| Fair Value | Fair Value The following fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank at March 31, 2019 , and December 31, 2018 . Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases fair values cannot be precisely quantified or verified and may change as economic and market factors and evaluation of those factors change. The Bank continues to refine its valuation methodologies as markets and products develop and the pricing for certain products becomes more or less transparent. While the Bank believes that its valuation methodologies are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a materially different estimate of fair value as of the reporting date. U.S. 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). Therefore, the fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment as to how a market participant would estimate the fair values. The fair value summary table does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of total assets and liabilities. The following tables present the carrying value, the estimated fair value, and the fair value hierarchy level of the Bank’s financial instruments at March 31, 2019 , and December 31, 2018 . The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, certain advances, certain consolidated obligations, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. The Bank records all other financial assets and liabilities at amortized cost. Refer to the following tables for further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis. March 31, 2019 Carrying Value Estimated Fair Value Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral (1) Assets Cash and due from banks $ 19 $ 19 $ 19 $ — $ — $ — Interest-bearing deposits 1,580 1,580 1,580 — — — Securities purchased under agreements to resell 8,250 8,250 — 8,250 — — Federal funds sold 7,235 7,236 — 7,236 — — Trading securities 610 610 — 610 — — AFS securities 8,436 8,436 — 5,381 3,055 — HTM securities 10,383 10,370 — 9,754 616 — Advances 70,262 70,314 — 70,314 — — Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans 3,160 3,122 — 3,122 — — Accrued interest receivable 199 199 — 199 — — Derivative assets, net (1) 246 246 — 65 — 181 Other assets (2) 17 17 17 — — — Liabilities Deposits 310 310 — 310 — — Consolidated obligations: Bonds 74,094 74,004 — 74,004 — — Discount notes 28,281 28,281 — 28,281 — — Total consolidated obligations 102,375 102,285 — 102,285 — — Mandatorily redeemable capital stock 227 227 227 — — — Accrued interest payable 185 185 — 185 — — Derivative liabilities, net (1) 1 1 — 201 — (200 ) Other Standby letters of credit 29 29 — 29 — — December 31, 2018 Carrying Value Estimated Fair Value Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral (1) Assets Cash and due from banks $ 13 $ 13 $ 13 $ — $ — $ — Interest-bearing deposits 2,555 2,555 2,555 — — — Securities purchased under agreements to resell 7,300 7,299 — 7,299 — — Federal funds sold 3,845 3,846 — 3,846 — — Trading securities 661 661 — 661 — — AFS securities 6,931 6,931 — 3,774 3,157 — HTM securities 11,089 11,047 — 10,362 685 — Advances 73,434 73,462 — 73,462 — — Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans 3,066 2,975 — 2,975 — — Accrued interest receivable 133 133 — 133 — — Derivative assets, net (1) 185 185 — 86 — 99 Other assets (2) 16 16 16 — — — Liabilities Deposits 262 262 — 262 — — Consolidated obligations: Bonds 72,276 72,079 — 72,079 — — Discount notes 29,182 29,178 — 29,178 — — Total consolidated obligations 101,458 101,257 — 101,257 — — Mandatorily redeemable capital stock 227 227 227 — — — Borrowings from other FHLBanks 250 250 — 250 — — Accrued interest payable 155 155 — 155 — — Derivative liabilities, net (1) 10 10 — 147 — (137 ) Other Standby letters of credit 27 27 — 27 — — (1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty. (2) Represents publicly traded mutual funds held in a grantor trust. Fair Value Hierarchy. The fair value hierarchy is used to prioritize the fair value methodologies and valuation techniques as well as the inputs to the valuation techniques used to measure fair value for assets and liabilities carried at fair value on the Statements of Condition. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An entity must disclose the level within the fair value hierarchy in which the measurements are classified for all financial assets and liabilities measured on a recurring or non-recurring basis. The application of the fair value hierarchy to the Bank’s financial assets and financial liabilities that are carried at fair value either on a recurring or non-recurring basis is as follows: • Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. • Level 2 – 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 or liabilities in active markets; (2) quoted prices for identical or similar assets or 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 – Unobservable inputs for the asset or liability. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following assets and liabilities, including those for which the Bank has elected the fair value option, are carried at fair value on the Statements of Condition as of March 31, 2019 : • Trading securities • AFS securities • Certain advances • Derivative assets and liabilities • Certain consolidated obligation bonds • Certain other assets For instruments carried at fair value, the Bank reviews the 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. Such reclassifications are reported as transfers in or out as of the beginning of the quarter in which the changes occur. For the periods presented, the Bank did not have any reclassifications for transfers in or out of the fair value hierarchy levels. Summary of Valuation Methodologies and Primary Inputs. The valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statements of Condition are listed below. Investment Securities – MBS – To value its MBS, the Bank obtains prices from multiple designated third-party pricing vendors when available. The pricing vendors use various proprietary models to price these securities. The inputs to those models are derived from various sources including, but not limited to: benchmark yields, reported trades, dealer estimates, issuer spreads, prices on benchmark securities, bids, offers, and other market-related data. Since many securities do not trade on a daily basis, the pricing vendors use available information as applicable, such as benchmark yield curves, benchmarking of like securities, sector groupings, and matrix pricing, to determine the prices for individual securities. Each pricing vendor has an established challenge process in place for all security valuations, which facilitates resolution of price discrepancies identified by the Bank. At least annually, the Bank conducts reviews of the multiple pricing vendors to update and confirm its understanding of the vendors’ pricing processes, methodologies, and control procedures. The Bank’s valuation technique for estimating the fair values of its MBS first requires the establishment of a median vendor price for each security. If three prices are received, the middle price is the median price; if two prices are received, the average of the two prices is the median price; and if one price is received, it is the median price (and also the default fair value) subject to additional validation. All vendor prices that are within a specified tolerance threshold of the median price are included in the cluster of vendor prices that are averaged to establish a default fair value. All vendor prices that are outside the threshold (outliers) are subject to further analysis including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities and/or dealer estimates, or use of internal model prices, which are deemed to be reflective of all relevant facts and circumstances that a market participant would consider. Such analysis is also applied in those limited instances where no third-party vendor price or only one third-party vendor price is available in order to arrive at an estimated fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price, as appropriate) is used as the fair value rather than the default fair value. If, instead, the analysis confirms that an outlier is (or outliers are) not representative of fair value and the default fair value is the best estimate, then the default fair value is used as the fair value. If all vendor prices received for a security are outside the tolerance threshold level of the median price, then there is no default fair value, and the fair value is determined by an evaluation of all outlier prices (or the other prices, as appropriate) as described above. As of March 31, 2019 , multiple vendor prices were received for most of the Bank’s MBS, and the fair value estimates for most of those securities were determined in accordance with the Bank’s valuation technique based on these vendor prices. Based on the Bank’s reviews of the pricing methods employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or, in those instances in which there were outliers, the Bank’s additional analyses), the Bank believes that its fair value estimates are reasonable and that the fair value measurements are classified appropriately in the fair value hierarchy. Based on limited market liquidity for PLRMBS, the fair value measurements for these securities were classified as Level 3 within the fair value hierarchy. Investment Securities – FFCB Bonds – The Bank estimates the fair values of these securities using the methodology described above for Investment Securities – MBS . Advances Recorded Under the Fair Value Option – Because quoted prices are not available for advances, the fair values are measured using model-based valuation techniques (such as calculating the present value of future cash flows and reducing the amount for accrued interest receivable). The Bank’s primary inputs for measuring the fair value of advances recorded under the fair value option are market-based consolidated obligation yield curve (CO Curve) inputs obtained from the Office of Finance. The CO Curve is then adjusted to reflect the rates on replacement advances with similar terms and collateral. These spread adjustments are not market-observable and are evaluated for significance in the overall fair value measurement and the fair value hierarchy level of the advance. The Bank obtains market-observable inputs for complex advances recorded under the fair value option. These inputs may include volatility assumptions, which are market-based expectations of future interest rate volatility implied from current market prices for similar options (swaption volatility and volatility skew). The discount rates used in these calculations are the replacement advance rates for advances with similar terms. Pursuant to the Finance Agency’s advances regulation, advances with an original term to maturity or repricing period greater than six months generally require a prepayment fee sufficient to make the Bank financially indifferent to the borrower’s decision to prepay the advances. The Bank determined that no adjustment is required to the fair value measurement of advances for prepayment fees. In addition, the Bank did not adjust its fair value measurement of advances recorded under the fair value option for creditworthiness primarily because advances were fully collateralized. Other Assets – The estimated fair value of grantor trust assets is based on quoted market prices. Derivative Assets and Liabilities – In general, derivative instruments transacted and held by the Bank for risk management activities are traded in over-the-counter markets where quoted market prices are not readily available. These derivatives are interest rate-related. For these derivatives, the Bank measures fair value using internally developed discounted cash flow models that use market-observable inputs, such as swap rates and volatility assumptions, which are market-based expectations of future interest rate volatility implied from current market prices for similar options (swaption volatility and volatility skew), adjusted for counterparty credit risk, as necessary. The Bank is subject to credit risk because of the risk of potential nonperformance by its derivative counterparties. To mitigate this risk, the Bank executes uncleared derivative transactions only with highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria. In addition, the Bank has entered into master netting agreements and bilateral credit support agreements with all active derivative dealer counterparties that provide for delivery of collateral at specified levels to limit the Bank’s net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivative dealer counterparty is set at zero (subject to a minimum transfer amount). The Bank clears its cleared derivative transactions only through clearing agents that meet the Bank’s eligibility requirements, and the Bank’s credit exposure to the clearinghouse is secured by variation margin received from the clearinghouse. All credit exposure from derivative transactions entered into by the Bank with member counterparties that are not derivative dealers must be fully secured by eligible collateral. The Bank evaluated the potential for the fair value of the instruments to be affected by counterparty credit risk and determined that no adjustments to the overall fair value measurements were required. The fair values of the derivative assets and liabilities include accrued interest receivable/payable and cash collateral remitted to/received from counterparties. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values because of their short-term nature. The fair values of derivatives that met the netting requirements are presented on a net basis. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Consolidated Obligations Recorded Under the Fair Value Option – Because quoted prices in active markets are not generally available for identical liabilities, the Bank measures fair values using internally developed models that use primarily market-observable inputs. The Bank’s primary input for measuring the fair value of consolidated obligation bonds is a market-based CO Curve obtained from the Office of Finance. The Office of Finance constructs the CO Curve using the Treasury yield curve as a base curve, which is adjusted by indicative consolidated obligation spreads obtained from market-observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, and market activity for similar liabilities, such as recent GSE issuances or secondary market activity. For consolidated obligation bonds with embedded options, the Bank also obtains market-observable inputs, such as volatility assumptions, which are market-based expectations of future interest rate volatility implied from current market prices for similar options (swaption volatility and volatility skew). Adjustments may be necessary to reflect the Bank’s credit quality or the credit quality of the FHLBank System when valuing consolidated obligation bonds measured at fair value. The Bank monitors its own creditworthiness and the creditworthiness of the other FHLBanks and the FHLBank System to determine whether any adjustments are necessary for creditworthiness in its fair value measurement of consolidated obligation bonds. The credit ratings of the FHLBank System and any changes to the credit ratings are the basis for the Bank to determine whether the fair values of consolidated obligations recorded under the fair value option have been significantly affected during the reporting period by changes in the instrument-specific credit risk. Subjectivity of Estimates Related to Fair Values of Financial Instruments. Estimates of the fair value of financial assets and liabilities using the methodologies described above are 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. Changes in these judgments often have a material effect on the fair value estimates. Fair Value Measurements. The tables below present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at March 31, 2019 , and December 31, 2018 , by level within the fair value hierarchy. March 31, 2019 Fair Value Measurement Using: Netting Adjustments and Cash Level 1 Level 2 Level 3 Collateral (1) Total Recurring fair value measurements – Assets: Trading securities: GSEs – FFCB bonds $ — $ 605 $ — $ — $ 605 MBS: Other U.S. obligations – Ginnie Mae — 5 — — 5 Total trading securities — 610 — — 610 AFS securities: GSEs - multifamily — 5,381 — — 5,381 PLRMBS — — 3,055 — 3,055 Total AFS securities — 5,381 3,055 — 8,436 Advances (2) — 5,053 — — 5,053 Derivative assets, net: interest rate-related — 65 — 181 246 Other assets 17 — — — 17 Total recurring fair value measurements – Assets $ 17 $ 11,109 $ 3,055 $ 181 $ 14,362 Recurring fair value measurements – Liabilities: Consolidated obligation bonds (3) $ — $ 1,191 $ — $ — $ 1,191 Derivative liabilities, net: interest rate-related — 201 — (200 ) 1 Total recurring fair value measurements – Liabilities $ — $ 1,392 $ — $ (200 ) $ 1,192 Nonrecurring fair value measurements – Assets: (4) Impaired mortgage loans held for portfolio $ — $ — $ 1 $ — $ 1 Total nonrecurring fair value measurements – Assets $ — $ — $ 1 $ — $ 1 December 31, 2018 Fair Value Measurement Using: Netting Adjustments and Cash Level 1 Level 2 Level 3 Collateral (1) Total Recurring fair value measurements – Assets: Trading securities: GSEs – FFCB bonds $ — $ 656 $ — $ — $ 656 MBS: Other U.S. obligations – Ginnie Mae — 5 — — 5 Total trading securities — 661 — — 661 AFS securities: GSEs - multifamily — 3,774 — — 3,774 PLRMBS — — 3,157 — 3,157 Total AFS securities — 3,774 3,157 — 6,931 Advances (2) — 5,133 — — 5,133 Derivative assets, net: interest rate-related — 86 — 99 185 Other assets 16 — — — 16 Total recurring fair value measurements – Assets $ 16 $ 9,654 $ 3,157 $ 99 $ 12,926 Recurring fair value measurements – Liabilities: Consolidated obligation bonds (3) $ — $ 2,019 $ — $ — $ 2,019 Derivative liabilities, net: interest rate-related — 147 — (137 ) 10 Total recurring fair value measurements – Liabilities $ — $ 2,166 $ — $ (137 ) $ 2,029 Nonrecurring fair value measurements – Assets: (4) Impaired mortgage loans held for portfolio $ — $ — $ 2 $ — $ 2 Total nonrecurring fair value measurements – Assets $ — $ — $ 2 $ — $ 2 (1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed by the Bank, with the same clearing agents and/or counterparty. (2) Represents advances recorded under the fair value option at March 31, 2019 , and December 31, 2018 . (3) Represents consolidated obligation bonds recorded under the fair value option at March 31, 2019 , and December 31, 2018 . (4) The fair value information presented is as of the date the fair value adjustment was recorded during the three months ended March 31, 2019 , and the year ended December 31, 2018 . The following table presents a reconciliation of the Bank’s AFS PLRMBS that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2019 and 2018 . Three Months Ended March 31, 2019 March 31, 2018 Balance, beginning of the period $ 3,157 $ 3,833 Total gain/(loss) realized and unrealized included in: Interest income 18 22 Net OTTI loss, credit-related (1 ) (1 ) Unrealized gain/(loss) of other-than-temporarily impaired securities included in AOCI 14 17 Net amount of OTTI loss reclassified to/(from) other income/(loss) — (2 ) Settlements (133 ) (183 ) Balance, end of the period $ 3,055 $ 3,686 Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets and liabilities still held at the end of the period $ 17 $ 21 Fair Value Option. The fair value option provides an entity with an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires an entity to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income. Interest income and interest expense on advances and consolidated bonds carried at fair value are recognized solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized in non-interest income or non-interest expense. For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 19 – Fair Values” in the Bank’s 2018 Form 10-K. The Bank has elected the fair value option for certain financial instruments to assist in mitigating potential earnings volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. The potential earnings volatility associated with using fair value only for the derivative is the Bank’s primary reason for electing the fair value option for financial assets and liabilities that do not qualify for hedge accounting or that have not previously met or may be at risk for not meeting the hedge effectiveness requirements. The following table summarizes the activity related to financial assets and liabilities for which the Bank elected the fair value option during the three months ended March 31, 2019 and 2018 : Three Months Ended March 31, 2019 March 31, 2018 Advances Consolidated Obligation Bonds Advances Consolidated Obligation Bonds Balance, beginning of the period $ 5,133 $ 2,019 $ 6,431 $ 949 New transactions elected for fair value option — — 1,222 374 Maturities and terminations (125 ) (830 ) (968 ) — Net gain/(loss) from changes in fair value recognized in earnings 46 7 (49 ) (8 ) Change in accrued interest (1 ) (5 ) 1 — Balance, end of the period $ 5,053 $ 1,191 $ 6,637 $ 1,315 For instruments for which the fair value option has been elected, the related contractual interest income and contractual interest expense are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments for which the fair value option has been elected are recorded as net gains/ (losses) on financial instruments held under the fair value option in the Statements of Income, except for changes in fair value related to instrument-specific credit risk which are recorded in AOCI on the Statements of Condition. For advances and consolidated obligations recorded under the fair value option, the Bank determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the three months ended March 31, 2019 and 2018 . In determining that there has been no change in instrument-specific credit risk period to period, the Bank primarily considered the following factors: • The Bank is a federally chartered GSE, and as a result of this status, the consolidated obligations have historically received the same credit ratings as the government bond credit rating of the United States, even though they are not obligations of the United States and are not guaranteed by the United States. • The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks. The following table presents the difference between the aggregate remaining contractual principal balance outstanding and aggregate fair value of advances and consolidated obligation bonds for which the Bank elected the fair value option at March 31, 2019 , and December 31, 2018 : March 31, 2019 December 31, 2018 Principal Balance Fair Value Fair Value Over/(Under) Principal Balance Principal Balance Fair Value Fair Value Over/(Under) Principal Balance Advances (1) $ 5,037 $ 5,053 $ 16 $ 5,162 $ 5,133 $ (29 ) Consolidated obligation bonds 1,194 1,191 (3 ) 2,024 2,019 (5 ) (1) At March 31, 2019 , and December 31, 2018 , none of these advances were 90 days or more past due or had been placed on nonaccrual status. |
