. government agency (for example, MBS issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);


▪	Cash or deposits in FHLBank;


▪	Certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value and that FHLBank can perfect a security interest in it; and


▪	Certain qualifying securities representing undivided equity interests in eligible advance collateral.

During the second quarter of 2020, FHLBank was given the regulatory flexibility to allow members to pledge Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as eligible collateral, with the following restrictions: (1) maximum aggregate lending value for PPP loans is limited to the lesser of $5 billion or 20 percent of the institution’s total lending value on all collateral pledged; and (2) the institution must maintain a CAMELS composite rating of “3” or better. CAMELS is a rating system for banks utilized by federal banking supervisors that represents an evaluation of a bank's financial condition and compliance with laws and regulatory policies. If an institution’s CAMELS composite rating downgrades to “4” or “5”, the institution must substitute all PPP loans being utilized to support outstanding credit obligations with other eligible collateral within five business days. As of June 30, 2020, the amount of PPP loans pledged to FHLBank as collateral was immaterial.

Residential mortgage loans are the principal form of collateral for advances. The estimated value of the collateral required to secure each member's credit products is calculated by applying collateral discounts, or haircuts, to the market value or unpaid principal balance of the collateral, as applicable. In addition, community financial institutions are eligible to use expanded statutory collateral provisions for small business, agriculture loans, and community development loans. FHLBank capital stock owned by each borrower is also pledged as collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition, and performance; borrowing capacity; and overall credit exposure to the borrower. FHLBank can also require additional or substitute collateral to protect its security interest. FHLBanks also have policies and procedures for validating the reasonableness of their collateral valuations. In addition, collateral verifications and on-site reviews are performed by FHLBank based on the risk profile of the borrower. FHLBank management believes that these policies effectively manage credit risk from advances.

FHLBank either allows a borrower to retain physical possession of the collateral assigned to it, or requires the borrower to specifically assign or place physical possession of the collateral with FHLBank or its safekeeping agent. FHLBank perfects its security interest in all pledged collateral. The Federal Home Loan Bank Act of 1932, as amended, (Bank Act) states that any security interest granted to an FHLBank by a borrower will have priority over the claims or rights of any other party, except for claims or rights of a third party that would be entitled to priority under otherwise applicable law and are held by a bona fide purchaser for value or by a secured party holding a prior perfected security interest.

Using a risk-based approach and taking into consideration each borrower's financial strength, FHLBank considers the types and level of collateral to be the primary indicator of credit quality on advances. As of June 30, 2020 and December 31, 2019, FHLBank had rights to collateral on a borrower-by-borrower basis with an estimated value greater than its outstanding advances.

FHLBank continues to evaluate and make changes to its collateral guidelines, as necessary, based on current market conditions. As of June 30, 2020 and December 31, 2019, no advances were past due, on non-accrual status, or considered impaired. In addition, there were no troubled debt restructurings related to advances during the ~~FHLBank’s~~three and six months ended June 30, 2020 and 2019.

Based on the collateral held as security, FHLBank's credit ~~risk~~extension and collateral policies, and repayment history on advances, no losses are expected on advances as of June 30, 2020, and therefore no allowance for credit ~~losses.~~losses on advances was recorded. For the same reasons, FHLBank did not record any allowance for credit losses on advances as of December 31, 2019.

NOTE 5 – MORTGAGE LOANS

~~The~~Mortgage loans held for portfolio consist of loans obtained through the MPF Program ~~involves the FHLBank investing in~~and are either conventional mortgage loans ~~which have been funded~~or government-guaranteed or -insured mortgage loans. Under the MPF Program, FHLBank purchases single-family mortgage loans that are originated or acquired by ~~the FHLBank through or purchased from~~ participating financial institutions (PFIs). These mortgage loans are government-insured or guaranteed loans (by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the Rural Housing Service of the Department of Agriculture (RHS) and/or the Department of Housing and Urban Development (HUD)) and conventional residential loans credit-enhanced by ~~PFIs. Depending upon a member’s product selection, the servicing rights can be retained~~PFIs or ~~sold~~are guaranteed or insured by ~~the participating member. The FHLBank does not buy or own any mortgage servicing rights.~~Federal agencies.

Mortgage Loans Held for Portfolio: Table 5.1 presents information as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 on mortgage loans held for portfolio (in thousands):. Mortgage loans held for portfolio excludes accrued interest receivable of $54,212,000 and $52,358,000 as of June 30, 2020 and December 31, 2019, respectively.

Table 5.1


	09/30/2017			12/31/2016			06/30/2020			12/31/2019
Real estate:
Fixed rate, medium-term¹, single-family mortgages	$	1,287,124		$	1,353,938		$	1,540,694		$	1,347,385
Fixed rate, long-term, single-family mortgages	5,659,589			5,182,103			9,259,462			9,128,268
Total unpaid principal balance	6,946,713			6,536,041			10,800,156			10,475,653
Premiums	106,716			103,665			158,715			155,793
Discounts	(2,484		)	(2,276		)	(2,356		)	(2,503		)
Deferred loan costs, net	294			387			155			184
Other deferred fees	(63		)	(85		)	(33		)	(38		)
Hedging adjustments	5,471			4,667			(3,130		)	4,905
Total before Allowance for Credit Losses on Mortgage Loans	7,056,647			6,642,399			10,953,507			10,633,994
Allowance for Credit Losses on Mortgage Loans	(1,408		)	(1,674		)
Allowance for Credit Losses on Mortgage Loans²							(7,790		)	(985		)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET	$	7,055,239		$	6,640,725		$	10,945,717		$	10,633,009


¹	Medium-term defined as a term of 15 years or less at origination.


²	Effective January 1, 2020, new accounting guidance was adopted relating to the measurement of credit losses on financial instruments and resulted in a cumulative effect adjustment of $6,123,000 (see Table 5.5).

Table 5.2 presents information as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 on the outstanding unpaid principal balance ~~(UPB)~~ of mortgage loans held for portfolio (in thousands):

Table 5.2

09/30/2017 12/31/2016
Conventional loans $ 6,268,517
$ 5,899,924
Government-guaranteed or insured loans 678,196
636,117
TOTAL UNPAID PRINCIPAL BALANCE $ 6,946,713
$ 6,536,041

~~See Note~~ 6 ~~for information related to the FHLBank’s credit risk on mortgage loans and allowance for credit losses.~~



	06/30/2020		12/31/2019
Conventional loans	$	10,211,211	$	9,849,542
Government-guaranteed or -insured loans	588,945		626,111
TOTAL UNPAID PRINCIPAL BALANCE	$	10,800,156	$	10,475,653

~~NOTE 6 – ALLOWANCE FOR CREDIT LOSSES~~Credit Enhancements:

The FHLBank has established an allowance methodology for each of its portfolio segments: credit products (advances, letters of credit and other extensions of credit to borrowers); government mortgage loans held for portfolio; conventional mortgage loans held for portfolio; the direct financing lease receivable; term Federal funds sold; and term securities purchased under agreements to resell. Based on management's analyses of each portfolio segment, the FHLBank has only established an FHLBank's allowance for credit losses ~~on its~~considers the credit enhancements associated with conventional mortgage loans under the MPF Program. Credit enhancements may include primary mortgage insurance, supplemental mortgage insurance and the credit enhancement amount plus any recoverable performance-based credit enhancement fees (for certain MPF loans). Potential recoveries from credit enhancements for conventional loans are evaluated at the individual master commitment level to determine the credit enhancements available to recover losses on loans under each individual master commitment.

Conventional MPF loans held for ~~portfolio.~~portfolio are required to be credit enhanced as determined through the use of a validated model so that the risk of loss is limited to the losses within FHLBank's risk tolerance. FHLBank and its PFIs share the risk of credit losses on conventional loans, by structuring potential losses into layers with respect to each master commitment. After considering the borrower’s equity and any primary mortgage insurance, credit losses on mortgage loans in a master commitment are then absorbed by FHLBank’s First Loss Account. If applicable to the MPF product, FHLBank will withhold a PFI’s scheduled performance-based credit enhancement fee in order to reimburse FHLBank for any losses allocated to the First Loss Account. If the First Loss Account is exhausted, the credit losses are then absorbed by the PFI up to an agreed upon credit enhancement amount. Thereafter, any remaining credit losses are absorbed by FHLBank.

Payment Status of Mortgage Loans: Payment status is the key credit quality indicator for conventional mortgage loans and allows FHLBank to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Other delinquency statistics include non-accrual loans and loans in process of foreclosure.

~~Roll-forward of Allowance for Credit Losses~~:

Table ~~6.1~~5.3 presents ~~a roll-forward of~~ the ~~allowance for credit losses for the three and nine months ended September 30, 2017~~payment status based on amortized cost as well as ~~the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded~~other delinquency statistics for FHLBank’s mortgage loans as of ~~September~~June 30, ~~2017 (in~~2020 (dollar amounts in thousands). The recorded investment in a financing receivable is the UPB, adjusted for accrued interest, net deferred loan fees or costs, unamortized premiums or discounts, fair value hedging adjustments and direct write-downs. The recorded investment is not net of any valuation allowance.:

Table ~~6.1~~5.3

09/30/2017

Conventional
Loans
Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable
Total
Allowance for credit losses:
Balance, beginning of three-month period $ 1,525
$ —
$ —
$ —
$ 1,525
Net (charge-offs) recoveries 54
—
—
—
54
(Reversal) provision for credit losses (171 ) —
—
—
(171 )
Balance, end of three-month period $ 1,408
$ —
$ —
$ —
$ 1,408

Balance, beginning of nine-month period $ 1,674
$ —
$ —
$ —
$ 1,674
Net (charge-offs) recoveries (70 ) —
—
—
(70 )
(Reversal) provision for credit losses (196 ) —
—
—
(196 )
Balance, end of nine-month period $ 1,408
$ —
$ —
$ —
$ 1,408

Allowance for credit losses, end of period:

Individually evaluated for impairment $ 39
$ —
$ —
$ —
$ 39
Collectively evaluated for impairment 1,369
—
—
—
1,369

Recorded investment, end of period:

Individually evaluated for impairment $ 9,655
$ —
$ 28,350,505
$ 15,487
$ 28,375,647
Collectively evaluated for impairment 6,388,094
692,447
—
—
7,080,541
Total $ 6,397,749
$ 692,447
$ 28,350,505
$ 15,487
$ 35,456,188



	06/30/2020
	Conventional Loans															Government Loans			Total
	Origination Year												Subtotal
	Prior to 2016		2016		2017		2018		2019		2020
Amortized Cost:¹
Past due 30-59 days delinquent	$	31,704	$	7,626	$	11,562	$	16,134	$	38,908	$	2,507	$	108,441		$	16,146		$	124,587
Past due 60-89 days delinquent	19,774		4,647		11,842		13,608		41,145		3,108		94,124			14,678			108,802
Past due 90 days or more delinquent	9,933		1,564		2,375		4,237		429		—		18,538			9,903			28,441
Total past due	61,411		13,837		25,779		33,979		80,482		5,615		221,103			40,727			261,830
Total current loans	2,434,511		785,921		930,001		1,019,350		3,178,072		1,787,600		10,135,455			556,222			10,691,677
Total mortgage loans	$	2,495,922	$	799,758	$	955,780	$	1,053,329	$	3,258,554	$	1,793,215	$	10,356,558		$	596,949		$	10,953,507

Other delinquency statistics:
In process of foreclosure²													$	69,126		$	12,434		$	81,560
Serious delinquency rate³													0.8		%	3.1		%	0.9		%
Past due 90 days or more and still accruing interest													$	—		$	9,903		$	9,903
Loans on non-accrual status⁴													$	22,314		$	—		$	22,314


¹	~~The recorded investment~~Excludes accrued interest receivable.


²	Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.


³	Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total amortized cost for ~~credit products includes only advances. The recorded investment~~the portfolio class.


⁴	Loans on non-accrual status include $1,320,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which FHLBank, for ~~all other credit products is insignificant.~~economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

FHLBank's servicers may grant a forbearance period to borrowers who have requested forbearance based on COVID-19-related difficulties regardless of the status of the loan at the time of the request. FHLBank continues to apply its accounting policy for past due loans and charge-offs to loans during the forbearance period whether it be formal or informal. The accrual status for a loan under forbearance will be driven by the past due status of the loan without consideration of the forbearance as the legal terms of the contractual arrangement have not been modified. As of June 30, 2020, there was $144,812,000, or 1.4 percent, of unpaid principal balances of conventional loans in a forbearance plan as a result of COVID-19, representing $7,270,000, $53,809,000, $78,287,000, and $5,446,000 with payments statuses of current, 30 to 59 days past due, 60 to 89 days past due, and greater than 90 days past due, respectively.

Table ~~6.2~~5.4 presents ~~a roll-forward of~~ the ~~allowance for credit losses for the three and nine months ended September 30, 2016~~payment status based on recorded investment as well as ~~the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded~~other delinquency statistics for FHLBank’s mortgage loans as of ~~September 30, 2016 (in~~December 31, 2019 (dollar amounts in thousands):

Table ~~6.2~~5.4

09/30/2016

Conventional
Loans
Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable
Total
Allowance for credit losses:
Balance, beginning of three-month period $ 1,298
$ —
$ —
$ —
$ 1,298
Net (charge-offs) recoveries 33
—
—
—
33
(Reversal) provision for credit losses 329
—
—
—
329
Balance, end of three-month period $ 1,660
$ —
$ —
$ —
$ 1,660

Balance, beginning of nine-month period $ 1,972
$ —
$ —
$ —
$ 1,972
Net (charge-offs) recoveries (172 ) —
—
—
(172 )
(Reversal) provision for credit losses (140 ) —
—
—
(140 )
Balance, end of nine-month period $ 1,660
$ —
$ —
$ —
$ 1,660

Allowance for credit losses, end of period:

Individually evaluated for impairment $ —
$ —
$ —
$ —
$ —
Collectively evaluated for impairment 1,660
—
—
—
1,660

Recorded investment, end of period:

Individually evaluated for impairment $ 10,919
$ —
$ 26,746,950
$ 17,996
$ 26,775,865
Collectively evaluated for impairment 5,923,892
652,663
—
—
6,576,555
Total $ 5,934,811
$ 652,663
$ 26,746,950
$ 17,996
$ 33,352,420



	12/31/2019
	Conventional Loans			Government Loans			Total
Recorded investment:¹
Past due 30-59 days delinquent	$	59,226		$	15,515		$	74,741
Past due 60-89 days delinquent	7,561			6,128			13,689
Past due 90 days or more delinquent	11,813			8,778			20,591
Total past due	78,600			30,421			109,021
Total current loans	9,969,930			607,400			10,577,330
Total recorded investment	$	10,048,530		$	637,821		$	10,686,351

Other delinquency statistics:
In process of foreclosure²	$	3,352		$	2,730		$	6,082
Serious delinquency rate³	0.1		%	1.4		%	0.1		%
Past due 90 days or more and still accruing interest	$	—		$	8,778		$	8,778
Loans on non-accrual status⁴	$	14,923		$	—		$	14,923


¹	~~The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.~~

~~Credit Quality Indicators:~~ The FHLBank’s key credit quality indicators include the migration of: (1) past due loans; (2) non-accrual loans; (3) loans in process of foreclosure; and (4) impaired loans, all of which are used either on an individual or pool basis to determine the allowance for credit losses.

~~Table 6.3 summarizes the delinquency aging and key credit quality indicators for all of the FHLBank’s portfolio segments as of September 30, 2017 (dollar amounts in thousands):~~

~~Table 6.3~~

09/30/2017

Conventional
Loans
Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable
Total
Recorded investment:
Past due 30-59 days delinquent $ 38,716
$ 19,295
$ —
$ —
$ 58,011
Past due 60-89 days delinquent 6,506
5,764
—
—
12,270
Past due 90 days or more delinquent 10,932
4,243
—
—
15,175
Total past due 56,154
29,302
—
—
85,456
Total current loans 6,341,595
663,145
28,350,505
15,487
35,370,732
Total recorded investment $ 6,397,749
$ 692,447
$ 28,350,505
$ 15,487
$ 35,456,188

Other delinquency statistics:

In process of foreclosure, included above²
$ 3,812
$ 1,520
$ —
$ —
$ 5,332
Serious delinquency rate³
0.2 % 0.6 % — % — % — %
Past due 90 days or more and still accruing interest $ —
$ 4,243
$ —
$ —
$ 4,243
Loans on non-accrual status⁴
$ 14,502
$ —
$ —
$ —
$ 14,502


¹	~~The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.~~Includes accrued interest receivable.


²	Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.


³	Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total recorded investment for the portfolio class.


⁴	Loans on non-accrual status include ~~$1,313,000~~$1,219,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which ~~the~~ FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

~~Table 6.4 summarizes~~Allowance for Credit Losses:

Conventional Mortgage Loans: Conventional loans are evaluated collectively when similar risk characteristics exists. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. FHLBank determines its allowances for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. FHLBank uses a model that discounts projected cash flows to estimate expected credit losses over the ~~key credit quality indicators for all~~life of the ~~FHLBank’s portfolio segments~~loans. This model relies on a number of inputs, such as both current and forecasted property values and interest rates as well as historical borrower behavior experience. FHLBank also incorporates associated credit enhancements, as available, to determine its estimate of ~~December 31, 2016 (dollar amounts~~expected credit losses.

Certain conventional loans may be evaluated for credit losses using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. FHLBank may estimate the fair value of this collateral by applying an appropriate loss severity rate or using third party estimates or property valuation model(s). The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. FHLBank records a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in ~~thousands):~~the allowance for credit losses.

FHLBank established an allowance for credit losses on its conventional mortgage loans held for portfolio. Table 5.5 presents a roll-forward of the allowance for credit losses on mortgage loans for the three and six months ended June 30, 2020 and 2019.

Table ~~6.4~~5.5

12/31/2016

Conventional
Loans
Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable
Total
Recorded investment:
Past due 30-59 days delinquent $ 40,290
$ 16,920
$ —
$ —
$ 57,210
Past due 60-89 days delinquent 7,982
6,383
—
—
14,365
Past due 90 days or more delinquent 11,970
5,185
—
—
17,155
Total past due 60,242
28,488
—
—
88,730
Total current loans 5,962,533
622,856
24,009,010
17,385
30,611,784
Total recorded investment $ 6,022,775
$ 651,344
$ 24,009,010
$ 17,385
$ 30,700,514

Other delinquency statistics:

In process of foreclosure, included above²
$ 4,408
$ 1,748
$ —
$ —
$ 6,156
Serious delinquency rate³
0.2 % 0.8 % — % — % 0.1 %
Past due 90 days or more and still accruing interest $ —
$ 5,185
$ —
$ —
$ 5,185
Loans on non-accrual status⁴
$ 15,002
$ —
$ —
$ —
$ 15,002



	Three Months Ended						Six Months Ended
	06/30/2020			06/30/2019			06/30/2020		06/30/2019
Balance, beginning of the period	$	6,468		$	824		$	985	$	812
Adjustment for cumulative effect of accounting change	—			—			6,123		—
Net (charge-offs) recoveries	(15		)	(4		)	81		(70		)
Provision (reversal) for credit losses	1,337			38			601		116
Balance, end of the period	$	7,790		$	858		$	7,790	$	858


¹	~~The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant.~~


²	Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.


³	~~Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total recorded investment for the portfolio class.~~


⁴	Loans on non-accrual status include $1,327,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which the FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

~~Individually Evaluated Impaired~~Government-Guaranteed or -Insured Mortgage Loans:~~Table 6.5 presents the recorded investment, UPB, and related allowance of impaired conventional~~ FHLBank invests in fixed-rate mortgage loans ~~individually assessed~~that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, the Rural Housing Service of the Department of Agriculture, and/or the Department of Housing and Urban Development. The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for ~~impairment~~compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-guaranteed or -insured mortgage loans. Any losses on these loans that are not recovered from the issuer or the guarantor are absorbed by the servicer. Therefore, FHLBank only has credit risk for these loans if the servicer fails to pay for losses not covered by the guarantee or insurance. Based on FHLBank's assessment of its servicers and the collateral backing the loans, the risk of loss was immaterial, consequently, no allowance for credit losses for government-guaranteed or -insured mortgage loans was recorded as of ~~September~~June 30, ~~2017 and~~2020 or December 31, ~~2016 (in thousands):~~2019. Furthermore, none of these mortgage loans has been placed on non-accrual status because of the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

~~Table 6.5~~

09/30/2017 12/31/2016
Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance
With no related allowance $ 9,519
$ 9,494
$ —
$ 11,834
$ 11,776
$ —
With an allowance 136
137
39
—
—
—
TOTAL $ 9,655
$ 9,631
$ 39
$ 11,834
$ 11,776
$ —

Table 6.6 presents the average recorded investment and related interest income recognized on these individually evaluated impaired loans during the three and nine months ended September 30, 2017 and 2016 (in thousands):

~~Table 6.6~~

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance $ 9,917
$ 53
$ 11,293
$ 77
$ 10,819
$ 181
$ 11,759
$ 224
With an allowance 137
(2 ) —
—
61
(6 ) —
—
TOTAL $ 10,054
$ 51
$ 11,293
$ 77
$ 10,880
$ 175
$ 11,759
$ 224

~~The FHLBank had $2,569,000 and $2,608,000 classified as real estate owned (REO) recorded in other assets as of September 30, 2017 and December 31, 2016, respectively.~~

NOTE 76 – DERIVATIVES AND HEDGING ACTIVITIES

Table ~~7.1~~6.1 presents outstanding notional amounts and fair values ~~(excluding fair value adjustments related to variation margin on daily settled contracts)~~ of the derivatives outstanding by type of derivative and by hedge designation as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash ~~collateral, and variation margin for daily settled contracts.~~collateral.

Table ~~7.1~~6.1


	09/30/2017								12/31/2016								06/30/2020							12/31/2019
	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:
Interest rate swaps	$	7,219,820	$	56,584		$	37,013		$	7,896,110	$	70,683		$	65,471		$	17,876,350	$	22,249	$	313,198		$	16,448,512	$	23,462	$	80,398
Total derivatives designated as hedging relationships	7,219,820		56,584			37,013			7,896,110		70,683			65,471			17,876,350		22,249		313,198			16,448,512		23,462		80,398
Derivatives not designated as hedging instruments:
Interest rate swaps	3,529,847		69			33,086			2,022,630		649			40,824			4,980,845		78		79,401			3,099,622		736		26,285
Interest rate caps/floors	2,462,400		1,673			—			2,765,200		4,859			—			762,500		104		—			1,130,000		117		—
Mortgage delivery commitments	121,377		38			189			90,013		214			372			107,916		414		3			221,800		495		25
Total derivatives not designated as hedging instruments	6,113,624		1,780			33,275			4,877,843		5,722			41,196			5,851,261		596		79,404			4,451,422		1,348		26,310
TOTAL	$	13,333,444	58,364			70,288			$	12,773,953	76,405			106,667			$	23,727,611	22,845		392,602			$	20,899,934	24,810		106,708
Netting adjustments, cash collateral, and variation margin for daily settled contracts¹			(7,868		)	(69,648		)			(15,505		)	(99,496		)
Netting adjustments and cash collateral¹																			168,694		(391,930		)			129,994		(106,506		)
DERIVATIVE ASSETS AND LIABILITIES			$	50,496		$	640				$	60,900		$	7,171				$	191,539	$	672				$	154,804	$	202

Amounts represent the application of the netting requirements that allow ~~the~~ FHLBank to settle positive and negative positions, ~~as well as~~ cash collateral, ~~including initial or variation margin,~~ and related accrued interest held or placed with the same clearing agent and/or derivative ~~counterparty, and includes fair value adjustments on derivatives for which variation margin is characterized as a daily settled contract.~~counterparty. Cash collateral posted was ~~$78,846,000~~$561,124,000 and ~~$105,481,000~~$236,700,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. Cash collateral received was ~~$16,622,000~~$500,000 and ~~$21,490,000~~$200,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. ~~Variation margin for daily settled contracts was $(444,000) as of September 30, 2017.~~

The following tables provide information regarding gains and losses on derivatives and hedging activities by type of hedge and type of derivative and gains and losses by hedged item for fair value hedges.

~~For the three and nine months ended September 30, 2017 and 2016, the FHLBank recorded net gain (loss) on derivatives and hedging activities as presented in Table 7.2 (in thousands):~~

~~Table 7.2~~

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Derivatives designated as hedging instruments:
Interest rate swaps $ (49 ) $ 3,291
$ (3,243 ) $ (1,019 )
Total net gain (loss) related to fair value hedge ineffectiveness (49 ) 3,291
(3,243 ) (1,019 )
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps 2,280
14,307
7,123
(50,322 )
Interest rate caps/floors (392 ) (132 ) (3,186 ) (3,848 )
Net interest settlements (3,088 ) (8,760 ) (12,707 ) (32,875 )
Mortgage delivery commitments 913
851
2,326
3,839
Total net gain (loss) related to derivatives not designated as hedging instruments (287 ) 6,266
(6,444 ) (83,206 )
Other¹
14
—
6
—
NET GAIN (LOSS) ON DERIVATIVES AND HEDGING ACTIVITIES $ (322 ) $ 9,557
$ (9,681 ) $ (84,225 )


¹	~~Amount represents price alignment amount on derivatives for which variation margin is characterized as a daily settled contract.~~

~~The~~ FHLBank carries derivative instruments at fair value on its Statements of Condition. ~~Any change~~Changes in ~~the fair value of derivatives designated under a fair value hedging relationship is recorded each period in current period earnings. Fair value hedge accounting allows for the offsetting~~ fair value of the ~~hedged risk in~~derivative hedging instrument and the hedged item attributable to ~~also be~~the hedged risk for designated fair value hedges are recorded in ~~current period earnings.~~net interest income in the same line as the earnings effect of the hedged item.

Gains (losses) on fair value hedges include unrealized changes in fair value as well as net interest settlements. For the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, the~~2019, FHLBank recorded net ~~gain (loss)~~gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on ~~the~~ FHLBank’s net interest income as presented in Table ~~7.3~~6.2 (in thousands):

Table ~~7.3~~6.2

Three Months Ended
09/30/2017 09/30/2016
Gain (Loss) on Derivatives Gain (Loss) on Hedged Items Net Fair Value Hedge Ineffectiveness
Effect of Derivatives on Net Interest Income¹
Gain (Loss) on Derivatives Gain (Loss) on Hedged Items Net Fair Value Hedge Ineffectiveness
Effect of Derivatives on Net Interest Income¹
Advances $ 10,854
$ (10,041 ) $ 813
$ (10,538 ) $ 44,831
$ (40,908 ) $ 3,923
$ (22,346 )
Investments (894 ) 87
(807 ) (2,144 ) 5,748
(6,370 ) (622 ) (3,330 )
Consolidated obligation bonds (2,745 ) 2,690
(55 ) 3,308
(6,462 ) 6,445
(17 ) 5,123
Consolidated obligation discount notes —
—
—
—
(130 ) 137
7
16
TOTAL $ 7,215
$ (7,264 ) $ (49 ) $ (9,374 ) $ 43,987
$ (40,696 ) $ 3,291
$ (20,537 )



	Three Months Ended
	06/30/2020
	Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	60,265		$	9,871		$	21,760	$	92,744
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(31,591	)	$	(35,810	)	$	24	$	1,919
Hedged items²	19,718			4,490			14,257		10,959
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	(11,873	)	$	(31,320	)	$	14,281	$	12,878



	6/30/2019
	Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	189,562		$	15,487		$	150,802		$	176,714
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(71,071	)	$	(100,045	)	$	(7	)	$	17,348
Hedged items²	76,397			88,484			15			(20,817		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	5,326		$	(11,561	)	$	8		$	(3,469	)


¹	~~The differentials between accruals of~~Includes net interest ~~receivables and payables~~settlements in interest income/expense.


²	Includes amortization/accretion on ~~derivatives designated as~~closed fair value ~~hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the~~relationships in interest ~~income or expense of the designated underlying hedged item.~~income.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, the~~2019, FHLBank recorded net ~~gain (loss)~~gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on ~~the~~ FHLBank’s net interest income as presented in Table ~~7.4~~6.3 (in thousands):

Table ~~7.4~~6.3

Nine Months Ended
09/30/2017 09/30/2016
Gain (Loss) on Derivatives Gain (Loss) on Hedged Items Net Fair Value Hedge Ineffectiveness
Effect of Derivatives on Net Interest Income¹
Gain (Loss) on Derivatives Gain (Loss) on Hedged Items Net Fair Value Hedge Ineffectiveness
Effect of Derivatives on Net Interest Income¹
Advances $ 23,985
$ (24,007 ) $ (22 ) $ (40,965 ) $ (27,042 ) $ 30,656
$ 3,614
$ (71,538 )
Investments (6,508 ) 4,412
(2,096 ) (7,058 ) (40,472 ) 36,742
(3,730 ) (8,667 )
Consolidated obligation bonds (4,623 ) 3,534
(1,089 ) 12,468
(3,696 ) 3,063
(633 ) 25,684
Consolidated obligation discount notes 16
(52 ) (36 ) (15 ) 52
(322 ) (270 ) (29 )
TOTAL $ 12,870
$ (16,113 ) $ (3,243 ) $ (35,570 ) $ (71,158 ) $ 70,139
$ (1,019 ) $ (54,550 )



	Six Months Ended
	06/30/2020
	Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	191,152		$	34,165		$	114,711		$	243,486
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(291,723	)	$	(396,093	)	$	18,547		$	47,365
Hedged items²	276,560			348,633			(1,433		)	(28,866		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	(15,163	)	$	(47,460	)	$	17,114		$	18,499



	6/30/2019
	Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	377,171		$	30,883		$	299,793		$	334,871
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(104,143	)	$	(144,237	)	$	25		$	27,053
Hedged items²	115,899			130,597			(15		)	(34,366		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	11,756		$	(13,640	)	$	10		$	(7,313	)


¹	~~The differentials between accruals of~~Includes net interest ~~receivables and payables~~settlements in interest income/expense.


²	Includes amortization/accretion on ~~derivatives designated as~~closed fair value ~~hedges as well~~relationships in interest income.

Table 6.4 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of June 30, 2020 and December 31, 2019 (in thousands):

Table 6.4



06/30/2020
Line Item in Statements of Condition of Hedged Item	Carrying Value of Hedged Asset/(Liability)¹			Basis Adjustments for Active Hedging Relationships²			Basis Adjustments for Discontinued Hedging Relationships²		Cumulative Amount of Fair Value Hedging Basis Adjustments²
Advances	$	6,038,392		$	343,561		$	3,794	$	347,355
Available-for-sale securities	7,590,422			425,458			—		425,458
Consolidated obligation discount notes	(2,773,177		)	(1,282		)	—		(1,282		)
Consolidated obligation bonds	(2,444,519		)	(55,256		)	—		(55,256		)

12/31/2019
Line Item in Statements of Condition of Hedged Item	Carrying Value of Hedged Asset/(Liability)¹			Basis Adjustments for Active Hedging Relationships²			Basis Adjustments for Discontinued Hedging Relationships²		Cumulative Amount of Fair Value Hedging Basis Adjustments²
Advances	$	4,951,445		$	69,643		$	1,424	$	71,067
Available-for-sale securities	7,155,712			79,141			—		79,141
Consolidated obligation bonds	(3,270,635		)	(26,389		)	—		(26,389		)


¹	Includes only the ~~amortization/accretion~~portion of carrying value representing the hedged items in fair value hedging ~~activities are recognized as adjustments~~relationships. For available-for-sale securities, amortized cost is considered to be carrying value (i.e., the ~~interest income or expense~~fair value adjustment recorded in accumulated OCI (AOCI) is excluded).


²	Included in amortized cost of the ~~designated underlying~~ hedged ~~item.~~asset/liability.

Table 6.5 provides information regarding gains and losses on derivatives and hedging activities recorded in non-interest income (in thousands).

Table 6.5



	Three Months Ended						Six Months Ended
	06/30/2020			06/30/2019			06/30/2020			06/30/2019
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	$	(1,345	)	$	(41,842	)	$	(113,060	)	$	(61,027	)
Interest rate caps/floors	(158		)	246			(13		)	(380		)
Net interest settlements	(12,962		)	(251		)	(18,116		)	(547		)
Mortgage delivery commitments	(890		)	1,836			(6,418		)	3,471
Consolidated obligation discount note commitments	—			—			—			(70		)
NET GAINS (LOSSES) ON DERIVATIVES AND HEDGING ACTIVITIES	$	(15,355	)	$	(40,011	)	$	(137,607	)	$	(58,553	)

Based on credit analyses and collateral requirements, FHLBank management does not anticipate any credit losses on its derivative agreements. The maximum credit risk applicable to a single counterparty was ~~$16,863,000~~$468,000 and ~~$21,112,000~~$211,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The counterparty was ~~the same~~different for ~~both periods.~~each period.

For uncleared derivative transactions, ~~the~~ FHLBank ~~recently~~has entered into ~~updated~~ bilateral security agreements with its ~~non-member~~ counterparties with bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to minimum transfer amounts. Previously, certain of the FHLBank’s uncleared derivative instruments contained provisions that required the FHLBank to post additional collateral with its counterparties if there was deterioration in the FHLBank’s credit rating. If the FHLBank’s credit rating had been lowered by a Nationally Recognized Statistical Rating Organization (NRSRO), the FHLBank may have been required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate fair value of these uncleared derivatives as of December 31, 2016 was $4,779,000, for which the FHLBank had posted no collateral. If the FHLBank’s credit rating had been lowered one level (e.g., from double-A to single-A), the FHLBank still would not have been required to deliver additional collateral to its uncleared derivative counterparties as of December 31, 2016.

~~The~~ FHLBank utilizes two ~~Clearinghouses~~Derivative Clearing Organizations (Clearinghouse) for all cleared derivative transactions, ~~LCH.Clearnet LLC~~LCH Limited and CME Clearing. Effective January 3, 2017, CME Clearing made certain amendments to its rulebook changing the legal characterization of variation margin payments to represent daily settlement payments rather than collateral. Variation margin related to LCH.Clearnet LLC contracts continues to be characterized as cash collateral. At both Clearinghouses, initial margin is considered cash collateral. For cleared derivatives, the Clearinghouse determines initial margin requirements and 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~~ FHLBank was not required to post additional initial margin by its clearing agents as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

~~The~~ FHLBank’s net exposure on derivative agreements is presented in Note 109.

NOTE 87 – DEPOSITS

~~The~~ FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. Table ~~8.1~~7.1 details the types of deposits held by ~~the~~ FHLBank as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table ~~8.1~~7.1


	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Interest-bearing:
Demand	$	274,231	$	269,341	$	313,744	$	383,197
Overnight	227,900		278,200		422,900		280,300
Term					1,000		—
Total interest-bearing	502,131		547,541		737,644		663,497
Non-interest-bearing:
Demand	48,496		51,390
Other					250,648		127,143
Total non-interest-bearing	48,496		51,390		250,648		127,143
TOTAL DEPOSITS	$	550,627	$	598,931	$	988,292	$	790,640

NOTE 98 – CONSOLIDATED OBLIGATIONS

Consolidated Obligation Bonds: Table ~~9.1~~8.1 presents ~~the~~ FHLBank’s participation in consolidated obligation bonds outstanding as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollar amounts in thousands):

Table ~~9.1~~8.1


	09/30/2017					12/31/2016					06/30/2020					12/31/2019
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	11,573,375		1.27	%	$	11,001,615		0.92	%	$	24,381,250		0.52	%	$	15,991,800		1.79	%
Due after one year through two years	6,294,800			1.26		2,460,440			1.46		2,517,550			1.44		6,318,350			1.90
Due after two years through three years	1,217,500			1.51		1,190,750			1.51		1,484,200			1.89		1,375,000			2.11
Due after three years through four years	1,095,950			1.59		739,600			1.56		894,600			1.78		1,285,900			2.39
Due after four years through five years	798,350			1.89		1,215,600			1.60		1,261,200			1.62		1,223,350			2.40
Thereafter	4,074,100			2.47		4,088,400			2.39		5,825,300			2.01		5,776,300			2.78
Total par value	25,054,075			1.51	%	20,696,405			1.37	%	36,364,100			0.95	%	31,970,700			2.05	%
Premiums	20,602					26,812					46,213					34,789
Discounts	(2,396		)			(2,342		)			(3,961		)			(3,357		)
Concession fees	(9,423		)			(9,441		)			(15,932		)			(15,207		)
Hedging adjustments	7,367					10,901					55,256					26,389
TOTAL	$	25,070,225				$	20,722,335				$	36,445,676				$	32,013,314

~~The~~FHLBank issues optional principal redemption bonds (callable bonds) that may be redeemed in whole or in part at the discretion of FHLBank on predetermined call dates in accordance with terms of bond offerings. FHLBank’s participation in consolidated obligation bonds outstanding as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 includes callable bonds totaling ~~$6,057,000,000~~$7,084,500,000 and ~~$6,097,000,000,~~$8,891,500,000, respectively. ~~The~~ FHLBank uses the unswapped callable bonds for financing its callable fixed rate advances (Note 4), MBS (Note 3) and mortgage loans (Note 5). Contemporaneous with a portion of its fixed rate callable bond issuances, ~~the~~ FHLBank also enters into interest rate swap agreements (in which ~~the~~ FHLBank generally pays a variable rate and receives a fixed rate) with call features that mirror the options in the callable bonds (a sold callable swap). The combined sold callable swap and callable debt transaction allows ~~the~~ FHLBank to obtain attractively priced variable rate financing. Table ~~9.2~~8.2 summarizes ~~the~~ FHLBank’s participation in consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table ~~9.2~~8.2


Year of Maturity or Next Call Date	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Due in one year or less	$	17,548,375	$	16,581,615	$	31,465,750	$	24,583,300
Due after one year through two years	5,888,800		2,275,440		2,427,550		5,148,350
Due after two years through three years	627,500		694,750		912,700		615,000
Due after three years through four years	325,950		389,600		438,100		682,400
Due after four years through five years	248,350		190,600		509,200		356,850
Thereafter	415,100		564,400		610,800		584,800
TOTAL PAR VALUE	$	25,054,075	$	20,696,405	$	36,364,100	$	31,970,700

Table ~~9.3~~8.3 summarizes interest rate payment terms for consolidated obligation bonds as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table ~~9.3~~8.3


	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Simple variable rate	$	14,057,000	$	9,537,000	$	22,259,000	$	16,017,000
Fixed rate	9,982,075		10,164,405		14,105,100		15,573,700
Step					—		110,000
Variable rate with cap					—		220,000
Fixed to variable rate	535,000		545,000		—		50,000
Step	435,000		420,000
Range	45,000		30,000
TOTAL PAR VALUE	$	25,054,075	$	20,696,405	$	36,364,100	$	31,970,700

Consolidated Discount Notes: Consolidated discount notes are issued to raise short-term funds. Consolidated discount notes are consolidated obligations with original maturities of up to one year. These consolidated discount notes are generally issued at less than their face amount and redeemed at par value when they mature.

Table ~~9.4~~8.4 summarizes ~~the~~ FHLBank’s participation in consolidated obligation discount notes, all of which are due within one year (dollar amounts in thousands):

Table ~~9.4~~8.4

Book Value Par Value
Weighted
Average
Interest
Rate¹
September 30, 2017 $ 21,280,938
$ 21,304,555
1.04 %

December 31, 2016 $ 21,775,341
$ 21,784,924
0.47 %



	Book Value		Par Value		Weighted Average Interest Rate¹
June 30, 2020	$	13,560,839	$	13,565,416	0.42	%

December 31, 2019	$	27,447,911	$	27,510,042	1.54	%


¹	Represents yield to maturity excluding concession fees.

NOTE 109 – ASSETS AND LIABILITIES SUBJECT TO OFFSETTING

~~The~~ FHLBank presents certain financial instruments, including derivatives, repurchase agreements and securities purchased under agreements to resell, on a net basis by clearing agent by Clearinghouse, or by counterparty, when it has met the netting requirements. For these financial instruments, ~~the~~ FHLBank has elected to offset its asset and liability positions, as well as cash collateral ~~including initial and certain variation margin,~~ received or pledged, and associated accrued interest.

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

Tables ~~10.1~~9.1 and ~~10.2~~9.2 present the fair value of financial assets, including the related collateral received from or pledged to clearing agents or counterparties, ~~and variation margin for daily settled contracts,~~ based on the terms of ~~the~~ FHLBank’s master netting arrangements or similar agreements as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table ~~10.1~~9.1

09/30/2017
Description
Gross Amounts
of Recognized
Assets
Gross Amounts
Offset
in the
Statement of
Condition¹
Net Amounts
of Assets
Presented
in the
Statement of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition²
Net
Amount
Derivative assets:
Uncleared derivatives $ 40,577
$ (33,824 ) $ 6,753
$ (38 ) $ 6,715
Cleared derivatives³
17,787
25,956
43,743
—
43,743
Total derivative assets 58,364
(7,868 ) 50,496
(38 ) 50,458
Securities purchased under agreements to resell 2,595,589
—
2,595,589
(2,595,589 ) —
TOTAL $ 2,653,953
$ (7,868 ) $ 2,646,085
$ (2,595,627 ) $ 50,458


¹	~~Represents netting adjustments, cash collateral, and variation margin for daily settled contracts.~~


²	Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statement of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).


³	~~Variation margin for daily settled contracts of~~ ~~$(444,000)~~ ~~is included with gross amounts offset in the Statement of Condition.~~

~~Table 10.2~~


12/31/2016
06/30/2020													06/30/2020
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statements of Condition			Net Amounts of Assets Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative assets:
Uncleared derivatives	$	51,765	$	(39,540	)	$	12,225	$	(214	)	$	12,011	$	21,371	$	(19,101	)	$	2,270	$	(414	)	$	1,856
Cleared derivatives	24,640		24,035			48,675		—			48,675		1,474		187,795			189,269		—			189,269
Total derivative assets	76,405		(15,505		)	60,900		(214		)	60,686		22,845		168,694			191,539		(414		)	191,125
Securities purchased under agreements to resell	2,400,000		—			2,400,000		(2,400,000		)	—		4,450,000		—			4,450,000		(4,450,000		)	—
TOTAL	$	2,476,405	$	(15,505	)	$	2,460,900	$	(2,400,214	)	$	60,686	$	4,472,845	$	168,694		$	4,641,539	$	(4,450,414	)	$	191,125


¹	Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the ~~Statement of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).~~

Tables 10.3 and 10.4 present the fair value of financial liabilities, including the related collateral received from or pledged to counterparties and variation margin for daily settled contracts, based on the terms of the FHLBank’s master netting arrangements or similar agreements as of September 30, 2017 and December 31, 2016 (in thousands):

~~Table 10.3~~

09/30/2017
Description
Gross Amounts
of Recognized
Liabilities
Gross Amounts
Offset
in the
Statement of
Condition¹
Net Amounts
of Liabilities
Presented
in the
Statement of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition²
Net
Amount
Derivative liabilities:
Uncleared derivatives $ 41,885
$ (41,245 ) $ 640
$ (189 ) $ 451
Cleared derivatives 28,403
(28,403 ) —
—
—
Total derivative liabilities 70,288
(69,648 ) 640
(189 ) 451
TOTAL $ 70,288
$ (69,648 ) $ 640
$ (189 ) $ 451


¹	~~Represents netting adjustments and cash collateral.~~


²	~~Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statement~~Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

Table ~~10.4~~9.2


12/31/2016
12/31/2019													12/31/2019
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statements of Condition			Net Amounts of Assets Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative liabilities:
Derivative assets:
Uncleared derivatives	$	72,039	$	(64,868	)	$	7,171	$	(372	)	$	6,799	$	21,749	$	(14,424	)	$	7,325	$	(495	)	$	6,830
Cleared derivatives	34,628		(34,628		)	—		—			—		3,061		144,418			147,479		—			147,479
Total derivative liabilities	106,667		(99,496		)	7,171		(372		)	6,799
Total derivative assets													24,810		129,994			154,804		(495		)	154,309
Securities purchased under agreements to resell													4,750,000		—			4,750,000		(4,750,000		)	—
TOTAL	$	106,667	$	(99,496	)	$	7,171	$	(372	)	$	6,799	$	4,774,810	$	129,994		$	4,904,804	$	(4,750,495	)	$	154,309


¹	Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the ~~Statement~~Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

Tables 9.3 and 9.4 present the fair value of financial liabilities, including the related collateral received from or pledged to counterparties, based on the terms of FHLBank’s master netting arrangements or similar agreements as of June 30, 2020 and December 31, 2019 (in thousands):

Table 9.3



06/30/2020
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statements of Condition			Net Amounts of Liabilities Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative liabilities:
Uncleared derivatives	$	388,903	$	(388,231	)	$	672	$	(3	)	$	669
Cleared derivatives	3,699		(3,699		)	—		—			—
Total derivative liabilities	392,602		(391,930		)	672		(3		)	669
TOTAL	$	392,602	$	(391,930	)	$	672	$	(3	)	$	669


¹	Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

Table 9.4



12/31/2019
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statements of Condition			Net Amounts of Liabilities Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative liabilities:
Uncleared derivatives	$	105,468	$	(105,266	)	$	202	$	(25	)	$	177
Cleared derivatives	1,240		(1,240		)	—		—			—
Total derivative liabilities	106,708		(106,506		)	202		(25		)	177
TOTAL	$	106,708	$	(106,506	)	$	202	$	(25	)	$	177


¹	Represents noncash collateral received on financial instruments that: (1) do not qualify for netting on the Statements of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments).

NOTE 1110 – CAPITAL

Capital Requirements: ~~The~~ FHLBank is subject to three capital requirements under the provisions of the Gramm-Leach-Bliley Act (GLB Act) and the ~~Federal Housing Finance Agency's (FHFA)~~FHFA's capital structure regulation. Regulatory capital does not include AOCI but does include mandatorily redeemable capital stock.

Risk-based capital. ~~The~~ FHLBank must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, market risk and operations risk capital requirements. The risk-based capital requirements are all calculated in accordance with the rules and regulations of the FHFA. Only permanent capital, defined as Class B Common Stock and retained earnings, can be used by ~~the~~ FHLBank to satisfy its risk-based capital requirement. The FHFA may require ~~the~~ FHLBank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined, but the FHFA has not placed any such requirement on ~~the~~ FHLBank to date.

Total regulatory capital. The GLB Act requires ~~the~~ FHLBank to maintain at all times at least a 4.0 percent total capital-to-asset ratio. Total regulatory capital is defined as the sum of permanent capital, Class A Common Stock, any general loss allowance, if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the FHFA as available to absorb losses.

Leverage capital. ~~The~~ FHLBank is required to maintain at all times a leverage capital-to-assets ratio of at least 5.0 percent, with the leverage capital ratio defined as the sum of permanent capital weighted 1.5 times and non-permanent capital (currently only Class A Common Stock) weighted 1.0 times, divided by total assets.

Table ~~11.1~~10.1 illustrates that ~~the~~ FHLBank was in compliance with its regulatory capital requirements as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollar amounts in thousands):

Table ~~11.1~~10.1


	09/30/2017						12/31/2016						06/30/2020						12/31/2019
	Required			Actual			Required			Actual			Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	356,019		$	2,113,507		$	333,044		$	1,800,372		$	348,135		$	1,888,817		$	486,650		$	2,319,531
Total regulatory capital-to-asset ratio	4.0		%	4.6		%	4.0		%	4.3		%	4.0		%	4.5		%	4.0		%	4.4		%
Total regulatory capital	$	1,974,448		$	2,288,581		$	1,808,670		$	1,964,541		$	2,141,357		$	2,390,940		$	2,531,066		$	2,768,680
Leverage capital ratio	5.0		%	6.8		%	5.0		%	6.3		%	5.0		%	6.2		%	5.0		%	6.2		%
Leverage capital	$	2,468,059		$	3,345,334		$	2,260,837		$	2,864,727		$	2,676,697		$	3,335,348		$	3,163,833		$	3,928,446

Mandatorily Redeemable Capital Stock: ~~The~~ FHLBank is a cooperative whose members ~~and former members~~ own ~~all~~most of ~~the~~ FHLBank’s capital stock. ~~Member shares~~Former members (including certain non-members that own FHLBank capital stock as a result of merger or acquisition, relocation, charter termination, or involuntary termination of an FHLBank member) own the remaining capital stock to support business transactions still carried on FHLBank's Statements of Condition. Shares cannot be purchased or sold except between ~~the~~ FHLBank and its members at a price equal to the $100 per share par value. If a member cancels its written notice of redemption or notice of withdrawal, ~~the~~ FHLBank will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.

Table ~~11.2~~10.2 presents a roll-forward of mandatorily redeemable capital stock for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (in thousands):

Table ~~11.2~~10.2


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016			06/30/2020			06/30/2019			06/30/2020			06/30/2019
Balance, beginning of period	$	6,186		$	4,356		$	2,670		$	2,739		$	2,390		$	3,548		$	2,415		$	3,597
Capital stock subject to mandatory redemption reclassified from equity during the period	202,595			147,225			626,508			499,445			701,381			34,721			1,007,338			58,636
Capital stock redemption cancellations reclassified to equity during the period													—			—			(100,647		)	—
Redemption or repurchase of mandatorily redeemable capital stock during the period	(203,410		)	(148,578		)	(623,872		)	(499,218		)	(701,476		)	(35,558		)	(906,835		)	(59,564		)
Stock dividend classified as mandatorily redeemable capital stock during the period	68			22			133			59			13			39			37			81
Balance, end of period	$	5,439		$	3,025		$	5,439		$	3,025		$	2,308		$	2,750		$	2,308		$	2,750

Table ~~11.3~~10.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands). The year of redemption in Table ~~11.3~~10.3 is the end of the redemption period in accordance with ~~the~~ FHLBank’s capital plan. ~~The~~ FHLBank is not required to redeem or repurchase membership stock until six months (for Class A Common Stock) or five years (for Class B Common Stock) after ~~the~~ FHLBank receives notice for ~~withdrawal.~~withdrawal from the member. Additionally, ~~the~~ FHLBank is not required to redeem or repurchase activity-based stock until any activity-based stock becomes excess stock as a result of an activity no longer remaining outstanding. However, ~~the~~ FHLBank intends to repurchase the excess activity-based stock of non-members to the extent that it can do so and still meet its regulatory capital requirements.

Table ~~11.3~~10.3


Contractual Year of Repurchase	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Year 1	$	501	$	192	$	122	$	—
Year 2	—		1		862		1
Year 3	—		—		—		869
Year 4	245		—		—		—
Year 5	3,112		641		1		—
Past contractual redemption date due to remaining activity¹	1,581		1,836		1,323		1,545
TOTAL	$	5,439	$	2,670	$	2,308	$	2,415


¹	Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.

Excess Capital Stock: Excess capital stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum stock purchase requirement. FHFA rules limit the ability of ~~the~~ FHLBank to create excess member stock under certain circumstances. For example, ~~the~~ FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if ~~the~~ FHLBank’s excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause ~~the~~ FHLBank’s excess stock to exceed one percent of its total assets. As of ~~September~~June 30, ~~2017, the~~2020, FHLBank’s excess stock was less than one percent of total assets.

Capital Classification Determination: The FHFA implemented the prompt corrective action (PCA) provisions of the Housing and Economic Recovery Act of 2008. The rule established four capital classifications (i.e., adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) for FHLBanks and implemented the PCA provisions that apply to FHLBanks that are not deemed to be adequately capitalized. The FHFA determines each FHLBank’s capital classification on at least a quarterly basis. If an FHLBank is determined to be other than adequately capitalized, ~~the~~that FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide ~~the~~an FHLBank with written notice of the proposed action and an opportunity to submit a response. As of the most recent review by the FHFA, ~~for the second quarter of 2017, the~~ FHLBank ~~has been~~Topeka was classified as adequately capitalized.

Partial Recovery of Prior Capital Distribution to Financing Corporation. The Competitive Equality Banking Act of 1987 was enacted in August 1987, which, among other things, provided for the recapitalization of the Federal Savings and Loan Insurance Corporation through a newly-chartered entity, the Financing Corporation (FICO). The capitalization of FICO was provided by capital distributions from the FHLBanks to FICO in exchange for FICO nonvoting capital stock. Capital distributions were made by the FHLBanks in 1987, 1988 and 1989 that aggregated to $680,000,000. Upon passage of Financial Institutions Reform, Recovery and Enforcement Act of 1989, the FHLBanks’ previous investment in capital stock of FICO was determined to be non-redeemable and the FHLBanks charged-off their prior capital distributions to FICO directly against retained earnings. Upon the dissolution of FICO in June 2020, FICO determined that excess funds aggregating to $200,031,000 were available for distribution to its stockholders, the FHLBanks. Specifically, FHLBank Topeka’s partial recovery of prior capital distribution was $10,543,000, which was determined based on its share of the $680,000,000 originally contributed. The FHLBanks treated the receipt of these funds as a return of the FHLBanks’ investment in FICO capital stock, and therefore as a partial recovery of the prior capital distributions made by the FHLBanks to FICO in 1987, 1988, and 1989. These funds have been credited to unrestricted retained earnings.

NOTE 1211 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Table ~~12.1~~11.1 summarizes the changes in AOCI for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (in thousands):

Table ~~12.1~~11.1



	Three Months Ended
	Net Unrealized Gains (Losses) on Available-for-sale Securities			Defined Benefit Pension Plan			Total AOCI
Balance at March 31, 2019	$	30,916		$	(3,302	)	$	27,614
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	4,227						4,227
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan¹				72			72
Net current period other comprehensive income (loss)	4,227			72			4,299
Balance at June 30, 2019	$	35,143		$	(3,230	)	$	31,913

Balance at March 31, 2020	$	(67,343	)	$	(1,976	)	$	(69,319	)
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	35,597						35,597
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan¹				28			28
Net current period other comprehensive income (loss)	35,597			28			35,625
Balance at June 30, 2020	$	(31,746	)	$	(1,948	)	$	(33,694	)

Three Months Ended
Net Unrealized Gain (Loss) on Available-for-Sale Securities Net Non-credit Portion of OTTI Losses on
Held-to-maturity Securities Defined Benefit Pension Plan Total AOCI
Balance at June 30, 2016 $ (6,275 ) $ (6,908 ) $ (2,355 ) $ (15,538 )
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss) 8,434
8,434
Accretion of non-credit loss 479
479
Reclassifications from other comprehensive income (loss) to net income:

Non-credit OTTI to credit OTTI¹
30
30
Amortization of net loss - defined benefit pension plan²
47
47
Net current period other comprehensive income (loss) 8,434
509
47
8,990
Balance at September 30, 2016 $ 2,159
$ (6,399 ) $ (2,308 ) $ (6,548 )

Balance at June 30, 2017 $ 21,212
$ (5,021 ) $ (2,812 ) $ 13,379
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss) 1,452
1,452
Non-credit OTTI losses (26 ) (26 )
Accretion of non-credit loss 321
321
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹
282
282
Amortization of net loss - defined benefit pension plan²
58
58
Net current period other comprehensive income (loss) 1,452
577
58
2,087
Balance at September 30, 2017 $ 22,664
$ (4,444 ) $ (2,754 ) $ 15,466


¹	Recorded in ~~“Net other-than-temporary impairment losses on held-to-maturity securities” on the Statements of Income. Amount represents a debit (decrease to other income (loss)).~~


²	~~Recorded in “Compensation and benefits”~~“Other” non-interest expense on the Statements of Income. Amount represents a debit (increase to other expenses).

Table ~~12.2~~11.2 summarizes the changes in AOCI for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (in thousands):

Table ~~12.2~~11.2

Nine Months Ended
Net Unrealized Gain (Loss) on Available-for-Sale Securities Net Non-credit Portion of OTTI Losses on
Held-to-maturity Securities Defined Benefit Pension Plan Total AOCI
Balance at December 31, 2015 $ (8,577 ) $ (7,950 ) $ (2,450 ) $ (18,977 )
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss) 10,736
10,736
Non-credit OTTI losses (62 ) (62 )
Accretion of non-credit loss 1,554
1,554
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹
59
59
Amortization of net loss - defined benefit pension plan²
142
142
Net current period other comprehensive income (loss) 10,736
1,551
142
12,429
Balance at September 30, 2016 $ 2,159
$ (6,399 ) $ (2,308 ) $ (6,548 )

Balance at December 31, 2016 $ 9,345
$ (5,841 ) $ (2,927 ) $ 577
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss) 13,319
13,319
Non-credit OTTI losses (30 ) (30 )
Accretion of non-credit loss 1,027
1,027
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹
400
400
Amortization of net loss - defined benefit pension plan²
173
173
Net current period other comprehensive income (loss) 13,319
1,397
173
14,889
Balance at September 30, 2017 $ 22,664
$ (4,444 ) $ (2,754 ) $ 15,466



	Six Months Ended
	Net Unrealized Gains (Losses) on Available-for-sale Securities			Defined Benefit Pension Plan			Total AOCI
Balance at December 31, 2018	$	19,068		$	(3,375	)	$	15,693
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	16,075						16,075
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan¹				145			145
Net current period other comprehensive income (loss)	16,075			145			16,220
Balance at June 30, 2019	$	35,143		$	(3,230	)	$	31,913


Balance at December 31, 2019	$	26,788		$	(2,002	)	$	24,786
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	(57,011		)				(57,011		)
Reclassifications from other comprehensive income (loss) to net income:
Realized net (gains) losses included in net income²	(1,523		)				(1,523		)
Amortization of net losses - defined benefit pension plan¹				54			54
Net current period other comprehensive income (loss)	(58,534		)	54			(58,480		)
Balance at June 30, 2020	$	(31,746	)	$	(1,948	)	$	(33,694	)


¹	Recorded in ~~“Net other-than-temporary impairment losses on held-to-maturity securities” on the Statements of Income. Amount represents a debit (decrease to other income (loss)).~~


²	~~Recorded in “Compensation and benefits”~~“Other” non-interest expense on the Statements of Income. Amount represents a debit (increase to other expenses).


²	Recorded in “Net gains (losses) on sale of available-for-sale securities” non-interest income on the Statements of Income. Amount represents a credit (increase to other income (loss)).

NOTE 1312 – FAIR VALUES

The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by ~~the~~ FHLBank using available market and other pertinent information and reflect ~~the~~ FHLBank’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., an exit price). Although ~~the~~ FHLBank uses its best judgment in estimating the fair value of its financial instruments, there are inherent limitations in any valuation technique. Therefore, the fair values may not be indicative of the amounts that would have been realized in market transactions as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~

2019. Additionally, these values do not represent an estimate of the overall market value of FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

Subjectivity of Estimates: Estimates of the fair value of advances with options, mortgage instruments, derivatives with embedded options and consolidated obligation bonds with options 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, methods to determine 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 Hierarchy: The FHLBank records trading securities, available-for-sale securities, derivative assets and derivative liabilities at fair value on a recurring basis and on occasion, certain private-label MBS, impaired mortgage loans held for portfolio and non-financial assets on a non-recurring basis. The fair value hierarchy requires ~~the~~ FHLBank to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of the market observability of the fair value measurement for the asset or liability. ~~The~~ FHLBank must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities.

The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that ~~the~~ FHLBank can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Inputs – Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets and liabilities in active markets; (2) quoted prices for similar assets and liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

~~The~~ FHLBank 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. There were no ~~reclassifications~~transfers of assets or liabilities ~~recorded~~between fair value levels during the three and six months ended June 30, 2020 and 2019.

Tables 12.1 and 12.2present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of June 30, 2020 and December 31, 2019. FHLBank records trading securities, available-for-sale securities, derivative assets, and derivative liabilities at fair value on a recurring basis, ~~during~~and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. FHLBank measures all other financial assets and liabilities at amortized cost. Further details about the ~~three~~financial assets and ~~nine months ended September 30, 2017~~liabilities held at fair value on either a recurring or non-recurring basis are presented in Tables 12.3 and ~~2016.~~12.4.

The carrying value, fair value and fair value hierarchy of ~~the~~ FHLBank’s financial assets and liabilities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized in Tables ~~13.1~~12.1 and ~~13.2~~12.2 (in thousands). These values do not represent an estimate of the overall market value of the FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.:

Table ~~13.1~~12.1


	09/30/2017																06/30/2020
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹			Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	7,803		$	7,803		$	7,803	$	—		$	—	$	—		$	28,283		$	28,283		$	28,283	$	—		$	—	$	—
Interest-bearing deposits	301,208			301,208			—		301,208			—		—			1,017,972			1,017,972			—		1,017,972			—		—
Securities purchased under agreements to resell	2,595,589			2,595,589			—		2,595,589			—		—			4,450,000			4,450,000			—		4,450,000			—		—
Federal funds sold	1,692,000			1,692,000			—		1,692,000			—		—			1,520,000			1,520,000			—		1,520,000			—		—
Trading securities	2,973,383			2,973,383			—		2,973,383			—		—			2,904,643			2,904,643			—		2,904,643			—		—
Available-for-sale securities	1,464,472			1,464,472			—		1,464,472			—		—			7,558,676			7,558,676			—		7,558,676			—		—
Held-to-maturity securities	4,740,532			4,740,231			—		4,564,544			175,687		—			3,182,136			3,176,712			—		3,098,332			78,380		—
Advances	28,319,226			28,350,430			—		28,350,430			—		—			21,528,991			21,618,227			—		21,618,227			—		—
Mortgage loans held for portfolio, net of allowance	7,055,239			7,211,720			—		7,210,291			1,429		—			10,945,717			11,629,669			—		11,628,390			1,279		—
Accrued interest receivable	79,854			79,854			—		79,854			—		—			113,448			113,448			—		113,448			—		—
Derivative assets	50,496			50,496			—		58,364			—		(7,868		)	191,539			191,539			—		22,845			—		168,694
Liabilities:
Deposits	550,627			550,627			—		550,627			—		—			988,292			988,292			—		988,292			—		—
Consolidated obligation discount notes	21,280,938			21,281,281			—		21,281,281			—		—			13,560,839			13,563,296			—		13,563,296			—		—
Consolidated obligation bonds	25,070,225			24,987,504			—		24,987,504			—		—			36,445,676			36,685,244			—		36,685,244			—		—
Mandatorily redeemable capital stock	5,439			5,439			5,439		—			—		—			2,308			2,308			2,308		—			—		—
Accrued interest payable	61,616			61,616			—		61,616			—		—			75,097			75,097			—		75,097			—		—
Derivative liabilities	640			640			—		70,288			—		(69,648		)	672			672			—		392,602			—		(391,930		)
Other Asset (Liability):
Industrial revenue bonds	16,500			15,540			—		15,540			—		—			35,000			37,933			—		37,933			—		—
Financing lease payable	(16,500		)	(15,540		)	—		(15,540		)	—		—
Standby letters of credit	(1,106		)	(1,106		)	—		(1,106		)	—		—
Standby bond purchase agreements	44			3,648			—		3,648			—		—
Advance commitments	—			(6,949		)	—		(6,949		)	—		—
Financing obligation payable																	(35,000		)	(37,933		)	—		(37,933		)	—		—

Represents the effect of legally enforceable master netting agreements that allow ~~the~~ FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty~~and variation margin for daily settled contracts~~.~~Variation margin for daily settled contracts of~~ ~~$(444,000)~~ ~~is included with derivative assets.~~

Table ~~13.2~~12.2


	12/31/2016																12/31/2019
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹			Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	207,254		$	207,254		$	207,254	$	—		$	—	$	—		$	1,917,166		$	1,917,166		$	1,917,166	$	—		$	—	$	—
Interest-bearing deposits	387,920			387,920			—		387,920			—		—			921,453			921,453			—		921,453			—		—
Securities purchased under agreements to resell	2,400,000			2,400,000			—		2,400,000			—		—			4,750,000			4,750,000			—		4,750,000			—		—
Federal funds sold	2,725,000			2,725,000			—		2,725,000			—		—			850,000			850,000			—		850,000			—		—
Trading securities	2,502,788			2,502,788			—		2,502,788			—		—			2,812,562			2,812,562			—		2,812,562			—		—
Available-for-sale securities	1,091,721			1,091,721			—		1,091,721			—		—			7,182,500			7,182,500			—		7,182,500			—		—
Held-to-maturity securities	4,502,224			4,487,252			—		4,276,650			210,602		—			3,569,958			3,556,938			—		3,476,084			80,854		—
Advances	23,985,835			24,016,686			—		24,016,686			—		—			30,241,315			30,295,813			—		30,295,813			—		—
Mortgage loans held for portfolio, net of allowance	6,640,725			6,754,046			—		6,752,849			1,197		—			10,633,009			10,983,356			—		10,981,458			1,898		—
Overnight loans to other FHLBanks	600,000			600,000			—		600,000			—		—
Accrued interest receivable	68,400			68,400			—		68,400			—		—			143,765			143,765			—		143,765			—		—
Derivative assets	60,900			60,900			—		76,405			—		(15,505		)	154,804			154,804			—		24,810			—		129,994
Liabilities:
Deposits	598,931			598,931			—		598,931			—		—			790,640			790,640			—		790,640			—		—
Consolidated obligation discount notes	21,775,341			21,774,950			—		21,774,950			—		—			27,447,911			27,448,021			—		27,448,021			—		—
Consolidated obligation bonds	20,722,335			20,568,653			—		20,568,653			—		—			32,013,314			32,103,154			—		32,103,154			—		—
Mandatorily redeemable capital stock	2,670			2,670			2,670		—			—		—			2,415			2,415			2,415		—			—		—
Accrued interest payable	49,808			49,808			—		49,808			—		—			117,580			117,580			—		117,580			—		—
Derivative liabilities	7,171			7,171			—		106,667			—		(99,496		)	202			202			—		106,708			—		(106,506		)
Other Asset (Liability):
Standby letters of credit	(1,151		)	(1,151		)	—		(1,151		)	—		—
Standby bond purchase agreements	6			6,016			—		6,016			—		—
Advance commitments	—			(6,241		)	—		(6,241		)	—		—
Industrial revenue bonds																	35,000			34,850			—		34,850			—		—
Financing obligation payable																	(35,000		)	(34,850		)	—		(34,850		)	—		—


¹	Represents the effect of legally enforceable master netting agreements that allow ~~the~~ FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.

~~Fair Value Methodologies and Techniques and Significant Inputs:~~

~~Changes in the FHLBank's fair value methodologies and techniques and significant inputs for the period ended September 30, 2017 include the following:~~

~~Industrial Revenue Bonds and Financing Lease Payable:~~ The fair values for the industrial revenue bonds and the financing lease payable are estimated using the present value of future payments discounted using the Consolidated Obligation curve (CO curve) published by the Office of Finance. The CO curve is an internal curve constructed by the Office of Finance using the U.S. Treasury curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE trades and secondary market activity. See Note 14 for additional information on the industrial revenue bonds and related financing lease.

Fair Value Measurements: Tables ~~13.3~~12.3 and ~~13.4~~12.4 present, for each hierarchy level, ~~the~~ FHLBank’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition as of or for the periods ended ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands). The FHLBank measures certain held-to-maturity securities at fair value on a nonrecurring basis due to the recognition of a credit loss. For held-to-maturity securities that had credit impairment recorded during a period for which no total impairment was recorded (the full amount of additional credit impairment was a reclassification from non-credit impairment previously recorded in AOCI), these securities were recorded at their carrying values and not fair value. The FHLBank measures certain impaired mortgage loans held for portfolio at fair value on a nonrecurring basis when, upon individual evaluation for impairment, the estimated fair value less costs to sell is lower than the recorded investment. REO is measured at fair value when the asset’s fair value less costs to sell is lower than its carrying amount.

Table ~~13.3~~12.3

09/30/2017
Total Level 1 Level 2 Level 3
Netting
Adjustment
and Cash
Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
Certificates of deposit $ 675,027
$ —
$ 675,027
$ —
$ —
GSE obligations²
1,357,859
—
1,357,859
—
—
U.S. obligation MBS³
604
—
604
—
—
GSE MBS⁴
939,893
—
939,893
—
—
Total trading securities 2,973,383
—
2,973,383
—
—
Available-for-sale securities:
GSE MBS⁵
1,464,472
—
1,464,472
—
—
Total available-for-sale securities 1,464,472
—
1,464,472
—
—
Derivative assets:
Interest-rate related 50,458
—
58,326
—
(7,868 )
Mortgage delivery commitments 38
—
38
—
—
Total derivative assets 50,496
—
58,364
—
(7,868 )
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS $ 4,488,351
$ —
$ 4,496,219
$ —
$ (7,868 )

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related $ 451
$ —
$ 70,099
$ —
$ (69,648 )
Mortgage delivery commitments 189
—
189
—
—
Total derivative liabilities 640
—
70,288
—
(69,648 )
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES $ 640
$ —
$ 70,288
$ —
$ (69,648 )

Nonrecurring fair value measurements - Assets⁶:

Held-to-maturity securities:
Private-label residential MBS $ 4,327
$ —
$ —
$ 4,327
$ —
Impaired mortgage loans 1,431
—
—
1,431
—
Real estate owned 1,127
—
—
1,127
—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS $ 6,885
$ —
$ —
$ 6,885
$ —


¹	Represents the effect of legally enforceable master netting agreements that allow the FHLBank to net settle positive and negative positions and also derivative cash collateral, related accrued interest held or placed with the same clearing agent or derivative counterparty, ~~and variation margin for daily settled contracts~~.


²	~~Represents debentures issued by other FHLBanks, Fannie Mae, Freddie Mac, Farm Credit and Farmer Mac. GSE securities are not guaranteed by the U.S. government.~~


³	~~Represents single-family MBS issued by Ginnie Mae, which are guaranteed by the U.S. government.~~


⁴	~~Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.~~


⁵	~~Represents multi-family MBS issued by Fannie Mae.~~


⁶	~~Includes assets adjusted to fair value during the nine months ended September 30, 2017 and still outstanding as of~~ ~~September 30, 2017~~.

~~Table 13.4~~


	12/31/2016											06/30/2020
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹			Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
GSE obligations²	$	1,563,351	$	—	$	1,563,351	$	—	$	—
U.S. obligation MBS³	690		—		690		—		—
GSE MBS⁴	938,747		—		938,747		—		—
U.S. Treasury obligations												$	1,565,218	$	—	$	1,565,218	$	—	$	—
GSE obligations												435,008		—		435,008		—		—
GSE MBS												904,417		—		904,417		—		—
Total trading securities	2,502,788		—		2,502,788		—		—			2,904,643		—		2,904,643		—		—
Available-for-sale securities:
GSE MBS⁵	1,091,721		—		1,091,721		—		—
U.S. Treasury obligations												4,337,386		—		4,337,386		—		—
GSE MBS												3,221,290		—		3,221,290		—		—
Total available-for-sale securities	1,091,721		—		1,091,721		—		—			7,558,676		—		7,558,676		—		—
Derivative assets:
Interest-rate related	60,686		—		76,191		—		(15,505		)	191,125		—		22,431		—		168,694
Mortgage delivery commitments	214		—		214		—		—			414		—		414		—		—
Total derivative assets	60,900		—		76,405		—		(15,505		)	191,539		—		22,845		—		168,694
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	3,655,409	$	—	$	3,670,914	$	—	$	(15,505	)	$	10,654,858	$	—	$	10,486,164	$	—	$	168,694

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	6,799	$	—	$	106,295	$	—	$	(99,496	)	$	669	$	—	$	392,599	$	—	$	(391,930	)
Mortgage delivery commitments	372		—		372		—		—			3		—		3		—		—
Total derivative liabilities	7,171		—		106,667		—		(99,496		)	672		—		392,602		—		(391,930		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	7,171	$	—	$	106,667	$	—	$	(99,496	)	$	672	$	—	$	392,602	$	—	$	(391,930	)

Nonrecurring fair value measurements - Assets⁶:
Held-to-maturity securities:
Private-label residential MBS	$	4,781	$	—	$	—	$	4,781	$	—
Nonrecurring fair value measurements - Assets²:
Impaired mortgage loans	1,205						$	1,205				$	1,285	$	—	$	—	$	1,285	$	—
Real estate owned	1,086		—		—		1,086		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	7,072	$	—	$	—	$	7,072	$	—		$	1,285	$	—	$	—	$	1,285	$	—


¹	Represents the effect of legally enforceable master netting agreements that allow ~~the~~ FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.


²	Includes assets adjusted to fair value during the six months ended June 30, 2020 and still outstanding as of June 30, 2020.

Table 12.4



	12/31/2019
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
U.S. Treasury obligations	$	1,530,518	$	—	$	1,530,518	$	—	$	—
GSE obligations	416,025		—		416,025		—		—
GSE MBS	866,019		—		866,019		—		—
Total trading securities	2,812,562		—		2,812,562		—		—
Available-for-sale securities:
U.S. Treasury obligations	4,261,791		—		4,261,791		—		—
GSE MBS	2,920,709		—		2,920,709		—		—
Total available-for-sale securities	7,182,500		—		7,182,500		—		—
Derivative assets:
Interest-rate related	154,309		—		24,315		—		129,994
Mortgage delivery commitments	495		—		495		—		—
Total derivative assets	154,804		—		24,810		—		129,994
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	10,149,866	$	—	$	10,019,872	$	—	$	129,994

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	177	$	—	$	106,683	$	—	$	(106,506	)
Mortgage delivery commitments	25		—		25		—		—
Total derivative liabilities	202		—		106,708		—		(106,506		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	202	$	—	$	106,708	$	—	$	(106,506	)

Nonrecurring fair value measurements - Assets²:
Impaired mortgage loans	$	1,909	$	—	$	—	$	1,909	$	—
Real estate owned	144		—		—		144		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	2,053	$	—	$	—	$	2,053	$	—


¹	Represents ~~debentures issued by other FHLBanks, Fannie Mae, Freddie Mac~~the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and ~~Farm Credit.~~negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.


³	~~Represents~~ ~~single-family~~ ~~MBS issued by Ginnie Mae.~~


⁴	~~Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.~~


⁵	~~Represents multi-family MBS issued by Fannie Mae.~~


⁶²	Includes assets adjusted to fair value during the year ended December 31, ~~2016~~2019 and still outstanding as of December 31, ~~2016.~~2019.

NOTE 1413 – COMMITMENTS AND CONTINGENCIES

Joint and Several Liability: As provided in the ~~Federal Home Loan~~ Bank Act ~~of 1932, as amended (Bank Act)~~ or in FHFA regulations, consolidated obligations are backed only by the financial resources of the FHLBanks. FHLBank Topeka is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks. The par amounts for which FHLBank Topeka is jointly and severally liable were approximately ~~$982,350,905,000~~$865,823,009,000 and ~~$946,829,735,000~~$966,413,924,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

The joint and several obligations are mandated by FHFA regulations and are not the result of arms-length transactions among FHLBanks. As described above, FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several liability. Because the FHLBanks are subject to the authority of the FHFA as it relates to decisions involving the allocation of the joint and several liability for all FHLBanks' consolidated obligations, FHLBank Topeka regularly monitors the financial condition of the other FHLBanks to determine whether it should expect a loss to arise from its joint and several obligations. If FHLBank were to determine that a loss was probable and the amount of the loss could be reasonably estimated, FHLBank would charge to income the amount of the expected loss. Based upon the creditworthiness of the other FHLBanks as of June 30, 2020, FHLBank Topeka has concluded that a loss accrual is not necessary at this time.

Off-balance Sheet Commitments: As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, off-balance sheet commitments are presented in Table ~~14.1~~13.1 (in thousands):

Table ~~14.1~~13.1


	09/30/2017						12/31/2016						06/30/2020						12/31/2019
Notional Amount	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	$	2,845,040	$	14,348	$	2,859,388	$	2,995,497	$	12,823	$	3,008,320	$	5,242,155	$	5,635	$	5,247,790	$	4,764,724	$	4,335	$	4,769,059
Advance commitments outstanding	73,875		69,475		143,350		37,950		45,025		82,975		64,220		16,090		80,310		64,282		15,693		79,975
Commitments for standby bond purchases	713,023		419,849		1,132,872		210,349		1,002,669		1,213,018		382,521		280,726		663,247		—		701,392		701,392
Commitments to fund or purchase mortgage loans	121,377		—		121,377		90,013		—		90,013		107,916		—		107,916		221,800		—		221,800
Commitments to issue consolidated bonds, at par	28,000		—		28,000		45,000		—		45,000		138,000		—		138,000		—		—		—
Commitments to issue consolidated discount notes, at par													—		—		—		411,161		—		411,161

Commitments to Extend Credit: FHLBank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. These standby letters of credit are subject to the same collateralization and borrowing limits that are applicable to advances and are fully collateralized at the time of issuance with assets allowed by FHLBank’s Member Products Policy (MPP). Standby letters of credit may be offered to assist members in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from federal and state government agencies. Standby letters of credit are executed for members for a fee. ~~A standby letter of credit is a short-term financing arrangement between the FHLBank and its member or non-member housing associate.~~ If ~~the~~ FHLBank is required to make payment for a ~~beneficiary’s~~beneficiary's draw, ~~these amounts are~~the member either reimburses FHLBank for the amount drawn or, subject to FHLBank's discretion, the amount drawn may be converted into a collateralized advance to the member. AsHowever, standby letters of ~~September 30, 2017,~~credit usually expire without being drawn upon. Outstanding standby letters of credit have original or extended expiration periods of up to 6 years. FHLBank's current outstanding standby letters of credit had terms to maturity upon issuance of the currently outstanding standby letters of credit of 4 days to 10 years with a final expiration in 2020. As of December 31, 2016, outstanding standby letters of credit had terms to maturity upon issuance of the currently outstanding standby letters of credit of 7 days to 10 years with a final expiration in 2020.expire no later than 2024. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to ~~$1,106,000~~$1,418,000 and ~~$1,151,000~~$1,470,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. ~~Standby letters of credit are fully collateralized with assets allowed by the FHLBank’s Member Products Policy (MPP).~~ Advance commitments legally bind and unconditionally obligate ~~the~~ FHLBank for additional advances up to 24 months in the future. Based upon management’s credit analysis of members and collateral requirements under the MPP, ~~the~~ FHLBank does not expect to incur any credit losses on the outstanding letters of credit or advance commitments.

Standby Bond-Purchase Agreements: ~~The~~ FHLBank has entered into standby bond purchase agreements with state housing authorities whereby ~~the~~ FHLBank, for a fee, agrees to purchase and hold the authorities’ bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require ~~the~~ FHLBank to purchase the bond. The bond purchase commitments entered into by ~~the~~ FHLBank expire no later than ~~2020,~~2022, though some are renewable at the option of ~~the~~ FHLBank. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the total commitments for bond purchases ~~were~~included agreements with two in-district ~~and one out-of-district~~ state housing authorities. ~~The~~FHLBank was required to purchase $122,390,000 in bonds under these agreements during the six months ended June 30, 2020. These bonds were classified as available-for-sale securities, and were acquired at par and sold at par within the same month. FHLBank was not required to purchase any bonds under any agreements during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017 and 2016.~~2019.

Commitments to Purchase Mortgage Loans: These commitments that unconditionally obligate ~~the~~ FHLBank to purchase mortgage loans from participating FHLBank Topeka members in the MPF Program are generally for periods not to exceed 60 calendar days. Certain commitments are recorded as derivatives at their fair values on the Statements of Condition. ~~The~~ FHLBank recorded mortgage delivery commitment net derivative asset (liability) balances of ~~$(151,000)~~$411,000 and ~~$(158,000)~~$470,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

Commitments to Issue Consolidated Obligations: ~~The~~ FHLBank enters into commitments to issue consolidated obligation bonds and discount notes outstanding in the normal course of its business. ~~All~~Most settle within the shortest period possible and are considered regular way trades; ~~thus, the~~however, certain commitments are ~~appropriately not~~ recorded as ~~derivatives.~~

~~Other Commitments:~~ ~~On June 28, 2017, the FHLBank completed an industrial revenue bond financing transaction with Shawnee County, Kansas (County) that will provide property tax savings for 10 years~~derivatives at their fair values on the ~~FHLBank's new headquarters. In the transaction, the County acquired an interest in the land, improvements, building and equipment (collectively, the Project) by issuing up to $36,000,000~~Statements of industrial revenue bonds due December 31, 2027 (IRBs) and leased the Project to the FHLBank for an identical 127-month term under a financing lease. The IRBs are collateralized by the Project and the lease revenues for the related leasing transaction with the County. The IRBs were purchased by the FHLBank. The County assigned the lease to the bond trustee for the FHLBank's benefit as the sole holder of the IRBs. The FHLBank can prepay the IRBs at any time, but would forfeit its property tax benefit in the event the IRBs were to be prepaid. As a result, the land and building will remain a component of the property, plant and equipment in the FHLBank's statement of financial condition. The IRBs and the equivalent liability are included in the FHLBank's statement of financial condition in Other Assets and Other Liabilities, respectively. The FHLBank, as holder of the IRBs, is due interest at 2.0 percent per annum with interest payable annually in arrears on December 1, beginning December 1, 2017. This interest income is directly offset by the financing interest expense payments on the land and building, which are due at the same time and in the same amount as the interest income. The bond trustee for the transaction is BOKF, N.A., a related party disclosed in Note 15. As bond trustee, BOKF, N.A. received trustee fees of $11,000. As of September 30, 2017, $16,500,000 of the IRBs were issued and outstanding.Condition.

NOTE 1514 – TRANSACTIONS WITH STOCKHOLDERS

~~The~~ FHLBank is a cooperative whose members own most of the capital stock of ~~the~~ FHLBank and generally receive dividends on their investments. In addition, certain former members that still have outstanding transactions are also required to maintain their investments in FHLBank capital stock until the transactions mature or are paid off. Nearly all outstanding advances are with current members, and the majority of outstanding mortgage loans held for portfolio were purchased from current or former members. ~~The~~ FHLBank also maintains demand deposit accounts for members primarily to facilitate settlement activities that are directly related to advances and mortgage loan purchases.

Transactions with members are entered into in the ordinary course of business. In instances where members also have officers or directors who are directors of ~~the~~ FHLBank, transactions with those members are subject to the same eligibility and credit criteria, as well as the same terms and conditions, as other transactions with members. For financial reporting and disclosure purposes, ~~the~~ FHLBank defines related parties as FHLBank directors’ financial institutions and members with capital stock investments in excess of 10 percent of ~~the~~ FHLBank’s total regulatory capital stock outstanding, which includes mandatorily redeemable capital stock.

Activity with Members that Exceed a 10 Percent Ownership in FHLBank Capital Stock: Tables ~~15.1~~14.1 and ~~15.2~~14.2 present information ~~as of September 30, 2017 and December 31, 2016~~ on members that owned more than 10 percent of outstanding FHLBank regulatory capital stock ~~in 2017 or 2016~~as of June 30, 2020 and December 31, 2019 (dollar amounts in thousands). None of the officers or directors of these members currently serve on ~~the~~ FHLBank’s board of directors.

Table ~~15.1~~14.1


09/30/2017
06/30/2020														06/30/2020
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock		State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
BOKF, N.A.	OK	$	13,950	8.0	%	$	296,672	22.9	%	$	310,622	21.1	%
MidFirst Bank	OK	500		0.3		241,067		18.6		241,567		16.4		OK	$	86,625	17.3	%	$	237,034	26.6	%	$	323,659	23.2	%
TOTAL		$	14,450	8.3	%	$	537,739	41.5	%	$	552,189	37.5	%		$	86,625	17.3	%	$	237,034	26.6	%	$	323,659	23.2	%

Table ~~15.2~~14.2


12/31/2016
12/31/2019														12/31/2019
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock		State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
MidFirst Bank														OK	$	500	0.1	%	$	385,825	29.2	%	$	386,325	21.8	%
BOKF, N.A.	OK	$	500	0.3	%	$	219,755	20.6	%	$	220,255	17.9	%	OK	184,282		41.0		202,000		15.3		386,282		21.8
MidFirst Bank	OK	500		0.3		197,669		18.6		198,169		16.1
TOTAL		$	1,000	0.6	%	$	417,424	39.2	%	$	418,424	34.0	%		$	184,782	41.1	%	$	587,825	44.5	%	$	772,607	43.6	%

Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized in Table ~~15.3~~14.3 (dollar amounts in thousands). Information is only listed for the period in which the member owned more than 10 percent of outstanding FHLBank regulatory stock.

Table ~~15.3~~14.3


	09/30/2017				12/31/2016				09/30/2017				12/31/2016				06/30/2020				12/31/2019				06/30/2020				12/31/2019
Member Name	Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total
MidFirst Bank																	$	5,085,000	24.0	%	$	8,585,000	28.5	%	$	646	0.1	%	$	1,030	0.1	%
BOKF, N.A.	$	6,200,000	21.9	%	$	4,800,000	20.0	%	$	8,548	1.6	%	$	54,145	9.1	%					4,500,000		14.9						22,457		2.9
MidFirst Bank	5,265,000		18.6		4,340,000		18.1		254		—		424		0.1
TOTAL	$	11,465,000	40.5	%	$	9,140,000	38.1	%	$	8,802	1.6	%	$	54,569	9.2	%	$	5,085,000	24.0	%	$	13,085,000	43.4	%	$	646	0.1	%	$	23,487	3.0	%

~~BOKF, N.A. and~~ MidFirst Bank did not sell any mortgage loans into the MPF Program during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. BOKF, N.A. did not sell any mortgage loans into the MPF Program during the three and six months ended June 30, 2019.

Transactions with FHLBank Directors’ Financial Institutions: Table ~~15.4~~14.4 presents information as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 for members that had an officer or director serving on ~~the~~ FHLBank’s board of directors (dollar amounts in thousands). Information is only included for the period in which the officer or director served on ~~the~~ FHLBank’s board of directors. Capital stock listed is regulatory capital stock, which includes mandatorily redeemable capital stock.

Table ~~15.4~~14.4


	09/30/2017				12/31/2016				06/30/2020				12/31/2019
	Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total
Advances	$	163,943	0.6	%	$	172,793	0.7	%	$	183,011	0.9	%	$	178,945	0.6	%

Deposits	$	9,478	1.7	%	$	12,329	2.1	%	$	20,126	2.0	%	$	15,748	2.0	%

��
Class A Common Stock	$	4,123	2.4	%	$	3,782	2.3	%	$	4,602	0.9	%	$	6,467	1.4	%
Class B Common Stock	5,102		0.4		5,585		0.5		5,921		0.7		5,571		0.4
TOTAL CAPITAL STOCK	$	9,225	0.6	%	$	9,367	0.8	%	$	10,523	0.8	%	$	12,038	0.7	%

Table ~~15.5~~14.5 presents mortgage loans acquired during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 for members that had an officer or director serving on ~~the~~ FHLBank’s board of directors in ~~2017~~2020 or ~~2016~~2019 (dollar amounts in thousands). Information is only included for the period in which the officer or director served on ~~the~~ FHLBank’s board of directors.

Table ~~15.5~~14.5

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total
Mortgage loans acquired $ 30,912
6.6 % $ 23,168
5.8 % $ 85,904
7.6 % $ 56,871
6.0 %



	Three Months Ended								Six Months Ended
	06/30/2020				06/30/2019				06/30/2020				06/30/2019
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
Mortgage loans acquired	$	40,701	3.6	%	$	43,809	5.6	%	$	86,810	4.3	%	$	66,889	5.3	%

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding our business and assessing our operations both historically and prospectively. This discussion should be read in conjunction with our interim financial statements and related notes presented under Part I Item 1 of this quarterly report on Form 10-Q and the annual report on Form 10-K for the year ended December 31, ~~2016,~~2019, which includes audited financial statements and related notes for the year ended December 31, ~~2016.~~2019. Our MD&A includes the following sections:

Executive Level Overview – a general description of our business and financial highlights;

Financial Market Trends – a discussion of current trends in the financial markets and overall economic environment, including the related impact on our operations;

Critical Accounting Policies and Estimates – a discussion of accounting policies that require critical estimates and assumptions;

Results of Operations – an analysis of our operating results, including disclosures about the sustainability of our earnings;

Financial Condition – an analysis of our financial position;

Liquidity and Capital Resources – an analysis of our cash flows and capital position;

Risk Management – a discussion of our risk management strategies;

Impact of Recently Issued Accounting Standards; and

Legislative and Regulatory Developments.

Executive Level Overview

We are a regional wholesale bank that makes advances (loans) to, purchases mortgage loans from, and provides limited other financial services primarily to our members. The FHLBanks, together with the Office of Finance, a joint office of the FHLBanks, make up the FHLBank System, which consists of 11 district FHLBanks. As independent, member-owned cooperatives, the FHLBanks seek to maintain a balance between their public purpose and their ability to provide adequate returns on the capital supplied by their members. The FHLBanks are supervised and regulated by the FHFA, an independent agency in the executive branch of the U.S. government. The FHFA’s mission is to ensure that the housing GSEs operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment.

Our primary funding source is consolidated obligations issued through the FHLBanks’ Office of Finance that facilitates the issuance and servicing of the consolidated obligations. The FHFA and the U.S. Secretary of the Treasury oversee the issuance of FHLBank debt. Consolidated obligations are debt instruments that constitute the joint and several obligations of all FHLBanks. Although consolidated obligations are not obligations of, nor guaranteed by, the U.S. government, the capital markets have traditionally viewed the FHLBanks’ consolidated obligations as “Federal agency” debt. As a result, the FHLBanks have historically had ready access to funding at relatively favorable spreads to U.S. Treasuries. Additional funds are provided by deposits (received from both member and non-member financial institutions), other borrowings, and the issuance of capital stock.

We serve eligible financial institutions in Colorado, Kansas, Nebraska, and Oklahoma (collectively, the Tenth District of the FHLBank System), who are also the member-owners of ~~the~~ FHLBank. Initially, a member is required to purchase shares of Class A Common Stock based on the member’s total assets subject to a per member cap of $500 thousand. Each member may be required to purchase activity-based capital stock (Class B Common Stock) as it engages in certain business activities with ~~the~~ FHLBank, including advances, standby letters of credit, and Acquired ~~Member~~Members Assets (AMA), at levels determined by management with the ~~Board~~board of ~~Director’s~~director’s approval and within the ranges stipulated in ~~the~~our Capital ~~Stock~~ Plan. Currently, our capital increases when members are required to purchase additional capital stock in the form of Class B Common Stock to support an increase in their advance ~~borrowings. In~~borrowings or AMA activity. On July 23, 2020, FHLBank's board of directors changed the ~~past, capital~~established AMA activity-based stock ~~also increased when~~purchase requirement to three percent from zero percent pursuant to its Capital Plan, effective as of August 5, 2020. The purchase requirement had been suspended for current members sold additional mortgage loans to us; however, members are no longer required to purchase capital stock for AMA activity, as the mortgage loans are supported by the retained earnings of the FHLBank (formersince July 2013. Former members previously required to purchase AMA activity-based stock are subject to the ~~prior~~stock requirement in place at the time their membership ended as long as there are ~~UPBs outstanding).~~ unpaid principal balances outstanding. For additional discussion of these changes to capital requirements, see "Liquidity and Capital Resources – Capital" under this Item 2.

At our discretion, we may repurchase excess stock ~~if there is~~resulting from a decline in a member’s ~~advances.~~advances or AMA activities. We believe it is important to manage our business and the associated risks so that we strive to provide franchise value by maintaining a core mission asset focus and meeting the following objectives: (1) achieve our liquidity, housing finance and community development missions by meeting member credit needs by offering advances, supporting residential mortgage lending through the MPF Program and through other products; (2) periodically repurchase excess capital stock in order to appropriately manage the size of our balance sheet; and (3) pay acceptable dividends.

True to our mission, we continue to serve as a reliable source of funding for members both during times of economic stability and periods of crisis. While the nation has seen a number of market disruptions during our long history, management believes the speed of the tightening and deterioration of market and economic conditions during the onset of the COVID-19 pandemic is unprecedented. Credit and market conditions began to modestly improve in the second quarter of 2020 as a result of economic stimulus, business resumption, and the initial flattening of the curve of new infection. However, resurgence of virus infections and some subsequent rollbacks of business resumptions combined with disparate industry impacts are expected to inhibit economic recovery during the second half of 2020. Our balance sheet adjusted more readily to economic conditions in the second quarter of 2020, which resulted in an improvement in net interest spreads compared to the first quarter of 2020, but a significant portion of the decline in net income in the first half of 2020 remained the result of net losses on derivatives and hedging activities incurred during the first quarter of 2020. While market volatility cannot be predicted, these losses are expected to be reversed with market changes in the future although the timing of those reversals is uncertain. At no time during this pandemic has our balance sheet liquidity or access to the debt markets prevented us from meeting the liquidity needs of our members. FHLBank has continually conducted business without significant operational difficulties or disruptions during the COVID-19 pandemic, with most employees working remotely since mid-March. Management began bringing employees back to work in our offices in early August and plans to continue this process in phases but is prepared to continue remote operations if local infection trends continue to rise.

During the second quarter of 2020, we provided $0.6 billion of zero-cost funding and $0.5 billion of low-cost funding to help members serve their customers affected by the COVID-19 pandemic. In March 2020, we also began accepting collateral modified by forbearance plans and loan modification agreements, including those with electronic signatures. We worked with the Federal Reserve to allow members to pledge their newly issued PPP loans to the Federal Reserve Bank of Kansas City. Additionally, we began accepting SBA PPP loans as collateral while limiting the reporting burden for members. For MPF customers, we waived delivery commitment extension fees through April 15, 2020 and eased certain underwriting, documentation and payment requirements for those impacted by the pandemic. For mortgage loans in the MPF Program, we offered payment forbearance and temporary loan modification programs for borrowers impacted by the pandemic. We continue to monitor the progress of the pandemic and are committed to assisting our members and their communities as impacts related to the pandemic continue to unfold.

Table 1 presents Selected Financial Data for the periods indicated (dollar amounts in thousands):

Table 1


	09/30/2017			06/30/2017			03/31/2017			12/31/2016			09/30/2016			06/30/2020			03/31/2020			12/31/2019			09/30/2019			06/30/2019
Statement of Condition (as of period end):
Total assets	$	49,361,189		$	49,741,538		$	47,091,131		$	45,216,749		$	46,846,615		$	53,533,936		$	63,189,513		$	63,276,654		$	57,131,130		$	60,078,297
Investments¹	13,767,184			15,755,784			14,286,143			13,609,653			13,392,337			20,633,427			19,597,238			20,086,473			16,248,522			19,442,680
Advances	28,319,226			26,443,416			25,822,945			23,985,835			26,723,461			21,528,991			31,678,083			30,241,315			30,634,583			31,099,119
Mortgage loans, net²	7,055,239			6,839,892			6,700,948			6,640,725			6,554,516			10,945,717			11,018,168			10,633,009			9,833,763			9,192,097
Total liabilities	47,062,581			47,504,133			44,961,702			43,254,301			44,788,060			51,178,998			60,475,924			60,485,603			54,472,808			57,497,604
Deposits	550,627			496,015			579,805			598,931			682,059			988,292			975,397			790,640			756,376			589,543
Consolidated obligation discount notes, net³																13,560,839			25,563,980			27,447,911			21,044,232			27,163,395
Consolidated obligation bonds, net³	25,070,225			22,882,026			21,670,348			20,722,335			18,383,598			36,445,676			33,730,055			32,013,314			32,441,885			29,516,980
Consolidated obligation discount notes, net³	21,280,938			23,955,782			22,505,730			21,775,341			25,518,065
Total consolidated obligations, net³	46,351,163			46,837,808			44,176,078			42,497,676			43,901,663			50,006,515			59,294,035			59,461,225			53,486,117			56,680,375
Mandatorily redeemable capital stock	5,439			6,186			2,264			2,670			3,025			2,308			2,390			2,415			2,477			2,750
Total capital	2,298,608			2,237,405			2,129,429			1,962,448			2,058,555			2,354,938			2,713,589			2,791,051			2,658,322			2,580,693
Capital stock	1,467,001			1,433,620			1,352,345			1,226,675			1,351,874			1,392,003			1,802,296			1,766,456			1,670,690			1,598,504
Total retained earnings	816,141			790,406			767,556			735,196			713,229			996,629			980,612			999,809			972,948			950,276
AOCI	15,466			13,379			9,528			577			(6,548		)	(33,694		)	(69,319		)	24,786			14,684			31,913
Statement of Income (for the quarterly period ended):
Net interest income	68,927			65,277			66,672			64,992			63,140			56,677			55,086			69,404			74,415			49,230
(Reversal) provision for credit losses on mortgage loans	(171		)	20			(45		)	31			329
Provision (reversal) for credit losses on mortgage loans																1,337			(736		)	(122		)	393			38
Other income (loss)	5,461			1,148			7,885			(2,135		)	8,708			(10,252		)	(23,229		)	7,438			(1,507		)	4,368
Other expenses	19,535			15,713			14,916			16,853			17,935			22,596			19,443			18,880			18,633			18,313
Income before assessments	55,024			50,692			59,686			45,973			53,584			22,492			13,150			58,084			53,882			35,247
Affordable Housing Program (AHP) assessments	5,510			5,074			5,970			4,599			5,361			2,250			1,318			5,811			5,391			3,529
Net income	49,514			45,618			53,716			41,374			48,223			20,242			11,832			52,273			48,491			31,718
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid in cash⁴	66			69			64			73			73			71			70			72			70			68
Dividends paid in stock⁴	23,713			22,699			21,292			19,334			19,950			14,697			24,836			25,340			25,749			24,214
Weighted average dividend rate⁵	5.81		%	5.74		%	5.73		%	5.28		%	5.28		%	3.69		%	5.94		%	6.14		%	6.61		%	6.56		%
Dividend payout ratio⁶	48.03		%	49.91		%	39.76		%	46.91		%	41.52		%	72.95		%	210.50		%	48.61		%	53.25		%	76.55		%
Return on average equity	8.00		%	7.64		%	9.58		%	7.50		%	8.69		%	3.20		%	1.75		%	7.82		%	7.54		%	5.13		%
Return on average assets	0.36		%	0.35		%	0.43		%	0.34		%	0.39		%	0.14		%	0.08		%	0.35		%	0.33		%	0.22		%
Average equity to average assets	4.52		%	4.54		%	4.49		%	4.55		%	4.46		%	4.37		%	4.44		%	4.52		%	4.36		%	4.37		%
Net interest margin⁷	0.51		%	0.50		%	0.54		%	0.54		%	0.51		%	0.39		%	0.36		%	0.47		%	0.51		%	0.35		%
Total capital ratio⁸	4.66		%	4.50		%	4.52		%	4.34		%	4.39		%	4.40		%	4.29		%	4.41		%	4.65		%	4.30		%
Regulatory capital ratio⁹	4.64		%	4.48		%	4.51		%	4.34		%	4.41		%	4.47		%	4.41		%	4.38		%	4.63		%	4.25		%
Ratio of earnings to fixed charges¹⁰	1.35			1.38			1.58			1.56			1.65


¹	Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold.

The allowance for credit losses on mortgage loans was ~~$1,408,000, $1,525,000, $1,617,000, $1,674,000~~$7,790,000, $6,468,000, $985,000, $905,000 and ~~$1,660,000~~$858,000 as of June 30, 2020, March 31, 2020, December 31, 2019, September 30, ~~2017,~~2019 and June 30, ~~2017, March 31, 2017, December 31, 2016~~2019, respectively. Effective January 1, 2020, new accounting guidance was adopted relating to the measurement of credit losses on financial instruments and ~~September 30, 2016, respectively.~~resulted in a cumulative effect adjustment of $6,123,000.


³	Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 1413 to the financial statements for a description of the total consolidated obligations of all FHLBanks for which we are jointly and severally liable.

⁴

Dividends reclassified as interest expense on mandatorily redeemable capital stock and not included as dividends recorded in accordance with GAAP were ~~$69,000, $52,000,~~ $14,000, ~~$16,000~~$24,000, $26,000, $30,000 and ~~$22,000~~$40,000 for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, ~~2017,~~2019 and June 30, ~~2017, March 31, 2017, December 31, 2016 and September 30, 2016,~~2019, respectively.


⁵	Dividends paid in cash and stock on both classes of stock as a percentage of average capital stock eligible for dividends.


⁶	Ratio disclosed represents dividends declared and paid during the period as a percentage of net income for the period presented, although ~~the~~ FHFA regulation requires dividends be paid out of known income prior to declaration date.


⁷	Net interest income as a percentage of average earning assets.


⁸	GAAP capital stock, which excludes mandatorily redeemable capital stock, plus retained earnings and AOCI as a percentage of total assets.


⁹	Regulatory capital (i.e., Class A ~~and~~Common Stock, Class B Common Stock and retained earnings) as a percentage of total assets.


¹⁰	~~Total earnings divided by fixed charges (interest expense including amortization/accretion of premiums, discounts and capitalized expenses related to indebtedness).~~

Net income ~~increased $1.3~~decreased $11.5 million, or ~~2.7~~36.2 percent, to ~~$49.5~~$20.2 million for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$48.2~~$31.7 million for the ~~same period in~~three months ended June 30, 2019. For the ~~prior year. Net~~six months ended June 30, 2020, net income ~~increased $28.4~~decreased $52.4 million, or ~~23.6~~62.0 percent, to ~~$148.8~~$32.1 million compared to $84.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $120.4 million~~2019. The decrease for both the same period in the prior year. The increase in net income for the quarter was driven by an increase in net interest income of $5.8 million, or 9.2 percent, partially offset by fair value fluctuations on derivativesthree- and ~~hedging activities and trading securities. For the nine-month period, the increase~~six-month periods was largely ~~a result of fair value fluctuations~~due to net losses on derivatives and hedging activities and trading securities ~~compared~~from the continued market disruption caused by the COVID-19 pandemic, although some stabilization was observed during the second quarter of 2020 as the financial markets began a modest and uneven recovery.

Net interest income increased $7.5 million for the quarter, from $49.2 million for the three months ended June 30, 2019 to $56.7 million for the ~~prior year period, combined with~~three months ended June 30, 2020. Net interest income remained relatively flat for the ~~increase~~comparative six-month periods, from $112.2 million for the six months ended June 30, 2019 to $111.8 million for the six months ended June 30, 2020. The change in net interest income ~~of $8.7 million, or 4.5 percent. The increases in net interest income when compared~~for both periods is attributed primarily to the same periods in 2016 were the result of continued growth in advances, replacement of matured and called consolidated obligations at lower costs during the last half of 2016, which partially offset increasesdecrease in the cost of debt ~~resulting from~~and continued growth in the mortgage loan portfolio. These factors increased net interest income for the current quarter, but the increase related to these factors in ~~market interest rates, and an increase in consolidated obligations that were allocated to money market investments. Detailed discussion relating to~~ the ~~fluctuations~~current year-to-date period was offset by the decrease in net interest income ~~can be found under this Item 2 – “Management’s Discussion~~in the first quarter of 2020 related to the decline in market interest rates.

FHLBank's cost of debt decreased as a result of unswapped callable debt refinanced in the current and ~~Analysis~~prior periods combined with a decline in the cost of ~~Financial Condition~~discount notes, floating rate debt, and ~~Results~~net interest settlements as market interest rates declined, partially offset by accelerated concession amortization on the called debt. Prepayments on mortgage-related assets and the associated premium amortization remained elevated, but the increase in premium amortization was largely offset by the reduction in debt cost from approximately $9 billion in unswapped consolidated obligation bonds called and then re-issued at a lower cost during the first half of ~~Operations – Results of Operations.”~~

2020.

Total assets ~~increased $4.1~~decreased between periods, from $63.3 billion at December 31, 2019 to $53.5 billion at June 30, 2020 driven mostly by the $8.7 billion, or ~~9.2~~28.8 percent, ~~from December 31, 2016 to September 30, 2017. This increase was due to a $4.3 billion, or 18.1 percent, increase~~decline in advances ~~mostly in our line~~between periods as many members experienced significant deposit inflows and excess liquidity as a result of ~~credit~~economic stimulus packages passed by Congress along with the Federal Reserve Bank’s easing of monetary policy, security purchase programs, and adjustable rate callable advances. The growth in advances since 2014 has been largely attributed to our active promotion of the all-in cost of advances considering the impact of our dividend since that time and the increase in dividend rates on our Class B Common Stock (from 5.0 percent to 6.0 percent in 2014, and from 6.0 percent to 6.5 percent in 2017), which effectively reduces the cost of our advances to our members and increases our members' ability to profitably deploy the funding. During the third quarter of 2017, we alsolending facilities. Mortgage loans increased the dividend rate on our Class A Common Stock from 1.0 percent to 1.25 percent. Changes in interest rates could reduce the benefit of the dividend as it relates to advances to our members, which could cause a significant decline in advances. Our mortgage loan portfolio reached $7.1by $0.3 billion during the ~~quarter ended September~~first six months of 2020, representing 20.4 percent of total assets as of June 30, ~~2017, with recent growth attributed~~2020, compared to ~~recruitment~~16.8 percent as of ~~high-production PFIs~~December 31, 2019. Mortgage loans are one of the highest net spread assets on our balance sheet and ~~program enhancements that provide PFIs with additional funding opportunities.~~as they increase as a percent of total assets, all things being equal, they have the potential to increase our net interest margin.

Total liabilities ~~increased $3.8~~decreased $9.3 billion ~~or 8.8 percent,~~ from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017. This increase was due~~2020 which corresponded with the decline in assets, and the funding mix shifted to a ~~$4.3 billion increase in consolidated obligation bonds, partially offset by a $0.5 billion decrease in consolidated obligation~~lower percentage of discount ~~notes.~~notes between periods, as we issued more floating rate debt indexed to the Secured Overnight Financing Rate (SOFR) to more closely reflect the repricing characteristics of our assets. Our funding mix generally is driven by asset composition, but we may also shift our debt composition as a result of market conditions that impact the cost of consolidated obligations swapped or indexed to ~~LIBOR. Short-term advances, including line of credit advances, represent~~SOFR, Prime, Treasury bills, or the ~~majority of the assets funded by term discount notes. We also use term discount notes to fund~~ overnight investments to maintain liquidity sufficient to meet the advance needs of members. During the third quarter of 2017, we increased our allocation of floating rate consolidated obligation bonds to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and debt ceiling deadline.index swap (OIS) rate. For additional information on market trends impacting the cost of issuing debt, including discussion of the transition from LIBOR to an alternate reference rate, see "Financial Market Trends" and "Financial Condition" under this Item ~~2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”~~2.

~~Return~~Total capital decreased $436.1 million, or 15.6 percent, from December 31, 2019 to June 30, 2020 primarily due to a decrease in required capital stock related to the decline in advance utilization between periods that was subsequently repurchased.

The decrease in net income combined with an increase in average equity resulted in a return on average equity (ROE) ~~was 8.00~~of 3.20 percent and ~~8.69~~2.45 percent for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2020, respectively, ~~and 8.37~~compared to 5.13 percent and ~~7.43~~6.93 percent for the ~~nine months ended September 30, 2017 and 2016, respectively. The decrease~~same periods in ROE for the three months ended September 30, 2017 was the result of an increase in average capital related to the increase in advances without a compensating increase in net income. The increase in net income for the nine months ended September 30, 2017 resulted in an increase in ROE compared to the prior ~~year period, despite a similar increase in average capital.~~

year. Dividends paid to members totaled ~~$67.9~~$39.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$59.0~~$48.2 million for the ~~same period in the~~ prior year. ~~As mentioned previously, we increased~~From June 30, 2019 to June 30, 2020, the dividend rate for Class A Common Stock decreased from 2.50 percent to ~~1.25~~0.50 percent ~~during the third quarter of 2017~~ and ~~increased~~ the dividend rate for Class B Common Stock decreased from 7.50 percent to ~~6.50~~5.50 percent. The weighted average dividend rate for the three and six months ended June 30, 2020 was 3.69 percent ~~during~~and 4.85 percent, which represented a dividend payout ratio of 73.0 percent and 123.7 percent, respectively, compared to a weighted average dividend rate of 6.56 percent for both the ~~first quarter~~three and six months ended June 30, 2019 and a payout ratio of ~~2017.~~ 76.6 percent and 57.1 percent for the same periods in 2019, respectively. Our dividend rates have historically moved in tandem with short-term market rates, so the decrease reflects the decline in market interest rates resulting from Federal Open Market Committee of the Federal Reserve (FOMC) rate cuts in March 2020 to stimulate the U.S. economy.

Differences in the weighted average dividend rates between ~~the last five quarters~~periods are due to the change in dividend rates and the difference in the mix of outstanding Class A Common Stock and Class B Common Stock between those ~~periods and the increases in the dividend rates.~~periods. Other factors impacting the outstanding stock class mix during the first half of 2020 and, therefore, the average dividend rates, include ~~weekly~~regular exchanges of excess Class B Common Stock to Class A Common Stock and periodic repurchases of excess Class A Common Stock (see “Liquidity and Capital Resources - Capital”under this Item 2). The increase in the payout ratio, despite the decline in dividend rates for the six months ended June 30, 2020, was a result of the decline in net income mostly in the first quarter of 2020 from the aforementioned COVID-19 related market volatility. We anticipate stock dividends on Class A Common Stock and Class B Common Stock will be lower than what was paid in 2019 for the remainder of 2020, consistent with the lower level of short‑term interest rates and our retained earnings policy.

FHFA guidance requires that our strategic business plan describes how our business activities will achieve our mission consistent with the FHFA’s core mission ~~asset~~achievement guidance. We intend to manage our balance sheet with an emphasis towards maintaining a ~~core~~primary mission ~~assets~~asset ratio above 70 ~~percent during 2017.~~percent. Our ratio of average advances and average mortgage loans to average consolidated obligations ~~based on~~less average U.S. Treasury securities classified as trading or available-for-sale with maturities of ten years or less utilizing par balances ~~(core~~(primary mission ~~assets~~asset ratio) was 7775 percent for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020. However, because this ratio is dependent on several variables such as member demand for our advance and mortgage loan products, it is possible that weour primary mission asset ratio will ~~be unable to maintain the core mission assets ratio at this level indefinitely.~~decline from our current level.

Financial Market Trends

The primary external factors that affect net interest income are market interest rates and the general state of the economy.

General discussion of the level of market interest rates:

Table 2 presents selected market interest rates as of the dates or for the periods shown.

Table 2


	09/30/2017		09/30/2016		09/30/2017		09/30/2016							06/30/2020		06/30/2019		06/30/2020		06/30/2019		06/30/2020		12/31/2019		06/30/2019
Market Instrument	Three-month		Three-month		Nine-month		Nine-month		09/30/2017	12/31/2016		09/30/2016		Three-month				Six-month				Ending		Ending		Ending
Market Instrument	Average		Average		Average		Average		Ending Rate	Ending Rate				Average								Rate		Rate		Rate
Secured Overnight Financing Rate¹														0.05	%	2.43	%	0.63	%	2.43	%	0.10	%	1.55	%	2.50	%
Federal funds effective rate¹	1.16	%	0.40	%	0.94	%	0.38	%	1.06%	0.55	%	0.29	%	0.06		2.40		0.64		2.40		0.08		1.55		2.40
Federal Reserve interest rate on excess reserves¹	1.25		0.50		1.03		0.50		1.25	0.75		0.50		0.10		2.37		0.67		2.38		0.10		1.55		2.35
3-month U.S. Treasury bill¹	1.05		0.29		0.85		0.27		1.05	0.50		0.27		0.13		2.34		0.62		2.38		0.14		1.55		2.10
3-month LIBOR¹	1.31		0.79		1.20		0.69		1.33	1.00		0.85		0.60		2.51		1.07		2.60		0.30		1.91		2.32
2-year U.S. Treasury note¹	1.36		0.73		1.30		0.78		1.47	1.20		0.76		0.19		2.13		0.64		2.31		0.15		1.57		1.74
5-year U.S. Treasury note¹	1.81		1.12		1.85		1.24		1.91	1.94		1.15		0.36		2.12		0.76		2.29		0.29		1.69		1.76
10-year U.S. Treasury note¹	2.24		1.56		2.31		1.74		2.32	2.45		1.60		0.68		2.34		1.03		2.49		0.66		1.92		2.01
30-year residential mortgage note rate²	4.13		3.66		4.23		3.81		4.12	4.39		3.66
30-year residential mortgage note rate^1,2														3.39		4.29		3.56		4.47		3.29		3.95		4.07


¹	Source is Bloomberg.


²	Mortgage Bankers Association weekly 30-year fixed rate mortgage contract ~~rate obtained from Bloomberg.~~rate.

~~During~~In March of 2020, the ~~first nine months of 2017,~~market volatility and stress resulting from the ~~cost of FHLBank consolidated obligations as measured by the spread~~COVID-19 pandemic led to challenging conditions in financial markets with market participants favoring short-term obligations. Spreads to comparative U.S. Treasury ~~rates remained relatively stable; however, funding~~instruments for FHLBank consolidated obligations widened, increasing the cost to issue these instruments. However, during the second quarter of 2020, these spreads ~~relative~~narrowed resulting in lower costs to LIBOR have been deteriorating on the short end of the curve since the beginning of 2017, while spreads on longer tenors have improved. The Federal Open Market Committee (FOMC) raised the target rate for overnight Federal funds in June 2017issue consolidated obligations driven by robust market demand for the ~~second time this year, amid positive economic indicators. Market participants are assigning a high probability of an additional increase in 2017 amidst a backdrop of positive economic indicators~~instruments and ~~Congressional approval of a short-term extension of~~lower issuance needs by the ~~debt ceiling. During~~FHLBanks due to ample liquidity available to market participants. At the ~~September 2017~~July meeting, the FOMC ~~announced their plan~~maintained the Federal funds rate at a range between 0 percent and 0.25 percent and said it would maintain its quantitative easing (QE), repo and overnight lending programs to ~~gradually reduce~~keep credit available until it is confident that the ~~reinvestment~~economy has recovered from the downturn related to the COVID-19 pandemic and is on track to achieve its maximum employment and price stability goals. The FOMC stated its intent to continue its purchases of ~~principal payments from~~U.S. Treasuries and agency MBS as part of its ~~holdings of GSE debt, GSE MBS,~~QE. Monetary and ~~U.S. Treasury securities, which began~~fiscal actions in ~~October 2017. This reduction in reinvestment is expected~~response to ~~cause a rise in~~ the ~~U.S. Treasury yield curve and a widening in the option-adjusted spread on MBS, although we anticipate the~~economic impact ~~to be gradual concurrent with the planned gradual pace~~ of the ~~reduction.~~COVID-19 pandemic and dire economic outlooks for the next several years have driven Treasury and other benchmark rates to or near historic lows. We issue debt at a spread above U.S. Treasury securities; as a result, ~~higher~~the level of interest rates ~~increase~~impacts the cost of issuing FHLBank consolidated obligations and ~~increase~~ the cost of advances to our members and housing associates.

The COVID-19 pandemic has caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession. Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets. Volatility in the capital markets caused by the COVID-19 pandemic can impact demand for FHLBank debt and the cost of the debt the FHLBanks issue. The outlook for the remainder of 2020 is uncertain, and there is a possibility that the FOMC may keep interest rates low or use other policies if economic conditions warrant, each of which could impact the efficiency of our asset and liability management activities. For further discussion, see this Item 2 – “Financial Condition – Consolidated Obligations.”

In July 2017, the United Kingdom's Financial Conduct Authority (FCA) announced that it planned to phase out the regulatory oversight of LIBOR interest rate indices by 2021. The FCA and the submitting LIBOR banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. The Alternative Reference Rates Committee (ARRC) in the United States has proposed SOFR as its recommended alternative to US Dollar (USD) LIBOR in the United States. SOFR is intended to be a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR rates in April 2018. As noted throughout this quarterly report, many of our assets and liabilities, including derivative assets and derivative liabilities, are indexed to USD LIBOR. A portion of these assets and liabilities and related collateral have maturity dates that extend beyond 2021. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Other factors impacting FHLBank consolidated obligations:

~~Investors~~We believe investors continue to view FHLBank consolidated obligations as carrying a relatively strong credit profile. Historically, our strong credit profile has resulted in steady investor demand for FHLBank ~~discount notes and short-term bonds. Recent regulatory changes to money market funds has intensified demand for our debt. Several~~consolidated obligations. We believe several market events continue to have the potential to impact the demand for our consolidated obligations including the economic impact of the COVID-19 pandemic, geopolitical events and/or disruptions; potential policy changes under the current ~~administration and a pending Congressional budget agreement, including the approaching debt ceiling deadline; potential~~administration; recent regulatory changes in liquidity requirements; changes in interest rates and the shape of the yield curve as the FOMC contemplates ~~additional increases in short-term interest rates~~changes to monetary policy; and ~~has announced the plan to reduce principal reinvestments;~~ the replacement of LIBOR with another ~~index; and a decline in dealer demand due to regulatory changes related to capital.~~index as previously discussed.

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect our reported results and disclosures. Several of our accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others in terms of their importance to results. These assumptions and assessments ~~include~~include: (1) the ~~following:~~

~~Accounting~~accounting related to derivatives and hedging activities;

~~Fair~~ and (2) fair value ~~determinations;~~

~~Accounting for deferred premium/discount associated with MBS; and~~

~~Determining the adequacy of the allowance for credit losses.~~determinations.

Changes in any of the estimates and assumptions underlying critical accounting policies could have a material effect on our financial statements.

The accounting policies that management believes are the most critical to an understanding of our financial results and condition and require complex management judgment are described under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our annual report on Form 10-K, incorporated by reference herein. There were no material changes to our critical accounting policies and estimates during the quarter ended ~~September~~June 30, ~~2017.~~2020.

Results of Operations

Earnings Analysis: Table 3 presents changes in the major components of our net income (dollar amounts in thousands):

Table 3


	Increase (Decrease) in Earnings Components										Increase (Decrease) in Earnings Components
	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	09/30/2017 vs. 09/30/2016										06/30/2020 vs. 06/30/2019					06/30/2020 vs. 06/30/2019
	Dollar Change			Percentage Change		Dollar Change			Percentage Change		Dollar Change			Percentage Change		Dollar Change			Percentage Change
Total interest income	$	82,531		56.7	%	$	161,627		37.3	%	$	(208,005	)	(54.8	)%	$	(280,638	)	(37.3	)%
Total interest expense	76,744			93.2		152,943			63.4		(215,452		)	(65.2	)	(280,156		)	(43.7	)
Net interest income	5,787			9.2		8,684			4.5		7,447			15.1		(482		)	(0.4	)
(Reversal) provision for credit losses on mortgage loans	(500		)	(152.0	)	(56		)	(40.0	)
Provision (reversal) for credit losses on mortgage loans											1,299			3,418.4		485			418.1
Net interest income after mortgage loan loss provision	6,287			10.0		8,740			4.5		6,148			12.5		(967		)	(0.9	)
Net gain (loss) on trading securities	7,145			186.7		(47,504		)	(74.3	)
Net gain (loss) on derivatives and hedging activities	(9,879		)	(103.4	)	74,544			88.5
Net gains (losses) on trading securities											(36,468		)	(87.2	)	29,166			41.3
Net gains (losses) on derivatives and hedging activities											24,656			61.6		(79,054		)	(135.0	)
Other non-interest income	(513		)	(17.2	)	(851		)	(9.9	)	(2,808		)	(110.7	)	(635		)	(12.7	)
Total other income (loss)	(3,247		)	(37.3	)	26,189			223.9		(14,620		)	(334.7	)	(50,523		)	(296.5	)
Operating expenses	1,095			7.0		2,234			5.6		(751		)	(5.1	)	877			3.1
Other non-interest expenses	505			21.1		1,077			14.9		5,034			135.7		5,859			81.5
Total other expenses	1,600			8.9		3,311			7.1		4,283			23.4		6,736			19.1
AHP assessments	149			2.8		3,169			23.7		(1,279		)	(36.2	)	(5,827		)	(62.0	)
NET INCOME	$	1,291		2.7	%	$	28,449		23.6	%	$	(11,476	)	(36.2	)%	$	(52,399	)	(62.0	)%

Table 4 presents the amounts contributed by our principal sources of interest income (dollar amounts in thousands):

Table 4


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	09/30/2017				09/30/2016				09/30/2017				09/30/2016				06/30/2020				06/30/2019				06/30/2020				06/30/2019
	Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total
Investments¹	$	59,282	26.0	%	$	35,909	24.7	%	$	153,884	25.9	%	$	109,364	25.3	%	$	37,322	21.8	%	$	114,442	30.2	%	$	121,656	25.8	%	$	226,479	30.1	%
Advances	113,834		49.9		59,098		40.6		283,137		47.6		169,628		39.1		60,265		35.1		189,562		49.9		191,152		40.5		377,171		50.1
Mortgage loans held for portfolio	54,548		23.9		50,164		34.5		157,074		26.4		153,457		35.4		73,664		42.9		75,185		19.8		158,770		33.6		148,469		19.7
Other	344		0.2		306		0.2		928		0.1		947		0.2		300		0.2		367		0.1		654		0.1		751		0.1
TOTAL INTEREST INCOME	$	228,008	100.0	%	$	145,477	100.0	%	$	595,023	100.0	%	$	433,396	100.0	%	$	171,551	100.0	%	$	379,556	100.0	%	$	472,232	100.0	%	$	752,870	100.0	%


¹	Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold.

Credit and market conditions improved in the second quarter of 2020 as a result of economic stimulus, business resumption, and the initial flattening of the curve of new COVID-19 infections. However, resurgence of virus infections and some subsequent rollbacks of business resumptions combined with disparate industry impacts are expected to inhibit economic recovery during the second half of 2020. We were able to adjust our balance sheet to economic conditions in the second quarter of 2020, which resulted in an improvement in net interest spreads compared to the first quarter of 2020. However, the decline in net income persisted in the second quarter of 2020, primarily driven by net losses on derivatives and hedging activities incurred during the first quarter of 2020. While market volatility cannot be predicted, these losses are expected to be reversed with market changes in the future although the timing of those reversals is uncertain. At no time during this pandemic has our balance sheet liquidity or access to the debt markets prevented us from meeting the liquidity needs of our members. We have continually conducted business without significant operational difficulties or disruptions during the COVID-19 pandemic, with most employees working remotely since mid-March. Management began bringing employees back to work in our offices in early August and plans to continue this process in phases but is prepared to continue remote operations if local infection trends continue to rise.

Net income ~~for the three months ended September 30, 2017 was $49.5~~decreased $11.5 million, ~~compared~~or 36.2 percent, to ~~$48.2~~$20.2 million for the three months ended ~~September~~June 30, ~~2016. Net income~~2020 compared to $31.7 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017 was $148.8~~2019. For the six months ended June 30, 2020, net income decreased $52.4 million, or 62.0 percent, to $32.1 million compared to ~~$120.4~~$84.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase in net income~~decrease for both the ~~quarter was driven by an increase in net interest income of $5.8 million, or 9.2 percent, partially offset by fair value fluctuations on derivatives~~three- and ~~hedging activities and trading securities. For the nine-month period, the increase~~six-month periods was largely ~~a result of fair value fluctuations~~due to losses on derivatives and hedging activities and trading securities from the continued market disruption caused by the COVID-19 pandemic, although some stabilization was observed during the second quarter of 2020 as the financial markets began a modest and uneven recovery. The declines in the fair values of derivatives resulted from market volatility related to the COVID-19 pandemic as spreads between investments and their associated swaps widened considerably during the first quarter of 2020, therefore impacting fair values at the end of the quarter. These spreads normalized during the second quarter of 2020, but the continued low interest rate environment kept the fair values of derivatives constrained and caused a decline in net interest settlements (from net interest received in 2019 to net interest paid in 2020, which decreased income) for both the three- and six-month periods. This decline was partially offset by gains on trading securities, as the coupons on the trading securities are higher than current market rates. While we generally consider fair value fluctuations to be temporary and expect to recover these losses in future periods, the outlook for the remainder of 2020 is uncertain, so the fair values of our assets and derivatives could decline or fail to recover for a prolonged period of time. For detailed discussion relating to the fluctuations in net gains (losses) on derivatives and hedging activities and net gains (losses) on trading securities, see "Net Gains (Losses) on Derivatives and Hedging Activities" and "Net Gains (Losses) On Trading Securities" under this Item 2. Despite the decrease in interest rates, net interest income increased $7.5 million for the three months ended June 30, 2020 and held relatively steady at a decrease of $0.5 million for the six months ended June 30, 2020 compared to the prior year ~~period, combined with~~periods. Other expenses increased by $4.3 million and $6.7 million for the ~~increase~~three and six months ended June 30, 2019 to June 30, 2020, respectively, primarily due to the subsidy recorded for the below-market interest rates on COVID-19 Relief Advances. See "Financial Condition - Advances" under this Item 2 for additional information on the advances issued in ~~net interest income of $8.7 million, or 4.5 percent.~~response to COVID-19.

Net Interest Income: Net interest income, which includes interest earned on advances, mortgage loans, and investments less interest paid on consolidated obligations, deposits and other borrowings, is the primary source of our earnings. Net interest income increased ~~$5.8~~$7.5 million ~~and $8.7~~for the quarter, from $49.2 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2019 to $56.7 million for the three months ended June 30, 2020. Net interest income remained relatively flat for the comparative six-month periods, from $112.2 million for the six months ended June 30, 2019 to $111.8 million for the six months ended June 30, 2020. The change in net interest income for both periods was attributed primarily to a decrease in the cost of debt and ~~2016, respectively, due to~~continued growth in ~~advances, primarily~~the mortgage loan portfolio. These factors increased net interest income for the current quarter, but the increase related to these factors in ~~our line~~the current year-to-date period was offset by the decrease in net interest income in the first quarter of ~~credit advances~~2020 related to the decline in market interest rates. The cost of debt decreased as a result of lower rates on term, callable debt refinanced in the current and ~~adjustable~~prior periods combined with a decline in the cost of discount notes, floating rate ~~callable advances; replacement of matured~~debt and net interest settlements as market interest rates declined, partially offset by higher accelerated concession amortization on the called debt. Prepayments on mortgage-related assets and the associated premium amortization remained elevated, but the increase in amortization was largely offset by the reduction in debt cost from approximately $9 billion in unswapped consolidated ~~obligations~~obligation bonds called and then re-issued at a lower cost during the ~~last~~first half of ~~2016, which partially offset the increase~~2020.

The Federal Reserve’s rapid reduction in the ~~cost~~Federal funds target rate and purchase of ~~debt resulting from~~U.S. Treasury bonds in response to the ~~increase~~pandemic-related market volatility resulted in ~~market~~declines across the interest ~~rates; and~~rate curve during the first quarter of 2020 that persisted into the second quarter of 2020. During the first quarter, this volatility created margin compression on the short end of the curve, as overnight assets repriced downward faster than the liabilities funding them. Liabilities repriced lower throughout the second quarter of 2020, which resulted in an improvement in net interest spreads. The decline in long-term interest rates has caused an increase in ~~consolidated obligations that were allocated to money market investments (see Table 5). Despite the increase in~~mortgage loan prepayments, which reduces net interest income ~~net interest spread and net interest margin both decreased slightly or remained the same for the three- and nine-month periods primarily due to increases~~ in the ~~average rate~~form of accelerated amortization of premiums on ~~borrowings between both~~mortgage-related assets and reinvestment at lower market rates. However, the ~~three- and nine-month periods, which was largely offset by increases~~decrease in long-term market interest rates has allowed us to replace approximately $9 billion of unswapped callable debt at a lower cost. Replacing callable debt results in accelerated amortization of concessions (broker fees) in the ~~average yield on interest-earning assets between periods, all~~month of ~~which are discussed in greater detail below.~~

~~For~~ the ~~three months ended September 30, 2017,~~call, but the ~~average yield on investments, which consist of interest-bearing deposits, Federal funds sold, securities purchased under agreement~~refinanced debt will continue to resell (reverse repurchase agreements), and investment securities, increased 49 basis points to 1.60 percent, from 1.11 percent for the three months ended September 30, 2016. The increase was a result of a $1.1 billion increaseprovide additional benefit in the ~~average balance~~form of lower rates for future periods, as the acceleration of the related concessions rolls off. Advance demand by members dropped significantly during the second quarter of 2020 as many members experienced significant deposit inflows and a 71 basis point increase in yield on short-term investments and a $0.8 billion increase in the average balance and a 39 basis point increase in yield on long-term investments. For the nine months ended September 30, 2017, the average yield increased 26 basis points to 1.44 percent, from 1.18 percent for the nine months ended September 30, 2016excess liquidity as a result of ~~an increase in~~economic stimulus packages passed by Congress along with the ~~average yield on short-term investments~~Federal Reserve Bank’s easing of ~~52 basis points~~monetary policy, security purchase programs, and an increase of $1.0 billion in the average balance of the portfolio and a $0.9 billion increase in the average balance and a 15 basis point increase in yield on long-term investments. For both periods, the increase in short-term investments was driven by attractive yields and spreads on reverse repurchase agreements and Federal funds sold.lending facilities.

For the three months ended September 30, 2017, the average yield on advances increased 61 basis points to 1.39 percent, from 0.78 percent for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the average yield on advances increased 45 basis points to 1.21 percent, from 0.76 percent for the nine months ended September 30, 2016. The increase in the average yield on advances for both periods was due to the increase in short-term interest rates in conjunction with FOMC policy changes.Average Balances and Yields: The average balance of ~~advances~~interest-earning assets increased ~~$2.4 billion and $1.6 billion for the three and nine months ended September 30, 2017, respectively, which contributed to the increase in net interest income along with the increase in yields.~~

For the three months ended September 30, 2017, the average yield on mortgage loans increased 6 basis points to 3.12 percent, from 3.06 percent for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the average yield on mortgage loans decreased 9 basis points to 3.09 percent, from 3.18 percent for the nine months ended September 30, 2016. The increase for the three-month period was a result of a decrease in premium amortization from slowing prepayments. The decrease for the nine-month period is a result of increased premium amortization in the first half of 2017. Mortgage rates increased at the end of 2016 and are expected to increase slightly for the remainder of 2017, and as a result premium amortization is likely to remain near or slightly lower than current levels, as prepayments tend to slow during periods of relatively stable or rising rates.

For the three months ended September 30, 2017, the average cost of consolidated obligation bonds increased 13 basis points to 1.43 percent, from 1.30 percent for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the average cost of consolidated obligation bonds increased 6 basis points to 1.36 percent, from 1.30 percent for the nine months ended September 30, 2016. During 2016, we were able to replace some maturing consolidated obligation bonds and called unswapped consolidated obligation bonds at a lower cost, which partially offset the increase in the cost of debt resulting from the increase in market interest rates. The average cost of discount notes increased 69 basis points, from 0.35 percent for the three months ended September 30, 2016 to 1.04 percent for the three months ended September 30, 2017, and the average cost of discount notes increased 47 basis points, from 0.34 percent for the nine months ended September 30, 2016 to 0.81 percent for the nine months ended September 30, 2017 as a result of the increase in short-term interest rates between periods. During the last half of 2016, the spread to LIBOR improved so we increased our allocation of floating rate consolidated obligation bonds and decreased our allocation of discount notes in an effort to more closely align our LIBOR-indexed assets with our LIBOR-indexed liabilities. The average balance of bonds increased by $7.2$1.8 billion, or ~~41.3~~3.1 percent, and ~~$5.0~~$4.7 billion, or ~~28.6~~8.5 percent, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively, compared to the same periods in the prior year. The increase in both periods reflects an increase in mortgage loans and long-term investments and a decrease in advances, as we have experienced consistent growth in the ~~average~~mortgage loan portfolio but deposit inflows from stimulus payments and other Federal relief available to our members has reduced advance demand. The moderate increase in long-term investments between periods represents an increase in high-quality liquid asset (HQLA) investments offset by a slight decline in mortgage-backed security investments. Investments are used to enhance income and provide liquidity within balance sheet and portfolio parameters. As a result of ~~discount notes decreased by $2.2 billion, or 7.7~~the recent decline in advances, we exceeded our targeted AMA risk tolerance as a percent ~~and $1.0 billion, or 3.5 percent, for~~of our balance sheet as of June 30, 2020 so we are implementing strategies to manage growth in the ~~three and nine months ended September 30, 2017, respectively.~~mortgage loan portfolio. For further discussion of ~~how we use bonds~~investments, advances and ~~discount notes,~~mortgage loans, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial ~~Condition – Consolidated Obligations.~~Condition.”

Market interest rates and trends affect yields and net interest margin on earning assets, including advances, mortgage loans, and investments. The average yield on total interest-earning assets for the three months ended June 30, 2020 was 1.19 percent compared to 2.70 percent for the three months ended June 30, 2019. The average cost of interest-bearing liabilities for the three months ended June 30, 2020 was 0.84 percent, compared to 2.46 percent for the three months ended June 30, 2019, resulting in a net interest spread of 35 basis points and 24 basis points, respectively. Net interest margin increased by four basis points to 39 basis points for the three months ended June 30, 2020 compared to 35 basis points for the same period in the prior year primarily due to a decrease in the cost of debt. The cost of debt decreased as a result of called debt reissued at lower rates combined with a decline in the cost of discount notes, floating rate debt, and net interest settlements as market interest rates declined, partially offset by accelerated concession amortization on the called debt. The $2.2 billion, or 24.7 percent, increase in the average balance of mortgage loans contributed to the improvement in net interest margin, as mortgage loans are one of our highest net spread assets. Mortgage loans also increased as a percentage of total assets during the first six months of 2020, representing 20.4 percent of total assets as of June 30, 2020, compared to 16.8 percent as of December 31, 2019. The spread on mortgage loans has been compressed in recent periods as a result of accelerated premium amortization from prepayments, but this increase in premium amortization has been largely offset by the reduction in the cost of debt so this spread is expected to widen in future periods as the accelerated amortization of concessions on called debt rolls off. The average balance of advances declined $3.6 billion, or 12.8 percent, for the three-months ended June 30, 2020 when compared to the prior year period, but the impact to net interest margin was minimal, as the majority of the decline was in our line of credit and short-term advances, which are typically low-spread products that are funded short-term.

The average yield on total interest-earning assets for the six months ended June 30, 2020 was 1.59 percent compared to 2.76 percent for the six months ended June 30, 2019. The average cost of interest-bearing liabilities for the six months ended June 30, 2020 was 1.28 percent, compared to 2.46 percent for the six months ended June 30, 2019, resulting in a net interest spread of 31 basis points and 30 basis points, respectively, for the comparative year-to-date periods. Liabilities continued repricing downward during the second quarter of 2020, but the spread compression that occurred in the first quarter of 2020 driven largely by the changes in short-term interest rates, specifically as it related to overnight assets funded with term debt, caused net interest margin to decrease by three basis points to 38 basis points for the six months ended June 30, 2020 compared to 41 basis points for the same period in the prior year. The average cost of discount notes decreased 141 basis points and the average yield on short-term investments decreased 189 basis points during the current six-month period compared to the same period in the prior year (see Table 11). As previously discussed, the $2.3 billion, or 25.8 percent, increase in the average balance of mortgage loans contributed positively to net interest spread and net interest margin for the six month period, but the accelerated premium amortization and the accelerated concession amortization of called bonds has reduced the net spread. The average balance of advances declined $1.2 billion, or 4.2 percent, for the six months ended June 30, 2020 when compared to the prior year period, but the impact to net interest margin was minimal for the six-month period as well, as the majority of the decline for the six-month period was also in short-term advances.

Our net interest spread is impacted by derivative and hedging activities, as the assets and liabilities hedged with derivative instruments designated under fair value hedging relationships are adjusted for changes in fair values, while other assets and liabilities are carried at historical cost. Further, net interest payments or receipts on interest rate swaps designated as fair value hedges and the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the hedged asset or liability. However, net interest payments or receipts on derivatives that do not qualify for hedge accounting (economic hedges) flow through net ~~gain (loss)~~gains (losses) on derivatives and hedging activities (see Tables 13 through 16 under this Item 2) instead of net interest income, ~~(net interest received/paid on economic derivatives is identified in Tables 9 through 12 under this Item 2),~~ which does not reflect the full economic impact of the swaps on yields, especially for trading investments that are swapped to a variable rate. Tables 5 through 8 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):

Table 5



	Three Months Ended 06/30/2020
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(205	)	$	415		$	—		$	1,100	$	(19	)	$	1,291
Net amortization/accretion of hedging activities	(359		)	—			(694		)	—		—			(1,053		)
Net interest received (paid)	(11,309		)	(31,735		)	—			13,181		12,897			(16,966		)
TOTAL	$	(11,873	)	$	(31,320	)	$	(694	)	$	14,281	$	12,878		$	(16,728	)

Table6



	Three Months Ended 06/30/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(874	)	$	(13,609	)	$	—		$	—	$	(357	)	$	(14,840	)
Net amortization/accretion of hedging activities	(183		)	—			(658		)	—		—			(841		)
Net interest received (paid)	6,383			2,048			—			8		(3,112		)	5,327
TOTAL	$	5,326		$	(11,561	)	$	(658	)	$	8	$	(3,469	)	$	(10,354	)

Table 7



	Six Months Ended 06/30/2020
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(2,120	)	$	(5,365	)	$	—		$	1,095	$	(17	)	$	(6,407	)
Net amortization/accretion of hedging activities	(617		)	—			(1,676		)	—		—			(2,293		)
Net interest received (paid)	(12,426		)	(42,095		)	—			16,019		18,516			(19,986		)
TOTAL	$	(15,163	)	$	(47,460	)	$	(1,676	)	$	17,114	$	18,499		$	(28,686	)

Table 8



	Six Months Ended 06/30/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(1,040	)	$	(17,283	)	$	—		$	—	$	(576	)	$	(18,899	)
Net amortization/accretion of hedging activities	(990		)	—			(1,118		)	—		—			(2,108		)
Net interest received (paid)	13,786			3,643			—			10		(6,737		)	10,702
TOTAL	$	11,756		$	(13,640	)	$	(1,118	)	$	10	$	(7,313	)	$	(10,305	)

Table 59 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 59


	Three Months Ended												Three Months Ended
	09/30/2017						09/30/2016						06/30/2020						06/30/2019
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	436,659	$	1,285	1.17	%	$	610,229	$	614	0.40	%	$	1,691,102	$	560	0.13	%	$	810,639	$	5,048	2.50	%
Securities purchased under agreements to resell	2,272,501		6,735		1.18		2,653,587		3,370		0.51		3,728,022		938		0.10		4,676,419		29,568		2.54
Federal funds sold	2,825,109		8,396		1.18		1,185,565		1,221		0.41		3,193,659		454		0.06		1,578,022		9,555		2.43
Investment securities^1,2	9,170,016		42,866		1.85		8,381,503		30,704		1.46
Advances^2,3	32,465,954		113,834		1.39		30,037,475		59,098		0.78
Mortgage loans^2,4,5	6,943,148		54,548		3.12		6,516,558		50,164		3.06
Investment securities¹													13,785,748		35,370		1.03		12,188,680		70,271		2.31
Advances^1,2													24,531,947		60,265		0.99		28,117,525		189,562		2.70
Mortgage loans^3,4													11,165,315		73,664		2.65		8,956,011		75,185		3.37
Other interest-earning assets	32,121		344		4.26		20,055		306		6.08		42,525		300		2.83		47,827		367		3.08
Total earning assets	54,145,508		228,008		1.67		49,404,972		145,477		1.17		58,138,318		171,551		1.19		56,375,123		379,556		2.70
Other non-interest-earning assets	191,447						113,496						216,385						290,850
Total assets	$	54,336,955					$	49,518,468					$	58,354,703					$	56,665,973

Interest-bearing liabilities:
Deposits	$	463,183	988		0.85		$	583,027	237		0.16		$	832,539	77		0.04		$	476,764	2,473		2.08
Consolidated obligations²:
Consolidated obligations¹:
Discount Notes	26,636,379		69,556		1.04		28,855,078		25,323		0.35		20,075,483		21,760		0.44		24,937,939		150,802		2.43
Bonds	24,482,281		88,306		1.43		17,322,188		56,681		1.30		34,055,611		92,744		1.10		28,305,382		176,714		2.50
Other borrowings	30,066		231		3.04		6,916		96		5.51		43,759		293		2.69		48,051		337		2.82
Total interest-bearing liabilities	51,611,909		159,081		1.22		46,767,209		82,337		0.70		55,007,392		114,874		0.84		53,768,136		330,326		2.46
Capital and other non-interest-bearing funds	2,725,046						2,751,259						3,347,312						2,897,837
Total funding	$	54,336,955					$	49,518,468					$	58,354,704					$	56,665,973

Net interest income and net interest spread⁶			$	68,927	0.45	%			$	63,140	0.47	%
Net interest income and net interest spread⁵															$	56,677	0.35	%			$	49,230	0.24	%

Net interest margin⁷					0.51	%					0.51	%
Net interest margin⁶																	0.39	%					0.35	%


¹	The non-credit portion of the OTTI discount on held-to-maturity securities and the fair value adjustment on available-for-sale securities are excluded from the average balance for calculations of yield since the changes are adjustments to equity.


²	Interest income/expense and average rates include the effect of associated ~~derivatives.~~derivatives that qualify for hedge accounting treatment.


³²	Advance income includes prepayment fees on terminated advances.


⁴³	CECredit enhancement fee payments are netted against interest earnings on the mortgage loans. The expense related to CEcredit enhancement fee payments to PFIs was ~~$1.4~~$2.0 million and ~~$1.3~~$1.7 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.


⁵⁴	Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.


⁶⁵	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


⁷⁶	Net interest margin is defined as net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 610 summarizes changes in interest income and interest expense (in thousands):

Table 610


	Three Months Ended								Three Months Ended
	09/30/2017 vs. 09/30/2016								06/30/2020 vs. 06/30/2019
	Increase (Decrease) Due to								Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total		Volume^1,2			Rate^1,2			Total
Interest Income:
Interest Income³:
Interest-bearing deposits	$	(217	)	$	888		$	671	$	2,710		$	(7,198	)	$	(4,488	)
Securities purchased under agreements to resell	(547		)	3,912			3,365		(4,993		)	(23,637		)	(28,630		)
Federal funds sold	3,036			4,139			7,175		4,893			(13,994		)	(9,101		)
Investment securities	3,091			9,071			12,162		8,232			(43,133		)	(34,901		)
Advances	5,129			49,607			54,736		(21,606		)	(107,691		)	(129,297		)
Mortgage loans	3,335			1,049			4,384		16,421			(17,942		)	(1,521		)
Other assets	147			(109		)	38		(39		)	(28		)	(67		)
Total earning assets	13,974			68,557			82,531
Interest Expense:
Total interest-earning assets									5,618			(213,623		)	(208,005		)
Interest Expense³:
Deposits	(58		)	809			751		1,063			(3,459		)	(2,396		)
Consolidated obligations:
Discount notes	(2,091		)	46,324			44,233		(24,771		)	(104,271		)	(129,042		)
Bonds	25,350			6,275			31,625		30,538			(114,508		)	(83,970		)
Other borrowings	194			(59		)	135		(29		)	(15		)	(44		)
Total interest-bearing liabilities	23,395			53,349			76,744		6,801			(222,253		)	(215,452		)
Change in net interest income	$	(9,421	)	$	15,208		$	5,787	$	(1,183	)	$	8,630		$	7,447


¹	Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.


²	Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.


³	Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment.

Table 711 presents average balances and yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 711


	Nine Months Ended												Six Months Ended
	09/30/2017						09/30/2016						06/30/2020						06/30/2019
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	417,251	$	2,928	0.94	%	$	494,311	$	1,400	0.38	%	$	1,571,461	$	5,265	0.67	%	$	823,313	$	10,218	2.50	%
Securities purchased under agreements to resell	2,263,304		15,902		0.94		2,540,560		8,947		0.47		3,916,544		15,528		0.80		4,550,421		57,498		2.55
Federal funds sold	2,766,505		20,071		0.97		1,406,503		4,033		0.38		2,376,379		3,942		0.33		1,648,613		19,879		2.43
Investment securities^1,2	8,801,097		114,983		1.75		7,915,035		94,984		1.60		13,927,667		96,921		1.40		11,195,059		138,884		2.50
Advances^2,3	31,340,060		283,137		1.21		29,701,885		169,628		0.76		26,732,849		191,152		1.44		27,913,432		377,171		2.72
Mortgage loans^2,4,5	6,790,722		157,074		3.09		6,450,693		153,457		3.18
Mortgage loans^4,5													11,005,911		158,770		2.90		8,748,045		148,469		3.42
Other interest-earning assets	27,411		928		4.53		20,569		947		6.16		48,410		654		2.72		48,525		751		3.12
Total earning assets	52,406,350		595,023		1.52		48,529,556		433,396		1.19		59,579,221		472,232		1.59		54,927,408		752,870		2.76
Other non-interest-earning assets	194,495						115,563						320,207						293,893
Total assets	$	52,600,845					$	48,645,119					$	59,899,428					$	55,221,301

Interest-bearing liabilities:
Deposits	$	500,423	2,366		0.63		$	599,004	697		0.16		$	745,389	1,631		0.44		$	494,896	5,161		2.10
Consolidated obligations²:
Discount Notes	26,922,459		162,539		0.81		27,898,952		70,502		0.34		22,587,952		114,711		1.02		24,906,207		299,793		2.43
Bonds	22,489,091		228,788		1.36		17,485,654		169,728		1.30		33,209,227		243,486		1.47		26,937,995		334,871		2.51
Other borrowings	15,389		454		3.94		8,756		277		4.23		51,970		641		2.48		58,680		800		2.75
Total interest-bearing liabilities	49,927,362		394,147		1.06		45,992,366		241,204		0.70		56,594,538		360,469		1.28		52,397,778		640,625		2.46
Capital and other non-interest-bearing funds	2,673,483						2,652,753						3,304,890						2,823,523
Total funding	$	52,600,845					$	48,645,119					$	59,899,428					$	55,221,301

Net interest income and net interest spread⁶			$	200,876	0.46	%			$	192,192	0.49	%			$	111,763	0.31	%			$	112,245	0.30	%

Net interest margin⁷					0.51	%					0.53	%					0.38	%					0.41	%


¹	The non-credit portion of the OTTI discount on held-to-maturity securities and the fair value adjustment on available-for-sale securities are excluded from the average balance for calculations of yield since the changes are adjustments to equity.


²	Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment.


³²	Advance income includes prepayment fees on terminated advances.


⁴³	CECredit enhancement fee payments are netted against interest earnings on the mortgage loans. The expense related to CEcredit enhancement fee payments to PFIs was ~~$4.2~~$4.0 million and ~~$3.9~~$3.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.


⁵⁴	Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.


⁶⁵	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


⁷⁶	Net interest margin is defined as net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 812 summarizes changes in interest income and interest expense (in thousands):

Table 812


	Nine Months Ended									Six Months Ended
	09/30/2017 vs. 09/30/2016									06/30/2020 vs. 06/30/2019
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total			Volume^1,2			Rate^1,2			Total
Interest Income:
Interest Income³:
Interest-bearing deposits	$	(249	)	$	1,777		$	1,528		$	5,526		$	(10,479	)	$	(4,953	)
Securities purchased under agreements to resell	(1,072		)	8,027			6,955			(7,082		)	(34,888		)	(41,970		)
Federal funds sold	6,210			9,828			16,038			6,213			(22,150		)	(15,937		)
Investment securities	11,159			8,840			19,999			28,582			(70,545		)	(41,963		)
Advances	9,827			103,682			113,509			(15,333		)	(170,686		)	(186,019		)
Mortgage loans	7,942			(4,325		)	3,617			34,685			(24,384		)	10,301
Other assets	269			(288		)	(19		)	(2		)	(95		)	(97		)
Total earning assets	34,086			127,541			161,627			52,589			(333,227		)	(280,638		)
Interest Expense:
Interest Expense³:
Deposits	(133		)	1,802			1,669			1,806			(5,336		)	(3,530		)
Consolidated obligations:
Discount notes	(2,552		)	94,589			92,037			(25,667		)	(159,415		)	(185,082		)
Bonds	50,566			8,494			59,060			66,380			(157,765		)	(91,385		)
Other borrowings	197			(20		)	177			(87		)	(72		)	(159		)
Total interest-bearing liabilities	48,078			104,865			152,943			42,432			(322,588		)	(280,156		)
Change in net interest income	$	(13,992	)	$	22,676		$	8,684		$	10,157		$	(10,639	)	$	(482	)


¹	Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.


²	Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.


³	Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment.

Net ~~Gain (Loss)~~Gains (Losses) on Derivatives and Hedging Activities: The volatility in other income (loss) is driven predominantly by net gains (losses) on ~~derivative and hedging transactions,~~derivatives that do not qualify for hedge accounting treatment under GAAP (economic derivatives), which generally ~~includes~~include interest rate swaps, caps and floors. Net ~~gain (loss)~~gains (losses) from derivatives and hedging activities isare sensitive to several factors, including: (1) the general level of interest rates; (2) the shape of the term structure of interest rates; and (3) implied volatilities of interest rates. The fair value of options, particularly interest rate caps and floors, are also impacted by the time value decay that occurs as the options approach maturity, but this factor represents the normal amortization of the cost of these options and flows through income irrespective of any changes in the other factors impacting the fair value of the options (level of rates, shape of curve, and implied volatility).

~~Tables 9 through 12 categorize the earnings impact by product for hedging activities (in thousands):~~

~~Table 9~~

Three Months Ended 09/30/2017
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Other Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities $ (1,272 ) $ —
$ (534 ) $ —
$ —
$ —
$ (1,806 )
Net interest received (paid) (9,266 ) (2,144 ) —
—
3,308
—
(8,102 )
Subtotal (10,538 ) (2,144 ) (534 ) —
3,308
—
(9,908 )
Net gain (loss) on derivatives and hedging activities:

Fair value hedges:
Interest rate swaps 813
(807 ) —
—
(55 ) —
(49 )
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps —
1,168
—
—
1,112
—
2,280
Interest rate caps —
(392 ) —
—
—
—
(392 )
Mortgage delivery commitments —
—
913
—
—
—
913
Economic hedges – net interest received (paid) —
(4,087 ) —
—
999
—
(3,088 )
Price alignment amount on derivatives for which variation margin is daily settled —
—
—
—
—
14
14
Subtotal 813
(4,118 ) 913
—
2,056
14
(322 )
Net impact of derivatives and hedging activities (9,725 ) (6,262 ) 379
—
5,364
14
(10,230 )
Net gain (loss) on trading securities hedged on an economic basis with derivatives —
2,764
—
—
—
—
2,764
TOTAL $ (9,725 ) $ (3,498 ) $ 379
$ —
$ 5,364
$ 14
$ (7,466 )

~~Table 10~~

Three Months Ended 09/30/2016
Advances Investments Mortgage Loans
Consolidated
Obligation Discount Notes
Consolidated
Obligation Bonds
Total
Impact of derivatives and hedging activities in net interest income:

Net amortization/accretion of hedging activities $ (1,384 ) $ —
$ (762 ) $ —
$ —
$ (2,146 )
Net interest received (paid) (20,962 ) (3,330 ) —
16
5,123
(19,153 )
Subtotal (22,346 ) (3,330 ) (762 ) 16
5,123
(21,299 )
Net gain (loss) on derivatives and hedging activities:

Fair value hedges:

Interest rate swaps 3,923
(622 ) —
7
(17 ) 3,291
Economic hedges – unrealized gain (loss) due to fair value changes:

Interest rate swaps —
15,089
—
—
(782 ) 14,307
Interest rate caps —
(132 ) —
—
—
(132 )
Mortgage delivery commitments —
—
851
—
—
851
Economic hedges – net interest received (paid) —
(9,551 ) —
—
791
(8,760 )
Subtotal 3,923
4,784
851
7
(8 ) 9,557
Net impact of derivatives and hedging activities (18,423 ) 1,454
89
23
5,115
(11,742 )
Net gain (loss) on trading securities hedged on an economic basis with derivatives —
(4,072 ) —
—
—
(4,072 )
TOTAL $ (18,423 ) $ (2,618 ) $ 89
$ 23
$ 5,115
$ (15,814 )

~~Table 11~~

Nine Months Ended 09/30/2017
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Other Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities $ (3,913 ) $ —
$ (1,516 ) $ —
$ —
$ —
$ (5,429 )
Net interest received (paid) (37,052 ) (7,058 ) —
(15 ) 12,468
—
(31,657 )
Subtotal (40,965 ) (7,058 ) (1,516 ) (15 ) 12,468
—
(37,086 )
Net gain (loss) on derivatives and hedging activities:

Fair value hedges:
Interest rate swaps (22 ) (2,096 ) —
(36 ) (1,089 ) —
(3,243 )
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps —
1,138
—
—
5,985
—
7,123
Interest rate caps —
(3,186 ) —
—
—
—
(3,186 )
Mortgage delivery commitments —
—
2,326
—
—
—
2,326
Economic hedges – net interest received (paid) —
(16,933 ) —
—
4,226
—
(12,707 )
Price alignment amount on derivatives for which variation margin is daily settled —
—
—
—
—
6
6
Subtotal (22 ) (21,077 ) 2,326
(36 ) 9,122
6
(9,681 )
Net impact of derivatives and hedging activities (40,987 ) (28,135 ) 810
(51 ) 21,590
6
(46,767 )
Net gain (loss) on trading securities hedged on an economic basis with derivatives —
14,831
—
—
—
—
14,831
TOTAL $ (40,987 ) $ (13,304 ) $ 810
$ (51 ) $ 21,590
$ 6
$ (31,936 )

~~Table 12~~

Nine Months Ended 09/30/2016
Advances Investments Mortgage Loans
Consolidated
Obligation Discount Notes
Consolidated
Obligation Bonds
Total
Impact of derivatives and hedging activities in net interest income:

Net amortization/accretion of hedging activities $ (3,808 ) $ —
$ (1,894 ) $ —
$ —
$ (5,702 )
Net interest received (paid) (67,730 ) (8,667 ) —
(29 ) 25,684
(50,742 )
Subtotal (71,538 ) (8,667 ) (1,894 ) (29 ) 25,684
(56,444 )
Net gain (loss) on derivatives and hedging activities:

Fair value hedges:

Interest rate swaps 3,614
(3,730 ) —
(270 ) (633 ) (1,019 )
Economic hedges – unrealized gain (loss) due to fair value changes:

Interest rate swaps —
(52,410 ) —
(4 ) 2,092
(50,322 )
Interest rate caps —
(3,848 ) —
—
—
(3,848 )
Mortgage delivery commitments —
—
3,839
—
—
3,839
Economic hedges – net interest received (paid) —
(36,184 ) —
4
3,305
(32,875 )
Subtotal 3,614
(96,172 ) 3,839
(270 ) 4,764
(84,225 )
Net impact of derivatives and hedging activities (67,924 ) (104,839 ) 1,945
(299 ) 30,448
(140,669 )
Net gain (loss) on trading securities hedged on an economic basis with derivatives —
63,827
—
—
—
63,827
TOTAL $ (67,924 ) $ (41,012 ) $ 1,945
$ (299 ) $ 30,448
$ (76,842 )

As reflected in Tables 913 through ~~12,~~16, the majority of the ~~derivative~~ net unrealized gains and losses on derivatives are related to changes in the fair values of economic ~~hedges, such as interest rate swaps matched to GSE debentures or MBS classified as trading securities and interest rate caps, which do not qualify for hedge accounting treatment under GAAP.~~derivatives. Net interest payments or receipts on these economic ~~hedges~~derivatives flow through net ~~gain (loss)~~gains (losses) on derivatives and hedging activities instead of net interest income, which does not reflect the full economic impact of the swaps on yields, especially for ~~fixed rate~~ trading investments that are swapped to variable rates. ~~Ineffectiveness on fair value hedges contributes to~~In the past, we generally recorded net unrealized gains ~~and losses~~ on derivatives ~~but~~when the overall level of interest rates would rise over the period and recorded net unrealized losses when the overall level of interest rates would fall over the period, due to ~~a much lesser degree.~~the mix of the economic hedges. Net unrealized gains or losses on derivatives ~~and the related trading securities are generally~~will continue to be a function of the general level of ~~LIBOR~~ swap rates ~~and~~but also a function of the ~~spread between~~spreads in relationship to the ~~LIBOR swap curve and~~relevant index rate. Tables 13 through 16 present the ~~GSE interest rate curve (interest rate swaps that are economic hedges of GSE debentures held in trading). The net fair values~~earnings impact of derivatives and ~~the related trading MBS are affected~~hedging activities by ~~the spread between the LIBOR swap curve and mortgage rates (interest rate swaps that are economic hedges of fixed rate GSE MBS held~~financial instrument as recorded in ~~trading).~~other non-interest income (in thousands):

Table 13



	Three Months Ended 06/30/2020
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(300	)	$	(1,177	)	$	—		$	(26	)	$	(1,503	)
Mortgage delivery commitments	—			—			(890		)	—			(890		)
Economic hedges – net interest received (paid)	(34		)	(12,899		)	—			(29		)	(12,962		)
Net gains (losses) on derivatives and hedging activities	(334		)	(14,076		)	(890		)	(55		)	(15,355		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			4,975			—			—			4,975
TOTAL	$	(334	)	$	(9,101	)	$	(890	)	$	(55	)	$	(10,380	)

Table 14



	Three Months Ended 06/30/2019
	Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(960	)	$	(46,792	)	$	—	$	85		$	6,071		$	(41,596	)
Mortgage delivery commitments	—			—			1,836		—			—			1,836
Economic hedges – net interest received (paid)	(2		)	490			—		(5		)	(734		)	(251		)
Net gains (losses) on derivatives and hedging activities	(962		)	(46,302		)	1,836		80			5,337			(40,011		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			41,967			—		—			—			41,967
TOTAL	$	(962	)	$	(4,335	)	$	1,836	$	80		$	5,337		$	1,956

Table 15



	Six Months Ended 06/30/2020
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds		Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(4,172	)	$	(109,227	)	$	—		$	(26	)	$	352	$	(113,073	)
Mortgage delivery commitments	—			—			(6,418		)	—			—		(6,418		)
Discount note commitments	—			—			—			—			—		—
Economic hedges – net interest received (paid)	(51		)	(18,166		)	—			(29		)	130		(18,116		)
Net gains (losses) on derivatives and hedging activities	(4,223		)	(127,393		)	(6,418		)	(55		)	482		(137,607		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			99,442			—			—			—		99,442
TOTAL	$	(4,223	)	$	(27,951	)	$	(6,418	)	$	(55	)	$	482	$	(38,165	)

Table 16



	Six Months Ended 06/30/2019
	Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(1,480	)	$	(73,517	)	$	—	$	85		$	13,505		$	(61,407	)
Mortgage delivery commitments	—			—			3,471		—			—			3,471
Discount note commitments	—			—			—		(70		)	—			(70		)
Economic hedges – net interest received (paid)	(4		)	1,015			—		(5		)	(1,553		)	(547		)
Net gains (losses) on derivatives and hedging activities	(1,484		)	(72,502		)	3,471		10			11,952			(58,553		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			70,986			—		—			—			70,986
TOTAL	$	(1,484	)	$	(1,516	)	$	3,471	$	10		$	11,952		$	12,433

For the ~~three-~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017,~~2020, net ~~unrealized~~ gains and losses on derivatives and hedging activities ~~decreased~~resulted in a decrease in net income ~~by $9.9~~of $15.4 million and ~~increased net income by $74.5~~$137.6 million, respectively, compared to a decrease of $40.0 million and $58.6 million for the ~~same~~prior year periods ~~in 2016,~~ primarily as a result of ~~changes~~temporary declines in the ~~LIBOR~~fair values of derivatives resulting from market volatility related to the COVID-19 pandemic, although some recovery occurred in the second quarter of 2020, as spreads between investments and their associated swaps normalized from the widening that negatively impacted fair values during the first quarter of 2020. Further, the decrease in the level of swap ~~curve over~~index rates from June 30, 2019 to June 30, 2020 had a negative impact on the ~~respective periods. The~~ net ~~losses on derivatives~~interest settlements of interest rate swaps, which decreased net income by $13.0 million and ~~hedging activities and trading securities~~$18.1 million for the ~~current quarter correspond~~three and six months ended June 30, 2020, respectively, compared to a decrease in net income of $0.3 million and $0.5 million for the ~~significant improvement in swap spreads~~three and an increase in interest rates in the prior year period that resulted in unrealized gains. In the current year period, these same swap spreads and interest rates have not changed as dramatically, resulting in a slight unrealized losssix months ended June 30, 2019, respectively.

The fair value changes on the economic interest rate swaps hedging the ~~multi-family~~multifamily GSE MBS, U.S. Treasury obligations, and ~~a decrease in unrealized gains on~~GSE debentures were partially offset by the ~~economic swaps hedging the GSE debentures. The majority of the positive~~ fair value ~~fluctuations for the nine month-period were related~~changes attributable to the economic interest rate swaps hedging the multi-family GSE MBS. The increase in the LIBOR swap curve between periods also had a positive impact on the net interest settlements on interest rate swaps, which increased net unrealized gains on derivatives and hedging activities by $5.7 million and $20.2 million for the three- and nine-month periods ended September 30, 2017, respectively. Increases in swap spreads during the first half of 2016 caused fair value decreases for many of our economic hedges, but especially interest rate swaps economically hedging multi-family GSE MBS recorded as trading securities. These spreads improved significantly towards the end of 2016 and have remained relatively stable into the first nine months of 2017, despite some widening in the second quarter that has resulted in unrealized losses of $0.1 million and $2.6 million for the current three- and nine-month periods, respectively, compared to unrealized gains of $6.1 million and unrealized losses of $49.7 million for the three- and nine-month periods ended September 30, 2016, respectively. All of these multi-family GSE MBS and the associated interest rate swaps were purchased or entered into after May 2015 and are expected to create more income statement volatility than the interest rate swaps and related trading GSE debentures due to the relatively long length of the contracts and their relationship with mortgage rates, which tend to be more volatile than rates on GSE debentures.

~~Unrealized gains of $1.3 million and $3.7 million~~swapped securities for the three and ~~nine~~six months ended ~~September~~June 30, 2017 were attributable to the fair value changes of our interest rate swaps matched to GSE debentures as a result of the passage of time, as several derivatives approached maturity (reducing the overall loss position of the derivatives), changes in interest rates for their respective maturities (pay fixed rate swap), and increases in three-month LIBOR (receive variable rate swap). These fluctuations were offset by the net unrealized losses attributable to the swapped GSE debentures,2020, which are recorded in net ~~gain (loss)~~gains (losses) on trading securities. The net unrealized gains (losses) on the derivatives and trading securities for the current year-to-date period were larger due to the considerable fair value impact of the aforementioned spread widening between investments and swaps in the first quarter of 2020. The unrealized gains on trading securities were generally driven by the decreases in interest rates between periods and are discussed in greater detail below. Tables 1317 and 1418 present the relationship between the ~~swapped~~ trading securities and the associated interest rate swaps that do not qualify for hedge accounting treatment by investment type (in thousands):

Table 1317


	Three Months Ended															Three Months Ended
	09/30/2017								09/30/2016							06/30/2020									06/30/2019
	Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities			Net		Gain (Loss) on Derivatives		Gain (Loss) on Trading Securities			Net		Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities			Net			Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net
U.S. Treasury obligations																$	4,484		$	(5,043	)	$	(559	)	$	(13,852	)	$	12,777	$	(1,075	)
GSE debentures	$	1,252		$	(541	)	$	711	$	8,956	$	(6,185	)	$	2,771	(1,361		)	1,433			72			(9,898		)	8,695		(1,203		)
GSE MBS	(84		)	3,305			3,221		6,133		2,113			8,246		(4,157		)	8,585			4,428			(23,382		)	20,495		(2,887		)
TOTAL	$	1,168		$	2,764		$	3,932	$	15,089	$	(4,072	)	$	11,017	$	(1,034	)	$	4,975		$	3,941		$	(47,132	)	$	41,967	$	(5,165	)

Table 18



	Six Months Ended
	06/30/2020								06/30/2019
	Gains (Losses) on Derivatives			Gains (Losses) on Trading Securities		Net			Gains (Losses) on Derivatives			Gains (Losses) on Trading Securities		Net
U.S. Treasury obligations	$	(36,755	)	$	34,700	$	(2,055	)	$	(20,626	)	$	19,525	$	(1,101	)
GSE debentures	(21,245		)	18,983		(2,262		)	(15,556		)	15,196		(360		)
GSE MBS	(51,404		)	45,759		(5,645		)	(37,074		)	36,265		(809		)
TOTAL	$	(109,404	)	$	99,442	$	(9,962	)	$	(73,256	)	$	70,986	$	(2,270	)

For additional detail regarding gains and losses on trading securities, see Table 19 and related discussion under this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.”

See Tables 4250 and 4351 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

~~Table 14~~

Nine Months Ended
09/30/2017 09/30/2016
Gain (Loss) on Derivatives Gain (Loss) on Trading Securities Net Gain (Loss) on Derivatives Gain (Loss) on Trading Securities Net
GSE debentures $ 3,743
$ (415 ) $ 3,328
$ (2,670 ) $ 4,963
$ 2,293
GSE MBS (2,605 ) 15,246
12,641
(49,740 ) 58,864
9,124
TOTAL $ 1,138
$ 14,831
$ 15,969
$ (52,410 ) $ 63,827
$ 11,417

~~See Tables 42 and 43 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.~~

Net ~~Gain (Loss)~~Gains (Losses) on Trading Securities: All unrealized gains and losses related to trading securities are recorded in other income (loss) as net ~~gain (loss)~~gains (losses) on trading securities; however, only gains and losses relating to trading securities that are related to economic hedges are included in Tables 913 through ~~14.~~16. Unrealized gains (losses) fluctuate as the fair value of our trading portfolio fluctuates. There are a number of factors that can impact the fair value of a trading security including the movement in interest rates, changes in credit spreads, the passage of time, and changes in price volatility. Table 1519 presents the major components of the net ~~gain (loss)~~gains (losses) on trading securities (in thousands):

Table 1519


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016			06/30/2020			06/30/2019			06/30/2020		06/30/2019
Trading securities not hedged:
GSE debentures	$	390		$	369		$	1,242		$	579		$	—		$	(143	)	$	—	$	(437	)
U.S. obligation and GSE MBS	97			(125		)	300			(504		)
Short-term money market securities	68			2			27			2
U.S. obligation MBS and GSE MBS													455			(18		)	135		(74		)
Short-term securities													(55		)	37			187		123
Total trading securities not hedged	555			246			1,569			77			400			(124		)	322		(388		)
Trading securities hedged on an economic basis with derivatives:
U.S. Treasury obligations													(5,043		)	12,777			34,700		19,525
GSE debentures	(541		)	(6,185		)	(415		)	4,963			1,433			8,695			18,983		15,196
GSE MBS	3,305			2,113			15,246			58,864			8,585			20,495			45,759		36,265
Total trading securities hedged on an economic basis with derivatives	2,764			(4,072		)	14,831			63,827			4,975			41,967			99,442		70,986
TOTAL	$	3,319		$	(3,826	)	$	16,400		$	63,904		$	5,375		$	41,843		$	99,764	$	70,598

Our trading portfolio is comprised primarily of ~~variable and~~ fixed rate U.S. Treasury obligations, GSE debentures, and ~~fixed rate multi-family~~multifamily GSE MBS, with a small percentage of variable rate GSE MBS. Periodically, we also invest in short-term securities classified as trading for liquidity purposes. In general, the fixed rate securities are related to economic hedges in the form of interest rate swaps that convert fixed rates to variable rates (see ~~Table 13~~Tables 17 and 1418 for the association between the gains (losses) on the fixed rate securities and the related economic hedges). The fair values of the fixed rate GSE debentures are affected by changes in intermediate interest rates ~~(e.g., two-year to four-year rates)~~ and credit spreads, and are swapped on an economic basis to three-month LIBOR. The fair values of the fixed rate ~~multi-family~~multifamily GSE MBS are affected by changes in mortgage rates and credit spreads, and these securities are swapped on an economic basis to one-month LIBOR. The ~~unrealized gains~~fair values of the U.S. Treasury obligations are affected by changes in intermediate Treasury rates and swapped on ~~our fixed rate multi-family GSE MBS investments increased $1.2 million~~an economic basis to OIS or SOFR. Yields on U.S. Treasuries were mixed during the second quarter of 2020 relative to the prevailing yields at the end of the first quarter, with higher yields in the short-end of the curve and lower yields for maturities two years and longer, which resulted in losses for the current quarter ~~due to a slight~~because the weighted average life of our portfolio is less than two years. The gains for the current six months reflect the decline in Treasury rates between June 30, 2019 and June 30, 2020. The decrease in ~~mortgage-related~~intermediate interest rates ~~and credit spreads compared to the quarter ended September 30, 2016. The decrease of $43.6 million~~between periods resulted in ~~net~~ unrealized gains on ~~these same investments~~the fixed rate GSE debentures for the ~~current nine-month period was a result of a more significant decline in mortgage interest rates in the prior year period compared to the current year period.~~three and six months ended June 30, 2020. In addition to interest rates and credit spreads, the value of these securities is affected by time decay. The fixed rate GSE debentures possess coupons that are well above current market rates for similar securities and, therefore, are currently valued at substantial premiums. As these securities approach maturity, their prices will converge to par resulting in a decrease in their current premium price (i.e., time decay). ~~Given that~~Unrealized gains on our fixed rate multifamily GSE MBS investments for the ~~variable rate GSE debentures re-price monthly, they generally account for~~three and six months ended June 30, 2020 were due to a ~~small portion of the net gain (loss) on trading securities unless current market spreads on these variable rate securities diverge from the spreads at the time of our acquisition of the securities.~~decrease in mortgage-related interest rates between periods.

Other Expenses: Other expenses, which include compensation and benefits and other operating expenses, increased ~~$1.6 million to $19.5~~$4.3 million and ~~$3.3 million to $50.2~~$6.7 million for the three and ~~nine~~six months ended ~~September~~June 30, 2017 compared to $17.9 million and $46.9 million for the same periods in the prior year. The largest component of operating expenses, compensation and benefits, increased by $0.2 million, or 2.0 percent, and $1.1 million, or 4.0 percent for the three and nine months ended September 30, 20172020, respectively, compared to the prior year ~~period. The increase in compensation was~~period primarily due to the ~~hiring of~~subsidy recorded for the below-market interest rates on COVID-19 Relief Advances. See "Financial Condition – Advances" under this Item 2 for additional ~~employees and an increase~~information on the advances issued in ~~the base salaries of existing employees.~~response to COVID-19. We expect ~~to remain at or near 2016 levels of~~modest increases in compensation and benefits expense for ~~2017. Other operating expense increased by $1.1 million~~2020 in anticipation of hiring for ~~the nine months ended September 30, 2017 primarily due to~~ new ~~software implementations and is expected to continue to~~positions. We also expect an increase ~~during the remainder of 2017 and into 2018 due to additional planned software implementations.~~in FHLBank System-related expenses in 2020. We do not expect a ~~moderate~~material increase in ~~occupancy expense in 2017~~operating expenses related to the COVID-19 pandemic, as ~~we complete construction of a new office building later this year, and as a result, experience duplicative maintenance costs~~certain budgeted expenses were reallocated for ~~a brief period.~~pandemic-related operating expenses.

Non-GAAP Measures: We fulfill our mission by: (1) providing liquidity to our members through the offering of advances to finance housing, economic development and community lending; (2) supporting residential mortgage lending through the MPF Program and purchases of MBS; and (3) providing regional affordable housing programs that create housing opportunities for very low-, low- and moderate-income families. In order to effectively accomplish our mission, we must obtain adequate funding amounts at acceptable interest rate levels. We use derivatives as tools to reduce our funding costs and manage interest rate risk and prepayment risk. We also acquire and classify certain investments as trading securities for liquidity and asset-liability management purposes. Although we strive to manage interest rate risk and prepayment risk utilizing these transactions for asset-liability tools, we do not manage the fluctuations in the fair value of our derivatives or trading securities. We are essentially a “hold-to-maturity” investor and transact derivatives only for hedging purposes, even though some derivative hedging relationships do not qualify for hedge accounting under GAAP (referred to as economic hedges) and therefore can add significant volatility to our GAAP net income.

~~Adjusted income is a non-GAAP measure used by management to evaluate the quality of our ongoing earnings.~~ We believe that ~~the presentation of adjusted income as measured for management purposes enhances the~~certain non-GAAP financial measures are helpful in understanding our operating results and provide meaningful period-to-period comparison of our ~~performance by highlighting our underlying~~long-term economic value in contrast to GAAP results, ~~and profitability. By removing volatility created~~which can be impacted by fair value ~~fluctuations and items such~~changes driven by market volatility, gains/losses on instrument sales, or transactions that are considered unpredictable. However, we may engage in periodic instrument sales for liquidity purposes or to reduce our exposure to LIBOR-indexed instruments. We report the following non-GAAP financial measures that we believe are useful to stakeholders as ~~prepayment fees, we can compare longer-term trends in earnings that might otherwise be indeterminable. Management uses~~key measures of our operating performance: (1) adjusted income, (2) adjusted net interest income, to evaluate the earnings impact of economic hedges (derivatives that do not qualify for hedge accounting). Net interest payments or receipts on economic hedges flow through net gain (loss) on derivatives and hedging activities instead of(3) adjusted net interest ~~income due~~margin, and (4) adjusted ROE. Reconciliations of these non-GAAP financial measures to the most comparable GAAP accounting requirements. We believe that the presentation of the net interest impact of economic hedges in net interest income provides a more useful depiction of net interest income for the purposes of yield analysis and the overall economics of the relationship, especially for fixed rate investments thatmeasure are ~~swapped to a variable rate.~~

included below. Although we calculate our non-GAAP financial measures consistently from period to period using appropriate GAAP components, non-GAAP financial measures are not required to be uniformly applied and are not audited. ~~These~~Another material limitation associated with the use of non-GAAP financial measures is that they have no standardized measurement prescribed by GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. While we believe the non-GAAP measures contained in this quarterly report are frequently used by our stakeholders in the evaluation of our performance, ~~but they~~such non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of ~~results as reported under~~financial information prepared in accordance with GAAP.

~~Adjusted~~As part of evaluating our financial performance, we adjust net income ~~increased $10.8 million and $25.2 million~~reported in accordance with GAAP for the ~~three~~impact of: (1) AHP assessments (equivalent to an effective minimum income tax rate of 10 percent); (2) fair value changes on derivatives and ~~nine months ended September 30, 2017~~hedging activities (excludes net interest settlements); and (3) unpredictable items, such as prepayment fees, gains/losses on retirement of debt, gains/losses on mortgage loans held for sale, and gains/losses on securities. The result is referred to as “adjusted income,” which is a non-GAAP measure of income. Adjusted income is used to compute an adjusted ROE that is then compared to the ~~same periods~~average overnight Federal funds effective rate, with the difference referred to as adjusted ROE spread. Components of adjusted income and adjusted ROE spread are used: (1) to measure performance under our incentive compensation plans; (2) as a measure in determining the ~~prior year. The increase was due~~level of quarterly dividends; and (3) in strategic planning. While we utilize adjusted income as a key measure in determining the level of dividends, we consider GAAP net income volatility caused by gains (losses) on derivatives and hedging activities and trading securities in determining the adequacy of our retained earnings as determined under GAAP. Because the adequacy of GAAP retained earnings is considered in setting the level of our quarterly dividends, gains (losses) on derivatives and hedging activities and trading securities can come into consideration when setting the level of our quarterly dividends. Because we are primarily a “hold-to-maturity” investor and do not trade derivatives, we believe that adjusted income, adjusted ROE and adjusted ROE spread are helpful in understanding our operating results and provide a meaningful period-to-period comparison. In contrast, GAAP net income, ROE based on GAAP net income and ROE spread based on GAAP net income can vary significantly from period to ~~increased adjusted~~period because of fair value changes on derivatives and certain other items that management excludes when evaluating operational performance. Management believes such volatility hinders a consistent measurement analysis.

Derivative and hedge accounting affects the timing of income or expense from derivatives. However, when the derivatives are held to maturity or call dates, there is no economic income or expense impact from these derivatives. For example, interest rate caps are purchased with an upfront fixed cost to provide protection against the risk of rising interest rates. Under derivative accounting guidance, these instruments are then marked to fair value each month, which can result in having to recognize significant fair value gains and losses from year to year, producing volatility in our GAAP net ~~interest~~income. However, if held to maturity, the sum of such gains and losses over the term of a derivative will equal its original purchase price.

In addition to impacting the timing of income ~~which includes~~and expense from derivatives, derivative accounting also impacts the ~~impact~~presentation of net interest settlements on derivatives ~~not qualifying~~and hedging activities. This presentation differs under GAAP for economic hedges when compared to hedges that qualify for hedge ~~accounting, partially offset by an increase~~accounting. Net interest settlements on economic hedges are included with the economic derivative fair value changes and are recorded in ~~other expenses, as discussed previously. Adjusted~~ net ~~interest income increased for~~gains (losses) on derivatives and hedging activities while the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to the replacement of called and matured debt at a lower cost during the last half of 2016, the impact of which is more apparent when net interest settlements ~~of economic~~on qualifying fair value hedges are ~~presented with the other components of~~included in net interest margin. Therefore, only the economic derivative fair value changes and the ineffectiveness for qualifying hedges are removed to arrive at adjusted income ~~because it reflects~~(i.e., net interest settlements, which represent actual cash inflows or outflows and do not create fair value volatility, are not removed).

Adjusted income was $15.2 million for the ~~impact of LIBOR repricing on~~quarter ended June 30, 2020 compared to $48.0 million for the quarter ended June 30, 2019 and $57.1 million for the six months ended June 30, 2020 compared to $100.1 million for the six months ended June 30, 2019. The decreases for both the ~~asset~~current three- and ~~liability. Adjusted~~six-month periods compared to GAAP net ~~interest margin, which is calculated with~~income was a result of the decline in adjusted net interest income ~~increased~~due to the impact of lower market interest rates on net interest settlements, which resulted in income in 2019 and expense in 2020 reported in adjusted net interest income (see Table 21). Fair value gains and losses in GAAP net interest margin are removed while interest settlements on economic derivatives are added or subtracted from GAAP net interest income so that only the derivative interest settlements are recorded in net interest margin for adjusted net interest income presentation purposes. See further details below, including a reconciliation of adjusted income and adjusted net interest income.

Table 20 presents a reconciliation of GAAP net income to adjusted income (in thousands):

Table 20



	Three Months Ended						Six Months Ended
	06/30/2020			06/30/2019			06/30/2020			06/30/2019
Net income, as reported under GAAP	$	20,242		$	31,718		$	32,074		$	84,473
AHP assessments	2,250			3,529			3,568			9,395
Income before AHP assessments	22,492			35,247			35,642			93,868
Derivative (gains) losses¹	1,102			54,600			125,898			76,905
Trading (gains) losses	(5,375		)	(41,843		)	(99,764		)	(70,598		)
Prepayment fees on terminated advances	(3,013		)	(75		)	(3,185		)	(144		)
Net (gains) losses on sale of held-to-maturity securities	—			46			—			46
Net (gains) losses on sale of available-for-sale securities	—			—			(1,523		)	—
Total excluded items	(7,286		)	12,728			21,426			6,209
Adjusted income (a non-GAAP measure)	$	15,206		$	47,975		$	57,068		$	100,077


¹	Consists of fair value changes on all derivatives and hedging activities excluding net interest settlements on economic hedges.

Table 21 presents a reconciliation of GAAP net interest income to adjusted net interest income (in thousands):

Table 21



	Three Months Ended						Six Months Ended
	06/30/2020			06/30/2019			06/30/2020			06/30/2019
Net interest income, as reported under GAAP	$	56,677		$	49,230		$	111,763		$	112,245
(Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income	(1,291		)	14,840			6,407			18,899
Net interest settlements on derivatives not qualifying for hedge accounting	(12,962		)	(251		)	(18,116		)	(547		)
Prepayment fees on terminated advances	(3,013		)	(75		)	(3,185		)	(144		)
Adjusted net interest income (a non-GAAP measure)	$	39,411		$	63,744		$	96,869		$	130,453

Net interest margin, as calculated under GAAP	0.39		%	0.35		%	0.38		%	0.41		%
Adjusted net interest margin (a non-GAAP measure)	0.27		%	0.45		%	0.33		%	0.48		%

Management uses adjusted income to evaluate the quality of our earnings. FHLBank management believes that the presentation of adjusted income as measured for management purposes enhances the understanding of our performance by ~~five basis points for~~highlighting its underlying results and profitability. Management uses adjusted net interest income to evaluate the ~~three and nine months ended September 30, 2017.~~earnings impact of economic hedges. Under GAAP, the net interest amount that converts economically swapped fixed rate investments ~~that are economically swapped~~or liabilities to a variable rate is recorded as part of ~~Net Gain/Loss~~net gains (losses) on ~~Derivatives~~derivatives and ~~Hedging Activities~~hedging activities rather than net interest income. ~~For the purpose of calculating adjusted net interest margin, these~~Presenting fixed rate investments ~~are considered to be variable rate investments and~~with the corresponding net interest amount in adjusted net interest income reflects the widening of the spread between the variable rate assets created by the economic hedge and the variable rate liabilities funding them as a result of the ~~increase~~change in average LIBOR, SOFR, or OIS between periods. ~~Under GAAP, an increase~~Fair value gains and losses on fair value hedges are required to be presented in ~~LIBOR causes~~ the ~~spread~~income statement line item related to ~~tighten between fixed rate assets and variable rate liabilities and therefore causes a decrease in~~the hedged item, which impacts net interest ~~margin. Tables 16 and 17 present a reconciliation~~income. These fluctuations are excluded from the calculation of ~~GAAP~~adjusted net income ~~to adjusted income~~ and ~~GAAP net interest income to~~ adjusted net interest ~~income (in thousands):~~

~~Table 16~~

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Net income, as reported under GAAP $ 49,514
$ 48,223
$ 148,848
$ 120,399
AHP assessments 5,510
5,361
16,554
13,385
Income before AHP assessments 55,024
53,584
165,402
133,784
Derivative (gains) losses¹
(2,766 ) (18,317 ) (3,026 ) 51,350
Trading (gains) losses (3,319 ) 3,826
(16,400 ) (63,904 )
Prepayment fees on terminated advances (161 ) (1,137 ) (1,331 ) (1,746 )
Total excluded items (6,246 ) (15,628 ) (20,757 ) (14,300 )
Adjusted income (a non-GAAP measure) $ 48,778
$ 37,956
$ 144,645
$ 119,484


¹	~~Consists of fair value changes on derivatives and hedging activities excluding net interest settlements (see next table) on derivatives not qualifying for hedge accounting.~~

~~Table 17~~

Three Months Ended Nine Months Ended
09/30/2017 09/30/2016 09/30/2017 09/30/2016
Net interest income, as reported under GAAP $ 68,927
$ 63,140
$ 200,876
$ 192,192
Net interest settlements on derivatives not qualifying for hedge accounting (3,088 ) (8,760 ) (12,707 ) (32,875 )
Prepayment fees on terminated advances (161 ) (1,137 ) (1,331 ) (1,746 )
Adjusted net interest income (a non-GAAP measure) $ 65,678
$ 53,243
$ 186,838
$ 157,571

Net interest margin, as calculated under GAAP for the period 0.51 % 0.51 % 0.51 % 0.53 %
Adjusted net interest margin (a non-GAAP measure) 0.48 % 0.43 % 0.48 % 0.43 %

income.

Table 1822 presents a comparison of adjusted ROE (a non-GAAP financial measure) to the average overnight Federal funds rate, which we use as a key measure of effective utilization and management of members’ capital. The ~~increase~~decrease in adjusted ROE ~~between~~for the ~~comparative periods is mostly a function of increases~~three and six months ended June 30, 2020 compared to the prior year period reflects the decrease in adjusted net ~~interest~~ income ~~despite~~and the increase in average ~~capital as a result of the increase in advances.~~capital. Adjusted ROE spread ~~for the three and nine months ended September 30, 2017 and 2016~~ is calculated as follows (dollar amounts in thousands):

Table 1822


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016			06/30/2020			06/30/2019			06/30/2020			06/30/2019
Average GAAP total capital for the period	$	2,456,549		$	2,206,927		$	2,376,455		$	2,163,089
Average GAAP total capital													$	2,547,842		$	2,478,610		$	2,636,722		$	2,459,414
ROE, based upon GAAP net income	8.00		%	8.69		%	8.37		%	7.43		%	3.20		%	5.13		%	2.45		%	6.93		%
Adjusted ROE, based upon adjusted income	7.88		%	6.84		%	8.14		%	7.38		%	2.40		%	7.76		%	4.35		%	8.21		%
Average overnight Federal funds effective rate	1.16		%	0.40		%	0.94		%	0.38		%	0.06		%	2.40		%	0.64		%	2.40		%
Adjusted ROE as a spread to average overnight Federal funds effective rate	6.72		%	6.44		%	7.20		%	7.00		%	2.34		%	5.36		%	3.71		%	5.81		%

Financial Condition

Overall: Total assets ~~increased $4.1~~declined between periods, from $63.3 billion at December 31, 2019 to $53.5 billion at June 30, 2020, driven mostly by the $8.7 billion, or ~~9.2~~28.8 percent, decline in advances between periods as many members experienced significant deposit inflows and excess liquidity as a result of economic stimulus packages passed by Congress along with the Federal Reserve Bank’s easing of monetary policy, security purchase programs, and lending facilities. Mortgage loans increased by $0.3 billion during the first six months of 2020, representing 20.4 percent of total assets as of June 30, 2020, compared to 16.8 percent as of December 31, 2019. Mortgage loans are one of the highest net spread assets on our balance sheet and as they increase as a percent of total assets, all things being equal, they have the potential to increase our net interest margin. Total liabilities decreased $9.3 billion from December 31, 2019 to June 30, 2020 which corresponded with the decline in assets, and the funding mix shifted to a lower percentage of discount notes between periods, as we issued more floating rate debt indexed to SOFR. Our funding mix generally is driven by asset composition, but we may also shift our debt composition as a result of market conditions that impact the cost of consolidated obligations swapped or indexed to SOFR, Prime, Treasury bills, or OIS. For additional information on market trends impacting the cost of issuing debt, including discussion of the transition from LIBOR to an alternate reference rate, see "Financial Market Trends" and "Financial Condition" under this Item 2.

Total capital decreased $436.1 million, or 15.6 percent, from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017. This growth~~2020 primarily due to a decrease in required capital stock related to the decline in advance utilization between periods, resulting in excess stock that was ~~due primarily~~subsequently repurchased.

Dividends paid to ~~continued growth~~members totaled $39.7 million for the six months ended June 30, 2020 compared to $48.2 million for the same period in ~~advances, mostly~~the prior year. From June 30, 2019 to June 30, 2020, the dividend rate for Class A Common Stock decreased from 2.50 percent to 0.50 percent and the dividend rate for Class B Common Stock decreased from 7.50 percent to 5.50 percent. The weighted average dividend rate for the three months ended June 30, 2020 was 3.69 percent, which represented a dividend payout ratio of 73.0 percent, compared to a weighted average dividend rate of 6.56 percent and a payout ratio of 76.6 percent for the same period in ~~our line~~2019. The weighted average dividend rate for the six months ended June 30, 2020 was 4.85 percent, which represented a dividend payout ratio of ~~credit~~123.7 percent, compared to a weighted average dividend rate of 6.56 percent and ~~adjustable rate callable advances,~~a payout ratio of 57.1 percent for the same period in 2019. The significant increase in payout ratios between the six-month periods was a result of the steep decline in income as a result of the aforementioned COVID-19 market volatility that began near the end of the first quarter of 2020. The dividend payout ratio represents dividends declared and ~~continued steady growth~~paid during a quarter as a percentage of net income for the quarter, although FHFA regulation requires dividends be paid out of known income prior to the declaration date. For example, dividends declared and paid in ~~our mortgage loan portfolio. Our mortgage loan portfolio reached $7.1 billion~~March 2020 were based on income during the ~~quarter~~three months ended ~~September 30, 2017,~~February 2020. Our dividend rates have historically moved in tandem with ~~recent growth attributed~~short-term market rates, so the decrease reflects the decline in market interest rates resulting from FOMC rate cuts in March 2020 to ~~recruitment~~stimulate the U.S. economy. (See Item 1 – “Business – Capital, Capital Rules and Dividends” of ~~high-production PFIs and program enhancements~~our Form 10-K for other factors that ~~provide PFIs with additional funding opportunities.~~contribute to the level of dividends paid). We ~~have been actively promoting the impact of the dividend paid~~anticipate stock dividends on ~~outstanding capital stock on the effective borrowing cost of advances to increase member awareness of the benefit of higher dividends since 2014 (and raised again in 2017 for both our~~ Class A Common Stock and Class B Common ~~Stock), which has resulted in increased utilization of advances, especially the line of credit product. We strive to maintain a core mission assets ratio of over 70 percent, so increases~~Stock will remain at these lower levels in the ~~average balance~~second half of ~~both advances~~2020, consistent with the lower level of short‑term interest rates and ~~mortgage loans allows for growth in non-mission assets while maintaining~~ our desired core mission assets ratio. Although our investments represent non-mission assets, they are utilized to provide liquidity and primary and secondary market support for the U.S. housing securities market.retained earnings policy.

During the third quarter of 2017, two significant hurricanes impacted the southeastern coasts of the United States. On August 25, 2017, Hurricane Harvey made landfall near Corpus Christi, Texas and caused substantial damage and flooding to southeastern Texas, including the Houston metropolitan area. On September 10, 2017, Hurricane Irma made landfall on the Florida mainland near Marco Island, Florida. Hurricane Irma then moved northward through Florida and into Georgia, causing significant damage to property in Florida, Georgia, and certain other southeastern states.

We have analyzed the potential impact that damage related to Hurricanes Irma and Harvey might have on our mortgage loans held for portfolio and private-label residential MBS. Based on our historical experience with similar storms, we do not expect that losses resulting from Hurricanes Irma and Harvey will have a material effect on our financial condition or results of operations. Using the information currently available, we did not record any additional impairment on our mortgage loans held for portfolio or private-label residential MBS as of September 30, 2017. We will continue to evaluate the impact of these hurricanes on our mortgage loans held for portfolio and non-agency MBS investments. If additional information becomes available indicating that any of these assets has been impaired and the amount of the loss can be reasonably estimated, we will record appropriate reserves at that time.

As a percentage of assets at September 30, 2017 compared to December 31, 2016, investment securities and advances increased, while short-term investments and mortgage loans decreased, despite continued growth in the mortgage portfolio. Advance balances fluctuate seasonally and tend to trend down at the end of a quarter, but the average balance of advances increased by $2.4 billion, or 8.1 percent, during the third quarter of 2017 compared to the third quarter of 2016. In terms of liabilities, we increased the allocation of consolidated obligation bonds relative to total consolidated obligation discount notes and bonds at September 30, 2017 compared to December 31, 2016, and we increased the allocation of floating rate consolidated obligation bonds with longer-term structures to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and debt ceiling deadline. We continue to fund our short-term advances and overnight investments with term and overnight discount ~~notes.~~notes, but we also began to fund overnight investments with floating rate bonds to achieve certain liquidity targets, which is reflected in Table 1923, as the allocation of discount notes decreased and bonds increased. Table 23 presents the percentage concentration of the major components of our Statements of Condition:

Table 1923


	Component Concentration				Component Concentration
	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Assets:
Cash and due from banks	—	%	0.5	%	0.1	%	3.0	%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	9.3		12.2		13.1		10.3
Investment securities	18.6		17.9		25.5		21.4
Advances	57.4		53.0		40.2		47.8
Mortgage loans, net	14.3		14.7		20.4		16.8
Overnight loans to other FHLBanks	—		1.3
Other assets	0.4		0.4		0.7		0.7
Total assets	100.0	%	100.0	%	100.0	%	100.0	%

Liabilities:
Deposits	1.1	%	1.3	%	1.9	%	1.2	%
Consolidated obligation discount notes, net	43.1		48.2		25.3		43.4
Consolidated obligation bonds, net	50.8		45.8		68.1		50.6
Other liabilities	0.3		0.4		0.3		0.4
Total liabilities	95.3		95.7		95.6		95.6

Capital:
Capital stock outstanding	3.0		2.7		2.6		2.8
Retained earnings	1.7		1.6		1.9		1.6
Accumulated other comprehensive income (loss)	—		—		(0.1	)	—
Total capital	4.7		4.3		4.4		4.4
Total liabilities and capital	100.0	%	100.0	%	100.0	%	100.0	%

Table 2024 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):

Table 2024

Increase (Decrease)
in Components
09/30/2017 vs. 12/31/2016

Dollar
Change
Percent
Change
Assets:
Cash and due from banks $ (199,451 ) (96.2 )%
Investments¹
157,531
1.2
Advances 4,333,391
18.1
Mortgage loans, net 414,514
6.2
Derivative assets, net (10,404 ) (17.1 )
Overnight loans to other FHLBanks (600,000 ) (100.0 )
Other assets 48,859
43.5
Total assets $ 4,144,440
9.2 %

Liabilities:

Deposits $ (48,304 ) (8.1 )%
Consolidated obligations, net 3,853,487
9.1
Derivative liabilities, net (6,531 ) (91.1 )
Other liabilities 9,628
6.4
Total liabilities 3,808,280
8.8

Capital:
Capital stock outstanding 240,326
19.6
Retained earnings 80,945
11.0
Accumulated other comprehensive income (loss) 14,889
2,580.4
Total capital 336,160
17.1
Total liabilities and capital $ 4,144,440
9.2 %

¹~~Investments also include interest-bearing deposits, Federal funds sold and securities purchased under agreements to resell.~~



	Increase (Decrease) in Components
	06/30/2020 vs. 12/31/2019
	Dollar Change			Percent Change
Assets:
Cash and due from banks	$	(1,888,883	)	(98.5	)%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	466,519			7.2
Investment securities	80,435			0.6
Advances	(8,712,324		)	(28.8	)
Mortgage loans, net	312,708			2.9
Other assets	(1,173		)	(0.3	)
Total assets	$	(9,742,718	)	(15.4	)%

Liabilities:
Deposits	$	197,652		25.0	%
Consolidated obligation discount notes, net	(13,887,072		)	(50.6	)
Consolidated obligation bonds, net	4,432,362			13.8
Other liabilities	(49,547		)	(21.2	)
Total liabilities	(9,306,605		)	(15.4	)

Capital:
Capital stock outstanding	(374,453		)	(21.2	)
Retained earnings	(3,180		)	(0.3	)
Accumulated other comprehensive income (loss)	(58,480		)	(235.9	)
Total capital	(436,113		)	(15.6	)
Total liabilities and capital	$	(9,742,718	)	(15.4	)%

Advances: Our advance products are developed, as authorized in the Bank Act and in regulations established by the FHFA, to meet the specific liquidity and term funding needs of our members. As a wholesale provider of funds, we compete with brokered certificates of deposit and security repurchase agreements. The Federal Reserve Bank’s PPP Liquidity Facility was a direct competitor for FHLBank advances during the second quarter of 2020, although any quantification of that impact on advance balances is difficult to determine. We strive to price our advances relative to our marginal cost of funds while trying to remain competitive with the wholesale funding markets. While there is typically less competition in the long-term maturities, member demand for advances in these maturities has historically been lower than the demand for advances with short- and medium-term maturities. Nonetheless, long-term advances are also priced at relatively low spreads to our cost of funds.

Advances decreased $8.7 billion from December 31, 2019 to June 30, 2020 as a result of a decrease in member demand for advances, as many members experienced significant deposit inflows and excess liquidity as a result of economic stimulus packages passed by Congress along with the Federal Reserve Bank’s easing of monetary policy, security purchase programs, and lending facilities. Though the majority of the decrease in advances during the second quarter is attributable to our largest borrowers, the decline in advance demand was widespread among FHLBank membership. Advance composition shifted from adjustable rate to fixed rate, as members called adjustable rate callable advances in favor of regular fixed rate advances as interest rates declined. Members also extended fixed rate advance terms as a result of the decline in interest rates. We anticipate volatility in advance balances in 2020 based on several factors related to the COVID-19 pandemic, including large members with relatively strong deposit growth and access to other funding sources, which could cause an additional decline in advance balances.

During the three months ended June 30, 2020, we issued subsidized COVID-19 Relief Advances to help members serve their customers affected by the COVID-19 pandemic. The zero-cost advances have a term of six months and the low-cost advances have terms between 6 and 24 months. As of June 30, 2020, $0.6 billion and $0.5 billion of zero-cost and low-cost advances were outstanding, respectively. Discounts of $4.5 million were initially recorded on these advances and are accreted using the interest method over the life of the advances resulting in the recognition of periodic interest income on the advances at the effective interest rate (i.e., yield recorded equals a prevailing rate) in net interest income, of which $3.7 million remains outstanding at June 30, 2020. Advances are no longer being issued under this program, but management continues to monitor the progress of the pandemic and is committed to assisting our members and their communities as impacts related to the COVID-19 pandemic continue to unfold.

Table 2125 summarizes advances outstanding by product (dollar amounts in thousands):

Table 2125


	09/30/2017				12/31/2016				06/30/2020				12/31/2019
	Dollar		Percent		Dollar		Percent		Dollar		Percent		Dollar		Percent
Adjustable rate:
Standard advance products:
Line of credit	$	13,272,467	46.9	%	$	9,634,491	40.2	%	$	1,906,859	9.0	%	$	9,421,491	31.2	%
Regular adjustable rate advances	352,975		1.3		75,000		0.3		810,015		3.8		665,000		2.2
Adjustable rate callable advances	7,165,660		25.3		6,161,835		25.7		2,689,800		12.7		11,444,700		38.0
Standard housing and community development advances:
Adjustable rate callable advances	98,002		0.3		99,002		0.4		37,212		0.2		37,212		0.1
Total adjustable rate advances	20,889,104		73.8		15,970,328		66.6		5,443,886		25.7		21,568,403		71.5
Fixed rate:
Standard advance products:
Short-term fixed rate advances	391,250		1.4		452,545		1.9		6,034,260		28.5		1,111,007		3.7
Regular fixed rate advances	4,899,504		17.3		5,084,882		21.2		6,792,509		32.0		4,717,025		15.6
Fixed rate callable advances	13,470		—		39,445		0.2		17,506		0.1		17,241		0.1
Standard housing and community development advances:
Regular fixed rate advances	423,840		1.5		400,412		1.7		469,559		2.2		470,925		1.6
Fixed rate callable advances	4,831		—		4,000		—		831		—		2,831		—
Total fixed rate advances	5,732,895		20.2		5,981,284		25.0		13,314,665		62.8		6,319,029		21.0
Convertible:
Standard advance products:
Fixed rate convertible advances	884,950		3.1		1,147,392		4.8		1,775,900		8.4		1,607,500		5.3
Amortizing:
Standard advance products:
Fixed rate amortizing advances	392,117		1.4		409,926		1.7		333,987		1.6		331,551		1.1
Fixed rate callable amortizing advances	20,714		0.1		23,239		0.1		7,187		—		10,807		—
Standard housing and community development advances:							��
Fixed rate amortizing advances	390,153		1.4		419,587		1.8		307,574		1.5		324,477		1.1
Fixed rate callable amortizing advances	7,783		—		8,759		—		10,039		—		10,288		—
Total amortizing advances	810,767		2.9		861,511		3.6		658,787		3.1		677,123		2.2
TOTAL PAR VALUE	$	28,317,716	100.0	%	$	23,960,515	100.0	%	$	21,193,238	100.0	%	$	30,172,055	100.0	%

~~Note that an~~An individual advance may be reclassified to a different product type between periods due to the occurrence of a triggering event such as the passing of a call date (i.e., from fixed rate callable advance to regular fixed rate advance) or conversion of an advance (i.e., from fixed rate convertible advance to adjustable rate callable advance).

Advances are one of the primary ways we fulfill our mission of providing liquidity to our members and constituted the largest asset on our balance sheet at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016. The 18.2 percent increase in advance~~2019. Advance par value decreased by 29.8 percent from December 31, ~~2016~~2019 to June 30, 2020 (see Table ~~21)~~25) and the majority of the decrease was ~~due mostly~~in short-term adjustable rate advances. The composition of the advance portfolio remains concentrated in advances that either reprice or mature on a relatively short-term basis as members continue to ~~an increase~~benefit from pricing efficiency in ~~our line of credit and~~a declining interest rate environment. Members are beginning to transition away from regular adjustable rate callable ~~advances. Changes in interest rates could reduce the benefit of line of credit advances to our members, which could cause a significant decline in advances. We expect~~ advances as ~~a percent of total assets~~pricing on other products has become more attractive and we expect this trend to ~~remain near current levels as part of our core mission asset focus and continued efforts to promote awareness of the benefits of higher dividends (see “Executive Level Overview”under this Item 2), but we cannot predict member demand for our advance products.~~

continue.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016, 68.0~~2019, 62.4 percent and ~~65.7~~57.6 percent, respectively, of our members carried outstanding advance balances. The overall demand for our advances ~~can~~is typically ~~be attributed~~influenced by our members’ ability to profitably invest the ~~demand~~funds in loans and investments as well as their need for ~~loans that our depository members are experiencing~~liquidity, which is influenced by changes in ~~their communities~~loan demand and their ability to ~~fund those loans~~efficiently grow deposits proportionately. As previously mentioned, most members are flush with ~~deposit growth. It is also influenced by~~liquidity as a result of economic stimulus payments and other funding options such as the Federal Reserve Bank's PPP Liquidity Facility. The attractiveness of our ~~insurance company members’ need for operational liquidity and the ability of both depository and insurance company members to profitably invest advance funding. The demand for~~ advances is also influenced by the impact our dividends have on the effective cost of advances. ~~Dividend yields have trended higher since~~Following the ~~last half of 2014, which has provided~~recent steep decline in rates, our short-term advances should continue to become more attractive relative to other funding options even when taking the reduction in dividend rates into consideration. We experienced advance growth from our smaller members ~~with more opportunities to profitably invest advance funding, resulting~~ in ~~historically high levels of advances outstanding. The majority~~the short term as they took advantage of the ~~growth in advances experienced is~~subsidized COVID-19 Relief Advances to help serve their customers affected by the COVID-19 pandemic, but this increase did not offset decreases from larger members as previously discussed. When, and if, member advance demand changes, a ~~result of a small number of large members increasing short-term advances. We anticipate demand for advances to remain steady with these members. Advances with other~~few larger members could ~~decline or remain flat until greater levels~~have a significant impact on the amount of ~~funding can be reallocated from short-term liquid assets into higher-yielding loans or assets.~~total outstanding advances. If our members reduce the volume of their advances, we expect to continue our past practice of repurchasing excess capital stock. In addition, when, and if, member advance demand changes, a few larger members could have a significant impact on the amount of total outstanding advances, much like what has occurred since the latter half of 2014.

Rather than match-funding long-term, fixed rate, large dollar advances, we elect to swap a significant portion of large dollar advances with longer maturities to short-term indices ~~(one-~~(e.g., one- or three-month ~~LIBOR)~~LIBOR, OIS beginning in late 2018, and SOFR beginning in 2019) to synthetically create adjustable rate advances. When coupled with the volume of our short-term advances, advances that effectively re-price at least every three months represent ~~89.5~~80.5 percent and ~~87.5~~91.0 percent of our total advance portfolio as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. We anticipate continuing the practice of swapping large dollar advances with longer maturities to short-term indices. In the first quarter of 2019, we began swapping fixed rate non-callable advances to SOFR as part of our plan to transition away from LIBOR as a reference rate. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Table 2226 presents information on our five largest borrowers (dollar amounts in thousands). IfBased on no historical loss experience on advances since the ~~borrower was not one~~inception of FHLBank, along with our ~~top five borrowers for one of the periods presented, the applicable columns are left blank. We have~~ rights to collateral with an estimated fair value in excess of the book value of these advances, ~~and, therefore,~~we do not expect to incur any credit losses on these advances.

Table 2226


	09/30/2017				12/31/2016				06/30/2020				12/31/2019
Borrower Name	Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par
BOKF, N.A.	$	6,200,000	21.9	%	$	4,800,000	20.0	%
MidFirst Bank	5,265,000		18.6		4,340,000		18.1		$	5,085,000	24.0	%	$	8,585,000	28.5	%
Capitol Federal Savings Bank	2,175,000		7.7		2,275,000		9.5		1,893,000		8.9		2,090,000		6.9
United of Omaha Life Insurance Co.	793,818		2.8		670,000		2.8		1,237,686		5.8		1,205,761		4.0
Bellco Credit Union	696,000		2.5
Mutual of Omaha Bank					556,000		2.3
Security Life of Denver Insurance Co.									1,010,000		4.8		925,000		3.1
BOKF, N.A.									1,000,000		4.7		4,500,000		14.9
TOTAL	$	15,129,818	53.5	%	$	12,641,000	52.7	%	$	10,225,686	48.2	%	$	17,305,761	57.4	%

Table 2327 presents the accrued interest income associated with the five borrowers with the highest interest income for the periods presented (dollar amounts in thousands). If the borrower was not one of our top five borrowers for whom we accrued the highest amount of interest income for one of the periods presented, the applicable columns are left blank.

Table 2327


	Three Months Ended								Three Months Ended
	09/30/2017				09/30/2016				06/30/2020				06/30/2019
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
Capitol Federal Savings Bank									$	8,513	12.4	%	$	12,906	7.0	%
MidFirst Bank	$	20,151	16.4	%	$	5,852	7.4	%	8,053		11.7		45,328		24.6
BOKF, N.A.	19,678		16.0		8,692		11.0		3,529		5.1		47,357		25.7
Capitol Federal Savings Bank	17,649		14.3		15,999		20.3
American Fidelity Assurance Co.	3,543		2.9		4,062		5.2		3,001		4.4
Bellco Credit Union									2,876		4.2
United of Omaha Life Insurance Co.	3,037		2.5		1,924		2.4						6,114		3.3
Security Life of Denver Insurance Co.													3,993		2.2
TOTAL	$	64,058	52.1	%	$	36,529	46.3	%	$	25,972	37.8	%	$	115,698	62.8	%

Total advance income by borrower ~~excludes~~excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the ~~advances. Total advance income for all borrowers is net of interest receipts/(payments) on derivatives hedging advances of $(9.3) million~~advances; and ~~$(21.0) million for the three months ended September 30, 2017 and 2016, respectively.~~(3) prepayment fees received.

Table 2428 presents ~~the accrued interest income associated with~~ the five borrowers providing the highest amount of interest income earned for the periods presented (dollar amounts in thousands).

Table 2428


	Nine Months Ended								Six Months Ended
	09/30/2017				09/30/2016				06/30/2020				06/30/2019
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
Capitol Federal Savings Bank	$	51,788	16.2	%	$	48,202	20.5	%
MidFirst Bank	47,503		14.9		17,183		7.3		$	38,638	19.1	%	$	86,154	23.7	%
BOKF, N.A.	45,643		14.3		24,302		10.3		30,142		14.9		93,667		25.7
American Fidelity Assurance Co.	10,765		3.4		12,143		5.1
Capitol Federal Savings Bank									18,993		9.4		25,561		7.0
United of Omaha Life Insurance Co.	7,774		2.5		5,725		2.4		6,998		3.4		12,232		3.4
Security Life of Denver Insurance Co.									6,552		3.2		7,784		2.1
TOTAL	$	163,473	51.3	%	$	107,555	45.6	%	$	101,323	50.0	%	$	225,398	61.9	%

Total advance income by borrower ~~excludes~~excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the ~~advances. Total advance income for all borrowers is net of interest receipts/(payments) on derivatives hedging advances of $(37.0) million~~advances; and ~~$(67.7) million for the nine months ended September 30, 2017 and 2016, respectively.~~

(3) prepayment fees received.

See Table 4 ~~presents~~for information on the amount of interest income on advances as a percentage of total interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019.

MPF Program: The MPF Program is a secondary mortgage market alternative for our members, especially utilized by the smaller institutions in our district. We participate in the MPF Program through the MPF Provider, a division of FHLBank of Chicago. Under the MPF Program, participating members can sell us conventional and government ~~fixed rate, size-conforming,~~ single-family residential mortgage loans.

The principal amount of new mortgage loans acquired and held on our balance sheet from our PFIs during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 was ~~$1.1~~$2.0 billion. These new originations and acquisitions, net of loan payments received, resulted in an increase of ~~6.2~~2.9 percent in the outstanding net balance of our mortgage loan portfolio from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017.~~2020. Net mortgage loans as a percentage of total assets ~~decreased slightly~~increased, from ~~14.7~~16.8 percent as of December 31, ~~2016~~2019 to ~~14.3~~20.4 percent as of ~~September~~June 30, ~~2017.~~2020. Table 4 presents the amount of interest income on mortgage loans held for portfolio as a percentage of total interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016. Although~~2019.

As a result of the recent decline in advances, we exceeded our targeted AMA risk tolerance as a percent of our balance sheet as of June 30, 2020 so we are implementing strategies to manage growth in the mortgage loan balances grew to over $7.0 billion as of September 30, 2017, mortgage loans as a percentage of total assets and the percentage of mortgage loan interest income to total interest income has declined, predominantly due to an increase in average advance balances as a percentage of average total assets and the resulting increase in advance interest income.

portfolio. Recent growth in mortgage loans held for portfolio is attributed primarily to the recruitment of high-production PFIs, but we have also made enhancements to pricing structures that provide PFIs with additional funding opportunities. Recent reductions in the required CE obligation against current and pastcontinued strong production ~~may reduce~~from our ~~PFIs' risk-based capital requirements and result in additional MPF portfolio growth.~~top five PFIs. The primary factors that may influence future growth in our mortgage loans held for portfolio include: (1) the number of new and delivering PFIs; (2) the mortgage loan origination volume of current PFIs; (3) refinancing activity; (4) the level of interest rates and the shape of the yield curve; (5) the relative competitiveness of MPF pricing to the prices offered by other buyers of residential mortgage loans; and (6) a PFI's level of excess risk-based capital relative to the required risk-based capital charge associated with the PFI's CEcredit enhancement obligations on MPF mortgage loans. In an effort to manage the level of mortgage loans on our books, management has researched and continues to review options including participating loan volume ~~or selling whole loans~~(as described below) to ~~other FHLBanks,~~ members or other ~~investors. As described below, we have pursued participations and, although~~investors if needed. Although we may determine to sell whole loans from time to time, we have not identified any specific loans to be sold as of ~~September~~June 30, ~~2017.~~2020. The MPF Program is evaluating additional liquidity options that may help participating FHLBanks manage the size of their mortgage loan portfolios in the future.

Historically, we have used the MPF Xtra product ~~and mortgage loan participations with another FHLBank~~ to effectively restrict the growth in mortgage loans held for portfolio and provide management with adequate means to control the amount of mortgage loan portfolio volume retained on our balance sheet to maintain our desired asset composition. The MPF Xtra product is a structure where our PFIs sell mortgage loans to FHLBank of Chicago and simultaneously to Fannie Mae. ~~We also recently began offering an~~ MPF Government MBS is a similar product that ~~similarly~~ allows our PFIs to sell mortgages to FHLBank of Chicago that are pooled into Ginnie Mae securities. ~~Both~~We also offer the MPF Direct product, which provides the PFI the opportunity to sell a jumbo loan under the MPF Program structure to an unaffiliated third party for securitization. These products are intended to ~~enhance~~further assist our members and their mortgage product needs while enhancing our ability to manage mortgage volumes and receive a counterparty fee from FHLBank of Chicago based on mortgage volumes sold by our PFIs. We have the authority to offer participation interests in risk sharing MPF loan pools to member institutions and mortgage loan participations with another FHLBank, which may further enhance our ability to manage the size of our mortgage loan portfolio in the future. We expect our utilization of MPF Xtra to increase in the last half of 2020.

The number of approved PFIs was 270 and 274 as of September 30, 2017 and December 31, 2016, respectively. During the nine months ended September 30, 2017, we purchased loans from 179 PFIs with no one PFI accounting for more than 6.8 percent of the total dollar volume purchased. Although there is no guarantee, we anticipate that the number of PFIs delivering loans will increase during 2017 as we continue to educate our members about the improved execution and relative ease of use associated with the MPF Program and the previously discussed reduction in CE obligation available to PFIs. Table 2529 presents the outstanding balances of mortgage loans sold to us, net of participations, from our top five PFIs and the percentage of those loans to total mortgage loans outstanding (dollar amounts in thousands). If the member was not one of our top five PFIs for one of the periods presented, the applicable columns are left blank.

Table 2529


	09/30/2017				12/31/2016				06/30/2020				12/31/2019
	Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans
NBKC Bank									$	810,584	7.5	%	$	925,748	8.8	%
Fidelity Bank									416,364		3.9		393,205		3.8
FirstBank of Colorado	$	310,484	4.5	%	$	273,386	4.2	%	411,347		3.8		424,437		4.1
West Gate Bank									370,214		3.4
Tulsa Teachers Credit Union	263,553		3.8		242,312		3.7		367,786		3.4
ENT Federal Credit Union	174,367		2.5
Fidelity Bank	168,869		2.4
Mid-America Bank	152,406		2.2		131,419		2.0
Mutual of Omaha Bank					152,264		2.3						396,389		3.8
SAC Federal Credit Union					141,992		2.2
Sunflower Bank													383,226		3.7
TOTAL	$	1,069,679	15.4	%	$	941,373	14.4	%	$	2,376,295	22.0	%	$	2,523,005	24.2	%

Two indications of credit quality are scores provided by Fair Isaac Corporation (FICO^®) and loan-to-value (LTV) ratios. FICO is a widely used credit industry indicator to assess borrower credit quality with scores typically ranging from 300 to 850 with the low end of the scale indicating greater credit risk. The MPF Program requires a minimum FICO score of 620 for all conventional loans. LTV is a primary variable in credit performance. Generally speaking, a higher LTV ratio means greater risk of loss in the event of a default and also means higher loss severity. The weighted average FICO score and LTV recorded at origination for conventional mortgage loans outstanding as of ~~September~~June 30, ~~2017~~2020 was ~~750~~751 and ~~74.1~~74.2 percent, respectively. See Note 65 of the Notes to Financial Statements under Part I, Item 1 for additional information regarding credit quality indicators.

Allowance for Credit Losses on Mortgage Loans Held for Portfolio – The ~~slight decrease in the~~ allowance for credit losses increased $6.8 million from December 31, 2019 to June 30, 2020 primarily as a result of ~~September 30, 2017~~the adoption of new accounting guidance pertaining to measurement of credit losses on financial instruments that resulted in an adjustment to retained earnings of $6.1 million. The provision in the current quarter was ~~primarily attributable~~due to ~~a decrease~~an increase in delinquent loans during the first nine months of 2017. We have analyzed the potential impact that damage related to Hurricanes Irma and Harvey might have on mortgage loans held for portfolio. We do not expect that lossesdelinquencies combined with worsening forward-looking economic assumptions resulting from ~~Hurricanes Irma and Harvey will have a material effect on our financial condition or results~~the COVID-19 pandemic. Delinquencies of ~~operations due~~conventional loans remained at low levels relative to the ~~combination~~portfolio, at 2.1 percent and 0.8 percent of ~~property/flood insurance coverage~~total conventional loans at June 30, 2020 and borrower equity in the impacted areas. We will continue to evaluate the impact of the hurricanes on our mortgage loans held for portfolio. If additional information becomes available indicating that mortgage loans in any impacted areas have been impaired and the amount of the loss can be reasonably estimated, we will record appropriate reserves at that time.December 31, 2019, respectively. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held in portfolio. See Note 65 of the Notes to Financial Statements under Part I, Item 1 for a summary of the allowance for credit losses on mortgage loans as well as payment status and other delinquency ~~aging and key credit quality indicators~~statistics for our mortgage loan portfolio.

The CARES Act allows financial institutions to provide payment forbearance to assist borrowers who have experienced a hardship resulting from COVID-19. The MPF Provider released information on COVID-19 borrower assistance plans, and the FHLBank System continues to consider additional relief in line with the CARES Act, which could impact our mortgage loan portfolio and allowance in future periods. For additional information on loans under forbearance, see Note 5 of the Notes to Financial Statements under Part I, Item 1.

Investments: Investments are used to enhance income and provide liquidity and primary and secondary market support for the U.S. housing securities market. Total investments increased from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017~~2020, predominantly due to increases in ~~MBS~~the balances of short-term investments. Long-term investments increased slightly due to purchases of available-for-sale securities and ~~certificates~~increases in the carrying value of ~~deposit, partially~~securities held at fair value, offset by ~~a decrease in money market investments. The increase in~~maturities and sales of long-term MBS coincided with the increase in advances and mortgage loans, as growth in core mission assets and the corresponding increase in capital allow for growth in non-mission assets while maintaining our desired core mission assets ratio. Consistent with FHFA guidance, 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.securities.

Short-term Investments – Short-term investments, which are used to provide funds to meet the credit needs of our members, maintain liquidity, ~~and~~ meet other financial obligations such as debt servicing, and enhance income, consist primarily of reverse repurchase agreements, interest-bearing deposits, overnight Federal funds sold, term Federal funds sold, and certificates of ~~deposit and commercial paper.~~deposit. The Bank Act and FHFA regulations and guidelines set liquidity requirements for us, and our ~~Board~~board of ~~Directors~~directors has adopted additional liquidity policies. In addition, we maintain a contingency liquidity plan in the event of financial market disruptions. See “Risk Management – Liquidity Risk Management” under this Item 2 for a discussion of our liquidity management.

Within our portfolio of short-term investments, we face credit risk from unsecured exposures. Our short-term unsecured credit investments have maturities generally ranging between overnight and three months and may include the following types:

Interest-bearing deposits. Unsecured deposits that earn interest.

Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions that are made on either an overnight or term basis.

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

Certificates of deposit. Unsecured negotiable promissory notes issued by banks and payable to the bearer at maturity.

Table 2630 presents the carrying value of our unsecured credit exposure with private counterparties by investment type (in thousands). The unsecured investment credit exposure presented may not reflect the average or maximum exposure during the period as the balances presented reflect the balances at period end.

Table 2630


	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Interest-bearing deposits	$	299,741	$	385,148	$	1,009,360	$	919,693
Federal funds sold	1,692,000		2,725,000		1,520,000		850,000
Certificates of deposit	675,027		—
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	2,666,768	$	3,110,148	$	2,529,360	$	1,769,693


¹	Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies, instrumentalities, GSEs and supranational entities and does not include related accrued interest.

We actively monitor our credit exposures and the credit quality of our counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, sovereign support and the current market perceptions of the counterparties. General macro-economic, political and market conditions may also be considered when deciding on unsecured exposure. As a result, we may further limit existing exposures.

FHFA regulations: (1) include limits on the amount of unsecured credit an individual FHLBank may extend to a counterparty or to a group of affiliated counterparties; (2) permit us to extend additional unsecured credit for overnight extensions of credit, subject to limitations; and (3) prohibit us 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. For additional information on our management of unsecured credit exposure, see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2019. As of ~~September~~June 30, ~~2017,~~2020, we were in compliance with all FHFA regulations relating to unsecured credit exposure.

We manage our credit risk by conducting pre-purchase credit due diligence and on-going surveillance described previously and generally investing in unsecured investments of highly-rated counterparties. From time to time, we extend unsecured credit to qualified members by investing in overnight Federal funds issued by them. As of ~~September~~June 30, ~~2017,~~2020, all unsecured investments were rated as investment grade based on NRSROs (see Table ~~30)~~34).

Table 2731 presents the amount of our unsecured investment credit exposure by remaining contractual maturity and by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks as of ~~September~~June 30, ~~2017~~2020 (in thousands). We also mitigate the credit risk on investments by generally investing in investments that have short-term maturities.

Table 2731


Domicile of Counterparty	Overnight		Due 2 – 30 days		Due 31 – 90 days		Total		Overnight
Domestic	$	299,741	$	—	$	—	$	299,741	$	1,009,360
U.S. subsidiaries of foreign commercial banks	42,000		—		—		42,000
Total domestic and U.S. subsidiaries of foreign commercial banks	341,741		—		—		341,741
U.S. Branches and agency offices of foreign commercial banks:
Germany	425,000		—		—		425,000
Norway	425,000		—		—		425,000
Austria	400,000		—		—		400,000
Sweden									650,000
Netherlands	400,000		—		—		400,000		430,000
Canada	—		150,003		200,014		350,017		300,000
Sweden	—		—		325,010		325,010
Germany									140,000
Total U.S. Branches and agency offices of foreign commercial banks	1,650,000		150,003		525,024		2,325,027		1,520,000
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	1,991,741	$	150,003	$	525,024	$	2,666,768	$	2,529,360


¹	Excludes unsecured investment credit exposure to U.S. government, U.S. government agencies, instrumentalities, GSEs and supranational entities, and does not include related accrued interest.

Unsecured credit exposure continues to be cautiously ~~placed, with exposure concentrated domestically and in the countries listed in Table 27.~~placed. In addition, we anticipate continued future investment in reverse repurchase agreements, which are secured investments, and limiting unsecured exposure, especially to foreign financial institutions, as long as the interest rates are comparable. To enhance our liquidity position, we classify our unsecured short-term investment securities in our trading portfolio, which allows us to sell these securities if necessary.

Long-term investments – Our long-term investment portfolio consists primarily of GSE MBS and ~~GSE debentures.~~U.S. Treasury obligations. Our Risk Management Policy (RMP) restricts the acquisition of investments to highly rated long-term securities. ~~The majority~~During the last half of these long-term securities are GSE MBS, which provide an alternative means to promote liquidity in the mortgage finance markets while providing acceptable returns. We hold fixed and variable rate GSE debentures in our long-term investment portfolio and2018, we ~~swap the~~began acquiring fixed rate ~~GSE debentures~~U.S. Treasury obligations and swapping these securities from fixed to variable ~~rates. They provide attractive returns, can serve~~rates, as either trading securities that are economically swapped or, beginning in 2019, available-for-sale securities that are swapped in qualifying fair value hedging relationships. In addition to serving as excellent collateral, ~~(e.g., repurchase agreements~~U.S. Treasuries also satisfy recent changes to regulatory liquidity requirements. Currently, the vast majority of our variable rate investment securities are indexed to LIBOR. For additional information on our LIBOR transition efforts and net derivatives exposure), and are generally classified as trading securities and carried at fair value, either to enhance our liquidity position, for asset/liability management purposes, or to provide a fair value offset to the gains or losses on the interest rate swaps tied to these securities. The interest rate swaps do not qualify for hedge accounting, which results in the net interest payments or receipts on these economic hedges flowing through net gain (loss) on derivatives and hedging activities instead of net interest income.LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

According to FHFA regulation, no additional MBS purchases can be made if the amortized cost of our mortgage securities exceeds 300 percent of our regulatory capital. Further, quarterly increases in holdings of mortgage securities are restricted to no more than 50 percent of regulatory capital. As of ~~September~~June 30, ~~2017,~~2020, the amortized cost of our MBS portfolio represented ~~307~~304 percent of our regulatory capital. At times we may exceed the required threshold due to decreases in regulatory capital; however, we were in compliance with the regulatory limit at the time of each purchase during the ~~current quarter.~~six months ended June 30, 2020.

As of ~~September~~June 30, ~~2017,~~2020, we held ~~$4.7~~$3.1 billion of par value in MBS in our held-to-maturity portfolio, ~~$1.4~~$2.9 billion of par value in MBS in our available-for-sale portfolio, and ~~$0.9~~$0.8 billion of par value in MBS in our trading portfolio. The majority of the MBS in the held-to-maturity portfolio are variable rate GSE securities. The majority of the MBS in the trading and available-for-sale portfolios are fixed rate GSE securities, which are swapped from fixed to variable rates.

Major Security Types – Securities for which we have the ability and intent to hold to maturity are classified as held-to-maturity securities and recorded at carrying value, which is the net total of par, premiums, ~~discounts~~ and ~~credit and non-credit OTTI~~ discounts. We classify certain investments as trading or available-for-sale securities and carry them at fair value, generally for liquidity purposes, to provide a fair value offset to the gains (losses) on the interest rate swaps tied to swapped securities, and for asset/liability management purposes. Liquidity or other asset/liability management strategies, such as reducing our LIBOR exposure, may require periodic sale of these securities but they are not actively traded with the intent of realizing gains; most often, they are held until maturity or call date. Securities acquired as asset/liability management tools to manage duration risk, which are likely to be sold when the duration risk is no longer present, are classified as trading or available-for-sale securities. Changes in the fair values of investments classified as trading are recorded through other income and original premiums/discounts on these investments are not amortized. ~~We do not actively trade any of these securities with the intent of realizing gains; most often, they are held until maturity or call date.~~

Traditionally, if fixed rate securities were hedged with interest rate swaps, we would classify the securities as trading investments so that the changes in fair values of both the derivatives hedging the securities and the hedged securities are recorded in other income. However, during 2015, we began classifying our newly acquired swapped fixed rate multi-family GSE MBS as available-for-sale and designating the corresponding interest rate swaps as fair value benchmark hedges. See Note 3 of the Notes to Financial Statements under Part I, Item 1 of this quarterly report for additional information on our different investment classifications including ~~what~~the types of securities ~~are~~ held under each classification. The carrying value of our investments is summarized by security type in Table 2832 (in thousands).

Table 2832


	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Trading securities:
Certificates of deposit	$	675,027	$	—
U.S. Treasury obligations					$	1,565,218	$	1,530,518
GSE debentures	1,357,859		1,563,351		435,008		416,025
Mortgage-backed securities:
U.S. obligation MBS	604		690
GSE MBS	939,893		938,747		904,417		866,019
Total trading securities	2,973,383		2,502,788		2,904,643		2,812,562
Available-for-sale securities:
U.S. Treasury obligations					4,337,386		4,261,791
GSE MBS	1,464,472		1,091,721		3,221,290		2,920,709
Total available-for-sale securities	1,464,472		1,091,721		7,558,676		7,182,500
Held-to-maturity securities:
State or local housing agency obligations	94,625		105,780		81,995		82,805
Mortgage-backed securities:
U.S. obligation MBS	133,342		36,331		85,268		93,375
GSE MBS	4,429,372		4,250,547		3,014,873		3,393,778
Private-label residential MBS	83,193		109,566
Total held-to-maturity securities	4,740,532		4,502,224		3,182,136		3,569,958
Total securities	9,178,387		8,096,733		13,645,455		13,565,020

Interest-bearing deposits	301,208		387,920		1,017,972		921,453

Federal funds sold	1,692,000		2,725,000		1,520,000		850,000

Securities purchased under agreements to resell	2,595,589		2,400,000		4,450,000		4,750,000
TOTAL INVESTMENTS	$	13,767,184	$	13,609,653	$	20,633,427	$	20,086,473

The carrying values by contractual maturities of our investments are summarized by security type in Table 2933 (dollar amounts in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 2933


	09/30/2017														06/30/2020
	Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value		Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value
Trading securities:
Certificates of deposit	$	675,027		$	—		$	—		$	—		$	675,027
U.S. Treasury obligations															$	252,878		$	1,312,340		$	—		$	—		$	1,565,218
GSE debentures	344,007			602,163			411,689			—			1,357,859		—			435,008			—			—			435,008
Mortgage-backed securities:
U.S. obligation MBS	—			—			604			—			604
GSE MBS	—			—			867,667			72,226			939,893		—			546,040			315,054			43,323			904,417
Total trading securities	1,019,034			602,163			1,279,960			72,226			2,973,383		252,878			2,293,388			315,054			43,323			2,904,643
Yield on trading securities	1.20		%	1.16		%	2.88		%	2.18		%			2.50		%	2.64		%	2.99		%	0.78		%
Available-for-sale securities:
U.S. Treasury obligations															1,772,277			2,565,109			—			—			4,337,386
GSE MBS	—			89,899			1,316,997			57,576			1,464,472		—			244,724			2,976,566			—			3,221,290
Total available-for-sale securities	—			89,899			1,316,997			57,576			1,464,472		1,772,277			2,809,833			2,976,566			—			7,558,676
Yield on available-for-sale securities	—		%	2.09		%	2.60		%	2.61		%			2.15		%	2.00		%	2.70		%	—		%
Held-to-maturity securities:
State or local housing agency obligations	—			2,270			—			92,355			94,625		—			—			—			81,995			81,995
Mortgage-backed securities:
U.S. obligation MBS	—			—			—			133,342			133,342		—			—			—			85,268			85,268
GSE MBS	114			274,107			1,540,549			2,614,602			4,429,372		—			891,606			303,956			1,819,311			3,014,873
Private-label residential MBS	1,605			3,237			1,921			76,430			83,193
Total held-to-maturity securities	1,719			279,614			1,542,470			2,916,729			4,740,532		—			891,606			303,956			1,986,574			3,182,136
Yield on held-to-maturity securities	2.00		%	1.49		%	1.86		%	1.77		%			—		%	1.14		%	1.19		%	1.41		%

Total securities	1,020,753			971,676			4,139,427			3,046,531			9,178,387		2,025,155			5,994,827			3,595,576			2,029,897			13,645,455
Yield on total securities	1.21		%	1.34		%	2.41		%	1.79		%			2.19		%	2.10		%	2.59		%	1.40		%

Interest-bearing deposits	301,208			—			—			—			301,208		1,017,972			—			—			—			1,017,972

Federal funds sold	1,692,000			—			—			—			1,692,000		1,520,000			—			—			—			1,520,000

Securities purchased under agreements to resell	2,595,589			—			—			—			2,595,589		4,450,000			—			—			—			4,450,000
TOTAL INVESTMENTS	$	5,609,550		$	971,676		$	4,139,427		$	3,046,531		$	13,767,184	$	9,013,127		$	5,994,827		$	3,595,576		$	2,029,897		$	20,633,427

Securities Ratings – Tables 3034 and 3135 present the carrying value of our investments by rating as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands). The ratings presented are the lowest ratings available for the security, issuer, or ~~the issuer~~counterparty based on NRSROs, where available. Some counterparties for collateralized overnight borrowing are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. We also utilize other credit quality factors when analyzing potential investments including, but not limited to, collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, and/or the financial health of the underlying issuer.

Table 3034


	09/30/2017														06/30/2020
	Carrying Value¹														Carrying Value¹
	Investment Grade								Below Triple-B		Unrated		Total		Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A		Triple-B								Triple-A		Double-A		Single-A
Interest-bearing deposits²	$	741	$	1,467	$	299,000	$	—	$	—	$	—	$	301,208	$	297	$	8,612	$	1,009,063	$	—	$	1,017,972

Federal funds sold²	—		—		1,692,000		—		—		—		1,692,000		—		500,000		1,020,000		—		1,520,000

Securities purchased under agreements to resell³	—		—		—		—		—		2,595,589		2,595,589		—		—		—		4,450,000		4,450,000

Investment securities:
Non-mortgage-backed securities:
Certificates of deposit²	—		525,024		150,003		—		—		—		675,027
U.S. Treasury obligations															—		5,902,604		—		—		5,902,604
GSE debentures	—		1,357,859		—		—		—		—		1,357,859		—		435,008		—		—		435,008
State or local housing agency obligations	64,625		30,000		—		—		—		—		94,625		51,995		30,000		—		—		81,995
Total non-mortgage-backed securities	64,625		1,912,883		150,003		—		—		—		2,127,511		51,995		6,367,612		—		—		6,419,607
Mortgage-backed securities:
U.S. obligation MBS	—		133,946		—		—		—		—		133,946		—		85,268		—		—		85,268
GSE MBS	—		6,833,737		—		—		—		—		6,833,737		—		7,140,580		—		—		7,140,580
Private label residential MBS	—		2,492		4,777		31,828		43,650		446		83,193
Total mortgage-backed securities	—		6,970,175		4,777		31,828		43,650		446		7,050,876		—		7,225,848		—		—		7,225,848

TOTAL INVESTMENTS	$	65,366	$	8,884,525	$	2,145,780	$	31,828	$	43,650	$	2,596,035	$	13,767,184	$	52,292	$	14,102,072	$	2,029,063	$	4,450,000	$	20,633,427


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of ~~$14.5~~$41.4 million at ~~September~~June 30, ~~2017.~~2020.


²	Amounts include unsecured credit exposure with ~~original maturities ranging between~~ overnight ~~to 96 days.~~maturities.


³	Amounts represent collateralized overnight ~~borrowings by counterparty rating.~~borrowings.

Table 3135


	12/31/2016														12/31/2019
	Carrying Value¹														Carrying Value¹
	Investment Grade								Below Triple-B		Unrated		Total		Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A		Triple-B								Triple-A		Double-A		Single-A
Interest-bearing deposits²	$	148	$	2,772	$	385,000	$	—	$	—	$	—	$	387,920	$	255	$	1,761	$	919,437	$	—	$	921,453

Federal funds sold²	—		600,000		2,125,000		—		—		—		2,725,000		—		—		850,000		—		850,000

Securities purchased under agreements to resell³	—		—		—		—		—		2,400,000		2,400,000		—		—		—		4,750,000		4,750,000

Investment securities:
Non-mortgage-backed securities:
U.S. Treasury obligations															—		5,792,309		—		—		5,792,309
GSE debentures	—		1,563,351		—		—		—		—		1,563,351		—		416,025		—		—		416,025
State or local housing agency obligations	65,725		30,000		10,055		—		—		—		105,780		52,805		30,000		—		—		82,805
Total non-mortgage-backed securities	65,725		1,593,351		10,055		—		—		—		1,669,131		52,805		6,238,334		—		—		6,291,139
Mortgage-backed securities:
U.S. obligation MBS	—		37,021		—		—		—		—		37,021		—		93,375		—		—		93,375
GSE MBS	—		6,281,015		—		—		—		—		6,281,015		—		7,180,506		—		—		7,180,506
Private label residential MBS	—		666		9,089		43,379		56,393		39		109,566
Total mortgage-backed securities	—		6,318,702		9,089		43,379		56,393		39		6,427,602		—		7,273,881		—		—		7,273,881

TOTAL INVESTMENTS	$	65,873	$	8,514,825	$	2,529,144	$	43,379	$	56,393	$	2,400,039	$	13,609,653	$	53,060	$	13,513,976	$	1,769,437	$	4,750,000	$	20,086,473


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of ~~$13.3~~$45.7 million at December 31, ~~2016.~~2019.


²	Amounts include unsecured credit exposure with overnight ~~original~~ maturities.


³	Amounts represent collateralized overnight ~~borrowings by counterparty rating.~~borrowings.

Table 3236 details interest rate payment terms for the carrying value of our investment securities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands). We manage the interest rate risk associated with our fixed rate ~~MBS~~trading and ~~non-MBS trading securities as well as our fixed rate MBS~~ available-for-sale securities by entering into interest rate swaps that convert the investment's fixed rate to a variable rate index (see Tables 4250 and 4351 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk)."

Table 3236


	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Trading securities:
Non-mortgage-backed securities:
Fixed rate	$	1,086,716	$	618,423	$	2,000,226	$	1,946,543
Variable rate	946,170		944,928
Non-mortgage-backed securities	2,032,886		1,563,351		2,000,226		1,946,543
Mortgage-backed securities:
Fixed rate	865,557		851,774		859,936		817,568
Variable rate	74,940		87,663		44,481		48,451
Mortgage-backed securities	940,497		939,437		904,417		866,019
Total trading securities	2,973,383		2,502,788		2,904,643		2,812,562
Available-for-sale securities:
Non-mortgage-backed securities:
Fixed rate					4,337,386		4,261,791
Non-mortgage-backed securities					4,337,386		4,261,791
Mortgage-backed securities:
Fixed rate	1,464,472		1,091,721		3,221,290		2,920,709
Mortgage-backed securities					3,221,290		2,920,709
Total available-for-sale securities	1,464,472		1,091,721		7,558,676		7,182,500
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate	94,625		105,780		81,995		82,805
Non-mortgage-backed securities	94,625		105,780		81,995		82,805
Mortgage-backed securities:
Fixed rate	193,076		236,612		89,680		104,359
Variable rate	4,452,831		4,159,832		3,010,461		3,382,794
Mortgage-backed securities	4,645,907		4,396,444		3,100,141		3,487,153
Total held-to-maturity securities	4,740,532		4,502,224		3,182,136		3,569,958
TOTAL	$	9,178,387	$	8,096,733	$	13,645,455	$	13,565,020

~~Private-label Mortgage-backed Securities –~~ The carrying value of our portfolio of private-label MBS is less than one percent of total assets. We classify private-label MBS as prime, Alt-A and subprime based on the originator’s classification at the time of origination or based on classification by an NRSRO upon issuance of the MBS.

~~Table 33 presents a summary of the UPB of private-label MBS by interest rate type and by type of collateral (in thousands):~~

~~Table 33~~

09/30/2017 12/31/2016

Fixed
Rate¹
Variable
Rate¹
Total
Fixed
Rate¹
Variable
Rate¹
Total
Private-label residential MBS:

Prime $ 5,792
$ 49,043
$ 54,835
$ 10,924
$ 58,725
$ 69,649
Alt-A 10,888
25,841
36,729
16,361
33,497
49,858
TOTAL $ 16,680
$ 74,884
$ 91,564
$ 27,285
$ 92,222
$ 119,507


¹	~~The determination of fixed or variable rate is based upon the contractual coupon type of the security.~~

Almost all of our private-label MBS were securitized prior to 2006, and there are no securities in the portfolio issued after April 2006. As a result of this higher quality, well-seasoned portfolio, we have not experienced significant losses in our private-label MBS portfolio from OTTI. Table 34 presents statistical information for our private-label MBS by rating (dollar amounts in thousands):

~~Table 34~~

09/30/2017
Private-label residential MBS:
UPB by credit rating:
Double-A $ 2,493
Single-A 4,779
Triple-B 31,946
Double-B 12,437
Single-B 14,723
Triple-C 6,894
Double-C 1,801
Single-D 16,046
Unrated 445
TOTAL $ 91,564

Amortized cost $ 87,637
Unrealized losses (2,989 )
Fair value 86,384

OTTI:
Credit-related OTTI charge taken year-to-date $ 464
Non-credit-related OTTI charge taken year-to-date (370 )
TOTAL $ 94

Weighted average percentage of fair value to UPB 94.3 %
Original weighted average credit support¹
5.3
Weighted average credit support¹
12.9
Weighted average collateral delinquency²
9.1


¹	Credit support is defined as the percentage of subordinate tranches and over-collateralization, if any, in a security structure that will absorb losses before the holders of the security will incur losses.


²	~~Collateral delinquency is based on the sum of loans greater than 60 days delinquent plus loans in foreclosure plus loans in bankruptcy plus REO.~~

Deposits: Total deposits ~~decreased $48.3~~increased $197.7 million from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017.~~2020 primarily as a result of an increase in overnight deposits. Deposit products offered primarily include demand and overnight deposits and short-term certificates of deposit. Demand deposit programs are offered primarily to facilitate customer transactions with us, such as cash flows associated with advances and mortgage loan transactions. Overnight deposits provide an alternative short-term investment option to members. The majority of deposits are in overnight or demand accounts that generally re-price daily based upon a market index such as overnight Federal funds. The level of deposits is driven by member demand for deposit products, which in turn is a function of the liquidity position of members. Factors that influence deposit levels include turnover in member investment and loan portfolios, changes in members’ customer deposit balances, changes in members’ demand for liquidity and our deposit pricing as compared to other short-term market rates. Declines in the level of deposits could occur if demand for loans at member institutions increases, if members choose to de-leverage their balance sheets, or if decreases in the general level of liquidity of members should occur. Fluctuations in deposits have little impact on our ability to obtain liquidity. We historically have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with ~~similarly~~similarly- or ~~even lower priced~~lower-priced borrowings.

Consolidated Obligations: Consolidated obligations are the joint and several debt obligations of the FHLBanks and consist of bonds and discount notes. Consolidated obligations represent the primary source of liabilities we use to fund advances, mortgage loans and investments. As noted under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk,” we use debt with a variety of maturities and option characteristics to manage our interest rate risk profile. We make use of derivative transactions, executed in conjunction with specific consolidated obligation debt issues, to synthetically structure funding terms and costs.

Bonds are ~~primarily~~ used to fund longer-term (one year or greater) advances, mortgage loans and investments. To the extent that the bonds are funding variable rate assets, we typically either issue bonds that have variable rates matching the variable rate asset index or utilize an interest rate swap to change the bonds' characteristics in order to match the assets' index. Additionally, we ~~sometimes~~ use ~~fixed~~variable rate, ~~variable~~fixed rate, or complex consolidated obligation bonds that are swapped or indexed to SOFR, LIBOR, OIS or U.S. Treasury bills to fund short-term advances and money market investments and/or as a liquidity risk management tool.

During 2018, we issued variable rate bonds indexed to the U.S. Treasury bill rate rather than issuing variable rate bonds indexed to LIBOR and we began swapping fixed rate bonds to OIS rates rather than swapping fixed-rate callable bonds to LIBOR. We did so in part to reduce our exposure to LIBOR as the market prepares to transition away from LIBOR as a reference rate. We also began participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in the first quarter of 2019 in an effort to manage our exposure to LIBOR assets and liabilities with maturities beyond 2021. No outstanding LIBOR debt has a maturity date beyond December 31, 2021, which is when LIBOR cessation is expected to occur. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Discount notes are primarily used to fund: (1) shorter-term advances with indices and resets based on our short-term cost of funds; and (2) investments with maturities of three months or less. However, we sometimes use discount notes to fund longer-term assets, including fixed rate assets, variable rate assets, assets swapped to synthetically create variable rate assets, and short-term anticipated cash flows generated by longer-term fixed rate assets. At September 30, 2017, short-term advances (advances maturing within one year), including line of credit advances, represented 75.2 percent of discount notes outstanding. We also use discount notes to fund overnight investments (Federal funds sold and reverse repurchase agreements) to maintain liquidity sufficient to meet the advance needs of members. Overnight investments represented 20.1 percent of discount notes outstanding as of September 30, 2017.

Total consolidated obligations ~~increased 9.1~~decreased $9.5 billion, or 15.9 percent, from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017.~~2020. The distribution between consolidated obligation bonds and discount notes shifted from 53.8 percent and 46.2 percent, respectively, at December 31, ~~2016~~2019 to ~~September~~72.9 percent and 27.1 percent at June 30, ~~2017, as discount notes decreased from 51.2 percent of total outstanding consolidated obligations as of December 31, 2016 to 45.9 percent as of September 30, 2017 and consolidated~~2020, respectively. Consolidated obligation bonds increased by $4.4 billion as we issued more floating rate debt indexed to SOFR to better reflect the repricing characteristics of our assets. The $13.9 billion decrease in discount notes reflects the decline in short-term advances and the shift to term funding indexed to SOFR. We issued $9.6 billion of floating rate bonds indexed to SOFR during the first half of 2020 as we continue to transition away from ~~48.8 percent as of December 31, 2016 to 54.1 percent as of September 30, 2017. We increased the~~LIBOR and increase our allocation of floating rate ~~consolidated obligation~~ bonds ~~with longer-term structures to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution~~funding short-term advances and ~~debt ceiling deadline. We~~short-term investments. Approximately $9.0 billion of unswapped bonds were ~~able to increase the allocation of consolidated obligation bonds due to an improvement in spreads~~called during the ~~last~~first half of ~~2016 as~~2020 and replaced at a result of an increase in the LIBOR swap curve and increased demand for consolidated obligations largely attributed to money market fund reforms. As discussed previously, we were able to replace some maturing and unswapped callable bonds with lower cost with either callable fixed rate bonds during the last half of 2016, which has partially offset the increased cost of debt as a result of the increase in interest rates during 2017. Replacing callable debt generally increases interest costs in the short term due to the acceleration of the unamortized concessions on the called debt because concession costs are amortized to contractual maturity. However, this increase is offset by the lower rate on the new debt and the funding benefit due to the timing differences between the date the debt is called and the forward settlement date of the new debt (conventionally not exceeding 30 days).

or discount notes. While we currently have stable access to funding markets, future developments could impact the cost of replacing outstanding debt. Some of these include, but are not limited to, a large increase in call volume, significant increases in advance demand, legislative and regulatory changes, geopolitical events, proposals addressing GSEs, derivative and financial market reform, market transition from LIBOR to alternative reference rates, a decline in investor demand for consolidated obligations, further rating agency downgrades of U.S. Treasury obligations that will in turn impact the rating on FHLBank consolidated obligations, and changes in Federal Reserve policies, outlooks, and ~~outlooks.~~programs. Volatility in the capital markets caused by the COVID-19 pandemic could impact demand for FHLBank debt and the cost of the debt the FHLBanks issue.

Derivatives: All derivatives are marked to fair value with any associated accrued interest, and netted by clearing agent by Clearinghouse or by counterparty and offset by the fair value of any swap cash collateral received or delivered where the legal right of offset has been determined, and included on the Statements of Condition as an asset when there is a net fair value gain or as a liability when there is a net fair value loss. Fair values of our derivatives primarily fluctuate as the SOFR, OIS and LIBOR swap interest rate curves fluctuate. Other factors such as implied price/interest rate volatility, the shape of the above interest rate curves and time decay can also drive the market price for derivatives.

The notional amount of total derivatives outstanding increased by $2.8 billion, from $20.9 billion at December 31, 2019 to $23.7 billion at June 30, 2020, primarily due to increases in interest rate swaps hedging fixed rate consolidated obligation discount notes. These swaps are used to convert a fixed rate discount note to a variable rate that adjusts daily to better reflect the repricing characteristics of our short-term advances and investments. For additional information regarding the types of derivative instruments and risks hedged, see Tables 50 and 51 under Item 7A – “Quantitative and Qualitative Disclosures About Market Risk.”

Liquidity and Capital Resources

Liquidity: We maintain high levels of liquidity to achieve our mission of serving as an economical funding source for our members and housing associates. As part of fulfilling our mission, we also maintain minimum liquidity requirements in accordance with certain FHFA regulations and guidelines and in accordance with policies established by management and the ~~Board~~board of ~~Directors.~~directors. Our business model enables us to manage the levels of our assets, liabilities, and capital in response to member credit demand, membership composition, and market conditions. As such, assets and liabilities utilized for liquidity purposes can vary significantly in the normal course of business due to the amount and timing of cash flows as a result of these factors. While we increased liquidity and coordination of debt issuance among the FHLBanks in response to market volatility created by the COVID-19 pandemic, at no time during the first half of 2020 did the COVID-19 pandemic affect our balance sheet liquidity or access to the debt markets in a manner that caused us to be unable to meet the liquidity needs of our business or our members.

Sources and Uses of Liquidity – A primary source of our liquidity is the issuance of consolidated obligations. The capital markets traditionally have treated FHLBank obligations as U.S. government agency debt. As a result, even though the U.S. government does not guarantee FHLBank debt, we generally have comparatively stable access to funding at relatively favorable spreads to U.S. Treasury rates. We are primarily and directly liable for our portion of consolidated obligations (i.e., those obligations issued on our behalf). In addition, we are jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all FHLBanks.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were ~~$14.3~~$22.2 billion and ~~$701.8~~$317.9 billion, respectively, compared to ~~$14.3~~$12.1 billion and ~~$389.0~~$454.0 billion for the ~~same period in 2016.~~six months ended June 30, 2019. The large ~~increase in~~difference between the ~~issuance of~~proceeds from bonds and discount notes ~~between periods~~ reflects the cumulative effect of using ~~a higher allocation of overnight discount notes during the first nine months of 2017 compared to the first nine months of 2016. We generally use~~ short-term discount notes to fund short-term advances and our short-term liquidity portfolio, but we funded a larger percentage of our assets with discount notes in the first half of 2016 due to market conditions that increased the cost of consolidated obligation bonds indexed or swapped to LIBOR. During the second and third quarters of 2017, we began increasing the allocation of longer-term floating rate consolidated obligation bonds to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and the debt ceiling deadline.portfolio. Our other sources of liquidity include deposit inflows, repayments of advances and mortgage loans, maturing investments, interest income, maturing Federal ~~Funds purchased,~~funds sold, and proceeds from maturing reverse repurchase agreements or the sale of unencumbered assets. We reduced our issuance of discount notes during the second quarter of 2020 to increase our allocation of variable rate term funding.

~~At September 30, 2017, our~~Our short-term liquidity portfolio ~~which~~ consists of cash, short-term investments, and long-term investments with remaining maturities of one year or ~~less and includes term and overnight~~less. Short-term investments may include Federal funds sold, interest-bearing demand deposits, certificates of deposit, ~~commercial paper,~~ and reverse repurchase ~~agreements,~~agreements. The short-term liquidity portfolio decreased ~~$0.3 billion,~~slightly between periods, from ~~$5.9~~$9.4 billion as of December 31, ~~2016~~2019 to ~~$5.6~~$9.0 billion as of ~~September~~June 30, ~~2017.~~2020, but the amounts remained slightly elevated at the end of both periods in anticipation of potential member needs at the end of 2019 and upcoming maturities of U.S. Treasuries as of June 30, 2020. The maturities of our short-term investments are structured to provide periodic cash flows to support our ongoing liquidity needs. To enhance our liquidity position, short-term investment securities (i.e., ~~commercial paper and~~ marketable certificates of deposit) are also classified as trading when held so that they can be readily sold should liquidity be needed immediately.

We also maintain a portfolio of GSE debentures, U.S. Treasury obligations, and GSE MBS that can be pledged as collateral for financing in the securities repurchase agreement market and are classified as trading to enhance our liquidity position. The par value of these debentures and U.S. Treasury obligations was ~~$1.3 billion and $1.5~~$1.9 billion as of ~~September~~both June 30, ~~2017~~2020 and December 31, ~~2016, respectively. We held GSE MBS with a~~2019. The par value of ~~$926.1 million and $940.6 million~~these MBS was $0.8 billion as of ~~September~~both June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. We also hold $4.2 billion in par value of U.S. Treasury obligations classified as available-for-sale to satisfy regulatory liquidity requirements that went into effect March 31, 2019. In addition to the balance sheet sources of liquidity discussed previously, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. Accordingly, we expect to maintain a sufficient level of liquidity for the foreseeable future.

We strive to manage our average capital ratio to remain above our minimum regulatory and RMP requirements soin an effort to ensure that we have the ability to issue additional consolidated obligations should the need arise. Excess capital capacity ensures we are able to meet the liquidity needs of our members and/or repurchase excess stock either upon the submission of a redemption request by a member or at our discretion for balance sheet or capital management purposes.

Our uses of liquidity primarily include issuing advances, purchasing investments and mortgage loans, and repaying called and maturing consolidated obligations for which we are the primary obligor. We also use liquidity to ~~purchase mortgage loans,~~ repay member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, and pay dividends to members.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, advance disbursements totaled ~~$392.3~~$140.1 billion compared to ~~$106.7~~$215.2 billion for the prior year period. During the six months ended June 30, 2020, investment purchases (excluding overnight investments) totaled $1.0 billion compared to $5.9 billion for the same period in ~~2016.~~the prior year. The higher amount of investment purchases in the prior year was primarily U.S. Treasury obligations purchased in response to new regulatory liquidity requirements. During the ~~nine~~six months ended ~~September~~June 30, ~~2017, investment purchases (excluding overnight investments) totaled $3.1 billion compared to $2.1 billion for the same period in 2016. During the nine months ended September 30, 2017,~~2020, payments on consolidated obligation bonds and discount notes were ~~$9.9~~$17.8 billion and ~~$702.3~~$331.8 billion, respectively, compared to ~~$15.8~~$6.6 billion and ~~$385.3~~$447.4 billion for the ~~same period in 2016, which includes bonds that were called during the~~prior year period. ~~The large increase in payments on discount notes between periods primarily reflects the cumulative effect of using a higher allocation of overnight discount notes during the first nine months of 2017.~~

Liquidity Requirements – We are subject to ~~five metrics~~funding gap and cash balance guidelines for measuring ~~liquidity: statutory, operational,~~required liquidity. Funding gaps are defined as the difference between our assets and ~~contingency~~liabilities scheduled to mature during a specific period stated as a percentage of total assets. FHFA liquidity guidelines require that we manage our funding gap to a minimum ratio for the three-month and one-year horizons calculated with data as of the calendar ~~day~~month-end using the average ratio for the three most recent month-ends. FHFA guidelines require us to maintain a minimum number of days of positive cash balances without access to the capital markets for the issuance of consolidated obligations.

FHFA guidelines allow HQLA to be included in liquidity metrics. The FHFA defines HQLA as uncommitted and unencumbered U.S. Treasury securities that have a remaining maturity of no greater than 10 years designated as trading and available-for-sale. We are also allowed to include some legacy GSE debentures as HQLA. We calculate our liquidity under ~~different scenarios.~~the funding gap guidelines monthly and are required to submit applicable data in a report to the FHFA monthly. We calculate our liquidity under the cash balance guidelines daily and are generally required to submit applicable data in a report to the FHFA weekly. Statutory liquidity requires us to have an amount equal to current deposits received from members invested in obligations of the United States, deposits in eligible banks or trust companies, and advances with a ~~final~~remaining maturity not exceeding five years. ~~Operational~~Statutory liquidity ~~requires that we maintain~~is calculated daily. See “Risk Management - Liquidity Risk Management” under this Item 2 for additional discussion on our liquidity requirements. We remained in ~~an amount not less than 20 percent~~compliance with liquidity regulatory requirements in effect during the first half of 2020, except for our three-month funding gap requirement during a portion of the ~~sum~~first quarter of our demand and overnight deposits and other overnight borrowings, plus 10 percent of the sum of our term deposits, consolidated obligations, and other borrowings that mature within one year. Contingency liquidity is an amount sufficient to meet our liquidity needs for five business days if we are unable to access the capital markets to issue consolidated obligations. Our net liquidity in excess of contingency liquidity over a cumulative five-business-day period was $10.8 billion as of September 30, 2017. 2020.

Contingency plans are in place at ~~the~~ FHLBank and the Office of Finance that prioritize the allocation of liquidity resources in the event of financial market disruptions, as well as systemic Federal Reserve wire transfer system disruptions. Further, under the Bank Act, the Secretary of Treasury has the authority, at his discretion, to purchase consolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

~~In addition to the liquidity measures described above, we~~Generally, our liquid assets are ~~required by the FHFA to meet two daily liquidity standards, each~~funded with discount notes or floating rate bonds of ~~which assumes that we are unable to access the market for consolidated obligations. The first standard requires us to maintain sufficient funds to meet our obligations for 15 days under~~ a scenario in which it is assumed that members do not renew any maturing advances. The second standard requires us to maintain sufficient funds to meet our obligations for five days under a scenario in which it is assumed that members renew all maturing advances. We remained in compliance with each of these liquidity requirements throughout the first nine months of 2017. See “Risk Management - Liquidity Risk Management” under this Item 2 for additional discussion on our liquidity requirements.

shorter tenor. In order to help ensure sufficient liquidity, we generally maintain a relatively longer weighted-average maturity on our consolidated obligation discount notes and floating rate bonds than the weighted average maturity of short-term liquid ~~investment~~investments and short-term advance balances. The weighted average remaining days to maturity of discount notes outstanding increased to 39 days as of September 30, 2017 from 32 days at December 31, 2016 as we issued discount notes with an original maturity of approximately one year during the first quarter of 2017 to fund longer term assets, in anticipation of an increase in interest rates. The weighted average remaining maturity of our money market investment portfolio (Federal funds sold, marketable certificates of deposit, commercial paper and reverse repurchase agreements) and non-earning cash left in our Federal Reserve Bank account was 8 days and 3 days as of September 30, 2017 and December 31, 2016, respectively, because we held primarily short-term investments with overnight maturities as of those dates. The mismatch of discount notes and our money market investment portfolio increased from 29 days on December 31, 2016 to 31 days on September 30, 2017 as a result of the increase in the weighted average remaining days to maturity of our discount notes. Over time, especially as the yield curve steepens on the short end, maintaining the differential between the weighted average original maturity of discount notes and ~~money market~~short-term liquid investments and short-term advances will increase our cost of funds and reduce our net interest income.

Capital: Total capital ~~consists of capital stock, retained earnings, and AOCI.~~

~~Capital stock outstanding increased 19.6~~decreased $436.1 million, or 15.6 percent, from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017,~~2020 primarily due to ~~increased~~a decrease in required capital stock related to the decline in advance utilization between periods, resulting in excess stock that was subsequently repurchased (see Table 37).

Each member is required to hold capital stock to become and remain a member of ~~advances. Under our capital plan, members~~the FHLBank and enter into specified activities with the FHLBank including, but not limited to, access to the FHLBank’s credit products and selling AMA to the FHLBank. The amount of Class A Common Stock a member must acquire and maintain is the asset-based stock purchase ~~additional~~requirement, which is currently equal to 0.1 percent of a member’s total assets as of December 31 of the preceding calendar year, with a minimum requirement of $1,000, and a maximum requirement of $500,000. The amount of Class B Common Stock a member must acquire and maintain is the activity-based stock purchase requirement, which is currently equal to 4.5 percent of the principal amount of advances outstanding to the member less the member’s asset-based stock purchase requirement. As of June 30, 2020 there were no activity-based stock purchase requirements for AMA, letters of credit, or derivatives.

On July 23, 2020, FHLBank's board of directors changed the established AMA activity-based stock purchase requirement pursuant to its Capital Plan, effective as ~~they enter into advance transactions~~of August 5, 2020 to three percent from the previous requirement of zero percent, with ~~us.~~a maximum AMA activity-based stock purchase requirement of three percent of a member’s total assets as of December 31 of the preceding year. Official notification of the new AMA stock requirements was sent on August 5, 2020. Following that notice, members have 60 days to comply with the new requirement. However, if members transact MPF Program mortgage loan fundings or advances during that 60-day period, compliance will occur at the time of the transaction. In addition, on July 23, 2020, the board of directors established a Letter of Credit activity-based stock purchase requirement pursuant to its Capital Plan, effective as of January 22, 2021 to one quarter of one percent from the previous requirement of zero percent. The ~~amount required is subject to~~ change ~~within ranges established under our~~in the activity-based stock purchase requirements will not change for former members with outstanding business transactions. As a result of these changes, we anticipate an increase in total capital ~~plan.~~over the remainder of the year.

Excess stock represents the amount of stock held by a member in excess of that institution’s minimum stock requirement. Upon reducing the activity-based stock purchase requirement, through a mandated change or through a reduction of advance balances, excess stock is created since the member is no longer required under our capital plan to hold the same amount of activity-based capital stock. If our excess stock exceeds ~~1.0~~one percent of our assets before or after the payment of a dividend in the form of stock, we would be prohibited by FHFA regulation from paying dividends in the form of stock. To manage the amount of excess stock, we may repurchase excess Class A Common Stock over FHLBank-established limits held by any individual ~~member periodically throughout the year.~~member. Our current practices include ~~repurchasing all outstanding~~requesting voluntary redemptions of excess Class A Common Stock ~~generally on a monthly basis,~~ and ~~regular weekly exchanges of~~exchanging all excess Class B Common Stock over ~~$50,000~~$50 thousand per member for Class A Common ~~Stock.~~Stock on a periodic basis. Such exchanges occurred on a weekly basis until February 2019, when we began to conduct such exchanges on a daily basis.

Under our cooperatively structured capital plan, our capital stock balances should fluctuate along with any growth (increased capital stock balances) or reduction (decreased capital stock balances) in advance balances and AMA in future periods. Any repurchase of excess capital stock is at our discretion and subject to statutory and regulatory limitations, including being in compliance with all of our regulatory capital requirements after any such discretionary repurchase.

Our activity-based stock purchase requirements are consistent with our cooperative structure; members’ stock ownership requirements and the dollar amount of dividends paid to members generally increases as their activities with us increase. To the extent that a member’s asset-based stock purchase requirement is insufficient to cover the member’s activity-based stock purchase requirement, ~~and~~ the member is required to purchase Class B Common ~~Stock, we~~Stock. We believe the value of our products and services is enhanced by dividend yields that exceed the return available from other investments with similar terms and credit quality. Factors that affect members’ willingness to enter into activity with us and purchase additional required activity-based stock include, but are not limited to, our dividend rates, the risk-based capital weighting of our capital stock, and alternative investment or borrowing opportunities available to our members.

Table 3537 provides a summary of member capital requirements under our current capital plan as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

Table 3537


Requirement	09/30/2017		12/31/2016		06/30/2020		12/31/2019
Asset-based (Class A Common Stock only)	$	156,696	$	156,291	$	161,826	$	158,758
Activity-based (additional Class B Common Stock)¹	1,168,406		980,747		852,765		1,264,160
Total Required Stock²	1,325,102		1,137,038		1,014,591		1,422,918
Excess Stock (Class A and B Common Stock)	147,338		92,307		379,720		345,953
Total Stock²	$	1,472,440	$	1,229,345
Total Regulatory Capital Stock²					$	1,394,311	$	1,768,871

Activity-based Requirements:
Advances³	$	1,269,962	$	1,075,517	$	949,396	$	1,352,339
AMA assets (mortgage loans)⁴	1,003		1,192		572		621
Total Activity-based Requirement	1,270,965		1,076,709		949,968		1,352,960
Asset-based Requirement (Class A Common Stock) not supporting member activity¹	54,137		60,329		64,623		69,958
Total Required Stock²	$	1,325,102	$	1,137,038	$	1,014,591	$	1,422,918


¹	Class A Common Stock, up to a member’s asset-based stock requirement, will be used to satisfy a member’s activity-based stock requirement before any Class B Common Stock is purchased by the member.


²	Includes mandatorily redeemable capital stock.


³	Advances to housing associates have no activity-based requirements because housing associates cannot own FHLBank stock.


⁴	Non-members previously required to purchase AMA activity-based stock are subject to the ~~AMA activity-based~~ stock requirement in place at the time their membership ended as long as there are ~~UPBs outstanding, but the~~unpaid principal balances outstanding. The requirement ~~is currently~~was zero percent for ~~members.~~members at June 30, 2020.

We are subject to three capital requirements under provisions of the GLB Act, the FHFA’s capital structure regulation and our current capital plan, which includes risk-based capital requirement, total capital requirement and leverage capital requirement. We have been in compliance with each of the aforementioned capital rules and requirements at all times since the implementation of our capital plan. See Note 1110 of the Notes to Financial Statements under Part I, Item 1 for additional information and compliance as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

Capital Distributions: Dividends may be paid in cash or capital stock as authorized by our ~~Board~~board of ~~Directors.~~directors. Quarterly dividends can be paid out of current and previous unrestricted retained earnings, subject to FHFA regulation and our capital plan.

Within our capital plan, we have the ability to pay different dividend rates to the holders of Class A Common Stock and Class B Common Stock. This differential is implemented through a methodology referred to as the dividend parity threshold. Holders of Class A Common Stock and Class B Common Stock share in dividends equally up to the dividend parity threshold for a dividend period, then the dividend rate for holders of Class B Common Stock can exceed the rate for holders of Class A Common Stock, but the dividend rate on Class A Common Stock can never exceed the dividend rate on Class B Common Stock. In essence, the dividend parity threshold: (1) serves as a soft floor to holders of Class A Common Stock since we must pay holders of Class A Common Stock the dividend parity threshold rate before paying a higher rate to holders of Class B Common Stock; (2) indicates a potential dividend rate to holders of Class A Common Stock so that they can make decisions as to whether or not to hold excess Class A Common Stock; and (3) provides us with a tool to manage the amount of excess stock through higher or lower dividend rates by varying the desirability of holding excess shares of Class A Common Stock (i.e., the lower the dividend rate on Class A Common Stock, the less desirable it is to hold excess Class A Common Stock).

The current dividend parity threshold is equal to the average effective overnight Federal funds rate for a dividend period minus 100 basis ~~points. This dividend parity threshold~~points and was effective for all dividends paid ~~for all of 2016~~in 2019 and ~~2017 and will continue to be effective until such time as it may be changed by our Board of Directors.~~2020. The dividend parity threshold is effectively floored at zero percent when the current overnight Federal funds target rate is less than one percent. Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. Table 3638 presents the dividend rates per annum paid on capital stock under our capital plan for the quarterly periods ~~indicated:~~of 2020:

Table 3638


Applicable Rate per Annum	09/30/2017		06/30/2017		03/31/2017		12/31/2016		09/30/2016		06/30/2020		03/31/2020		12/31/2019		09/30/2019		06/30/2019
Class A Common Stock	1.25	%	1.00	%	1.00	%	1.00	%	1.00	%	0.50	%	2.25	%	2.50	%	2.50	%	2.50	%
Class B Common Stock	6.50		6.50		6.50		6.00		6.00		5.50		7.25		7.50		7.50		7.50
Weighted Average¹	5.81		5.74		5.73		5.28		5.28		3.69		5.94		6.14		6.61		6.56
Dividend Parity Threshold:
Average effective overnight Federal funds rate	1.16	%	0.95	%	0.70	%	0.45	%	0.40	%	0.06	%	1.23	%	1.65	%	2.20	%	2.40	%
Spread to index	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)
TOTAL (floored at zero percent)	0.16	%	0.00	%	0.00	%	0.00	%	0.00	%	0.00	%	0.23	%	0.65	%	1.20	%	1.40	%


¹	Weighted average dividend rates are dividends paid in cash and stock on both classes of stock divided by the average of capital stock eligible for dividends.

We ~~increased the~~paid dividend ~~rate to 1.25~~rates of 0.50 percent on Class A Common Stock ~~in the third quarter of 2017~~ and ~~increased the dividend rate to 6.50~~5.50 percent on Class B Common Stock infor the ~~first~~second quarter of ~~2017~~2020. We anticipate stock dividends on Class A Common Stock and Class B Common Stock to ~~provide a higher percentage payout~~be lower than what was paid in 2019 for the remainder of ~~quarterly~~2020, consistent with the lower level of short‑term interest rates and our retained earnings ~~to our members. Adverse changes in~~policy. Continued adverse market conditions may result in lower dividend rates in future quarters. While there is no assurance that our ~~Board~~board of ~~Directors~~directors will not change the dividend parity threshold in the future, the capital plan requires that we provide members with 90 days' notice prior to the end of a dividend period in which a different dividend parity threshold is utilized in the payment of a dividend.

We expect to continue paying dividends primarily in the form of capital stock, ~~in 2017,~~ but future dividends may be paid in cash. The payment of cash dividends instead of stock dividends should not have a significant impact from a liquidity perspective, as the subsequent redemption of excess stock created by stock dividends would utilize liquidity resources in the same manner as a cash dividend.

Risk Management

Active risk management continues to be an essential part of our operations and a key determinant of our ability to maintain earnings to return an acceptable dividend to our members and meet retained earnings thresholds. We maintain an enterprise risk management (ERM) program in an effort to enable the identification of all significant risks to the organization and institute the prompt and effective management of any major risk exposures. Our ERM program is a structured and disciplined approach that aligns strategy, processes, people, technology and knowledge with the purpose of identifying, evaluating and managing the uncertainties we face as we create value. It is a continuous process of identifying, prioritizing, assessing and managing inherent enterprise risks (i.e., business, compliance, credit, liquidity, market and operations) before they become realized risk events. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in our Form 10-K for more information on our ERM program. A separate discussion of market risk is included under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” of this Form 10-Q.

Interest Rate Risk Management: Interest rate risk is the risk that relative and absolute changes in interest rates may adversely affect an institution's financial condition and performance. The goal of an interest rate risk management strategy is not necessarily to eliminate interest rate risk, but to manage it by setting, and operating within, an appropriate framework and limits. We generally manage interest rate risk by acquiring and maintaining a portfolio of assets and liabilities and entering into related derivative transactions to limit the expected mismatches in duration and market value of equity sensitivity. See Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" for additional information on interest rate risk measurement.

Transition from LIBOR to an Alternative Reference Rate – Many of our assets and liabilities are indexed to LIBOR, so we continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate, including the likelihood of SOFR prevailing as the most widely adopted replacement reference rate. We have assessed our current LIBOR exposure, which included evaluating the fallback language of derivative and investment contracts indexed to LIBOR, and have developed a transition plan that includes strategies to manage and reduce exposure in addition to operational readiness. Our swap agreements are governed by the International Swap Dealers Association (ISDA). ISDA is in the process of developing a protocol to modify legacy trades to include fallback language. The market transition away from LIBOR is expected to be gradual and complex, including the development of term and credit adjustments to accommodate differences between LIBOR, an unsecured rate, and SOFR, a secured rate. SOFR is based on a broad segment of the overnight U.S. Treasuries repurchase market and is intended to be a measure of the average cost of borrowing cash overnight collateralized by U.S. Treasury securities. We started participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in January 2019 in an effort to manage our exposure to LIBOR assets and liabilities with maturities beyond 2021. We sold $162.9 million of available-for-sale securities indexed to LIBOR during the first quarter of 2020. We continue to consider the sale of securities as part of our strategy to reduce LIBOR exposure, but market pricing and reinvestment opportunities are limiting factors. Derivative and investment exposure will also be impacted by the actions of industry groups and standard setters, which are still under deliberation.

In September 2019, the FHFA issued a supervisory letter to the FHLBanks providing LIBOR transition guidance. The supervisory letter states 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 except investments. On March 16, 2020, in light of market volatility, the FHFA 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. 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.

The principal balance of variable rate advances indexed to LIBOR as of June 30, 2020 was $750 million, which represents 13.8 percent of total variable rate advances. The contractual maturities of these LIBOR-indexed advances are all due by the end of 2021; thus, we have no LIBOR exposure after 2021. We have no advances indexed to SOFR as of June 30, 2020. However, we began to offer these advances during the second quarter of 2020.

Table 39 presents the par value of variable rate investment securities by the related interest rate index as of June 30, 2020 (dollar amounts in thousands):

Table 39



06/30/2020
Index	Amount		Percent
Non-mortgage-backed securities:
LIBOR	$	81,995	2.6	%
Non-mortgage-backed securities	81,995		2.6
Mortgage-backed securities:
LIBOR	3,054,978		97.4
Other	22		—
Mortgage-backed securities	3,055,000		97.4
TOTAL	$	3,136,995	100.0	%

Table 40 presents the par value of investment securities indexed to LIBOR outstanding by year of contractual maturity as of June 30, 2020 (in thousands):

Table 40



06/30/2020
Year of Contractual Maturity	Amount
Non-mortgage-backed securities:
2020	$	—
2021	—
Thereafter	81,995
Non-mortgage-backed securities	81,995
Mortgage-backed securities:
2020	—
2021	—
Thereafter	3,054,978
Mortgage-backed securities	3,054,978
TOTAL	$	3,136,973

Table 41 presents the notional amount of interest rate swaps (excludes interest rate caps and mortgage delivery commitments) by related interest rate index as of June 30, 2020 (amounts in thousands):

Table41



06/30/2020
Index	Pay Side		Receive Side
Fixed rate	$	15,468,893	$	7,388,302
LIBOR	95,000		5,999,814
SOFR	5,107,146		6,843,090
OIS	2,186,156		2,625,989
TOTAL	$	22,857,195	$	22,857,195

Table 42 presents the notional amount of interest rate swaps (excludes interest rate caps and mortgage delivery commitments) indexed to LIBOR outstanding by termination date as of June 30, 2020 (in thousands). Actual terminations of certain derivatives will differ from contractual termination dates because derivative counterparties may have call options within the derivative contracts. Likewise, if the financial instrument being hedged by the derivative (either as a qualifying fair value hedge or as an economic hedge) is called or paid off prior to contractual maturity, we could potentially call or terminate the corresponding derivative prior to the termination date.

Table 42



06/30/2020
Year	Pay Side				Receive Side
Year	Cleared		Bilateral		Cleared		Bilateral
2020	$	—	$	30,000	$	95,223	$	5,000
2021	—		40,000		362,957		15,000
Thereafter	—		25,000		1,613,719		3,907,915
TOTAL	$	—	$	95,000	$	2,071,899	$	3,927,915

Table 43 presents the par value of variable rate consolidated obligation bonds by the related interest rate index as of June 30, 2020 (dollar amounts in thousands):

Table 43



06/30/2020
Index	Amount		Percent
SOFR	$	14,409,000	64.7	%
LIBOR	7,800,000		35.1
U.S. Treasury	50,000		0.2
TOTAL	$	22,259,000	100.0	%

Table 44 presents the par value of consolidated obligation bonds indexed to LIBOR outstanding by year of maturity as of June 30, 2020 (in thousands):

Table 44



06/30/2020
Year	Maturity Date
2020	$	4,250,000
2021	3,550,000
Thereafter	—
TOTAL	$	7,800,000

Credit Risk Management: Credit risk is defined as the potential that a borrower or counterparty will fail to meet its financial obligations in accordance with agreed terms. We manage credit risk by following established policies, evaluating the creditworthiness of our counterparties, and utilizing collateral agreements and settlement netting for derivative transactions where enforceability of the legal right of offset has been determined. The most important step in the management of credit risk is the initial decision to extend credit. Continuous monitoring of counterparties is completed for all areas where we are exposed to credit risk, whether that is through lending, investing or derivative activities.

Lending and AMA Activities – Credit risk with members arises largely as a result of our lending and AMA activities (members’ CEcredit enhancement obligations on conventional mortgage loans that we acquire through the MPF Program). We manage our exposure to credit risk on advances, letters of credit, ~~derivatives,~~ and members’ CEcredit enhancement obligations on conventional mortgage loans through a combined approach that provides ongoing review of the financial condition of our members coupled with prudent collateralization.

As provided in the Bank Act, a member’s investment in our capital stock is held as additional collateral for the member’s advances and other credit obligations (letters of credit, CEcredit enhancement obligations, etc.). In addition, we can call for additional collateral or substitute collateral during the life of an advance or other credit obligation to protect our security interest.

Credit risk arising from AMA activities under our MPF Program falls into three categories: (1) the risk of credit losses on the mortgage loans represented in our First Loss Account ~~(FLA)~~ and last loss positions; (2) the risk that a PFI will not perform as promised with respect to its loss position provided through its CEcredit enhancement obligations on conventional mortgage loan pools, which are covered by the same collateral arrangements as those described for advances; and (3) the risk that a third-party insurer (obligated under ~~private~~primary mortgage insurance ~~(PMI)~~ or supplemental mortgage insurance ~~(SMI)~~ arrangements) will fail to perform as expected. Should a PMI third-party insurer fail to perform, it would increase our credit risk exposure because our ~~FLA~~First Loss Account is the next layer to absorb credit losses on conventional mortgage loan pools. Likewise, if ~~an SMI~~a supplemental mortgage insurance third-party insurer fails to perform, it would increase our credit risk exposure because it would reduce the participating member’s CEcredit enhancement obligation loss layer since ~~SMI~~supplemental mortgage insurance is purchased by PFIs to cover all or a portion of their CEcredit enhancement obligation exposure for mortgage ~~pools.~~pools under certain MPF Program products. Credit risk exposure to third-party insurers to which we have ~~PMI~~primary mortgage insurance and/or ~~SMI~~supplemental mortgage insurance exposure is monitored on a monthly basis and regularly reported to the ~~Board~~board of ~~Directors.~~directors. We perform credit analysis of third-party ~~PMI~~primary mortgage insurance and ~~SMI~~supplemental mortgage insurance insurers on at least ~~an annual~~a semi-annual basis. On a monthly basis, we review trends that could identify risks with our mortgage loan portfolio, including low FICO scores and high LTV ratios. Based on the credit underwriting standards under the MPF Program and this monthly review, we have concluded that the mortgage loans we hold would not be considered subprime.

Investments – Our RMP restricts the acquisition of investments to high-quality, short-term money market instruments and highly rated long-term securities. The short-term investment portfolio represents unsecured credit and reverse repurchase agreements. Counterparty ratings are monitored daily while performance and capital adequacy are monitored on a monthly basis in an effort to mitigate unsecured credit risk on our short-term investments. Collateral eligibility and transaction margin requirements on our reverse repurchase agreements are monitored daily. U.S. Treasury obligations and MBS securitized by Fannie Mae or Freddie Mac represent the majority of our long-term investments. ~~We hold~~Other long-term investments include MBS issued by Ginnie Mae, and GSEs, and private-label MBS rated triple-A at the time of purchase. Most of our MBS portfolio is securitized by Fannie Mae or Freddie Mac. All of our private-label MBS have been downgraded below triple-A subsequent to purchase (see Table 34), but the downgraded securities have been and are currently paying according to contractual agreements with the exception of seven securities that have experienced immaterial cash flow shortfalls. Other long-term investments include unsecured GSE debentures and collateralized state and local housing finance agency ~~securities that were rated at least double-A at the time of purchase.~~securities.

Derivatives – We transact most of our derivatives with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed with a counterparty (uncleared derivatives) or with an executing broker and cleared through a Futures Commission Merchant (i.e., clearing agent) that acts on our behalf to clear and settle derivative transactions through a ~~Derivatives Clearing Organization~~Clearinghouse (cleared derivatives).

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative transactions. 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 this risk through credit analysis and collateral management. We are also required to follow the requirements set forth by applicable regulation.

Uncleared Derivatives. We are subject to non-performance by the counterparties to our uncleared derivative transactions. ~~We recently entered into updated~~All bilateral security agreements with our non-member counterparties ~~with~~include bilateral-collateral-exchange provisions that require all credit exposures be collateralized, ~~regardless of credit rating,~~ subject to a minimum transfer amount. Previously, some of our uncleared derivative instruments contained provisions that required the counterparty to deliver additional collateral to us if there was deterioration in that counterparty’s credit rating. As a result of these risk mitigation practices, we do not anticipate any credit losses on our uncleared derivative transactions as of ~~September~~June 30, ~~2017.~~2020.

Cleared Derivatives. We are subject to nonperformance by the Clearinghouse(s) and clearing agent(s). The requirement that we post initial and variation margin, through the clearing agent, to the Clearinghouse, exposes us 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 and/or payments are posted daily for changes in the value of cleared derivatives through a clearing agent. We do not anticipate any credit losses on our cleared derivatives as of ~~September~~June 30, ~~2017.~~2020.

We regularly monitor the exposures on our derivative transactions by determining the market value of positions using internal pricing models. The market values generated by the pricing model used to value derivatives are compared to dealer model results on a monthly basis to ensure that our derivative pricing model is reasonably calibrated to actual market pricing methodologies utilized by the dealers. In addition, we have our internal pricing model validated ~~annually~~regularly by an independent consultant. As a result of these risk mitigation initiatives, management does not anticipate any credit losses on our derivative transactions. See Note 76 of the Notes to Financial Statements under Part I, Item 1 for additional information on managing credit risk on derivatives.

The contractual or notional amount of derivative transactions reflects our involvement in the various classes of financial instruments. The maximum credit risk with respect to derivative transactions is the estimated cost of replacing the derivative transactions if there are defaults, minus the value of any related collateral posted to satisfy the initial margin (if required) ~~and the variation margin.~~. Our derivative transactions are subject to variation margin which is derived from the change in market value of the transaction and must be posted by the net debtor on demand. Cleared transactions are subject to initial margin as well as variation margin. The initial margin is intended to protect the Clearinghouse ~~against default of a clearing agent and to protect the clearing agent~~ against default of a customer. Initial margin is calculated to cover the potential price volatility of the derivative transaction between the time of the default and the assignment of the transaction to another clearing agent or termination of the transaction. Although the initial margin requirement should decrease over time as the duration and market volatility decrease, it remains outstanding for the life of the transaction; thus, it is possible that we could either have: (1) net credit exposure with a Clearinghouse even if our net creditor position has been fully satisfied by the receipt of variation margin; or (2) net credit exposure with a Clearinghouse despite being the net debtor (i.e., being in a liability position). In determining maximum credit risk, we consider accrued interest receivables and payables as well as the netting requirements to net assets and liabilities.

Tables 3745 and 3846 present derivative notional amounts and counterparty credit exposure by whole-letter rating (in the event of a split rating, we use the lowest rating published by Moody's Investor Service or Standard ~~and~~& Poor's) for derivative positions with counterparties to which we had credit exposure (in thousands):

Table 3745


09/30/2017
06/30/2020											06/30/2020
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral and Variation Margin for Daily Settled Contracts			Cash Collateral Pledged From (To) Counterparty and Variation Margin for Daily Settled Contracts¹			Net Credit Exposure to Counterparties		Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Double-A	$	1,098,013	$	1,364		$	576		$	788
Single-A	2,225,321		17,554			15,881			1,673
Cleared derivatives²	2,284,994		5,730			(2,091		)	7,821
Cleared derivatives¹											$	5,550,697	$	1,089		$	(68,890	)	$	69,979
Liability positions with credit exposure:
Uncleared derivatives³:
Uncleared derivatives²:
Single-A	3,803,969		(16,068		)	(19,892		)	3,824		4,047,879		(307,013		)	(308,736		)	1,723
Triple-B	392,320		(2,225		)	(2,655		)	430		244,862		(21,468		)	(21,601		)	133
Cleared derivatives²	3,037,450		(16,346		)	(52,268		)	35,922
Cleared derivatives¹											13,045,642		(3,314		)	(122,604		)	119,290
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	12,842,067	$	(9,991	)	$	(60,449	)	$	50,458	$	22,889,080	$	(330,706	)	$	(521,831	)	$	191,125


¹	~~Includes variation margin for daily settled contracts of $(444,000) as of September 30, 2017.~~

Represents derivative transactions cleared with ~~LCH.Clearnet LLC~~LCH Limited and CME ~~Clearing, which are not rated. LCH.Clearnet LLC's~~Clearing. LCH Limited was rated AA- by S&P; LCH Limited's parent company, LCH Group Holdings ~~Ltd. is also~~Limited, was not rated; ~~however,~~and London Stock Exchange Group, LCH Group Holdings ~~Ltd.'s~~Limited's ultimate parent, was rated A3 by Moody's and A-A by S&P as of ~~September~~June 30, ~~2017~~2020. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of ~~September~~June 30, ~~2017~~2020.


³	~~Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.~~

~~Table 38~~

12/31/2016
Credit Rating Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged From (To) Counterparty Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Double-A $ 896,943
$ 2,958
$ —
$ 2,958
Single-A 2,424,306
22,615
20,408
2,207
Cleared derivatives¹
819,470
9,427
782
8,645
Liability positions with credit exposure:
Uncleared derivatives²:

Single-A 2,646,762
(32,555 ) (39,401 ) 6,846
Cleared derivatives¹
2,957,331
(19,416 ) (59,446 ) 40,030
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE $ 9,744,812
$ (16,971 ) $ (77,657 ) $ 60,686


¹	Represents derivative transactions cleared with LCH.Clearnet LLC and CME Clearing, which are not rated. LCH.Clearnet LLC's parent company, LCH Group Holdings Ltd., was rated A+ by S&P and CME Clearing's parent company, CME Group, Inc., was rated A3 by Moody's and AA- by S&P as of December 31, 2016.


²	Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.

Table 46



12/31/2019
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A	$	63,500	$	257		$	—		$	257
Cleared derivatives¹	14,150,148		1,821			(145,658		)	147,479
Liability positions with credit exposure:
Uncleared derivatives^2:
Single-A	6,123,478		(78,575		)	(84,633		)	6,058
Triple-B	286,008		(5,894		)	(6,409		)	515
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	20,623,134	$	(82,391	)	$	(236,700	)	$	154,309

Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated AA- by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A by S&P as of December 31, 2019. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of December 31, 2019.


²	Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.

Foreign Counterparty Risk – Loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets payable to us by entities of foreign countries, regardless of the currency in which the claim is denominated are referred to as "cross-border outstandings." Our cross-border outstandings consist primarily of short-term trading securities and Federal funds sold issued by banks and other financial institutions, which are non-sovereign entities, and derivative asset exposure with counterparties that are also non-sovereign entities. Secured reverse repurchase agreements outstanding are excluded from cross-border outstandings because they are fully collateralized.

In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. We continue to cautiously place unsecured cross-border outstandings.

Table 3947 presents the fair value of cross-border outstandings ~~to countries in which we do business~~ as of ~~September~~June 30, ~~2017~~2020 (dollar amounts in thousands):

Table 3947


	Total¹					Sweden				Other¹					Total
	Amount			Percent of Total Assets		Amount		Percent of Total Assets		Amount			Percent of Total Assets		Amount			Percent of Total Assets
Federal funds sold²	$	1,650,000		3.3	%	$	650,000	1.2	%	$	870,000		1.6	%	$	1,520,000		2.8	%

Trading securities³	675,027			1.4

Derivative assets:
Net exposure at fair value	(8,127		)			—				(28,544		)			(28,544		)
Cash collateral held	10,324					—				28,702					28,702
Net exposure after cash collateral	2,197			—		—		—		158			—		158			—

TOTAL	$	2,327,224		4.7	%	$	650,000	1.2	%	$	870,158		1.6	%	$	1,520,158		2.8	%


¹	Represents foreign countries where individual exposure is less than one percent of total assets. Total cross-border outstandings to countries that individually represented between 0.75 and 1.0 percent of our total assets as of ~~September~~June 30, ~~2017~~2020 were ~~$1.7~~$0.4 billion ~~(Austria, Germany, Netherlands and Norway)~~(Netherlands).


²	Consists solely of overnight Federal funds sold.


³	~~Consists of certificates of deposit with remaining maturities of less than three months.~~

Liquidity Risk Management: Maintaining the ability to meet our obligations as they come due and to meet the credit needs of our members and housing associates in a timely and cost-efficient manner is the primary objective of managing liquidity risk. We seek to be in a position to meet the credit needs of our members, as well as our debt service and liquidity needs, without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs.

~~Operational~~We manage liquidity, ~~or the ability~~first and foremost, to meet ~~operational requirements in~~ the ~~normal course~~needs of ~~business, is currently defined in our RMP as sources of cash from both our ongoing access~~members, while adhering to ~~the capital markets~~regulatory and ~~our holding of liquid assets.~~statutory liquidity requirements. We ~~manage exposure to operational liquidity risk by maintaining appropriate~~maintain daily liquidity levels above the thresholds established by our RMP. We are also required to manage liquidity in order to meet statutory and contingency liquidity requirements and FHFA liquidity guidelines by maintaining a daily liquidity level above certain thresholds ~~also~~and consider hypothetical adverse scenarios. These thresholds are outlined in ~~the RMP,~~our internal policies and comply with federal statutes, FHFA regulations and other FHFA guidance not issued in the form of regulations. We remained in compliance with ~~each of these~~ liquidity regulatory requirements throughout the ~~third~~second quarter of ~~2017.~~2020.

We are focused on maintaining a cost-effective liquidity and funding balance between our financial assets and financial liabilities. ~~Within the FHLBank System guidelines, each FHLBank develops its own metrics and milestones for enhancing its liquidity risk management practices. However, the~~The FHLBanks work collectively to manage the system-wide liquidity and funding management and jointly monitor the combined refinancing risk. In managing and monitoring the amounts of assets that require refunding, we may consider contractual maturities of the financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations). See the Notes to the Financial Statements under Item 1 for more detailed information regarding contractual maturities of certain of our financial assets and liabilities.

We generally maintained stable access to the capital markets for the quarter ended ~~September~~June 30, ~~2017.~~2020. For additional discussion of the market for our consolidated obligations and the overall market affecting liquidity, see “Financial Market Trends” under this Item 2.

Our derivative instruments contain provisions that require all credit exposures be collateralized. See Note 76 of the Notes to Financial Statements under Part I, Item 1 for additional information on collateral posting requirements.

Recently Issued Accounting Standards

See Note 2 of the Notes to Financial Statements under Part I, Item 1 – "Financial Statements" for a discussion of recently issued accounting standards.

Legislative and Regulatory Developments

~~Information Security Management Advisory Bulletin.~~Margin and Capital Requirements for Covered Swap Entities. On ~~September 28, 2017,~~July 1, 2020, the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration, and the FHFA (collectively, Prudential Banking Regulators) jointly published a final rule, effective August 31, 2020, amending regulations that established minimum margin and capital requirements for uncleared swaps for covered swap entities under the jurisdiction of the Prudential Banking Regulators (Prudential Margin Rules). In addition to other changes, the final rule: (1) allows swaps entered into by a covered swap entity prior to an applicable compliance date to retain their legacy status and not become subject to the Prudential Margin Rules in the event that the legacy swaps are amended to replace an interbank offered rate (such as LIBOR) or other discontinued rate, or due to other technical amendments such as notional reductions or portfolio compression exercises; (2) introduces a new Phase 6 compliance date for initial margin requirements for covered swap entities and their counterparties with an average daily aggregate notional amount (AANA) of uncleared swaps from $8 billion to $50 billion, and limits Phase 5 to counterparties with an AANA of uncleared swaps from $50 billion to $750 billion; and (3) clarifies that initial margin trading documentation does not need to be executed prior to a counterparty reaching the initial margin threshold.

On the same date, the Prudential Banking Regulators issued an ~~Advisory Bulletin,~~interim final rule, effective ~~upon issuance, that supersedes previous guidance on an FHLBank’s information security program. The Advisory Bulletin describes three main components of an information security program~~September 1, 2020, extending the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and ~~provides~~extending the ~~expectation that each FHLBank will use~~initial margin compliance date for Phase 6 counterparties to September 1, 2022. On July 10, 2020, the Commodity Futures Trading Commission (CFTC) issued a ~~risk-based approach~~final rule and a proposed rule which collectively, among other things, extend the initial margin compliance date for Phase 5 counterparties to ~~implement its information security program. The Advisory Bulletin contains expectations related to: (1) governance, including guidance related~~September 1, 2021 and extend the initial margin compliance date for Phase 6 counterparties to roles and responsibilities, risk assessments, industry standards, and cyber-insurance; (2) engineering and architecture, including guidance on network security, software security, and security of endpoints; and (3) operations, including guidance on continuous monitoring, vulnerability management, baseline configuration, asset life cycle, awareness and training, incident response and recovery, user access management, data classification and protection, oversight of third parties, and threat intelligence sharing.September 1, 2022, thereby aligning with the Prudential Banking Regulators.

We do not expect ~~this advisory bulletin~~these final rules or the proposed rule, if adopted as proposed, to ~~materially affect~~have a material effect on our financial condition or results of operations.

~~Minority and Women Inclusion.~~ FHFA Final Rule on FHLBank Housing Goals Amendments. On ~~July 25, 2017,~~June 3, 2020, the FHFA ~~published~~issued a final rule, effective August 24, ~~2017,~~2020, amending ~~its Minority and Women Inclusion regulations to clarify~~ the ~~scope~~FHLBank housing goals regulation. Enforcement of the ~~FHLBanks’ obligation to promote diversity and ensure inclusion.~~final rule will phase in over three years. The final rule ~~updates~~replaces the four existing ~~FHFA regulations aimed at promoting diversity and the inclusion and use~~retrospective housing goals with a single prospective mortgage purchase housing goal target in which 20 percent of ~~minorities, women, and individuals with disabilities, and the businesses they own (MWDOB)~~AMA mortgages purchased in ~~all FHLBank business and activities, including management, employment, and contracting.~~a year must be comprised of loans to low-income or very low-income families, or to families in low-income areas. The final rule ~~will:~~

require the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;

~~encourage the FHLBanks to expand contracting opportunities for minorities, women, and individuals~~also establishes a separate small member participation housing goal with ~~disabilities through subcontracting arrangements;~~

~~require the FHLBanks to develop policies that address reasonable accommodations for employees to observe their religious beliefs;~~

~~require the FHLBanks to amend their policies on equal opportunity in employment by adding sexual orientation, gender identity, and status as~~ a ~~parent to the list of protected classifications;~~

~~require the FHLBanks to provide information in their annual reports to the FHFA about their efforts to advance diversity and inclusion through financial transactions, identification of ways~~target level in which ~~FHLBanks might~~50 percent of the members selling AMA loans in a calendar year must be able to improve MWDOB business with the FHLBank by enhancing customer access by MWDOB businesses, including through its affordable housing and community investment programs and strategies for promoting the diversity of supervisors and managers; and

~~require the FHLBanks to classify and provide additional data in their annual reports about the number of and amounts paid under its contracts with MWDOB.~~

~~We do not expect this~~small members. The final rule ~~to materially affect our financial condition~~provides that an FHLBank may request FHFA approval of alternative target levels for either or ~~results of operations, but anticipate that it may result in increased compliance costs and substantially increase the amount of tracking, monitoring, and reporting that would be required.~~

~~FHLBank Capital Requirements.~~ ~~On July 3, 2017, the FHFA published a proposed rule to adopt, with amendments, the regulations~~both of the ~~Federal Housing Finance Board (predecessor~~goals. The final rule also establishes that housing goals apply to ~~the FHFA) pertaining to the capital requirements for the FHLBanks. The proposed rule would carry over most of~~each FHLBank that acquires any AMA mortgages during a year, eliminating the existing ~~regulations without material change but would substantively revise~~$2.5 billion volume threshold that previously triggered the ~~credit risk component~~application of the risk-based capital requirement, as well as the limitations on extensions of unsecured credit. The main revisions would remove requirements that the FHLBanks calculate credit risk capital charges and unsecured credit limits based on ratings issued by an NRSRO, and instead, require that the FHLBanks establish and use their own internal rating methodology. With respect to derivatives, the proposed rule would impose a new capital chargehousing goals for cleared derivatives, which under the existing rule do not carry a capital charge, to align with the Dodd-Frank Act’s clearing mandate. The proposed rule also would revise the percentages used in the regulation’s tables to calculate credit risk capital charges for advances and for non-mortgage assets. The FHFA proposes to retain, for now, the percentages used in the tables to calculate capital charges for mortgage-related assets, and to address the methodology for residential mortgage assets at a later date. While a March 2009 regulatory directive pertaining to certain liquidity matters will continue to remain in place, the FHFA also proposes to rescind certain minimum regulatory liquidity requirements for the FHLBanks and address these liquidity requirements in a separate rulemaking.each FHLBank.

~~We submitted a joint comment letter with~~While the ~~other FHLBanks on August 31, 2017. We~~we are ~~continuing to evaluate~~still analyzing the ~~proposed~~impact of the final rule, ~~but~~we do not ~~expect this rule, if adopted in final form, to materially affect~~believe these changes will have a material effect on our financial condition or results of operations.

Legislative and Regulatory Developments Related to COVID-19 Pandemic.

FHFA Supervisory Letter - PPP Loans as Collateral for FHLBank ~~Membership for Non-Federally-Insured Credit Unions.~~Advances. On ~~June 5, 2017,~~July 1, 2020, Congress approved an extension of the PPP until August 8, 2020. The April 23, 2020 Supervisory Letter from the FHFA ~~issued a final rule effective July 5, 2017 governing FHLBank membership that would implement statutory amendments to the Bank Act authorizing~~allowing FHLBanks to accept applications for membership from state-chartered credit unions without federal share insurance, provided that certain prerequisites have been met. The new rule generally treats these credit unions the samePPP loans as other depository institutions with an additional requirement that they obtain: (1) an affirmative statement from their state regulator that they meet the requirements for federal insurance as of the date of their application for FHLBank membership; (2) a written statement from the state regulator that it cannot or will not make any determination regarding eligibility for federal insurance; or (3) if the regulator fails or refuses to respond to the credit union’s request within six months, confirmation of the failure to receive a response.collateral remains in effect.

Coronavirus Aid, Relief, and Economic Security Act. The CARES Act provisions will begin to expire in July 2020, but some have been extended by regulatory action:


▪	Additional federal unemployment funds expired July 31, 2020;


▪	Statutory eviction freeze for federally-backed properties expired July 25, 2020; and


▪	Foreclosure moratorium on federally-backed properties was extended by the FHFA on June 17, 2020 to last until “at least” August 31, 2020.

Additional phases of the CARES Act or other COVID-19 pandemic relief legislation may be enacted by Congress. We ~~do not expect this rule~~continue to ~~materially affect~~evaluate the potential impact of the CARES Act on our ~~financial condition~~business, including its continued impact to the U.S. economy; impacts to mortgages held or ~~results of operations.~~serviced by our members and that we accept as collateral; and the impacts on our MPF Program.

~~Mandatory Contractual Stay Requirements for Qualified Financial Contracts (QFCs)~~Additional COVID-19 Legislative and Regulatory Developments. ~~On September 12, 2017,~~In light of the COVID-19 pandemic, governmental agencies, including the Securities and Exchange Commission, the Office of the Comptroller of the Currency, Federal Reserve, ~~Board (FRB) published a final rule, effective November 13, 2017, requiring certain global systemically important banking institutions (GSIBs) regulated by~~FDIC, National Credit Union Administration, CFTC and the ~~FRB~~FHFA, as well as state governments and agencies, have taken, and may continue to ~~amend their covered qualified~~take, actions to provide various forms of relief from, and guidance regarding, the financial, ~~contracts (QFCs) to limit a counterparty’s immediate termination or exercise of default rights under the QFCs in the event of bankruptcy or receivership~~operational, credit, market, and other effects of the ~~GSIB~~pandemic, some of which may have a direct or ~~an affiliate~~indirect impact on us or our members. Many of ~~the GSIB. Covered QFCs include derivatives, repurchase agreements~~these actions are temporary in nature. We continue to monitor these actions and ~~reverse repurchase agreements,~~guidance as they evolve and securities lending and borrowing agreements. On September 27, 2017, the Federal Deposit Insurance Corporation (FDIC) adopted a substantively identical final rule, effective January 1, 2018, with respect to ~~QFCs entered into with certain FDIC-supervised institutions.~~evaluate their potential impact on us.

Although we are not a covered entity under these rules, as a counterparty to covered entities under QFCs, we may be required to amend QFCs entered into with FRB-regulated GSIBs or applicable FDIC-supervised institutions. We do not expect these final rules to materially affect our financial condition or results of operations.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

~~Interest Rate Risk Management~~

We measure interest rate risk exposure by various methods, including the calculation of duration of equity (DOE) and market value of equity (MVE) in different interest rate scenarios.

Duration of ~~Equity:~~Equity

DOE aggregates the estimated sensitivity of market value for each of our financial assets and liabilities to changes in interest rates. In essence, DOE indicates the sensitivity of MVE to changes in interest rates. However, MVE should not be considered indicative of our market value as a going concern or our value in a liquidation scenario.

A positive DOE results when the duration of assets and designated derivatives is greater than the duration of liabilities and designated derivatives. A positive DOE generally indicates a degree of interest rate risk exposure in a rising interest rate environment. A negative DOE indicates a degree of interest rate risk exposure in a declining interest rate environment. Higher DOE numbers, whether positive or negative, indicate greater volatility of MVE in response to changing interest rates.

We manage DOE within ranges approved by our ~~Board~~board of ~~Directors~~directors as described under Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K, incorporated by reference herein. All our DOE measurements, with the exception of the base case DOE, were in compliance with ~~Board~~board of ~~Director~~director established policy limits and operating ranges as of ~~September~~June 30, ~~2017.~~2020. On an ongoing basis, we actively monitor portfolio relationships and overall DOE dynamics as a part of our evaluation processes for determining acceptable future asset/liability management actions. Table 4048 presents the DOE in the base case and the up and down 200 basis point interest rate shock scenarios as of the periods noted:

Table 4048

Duration of Equity
Date Up 200 Basis Points Base Down 200 Basis Points
09/30/2017 2.8 -1.0 2.7
06/30/2017 2.3 -0.4 2.3
03/31/2017 2.2 -1.0 2.3
12/31/2016 2.6 -1.0 3.0
09/30/2016 -0.1 -2.2 1.1



Duration of Equity
Date	Up 200 Basis Points	Base	Down 200 Basis Points
06/30/2020	-1.5	-3.9	0.4
03/31/2020	-0.5	-2.3	0.7
12/31/2019	0.8	-0.9	2.4
09/30/2019	1.0	-0.7	2.0
06/30/2019	1.4	-0.4	2.6

The absolute value of the DOE of the portfolio as of ~~September~~June 30, ~~2017~~2020 increased ~~(became more negative)~~ in the base ~~scenario~~ and ~~increased~~up 200 basis point shock scenarios and decreased in the ~~up and~~ down 200 basis point shock ~~scenarios~~scenario from ~~June 30, 2017.~~March 31, 2020. The primary factors contributing to these changes in duration during the period were: (1) the ~~slight increase~~general decrease in ~~long-term~~ interest rates and the relative level of mortgage rates during the period; (2) ~~the slight increase in the fixed rate mortgage loan portfolio during the period along with~~ an increase in the weighting of the mortgage loan portfolio as a percent of total ~~assets;~~assets during the period; and (3) asset/liability actions taken by management throughout the period, including the continued ~~call and re-issuance~~issuance of long-term, unswapped callable consolidated obligation bonds with relatively short lock-out periods, and the continued issuance of discount notes and short-term variable rate consolidated obligations to fund ~~the growth~~changes in ~~advances.~~advance balances.

The ~~increase~~general decrease in ~~long-term~~ interest rates during the ~~third~~second quarter of ~~2017~~2020 generally indicates a ~~lengthening~~shortening duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. ~~With~~The decline in advance balances and the ~~slight increase in~~relatively stable balance of our mortgage loan portfolio during the period, as discussed in Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program,” caused the mortgage loan portfolio ~~increased~~to increase as an overall percentage of assets, ~~as expected and as the balance sheet contracted,~~ increasing from ~~13.7~~17.4 percent of total assets as of ~~June 30, 2017~~March 31, 2020 to ~~14.3~~20.4 percent as of ~~September~~June 30, 2017. With this weighting increase, the mortgage loan portfolio continues to represent a sizable portion of the balance sheet, and changes occurring with this portfolio tend to be magnified in terms of DOE.2020. Since the mortgage loan portfolio continues to comprise a considerable percentage of overall assets and has such a ~~high~~sizable duration relative to our other assets, especially with the decrease in the advance portfolio during the period, its behavior is quite visible in the duration risk profile and changes in this portfolio are typically magnified as the composition of assets changes. This magnification occurs when a portfolio market value weighting as a percent of the overall net market value of the balance sheet changes, causing the remaining portfolios to be a smaller or larger component of the total balance sheet composition. For example, if advance balances decrease during a given period, this decrease will cause the mortgage loan portfolio weighting to increase as a total proportion of total assets. Further, if interest rates decrease, the market value gains in the mortgage loan portfolio will cause the mortgage loan portfolio to further increase its sizable percentage of overall market value of assets. This increase in market value of assets will cause the duration for this portfolio to have a greater impact on DOE. In other words, this relationship causes the duration of the mortgage loan portfolio to have a larger contribution impact to the overall DOE since DOE is a market value weighted measurement. With these balance sheet dynamics, we continue to actively manage and monitor the contributing factors of our risk profile, including DOE. As the relationship of the fixed rate mortgage loan assets and the associated callable liabilities vary based on market conditions, we evaluate and manage these market driven sensitivities as both portfolios change in balance level and overall proportion. This evaluation included review of the base DOE result of -3.9 exceeding the operating range of ±2.5. As discussed above, this level is primarily the result of the increased weighting of the mortgage loan portfolio provided the decline in the advance portfolio and the decline in interest rates as well as mortgage rates. Since the weighting increased, causing the mortgage asset portfolio to be a larger percentage of total assets, and with the decline in interest rates, shortening the duration of the mortgage asset portfolio, the impact to the base DOE was an overall increase in liability sensitivity or a more negative DOE.

~~New loans were continually added~~Under the RMP approved by our board of directors, our DOE is generally limited to a range of ±5.0 in the base case, while we typically manage our DOE in the base scenario to remain in the range of ±2.5 as set forth in our Risk Appetite Metrics approved by the board of directors. This lower operating range for DOE is considered prudent and reasonable by management and the board of directors and can change depending upon market conditions and other factors. However, when DOE exceeds either the limits established by the RMP or the more narrowly-defined ranges to which we manage DOE, corrective actions taken may include: (1) the purchase of interest rate caps, interest rate floors, swaptions or other derivatives; (2) the sale of assets; and/or (3) the addition to the balance sheet of assets or liabilities having characteristics that are such that they counterbalance the excessive duration observed. Provided the current unprecedented, historically low and volatile interest rate environment, we continue to evaluate the current balance sheet composition and strategic alternatives to mitigate the excessive duration position that may include: (1) take asset/liability actions to bring the DOE back within the ranges established in our RMP; or (2) review and discuss potential asset/liability management actions with the board of directors at the next regularly scheduled meeting that could bring the DOE back within the ranges established in the RMP and ascertain a course of action, which can include a determination that no asset/liability management actions are necessary. A determination that no asset/liability management actions are necessary can be made only if the board of directors agrees with management’s recommendations. We continue to actively monitor portfolio relationships and overall DOE dynamics as a part of our evaluation processes for determining acceptable future asset/liability management actions.

With respect to the mortgage loan portfolio, new loans were added to replace loans that were prepaid during the period ~~and~~at a reduced level as we continue to actively manage this ~~ongoing growth~~portfolio to position the balance sheet sensitivity to perform within our expected risk tolerances. To effectively manage these changes in the mortgage loan portfolio (including new production loans) and related sensitivity to changes in market conditions, awe continued ~~issuance of~~to issue unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three ~~months) positioned us~~months to ~~also replace called bonds as the interest rate environment continued to remain at historically low levels.~~one year). The ~~new~~ issuance ~~and call~~ of ~~higher rate~~ callable bonds and reissuance of ~~these~~new callable bonds to replace called bonds at lower interest rates ~~in this manner~~as rates declined during the period, generally extends the duration profile of this ~~portfolio as bonds are called that are in-the-money (above market rates) and subsequently reissued at lower interest rates (at market rates).~~portfolio. This liability extension corresponds with the expected longer duration profile of the new fixed rate mortgage loans, all else being ~~equal.~~

~~As discussed above, while long-term interest~~equal, and positions the balance sheet for future changes in rates, ~~increased based on period-end dates, interest rates continued to remain historically low throughout~~including rate increases where the ~~quarter and as we continued to experience prepayments of the fixed rate~~ mortgage loan portfolio ~~the short lock-out periods of the callable bonds plus some maturities of non-callable bonds provided the opportunity to continue the refinancing of our liabilities. The slight increase~~will likely lengthen in ~~long-term interest rates during the period also caused the~~ duration ~~profile of the existing portfolio of unswapped callable bonds to lengthen slightly.~~as expected prepayments slow. This liability lengthening demonstrates the specific duration sensitivity to changes in interest rates at certain shock scenarios where the unswapped callable bonds are more or less sensitive to certain levels of increasing interest rates, causing the overall DOE to increase or decrease, similar to the factors causing the changes in DOE for all interest rate shock scenarios. This sensitivity, or convexity, is further described under Item 7A – "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K for the year ended December 31, ~~2016.~~ 2019.

In addition, the relative level of mortgage rates generally contributes significantly to the sensitivity of the fixed rate mortgage loan portfolio causing the duration profile to lengthen or shorten based on the relationship between interest rates, mortgage rates and associated mortgage spreads. For instance, the decrease in interest rates during the period caused the mortgage loan portfolio duration to shorten slightly more than the associated liabilities, leading to a more liability sensitive DOE profile in the base and up 200 basis point shock interest rate scenarios and less asset sensitive DOE profile in the down 200 basis point shock interest rate scenario. Further, issuance of discount notes continued, as well as increased issuance of variable rate consolidated obligations, in order to provide adequate liquidity sources to appropriately address changes in customer short-term advance ~~growth~~balances and associated capital stock activity during the period. The combination of all these factors contributed to the net DOE changes in all interest rate shock scenarios, where the DOE increased ~~(became more negative)~~ in the base ~~scenario~~ and ~~increased~~up 200 basis point shock scenarios and decreased in the ~~up and~~ down 200 basis point shock ~~scenarios.~~scenario. The down shock scenario continues to provide limited information since interest rates remain at historically low levels. This low interest rate environment essentially generates at or near zero interest rates for the ~~short- and mid-term~~majority of interest rates along the down 200 shocked term structure of interest rates, causing valuation changes to be limited, generating DOE results with marginal information.

With respect to the variable rate GSE MBS portfolio, we generally purchase interest rate caps to offset the impact of embedded caps in this portfolio in rising interest rate scenarios. As expected, these interest rate caps are a satisfactory interest rate risk hedge to rising interest rates and provide an off-setting risk response to the risk profile changes in variable rate GSE MBS with embedded caps. We periodically assess derivative strategies to ensure that overall balance sheet risk is appropriately hedged within established risk appetite metrics and make adjustments to the derivative portfolio as needed. This evaluation is completed considering not only the par value of the variable rate MBS with embedded caps being hedged with purchased caps, but the composition of the purchased cap portfolio and expected prepayments of the variable rate MBS with embedded caps. This evaluation of the relative relationship between the variable rate investment portfolio and the purchased cap portfolio continues to indicate a sufficient hedging relationship. During the quarter ended September 30, 2017, we purchased $45.8 million of variable rate multi-family GSE MBS. However, we did not purchase additional interest rate caps during the third quarter of 2017 because the investments did not contain interest rate cap exposure. In addition, we purchased $234.8 million fixed rate multi-family GSE MBS during the current quarter. These fixed rate securities were effectively swapped to LIBOR and impacted DOE only slightly since they are reflected as variable rate instruments and are further described in Item 2 – "Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Net Gain (Loss) on Trading Securities."

In calculating DOE, we also calculate our duration gap, which is the difference between the duration of our assets and the duration of our liabilities. Our base duration gap was ~~-0.6 months for September 30, 2017 and -0.3~~-2.5 months for June 30, ~~2017.~~2020 and -1.3 months for March 31, 2020. As discussed previously, the ~~relatively stable~~ performance was primarily the result of the changes in the fixed rate mortgage loan portfolio and the associated funding decisions made by management in response to changes in the interest rate environment and balance sheet during the ~~third~~second quarter of ~~2017.~~2020. All FHLBanks are required to submit this base duration gap number to the Office of Finance as part of the quarterly reporting process created by the FHFA.

Market Value of ~~Equity:~~Equity

MVE is the net value of our assets and liabilities. Estimating sensitivity of MVE to changes in interest rates is another measure of interest rate risk. We generally maintain an MVE within limits specified by the ~~Board~~board of ~~Directors~~directors in the RMP. The RMP measures our market value risk in terms of the MVE in relation to total regulatory capital stock outstanding (TRCS). TRCS includes all capital stock outstanding, including stock subject to mandatory redemption. As a cooperative, we believe using the TRCS results inis an appropriate measure because it reflects our market value relative to the book value of our capital stock. Our RMP stipulates MVE shall not be less than: (1) 100 percent of TRCS under the base case scenario; or (2) 90 percent of TRCS under a ±200 basis point instantaneous parallel shock in interest rates. Table 4149 presents MVE as a percent of TRCS. As of ~~September~~June 30, ~~2017~~2020, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan market values as rates have continued to remain historically low ~~the general value impact of the refinancing activities of the associated unswapped callable consolidated obligation bonds and~~along with the relative level of outstanding capital.

The MVE to TRCS ratios can be greatly impacted by the level of capital outstanding based on our capital management approach. Typically, as advances increase and the associated capital level increases, the ratio will generally decline since the new advances are primarily short-term with market values at or near par. ~~Further,~~Conversely, as advance balances decrease and the capital level decreases as capital stock is repurchased, the ratio will generally ~~increase.~~increase, as represented by the June 30, 2020 results. However, if excess capital stock is not repurchased, the capital level remains higher thereby causing a decrease in the ratio. The relative level of advance balances, required stock and excess stock as of June 30, 2020 (see Table 37 under Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital”) contributed to the MVE levels as of June 30, 2020. These relationships primarily generate the changes in the MVE/TRCS levels and produce the changes in the ratios in all interest rate scenarios in the table below.

Table 4149

Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date Up 200 Basis Points Base Down 200 Basis Points
09/30/2017 170 174 175
06/30/2017 169 172 173
03/31/2017 174 176 176
12/31/2016 177 181 179
09/30/2016 180 172 176



Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date	Up 200 Basis Points	Base	Down 200 Basis Points
06/30/2020	231	210	209
03/31/2020	184	173	177
12/31/2019	175	174	176
09/30/2019	174	174	179
06/30/2019	171	174	176

Detail of Derivative Instruments by Type of Instrument by Type of Risk:

Various types of derivative instruments are utilized to mitigate the interest rate risks described in the preceding sections as well as to better match the terms of assets and liabilities. ~~We currently employ~~Generally, we designate derivative instruments ~~by designating them~~ as ~~either~~either: (1) a fair value ~~or cash flow~~ hedge of an underlying financial ~~instrument~~instrument; or ~~a forecasted transaction or~~(2) an economic hedge used in asset/liability ~~management (i.e., an economic hedge).~~management. An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities or firm commitments that either does not qualify for hedge accounting, or for which we have not elected hedge accounting, but is an acceptable hedging strategy under our RMP. For hedging relationships that are not designated for shortcut hedge accounting, we formally assess (both at the hedge’s inception and monthly on an ongoing basis) whether the derivatives used have been highly effective in offsetting changes in the fair values ~~or cash flows~~ of hedged items and whether those derivatives may be expected to remain highly effective in future periods. We typically use regression analyses or similar statistical analyses to assess the quantitative effectiveness of our long haul hedges. We determine the hedge accounting to be applied when the hedge is entered into by completing detailed documentation, which includes a checklist setting forth criteria that must be met to qualify for hedge accounting.

Tables 4250 and 4351 present the notional amount and fair value amount (fair value includes net accrued interest receivable or payable on the derivative)~~, excluding variation margin,~~ for derivative instruments by hedged item, hedging instrument, hedging objective and accounting designation (in thousands):

Table 4250


09/30/2017
06/30/2020									06/30/2020
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount			Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,189,136	$	(1,403	)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,816,792	$	(3,903	)
Fixed rate convertible advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	882,950		(100		)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	1,775,900		(141,821		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	143,350		396			Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	33,312		(1,795		)
Firm commitment to issue a fixed rate advance									Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	28,504		6
Fixed rate non-callable advances									Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	13,255		(1,005		)
Investments
Fixed rate non-MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	4,200,000		(312		)
Fixed rate MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	2,915,976		(166,049		)
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	398,500		(10,169		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	1,898,500		(102		)
Fixed rate MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	851,347		(11,242		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	786,654		(76,416		)
Fixed rate MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,449,384		4,944
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	2,462,400		1,673			Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	762,500		104
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	121,377		(151		)	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	107,916		411
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months									Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	2,755,678		91
Fixed rate non-callable consolidated obligation discount notes with tenors less than 6 months									Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Economic Hedge	2,249,124		(5		)
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	860,000		17,506			Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	2,383,500		21,039
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	215,000		15
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	45,000		(379		)
Callable step-up/step-down consolidated obligation bonds	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	435,000		(1,408		)
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	2,280,000		(11,606		)
TOTAL				$	13,333,444	$	(11,924	)				$	23,727,611	$	(369,757	)

Table 4351


12/31/2016
12/31/2019									12/31/2019
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount			Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,360,835	$	(14,485	)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,160,580	$	953
Fixed rate callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	30,000		60
Fixed rate convertible advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	1,145,392		(17,339		)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	1,607,500		(24,784		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	82,975		2,567			Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	35,504		28
Firm commitment to issue a fixed rate advance									Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	35,077		(532		)
Fixed rate non-callable advances									Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	6,000		(62		)
Investments
Fixed rate non-MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	4,200,000		(352		)
Fixed rate MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	2,822,646		(49,571		)
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	604,820		(16,376		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	1,898,500		248
Adjustable rate MBS with embedded caps									Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,130,000		117
Fixed rate MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	852,810		(8,804		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	790,045		(24,861		)
Fixed rate MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,096,867		14,190
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	2,765,200		4,859
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	90,013		(158		)	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	221,800		470
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months	Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	149,361		370			Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	1,383,782		47
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	830,680		26,425			Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	2,628,500		14,013
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	750,000		(1,083		)	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	500,000		2,635
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	30,000		(1,174		)
Variable rate consolidated obligation bonds									Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	370,000		(342		)
Callable step-up/step-down consolidated obligation bonds	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	420,000		(4,319		)	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	110,000		95
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	565,000		(14,995		)
TOTAL				$	12,773,953	$	(30,262	)				$	20,899,934	$	(81,898	)

Item 4: Controls and Procedures

Disclosure Controls and Procedures

Senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance in achieving their desired objectives; however, in designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management, with the participation of the President and Chief Executive Officer (CEO), our principal executive ~~officer, and Chief Financial Officer (CFO), our~~ officer/principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2017.~~2020. Based upon that evaluation, the CEO ~~and CFO have~~has concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~September~~June 30, ~~2017.~~2020.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended ~~September~~June 30, ~~2017~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1: Legal Proceedings

We are subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations. Additionally, management does not believe that we are subject to any material pending legal proceedings outside of ordinary litigation incidental to our business.

Item 1A: Risk Factors

An economic downturn or natural disaster in the FHLBank’s region, or a pandemic, could adversely affect our profitability and financial condition. Economic recession over a prolonged period or other unfavorable economic conditions in our region (including on a state or local level) could have an adverse effect on our business, including the demand for our products and services, and the value of the collateral securing advances, investments, and mortgage loans held in portfolio. Portions of our region also are subject to risks from tornadoes, floods, or other natural disasters. These natural disasters, including those resulting from significant climate changes, could damage or dislocate the facilities of our members, may damage or destroy collateral that members have pledged to secure advances or mortgages, or the livelihood of borrowers of members, or otherwise could cause significant economic dislocation in the affected areas of our region. Additionally, the impact of widespread health emergencies may adversely impact our financial condition and results of operations.

The impact of the COVID-19 pandemic on our members and our business could adversely affect our profitability and financial condition. As of the date of the filing of this report, the full effects of the COVID-19 pandemic are evolving and not fully known. The COVID-19 pandemic has to date caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession. These conditions are expected to continue in the near term. Many businesses in our district and across the U.S. have been forced to suspend operations for an indefinite period of time in an attempt to slow the spread of the virus, and unemployment claims have increased dramatically as more employers lay off or furlough workers. Ultimately, the significant slowdown in economic activity caused by the COVID-19 pandemic could reduce demand at our member institutions, which could impact members’ demand for our products and services. It could also lead to a devaluation of our assets and/or the collateral pledged by our members to secure advances and other extensions of credit, all of which have had and could continue to have an adverse impact on our financial condition and results of operations, including as a result of reduced business volumes, reduced income or increased credit losses.

Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets, which are beyond our control. Volatility in the capital markets caused by the COVID-19 pandemic can impact demand for FHLBank debt and the cost of the debt the FHLBanks issue, which could impact our liquidity and profitability. Our business and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies. The Federal Reserve Board’s policies directly and indirectly influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. In response to COVID-19, the FOMC lowered the target range for Federal funds to a target range of zero to 0.25 percent. The outlook for the remainder of 2020 is uncertain, and there is a possibility that the FOMC may keep interest rates low or use other policies if economic conditions warrant, each of which could further impact the efficiency of our asset and liability management activities and continue to negatively affect our financial condition and results of operations.

Most of our employees have been working remotely since mid-March. Management began bringing employees back to work in our offices in early August and plans to continue this process in phases but is prepared to continue remote operations if local infection trends continue to rise. With most of our employees working remotely, we could face operational difficulties or disruptions that could impair our ability to conduct and manage our business effectively. In addition, some of our employees, executive management team, or board of directors could become infected with the COVID-19 virus which, depending upon the number and the severity of their cases, could similarly affect our ability to conduct and manage our business effectively. Counterparties, vendors and other third parties upon which we rely to conduct our business could be adversely impacted by the COVID-19 pandemic which could, in turn, lead to operational challenges for us. These potential difficulties, disruptions and challenges could increase the likelihood that our financial condition and results of operations could be impacted.

Significant borrower defaults on loans made by our members could occur as a result of reduced economic activity and these defaults could cause members to fail. We could be adversely impacted by the reduction in business volume that would arise from the failure of one or more of our members. Further, counterparty default, whether as a result of the operational or financial impacts of the COVID-19 pandemic, could adversely impact our financial condition and results of operations.

There have been no other material changes to the risk factors previously disclosed in our annual report on Form 10-K filed on March ~~9, 2017,~~20, 2020, and such risk factors are incorporated by reference herein.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6: Exhibits



Exhibit No.	Description
3.1	Exhibit 3.1 to the FHLBank’s registration statement on Form 10, filed May 15, 2006, and made effective on July 14, 2006 (File No. 000-52004) ~~(the “Form 10 Registration Statement”)~~, Federal Home Loan Bank of Topeka Articles and Organization Certificate, is incorporated herein by reference as Exhibit 3.1.
3.2	Exhibit ~~3.2~~3.1 to the ~~2015 Annual~~Current Report on Form ~~10-K,~~8-K, filed ~~March 10, 2016,~~December 18, 2018, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
4.1	Exhibit ~~99.2~~4.1 to the ~~Current~~Annual Report on Form ~~8-K,~~10-K, filed ~~August 5, 2011,~~March 20, 2020, Federal Home Loan Bank of Topeka Capital ~~Plan, is incorporated herein by reference as Exhibit 4.1.~~Plan.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of ~~Senior Vice President and~~Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of President and ~~Principal~~Chief Executive Officer (Principal Executive Officer) and ~~Senior Vice President and Principal~~Interim Chief Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

^* Represents a management contract or a compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	Federal Home Loan Bank of Topeka


~~November 9, 2017~~August 11, 2020	By: /s/ Mark E. Yardley
Date	Mark E. Yardley
	President and Chief Executive Officer


~~November 9, 2017~~	~~By: /s/ William W. Osborn~~
~~Date~~	~~William W. Osborn~~
	~~Senior Vice President and Chief Financial Officer~~

~~103~~108



	09/30/2017
	Amortized Cost		OTTI Recognized in AOCI			Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	94,625	$	—		$	94,625	$	87	$	(5,409	)	$	89,303
Non-mortgage-backed securities	94,625		—			94,625		87		(5,409		)	89,303
Mortgage-backed securities:
U.S. obligation MBS¹	133,342		—			133,342		200		(120		)	133,422
GSE MBS²	4,429,372		—			4,429,372		15,542		(13,792		)	4,431,122
Private-label residential MBS	87,637		(4,444		)	83,193		5,310		(2,119		)	86,384
Mortgage-backed securities	4,650,351		(4,444		)	4,645,907		21,052		(16,031		)	4,650,928
TOTAL	$	4,744,976	$	(4,444	)	$	4,740,532	$	21,139	$	(21,440	)	$	4,740,231



	09/30/2017
	Unpaid Principal Balance		Amortized Cost		Carrying Value		Fair Value
Private-label residential MBS:
Prime	$	8,104	$	7,145	$	6,584	$	7,553
Alt-A	25,965		23,046		19,163		23,377
TOTAL	$	34,069	$	30,191	$	25,747	$	30,930



	09/30/2017						12/31/2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance	$	9,519	$	9,494	$	—	$	11,834	$	11,776	$	—
With an allowance	136		137		39		—		—		—
TOTAL	$	9,655	$	9,631	$	39	$	11,834	$	11,776	$	—



	Three Months Ended
	Net Unrealized Gain (Loss) on Available-for-Sale Securities			Net Non-credit Portion of OTTI Losses on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI
Balance at June 30, 2016	$	(6,275	)	$	(6,908	)	$	(2,355	)	$	(15,538	)
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss)	8,434									8,434
Accretion of non-credit loss				479						479
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				30						30
Amortization of net loss - defined benefit pension plan²							47			47
Net current period other comprehensive income (loss)	8,434			509			47			8,990
Balance at September 30, 2016	$	2,159		$	(6,399	)	$	(2,308	)	$	(6,548	)

Balance at June 30, 2017	$	21,212		$	(5,021	)	$	(2,812	)	$	13,379
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss)	1,452									1,452
Non-credit OTTI losses				(26		)				(26		)
Accretion of non-credit loss				321						321
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				282						282
Amortization of net loss - defined benefit pension plan²							58			58
Net current period other comprehensive income (loss)	1,452			577			58			2,087
Balance at September 30, 2017	$	22,664		$	(4,444	)	$	(2,754	)	$	15,466



	Three Months Ended 09/30/2017
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Other		Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(1,272	)	$	—		$	(534	)	$	—	$	—		$	—	$	(1,806	)
Net interest received (paid)	(9,266		)	(2,144		)	—			—		3,308			—		(8,102		)
Subtotal	(10,538		)	(2,144		)	(534		)	—		3,308			—		(9,908		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	813			(807		)	—			—		(55		)	—		(49		)
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			1,168			—			—		1,112			—		2,280
Interest rate caps	—			(392		)	—			—		—			—		(392		)
Mortgage delivery commitments	—			—			913			—		—			—		913
Economic hedges – net interest received (paid)	—			(4,087		)	—			—		999			—		(3,088		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—		—			14		14
Subtotal	813			(4,118		)	913			—		2,056			14		(322		)
Net impact of derivatives and hedging activities	(9,725		)	(6,262		)	379			—		5,364			14		(10,230		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			2,764			—			—		—			—		2,764
TOTAL	$	(9,725	)	$	(3,498	)	$	379		$	—	$	5,364		$	14	$	(7,466	)



	Three Months Ended 09/30/2016
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(1,384	)	$	—		$	(762	)	$	—	$	—		$	(2,146	)
Net interest received (paid)	(20,962		)	(3,330		)	—			16		5,123			(19,153		)
Subtotal	(22,346		)	(3,330		)	(762		)	16		5,123			(21,299		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	3,923			(622		)	—			7		(17		)	3,291
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			15,089			—			—		(782		)	14,307
Interest rate caps	—			(132		)	—			—		—			(132		)
Mortgage delivery commitments	—			—			851			—		—			851
Economic hedges – net interest received (paid)	—			(9,551		)	—			—		791			(8,760		)
Subtotal	3,923			4,784			851			7		(8		)	9,557
Net impact of derivatives and hedging activities	(18,423		)	1,454			89			23		5,115			(11,742		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			(4,072		)	—			—		—			(4,072		)
TOTAL	$	(18,423	)	$	(2,618	)	$	89		$	23	$	5,115		$	(15,814	)



	Nine Months Ended 09/30/2017
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Other		Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(3,913	)	$	—		$	(1,516	)	$	—		$	—		$	—	$	(5,429	)
Net interest received (paid)	(37,052		)	(7,058		)	—			(15		)	12,468			—		(31,657		)
Subtotal	(40,965		)	(7,058		)	(1,516		)	(15		)	12,468			—		(37,086		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	(22		)	(2,096		)	—			(36		)	(1,089		)	—		(3,243		)
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			1,138			—			—			5,985			—		7,123
Interest rate caps	—			(3,186		)	—			—			—			—		(3,186		)
Mortgage delivery commitments	—			—			2,326			—			—			—		2,326
Economic hedges – net interest received (paid)	—			(16,933		)	—			—			4,226			—		(12,707		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—			—			6		6
Subtotal	(22		)	(21,077		)	2,326			(36		)	9,122			6		(9,681		)
Net impact of derivatives and hedging activities	(40,987		)	(28,135		)	810			(51		)	21,590			6		(46,767		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			14,831			—			—			—			—		14,831
TOTAL	$	(40,987	)	$	(13,304	)	$	810		$	(51	)	$	21,590		$	6	$	(31,936	)



	Nine Months Ended 09/30/2016
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(3,808	)	$	—		$	(1,894	)	$	—		$	—		$	(5,702	)
Net interest received (paid)	(67,730		)	(8,667		)	—			(29		)	25,684			(50,742		)
Subtotal	(71,538		)	(8,667		)	(1,894		)	(29		)	25,684			(56,444		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	3,614			(3,730		)	—			(270		)	(633		)	(1,019		)
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			(52,410		)	—			(4		)	2,092			(50,322		)
Interest rate caps	—			(3,848		)	—			—			—			(3,848		)
Mortgage delivery commitments	—			—			3,839			—			—			3,839
Economic hedges – net interest received (paid)	—			(36,184		)	—			4			3,305			(32,875		)
Subtotal	3,614			(96,172		)	3,839			(270		)	4,764			(84,225		)
Net impact of derivatives and hedging activities	(67,924		)	(104,839		)	1,945			(299		)	30,448			(140,669		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			63,827			—			—			—			63,827
TOTAL	$	(67,924	)	$	(41,012	)	$	1,945		$	(299	)	$	30,448		$	(76,842	)



	Increase (Decrease) in Components
	09/30/2017 vs. 12/31/2016
	Dollar Change			Percent Change
Assets:
Cash and due from banks	$	(199,451	)	(96.2	)%
Investments¹	157,531			1.2
Advances	4,333,391			18.1
Mortgage loans, net	414,514			6.2
Derivative assets, net	(10,404		)	(17.1	)
Overnight loans to other FHLBanks	(600,000		)	(100.0	)
Other assets	48,859			43.5
Total assets	$	4,144,440		9.2	%

Liabilities:
Deposits	$	(48,304	)	(8.1	)%
Consolidated obligations, net	3,853,487			9.1
Derivative liabilities, net	(6,531		)	(91.1	)
Other liabilities	9,628			6.4
Total liabilities	3,808,280			8.8

Capital:
Capital stock outstanding	240,326			19.6
Retained earnings	80,945			11.0
Accumulated other comprehensive income (loss)	14,889			2,580.4
Total capital	336,160			17.1
Total liabilities and capital	$	4,144,440		9.2	%



	09/30/2017						12/31/2016
	Fixed Rate¹		Variable Rate¹		Total		Fixed Rate¹		Variable Rate¹		Total
Private-label residential MBS:
Prime	$	5,792	$	49,043	$	54,835	$	10,924	$	58,725	$	69,649
Alt-A	10,888		25,841		36,729		16,361		33,497		49,858
TOTAL	$	16,680	$	74,884	$	91,564	$	27,285	$	92,222	$	119,507



	09/30/2017
Private-label residential MBS:
UPB by credit rating:
Double-A	$	2,493
Single-A	4,779
Triple-B	31,946
Double-B	12,437
Single-B	14,723
Triple-C	6,894
Double-C	1,801
Single-D	16,046
Unrated	445
TOTAL	$	91,564

Amortized cost	$	87,637
Unrealized losses	(2,989		)
Fair value	86,384

OTTI:
Credit-related OTTI charge taken year-to-date	$	464
Non-credit-related OTTI charge taken year-to-date	(370		)
TOTAL	$	94

Weighted average percentage of fair value to UPB	94.3		%
Original weighted average credit support¹	5.3
Weighted average credit support¹	12.9
Weighted average collateral delinquency²	9.1