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 30, 2017March 31, 2021
OR
¨☐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.) |
500 SW Wanamaker Road, One Security Benefit Pl. Suite 100
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. xdays.☒ 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 companycompany" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | | Smaller reporting company | ☐ | |
| | | | Emerging growth company | ☐ | |
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’sissuer’s classes of common stock, as of the latest practicable date.
|
| | | | |
| Shares outstanding as of |
November 7, 2017 | April 30, 2021 |
| Class A Stock, par value $100 per share | 1,945,6775,034,474 |
| Class B Stock, par value $100 per share | 14,444,35011,882,376 |
.FEDERAL HOME LOAN BANK OF TOPEKA
TABLE OF CONTENTS
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| PART I | | |
| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
| Item 4. | | |
| Part II | | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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;
•The ongoing and evolving impact of the coronavirus (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 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 ability of FHLBank to introduce new products and services to meet market demand and to manage successfully the risks associated with all products and services;
•Changes in demand for FHLBank products and services or consolidated obligations of the FHLBank System;
Effects of derivative accounting treatment and other accounting rule requirements, or changes in such requirements;
The effects of amortization/accretion;
Gains/losses on derivatives or on trading investments and 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;
•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,•Volatility of market prices, changes in interest rates and indices and the timing and volume of market activity, including competition for loan demand, purchasesthe effects of mortgage loansthese factors on amortization/accretion;
•Gains/losses on derivatives or on trading investments and accessthe ability to funding;enter into effective derivative instruments on acceptable terms;
•The upcoming discontinuance of the London Interbank Offered Rate (LIBOR) and the related effect on FHLBank's LIBOR-based financial products, investments, contracts and the collateral underlying advances to our members;
•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;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
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• | 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.
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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 I, Item 1A – Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2016,2020, 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
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| | | | | | |
| FEDERAL HOME LOAN BANK OF TOPEKA | | |
| STATEMENTS OF CONDITION - Unaudited | | |
| (In thousands, except par value) | | |
| | 09/30/2017 | 12/31/2016 |
| ASSETS | | |
| Cash and due from banks | $ | 7,803 |
| $ | 207,254 |
|
| Interest-bearing deposits | 301,208 |
| 387,920 |
|
| Securities purchased under agreements to resell (Note 10) | 2,595,589 |
| 2,400,000 |
|
| Federal funds sold | 1,692,000 |
| 2,725,000 |
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| | | |
| Investment securities: | | |
| Trading securities (Note 3) | 2,973,383 |
| 2,502,788 |
|
| Available-for-sale securities (Note 3) | 1,464,472 |
| 1,091,721 |
|
Held-to-maturity securities1 (Note 3) | 4,740,532 |
| 4,502,224 |
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| Total investment securities | 9,178,387 |
| 8,096,733 |
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| | | |
| Advances (Notes 4, 6) | 28,319,226 |
| 23,985,835 |
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| | | |
| 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 |
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| | | |
| Overnight loans to other FHLBanks | — |
| 600,000 |
|
| Accrued interest receivable | 79,854 |
| 68,400 |
|
| Premises, software and equipment, net | 36,034 |
| 16,205 |
|
| Derivative assets, net (Notes 7, 10) | 50,496 |
| 60,900 |
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| Other assets | 45,353 |
| 27,777 |
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| | | |
| TOTAL ASSETS | $ | 49,361,189 |
| $ | 45,216,749 |
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| LIABILITIES | | |
| Deposits (Note 8) | $ | 550,627 |
| $ | 598,931 |
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| Consolidated obligations, net: | | |
| Discount notes (Note 9) | 21,280,938 |
| 21,775,341 |
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| Bonds (Note 9) | 25,070,225 |
| 20,722,335 |
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| Total consolidated obligations, net | 46,351,163 |
| 42,497,676 |
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| Mandatorily redeemable capital stock (Note 11) | 5,439 |
| 2,670 |
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| Accrued interest payable | 61,616 |
| 49,808 |
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| Affordable Housing Program payable | 42,533 |
| 33,242 |
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| Derivative liabilities, net (Notes 7, 10) | 640 |
| 7,171 |
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| Other liabilities | 50,563 |
| 64,803 |
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| TOTAL LIABILITIES | 47,062,581 |
| 43,254,301 |
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| Commitments and contingencies (Note 14) |
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| FEDERAL HOME LOAN BANK OF TOPEKA | | |
| STATEMENTS OF CONDITION - Unaudited | | |
| (In thousands, except par value) | | |
| | 03/31/2021 | 12/31/2020 |
| ASSETS | | |
| Cash and due from banks | $ | 65,136 | | $ | 4,570,415 | |
| Interest-bearing deposits | 558,784 | | 760,297 | |
| Securities purchased under agreements to resell (Note 9) | 1,700,000 | | 2,600,000 | |
| Federal funds sold | 3,905,000 | | 1,780,000 | |
| | |
| Investment securities: | | |
| Trading securities (Note 3) | 3,266,965 | | 2,623,376 | |
| Available-for-sale securities, amortized cost of $6,289,277 and $6,696,114 (Note 3) | 6,363,707 | | 6,741,310 | |
| Held-to-maturity securities, fair value of $2,571,789 and $2,750,116 (Note 3) | 2,567,175 | | 2,746,992 | |
| Total investment securities | 12,197,847 | | 12,111,678 | |
| | |
| Advances (Note 4) | 21,068,366 | | 21,226,823 | |
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| Mortgage loans held for portfolio, net of allowance for credit losses of $4,956 and $5,177 (Note 6) | 8,667,085 | | 9,205,207 | |
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| Accrued interest receivable | 93,123 | | 97,718 | |
| | |
| Derivative assets, net (Notes 6, 9) | 157,952 | | 148,868 | |
| Other assets | 87,135 | | 90,706 | |
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| TOTAL ASSETS | $ | 48,500,428 | | $ | 52,591,712 | |
| | |
| LIABILITIES | | |
| Deposits (Note 7) | $ | 1,262,945 | | $ | 1,229,361 | |
| | |
| Consolidated obligations, net: | | |
| Discount notes (Note 8) | 10,072,689 | | 10,882,417 | |
| Bonds (Note 8) | 34,314,007 | | 37,648,077 | |
| Total consolidated obligations, net | 44,386,696 | | 48,530,494 | |
| | |
| Mandatorily redeemable capital stock (Note 10) | 1,585 | | 1,624 | |
| Accrued interest payable | 45,254 | | 45,575 | |
| Affordable Housing Program payable | 42,884 | | 41,129 | |
| Derivative liabilities, net (Notes 6, 9) | 3,006 | | 4,404 | |
| Other liabilities | 67,005 | | 71,358 | |
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| TOTAL LIABILITIES | 45,809,375 | | 49,923,945 | |
| | |
| Commitments and contingencies (Note 13) | 0 | 0 |
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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.
6
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| FEDERAL HOME LOAN BANK OF TOPEKA | | |
| STATEMENTS OF CONDITION - Unaudited | | |
| (In thousands, except par value) | | |
| | 03/31/2021 | 12/31/2020 |
| CAPITAL | | |
| Capital stock outstanding - putable: | | |
| Class A ($100 par value; 3,762 and 4,122 shares issued and outstanding) (Note 10) | $ | 376,196 | | $ | 412,225 | |
| Class B ($100 par value; 11,642 and 11,618 shares issued and outstanding) (Note 10) | 1,164,169 | | 1,161,779 | |
| Total capital stock | 1,540,365 | | 1,574,004 | |
| | |
| Retained earnings: | | |
| Unrestricted | 812,169 | | 793,331 | |
| Restricted | 266,905 | | 258,124 | |
| Total retained earnings | 1,079,074 | | 1,051,455 | |
| | |
| Accumulated other comprehensive income (loss) (Note 11) | 71,614 | | 42,308 | |
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| TOTAL CAPITAL | 2,691,053 | | 2,667,767 | |
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| TOTAL LIABILITIES AND CAPITAL | $ | 48,500,428 | | $ | 52,591,712 | |
The accompanying notes are an integral part of these financial statements.
7
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| FEDERAL HOME LOAN BANK OF TOPEKA | | |
| STATEMENTS OF CONDITION - Unaudited | | |
| (In thousands, except par value) | | |
| | 09/30/2017 | 12/31/2016 |
| | | |
| 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 |
|
| Total capital stock | 1,467,001 |
| 1,226,675 |
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| | | |
| Retained earnings: | | |
| Unrestricted | 662,401 |
| 611,226 |
|
| Restricted | 153,740 |
| 123,970 |
|
| Total retained earnings | 816,141 |
| 735,196 |
|
| | | |
| Accumulated other comprehensive income (loss) (Note 12) | 15,466 |
| 577 |
|
| | | |
| TOTAL CAPITAL | 2,298,608 |
| 1,962,448 |
|
| | | |
| TOTAL LIABILITIES AND CAPITAL | $ | 49,361,189 |
| $ | 45,216,749 |
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| | | | | | | | | | | |
| FEDERAL HOME LOAN BANK OF TOPEKA | | | | | |
| STATEMENTS OF INCOME - Unaudited | | | | | |
| (In thousands) | | | | | |
| | | |
| | | | | |
| | Three Months Ended | |
| | | 03/31/2021 | 03/31/2020 | |
| INTEREST INCOME: | | | | | |
| Interest-bearing deposits | | | $ | 269 | | $ | 4,705 | | |
| Securities purchased under agreements to resell | | | 489 | | 14,590 | | |
| Federal funds sold | | | 520 | | 3,488 | | |
| Trading securities | | | 16,385 | | 20,189 | | |
| Available-for-sale securities | | | 11,477 | | 24,294 | | |
| Held-to-maturity securities | | | 3,938 | | 17,068 | | |
| Advances | | | 35,443 | | 130,887 | | |
| | | | | |
| Mortgage loans held for portfolio | | | 53,478 | | 85,106 | | |
| Other | | | 257 | | 354 | | |
| Total interest income | | | 122,256 | | 300,681 | | |
| | | | | |
| INTEREST EXPENSE: | | | | | |
| Deposits | | | 108 | | 1,554 | | |
| Consolidated obligations: | | | | | |
| Discount notes | | | 1,998 | | 92,951 | | |
| Bonds | | | 46,515 | | 150,742 | | |
| Mandatorily redeemable capital stock | | | 9 | | 24 | | |
| Other | | | 257 | | 324 | | |
| Total interest expense | | | 48,887 | | 245,595 | | |
| | | | | |
| NET INTEREST INCOME | | | 73,369 | | 55,086 | | |
| Provision (reversal) for credit losses on mortgage loans | | | (14) | | (736) | | |
| NET INTEREST INCOME AFTER LOAN LOSS PROVISION (REVERSAL) | | | 73,383 | | 55,822 | | |
| | | | | |
| OTHER INCOME (LOSS): | | | | | |
| Net gains (losses) on trading securities | | | (26,747) | | 94,389 | | |
| Net gains (losses) on sale of available-for-sale securities | | | 0 | | 1,523 | | |
| | | | | |
| Net gains (losses) on derivatives | | | 17,581 | | (122,252) | | |
| | | | | |
| Standby bond purchase agreement commitment fees | | | 621 | | 565 | | |
| Letters of credit fees | | | 1,683 | | 1,403 | | |
| Other | | | 970 | | 1,143 | | |
| Total other income (loss) | | | (5,892) | | (23,229) | | |
| | | | | |
The accompanying notes are an integral part of these financial statements.
8
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| FEDERAL HOME LOAN BANK OF TOPEKA | | | | |
| STATEMENTS OF INCOME - Unaudited | | | | |
| (In thousands) | | | | |
| | Three Months Ended | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 | 09/30/2017 | 09/30/2016 |
| INTEREST INCOME: | | | | |
| Interest-bearing deposits | $ | 1,285 |
| $ | 614 |
| $ | 2,928 |
| $ | 1,400 |
|
| Securities purchased under agreements to resell | 6,735 |
| 3,370 |
| 15,902 |
| 8,947 |
|
| Federal funds sold | 8,396 |
| 1,221 |
| 20,071 |
| 4,033 |
|
| Trading securities | 15,317 |
| 15,410 |
| 45,412 |
| 51,540 |
|
| Available-for-sale securities | 6,865 |
| 3,420 |
| 16,489 |
| 8,239 |
|
| Held-to-maturity securities | 20,684 |
| 11,874 |
| 53,082 |
| 35,205 |
|
| Advances | 113,673 |
| 57,961 |
| 281,806 |
| 167,882 |
|
| 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 |
|
| Other | 344 |
| 306 |
| 928 |
| 947 |
|
| Total interest income | 228,008 |
| 145,477 |
| 595,023 |
| 433,396 |
|
| | | | | |
| INTEREST EXPENSE: | | | | |
| Deposits | 988 |
| 237 |
| 2,366 |
| 697 |
|
| Consolidated obligations: | | | | |
| Discount notes | 69,556 |
| 25,323 |
| 162,539 |
| 70,502 |
|
| Bonds | 88,306 |
| 56,681 |
| 228,788 |
| 169,728 |
|
| Mandatorily redeemable capital stock (Note 11) | 69 |
| 22 |
| 135 |
| 63 |
|
| Other | 162 |
| 74 |
| 319 |
| 214 |
|
| Total interest expense | 159,081 |
| 82,337 |
| 394,147 |
| 241,204 |
|
| | | | | |
| NET INTEREST INCOME | 68,927 |
| 63,140 |
| 200,876 |
| 192,192 |
|
| (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 |
|
| | | | | |
| 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 | ) |
| Standby bond purchase agreement commitment fees | 1,165 |
| 1,344 |
| 3,506 |
| 4,056 |
|
| Letters of credit fees | 979 |
| 911 |
| 2,889 |
| 2,666 |
|
| Other | 660 |
| 752 |
| 1,844 |
| 1,966 |
|
| Total other income (loss) | 5,461 |
| 8,708 |
| 14,494 |
| (11,695 | ) |
| | | | | |
| | | | | | | | | | | |
| FEDERAL HOME LOAN BANK OF TOPEKA | | | | | |
| STATEMENTS OF INCOME - Unaudited | | | | | |
| (In thousands) | | | | | |
| | | |
| | | | | |
| | Three Months Ended | |
| | | 03/31/2021 | 03/31/2020 | |
| OTHER EXPENSES: | | | | | |
| Compensation and benefits | | | $ | 10,293 | | $ | 10,461 | | |
| Other operating | | | 4,278 | | 4,680 | | |
| Federal Housing Finance Agency | | | 1,110 | | 1,023 | | |
| Office of Finance | | | 1,171 | | 1,007 | | |
| | | | | |
| Mortgage loans transaction service fees | | | 1,656 | | 2,017 | | |
| Other | | | 197 | | 255 | | |
| Total other expenses | | | 18,705 | | 19,443 | | |
| | | | | |
| INCOME BEFORE ASSESSMENTS | | | 48,786 | | 13,150 | | |
| | | | | |
| Affordable Housing Program | | | 4,880 | | 1,318 | | |
| | | | | |
| NET INCOME | | | $ | 43,906 | | $ | 11,832 | | |
The accompanying notes are an integral part of these financial statements.
9
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| | | | | | | | | | | | |
| FEDERAL HOME LOAN BANK OF TOPEKA | | | | |
| STATEMENTS OF INCOME - Unaudited | | | | |
| (In thousands) | | | | |
| | Three Months Ended | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 | 09/30/2017 | 09/30/2016 |
| OTHER EXPENSES: | | | | |
| Compensation and benefits | $ | 12,030 |
| $ | 11,798 |
| $ | 29,396 |
| $ | 28,260 |
|
| Other operating | 4,612 |
| 3,749 |
| 12,477 |
| 11,379 |
|
| Federal Housing Finance Agency | 697 |
| 697 |
| 2,145 |
| 2,204 |
|
| Office of Finance | 717 |
| 683 |
| 2,179 |
| 2,035 |
|
| Other | 1,479 |
| 1,008 |
| 3,967 |
| 2,975 |
|
| Total other expenses | 19,535 |
| 17,935 |
| 50,164 |
| 46,853 |
|
| | | | | |
| INCOME BEFORE ASSESSMENTS | 55,024 |
| 53,584 |
| 165,402 |
| 133,784 |
|
| | | | | |
| Affordable Housing Program | 5,510 |
| 5,361 |
| 16,554 |
| 13,385 |
|
| | | | | |
| NET INCOME | $ | 49,514 |
| $ | 48,223 |
| $ | 148,848 |
| $ | 120,399 |
|
|
| | | | | | | | | | | | |
| 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 | |
| | | 03/31/2021 | 03/31/2020 | |
| Net income | | | $ | 43,906 | | $ | 11,832 | | |
| | | | | |
| Other comprehensive income (loss): | | | | | |
| Net unrealized gains (losses) on available-for-sale securities | | | 29,234 | | (94,131) | | |
| | | | | |
| Defined benefit pension plan | | | 72 | | 26 | | |
| Total other comprehensive income (loss) | | | 29,306 | | (94,105) | | |
| | | | | |
| TOTAL COMPREHENSIVE INCOME (LOSS) | | | $ | 73,212 | | $ | (82,273) | | |
The accompanying notes are an integral part of these financial statements.
10
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 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 |
|
| Comprehensive income | | | | | | | 96,319 |
| 24,080 |
| 120,399 |
| 12,429 |
| 132,828 |
|
| Proceeds from issuance of capital stock | 25 |
| 2,537 |
| 9,998 |
| 999,834 |
| 10,023 |
| 1,002,371 |
| | | | | 1,002,371 |
|
| Repurchase/redemption of capital stock | (4,158 | ) | (415,853 | ) | (29 | ) | (2,880 | ) | (4,187 | ) | (418,733 | ) | | | | | (418,733 | ) |
| Net reclassification of shares to mandatorily redeemable capital stock | (244 | ) | (24,408 | ) | (4,750 | ) | (475,037 | ) | (4,994 | ) | (499,445 | ) | | | | | (499,445 | ) |
| Net transfer of shares between Class A and Class B | 4,170 |
| 417,025 |
| (4,170 | ) | (417,025 | ) | — |
| — |
| | | | | — |
|
| Dividends on capital stock (Class A - 1.0%, Class B - 6.0%): | | | | | | | | | | | |
| Cash payment | | | | | | | (218 | ) | | (218 | ) | | (218 | ) |
| Stock issued | | | 587 |
| 58,734 |
| 587 |
| 58,734 |
| (58,734 | ) | | (58,734 | ) | | — |
|
| 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 |
|
| | | | | | | | | | | | |
| | 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, 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 |
|
| Comprehensive income | | | | | | | 119,078 |
| 29,770 |
| 148,848 |
| 14,889 |
| 163,737 |
|
| Proceeds from issuance of capital stock | 9 |
| 852 |
| 13,268 |
| 1,326,782 |
| 13,277 |
| 1,327,634 |
| | | | | 1,327,634 |
|
| Repurchase/redemption of capital stock | (5,270 | ) | (527,051 | ) | (15 | ) | (1,453 | ) | (5,285 | ) | (528,504 | ) | | | | | (528,504 | ) |
| Net reclassification of shares to mandatorily redeemable capital stock | (161 | ) | (16,075 | ) | (6,104 | ) | (610,433 | ) | (6,265 | ) | (626,508 | ) | | | | | (626,508 | ) |
| Net transfer of shares between Class A and Class B | 5,531 |
| 553,127 |
| (5,531 | ) | (553,127 | ) | — |
| — |
| | | | | — |
|
| Dividends on capital stock (Class A - 1.1%, Class B - 6.5%): | | | | |
|
|
|
| | | | | |
|
| Cash payment | | | | |
|
|
|
| (199 | ) | | (199 | ) | | (199 | ) |
| Stock issued | | | 677 |
| 67,704 |
| 677 |
| 67,704 |
| (67,704 | ) | | (67,704 | ) | | — |
|
| 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 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) | | 0 | | (6,123) | | | (6,123) | |
| Comprehensive income | | | | | | | 9,465 | | 2,367 | | 11,832 | | (94,105) | | (82,273) | |
| Proceeds from issuance of capital stock | 0 | | 47 | | 2,547 | | 254,704 | | 2,547 | | 254,751 | | | | | | 254,751 | |
| Repurchase/redemption of capital stock | 0 | | 0 | | (384) | | (38,437) | | (384) | | (38,437) | | | | | | (38,437) | |
| Net reclassification of shares to mandatorily redeemable capital stock | (1,925) | | (192,560) | | (127) | | (12,750) | | (2,052) | | (205,310) | | | | | | (205,310) | |
| Net transfer of shares between Class A and Class B | 1,933 | | 193,307 | | (1,933) | | (193,307) | | 0 | | 0 | | | | | | 0 | |
| | | | | | | | | | | |
| Dividends on capital stock (Class A - 2.3%, Class B - 7.2%): | | | | | | | | | | | |
| Cash payment | | | | | | | (70) | | | (70) | | | (70) | |
| Stock issued | | | 248 | | 24,836 | | 248 | | 24,836 | | (24,836) | | | (24,836) | | | 0 | |
| 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 | |
| | | | | | | | | | | |
| 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, 2020 | 4,122 | | $ | 412,225 | | 11,618 | | $ | 1,161,779 | | 15,740 | | $ | 1,574,004 | | $ | 793,331 | | $ | 258,124 | | $ | 1,051,455 | | $ | 42,308 | | $ | 2,667,767 | |
| | | | | | | | | | | |
| Comprehensive income | | | | | | | 35,125 | | 8,781 | | 43,906 | | 29,306 | | 73,212 | |
| Proceeds from issuance of capital stock | 5 | | 500 | | 4,614 | | 461,427 | | 4,619 | | 461,927 | | | | | | 461,927 | |
| Repurchase/redemption of capital stock | (1,331) | | (133,115) | | (204) | | (20,431) | | (1,535) | | (153,546) | | | | | | (153,546) | |
| Net reclassification of shares to mandatorily redeemable capital stock | (3,156) | | (315,648) | | (426) | | (42,595) | | (3,582) | | (358,243) | | | | | | (358,243) | |
| Net transfer of shares between Class A and Class B | 4,122 | | 412,234 | | (4,122) | | (412,234) | | 0 | | 0 | | | | | | 0 | |
| | | | | | | | | | | |
| Dividends on capital stock (Class A - 0.3%, Class B - 5.2%): | | | | | | | | | | | |
| Cash payment | | | | | | | (64) | | | (64) | | | (64) | |
| Stock issued | | | 162 | | 16,223 | | 162 | | 16,223 | | (16,223) | | | (16,223) | | | 0 | |
| Balance at March 31, 2021 | 3,762 | | $ | 376,196 | | 11,642 | | $ | 1,164,169 | | 15,404 | | $ | 1,540,365 | | $ | 812,169 | | $ | 266,905 | | $ | 1,079,074 | | $ | 71,614 | | $ | 2,691,053 | |
1 Putable
The accompanying notes are an integral part of these financial statements.
11
|
| | | | | | |
| 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 CASH FLOWS - Unaudited | | | |
| (In thousands) | | | |
| |
| | | |
| Three Months Ended | |
| 03/31/2021 | 03/31/2020 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net income | $ | 43,906 | | $ | 11,832 | | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Depreciation and amortization: | | | |
| Premiums and discounts on consolidated obligations, net | (4,487) | | 8,290 | | |
| Concessions on consolidated obligations | 2,220 | | 6,688 | | |
| Premiums and discounts on investments, net | 4,713 | | 5,312 | | |
| Premiums, discounts and commitment fees on advances, net | (1,264) | | (334) | | |
| Premiums, discounts and deferred loan costs on mortgage loans, net | 16,696 | | 9,088 | | |
| Fair value adjustments on hedged assets or liabilities | 720 | | 1,240 | | |
| Premises, software and equipment | 823 | | 822 | | |
| Other | 72 | | 26 | | |
| Provision (reversal) for credit losses on mortgage loans | (14) | | (736) | | |
| Non-cash interest on mandatorily redeemable capital stock | 8 | | 24 | | |
| Net realized (gains) losses on sale of available-for-sale securities | 0 | | (1,523) | | |
| | | |
| | | |
| | | |
| | | |
| Other adjustments, net | (100) | | (20) | | |
| Net (gains) losses on trading securities | 26,747 | | (94,389) | | |
| Net change in derivatives and hedging activities | 160,428 | | (288,814) | | |
| (Increase) decrease in accrued interest receivable | 4,782 | | 237 | | |
| Change in net accrued interest included in derivative assets | (6,129) | | 7,760 | | |
| (Increase) decrease in other assets | 968 | | 1,885 | | |
| Increase (decrease) in accrued interest payable | (496) | | (29,957) | | |
| Change in net accrued interest included in derivative liabilities | (2,340) | | (549) | | |
| Increase (decrease) in Affordable Housing Program liability | 1,755 | | 260 | | |
| Increase (decrease) in other liabilities | (4,263) | | (6,121) | | |
| Total adjustments | 200,839 | | (380,811) | | |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 244,745 | | (368,979) | | |
| | | |
The accompanying notes are an integral part of these financial statements.
12
| | | FEDERAL HOME LOAN BANK OF TOPEKA | | FEDERAL HOME LOAN BANK OF TOPEKA | | |
| STATEMENTS OF CASH FLOWS - Unaudited | | STATEMENTS OF CASH FLOWS - Unaudited | | |
| (In thousands) | | (In thousands) | | |
| | Nine Months Ended | |
| | 09/30/2017 | 09/30/2016 | |
| | | Three Months Ended | |
| | | 03/31/2021 | 03/31/2020 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| Net (increase) decrease in interest-bearing deposits | $ | 110,278 |
| $ | (292,718 | ) | Net (increase) decrease in interest-bearing deposits | $ | 299,341 | | $ | (582,401) | | |
| Net (increase) decrease in securities purchased under resale agreements | (195,589 | ) | 615,000 |
| Net (increase) decrease in securities purchased under resale agreements | 900,000 | | 2,050,000 | | |
| Net (increase) decrease in Federal funds sold | 1,033,000 |
| 750,000 |
| Net (increase) decrease in Federal funds sold | (2,125,000) | | (805,000) | | |
| 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 | | Proceeds from sale of trading securities | 0 | | 275,186 | | |
| Proceeds from maturities of and principal repayments on trading securities | | Proceeds from maturities of and principal repayments on trading securities | 4,665 | | 53,774 | | |
| Purchases of trading securities | | Purchases of trading securities | (675,000) | | (600,000) | | |
| Proceeds from sale of available-for-sale securities | | Proceeds from sale of available-for-sale securities | 0 | | 289,045 | | |
| Proceeds from maturities of and principal repayments on available-for-sale securities | | Proceeds from maturities of and principal repayments on available-for-sale securities | 503,950 | | 44,055 | | |
| Purchases of available-for-sale securities | | Purchases of available-for-sale securities | (249,922) | | (430,610) | | |
| | Proceeds from maturities of and principal repayments on held-to-maturity securities | | Proceeds from maturities of and principal repayments on held-to-maturity securities | 181,169 | | 228,033 | | |
| | Advances repaid | | Advances repaid | 134,393,793 | | 43,164,893 | | |
| Advances originated | | Advances originated | (134,365,546) | | (44,344,471) | | |
| Principal collected on mortgage loans | 714,847 |
| 783,915 |
| Principal collected on mortgage loans | 1,060,598 | | 502,097 | | |
| Purchases of mortgage loans | (1,147,274 | ) | (962,663 | ) | Purchases of mortgage loans | (542,022) | | (901,214) | | |
| Proceeds from sale of foreclosed assets | 1,888 |
| 3,782 |
| Proceeds from sale of foreclosed assets | 47 | | 281 | | |
| 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 | | Other investing activities | 870 | | 813 | | |
| | Purchases of premises, software and equipment | (20,655 | ) | (5,152 | ) | Purchases of premises, software and equipment | (278) | | (329) | | |
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (4,354,446 | ) | (3,023,402 | ) | NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (613,335) | | (1,055,848) | | |
| | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Net increase (decrease) in deposits | (42,291 | ) | (99,107 | ) | Net increase (decrease) in deposits | 33,284 | | 185,357 | | |
| Net proceeds from issuance of consolidated obligations: | | Net proceeds from issuance of consolidated obligations: | | |
| Discount notes | 701,800,511 |
| 389,032,517 |
| Discount notes | 53,566,824 | | 124,347,336 | | |
| Bonds | 14,266,201 |
| 14,348,306 |
| Bonds | 9,331,771 | | 12,649,550 | | |
| Payments for maturing and retired consolidated obligations: | | Payments for maturing and retired consolidated obligations: | | |
| Discount notes | (702,310,944 | ) | (385,334,143 | ) | Discount notes | (54,376,409) | | (126,259,921) | | |
| Bonds | (9,909,180 | ) | (15,829,890 | ) | Bonds | (12,635,100) | | (10,974,650) | | |
| Net increase (decrease) in other borrowings | 16,500 |
| — |
| |
| | Proceeds from financing derivatives | 1,921 |
| 16,784 |
| Proceeds from financing derivatives | 0 | | 3,470 | | |
| Net interest payments received (paid) for financing derivatives | (18,554 | ) | (50,091 | ) | Net interest payments received (paid) for financing derivatives | (7,086) | | (2,696) | | |
| Proceeds from issuance of capital stock | 1,327,634 |
| 1,002,371 |
| Proceeds from issuance of capital stock | 461,927 | | 254,751 | | |
| Payments for repurchase/redemption of capital stock | (528,504 | ) | (418,733 | ) | Payments for repurchase/redemption of capital stock | (153,546) | | (38,437) | | |
| Payments for repurchase of mandatorily redeemable capital stock | (623,872 | ) | (499,218 | ) | Payments for repurchase of mandatorily redeemable capital stock | (358,290) | | (205,359) | | |
| Cash dividends paid | (199 | ) | (218 | ) | Cash dividends paid | (64) | | (70) | | |
| | NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 3,979,223 |
| 2,168,578 |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (4,136,689) | | (40,669) | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (199,451 | ) | (677,892 | ) | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (4,505,279) | | (1,465,496) | | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 207,254 |
| 682,670 |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 4,570,415 | | 1,917,166 | | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 7,803 |
| $ | 4,778 |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 65,136 | | $ | 451,670 | | |
| | | | | |
The accompanying notes are an integral part of these financial statements.
13
|
| | | | | | |
| FEDERAL HOME LOAN BANK OF TOPEKA | | |
| STATEMENTS OF CASH FLOWS - Unaudited | | |
| (In thousands) | | |
| | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 |
| Supplemental disclosures: | | |
| Interest paid | $ | 372,036 |
| $ | 232,433 |
|
| Affordable Housing Program payments | $ | 7,749 |
| $ | 9,357 |
|
| Net transfers of mortgage loans to other assets | $ | 1,808 |
| $ | 1,596 |
|
| Change in capital expenditures incurred but reserved for construction holdback | $ | 1,025 |
| $ | — |
|
| | | | | | | | | |
| FEDERAL HOME LOAN BANK OF TOPEKA | | | |
| STATEMENTS OF CASH FLOWS - Unaudited | | | |
| (In thousands) | | | |
| |
| | | |
| Three Months Ended | |
| 03/31/2021 | 03/31/2020 | |
| Supplemental disclosures: | | | |
| Interest paid | $ | 53,406 | | $ | 261,222 | | |
| Affordable Housing Program payments | $ | 3,135 | | $ | 1,064 | | |
| Net transfers of mortgage loans to other assets | $ | 183 | | $ | 309 | | |
| | | |
The accompanying notes are an integral part of these financial statements.
14
FEDERAL HOME LOAN BANK OF TOPEKA
Notes to Financial Statements- Unaudited
September 30, 2017March 31, 2021
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, 2016.2020. 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, 201718, 2021 (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.
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: All derivatives are recognized on the Statements of Condition at their fair values (including net accrued interest receivable or payable on the derivatives) and are reported as either derivative assets or derivative liabilities, net of cash collateral, including initial 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, they are classified as an asset and, if negative, they are classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative.
The FHLBank utilizes two Derivative Clearing Organizations (Clearinghouses) for all cleared derivative transactions, LCH.Clearnet LLC and CME Clearing. Effective January 3, 2017, CME Clearing made certain amendments 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.
NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS AND CHANGES IN AND ADOPTIONS OF ACCOUNTING PRINCIPLES
Targeted Improvements to Accounting for Hedging Activities. Reference Rate Reform (Accounting Standards Update (ASU) 2021-01). In August 2017, January 2021,theFinancial Accounting Standards Board (FASB) issued an amendment that refines the scope of Accounting Standards Codification (ASC) 848 and clarifies the guidance issued to simplifyfacilitate the applicationeffects of hedgereference rate reform on financial reporting. The amendment permits entities to elect certain optional expedients and exceptions when accounting guidance in current GAAPfor derivative contracts and to improve the financial reporting ofcertain hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This guidance requires that, 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, 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 riskaffected 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 inrates used for discounting cash flows, attributablecomputing variation margin settlements and calculating price alignment interest in connection with reference rate reform activities. During the fourth quarter of 2020, FHLBank elected applicable optional expedients specific 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 doesdiscounting transition on a retrospective basis. As a result of electing this expedient, discounting transition did not plan on early adoption. This guidance should be applied through a cumulative-effect adjustment directly to retained earnings as of the beginning of the fiscal year of adoption. The FHLBank is in the process of evaluating this guidance and its effect on the FHLBank's financial condition, results of operations and cash flows.
Premium Amortization on Purchased Callable Debt Securities. In March 2017, FASB issued an amendment to shorten the amortization period of any premium on callable debt securities to the first call date instead of over the contractual life of the instrument. 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 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 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. 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. The adoption of this guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations, or cash flows. This guidance was effective immediately for FHLBank and was applied consistently with the optional expedient guidance under ASU 2020-04, described below.
ImprovingFacilitation of the PresentationEffects of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Reference Rate Reform on Financial Reporting (ASU 2020-04). In March 2017,2020, the FASB issued an amendmenttemporary optional guidance to improveease the presentationpotential 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 net periodic pension costdebt securities classified as held-to-maturity. During the second quarter of 2021, FHLBank adopted a provision of ASU 2020-04 which allows a one-time election to sell, transfer, or both sell and net periodic postretirement benefit cost. The amendment requirestransfer debt securities classified as held-to-maturity that reference a rate affected by reference rate reform and that were classified as held-to-maturity before January 1, 2020. See Note 15 - Subsequent Events for additional information related to this transfer. This guidance was effective immediately for FHLBank, and the employer disaggregateamendments may be applied prospectively through December 31, 2022. FHLBank is in the service cost componentprocess of evaluating the guidance 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 be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, which is January 1, 2018 for the FHLBank. This guidance should be applied retrospectively for the presentation of the service cost componentoptional expedients, 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. The adoption of this guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.
Classification of Certain Cash Receipts and Cash Payments. In August 2016, FASB issued amendments to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for the FHLBank for interim and annual periods beginning on January 1, 2018. This guidance should be applied using a retrospective transition method to each period presented. This guidance is not expected to have an impact on the FHLBank's statement of cash flows.
Measurement of Credit Losses on Financial Instruments. In June 2016, 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 guidance is effective for the FHLBank for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. The FHLBank does not plan on early adoption. The guidance should be 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.flows has not yet been determined.
Contingent Put
NOTE 3 – INVESTMENTS
FHLBank's investment portfolio consists of interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, and Call Optionsdebt securities.
Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold: FHLBank invests in Debt Instruments. Ininterest-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 a Nationally Recognized Statistical Ratings Organization (NRSRO). These may differ from internal ratings of the investments, if applicable. As of March 2016, FASB issued amendments31, 2021, approximately 28 percent of these overnight investments were with counterparties not rated by an NRSRO. All transactions with unrated counterparties are secured transactions.
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 resolve current diversitya counterparty. As of March 31, 2021 and December 31, 2020, all investments in practice by clarifying the steps required when assessing whether the economic characteristicsinterest-bearing deposits and risks of call (put) options are clearly and closely relatedFederal funds sold were repaid or expected to be repaid according to the economic characteristicscontractual terms. NaN allowance for credit losses was recorded for these assets as of March 31, 2021 and risksDecember 31, 2020. Carrying values of their debt hosts, which is oneinterest-bearing deposits and Federal funds sold exclude accrued interest receivable of $60,000 and $5,000, respectively, as of March 31, 2021, and $80,000 and $3,000, respectively, as of December 31, 2020.
Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the criteriaunderlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). Based upon the collateral held as security and collateral maintenance provisions with its counterparties, FHLBank determined that 0 allowance for bifurcating an embedded derivative.credit losses was needed for its securities purchased under agreements to resell as of March 31, 2021 and December 31, 2020. The amendments apply to all entities that are issuerscarrying value of or investorssecurities purchased under agreements excludes accrued interest receivable of $3,000 and $6,000 as of March 31, 2021 and December 31, 2020, respectively.
Debt Securities: FHLBank invests in debt instruments (or hybrid financialsecurities, 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 determined to have anot investment quality, other than certain investments targeted at low-income persons or communities and instruments that experienced credit deterioration after their purchase by FHLBank.
FHLBank's 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 adoption of this guidance had no effectsecurities include the following major security types, which are based on the FHLBank's financial condition, results of operations or cash flows.
Leases. In February 2016, FASB issued amendments to lease accounting guidance. Underissuer and 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 impactrisk characteristics of the guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.security:
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▪U.S. Treasury obligations - sovereign debt of the requirement to discloseUnited States;
▪GSE debentures - debentures issued by other FHLBanks, Federal National Mortgage Association (Fannie Mae), Federal Farm Credit Bank and Federal Agricultural Mortgage Corporation. GSE securities are not guaranteed by the methodU.S. government;
▪State or local housing agency obligations - municipal bonds issued by housing finance agencies;
▪U.S. obligation MBS - single-family MBS issued by Government National Mortgage Association (Ginnie Mae), which are guaranteed by the U.S. government; 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,
▪GSE MBS - single-family and the separate presentation of financial assetsmultifamily MBS issued by Fannie Mae 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.Federal Home Loan Mortgage Corporation (Freddie Mac).
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
Trading Securities: Trading securities by major security type as of September 30, 2017March 31, 2021 and December 31, 20162020 are summarized in Table 3.1 (in thousands):
Table 3.1
| | | | | | | | |
| Fair Value |
| 03/31/2021 | 12/31/2020 |
| Non-mortgage-backed securities: | | |
| | |
| Certificates of deposit | $ | 675,031 | | $ | 0 | |
| U.S. Treasury obligations | 1,290,894 | | 1,298,518 | |
GSE debentures | 426,878 | | 431,875 | |
| Non-mortgage-backed securities | 2,392,803 | | 1,730,393 | |
| Mortgage-backed securities: | | |
| | |
| GSE MBS | 874,162 | | 892,983 | |
| Mortgage-backed securities | 874,162 | | 892,983 | |
| TOTAL | $ | 3,266,965 | | $ | 2,623,376 | |
|
| | | | | | |
| | Fair Value |
| | 09/30/2017 | 12/31/2016 |
| Non-mortgage-backed securities: | | |
| Certificates of deposit | $ | 675,027 |
| $ | — |
|
GSE obligations1 | 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 |
|
| |
1
| 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). GSE securities are not guaranteed by the U.S. government. |
| |
2
| Represents single-family MBS issued by Government National Mortgage Association (Ginnie Mae), which are guaranteed by the U.S. government. |
| |
3
| Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac. |
Net gains (losses) on trading securities during the three and nine months ended September 30, 2017March 31, 2021 and 20162020 are shown in Table 3.2 (in thousands):
Table 3.2
| | | | | | | | | | | |
| | | | | |
| | Three Months Ended | |
| | | 03/31/2021 | 03/31/2020 | |
| Net gains (losses) on trading securities held as of March 31, 2021 | | | $ | (26,747) | | $ | 91,805 | | |
| Net gains (losses) on trading securities sold or matured prior to March 31, 2021 | | | 0 | | 2,584 | | |
| NET GAINS (LOSSES) ON TRADING SECURITIES | | | $ | (26,747) | | $ | 94,389 | | |
|
| | | | | | | | | | | | |
| | 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 |
|
Available-for-sale Securities: Available-for-sale securities by major security type as of September 30, 2017March 31, 2021 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 $22,737,000 as of March 31, 2021.
Table 3.3
| | | | | | | | | | | | | | |
| 03/31/2021 |
| Amortized
Cost | Gross
Unrecognized
Gains | Gross
Unrecognized
Losses | Fair
Value |
| Non-mortgage-backed securities: | | | | |
| U.S. Treasury obligations | $ | 3,272,761 | | $ | 4,611 | | $ | (25) | | $ | 3,277,347 | |
| Non-mortgage-backed securities | 3,272,761 | | 4,611 | | (25) | | 3,277,347 | |
| Mortgage-backed securities: | | | | |
| GSE MBS | 3,016,516 | | 71,355 | | (1,511) | | 3,086,360 | |
| Mortgage-backed securities | 3,016,516 | | 71,355 | | (1,511) | | 3,086,360 | |
| TOTAL | $ | 6,289,277 | | $ | 75,966 | | $ | (1,536) | | $ | 6,363,707 | |
| | | | |
|
| | | | | | | | | | | | |
| | 09/30/2017 |
| | Amortized Cost | Gross Unrecognized Gains | Gross Unrecognized Losses | Fair Value |
| Mortgage-backed securities: | | | | |
GSE MBS1 | $ | 1,441,808 |
| $ | 24,420 |
| $ | (1,756 | ) | $ | 1,464,472 |
|
| TOTAL | $ | 1,441,808 |
| $ | 24,420 |
| $ | (1,756 | ) | $ | 1,464,472 |
|
| |
1
| Represents fixed rate multi-family MBS issued by Fannie Mae.
|
Available-for-sale securities by major security type as of December 31, 20162020 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 $26,977,000 as of December 31, 2020.
Table 3.4
| | | | | | | | | | | | | | |
| 12/31/2020 |
| Amortized
Cost | Gross
Unrecognized
Gains | Gross
Unrecognized
Losses | Fair
Value |
| Non-mortgage-backed securities: | | | | |
| U.S. Treasury obligations | $ | 3,541,411 | | $ | 4,931 | | $ | (17) | | $ | 3,546,325 | |
| Non-mortgage-backed securities | 3,541,411 | | 4,931 | | (17) | | 3,546,325 | |
| Mortgage-backed securities: | | | | |
| GSE MBS | 3,154,703 | | 44,724 | | (4,442) | | 3,194,985 | |
| Mortgage-backed securities | 3,154,703 | | 44,724 | | (4,442) | | 3,194,985 | |
| TOTAL | $ | 6,696,114 | | $ | 49,655 | | $ | (4,459) | | $ | 6,741,310 | |
| | | | |
|
| | | | | | | | | | | | |
| | 12/31/2016 |
| | Amortized
Cost | Gross
Unrecognized
Gains | Gross
Unrecognized
Losses | Fair Value |
| Mortgage-backed securities: | | | | |
GSE MBS1 | $ | 1,082,376 |
| $ | 9,396 |
| $ | (51 | ) | $ | 1,091,721 |
|
| TOTAL | $ | 1,082,376 |
| $ | 9,396 |
| $ | (51 | ) | $ | 1,091,721 |
|
| |
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 30, 2017March 31, 2021 (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
| | | | | | | | | | | | | | | | | | | | |
| 03/31/2021 |
| 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 | $ | 249,854 | | $ | (25) | | $ | 0 | | $ | 0 | | $ | 249,854 | | $ | (25) | |
| Non-mortgage-backed securities | 249,854 | | (25) | | 0 | | 0 | | 249,854 | | (25) | |
| Mortgage-backed securities: | | | | | | |
| GSE MBS | 0 | | 0 | | 95,853 | | (1,511) | | 95,853 | | (1,511) | |
| Mortgage-backed securities | 0 | | 0 | | 95,853 | | (1,511) | | 95,853 | | (1,511) | |
| TOTAL | $ | 249,854 | | $ | (25) | | $ | 95,853 | | $ | (1,511) | | $ | 345,707 | | $ | (1,536) | |
|
| | | | | | | | | | | | | | | | | | |
| | 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.
|
Table 3.6 summarizes the available-for-sale securities with unrealized losses as of December 31, 20162020 (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
| | | | | | | | | | | | | | | | | | | | |
| 12/31/2020 |
| 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 | $ | 250,436 | | $ | (17) | | $ | 0 | | $ | 0 | | $ | 250,436 | | $ | (17) | |
| Non-mortgage-backed securities | 250,436 | | (17) | | 0 | | 0 | | 250,436 | | (17) | |
| Mortgage-backed securities: | | | | | | |
| GSE MBS | 0 | | 0 | | 363,724 | | (4,442) | | 363,724 | | (4,442) | |
| Mortgage-backed securities | 0 | | 0 | | 363,724 | | (4,442) | | 363,724 | | (4,442) | |
| TOTAL | $ | 250,436 | | $ | (17) | | $ | 363,724 | | $ | (4,442) | | $ | 614,160 | | $ | (4,459) | |
|
| | | | | | | | | | | | | | | | | | |
| | 12/31/2016 |
| | 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 | $ | — |
| $ | — |
| $ | 33,509 |
| $ | (51 | ) | $ | 33,509 |
| $ | (51 | ) |
| TOTAL TEMPORARILY IMPAIRED SECURITIES | $ | — |
| $ | — |
| $ | 33,509 |
| $ | (51 | ) | $ | 33,509 |
| $ | (51 | ) |
| |
1
| Represents fixed rate multi-family MBS issued by Fannie Mae.
|
AllThe amortized cost and fair values of available-for-sale securities by contractual maturity as of March 31, 2021 and December 31, 2020 are GSE MBS and as such do not have a single maturity date. The expectedshown in Table 3.7 (in thousands). Expected maturities of these securitiesMBS 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
| | | | | | | | | | | | | | |
| 03/31/2021 | 12/31/2020 |
| Amortized
Cost | Fair
Value | Amortized
Cost | Fair
Value |
| Non-mortgage-backed securities: | | | | |
| Due in one year or less | $ | 1,463,607 | | $ | 1,464,439 | | $ | 1,767,608 | | $ | 1,768,588 | |
| Due after one year through five years | 1,809,154 | | 1,812,908 | | 1,773,803 | | 1,777,737 | |
| Due after five years through ten years | 0 | | 0 | | 0 | | 0 | |
| Due after ten years | 0 | | 0 | | 0 | | 0 | |
| Non-mortgage-backed securities | 3,272,761 | | 3,277,347 | | 3,541,411 | | 3,546,325 | |
| Mortgage-backed securities | 3,016,516 | | 3,086,360 | | 3,154,703 | | 3,194,985 | |
| TOTAL | $ | 6,289,277�� | | $ | 6,363,707 | | $ | 6,696,114 | | $ | 6,741,310 | |
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 months ended March 31, 2020 (in thousands). There were 0 sales of available-for-sale securities during the three months ended March 31, 2021.
Table 3.8
| | | | | | | | | |
| | | | | |
| | | Three Months Ended | |
| | | | 03/31/2020 | |
| 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 30, 2017March 31, 2021 are summarized in Table 3.73.9 (in thousands):. Carrying value equals amortized cost, which includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivable of $867,000 as of March 31, 2021.
Table 3.73.9
| | | | | | | | | | | | | | |
| 03/31/2021 |
| Amortized
Cost | Gross
Unrecognized
Gains | Gross
Unrecognized
Losses | Fair
Value |
| Non-mortgage-backed securities: | | | | |
| State or local housing agency obligations | $ | 78,960 | | $ | 0 | | $ | (2,970) | | $ | 75,990 | |
| Non-mortgage-backed securities | 78,960 | | 0 | | (2,970) | | 75,990 | |
| Mortgage-backed securities: | | | | |
| U.S. obligation MBS | 65,469 | | 178 | | (46) | | 65,601 | |
| GSE MBS | 2,422,746 | | 10,639 | | (3,187) | | 2,430,198 | |
| Mortgage-backed securities | 2,488,215 | | 10,817 | | (3,233) | | 2,495,799 | |
| TOTAL | $ | 2,567,175 | | $ | 10,817 | | $ | (6,203) | | $ | 2,571,789 | |
|
| | | | | | | | | | | | | | | | | | |
| | 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. |
Held-to-maturity securities by major security type as of December 31, 20162020 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, 20173.10 (in thousands). The unrealized losses are aggregated by major security typeCarrying value equals amortized cost, which includes adjustments made to the cost basis of an investment for accretion and lengthamortization, 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$930,000 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.2020.
Table 3.10
| | | | | | | | | | | | | | |
| 12/31/2020 |
| Amortized
Cost | Gross
Unrecognized
Gains | Gross
Unrecognized
Losses | Fair
Value |
| Non-mortgage-backed securities: | | | | |
| State or local housing agency obligations | $ | 78,960 | | $ | 0 | | $ | (3,290) | | $ | 75,670 | |
| Non-mortgage-backed securities | 78,960 | | 0 | | (3,290) | | 75,670 | |
| Mortgage-backed securities: | | | | |
| U.S. obligation MBS | 70,814 | | 135 | | (59) | | 70,890 | |
| GSE MBS | 2,597,218 | | 10,208 | | (3,870) | | 2,603,556 | |
| Mortgage-backed securities | 2,668,032 | | 10,343 | | (3,929) | | 2,674,446 | |
| TOTAL | $ | 2,746,992 | | $ | 10,343 | | $ | (7,219) | | $ | 2,750,116 | |
|
| | | | | | | | | | | | | | | | | | |
| | 12/31/2016 |
| | 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 | $ | — |
| $ | — |
| $ | 34,348 |
| $ | (5,707 | ) | $ | 34,348 |
| $ | (5,707 | ) |
| Non-mortgage-backed securities | — |
| — |
| 34,348 |
| (5,707 | ) | 34,348 |
| (5,707 | ) |
| 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 | ) |
| Mortgage-backed securities | 1,099,282 |
| (2,615 | ) | 2,147,376 |
| (25,923 | ) | 3,246,658 |
| (28,538 | ) |
| TOTAL TEMPORARILY IMPAIRED SECURITIES | $ | 1,099,282 |
| $ | (2,615 | ) | $ | 2,181,724 |
| $ | (31,630 | ) | $ | 3,281,006 |
| $ | (34,245 | ) |
| |
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 30, 2017March 31, 2021 and December 31, 20162020 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
| | | | | | | | | | | | | | | | |
| 03/31/2021 | 12/31/2020 |
| Amortized
Cost | | Fair
Value | Amortized
Cost | | Fair
Value |
| Non-mortgage-backed securities: | | | | | | |
| Due in one year or less | $ | 0 | | | $ | 0 | | $ | 0 | | | $ | 0 | |
| Due after one year through five years | 0 | | | 0 | | 0 | | | 0 | |
| Due after five years through ten years | 48,960 | | | 47,357 | | 48,960 | | | 47,280 | |
| Due after ten years | 30,000 | | | 28,633 | | 30,000 | | | 28,390 | |
| Non-mortgage-backed securities | 78,960 | | | 75,990 | | 78,960 | | | 75,670 | |
| Mortgage-backed securities | 2,488,215 | | | 2,495,799 | | 2,668,032 | | | 2,674,446 | |
| TOTAL | $ | 2,567,175 | | | $ | 2,571,789 | | $ | 2,746,992 | | | $ | 2,750,116 | |
|
| | | | | | | | | | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| | Amortized Cost | 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 |
|
| Non-mortgage-backed securities | 94,625 |
| 94,625 |
| 89,303 |
| 105,780 |
| 105,780 |
| 100,171 |
|
| Mortgage-backed securities | 4,650,351 |
| 4,645,907 |
| 4,650,928 |
| 4,402,285 |
| 4,396,444 |
| 4,387,081 |
|
| TOTAL | $ | 4,744,976 |
| $ | 4,740,532 |
| $ | 4,740,231 |
| $ | 4,508,065 |
| $ | 4,502,224 |
| $ | 4,487,252 |
|
Other-than-temporary Impairment: For the 21 outstanding private-label residential MBS with OTTI during the lives of the securities, the FHLBank’s reported balances as of September 30, 2017 are presented in Table 3.12 (in thousands):
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 |
|
Table 3.13 presents a roll-forward of OTTI activityAllowance for the threeCredit Losses on Available-for-Sale and nine months ended September 30, 2017 and 2016 related to credit losses recognized in earnings (in thousands):
Table 3.13
|
| | | | | | | | | | | | |
| | 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.
|
| |
2
| 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, the fair value of a portion of the FHLBank'sHeld-to-Maturity Securities: FHLBank evaluates available-for-sale and held-to-maturity MBSinvestment securities for credit losses on a quarterly basis. As of March 31, 2021 and December 31, 2020, FHLBank did 0t recognize a provision for credit losses associated with available-for-sale investments or held-to-maturity investments.
Although certain available-for-sale securities were below the amortized cost of the securities due to interest rate volatility and/or illiquidity. However, the decline in fair value ofan unrealized loss position, these securities islosses are considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining securities in unrecognized loss positions andthese available-for-sale investment securities. FHLBank neither intends to sell these securities nor isconsiders it more likely than not that the FHLBankit will be required to sell these securities before its anticipated recovery of theeach security's remaining amortized cost basis. For stateFurther, FHLBank has not experienced any payment defaults on the instruments, and local housing agency obligations, the FHLBank determined that all of these securities carry an implicit or explicit government guarantee.
FHLBank's held-to-maturity 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 gross unrealized losses on these bonds were temporary becauseinstruments; and (3) in the strengthcase of U.S. obligations or GSE debentures, carry an implicit or explicit government guarantee such that FHLBank considers the underlying collateral and credit enhancements was sufficientrisk 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 30, 2017March 31, 2021 and December 31, 2016, the2020, FHLBank had advances outstanding at interest rates ranging from 0.660.11 percent to 7.41 percent and 0.46 percent to 7.41 percent, respectively.7.20 percent. Table 4.1 presents advances summarized by year of contractual maturityredemption term as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollar amounts in thousands): . Carrying amounts exclude accrued interest receivable of $14,046,000 and $15,588,000 as of March 31, 2021 and December 31, 2020, respectively.
Table 4.1
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| Redemption Term | Amount | Weighted Average Interest Rate | Amount | Weighted Average Interest Rate |
| Due in one year or less | $ | 12,249,076 | | 0.39 | % | $ | 12,540,970 | | 0.45 | % |
| Due after one year through two years | 1,765,249 | | 0.99 | | 1,591,133 | | 1.20 | |
| Due after two years through three years | 1,375,162 | | 1.61 | | 1,268,307 | | 1.73 | |
| Due after three years through four years | 1,564,619 | | 1.37 | | 1,305,047 | | 1.47 | |
| Due after four years through five years | 816,388 | | 1.57 | | 1,033,221 | | 1.40 | |
| Thereafter | 3,177,500 | | 1.84 | | 3,233,763 | | 1.90 | |
| Total par value | 20,947,994 | | 0.86 | % | 20,972,441 | | 0.92 | % |
| Discounts | (20,559) | | | (18,071) | | |
| Hedging adjustments | 140,931 | | | 272,453 | | |
| TOTAL | $ | 21,068,366 | | | $ | 21,226,823 | | |
|
| | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Year of Contractual Maturity | 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 | % |
| Due after one year through two years | 1,715,493 |
| 1.66 |
| 2,019,260 |
| 1.96 |
|
| Due after two years through three years | 915,753 |
| 2.01 |
| 1,073,881 |
| 1.47 |
|
| Due after three years through four years | 1,136,194 |
| 2.09 |
| 781,339 |
| 1.96 |
|
| Due after four years through five years | 925,576 |
| 1.93 |
| 848,112 |
| 2.15 |
|
| Thereafter | 7,607,138 |
| 1.58 |
| 6,636,740 |
| 1.19 |
|
| Total par value | 28,317,716 |
| 1.52 | % | 23,960,515 |
| 1.24 | % |
| Discounts | (9,724 | ) | | (13,977 | ) | |
| Hedging adjustments | 11,234 |
| | 39,297 |
| |
| TOTAL | $ | 28,319,226 |
| | $ | 23,985,835 |
| |
The FHLBank’s outstanding 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. AsIn October 2020, FHLBank placed a moratorium on the issuance of September 30, 2017 and December 31, 2016, the FHLBank had convertible advances outstanding totaling $884,950,000 and $1,147,392,000, respectively.advances; however, $1,596,200,000 remain outstanding.
Table 4.2 presents advances summarized by contractual maturityredemption term or next call date (for callable advances) and by contractual maturityredemption term or next conversion date (for convertible advances) as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 4.2
| | | | | | | | | | | | | | |
| | Redemption Term
or Next Call Date | Redemption Term
or Next Conversion Date |
| Redemption Term | 03/31/2021 | 12/31/2020 | 03/31/2021 | 12/31/2020 |
| Due in one year or less | $ | 13,800,371 | | $ | 14,271,213 | | $ | 13,218,626 | | $ | 13,563,370 | |
| Due after one year through two years | 1,372,487 | | 1,161,239 | | 2,106,749 | | 1,861,133 | |
| Due after two years through three years | 1,085,493 | | 981,503 | | 1,516,912 | | 1,489,057 | |
| Due after three years through four years | 984,915 | | 773,881 | | 1,660,019 | | 1,400,447 | |
| Due after four years through five years | 767,083 | | 796,495 | | 792,038 | | 1,008,871 | |
| Thereafter | 2,937,645 | | 2,988,110 | | 1,653,650 | | 1,649,563 | |
| TOTAL PAR VALUE | $ | 20,947,994 | | $ | 20,972,441 | | $ | 20,947,994 | | $ | 20,972,441 | |
|
| | | | | | | | | | | | |
| | Year of Contractual Maturity or Next Call Date | Year of Contractual Maturity or Next Conversion Date |
| Redemption Term | 09/30/2017 | 12/31/2016 | 09/30/2017 | 12/31/2016 |
| Due in one year or less | $ | 22,938,453 |
| $ | 18,411,727 |
| $ | 16,121,062 |
| $ | 12,897,983 |
|
| Due after one year through two years | 1,381,255 |
| 1,752,403 |
| 1,746,493 |
| 1,800,460 |
|
| Due after two years through three years | 788,426 |
| 750,126 |
| 1,025,853 |
| 1,168,381 |
|
| Due after three years through four years | 951,274 |
| 666,059 |
| 1,245,744 |
| 808,139 |
|
| Due after four years through five years | 523,503 |
| 755,753 |
| 1,161,576 |
| 945,462 |
|
| Thereafter | 1,734,805 |
| 1,624,447 |
| 7,016,988 |
| 6,340,090 |
|
| TOTAL PAR VALUE | $ | 28,317,716 |
| $ | 23,960,515 |
| $ | 28,317,716 |
| $ | 23,960,515 |
|
Interest Rate Payment Terms: Table 4.3 details additional interest rate payment terms for advances as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 4.3
| | | | | | | | |
| Redemption Term | 03/31/2021 | 12/31/2020 |
| Fixed rate: | | |
| Due in one year or less | $ | 10,489,576 | | $ | 9,838,379 | |
| Due after one year | 6,972,406 | | 6,663,459 | |
| Total fixed rate | 17,461,982 | | 16,501,838 | |
| Variable rate: | | |
| Due in one year or less | 1,759,500 | | 2,702,591 | |
| Due after one year | 1,726,512 | | 1,768,012 | |
| Total variable rate | 3,486,012 | | 4,470,603 | |
| TOTAL PAR VALUE | $ | 20,947,994 | | $ | 20,972,441 | |
|
| | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Fixed rate: | | |
| Due in one year or less | $ | 2,139,820 |
| $ | 2,400,382 |
|
| Due after one year | 5,288,792 |
| 5,589,805 |
|
| Total fixed rate | 7,428,612 |
| 7,990,187 |
|
| Variable rate: | |
| |
|
| Due in one year or less | 13,877,742 |
| 10,200,801 |
|
| Due after one year | 7,011,362 |
| 5,769,527 |
|
| Total variable rate | 20,889,104 |
| 15,970,328 |
|
| TOTAL PAR VALUE | $ | 28,317,716 |
| $ | 23,960,515 |
|
Credit Risk Exposure and Security Terms: FHLBank manages its credit exposure to advances through an integrated approach that includes establishing a credit limit for 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. 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 March 31, 2021 and December 31, 2020, FHLBank had rights to collateral on a borrower-by-borrower basis with an estimated value greater than its outstanding advances.
See Note 6 for information
FHLBank continues to evaluate and make changes to its collateral guidelines, as necessary, based on current market conditions. As of March 31, 2021 and December 31, 2020, 0 advances were past due, on non-accrual status, or considered impaired. In addition, there were 0 troubled debt restructurings related to advances during the FHLBank’sthree months ended March 31, 2021 and 2020.
Based on the collateral held as security, FHLBank's credit riskextension and collateral policies, and repayment history on advances, no losses are expected on advances as of March 31, 2021 and December 31, 2020, and therefore 0 allowance for credit losses.losses on advances was recorded.
NOTE 5 – MORTGAGE LOANS
TheMortgage loans held for portfolio consist of loans obtained through the MPF Program involves the FHLBank investing inand are either conventional mortgage loans which have been fundedor 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)Participating Financial Institutions (PFI). 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 retainedPFIs or soldare 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 30, 2017March 31, 2021 and December 31, 20162020 on mortgage loans held for portfolio (in thousands):. Mortgage loans held for portfolio excludes accrued interest receivable of $40,935,000 and $44,101,000 as of March 31, 2021 and December 31, 2020, respectively.
Table 5.1
| | | | 09/30/2017 | 12/31/2016 | | 03/31/2021 | 12/31/2020 |
| Real estate: | | Real estate: | |
Fixed rate, medium-term1, single-family mortgages | $ | 1,287,124 |
| $ | 1,353,938 |
| Fixed rate, medium-term1, single-family mortgages | $ | 1,406,731 | | $ | 1,419,725 | |
| Fixed rate, long-term, single-family mortgages | 5,659,589 |
| 5,182,103 |
| Fixed rate, long-term, single-family mortgages | 7,153,375 | | 7,666,912 | |
| Total unpaid principal balance | 6,946,713 |
| 6,536,041 |
| Total unpaid principal balance | 8,560,106 | | 9,086,637 | |
| Premiums | 106,716 |
| 103,665 |
| Premiums | 118,967 | | 128,231 | |
| Discounts | (2,484 | ) | (2,276 | ) | Discounts | (1,732) | | (1,865) | |
| Deferred loan costs, net | 294 |
| 387 |
| Deferred loan costs, net | 110 | | 123 | |
| Other deferred fees | (63 | ) | (85 | ) | Other deferred fees | (23) | | (25) | |
| Hedging adjustments | 5,471 |
| 4,667 |
| Hedging adjustments | (5,387) | | (2,717) | |
| Total before Allowance for Credit Losses on Mortgage Loans | 7,056,647 |
| 6,642,399 |
| |
| Allowance for Credit Losses on Mortgage Loans | (1,408 | ) | (1,674 | ) | |
| Total before allowance for credit losses on mortgage loans | | Total before allowance for credit losses on mortgage loans | 8,672,041 | | 9,210,384 | |
| Allowance for credit losses on mortgage loans | | Allowance for credit losses on mortgage loans | (4,956) | | (5,177) | |
| MORTGAGE LOANS HELD FOR PORTFOLIO, NET | $ | 7,055,239 |
| $ | 6,640,725 |
| MORTGAGE LOANS HELD FOR PORTFOLIO, NET | $ | 8,667,085 | | $ | 9,205,207 | |
| |
1
| Medium-term defined as a term of 15 years or less at origination. |
1 Medium-term defined as a term of 15 years or less at origination.
Table 5.2 presents information as of September 30, 2017March 31, 2021 and December 31, 20162020 on the outstanding unpaid principal balance (UPB) of mortgage loans held for portfolio (in thousands):
Table 5.2
| | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| Conventional loans | $ | 8,073,627 | | $ | 8,563,349 | |
| Government-guaranteed or -insured loans | 486,479 | | 523,288 | |
| TOTAL UNPAID PRINCIPAL BALANCE | $ | 8,560,106 | | $ | 9,086,637 | |
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.
|
| | | | | | |
| | 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 6Table 5.3
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 03/31/2021 |
| Conventional Loans | Government
Loans | Total |
| Origination Year | Subtotal |
| | Prior to 2017 | 2017 | 2018 | 2019 | 2020 | 2021 |
Amortized Cost:1 | | | | | | | | | |
| Past due 30-59 days delinquent | $ | 24,607 | | $ | 8,129 | | $ | 7,877 | | $ | 17,709 | | $ | 6,009 | | $ | 0 | | $ | 64,331 | | $ | 12,015 | | $ | 76,346 | |
| Past due 60-89 days delinquent | 6,009 | | 2,795 | | 1,482 | | 6,060 | | 1,461 | | 0 | | 17,807 | | 4,957 | | 22,764 | |
| Past due 90 days or more delinquent | 23,859 | | 11,871 | | 18,052 | | 32,652 | | 5,634 | | 0 | | 92,068 | | 22,770 | | 114,838 | |
| Total past due | 54,475 | | 22,795 | | 27,411 | | 56,421 | | 13,104 | | 0 | | 174,206 | | 39,742 | | 213,948 | |
| Total current loans | 2,287,398 | | 584,051 | | 552,163 | | 1,905,897 | | 2,169,241 | | 505,950 | | 8,004,700 | | 453,393 | | 8,458,093 | |
| Total mortgage loans | $ | 2,341,873 | | $ | 606,846 | | $ | 579,574 | | $ | 1,962,318 | | $ | 2,182,345 | | $ | 505,950 | | $ | 8,178,906 | | $ | 493,135 | | $ | 8,672,041 | |
| | | | | | | | | |
| Other delinquency statistics: | | | | | | | | | |
In process of foreclosure2 | | | | | | | $ | 1,733 | | $ | 1,106 | | $ | 2,839 | |
Serious delinquency rate3 | | | | | | | 1.1 | % | 4.6 | % | 1.3 | % |
| Past due 90 days or more and still accruing interest | | | | | | | $ | 0 | | $ | 22,770 | | $ | 22,770 | |
Loans on non-accrual status4,5 | | | | | | | $ | 102,771 | | $ | 0 | | $ | 102,771 | |
1 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 informationthe portfolio class.
4 Loans on non-accrual status include $1,264,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which FHLBank, for economic or legal reasons related to the FHLBank’s credit risk ondebtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.
5 Includes $66,992,000 of conventional mortgage loans andon non-accrual status that did not have an associated allowance for credit losses.
NOTE 6 – ALLOWANCE FOR CREDIT LOSSES
The FHLBank has established an allowance methodologyTable 5.4 presents the payment status based on recorded investment as well as other delinquency statistics for each of its portfolio segments: credit products (advances, letters of credit and other extensions of credit to borrowers); governmentFHLBank’s mortgage loans heldas of December 31, 2020 (dollar amounts in thousands):
Table 5.4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2020 |
| 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 | $ | 16,546 | | $ | 3,932 | | $ | 7,879 | | $ | 6,695 | | $ | 11,904 | | $ | 3,712 | | $ | 50,668 | | $ | 10,485 | | $ | 61,153 | |
| Past due 60-89 days delinquent | 7,680 | | 1,064 | | 2,354 | | 2,805 | | 4,438 | | 1,278 | | 19,619 | | 4,895 | | 24,514 | |
| Past due 90 days or more delinquent | 20,518 | | 3,868 | | 13,325 | | 20,969 | | 43,268 | | 5,839 | | 107,787 | | 22,691 | | 130,478 | |
| Total past due | 44,744 | | 8,864 | | 23,558 | | 30,469 | | 59,610 | | 10,829 | | 178,074 | | 38,071 | | 216,145 | |
| Total current loans | 1,942,655 | | 632,604 | | 677,871 | | 665,791 | | 2,303,031 | | 2,279,995 | | 8,501,947 | | 492,292 | | 8,994,239 | |
| Total mortgage loans | $ | 1,987,399 | | $ | 641,468 | | $ | 701,429 | | $ | 696,260 | | $ | 2,362,641 | | $ | 2,290,824 | | $ | 8,680,021 | | $ | 530,363 | | $ | 9,210,384 | |
| | | | | | | | | |
| Other delinquency statistics: | | | | | | | | | |
In process of foreclosure2 | | | | | | | $ | 1,785 | | $ | 1,563 | | $ | 3,348 | |
Serious delinquency rate3 | | | | | | | 1.3 | % | 4.3 | % | 1.4 | % |
| Past due 90 days or more and still accruing interest | | | | | | | $ | 0 | | $ | 22,691 | | $ | 22,691 | |
Loans on non-accrual status4,5 | | | | | | | $ | 117,584 | | $ | 0 | | $ | 117,584 | |
1 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 portfolio;the portfolio class.
4 Loans on non-accrual status include $1,311,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which 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.
5 Includes $69,192,000 of conventional mortgage loans heldon non-accrual status that did not have an associated allowance for portfolio;credit losses.
Allowance for Credit Losses:
Conventional Mortgage Loans: Conventional loans are evaluated collectively when similar risk characteristics exist. 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 life of the 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 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 financing lease receivable; term Federal funds sold; and term securities purchased under agreements to resell. Based on management's analysescharge-off of each portfolio segment, the loan balance if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.
FHLBank has only established an allowance for credit losses on its conventional mortgage loans held for portfolio.
Roll-forward of Allowance for Credit Losses: Table 6.15.5 presents a roll-forward of the allowance for credit losses on mortgage loans for the three and nine months ended September 30, 2017 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 as of September 30, 2017 (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 adjustmentsMarch 31, 2021 and direct write-downs. The recorded investment is not net of any valuation allowance.2020.
Table 6.1
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| |
1
| The recorded investment for credit products includes only advances. The recorded investment for all other credit products is insignificant. |
Table 6.2 presents5.5
| | | | | | | | | | | |
| | | | | |
| | Three Months Ended | |
| Conventional Loans | | | 03/31/2021 | 03/31/2020 | |
| Balance, beginning of the period | | | $ | 5,177 | | $ | 985 | | |
| Adjustment for cumulative effect of accounting change | | | 0 | | 6,123 | | |
| Net (charge-offs) recoveries | | | (207) | | 96 | | |
| Provision (reversal) for credit losses | | | (14) | | (736) | | |
| Balance, end of the period | | | $ | 4,956 | | $ | 6,468 | | |
Government-Guaranteed or -Insured Mortgage Loans: FHLBank invests in fixed-rate mortgage loans 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 roll-forwardguarantee from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-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, 0 allowance for credit losses for the three and nine months ended September 30, 2016 as well as the method used to evaluate impairment relating to all portfolio segments regardless of whethergovernment-guaranteed or not an estimated credit loss has been-insured mortgage loans was recorded as of September 30, 2016 (in thousands):
Table 6.2
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| |
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. |
| |
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 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 the key credit quality indicators for all of the FHLBank’s portfolio segments as of DecemberMarch 31, 2016 (dollar amounts in thousands):
Table 6.4
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| |
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 Loans: Table 6.5 presents the recorded investment, UPB, and related allowance of impaired conventional mortgage loans individually assessed for impairment as of September 30, 20172021 and December 31, 2016 (in thousands):
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 presents2020. Furthermore, 0ne of these mortgage loans has been placed on non-accrual status because of the average recorded investment and related interest income recognizedU.S. government guarantee or insurance on these individually evaluated impaired loans duringand the three and nine months ended September 30, 2017 and 2016 (in thousands):contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.
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 7.16.1 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 30, 2017March 31, 2021 and December 31, 20162020 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash collateral.
Table 6.1
| | | | | | | | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| | Notional
Amount | Derivative
Assets | Derivative
Liabilities | Notional
Amount | Derivative
Assets | Derivative
Liabilities |
| Derivatives designated as hedging instruments: | | | | | | |
| Interest rate swaps | $ | 17,054,390 | | $ | 18,578 | | $ | 173,294 | | $ | 15,862,207 | | $ | 18,427 | | $ | 261,431 | |
| Total derivatives designated as hedging relationships | 17,054,390 | | 18,578 | | 173,294 | | 15,862,207 | | 18,427 | | 261,431 | |
| Derivatives not designated as hedging instruments: | | | | | | |
| Interest rate swaps | 2,472,926 | | 528 | | 47,453 | | 2,476,659 | | 107 | | 68,210 | |
| Interest rate caps/floors | 602,500 | | 301 | | 0 | | 602,500 | | 141 | | 0 | |
| Mortgage delivery commitments | 191,878 | | 42 | | 996 | | 133,456 | | 654 | | 4 | |
| | | | | | |
| Total derivatives not designated as hedging instruments | 3,267,304 | | 871 | | 48,449 | | 3,212,615 | | 902 | | 68,214 | |
| TOTAL | $ | 20,321,694 | | 19,449 | | 221,743 | | $ | 19,074,822 | | 19,329 | | 329,645 | |
Netting adjustments and cash collateral1 | | 138,503 | | (218,737) | | | 129,539 | | (325,241) | |
| DERIVATIVE ASSETS AND LIABILITIES | | $ | 157,952 | | $ | 3,006 | | | $ | 148,868 | | $ | 4,404 | |
1 Amounts represent the application of the netting requirements that allow FHLBank to settle positive and negative positions and cash collateral, including accrued interest, held or placed with the same clearing agent and/or derivative counterparty. Cash collateral posted was $357,240,000 and variation margin for daily settled contracts.$455,080,000 as of March 31, 2021 and December 31, 2020, respectively. Cash collateral received was $0 and $300,000 as of March 31, 2021 and December 31, 2020, respectively.
Table 7.1
|
| | | | | | | | | | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| | 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 |
|
| Total derivatives designated as hedging relationships | 7,219,820 |
| 56,584 |
| 37,013 |
| 7,896,110 |
| 70,683 |
| 65,471 |
|
| Derivatives not designated as hedging instruments: | | | | | | |
| Interest rate swaps | 3,529,847 |
| 69 |
| 33,086 |
| 2,022,630 |
| 649 |
| 40,824 |
|
| Interest rate caps/floors | 2,462,400 |
| 1,673 |
| — |
| 2,765,200 |
| 4,859 |
| — |
|
| Mortgage delivery commitments | 121,377 |
| 38 |
| 189 |
| 90,013 |
| 214 |
| 372 |
|
| Total derivatives not designated as hedging instruments | 6,113,624 |
| 1,780 |
| 33,275 |
| 4,877,843 |
| 5,722 |
| 41,196 |
|
| TOTAL | $ | 13,333,444 |
| 58,364 |
| 70,288 |
| $ | 12,773,953 |
| 76,405 |
| 106,667 |
|
Netting adjustments, cash collateral, and variation margin for daily settled contracts1 | | (7,868 | ) | (69,648 | ) | | (15,505 | ) | (99,496 | ) |
| DERIVATIVE ASSETS AND LIABILITIES | | $ | 50,496 |
| $ | 640 |
| | $ | 60,900 |
| $ | 7,171 |
|
| |
1
| 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. Cash collateral posted was $78,846,000 and $105,481,000 as of September 30, 2017 and December 31, 2016, respectively. Cash collateral received was $16,622,000 and $21,490,000 as of September 30, 2017 and December 31, 2016, 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 changeChanges 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 inderivative hedging instrument and the hedged item attributable to also bethe 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 30, 2017March 31, 2021 and 2016, the2020, 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 7.36.2 (in thousands):
Table 7.36.2
| | | | | | | | | | | | | | |
| Three Months Ended |
| 03/31/2021 |
| Interest Income/Expense |
| Advances | Available-for-sale Securities | Consolidated Obligation Discount Notes | Consolidated Obligation Bonds |
| Total amounts presented in the Statements of Income | $ | 35,443 | | $ | 11,477 | | $ | 1,998 | | $ | 46,515 | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
Derivatives1 | $ | 116,674 | | $ | 124,675 | | $ | 13 | | $ | (21,293) | |
Hedged items2 | (131,314) | | (148,040) | | (4) | | 28,620 | |
| NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS | $ | (14,640) | | $ | (23,365) | | $ | 9 | | $ | 7,327 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
| 03/31/2020 |
| Interest Income/Expense |
| Advances | Available-for-sale Securities | Consolidated Obligation Discount Notes | Consolidated Obligation Bonds |
| Total amounts presented in the Statements of Income | $ | 130,887 | | $ | 24,294 | | $ | 92,951 | | $ | 150,742 | |
| Gains (losses) on fair value hedging relationships: | | | | |
| Interest rate contracts: | | | | |
Derivatives1 | $ | (260,132) | | $ | (360,283) | | $ | 18,523 | | $ | 45,446 | |
Hedged items2 | 256,842 | | 344,143 | | (15,690) | | (39,825) | |
| NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS | $ | (3,290) | | $ | (16,140) | | $ | 2,833 | | $ | 5,621 | |
| |
1
| The differentials between accruals of interest receivables and payables on derivatives1 Includes net interest settlements in interest income/expense. 2 Includes amortization/accretion on closed fair value relationships in interest income.
Table 6.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the designated underlying hedged item. |
For the nine months ended September 30, 2017 and 2016, the FHLBank recorded net gain (loss) on derivatives and the related amortized cost of the hedged items as of March 31, 2021 and December 31, 2020 (in thousands):
Table 6.3
| | | | | | | | | | | | | | |
| 03/31/2021 |
| 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 | $ | 6,001,677 | | $ | 127,575 | | $ | 13,356 | | $ | 140,931 | |
| Available-for-sale securities | 6,289,277 | | 172,023 | | 0 | | 172,023 | |
| Consolidated obligation discount notes | (174,957) | | 28 | | 0 | | 28 | |
| Consolidated obligation bonds | (4,970,261) | | (6,034) | | 0 | | (6,034) | |
| | | | |
| 12/31/2020 |
| 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 | $ | 5,895,962 | | $ | 261,304 | | $ | 11,149 | | $ | 272,453 | |
| Available-for-sale securities | 6,696,114 | | 320,063 | | 0 | | 320,063 | |
| Consolidated discount notes | (174,855) | | 33 | | 0 | | 33 | |
| Consolidated obligation bonds | (3,791,848) | | (34,654) | | 0 | | (34,654) | |
1 Includes only the portion of carrying value representing the hedged items in fair value hedging relationships andrelationships. For available-for-sale securities, amortized cost is considered to be carrying value (i.e., the impactfair value adjustment recorded in accumulated other comprehensive income (AOCI) is excluded).
2 Included in amortized cost of thosethe hedged asset/liability.
Table 6.4 provides information regarding net gains (losses) on derivatives on the FHLBank’s net interestrecorded in non-interest income as presented in Table 7.4 (in thousands):.
Table 7.46.4
| | | | | | | | | | | |
| | | | | |
| | | Three Months Ended | |
| | | | 03/31/2021 | 03/31/2020 | |
| Derivatives not designated as hedging instruments: | | | | | |
| Economic hedges: | | | | | |
| Interest rate swaps | | | $ | 34,451 | | $ | (111,715) | | |
| Interest rate caps/floors | | | 160 | | 145 | | |
| Net interest settlements | | | (12,841) | | (5,154) | | |
| Mortgage delivery commitments | | | (4,189) | | (5,528) | | |
| | | | | |
| NET GAINS (LOSSES) ON DERIVATIVES | | | $ | 17,581 | | $ | (122,252) | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
| |
1
| The differentials between accruals of interest receivables and payables on derivatives designated as fair value hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the designated underlying hedged item. |
Based on credit analyses and collateral requirements, FHLBank management does not anticipate any credit losses on its derivative agreements. There was 0 credit risk applicable to a single counterparty as of March 31, 2021. The maximum credit risk applicable to a single counterparty was $16,863,000 and $21,112,000$247,000 as of September 30, 2017 and December 31, 2016, respectively. The counterparty was the same for both periods.2020.
For uncleared derivative transactions, the FHLBank recentlyhas 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.
FHLBank utilizes two ClearinghousesDerivative Clearing Organizations (Clearinghouse) for all cleared derivative transactions, LCH.Clearnet LLCLCH 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 30, 2017March 31, 2021 and December 31, 2016.2020.
The FHLBank’s net exposure on derivative agreements is presented in Note 10.9.
NOTE 87 – DEPOSITS
The FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. A member that services mortgage loans may also deposit funds collected in connection with the mortgage loans, pending disbursement of these funds to the owners of the mortgage loans. FHLBank classifies these funds as other deposits. Deposits classified as demand and overnight pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit. Table 8.17.1 details the types of deposits held by the FHLBank as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 8.17.1
| | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| Interest-bearing: | | |
| Demand | $ | 319,073 | | $ | 308,604 | |
| Overnight | 692,700 | | 660,400 | |
| Term | 2,750 | | 2,750 | |
| | |
| Total interest-bearing | 1,014,523 | | 971,754 | |
| Non-interest-bearing: | | |
| Other | 248,422 | | 257,607 | |
| | |
| Total non-interest-bearing | 248,422 | | 257,607 | |
| TOTAL DEPOSITS | $ | 1,262,945 | | $ | 1,229,361 | |
|
| | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Interest-bearing: | | |
| Demand | $ | 274,231 |
| $ | 269,341 |
|
| Overnight | 227,900 |
| 278,200 |
|
| Total interest-bearing | 502,131 |
| 547,541 |
|
| Non-interest-bearing: | | |
| Demand | 48,496 |
| 51,390 |
|
| Total non-interest-bearing | 48,496 |
| 51,390 |
|
| TOTAL DEPOSITS | $ | 550,627 |
| $ | 598,931 |
|
NOTE 98 – CONSOLIDATED OBLIGATIONS
Consolidated Obligation Bonds: Table 9.18.1 presents the FHLBank’s participation in consolidated obligation bonds outstanding as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollar amounts in thousands):
Table 9.18.1
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| Year of Contractual Maturity | Amount | Weighted
Average
Interest
Rate | Amount | Weighted
Average
Interest
Rate |
| Due in one year or less | $ | 23,759,950 | | 0.26 | % | $ | 27,921,650 | | 0.31 | % |
| Due after one year through two years | 1,406,700 | | 1.62 | | 1,267,800 | | 1.45 | |
| Due after two years through three years | 948,900 | | 1.52 | | 1,216,600 | | 1.91 | |
| Due after three years through four years | 992,200 | | 1.44 | | 831,700 | | 1.58 | |
| Due after four years through five years | 1,575,000 | | 0.77 | | 836,100 | | 1.22 | |
| Thereafter | 5,607,550 | | 1.53 | | 5,518,800 | | 1.60 | |
| Total par value | 34,290,300 | | 0.62 | % | 37,592,650 | | 0.63 | % |
| Premiums | 34,198 | | | 38,219 | | |
| Discounts | (3,111) | | | (3,303) | | |
| Concession fees | (13,414) | | | (14,143) | | |
| Hedging adjustments | 6,034 | | | 34,654 | | |
| TOTAL | $ | 34,314,007 | | | $ | 37,648,077 | | |
|
| | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Year of Contractual Maturity | 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 | % |
| Due after one year through two years | 6,294,800 |
| 1.26 |
| 2,460,440 |
| 1.46 |
|
| Due after two years through three years | 1,217,500 |
| 1.51 |
| 1,190,750 |
| 1.51 |
|
| Due after three years through four years | 1,095,950 |
| 1.59 |
| 739,600 |
| 1.56 |
|
| Due after four years through five years | 798,350 |
| 1.89 |
| 1,215,600 |
| 1.60 |
|
| Thereafter | 4,074,100 |
| 2.47 |
| 4,088,400 |
| 2.39 |
|
| Total par value | 25,054,075 |
| 1.51 | % | 20,696,405 |
| 1.37 | % |
| Premiums | 20,602 |
| | 26,812 |
| |
| Discounts | (2,396 | ) | | (2,342 | ) | |
| Concession fees | (9,423 | ) | | (9,441 | ) | |
| Hedging adjustments | 7,367 |
| | 10,901 |
| |
| TOTAL | $ | 25,070,225 |
| | $ | 20,722,335 |
| |
TheFHLBank 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 30, 2017March 31, 2021 and December 31, 20162020 includes callable bonds totaling $6,057,000,000$7,894,000,000 and $6,097,000,000,$6,878,000,000, 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 9.28.2 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 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 9.2
|
| | | | | | |
| Year of Maturity or Next Call Date | 09/30/2017 | 12/31/2016 |
| Due in one year or less | $ | 17,548,375 |
| $ | 16,581,615 |
|
| Due after one year through two years | 5,888,800 |
| 2,275,440 |
|
| Due after two years through three years | 627,500 |
| 694,750 |
|
| Due after three years through four years | 325,950 |
| 389,600 |
|
| Due after four years through five years | 248,350 |
| 190,600 |
|
| Thereafter | 415,100 |
| 564,400 |
|
| TOTAL PAR VALUE | $ | 25,054,075 |
| $ | 20,696,405 |
|
Table 9.38.2
| | | | | | | | |
| Year of Maturity or Next Call Date | 03/31/2021 | 12/31/2020 |
| Due in one year or less | $ | 31,153,950 | | $ | 34,299,650 | |
| Due after one year through two years | 1,263,700 | | 1,142,800 | |
| Due after two years through three years | 656,400 | | 815,100 | |
| Due after three years through four years | 460,200 | | 399,700 | |
| Due after four years through five years | 299,000 | | 391,100 | |
| Thereafter | 457,050 | | 544,300 | |
| TOTAL PAR VALUE | $ | 34,290,300 | | $ | 37,592,650 | |
In addition to having fixed rate or simple variable rate coupon payment terms, consolidated obligation bonds may also have the following broad terms, regarding the coupon payment:
▪Range bonds that have coupon rates at fixed or variable rates and pay the fixed or variable rate as long as the index rate is within the established range, but generally pay zero percent or a minimal interest rate if the specified index rate is outside the established range;
▪Conversion bonds that have coupon rates that convert from fixed to variable, or variable to fixed, rates or from one index to another, on predetermined dates according to the terms of the bond offerings; and
▪Step bonds that have coupon rates at fixed or variable rates for specified intervals over the lives of the bonds. At the end of each specified interval, the coupon rate or variable rate spread increases (decreases) or steps up (steps down). These bond issues generally contain call provisions enabling the bonds to be called at FHLBank’s discretion on the step dates.
Table 8.3 summarizes interest rate payment terms for consolidated obligation bonds as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 9.38.3
| | | | | | | | |
| 03/31/2021 | 12/31/2020 |
| Simple variable rate | $ | 19,375,000 | | $ | 23,752,000 | |
| Fixed rate | 14,495,300 | | 13,840,650 | |
| | |
| Step | 420,000 | | 0 | |
| | |
| | |
| TOTAL PAR VALUE | $ | 34,290,300 | | $ | 37,592,650 | |
|
| | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Simple variable rate | $ | 14,057,000 |
| $ | 9,537,000 |
|
| Fixed rate | 9,982,075 |
| 10,164,405 |
|
| Fixed to variable rate | 535,000 |
| 545,000 |
|
| Step | 435,000 |
| 420,000 |
|
| Range | 45,000 |
| 30,000 |
|
| TOTAL PAR VALUE | $ | 25,054,075 |
| $ | 20,696,405 |
|
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 9.48.4 summarizes the FHLBank’s participation in consolidated obligation discount notes, all of which are due within one year (dollar amounts in thousands):
Table 9.48.4
|
| | | | | | | | |
| | 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 |
| March 31, 2021 | $ | 10,072,689 | | $ | 10,073,500 | | 0.05 | % |
| | | |
| December 31, 2020 | $ | 10,882,417 | | $ | 10,883,608 | | 0.08 | % |
| |
1
| Represents yield to maturity excluding concession fees. |
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, andincluding 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 10.19.1 and 10.29.2 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 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 10.19.1
| | | 09/30/2017 | |
| 03/31/2021 | | 03/31/2021 |
| 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 | Description | 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: | | Derivative assets: | | | |
| Uncleared derivatives | $ | 40,577 |
| $ | (33,824 | ) | $ | 6,753 |
| $ | (38 | ) | $ | 6,715 |
| Uncleared derivatives | $ | 15,209 | | $ | (10,288) | | | $ | 4,921 | | $ | (42) | | $ | 4,879 | |
Cleared derivatives3 | 17,787 |
| 25,956 |
| 43,743 |
| — |
| 43,743 |
| |
| Cleared derivatives | | Cleared derivatives | 4,240 | | 148,791 | | | 153,031 | | 0 | | 153,031 | |
| Total derivative assets | 58,364 |
| (7,868 | ) | 50,496 |
| (38 | ) | 50,458 |
| Total derivative assets | 19,449 | | 138,503 | | | 157,952 | | (42) | | 157,910 | |
| Securities purchased under agreements to resell | 2,595,589 |
| — |
| 2,595,589 |
| (2,595,589 | ) | — |
| Securities purchased under agreements to resell | 1,700,000 | | 0 | | | 1,700,000 | | (1,700,000) | | 0 | |
| TOTAL | $ | 2,653,953 |
| $ | (7,868 | ) | $ | 2,646,085 |
| $ | (2,595,627 | ) | $ | 50,458 |
| TOTAL | $ | 1,719,449 | | $ | 138,503 | | | $ | 1,857,952 | | $ | (1,700,042) | | $ | 157,910 | |
| |
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.
|
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 10.29.2
| | | 12/31/2016 | |
| 12/31/2020 | | 12/31/2020 |
| 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 | Description | 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: | | Derivative assets: | | | |
| Uncleared derivatives | $ | 51,765 |
| $ | (39,540 | ) | $ | 12,225 |
| $ | (214 | ) | $ | 12,011 |
| Uncleared derivatives | $ | 18,819 | | $ | (18,031) | | | $ | 788 | | $ | (654) | | $ | 134 | |
| Cleared derivatives | 24,640 |
| 24,035 |
| 48,675 |
| — |
| 48,675 |
| Cleared derivatives | 510 | | 147,570 | | | 148,080 | | 0 | | 148,080 | |
| Total derivative assets | 76,405 |
| (15,505 | ) | 60,900 |
| (214 | ) | 60,686 |
| Total derivative assets | 19,329 | | 129,539 | | | 148,868 | | (654) | | 148,214 | |
| Securities purchased under agreements to resell | 2,400,000 |
| — |
| 2,400,000 |
| (2,400,000 | ) | — |
| Securities purchased under agreements to resell | 2,600,000 | | 0 | | | 2,600,000 | | (2,600,000) | | 0 | |
| TOTAL | $ | 2,476,405 |
| $ | (15,505 | ) | $ | 2,460,900 |
| $ | (2,400,214 | ) | $ | 60,686 |
| TOTAL | $ | 2,619,329 | | $ | 129,539 | | | $ | 2,748,868 | | $ | (2,600,654) | | $ | 148,214 | |
| |
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). |
1Represents 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).
Tables 10.39.3 and 10.49.4 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, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 10.39.3
| | | 09/30/2017 | |
| 03/31/2021 | | 03/31/2021 |
| 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 | 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: | | Derivative liabilities: | |
| Uncleared derivatives | $ | 41,885 |
| $ | (41,245 | ) | $ | 640 |
| $ | (189 | ) | $ | 451 |
| Uncleared derivatives | $ | 221,472 | | $ | (218,466) | | $ | 3,006 | | $ | (996) | | $ | 2,010 | |
| Cleared derivatives | 28,403 |
| (28,403 | ) | — |
| — |
| — |
| Cleared derivatives | 271 | | (271) | | 0 | | 0 | | 0 | |
| Total derivative liabilities | 70,288 |
| (69,648 | ) | 640 |
| (189 | ) | 451 |
| Total derivative liabilities | 221,743 | | (218,737) | | 3,006 | | (996) | | 2,010 | |
| | TOTAL | $ | 70,288 |
| $ | (69,648 | ) | $ | 640 |
| $ | (189 | ) | $ | 451 |
| TOTAL | $ | 221,743 | | $ | (218,737) | | $ | 3,006 | | $ | (996) | | $ | 2,010 | |
| |
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 of Condition; or (2) are not subject to an enforceable netting agreement (e.g., mortgage delivery commitments). |
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 10.49.4
| | | 12/31/2016 | |
| 12/31/2020 | | 12/31/2020 |
| 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 | 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: | | Derivative liabilities: | |
| Uncleared derivatives | $ | 72,039 |
| $ | (64,868 | ) | $ | 7,171 |
| $ | (372 | ) | $ | 6,799 |
| Uncleared derivatives | $ | 324,491 | | $ | (320,087) | | $ | 4,404 | | $ | (4) | | $ | 4,400 | |
| Cleared derivatives | 34,628 |
| (34,628 | ) | — |
| — |
| — |
| Cleared derivatives | 5,154 | | (5,154) | | 0 | | 0 | | 0 | |
| Total derivative liabilities | 106,667 |
| (99,496 | ) | 7,171 |
| (372 | ) | 6,799 |
| Total derivative liabilities | 329,645 | | (325,241) | | 4,404 | | (4) | | 4,400 | |
| | TOTAL | $ | 106,667 |
| $ | (99,496 | ) | $ | 7,171 |
| $ | (372 | ) | $ | 6,799 |
| TOTAL | $ | 329,645 | | $ | (325,241) | | $ | 4,404 | | $ | (4) | | $ | 4,400 | |
| |
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). |
1Represents 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 three3 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 11.110.1 illustrates that the FHLBank was in compliance with its regulatory capital requirements as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollar amounts in thousands):
Table 11.110.1
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| | Required | Actual | Required | Actual |
| Regulatory capital requirements: | | | | |
| Risk-based capital | $ | 349,751 | | $ | 2,243,877 | | $ | 192,927 | | $ | 2,213,868 | |
| Total regulatory capital-to-asset ratio | 4.0 | % | 5.4 | % | 4.0 | % | 5.0 | % |
| Total regulatory capital | $ | 1,940,017 | | $ | 2,621,024 | | $ | 2,103,668 | | $ | 2,627,083 | |
| Leverage capital ratio | 5.0 | % | 7.7 | % | 5.0 | % | 7.1 | % |
| Leverage capital | $ | 2,425,021 | | $ | 3,742,963 | | $ | 2,629,586 | | $ | 3,734,017 | |
|
| | | | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| | Required | Actual | Required | Actual |
| Regulatory capital requirements: | | | | |
| Risk-based capital | $ | 356,019 |
| $ | 2,113,507 |
| $ | 333,044 |
| $ | 1,800,372 |
|
| Total regulatory capital-to-asset ratio | 4.0 | % | 4.6 | % | 4.0 | % | 4.3 | % |
| Total regulatory capital | $ | 1,974,448 |
| $ | 2,288,581 |
| $ | 1,808,670 |
| $ | 1,964,541 |
|
| Leverage capital ratio | 5.0 | % | 6.8 | % | 5.0 | % | 6.3 | % |
| Leverage capital | $ | 2,468,059 |
| $ | 3,345,334 |
| $ | 2,260,837 |
| $ | 2,864,727 |
|
Mandatorily Redeemable Capital Stock: The FHLBank is a cooperative whose members and former members own allmost of the FHLBank’s capital stock. Member sharesFormer 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 11.210.2 presents a roll-forward of mandatorily redeemable capital stock for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 (in thousands):
Table 11.2
|
| | | | | | | | | | | | |
| | Three Months Ended | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 | 09/30/2017 | 09/30/2016 |
| Balance, beginning of period | $ | 6,186 |
| $ | 4,356 |
| $ | 2,670 |
| $ | 2,739 |
|
| Capital stock subject to mandatory redemption reclassified from equity during the period | 202,595 |
| 147,225 |
| 626,508 |
| 499,445 |
|
| Redemption or repurchase of mandatorily redeemable capital stock during the period | (203,410 | ) | (148,578 | ) | (623,872 | ) | (499,218 | ) |
| Stock dividend classified as mandatorily redeemable capital stock during the period | 68 |
| 22 |
| 133 |
| 59 |
|
| Balance, end of period | $ | 5,439 |
| $ | 3,025 |
| $ | 5,439 |
| $ | 3,025 |
|
Table 11.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption as of September 30, 2017 and December 31, 2016 (in thousands). The year of redemption in Table 11.3 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. 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.10.2
| | | | | | | | | | | |
| | | | | |
| | | Three Months Ended | |
| | | | 03/31/2021 | 03/31/2020 | |
| Balance, beginning of period | | | $ | 1,624 | | $ | 2,415 | | |
| Capital stock subject to mandatory redemption reclassified from equity during the period | | | 358,243 | | 305,957 | | |
| Capital stock redemption cancellations reclassified to equity during the period | | | 0 | | (100,647) | | |
| Redemption or repurchase of mandatorily redeemable capital stock during the period | | | (358,290) | | (205,359) | | |
| Stock dividend classified as mandatorily redeemable capital stock during the period | | | 8 | | 24 | | |
| Balance, end of period | | | $ | 1,585 | | $ | 2,390 | | |
Table 11.3
|
| | | | | | |
| Contractual Year of Repurchase | 09/30/2017 | 12/31/2016 |
| Year 1 | $ | 501 |
| $ | 192 |
|
| Year 2 | — |
| 1 |
|
| Year 3 | — |
| — |
|
| Year 4 | 245 |
| — |
|
| Year 5 | 3,112 |
| 641 |
|
Past contractual redemption date due to remaining activity1 | 1,581 |
| 1,836 |
|
| TOTAL | $ | 5,439 |
| $ | 2,670 |
|
| |
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 one1 percent of its total assets or if the issuance of excess stock would cause the FHLBank’s excess stock to exceed one1 percent of its total assets. As of September 30, 2017, theMarch 31, 2021, FHLBank’s excess stock was less than one1 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, thethat FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide thean 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 beenTopeka was classified as adequately capitalized.
NOTE 1211 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Table 12.111.1 summarizes the changes in AOCI for the three months ended September 30, 2017March 31, 2021 and 20162020 (in thousands):
Table 12.111.1
|
| | | | | | | | | | | | |
| | 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 |
| Net Unrealized Gains (Losses) on Available-for-sale Securities | | Defined Benefit Pension Plan | Total AOCI |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Balance at December 31, 2019 | $ | 26,788 | | | $ | (2,002) | | $ | 24,786 | |
| Other comprehensive income (loss) before reclassification: | | | | |
| Unrealized gains (losses) | (92,608) | | | | (92,608) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Reclassifications from other comprehensive income (loss) to net income: | | | | |
Realized net (gains) losses included in net income1 | (1,523) | | | | (1,523) | |
| | | | |
Amortization of net losses - defined benefit pension plan2 | | | 26 | | 26 | |
| Net current period other comprehensive income (loss) | (94,131) | | | 26 | | (94,105) | |
| Balance at March 31, 2020 | $ | (67,343) | | | $ | (1,976) | | $ | (69,319) | |
| | | | |
| | | | |
| Balance at December 31, 2020 | $ | 45,196 | | | $ | (2,888) | | $ | 42,308 | |
| Other comprehensive income (loss) before reclassification: | | | | |
| Unrealized gains (losses) | 29,234 | | | | 29,234 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Reclassifications from other comprehensive income (loss) to net income: | | | | |
| | | | |
| | | | |
Amortization of net losses - defined benefit pension plan2 | | | 72 | | 72 | |
| Net current period other comprehensive income (loss) | 29,234 | | | 72 | | 29,306 | |
| Balance at March 31, 2021 | $ | 74,430 | | | $ | (2,816) | | $ | 71,614 | |
| |
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” on the Statements of Income. Amount represents a debit (increase to other expenses). |
1 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)).
Table 12.2 summarizes2 Recorded in “Other” non-interest expense on the changes in AOCI for the nine months ended September 30, 2017 and 2016 (in thousands):Statements of Income. Amount represents a debit (increase to other expenses).
Table 12.2
|
| | | | | | | | | | | | |
| | 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 |
|
| |
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” on the Statements of Income. Amount represents a debit (increase to other expenses). |
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 30, 2017March 31, 2021 and December 31, 2016.2020. 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 reclassificationstransfers of assets or liabilities recordedbetween fair value levels during the three months ended March 31, 2021 and 2020.
Tables 12.1 and 12.2present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of March 31, 2021 and December 31, 2020. FHLBank records trading securities, available-for-sale securities, derivative assets, and derivative liabilities at fair value on a recurring basis, duringand 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 threefinancial assets and nine months ended September 30, 2017liabilities 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 30, 2017March 31, 2021 and December 31, 20162020 are summarized in Tables 13.112.1 and 13.212.2 (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 13.112.1
| | | | 09/30/2017 | | 03/31/2021 |
| | 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: | | Assets: | |
| Cash and due from banks | $ | 7,803 |
| $ | 7,803 |
| $ | 7,803 |
| $ | — |
| $ | — |
| $ | — |
| Cash and due from banks | $ | 65,136 | | $ | 65,136 | | $ | 65,136 | | $ | 0 | | $ | 0 | | $ | — | |
| Interest-bearing deposits | 301,208 |
| 301,208 |
| — |
| 301,208 |
| — |
| — |
| Interest-bearing deposits | 558,784 | | 558,784 | | 0 | | 558,784 | | 0 | | — | |
| Securities purchased under agreements to resell | 2,595,589 |
| 2,595,589 |
| — |
| 2,595,589 |
| — |
| — |
| Securities purchased under agreements to resell | 1,700,000 | | 1,700,000 | | 0 | | 1,700,000 | | 0 | | — | |
| Federal funds sold | 1,692,000 |
| 1,692,000 |
| — |
| 1,692,000 |
| — |
| — |
| Federal funds sold | 3,905,000 | | 3,905,000 | | 0 | | 3,905,000 | | 0 | | — | |
| Trading securities | 2,973,383 |
| 2,973,383 |
| — |
| 2,973,383 |
| — |
| — |
| Trading securities | 3,266,965 | | 3,266,965 | | 0 | | 3,266,965 | | 0 | | — | |
| Available-for-sale securities | 1,464,472 |
| 1,464,472 |
| — |
| 1,464,472 |
| — |
| — |
| Available-for-sale securities | 6,363,707 | | 6,363,707 | | 0 | | 6,363,707 | | 0 | | — | |
| Held-to-maturity securities | 4,740,532 |
| 4,740,231 |
| — |
| 4,564,544 |
| 175,687 |
| — |
| Held-to-maturity securities | 2,567,175 | | 2,571,789 | | 0 | | 2,495,799 | | 75,990 | | — | |
| Advances | 28,319,226 |
| 28,350,430 |
| — |
| 28,350,430 |
| — |
| — |
| Advances | 21,068,366 | | 21,179,090 | | 0 | | 21,179,090 | | 0 | | — | |
| Mortgage loans held for portfolio, net of allowance | 7,055,239 |
| 7,211,720 |
| — |
| 7,210,291 |
| 1,429 |
| — |
| Mortgage loans held for portfolio, net of allowance | 8,667,085 | | 8,806,362 | | 0 | | 8,792,449 | | 13,913 | | — | |
| | Accrued interest receivable | 79,854 |
| 79,854 |
| — |
| 79,854 |
| — |
| — |
| Accrued interest receivable | 93,123 | | 93,123 | | 0 | | 93,123 | | 0 | | — | |
| Derivative assets | 50,496 |
| 50,496 |
| — |
| 58,364 |
| — |
| (7,868 | ) | Derivative assets | 157,952 | | 157,952 | | 0 | | 19,449 | | 0 | | 138,503 | |
| Liabilities: | | Liabilities: | |
| Deposits | 550,627 |
| 550,627 |
| — |
| 550,627 |
| — |
| — |
| Deposits | 1,262,945 | | 1,262,945 | | 0 | | 1,262,945 | | 0 | | — | |
| Consolidated obligation discount notes | 21,280,938 |
| 21,281,281 |
| — |
| 21,281,281 |
| — |
| — |
| Consolidated obligation discount notes | 10,072,689 | | 10,072,023 | | 0 | | 10,072,023 | | 0 | | — | |
| Consolidated obligation bonds | 25,070,225 |
| 24,987,504 |
| — |
| 24,987,504 |
| — |
| — |
| Consolidated obligation bonds | 34,314,007 | | 34,264,800 | | 0 | | 34,264,800 | | 0 | | — | |
| Mandatorily redeemable capital stock | 5,439 |
| 5,439 |
| 5,439 |
| — |
| — |
| — |
| Mandatorily redeemable capital stock | 1,585 | | 1,585 | | 1,585 | | 0 | | 0 | | — | |
| Accrued interest payable | 61,616 |
| 61,616 |
| — |
| 61,616 |
| — |
| — |
| Accrued interest payable | 45,254 | | 45,254 | | 0 | | 45,254 | | 0 | | — | |
| Derivative liabilities | 640 |
| 640 |
| — |
| 70,288 |
| — |
| (69,648 | ) | Derivative liabilities | 3,006 | | 3,006 | | 0 | | 221,743 | | 0 | | (218,737) | |
| Other Asset (Liability): | | Other Asset (Liability): | |
| Industrial revenue bonds | 16,500 |
| 15,540 |
| — |
| 15,540 |
| — |
| — |
| Industrial revenue bonds | 35,000 | | 36,534 | | 0 | | 36,534 | | 0 | | — | |
| 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 | | Financing obligation payable | (35,000) | | (36,534) | | 0 | | (36,534) | | 0 | | — | |
| |
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. Variation margin for daily settled contracts of $(444,000) is included with derivative assets.
|
1 Represents the effect of legally enforceable master netting agreements that allow 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.
Table 13.2
|
| | | | | | | | | | | | | | | | | | |
| | 12/31/2016 |
| | 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 |
| $ | — |
| $ | — |
| $ | — |
|
| Interest-bearing deposits | 387,920 |
| 387,920 |
| — |
| 387,920 |
| — |
| — |
|
| Securities purchased under agreements to resell | 2,400,000 |
| 2,400,000 |
| — |
| 2,400,000 |
| — |
| — |
|
| Federal funds sold | 2,725,000 |
| 2,725,000 |
| — |
| 2,725,000 |
| — |
| — |
|
| Trading securities | 2,502,788 |
| 2,502,788 |
| — |
| 2,502,788 |
| — |
| — |
|
| Available-for-sale securities | 1,091,721 |
| 1,091,721 |
| — |
| 1,091,721 |
| — |
| — |
|
| Held-to-maturity securities | 4,502,224 |
| 4,487,252 |
| — |
| 4,276,650 |
| 210,602 |
| — |
|
| Advances | 23,985,835 |
| 24,016,686 |
| — |
| 24,016,686 |
| — |
| — |
|
| Mortgage loans held for portfolio, net of allowance | 6,640,725 |
| 6,754,046 |
| — |
| 6,752,849 |
| 1,197 |
| — |
|
| Overnight loans to other FHLBanks | 600,000 |
| 600,000 |
| — |
| 600,000 |
| — |
| — |
|
| Accrued interest receivable | 68,400 |
| 68,400 |
| — |
| 68,400 |
| — |
| — |
|
| Derivative assets | 60,900 |
| 60,900 |
| — |
| 76,405 |
| — |
| (15,505 | ) |
| Liabilities: | |
|
| | | | |
| Deposits | 598,931 |
| 598,931 |
| — |
| 598,931 |
| — |
| — |
|
| Consolidated obligation discount notes | 21,775,341 |
| 21,774,950 |
| — |
| 21,774,950 |
| — |
| — |
|
| Consolidated obligation bonds | 20,722,335 |
| 20,568,653 |
| — |
| 20,568,653 |
| — |
| — |
|
| Mandatorily redeemable capital stock | 2,670 |
| 2,670 |
| 2,670 |
| — |
| — |
| — |
|
| Accrued interest payable | 49,808 |
| 49,808 |
| — |
| 49,808 |
| — |
| — |
|
| Derivative liabilities | 7,171 |
| 7,171 |
| — |
| 106,667 |
| — |
| (99,496 | ) |
| 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 | ) | — |
| — |
|
| | | | | | | | | | | | | | | | | | | | |
| | 12/31/2020 |
| | Carrying
Value | Total
Fair
Value | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral1 |
| Assets: | | | | | | |
| Cash and due from banks | $ | 4,570,415 | | $ | 4,570,415 | | $ | 4,570,415 | | $ | 0 | | $ | 0 | | $ | — | |
| Interest-bearing deposits | 760,297 | | 760,297 | | 0 | | 760,297 | | 0 | | — | |
| Securities purchased under agreements to resell | 2,600,000 | | 2,600,000 | | 0 | | 2,600,000 | | 0 | | — | |
| Federal funds sold | 1,780,000 | | 1,780,000 | | 0 | | 1,780,000 | | 0 | | — | |
| Trading securities | 2,623,376 | | 2,623,376 | | 0 | | 2,623,376 | | 0 | | — | |
| Available-for-sale securities | 6,741,310 | | 6,741,310 | | 0 | | 6,741,310 | | 0 | | — | |
| Held-to-maturity securities | 2,746,992 | | 2,750,116 | | 0 | | 2,674,446 | | 75,670 | | — | |
| Advances | 21,226,823 | | 21,360,450 | | 0 | | 21,360,450 | | 0 | | — | |
| Mortgage loans held for portfolio, net of allowance | 9,205,207 | | 9,454,112 | | 0 | | 9,441,474 | | 12,638 | | — | |
| | | | | | |
| Accrued interest receivable | 97,718 | | 97,718 | | 0 | | 97,718 | | 0 | | — | |
| Derivative assets | 148,868 | | 148,868 | | 0 | | 19,329 | | 0 | | 129,539 | |
| Liabilities: | | | | | | |
| Deposits | 1,229,361 | | 1,229,361 | | 0 | | 1,229,361 | | 0 | | — | |
| Consolidated obligation discount notes | 10,882,417 | | 10,882,601 | | 0 | | 10,882,601 | | 0 | | — | |
| Consolidated obligation bonds | 37,648,077 | | 37,835,135 | | 0 | | 37,835,135 | | 0 | | — | |
| Mandatorily redeemable capital stock | 1,624 | | 1,624 | | 1,624 | | 0 | | 0 | | — | |
| Accrued interest payable | 45,575 | | 45,575 | | 0 | | 45,575 | | 0 | | — | |
| Derivative liabilities | 4,404 | | 4,404 | | 0 | | 329,645 | | 0 | | (325,241) | |
| Other Asset (Liability): | | | | | | |
| Industrial revenue bonds | 35,000 | | 37,978 | | 0 | | 37,978 | | 0 | | — | |
| Financing obligation payable | (35,000) | | (37,978) | | 0 | | (37,978) | | 0 | | — | |
| |
1
| 1Represents 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.accrued interest held or placed with the same clearing agent or derivative counterparty.
Fair Value Measurements: Tables 13.312.3 and 13.412.4 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 30, 2017March 31, 2021 and December 31, 20162020 (in thousands). The
Table 12.3
| | | | | | | | | | | | | | | | | |
| 03/31/2021 |
| Total | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral1 |
| Recurring fair value measurements - Assets: | | | | | |
| Trading securities: | | | | | |
| | | | | |
| Certificates of deposit | $ | 675,031 | | $ | — | | $ | 675,031 | | $ | — | | $ | — | |
| U.S. Treasury obligations | 1,290,894 | | — | | 1,290,894 | | — | | — | |
| GSE debentures | 426,878 | | — | | 426,878 | | — | | — | |
| | | | | |
| GSE MBS | 874,162 | | — | | 874,162 | | — | | — | |
| Total trading securities | 3,266,965 | | — | | 3,266,965 | | — | | — | |
| Available-for-sale securities: | | | | | |
| U.S. Treasury obligations | 3,277,347 | | — | | 3,277,347 | | — | | — | |
| GSE MBS | 3,086,360 | | — | | 3,086,360 | | — | | — | |
| Total available-for-sale securities | 6,363,707 | | — | | 6,363,707 | | — | | — | |
| Derivative assets: | | | | | |
| Interest-rate related | 157,910 | | — | | 19,407 | | — | | 138,503 | |
| Mortgage delivery commitments | 42 | | — | | 42 | | — | | — | |
| Total derivative assets | 157,952 | | — | | 19,449 | | — | | 138,503 | |
| TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS | $ | 9,788,624 | | $ | — | | $ | 9,650,121 | | $ | — | | $ | 138,503 | |
| | | | | |
| Recurring fair value measurements - Liabilities: | | | | | |
| Derivative liabilities: | | | | | |
| Interest-rate related | $ | 2,010 | | $ | — | | $ | 220,747 | | $ | — | | $ | (218,737) | |
| Mortgage delivery commitments | 996 | | — | | 996 | | — | | — | |
| Total derivative liabilities | 3,006 | | — | | 221,743 | | — | | (218,737) | |
| TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES | $ | 3,006 | | $ | — | | $ | 221,743 | | $ | — | | $ | (218,737) | |
| | | | | |
Nonrecurring fair value measurements - Assets2: | | | | | |
| | | | | |
| | | | | |
| Impaired mortgage loans | $ | 13,951 | | $ | — | | $ | — | | $ | 13,951 | | $ | — | |
| Real estate owned | 215 | | — | | — | | 215 | | — | |
| TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS | $ | 14,166 | | $ | — | | $ | — | | $ | 14,166 | | $ | — | |
1 Represents the effect of legally enforceable master netting agreements that allow FHLBank measures certain held-to-maturity securities atto net settle positive and negative positions and also derivative cash collateral, including related accrued interest, held or placed with the same clearing agent or derivative counterparty.
2 Includes assets adjusted to fair value on a nonrecurring basis dueduring the three months ended March 31, 2021 and still outstanding as of March 31, 2021.
Table 12.4
| | | | | | | | | | | | | | | | | |
| 12/31/2020 |
| Total | Level 1 | Level 2 | Level 3 | Netting Adjustment and Cash Collateral1 |
| Recurring fair value measurements - Assets: | | | | | |
| Trading securities: | | | | | |
| | | | | |
| | | | | |
| U.S. Treasury obligations | $ | 1,298,518 | | $ | — | | $ | 1,298,518 | | $ | — | | $ | — | |
| GSE debentures | 431,875 | | — | | 431,875 | | — | | — | |
| | | | | |
| GSE MBS | 892,983 | | — | | 892,983 | | — | | — | |
| Total trading securities | 2,623,376 | | — | | 2,623,376 | | — | | — | |
| Available-for-sale securities: | | | | | |
| U.S. Treasury obligations | 3,546,325 | | — | | 3,546,325 | | — | | — | |
| GSE MBS | 3,194,985 | | — | | 3,194,985 | | — | | — | |
| Total available-for-sale securities | 6,741,310 | | — | | 6,741,310 | | — | | — | |
| Derivative assets: | | | | | |
| Interest-rate related | 148,214 | | — | | 18,675 | | — | | 129,539 | |
| Mortgage delivery commitments | 654 | | — | | 654 | | — | | — | |
| Total derivative assets | 148,868 | | — | | 19,329 | | — | | 129,539 | |
| TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS | $ | 9,513,554 | | $ | — | | $ | 9,384,015 | | $ | — | | $ | 129,539 | |
| | | | | |
| Recurring fair value measurements - Liabilities: | | | | | |
| Derivative liabilities: | | | | | |
| Interest-rate related | $ | 4,400 | | $ | — | | $ | 329,641 | | $ | — | | $ | (325,241) | |
| Mortgage delivery commitments | 4 | | — | | 4 | | — | | — | |
| Total derivative liabilities | 4,404 | | — | | 329,645 | | — | | (325,241) | |
| TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES | $ | 4,404 | | $ | — | | $ | 329,645 | | $ | — | | $ | (325,241) | |
| | | | | |
Nonrecurring fair value measurements - Assets2: | | | | | |
| | | | | |
| | | | | |
| Impaired mortgage loans | $ | 12,668 | | $ | — | | $ | — | | $ | 12,668 | | $ | — | |
| Real estate owned | 405 | | — | | — | | 405 | | — | |
| TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS | $ | 13,073 | | $ | — | | $ | — | | $ | 13,073 | | $ | — | |
1 Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral, including related accrued interest, held or placed with 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 atsame clearing agent or derivative counterparty.
2 Includes assets adjusted to fair value on a nonrecurring basis when, upon individual evaluation for impairment,during 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.year ended December 31, 2020 and still outstanding as of December 31, 2020.
Table 13.3
|
| | | | | | | | | | | | | | | |
| | 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 |
| | 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 |
| — |
| — |
|
| Total trading securities | 2,502,788 |
| — |
| 2,502,788 |
| — |
| — |
|
| Available-for-sale securities: | | | | | |
GSE MBS5 | 1,091,721 |
| — |
| 1,091,721 |
| — |
| — |
|
| Total available-for-sale securities | 1,091,721 |
| — |
| 1,091,721 |
| — |
| — |
|
| Derivative assets: | | | | | |
| Interest-rate related | 60,686 |
| — |
| 76,191 |
| — |
| (15,505 | ) |
| Mortgage delivery commitments | 214 |
| — |
| 214 |
| — |
| — |
|
| Total derivative assets | 60,900 |
| — |
| 76,405 |
| — |
| (15,505 | ) |
| TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS | $ | 3,655,409 |
| $ | — |
| $ | 3,670,914 |
| $ | — |
| $ | (15,505 | ) |
| | | | | | |
| Recurring fair value measurements - Liabilities: | | | | | |
| Derivative liabilities: | | | | | |
| Interest-rate related | $ | 6,799 |
| $ | — |
| $ | 106,295 |
| $ | — |
| $ | (99,496 | ) |
| Mortgage delivery commitments | 372 |
| — |
| 372 |
| — |
| — |
|
| Total derivative liabilities | 7,171 |
| — |
| 106,667 |
| — |
| (99,496 | ) |
| TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES | $ | 7,171 |
| $ | — |
| $ | 106,667 |
| $ | — |
| $ | (99,496 | ) |
| | | | | | |
Nonrecurring fair value measurements - Assets6: | | | | | |
| Held-to-maturity securities: | | | | | |
| Private-label residential MBS | $ | 4,781 |
| $ | — |
| $ | — |
| $ | 4,781 |
| $ | — |
|
| Impaired mortgage loans | 1,205 |
|
|
|
|
| $ | 1,205 |
|
|
|
| Real estate owned | 1,086 |
| — |
| — |
| 1,086 |
| — |
|
| TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS | $ | 7,072 |
| $ | — |
| $ | — |
| $ | 7,072 |
| $ | — |
|
| |
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
| Represents debentures issued by other FHLBanks, Fannie Mae, Freddie Mac and Farm Credit. |
| |
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. |
| |
6
| Includes assets adjusted to fair value during the year ended December 31, 2016 and still outstanding as of December 31, 2016. |
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$652,020,742,000 and $946,829,735,000$698,296,045,000 as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.
The joint and several obligations are mandated by FHFA regulations and are not the result of arms-length transactions among the FHLBanks. As described above, the 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 March 31, 2021, FHLBank Topeka has concluded that a loss accrual is not necessary at this time.
Off-balance Sheet Commitments: As of September 30, 2017March 31, 2021 and December 31, 2016,2020, off-balance sheet commitments are presented in Table 14.113.1 (in thousands):
Table 14.113.1
| | | | | | | | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| Notional Amount | Expire
Within
One Year | Expire
After
One Year | Total | Expire
Within
One Year | Expire
After
One Year | Total |
| Standby letters of credit outstanding | $ | 5,202,777 | | $ | 692 | | $ | 5,203,469 | | $ | 5,436,165 | | $ | 4,251 | | $ | 5,440,416 | |
| | | | | | |
| Advance commitments outstanding | 18,632 | | 16,901 | | 35,533 | | 19,693 | | 21,001 | | 40,694 | |
| Principal commitments for standby bond purchase agreements | 304,055 | | 434,415 | | 738,470 | | 380,615 | | 317,710 | | 698,325 | |
| Commitments to fund or purchase mortgage loans | 191,878 | | 0 | | 191,878 | | 133,456 | | 0 | | 133,456 | |
| Commitments to issue consolidated bonds, at par | 215,000 | | 0 | | 215,000 | | 4,000 | | 0 | | 4,000 | |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Notional Amount | 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 |
|
| Advance commitments outstanding | 73,875 |
| 69,475 |
| 143,350 |
| 37,950 |
| 45,025 |
| 82,975 |
|
| Commitments for standby bond purchases | 713,023 |
| 419,849 |
| 1,132,872 |
| 210,349 |
| 1,002,669 |
| 1,213,018 |
|
| Commitments to fund or purchase mortgage loans | 121,377 |
| — |
| 121,377 |
| 90,013 |
| — |
| 90,013 |
|
| Commitments to issue consolidated bonds, at par | 28,000 |
| — |
| 28,000 |
| 45,000 |
| — |
| 45,000 |
|
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’sbeneficiary's draw, these amounts arethe 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 2023. 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$1,328,000 and $1,151,000$1,554,000 as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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.bond and typically allows FHLBank to terminate the agreement upon the occurrence of a default event of the issuer. The bond purchase commitments entered into by the FHLBank expire no later than 2020,2024, though some are renewable at the option of the FHLBank. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the total commitments for bond purchases wereincluded agreements with two2 in-district and one out-of-district state housing authorities. TheFHLBank was required to purchase $122,390,000 in bonds under these agreements during the three months ended March 31, 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 months ended September 30, 2017 and 2016.March 31, 2021.
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 $(151,000)$(954,000) and $(158,000)$650,000 as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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. AllMost settle within the shortest period possible and are considered regular way trades; thus, thehowever, 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 yearsderivatives 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 $36,000,000Statements 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 Regulatory Capital Stock: Tables 15.114.1 and 15.214.2 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 2016as of March 31, 2021 and December 31, 2020 (dollar amounts in thousands). None of the officers or directors of these membersthis member currently serve on the FHLBank’s board of directors.
Table 15.114.1
| | | | | | | | | | | | | | | | | | | | | | | |
| 03/31/2021 |
| 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 |
| MidFirst Bank | OK | $ | 500 | | 0.1 | % | $ | 355,456 | | 30.5 | % | $ | 355,956 | | 23.1 | % |
| | | | | | | |
| | | | | | | |
| TOTAL | | $ | 500 | | 0.1 | % | $ | 355,456 | | 30.5 | % | $ | 355,956 | | 23.1 | % |
|
| | | | | | | | | | | | | | | | |
| 09/30/2017 |
| 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 |
| 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 |
|
| TOTAL | | $ | 14,450 |
| 8.3 | % | $ | 537,739 |
| 41.5 | % | $ | 552,189 |
| 37.5 | % |
Table 14.2
Table 15.2 | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2020 |
| 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 |
| MidFirst Bank | OK | $ | 825 | | 0.2 | % | $ | 339,524 | | 29.2 | % | $ | 340,349 | | 21.6 | % |
| | | | | | | |
| | | | | | | |
| TOTAL | | $ | 825 | | 0.2 | % | $ | 339,524 | | 29.2 | % | $ | 340,349 | | 21.6 | % |
|
| | | | | | | | | | | | | | | | |
| 12/31/2016 |
| 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 |
| BOKF, N.A. | OK | $ | 500 |
| 0.3 | % | $ | 219,755 |
| 20.6 | % | $ | 220,255 |
| 17.9 | % |
| 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 | % |
Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of September 30, 2017March 31, 2021 and December 31, 20162020 are summarized in Table 15.314.3 (dollar amounts in thousands).
Table 15.314.3
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 03/31/2021 | 12/31/2020 | 03/31/2021 | 12/31/2020 |
| Member Name | Outstanding Advances | Percent of Total | Outstanding Advances | Percent of Total | Outstanding Deposits | Percent of Total | Outstanding Deposits | Percent of Total |
| MidFirst Bank | $ | 7,800,000 | | 37.2 | % | $ | 7,460,000 | | 35.6 | % | $ | 599 | | 0 | % | $ | 713 | | 0.1 | % |
| | | | | | | | |
| | | | | | | | |
| TOTAL | $ | 7,800,000 | | 37.2 | % | $ | 7,460,000 | | 35.6 | % | $ | 599 | | 0 | % | $ | 713 | | 0.1 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 | 09/30/2017 | 12/31/2016 |
| Member Name | Outstanding Advances | Percent of Total | Outstanding Advances | Percent of Total | Outstanding Deposits | Percent of Total | Outstanding Deposits | Percent of Total |
| BOKF, N.A. | $ | 6,200,000 |
| 21.9 | % | $ | 4,800,000 |
| 20.0 | % | $ | 8,548 |
| 1.6 | % | $ | 54,145 |
| 9.1 | % |
| 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 | % |
BOKF, N.A. and MidFirst Bank did not sell any mortgage loans into the MPF Program during the three and nine months ended September 30, 2017March 31, 2021 and 2016.2020.
Transactions with FHLBank Directors’ Financial Institutions: Table 15.414.4 presents information as of September 30, 2017March 31, 2021 and December 31, 20162020 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
|
| | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| | Outstanding Amount | Percent of Total | Outstanding Amount | Percent of Total |
| Advances | $ | 163,943 |
| 0.6 | % | $ | 172,793 |
| 0.7 | % |
| | | | | |
| Deposits | $ | 9,478 |
| 1.7 | % | $ | 12,329 |
| 2.1 | % |
| | | | | |
| Class A Common Stock | $ | 4,123 |
| 2.4 | % | $ | 3,782 |
| 2.3 | % |
| Class B Common Stock | 5,102 |
| 0.4 |
| 5,585 |
| 0.5 |
|
| TOTAL CAPITAL STOCK | $ | 9,225 |
| 0.6 | % | $ | 9,367 |
| 0.8 | % |
Table 15.514.4
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| | Outstanding Amount | Percent of Total | Outstanding Amount | Percent of Total |
| Advances | $ | 155,063 | | 0.7 | % | $ | 161,021 | | 0.8 | % |
| | | | |
| Deposits | $ | 33,172 | | 2.6 | % | $ | 25,459 | | 2.1 | % |
| | | | |
| Class A Common Stock | $ | 8,624 | | 2.3 | % | $ | 10,298 | | 2.5 | % |
| Class B Common Stock | 19,236 | | 1.7 | | 21,200 | | 1.8 | |
| TOTAL CAPITAL STOCK | $ | 27,860 | | 1.8 | % | $ | 31,498 | | 2.0 | % |
Table 14.5 presents mortgage loans acquired during the three and nine months ended September 30, 2017March 31, 2021 and 20162020 for members that had an officer or director serving on the FHLBank’s board of directors in 20172021 or 20162020 (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 15.514.5
| | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Three Months Ended |
| | | 03/31/2021 | 03/31/2020 |
| | | | | Amount | Percent of Total | Amount | Percent of Total |
| Mortgage loans acquired | | | | | $ | 8,083 | | 1.5 | % | $ | 46,109 | | 5.2 | % |
NOTE 15 – SUBSEQUENT EVENTS
During the second quarter of 2021, FHLBank adopted a provision of ASU 2020-04 which allows a one-time election to sell, transfer, or both sell and transfer debt securities classified as held-to-maturity that reference a rate affected by reference rate reform and that were classified as held-to-maturity before January 1, 2020. Upon adopting the provision, FHLBank transferred held-to-maturity securities with an amortized cost of $2,019,635,000 to available-for-sale and recorded unrealized gains of $4,059,000 in other comprehensive income.
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
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, 2016,2020, which includes audited financial statements and related notes for the year ended December 31, 2016.2020. 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.$500,000. 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, standbyAMA and letters of credit, and Acquired Member Assets (AMA), at levels determined by management with the Boardboard of Director’sdirector’s approval and within the ranges stipulated in our Capital Plan. Our Advances Activity-based Stock Purchase Requirement is 4.5 percent of the Capitaloutstanding principal balance of advances. The AMA Activity-based Stock Plan. Currently, ourPurchase Requirement is three percent of the outstanding principal balance of AMA originated by or through that member and acquired by FHLBank, which became effective August 5, 2020. The purchase requirement had been suspended for current members since July 2013. Former members previously required to purchase AMA activity-based stock are subject to the stock requirement in place at the time their membership ended as long as there are unpaid principal balances outstanding. Effective January 22, 2021, the Letter of Credit Activity-based Stock Purchase Requirement became effective at one quarter of one percent. The change in the Activity-based Stock Purchase Requirements did not change for former members with outstanding business transactions. 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 the past,borrowings, AMA balances, or letters of credit activity. For additional discussion of these changes to capital stock also increased when 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 (former members previously required to purchase AMA activity-based stock are subject to the prior requirement as long as there are UPBs outstanding). requirements, see "Liquidity and Capital Resources – Capital" under this Item 2.
At our discretion, we may repurchase excess stock if there isresulting from a decline in a member’s advances.advances, AMA or letters of credit 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.
We continue to conduct business without operational difficulties or disruptions despite the ongoing COVID-19 pandemic. Most of our employees have been working remotely since March 2020. We began bringing employees back to the office voluntarily and in phases beginning in March 2021 as local infection rates began to decline and vaccinations became readily accessible.
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 | | 03/31/2021 | 12/31/2020 | 09/30/2020 | 06/30/2020 | 03/31/2020 | |
| Statement of Condition (as of period end): | | | Statement of Condition (as of period end): | | |
| Total assets | $ | 49,361,189 |
| $ | 49,741,538 |
| $ | 47,091,131 |
| $ | 45,216,749 |
| $ | 46,846,615 |
| Total assets | $ | 48,500,428 | | $ | 52,591,712 | | $ | 53,011,374 | | $ | 53,533,936 | | $ | 63,189,513 | | |
Investments1 | 13,767,184 |
| 15,755,784 |
| 14,286,143 |
| 13,609,653 |
| 13,392,337 |
| Investments1 | 18,361,631 | | 17,251,975 | | 19,917,184 | | 20,633,427 | | 19,597,238 | | |
| Advances | 28,319,226 |
| 26,443,416 |
| 25,822,945 |
| 23,985,835 |
| 26,723,461 |
| Advances | 21,068,366 | | 21,226,823 | | 22,616,252 | | 21,528,991 | | 31,678,083 | | |
Mortgage loans, net2 | 7,055,239 |
| 6,839,892 |
| 6,700,948 |
| 6,640,725 |
| 6,554,516 |
| Mortgage loans, net2 | 8,667,085 | | 9,205,207 | | 10,093,466 | | 10,945,717 | | 11,018,168 | | |
| Total liabilities | 47,062,581 |
| 47,504,133 |
| 44,961,702 |
| 43,254,301 |
| 44,788,060 |
| Total liabilities | 45,809,375 | | 49,923,945 | | 50,411,438 | | 51,178,998 | | 60,475,924 | | |
| Deposits | 550,627 |
| 496,015 |
| 579,805 |
| 598,931 |
| 682,059 |
| Deposits | 1,262,945 | | 1,229,361 | | 1,016,316 | | 988,292 | | 975,397 | | |
Consolidated obligation discount notes, net3 | | Consolidated obligation discount notes, net3 | 10,072,689 | | 10,882,417 | | 11,936,214 | | 13,560,839 | | 25,563,980 | | |
Consolidated obligation bonds, net3 | 25,070,225 |
| 22,882,026 |
| 21,670,348 |
| 20,722,335 |
| 18,383,598 |
| Consolidated obligation bonds, net3 | 34,314,007 | | 37,648,077 | | 37,294,169 | | 36,445,676 | | 33,730,055 | | |
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 |
| Total consolidated obligations, net3 | 44,386,696 | | 48,530,494 | | 49,230,383 | | 50,006,515 | | 59,294,035 | | |
| Mandatorily redeemable capital stock | 5,439 |
| 6,186 |
| 2,264 |
| 2,670 |
| 3,025 |
| Mandatorily redeemable capital stock | 1,585 | | 1,624 | | 1,914 | | 2,308 | | 2,390 | | |
| Total capital | 2,298,608 |
| 2,237,405 |
| 2,129,429 |
| 1,962,448 |
| 2,058,555 |
| Total capital | 2,691,053 | | 2,667,767 | | 2,599,936 | | 2,354,938 | | 2,713,589 | | |
| Capital stock | 1,467,001 |
| 1,433,620 |
| 1,352,345 |
| 1,226,675 |
| 1,351,874 |
| Capital stock | 1,540,365 | | 1,574,004 | | 1,580,741 | | 1,392,003 | | 1,802,296 | | |
| Total retained earnings | 816,141 |
| 790,406 |
| 767,556 |
| 735,196 |
| 713,229 |
| Total retained earnings | 1,079,074 | | 1,051,455 | | 1,022,566 | | 996,629 | | 980,612 | | |
| AOCI | 15,466 |
| 13,379 |
| 9,528 |
| 577 |
| (6,548 | ) | AOCI | 71,614 | | 42,308 | | (3,371) | | (33,694) | | (69,319) | | |
| Statement of Income (for the quarterly period ended): | | Statement of Income (for the quarterly period ended): | | |
| Net interest income | 68,927 |
| 65,277 |
| 66,672 |
| 64,992 |
| 63,140 |
| Net interest income | 73,369 | | 74,461 | | 64,788 | | 56,677 | | 55,086 | | |
| (Reversal) provision for credit losses on mortgage loans | (171 | ) | 20 |
| (45 | ) | 31 |
| 329 |
| |
| Provision (reversal) for credit losses on mortgage loans | | Provision (reversal) for credit losses on mortgage loans | (14) | | (1,433) | | 116 | | 1,337 | | (736) | | |
| Other income (loss) | 5,461 |
| 1,148 |
| 7,885 |
| (2,135 | ) | 8,708 |
| Other income (loss) | (5,892) | | (5,033) | | (1,634) | | (10,252) | | (23,229) | | |
| Other expenses | 19,535 |
| 15,713 |
| 14,916 |
| 16,853 |
| 17,935 |
| Other expenses | 18,705 | | 19,758 | | 18,610 | | 22,596 | | 19,443 | | |
| Income before assessments | 55,024 |
| 50,692 |
| 59,686 |
| 45,973 |
| 53,584 |
| Income before assessments | 48,786 | | 51,103 | | 44,428 | | 22,492 | | 13,150 | | |
| Affordable Housing Program (AHP) assessments | 5,510 |
| 5,074 |
| 5,970 |
| 4,599 |
| 5,361 |
| Affordable Housing Program (AHP) assessments | 4,880 | | 5,111 | | 4,444 | | 2,250 | | 1,318 | | |
| Net income | 49,514 |
| 45,618 |
| 53,716 |
| 41,374 |
| 48,223 |
| Net income | 43,906 | | 45,992 | | 39,984 | | 20,242 | | 11,832 | | |
| Selected Financial Ratios and Other Financial Data (for the quarterly period ended): | | Selected Financial Ratios and Other Financial Data (for the quarterly period ended): | | |
Dividends paid in cash4 | 66 |
| 69 |
| 64 |
| 73 |
| 73 |
| Dividends paid in cash4 | 64 | | 66 | | 66 | | 71 | | 70 | | |
Dividends paid in stock4 | 23,713 |
| 22,699 |
| 21,292 |
| 19,334 |
| 19,950 |
| Dividends paid in stock4 | 16,223 | | 17,037 | | 13,981 | | 14,697 | | 24,836 | | |
Weighted average dividend rate5 | 5.81 | % | 5.74 | % | 5.73 | % | 5.28 | % | 5.28 | % | Weighted average dividend rate5 | 4.15 | % | 4.09 | % | 3.69 | % | 3.69 | % | 5.94 | % | |
Dividend payout ratio6 | 48.03 | % | 49.91 | % | 39.76 | % | 46.91 | % | 41.52 | % | Dividend payout ratio6 | 37.10 | % | 37.19 | % | 35.13 | % | 72.95 | % | 210.50 | % | |
| Return on average equity | 8.00 | % | 7.64 | % | 9.58 | % | 7.50 | % | 8.69 | % | Return on average equity | 6.55 | % | 6.75 | % | 6.34 | % | 3.20 | % | 1.75 | % | |
| Return on average assets | 0.36 | % | 0.35 | % | 0.43 | % | 0.34 | % | 0.39 | % | Return on average assets | 0.35 | % | 0.34 | % | 0.29 | % | 0.14 | % | 0.08 | % | |
| Average equity to average assets | 4.52 | % | 4.54 | % | 4.49 | % | 4.55 | % | 4.46 | % | Average equity to average assets | 5.32 | % | 5.01 | % | 4.60 | % | 4.37 | % | 4.44 | % | |
Net interest margin7 | 0.51 | % | 0.50 | % | 0.54 | % | 0.54 | % | 0.51 | % | Net interest margin7 | 0.59 | % | 0.55 | % | 0.47 | % | 0.39 | % | 0.36 | % | |
Total capital ratio8 | 4.66 | % | 4.50 | % | 4.52 | % | 4.34 | % | 4.39 | % | Total capital ratio8 | 5.55 | % | 5.07 | % | 4.90 | % | 4.40 | % | 4.29 | % | |
Regulatory capital ratio9 | 4.64 | % | 4.48 | % | 4.51 | % | 4.34 | % | 4.41 | % | Regulatory capital ratio9 | 5.40 | % | 5.00 | % | 4.91 | % | 4.47 | % | 4.41 | % | |
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. |
| |
2
| The allowance for credit losses on mortgage loans was $1,408,000, $1,525,000, $1,617,000, $1,674,000 and $1,660,000 as of September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
| |
3
| Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 14 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 and $22,000 for the quarters ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, 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 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). |
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. 2 The allowance for credit losses on mortgage loans was $4,956,000, $5,177,000, $7,926,000, $7,790,000 and $6,468,000 as of March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, respectively.
3 Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 13 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 $9,000, $9,000, $12,000, $14,000 and $24,000 for the quarters ended March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, 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 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 Common Stock, Class B Common Stock and retained earnings) as a percentage of total assets.
Net income increased $1.3$32.1 million, or 2.7271.1 percent, to $49.5$43.9 million for the three months ended September 30, 2017March 31, 2021 compared to $48.2$11.8 million for the three months ended March 31, 2020. This increase was primarily a result of a net increase of $18.7 million related to fair value fluctuations on economic derivatives (i.e., derivatives not qualifying for hedge accounting) and trading securities and an increase in net interest income of $18.3 million.
Net interest income increased $18.3 million for the quarter, from $55.1 million for the three months ended March 31, 2020 to $73.4 million for the three months ended March 31, 2021. Net interest income was reduced by the decline in the average balance and average rate across most asset categories, most notably advances and mortgage loans, the change in net interest settlements on fair value hedges, and increased premium amortization on mortgage-related assets due to elevated prepayments, but the reduction was more than offset by the significant decrease in our cost of debt. The decrease in market interest rates allowed us to replace approximately $14 billion of callable debt between periods at a lower cost, which has reduced overall funding costs for current and future periods.
Total assets decreased between periods, from $52.6 billion at December 31, 2020 to $48.5 billion at March 31, 2021 driven by the decrease in the short-term liquidity portfolio between those periods, which was elevated at December 31, 2020 in anticipation of potential year-end financial disruptions. Mortgage loans decreased by $0.5 billion from December 31, 2020 to March 31, 2021, representing 17.9 percent of total assets as of March 31, 2021, compared to 17.5 percent as of December 31, 2020. The average balance of mortgage loans decreased $1.9 billion, or 17.9 percent, for the quarter ended March 31, 2021 compared to the prior year period. Advances remained relatively flat from December 31, 2020 to March 31, 2021, decreasing slightly to $21.1 billion. The average balance of advances declined $5.5 billion, or 18.9 percent, for the quarter ended March 31, 2021 compared to March 31, 2020. Advance demand by members dropped significantly in the second quarter of 2020 and remained at that lower level through the first quarter of 2021, as many members have 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 newly created lending facilities in response to the COVID-19 pandemic.
Total liabilities decreased $4.1 billion from December 31, 2020 to March 31, 2021 which corresponded with the decline in assets. The decrease in market interest rates allowed us to replace approximately $14 billion of callable debt between periods at a lower cost, which has reduced overall funding costs for current and future periods. Notably, the repricing of the liabilities funding our short-term assets combined with the overall reduction in funding costs resulted in a 23 basis point increase in net interest margin and a 28 basis point increase in net interest spread for the quarter ended March 31, 2021 compared to the prior year period. 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 increased $23.3 million, or 0.9 percent, from December 31, 2020 to March 31, 2021 due to unrealized gains on available-for-sale securities and net income in excess of dividends paid, partially offset by a decrease in excess capital stock.
Return on average equity (ROE) increased to 6.55 percent for the quarter ended March 31, 2021 compared to 1.75 percent for the prior year period due to the increase in net income for the current quarter, especially relative to the pandemic-related market volatility in the prior year period. Dividends paid to members totaled $16.3 million for the three months ended March 31, 2021 compared to $24.9 million for the same period in the prior year. Net income increased $28.4 million, or 23.6 percent,From March 31, 2020 to $148.8 millionMarch 31, 2021, the dividend rate for the nine months ended September 30, 2017 compared to $120.4 million for 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 derivatives and hedging activities and trading securities. For the nine-month period, the increase was largely a result of fair value fluctuations on derivatives and hedging activities and trading securities compared to the prior year period, combined with the increase in net interest income of $8.7 million, or 4.5 percent. The increases in net interest income when compared 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 increases in the cost of debt resulting from the increase in market interest rates, and an increase in consolidated obligations that were allocated to money market investments. Detailed discussion relating to the fluctuations in net interest income can be found under this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.”
Total assets increased $4.1 billion, or 9.2 percent, from December 31, 2016 to September 30, 2017. This increase was due to a $4.3 billion, or 18.1 percent, increase in advances, mostly in our line of credit 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 5.0decreased from 7.25 percent to 6.05.25 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 also 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 $7.1 billion during the quarter ended September 30, 2017, with recent growth attributed to recruitment of high-production PFIs and program enhancements that provide PFIs with additional funding opportunities.
Total liabilities increased $3.8 billion, or 8.8 percent, from December 31, 2016 to September 30, 2017. This increase was due to a $4.3 billion increase in consolidated obligation bonds, partially offset by a $0.5 billion decrease in consolidated obligation discount notes. 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 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. For additional information, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”
Return on average equity (ROE) was 8.00 percent and 8.69 percent for the three months ended September 30, 2017 and 2016, respectively and 8.37 percent and 7.43 percent for the nine months ended September 30, 2017 and 2016, respectively. The decrease 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.
Dividends paid to members totaled $67.9 million for the nine months ended September 30, 2017 compared to $59.0 million for the same period in the prior year. As mentioned previously, we increased the dividend rate for Class A Common Stock decreased from 2.25 to 1.25 percent during the third quarter of 2017 and increased the0.25 percent. The weighted average dividend rate for Class B Common Stockthe three months ended March 31, 2021 was 4.15 percent which represented a dividend payout ratio of 37.1 percent compared to 6.50a weighted average dividend rate of 5.94 percent duringand a payout ratio of 210.5 percent for the first quarterthree months ended March 31, 2020. The inflated payout ratio for the three months ended March 31, 2020 was a result of 2017. the steep decline in net income from the aforementioned pandemic-related market volatility for that period. 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 quartersperiods are due to the change in dividend rates and, to a lesser extent, 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. Other factorsperiods. Factors impacting the outstanding stock class mix during the first quarter of 2021 and, therefore, the average dividend rates, include weeklyregular 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). We anticipate stock dividends on Class A Common Stock and Class B Common Stock will be at or near current levels for the remainder of 2021, 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 assetachievement guidance. We intend to manage our balance sheet with an emphasis towardstoward maintaining a coreprimary mission assetsasset ratio above 70 percent during 2017.percent. Our ratio of average advances and average mortgage loans to average consolidated obligations based onless 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 assetsasset ratio) was 7776 percent for the ninethree months ended September 30, 2017.March 31, 2021. 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 | | | | | 03/31/2021 | 03/31/2020 | 03/31/2021 | 12/31/2020 | 03/31/2020 |
| Market Instrument | Three-month | Three-month | Nine-month | Nine-month | 09/30/2017 | 12/31/2016 | 09/30/2016 | Market Instrument | | Three-month | Ending | Ending |
| Average | Average | Average | Average | Ending Rate | Ending Rate | | Average | Rate | Rate |
Secured Overnight Financing Rate1 | | Secured Overnight Financing Rate1 | | 0.04 | % | 1.23 | % | 0.01 | % | 0.07 | % | 0.01 | % |
Federal funds effective rate1 | 1.16 | % | 0.40 | % | 0.94 | % | 0.38 | % | 1.06% | 0.55 | % | 0.29 | % | Federal funds effective rate1 | | 0.08 | | 1.23 | | 0.06 | | 0.09 | | 0.08 | |
Federal Reserve interest rate on excess reserves1 | 1.25 |
| 0.50 |
| 1.03 |
| 0.50 |
| 1.25 | 0.75 |
| 0.50 |
| Federal Reserve interest rate on excess reserves1 | | 0.10 | | 1.24 | | 0.10 | | 0.10 | | 0.10 | |
3-month U.S. Treasury bill1 | 1.05 |
| 0.29 |
| 0.85 |
| 0.27 |
| 1.05 | 0.50 |
| 0.27 |
| 3-month U.S. Treasury bill1 | | 0.04 | | 1.11 | | 0.02 | | 0.07 | | 0.09 | |
3-month LIBOR1 | 1.31 |
| 0.79 |
| 1.20 |
| 0.69 |
| 1.33 | 1.00 |
| 0.85 |
| 3-month LIBOR1 | | 0.20 | | 1.53 | | 0.19 | | 0.24 | | 1.45 | |
2-year U.S. Treasury note1 | 1.36 |
| 0.73 |
| 1.30 |
| 0.78 |
| 1.47 | 1.20 |
| 0.76 |
| 2-year U.S. Treasury note1 | | 0.13 | | 1.10 | | 0.16 | | 0.12 | | 0.25 | |
5-year U.S. Treasury note1 | 1.81 |
| 1.12 |
| 1.85 |
| 1.24 |
| 1.91 | 1.94 |
| 1.15 |
| 5-year U.S. Treasury note1 | | 0.61 | | 1.16 | | 0.94 | | 0.36 | | 0.38 | |
10-year U.S. Treasury note1 | 2.24 |
| 1.56 |
| 2.31 |
| 1.74 |
| 2.32 | 2.45 |
| 1.60 |
| 10-year U.S. Treasury note1 | | 1.32 | | 1.38 | | 1.74 | | 0.92 | | 0.67 | |
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 rate1,2 | | 30-year residential mortgage note rate1,2 | | 3.10 | | 3.73 | | 3.33 | | 2.90 | | 3.47 | |
| |
2
| Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate obtained from Bloomberg. |
1 Source is Bloomberg.
2 Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate.
During the first nine monthsquarter of 2017,2021, interest rates remained at low levels but began increasing for maturities of two years and longer relative to the costprevailing yields at the end of FHLBank consolidated obligations as measured2020, which provided an indicator of optimism in the financial markets, likely attributed to continued economic recovery related to business resumption and the passing of The American Rescue Plan Act of 2021. Mortgage rates hit historical lows in February 2021, prompting faster mortgage prepayments and increased mortgage demand. Mortgage rates began to increase in March 2021 and are expected to remain at or near current levels for the remainder of 2021, which is expected to result in slower prepayment speeds for the remainder of 2021. Financial institutions continued to experience high levels of liquidity in the first quarter of 2021 resulting from another wave of economic stimulus payments and the continuation of the actions taken by the spreadFederal Reserve Bank in response to the COVID-19 pandemic. Pent-up consumer demand resulting from the pandemic is expected to accelerate economic recovery during the last half of 2021, as vaccination rates are anticipated to be high enough to lift COVID-related restrictions and give citizens the ability to resume pre-pandemic activities. Some businesses are projected to bring their workforce back onsite by early summer of 2021.
Spreads to comparative U.S. Treasury ratesinstruments for FHLBank consolidated obligations remained relatively stable; however, funding spreads relativenarrow during the first quarter of 2021, 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 indicatorsinstruments and Congressional approval of a short-term extension oflower issuance needs by the debt ceiling. DuringFHLBanks due to ample liquidity available to FHLBank members. At the September 2017April 2021 meeting, the FOMC announced their planmaintained the Federal funds rate at a range between 0 percent and 0.25 percent and said it would be appropriate to gradually reducemaintain its quantitative easing (QE), repo and overnight lending programs to keep credit available until labor market conditions have reached the reinvestmentFOMC's assessment of principal payments frommaximum employment and inflation has risen to and exceeds two percent for some time. The FOMC stated its holdingsintent to continue its purchases of GSE debt, GSEU.S. Treasuries and Agency MBS as part of its QE. Monetary and U.S. Treasury securities, which beganfiscal actions in October 2017. This reduction in reinvestment is expectedresponse to cause a rise in the U.S. Treasury yield curve and a widening in the option-adjusted spread on MBS, although we anticipate theeconomic 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, higherthe level of interest rates increaseimpacts 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. The global economy appears to be beginning to emerge from the economic downturn, but recovery is threatened by a resurgence of infectious cases and the emergence of more contagious variants of the virus. The pace of global economic recovery is dependent upon the course of the virus and measures taken to control its spread, vaccination rates, the impact of policy support, and other structural economic factors. 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 global financial markets. Although we believe it is a declining risk, 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 2021 is uncertain, and it is likely that the FOMC will keep interest rates low or use other programs 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 Financial Conduct Authority (FCA) announced that it planned to phase out the regulatory oversight of LIBOR interest rate indices by 2021. However, the FCA recently announced that the publication of LIBOR on a representative basis will cease for one-week and two-month LIBOR immediately after December 31, 2021, and the remaining LIBOR tenors immediately after June 30, 2023. This extends transition for existing instruments, many of which have inadequate fallback language, but is not intended to prolong transition for new LIBOR issuance. As of March 31, 2021, all of our exposure to LIBOR was in the 1-month, 3-month, and 6-month tenors. The Alternative Reference Rates Committee (ARRC) in the United States has proposed the Secured Overnight Financing Rate (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. The SOFR derivatives market is established and usage of SOFR by market participants continues to increase. The majority of non-Treasury floating rate debt issuance in 2020 was indexed to SOFR but market demand persists for a credit-sensitive rate to replace LIBOR so other indices could emerge as potential alternatives. 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 June 30, 2023. 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:
InvestorsWe 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. Severalconsolidated 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; potentialor regulatory changes in liquidity requirements;changes; changes in interest rates and the shape of the yield curve as the FOMC contemplates additional increases in short-term interest rateschanges 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 includeinclude: (1) the following:
Accountingaccounting related to derivatives and hedging activities; and (2) fair value determinations.
Fair value determinations;
Accounting for deferred premium/discount associated with MBS; and
Determining the adequacy of the allowance for credit losses.
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 Part II, 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 30, 2017.March 31, 2021.
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 |
| | | 2021 vs. 2020 |
| | | |
| | | |
| | |
| | |
| | | Dollar Change | Percentage Change |
| Total interest income | | | $ | (178,425) | | (59.3) | % |
| Total interest expense | | | (196,708) | | (80.1) | |
| Net interest income | | | 18,283 | | 33.2 | |
| Provision (reversal) for credit losses on mortgage loans | | | 722 | | 98.1 | |
| Net interest income after mortgage loan loss provision | | | 17,561 | | 31.5 | |
| Net gains (losses) on trading securities | | | (121,136) | | (128.3) | |
| Net gains (losses) on derivatives | | | 139,833 | | 114.4 | |
| Other non-interest income | | | (1,360) | | (29.3) | |
| Total other income (loss) | | | 17,337 | | 74.6 | |
| Operating expenses | | | (570) | | (3.8) | |
| Other non-interest expenses | | | (168) | | (3.9) | |
| Total other expenses | | | (738) | | (3.8) | |
| AHP assessments | | | 3,562 | | 270.3 | |
| NET INCOME | | | $ | 32,074 | | 271.1 | % |
|
| | | | | | | | | | |
| | Increase (Decrease) in Earnings Components |
| | Three Months Ended | Nine Months Ended |
| | 09/30/2017 vs. 09/30/2016 | 09/30/2017 vs. 09/30/2016 |
| | Dollar Change | Percentage Change | Dollar Change | Percentage Change |
| Total interest income | $ | 82,531 |
| 56.7 | % | $ | 161,627 |
| 37.3 | % |
| Total interest expense | 76,744 |
| 93.2 |
| 152,943 |
| 63.4 |
|
| Net interest income | 5,787 |
| 9.2 |
| 8,684 |
| 4.5 |
|
| (Reversal) provision for credit losses on mortgage loans | (500 | ) | (152.0 | ) | (56 | ) | (40.0 | ) |
| Net interest income after mortgage loan loss provision | 6,287 |
| 10.0 |
| 8,740 |
| 4.5 |
|
| 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 |
|
| Other non-interest income | (513 | ) | (17.2 | ) | (851 | ) | (9.9 | ) |
| Total other income (loss) | (3,247 | ) | (37.3 | ) | 26,189 |
| 223.9 |
|
| Operating expenses | 1,095 |
| 7.0 |
| 2,234 |
| 5.6 |
|
| Other non-interest expenses | 505 |
| 21.1 |
| 1,077 |
| 14.9 |
|
| Total other expenses | 1,600 |
| 8.9 |
| 3,311 |
| 7.1 |
|
| AHP assessments | 149 |
| 2.8 |
| 3,169 |
| 23.7 |
|
| NET INCOME | $ | 1,291 |
| 2.7 | % | $ | 28,449 |
| 23.6 | % |
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 | |
| | 09/30/2017 | 09/30/2016 | 09/30/2017 | 09/30/2016 | | | 03/31/2021 | 03/31/2020 | |
| | 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 | % | Investments1 | | $ | 33,078 | | 27.1 | % | $ | 84,334 | | 28.1 | % | |
| Advances | 113,834 |
| 49.9 |
| 59,098 |
| 40.6 |
| 283,137 |
| 47.6 |
| 169,628 |
| 39.1 |
| Advances | | 35,443 | | 29.0 | | 130,887 | | 43.5 | | |
| Mortgage loans held for portfolio | 54,548 |
| 23.9 |
| 50,164 |
| 34.5 |
| 157,074 |
| 26.4 |
| 153,457 |
| 35.4 |
| Mortgage loans held for portfolio | | 53,478 | | 43.7 | | 85,106 | | 28.3 | | |
| Other | 344 |
| 0.2 |
| 306 |
| 0.2 |
| 928 |
| 0.1 |
| 947 |
| 0.2 |
| Other | | 257 | | 0.2 | | 354 | | 0.1 | | |
| TOTAL INTEREST INCOME | $ | 228,008 |
| 100.0 | % | $ | 145,477 |
| 100.0 | % | $ | 595,023 |
| 100.0 | % | $ | 433,396 |
| 100.0 | % | TOTAL INTEREST INCOME | | $ | 122,256 | | 100.0 | % | $ | 300,681 | | 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. |
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.
Net income for the three months ended September 30, 2017 was $49.5increased $32.1 million, comparedor 271.1 percent, to $48.2$43.9 million for the three months ended September 30, 2016. Net income for the nine months ended September 30, 2017 was $148.8 millionMarch 31, 2021 compared to $120.4$11.8 million for the ninethree months ended September 30, 2016. TheMarch 31, 2020. This increase inwas primarily a result of a net incomeincrease of $18.7 million related to fair value fluctuations on economic derivatives (i.e., derivatives not qualifying for the quarter was driven byhedge accounting) and trading securities and an increase in net interest income of $5.8$18.3 million, or 9.2 percent, partially offset by fair value fluctuations on derivatives and hedging activities and trading securities. For the nine-month period, the increase was largely a resultas discussed in greater detail below. The positive net impact of fair value fluctuations on economic derivatives and hedgingtrading activities on net income was relative to the large net losses on economic derivatives and trading securities that occurred during the first quarter of 2020 due to the market disruption caused by the COVID-19 pandemic. For detailed discussion relating to the fluctuations in net gains (losses) on derivatives and net gains (losses) on trading securities, see "Net Gains (Losses) on Derivatives" and "Net Gains (Losses) On Trading Securities" under this Item 2.
Net Interest Income:Net interest income increased $18.3 million for the quarter, from $55.1 million for the three months ended March 31, 2020 to $73.4 million for the three months ended March 31, 2021. Net interest income was reduced by the decline in the average balance and average rate across most asset categories, most notably advances and mortgage loans, the increase in net interest settlements paid on fair value hedges, and increased premium amortization on mortgage-related assets due to elevated prepayments. However, the reduction was more than offset by the significant decrease in our cost of debt. Prepayment fees on advances also increased moderately between periods. Notably, for the current quarter, the repricing of the liabilities funding our short-term assets combined with the overall reduction in funding costs resulted in a 23 basis point increase in net interest margin and a 28 basis point increase in net interest spread for the quarter ended March 31, 2021 compared to the prior year period. The decrease in market interest rates and the tightening of consolidated obligation bond spreads to Treasury rates from March 2020 to March 2021 allowed us to replace approximately $14 billion of callable debt between periods at a lower cost, which has reduced overall funding costs for current and future periods. Our cost of debt also decreased between periods due to a decline in the cost of discount notes and floating rate debt, combined with less accelerated concession amortization on called debt in the current period compared to the prior period. Replacing callable debt results in accelerated amortization of concessions (broker fees) in the month of the call, but the refinanced debt will continue to provide additional benefit in the form of lower rates for future periods.
The Federal Reserve’s rapid reduction in the Federal funds target rate and purchase of U.S. Treasury bonds in response to the COVID-19 pandemic-related market volatility resulted in declines across the interest rate curve in March 2020 that have generally persisted through the first quarter of 2021, although interest rates closed slightly higher at the end of March 2021 than at the end of 2020. Advance demand by members remains diminished by abundant liquidity among members 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 newly created lending facilities. The decline in average long-term interest rates resulted in an increase in mortgage loan prepayments, which reduces net interest income in the form of accelerated amortization of premiums on mortgage-related assets and reinvestment at lower market rates. The decline in short-term interest rates also impacted net interest income in the form of increased net interest settlement expense on advances and available-for-sale securities compared to the prior year period, combined withperiod. However, in addition to the increase in net interest income of $8.7 million, or 4.5 percent.
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 million and $8.7 million for the three and nine months ended September 30, 2017 and 2016, respectively, due to growth in advances, primarily in our line of credit advances and adjustable rate callable advances;aforementioned replacement of maturedcallable debt, management has actively managed our funding composition in response to market conditions, as the stability of the interest rate environment enabled us to reduce our allocation of funding in discount notes by increasing our issuance of floating rate term debt, which more closely matches asset composition and called consolidated obligations at a lower cost during the last half of 2016, which partially offset the increase in the cost of debt resulting from the increase inreprices to market interest rates;rates more quickly than discount notes.
Average Balances and an increase in consolidated obligations that were allocated to money market investments (see Table 5). Despite the increase in 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 theYields: The average rate on borrowings between both the three- and nine-month periods, which was largely offset by increases in the average yield onbalance of interest-earning assets between periods, all of which are discussed in greater detail below.
For the three months ended September 30, 2017, the average yield on investments, which consist of interest-bearing deposits, Federal funds sold, securities purchased under agreement to resell (reverse repurchase agreements), and investment securities, increased 49 basis points to 1.60 percent, from 1.11decreased $10.4 billion, or 17.0 percent, for the three months ended September 30, 2016. The increase was a result of a $1.1 billion increaseMarch 31, 2021 compared to the same period in the average balanceprior year. Average advance balances decreased by $5.5 billion, or 18.9 percent, which reflects the reduced demand for advances resulting from deposit inflows from stimulus payments 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 pointsother Federal relief available to 1.44 percent, from 1.18 percent for the nine months ended September 30, 2016our members, as a result of an increase in the average yield on short-term investments of 52 basis points 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.
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.mentioned previously. The average balance of advances 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 3.09by $1.9 billion, or 17.9 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.outpaced acquisitions. The average balance of bonds increased by $7.2investments declined $2.9 billion or 41.3 percent,due to a decrease in short- and $5.0 billion, or 28.6 percent, for the threelong-term investments, primarily high-quality liquid asset (HQLA) investments and nine months ended September 30, 2017, respectively, and the average balance of discount notes decreased by $2.2 billion, or 7.7 percent, and $1.0 billion, or 3.5 percent, for the three and nine months ended September 30, 2017, respectively.MBS. For further discussion of how we use bondsinvestments, advances and discount notes,mortgage loans, see this 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 March 31, 2021 was 0.98 percent compared to 1.98 percent for the three months ended March 31, 2020. The average cost of interest-bearing liabilities for the three months ended March 31, 2021 was 0.42 percent, compared to 1.70 percent for the three months ended March 31, 2020. Despite the 100 basis point decrease in average asset yields for the current quarter, the 128 basis point decline in the average funding cost resulted in an improvement in net interest spread and net interest margin of 28 basis points and 23 basis points, respectively. The repricing of relatively high-cost liabilities issued prior to the March 2020 FOMC cuts to the Federal funds rate that funded our short-term assets provided the greatest contribution to the improvement in net interest spread and net interest margin for the current quarter compared to the prior year period, combined with the overall decrease in funding cost as discussed previously and less concession amortization in the first quarter of 2021 compared to the prior year period. The majority of the decline in the average balance of advances was in line of credit advances which are typically low-spread products, so the impact of the decline in the average balance on net interest margin was minimal. Mortgage loans and MBS are typically the highest net spread assets on our balance sheet, so a decline in the average balance combined with spread compression from accelerated premium amortization from prepayments has the potential to impact net interest margin, but the decrease in the cost of debt has more than offset the impact of those factors. Prepayments are expected to slow in 2021, so this spread is expected to widen.
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 (see Tables 9 and hedging activities10 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 and 6 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):
Table 5
| | | | | | | | | | | | | | | | | | | | | |
| |
| | Three Months Ended 03/31/2021 |
| | Advances | Investments | Mortgage Loans | Consolidated Obligation Discount Notes | Consolidated Obligation Bonds | | Total |
| Unrealized gains (losses) due to fair value changes | $ | 2,307 | | $ | 3,876 | | $ | — | | $ | 1 | | $ | 10 | | | $ | 6,194 | |
| Net amortization/accretion of hedging activities | (634) | | — | | (86) | | — | | — | | | (720) | |
| Net interest received (paid) | (16,313) | | (27,241) | | — | | 8 | | 7,317 | | | (36,229) | |
| TOTAL | $ | (14,640) | | $ | (23,365) | | $ | (86) | | $ | 9 | | $ | 7,327 | | | $ | (30,755) | |
Table 6
| | | | | | | | | | | | | | | | | | | | | |
| |
| | Three Months Ended 03/31/2020 |
| | Advances | Investments | Mortgage Loans | Consolidated Obligation Discount Notes | Consolidated Obligation Bonds | | Total |
| Unrealized gains (losses) due to fair value changes | $ | (1,915) | | $ | (5,780) | | $ | — | | $ | (5) | | $ | 2 | | | $ | (7,698) | |
| Net amortization/accretion of hedging activities | (258) | | — | | (982) | | — | | — | | | (1,240) | |
| Net interest received (paid) | (1,117) | | (10,360) | | — | | 2,838 | | 5,619 | | | (3,020) | |
| TOTAL | $ | (3,290) | | $ | (16,140) | | $ | (982) | | $ | 2,833 | | $ | 5,621 | | | $ | (11,958) | |
Table 7 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):
Table 57
| | | | Three Months Ended | | Three Months Ended |
| | 09/30/2017 | 09/30/2016 | | 03/31/2021 | 03/31/2020 |
| | 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-earning assets: | |
| Interest-bearing deposits | $ | 436,659 |
| $ | 1,285 |
| 1.17 | % | $ | 610,229 |
| $ | 614 |
| 0.40 | % | Interest-bearing deposits | $ | 1,082,671 | | $ | 269 | | 0.10 | % | $ | 1,451,820 | | $ | 4,705 | | 1.30 | % |
| Securities purchased under agreements to resell | 2,272,501 |
| 6,735 |
| 1.18 |
| 2,653,587 |
| 3,370 |
| 0.51 |
| Securities purchased under agreements to resell | 2,294,456 | | 489 | | 0.09 | | 4,105,066 | | 14,590 | | 1.43 | |
| Federal funds sold | 2,825,109 |
| 8,396 |
| 1.18 |
| 1,185,565 |
| 1,221 |
| 0.41 |
| Federal funds sold | 2,742,911 | | 520 | | 0.08 | | 1,559,099 | | 3,488 | | 0.90 | |
Investment securities1,2 | 9,170,016 |
| 42,866 |
| 1.85 |
| 8,381,503 |
| 30,704 |
| 1.46 |
| |
Advances2,3 | 32,465,954 |
| 113,834 |
| 1.39 |
| 30,037,475 |
| 59,098 |
| 0.78 |
| |
Mortgage loans2,4,5 | 6,943,148 |
| 54,548 |
| 3.12 |
| 6,516,558 |
| 50,164 |
| 3.06 |
| |
Investment securities1 | | Investment securities1 | 12,132,519 | | 31,800 | | 1.06 | | 14,069,587 | | 61,551 | | 1.76 | |
Advances1,2 | | Advances1,2 | 23,459,275 | | 35,443 | | 0.61 | | 28,933,750 | | 130,887 | | 1.82 | |
Mortgage loans3,4 | | Mortgage loans3,4 | 8,904,264 | | 53,478 | | 2.44 | | 10,846,508 | | 85,106 | | 3.16 | |
| Other interest-earning assets | 32,121 |
| 344 |
| 4.26 |
| 20,055 |
| 306 |
| 6.08 |
| Other interest-earning assets | 39,985 | | 257 | | 2.60 | | 54,294 | | 354 | | 2.62 | |
| Total earning assets | 54,145,508 |
| 228,008 |
| 1.67 |
| 49,404,972 |
| 145,477 |
| 1.17 |
| Total earning assets | 50,656,081 | | 122,256 | | 0.98 | | 61,020,124 | | 300,681 | | 1.98 | |
| Other non-interest-earning assets | 191,447 |
| |
| |
| 113,496 |
| |
| |
| Other non-interest-earning assets | 403,464 | | | 424,029 | | |
| Total assets | $ | 54,336,955 |
| |
| |
| $ | 49,518,468 |
| |
| |
| Total assets | $ | 51,059,545 | | | $ | 61,444,153 | | |
| | | | | | | | | | |
| Interest-bearing liabilities: | |
| |
| |
| |
| |
| |
| Interest-bearing liabilities: | |
| Deposits | $ | 463,183 |
| 988 |
| 0.85 |
| $ | 583,027 |
| 237 |
| 0.16 |
| Deposits | $ | 1,112,236 | | 108 | | 0.04 | | $ | 658,239 | | 1,554 | | 0.95 | |
Consolidated obligations2: | |
| |
| |
| |
| |
| |
| |
Consolidated obligations1: | | Consolidated obligations1: | |
| Discount Notes | 26,636,379 |
| 69,556 |
| 1.04 |
| 28,855,078 |
| 25,323 |
| 0.35 |
| Discount Notes | 10,680,579 | | 1,998 | | 0.08 | | 25,100,421 | | 92,951 | | 1.49 | |
| Bonds | 24,482,281 |
| 88,306 |
| 1.43 |
| 17,322,188 |
| 56,681 |
| 1.30 |
| Bonds | 35,824,080 | | 46,515 | | 0.53 | | 32,362,842 | | 150,742 | | 1.87 | |
| Other borrowings | 30,066 |
| 231 |
| 3.04 |
| 6,916 |
| 96 |
| 5.51 |
| Other borrowings | 43,804 | | 266 | | 2.46 | | 60,181 | | 348 | | 2.33 | |
| Total interest-bearing liabilities | 51,611,909 |
| 159,081 |
| 1.22 |
| 46,767,209 |
| 82,337 |
| 0.70 |
| Total interest-bearing liabilities | 47,660,699 | | 48,887 | | 0.42 | | 58,181,683 | | 245,595 | | 1.70 | |
| Capital and other non-interest-bearing funds | 2,725,046 |
| |
| |
| 2,751,259 |
| |
| |
| Capital and other non-interest-bearing funds | 3,398,846 | | | 3,262,470 | | |
| Total funding | $ | 54,336,955 |
| |
| |
| $ | 49,518,468 |
| |
| |
| Total funding | $ | 51,059,545 | | | $ | 61,444,153 | | |
| | | | | | | | | | |
Net interest income and net interest spread6 | |
| $ | 68,927 |
| 0.45 | % | |
| $ | 63,140 |
| 0.47 | % | |
Net interest income and net interest spread5 | | Net interest income and net interest spread5 | | $ | 73,369 | | 0.56 | % | | $ | 55,086 | | 0.28 | % |
| | | | | | | | | |
Net interest margin7 | |
| |
| 0.51 | % | |
| |
| 0.51 | % | |
Net interest margin6 | | Net interest margin6 | | 0.59 | % | | 0.36 | % |
| |
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. |
| |
3
| Advance income includes prepayment fees on terminated advances. |
| |
4
| CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was $1.4 million and $1.3 million for the three months ended September 30, 2017 and 2016, respectively. |
| |
5
| Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest. |
| |
6
| 1 Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment. 2 Advance income includes prepayment fees on terminated advances. 3 Credit enhancement fee payments are netted against interest earnings on the mortgage loans. The expense related to credit enhancement fee payments to PFIs was $1.7 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively. 4 Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest. 5Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. |
| |
7
| Net interest margin is net interest income as a percentage of average interest-earning assets. |
Changes in the volume of interest-earning assets and the levelcost of interest-bearing liabilities.
6 Net interest rates influence changes inmargin is defined as net interest income net interest spread and net interest margin. Table 6 summarizes changes in interest income and interest expense (in thousands):as a percentage of average interest-earning assets.
Table 6
|
| | | | | | | | | |
| | Three Months Ended |
| | 09/30/2017 vs. 09/30/2016 |
| | Increase (Decrease) Due to |
| | Volume1,2 | Rate1,2 | Total |
| Interest Income: | |
| |
| |
|
| Interest-bearing deposits | $ | (217 | ) | $ | 888 |
| $ | 671 |
|
| Securities purchased under agreements to resell | (547 | ) | 3,912 |
| 3,365 |
|
| Federal funds sold | 3,036 |
| 4,139 |
| 7,175 |
|
| Investment securities | 3,091 |
| 9,071 |
| 12,162 |
|
| Advances | 5,129 |
| 49,607 |
| 54,736 |
|
| Mortgage loans | 3,335 |
| 1,049 |
| 4,384 |
|
| Other assets | 147 |
| (109 | ) | 38 |
|
| Total earning assets | 13,974 |
| 68,557 |
| 82,531 |
|
| Interest Expense: | |
| |
| |
|
| Deposits | (58 | ) | 809 |
| 751 |
|
| Consolidated obligations: | |
| |
| |
|
| Discount notes | (2,091 | ) | 46,324 |
| 44,233 |
|
| Bonds | 25,350 |
| 6,275 |
| 31,625 |
|
| Other borrowings | 194 |
| (59 | ) | 135 |
|
| Total interest-bearing liabilities | 23,395 |
| 53,349 |
| 76,744 |
|
| Change in net interest income | $ | (9,421 | ) | $ | 15,208 |
| $ | 5,787 |
|
| |
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. |
Table 7 presents average balances and yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):
Table 7
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 |
| | 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 | % |
| Securities purchased under agreements to resell | 2,263,304 |
| 15,902 |
| 0.94 |
| 2,540,560 |
| 8,947 |
| 0.47 |
|
| Federal funds sold | 2,766,505 |
| 20,071 |
| 0.97 |
| 1,406,503 |
| 4,033 |
| 0.38 |
|
Investment securities1,2 | 8,801,097 |
| 114,983 |
| 1.75 |
| 7,915,035 |
| 94,984 |
| 1.60 |
|
Advances2,3 | 31,340,060 |
| 283,137 |
| 1.21 |
| 29,701,885 |
| 169,628 |
| 0.76 |
|
Mortgage loans2,4,5 | 6,790,722 |
| 157,074 |
| 3.09 |
| 6,450,693 |
| 153,457 |
| 3.18 |
|
| Other interest-earning assets | 27,411 |
| 928 |
| 4.53 |
| 20,569 |
| 947 |
| 6.16 |
|
| Total earning assets | 52,406,350 |
| 595,023 |
| 1.52 |
| 48,529,556 |
| 433,396 |
| 1.19 |
|
| Other non-interest-earning assets | 194,495 |
| |
| |
| 115,563 |
| |
| |
|
| Total assets | $ | 52,600,845 |
| |
| |
| $ | 48,645,119 |
| |
| |
|
| | | | | | | |
| Interest-bearing liabilities: | |
| |
| |
| |
| |
| |
|
| Deposits | $ | 500,423 |
| 2,366 |
| 0.63 |
| $ | 599,004 |
| 697 |
| 0.16 |
|
Consolidated obligations2: | |
| |
| |
| |
| |
| |
|
| Discount Notes | 26,922,459 |
| 162,539 |
| 0.81 |
| 27,898,952 |
| 70,502 |
| 0.34 |
|
| Bonds | 22,489,091 |
| 228,788 |
| 1.36 |
| 17,485,654 |
| 169,728 |
| 1.30 |
|
| Other borrowings | 15,389 |
| 454 |
| 3.94 |
| 8,756 |
| 277 |
| 4.23 |
|
| Total interest-bearing liabilities | 49,927,362 |
| 394,147 |
| 1.06 |
| 45,992,366 |
| 241,204 |
| 0.70 |
|
| Capital and other non-interest-bearing funds | 2,673,483 |
| |
| |
| 2,652,753 |
| |
| |
|
| Total funding | $ | 52,600,845 |
| |
| |
| $ | 48,645,119 |
| |
| |
|
| | | | | | | |
Net interest income and net interest spread6 | |
| $ | 200,876 |
| 0.46 | % | |
| $ | 192,192 |
| 0.49 | % |
| | | | | | | |
Net interest margin7 | |
| |
| 0.51 | % | |
| |
| 0.53 | % |
| |
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. |
| |
3
| Advance income includes prepayment fees on terminated advances. |
| |
4
| CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was $4.2 million and $3.9 million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
5
| Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest. |
| |
6
| Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. |
| |
7
| Net interest margin is 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 8 summarizes changes in interest income and interest expense (in thousands):
Table 8
| | | | | | | | | | Three Months Ended |
| | Nine Months Ended | | 03/31/2021 vs. 03/31/2020 |
| | 09/30/2017 vs. 09/30/2016 | | Increase (Decrease) Due to |
| | Increase (Decrease) Due to | | Volume1,2 | Rate1,2 | Total |
| | Volume1,2 | Rate1,2 | Total | |
| Interest Income: | |
| |
| |
| |
Interest Income3: | | Interest Income3: | |
| Interest-bearing deposits | $ | (249 | ) | $ | 1,777 |
| $ | 1,528 |
| Interest-bearing deposits | $ | (958) | | $ | (3,478) | | $ | (4,436) | |
| Securities purchased under agreements to resell | (1,072 | ) | 8,027 |
| 6,955 |
| Securities purchased under agreements to resell | (4,503) | | (9,598) | | (14,101) | |
| Federal funds sold | 6,210 |
| 9,828 |
| 16,038 |
| Federal funds sold | 1,549 | | (4,517) | | (2,968) | |
| Investment securities | 11,159 |
| 8,840 |
| 19,999 |
| Investment securities | (7,606) | | (22,145) | | (29,751) | |
| Advances | 9,827 |
| 103,682 |
| 113,509 |
| Advances | (21,116) | | (74,328) | | (95,444) | |
| Mortgage loans | 7,942 |
| (4,325 | ) | 3,617 |
| Mortgage loans | (13,692) | | (17,936) | | (31,628) | |
| Other assets | 269 |
| (288 | ) | (19 | ) | Other assets | (92) | | (5) | | (97) | |
| Total earning assets | 34,086 |
| 127,541 |
| 161,627 |
| |
| Interest Expense: | |
| |
| |
| |
| Total interest-earning assets | | Total interest-earning assets | (46,418) | | (132,007) | | (178,425) | |
Interest Expense3: | | Interest Expense3: | |
| Deposits | (133 | ) | 1,802 |
| 1,669 |
| Deposits | 642 | | (2,088) | | (1,446) | |
| Consolidated obligations: | |
| |
| |
| Consolidated obligations: | |
| Discount notes | (2,552 | ) | 94,589 |
| 92,037 |
| Discount notes | (34,287) | | (56,666) | | (90,953) | |
| Bonds | 50,566 |
| 8,494 |
| 59,060 |
| Bonds | 14,621 | | (118,848) | | (104,227) | |
| Other borrowings | 197 |
| (20 | ) | 177 |
| Other borrowings | (98) | | 16 | | (82) | |
| Total interest-bearing liabilities | 48,078 |
| 104,865 |
| 152,943 |
| Total interest-bearing liabilities | (19,122) | | (177,586) | | (196,708) | |
| Change in net interest income | $ | (13,992 | ) | $ | 22,676 |
| $ | 8,684 |
| Change in net interest income | $ | (27,296) | | $ | 45,579 | | $ | 18,283 | |
| |
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. |
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:Derivatives: The volatility in other income (loss) is driven predominantly by net gains (losses) on derivative and hedging transactions,economic derivatives, which generally includesinclude 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 9 through 12,and 10, 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 hedgesderivatives 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 toWe generally record net unrealized gains and losses on derivatives but to a much lesser degree.when the overall level of interest rates rises over the period and record net unrealized losses when the overall level of interest rates falls over the period. Net unrealized gains or losses on derivatives and the related trading securities are generallywill continue to be a function of the general level of LIBOR swap rates but are also impacted by swap spreads in relationship to the relevant index rate. Tables 9 and 10 present the spread between the LIBOR swap curve and the GSE interest rate curve (interest rate swaps that are economic hedges of GSE debentures held in trading). The net fair valuesearnings impact of derivatives and the related trading MBS are affected by the spread between the LIBOR swap curve and mortgage rates (interest rate swaps that are economic hedges of fixed rate GSE MBS heldfinancial instrument as recorded in trading).other non-interest income (in thousands):
Table 9
| | | | | | | | | | | | | | | | |
| | Three Months Ended 03/31/2021 |
| | Advances | Investments | Mortgage Loans | | | Total |
| Derivatives not designated as hedging instruments: | | | | | | |
| Economic hedges – unrealized gains (losses) due to fair value changes | $ | 2,302 | | $ | 32,309 | | $ | — | | | | $ | 34,611 | |
| Mortgage delivery commitments | — | | — | | (4,189) | | | | (4,189) | |
| | | | | | |
| Economic hedges – net interest received (paid) | (202) | | (12,639) | | — | | | | (12,841) | |
| Net gains (losses) on derivatives | 2,100 | | 19,670 | | (4,189) | | | | 17,581 | |
| Net gains (losses) on trading securities hedged on an economic basis with derivatives | — | | (26,794) | | — | | | | (26,794) | |
| TOTAL | $ | 2,100 | | $ | (7,124) | | $ | (4,189) | | | | $ | (9,213) | |
Table 10
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended 03/31/2020 |
| | Advances | Investments | Mortgage Loans | | Consolidated
Obligation Bonds | | Total |
| Derivatives not designated as hedging instruments: | | | | | | | |
| Economic hedges – unrealized gains (losses) due to fair value changes | $ | (3,872) | | $ | (108,050) | | $ | — | | | $ | 352 | | | $ | (111,570) | |
| Mortgage delivery commitments | — | | — | | (5,528) | | | — | | | (5,528) | |
| | | | | | | |
| Economic hedges – net interest received (paid) | (17) | | (5,267) | | — | | | 130 | | | (5,154) | |
| Net gains (losses) on derivatives | (3,889) | | (113,317) | | (5,528) | | | 482 | | | (122,252) | |
| Net gains (losses) on trading securities hedged on an economic basis with derivatives | — | | 94,467 | | — | | | — | | | 94,467 | |
| TOTAL | $ | (3,889) | | $ | (18,850) | | $ | (5,528) | | | $ | 482 | | | $ | (27,785) | |
For the three- and nine-month periodsthree months ended September 30, 2017,March 31, 2021, net unrealized gains and losses on derivatives and hedging activities decreasedresulted in an increase in net income by $9.9of $17.6 million and increased net income by $74.5 million, respectively, compared to a decrease of $122.3 million for the same periodsprior year period. The improvement for the current year period is related to the fair value recovery resulting from the normalization of spreads between investments and their associated swaps from the widening that occurred in 2016, primarilythe first quarter of 2020 as a result of changesthe COVID-19 pandemic that negatively impacted fair values. This improvement was partially offset by the decrease in the LIBORlevel of swap curve overindex rates from March 31, 2020 to March 31, 2021, which had a negative impact on the respective periods. The net losses on derivatives and hedging activities and trading securitiesinterest settlements of interest rate swaps, decreasing net income by $12.8 million for the current quarter correspondthree months ended March 31, 2021 compared to a decrease in net income of $5.2 million for the significant improvement in swap spreads 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 lossthree months ended March 31, 2020.
The fair value changes on the economic interest rate swaps hedging the multi-familymultifamily GSE MBS, U.S. Treasury obligations, and a decrease in unrealized gains on the economic swaps hedging the GSE debentures. The majority of the positive fair value fluctuations for the nine month-period were related 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 for the three and nine months ended September 30, 2017 were attributable topartially offset by 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,securities for the three months ended March 31, 2021, which are recorded in net gain (loss)gains (losses) on trading securities. Tables 13Table 11 depicts the considerable fair value impact of the aforementioned spread widening between investments and 14 presentswaps that occurred in the first quarter of 2020. The unrealized gains and losses on trading securities for the prior year period were generally driven by the change in interest rates and are discussed in greater detail below. Table 11 presents 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 1311
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| 03/31/2021 | 03/31/2020 |
| Gain (Loss) on Derivatives | Gain (Loss) on Trading Securities | Net | Gain (Loss) on Derivatives | Gain (Loss) on Trading Securities | Net |
| U.S. Treasury obligations | $ | 7,052 | | $ | (7,624) | | $ | (572) | | $ | (41,239) | | $ | 39,743 | | $ | (1,496) | |
| GSE debentures | 5,767 | | (4,997) | | 770 | | (19,884) | | 17,550 | | (2,334) | |
| GSE MBS | 19,322 | | (14,173) | | 5,149 | | (47,247) | | 37,174 | | (10,073) | |
| TOTAL | $ | 32,141 | | $ | (26,794) | | $ | 5,347 | | $ | (108,370) | | $ | 94,467 | | $ | (13,903) | |
|
| | | | | | | | | | | | | | | | | | |
| | Three 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 | $ | 1,252 |
| $ | (541 | ) | $ | 711 |
| $ | 8,956 |
| $ | (6,185 | ) | $ | 2,771 |
|
| GSE MBS | (84 | ) | 3,305 |
| 3,221 |
| 6,133 |
| 2,113 |
| 8,246 |
|
| TOTAL | $ | 1,168 |
| $ | 2,764 |
| $ | 3,932 |
| $ | 15,089 |
| $ | (4,072 | ) | $ | 11,017 |
|
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.
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 9 through 14.and 10. 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 1512 presents the major components of the net gain (loss)gains (losses) on trading securities (in thousands):
Table 1512
| | | | | | | | | | | |
| | | | | |
| | | Three Months Ended | |
| | | | 03/31/2021 | 03/31/2020 | |
| Trading securities not hedged: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| U.S. obligation MBS and GSE MBS | | | $ | 16 | | $ | (320) | | |
| Short-term securities | | | 31 | | 242 | | |
| Total trading securities not hedged | | | 47 | | (78) | | |
| Trading securities hedged on an economic basis with derivatives: | | | | | |
| U.S. Treasury obligations | | | (7,624) | | 39,743 | | |
| GSE debentures | | | (4,997) | | 17,550 | | |
| GSE MBS | | | (14,173) | | 37,174 | | |
| Total trading securities hedged on an economic basis with derivatives | | | (26,794) | | 94,467 | | |
| TOTAL | | | $ | (26,747) | | $ | 94,389 | | |
|
| | | | | | | | | | | | |
| | Three Months Ended | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 | 09/30/2017 | 09/30/2016 |
| Trading securities not hedged: | | | | |
| GSE debentures | $ | 390 |
| $ | 369 |
| $ | 1,242 |
| $ | 579 |
|
| U.S. obligation and GSE MBS | 97 |
| (125 | ) | 300 |
| (504 | ) |
| Short-term money market securities | 68 |
| 2 |
| 27 |
| 2 |
|
| Total trading securities not hedged | 555 |
| 246 |
| 1,569 |
| 77 |
|
| Trading securities hedged on an economic basis with derivatives: | | | | |
| GSE debentures | (541 | ) | (6,185 | ) | (415 | ) | 4,963 |
|
| GSE MBS | 3,305 |
| 2,113 |
| 15,246 |
| 58,864 |
|
| Total trading securities hedged on an economic basis with derivatives | 2,764 |
| (4,072 | ) | 14,831 |
| 63,827 |
|
| TOTAL | $ | 3,319 |
| $ | (3,826 | ) | $ | 16,400 |
| $ | 63,904 |
|
Our trading portfolio is comprised primarily of variable and fixed rate U.S. Treasury obligations, GSE debentures, and fixed rate multi-familymultifamily 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 and 1411 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-familymultifamily 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 fair values of the U.S. Treasury obligations are affected by changes in intermediate Treasury rates and swapped on an economic basis to the Overnight Index Swap rate (OIS) or SOFR. The unrealized gainslosses on our fixed rate multi-familythe U.S. Treasury obligations and GSE MBS investments increased $1.2 million for the current quarter duereflect the increase in intermediate Treasury and mortgage rates relative to a slight decreasethe prevailing yields at the end of 2020. The increase in mortgage-relatedintermediate interest rates and credit spreads compared tobetween periods also resulted in unrealized losses on the quarter ended September 30, 2016. The decrease of $43.6 million in net unrealized gains on these same investments 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.fixed rate GSE debentures. 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 the variable rate GSE debentures re-price monthly, they generally account for 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.
Other Expenses: Other expenses, which include compensation and benefits and other operating expenses, increased $1.6 million to $19.5 million and $3.3 million to $50.2decreased $0.7 million for the three and nine months ended September 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, 2017March 31, 2021, compared to the prior year period. The increaseperiod as a result of a decline in compensation was due to the hiring of additional employeesMPF transaction fees and an increase in the base salaries of existing employees.other operating expenses. We expect to remain at or near 2016 levels ofmodest increases in compensation and benefits expense for 2017. Other2021 in anticipation of hiring for new positions. We also expect an increase in operating expense increased by $1.1 million for the nine months ended September 30, 2017 primarilyin 2021 due to new software implementations and is expected to continue to increase during the remainder of 2017 and into 2018 due to additional planned software implementations. We expect a moderate increase in occupancy expense in 2017 as we complete construction of a new office building later this year, and as a result, experience duplicative maintenance costs for a brief period.
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 thecertain non-GAAP financial measures are helpful in understanding our operating results and provide meaningful period-to-period comparison of our performance by highlighting our underlyinglong-term economic value in contrast to GAAP results, and profitability. By removing volatility createdwhich can be impacted by fair value fluctuations and items suchchanges 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 useskey 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 duemargin, (4) adjusted ROE, and (5) adjusted ROE spread. 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. TheseAnother 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 theysuch 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 underfinancial information prepared in accordance with GAAP.
AdjustedAs part of evaluating our financial performance, we adjust net income increased $10.8 million and $25.2 millionreported in accordance with GAAP for the threeimpact 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, 2017hedging 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 periodsaverage 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 duelevel 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 adjustedperiod 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 interestincome. 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 includesand expense from derivatives, derivative accounting also impacts the impactpresentation of net interest settlements on derivatives not qualifyingand hedging activities. This presentation differs under GAAP for economic hedges when compared to hedges that qualify for hedge accounting, partially offset by an increaseaccounting. Net interest settlements on economic hedges are included with the economic derivative fair value changes and are recorded in other expenses, as discussed previously. Adjustednet gains (losses) on derivatives while the net interest settlements on qualifying fair value hedges are 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 and adjusted net interest income increased for 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(i.e., net interest settlements, of economic hedgeswhich represent actual cash inflows or outflows and do not create fair value volatility, are presented with the other componentsnot removed). Management uses adjusted net interest income to effectively evaluate drivers of net interest income because it reflectsby consistently presenting the impact of LIBOR repricingderivatives on both the assetnet interest margin. Fair value gains and liability. Adjustedlosses required by GAAP to be presented in net interest margin which is calculated withare 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 increased by five basis points for the three and nine months ended September 30, 2017. Under GAAP, the net interest amount that converts fixed rate investments that are economically swapped to a variable rate is recorded as part of Net Gain/Loss on Derivatives and Hedging Activities rather than net interest income. For the purpose of calculating adjusted net interest margin, these fixed rate investments are considered to be variable rate investments and 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 in LIBOR between periods. Under GAAP, an increase in LIBOR causes the spread to tighten between fixed rate assets and variable rate liabilities and therefore causes a decrease in net interest margin. Tables 16 and 17 presentpresentation purposes.
Table 13 presents a reconciliation of GAAP net income to adjusted income (in thousands):
Table 13
| | | | | | | | | | |
| | | | |
| | | Three Months Ended |
| | | | 03/31/2021 | 03/31/2020 |
| Net income, as reported under GAAP | | | $ | 43,906 | | $ | 11,832 | |
| AHP assessments | | | 4,880 | | 1,318 | |
| Income before AHP assessments | | | 48,786 | | 13,150 | |
Derivative (gains) losses1 | | | (36,575) | | 125,563 | |
| Trading (gains) losses | | | 26,747 | | (94,389) | |
| Prepayment fees on terminated advances | | | (1,132) | | (172) | |
| | | | |
| | | | |
| Net (gains) losses on sale of available-for-sale securities | | | — | | (1,523) | |
| Total excluded items | | | (10,960) | | 29,479 | |
| Adjusted income (a non-GAAP measure) | | | $ | 37,826 | | $ | 42,629 | |
1 Consists of fair value changes on all derivatives and hedging activities excluding net interest settlements on economic hedges.
Table 14 presents a reconciliation of GAAP net interest income and GAAP net interest incomemargin 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 | % |
Table 1814
| | | | | | | | | | |
| | | | |
| | Three Months Ended |
| | | 03/31/2021 | 03/31/2020 |
| Net interest income, as reported under GAAP | | | $ | 73,369 | | $ | 55,086 | |
| (Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income | | | (6,161) | | 8,284 | |
| Net interest settlements on derivatives not qualifying for hedge accounting | | | (12,841) | | (5,154) | |
| Prepayment fees on terminated advances | | | (1,132) | | (172) | |
| Adjusted net interest income (a non-GAAP measure) | | | $ | 53,235 | | $ | 58,044 | |
| | | | |
| Net interest margin, as calculated under GAAP | | | 0.59 | % | 0.36 | % |
| Adjusted net interest margin (a non-GAAP measure) | | | 0.43 | % | 0.38 | % |
Table 15 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 increasedecrease in adjusted ROE betweenfor the comparative periods is mostly a function of increasesthree months ended March 31, 2021 compared to the prior year period reflects the decrease in adjusted net interest income, despite the increase in average capital as a result of the increase in advances.income. Adjusted ROE spread for the three and nine months ended September 30, 2017 and 2016 is calculated as follows (dollar amounts in thousands):
Table 1815
| | | | | | | | | | |
| | | | |
| | | Three Months Ended |
| | | | 03/31/2021 | 03/31/2020 |
| Average GAAP total capital | | | $ | 2,718,579 | | $ | 2,725,602 | |
| ROE, based upon GAAP net income | | | 6.55 | % | 1.75 | % |
| Adjusted ROE, based upon adjusted income (a non-GAAP measure) | | | 5.64 | % | 6.29 | % |
| Average overnight Federal funds effective rate | | | 0.08 | % | 1.23 | % |
| GAAP ROE as a spread to average overnight Federal funds effective rate | | | 6.47 | % | 0.52 | % |
| Adjusted ROE as a spread to average overnight Federal funds effective rate (a non-GAAP measure) | | | 5.56 | % | 5.06 | % |
|
| | | | | | | | | | | | |
| | Three Months Ended | Nine Months Ended |
| | 09/30/2017 | 09/30/2016 | 09/30/2017 | 09/30/2016 |
| Average GAAP total capital for the period | $ | 2,456,549 |
| $ | 2,206,927 |
| $ | 2,376,455 |
| $ | 2,163,089 |
|
| ROE, based upon GAAP net income | 8.00 | % | 8.69 | % | 8.37 | % | 7.43 | % |
| Adjusted ROE, based upon adjusted income | 7.88 | % | 6.84 | % | 8.14 | % | 7.38 | % |
| Average overnight Federal funds effective rate | 1.16 | % | 0.40 | % | 0.94 | % | 0.38 | % |
| Adjusted ROE as a spread to average overnight Federal funds effective rate | 6.72 | % | 6.44 | % | 7.20 | % | 7.00 | % |
Financial Condition
Overall: Total assets increased $4.1declined between periods, from $52.6 billion or 9.2 percent,at December 31, 2020 to $48.5 billion at March 31, 2021, driven by the decrease in the short-term liquidity portfolio between those periods, which was elevated at December 31, 2020 in anticipation of potential year-end financial disruptions. Advances remained relatively flat from December 31, 20162020 to September 30, 2017. This growth was due primarilyMarch 31, 2021, decreasing from $21.2 billion to continued growth in advances, mostly in our line$21.1 billion, representing 43.4 percent of credit and adjustable rate callable advances, and continued steady growth in our mortgage loan portfolio. Our mortgage loan portfolio reached $7.1total assets as of March 31, 2021 compared to 40.4 percent as of December 31, 2020. Mortgage loans decreased by $0.5 billion during the first quarter, ended September 30, 2017, with recent growth attributedrepresenting 17.9 percent of total assets as of March 31, 2021, compared to recruitment17.5 percent as of high-production PFIs and program enhancements that provide PFIs with additional funding opportunities. We have been actively promoting the impactDecember 31, 2020. Mortgage loans are one of the dividend paidhighest net spread assets on outstanding capital stock onour balance sheet and as they increase as a percent of total assets, all things being equal, they have the effective borrowing cost of advancespotential to increase member awareness of the benefit of higher dividends since 2014 (and raised again in 2017 for both our Class A and Class B Common Stock), whichnet interest margin, although accelerated premium amortization from mortgage loan prepayments 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 increasesspread compression in the average balance of both advances 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.
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 resultingrecent periods. Total liabilities decreased $4.1 billion 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 growth2020 to March 31, 2021, which corresponded with the decline in the mortgage portfolio. Advance balances fluctuate seasonally and tend to trend down at the endassets. The funding mix 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, 2017remained relatively consistent from December 31, 2020 to March 31, 2021. 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, 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 "Risk Management – Interest Rate Risk Management" under this Item 2.
Total capital increased $23.3 million, or 0.9 percent, from December 31, 2020 to March 31, 2021 due to unrealized gains on available-for-sale securities and net income in excess of dividends paid, partially offset by a decrease in excess capital stock.
Dividends paid to members totaled $16.3 million for the three months ended March 31, 2021 compared to December$24.9 million for the same period in the prior year. From March 31, 2016,2020 to March 31, 2021, the dividend rate for Class A Common Stock decreased from 2.25 percent to 0.25 percent and we increased the allocationdividend rate for Class B Common Stock decreased from 7.25 percent to 5.25 percent. The weighted average dividend rate for the three months ended March 31, 2021 was 4.15 percent, which represented a dividend payout ratio of floating37.1 percent, compared to a weighted average dividend rate consolidated obligation bondsof 5.94 percent and a payout ratio of 210.5 percent for the same period in 2020. The decrease in payout ratios between periods was a result of the dramatic decline in income in the first quarter of 2020 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 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 March 2021 were based on income during the three months ended February 28, 2021. Our dividend rates have historically moved in tandem with longer-term structuresshort-term market rates, so the decrease reflects the decline in market interest rates resulting from FOMC rate cuts in March 2020 to increase liquidity in responsestimulate the U.S. economy. (See Part I, Item 1 – “Business – Capital, Capital Rules and Dividends” of our Form 10-K for other factors that contribute to uncertainty surrounding the pending Congressional budget resolutionlevel of dividends paid). We anticipate stock dividends on Class A Common Stock and debt ceiling deadline. We continue to fundClass B Common Stock will remain at these lower levels during 2021, consistent with the lower level of short‑term interest rates and our short-term advances and overnight investments with term discount notes. retained earnings policy.
Table 1916 presents the percentage concentration of the major components of our Statements of Condition:
Table 19
|
| | | | |
| | Component Concentration |
| | 09/30/2017 | 12/31/2016 |
| Assets: | | |
| Cash and due from banks | — | % | 0.5 | % |
| Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold | 9.3 |
| 12.2 |
|
| Investment securities | 18.6 |
| 17.9 |
|
| Advances | 57.4 |
| 53.0 |
|
| Mortgage loans, net | 14.3 |
| 14.7 |
|
| Overnight loans to other FHLBanks | — |
| 1.3 |
|
| Other assets | 0.4 |
| 0.4 |
|
| Total assets | 100.0 | % | 100.0 | % |
| | | |
| Liabilities: | | |
| Deposits | 1.1 | % | 1.3 | % |
| Consolidated obligation discount notes, net | 43.1 |
| 48.2 |
|
| Consolidated obligation bonds, net | 50.8 |
| 45.8 |
|
| Other liabilities | 0.3 |
| 0.4 |
|
| Total liabilities | 95.3 |
| 95.7 |
|
| | | |
| Capital: | | |
| Capital stock outstanding | 3.0 |
| 2.7 |
|
| Retained earnings | 1.7 |
| 1.6 |
|
| Accumulated other comprehensive income (loss) | — |
| — |
|
| Total capital | 4.7 |
| 4.3 |
|
| Total liabilities and capital | 100.0 | % | 100.0 | % |
Table 2016
| | | | | | | | |
| Component Concentration |
| 03/31/2021 | 12/31/2020 |
| Assets: | | |
| Cash and due from banks | 0.1 | % | 8.7 | % |
| Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold | 12.7 | | 9.8 | |
| Investment securities | 25.2 | | 23.0 | |
| Advances | 43.4 | | 40.4 | |
| Mortgage loans, net | 17.9 | | 17.5 | |
| | |
| Other assets | 0.7 | | 0.6 | |
| Total assets | 100.0 | % | 100.0 | % |
| | |
| Liabilities: | | |
| Deposits | 2.6 | % | 2.3 | % |
| Consolidated obligation discount notes, net | 20.8 | | 20.7 | |
| Consolidated obligation bonds, net | 70.7 | | 71.6 | |
| Other liabilities | 0.3 | | 0.3 | |
| Total liabilities | 94.4 | | 94.9 | |
| | |
| Capital: | | |
| Capital stock outstanding | 3.2 | | 3.0 | |
| Retained earnings | 2.2 | | 2.0 | |
| Accumulated other comprehensive income (loss) | 0.2 | | 0.1 | |
| Total capital | 5.6 | | 5.1 | |
| Total liabilities and capital | 100.0 | % | 100.0 | % |
Table 17 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):
Table 2017
| | | | | | | | |
| Increase (Decrease)
in Components |
| 03/31/2021 vs. 12/31/2020 |
| Dollar
Change | Percent
Change |
| Assets: | | |
| Cash and due from banks | $ | (4,505,279) | | (98.6) | % |
| Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold | 1,023,487 | | 19.9 | |
| Investment securities | 86,169 | | 0.7 | |
| Advances | (158,457) | | (0.7) | |
| Mortgage loans, net | (538,122) | | (5.8) | |
| | |
| Other assets | 918 | | 0.3 | |
| Total assets | $ | (4,091,284) | | (7.8) | % |
| | |
| Liabilities: | | |
| Deposits | $ | 33,584 | | 2.7 | % |
| Consolidated obligation discount notes, net | (809,728) | | (7.4) | |
| Consolidated obligation bonds, net | (3,334,070) | | (8.9) | |
| Other liabilities | (4,356) | | (2.7) | |
| Total liabilities | (4,114,570) | | (8.2) | |
| | |
| Capital: | | |
| Capital stock outstanding | (33,639) | | (2.1) | |
| Retained earnings | 27,619 | | 2.6 | |
| Accumulated other comprehensive income (loss) | 29,306 | | 69.3 | |
| Total capital | 23,286 | | 0.9 | |
| Total liabilities and capital | $ | (4,091,284) | | (7.8) | % |
|
| | | | | |
| | 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.
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 Paycheck Protection Program (PPP) Liquidity Facility was a direct competitor for FHLBank advances during the majority 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. We continuously evaluate our product offerings in an effort to anticipate and meet member demand and stay competitive, especially as funding availability changes, including the transition from LIBOR to other indices with less optionality. As such, in October 2020, we placed a moratorium on the issuance of convertible advances and we no longer offer the Member Option Advance, which was a form of callable advance where the cost of the call option is paid upfront.
Advances decreased $0.2 billion from December 31, 2020 to March 31, 2021. Although balances remained fairly flat since year end, the relatively low balances reflect the continued decrease in member demand for advances, as many members have experienced significant deposit inflows and excess liquidity since March 2020 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 experienced since March 2020 is attributable to our largest borrowers, the decline in advance demand was widespread among our membership. As interest rates declined, beginning late in March 2020, advance composition shifted from adjustable rate to fixed rate, as members called adjustable rate callable advances in favor of regular and short-term fixed rate advances. Members also modified advances to lower rates and extended fixed rate advance terms as a result of the decline in interest rates. We anticipate volatility in advance balances in 2021 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. Advances could decline if additional economic stimulus increases market liquidity as it flows to members in the form of deposits.We also anticipate continued high levels of advance modifications, which we believe will lower the yield on the portfolio to current market rates, but the advance is retained and the member pays a prepayment fee for the modification.
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 had a term of six months and the low-cost advances have terms between 6 and 24 months. As of March 31, 2021, $0.4 billion of low-cost advances were outstanding. All zero-cost advances had matured as of December 31, 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 the pandemic continues to have an adverse impact on households and businesses.
In January 2021, we began offering an overnight line of credit (OLOC) product, which is intended to replace the legacy line of credit product, which we anticipate discontinuing in February 2022. The legacy line of credit is established for a term of one year and is prepayable, with the amount of credit available for the remaining term of the commitment. OLOC advances are draws under an established line of credit confirmation, with outstanding amounts maturing daily. The rate for each product is determined daily based upon underlying terms. As such, the difference in commitment terms between the OLOC and the legacy line of credit impacts funding strategy and therefore pricing; the OLOC allows us to provide competitively-priced overnight funding to members. All legacy line of credit balances were transferred to OLOC upon establishment of the OLOC.
Table 2118 summarizes advances outstanding by product (dollar amounts in thousands):
Table 21
|
| | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| | Dollar | Percent | Dollar | Percent |
| Adjustable rate: | |
| |
| |
| |
|
| Standard advance products: | |
| |
| |
| |
|
| Line of credit | $ | 13,272,467 |
| 46.9 | % | $ | 9,634,491 |
| 40.2 | % |
| Regular adjustable rate advances | 352,975 |
| 1.3 |
| 75,000 |
| 0.3 |
|
| Adjustable rate callable advances | 7,165,660 |
| 25.3 |
| 6,161,835 |
| 25.7 |
|
| Standard housing and community development advances: | |
| |
| |
| |
|
| Adjustable rate callable advances | 98,002 |
| 0.3 |
| 99,002 |
| 0.4 |
|
| Total adjustable rate advances | 20,889,104 |
| 73.8 |
| 15,970,328 |
| 66.6 |
|
| Fixed rate: | |
| |
| |
| |
|
| Standard advance products: | |
| |
| |
| |
|
| Short-term fixed rate advances | 391,250 |
| 1.4 |
| 452,545 |
| 1.9 |
|
| Regular fixed rate advances | 4,899,504 |
| 17.3 |
| 5,084,882 |
| 21.2 |
|
| Fixed rate callable advances | 13,470 |
| — |
| 39,445 |
| 0.2 |
|
| Standard housing and community development advances: | |
| |
| |
| |
| Regular fixed rate advances | 423,840 |
| 1.5 |
| 400,412 |
| 1.7 |
|
| Fixed rate callable advances | 4,831 |
| — |
| 4,000 |
| — |
|
| Total fixed rate advances | 5,732,895 |
| 20.2 |
| 5,981,284 |
| 25.0 |
|
| Convertible: | |
| |
| |
| |
|
| Standard advance products: | |
| |
| |
| |
|
| Fixed rate convertible advances | 884,950 |
| 3.1 |
| 1,147,392 |
| 4.8 |
|
| Amortizing: | |
| |
| |
| |
|
| Standard advance products: | |
| |
| |
| |
|
| Fixed rate amortizing advances | 392,117 |
| 1.4 |
| 409,926 |
| 1.7 |
|
| Fixed rate callable amortizing advances | 20,714 |
| 0.1 |
| 23,239 |
| 0.1 |
|
| Standard housing and community development advances: | |
| |
| |
| �� |
| Fixed rate amortizing advances | 390,153 |
| 1.4 |
| 419,587 |
| 1.8 |
|
| Fixed rate callable amortizing advances | 7,783 |
| — |
| 8,759 |
| — |
|
| Total amortizing advances | 810,767 |
| 2.9 |
| 861,511 |
| 3.6 |
|
| TOTAL PAR VALUE | $ | 28,317,716 |
| 100.0 | % | $ | 23,960,515 |
| 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).
Table 18
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| | Dollar | Percent | Dollar | Percent |
| Line of Credit: | | | | |
Legacy line of credit1 | $ | — | | — | % | $ | 979,591 | | 4.6 | % |
Overnight line of credit2 | 1,324,114 | | 6.3 | % | — | | — | |
| Total line of credit advances | 1,324,114 | | 6.3 | | 979,591 | | 4.6 | |
| Adjustable rate: | | | | |
| Standard advance products: | | | | |
| Regular adjustable rate advances | 1,272,700 | | 6.1 | | 1,132,700 | | 5.4 | |
| Adjustable rate callable advances | 2,177,600 | | 10.4 | | 2,322,600 | | 11.1 | |
| | | | |
| | | | |
| Standard housing and community development advances: | | | | |
| | | | |
| Adjustable rate callable advances | 35,712 | | 0.2 | | 35,712 | | 0.2 | |
| Total adjustable rate term advances | 3,486,012 | | 16.7 | | 3,491,012 | | 16.7 | |
| Fixed rate: | | | | |
| Standard advance products: | | | | |
Short-term fixed rate advances3 | 8,260,856 | | 39.4 | | 8,672,584 | | 41.4 | |
| Regular fixed rate advances | 5,201,219 | | 24.8 | | 5,055,179 | | 24.1 | |
| Fixed rate callable advances | 23,256 | | 0.1 | | 20,146 | | 0.1 | |
| Standard housing and community development advances: | | | | |
| Regular fixed rate advances | 446,713 | | 2.1 | | 461,178 | | 2.2 | |
| Fixed rate callable advances | 831 | | — | | 831 | | — | |
| Total fixed rate term advances | 13,932,875 | | 66.4 | | 14,209,918 | | 67.8 | |
| Convertible: | | | | |
| Standard advance products: | | | | |
| Fixed rate convertible advances | 1,596,200 | | 7.6 | | 1,656,550 | | 7.9 | |
| Amortizing: | | | | |
| Standard advance products: | | | | |
| Fixed rate amortizing advances | 304,330 | | 1.5 | | 323,928 | | 1.5 | |
| Fixed rate callable amortizing advances | 12,589 | | 0.1 | | 10,702 | | 0.1 | |
| Standard housing and community development advances: | | | | |
| Fixed rate amortizing advances | 283,411 | | 1.4 | | 292,448 | | 1.4 | |
| Fixed rate callable amortizing advances | 8,463 | | — | | 8,292 | | — | |
| Total amortizing advances | 608,793 | | 3.0 | | 635,370 | | 3.0 | |
| TOTAL PAR VALUE | $ | 20,947,994 | | 100.0 | % | $ | 20,972,441 | | 100.0 | % |
1 Represents adjustable rate revolving line of credit advances that may be repaid at any time, with a term of one year.
2 Represents fixed rate line of credit advances with daily maturities.
3 Representsnon-amortizing, non-prepayable loans with terms to maturity from 3 to 93 days.
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 30, 2017March 31, 2021 and December 31, 2016. The 18.2 percent increase in advance2020. Advance par value decreased by 0.1 percent from December 31, 20162020 to March 31, 2021 (see Table 21) was due mostly18). 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 in our line of credit andbenefit from the relatively low interest rate environment. Members have been transitioning away from 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 assetspricing 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 30, 2017March 31, 2021 and December 31, 2016, 68.02020, 55.0 percent and 65.756.3 percent, respectively, of our members carried outstanding advance balances. The overall demand for our advances canis typically be attributedinfluenced by our members’ ability to profitably invest the demandfunds in loans and investments as well as their need for loans that our depository members are experiencingliquidity, which is influenced by changes in their communitiesloan demand and their ability to fund those loansefficiently grow deposits proportionately. As previously mentioned, most members are flush with deposit growth. It is also influenced byliquidity as a result of economic stimulus payments and other funding options such as the Federal Reserve Bank's PPP Liquidity Facility. Advance demand could decline further if additional economic stimulus or government programs increase market liquidity as it flows to members in the form of deposits.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 sinceFollowing the last half of 2014, which has provided members with more opportunitiesrecent steep decline in rates, our short-term advances should remain attractive relative to profitably investother funding options even when taking the reduction in dividend rates into consideration. When, and if, member advance funding, resulting in historically high levels of advances outstanding. The majority of the growth in advances experienced isdemand 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 otherfew larger members could decline or remain flat until greater levelshave 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- or three-month LIBOR)(e.g., 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 89.590.2 percent and 87.589.3 percent of our total advance portfolio as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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. Furthermore, we began offering adjustable rate advances indexed to SOFR in late 2020. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.
Table 2219 presents information on our five largest borrowers (dollar amounts in thousands). If the borrower was not one of our top five borrowers for one of the periods presented, the applicable columns are left blank. We haveBased on no historical loss experience on advances since the inception of FHLBank, along with our 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 22
|
| | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Borrower Name | 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 |
|
| Capitol Federal Savings Bank | 2,175,000 |
| 7.7 |
| 2,275,000 |
| 9.5 |
|
| United of Omaha Life Insurance Co. | 793,818 |
| 2.8 |
| 670,000 |
| 2.8 |
|
| Bellco Credit Union | 696,000 |
| 2.5 |
|
|
|
|
|
| Mutual of Omaha Bank |
|
|
|
| 556,000 |
| 2.3 |
|
| TOTAL | $ | 15,129,818 |
| 53.5 | % | $ | 12,641,000 |
| 52.7 | % |
Table 2319
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| Borrower Name | Advance
Par Value | Percent of Total Advance Par | Advance
Par Value | Percent of Total Advance Par |
| MidFirst Bank | $ | 7,800,000 | | 37.2 | % | $ | 7,460,000 | | 35.6 | % |
| United of Omaha Life Insurance Co. | 1,743,136 | | 8.3 | | 1,420,604 | | 6.8 | |
| Capitol Federal Savings Bank | 1,590,000 | | 7.6 | | 1,740,000 | | 8.3 | |
| Security Life of Denver Insurance Co. | 1,110,000 | | 5.3 | | 1,010,000 | | 4.8 | |
| American Fidelity Assurance Co. | 511,500 | | 2.4 | | | |
| Gateway First Bank | | | 547,468 | | 2.6 | |
| | | | |
| TOTAL | $ | 12,754,636 | | 60.8 | % | $ | 12,178,072 | | 58.1 | % |
Table 20 presents theaccrued interest income associated with the five borrowers with the highest interest income for the periods presented (dollar amounts in thousands).
Table 23
|
| | | | | | | | | | |
| | Three Months Ended |
| | 09/30/2017 | 09/30/2016 |
| Borrower Name | Advance Income | Percent of Total Advance Income1 | Advance Income | Percent of Total Advance Income1 |
| MidFirst Bank | $ | 20,151 |
| 16.4 | % | $ | 5,852 |
| 7.4 | % |
| BOKF, N.A. | 19,678 |
| 16.0 |
| 8,692 |
| 11.0 |
|
| Capitol Federal Savings Bank | 17,649 |
| 14.3 |
| 15,999 |
| 20.3 |
|
| American Fidelity Assurance Co. | 3,543 |
| 2.9 |
| 4,062 |
| 5.2 |
|
| United of Omaha Life Insurance Co. | 3,037 |
| 2.5 |
| 1,924 |
| 2.4 |
|
| TOTAL | $ | 64,058 |
| 52.1 | % | $ | 36,529 |
| 46.3 | % |
| |
1
| Total advance income by borrower excludes 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 and $(21.0) million for the three months ended September 30, 2017 and 2016, respectively. |
Table 24 presents If the accrued interest income associated with theborrower was not one of our top five borrowers providingfor whom we accrued the highest amount of interest income for one of the periods presented, (dollar amounts in thousands).the applicable columns are left blank.
Table 2420
| | | | Nine Months Ended | | Three Months Ended |
| | 09/30/2017 | 09/30/2016 | | 03/31/2021 | 03/31/2020 |
| Borrower Name | Advance Income | Percent of Total Advance Income1 | Advance Income | Percent of Total Advance Income1 | Borrower Name | Advance Income | Percent of Total Advance Income1 | Advance Income | Percent of Total Advance Income1 |
| MidFirst Bank | | MidFirst Bank | $ | 5,682 | | 11.8 | % | $ | 30,585 | | 22.9 | % |
| Capitol Federal Savings Bank | $ | 51,788 |
| 16.2 | % | $ | 48,202 |
| 20.5 | % | Capitol Federal Savings Bank | 4,650 | | 9.6 | | 10,480 | | 7.8 | |
| MidFirst Bank | 47,503 |
| 14.9 |
| 17,183 |
| 7.3 |
| |
| BOKF, N.A. | 45,643 |
| 14.3 |
| 24,302 |
| 10.3 |
| |
| American Fidelity Assurance Co. | 10,765 |
| 3.4 |
| 12,143 |
| 5.1 |
| American Fidelity Assurance Co. | 2,793 | | 5.8 | | |
| United of Omaha Life Insurance Co. | 7,774 |
| 2.5 |
| 5,725 |
| 2.4 |
| United of Omaha Life Insurance Co. | 1,781 | | 3.7 | | 4,820 | | 3.6 | |
| WEOKIE Federal Credit Union | | WEOKIE Federal Credit Union | 1,470 | | 3.0 | | |
| BOKF, N.A. | | BOKF, N.A. | | 26,613 | | 19.9 | |
| Security Life of Denver Insurance Co. | | Security Life of Denver Insurance Co. | | 4,276 | | 3.2 | |
| TOTAL | $ | 163,473 |
| 51.3 | % | $ | 107,555 |
| 45.6 | % | TOTAL | $ | 16,376 | | 33.9 | % | $ | 76,774 | | 57.4 | % |
| |
1
| Total advance income by borrower excludes 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 and $(67.7) million for the nine months ended September 30, 2017 and 2016, respectively.
|
1 Total advance income by borrower excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the advances; and (3) prepayment fees received.
See Table 4 presentsfor information on the amount of interest income on advances as a percentage of total interest income for the three and nine months ended September 30, 2017March 31, 2021 and 2016.2020.
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 ninethree months ended September 30, 2017March 31, 2021 was $1.1$0.5 billion. These new originations and acquisitions, net ofThe low interest rate environment has increased mortgage loan payments received,prepayments, which has resulted in an increasea decrease of 6.25.8 percent in the outstanding net balance of our mortgage loan portfolio from December 31, 20162020 to September 30, 2017.March 31, 2021. Net mortgage loans as a percentage of total assets decreased slightlyincreased, from 14.717.5 percent as of December 31, 20162020 to 14.317.9 percent as of September 30, 2017.March 31, 2021. 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 months ended September 30, 2017March 31, 2021 and 2016. Although2020.
As a result of the recent decline in advances, we are monitoring our targeted AMA risk tolerance as a percent of our balance sheet and are implementing strategies to manage growth in the mortgage loan balances grew to over $7.0 billionportfolio. Future growth in the MPF portfolio is a function of asset size and composition, most notably the balance of advances, and a multiple of capital, as growth in advances impacts our capital level and allows the balance 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.
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 past production may reducewithout exceeding our PFIs' risk-based capital requirements and result in additional MPF portfolio growth.targeted AMA risk tolerance. The primaryother 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 selling or 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, althoughinvestors 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 30, 2017.March 31, 2021. 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 usedour ability to refer PFIs to the MPF Xtra product and mortgage loan participations with another FHLBank to effectively restrict the growth in mortgage loans held for portfolio and providehas assisted management with adequate means to controlcontrolling the amount of mortgage loan portfolio volume retained on our balance sheet to maintain our desired asset composition.composition while continuing to assist our members with mortgage liquidity. 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 products are intended to enhance our ability to manage mortgage volumes andWe 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.
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 Effective January 1, 2022, the MPF Xtra product is subject to an annual limit of $1.5 billion program-wide for all participating FHLBanks combined, which is expected to reduce volumes and, therefore, fee income as well. The MPF Program and the previously discussed reduction in CE obligation availableis developing alternatives to PFIs. MPF Xtra intended to provide similar liquidity channels for mortgage loans.
Table 2521 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 2521
| | | | | | | | | | | | | | |
| | 03/31/2021 | 12/31/2020 |
| | Mortgage
Loan Balance | Percent of Total Mortgage Loans | Mortgage
Loan Balance | Percent of Total Mortgage Loans |
| NBKC Bank | $ | 358,233 | | 4.2 | % | $ | 481,224 | | 5.3 | % |
| Tulsa Teachers Credit Union | 332,943 | | 3.9 | | 338,935 | | 3.7 | |
| Fidelity Bank | 309,266 | | 3.6 | | 333,086 | | 3.7 | |
| FirstBank of Colorado | 277,285 | | 3.2 | | 318,220 | | 3.5 | |
| West Gate Bank | 225,465 | | 2.6 | | 270,985 | | 3.0 | |
| | | | |
| | | | |
| TOTAL | $ | 1,503,192 | | 17.5 | % | $ | 1,742,450 | | 19.2 | % |
|
| | | | | | | | | | |
| | 09/30/2017 | 12/31/2016 |
| | Mortgage Loan Balance | Percent of Total Mortgage Loans | Mortgage Loan Balance | Percent of Total Mortgage Loans |
| FirstBank of Colorado | $ | 310,484 |
| 4.5 | % | $ | 273,386 |
| 4.2 | % |
| Tulsa Teachers Credit Union | 263,553 |
| 3.8 |
| 242,312 |
| 3.7 |
|
| 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 |
|
| SAC Federal Credit Union | | | 141,992 |
| 2.2 |
|
| TOTAL | $ | 1,069,679 |
| 15.4 | % | $ | 941,373 |
| 14.4 | % |
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 30, 2017March 31, 2021 was 750749 and 74.173.8 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 as of September 30, 2017decreased $0.2 million from December 31, 2020 to March 31, 2021. The small reversal in the provision for the quarter ended March 31, 2021 was primarily attributabledue to a decrease in delinquent loans during the first nine monthssize of 2017. We have analyzed the potential impact that damageportfolio, strong performance among those borrowers not directly impacted by the COVID-19 pandemic and a more favorable outlook on the recovery in the labor markets. As anticipated, there has been an increase in charge-offs related to Hurricanes Irma and Harvey might have on mortgage loans held for portfolio. 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 dueserious delinquencies largely attributable to the combination of property/flood insurance coverage and borrower equity in the impacted areas. We will continue to evaluate thenegative impact of the hurricanesCOVID-19 pandemic on our mortgagesome borrowers. When a loan is charged off, it reduces the allowance and removes the charged-off loan from the pool of loans heldthat are collectively evaluated. This effectively boosts the performance statistics of the collectively evaluated pool, which also explains the reversal of the provision recorded for portfolio. If additional information becomes available indicating that mortgagethe quarter ended March 31, 2021. As of March 31, 2021, there was $67.0 million, or 0.8 percent, of unpaid principal balances of conventional loans in any impacted areas have been impaireda forbearance plan as a result of COVID-19, representing $1.3 million, $4.6 million, $7.5 million, and $53.6 million with payment status of current, 30 to 59 days past due, 60 to 89 days past due, and greater than 90 days past due, respectively. Delinquencies of conventional loans, including loans in a COVID-19 forbearance plan, remained at low levels relative to the amountportfolio, at 2.1 percent of the loss can be reasonably estimated, we will record appropriate reservesamortized cost of total conventional loans at that time.both March 31, 2021 and December 31, 2020. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held infor 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 indicatorsstatistics for our mortgage loan portfolio.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows financial institutions to provide payment forbearance to assist borrowers who have experienced a hardship resulting from COVID-19. Our mortgage loan 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, which could impact our mortgage loan portfolio and allowance in future periods.
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 $1.1 billion from December 31, 20162020 to September 30, 2017March 31, 2021 primarily due to increases in MBS and certificates of deposit, partially offset by a decrease in money market investments. Thenet increase in 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.short-term investments.
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 Boardboard of Directorsdirectors 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, but typically made on an overnight 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 2622 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 2622
| | | | 09/30/2017 | 12/31/2016 | | 03/31/2021 | 12/31/2020 |
| Interest-bearing deposits | $ | 299,741 |
| $ | 385,148 |
| Interest-bearing deposits | $ | 553,130 | | $ | 756,250 | |
| Federal funds sold | 1,692,000 |
| 2,725,000 |
| Federal funds sold | 3,905,000 | | 1,780,000 | |
| | Certificates of deposit | 675,027 |
| — |
| Certificates of deposit | 675,031 | | — | |
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1 | $ | 2,666,768 |
| $ | 3,110,148 |
| TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1 | $ | 5,133,161 | | $ | 2,536,250 | |
| |
11 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. | 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 Part II, 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, 2016.2020. As of September 30, 2017,March 31, 2021, 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 30, 2017,March 31, 2021, all unsecured investments were rated as investment grade based on NRSROs (see Table 30)26).
Table 2723 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 30, 2017March 31, 2021 (in thousands). We also mitigate the credit risk on investments by generally investing in investments that have short-term maturities.
Table 2723
| | | Domicile of Counterparty | Overnight | Due 2 – 30 days | Due 31 – 90 days | Total | Domicile of Counterparty | Overnight | Due 2 – 30
days | Due 31 – 90
days | | Total |
| Domestic | $ | 299,741 |
| $ | — |
| $ | — |
| $ | 299,741 |
| Domestic | $ | 553,130 | | $ | — | | $ | — | | | $ | 553,130 | |
| U.S. subsidiaries of foreign commercial banks | 42,000 |
| — |
| — |
| 42,000 |
| U.S. subsidiaries of foreign commercial banks | — | | — | | 125,004 | | | 125,004 | |
| Total domestic and U.S. subsidiaries of foreign commercial banks | 341,741 |
| — |
| — |
| 341,741 |
| Total domestic and U.S. subsidiaries of foreign commercial banks | 553,130 | | — | | 125,004 | | | 678,134 | |
| U.S. Branches and agency offices of foreign commercial banks: | |
| |
| |
| |
| U.S. Branches and agency offices of foreign commercial banks: | | | |
| Sweden | | Sweden | 1,350,000 | | — | | 100,005 | | | 1,450,005 | |
| Canada | | Canada | 825,000 | | — | | — | | | 825,000 | |
| Finland | | Finland | 725,000 | | — | | — | | | 725,000 | |
| Norway | | Norway | 300,000 | | — | | 225,011 | | | 525,011 | |
| Germany | 425,000 |
| — |
| — |
| 425,000 |
| Germany | 240,000 | | 225,011 | | — | | | 465,011 | |
| Norway | 425,000 |
| — |
| — |
| 425,000 |
| |
| Austria | 400,000 |
| — |
| — |
| 400,000 |
| |
| Netherlands | 400,000 |
| — |
| — |
| 400,000 |
| Netherlands | 465,000 | | — | | — | | | 465,000 | |
| Canada | — |
| 150,003 |
| 200,014 |
| 350,017 |
| |
| Sweden | — |
| — |
| 325,010 |
| 325,010 |
| |
| | Total U.S. Branches and agency offices of foreign commercial banks | 1,650,000 |
| 150,003 |
| 525,024 |
| 2,325,027 |
| Total U.S. Branches and agency offices of foreign commercial banks | 3,905,000 | | 225,011 | | 325,016 | | | 4,455,027 | |
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1 | $ | 1,991,741 |
| $ | 150,003 |
| $ | 525,024 |
| $ | 2,666,768 |
| TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1 | $ | 4,458,130 | | $ | 225,011 | | $ | 450,020 | | | $ | 5,133,161 | |
| |
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. |
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.conservatively 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 of these long-term securitiesFixed-rate U.S. Treasury obligations 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 and we swap the fixed rate GSE debentures from fixed to variable rates. They provide attractive returns, can serve as excellent collateral (e.g., repurchase agreements and net derivatives exposure), and are generallyeither classified as trading securities and carried ateconomically swapped to variable rates or classified as available-for-sale securities and swapped to variable rates in qualifying fair value eitherhedging relationships. In addition to enhanceserving as excellent collateral, U.S. Treasuries also satisfy recent changes to regulatory liquidity requirements. Currently, the vast majority of our liquidity position, for asset/liability management purposes, orvariable rate investment securities are indexed to provide a fair value offset to the gains or lossesLIBOR. For additional information 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 derivativesour LIBOR transition efforts 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 costaggregate value of our mortgage securitiesMBS exceeds 300 percent of our regulatory capital. Further, quarterly increases in holdings of mortgage securitiesMBS are restricted to no more than 50 percent of regulatory capital. As of September 30, 2017,March 31, 2021, the amortized costaggregate value of our MBS portfolio represented 307239 percent of our regulatory capital; however,capital. We were below our threshold at March 31, 2021 due to limited MBS investment opportunities not indexed to LIBOR, as we were in compliance with the regulatory limit at the time of each purchase during the current quarter.are no longer purchasing investments that reference LIBOR and mature after December 31, 2021.
As of September 30, 2017,March 31, 2021, we held $4.7$2.5 billion, $2.9 billion, and $0.8 billion of par value in MBS in our held-to-maturity, portfolio, $1.4 billion of par value in MBS in our available-for-sale, portfolio, and $0.9 billion of par value in MBS in our trading portfolio.portfolios, respectively. 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; 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 whatthe types of securities are held under each classification. The carrying value of our investments is summarized by security type in Table 2824 (in thousands).
Table 2824
| | | | | | | | | |
| 03/31/2021 | 12/31/2020 | |
| Trading securities: | | | |
| | | |
| Certificates of deposit | $ | 675,031 | | $ | — | | |
| U.S. Treasury obligations | 1,290,894 | | 1,298,518 | | |
| GSE debentures | 426,878 | | 431,875 | | |
| | | |
| | | |
| GSE MBS | 874,162 | | 892,983 | | |
| Total trading securities | 3,266,965 | | 2,623,376 | | |
| Available-for-sale securities: | | | |
| U.S. Treasury obligations | 3,277,347 | | 3,546,325 | | |
| GSE MBS | 3,086,360 | | 3,194,985 | | |
| Total available-for-sale securities | 6,363,707 | | 6,741,310 | | |
| Held-to-maturity securities: | | | |
| State or local housing agency obligations | 78,960 | | 78,960 | | |
| | | |
| U.S. obligation MBS | 65,469 | | 70,814 | | |
| GSE MBS | 2,422,746 | | 2,597,218 | | |
| Total held-to-maturity securities | 2,567,175 | | 2,746,992 | | |
| Total securities | 12,197,847 | | 12,111,678 | | |
| | | |
| Interest-bearing deposits | 558,784 | | 760,297 | | |
| | | |
| Federal funds sold | 3,905,000 | | 1,780,000 | | |
| | | |
| Securities purchased under agreements to resell | 1,700,000 | | 2,600,000 | | |
| TOTAL INVESTMENTS | $ | 18,361,631 | | $ | 17,251,975 | | |
|
| | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Trading securities: | | |
| Certificates of deposit | $ | 675,027 |
| $ | — |
|
| GSE debentures | 1,357,859 |
| 1,563,351 |
|
| Mortgage-backed securities: | | |
| U.S. obligation MBS | 604 |
| 690 |
|
| GSE MBS | 939,893 |
| 938,747 |
|
| Total trading securities | 2,973,383 |
| 2,502,788 |
|
| Available-for-sale securities: | | |
| GSE MBS | 1,464,472 |
| 1,091,721 |
|
| Total available-for-sale securities | 1,464,472 |
| 1,091,721 |
|
| Held-to-maturity securities: | | |
| State or local housing agency obligations | 94,625 |
| 105,780 |
|
| Mortgage-backed securities: | | |
| U.S. obligation MBS | 133,342 |
| 36,331 |
|
| GSE MBS | 4,429,372 |
| 4,250,547 |
|
| Private-label residential MBS | 83,193 |
| 109,566 |
|
| Total held-to-maturity securities | 4,740,532 |
| 4,502,224 |
|
| Total securities | 9,178,387 |
| 8,096,733 |
|
| | | |
| Interest-bearing deposits | 301,208 |
| 387,920 |
|
| | | |
| Federal funds sold | 1,692,000 |
| 2,725,000 |
|
| | | |
| Securities purchased under agreements to resell | 2,595,589 |
| 2,400,000 |
|
| TOTAL INVESTMENTS | $ | 13,767,184 |
| $ | 13,609,653 |
|
The carrying values by contractual maturities of our investments are summarized by security type in Table 2925 (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 2925
| | | | | | | | | | | | | | | | | |
| | 03/31/2021 |
| | 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 | $ | 675,031 | | $ | — | | $ | — | | $ | — | | $ | 675,031 | |
| U.S. Treasury obligations | 355,587 | | 935,307 | | — | | — | | 1,290,894 | |
| GSE debentures | — | | 426,878 | | — | | — | | 426,878 | |
| | | | | |
| | | | | |
| GSE MBS | — | | 615,076 | | 222,081 | | 37,005 | | 874,162 | |
| Total trading securities | 1,030,618 | | 1,977,261 | | 222,081 | | 37,005 | | 3,266,965 | |
| Yield on trading securities | 1.06 | % | 2.62 | % | 2.97 | % | 0.99 | % | |
| Available-for-sale securities: | | | | | |
| U.S. Treasury obligations | 1,464,439 | | 1,812,908 | | — | | — | | 3,277,347 | |
| GSE MBS | — | | 524,329 | | 2,562,031 | | — | | 3,086,360 | |
| Total available-for-sale securities | 1,464,439 | | 2,337,237 | | 2,562,031 | | — | | 6,363,707 | |
| Yield on available-for-sale securities | 1.73 | % | 1.95 | % | 2.70 | % | — | % | |
| Held-to-maturity securities: | | | | | |
| State or local housing agency obligations | — | | — | | 48,960 | | 30,000 | | 78,960 | |
| | | | | |
| U.S. obligation MBS | — | | — | | — | | 65,469 | | 65,469 | |
| GSE MBS | 4,384 | | 839,101 | | 135,467 | | 1,443,794 | | 2,422,746 | |
| Total held-to-maturity securities | 4,384 | | 839,101 | | 184,427 | | 1,539,263 | | 2,567,175 | |
| Yield on held-to-maturity securities | 1.79 | % | 1.20 | % | 1.47 | % | 1.53 | % | |
| | | | | |
| Total securities | 2,499,441 | | 5,153,599 | | 2,968,539 | | 1,576,268 | | 12,197,847 | |
| Yield on total securities | 1.46 | % | 2.07 | % | 2.64 | % | 1.51 | % | |
| | | | | |
| Interest-bearing deposits | 558,784 | | — | | — | | — | | 558,784 | |
| | | | | |
| Federal funds sold | 3,905,000 | | — | | — | | — | | 3,905,000 | |
| | | | | |
| Securities purchased under agreements to resell | 1,700,000 | | — | | — | | — | | 1,700,000 | |
| TOTAL INVESTMENTS | $ | 8,663,225 | | $ | 5,153,599 | | $ | 2,968,539 | | $ | 1,576,268 | | $ | 18,361,631 | |
|
| | | | | | | | | | | | | | | |
| | 09/30/2017 |
| | 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 |
|
| GSE debentures | 344,007 |
| 602,163 |
| 411,689 |
| — |
| 1,357,859 |
|
| Mortgage-backed securities: | | | | | |
|
| U.S. obligation MBS | — |
| — |
| 604 |
| — |
| 604 |
|
| GSE MBS | — |
| — |
| 867,667 |
| 72,226 |
| 939,893 |
|
| Total trading securities | 1,019,034 |
| 602,163 |
| 1,279,960 |
| 72,226 |
| 2,973,383 |
|
| Yield on trading securities | 1.20 | % | 1.16 | % | 2.88 | % | 2.18 | % | |
|
| Available-for-sale securities: | | | | | |
| GSE MBS | — |
| 89,899 |
| 1,316,997 |
| 57,576 |
| 1,464,472 |
|
| Total available-for-sale securities | — |
| 89,899 |
| 1,316,997 |
| 57,576 |
| 1,464,472 |
|
| Yield on available-for-sale securities | — | % | 2.09 | % | 2.60 | % | 2.61 | % | |
| Held-to-maturity securities: | |
| |
| |
| |
| |
|
| State or local housing agency obligations | — |
| 2,270 |
| — |
| 92,355 |
| 94,625 |
|
| Mortgage-backed securities: | |
| |
| |
| |
| |
|
| U.S. obligation MBS | — |
| — |
| — |
| 133,342 |
| 133,342 |
|
| GSE MBS | 114 |
| 274,107 |
| 1,540,549 |
| 2,614,602 |
| 4,429,372 |
|
| 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 |
|
| Yield on held-to-maturity securities | 2.00 | % | 1.49 | % | 1.86 | % | 1.77 | % | |
|
| | | | | | |
| Total securities | 1,020,753 |
| 971,676 |
| 4,139,427 |
| 3,046,531 |
| 9,178,387 |
|
| Yield on total securities | 1.21 | % | 1.34 | % | 2.41 | % | 1.79 | % | |
|
| | | | | | |
| Interest-bearing deposits | 301,208 |
| — |
| — |
| — |
| 301,208 |
|
| | | | | | |
| Federal funds sold | 1,692,000 |
| — |
| — |
| — |
| 1,692,000 |
|
| | | | | | |
| Securities purchased under agreements to resell | 2,595,589 |
| — |
| — |
| — |
| 2,595,589 |
|
| TOTAL INVESTMENTS | $ | 5,609,550 |
| $ | 971,676 |
| $ | 4,139,427 |
| $ | 3,046,531 |
| $ | 13,767,184 |
|
Securities Ratings – Tables 3026 and 3127 present the carrying value of our investments by rating as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands). The ratings presented are the lowest ratings available for the security, issuer, or the issuercounterparty 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 3026
| | | | 09/30/2017 | | 03/31/2021 |
| | 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 |
| Interest-bearing deposits2 | $ | — | | $ | 5,654 | | $ | 553,130 | | | $ | — | | $ | 558,784 | |
| | | | | |
Federal funds sold2 | — |
| — |
| 1,692,000 |
| — |
| — |
| — |
| 1,692,000 |
| Federal funds sold2 | — | | 1,650,000 | | 2,255,000 | | | — | | 3,905,000 | |
| | | | | |
Securities purchased under agreements to resell3 | — |
| — |
| — |
| — |
| — |
| 2,595,589 |
| 2,595,589 |
| Securities purchased under agreements to resell3 | — | | — | | — | | | 1,700,000 | | 1,700,000 | |
| | | | | |
| Investment securities: | |
| |
| |
| |
| |
| |
| |
| Investment securities: | | | |
| Non-mortgage-backed securities: | |
| |
| |
| |
| |
| |
| |
| Non-mortgage-backed securities: | | | |
| Certificates of deposit2 | — |
| 525,024 |
| 150,003 |
| — |
| — |
| — |
| 675,027 |
| Certificates of deposit2 | — | | 325,016 | | 350,015 | | | — | | 675,031 | |
| U.S. Treasury obligations | | U.S. Treasury obligations | — | | 4,568,241 | | — | | | — | | 4,568,241 | |
| GSE debentures | — |
| 1,357,859 |
| — |
| — |
| — |
| — |
| 1,357,859 |
| GSE debentures | — | | 426,878 | | — | | | — | | 426,878 | |
| State or local housing agency obligations | 64,625 |
| 30,000 |
| — |
| — |
| — |
| — |
| 94,625 |
| State or local housing agency obligations | 48,960 | | 30,000 | | — | | | — | | 78,960 | |
| Total non-mortgage-backed securities | 64,625 |
| 1,912,883 |
| 150,003 |
| — |
| — |
| — |
| 2,127,511 |
| Total non-mortgage-backed securities | 48,960 | | 5,350,135 | | 350,015 | | | — | | 5,749,110 | |
| Mortgage-backed securities: | |
| |
| |
| |
| |
| |
| |
| Mortgage-backed securities: | | | |
| U.S. obligation MBS | — |
| 133,946 |
| — |
| — |
| — |
| — |
| 133,946 |
| U.S. obligation MBS | — | | 65,469 | | — | | | — | | 65,469 | |
| GSE MBS | — |
| 6,833,737 |
| — |
| — |
| — |
| — |
| 6,833,737 |
| GSE MBS | — | | 6,383,268 | | — | | | — | | 6,383,268 | |
| 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 |
| Total mortgage-backed securities | — | | 6,448,737 | | — | | | — | | 6,448,737 | |
| | | | | |
| TOTAL INVESTMENTS | $ | 65,366 |
| $ | 8,884,525 |
| $ | 2,145,780 |
| $ | 31,828 |
| $ | 43,650 |
| $ | 2,596,035 |
| $ | 13,767,184 |
| TOTAL INVESTMENTS | $ | 48,960 | | $ | 13,454,526 | | $ | 3,158,145 | | | $ | 1,700,000 | | $ | 18,361,631 | |
| |
1
| Investment amounts represent the carrying value and do not include related accrued interest receivable of $14.5 million at September 30, 2017. |
| |
2
| Amounts include unsecured credit exposure with original maturities ranging between overnight to 96 days. |
| |
3
| Amounts represent collateralized overnight borrowings by counterparty rating. |
1 Investment amounts represent the carrying value and do not include related accrued interest receivable of $37.9 million at March 31, 2021.
2 Amounts include unsecured credit exposure with original maturities from overnight to 91 days.
3 Amounts represent collateralized overnight borrowings.
Table 31
|
| | | | | | | | | | | | | | | | | | | | | |
| | 12/31/2016 |
| | Carrying Value1 |
| | Investment Grade | Below Triple-B | Unrated | Total |
| | Triple-A | Double-A | Single-A | Triple-B |
Interest-bearing deposits2 | $ | 148 |
| $ | 2,772 |
| $ | 385,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | 387,920 |
|
| | | | | | | | |
Federal funds sold2 | — |
| 600,000 |
| 2,125,000 |
| — |
| — |
| — |
| 2,725,000 |
|
| | | | | | | | |
Securities purchased under agreements to resell3 | — |
| — |
| — |
| — |
| — |
| 2,400,000 |
| 2,400,000 |
|
| | | | | | | | |
| Investment securities: | |
| |
| |
| |
| |
| |
| |
|
| Non-mortgage-backed securities: | |
| |
| |
| |
| |
| |
| |
|
| GSE debentures | — |
| 1,563,351 |
| — |
| — |
| — |
| — |
| 1,563,351 |
|
| State or local housing agency obligations | 65,725 |
| 30,000 |
| 10,055 |
| — |
| — |
| — |
| 105,780 |
|
| Total non-mortgage-backed securities | 65,725 |
| 1,593,351 |
| 10,055 |
| — |
| — |
| — |
| 1,669,131 |
|
| Mortgage-backed securities: | |
| |
| |
| |
| |
| |
| |
|
| U.S. obligation MBS | — |
| 37,021 |
| — |
| — |
| — |
| — |
| 37,021 |
|
| GSE MBS | — |
| 6,281,015 |
| — |
| — |
| — |
| — |
| 6,281,015 |
|
| 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 |
|
| | | | | | | | |
| TOTAL INVESTMENTS | $ | 65,873 |
| $ | 8,514,825 |
| $ | 2,529,144 |
| $ | 43,379 |
| $ | 56,393 |
| $ | 2,400,039 |
| $ | 13,609,653 |
|
| | | | | | | | | | | | | | | | | | | |
| 12/31/2020 |
| | Carrying Value1 |
| | Investment Grade | | Unrated | Total |
| | Triple-A | Double-A | Single-A | |
Interest-bearing deposits2 | $ | — | | $ | 4,047 | | $ | 756,250 | | | | $ | — | | $ | 760,297 | |
| | | | | | | |
Federal funds sold2 | — | | 150,000 | | 1,630,000 | | | | — | | 1,780,000 | |
| | | | | | | |
Securities purchased under agreements to resell3 | — | | — | | — | | | | 2,600,000 | | 2,600,000 | |
| | | | | | | |
| Investment securities: | | | | | | | |
| Non-mortgage-backed securities: | | | | | | | |
| | | | | | | |
| | | | | | | |
| U.S. Treasury obligations | — | | 4,844,843 | | — | | | | — | | 4,844,843 | |
| GSE debentures | — | | 431,875 | | — | | | | — | | 431,875 | |
| State or local housing agency obligations | 48,960 | | 30,000 | | — | | | | — | | 78,960 | |
| Total non-mortgage-backed securities | 48,960 | | 5,306,718 | | — | | | | — | | 5,355,678 | |
| Mortgage-backed securities: | | | | | | | |
| U.S. obligation MBS | — | | 70,814 | | — | | | | — | | 70,814 | |
| GSE MBS | — | | 6,685,186 | | — | | | | — | | 6,685,186 | |
| Total mortgage-backed securities | — | | 6,756,000 | | — | | | | — | | 6,756,000 | |
| | | | | | | |
| TOTAL INVESTMENTS | $ | 48,960 | | $ | 12,216,765 | | $ | 2,386,250 | | | | $ | 2,600,000 | | $ | 17,251,975 | |
| |
11 Investment amounts represent the carrying value and do not include related accrued interest receivable of $37.9 million at December 31, 2020. 2 Amounts include unsecured credit exposure with overnight maturities. 3 Amounts represent collateralized overnight borrowings.
| Investment amounts represent the carrying value and do not include related accrued interest receivable of $13.3 million at December 31, 2016. |
| |
2
| Amounts include unsecured credit exposure with overnight original maturities. |
| |
3
| Amounts represent collateralized overnight borrowings by counterparty rating. |
Table 3228 details interest rate payment terms for the carrying value of our investment securities as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands). We manage the interest rate risk associated with our fixed rate MBStrading 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 4240 and 4341 under Part I, Item 3 – “Quantitative and Qualitative Disclosures About Market Risk)."
Table 32
|
| | | | | | |
| | 09/30/2017 | 12/31/2016 |
| Trading securities: | | |
| Non-mortgage-backed securities: | | |
| Fixed rate | $ | 1,086,716 |
| $ | 618,423 |
|
| Variable rate | 946,170 |
| 944,928 |
|
| Non-mortgage-backed securities | 2,032,886 |
| 1,563,351 |
|
| Mortgage-backed securities: | | |
| Fixed rate | 865,557 |
| 851,774 |
|
| Variable rate | 74,940 |
| 87,663 |
|
| Mortgage-backed securities | 940,497 |
| 939,437 |
|
| Total trading securities | 2,973,383 |
| 2,502,788 |
|
| Available-for-sale securities: | | |
| Mortgage-backed securities: | | |
| Fixed rate | 1,464,472 |
| 1,091,721 |
|
| Total available-for-sale securities | 1,464,472 |
| 1,091,721 |
|
| Held-to-maturity securities: | | |
| Non-mortgage-backed securities: | | |
| Variable rate | 94,625 |
| 105,780 |
|
| Non-mortgage-backed securities | 94,625 |
| 105,780 |
|
| Mortgage-backed securities: | | |
| Fixed rate | 193,076 |
| 236,612 |
|
| Variable rate | 4,452,831 |
| 4,159,832 |
|
| Mortgage-backed securities | 4,645,907 |
| 4,396,444 |
|
| Total held-to-maturity securities | 4,740,532 |
| 4,502,224 |
|
| TOTAL | $ | 9,178,387 |
| $ | 8,096,733 |
|
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):28
| | | | | | | | |
| 03/31/2021 | 12/31/2020 |
| Trading securities: | | |
| Non-mortgage-backed securities: | | |
| Fixed rate | $ | 2,392,803 | | $ | 1,730,393 | |
| | |
| Non-mortgage-backed securities | 2,392,803 | | 1,730,393 | |
| Mortgage-backed securities: | | |
| Fixed rate | 836,205 | | 853,027 | |
| Variable rate | 37,957 | | 39,956 | |
| Mortgage-backed securities | 874,162 | | 892,983 | |
| Total trading securities | 3,266,965 | | 2,623,376 | |
| Available-for-sale securities: | | |
| Non-mortgage-backed securities: | | |
| Fixed rate | 3,277,347 | | 3,546,325 | |
| Non-mortgage-backed securities | 3,277,347 | | 3,546,325 | |
| Mortgage-backed securities: | | |
| Fixed rate | 3,086,360 | | 3,194,985 | |
| Mortgage-backed securities | 3,086,360 | | 3,194,985 | |
| Total available-for-sale securities | 6,363,707 | | 6,741,310 | |
| Held-to-maturity securities: | | |
| Non-mortgage-backed securities: | | |
| | |
| Variable rate | 78,960 | | 78,960 | |
| Non-mortgage-backed securities | 78,960 | | 78,960 | |
| Mortgage-backed securities: | | |
| Fixed rate | 66,831 | | 73,595 | |
| Variable rate | 2,421,384 | | 2,594,437 | |
| Mortgage-backed securities | 2,488,215 | | 2,668,032 | |
| Total held-to-maturity securities | 2,567,175 | | 2,746,992 | |
| TOTAL | $ | 12,197,847 | | $ | 12,111,678 | |
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 $48.3increased $33.6 million from December 31, 20162020 to September 30, 2017.March 31, 2021 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 similarlysimilarly- or even lower pricedlower-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 Part I, 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.
BondsFixed rate bonds are primarily used to fund longer-term (one year or greater) fixed-rate 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 fixed rate bonds' characteristics in order to match the assets' index. Additionally, we sometimesoften use fixedvariable rate, variablefixed 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. No outstanding LIBOR debt has a maturity date beyond December 31, 2021. 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-termfixed-rate advances with indices and resets based on our short-term costterms of funds;less than one year; 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 9.1decreased $4.1 billion, or 8.5 percent, from December 31, 20162020 to September 30, 2017.March 31, 2021. The distribution between consolidated obligation bonds and discount notes shiftedremained consistent between periods, from 77.6 percent and 22.4 percent, respectively, at December 31, 20162020 to September 30, 2017,77.3 percent and 22.7 percent at March 31, 2021, respectively. We issued $3.9 billion of floating rate bonds indexed to SOFR during the first three months of 2021 as discount notes decreasedwe continue to transition away from 51.2 percent of total outstanding consolidated obligations as of December 31, 2016 to 45.9 percent as of September 30, 2017LIBOR and consolidated obligation bonds increased from 48.8 percent as of December 31, 2016 to 54.1 percent as of September 30, 2017. We increased theincrease our allocation of floating rate consolidated obligation bonds with longer-term structures to increase liquidity in response to uncertainty surroundingfunding short-term advances and short-term investments. Approximately $14 billion of bonds have been called since the pending Congressional budget resolutionbeginning of 2020 and debt ceiling deadline. We were able to increase the allocation of consolidated obligation bonds due to an improvement in spreads during the last half of 2016 asreplaced 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. Although we believe it is a declining risk, 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 $1.2 billion, from $19.1 billion at December 31, 2020 to $20.3 billion at March 31, 2021, primarily due to increases in interest rate swaps hedging callable fixed rate and callable step-up consolidated obligation bonds. For additional information regarding the types of derivative instruments and risks hedged, see Tables 40 and 41 under Part I, Item 3 – “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 Boardboard 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.
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 ninethree months ended September 30, 2017,March 31, 2021, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were $14.3$9.3 billion and $701.8$53.6 billion, respectively, compared to $14.3$12.6 billion and $389.0$124.3 billion for the same period in 2016.three months ended March 31, 2020. The large increase indifference between the issuance ofproceeds 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 ofportfolio. The change in these issuances reflects the decrease in advance balances and also reflects our assets withcomposition shift from discount notes into the first halfuse of 2016 dueterm funding indexed 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.SOFR. Our other sources of liquidity include our short-term liquidity portfolio, 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.
At September 30, 2017, ourOur 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 overnightless. 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,between periods, from $5.9$11.8 billion as of December 31, 20162020 to $5.6$8.7 billion as of September 30, 2017.March 31, 2021. The short-term liquidity portfolio was elevated at year end in anticipation of potential year-end financial disruptions. 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$1.6 billion as of September 30, 2017both March 31, 2021 and December 31, 2016, respectively. We held GSE MBS with a2020. The par value of $926.1 million and $940.6 millionthese MBS was $0.8 billion as of September 30, 2017both March 31, 2021 and December 31, 2016,2020, respectively. We also held $3.2 billion and $3.5 billion in par value of U.S. Treasury obligations classified as available-for-sale as of March 31, 2021 and December 31, 2020, respectively, as an additional source of liquidity to satisfy regulatory liquidity requirements. 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, and redeem or repurchase capital stock, and pay dividends to members.stock.
During the ninethree months ended September 30, 2017,March 31, 2021, advance disbursements totaled $392.3$134.4 billion compared to $106.7$44.3 billion for the prior year period. During the three months ended March 31, 2021, investment purchases (excluding overnight investments) totaled $0.9 billion compared to $1.0 billion for the same period in 2016.the prior year. During the ninethree months ended September 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,March 31, 2021, payments on consolidated obligation bonds and discount notes were $9.9$12.6 billion and $702.3$54.4 billion, respectively, compared to $15.8$11.0 billion and $385.3$126.3 billion for the same period in 2016, which includes bonds that were called during theprior 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 metricsfunding gap and cash balance guidelines for measuring liquidity: statutory, operational,required liquidity. Funding gaps are defined as the difference between our assets and contingencyliabilities 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 daymonth-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 or 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. Liquidity is calculated under the cash balance guidelines daily and applicable data is generally required to be submitted to the FHFA daily. 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 finalremaining maturity not exceeding five years. Operational liquidity requires that we maintain liquidity in an amount not less than 20 percent of the sum 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. ContingencyStatutory liquidity is an amount sufficient to meetcalculated daily. See “Risk Management - Liquidity Risk Management” under this Item 2 for additional discussion on our liquidity needs for five business days if we are unable to accessrequirements. We remained in compliance with liquidity regulatory requirements in effect during the capital markets to issue consolidated obligations. Our net liquidity in excessfirst quarter of contingency liquidity over a cumulative five-business-day period was $10.8 billion as of September 30, 2017. 2021.
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, weGenerally, our overnight liquid assets are required by the FHFA to meet two daily liquidity standards, eachfunded 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.
longer 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 investmentinvestments 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 aswhen the short end of the yield curve steepens, on the short end, maintaining the differential between the weighted average original maturity of discount notes and money marketshort-term liquid investments and short-term advances will increase our cost of funds and reduce our net interest income. The increase in floating rate debt indexed to SOFR relative to our overall funding is to manage this risk, so that our funding will reprice relative to overnight rates rather than term rates.
Capital: Total capital consists of capital stock, retained earnings, and AOCI.
Capital stock outstanding increased 19.6$23.3 million, or 0.9 percent, from December 31, 20162020 to September 30, 2017, primarilyMarch 31, 2021 due to increased utilizationunrealized gains on available-for-sale securities and net income in excess of advances. Under ourdividends paid, partially offset by a decrease in excess capital plan, membersstock (see Table 29).
Each member is required to hold capital stock to become and remain a member of 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 additionalrequirement, 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 as they enter into advance transactionspurchase requirement, which is currently equal to 4.5 percent of the principal amount of advances outstanding to the member plus 3 percent of the principal amount of AMA outstanding for members less the member’s asset-based stock purchase requirement. Effective January 22, 2021, the Letter of Credit Activity-based Stock Purchase Requirement was implemented at one quarter of one percent. The change in the Activity-based Stock Purchase Requirements did not change for former members with us. The amount required is subject to change within ranges established under our capital plan.outstanding business transactions.
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, AMA or letters of credit 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 1.0one percent of our total 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 outstandingperiodic mandatory repurchases of excess Class A Common Stock generally on a monthly basis, and regular weekly exchanges ofexchanging all excess Class B Common Stock over $50,000 per member for Class A Common Stock.Stock 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, AMA and letters of credit balances in future periods. Any repurchase of excess capital stock is at our discretion and subject to statutory and regulatory limitations, including beingremaining in compliance with all of our regulatory and internal 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, weStock. 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 3529 provides a summary of member capital requirements under our current capital plan as of September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands):
Table 3529
| | | Requirement | 09/30/2017 | 12/31/2016 | Requirement | 03/31/2021 | 12/31/2020 |
| Asset-based (Class A Common Stock only) | $ | 156,696 |
| $ | 156,291 |
| Asset-based (Class A Common Stock only) | $ | 161,968 | | $ | 161,766 | |
Activity-based (additional Class B Common Stock)1 | 1,168,406 |
| 980,747 |
| Activity-based (additional Class B Common Stock)1 | 1,098,190 | | 1,100,684 | |
Total Required Stock2 | 1,325,102 |
| 1,137,038 |
| Total Required Stock2 | 1,260,158 | | 1,262,450 | |
| Excess Stock (Class A and B Common Stock) | 147,338 |
| 92,307 |
| Excess Stock (Class A and B Common Stock) | 281,792 | | 313,178 | |
Total Stock2 | $ | 1,472,440 |
| $ | 1,229,345 |
| |
Total Regulatory Capital Stock2 | | Total Regulatory Capital Stock2 | $ | 1,541,950 | | $ | 1,575,628 | |
| | | | |
Activity-based Requirements: | |
| |
| Activity-based Requirements: | |
Advances3 | $ | 1,269,962 |
| $ | 1,075,517 |
| Advances3 | $ | 938,783 | | $ | 936,880 | |
| Letters of credit | | Letters of credit | 13,009 | | — | |
AMA assets (mortgage loans)4 | 1,003 |
| 1,192 |
| AMA assets (mortgage loans)4 | 253,664 | | 268,915 | |
| Total Activity-based Requirement | 1,270,965 |
| 1,076,709 |
| Total Activity-based Requirement | 1,205,456 | | 1,205,795 | |
Asset-based Requirement (Class A Common Stock) not supporting member activity1 | 54,137 |
| 60,329 |
| Asset-based Requirement (Class A Common Stock) not supporting member activity1 | 54,702 | | 56,655 | |
Total Required Stock2 | $ | 1,325,102 |
| $ | 1,137,038 |
| Total Required Stock2 | $ | 1,260,158 | | $ | 1,262,450 | |
| |
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 are subject to the AMA activity-based stock requirement as long as there are UPBs outstanding, but the requirement is currently zero percent for members. |
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 stock requirement in place at the time their membership ended as long as there are unpaid principal balances outstanding.
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 30, 2017March 31, 2021 and December 31, 2016.2020.
Capital Distributions: Dividends may be paid in cash or capital stock as authorized by our Boardboard 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 thresholdpoints and was effective for all dividends paid for all of 2016in 2020 and 2017 and will continue to be effective until such time as it may be changed by our Board of Directors.2021. 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 3630 presents the dividend rates per annum paid on capital stock under our capital plan for the quarterly periods indicated:listed below:
Table 3630
| | | Applicable Rate per Annum | 09/30/2017 | 06/30/2017 | 03/31/2017 | 12/31/2016 | 09/30/2016 | Applicable Rate per Annum | 03/31/2021 | 12/31/2020 | 09/30/2020 | 06/30/2020 | 03/31/2020 |
| Class A Common Stock | 1.25 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | Class A Common Stock | 0.25 | % | 0.25 | % | 0.25 | % | 0.50 | % | 2.25 | % |
| Class B Common Stock | 6.50 |
| 6.50 |
| 6.50 |
| 6.00 |
| 6.00 |
| Class B Common Stock | 5.25 | | 5.25 | | 5.25 | | 5.50 | | 7.25 | |
Weighted Average1 | 5.81 |
| 5.74 |
| 5.73 |
| 5.28 |
| 5.28 |
| Weighted Average1 | 4.15 | | 4.09 | | 3.69 | | 3.69 | | 5.94 | |
| Dividend Parity Threshold: | | Dividend Parity Threshold: | |
| Average effective overnight Federal funds rate | 1.16 | % | 0.95 | % | 0.70 | % | 0.45 | % | 0.40 | % | Average effective overnight Federal funds rate | 0.08 | % | 0.09 | % | 0.09 | % | 0.06 | % | 1.23 | % |
| Spread to index | (1.00 | ) | (1.00 | ) | (1.00 | ) | (1.00 | ) | (1.00 | ) | Spread to index | (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 | % | TOTAL (floored at zero percent) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.23 | % |
| |
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. |
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 thepaid dividend rate to 1.25rates of 0.25 percent on Class A Common Stock in the third quarter of 2017 and increased the dividend rate to 6.505.25 percent on Class B Common Stock infor the first quarter of 2017 to provide a higher percentage payout2021. We anticipate stock dividends on Class A Common Stock and Class B Common Stock will remain at these lower levels during 2021, consistent with the lower level of quarterlyshort‑term interest rates and our retained earnings to our members. Adverse changes inpolicy. Continued adverse market conditions may result in lower dividend rates in future quarters. While there is no assurance that our Boardboard of Directorsdirectors 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 Part II, 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 Part I, 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 Part I, 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. The SOFR derivatives market is established and usage of SOFR by market participants continues to increase. The majority of non-Treasury floating rate debt issuance in 2020 was indexed to SOFR but market demand persists for a credit-sensitive rate to replace LIBOR so other indices could emerge as potential alternatives. 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 Swaps and Derivatives Association, Inc (ISDA). On October 9, 2020, ISDA announced the launch of the ISDA Protocol. The Protocol had an effective date of January 25, 2021 and modified legacy and new trades to include robust fallback language for adherents. We adhered to the Protocol on October 22, 2020. 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. During the second quarter of 2021, we transferred LIBOR-indexed MBS from held-to-maturity to available-for-sale with an amortized cost of $2.0 billion to enable us to reduce our LIBOR exposure if market pricing and reinvestment opportunities become available. The FCA recently announced that the publication of LIBOR on a representative basis will cease for one-week and two-month LIBOR immediately after December 31, 2021, and the remaining LIBOR tenors immediately after June 30, 2023. This extends transition for existing instruments, many of which have inadequate fallback language, but is not intended to prolong transition for new LIBOR issuance. As of March 31, 2021, all of our exposure to LIBOR was in the 1-month, 3-month, and 6-month tenors.
During the fourth quarter of 2020, the derivative clearinghouses, CME Clearing and LCH Limited, began using SOFR to calculate price alignment interest and discount future cash flows for cleared interest rate derivatives in an effort to promote liquidity in SOFR and support the swap market's transition from LIBOR to SOFR. The impact of the transition on FHLBank was immaterial.
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 March 31, 2021 was $1.1 billion, which represents 30.7 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 $177.7 million in advances indexed to SOFR as of March 31, 2021.
Table 31 presents the par value of variable rate investment securities by the related interest rate index as of March 31, 2021 (dollar amounts in thousands):
Table 31
| | | | | | | | |
| 03/31/2021 |
| Index | Amount | Percent |
| Non-mortgage-backed securities: | | |
| LIBOR | $ | 78,960 | | 3.1 | % |
| | |
| | |
| Non-mortgage-backed securities | 78,960 | | 3.1 | |
| Mortgage-backed securities: | | |
| LIBOR | 2,459,194 | | 96.9 | |
| | |
| | |
| Other | 21 | | — | |
| Mortgage-backed securities | 2,459,215 | | 96.9 | |
| TOTAL | $ | 2,538,175 | | 100.0 | % |
Table 32 presents the par value of investment securities indexed to LIBOR outstanding by year of contractual maturity as of March 31, 2021 (in thousands):
Table 32
| | | | | | | | | |
| 03/31/2021 | | | | |
| Year of Contractual Maturity | Amount | | | | |
| Non-mortgage-backed securities: | | | | | |
| After June 30, 2023 | $ | 78,960 | | | | | |
| Non-mortgage-backed securities | 78,960 | | | | | |
| Mortgage-backed securities: | | | | | |
| 2022 | 58,195 | | | | | |
| Through June 30, 2023 | 90,282 | | | | | |
| Thereafter | 2,310,717 | | | | | |
| Mortgage-backed securities | 2,459,194 | | | | | |
| TOTAL | $ | 2,538,154 | | | | | |
Table 33 presents the notional amount of interest rate swaps (excludes interest rate caps and mortgage delivery commitments) by related interest rate index as of March 31, 2021 (amounts in thousands):
Table 33
| | | | | | | | |
| 03/31/2021 |
| Index | Pay Side | Receive Side |
| Fixed rate | $ | 14,391,202 | | $ | 5,136,113 | |
| LIBOR | 1,065,000 | | 5,371,237 | |
| SOFR | 1,582,614 | | 6,651,261 | |
| OIS | 2,488,500 | | 2,368,705 | |
| | |
| TOTAL | $ | 19,527,316 | | $ | 19,527,316 | |
Table 34 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 March 31, 2021 (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 34
| | | | | | | | | | | | | | |
| 03/31/2021 |
| Year | Pay Side | Receive Side |
| Cleared | Bilateral | Cleared | Bilateral |
| 2021 | $ | 500,000 | | $ | 540,000 | | $ | 178,196 | | $ | — | |
| 2022 | — | | — | | 95,630 | | 54,932 | |
| Prior to June 30, 2023 | — | | — | | 305,232 | | — | |
| Thereafter | — | | 25,000 | | 927,974 | | 3,809,273 | |
| TOTAL | $ | 500,000 | | $ | 565,000 | | $ | 1,507,032 | | $ | 3,864,205 | |
Table 35 presents the par value of variable rate consolidated obligation bonds by the related interest rate index as of March 31, 2021 (dollar amounts in thousands). The contractual maturities of the LIBOR-indexed consolidated obligation bonds are all due by the end of 2021; thus, we have no LIBOR exposure after 2021.
Table 35
| | | | | | | | |
| 03/31/2021 |
| Index | Amount | Percent |
| SOFR | $ | 13,875,000 | | 71.6 | % |
| LIBOR | 5,500,000 | | 28.4 | |
| TOTAL | $ | 19,375,000 | | 100.0 | % |
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 credit enhancement sufficiency analysis, investment grade determination, and 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 privateprimary 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 FLAFirst Loss Account is the next layer to absorb credit losses on conventional mortgage loan pools. Likewise, if ana SMI 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 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 and/or SMI exposure is monitored on a monthlyan ongoing basis and regularly reported to the Boardboard of Directors. Wedirectors. In addition, we perform a credit analysis of third-party PMI and SMI insurers on at leastinsurers. On an annual basis. On a monthlyongoing basis, we review trends that could identify changing risks withwithin our mortgage loan portfolio for macro- and micro-economic environment-related issues, including adverse changes in credit characteristics (loan purpose, low FICO scores, andhigh debt-to-income ratios, high LTV ratios.ratios, etc.) and/or various types of concentrations (geographic, high-balance loans, third-party originated, etc.). Based on the credit underwriting standards under the MPF Program and this monthlyongoing 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 holdOther 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 OrganizationClearinghouse (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 updatedAll bilateral security agreements with our non-member counterparties withinclude 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 30, 2017.March 31, 2021.
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 30, 2017.March 31, 2021.
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 annuallyregularly 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 3736 and 3837 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 3736
| | 03/31/2021 | | 03/31/2021 |
| Credit Rating | | 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: | | Asset positions with credit exposure: | |
| | | 09/30/2017 | |
| 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 | |
| Asset positions with credit exposure: | | |
| Cleared derivatives1 | | Cleared derivatives1 | $ | 13,626,453 | | $ | 3,969 | | $ | (149,062) | | $ | 153,031 | |
| Liability positions with credit exposure: | | Liability positions with credit exposure: | |
| Uncleared derivatives: | | 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 |
| |
| Liability positions with credit exposure: | | |
Uncleared derivatives3: | | |
| | Single-A | 3,803,969 |
| (16,068 | ) | (19,892 | ) | 3,824 |
| Single-A | 5,771,461 | | (184,498) | | (189,096) | | 4,598 | |
| Triple-B | 392,320 |
| (2,225 | ) | (2,655 | ) | 430 |
| Triple-B | 286,902 | | (13,020) | | (13,301) | | 281 | |
Cleared derivatives2 | 3,037,450 |
| (16,346 | ) | (52,268 | ) | 35,922 |
| |
| | TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE | $ | 12,842,067 |
| $ | (9,991 | ) | $ | (60,449 | ) | $ | 50,458 |
| TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE | $ | 19,684,816 | | $ | (193,549) | | $ | (351,459) | | $ | 157,910 | |
| |
1
| Includes variation margin for daily settled contracts of $(444,000) as of September 30, 2017.
|
| |
2
| 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. is also not rated; however, London Stock Exchange Group, LCH Group Holdings Ltd.'s ultimate parent, was rated A3 by Moody's and A- by S&P as of September 30, 2017. CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of September 30, 2017.
|
| |
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. |
1 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 March 31, 2021. 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 March 31, 2021.
Table 37
Table 38
| | 12/31/2020 | | 12/31/2020 |
| Credit Rating | | Credit Rating | Notional Amount | Net Derivatives Fair Value Before Collateral | Cash Collateral Pledged From (To) Counterparty | Net Credit Exposure to Counterparties |
| | | 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 |
| |
| | Liability positions with credit exposure: | | Liability positions with credit exposure: | |
Uncleared derivatives: | | Uncleared derivatives: | |
| | Single-A | 2,424,306 |
| 22,615 |
| 20,408 |
| 2,207 |
| Single-A | $ | 249,500 | | $ | (2,748) | | $ | (2,882) | | $ | 134 | |
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 |
| Cleared derivatives1 | 13,649,736 | | (4,644) | | (152,724) | | 148,080 | |
| TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE | $ | 9,744,812 |
| $ | (16,971 | ) | $ | (77,657 | ) | $ | 60,686 |
| TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE | $ | 13,899,236 | | $ | (7,392) | | $ | (155,606) | | $ | 148,214 | |
| |
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+1 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 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. |
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 39 presents the fair value of cross-border outstandings to countries in which we do business as of September 30, 2017 (dollar amounts in thousands):December 31, 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 December 31, 2020.
Table 39
|
| | | | | |
| | Total1 |
| | Amount | Percent of Total Assets |
Federal funds sold2 | $ | 1,650,000 |
| 3.3 | % |
| | | |
Trading securities3 | 675,027 |
| 1.4 |
|
| | | |
| Derivative assets: | | |
| Net exposure at fair value | (8,127 | ) | |
| Cash collateral held | 10,324 |
| |
| Net exposure after cash collateral | 2,197 |
| — |
|
| | | |
| TOTAL | $ | 2,327,224 |
| 4.7 | % |
| |
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 30, 2017 were $1.7 billion (Austria, Germany, Netherlands and Norway).
|
| |
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.
OperationalWe manage liquidity, or the abilityfirst and foremost, to meet operational requirements in the normal courseneeds of business, is currently defined in our RMP as sources of cash from both our ongoing accessmembers, while adhering to the capital marketsregulatory and our holding of liquid assets.statutory liquidity requirements. We manage exposure to operational liquidity risk by maintaining appropriatemaintain 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 alsoand 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 thirdfirst quarter of 2017.2021.
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, theThe 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 Part I, 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 30, 2017.March 31, 2021. 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
COVID-19 Pandemic
Information Security Management Advisory Bulletin.The American Rescue Plan Act of 2021. On September 28, 2017,March 11, 2021, President Biden signed into law The American Rescue Plan Act of 2021, which provided an additional $1.9 trillion dollars for COVID-19 pandemic relief. Among other appropriations, the FHFA issued an Advisory Bulletin, effective upon issuance, that supersedes previous guidance on an FHLBank’s information securitylegislation allocated $7.25 billion in additional funds to support the PPP loan program. The Advisory Bulletin describes three main components of an information security program and provides the expectation that each FHLBank will use a risk-based approach to implement its information security program. The Advisory Bulletin contains expectations related to: (1) governance, including guidance related 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.
We do not expect this advisory bulletin to materially affect our financial condition or results of operations.
Minority and Women Inclusion. On July 25, 2017, the FHFA published a final rule, effective August 24, 2017, amending its Minority and Women Inclusion regulations to clarify the scopeAlso, as part of the FHLBanks’ obligation to promote diversity and ensure inclusion. The final rule updates the existing FHFA regulations aimed at promoting diversity and the inclusion and use of minorities, women, and individuals with disabilities, and the businesses they own (MWDOB) in all FHLBank business and activities, including management, employment, and contracting. 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 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 in which FHLBanks might 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 final rule to materially affect our financial condition 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 of the Federal Housing Finance Board (predecessor to the FHFA) pertaining to the capital requirements for the FHLBanks. The proposed rule would carry over most of the existing regulations without material change but would substantively revise the credit risk component 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 charge 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.
We submitted a joint comment letter with the other FHLBanks on August 31, 2017. We are continuing to evaluate the proposed rule but do not expect this rule, if adopted in final form, to materially affect our financial condition or results of operations.
FHLBank Membership for Non-Federally-Insured Credit Unions. On June 5, 2017, the FHFA issued a final rule effective July 5, 2017 governing FHLBank membership that would implement statutory amendments to the Bank Act authorizing 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 same 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 regardinglegislation, eligibility for federal insurance; or (3) ifPPP was expanded to include certain nonprofits and digital news services. Since the regulator fails or refuseslegislation did not expand the PPP application deadline beyond March 31, 2021, the PPP Extension Act of 2021 was signed into law on March 30, 2021, which extended the application deadline to respond to the credit union’s request within six months, confirmation of the failure to receive a response.May 31, 2021.
We do not expect this rule to materially affect our financial condition or results of operations.
Mandatory Contractual Stay Requirements for Qualified Financial Contracts (QFCs). Federal Reserve Board Extends Paycheck Protection Program Liquidity Facility.On September 12, 2017,March 8, 2021, the Federal Reserve Board (FRB) publishedissued a final rule, effective November 13, 2017, requiringpress release announcing it will extend the Paycheck Protection Program Liquidity Facility (PPPLF), which was set to expire on March 31, 2021 to June 30, 2021. The Commercial Paper Funding Facility, Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility expired on March 31, 2021 since such facilities had not received significant usage. The PPPLF provides collateralized PPP loan liquidity to eligible Federal Reserve member financial institutions in order to facilitate PPP loan originations at such financial institutions.
FHFA Extension of Loan Origination Flexibilities. On March 31, 2020, the FHFA announced authorization of loan processing flexibilities for Fannie Mae and Freddie Mac customers. Origination flexibilities included allowing desktop appraisals on new construction loans, allowing flexibility on demonstrating construction has been completed, allowing flexibility for borrowers to provide certain global systemically important banking institutions (GSIBs) regulated bydocumentation, and expanding the FRBuse of power of attorney and remote online notarizations. On March 11, 2021, the FHFA extended previously authorized COVID-related loan flexibilities to amend their covered qualified financial contracts (QFCs)April 30, 2021; all such flexibilities were set to limit a counterparty’s immediate termination or exerciseexpire on March 31, 2021. The flexibilities extended to April 30, 2021 included alternative appraisals on purchase and rate term refinance loans, alternative methods for documenting income and verifying employment before loan closing, and expanding the use of default rights underpower of attorney to assist with loan closings. On April 21, 2021, the QFCs in the eventFHFA announced that some temporary loan origination flexibilities have been extended until May 31, 2021, which includes flexibilities for alternative appraisals on purchase and rate-term refinance loans. Temporary flexibilities related to employment verification, condominium project reviews, and expanded power of bankruptcy or receivershipattorney are being allowed to expire on April 30, 2021.
While some provisions of the GSIB or an affiliateCARES Act have expired, others have been extended by regulatory and legislative action. Additional phases of the GSIB. Covered QFCs include derivatives, repurchase agreementsCARES Act, The American Rescue Plan Act of 2021, or other COVID-19 pandemic relief legislation may be enacted by Congress. We continue to evaluate the potential impact of such legislation on our business, including its continued impact to the U.S. economy, impacts to mortgages held or serviced by our members and reverse repurchase agreements,that we accept as collateral, and securities lendingthe impacts on our MPF Program.
Additional COVID-19 Presidential, Legislative and borrowing agreements. On September 27, 2017,Regulatory Developments. In light of the COVID-19 pandemic, the former and current Presidents of the United States, through executive orders, governmental agencies, including the SEC, the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, (FDIC) adoptedthe National Credit Union Administration, the Commodity Futures Trading Commission and the FHFA, as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, some of which may have a substantively identical final rule, effective January 1, 2018, with respectdirect or indirect impact on us or our members. Many of these actions are temporary in nature. We continue to QFCs entered into with certain FDIC-supervised institutions.monitor these actions and guidance as they evolve and to 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 Boardboard of Directorsdirectors as described under Part II, 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 were in compliance with Boardboard of Directordirector established policy limits and operating ranges as of September 30, 2017.March 31, 2021, with the exception of the base case DOE. 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 4038 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 4038
| | | | | | | | | | | | | |
| Duration of Equity |
| Date | Up 200 Basis Points | | Base | | Down 200 Basis Points |
| 03/31/2021 | -0.4 | | -4.0 | | 1.7 |
| 12/31/2020 | -1.3 | | -1.2 | | 0.5 |
| 09/30/2020 | -0.9 | | 1.1 | | 0.4 |
| 06/30/2020 | -1.5 | | -3.9 | | 0.4 |
| 03/31/2020 | -0.5 | | -2.3 | | 0.7 |
|
| | | |
| 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 |
The absolute value of the DOE of the portfolio as of September 30, 2017March 31, 2021 increased (became more negative) in the base scenario and increasedup 200 basis point shock scenarios and declined in the up and down 200 basis point shock scenariosscenario from June 30, 2017.December 31, 2020. The primary factors contributing to these changes in duration during the period were: (1) the slight increase in long-termlonger-term interest rates and the relative level of mortgage prices and 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 and the unswapped callable consolidated obligation bond portfolio as a percent of total assets;the overall balance sheet during the period; and (3) asset/liability actions taken by management throughout the period, including the continued call and re-issuanceissuance 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 growthchanges in advances.advance balances.
The increase in long-termlonger-term interest rates during the thirdfirst quarter of 20172021 generally indicates a lengthening duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. WithThe larger decrease in cash balances compared to the slight increase indecline of our mortgage loan portfolio during the period, as discussed in Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program,” caused the mortgage loan portfolio increasedto increase as an overall percentage of assets, as expected and as the balance sheet contracted, increasing from 13.717.5 percent of total assets as of June 30, 2017December 31, 2020 to 14.317.9 percent as of September 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.March 31, 2021. Since the mortgage loan portfolio continues to comprise a considerable percentage of overall assets and has such a highsizable duration relative to our other assets, especially with the decrease in cash balances 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 case DOE result of -4.0 exceeding the operating range of ±2.5. As discussed above, this level is primarily the result of the overall increase in interest rates generating longer duration profiles for both the mortgage loan and unswapped callable consolidated obligation bond portfolios. In addition, as interest rates increased, the sizable market value gains generated in the unswapped callable consolidated obligation bond portfolio increased the portfolio weighting. This weighting increase magnified the lengthening duration profile of the liabilities and exceeded the duration lengthening of the mortgage loan portfolio, leading to a more negative, or liability sensitive, DOE in the base case.
New loans were continually addedUnder 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 or other derivatives; (2) the sale of assets or calling of debt; and/or (3) the addition to the balance sheet of assets or liabilities having characteristics that allow for the management of the duration profile. Because of the current unprecedented, historically low interest rate environment, we regularly evaluate balance sheet composition along with strategic alternatives to manage the 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. No additional asset/liability management actions have been taken by management at this time for the more negative, or liability sensitive, DOE in the base case given the DOE results in the up and down 200 basis point shock scenarios are well within our operating ranges as of March 31, 2021. We continue to actively monitor and discuss with the board of directors 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 we continue to actively manage this ongoing growth to positionalthough prepayments outpaced purchases during the balance sheet sensitivity to perform within our expected risk tolerances.period. 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 ofto issue unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three months) positioned usmonths 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 thesenew callable bonds to replace called bonds at lower interest rates in this manneras rates continued to remain historically low 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 interestequal, and positions the balance sheet for future changes in rates, increased based on period-end dates, interest rates continued to remain historically low throughoutincluding rate increases where the quarter and as we continued to experience prepayments of the fixed rate mortgage loan portfolio will likely lengthen in duration as expected prepayments slow. Again, as mentioned previously, the short lock-out periodsincrease in interest rates, as well as changes in related volatility levels, generated sizable market value gains related to the unswapped callable consolidated obligation bond portfolio and increased the impact of the callable bonds plus some maturities of non-callable bonds provided the opportunity to continue the refinancing of our liabilities. The slight increase in long-term interest ratesduration lengthening profile during the period also causedperiod. The portfolio weighting change, along with the duration profilechange, marginally exceeded the duration lengthening of the existingmortgage loan portfolio, further increasing the liability sensitivity, or negative DOE, of unswapped callable bonds to lengthen slightly.the balance sheet. 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 Part II, Item 7A – "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K for the year ended December 31, 2016. 2020.
In addition, the relative level of mortgage rates and prices 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, mortgage prices and associated mortgage spreads. For instance, the increase in longer-term interest rates during the period caused the mortgage loan portfolio duration to lengthen less than the associated liabilities as mentioned previously, contributing to the increased liability sensitive DOE profile in the base and a more asset sensitive DOE in the up 200 basis point shock interest rate scenario and a less liability sensitive DOE profile in the down 200 basis point shock interest rate scenario. Further, issuance of discount notes and variable rate consolidated obligations continued, in order to provide adequate liquidity sources to appropriately address changes in customer short-term advance growthbalances 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 increasedup 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-termmajority 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 -0.6-2.9 months for September 30, 2017March 31, 2021 and -0.3-0.8 months for June 30, 2017.December 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 managementportfolio in response to changes in the interest rate environment and increases in mortgage interest rates, as well as balance sheet changes during the thirdfirst quarter of 2017.2021. 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 Boardboard of Directorsdirectors 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 4139 presents MVE as a percent of TRCS. As of September 30, 2017,March 31, 2021, 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 and associated funding portfolio market values as interest rates have continued to remain at historically low the general value impact of the refinancing activities of the associated unswapped callable consolidated obligation bonds andlevels 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. 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 (including the new activity-based capital stock requirement for mortgage loan and letters of credit balances) and excess stock as of March 31, 2021 (see Table 29 under Part I, 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 March 31, 2021. 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 4139
| | | | | | | | | | | | | |
| Market Value of Equity as a Percent of Total Regulatory Capital Stock |
| Date | Up 200 Basis Points | | Base | | Down 200 Basis Points |
| 03/31/2021 | 205 | | 194 | | 191 |
| 12/31/2020 | 201 | | 183 | | 189 |
| 09/30/2020 | 186 | | 177 | | 182 |
| 06/30/2020 | 231 | | 210 | | 209 |
| 03/31/2020 | 184 | | 173 | | 177 |
| | | | | |
| | | | | |
| | | | | |
|
| | | |
| 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 |
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 employGenerally, we designate derivative instruments by designating them as eithereither: (1) a fair value or cash flow hedge of an underlying financial instrumentinstrument; 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 4240 and 4341 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 42
|
| | | | | | | | | |
| 09/30/2017 |
| Hedged Item | 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 | ) |
| 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 | ) |
| Firm commitment to issue a fixed rate advance | Forward settling interest rate swap | Protect against fair value risk | Fair Value Hedge | 143,350 |
| 396 |
|
| Investments | | | | | |
| 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 | ) |
| 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 | ) |
| 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 |
|
| Mortgage Loans Held for Portfolio | | | | | |
| Fixed rate mortgage purchase commitments | Mortgage purchase commitment | Protect against fair value risk | Economic Hedge | 121,377 |
| (151 | ) |
| 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 |
|
| 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 | ) |
Table 4340
| | | | | | | | | | | | | | | | | |
| 03/31/2021 |
| Hedged Item | 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 | $ | 4,220,710 | | $ | (734) | |
| | | | | |
| 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 | 1,596,200 | | (65,184) | |
| | | | | |
| Firm commitment to issue a fixed rate advance | Forward settling interest rate swap | Protect against fair value risk | Economic Hedge | 7,490 | | (26) | |
| 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 | 37,883 | | (859) | |
| Firm commitment to issue a fixed rate advance | Forward settling interest rate swap | Protect against fair value risk | Fair Value Hedge | 19,915 | | 562 | |
| 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 | 3,200,000 | | 114 | |
| 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 | 2,881,452 | | (85,852) | |
| 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 | 1,648,500 | | 363 | |
| 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 | 779,053 | | (46,403) | |
| Adjustable rate MBS with embedded caps | Interest rate cap | Offset the interest rate cap embedded in a variable rate investment | Economic Hedge | 602,500 | | 301 | |
| Mortgage Loans Held for Portfolio | | | | | |
| Fixed rate mortgage purchase commitments | Mortgage purchase commitment | Protect against fair value risk | Economic Hedge | 191,878 | | (954) | |
| 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 | 174,613 | | 1 | |
| 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 | 3,230,500 | | 13,470 | |
| 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 | 1,311,000 | | (10,917) | |
| | | | | |
| | | | | |
| 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 | | (6,176) | |
| | | | | |
| | | | | |
| | | | | |
| TOTAL | | | | $ | 20,321,694 | | $ | (202,294) | |
|
| | | | | | | | | |
| 12/31/2016 |
| Hedged Item | 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 | ) |
| 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 | ) |
| 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 |
|
| Investments | | | | | |
| 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 | ) |
| 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 | ) |
| 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 | ) |
| 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 |
|
| 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 |
|
| 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 | ) |
| 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 | ) |
| 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 | ) |
| 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 | ) |
| | | | | | | | | | | | | | | | | |
| 12/31/2020 |
| Hedged Item | 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 | $ | 3,922,227 | | $ | (10,550) | |
| 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 | 1,656,550 | | (108,780) | |
| 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 | 37,171 | | (1,866) | |
| Firm commitment to issue a fixed rate advance | Forward settling interest rate swap | Protect against fair value risk | Fair Value Hedge | 19,915 | | 57 | |
| Firm commitment to issue a fixed rate advance | Forward settling interest rate swap | Protect against fair value risk | Economic Hedge | 9,285 | | (403) | |
| | | | | |
| | | | | |
| 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 | 3,450,000 | | (321) | |
| 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 | 2,885,402 | | (141,371) | |
| 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 | 1,648,500 | | (63) | |
| 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 | 781,703 | | (65,771) | |
| Adjustable rate MBS with embedded caps | Interest rate cap | Offset the interest rate cap embedded in a variable rate investment | Economic Hedge | 602,500 | | 141 | |
| Mortgage Loans Held for Portfolio | | | | | |
| Fixed rate mortgage purchase commitments | Mortgage purchase commitment | Protect against fair value risk | Economic Hedge | 133,456 | | 650 | |
| 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 | 174,613 | | 1 | |
| | | | | |
| 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 | 3,253,500 | | 17,952 | |
| 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 | 500,000 | | 8 | |
| | | | | |
| | | | | |
| | | | | |
| TOTAL | | | | 19,074,822 | | (310,316) | |
| | | | | |
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 the Chief Financial Officer (CFO), our 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 30, 2017.March 31, 2021. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2017.March 31, 2021.
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 30, 2017March 31, 2021 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
There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K filed on March 9, 2017,18, 2021, 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
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| | | | |
Exhibit
No.
| Description |
| 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. |
| Exhibit 3.23.1 to the 2015 AnnualCurrent Report on Form 10-K,8-K, filed March 10, 2016,November 5, 2020, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2. |
| Exhibit 99.24.1 to the CurrentAnnual 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. |
| Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of President and PrincipalChief Executive Officer (Principal Executive Officer) and Senior Vice President and PrincipalChief 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 |
| |
| |
| May 10, 2021 | By: /s/ Mark E. Yardley |
| Date | Mark E. Yardley |
| President and Chief Executive Officer |
| |
| |
| Federal Home Loan Bank of Topeka |
| |
| |
November 9, 2017 | 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 |