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 ~~June~~September 30, 2019

¨ 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 Topeka, KS		66606
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 785.233.0507

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



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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). x Yes ¨ No

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

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer x Smaller reporting company ¨

Emerging growth company ¨

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

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

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



	Shares outstanding as of
	~~August 6,~~November 5, 2019
Class A Stock, par value $100 per share	~~2,960,926~~4,619,118
Class B Stock, par value $100 per share	~~12,084,078~~11,780,620

.FEDERAL HOME LOAN BANK OF TOPEKA

TABLE OF CONTENTS




PART I	FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Statements of Condition	6
	Statements of Income	8
	Statements of Comprehensive Income	10
	Statements of Capital	11
	Statements of Cash Flows	13
	Notes to Financial Statements	16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
	Executive Level Overview	53
	Financial Market Trends	56
	Critical Accounting Policies and Estimates	5857
	Results of Operations	58
	Financial Condition	7473
	Liquidity and Capital Resources	8988
	Risk Management	9392
	Recently Issued Accounting Standards	9798
	Legislative and Regulatory Developments	9799
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9899
Item 4.	Controls and Procedures	~~103~~105
Part II	OTHER INFORMATION	~~103~~105
Item 1.	Legal Proceedings	~~103~~105
Item 1A.	Risk Factors	~~103~~105
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~103~~105
Item 3.	Defaults Upon Senior Securities	~~103~~105
Item 4.	Mine Safety Disclosures	~~103~~105
Item 5.	Other Information	~~103~~105
Item 6.	Exhibits	~~104~~106

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

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, changes in 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;

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

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

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

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

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

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

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

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


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

Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this quarterly report, as well as those discussed under Item 1A – Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2018, incorporated by reference herein.

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

PART I

Item 1: Financial Statements


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	06/30/2019		12/31/2018		09/30/2019		12/31/2018
ASSETS
Cash and due from banks	$	11,962	$	15,060	$	24,639	$	15,060
Interest-bearing deposits	561,623		670,660		481,989		670,660
Securities purchased under agreements to resell (Note 10)	3,994,000		1,251,096		2,137,374		1,251,096
Federal funds sold	2,460,000		50,000		900,000		50,000

Investment securities:
Trading securities (Note 3)	3,844,783		2,151,113		2,901,575		2,151,113
Available-for-sale securities (Note 3)	4,581,215		1,725,640		6,098,929		1,725,640
Held-to-maturity securities¹ (Note 3)	4,001,059		4,456,873		3,728,655		4,456,873
Total investment securities	12,427,057		8,333,626		12,729,159		8,333,626

Advances (Notes 4, 6)	31,099,119		28,730,113		30,634,583		28,730,113
Mortgage loans held for portfolio, net of allowance for credit losses of $858 and $812 (Notes 5, 6)	9,192,097		8,410,462
Mortgage loans held for portfolio, net of allowance for credit losses of $905 and $812 (Notes 5, 6)					9,833,763		8,410,462
Accrued interest receivable	142,483		109,366		150,823		109,366
Derivative assets, net (Notes 7, 10)	84,816		36,095		137,050		36,095
Other assets	105,140		108,778		101,750		108,778

TOTAL ASSETS	$	60,078,297	$	47,715,256	$	57,131,130	$	47,715,256

LIABILITIES
Deposits (Note 8)	$	589,543	$	473,820	$	756,376	$	473,820

Consolidated obligations, net:
Discount notes (Note 9)	27,163,395		20,608,332		21,044,232		20,608,332
Bonds (Note 9)	29,516,980		23,966,394		32,441,885		23,966,394
Total consolidated obligations, net	56,680,375		44,574,726		53,486,117		44,574,726

Mandatorily redeemable capital stock (Note 11)	2,750		3,597		2,477		3,597
Accrued interest payable	114,057		87,903		116,478		87,903
Affordable Housing Program payable	43,528		43,081		41,304		43,081
Derivative liabilities, net (Notes 7, 10)	430		7,884		990		7,884
Other liabilities	66,921		69,993		69,066		69,993

TOTAL LIABILITIES	57,497,604		45,261,004		54,472,808		45,261,004

Commitments and contingencies (Note 14)

¹Fair value: $~~3,989,785~~3,717,004 and $4,447,078 as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

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


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	06/30/2019		12/31/2018		09/30/2019		12/31/2018
CAPITAL
Capital stock outstanding - putable:
Class A ($100 par value; 2,155 and 2,473 shares issued and outstanding) (Note 11)	$	215,536	$	247,361
Class B ($100 par value; 13,830 and 12,772 shares issued and outstanding) (Note 11)	1,382,968		1,277,176
Class A ($100 par value; 3,444 and 2,473 shares issued and outstanding) (Note 11)					$	344,453	$	247,361
Class B ($100 par value; 13,262 and 12,772 shares issued and outstanding) (Note 11)					1,326,237		1,277,176
Total capital stock	1,598,504		1,524,537		1,670,690		1,524,537

Retained earnings:
Unrestricted	735,915		716,555		748,888		716,555
Restricted	214,361		197,467		224,060		197,467
Total retained earnings	950,276		914,022		972,948		914,022

Accumulated other comprehensive income (loss) (Note 12)	31,913		15,693		14,684		15,693

TOTAL CAPITAL	2,580,693		2,454,252		2,658,322		2,454,252

TOTAL LIABILITIES AND CAPITAL	$	60,078,297	$	47,715,256	$	57,131,130	$	47,715,256


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
INTEREST INCOME:
Interest-bearing deposits	$	5,048		$	3,235		$	10,218		$	5,471		$	5,300		$	3,931		$	15,518		$	9,402
Securities purchased under agreements to resell	29,568			14,562			57,498			25,992			26,768			20,618			84,266			46,610
Federal funds sold	9,555			11,054			19,879			21,643			8,179			7,896			28,058			29,539
Trading securities	25,925			20,892			47,869			37,479			20,342			16,764			68,211			54,243
Available-for-sale securities	15,487			11,245			30,883			20,107			47,811			12,563			78,694			32,670
Held-to-maturity securities	28,859			29,609			60,132			54,936			24,337			30,602			84,469			85,538
Advances	189,562			160,990			377,171			301,808			186,431			158,943			563,602			460,751
Mortgage loans held for portfolio	75,185			61,750			148,469			121,285			76,546			65,424			225,015			186,709
Other	367			375			751			784			346			381			1,097			1,165
Total interest income	379,556			313,712			752,870			589,505			396,060			317,122			1,148,930			906,627

INTEREST EXPENSE:
Deposits	2,473			2,210			5,161			3,824			2,540			2,289			7,701			6,113
Consolidated obligations:
Discount notes	150,802			110,994			299,793			205,972			133,680			108,137			433,473			314,109
Bonds	176,714			131,342			334,871			243,774			185,096			138,668			519,967			382,442
Mandatorily redeemable capital stock (Note 11)	40			56			83			117			30			58			113			175
Other	297			226			717			455			299			311			1,016			766
Total interest expense	330,326			244,828			640,625			454,142			321,645			249,463			962,270			703,605

NET INTEREST INCOME	49,230			68,884			112,245			135,363			74,415			67,659			186,660			203,022
Provision (reversal) for credit losses on mortgage loans (Note 6)	38			16			116			46			393			(391		)	509			(345		)
NET INTEREST INCOME AFTER LOAN LOSS PROVISION (REVERSAL)	49,192			68,868			112,129			135,317			74,022			68,050			186,151			203,367

OTHER INCOME (LOSS):
Net gains (losses) on trading securities (Note 3)	41,843			(12,031		)	70,598			(38,981		)	16,186			(11,514		)	86,784			(50,495		)
Net gains (losses) on sale of held-to-maturity securities (Note 3)	(46		)	28			(46		)	62			—			1,529			(46		)	1,591
Net gains (losses) on derivatives and hedging activities (Note 7)	(40,011		)	6,986			(58,553		)	23,629			(20,386		)	6,032			(78,939		)	29,661
Standby bond purchase agreement commitment fees	553			752			1,119			1,600			566			642			1,685			2,242
Letters of credit fees	1,205			1,148			2,391			2,214			1,190			1,086			3,581			3,300
Other	824			579			1,533			1,951			937			725			2,470			2,676
Total other income (loss)	4,368			(2,538		)	17,042			(9,525		)	(1,507		)	(1,500		)	15,535			(11,025		)


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	06/30/2019		06/30/2018		06/30/2019		06/30/2018		09/30/2019		09/30/2018		09/30/2019		09/30/2018
OTHER EXPENSES:
Compensation and benefits	$	9,559	$	7,997	$	18,817	$	16,327	$	9,781	$	12,682	$	28,598	$	29,009
Other operating	5,045		4,471		9,300		8,656		5,031		4,763		14,331		13,419
Federal Housing Finance Agency	813		690		1,625		1,454		812		690		2,437		2,144
Office of Finance	896		717		1,745		1,501		972		812		2,717		2,313
Other	2,000		1,618		3,816		3,020		2,037		1,481		5,853		4,501
Total other expenses	18,313		15,493		35,303		30,958		18,633		20,428		53,936		51,386

INCOME BEFORE ASSESSMENTS	35,247		50,837		93,868		94,834		53,882		46,122		147,750		140,956

Affordable Housing Program	3,529		5,089		9,395		9,495		5,391		4,618		14,786		14,113

NET INCOME	$	31,718	$	45,748	$	84,473	$	85,339	$	48,491	$	41,504	$	132,964	$	126,843


FEDERAL HOME LOAN BANK OF TOPEKA	FEDERAL HOME LOAN BANK OF TOPEKA										FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
	Three Months Ended					Six Months Ended					Three Months Ended					Nine Months Ended
	06/30/2019		06/30/2018			06/30/2019		06/30/2018			09/30/2019			09/30/2018		09/30/2019			09/30/2018
Net income	$	31,718	$	45,748		$	84,473	$	85,339		$	48,491		$	41,504	$	132,964		$	126,843

Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities	4,227		(5,720		)	16,075		(1,578		)	(17,324		)	3,694		(1,249		)	2,116
Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities	—		207			—		508			—			3,655		—			4,163
Defined benefit pension plan	72		5			145		12			95			5		240			17
Total other comprehensive income (loss)	4,299		(5,508		)	16,220		(1,058		)	(17,229		)	7,354		(1,009		)	6,296

TOTAL COMPREHENSIVE INCOME	$	36,017	$	40,240		$	100,693	$	84,281		$	31,262		$	48,858	$	131,955		$	133,139


FEDERAL HOME LOAN BANK OF TOPEKA	FEDERAL HOME LOAN BANK OF TOPEKA																													FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited	STATEMENTS OF CAPITAL - Unaudited																													STATEMENTS OF CAPITAL - Unaudited
(In thousands)	(In thousands)																													(In thousands)
	Capital Stock¹															Retained Earnings								Accumulated			Total Capital			Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other																													Other
	Class A					Class B					Total													Comprehensive						Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)						Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at March 31, 2018	1,663		$	166,288		14,324		$	1,432,448		15,987		$	1,598,736		$	682,910		$	171,331	$	854,241		$	30,108		$	2,483,085
Balance at June 30, 2018																														1,966		$	196,571		12,997		$	1,299,708		14,963		$	1,496,279		$	695,310		$	180,480	$	875,790		$	24,600		$	2,396,669
Comprehensive income																36,599			9,149		45,748			(5,508		)	40,240																		33,203			8,301		41,504			7,354			48,858
Proceeds from issuance of capital stock	5		521			6,245		624,492			6,250		625,013														625,013			3		310			3,973		397,309			3,976		397,619														397,619
Repurchase/redemption of capital stock	(1,728	)	(172,797		)	(6	)	(627		)	(1,734	)	(173,424		)												(173,424		)	(2,360	)	(236,009		)	(21	)	(2,068		)	(2,381	)	(238,077		)												(238,077		)
Net reclassification of shares to mandatorily redeemable capital stock	(985	)	(98,522		)	(4,795	)	(479,526		)	(5,780	)	(578,048		)												(578,048		)	(574	)	(57,364		)	(1,577	)	(157,743		)	(2,151	)	(215,107		)												(215,107		)
Net transfer of shares between Class A and Class B	3,011		301,081			(3,011	)	(301,081		)	—		—														—			2,793		279,316			(2,793	)	(279,316		)	—		—														—
Dividends on capital stock (Class A - 1.5%, Class B - 6.8%):
Dividends on capital stock (Class A - 2.0%, Class B - 7.2%):
Cash payment																(197		)			(197		)				(197		)																(69		)			(69		)				(69		)
Stock issued						240		24,002			240		24,002			(24,002		)			(24,002		)				—								232		23,209			232		23,209			(23,209		)			(23,209		)				—
Balance at June 30, 2018	1,966		$	196,571		12,997		$	1,299,708		14,963		$	1,496,279		$	695,310		$	180,480	$	875,790		$	24,600		$	2,396,669
Balance at September 30, 2018																														1,828		$	182,824		12,811		$	1,281,099		14,639		$	1,463,923		$	705,235		$	188,781	$	894,016		$	31,954		$	2,389,893

	Capital Stock¹															Retained Earnings								Accumulated			Total Capital			Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other																													Other
	Class A					Class B					Total													Comprehensive						Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)						Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at March 31, 2019	1,981		$	198,079		13,103		$	1,310,317		15,084		$	1,508,396		$	734,822		$	208,018	$	942,840		$	27,614		$	2,478,850
Balance at June 30, 2019																														2,155		$	215,536		13,830		$	1,382,968		15,985		$	1,598,504		$	735,915		$	214,361	$	950,276		$	31,913		$	2,580,693
Comprehensive income																25,375			6,343		31,718			4,299			36,017																		38,792			9,699		48,491			(17,229		)	31,262
Proceeds from issuance of capital stock	11		1,119			4,250		425,023			4,261		426,142														426,142			—		—			3,974		397,429			3,974		397,429														397,429
Repurchase/redemption of capital stock	(2,341	)	(234,064		)	(915	)	(91,463		)	(3,256	)	(325,527		)												(325,527		)	(721	)	(72,148		)	(1,191	)	(119,069		)	(1,912	)	(191,217		)												(191,217		)
Net reclassification of shares to mandatorily redeemable capital stock	(346	)	(34,627		)	(1	)	(94		)	(347	)	(34,721		)												(34,721		)	(253	)	(25,225		)	(1,345	)	(134,550		)	(1,598	)	(159,775		)												(159,775		)
Net transfer of shares between Class A and Class B	2,850		285,029			(2,850	)	(285,029		)	—		—														—			2,263		226,290			(2,263	)	(226,290		)	—		—														—
Dividends on capital stock (Class A - 2.5%, Class B - 7.5%):
Cash payment																(68		)			(68		)				(68		)																(70		)			(70		)				(70		)
Stock issued						243		24,214			243		24,214			(24,214		)			(24,214		)				—								257		25,749			257		25,749			(25,749		)			(25,749		)				—
Balance at June 30, 2019	2,155		$	215,536		13,830		$	1,382,968		15,985		$	1,598,504		$	735,915		$	214,361	$	950,276		$	31,913		$	2,580,693
Balance at September 30, 2019																														3,444		$	344,453		13,262		$	1,326,237		16,706		$	1,670,690		$	748,888		$	224,060	$	972,948		$	14,684		$	2,658,322

¹Putable


FEDERAL HOME LOAN BANK OF TOPEKA	FEDERAL HOME LOAN BANK OF TOPEKA																													FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited	STATEMENTS OF CAPITAL - Unaudited																													STATEMENTS OF CAPITAL - Unaudited
(In thousands)	(In thousands)																													(In thousands)
	Capital Stock¹															Retained Earnings								Accumulated			Total Capital			Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other																													Other
	Class A					Class B					Total													Comprehensive						Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)						Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2017	2,351		$	235,134		14,049		$	1,404,905		16,400		$	1,640,039		$	676,993		$	163,413	$	840,406		$	25,658		$	2,506,103		2,351		$	235,134		14,049		$	1,404,905		16,400		$	1,640,039		$	676,993		$	163,413	$	840,406		$	25,658		$	2,506,103
Comprehensive income																68,272			17,067		85,339			(1,058		)	84,281																		101,475			25,368		126,843			6,296			133,139
Proceeds from issuance of capital stock	8		844			8,966		896,544			8,974		897,388														897,388			11		1,154			12,939		1,293,853			12,950		1,295,007														1,295,007
Repurchase/redemption of capital stock	(4,097	)	(409,734		)	(27	)	(2,664		)	(4,124	)	(412,398		)												(412,398		)	(6,457	)	(645,743		)	(48	)	(4,732		)	(6,505	)	(650,475		)												(650,475		)
Net reclassification of shares to mandatorily redeemable capital stock	(1,376	)	(137,662		)	(5,408	)	(540,776		)	(6,784	)	(678,438		)												(678,438		)	(1,950	)	(195,026		)	(6,985	)	(698,519		)	(8,935	)	(893,545		)												(893,545		)
Net transfer of shares between Class A and Class B	5,080		507,989			(5,080	)	(507,989		)	—		—														—			7,873		787,305			(7,873	)	(787,305		)	—		—														—
Dividends on capital stock (Class A - 1.5%, Class B - 6.8%):
Dividends on capital stock (Class A - 1.7%, Class B - 6.9%):
Cash payment																(267		)			(267		)				(267		)																(336		)			(336		)				(336		)
Stock issued						497		49,688			497		49,688			(49,688		)			(49,688		)				—								729		72,897			729		72,897			(72,897		)			(72,897		)				—
Balance at June 30, 2018	1,966		$	196,571		12,997		$	1,299,708		14,963		$	1,496,279		$	695,310		$	180,480	$	875,790		$	24,600		$	2,396,669
Balance at September 30, 2018																														1,828		$	182,824		12,811		$	1,281,099		14,639		$	1,463,923		$	705,235		$	188,781	$	894,016		$	31,954		$	2,389,893

	Capital Stock¹															Retained Earnings								Accumulated			Total Capital			Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other																													Other
	Class A					Class B					Total													Comprehensive						Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)						Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2018	2,473		$	247,361		12,772		$	1,277,176		15,245		$	1,524,537		$	716,555		$	197,467	$	914,022		$	15,693		$	2,454,252		2,473		$	247,361		12,772		$	1,277,176		15,245		$	1,524,537		$	716,555		$	197,467	$	914,022		$	15,693		$	2,454,252
Comprehensive income																67,579			16,894		84,473			16,220			100,693																		106,371			26,593		132,964			(1,009		)	131,955
Proceeds from issuance of capital stock	12		1,171			7,627		762,729			7,639		763,900														763,900			12		1,171			11,601		1,160,158			11,613		1,161,329														1,161,329
Repurchase/redemption of capital stock	(5,729	)	(572,891		)	(1,065	)	(106,486		)	(6,794	)	(679,377		)												(679,377		)	(6,450	)	(645,039		)	(2,256	)	(225,555		)	(8,706	)	(870,594		)												(870,594		)
Net reclassification of shares to mandatorily redeemable capital stock	(525	)	(52,538		)	(61	)	(6,098		)	(586	)	(58,636		)												(58,636		)	(778	)	(77,763		)	(1,406	)	(140,648		)	(2,184	)	(218,411		)												(218,411		)
Net transfer of shares between Class A and Class B	5,924		592,433			(5,924	)	(592,433		)	—		—														—			8,187		818,723			(8,187	)	(818,723		)	—		—														—
Dividends on capital stock (Class A - 2.4%, Class B - 7.5%):
Cash payment																(139		)			(139		)				(139		)																(209		)			(209		)				(209		)
Stock issued						481		48,080			481		48,080			(48,080		)			(48,080		)				—								738		73,829			738		73,829			(73,829		)			(73,829		)				—
Balance at June 30, 2019	2,155		$	215,536		13,830		$	1,382,968		15,985		$	1,598,504		$	735,915		$	214,361	$	950,276		$	31,913		$	2,580,693
Balance at September 30, 2019																														3,444		$	344,453		13,262		$	1,326,237		16,706		$	1,670,690		$	748,888		$	224,060	$	972,948		$	14,684		$	2,658,322

¹Putable


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Six Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			09/30/2019			09/30/2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	84,473		$	85,339		$	132,964		$	126,843
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net	12,355			(4,924		)	738			(7,736		)
Concessions on consolidated obligations	5,432			2,736			10,128			4,050
Premiums and discounts on investments, net	2,731			1,702			6,246			2,676
Premiums, discounts and commitment fees on advances, net	(1,152		)	(2,579		)	(1,379		)	(3,758		)
Premiums, discounts and deferred loan costs on mortgage loans, net	9,714			8,799			18,542			13,786
Fair value adjustments on hedged assets or liabilities	2,108			1,008			2,948			1,249
Premises, software and equipment	1,532			1,519			2,331			2,226
Other	145			12			240			17
Provision (reversal) for credit losses on mortgage loans	116			46			509			(345		)
Non-cash interest on mandatorily redeemable capital stock	81			116			111			173
Net realized (gains) losses on sale of held-to-maturity securities	46			(62		)	46			(1,591		)
Net other-than-temporary impairment losses on held-to-maturity securities	—			33			—			26
Net realized (gains) losses on sale of premises and equipment	(3		)	(880		)	(3		)	(880		)
Other adjustments	(93		)	(75		)	(272		)	(238		)
Net (gains) losses on trading securities	(70,598		)	38,981			(86,784		)	50,495
Net change in derivatives and hedging activities	(84,826		)	22,326			(144,589		)	36,107
(Increase) decrease in accrued interest receivable	(33,290		)	(19,383		)	(41,801		)	(15,814		)
Change in net accrued interest included in derivative assets	(1,891		)	(7,123		)	(1,254		)	(7,822		)
(Increase) decrease in other assets	924			(1,686		)	3,056			(854		)
Increase (decrease) in accrued interest payable	25,952			21,192			28,372			35,166
Change in net accrued interest included in derivative liabilities	1,554			386			4,332			(456		)
Increase (decrease) in Affordable Housing Program liability	447			2,958			(1,777		)	784
Increase (decrease) in other liabilities	(3,623		)	(6,258		)	(1,682		)	(3,691		)
Total adjustments	(132,339		)	58,844			(201,942		)	103,570
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(47,866		)	144,183			(68,978		)	230,413


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Six Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			09/30/2019			09/30/2018
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits	$	1,288		$	(103,060	)	$	(32,829	)	$	28,298
Net (increase) decrease in securities purchased under resale agreements	(2,742,904		)	(772,544		)	(886,278		)	(823,576		)
Net (increase) decrease in Federal funds sold	(2,410,000		)	525,000			(850,000		)	(265,000		)
Proceeds from sale of trading securities	429			—			429			—
Proceeds from maturities of and principal repayments on trading securities	1,551,440			2,042,501			3,015,268			3,290,566
Purchases of trading securities	(3,174,941		)	(2,350,000		)	(3,679,375		)	(2,682,969		)
Proceeds from maturities of and principal repayments on available-for-sale securities	5,760			4,580			8,732			16,165
Purchases of available-for-sale securities	(2,716,448		)	(281,489		)	(4,180,862		)	(281,489		)
Proceeds from sale of held-to-maturity securities	9,442			20,261			9,442			87,827
Proceeds from maturities of and principal repayments on held-to-maturity securities	445,378			475,564			716,417			699,016
Purchases of held-to-maturity securities	—			(625,170		)	—			(625,170		)
Advances repaid	212,991,221			211,208,356			279,880,008			300,011,912
Advances originated	(215,243,175		)	(213,685,767		)	(281,623,825		)	(302,270,146		)
Principal collected on mortgage loans	503,412			440,277			1,011,265			706,748
Purchases of mortgage loans	(1,293,351		)	(974,598		)	(2,451,132		)	(1,553,027		)
Proceeds from sale of foreclosed assets	1,643			2,656			1,965			3,728
Purchases of other long-term assets							—			(6,000		)
Other investing activities	1,534			1,401			2,320			2,136
Proceeds from sale of premises, software and equipment	—			2,416			—			2,416
Purchases of premises, software and equipment	(741		)	(7,182		)	(1,037		)	(8,002		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(12,070,013		)	(4,076,798		)	(9,059,492		)	(3,666,567		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	38,264			72,242			205,498			91,182
Net proceeds from issuance of consolidated obligations:
Discount notes	453,966,178			563,830,828			633,162,917			765,464,193
Bonds	12,087,946			7,734,341			20,517,358			8,790,535
Payments for maturing and retired consolidated obligations:
Discount notes	(447,428,963		)	(562,504,206		)	(632,736,460		)	(763,468,454		)
Bonds	(6,571,750		)	(5,255,690		)	(12,082,800		)	(7,440,940		)
Net increase (decrease) in other borrowings							—			6,000
Net interest payments received (paid) for financing derivatives	(1,714		)	(2,073		)	652			(3,614		)
Proceeds from issuance of capital stock	763,900			897,388			1,161,329			1,295,007
Payments for repurchase/redemption of capital stock	(679,377		)	(412,398		)	(870,594		)	(650,475		)
Payments for repurchase of mandatorily redeemable capital stock	(59,564		)	(679,288		)	(219,642		)	(894,494		)
Cash dividends paid	(139		)	(267		)	(209		)	(336		)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	12,114,781			3,680,877			9,138,049			3,188,604
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(3,098		)	(251,738		)	9,579			(247,550		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	15,060			268,050			15,060			268,050
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	11,962		$	16,312		$	24,639		$	20,500


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Six Months Ended				Nine Months Ended
	06/30/2019		06/30/2018		09/30/2019		09/30/2018
Supplemental disclosures:
Interest paid	$	595,671	$	437,681	$	919,428	$	672,944
Affordable Housing Program payments	$	9,217	$	6,618	$	16,859	$	13,468
Net transfers of mortgage loans to other assets	$	605	$	2,447	$	627	$	2,817

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements - Unaudited

~~June~~September 30, 2019

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation: The accompanying interim financial statements of the FHLBank 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, 2018. 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 18, 2019 (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.

Reclassifications: Presentation of cash flow amounts in the prior period have been reclassified to reflect short-term trading securities purchases and proceeds on a gross, rather than net, basis. Certain other immaterial amounts in the financial statements have been reclassified to conform to current period presentations.

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

Use of Estimates: The preparation of financial statements under GAAP requires management to make estimates and assumptions as of the date of the financial statements in determining the reported amounts of assets, liabilities and estimated fair values and in determining the disclosure of any contingent assets or liabilities. Estimates and assumptions by management also affect the reported amounts of income and expense during the reporting period. The most significant of these estimates include the fair value of trading and available-for-sale securities, the fair value of derivatives and the allowance for credit losses. 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 and Hedging Activities: Beginning January 1, 2019, the FHLBank adopted new hedge accounting guidance, which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item. Net gains (losses) on derivatives and hedging activities for qualifying hedges recorded in net interest income include unrealized and realized gains (losses), which include net interest settlements.

Prior to January 1, 2019, fair value hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item) was recorded in non-interest income as net gains (losses) on derivatives and hedging activities.

Investment Securities: Securities that are not classified as trading or held-to-maturity are classified as available-for-sale and are carried at fair value. The change in fair value of available-for-sale securities is recorded in other comprehensive income (loss) (OCI) as net unrealized gains (losses) on available-for-sale securities. Beginning January 1, 2019, the FHLBank adopted new hedge accounting guidance, which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges, including fair value hedges of available-for-sale securities. For available-for-sale securities that have been hedged and qualify as a fair value hedge, the FHLBank records the portion of the change in the fair value of the investment related to the risk being hedged in available-for-sale interest income together with the related change in the fair value of the derivative, and records the remainder of the change in the fair value of the investment in OCI as net unrealized gains (losses) on available-for-sale securities.

Prior to January 1, 2019, for available-for-sale securities that were hedged and qualified as a fair value hedge, the FHLBank recorded the portion of the change in the fair value of the investment related to the risk being hedged in non-interest income as net gains (losses) on derivatives and hedging activities together with the related change in the fair value of the derivative, and recorded the remainder of the change in the fair value of the investment in OCI as net unrealized gains (losses) on available-for-sale securities.

Prepayment Fees on Advances: The FHLBank charges a borrower a prepayment fee when the borrower prepays certain advances before the original maturity. The FHLBank records prepayment fees net of basis adjustments related to hedging activities included in the carrying value of the advance as advance interest income in the Statements of Income.

If a new advance does not qualify as a modification of an existing advance, the existing advance is treated as an advance termination and any prepayment fee, net of hedging adjustments, is recorded to advance interest income in the Statements of Income.

If a new advance qualifies as a modification of an existing advance, any prepayment fee, net of hedging adjustments, is deferred, recorded in the basis of the modified advance, and amortized using a level-yield methodology over the life of the modified advance to advance interest income. If the modified advance is hedged and meets hedge accounting requirements, the modified advance is marked to benchmark or full fair value, depending on the risk being hedged, and subsequent fair value changes that are attributable to the hedged risk are recorded in advance interest income effective January 1, 2019. Prior to January 1, 2019, subsequent fair value changes were recorded in non-interest income as net gains (losses) on derivatives and hedging activities.

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

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (Accounting Standards Update (ASU) 2018-16). In October 2018, the Financial Accounting Standards Board (FASB) issued an amendment that permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the U.S. Treasury rate, the ~~London Interbank Offered Rate (LIBOR)~~LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate. The amendments were adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The amendment was effective concurrently with ASU 2017-12 (see below) for annual periods, and interim periods within those annual periods, beginning January 1, 2019. The adoption of this guidance did not materially affect the FHLBank's application of hedge accounting or utilization of hedging strategies.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). In August 2018, the FASB issued an amendment to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments in this ASU require an entity in a hosting arrangement that is a service contract to follow existing guidance relating to internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized also cannot be capitalized for a hosting arrangement that is a service contract. Therefore, an entity in a hosting arrangement that is a service contract determines to which project stage (that is, preliminary project stage, application development stage, or post-implementation stage) an implementation activity relates. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. The amendments in this ASU also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendments in this ASU will be effective for annual periods, and interim periods within those annual periods beginning after December 31, 2019, which is January 1, 2020 for the FHLBank. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The FHLBank does not plan on early 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.

Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). In August 2018, the FASB issued an amendment modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to improve disclosure effectiveness. The amendments in the ASU remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this ASU are effective for annual periods ending after December 15, 2020, which is the year ending December 31, 2020 for the ~~FHLBank.~~FHLBank, and will be applied retrospectively for all comparative periods presented. Early adoption is permitted. The FHLBank does not plan on early adoption. The adoption of this guidance will not have a material impact on the disclosures related to defined benefit plans and will not impact the FHLBank’s financial condition, results of operations or cash flows.

Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). In August 2018, the FASB issued an amendment that modifies the disclosure requirements for fair value measurements. This ASU removes the requirement to disclose: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU will be effective for annual periods, and interim periods within those annual periods beginning after December 31, 2019, which is January 1, 2020 for the FHLBank. Early adoption is permitted. The FHLBank does not plan on early adoption. The adoption of this guidance will not have a material impact on the disclosures related to fair value measurements and will not impact the FHLBank’s financial condition, results of operations or cash flows.

Targeted Improvements to Accounting for Hedging Activities, as amended (ASU 2017-12). In August 2017, the FASB issued an amendment to simplify the application of hedge accounting guidance in current GAAP and to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. 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. 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 risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged;

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

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

If an entity that applies the shortcut method determines that use of that method was not or is no longer appropriate, the entity may apply a long-haul method for assessing hedge effectiveness as long as the hedge is highly effective and the entity documents at inception which long-haul methodology it will use.

The amendment became effective for annual periods, and interim periods within those annual periods beginning on January 1, 2019 for the FHLBank. The guidance did not affect the FHLBank's application of hedge accounting for existing hedge strategies. For all short-cut hedge accounting trades, the FHLBank updated existing documentation to designate a long-haul method to be utilized in the event a hedge ceases to qualify for the short-cut method. The guidance ~~may~~ also ~~provide~~provided opportunities to enhance risk management through new hedge strategies, including partial term hedges. The adoption of this guidance did not have a material effect on the FHLBank's financial condition, results of operations or cash flows beyond a prospective change in income statement presentation for fair value hedge relationships and new required disclosures.

Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). In March 2017, the 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 became effective for annual periods, and interim periods within those annual periods beginning on January 1, 2019 for the FHLBank. The adoption of this guidance did not have an impact on the FHLBank's financial condition, results of operations or cash flows.

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

The guidance also requires:

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

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

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

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

The 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; however, the FHLBank currently does not have any OTTI debt securities. The FHLBank's internal working group continues its implementation efforts of identifying key interpretive issues and potential impacts to processes and systems that determine the magnitude of the impact on the FHLBank's financial condition, results of operations and cash flows. The FHLBank does not expect this guidance to impact certain financial instruments, including advances, Agency and government-sponsored enterprise investments, securities purchased under agreements to resell, and other overnight investments due to the specific terms, issuer guarantees, and/or collateralized nature of the instruments that result in high credit quality holdings with no expected credit losses. Adoption of this guidance is not expected to have a material impact on the FHLBank's municipal securities, short-term investments and mortgage loans held for portfolio. Consequently, adoption of this guidance is not expected to have a material impact on the FHLBank’s financial condition, results of operations, or cash flows.

Leases (ASU 2016-02). In February 2016, FASB issued amendments to lease accounting guidance. Under the new guidance, lessees are 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 became effective for annual periods, and interim periods within those annual periods, beginning on January 1, 2019 for the FHLBank. The adoption of this guidance did not have a material effect on the FHLBank's financial condition, results of operations or cash flows.

NOTE 3 – INVESTMENT SECURITIES

Trading Securities: Trading securities by major security type as of ~~June~~September 30, 2019 and December 31, 2018 are summarized in Table 3.1 (in thousands):

Table 3.1


	Fair Value				Fair Value
	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Non-mortgage-backed securities:
Certificates of deposit	$	1,210,123	$	—
U.S. Treasury obligations	1,026,843		252,377		$	1,533,842	$	252,377
GSEobligations¹	715,254		1,000,495		468,747		1,000,495
Non-mortgage-backed securities	2,952,220		1,252,872		2,002,589		1,252,872
Mortgage-backed securities:
U.S. obligation MBS²	—		467		—		467
GSE MBS³	892,563		897,774		898,986		897,774
Mortgage-backed securities	892,563		898,241		898,986		898,241
TOTAL	$	3,844,783	$	2,151,113	$	2,901,575	$	2,151,113


¹	Represents debentures issued by other FHLBanks, Federal National Mortgage Association (Fannie Mae), 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 Federal Home Loan Mortgage Corporation (Freddie Mac).

Net gains (losses) on trading securities during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 are shown in Table 3.2 (in thousands):

Table 3.2

Three Months Ended Six Months Ended
06/30/2019 06/30/2018 06/30/2019 06/30/2018
Net gains (losses) on trading securities held as of June 30, 2019 $ 41,970
$ (11,894 ) $ 70,747
$ (37,568 )
Net gains (losses) on trading securities sold or matured prior to June 30, 2019 (127 ) (137 ) (149 ) (1,413 )
NET GAINS (LOSSES) ON TRADING SECURITIES $ 41,843
$ (12,031 ) $ 70,598
$ (38,981 )



	Three Months Ended						Nine Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018
Net gains (losses) on trading securities held as of September 30, 2019	$	16,352		$	(10,375	)	$	87,222		$	(47,833	)
Net gains (losses) on trading securities sold or matured prior to September 30, 2019	(166		)	(1,139		)	(438		)	(2,662		)
NET GAINS (LOSSES) ON TRADING SECURITIES	$	16,186		$	(11,514	)	$	86,784		$	(50,495	)

Available-for-sale Securities: Available-for-sale securities by major security type as of ~~June~~September 30, 2019 are summarized in Table 3.3 (in thousands):

Table 3.3


	06/30/2019									09/30/2019
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
U.S. Treasury obligations	$	2,043,682	$	—	$	(1,292	)	$	2,042,390	$	3,516,938	$	—	$	(6,210	)	$	3,510,728
Non-mortgage-backed securities	2,043,682		—		(1,292		)	2,042,390		3,516,938		—		(6,210		)	3,510,728
Mortgage-backed securities:
GSE MBS¹	2,502,390		40,448		(4,013		)	2,538,825		2,564,172		29,013		(4,984		)	2,588,201
Mortgage-backed securities	2,502,390		40,448		(4,013		)	2,538,825		2,564,172		29,013		(4,984		)	2,588,201
TOTAL	$	4,546,072	$	40,448	$	(5,305	)	$	4,581,215	$	6,081,110	$	29,013	$	(11,194	)	$	6,098,929


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

Available-for-sale securities by major security type as of December 31, 2018 are summarized in Table 3.4 (in thousands):

Table 3.4



	12/31/2018
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Mortgage-backed securities:
GSE MBS¹	$	1,706,572	$	25,815	$	(6,747	)	$	1,725,640
TOTAL	$	1,706,572	$	25,815	$	(6,747	)	$	1,725,640


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 ~~June~~September 30, 2019 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.5


	06/30/2019															09/30/2019
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations	$	2,042,390	$	(1,292	)	$	—	$	—		$	2,042,390	$	(1,292	)	$	3,510,728	$	(6,210	)	$	—	$	—		$	3,510,728	$	(6,210	)
Non-mortgage-backed securities	2,042,390		(1,292		)	—		—			2,042,390		(1,292		)	3,510,728		(6,210		)	—		—			3,510,728		(6,210		)
Mortgage-backed securities:
GSE MBS¹	91,959		(167		)	300,729		(3,846		)	392,688		(4,013		)	155,339		(344		)	307,143		(4,640		)	462,482		(4,984		)
Mortgage-backed securities	91,959		(167		)	300,729		(3,846		)	392,688		(4,013		)	155,339		(344		)	307,143		(4,640		)	462,482		(4,984		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	2,134,349	$	(1,459	)	$	300,729	$	(3,846	)	$	2,435,078	$	(5,305	)	$	3,666,067	$	(6,554	)	$	307,143	$	(4,640	)	$	3,973,210	$	(11,194	)


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, 2018 (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



	12/31/2018
	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	$	570,042	$	(6,747	)	$	—	$	—	$	570,042	$	(6,747	)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	570,042	$	(6,747	)	$	—	$	—	$	570,042	$	(6,747	)


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

The amortized cost and fair values of available-for-sale securities by contractual maturity as of ~~June~~September 30, 2019 and December 31, 2018 are shown in Table 3.7 (in thousands). Expected maturities of MBS will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.7


	06/30/2019				12/31/2018				09/30/2019				12/31/2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	—	$	—	$	—	$	—	$	252,032	$	251,643	$	—	$	—
Due after one year through five years	2,043,682		2,042,390		—		—		3,264,906		3,259,085		—		—
Due after five years through ten years	—		—		—		—		—		—		—		—
Due after ten years	—		—		—		—		—		—		—		—
Non-mortgage-backed securities	2,043,682		2,042,390		—		—		3,516,938		3,510,728		—		—
Mortgage-backed securities	2,502,390		2,538,825		1,706,572		1,725,640		2,564,172		2,588,201		1,706,572		1,725,640
TOTAL	$	4,546,072	$	4,581,215	$	1,706,572	$	1,725,640	$	6,081,110	$	6,098,929	$	1,706,572	$	1,725,640

Held-to-maturity Securities: Held-to-maturity securities by major security type as of ~~June~~September 30, 2019 are summarized in Table 3.8 (in thousands):

Table 3.8


	06/30/2019											09/30/2019
	Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	85,670	$	85,670	$	—	$	(3,250	)	$	82,420	$	85,670	$	85,670	$	—	$	(3,248	)	$	82,422
Non-mortgage-backed securities	85,670		85,670		—		(3,250		)	82,420		85,670		85,670		—		(3,248		)	82,422
Mortgage-backed securities:
U.S. obligation MBS¹	102,536		102,536		3		(266		)	102,273		97,647		97,647		11		(333		)	97,325
GSE MBS²	3,812,853		3,812,853		9,792		(17,553		)	3,805,092		3,545,338		3,545,338		8,360		(16,441		)	3,537,257
Mortgage-backed securities	3,915,389		3,915,389		9,795		(17,819		)	3,907,365		3,642,985		3,642,985		8,371		(16,774		)	3,634,582
TOTAL	$	4,001,059	$	4,001,059	$	9,795	$	(21,069	)	$	3,989,785	$	3,728,655	$	3,728,655	$	8,371	$	(20,022	)	$	3,717,004


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, 2018 are summarized in Table 3.9 (in thousands):

Table 3.9



	12/31/2018
	Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	86,430	$	86,430	$	1	$	(3,480	)	$	82,951
Non-mortgage-backed securities	86,430		86,430		1		(3,480		)	82,951
Mortgage-backed securities:
U.S. obligation MBS¹	109,866		109,866		125		(99		)	109,892
GSE MBS²	4,260,577		4,260,577		12,164		(18,506		)	4,254,235
Mortgage-backed securities	4,370,443		4,370,443		12,289		(18,605		)	4,364,127
TOTAL	$	4,456,873	$	4,456,873	$	12,290	$	(22,085	)	$	4,447,078


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 3.10 summarizes the held-to-maturity securities with unrealized losses as of ~~June~~September 30, 2019 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.10


	06/30/2019															09/30/2019
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
State or local housing agency obligations	$	55,665	$	(5	)	$	26,755	$	(3,245	)	$	82,420	$	(3,250	)	$	55,666	$	(5	)	$	26,757	$	(3,243	)	$	82,423	$	(3,248	)
Non-mortgage-backed securities	55,665		(5		)	26,755		(3,245		)	82,420		(3,250		)	55,666		(5		)	26,757		(3,243		)	82,423		(3,248		)
Mortgage-backed securities:
U.S. obligation MBS¹	63,052		(158		)	28,104		(108		)	91,156		(266		)	60,360		(217		)	26,259		(116		)	86,619		(333		)
GSE MBS²	865,489		(3,682		)	2,140,708		(13,871		)	3,006,197		(17,553		)	634,043		(2,581		)	2,147,252		(13,860		)	2,781,295		(16,441		)
Mortgage-backed securities	928,541		(3,840		)	2,168,812		(13,979		)	3,097,353		(17,819		)	694,403		(2,798		)	2,173,511		(13,976		)	2,867,914		(16,774		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	984,206	$	(3,845	)	$	2,195,567	$	(17,224	)	$	3,179,773	$	(21,069	)	$	750,069	$	(2,803	)	$	2,200,268	$	(17,219	)	$	2,950,337	$	(20,022	)


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 3.11 summarizes the held-to-maturity securities with unrealized losses as of December 31, 2018 (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 3.11



	12/31/2018
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
State or local housing agency obligations	$	—	$	—		$	26,520	$	(3,480	)	$	26,520	$	(3,480	)
Non-mortgage-backed securities	—		—			26,520		(3,480		)	26,520		(3,480		)
Mortgage-backed securities:
U.S. obligation MBS¹	—		—			30,702		(99		)	30,702		(99		)
GSE MBS²	1,655,048		(4,769		)	1,567,728		(13,737		)	3,222,776		(18,506		)
Mortgage-backed securities	1,655,048		(4,769		)	1,598,430		(13,836		)	3,253,478		(18,605		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	1,655,048	$	(4,769	)	$	1,624,950	$	(17,316	)	$	3,279,998	$	(22,085	)


¹	Represents single-family MBS issued by Ginnie Mae.


²	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 ~~June~~September 30, 2019 and December 31, 2018 are shown in Table 3.12 (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 3.12


	06/30/2019						12/31/2018						09/30/2019						12/31/2018
	Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value		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	—		—		—		—		—		—		—		—		—		—		—		—
Due after five years through ten years	—		—		—		—		—		—		—		—		—		—		—		—
Due after ten years	85,670		85,670		82,420		86,430		86,430		82,951		85,670		85,670		82,422		86,430		86,430		82,951
Non-mortgage-backed securities	85,670		85,670		82,420		86,430		86,430		82,951		85,670		85,670		82,422		86,430		86,430		82,951
Mortgage-backed securities	3,915,389		3,915,389		3,907,365		4,370,443		4,370,443		4,364,127		3,642,985		3,642,985		3,634,582		4,370,443		4,370,443		4,364,127
TOTAL	$	4,001,059	$	4,001,059	$	3,989,785	$	4,456,873	$	4,456,873	$	4,447,078	$	3,728,655	$	3,728,655	$	3,717,004	$	4,456,873	$	4,456,873	$	4,447,078

Net gains (losses) were realized on the sale of held-to-maturity securities ~~during the three and six months ended June 30, 2019 and 2018~~as presented below and are recorded as net gains (losses) on sale of held-to-maturity securities in other income (loss) on the Statements of Income. All securities sold had paid down below 15 percent of the principal outstanding at acquisition. Table 3.13 presents details of the sales (in thousands).

Table 3.13


	Three Months Ended						Six Months Ended						Three Months Ended					Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019		09/30/2018			09/30/2019			09/30/2018
Proceeds from sale of held-to-maturity securities	$	9,442		$	11,855		$	9,442		$	20,261		$	—	$	67,566		$	9,442		$	87,827
Carrying value of held-to-maturity securities sold	(9,488		)	(11,827		)	(9,488		)	(20,199		)	—		(66,037		)	(9,488		)	(86,236		)
NET REALIZED GAINS (LOSSES)	$	(46	)	$	28		$	(46	)	$	62		$	—	$	1,529		$	(46	)	$	1,591

As of ~~June~~September 30, 2019, the fair value of a portion of the FHLBank's available-for-sale and held-to-maturity securities were below the amortized cost of the securities due to interest rate volatility and/or illiquidity. However, the decline in fair value of these securities is considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining securities in unrecognized loss positions and neither intends to sell these securities nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis.

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 ~~June~~September 30, 2019 and December 31, 2018, the FHLBank had advances outstanding at interest rates ranging from 0.95 percent to 7.41 percent and 0.88 percent to 7.41 ~~percent.~~percent, respectively. Table 4.1 presents advances summarized by redemption term as of ~~June~~September 30, 2019 and December 31, 2018 (dollar amounts in thousands):

Table 4.1


	06/30/2019					12/31/2018					09/30/2019					12/31/2018
Redemption Term	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	14,984,308		2.53	%	$	14,844,804		2.60	%	$	14,132,104		2.23	%	$	14,844,804		2.60	%
Due after one year through two years	2,235,038			2.50		1,482,844			2.40		6,623,255			2.29		1,482,844			2.40
Due after two years through three years	1,146,832			2.56		1,442,333			2.53		1,378,995			2.45		1,442,333			2.53
Due after three years through four years	886,282			2.55		7,496,058			2.66		2,438,871			2.31		7,496,058			2.66
Due after four years through five years	9,012,429			2.60		816,702			2.68		3,150,589			2.35		816,702			2.68
Thereafter	2,764,814			2.55		2,695,008			2.58		2,797,752			2.46		2,695,008			2.58
Total par value	31,029,703			2.55	%	28,777,749			2.60	%	30,521,566			2.29	%	28,777,749			2.60	%
Discounts	(2,260		)			(3,413		)			(2,034		)			(3,413		)
Hedging adjustments	71,676					(44,223		)			115,051					(44,223		)
TOTAL	$	31,099,119				$	28,730,113				$	30,634,583				$	28,730,113

The FHLBank’s advances outstanding include advances that contain call options that may be exercised with or without prepayment fees at the borrower’s discretion on specific dates (call dates) before the stated advance maturities (callable advances). In exchange for receiving the right to call the advance on a predetermined call schedule, the borrower may pay a higher fixed rate for the advance relative to an equivalent maturity, non-callable, fixed rate advance. The borrower normally exercises its call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances).

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.

Table 4.2 presents advances summarized by redemption term or next call date (for callable advances) and by redemption term or next conversion date (for convertible advances) as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 4.2


	Redemption Term or Next Call Date				Redemption Term or Next Conversion Date				Redemption Term or Next Call Date				Redemption Term or Next Conversion Date
Redemption Term	06/30/2019		12/31/2018		06/30/2019		12/31/2018		09/30/2019		12/31/2018		09/30/2019		12/31/2018
Due in one year or less	$	25,195,684	$	23,343,939	$	15,458,808	$	15,133,204	$	24,738,805	$	23,343,939	$	14,672,104	$	15,133,204
Due after one year through two years	1,788,346		1,271,660		2,439,838		1,683,644		1,418,909		1,271,660		6,827,355		1,683,644
Due after two years through three years	803,024		1,021,189		1,405,932		1,629,233		776,452		1,021,189		1,647,995		1,629,233
Due after three years through four years	519,002		555,901		1,038,232		7,752,058		633,870		555,901		2,585,121		7,752,058
Due after four years through five years	575,501		598,282		9,111,429		954,452		724,005		598,282		3,223,089		954,452
Thereafter	2,148,146		1,986,778		1,575,464		1,625,158		2,229,525		1,986,778		1,565,902		1,625,158
TOTAL PAR VALUE	$	31,029,703	$	28,777,749	$	31,029,703	$	28,777,749	$	30,521,566	$	28,777,749	$	30,521,566	$	28,777,749

Interest Rate Payment Terms: Table 4.3 details additional interest rate payment terms for advances as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 4.3


Redemption Term	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Fixed rate:
Due in one year or less	$	1,421,140	$	1,635,464	$	1,805,217	$	1,635,464
Due after one year	5,854,183		5,455,193		5,798,750		5,455,193
Total fixed rate	7,275,323		7,090,657		7,603,967		7,090,657
Variable rate:
Due in one year or less	13,563,168		13,209,340		12,326,887		13,209,340
Due after one year	10,191,212		8,477,752		10,590,712		8,477,752
Total variable rate	23,754,380		21,687,092		22,917,599		21,687,092
TOTAL PAR VALUE	$	31,029,703	$	28,777,749	$	30,521,566	$	28,777,749

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

NOTE 5 – MORTGAGE LOANS

The MPF Program involves the FHLBank investing in mortgage loans, which have been funded by the FHLBank through or purchased from participating financial institutions (PFIs). These mortgage loans are government-guaranteed or -insured loans (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) and conventional residential loans credit-enhanced by PFIs. Depending upon a member’s product selection, the servicing rights can be retained or sold by the participating member. The FHLBank does not buy or own any mortgage servicing rights.

Mortgage Loans Held for Portfolio: Table 5.1 presents information as of ~~June~~September 30, 2019 and December 31, 2018 on mortgage loans held for portfolio (in thousands):

Table 5.1


	06/30/2019			12/31/2018			09/30/2019			12/31/2018
Real estate:
Fixed rate, medium-term¹, single-family mortgages	$	1,159,612		$	1,179,087		$	1,212,501		$	1,179,087
Fixed rate, long-term, single-family mortgages	7,896,511			7,111,856			8,473,501			7,111,856
Total unpaid principal balance	9,056,123			8,290,943			9,686,002			8,290,943
Premiums	134,720			120,548			145,443			120,548
Discounts	(2,728		)	(2,936		)	(2,541		)	(2,936		)
Deferred loan costs, net	205			223			198			223
Other deferred fees	(45		)	(50		)	(42		)	(50		)
Hedging adjustments	4,680			2,546			5,608			2,546
Total before Allowance for Credit Losses on Mortgage Loans	9,192,955			8,411,274			9,834,668			8,411,274
Allowance for Credit Losses on Mortgage Loans	(858		)	(812		)	(905		)	(812		)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET	$	9,192,097		$	8,410,462		$	9,833,763		$	8,410,462


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

Table 5.2 presents information as of ~~June~~September 30, 2019 and December 31, 2018 on the outstanding unpaid principal balance (UPB) of mortgage loans held for portfolio (in thousands):

Table 5.2


	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Conventional loans	$	8,400,764	$	7,619,498	$	9,044,728	$	7,619,498
Government-guaranteed or -insured loans	655,359		671,445		641,274		671,445
TOTAL UNPAID PRINCIPAL BALANCE	$	9,056,123	$	8,290,943	$	9,686,002	$	8,290,943

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

NOTE 6 – ALLOWANCE FOR CREDIT LOSSES

The FHLBank has established an allowance methodology for each of its portfolio segments: credit products (advances, letters of credit and other extensions of credit to borrowers); government mortgage loans held for portfolio; conventional mortgage loans held for portfolio; the direct financing lease receivable; term Federal funds sold; and term securities purchased under agreements to resell. Based on management's analyses of each portfolio segment, the FHLBank has only established an allowance for credit losses on its conventional mortgage loans held for portfolio.

Allowance for Credit Losses: Table 6.1 presents a roll-forward of the allowance for credit losses for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 (in thousands):

Table 6.1


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Balance, beginning of the period	$	824		$	1,057		$	812		$	1,208		$	858		$	1,029		$	812		$	1,208
Net (charge-offs) recoveries	(4		)	(44		)	(70		)	(225		)	(346		)	18			(416		)	(207		)
Provision (reversal) for credit losses	38			16			116			46			393			(391		)	509			(345		)
Balance, end of the period	$	858		$	1,029		$	858		$	1,029		$	905		$	656		$	905		$	656

Table 6.2 presents the allowance for credit losses and the recorded investment as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of ~~June~~September 30, 2019 (in thousands). The recorded investment in a financing receivable is the UPB, adjusted for accrued interest, net deferred loan fees or costs, unamortized premiums or discounts, fair value hedging adjustments and direct write-downs. The recorded investment is not net of any valuation allowance.

Table 6.2


	06/30/2019										09/30/2019
	Conventional Loans		Government Loans		Credit Products¹		Direct Financing Lease Receivable		Total		Conventional Loans		Government Loans		Credit Products¹		Direct Financing Lease Receivable		Total
Allowance for credit losses:
Individually evaluated for impairment	$	18	$	—	$	—	$	—	$	18	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	840		—		—		—		840		905		—		—		—		905
TOTAL ALLOWANCE FOR CREDIT LOSSES	$	858	$	—	$	—	$	—	$	858	$	905	$	—	$	—	$	—	$	905
Recorded investment:
Individually evaluated for impairment	$	8,934	$	—	$	31,148,663	$	10,423	$	31,168,020	$	11,285	$	—	$	30,690,019	$	9,633	$	30,710,937
Collectively evaluated for impairment	8,562,513		667,441		—		—		9,229,954		9,218,725		653,184		—		—		9,871,909
TOTAL RECORDED INVESTMENT	$	8,571,447	$	667,441	$	31,148,663	$	10,423	$	40,397,974	$	9,230,010	$	653,184	$	30,690,019	$	9,633	$	40,582,846


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

Table 6.3 presents the allowance for credit losses and the recorded investment as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of ~~June~~September 30, 2018 (in thousands):

Table 6.3


	06/30/2018										09/30/2018
	Conventional Loans		Government Loans		Credit Products¹		Direct Financing Lease Receivable		Total		Conventional Loans		Government Loans		Credit Products¹		Direct Financing Lease Receivable		Total
Allowance for credit losses:
Individually evaluated for impairment	$	38	$	—	$	—	$	—	$	38	$	37	$	—	$	—	$	—	$	37
Collectively evaluated for impairment	991		—		—		—		991		619		—		—		—		619
TOTAL ALLOWANCE FOR CREDIT LOSSES	$	1,029	$	—	$	—	$	—	$	1,029	$	656	$	—	$	—	$	—	$	656
Recorded investment:
Individually evaluated for impairment	$	9,827	$	—	$	28,750,982	$	13,457	$	28,774,266	$	9,904	$	—	$	28,514,148	$	12,718	$	28,536,770
Collectively evaluated for impairment	7,124,931		711,523		—		—		7,836,454		7,450,722		693,567		—		—		8,144,289
TOTAL RECORDED INVESTMENT	$	7,134,758	$	711,523	$	28,750,982	$	13,457	$	36,610,720	$	7,460,626	$	693,567	$	28,514,148	$	12,718	$	36,681,059


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 6.4 summarizes the delinquency aging and key credit quality indicators for all of the FHLBank’s portfolio segments as of ~~June~~September 30, 2019 (dollar amounts in thousands):

Table 6.4


	06/30/2019															09/30/2019
	Conventional Loans			Government Loans			Credit Products¹			Direct Financing Lease Receivable			Total			Conventional Loans			Government Loans			Credit Products¹			Direct Financing Lease Receivable			Total
Recorded investment:
Past due 30-59 days delinquent	$	32,885		$	14,495		$	—		$	—		$	47,380		$	48,259		$	14,885		$	—		$	—		$	63,144
Past due 60-89 days delinquent	12,178			6,295			—			—			18,473			7,182			4,226			—			—			11,408
Past due 90 days or more delinquent	5,516			5,962			—			—			11,478			10,083			8,427			—			—			18,510
Total past due	50,579			26,752			—			—			77,331			65,524			27,538			—			—			93,062
Total current loans	8,520,868			640,689			31,148,663			10,423			40,320,643			9,164,486			625,646			30,690,019			9,633			40,489,784
Total recorded investment	$	8,571,447		$	667,441		$	31,148,663		$	10,423		$	40,397,974		$	9,230,010		$	653,184		$	30,690,019		$	9,633		$	40,582,846

Other delinquency statistics:
In process of foreclosure, included above²	$	3,339		$	2,669		$	—		$	—		$	6,008		$	3,505		$	2,676		$	—		$	—		$	6,181
Serious delinquency rate³	0.1		%	0.9		%	—		%	—		%	—		%	0.1		%	1.3		%	—		%	—		%	—		%
Past due 90 days or more and still accruing interest	$	—		$	5,962		$	��		$	—		$	5,962		$	—		$	8,427		$	—		$	—		$	8,427
Loans on non-accrual status⁴	$	12,586		$	—		$	—		$	—		$	12,586		$	13,824		$	—		$	—		$	—		$	13,824


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 ~~$1,235,000~~$1,279,000 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 6.5 summarizes the key credit quality indicators for all of the FHLBank’s portfolio segments as of December 31, 2018 (dollar amounts in thousands):

Table 6.5



	12/31/2018
	Conventional Loans			Government Loans			Credit Products¹			Direct Financing Lease Receivable			Total
Recorded investment:
Past due 30-59 days delinquent	$	34,020		$	14,790		$	—		$	—		$	48,810
Past due 60-89 days delinquent	6,750			6,114			—			—			12,864
Past due 90 days or more delinquent	8,169			7,898			—			—			16,067
Total past due	48,939			28,802			—			—			77,741
Total current loans	7,720,640			655,054			28,777,274			11,966			37,164,934
Total recorded investment	$	7,769,579		$	683,856		$	28,777,274		$	11,966		$	37,242,675

Other delinquency statistics:
In process of foreclosure, included above²	$	2,922		$	2,398		$	—		$	—		$	5,320
Serious delinquency rate³	0.1		%	1.2		%	—		%	—		%	—		%
Past due 90 days or more and still accruing interest	$	—		$	7,898		$	—		$	—		$	7,898
Loans on non-accrual status⁴	$	11,301		$	—		$	—		$	—		$	11,301


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 $1,265,000 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.

The FHLBank had ~~$1,524,000~~$1,336,000 and $2,183,000 classified as real estate owned recorded in other assets as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

Table 7.1 presents outstanding notional amounts and fair values of the derivatives outstanding by type of derivative and by hedge designation as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash collateral.

Table 7.1


	06/30/2019							12/31/2018								09/30/2019							12/31/2018
	Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	12,497,694	$	22,022	$	78,098		$	8,345,925	$	73,969		$	24,177		$	14,098,263	$	20,184	$	126,203		$	8,345,925	$	73,969		$	24,177
Total derivatives designated as hedging relationships	12,497,694		22,022		78,098			8,345,925		73,969			24,177			14,098,263		20,184		126,203			8,345,925		73,969			24,177
Derivatives not designated as hedging instruments:
Interest rate swaps	4,219,175		521		28,315			2,151,920		12,907			17,322			3,637,306		848		38,832			2,151,920		12,907			17,322
Interest rate caps/floors	1,373,200		664		—			1,373,200		1,044			—			1,248,200		170		—			1,373,200		1,044			—
Mortgage delivery commitments	288,633		818		50			101,551		552			3			375,772		206		658			101,551		552			3
Consolidated obligation discount note commitments	—		—		—			525,000		—			—			—		—		—			525,000		—			—
Total derivatives not designated as hedging instruments	5,881,008		2,003		28,365			4,151,671		14,503			17,325			5,261,278		1,224		39,490			4,151,671		14,503			17,325
TOTAL	$	18,378,702	24,025		106,463			$	12,497,596	88,472			41,502			$	19,359,541	21,408		165,693			$	12,497,596	88,472			41,502
Netting adjustments and cash collateral¹			60,791		(106,033		)			(52,377		)	(33,618		)			115,642		(164,703		)			(52,377		)	(33,618		)
DERIVATIVE ASSETS AND LIABILITIES			$	84,816	$	430				$	36,095		$	7,884				$	137,050	$	990				$	36,095		$	7,884

Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions, cash collateral, and related accrued interest held or placed with the same clearing agent and/or derivative counterparty. Cash collateral posted was ~~$166,824,000~~$280,745,000 and $58,902,000 as of ~~June~~September 30, 2019 and December 31, 2018, respectively. Cash collateral received was $0$400,000 and $77,661,000 as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

The FHLBank carries derivative instruments at fair value on its Statements of Condition. Any change in the fair value of derivatives designated under a fair value hedging relationship is recorded each period in current period earnings. Fair value hedge accounting allows for the offsetting fair value of the hedged risk in the hedged item to also be recorded in current period earnings.

Beginning on January 1, 2019, changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item. Prior to January 1, 2019, for fair value hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedge item) was recorded in non-interest income as net gains (losses) on derivatives and hedging activities.

Interest settlements on derivatives designated as fair value hedges were recorded in net interest income or expense prior to, and continue to be recorded in net interest income or expense after January 1, 2019. However, beginning on January 1, 2019, disclosed gains (losses) on fair value derivatives include unrealized changes in fair value as well as net interest settlements. For the three months ended ~~June~~September 30, 2019 and 2018, the FHLBank recorded net 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 and net gains (losses) on derivatives and hedging activities, if applicable, as presented in Table 7.2 (in thousands):

Table 7.2


	Three Months Ended												Three Months Ended
	06/30/2019												09/30/2019
	Interest Income/Expense												Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	189,562		$	15,487		$	150,802		$	176,714		$	186,431		$	47,811		$	133,680		$	185,096
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(71,071	)	$	(100,045	)	$	(7	)	$	17,348		$	(39,873	)	$	(61,468	)	$	(4	)	$	3,915
Hedged items²	76,397			88,484			15			(20,817		)	43,355			75,743			3			(5,061		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	5,326		$	(11,561	)	$	8		$	(3,469	)	$	3,482		$	14,275		$	(1	)	$	(1,146	)


	06/30/2018³												09/30/2018³
	Interest Income/Expense									Non-interest Income			Interest Income/Expense								Non-interest Income
	Advances			Available-for-sale Securities			Consolidated Obligation Bonds			Net gains (losses) on derivatives and hedging activities			Advances			Available-for-sale Securities		Consolidated Obligation Bonds			Net gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	2,503		$	(182	)	$	(1,343	)	$	24,286		$	4,385		$	510	$	(2,280	)	$	28,615
Hedged items²	(1,105		)	—			—			(24,144		)	(1,022		)	—		—			(28,753		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	1,398		$	(182	)	$	(1,343	)	$	142		$	3,363		$	510	$	(2,280	)	$	(138	)


¹	Includes net interest settlements in interest income/expense.


²	Includes amortization/accretion on closed fair value relationships in interest income.


³	Prior period amounts were not conformed to new hedge accounting guidance adopted January 1, 2019.

For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the FHLBank recorded net 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 and net gains (losses) on derivatives and hedging activities, if applicable, as presented in Table 7.3 (in thousands):

Table 7.3


	Six Months Ended												Nine Months Ended
	06/30/2019												09/30/2019
	Interest Income/Expense												Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	377,171		$	30,883		$	299,793		$	334,871		$	563,602		$	78,694		$	433,473		$	519,967
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(104,143	)	$	(144,237	)	$	25		$	27,053		$	(144,016	)	$	(205,705	)	$	21		$	30,968
Hedged items²	115,899			130,597			(15		)	(34,366		)	159,254			206,340			(12		)	(39,427		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	11,756		$	(13,640	)	$	10		$	(7,313	)	$	15,238		$	635		$	9		$	(8,459	)


	06/30/2018³												09/30/2018³
	Interest Income/Expense									Non-interest Income			Interest Income/Expense									Non-interest Income
	Advances			Available-for-sale Securities			Consolidated Obligation Bonds			Net gains (losses) on derivatives and hedging activities			Advances			Available-for-sale Securities			Consolidated Obligation Bonds			Net gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	38		$	(1,262	)	$	(420	)	$	93,784		$	4,423		$	(752	)	$	(2,700	)	$	122,399
Hedged items²	(2,261		)	—			—			(95,616		)	(3,283		)	—			—			(124,369		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	(2,223	)	$	(1,262	)	$	(420	)	$	(1,832	)	$	1,140		$	(752	)	$	(2,700	)	$	(1,970	)


¹	Includes net interest settlements in interest income/expense.


²	Includes amortization/accretion on closed fair value relationships in interest income.


³	Prior period amounts were not conformed to new hedge accounting guidance adopted January 1, 2019.

Table 7.4 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of ~~June~~September 30, 2019 (in thousands):

Table 7.4


06/30/2019
09/30/2019												09/30/2019
Line Item in Statement 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			Carrying Value of Hedged Asset/(Liability)¹			Basis Adjustments for Active Hedging Relationships²			Basis Adjustments for Discontinued Hedging Relationships²		Cumulative Amount of Fair Value Hedging Basis Adjustments²
Advances	$	4,328,655		$	69,885		$	1,791	$	71,676		$	4,672,632		$	113,443		$	1,608	$	115,051
Available-for-sale securities	4,546,072			69,909			—		69,909			6,081,110			145,653			—		145,653
Consolidated obligation discount notes	(249,846		)	(3		)	—		(3		)
Consolidated obligation bonds	(3,629,750		)	(27,852		)	—		(27,852		)	(3,734,212		)	(32,913		)	—		(32,913		)


¹	Includes only the portion of carrying value representing the hedged items in fair value hedging relationships. For available-for-sale securities, amortized cost is considered to be carrying value (i.e., the fair value adjustment recorded in accumulated OCI (AOCI) is excluded).


²	Included in amortized cost of the hedged asset/liability.

Table 7.5 provides information regarding gains and losses on derivatives and hedging activities recorded in non-interest income (in thousands). For fair value hedging relationships, the portion of net gains (losses) representing hedge ineffectiveness are recorded in non-interest income for periods prior to January 1, 2019.

Table 7.5


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Derivatives designated as hedging instruments:
Interest rate swaps				$	142					$	(1,832	)				$	(138	)				$	(1,970	)
Total net gains (losses) related to fair value hedge ineffectiveness				142						(1,832		)				(138		)				(1,970		)
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	$	(41,842	)	8,756			$	(61,027	)	29,831			$	(19,566	)	8,256			$	(80,593	)	38,087
Interest rate caps/floors	246			47			(380		)	562			(494		)	(184		)	(874		)	378
Net interest settlements	(251		)	(1,710		)	(547		)	(3,400		)	(691		)	(1,192		)	(1,238		)	(4,592		)
Mortgage delivery commitments	1,836			(249		)	3,471			(1,532		)	365			(710		)	3,836			(2,242		)
Consolidated obligation discount note commitments	—			—			(70		)	—			—			—			(70		)	—
Total net gains (losses) related to derivatives not designated as hedging instruments	(40,011		)	6,844			(58,553		)	25,461			(20,386		)	6,170			(78,939		)	31,631
NET GAINS (LOSSES) ON DERIVATIVES AND HEDGING ACTIVITIES	$	(40,011	)	$	6,986		$	(58,553	)	$	23,629		$	(20,386	)	$	6,032		$	(78,939	)	$	29,661

Based on credit analyses and collateral requirements, FHLBank management does not anticipate any credit losses on its derivative agreements. The maximum credit risk applicable to a single counterparty was ~~$39,000~~$440,000 and $25,799,000 as of ~~June~~September 30, 2019 and December 31, 2018, respectively. The counterparty was different for each period.

For uncleared derivative transactions, the FHLBank has entered into bilateral security agreements with its counterparties with bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to minimum transfer amounts.

The FHLBank utilizes two Derivative Clearing Organizations (Clearinghouse) for all cleared derivative transactions, LCH Limited and CME Clearing. 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 ~~June~~September 30, 2019 and December 31, 2018.

The FHLBank’s net exposure on derivative agreements is presented in Note 10.

NOTE 8 – DEPOSITS

The FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. Table 8.1 details the types of deposits held by the FHLBank as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 8.1


	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Interest-bearing:
Demand	$	272,307	$	265,021	$	302,491	$	265,021
Overnight	232,100		158,300		304,000		158,300
Total interest-bearing	504,407		423,321		606,491		423,321
Non-interest-bearing:
Other	85,136		50,499		149,885		50,499
Total non-interest-bearing	85,136		50,499		149,885		50,499
TOTAL DEPOSITS	$	589,543	$	473,820	$	756,376	$	473,820

NOTE 9 – CONSOLIDATED OBLIGATIONS

Consolidated Obligation Bonds: Table 9.1 presents the FHLBank’s participation in consolidated obligation bonds outstanding as of ~~June~~September 30, 2019 and December 31, 2018 (dollar amounts in thousands):

Table 9.1


	06/30/2019					12/31/2018					09/30/2019					12/31/2018
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	13,005,100		2.31	%	$	8,960,500		2.17	%	$	15,086,200		2.10	%	$	8,960,500		2.17	%
Due after one year through two years	7,301,650			2.32		5,625,750			2.28		7,990,600			2.12		5,625,750			2.28
Due after two years through three years	1,591,300			2.14		2,285,100			2.11		1,373,900			2.24		2,285,100			2.11
Due after three years through four years	1,348,450			2.33		1,134,750			2.21		1,351,700			2.33		1,134,750			2.21
Due after four years through five years	906,550			2.47		1,087,900			2.58		1,131,600			2.34		1,087,900			2.58
Thereafter	5,332,100			2.98		4,879,850			3.01		5,471,600			2.84		4,879,850			3.01
Total par value	29,485,150			2.43	%	23,973,850			2.38	%	32,405,600			2.26	%	23,973,850			2.38	%
Premiums	21,431					15,591					21,331					15,591
Discounts	(3,923		)			(4,088		)			(3,573		)			(4,088		)
Concession fees	(13,530		)			(12,445		)			(14,386		)			(12,445		)
Hedging adjustments	27,852					(6,514		)			32,913					(6,514		)
TOTAL	$	29,516,980				$	23,966,394				$	32,441,885				$	23,966,394

The FHLBank issues optional principal redemption bonds (callable bonds) that may be redeemed in whole or in part at the discretion of the FHLBank on predetermined call dates in accordance with terms of bond offerings. The FHLBank’s participation in consolidated obligation bonds outstanding as of ~~June~~September 30, 2019 and December 31, 2018 includes callable bonds totaling ~~$8,861,500,000~~$9,412,000,000 and $8,559,000,000, 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 9.2 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 ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 9.2


Year of Maturity or Next Call Date	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Due in one year or less	$	21,416,600	$	16,971,500	$	23,908,200	$	16,971,500
Due after one year through two years	6,111,650		5,270,750		6,520,600		5,270,750
Due after two years through three years	656,300		655,100		618,900		655,100
Due after three years through four years	571,950		319,750		590,200		319,750
Due after four years through five years	273,550		275,150		345,100		275,150
Thereafter	455,100		481,600		422,600		481,600
TOTAL PAR VALUE	$	29,485,150	$	23,973,850	$	32,405,600	$	23,973,850

Table 9.3 summarizes interest rate payment terms for consolidated obligation bonds as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 9.3


	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Simple variable rate					$	16,287,000	$	10,095,000
Fixed rate	$	14,781,150	$	12,858,850	15,288,600		12,858,850
Simple variable rate	13,809,000		10,095,000
Fixed to variable rate	410,000		515,000
Step	355,000		470,000		340,000		470,000
Variable rate with cap	115,000		20,000		260,000		20,000
Fixed to variable rate					220,000		515,000
Range	15,000		15,000		10,000		15,000
TOTAL PAR VALUE	$	29,485,150	$	23,973,850	$	32,405,600	$	23,973,850

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

Table 9.4


	Book Value		Par Value		Weighted Average Interest Rate¹		Book Value		Par Value		Weighted Average Interest Rate¹
June 30, 2019	$	27,163,395	$	27,223,343	2.28	%
September 30, 2019							$	21,044,232	$	21,084,315	2.00	%

December 31, 2018	$	20,608,332	$	20,649,098	2.35	%	$	20,608,332	$	20,649,098	2.35	%


¹	Represents yield to maturity excluding concession fees.

NOTE 10 – 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 received or pledged, and associated accrued interest.

The 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, the FHLBank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

Tables 10.1 and 10.2 present the fair value of financial assets, including the related collateral received from or pledged to clearing agents or counterparties, based on the terms of the FHLBank’s master netting arrangements or similar agreements as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 10.1


06/30/2019
09/30/2019													09/30/2019
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative assets:
Uncleared derivatives	$	21,555	$	(18,925	)	$	2,630	$	(818	)	$	1,812	$	18,927	$	(17,117	)	$	1,810	$	(206	)	$	1,604
Cleared derivatives	2,470		79,716			82,186		—			82,186		2,481		132,759			135,240		—			135,240
Total derivative assets	24,025		60,791			84,816		(818		)	83,998		21,408		115,642			137,050		(206		)	136,844
Securities purchased under agreements to resell	3,994,000		—			3,994,000		(3,994,000		)	—		2,137,374		—			2,137,374		(2,137,374		)	—
TOTAL	$	4,018,025	$	60,791		$	4,078,816	$	(3,994,818	)	$	83,998	$	2,158,782	$	115,642		$	2,274,424	$	(2,137,580	)	$	136,844


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 10.2



12/31/2018
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
Derivative assets:
Uncleared derivatives	$	88,296	$	(83,378	)	$	4,918	$	(1,618	)	$	3,300
Cleared derivatives	176		31,001			31,177		—			31,177
Total derivative assets	88,472		(52,377		)	36,095		(1,618		)	34,477
Securities purchased under agreements to resell	1,251,096		—			1,251,096		(1,251,096		)	—
TOTAL	$	1,339,568	$	(52,377	)	$	1,287,191	$	(1,252,714	)	$	34,477


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).

Tables 10.3 and 10.4 present the fair value of financial liabilities, including the related collateral received from or pledged to counterparties, based on the terms of the FHLBank’s master netting arrangements or similar agreements as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 10.3


06/30/2019
09/30/2019													09/30/2019
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized 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
Derivative liabilities:
Uncleared derivatives	$	105,736	$	(105,306	)	$	430	$	(50	)	$	380	$	165,301	$	(164,311	)	$	990	$	(658	)	$	332
Cleared derivatives	727		(727		)	—		—			—		392		(392		)	—		—			—
Total derivative liabilities	106,463		(106,033		)	430		(50		)	380		165,693		(164,703		)	990		(658		)	332
TOTAL	$	106,463	$	(106,033	)	$	430	$	(50	)	$	380	$	165,693	$	(164,703	)	$	990	$	(658	)	$	332


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 10.4



12/31/2018
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
Derivative liabilities:
Uncleared derivatives	$	36,363	$	(28,479	)	$	7,884	$	(3	)	$	7,881
Cleared derivatives	5,139		(5,139		)	—		—			—
Total derivative liabilities	41,502		(33,618		)	7,884		(3		)	7,881
TOTAL	$	41,502	$	(33,618	)	$	7,884	$	(3	)	$	7,881


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

NOTE 11 – CAPITAL

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

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

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

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

Table 11.1 illustrates that the FHLBank was in compliance with its regulatory capital requirements as of ~~June~~September 30, 2019 and December 31, 2018 (dollar amounts in thousands):

Table 11.1


	06/30/2019						12/31/2018						09/30/2019						12/31/2018
	Required			Actual			Required			Actual			Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	410,134		$	2,334,359		$	387,729		$	2,193,001		$	382,468		$	2,300,065		$	387,729		$	2,193,001
Total regulatory capital-to-asset ratio	4.0		%	4.2		%	4.0		%	5.1		%	4.0		%	4.6		%	4.0		%	5.1		%
Total regulatory capital	$	2,403,132		$	2,551,530		$	1,908,610		$	2,442,156		$	2,285,245		$	2,646,115		$	1,908,610		$	2,442,156
Leverage capital ratio	5.0		%	6.2		%	5.0		%	7.4		%	5.0		%	6.6		%	5.0		%	7.4		%
Leverage capital	$	3,003,915		$	3,718,710		$	2,385,763		$	3,538,656		$	2,856,557		$	3,796,147		$	2,385,763		$	3,538,656

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

Table 11.2 presents a roll-forward of mandatorily redeemable capital stock for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 (in thousands):

Table 11.2


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Balance, beginning of period	$	3,548		$	5,029		$	3,597		$	5,312		$	2,750		$	4,578		$	3,597		$	5,312
Capital stock subject to mandatory redemption reclassified from equity during the period	34,721			578,048			58,636			678,438			159,775			215,107			218,411			893,545
Redemption or repurchase of mandatorily redeemable capital stock during the period	(35,558		)	(578,554		)	(59,564		)	(679,288		)	(160,078		)	(215,206		)	(219,642		)	(894,494		)
Stock dividend classified as mandatorily redeemable capital stock during the period	39			55			81			116			30			57			111			173
Balance, end of period	$	2,750		$	4,578		$	2,750		$	4,578		$	2,477		$	4,536		$	2,477		$	4,536

Table 11.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption as of ~~June~~September 30, 2019 and December 31, 2018 (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 from the member. Additionally, the FHLBank is not required to redeem or repurchase activity-based stock until any activity-based stock becomes excess stock as a result of an activity no longer remaining outstanding. However, the FHLBank intends to repurchase the excess activity-based stock of non-members to the extent that it can do so and still meet its regulatory capital requirements.

Table 11.3


Contractual Year of Repurchase	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Year 1	$	—	$	—	$	—	$	—
Year 2	1		—		1		—
Year 3	1,107		1		873		1
Year 4	—		1,798		—		1,798
Year 5	—		—		—		—
Past contractual redemption date due to remaining activity¹	1,642		1,798		1,603		1,798
TOTAL	$	2,750	$	3,597	$	2,477	$	3,597


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

Excess Capital Stock: Excess capital stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum stock purchase requirement. FHFA rules limit the ability of the FHLBank to create excess member stock under certain circumstances. For example, the FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if the FHLBank’s excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause the FHLBank’s excess stock to exceed one percent of its total assets. As of ~~June~~September 30, 2019, the FHLBank’s excess stock was less than one percent of total assets.

Capital Classification Determination: The FHFA determines each FHLBank’s capital classification on at least a quarterly basis. If an FHLBank is determined to be other than adequately capitalized, the FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide the 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 ~~first~~second quarter of 2019, the FHLBank was classified as adequately capitalized.

NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Table 12.1 summarizes the changes in AOCI for the three months ended ~~June~~September 30, 2019 and 2018 (in thousands):

Table 12.1


	Three Months Ended												Three Months Ended
	Net Unrealized Gains (Losses) on Available-for-Sale Securities			Net Non-credit Portion of OTTI Gains (Losses) on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI			Net Unrealized Gains (Losses) on Available-for-sale Securities			Net Non-credit Portion of OTTI Gains (Losses) on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI
Balance at March 31, 2018	$	35,348		$	(3,862	)	$	(1,378	)	$	30,108
Balance at June 30, 2018													$	29,628		$	(3,655	)	$	(1,373	)	$	24,600
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	(5,720		)							(5,720		)	3,694									3,694
Accretion of non-credit loss				204						204						30						30
Non-credit losses included in basis of securities sold																3,625						3,625
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				3						3
Amortization of net losses - defined benefit pension plan²							5			5
Amortization of net losses - defined benefit pension plan¹																			5			5
Net current period other comprehensive income (loss)	(5,720		)	207			5			(5,508		)	3,694			3,655			5			7,354
Balance at June 30, 2018	$	29,628		$	(3,655	)	$	(1,373	)	$	24,600
Balance at September 30, 2018													$	33,322		$	—		$	(1,368	)	$	31,954

Balance at March 31, 2019	$	30,916		$	—		$	(3,302	)	$	27,614
Balance at June 30, 2019													$	35,143		$	—		$	(3,230	)	$	31,913
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	4,227									4,227			(17,324		)							(17,324		)
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan²							72			72
Amortization of net losses - defined benefit pension plan¹																			95			95
Net current period other comprehensive income (loss)	4,227			—			72			4,299			(17,324		)	—			95			(17,229		)
Balance at June 30, 2019	$	35,143		$	—		$	(3,230	)	$	31,913
Balance at September 30, 2019													$	17,819		$	—		$	(3,135	)	$	14,684


¹	~~Recorded in “Other” non-interest income on the Statements of Income. Amount represents a debit (decrease to other income (loss)).~~


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

Table 12.2 summarizes the changes in AOCI for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 (in thousands):

Table 12.2


	Six Months Ended												Nine Months Ended
	Net Unrealized Gains (Losses) on Available-for-Sale Securities			Net Non-credit Portion of OTTI Gains (Losses) on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI			Net Unrealized Gains (Losses) on Available-for-sale Securities			Net Non-credit Portion of OTTI Gains (Losses) on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI
Balance at December 31, 2017	$	31,206		$	(4,163	)	$	(1,385	)	$	25,658		$	31,206		$	(4,163	)	$	(1,385	)	$	25,658
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	(1,578		)							(1,578		)	2,116									2,116
Accretion of non-credit loss				483						483						513						513
Non-credit losses included in basis of securities sold																3,625						3,625
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				25						25						25						25
Amortization of net losses - defined benefit pension plan²							12			12									17			17
Net current period other comprehensive income (loss)	(1,578		)	508			12			(1,058		)	2,116			4,163			17			6,296
Balance at June 30, 2018	$	29,628		$	(3,655	)	$	(1,373	)	$	24,600
Balance at September 30, 2018													$	33,322		$	—		$	(1,368	)	$	31,954


Balance at December 31, 2018	$	19,068		$	—		$	(3,375	)	$	15,693		$	19,068		$	—		$	(3,375	)	$	15,693
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	16,075									16,075			(1,249		)							(1,249		)
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan²							145			145									240			240
Net current period other comprehensive income (loss)	16,075			—			145			16,220			(1,249		)	—			240			(1,009		)
Balance at June 30, 2019	$	35,143		$	—		$	(3,230	)	$	31,913
Balance at September 30, 2019													$	17,819		$	—		$	(3,135	)	$	14,684


¹	Recorded in “Other” non-interest income on the Statements of Income. Amount represents a debit (decrease to other income (loss)).


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

NOTE 13 – 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 ~~June~~September 30, 2019 and December 31, 2018. Additionally, 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.

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 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.

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 transfers of assets or liabilities between fair value levels during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

Tables 13.1 and 13.2 present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of ~~June~~September 30, 2019 and December 31, 2018. 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 mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. The FHLBank measures all other financial assets and liabilities at amortized cost. Further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis are presented in Tables 13.3 and 13.4.

The carrying value, fair value and fair value hierarchy of the FHLBank’s financial assets and liabilities as of ~~June~~September 30, 2019 and December 31, 2018 are summarized in Tables 13.1 and 13.2 (in thousands):

Table 13.1


	06/30/2019																09/30/2019
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹			Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	11,962		$	11,962		$	11,962	$	—		$	—	$	—		$	24,639		$	24,639		$	24,639	$	—		$	—	$	—
Interest-bearing deposits	561,623			561,623			—		561,623			—		—			481,989			481,989			—		481,989			—		—
Securities purchased under agreements to resell	3,994,000			3,994,000			—		3,994,000			—		—			2,137,374			2,137,374			—		2,137,374			—		—
Federal funds sold	2,460,000			2,460,000			—		2,460,000			—		—			900,000			900,000			—		900,000			—		—
Trading securities	3,844,783			3,844,783			—		3,844,783			—		—			2,901,575			2,901,575			—		2,901,575			—		—
Available-for-sale securities	4,581,215			4,581,215			—		4,581,215			—		—			6,098,929			6,098,929			—		6,098,929			—		—
Held-to-maturity securities	4,001,059			3,989,785			—		3,907,365			82,420		—			3,728,655			3,717,004			—		3,634,582			82,422		—
Advances	31,099,119			31,132,274			—		31,132,274			—		—			30,634,583			30,680,520			—		30,680,520			—		—
Mortgage loans held for portfolio, net of allowance	9,192,097			9,424,972			—		9,423,590			1,382		—			9,833,763			10,149,450			—		10,147,407			2,043		—
Accrued interest receivable	142,483			142,483			—		142,483			—		—			150,823			150,823			—		150,823			—		—
Derivative assets	84,816			84,816			—		24,025			—		60,791			137,050			137,050			—		21,408			—		115,642
Liabilities:
Deposits	589,543			589,543			—		589,543			—		—			756,376			756,376			—		756,376			—		—
Consolidated obligation discount notes	27,163,395			27,165,761			—		27,165,761			—		—			21,044,232			21,045,884			—		21,045,884			—		—
Consolidated obligation bonds	29,516,980			29,563,868			—		29,563,868			—		—			32,441,885			32,528,060			—		32,528,060			—		—
Mandatorily redeemable capital stock	2,750			2,750			2,750		—			—		—			2,477			2,477			2,477		—			—		—
Accrued interest payable	114,057			114,057			—		114,057			—		—			116,478			116,478			—		116,478			—		—
Derivative liabilities	430			430			—		106,463			—		(106,033		)	990			990			—		165,693			—		(164,703		)
Other Asset (Liability):
Industrial revenue bonds	35,000			34,417			—		34,417			—		—			35,000			35,277			—		35,277			—		—
Financing obligation payable	(35,000		)	(34,417		)	—		(34,417		)	—		—			(35,000		)	(35,277		)	—		(35,277		)	—		—


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.

Table 13.2



	12/31/2018
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	15,060		$	15,060		$	15,060	$	—		$	—	$	—
Interest-bearing deposits	670,660			670,660			—		670,660			—		—
Securities purchased under agreements to resell	1,251,096			1,251,096			—		1,251,096			—		—
Federal funds sold	50,000			50,000			—		50,000			—		—
Trading securities	2,151,113			2,151,113			—		2,151,113			—		—
Available-for-sale securities	1,725,640			1,725,640			—		1,725,640			—		—
Held-to-maturity securities	4,456,873			4,447,078			—		4,364,127			82,951		—
Advances	28,730,113			28,728,201			—		28,728,201			—		—
Mortgage loans held for portfolio, net of allowance	8,410,462			8,388,885			—		8,387,425			1,460		—
Accrued interest receivable	109,366			109,366			—		109,366			—		—
Derivative assets	36,095			36,095			—		88,472			—		(52,377		)
Liabilities:
Deposits	473,820			473,820			—		473,820			—		—
Consolidated obligation discount notes	20,608,332			20,606,743			—		20,606,743			—		—
Consolidated obligation bonds	23,966,394			23,727,705			—		23,727,705			—		—
Mandatorily redeemable capital stock	3,597			3,597			3,597		—			—		—
Accrued interest payable	87,903			87,903			—		87,903			—		—
Derivative liabilities	7,884			7,884			—		41,502			—		(33,618		)
Other Asset (Liability):
Industrial revenue bonds	35,000			32,154			—		32,154			—		—
Financing obligation payable	(35,000		)	(32,154		)	—		(32,154		)	—		—


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

Fair Value Measurements: Tables 13.3 and 13.4 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 ~~June~~September 30, 2019 and December 31, 2018 (in thousands).

Table 13.3


	06/30/2019											09/30/2019
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹			Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
Certificates of deposit	$	1,210,123	$	—	$	1,210,123	$	—	$	—
U.S. Treasury obligations	1,026,843		—		1,026,843		—		—			$	1,533,842	$	—	$	1,533,842	$	—	$	—
GSE obligations²	715,254		—		715,254		—		—			468,747		—		468,747		—		—
GSE MBS³	892,563		—		892,563		—		—			898,986		—		898,986		—		—
Total trading securities	3,844,783		—		3,844,783		—		—			2,901,575		—		2,901,575		—		—
Available-for-sale securities:
U.S. Treasury obligations	2,042,390		—		2,042,390		—		—			3,510,728		—		3,510,728		—		—
GSE MBS⁴	2,538,825		—		2,538,825		—		—			2,588,201		—		2,588,201		—		—
Total available-for-sale securities	4,581,215		—		4,581,215		—		—			6,098,929		—		6,098,929		—		—
Derivative assets:
Interest-rate related	83,998		—		23,207		—		60,791			136,844		—		21,202		—		115,642
Mortgage delivery commitments	818		—		818		—		—			206		—		206		—		—
Total derivative assets	84,816		—		24,025		—		60,791			137,050		—		21,408		—		115,642
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	8,510,814	$	—	$	8,450,023	$	—	$	60,791		$	9,137,554	$	—	$	9,021,912	$	—	$	115,642

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	380	$	—	$	106,413	$	—	$	(106,033	)	$	332	$	—	$	165,035	$	—	$	(164,703	)
Mortgage delivery commitments	50		—		50		—		—			658		—		658		—		—
Total derivative liabilities	430		—		106,463		—		(106,033		)	990		—		165,693		—		(164,703		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	430	$	—	$	106,463	$	—	$	(106,033	)	$	990	$	—	$	165,693	$	—	$	(164,703	)

Nonrecurring fair value measurements - Assets⁵:
Impaired mortgage loans	$	1,387	$	—	$	—	$	1,387	$	—		$	2,056	$	—	$	—	$	2,056	$	—
Real estate owned	104		—		—		104		—			22		—		—		22		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	1,491	$	—	$	—	$	1,491	$	—		$	2,078	$	—	$	—	$	2,078	$	—


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, Farm Credit and Farmer Mac.


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


⁴	Represents multi-family MBS issued by Fannie Mae.


⁵	Includes assets adjusted to fair value during the ~~six~~nine months ended ~~June~~September 30, 2019 and still outstanding as of ~~June~~September 30, 2019.

Table 13.4



	12/31/2018
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
U.S. Treasury obligations	$	252,377	$	—	$	252,377	$	—	$	—
GSE obligations²	1,000,495		—		1,000,495		—		—
U.S. obligation MBS³	467		—		467		—		—
GSE MBS⁴	897,774		—		897,774		—		—
Total trading securities	2,151,113		—		2,151,113		—		—
Available-for-sale securities:
GSE MBS⁵	1,725,640		—		1,725,640		—		—
Total available-for-sale securities	1,725,640		—		1,725,640		—		—
Derivative assets:
Interest-rate related	35,543		—		87,920		—		(52,377		)
Mortgage delivery commitments	552		—		552		—		—
Total derivative assets	36,095		—		88,472		—		(52,377		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	3,912,848	$	—	$	3,965,225	$	—	$	(52,377	)

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	7,881	$	—	$	41,499	$	—	$	(33,618	)
Mortgage delivery commitments	3		—		3		—		—
Total derivative liabilities	7,884		—		41,502		—		(33,618		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	7,884	$	—	$	41,502	$	—	$	(33,618	)

Nonrecurring fair value measurements - Assets⁶:
Impaired mortgage loans	1,463		—		—		1,463		—
Real estate owned	1,028		—		—		1,028		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	2,491	$	—	$	—	$	2,491	$	—


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, Farm Credit and Farmer Mac.


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, 2018 and still outstanding as of December 31, 2018.

NOTE 14 – 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 ~~$991,703,272,000~~$956,780,794,000 and $986,994,515,000 as of ~~June~~September 30, 2019 and December 31, 2018, 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 the FHLBank were to determine that a loss was probable and the amount of the loss could be reasonably estimated, the FHLBank would charge to income the amount of the expected loss. Based upon the creditworthiness of the other FHLBanks as of ~~June~~September 30, 2019, FHLBank Topeka has concluded that a loss accrual is not necessary at this time.

Off-balance Sheet Commitments: As of ~~June~~September 30, 2019 and December 31, 2018, off-balance sheet commitments are presented in Table 14.1 (in thousands):

Table 14.1


	06/30/2019						12/31/2018						09/30/2019						12/31/2018
Notional Amount	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	$	3,677,351	$	6,665	$	3,684,016	$	3,824,497	$	37,933	$	3,862,430	$	3,538,145	$	7,290	$	3,545,435	$	3,824,497	$	37,933	$	3,862,430
Advance commitments outstanding	46,755		45,720		92,475		116,475		43,782		160,257		77,115		31,420		108,535		116,475		43,782		160,257
Commitments for standby bond purchases	188,876		509,675		698,551		69,277		686,602		755,879		184,945		580,884		765,829		69,277		686,602		755,879
Commitments to fund or purchase mortgage loans	288,633		—		288,633		101,551		—		101,551		375,772		—		375,772		101,551		—		101,551
Commitments to issue consolidated bonds, at par	109,500		—		109,500		—		—		—		81,000		—		81,000		—		—		—
Commitments to issue consolidated discount notes, at par	790		—		790		1,825,000		—		1,825,000		—		—		—		1,825,000		—		1,825,000

Commitments to Extend Credit: The 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 with assets allowed by the 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. If the FHLBank is required to make payment for a beneficiary's draw, the member either reimburses the FHLBank for the amount drawn or, subject to the FHLBank's discretion, the amount drawn may be converted into a collateralized advance to the member. However, standby letters of credit usually expire without being drawn upon. ~~Standby~~Outstanding standby letters of credit have original or extended expiration periods of up to ~~10 years, currently expiring~~6 years. Our current outstanding standby letters of credit 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 ~~$1,241,000~~$1,300,000 and $1,296,000 as of ~~June~~September 30, 2019 and December 31, 2018, respectively. Advance commitments legally bind and unconditionally obligate the FHLBank for additional advances up to 24 months in the future. Based upon management’s credit analysis of members and collateral requirements under the MPP, the FHLBank does not expect to incur any credit losses on the outstanding letters of credit or advance commitments.

Standby Bond-Purchase Agreements: The FHLBank has entered into standby bond purchase agreements with state housing authorities whereby the FHLBank, for a fee, agrees to purchase and hold the authorities’ bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the FHLBank to purchase the bond. The bond purchase commitments entered into by the FHLBank expire no later than 2022, though some are renewable at the option of the FHLBank. As of ~~June~~September 30, 2019 and December 31, 2018, the total commitments for bond purchases included agreements with two in-district state housing authorities. The FHLBank was not required to purchase any bonds under any agreements during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

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 ~~$768,000~~$(452,000) and $549,000 as of ~~June~~September 30, 2019 and December 31, 2018, 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. Most settle within the shortest period possible and are considered regular way trades; however, certain commitments are recorded as derivatives at their fair values on the Statements of Condition.

NOTE 15 – TRANSACTIONS WITH STOCKHOLDERS

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

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

Activity with Members that Exceed a 10 Percent Ownership in FHLBank Capital Stock: Tables 15.1 and 15.2 present information on members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of ~~June~~September 30, 2019 and December 31, 2018 (dollar amounts in thousands). None of the officers or directors of these members currently serve on the FHLBank’s board of directors.

Table 15.1


06/30/2019
09/30/2019														09/30/2019
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock		State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
BOKF, N.A.	OK	$	36,450	16.8	%	$	356,709	25.8	%	$	393,159	24.6	%	OK	$	99,450	28.7	%	$	312,727	23.6	%	$	412,177	24.6	%
MidFirst Bank	OK	500		0.2		362,897		26.2		363,397		22.7		OK	500		0.1		368,500		27.8		369,000		22.1
TOTAL		$	36,950	17.0	%	$	719,606	52.0	%	$	756,556	47.3	%		$	99,950	28.8	%	$	681,227	51.4	%	$	781,177	46.7	%

Table 15.2



12/31/2018
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	$	24,006	9.6	%	$	274,000	21.4	%	$	298,006	19.5	%
MidFirst Bank	OK	500		0.2		294,700		23.0		295,200		19.3
TOTAL		$	24,506	9.8	%	$	568,700	44.4	%	$	593,206	38.8	%

Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of ~~June~~September 30, 2019 and December 31, 2018 are summarized in Table 15.3 (dollar amounts in thousands).

Table 15.3


	06/30/2019				12/31/2018				06/30/2019				12/31/2018				09/30/2019				12/31/2018				09/30/2019				12/31/2018
Member Name	Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total
BOKF, N.A.	$	7,800,000	25.1	%	$	6,100,000	21.2	%	$	33,060	5.6	%	$	29,288	6.2	%	$	6,800,000	22.3	%	$	6,100,000	21.2	%	$	29,785	4.0	%	$	29,288	6.2	%
MidFirst Bank	8,075,000		26.0		6,560,000		22.8		576		0.1		331		0.1		8,200,000		26.9		6,560,000		22.8		850		0.1		331		0.1
TOTAL	$	15,875,000	51.1	%	$	12,660,000	44.0	%	$	33,636	5.7	%	$	29,619	6.3	%	$	15,000,000	49.2	%	$	12,660,000	44.0	%	$	30,635	4.1	%	$	29,619	6.3	%

BOKF, N.A. and MidFirst Bank did not sell any mortgage loans into the MPF Program during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

Transactions with FHLBank Directors’ Financial Institutions: Table 15.4 presents information as of ~~June~~September 30, 2019 and December 31, 2018 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


	06/30/2019				12/31/2018				09/30/2019				12/31/2018
	Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total
Advances	$	167,917	0.5	%	$	157,012	0.5	%	$	180,964	0.6	%	$	157,012	0.5	%

Deposits	$	10,061	1.7	%	$	9,679	2.1	%	$	29,295	3.9	%	$	9,679	2.1	%

Class A Common Stock	$	4,418	2.0	%	$	4,179	1.7	%	$	6,344	1.8	%	$	4,179	1.7	%
Class B Common Stock	5,232		0.4		4,924		0.4		5,658		0.4		4,924		0.4
TOTAL CAPITAL STOCK	$	9,650	0.6	%	$	9,103	0.6	%	$	12,002	0.7	%	$	9,103	0.6	%

Table 15.5 presents mortgage loans acquired during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 for members that had an officer or director serving on the FHLBank’s board of directors in 2019 or 2018 (dollar amounts in thousands). Information is only included for the period in which the officer or director served on the FHLBank’s board of directors.

Table 15.5

Three Months Ended Six Months Ended
06/30/2019 06/30/2018 06/30/2019 06/30/2018
Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total
Mortgage loans acquired $ 43,809
5.6 % $ 34,605
6.0 % $ 66,889
5.3 % $ 55,371
5.8 %



	Three Months Ended								Nine Months Ended
	09/30/2019				09/30/2018				09/30/2019				09/30/2018
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
Mortgage loans acquired	$	61,362	5.4	%	$	24,676	4.3	%	$	128,251	5.3	%	$	80,047	5.2	%

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, 2018, which includes audited financial statements and related notes for the year ended December 31, 2018. Our MD&A includes the following sections:

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

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

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

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

Financial Condition – an analysis of our financial position;

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

Risk Management – a discussion of our risk management strategies;

Impact of Recently Issued Accounting Standards; and

Legislative and Regulatory Developments.

Executive Level Overview

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

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

We serve eligible financial institutions in Colorado, Kansas, Nebraska, and Oklahoma (collectively, the Tenth District of the FHLBank System), who are also the member-owners of the FHLBank. Initially, a member is required to purchase shares of Class A Common Stock based on the member’s total assets subject to a per member cap of $500 thousand. Each member may be required to purchase activity-based capital stock (Class B Common Stock) as it engages in certain business activities with the FHLBank, including advances, standby letters of credit, and Acquired Member Assets (AMA), at levels determined by management with the Board of Director’s approval and within the ranges stipulated in our Capital Plan. Currently, our capital increases when members are required to purchase additional capital stock in the form of Class B Common Stock to support an increase in their advance borrowings. In the past, 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). At our discretion, we may repurchase excess stock resulting from a decline in a member’s advances. 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.

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

Table 1


	06/30/2019			03/31/2019			12/31/2018			09/30/2018			06/30/2018			09/30/2019			06/30/2019			03/31/2019			12/31/2018			09/30/2018
Statement of Condition (as of period end):
Total assets	$	60,078,297		$	57,427,696		$	47,715,256		$	51,297,350		$	51,753,369		$	57,131,130		$	60,078,297		$	57,427,696		$	47,715,256		$	51,297,350
Investments¹	19,442,680			18,522,066			10,305,382			14,440,009			14,968,579			16,248,522			19,442,680			18,522,066			10,305,382			14,440,009
Advances	31,099,119			29,862,995			28,730,113			28,471,709			28,705,448			30,634,583			31,099,119			29,862,995			28,730,113			28,471,709
Mortgage loans, net²	9,192,097			8,701,250			8,410,462			8,114,220			7,807,487			9,833,763			9,192,097			8,701,250			8,410,462			8,114,220
Total liabilities	57,497,604			54,948,846			45,261,004			48,907,457			49,356,700			54,472,808			57,497,604			54,948,846			45,261,004			48,907,457
Deposits	589,543			544,500			473,820			446,282			453,652			756,376			589,543			544,500			473,820			446,282
Consolidated obligation discount notes, net³	27,163,395			26,785,113			20,608,332			22,417,330			21,748,221			21,044,232			27,163,395			26,785,113			20,608,332			22,417,330
Consolidated obligation bonds, net³	29,516,980			27,400,165			23,966,394			25,836,920			26,969,184			32,441,885			29,516,980			27,400,165			23,966,394			25,836,920
Total consolidated obligations, net³	56,680,375			54,185,278			44,574,726			48,254,250			48,717,405			53,486,117			56,680,375			54,185,278			44,574,726			48,254,250
Mandatorily redeemable capital stock	2,750			3,548			3,597			4,536			4,578			2,477			2,750			3,548			3,597			4,536
Total capital	2,580,693			2,478,850			2,454,252			2,389,893			2,396,669			2,658,322			2,580,693			2,478,850			2,454,252			2,389,893
Capital stock	1,598,504			1,508,396			1,524,537			1,463,923			1,496,279			1,670,690			1,598,504			1,508,396			1,524,537			1,463,923
Total retained earnings	950,276			942,840			914,022			894,016			875,790			972,948			950,276			942,840			914,022			894,016
AOCI	31,913			27,614			15,693			31,954			24,600			14,684			31,913			27,614			15,693			31,954
Statement of Income (for the quarterly period ended):
Net interest income	49,230			63,015			68,175			67,659			68,884			74,415			49,230			63,015			68,175			67,659
Provision (reversal) for credit losses on mortgage loans	38			78			372			(391		)	16			393			38			78			372			(391		)
Other income (loss)	4,368			12,674			(1,822		)	(1,500		)	(2,538		)	(1,507		)	4,368			12,674			(1,822		)	(1,500		)
Other expenses	18,313			16,990			17,722			20,428			15,493			18,633			18,313			16,990			17,722			20,428
Income before assessments	35,247			58,621			48,259			46,122			50,837			53,882			35,247			58,621			48,259			46,122
Affordable Housing Program (AHP) assessments	3,529			5,866			4,831			4,618			5,089			5,391			3,529			5,866			4,831			4,618
Net income	31,718			52,755			43,428			41,504			45,748			48,491			31,718			52,755			43,428			41,504
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid in cash⁴	68			71			63			69			197			70			68			71			63			69
Dividends paid in stock⁴	24,214			23,866			23,359			23,209			24,002			25,749			24,214			23,866			23,359			23,209
Weighted average dividend rate⁵	6.56		%	6.56		%	6.24		%	6.32		%	5.99		%	6.61		%	6.56		%	6.56		%	6.24		%	6.32		%
Dividend payout ratio⁶	76.55		%	45.37		%	53.93		%	56.09		%	52.89		%	53.25		%	76.55		%	45.37		%	53.93		%	56.09		%
Return on average equity	5.13		%	8.77		%	7.07		%	6.89		%	7.25		%	7.54		%	5.13		%	8.77		%	7.07		%	6.89		%
Return on average assets	0.22		%	0.40		%	0.33		%	0.32		%	0.33		%	0.33		%	0.22		%	0.40		%	0.33		%	0.32		%
Average equity to average assets	4.37		%	4.54		%	4.69		%	4.67		%	4.53		%	4.36		%	4.37		%	4.54		%	4.69		%	4.67		%
Net interest margin⁷	0.35		%	0.48		%	0.52		%	0.53		%	0.50		%	0.51		%	0.35		%	0.48		%	0.52		%	0.53		%
Total capital ratio⁸	4.30		%	4.32		%	5.14		%	4.66		%	4.63		%	4.65		%	4.30		%	4.32		%	5.14		%	4.66		%
Regulatory capital ratio⁹	4.25		%	4.27		%	5.12		%	4.61		%	4.59		%	4.63		%	4.25		%	4.27		%	5.12		%	4.61		%


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 $905,000, $858,000, $824,000, $812,000 ~~$656,000~~ and ~~$1,029,000~~$656,000 as of September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 ~~September 30, 2018~~ and ~~June~~September 30, 2018, 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 $30,000, $40,000, $43,000, $54,000 ~~$58,000~~ and ~~$56,000~~$58,000 for the quarters ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 ~~September 30, 2018~~ and ~~June~~September 30, 2018, 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 Common Stock, Class B Common Stock and retained earnings) as a percentage of total assets.

Net income ~~decreased $14.0~~increased $7.0 million, or ~~30.7~~16.8 percent, to ~~$31.7~~$48.5 million for the three months ended ~~June~~September 30, 2019 compared to ~~$45.7~~$41.5 million for the three months ended ~~June~~September 30, 2018. Net income ~~decreased $0.9~~increased $6.2 million, or ~~1.0~~4.8 percent, for the ~~six~~nine months ended ~~June~~September 30, 2019 to ~~$84.5~~$133.0 million compared to ~~$85.3~~$126.8 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The ~~decline~~increase in ~~net income for~~ both periods was driven by ~~mark-to-market losses on investment~~ fair value ~~hedges~~fluctuations on derivatives and ~~an increase in the average cost of debt caused by an increase in short-term interest rates from June 30, 2018 to June 30, 2019,~~trading securities and the ~~replacement of maturing debt at higher current market rates, combined with higher balances of lower yielding investments. Further, the decline~~change in net interest income for the ~~six months ended June 30, 2019 was a result of a decline~~respective period. Declines in ~~the average balance of interest-earning assets, primarily advances, in addition to the aforementioned factors. Declines in~~longer-term market interest rates since December 31, 2018 resulted in unrealized fair value losses recorded for the majority of economic derivatives ~~but~~for both the three- and nine-month periods ended September 30, 2019; however, those losses were largely offset by positive fair value fluctuations on trading securities. Fair value net losses on economic derivatives and trading securities were recorded for both the three- and nine-month periods in the prior year, resulting in ~~unrealized net gains recorded~~an increase in other income for both the three- and ~~six-month periods.~~nine-month periods ended September 30, 2019 compared to the same periods in the prior year. Included in net income for the three months ended September 30, 2019 was an out-of-period adjustment of $14.3 million that related to hedged item valuations for certain available-for-sale securities in fair value hedging relationships and resulted in an increase in available-for-sale interest income and a reduction in other comprehensive income. For additional information on the out-of-period adjustment, see Note 1 of the Notes to Financial Statements under Part I, Item 1.

Net interest income ~~after provision for credit losses~~ for the three months ended ~~June~~September 30, 2019 was ~~$49.2~~$74.4 million compared to ~~$68.9~~$67.7 million for the same period in the prior year. For the ~~six~~nine months ended ~~June~~September 30, 2019, net interest income ~~after provision for credit losses~~ was ~~$112.1~~$186.7 million compared to ~~$135.3~~$203.0 million for the same period in the prior year. The ~~majority~~average cost of ~~the decline in~~debt increased for both the three- and ~~six-month~~nine-month periods ~~resulted from~~ended September 30, 2019 compared to the ~~impact~~same periods in the prior year due to an increase in average short-term interest rates between periods. Market interest rates, particularly long-term interest rates, decreased during the second and third quarters of 2019, which caused an increase in prepayment speeds on mortgage-related assets, resulting in acceleration of premium amortization. However, this decrease in long-term market interest rates allowed us to replace some callable consolidated obligation bonds at a lower cost, which we expect will eventually partially offset the ~~adoption~~recent increase in the average cost of ~~a new hedge accounting standard~~debt. Accelerated amortization of concessions (i.e., broker fees) on ~~January 1, 2019 that requires gains~~called debt and ~~losses~~accelerated premium amortization on mortgages and MBS reduced net interest income for both the three- and nine-month periods ended September 30, 2019. Both periods were also impacted by fair value fluctuations on designated fair value ~~hedges to be presented in~~hedges; however, the ~~income statement line item related~~impact was positive for the third quarter of 2019 due to the ~~hedged item, which is interest income/expense~~out-of-period adjustment and negative for the FHLBank. The guidance was adopted prospectively, so the gains and losses on fair value hedges in the prior year are presented in other income, which creates a lack of comparability between periods. Net fair value losses on designated fair value hedges recorded in net interest income for the three months ended June 30, 2019 were $14.8 million, which resulted in a decrease in net interest margin of eleven basis points. Net fair value losses on designated fair value hedges recorded in net interest income for the six months ended June 30, 2019 were $18.9 million, which resulted in a decrease in net interest margin of seven basis points.year-to-date period. 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.”

The ~~decrease~~change in net interest income ~~unrelated to~~for both the three- and nine-month periods ended September 30, 2019 was also impacted by the adoption of a new hedge accounting standard on January 1, 2019 that requires fair value fluctuations ~~was caused by an increase~~on designated fair value hedges to be presented in the ~~average cost of debt~~income statement line item related to the hedged item, which is interest income/expense for us. The guidance was adopted prospectively, so the three and six months ended June 30, 2019 due to an increase in average interest rates, especially short-term interest rates, between periods, thereby decreasing net interest income. However, interest rates decreased during the second quarter of 2019, which allowed us to replace some unswapped callable consolidated obligation bonds at a lower cost, which partially offset some of the increasefair value fluctuations on fair value hedges in the ~~average cost~~prior year are presented in other income, which creates a lack of debt. Replacing callable debt generally increases interest costs in the short term due to the acceleration of the unamortized concessions (i.e., broker fees) on the debt when it is called because concession costs are amortized to contractual maturity. However, this increase is eventually offset by the lower rate on the new debt.comparability between periods.

Total assets increased ~~$12.4~~$9.4 billion, or ~~25.9~~19.7 percent, from December 31, 2018 to ~~June~~September 30, 2019 ~~as a result of~~primarily due to increases in short- and long-term investments, ~~and~~ advances, ~~with a smaller increase in~~and mortgage loans. ~~Mortgage loans increased 9.3 percent from December 31, 2018 to an all-time high of $9.2 billion at June 30, 2019.~~ The majority of the increase and change in composition of investments was in response to changes to regulatory liquidity requirements that became effective March 31, 2019, including the purchase of ~~$3.0~~$5.0 billion in U.S. Treasury obligations since the third quarter of 2018. ~~The $5.0 billion increase in overnight investments was intended to supplement earnings and offset upcoming maturities while market conditions were favorable.~~

Total liabilities increased ~~$12.2~~$9.2 billion, or ~~27.0~~20.4 percent, from December 31, 2018 to ~~June~~September 30, 2019. This increase was primarily due to ~~a $5.6~~an $8.5 billion increase in consolidated obligation bonds and a ~~$6.6~~$0.4 billion increase in consolidated obligation discount ~~notes.~~notes to fund asset growth. 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, SOFR, or other indices. Short-term advances, including line of credit advances, represent the majority of the assets funded by term discount notes. We also use term and overnight discount notes to fund overnight investments to maintain liquidity sufficient to meet the advance needs of members. For additional information, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.” Total capital increased $204.1 million, or 8.3 percent, between periods due to the increase in capital stock from increased advance utilization and net income in excess of dividends paid.

The ~~decrease~~increase in net income for the current quarter resulted in ~~a decrease~~an increase in return on average equity (ROE), from ~~7.25~~6.89 percent for the three months ended ~~June~~September 30, 2018 to ~~5.13~~7.54 percent for the three months ended ~~June~~September 30, 2019. The increase in net income combined with a decrease in average capital for the current ~~six-month~~nine-month period resulted in an increase in ROE, from ~~6.67~~6.74 percent for the ~~six~~nine months ended ~~June~~September 30, 2018 compared to ~~6.93~~7.14 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. ~~Dividends paid to members totaled $48.2 million for the six months ended June 30, 2019 compared to $50.0 million for the same period in the prior year.~~ The weighted average dividend rate for the three months ended ~~June~~September 30, 2019 was ~~6.56~~6.61 percent, which represented a dividend payout ratio of ~~76.6~~53.2 percent, compared to a weighted average dividend rate of ~~5.99~~6.32 percent and a payout ratio of ~~52.9~~56.1 percent for the same period in 2018. The weighted average dividend rate for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~6.56~~6.58 percent, which represented a dividend payout ratio of ~~57.1~~55.7 percent, compared to a weighted average dividend rate of ~~6.00~~6.10 percent and a payout ratio of ~~58.5~~57.7 percent for the same period in 2018.

The increase in the weighted average dividend rates was due to increases in the dividend rate on our Class A Common Stock and Class B Common Stock between periods and differences in the mix of outstanding Class A Common Stock and Class B Common ~~Stock.~~Stock between periods. The Class A Common Stock dividend rate increased from ~~1.50~~2.00 percent to 2.50 percent and the Class B Common Stock dividend rate increased from ~~6.75~~7.25 percent to 7.50 percent between ~~June~~September 30, 2018 and ~~June~~September 30, 2019. Factors impacting the outstanding stock class mix and, therefore, the average dividend rates, include regular exchanges of excess Class B Common Stock to Class A Common Stock and periodic repurchases of excess Class A Common Stock (see “Liquidity and Capital Resources - Capital” under this Item 2).

FHFA guidance requires that our strategic business plan describes how our business activities will achieve our mission consistent with the FHFA’s core mission ~~asset~~achievement guidance. We intend to manage our balance sheet with an emphasis towards maintaining a ~~core~~primary mission ~~assets~~asset ratio above 70 percent. Our ratio of average advances and average mortgage loans to average consolidated obligations less average U.S. Treasury securities classified as trading or available for sale with maturities of ten years or less utilizing par balances ~~(core~~(primary mission ~~assets~~asset ratio) was 7475 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. However, because this ratio is dependent on several variables such as member demand for our advance and mortgage loan products, it is possible that we will be unable to maintain the ~~core~~primary mission ~~assets~~asset ratio at this level indefinitely.

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


	06/30/2019		06/30/2018		06/30/2019		06/30/2018								09/30/2019		09/30/2018		09/30/2019		09/30/2018		09/30/2019		12/31/2018		09/30/2018
Market Instrument	Three-month				Six-month				06/30/2019		12/31/2018		06/30/2018		Three-month				Nine-month				Ending				Ending
Market Instrument	Average								Ending Rate				Ending Rate		Average								Rate				Rate
Secured Overnight Financing Rate^1,2	2.43	%	N/A		2.43	%	N/A		2.50	%	3.00	%	2.12	%	2.28	%	1.93	%	2.38	%	N/A		2.35	%	3.00	%	2.25	%
Federal funds effective rate¹	2.40		1.74	%	2.40		1.60	%	2.40		2.40		1.91	%	2.20		1.92		2.33		1.70	%	1.90		2.40		2.18
Federal Reserve interest rate on excess reserves¹	2.37		1.79		2.38		1.66		2.35		2.40		1.95		2.15		1.96		2.30		1.76		1.80		2.40		2.20
3-month U.S. Treasury bill¹	2.34		1.86		2.38		1.72		2.10		2.36		1.92		2.02		2.06		2.26		1.83		1.84		2.36		2.20
3-month LIBOR¹	2.51		2.34		2.60		2.13		2.32		2.81		2.34		2.20		2.34		2.46		2.20		2.09		2.81		2.40
2-year U.S. Treasury note¹	2.13		2.47		2.31		2.32		1.74		2.51		2.53		1.68		2.66		2.10		2.43		1.62		2.51		2.82
5-year U.S. Treasury note¹	2.12		2.76		2.29		2.65		1.76		2.53		2.73		1.62		2.81		2.07		2.70		1.55		2.53		2.95
10-year U.S. Treasury note¹	2.34		2.92		2.49		2.84		2.01		2.70		2.84		1.79		2.92		2.26		2.87		1.68		2.70		3.06
30-year residential mortgage note rate^1,3	4.29		4.78		4.47		4.66		4.07		4.84		4.84		3.99		4.83		4.31		4.72		3.99		4.84		4.96


¹	Source is Bloomberg.


²	SOFR was first published on April 3, 2018.


³	Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate.

During the first ~~half~~nine months of 2019, the cost of FHLBank consolidated obligations as measured by the spread to comparative U.S. Treasury rates ~~has~~ remained relatively stable, although the yield curve ~~has~~ inverted, which ~~makes~~made shorter-term debt more expensive relative to longer-term structures. During the ~~July~~October 2019 meeting, the Federal Open Market Committee (FOMC) lowered the target Federal funds rate another 25 basis points, the ~~first~~third decrease since the FOMC began ~~raising the~~a series of rate increases in ~~2016,~~2015, citing global economic uncertainty and persistently low inflationary pressures. The possibility of an additional ~~reductions~~reduction in the Federal funds rate in 2019 is contingent upon, among other things, labor market conditions, inflation indicators and expectations, and financial and international developments. We issue debt at a spread above U.S. Treasury securities; as a result, the level of interest rates impacts the cost of issuing FHLBank consolidated obligations and the cost of advances to our members and housing associates. For further discussion, see this Item 2 – “Financial Condition – Consolidated Obligations.”

In July 2017, the ~~Chief Executive of the~~United Kingdom's Financial Conduct Authority (FCA)~~, which has regulated~~ announced that it plans to phase out the regulatory oversight of LIBOR ~~since April 2013, announced~~interest rate indices by 2021. The FCA and the ~~FCA’s intention to cease sustaining~~submitting LIBOR ~~after 2021. Many of our assets and liabilities are indexed to LIBOR, so we continue to evaluate the potential impact of the replacement of~~banks have indicated they will support the LIBOR ~~benchmark interest rate, including the possibility of SOFR prevailing as the most widely adopted replacement~~indices through 2021 to allow for an orderly transition to an alternative reference rate. ~~We have assessed our current~~The Alternative Reference Rates Committee in the United States has proposed SOFR as its recommended alternative to US Dollar (USD) LIBOR ~~exposure and have developed a transition plan that includes strategies to manage and reduce exposure~~ in ~~addition to operational readiness. 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~~United States. 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 broad measure of the cost of borrowing cash overnight collateralized by ~~U.S.~~ Treasury securities. ~~We started participating~~The Federal Reserve Bank of New York began publishing SOFR rates in ~~SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in January 2019 in an effort to manage~~April 2018. As noted throughout this quarterly report, many of our ~~exposure to LIBOR~~ assets and liabilities, ~~with maturities beyond 2021. We continue to evaluate the fallback language of~~including derivative assets and ~~investment contracts~~derivative liabilities, are indexed to LIBOR ~~in order to assess exposure. Derivative~~(USD LIBOR only). A portion of these assets and ~~investment~~liabilities and related collateral have maturity dates that extend beyond 2021. For additional information on our LIBOR transition efforts and LIBOR exposure, ~~will also be impacted by the actions of industry groups and standard setters, which are still~~see “Risk Management – Interest Rate Risk Management” under ~~deliberation.~~

~~Table 3 presents the par value of variable rate consolidated obligation bonds by the related interest rate index as of June 30, 2019 (dollar amounts in thousands):~~

~~Table 3~~

06/30/2019
Index Amount Percent
LIBOR $ 7,640,000
53.2 %
SOFR 4,159,000
29.0
U.S. Treasury 2,550,000
17.8
TOTAL $ 14,349,000
100.0 %

Table 4 presents the par value of consolidated obligation bonds indexed to LIBOR outstanding by year of maturity and by year of maturity or by the next call date for callable bonds as of June 30, 2019 (in thousands):

~~Table 4~~

06/30/2019
Year Maturity Date Maturity or Next Call Date
2019 $ 2,750,000
$ 3,300,000
2020 3,590,000
3,590,000
2021 790,000
750,000
Thereafter 510,000
—
TOTAL $ 7,640,000
$ 7,640,000

this Item 2.

Other factors impacting FHLBank consolidated obligations:

We believe investors continue to view FHLBank consolidated obligations as carrying a relatively strong credit profile. Historically, our strong credit profile has resulted in steady investor demand for FHLBank discount notes and short-term bonds. We believe several market events continue to have the potential to impact the demand for our consolidated obligations including geopolitical events and/or disruptions; potential policy changes under the current administration; recent regulatory changes in liquidity requirements; changes in interest rates and the shape of the yield curve as the FOMC contemplates changes to monetary policy; and the replacement of LIBOR with another index as previously discussed.

Critical Accounting Policies and Estimates

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

Accounting related to derivatives and hedging activities;

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 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 ~~June~~September 30, 2019.

Results of Operations

Earnings Analysis: Table 53 presents changes in the major components of our net income (dollar amounts in thousands):

Table 53


	Increase (Decrease) in Earnings Components										Increase (Decrease) in Earnings Components
	Three Months Ended					Six Months Ended					Three Months Ended					Nine Months Ended
	06/30/2019 vs. 06/30/2018					06/30/2019 vs. 06/30/2018					09/30/2019 vs. 09/30/2018					09/30/2019 vs. 09/30/2018
	Dollar Change			Percentage Change		Dollar Change			Percentage Change		Dollar Change			Percentage Change		Dollar Change			Percentage Change
Total interest income	$	65,844		21.0	%	$	163,365		27.7	%	$	78,938		24.9	%	$	242,303		26.7	%
Total interest expense	85,498			34.9		186,483			41.1		72,182			28.9		258,665			36.8
Net interest income	(19,654		)	(28.5	)	(23,118		)	(17.1	)	6,756			10.0		(16,362		)	(8.1	)
Provision (reversal) for credit losses on mortgage loans	22			137.5		70			152.2		784			200.5		854			247.5
Net interest income after mortgage loan loss provision	(19,676		)	(28.6	)	(23,188		)	(17.1	)	5,972			8.8		(17,216		)	(8.5	)
Net gains (losses) on trading securities	53,874			447.8		109,579			281.1		27,700			240.6		137,279			271.9
Net gains (losses) on derivatives and hedging activities	(46,997		)	(672.7	)	(82,182		)	(347.8	)	(26,418		)	(438.0	)	(108,600		)	(366.1	)
Other non-interest income	29			1.2		(830		)	(14.2	)	(1,289		)	(32.4	)	(2,119		)	(21.6	)
Total other income (loss)	6,906			272.1		26,567			278.9		(7		)	(0.5	)	26,560			240.9
Operating expenses	2,136			17.1		3,134			12.5		(2,633		)	(15.1	)	501			1.2
Other non-interest expenses	684			22.6		1,211			20.3		838			28.1		2,049			22.9
Total other expenses	2,820			18.2		4,345			14.0		(1,795		)	(8.8	)	2,550			5.0
AHP assessments	(1,560		)	(30.7	)	(100		)	(1.1	)	773			16.7		673			4.8
NET INCOME	$	(14,030	)	(30.7	)%	$	(866	)	(1.0	)%	$	6,987		16.8	%	$	6,121		4.8	%

Table 64 presents the amounts contributed by our principal sources of interest income (dollar amounts in thousands):

Table 64


	Three Months Ended								Six Months Ended								Three Months Ended								Nine Months Ended
	06/30/2019				06/30/2018				06/30/2019				06/30/2018				09/30/2019				09/30/2018				09/30/2019				09/30/2018
	Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total
Investments¹	$	114,442	30.2	%	$	90,597	28.9	%	$	226,479	30.1	%	$	165,628	28.1	%	$	132,737	33.5	%	$	92,374	29.2	%	$	359,216	31.3	%	$	258,002	28.5	%
Advances	189,562		49.9		160,990		51.3		377,171		50.1		301,808		51.2		186,431		47.1		158,943		50.1		563,602		49.0		460,751		50.8
Mortgage loans held for portfolio	75,185		19.8		61,750		19.7		148,469		19.7		121,285		20.6		76,546		19.3		65,424		20.6		225,015		19.6		186,709		20.6
Other	367		0.1		375		0.1		751		0.1		784		0.1		346		0.1		381		0.1		1,097		0.1		1,165		0.1
TOTAL INTEREST INCOME	$	379,556	100.0	%	$	313,712	100.0	%	$	752,870	100.0	%	$	589,505	100.0	%	$	396,060	100.0	%	$	317,122	100.0	%	$	1,148,930	100.0	%	$	906,627	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.

Net income for the three months ended ~~June~~September 30, 2019 was ~~$31.7~~$48.5 million compared to ~~$45.7~~$41.5 million for the three months ended ~~June~~September 30, 2018. Net income for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$84.5~~$133.0 million compared to ~~$85.3~~$126.8 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The ~~decline~~increase in both periods was driven by ~~a decline~~fair value fluctuations on derivatives and trading securities and the change in net interest income ~~resulting from mark-to-market losses on investment fair value hedges and an increase~~for the respective period. Declines in the average cost of debt caused by an increase in short-term interest rates and the replacement of maturing debt at higher market rates, combined with higher balances of lower yielding investments. For the six months ended June 30, 2019, the decline in net income was also a result of a decline in the average balance of interest-earning assets, primarily advances, in addition to the aforementioned factors. The decreases in net interest income were partially offset by net unrealized fair value gains on economic derivatives and trading securities. Declines inlonger-term market interest rates since December 31, 2018 resulted in unrealized fair value losses recorded for the majority of economic derivatives ~~but~~for the three and nine months ended September 30, 2019; however, those losses were largely offset by positive fair value fluctuations on trading securities. The prior year comparative periods recorded fair value net losses on economic derivatives and trading securities, ~~resulting~~which resulted in ~~unrealized net gains recorded~~an increase in other income for both the three- and ~~six-month~~nine-month periods ended September 30, 2019 when compared to the same periods in the prior year (for further discussion see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Net Gains (Losses) on Derivatives and Hedging Activities"). Included in net income for the three months ended September 30, 2019 was an out-of-period adjustment of $14.3 million that related to hedged item valuations for certain available-for-sale securities in fair value hedging relationships and resulted in an increase in available-for-sale interest income and a reduction in other comprehensive income. For additional information on the out-of-period adjustment, see Note 1 of the Notes to Financial Statements under Part I, Item 1.

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 ~~decreased $19.7~~increased $6.8 million for the three months ended ~~June~~September 30, 2019 and decreased ~~$23.1~~$16.4 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the prior year periods. The ~~majority~~average cost of ~~the decline in~~debt increased for both the three- and ~~six-month~~nine-month periods resulted from the impact of the adoption of a new hedge accounting standard on January 1, 2019 that requires gains and losses on designated fair value hedges to be presented in the income statement line item related to the hedged item, which is interest income/expense for the FHLBank. The guidance was adopted prospectively, so the gains and losses on fair value hedges in the prior year are presented in other income, which creates a lack of comparability between periods. Net fair value losses on designated fair value hedges recorded in net interest income for the three months ended June 30, 2019 were $14.8 million, which decreased net interest margin by eleven basis points. Net fair value losses on designated fair value hedges recorded in net interest income for the six months ended June 30, 2019 were $18.9 million, which decreased net interest margin by seven basis points.

~~The decrease in net interest income unrelated to fair value fluctuations was caused by an increase in the average cost of debt for the three and six months ended June 30, 2019~~ due to an increase in average ~~interest rates, especially~~ short-term interest rates between periods, thereby decreasing net interest income. A relatively small portion of long-term assets are funded with short-term debt, so the funding benefit created by the term mismatch is reduced as short-termperiods. Market interest rates, ~~rise. However,~~particularly long-term interest rates, ~~on longer tenors~~ decreased during the second ~~quarter~~and third quarters of 2019, which caused an increase in prepayment speeds on mortgage-related assets, resulting in acceleration of premium amortization. However, this decrease in long-term market interest rates allowed us to ~~call and~~ replace some ~~unswapped~~ callable consolidated obligation bonds at a lower cost, which we expect will ~~ultimately~~eventually partially offset some of the recent increase in the average cost of debt. ~~Replacing callable debt generally increases interest costs in the short term due to the acceleration~~Accelerated amortization of ~~the unamortized~~ concessions (i.e., broker fees) on called debt and accelerated premium amortization on mortgages and MBS reduced net interest income for both the ~~debt when it is called because concession costs are amortized~~three- and nine-month periods. Both periods were also impacted by fair value fluctuations on designated fair value hedges; however, the impact was positive for the quarter largely due to ~~contractual maturity. However, this increase is eventually offset by~~ the ~~lower rate on~~impact of the ~~new debt.~~

out-of-period adjustment and negative for the year-to-date period.

Net interest margin decreased from 5053 basis points for the three months ended ~~June~~September 30, 2018 to 3551 basis points for the three months ended ~~June~~September 30, 2019, and decreased from 4850 basis points for the ~~six~~nine months ended ~~June~~September 30, 2018 to 4145 basis points for the ~~six~~nine months ended ~~June~~September 30, 2019. The decline in net interest margin unrelated to fair value fluctuations for both periods was primarily due to an increase in the cost of consolidated obligations, which increased 6126 basis points and 7660 basis points for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to the prior year periods. For the six months ended June 30, 2019, the decline in net interest margin was also a result of a $1.4 billion decline in the average balance of interest-earning assets, including a $4.6 billion decline in the average balance of advances. Net interest spread decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to the prior year periods primarily due also to the increase in the cost of debt and the resulting margin compression, which is discussed in greater detail below (see Tables 119 and ~~13)~~11).

The average yield on investments, which consists of interest-bearing deposits, Federal funds sold, reverse repurchase agreements, and investment securities increased 1838 basis points, from ~~2.20~~2.37 percent for the three months ended ~~June~~September 30, 2018 to ~~2.38~~2.75 percent for the three months ended ~~June~~September 30, 2019. The average yield on investments increased 4543 basis points, from ~~2.06~~2.16 percent for the ~~six~~nine months ended ~~June~~September 30, 2018 to ~~2.51~~2.59 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in yields for both periods was primarily a result of the increase in short-term interest rates and higher average balances of money market investments and growth in higher-yielding fixed rate multi-family GSE MBS, along with the upward repricing of indices associated with variable rate instruments. The increase in money market investments was driven by attractive yields and spreads on reverse repurchase agreements while maintaining targeted leverage. For both periods, this increase in yield was partially offset by purchases of U.S. Treasury obligations with average yields lower than the existing portfolio in response to changes to regulatory liquidity requirements.

The average yield on advances increased 6319 basis points, from ~~2.07~~2.31 percent for the three months ended ~~June~~September 30, 2018 to ~~2.70~~2.50 percent for the three months ended ~~June~~September 30, 2019. The average yield on advances increased 8565 basis points, from ~~1.87~~2.00 percent for the ~~six~~nine months ended ~~June~~September 30, 2018 to ~~2.72~~2.65 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in the average yield on advances during both the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to the prior year periods was due to continued increases in our cost of funds ~~primarily due~~related to FOMC policy changes between periods and the corresponding ~~increases~~overall increase in average short term rates, which adjusted variable rate advances and advance originations upward and positively impacted the net interest settlements on swapped advances. The average balance of advances ~~decreased $3.1~~increased $2.3 billion, or ~~10.1~~8.4 percent, from the three months ended ~~June~~September 30, 2018 compared to the same period in 2019. The average balance of advances decreased ~~$4.6~~$2.3 billion, or ~~14.2~~7.4 percent, from the ~~six~~nine months ended ~~June~~September 30, 2018 to the same period of 2019. The decline in the average balance of advances ~~resulted from~~for the year-to-date period is relative to higher advance balances in the first half of 2018, when the spread between short-term advances and excess reserves at the Federal Reserve was more favorable for our members. The change in the relationship between certain short-term rates between periods decreased demand, as short-term advance rates became less attractive relative to the rate on excess ~~reserves.~~reserves, but demand for short-term advances rebounded in the third quarter of 2019 due to the decline in interest rates.

The average yield on mortgage loans ~~increased 12~~decreased 7 basis points, from ~~3.25~~3.26 percent for the three months ended ~~June~~September 30, 2018 to ~~3.37~~3.19 percent for the three months ended ~~June~~September 30, 2019. The average yield on mortgage loans increased 168 basis points, from 3.26 percent for the ~~six~~nine months ended ~~June~~September 30, 2018 to ~~3.42~~3.34 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. The ~~increase~~decrease in yield for the ~~three- and six-month periods~~three-month period was a result of increased ~~production at rates higher than the existing portfolio, partially offset by increases in~~ premium ~~amortization for both periods.~~amortization. Premium amortization is generally tied to prepayment rates (amortization accelerates as prepayments increase) and prepayments have increased with the decline in mortgage rates since ~~June~~September 30, 2018. Premium amortization is expected to remain at or near current levels or increase, as mortgage interest rates are expected to remain at current levels or decline. Spreads on mortgage loans have improved, as some of the debt funding the portfolio was called and replaced at lower rates during the second and third quarters of 2019.

The average cost of consolidated obligation bonds increased 5526 basis points, from ~~1.95~~2.11 percent for the three months ended ~~June~~September 30, 2018 to ~~2.50~~2.37 percent for the current three-month period, and the average cost of discount notes increased 6824 basis points over the same period, from ~~1.75~~1.96 percent for the three months ended ~~June~~September 30, 2018 to ~~2.43~~2.20 percent for the three months ended ~~June~~September 30, 2019. The average cost of consolidated obligation bonds increased 6753 basis points, from ~~1.84~~1.93 percent for the ~~six~~nine months ended ~~June~~September 30, 2018 to ~~2.51~~2.46 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. The average cost of discount notes increased 8666 basis points, from ~~1.57~~1.69 percent for the ~~six~~nine months ended ~~June~~September 30, 2018 to ~~2.43~~2.35 percent for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in the average cost of consolidated obligation bonds and discount notes was a result of the increase in interest rates, ~~between periods,~~ most notably short-term interest rates, ~~and the cost of replacing maturing debt at higher market rates.~~between periods. The decline in interest rates during the second ~~quarter~~and third quarters of 2019 allowed us to call some ~~unswapped~~ callable consolidated obligation bonds and replace at a lower cost, which will ultimately offset some of the increase in the average cost of debt. For further discussion of how we use discount notes and bonds, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Consolidated Obligations.”

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. For 2019, net interest income includes unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships as a result of new hedge accounting guidance adopted January 1, 2019. Further, in both 2018 and 2019, 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 gains (losses) on derivatives and hedging activities instead of net interest income (net interest received/paid on economic derivatives is identified in Tables 1513 through 1816 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 75 through 108 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):

Table 75


	Three Months Ended 06/30/2019																	Three Months Ended 09/30/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total			Advances			Investments		Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(874	)	$	(13,609	)	$	—		$	—	$	(357	)	$	(14,840	)	$	(924	)	$	12,610	$	—		$	—		$	114		$	11,800
Net amortization/accretion of hedging activities	(183		)	—			(658		)	—		—			(841		)	(182		)	—		(658		)	—			—			(840		)
Net interest received (paid)	6,383			2,048			—			8		(3,112		)	5,327			4,588			1,665		—			(1		)	(1,260		)	4,992
TOTAL	$	5,326		$	(11,561	)	$	(658	)	$	8	$	(3,469	)	$	(10,354	)	$	3,482		$	14,275	$	(658	)	$	(1	)	$	(1,146	)	$	15,952

Table 6



	Three Months Ended 09/30/2018
	Advances			Investments		Mortgage Loans			Consolidated Obligation Bonds			Total
Net amortization/accretion of hedging activities	$	(1,022	)	$	—	$	(53	)	$	—		$	(1,075	)
Net interest received (paid)	4,385			510		—			(2,280		)	2,615
TOTAL	$	3,363		$	510	$	(53	)	$	(2,280	)	$	1,540

Table 7



	Nine Months Ended 09/30/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(1,964	)	$	(4,673	)	$	—		$	—	$	(462	)	$	(7,099	)
Net amortization/accretion of hedging activities	(1,172		)	—			(1,776		)	—		—			(2,948		)
Net interest received (paid)	18,374			5,308			—			9		(7,997		)	15,694
TOTAL	$	15,238		$	635		$	(1,776	)	$	9	$	(8,459	)	$	5,647

Table 8

Three Months Ended 06/30/2018
Advances Investments Mortgage Loans Consolidated Obligation Bonds Total
Net amortization/accretion of hedging activities $ (1,105 ) $ —
$ (120 ) $ —
$ (1,225 )
Net interest received (paid) 2,503
(182 ) —
(1,343 ) 978
TOTAL $ 1,398
$ (182 ) $ (120 ) $ (1,343 ) $ (247 )

~~Table 9~~

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

~~Table 10~~


	Six Months Ended 06/30/2018															Nine Months Ended 09/30/2018
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Total			Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Total
Net amortization/accretion of hedging activities	$	(2,261	)	$	—		$	(129	)	$	—		$	(2,390	)	$	(3,283	)	$	—		$	(182	)	$	—		$	(3,465	)
Net interest received (paid)	38			(1,262		)	—			(420		)	(1,644		)	4,423			(752		)	—			(2,700		)	971
TOTAL	$	(2,223	)	$	(1,262	)	$	(129	)	$	(420	)	$	(4,034	)	$	1,140		$	(752	)	$	(182	)	$	(2,700	)	$	(2,494	)

Table 119 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 9



	Three Months Ended
	09/30/2019						09/30/2018
	Average Balance		Interest Income/ Expense		Yield¹		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	920,843	$	5,300	2.28	%	$	778,834	$	3,931	2.00	%
Securities purchased under agreements to resell	4,437,123		26,768		2.39		3,989,197		20,618		2.05
Federal funds sold	1,456,826		8,179		2.23		1,604,630		7,896		1.95
Investment securities^2,3	12,354,021		92,490		2.97		9,078,722		59,929		2.62
Advances^3,4	29,613,293		186,431		2.50		27,319,208		158,943		2.31
Mortgage loans^5,6	9,508,161		76,546		3.19		7,967,297		65,424		3.26
Other interest-earning assets	45,861		346		2.99		45,700		381		3.30
Total earning assets	58,336,128		396,060		2.69		50,783,588		317,122		2.48
Other non-interest-earning assets	227,491						357,581
Total assets	$	58,563,619					$	51,141,169

Interest-bearing liabilities:
Deposits	$	542,683	2,540		1.86		$	543,255	2,289		1.67
Consolidated obligations³:
Discount Notes	24,054,320		133,680		2.20		21,865,096		108,137		1.96
Bonds	30,952,832		185,096		2.37		26,025,883		138,668		2.11
Other borrowings	46,487		329		2.81		54,836		369		2.66
Total interest-bearing liabilities	55,596,322		321,645		2.29		48,489,070		249,463		2.04
Capital and other non-interest-bearing funds	2,967,297						2,652,099
Total funding	$	58,563,619					$	51,141,169

Net interest income and net interest spread⁷			$	74,415	0.40	%			$	67,659	0.44	%

Net interest margin⁸					0.51	%					0.53	%


¹	The out-of-period adjustment of $14.3 million to interest income increased the yield on investments and total earning assets, net interest spread, and net interest margin. The out-of-period adjustment had no impact on the year-to-date calculations in Table 11.

² 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.

Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment. For 2019, interest amounts reported for advances, investment securities, consolidated obligation discount notes, and consolidated obligation bonds include realized and unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships. Prior period interest amounts do not conform to new hedge accounting guidance adopted January 1, 2019.


⁴	Advance income includes prepayment fees on terminated advances.


⁵	CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was $1.7 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively.


⁶	Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.


⁷	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


⁸	Net interest margin is defined as net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 10 summarizes changes in interest income and interest expense (in thousands):

Table 10



	Three Months Ended
	09/30/2019 vs. 09/30/2018
	Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total
Interest Income³:
Interest-bearing deposits	$	774		$	595		$	1,369
Securities purchased under agreements to resell	2,470			3,680			6,150
Federal funds sold	(768		)	1,051			283
Investment securities	23,735			8,826			32,561
Advances	13,901			13,587			27,488
Mortgage loans	12,428			(1,306		)	11,122
Other assets	1			(36		)	(35		)
Total interest-earning assets	52,541			26,397			78,938
Interest Expense³:
Deposits	(2		)	253			251
Consolidated obligations:
Discount notes	11,426			14,117			25,543
Bonds	28,202			18,226			46,428
Other borrowings	(59		)	19			(40		)
Total interest-bearing liabilities	39,567			32,615			72,182
Change in net interest income	$	12,974		$	(6,218	)	$	6,756


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

Table 11


	Three Months Ended												Nine Months Ended
	06/30/2019						06/30/2018						09/30/2019						09/30/2018
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	810,639	$	5,048	2.50	%	$	726,928	$	3,235	1.78	%	$	856,180	$	15,518	2.42	%	$	705,057	$	9,402	1.78	%
Securities purchased under agreements to resell	4,676,419		29,568		2.54		3,130,985		14,562		1.87		4,512,240		84,266		2.50		3,369,892		46,610		1.85
Federal funds sold	1,578,022		9,555		2.43		2,516,604		11,054		1.76		1,583,982		28,058		2.37		2,343,044		29,539		1.69
Investment securities^1,2	12,188,680		70,271		2.31		10,140,018		61,746		2.44		11,585,625		231,374		2.67		9,563,982		172,451		2.41
Advances^2,3	28,117,525		189,562		2.70		31,261,415		160,990		2.07		28,486,279		563,602		2.65		30,765,902		460,751		2.00
Mortgage loans^2,4,5	8,956,011		75,185		3.37		7,629,204		61,750		3.25
Mortgage loans^4,5													9,004,201		225,015		3.34		7,656,992		186,709		3.26
Other interest-earning assets	47,827		367		3.08		42,737		375		3.52		47,627		1,097		3.08		45,761		1,165		3.40
Total earning assets	56,375,123		379,556		2.70		55,447,891		313,712		2.27		56,076,134		1,148,930		2.74		54,450,630		906,627		2.23
Other non-interest-earning assets	290,850						370,378						271,516						341,634
Total assets	$	56,665,973					$	55,818,269					$	56,347,650					$	54,792,264

Interest-bearing liabilities:
Deposits	$	476,764	2,473		2.08		$	591,802	2,210		1.50		$	511,000	7,701		2.01		$	559,483	6,113		1.46
Consolidated obligations²:
Discount Notes	24,937,939		150,802		2.43		25,389,740		110,994		1.75		24,619,124		433,473		2.35		24,883,153		314,109		1.69
Bonds	28,305,382		176,714		2.50		26,964,353		131,342		1.95		28,290,980		519,967		2.46		26,506,554		382,442		1.93
Other borrowings	48,051		337		2.82		38,731		282		2.94		54,571		1,129		2.77		44,522		941		2.82
Total interest-bearing liabilities	53,768,136		330,326		2.46		52,984,626		244,828		1.85		53,475,675		962,270		2.41		51,993,712		703,605		1.81
Capital and other non-interest-bearing funds	2,897,837						2,833,643						2,871,975						2,798,552
Total funding	$	56,665,973					$	55,818,269					$	56,347,650					$	54,792,264

Net interest income and net interest spread⁶			$	49,230	0.24	%			$	68,884	0.42	%			$	186,660	0.33	%			$	203,022	0.42	%

Net interest margin⁷					0.35	%					0.50	%					0.45	%					0.50	%


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.


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 ~~$1.7~~$5.0 million and ~~$1.5~~$4.5 million for the ~~three~~nine months ended ~~June~~September 30, 2019 and 2018, 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 defined as net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 12 summarizes changes in interest income and interest expense (in thousands):

Table 12


	Three Months Ended									Nine Months Ended
	06/30/2019 vs. 06/30/2018									09/30/2019 vs. 09/30/2018
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total			Volume^1,2			Rate^1,2			Total
Interest Income³:
Interest-bearing deposits	$	406		$	1,407		$	1,813		$	2,286		$	3,830		$	6,116
Securities purchased under agreements to resell	8,683			6,323			15,006			18,521			19,135			37,656
Federal funds sold	(4,897		)	3,398			(1,499		)	(11,292		)	9,811			(1,481		)
Investment securities	11,949			(3,424		)	8,525			39,051			19,872			58,923
Advances	(17,419		)	45,991			28,572			(36,195		)	139,046			102,851
Mortgage loans	11,068			2,367			13,435			33,566			4,740			38,306
Other assets	42			(50		)	(8		)	46			(114		)	(68		)
Total interest-earning assets	9,832			56,012			65,844
Total earning assets										45,983			196,320			242,303
Interest Expense³:
Deposits	(485		)	748			263			(567		)	2,155			1,588
Consolidated obligations:
Discount notes	(2,009		)	41,817			39,808			(3,367		)	122,731			119,364
Bonds	6,808			38,564			45,372			27,137			110,388			137,525
Other borrowings	67			(12		)	55			208			(20		)	188
Total interest-bearing liabilities	4,381			81,117			85,498			23,411			235,254			258,665
Change in net interest income	$	5,451		$	(25,105	)	$	(19,654	)	$	22,572		$	(38,934	)	$	(16,362	)


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

~~Table 13~~

Six Months Ended
06/30/2019 06/30/2018
Average
Balance Interest
Income/
Expense Yield Average
Balance Interest
Income/
Expense Yield
Interest-earning assets:

Interest-bearing deposits $ 823,313
$ 10,218
2.50 % $ 667,556
$ 5,471
1.65 %
Securities purchased under agreements to resell 4,550,421
57,498
2.55
3,055,107
25,992
1.72
Federal funds sold 1,648,613
19,879
2.43
2,718,370
21,643
1.61
Investment securities^1,2
11,195,059
138,884
2.50
9,810,633
112,522
2.31
Advances^2,3
27,913,432
377,171
2.72
32,517,813
301,808
1.87
Mortgage loans^2,4,5
8,748,045
148,469
3.42
7,499,267
121,285
3.26
Other interest-earning assets 48,525
751
3.12
45,794
784
3.45
Total earning assets 54,927,408
752,870
2.76
56,314,540
589,505
2.11
Other non-interest-earning assets 293,893

333,529

Total assets $ 55,221,301

$ 56,648,069

Interest-bearing liabilities:

Deposits $ 494,896
5,161
2.10
$ 567,731
3,824
1.36
Consolidated obligations²:

Discount Notes 24,906,207
299,793
2.43
26,417,192
205,972
1.57
Bonds 26,937,995
334,871
2.51
26,750,872
243,774
1.84
Other borrowings 58,680
800
2.75
39,281
572
2.94
Total interest-bearing liabilities 52,397,778
640,625
2.46
53,775,076
454,142
1.70
Capital and other non-interest-bearing funds 2,823,523

2,872,993

Total funding $ 55,221,301

$ 56,648,069

Net interest income and net interest spread⁶

$ 112,245
0.30 %
$ 135,363
0.41 %

Net interest margin⁷

0.41 %

0.48 %


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.


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 $3.3 million and $3.0 million for the six months ended June 30, 2019 and 2018, 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 14 summarizes changes in interest income and interest expense (in thousands):

~~Table 14~~

Six Months Ended
06/30/2019 vs. 06/30/2018
Increase (Decrease) Due to

Volume^1,2
Rate^1,2
Total
Interest Income³:

Interest-bearing deposits $ 1,481
$ 3,266
$ 4,747
Securities purchased under agreements to resell 15,822
15,684
31,506
Federal funds sold (10,416 ) 8,652
(1,764 )
Investment securities 16,699
9,663
26,362
Advances (47,352 ) 122,715
75,363
Mortgage loans 20,966
6,218
27,184
Other assets 45
(78 ) (33 )
Total earning assets (2,755 ) 166,120
163,365
Interest Expense³:

Deposits (542 ) 1,879
1,337
Consolidated obligations:

Discount notes (12,391 ) 106,212
93,821
Bonds 1,717
89,380
91,097
Other borrowings 267
(39 ) 228
Total interest-bearing liabilities (10,949 ) 197,432
186,483
Change in net interest income $ 8,194
$ (31,312 ) $ (23,118 )


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 quarterly~~ report may not produce the same results.

Net Gains (Losses) on Derivatives and Hedging Activities: The volatility in other income (loss) is driven predominantly by net gains (losses) on derivative and hedging transactions, which generally include interest rate swaps, caps and floors. Net gains (losses) from derivatives and hedging activities are 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).

As reflected in Tables 1513 through ~~18,~~16, the majority of the derivative net unrealized gains and losses are related to changes in the fair values of economic hedges, which do not qualify for hedge accounting treatment under GAAP. Net interest payments or receipts on these economic hedges flow through net 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 trading investments that are swapped to variable rates. For periods prior to January 1, 2019, ineffectiveness on fair value hedges contributed to unrealized gains and losses on derivatives, but to a lesser degree. Beginning January 1, 2019, fair value fluctuations on fair value hedges are recorded in the financial statement line item related to the hedged item (i.e., interest income or expense) in accordance with the prospective adoption of new hedge accounting guidance. In the past, we generally recorded net unrealized gains on derivatives when the overall level of interest rates would rise over the period and recorded net unrealized losses when the overall level of interest rates would fall over the period, due to the mix of the economic hedges. Net unrealized gains or losses on derivatives will continue to be ~~primarily~~ a function of the general level of LIBOR swap rates and the spread between the LIBOR swap curve and the GSE interest rate curve (interest rates swaps that are economic hedges of GSE debentures held in trading), but will also be affected by the spread between the LIBOR swap curve and mortgage rates (interest rate swaps that are economic hedges of fixed rate GSE MBS held in trading), the OIS curve and U.S. Treasury rates, and the SOFR swap curve and U.S. Treasury rates (interest rate swaps that are economic hedges of fixed rate U.S. Treasury obligations held in trading). Tables 1513 through 1816 present the earnings impact of derivatives and hedging activities by financial instrument as recorded in other non-interest income (in thousands):

Table 13



	Three Months Ended 09/30/2019
	Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(905	)	$	(21,050	)	$	—	$	(67	)	$	1,962		$	(20,060	)
Mortgage delivery commitments	—			—			365		—			—			365
Economic hedges – net interest received (paid)	(5		)	(315		)	—		(42		)	(329		)	(691		)
Net gains (losses) on derivatives and hedging activities	(910		)	(21,365		)	365		(109		)	1,633			(20,386		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			16,375			—		—			—			16,375
TOTAL	$	(910	)	$	(4,990	)	$	365	$	(109	)	$	1,633		$	(4,011	)

Table 14



	Three Months Ended 09/30/2018
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Other			Total
Net gains (losses) on derivatives and hedging activities:
Fair value hedges - unrealized gains (losses) due to fair value changes	$	(268	)	$	(131	)	$	—		$	261		$	—		$	(138	)
Economic hedges – unrealized gains (losses) due to fair value changes	—			10,356			—			(1,917		)	—			8,439
Mortgage delivery commitments	—			—			(710		)	—			—			(710		)
Economic hedges – net interest received (paid)	—			(540		)	—			(652		)	—			(1,192		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—			(367		)	(367		)
Net gains (losses) on derivatives and hedging activities	(268		)	9,685			(710		)	(2,308		)	(367		)	6,032
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			(10,637		)	—			—			—			(10,637		)
TOTAL	$	(268	)	$	(952	)	$	(710	)	$	(2,308	)	$	(367	)	$	(4,605	)

Table 15


	Three Months Ended 06/30/2019																	Nine Months Ended 09/30/2019
	Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total			Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(960	)	$	(46,792	)	$	—	$	85		$	6,071		$	(41,596	)	$	(2,385	)	$	(94,567	)	$	—	$	18		$	15,467		$	(81,467	)
Mortgage delivery commitments	—			—			1,836		—			—			1,836			—			—			3,836		—			—			3,836
Commitment to issue discount notes																		—			—			—		(70		)	—			(70		)
Economic hedges – net interest received (paid)	(2		)	490			—		(5		)	(734		)	(251		)	(9		)	700			—		(47		)	(1,882		)	(1,238		)
Net gains (losses) on derivatives and hedging activities	(962		)	(46,302		)	1,836		80			5,337			(40,011		)	(2,394		)	(93,867		)	3,836		(99		)	13,585			(78,939		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			41,967			—		—			—			41,967			—			87,361			—		—			—			87,361
TOTAL	$	(962	)	$	(4,335	)	$	1,836	$	80		$	5,337		$	1,956		$	(2,394	)	$	(6,506	)	$	3,836	$	(99	)	$	13,585		$	8,422

Table 16

Three Months Ended 06/30/2018
Advances Investments Mortgage Loans
Consolidated
Obligation Bonds
Other Total
Net gains (losses) on derivatives and hedging activities:

Fair value hedges - unrealized gains (losses) due to fair value changes $ 796
$ 168
$ —
$ (822 ) $ —
$ 142
Economic hedges – unrealized gains (losses) due to fair value changes —
11,524
—
(2,402 ) —
9,122
Mortgage delivery commitments —
—
(249 ) —
—
(249 )
Economic hedges – net interest received (paid) —
(1,091 ) —
(619 ) —
(1,710 )
Price alignment amount on derivatives for which variation margin is daily settled —
—
—
—
(319 ) (319 )
Net gains (losses) on derivatives and hedging activities 796
10,601
(249 ) (3,843 ) (319 ) 6,986
Net gains (losses) on trading securities hedged on an economic basis with derivatives —
(12,145 ) —
—
—
(12,145 )
TOTAL $ 796
$ (1,544 ) $ (249 ) $ (3,843 ) $ (319 ) $ (5,159 )

~~Table 17~~

Six Months Ended 06/30/2019
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Derivatives not designated as hedging instruments:

Economic hedges – unrealized gains (losses) due to fair value changes $ (1,480 ) $ (73,517 ) $ —
$ 85
$ 13,505
$ (61,407 )
Mortgage delivery commitments —
—
3,471
—
—
3,471
Commitment to issue discount notes —
—
—
(70 ) —
(70 )
Economic hedges – net interest received (paid) (4 ) 1,015
—
(5 ) (1,553 ) (547 )
Net gains (losses) on derivatives and hedging activities (1,484 ) (72,502 ) 3,471
10
11,952
(58,553 )
Net gains (losses) on trading securities hedged on an economic basis with derivatives —
70,986
—
—
—
70,986
TOTAL $ (1,484 ) $ (1,516 ) $ 3,471
$ 10
$ 11,952
$ 12,433

~~Table 18~~


	Six Months Ended 06/30/2018																		Nine Months Ended 09/30/2018
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Other			Total			Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Other			Total
Net gains (losses) on derivatives and hedging activities:
Fair value hedges - unrealized gains (losses) due to fair value changes	$	(2,004	)	$	546		$	—		$	(374	)	$	—		$	(1,832	)	$	(2,272	)	$	415		$	—		$	(113	)	$	—		$	(1,970	)
Economic hedges – unrealized gains (losses) due to fair value changes	—			43,462			—			(12,567		)	—			30,895			—			53,818			—			(14,484		)	—			39,334
Mortgage delivery commitments	—			—			(1,532		)	—			—			(1,532		)	—			—			(2,242		)	—			—			(2,242		)
Economic hedges – net interest received (paid)	—			(3,349		)	—			(51		)	—			(3,400		)	—			(3,889		)	—			(703		)	—			(4,592		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—			(502		)	(502		)	—			—			—			—			(869		)	(869		)
Net gains (losses) on derivatives and hedging activities	(2,004		)	40,659			(1,532		)	(12,992		)	(502		)	23,629			(2,272		)	50,344			(2,242		)	(15,300		)	(869		)	29,661
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			(38,540		)	—			—			—			(38,540		)	—			(49,177		)	—			—			—			(49,177		)
TOTAL	$	(2,004	)	$	2,119		$	(1,532	)	$	(12,992	)	$	(502	)	$	(14,911	)	$	(2,272	)	$	1,167		$	(2,242	)	$	(15,300	)	$	(869	)	$	(19,516	)

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, net gains and losses on derivatives and hedging activities resulted in a decrease in net income of ~~$47.0~~$26.4 million and ~~$82.2~~$108.6 million, respectively, compared to the prior year periods primarily as a result of changes in the LIBOR swap curve between periods, and, to a lesser extent, changes in other swap indices. The majority of the declines in fair value for both periods were related to the economic interest rate swaps hedging the multi-family GSE MBS, GSE debentures, and U.S. Treasury obligations. The overall increase in the level of swap index rates from ~~June~~September 30, 2018 to ~~June~~September 30, 2019 had a positive impact on the net interest settlements of interest rate swaps, which increased net income by ~~$1.5~~$0.5 million and ~~$2.9~~$3.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to the prior year periods.

The net unrealized losses on the economic interest rate swaps hedging the multi-family GSE MBS, U.S. Treasury obligations, and GSE debentures were mostly offset by the net unrealized gains attributable to the swapped securities, which are recorded in net gains (losses) on trading securities. The unrealized gains on trading securities were generally driven by the decreases in interest rates between periods and are discussed in greater detail below. Tables 1917 and 2018 present the relationship between the trading securities and the associated interest rate swaps that do not qualify for hedge accounting treatment by investment type (in thousands):

Table 1917


	Three Months Ended																Three Months Ended
	06/30/2019								06/30/2018								09/30/2019								09/30/2018
	Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net			Gain (Loss) on Derivatives		Gain (Loss) on Trading Securities			Net			Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net			Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities			Net
U.S. Treasury obligations	$	(13,852	)	$	12,777	$	(1,075	)	$	—	$	—		$	—		$	(5,268	)	$	2,565	$	(2,703	)	$	(466	)	$	344		$	(122	)
GSE debentures	(9,898		)	8,695		(1,203		)	3,461		(3,116		)	345			(3,709		)	3,551		(158		)	3,373			(3,601		)	(228		)
GSE MBS	(23,382		)	20,495		(2,887		)	8,016		(9,029		)	(1,013		)	(11,842		)	10,259		(1,583		)	7,633			(7,380		)	253
TOTAL	$	(47,132	)	$	41,967	$	(5,165	)	$	11,477	$	(12,145	)	$	(668	)	$	(20,819	)	$	16,375	$	(4,444	)	$	10,540		$	(10,637	)	$	(97	)

Table 2018


	Six Months Ended															Nine Months Ended
	06/30/2019								06/30/2018							09/30/2019								09/30/2018
	Gains (Losses) on Derivatives			Gains (Losses) on Trading Securities		Net			Gains (Losses) on Derivatives		Gains (Losses) on Trading Securities			Net		Gains (Losses) on Derivatives			Gains (Losses) on Trading Securities		Net			Gains (Losses) on Derivatives			Gains (Losses) on Trading Securities			Net
U.S. Treasury obligations	$	(20,626	)	$	19,525	$	(1,101	)	$	—	$	—		$	—	$	(25,894	)	$	22,090	$	(3,804	)	$	(466	)	$	344		$	(122	)
GSE debentures	(15,556		)	15,196		(360		)	13,324		(11,580		)	1,744		(19,265		)	18,747		(518		)	16,697			(15,181		)	1,516
GSE MBS	(37,074		)	36,265		(809		)	29,576		(26,960		)	2,616		(48,916		)	46,524		(2,392		)	37,209			(34,340		)	2,869
TOTAL	$	(73,256	)	$	70,986	$	(2,270	)	$	42,900	$	(38,540	)	$	4,360	$	(94,075	)	$	87,361	$	(6,714	)	$	53,440		$	(49,177	)	$	4,263

For additional detail regarding gains and losses on trading securities, see Table 2119 and related discussion under this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.”

See Tables 4650 and 4751 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

Net Gains (Losses) on Trading Securities: All unrealized gains and losses related to trading securities are recorded in other income (loss) as net gains (losses) on trading securities; however, only gains and losses relating to trading securities that are related to economic hedges are included in Tables 1513 through ~~18.~~16. Unrealized gains (losses) fluctuate as the fair value of our trading portfolio fluctuates. There are a number of factors that can impact the fair value of a trading security including the movement in interest rates, changes in credit spreads, the passage of time, and changes in price volatility. Table 2119 presents the major components of the net gains (losses) on trading securities (in thousands):

Table 2119


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Trading securities not hedged:
GSE debentures	$	(143	)	$	(332	)	$	(437	)	$	(757	)	$	(58	)	$	(614	)	$	(495	)	$	(1,371	)
U.S. obligation MBS and GSE MBS	(18		)	47			(74		)	35			(8		)	(1		)	(82		)	34
Short-term securities	37			399			123			281			(123		)	(262		)	—			19
Total trading securities not hedged	(124		)	114			(388		)	(441		)	(189		)	(877		)	(577		)	(1,318		)
Trading securities hedged on an economic basis with derivatives:
U.S. Treasury obligations	12,777			—			19,525			—			2,565			344			22,090			344
GSE debentures	8,695			(3,116		)	15,196			(11,580		)	3,551			(3,601		)	18,747			(15,181		)
GSE MBS	20,495			(9,029		)	36,265			(26,960		)	10,259			(7,380		)	46,524			(34,340		)
Total trading securities hedged on an economic basis with derivatives	41,967			(12,145		)	70,986			(38,540		)	16,375			(10,637		)	87,361			(49,177		)
TOTAL	$	41,843		$	(12,031	)	$	70,598		$	(38,981	)	$	16,186		$	(11,514	)	$	86,784		$	(50,495	)

Our trading portfolio is comprised primarily of fixed rate U.S. Treasury obligations, ~~variable and fixed rate~~ GSE debentures, ~~fixed rate~~and multi-family GSE MBS, with smaller percentages of variable rate GSE debentures and 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 19~~Tables 17 and 2018 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 and credit spreads, and are swapped on an economic basis to three-month LIBOR. The fair values of the fixed rate multi-family 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. We experienced unrealized gains of ~~$20.5~~$10.3 million and ~~$36.3~~$46.5 million on our fixed rate multi-family GSE MBS investments for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to unrealized losses of ~~$9.0~~$7.4 million and ~~$27.0~~$34.3 million for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, due to a decrease in mortgage-related interest rates between periods. The decrease in intermediate interest rates between periods resulted in unrealized gains on the fixed rate GSE debentures and U.S. Treasury obligations for the three months and ~~six~~nine months ended ~~June~~September 30, 2019. 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 gains (losses) 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.

See Tables 4650 and 4751 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

Other Expenses: Other expenses, which include compensation and benefits and other operating expenses, ~~increased to $18.3 million and $35.3~~decreased $1.8 million for the three ~~and six~~ months ended ~~June~~September 30, 2019 compared to $15.5 million and $31.0 million for the three and six months ended June 30, 2018, respectively. The largest component of operating expenses, compensation and benefits, increased by $1.6 million, or 19.5 percent, and $2.5 million, or 15.3 percent, for the three and six months ended June 30, 2019, respectively, compared to the prior year ~~periods. The increase in compensation and benefits expense between periods is largely a result of higher incentive accruals based on goal attainment as of June 30, 2019 and an increase~~period mostly due to fluctuations in the cost of ~~health insurance.~~employee benefits. Other expenses increased $2.6 million for the nine months ended September 30, 2019 compared to the prior year period due primarily to an increase in mortgage loan transaction fees due to the growth in the mortgage loan portfolio.

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.

Our business model is primarily one of holding assets and liabilities to maturity. However, we utilize some assets and liabilities for liquidity purposes, which may involve periodic instrument sales. As such, weWe believe that certain non-GAAP financial measures are helpful in understanding our operating results and provide meaningful period-to-period comparison of our long-term economic value in contrast to GAAP results, which can be impacted by fair value changes driven by market volatility, gains/losses on instrument sales, or transactions that are considered unpredictable or not routine. Our business model is primarily one of holding assets and liabilities to maturity. However, we utilize some assets and liabilities for liquidity purposes, which may involve periodic instrument sales. We report the following non-GAAP financial measures that we believe are useful to stakeholders as key measures of our operating performance: (1) adjusted income, (2) adjusted net interest margin, and (3) adjusted ROE. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are 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. Another material limitation associated with the use of non-GAAP financial measures is that they have no standardized measurement prescribed by GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. While we believe the non-GAAP measures contained in this quarterly report are frequently used by our stakeholders in the evaluation of our performance, such non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of financial information prepared in accordance with GAAP.

Our adjusted income is defined as our net income reported in accordance with GAAP as adjusted for the impact of: (1) AHP assessments (equivalent to an effective minimum income tax rate of 10 percent); (2) fair value changes on derivatives and hedging activities (excludes net interest settlements related to derivatives not qualifying for hedge accounting); (3) prepayment fees on advances; and (4) other items excluded because they are not considered a part of our routine operations, such as gains/losses on retirement of debt, gains/losses on mortgage loans held for sale, and gains/losses on securities. We use adjusted income to compute an adjusted ROE that is then compared to the average overnight Federal funds effective rate, with the difference referred to as adjusted ROE spread. Components of adjusted income and adjusted ROE spread are used: (1) to measure performance under our incentive compensation plans; (2) as a measure in determining the level of quarterly dividends; and (3) in strategic planning. While we utilize adjusted income as a key measure in determining the level of dividends, we consider GAAP net income volatility caused by gains (losses) on derivatives and hedging activities and trading securities in determining the adequacy of our retained earnings as determined under GAAP. Because the adequacy of GAAP retained earnings is considered in setting the level of our quarterly dividends, gains (losses) on derivatives and hedging activities and trading securities can come into consideration when setting the level of our quarterly dividends.

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 income. However, if held to maturity, the sum of such gains and losses over the term of a derivative will equal its original purchase price.

In addition to impacting the timing of income and expense from derivatives, derivative accounting also impacts the presentation of net interest settlements on derivatives and hedging activities. This presentation differs under GAAP for economic hedges when compared to hedges that qualify for hedge accounting. Net interest settlements on economic hedges are included with the economic derivative fair value changes and are recorded in net gains (losses) on derivatives and hedging activities 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 included in the net gains (losses) on derivatives and hedging activities are removed to arrive at adjusted income (i.e., net interest settlements on economic hedges, which represent actual cash inflows or outflows and do not create fair value volatility, are not removed).

Table 2220 presents a reconciliation of GAAP net income to adjusted income (in thousands):

Table 2220


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Net income, as reported under GAAP	$	31,718		$	45,748		$	84,473		$	85,339		$	48,491		$	41,504		$	132,964		$	126,843
AHP assessments	3,529			5,089			9,395			9,495			5,391			4,618			14,786			14,113
Income before AHP assessments	35,247			50,837			93,868			94,834			53,882			46,122			147,750			140,956
Derivative (gains) losses¹	54,600			(8,696		)	76,905			(27,029		)	7,895			(7,224		)	84,800			(34,253		)
Trading (gains) losses	(41,843		)	12,031			(70,598		)	38,981			(16,186		)	11,514			(86,784		)	50,495
Prepayment fees on terminated advances	(75		)	(70		)	(144		)	(101		)	(373		)	(153		)	(517		)	(254		)
Net (gains) losses on sale of held-to-maturity securities	46			(28		)	46			(62		)	—			(1,529		)	46			(1,591		)
Total excluded items	12,728			3,237			6,209			11,789			(8,664		)	2,608			(2,455		)	14,397
Adjusted income (a non-GAAP measure)	$	47,975		$	54,074		$	100,077		$	106,623		$	45,218		$	48,730		$	145,295		$	155,353


¹	Consists of fair value changes on all derivatives and hedging activities excluding net interest settlements (see next table) on economic hedges.

Adjusted income decreased ~~$6.1~~$3.5 million for the three months ended ~~June~~September 30, 2019 compared to the same period in the prior year. The decrease was primarily due to a ~~$3.4~~$4.8 million decrease in adjusted net interest income (see Table ~~23) and~~21), which was partially offset by a ~~$2.8~~$1.8 million ~~increase~~decrease in other ~~expenses.~~expenses mostly due to fluctuations in the cost of employee benefits. Adjusted income decreased ~~$6.5~~$10.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same period in the prior year as a result of a ~~$4.3 million increase in other expenses, a $1.4~~$6.2 million decrease in adjusted net interest income and a ~~$0.8~~$2.6 million ~~decline~~increase in other ~~income.~~expenses. For both the three- and ~~six-month~~nine-month periods ended September 30, 2019, the decline in adjusted net interest income ~~was a result of an increase~~compared to the same periods in the ~~average cost of debt largely due to increases in average market rates between periods but also as~~prior year was a result of accelerated amortization of concessions on called bonds and accelerated amortization of premiums on mortgage-related assets, as discussed previously. The increase in other expenses for ~~both~~ the ~~three- and six-month periods~~nine-month period ended September 30, 2019 was due primarily ~~due~~ to an increase in ~~compensation and benefits.~~

mortgage loan transaction fees due to growth in the mortgage loan portfolio.

Table 2321 presents a reconciliation of GAAP net interest income to adjusted net interest income (in thousands):

Table 2321


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Net interest income, as reported under GAAP	$	49,230		$	68,884		$	112,245		$	135,363		$	74,415		$	67,659		$	186,660		$	203,022
(Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income¹	14,840			—			18,899			—			(11,800		)	—			7,099			—
Net interest settlements on economic hedges	(251		)	(1,710		)	(547		)	(3,400		)	(691		)	(1,192		)	(1,238		)	(4,592		)
Prepayment fees on terminated advances	(75		)	(70		)	(144		)	(101		)	(373		)	(153		)	(517		)	(254		)
Adjusted net interest income (a non-GAAP measure)	$	63,744		$	67,104		$	130,453		$	131,862		$	61,551		$	66,314		$	192,004		$	198,176

Net interest margin, as calculated under GAAP for the period	0.35		%	0.50		%	0.41		%	0.48		%	0.51		%	0.53		%	0.45		%	0.50		%
Adjusted net interest margin (a non-GAAP measure)	0.45		%	0.49		%	0.48		%	0.47		%	0.42		%	0.52		%	0.46		%	0.49		%

_________


¹	Beginning January 1, 2019, fair value gains and losses on fair value hedges are required to be presented in the income statement line item related to the hedged item, which impacts net interest income prospectively.

Management uses adjusted income to evaluate the quality of our earnings. FHLBank management believes that the presentation of adjusted income as measured for management purposes enhances the understanding of our performance by highlighting its underlying results and profitability. Management uses adjusted net interest income to evaluate the earnings impact of economic hedges. Under GAAP, the net interest amount that converts economically swapped fixed rate investments or liabilities to a variable rate is recorded as part of net gains (losses) on derivatives and hedging activities rather than net interest income. Presenting fixed rate investments with the corresponding net interest amount in adjusted net interest income reflects the widening of the spread between the variable rate assets created by the economic hedge and the variable rate liabilities funding them as a result of the ~~increase~~change in average LIBOR, SOFR, or OIS between periods. Further, beginning January 1, 2019, fair value gains and losses on fair value hedges are required to be presented in the income statement line item related to the hedged item, which impacts net interest income. These fluctuations are excluded from the calculation of adjusted net income and adjusted net interest income.

Table 2422 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 decreases in adjusted ROE for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in the prior year ~~are a function of~~reflect the ~~changes~~decrease in adjusted net income ~~and in the average balances of capital~~ for ~~the~~both periods.

Adjusted ROE spread for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 is calculated as follows (dollar amounts in thousands):

Table 2422


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	06/30/2019			06/30/2018			06/30/2019			06/30/2018			09/30/2019			09/30/2018			09/30/2019			09/30/2018
Average GAAP total capital for the period	$	2,478,610		$	2,530,926		$	2,459,414		$	2,581,345		$	2,551,704		$	2,388,912		$	2,490,516		$	2,516,496
ROE, based upon GAAP net income	5.13		%	7.25		%	6.93		%	6.67		%	7.54		%	6.89		%	7.14		%	6.74		%
Adjusted ROE, based upon adjusted income	7.76		%	8.57		%	8.21		%	8.33		%	7.03		%	8.09		%	7.80		%	8.25		%
Average overnight Federal funds effective rate	2.40		%	1.74		%	2.40		%	1.60		%	2.20		%	1.92		%	2.33		%	1.70		%
Adjusted ROE as a spread to average overnight Federal funds effective rate	5.36		%	6.83		%	5.81		%	6.73		%	4.83		%	6.17		%	5.47		%	6.55		%

Financial Condition

Overall: Total assets increased ~~$12.4~~$9.4 billion, or ~~25.9~~19.7 percent, from December 31, 2018 to ~~June~~September 30, 2019 primarily due to increases in short- and long-term investments, ~~and~~ advances, ~~with a smaller increase in~~and mortgage loans. ~~Mortgage loans increased 9.3 percent from December 31, 2018 to an all-time high of $9.2 billion at June 30, 2019.~~ The majority of the increase and change in composition of investments was in response to changes to regulatory liquidity requirements that became effective March 31, 2019, including the purchase of ~~$3.0~~$5.0 billion in U.S. Treasury obligations since the third quarter of 2018. Total capital increased ~~$126.4~~$204.1 million, or ~~5.2~~8.3 percent, between periods due to the increase in outstanding capital stock from advance utilization and net income in excess of dividends ~~paid, and unrealized gains on available-for-sale securities.~~paid.

Average interest-earning assets increased ~~$0.9~~$7.6 billion, or ~~1.7~~14.9 percent, for the three months ended ~~June~~September 30, 2019 and ~~declined $1.4~~increased $1.6 billion, or ~~2.5~~3.0 percent, for the ~~for the six~~nine months ended ~~June~~September 30, 2019. The average balance of advances increased for the quarter ended September 30, 2019, primarily due to increases in short-term advances due to a decrease in short-term interest rates during the quarter. The average balance of advances declined for ~~both periods,~~the year-to-date period, but higher average levels of investment securities and continued strong growth in the average balances of mortgage loans kept average interest-earning assets relatively steady. The decline in the average balance of advances resulted from the change in the relationship between certain short-term rates, as short-term advance rates became less attractive relative to the rate on excess reserves. The increase in mortgage loans was attributed in large part to continued production from our top five PFIs and utilization of recent program enhancements that provide PFIs with additional funding opportunities.

Total liabilities increased ~~$12.2~~$9.2 billion, or ~~27.0~~20.4 percent, from December 31, 2018 to ~~June~~September 30, 2019. This increase was primarily due to ~~a $5.6~~an $8.5 billion increase in consolidated obligation bonds and a ~~$6.6~~$0.4 billion increase in consolidated obligation discount ~~notes.~~notes to fund the growth in assets. Our funding mix generally is driven by asset composition, but we may also shift our debt composition as a result of market conditions that impact the cost of consolidated obligations swapped or indexed to LIBOR, SOFR, or other indices. We replaced some discount note funding with bonds indexed to SOFR during the third quarter of 2019. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Dividends paid to members totaled ~~$48.2~~$74.0 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~$50.0~~$73.2 million for the same period in the prior year. The weighted average dividend rate for the three months ended ~~June~~September 30, 2019 was ~~6.56~~6.61 percent, which represented a dividend payout ratio of ~~76.6~~53.2 percent, compared to a weighted average dividend rate of ~~5.99~~6.32 percent and a payout ratio of ~~52.9~~56.1 percent for the same period in 2018. The weighted average dividend rate for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~6.56~~6.58 percent which represented a dividend payout ratio of ~~57.1~~55.7 percent, compared to a weighted average dividend rate of ~~6.00~~6.10 percent and a payout ratio of ~~58.5~~57.7 percent for the same period in 2018.

Short-term money market investments and investment securities increased notably as a percentage of assets at ~~June~~September 30, 2019 compared to December 31, 2018. The increase in money market investments was driven by attractive yields and spreads on reverse repurchase agreements while maintaining targeted leverage. The increase in investment securities was largely due to purchases of U.S. Treasury obligations in response to regulatory liquidity requirements that became effective March 31, 2019. We continue to fund our short-term advances and overnight investments with term and overnight discount notes, but we also began to fund overnight investments with floating rate bonds, which ~~is reflected in~~contributed to the increased allocation of ~~discount notes~~consolidated obligation bonds as a percentage of total consolidated obligations, along with the bonds issued to fund the growth in mortgage loans and U.S. Treasury obligations. The decrease in the percentage of advances and mortgage loans to total assets was a direct result of the increase in short-term investments and investment securities at ~~June~~September 30, 2019 compared to December 31, 2018. Table 2523 presents the percentage concentration of the major components of our Statements of Condition:

Table 2523


	Component Concentration				Component Concentration
	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Assets:
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	11.7	%	4.1	%	6.2	%	4.1	%
Investment securities	20.7		17.5		22.3		17.5
Advances	51.8		60.2		53.6		60.2
Mortgage loans, net	15.3		17.6		17.2		17.6
Other assets	0.5		0.6		0.7		0.6
Total assets	100.0	%	100.0	%	100.0	%	100.0	%

Liabilities:
Deposits	1.0	%	1.0	%	1.3	%	1.0	%
Consolidated obligation discount notes, net	45.2		43.2		36.8		43.2
Consolidated obligation bonds, net	49.1		50.2		56.8		50.2
Other liabilities	0.3		0.5		0.4		0.5
Total liabilities	95.6		94.9		95.3		94.9

Capital:
Capital stock outstanding	2.7		3.2		2.9		3.2
Retained earnings	1.6		1.9		1.7		1.9
Accumulated other comprehensive income (loss)	0.1		—		0.1		—
Total capital	4.4		5.1		4.7		5.1
Total liabilities and capital	100.0	%	100.0	%	100.0	%	100.0	%

Table 2624 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):

Table 2624


	Increase (Decrease) in Components					Increase (Decrease) in Components
	06/30/2019 vs. 12/31/2018					09/30/2019 vs. 12/31/2018
	Dollar Change			Percent Change		Dollar Change			Percent Change
Assets:
Cash and due from banks	$	(3,098	)	(20.6	)%	$	9,579		63.6	%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	5,043,867			255.8		1,547,607			78.5
Investment securities	4,093,431			49.1		4,395,533			52.7
Advances	2,369,006			8.2		1,904,470			6.6
Mortgage loans, net	781,635			9.3		1,423,301			16.9
Other assets	78,200			30.8		135,384			53.3
Total assets	$	12,363,041		25.9	%	$	9,415,874		19.7	%

Liabilities:
Deposits	$	115,723		24.4	%	$	282,556		59.6	%
Consolidated obligation discount notes, net	6,555,063			31.8		435,900			2.1
Consolidated obligation bonds, net	5,550,586			23.2		8,475,491			35.4
Other liabilities	15,228			7.2		17,857			8.4
Total liabilities	12,236,600			27.0		9,211,804			20.4

Capital:
Capital stock outstanding	73,967			4.9		146,153			9.6
Retained earnings	36,254			4.0		58,926			6.4
Accumulated other comprehensive income (loss)	16,220			103.4		(1,009		)	(6.4	)
Total capital	126,441			5.2		204,070			8.3
Total liabilities and capital	$	12,363,041		25.9	%	$	9,415,874		19.7	%

Advances: Our advance products are developed, as authorized in the Bank Act and 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. 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.

Table 2725 summarizes advances outstanding by product (dollar amounts in thousands):

Table 2725


	06/30/2019				12/31/2018				09/30/2019				12/31/2018
	Dollar		Percent		Dollar		Percent		Dollar		Percent		Dollar		Percent
Adjustable rate:
Standard advance products:
Line of credit	$	12,505,668	40.3	%	$	11,989,165	41.7	%	$	11,272,387	36.9	%	$	11,989,165	41.7	%
Regular adjustable rate advances	760,000		2.5		655,000		2.3		745,000		2.5		655,000		2.3
Adjustable rate callable advances	10,450,500		33.7		9,003,675		31.3		10,863,000		35.6		9,003,675		31.3
Standard housing and community development advances:
Regular adjustable rate advances	1,000		—		—		—
Adjustable rate callable advances	37,212		0.1		39,252		0.1		37,212		0.1		39,252		0.1
Total adjustable rate advances	23,754,380		76.6		21,687,092		75.4		22,917,599		75.1		21,687,092		75.4
Fixed rate:
Standard advance products:
Short-term fixed rate advances	275,800		0.9		370,838		1.3		465,500		1.5		370,838		1.3
Regular fixed rate advances	4,507,053		14.5		4,310,003		15.0		4,627,503		15.2		4,310,003		15.0
Fixed rate callable advances	16,475		0.1		16,785		0.1		16,646		0.1		16,785		0.1
Standard housing and community development advances:
Regular fixed rate advances	474,213		1.5		461,431		1.6		477,058		1.6		461,431		1.6
Fixed rate callable advances	4,831		—		4,831		—		4,831		—		4,831		—
Total fixed rate advances	5,278,372		17.0		5,163,888		18.0		5,591,538		18.4		5,163,888		18.0
Convertible:
Standard advance products:
Fixed rate convertible advances	1,270,350		4.1		1,150,850		4.0		1,312,850		4.3		1,150,850		4.0
Amortizing:
Standard advance products:
Fixed rate amortizing advances	361,966		1.2		389,523		1.3		344,463		1.1		389,523		1.3
Fixed rate callable amortizing advances	13,229		—		15,028		0.1		12,801		—		15,028		0.1
Standard housing and community development advances:
Fixed rate amortizing advances	340,633		1.1		359,949		1.2		331,802		1.1		359,949		1.2
Fixed rate callable amortizing advances	10,773		—		11,419		—		10,513		—		11,419		—
Total amortizing advances	726,601		2.3		775,919		2.6		699,579		2.2		775,919		2.6
TOTAL PAR VALUE	$	31,029,703	100.0	%	$	28,777,749	100.0	%	$	30,521,566	100.0	%	$	28,777,749	100.0	%

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

Advances are one of the primary ways we fulfill our mission of providing liquidity to our members and constituted the largest asset on our balance sheet at ~~June~~September 30, 2019 and December 31, 2018. The ~~7.8~~6.1 percent increase in advance par value from December 31, 2018 to ~~June~~September 30, 2019 (see Table ~~27)~~25) was primarily due to an increase in our adjustable rate callable advances. As of ~~June~~September 30, 2019 and December 31, 2018, ~~58.0~~59.5 percent and 63.0 percent, respectively, of our members carried outstanding advance balances. The overall demand for our advances is typically influenced by our members’ ability to profitably invest the funds in loans and investments as well as their need for liquidity, which is influenced by changes in loan demand and their ability to efficiently grow deposits proportionately. The attractiveness of our advances is also influenced by the impact our dividends have on the effective cost of advances. In recent periods, a portion of the growth in average advances resulted from our members’ ability to invest advances in excess reserves at the Federal Reserve and receive a profitable risk adjusted return largely because of the dividend paid on the capital stock supporting the advances. During 2018, the relationship between the interest on excess reserves and other short-term interest rates changed, resulting in a decline in the average balance of short-term advances as the short-term advance rates became less attractive relative to the yield on excess reserves at the Federal Reserve. When, and if, member advance demand changes, a few larger members could have a significant impact on the amount of total outstanding advances. If our members reduce the volume of their advances, we expect to continue our past practice of repurchasing excess capital stock.

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 (primarily one- or three-month LIBOR and, to a much smaller extent, OIS beginning in late 2018 and SOFR 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 ~~90.8~~91.2 percent and 89.8 percent of our total advance portfolio as of ~~June~~September 30, 2019 and December 31, 2018, respectively. We anticipate continuing the practice of swapping large dollar advances with longer maturities to short-term indices. In the first quarter of 2019, we began swapping fixed rate non-callable advances to SOFR as part of our plan to transition away from LIBOR as a reference rate. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Table 2826 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. Based on no historical loss experience on advances since the inception of the FHLBank, along with our rights to collateral with an estimated fair value in excess of the book value of these advances, we do not expect to incur any credit losses on these advances.

Table 2826


	06/30/2019				12/31/2018				09/30/2019				12/31/2018
Borrower Name	Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par
MidFirst Bank	$	8,075,000	26.0	%	$	6,560,000	22.8	%	$	8,200,000	26.9	%	$	6,560,000	22.8	%
BOKF, N.A.	7,800,000		25.1		6,100,000		21.2		6,800,000		22.3		6,100,000		21.2
Capitol Federal Savings Bank	2,140,000		6.9		2,175,000		7.6		2,140,000		7.0		2,175,000		7.6
United of Omaha Life Insurance Co.	925,674		3.0		813,182		2.8		1,118,363		3.7		813,182		2.8
Security Life of Denver Insurance Co.	600,000		1.9						840,000		2.7
Colorado Federal Savings					625,000		2.2						625,000		2.2
TOTAL	$	19,540,674	62.9	%	$	16,273,182	56.6	%	$	19,098,363	62.6	%	$	16,273,182	56.6	%

Table 2927 presents the accrued interest income associated with the five borrowers with the highest interest income for the periods presented (dollar amounts in thousands). If the borrower was not one of our top five borrowers for whom we accrued the highest amount of interest income for one of the periods presented, the applicable columns are left blank.

Table 2927


	Three Months Ended								Three Months Ended
	06/30/2019				06/30/2018				09/30/2019				09/30/2018
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
BOKF, N.A.	$	47,357	25.7	%	$	31,564	19.9	%	$	49,347	27.0	%	$	31,805	20.6	%
MidFirst Bank	45,328		24.6		22,504		14.2		39,859		21.9		24,425		15.8
Capitol Federal Savings Bank	12,906		7.0		18,303		11.6		14,915		8.2		11,645		7.5
United of Omaha Life Insurance Co.	6,114		3.3		3,883		2.5		6,053		3.3		5,023		3.3
Security Life of Denver Insurance Co.	3,993		2.2						4,262		2.3
Ent Federal Credit Union					5,297		3.3
Bellco Credit Union													3,772		2.4
TOTAL	$	115,698	62.8	%	$	81,551	51.5	%	$	114,436	62.7	%	$	76,670	49.6	%


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.

Table 3028 presents the accrued interest income associated with the five borrowers providing the highest amount of interest income for the periods presented (dollar amounts in thousands). If the borrower was not one of our top five borrowers for whom we accrued the highest amount of interest income for one of the periods presented, the applicable columns are left blank.

Table 3028


	Six Months Ended								Nine Months Ended
	06/30/2019				06/30/2018				09/30/2019				09/30/2018
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
BOKF, N.A.	$	93,667	25.7	%	$	56,151	18.6	%	$	143,014	26.2	%	$	87,956	19.3	%
MidFirst Bank	86,154		23.7		46,255		15.3		126,013		23.1		70,680		15.5
Capitol Federal Savings Bank	25,561		7.0		36,651		12.2		40,476		7.4		48,296		10.6
United of Omaha Life Insurance Co.	12,232		3.4		7,176		2.4		18,285		3.3		12,199		2.7
Security Life of Denver Insurance Co.	7,784		2.1						12,046		2.2
Ent Federal Credit Union					10,543		3.5						11,032		2.4
TOTAL	$	225,398	61.9	%	$	156,776	52.0	%	$	339,834	62.2	%	$	230,163	50.5	%


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 64 for information on the amount of interest income on advances as a percentage of total interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

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 Chicago. Under the MPF Program, participating members can sell us conventional and government single-family residential mortgage loans.

The principal amount of new mortgage loans acquired and held on our balance sheet from our PFIs during the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$1.3~~$2.4 billion. These new originations and acquisitions, net of loan payments received, resulted in an increase of ~~9.3~~16.9 percent in the outstanding net balance of our mortgage loan portfolio from December 31, 2018 to ~~June~~September 30, 2019. Despite the increase, net mortgage loans as a percentage of total assets decreased, from 17.6 percent as of December 31, 2018 to ~~15.3~~17.2 percent as of ~~June~~September 30, 2019 because of an increase in the percentage of investments held to meet new regulatory liquidity requirements. Table 64 presents the amount of interest income on mortgage loans held for portfolio as a percentage of total interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018. Although mortgage loan balances have grown steadily in recent years, the percentage of mortgage loan interest income to total interest income ~~remained flat and~~ declined slightly for the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2019 ~~respectively,~~ compared to ~~June~~the same periods ended September 30, ~~2018.~~2018, respectively. This is due to an increase in the average balance and yield of investment securities and the resulting increase in investment interest income.

Recent growth in mortgage loans held for portfolio is attributed primarily to continued production from our top five PFIs, supported by enhancements to the pricing options available to PFIs. The primary factors that may influence future growth in our mortgage loans held for portfolio include: (1) the number of new and delivering PFIs; (2) the mortgage loan origination volume of current PFIs; (3) refinancing activity; (4) the level of interest rates and the shape of the yield curve; (5) the relative competitiveness of MPF pricing to the prices offered by other buyers of residential mortgage loans; and (6) a PFI's level of excess risk-based capital relative to the required risk-based capital charge associated with the PFI's credit enhancement obligations (CE obligation) on MPF mortgage loans. In an effort to manage the level of mortgage loans on our books, management has researched and continues to review options including participating loan volume (as described below) or selling whole loans to other FHLBanks, members or other investors if needed. Although we may determine to sell whole loans from time to time, we have not identified any specific loans to be sold as of ~~June~~September 30, 2019.

Historically, we have used the MPF Xtra product and mortgage loan participations with another FHLBank to effectively restrict the growth in mortgage loans held for portfolio and provide management with adequate means to control the amount of mortgage loan portfolio volume retained on our balance sheet to maintain our desired asset composition. The MPF Xtra product is a structure where our PFIs sell mortgage loans to FHLBank Chicago and simultaneously to Fannie Mae. MPF Government MBS is a similar product that allows our PFIs to sell mortgages to FHLBank Chicago that are pooled into Ginnie Mae securities. We also offer the MPF Direct product, which provides the PFI the opportunity to sell a jumbo loan under the MPF Program structure to Redwood Trust (i.e., an unaffiliated entity) for securitization. These products are intended to further assist our members and their mortgage product needs while enhancing our ability to manage mortgage volumes and receive a counterparty fee from FHLBank 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, which may further enhance our ability to manage the size of our mortgage loan portfolio in the future.

Table 3129 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 3129


	06/30/2019				12/31/2018				09/30/2019				12/31/2018
	Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans
NBKC Bank	$	707,965	7.8	%	$	570,440	6.9	%	$	719,924	7.4	%	$	570,440	6.9	%
FirstBank of Colorado	394,352		4.4		372,533		4.5		417,552		4.3		372,533		4.5
Tulsa Teachers Credit Union	313,718		3.5		291,691		3.5
Mutual of Omaha Bank	301,365		3.3						410,615		4.2
Fidelity Bank	300,997		3.3		253,413		3.1		342,573		3.5		253,413		3.1
Tulsa Teachers Credit Union									324,860		3.4		291,691		3.5
Ent Federal Credit Union					203,048		2.4						203,048		2.4
TOTAL	$	2,018,397	22.3	%	$	1,691,125	20.4	%	$	2,215,524	22.8	%	$	1,691,125	20.4	%

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 ~~June~~September 30, 2019 was 750 and 74.9 percent, respectively. See Note 6 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 allowance for credit losses ~~remained relatively unchanged~~increased slightly from December 31, 2018 to ~~June~~September 30, 2019. ~~The historical loss rate declined slightly for the period ending June 30, 2019 compared to December 31, 2018 and delinquencies~~Delinquencies of conventional loans trended higher but remained at low levels relative to the portfolio, at 0.7 percent and 0.6 percent of total conventional loans at ~~both June~~September 30, 2019 and December 31, ~~2018.~~2018, respectively. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held in portfolio. See Note 6 of the Notes to Financial Statements under Part I, Item 1 for a summary of the allowance for credit losses on mortgage loans, and delinquency aging and key credit quality indicators for our mortgage loan portfolio.

Investments: Investments are used to enhance income and provide liquidity and primary and secondary market support for the U.S. housing securities market. Total investments increased from December 31, 2018 to ~~June~~September 30, 2019, predominantly due to increases in the ~~average~~ balances of short-term investments and purchases of U.S. Treasury obligations. The majority of the increase and change in composition of long-term investments was in response to changes to regulatory liquidity requirements that became effective March 31, 2019, including the purchase of ~~$3.0~~$5.0 billion in U.S. Treasury obligations since the third quarter of 2018. The ~~$5.0~~U.S. Treasury obligations satisfy changes to regulatory liquidity requirements and were swapped to OIS or SOFR. The $1.5 billion increase in overnight investments was intended to supplement earnings and offset upcoming maturities while market conditions were favorable. ~~The U.S. Treasury obligations satisfy changes to regulatory liquidity requirements and were swapped to OIS or SOFR.~~

Short-term Investments – Short-term investments, which are used to provide funds to meet the credit needs of our members, maintain liquidity, 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, certificates of deposit and commercial paper. The Bank Act and FHFA regulations and guidelines set liquidity requirements for us, and our Board of Directors has adopted additional liquidity policies. In addition, we maintain a contingency liquidity plan in the event of financial market disruptions. See “Risk Management – Liquidity Risk Management” under this Item 2 for a discussion of our liquidity management.

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

Interest-bearing deposits. Unsecured deposits that earn interest.

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

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

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

Table 3230 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 3230


	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Interest-bearing deposits	$	560,608	$	669,653	$	479,511	$	669,653
Federal funds sold	2,460,000		50,000		900,000		50,000
Certificates of deposit	1,210,123		—
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	4,230,731	$	719,653	$	1,379,511	$	719,653


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

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

FHFA regulations: (1) include limits on the amount of unsecured credit an individual FHLBank may extend to a counterparty or to a group of affiliated counterparties; (2) permit us to extend additional unsecured credit for overnight extensions of credit, subject to limitations; and (3) prohibit us from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. For additional information on our management of unsecured credit exposure, see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” in our annual report on Form 10-K for the year ended December 31, 2018. As of ~~June~~September 30, 2019, 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 ~~June~~September 30, 2019, all unsecured investments were rated as investment grade based on Nationally Recognized Statistical Rating Organizations (NRSRO) (see Table ~~36)~~34).

Table 3331 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 ~~June~~September 30, 2019 (in thousands). We also mitigate the credit risk on investments by generally investing in investments that have short-term maturities.

Table 3331


Domicile of Counterparty	Overnight		Due 2 – 30 days		Due 31 – 90 days		Total		Overnight
Domestic	$	840,608	$	50,001	$	170,035	$	1,060,644	$	779,511
Total domestic and U.S. subsidiaries of foreign commercial banks	840,608		50,001		170,035		1,060,644		779,511
U.S. Branches and agency offices of foreign commercial banks:
Canada	1,100,000		—		150,021		1,250,021		200,000
Norway	380,000		100,006		180,024		660,030
France	—		460,023		100,013		560,036
Sweden									200,000
United Kingdom	400,000		—		—		400,000		200,000
Netherlands	300,000		—		—		300,000
Total U.S. Branches and agency offices of foreign commercial banks									600,000
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	3,020,608	$	610,030	$	600,093	$	4,230,731	$	1,379,511


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. 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 MBS and 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 securities are GSE MBS, which provide an alternative means to promote liquidity in the mortgage finance markets while providing acceptable returns. We hold fixed and variable rate GSE debentures in our long-term investment portfolio and we generally 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 generally classified as trading securities and carried at fair value, either to enhance our liquidity position, for asset/liability management purposes, or to provide a fair value offset to the gains or losses on the interest rate swaps tied to these securities. The interest rate swaps do not qualify for hedge accounting, which results in the net interest payments or receipts on these economic hedges flowing through net gains (losses) on derivatives and hedging activities instead of net interest income. During the last half of 2018, we began acquiring fixed rate U.S. Treasury obligations and swapping these securities from fixed to variable rates, as either trading securities that are economically swapped or available-for-sale securities that are swapped in qualifying fair value hedging relationships. In addition to serving as excellent collateral, U.S. Treasuries also satisfy recent changes to regulatory liquidity requirements. Currently, the vast majority of our variable rate investment securities are indexed to LIBOR. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

According to FHFA regulation, no additional MBS purchases can be made if the amortized cost of our mortgage securities exceeds 300 percent of our regulatory capital. Further, quarterly increases in holdings of mortgage securities are restricted to no more than 50 percent of regulatory capital. As of ~~June~~September 30, 2019, the amortized cost of our MBS portfolio represented ~~287~~269 percent of our regulatory capital. At times we may exceed the required threshold due to decreases in regulatory capital; however, we were in compliance with the regulatory limit at the time of each purchase during the quarter ended ~~June~~September 30, 2019.

As of ~~June~~September 30, 2019, we held ~~$3.9~~$3.6 billion of par value in MBS in our held-to-maturity portfolio, $2.4 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. 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, and 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 may require periodic sale of these securities but they are not actively traded with the intent of realizing gains; most often, they are held until maturity or call date. Securities acquired as asset/liability management tools to manage duration risk, which are likely to be sold when the duration risk is no longer present, are classified as trading or available-for-sale securities. Changes in the fair values of investments classified as trading are recorded through other income and original premiums/discounts on these investments are not amortized.

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 the types of securities held under each classification. The carrying value of our investments is summarized by security type in Table 3432 (in thousands).

Table 3432


	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Trading securities:
Certificates of deposit	$	1,210,123	$	—
U.S. Treasury obligations	1,026,843		252,377		$	1,533,842	$	252,377
GSE debentures	715,254		1,000,495		468,747		1,000,495
Mortgage-backed securities:
U.S. obligation MBS	—		467		—		467
GSE MBS	892,563		897,774		898,986		897,774
Total trading securities	3,844,783		2,151,113		2,901,575		2,151,113
Available-for-sale securities:
U.S. Treasury obligations	2,042,390		—		3,510,728		—
GSE MBS	2,538,825		1,725,640		2,588,201		1,725,640
Total available-for-sale securities	4,581,215		1,725,640		6,098,929		1,725,640
Held-to-maturity securities:
State or local housing agency obligations	85,670		86,430		85,670		86,430
Mortgage-backed securities:
U.S. obligation MBS	102,536		109,866		97,647		109,866
GSE MBS	3,812,853		4,260,577		3,545,338		4,260,577
Total held-to-maturity securities	4,001,059		4,456,873		3,728,655		4,456,873
Total securities	12,427,057		8,333,626		12,729,159		8,333,626

Interest-bearing deposits	561,623		670,660		481,989		670,660

Federal funds sold	2,460,000		50,000		900,000		50,000

Securities purchased under agreements to resell	3,994,000		1,251,096		2,137,374		1,251,096
TOTAL INVESTMENTS	$	19,442,680	$	10,305,382	$	16,248,522	$	10,305,382

The contractual maturities of our investments are summarized by security type in Table 3533 (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 3533


	06/30/2019														09/30/2019
	Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value		Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value
Trading securities:
Certificates of deposit	$	1,210,123		$	—		$	—		$	—		$	1,210,123
U.S. Treasury obligations	—			1,026,843			—			—			1,026,843		$	—		$	1,533,842		$	—		$	—		$	1,533,842
GSE debentures	300,059			162,653			252,542			—			715,254		50,001			399,540			19,206			—			468,747
Mortgage-backed securities:
GSE MBS	—			16,489			824,342			51,732			892,563		—			16,459			833,080			49,447			898,986
Total trading securities	1,510,182			1,205,985			1,076,884			51,732			3,844,783		50,001			1,949,841			852,286			49,447			2,901,575
Yield on trading securities	2.43		%	2.77		%	2.84		%	2.27		%			2.34		%	2.57		%	2.90		%	1.67		%
Available-for-sale securities:
U.S. Treasury obligations	—			2,042,390			—			—			2,042,390		251,643			3,259,085			—			—			3,510,728
GSE MBS	—			141,164			2,397,661			—			2,538,825		—			254,415			2,333,786			—			2,588,201
Total available-for-sale securities	—			2,183,554			2,397,661			—			4,581,215		251,643			3,513,500			2,333,786			—			6,098,929
Yield on available-for-sale securities	—		%	2.47		%	2.79		%	—		%			2.53		%	2.15		%	2.84		%	—		%
Held-to-maturity securities:
State or local housing agency obligations	—			—			—			85,670			85,670		—			—			—			85,670			85,670
Mortgage-backed securities:
U.S. obligation MBS	—			—			—			102,536			102,536		—			—			—			97,647			97,647
GSE MBS	—			413,043			1,112,891			2,286,919			3,812,853		—			418,870			960,025			2,166,443			3,545,338
Total held-to-maturity securities	—			413,043			1,112,891			2,475,125			4,001,059		—			418,870			960,025			2,349,760			3,728,655
Yield on held-to-maturity securities	—		%	1.52		%	1.88		%	1.88		%			—		%	1.39		%	1.53		%	1.67		%

Total securities	1,510,182			3,802,582			4,587,436			2,526,857			12,427,057		301,644			5,882,211			4,146,097			2,399,207			12,729,159
Yield on total securities	2.43		%	2.46		%	2.58		%	1.89		%			2.50		%	2.23		%	2.54		%	1.67		%

Interest-bearing deposits	561,623			—			—			—			561,623		481,989			—			—			—			481,989

Federal funds sold	2,460,000			—			—			—			2,460,000		900,000			—			—			—			900,000

Securities purchased under agreements to resell	3,994,000			—			—			—			3,994,000		2,137,374			—			—			—			2,137,374
TOTAL INVESTMENTS	$	8,525,805		$	3,802,582		$	4,587,436		$	2,526,857		$	19,442,680	$	3,821,007		$	5,882,211		$	4,146,097		$	2,399,207		$	16,248,522

Securities Ratings – Tables 3634 and 3735 present the carrying value of our investments by rating as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands). The ratings presented are the lowest ratings available for the security or the issuer 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 3634


	06/30/2019										09/30/2019
	Carrying Value¹										Carrying Value¹
	Investment Grade						Unrated		Total		Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A						Triple-A		Double-A		Single-A
Interest-bearing deposits²	$	—	$	1,015	$	560,608	$	—	$	561,623	$	—	$	2,478	$	479,511	$	—	$	481,989

Federal funds sold²	—		380,000		2,080,000		—		2,460,000		—		200,000		700,000		—		900,000

Securities purchased under agreements to resell³	—		—		—		3,994,000		3,994,000		—		—		—		2,137,374		2,137,374

Investment securities:
Non-mortgage-backed securities:
Certificates of deposit²	—		280,030		930,093		—		1,210,123
U.S. Treasury obligations	—		3,069,233		—		—		3,069,233		—		5,044,570		—		—		5,044,570
GSE debentures	—		715,254		—		—		715,254		—		468,747		—		—		468,747
State or local housing agency obligations	55,670		30,000		—		—		85,670		55,670		30,000		—		—		85,670
Total non-mortgage-backed securities	55,670		4,094,517		930,093		—		5,080,280		55,670		5,543,317		—		—		5,598,987
Mortgage-backed securities:
U.S. obligation MBS	—		102,536		—		—		102,536		—		97,647		—		—		97,647
GSE MBS	—		7,244,241		—		—		7,244,241		—		7,032,525		—		—		7,032,525
Total mortgage-backed securities	—		7,346,777		—		—		7,346,777		—		7,130,172		—		—		7,130,172

TOTAL INVESTMENTS	$	55,670	$	11,822,309	$	3,570,701	$	3,994,000	$	19,442,680	$	55,670	$	12,875,967	$	1,179,511	$	2,137,374	$	16,248,522


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of ~~$46.5~~$46.2 million at ~~June~~September 30, 2019.


²	Amounts include unsecured credit exposure with ~~original maturities between~~ overnight ~~to 92 days.~~maturities.


³	Amounts represent collateralized overnight borrowings by counterparty rating.

Table 3735



	12/31/2018
	Carrying Value¹
	Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A
Interest-bearing deposits²	$	435	$	1,007	$	669,218	$	—	$	670,660

Federal funds sold²	—		—		50,000		—		50,000

Securities purchased under agreements to resell³	—		—		—		1,251,096		1,251,096

Investment securities:
Non-mortgage-backed securities:
U.S. obligations	—		252,377		—		—		252,377
GSE debentures	—		1,000,495		—		—		1,000,495
State or local housing agency obligations	56,430		30,000		—		—		86,430
Total non-mortgage-backed securities	56,430		1,282,872		—		—		1,339,302
Mortgage-backed securities:
U.S. obligation MBS	—		110,333		—		—		110,333
GSE MBS	—		6,883,991		—		—		6,883,991
Total mortgage-backed securities	—		6,994,324		—		—		6,994,324

TOTAL INVESTMENTS	$	56,865	$	8,278,203	$	719,218	$	1,251,096	$	10,305,382


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of $19.9 million at December 31, 2018.


²	Amounts include unsecured credit exposure with overnight maturities.


³	Amounts represent collateralized overnight borrowings by counterparty rating.

Table 3836 details interest rate payment terms for the carrying value of our investment securities as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands). We manage the interest rate risk associated with our fixed rate trading and available-for-sale securities by entering into interest rate swaps that convert the investment's fixed rate to a variable rate index (see Tables 4650 and 4751 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk)."

Table 3836


	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Trading securities:
Non-mortgage-backed securities:
Fixed rate	$	2,652,161	$	652,376	$	1,952,588	$	652,376
Variable rate	300,059		600,496		50,001		600,496
Non-mortgage-backed securities	2,952,220		1,252,872		2,002,589		1,252,872
Mortgage-backed securities:
Fixed rate	839,415		839,726		848,179		839,726
Variable rate	53,148		58,515		50,807		58,515
Mortgage-backed securities	892,563		898,241		898,986		898,241
Total trading securities	3,844,783		2,151,113		2,901,575		2,151,113
Available-for-sale securities:
Non-mortgage-backed securities:
Fixed rate	2,042,390		—		3,510,728		—
Non-mortgage-backed securities	2,042,390		—		3,510,728		—
Mortgage-backed securities:
Fixed rate	2,538,825		1,725,640		2,588,201		1,725,640
Mortgage-backed securities	2,538,825		1,725,640		2,588,201		1,725,640
Total available-for-sale securities	4,581,215		1,725,640		6,098,929		1,725,640
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate	85,670		86,430		85,670		86,430
Non-mortgage-backed securities	85,670		86,430		85,670		86,430
Mortgage-backed securities:
Fixed rate	119,732		133,498		111,157		133,498
Variable rate	3,795,657		4,236,945		3,531,828		4,236,945
Mortgage-backed securities	3,915,389		4,370,443		3,642,985		4,370,443
Total held-to-maturity securities	4,001,059		4,456,873		3,728,655		4,456,873
TOTAL	$	12,427,057	$	8,333,626	$	12,729,159	$	8,333,626

Deposits: Total deposits increased ~~$115.7~~$282.6 million from December 31, 2018 to ~~June~~September 30, 2019 primarily as a result of an increase in overnight deposits. Deposit products offered primarily include demand and overnight deposits and short-term certificates of deposit. Demand deposit programs are offered primarily to facilitate customer transactions with us, such as cash flows associated with advances and mortgage loan transactions. Overnight deposits provide an alternative short-term investment option to members. The majority of deposits are in overnight or demand accounts that generally re-price daily based upon a market index such as overnight Federal funds. The level of deposits is driven by member demand for deposit products, which in turn is a function of the liquidity position of members. Factors that influence deposit levels include turnover in member investment and loan portfolios, changes in members’ customer deposit balances, changes in members’ demand for liquidity and our deposit pricing as compared to other short-term market rates. Declines in the level of deposits could occur if demand for loans at member institutions increases, if members choose to de-leverage their balance sheets, or if decreases in the general level of liquidity of members should occur. Fluctuations in deposits have little impact on our ability to obtain liquidity. We historically have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with similarly- or lower-priced borrowings.

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

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

During 2018, we ~~began issuing~~issued variable rate bonds indexed to the U.S. Treasury bill rate rather than issuing variable rate bonds indexed to LIBOR and we began swapping fixed rate bonds to OIS rates rather than swapping fixed-rate callable bonds to LIBOR. We did so in ~~an effort~~part to reduce our exposure to LIBOR ~~in general~~ as the market prepares to transition away from LIBOR as a reference rate. We also began participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in the first quarter of 2019 in an effort to manage our exposure to LIBOR assets and liabilities with maturities beyond 2021. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Discount notes are primarily used to fund: (1) shorter-term advances with indices and resets based on our short-term cost of funds; and (2) investments with maturities of three months or less. However, we sometimes use discount notes to fund longer-term assets, including fixed rate assets, variable rate assets, assets swapped to synthetically create variable rate assets, and short-term anticipated cash flows generated by longer-term fixed rate assets. At ~~June~~September 30, 2019, short-term advances (advances maturing within one year), including line of credit advances, represented ~~55.0~~67.0 percent of discount notes outstanding. We also use discount notes to fund a portion of overnight Federal funds sold and reverse repurchase agreements to maintain liquidity sufficient to meet the advance needs of members. These investments represented ~~23.7~~14.4 percent of discount notes outstanding as of ~~June~~September 30, 2019.

Total consolidated obligations increased ~~$12.1~~$8.9 billion, or ~~27.2~~20.0 percent, from December 31, 2018 to ~~June~~September 30, 2019. The distribution between consolidated obligation bonds and discount notes shifted ~~slightly,~~ from 53.8 percent and 46.2 percent, respectively, at December 31, 2018 to ~~52.1~~60.7 percent and ~~47.9~~39.3 percent at ~~June~~September 30, 2019, respectively. The ~~$5.6~~$8.5 billion increase in consolidated obligation bonds was due primarily to the issuance of ~~$4.1~~$7.7 billion of floating rate bonds indexed to SOFR to fund the growth in U.S. Treasuries and ~~$4.6~~short-term investments and $7.0 billion of fixed rate bonds largely funding the growth in mortgage loans, of which $1.6 billion were swapped to OIS, issued in part to reduce LIBOR basis risk. During the third quarter of 2019, we replaced some callable bonds at a lower cost. Discount notes of a shorter tenor and shorter-term floating rate bonds were used to fund the increase in short-term investments. 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 and outlooks.

Liquidity and Capital Resources

Liquidity: We maintain high levels of liquidity to achieve our mission of serving as an economical funding source for our members and housing associates. As part of fulfilling our mission, we also maintain minimum liquidity requirements in accordance with certain FHFA regulations and guidelines and in accordance with policies established by management and the Board of 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 ~~six~~nine months ended ~~June~~September 30, 2019, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were ~~$12.1~~$20.5 billion and ~~$454.0~~$633.2 billion, respectively, compared to ~~$7.7~~$8.8 billion and ~~$563.8~~$765.5 billion for the ~~six~~nine months ended ~~June~~September 30, 2018. The large difference between the proceeds from bonds and discount notes reflects the cumulative effect of using short-term discount notes to fund short-term advances and our short-term liquidity portfolio. During the first ~~half~~nine months of 2019, we replaced maturing bonds with longer-term fixed rate and shorter-term floating rate consolidated obligation bonds to ~~lengthen~~adjust the maturity of our liabilities relative to our assets. Our other sources of liquidity include deposit inflows, repayments of advances and mortgage loans, maturing investments, interest income, Federal funds purchased, and proceeds from reverse repurchase agreements or the sale of unencumbered assets.

Our short-term liquidity portfolio, which consists of cash and investments with remaining maturities of one year or less and includes Federal funds sold, interest-bearing demand deposits, certificates of deposit, commercial paper, and reverse repurchase agreements, increased between periods, from $2.6 billion as of December 31, 2018 to ~~$8.5~~$3.8 billion as of ~~June~~September 30, 2019. The increase between periods was relative to the decrease in targeted leverage at the end of the year. 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 so that they can be readily sold should liquidity be needed immediately.

We also maintain a portfolio of GSE debentures, U.S. Treasury obligations, GSE MBS, and Agency 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 ~~$1.7~~$1.9 billion and $1.2 billion as of ~~June~~September 30, 2019 and December 31, 2018, respectively. The par value of these MBS was $0.9 billion as of ~~June~~September 30, 2019 and December 31, 2018. We also hold ~~$2.0~~$3.5 billion of U.S. Treasury obligations classified as available-for-sale to satisfy regulatory liquidity requirements that went into effect March 31, 2019. In addition to the balance sheet sources of liquidity discussed previously, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. Accordingly, we expect to maintain a sufficient level of liquidity for the foreseeable future.

We strive to manage our average capital ratio to remain above our minimum regulatory and RMP requirements in 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 repaying called and maturing consolidated obligations for which we are the primary obligor. We also use liquidity to purchase mortgage loans, repay member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, and pay dividends to members.

During the ~~six~~nine months ended ~~June~~September 30, 2019, advance disbursements totaled ~~$215.2~~$281.6 billion compared to ~~$213.7~~$302.3 billion for the prior year period. During the ~~six~~nine months ended ~~June~~September 30, 2019, investment purchases (excluding overnight investments) totaled ~~$5.9~~$7.9 billion compared to ~~$3.3~~$3.6 billion for the same period in the prior year. The increase in investment purchases was primarily U.S. Treasury obligations purchased in response to new regulatory liquidity requirements. During the ~~six~~nine months ended ~~June~~September 30, 2019, payments on consolidated obligation bonds and discount notes were ~~$6.6~~$12.1 billion and ~~$447.4~~$632.7 billion, respectively, compared to ~~$5.3~~$7.4 billion and ~~$562.5~~$763.5 billion for the prior year period.

Liquidity Requirements – We are subject to the following metrics for measuring required liquidity: statutory, operational, and contingency liquidity, funding gaps, and calendar day guidelines under different scenarios. 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 remaining maturity not exceeding five years. Operational liquidity ~~requires~~required 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. Contingency liquidity is an amount sufficient to meet our liquidity needs for five business days if we are unable to access the capital markets to issue consolidated obligations. Our net liquidity in excess of contingency liquidity over a cumulative five-business-day period was ~~$11.2~~$8.9 billion as of ~~June~~September 30, 2019. 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. Funding gaps are defined as the difference between our assets and liabilities scheduled to mature during a specific period stated as a percentage of total assets. We are required to maintain a funding gap of negative 10 percent to negative 20 percent for the three-month horizon and negative 25 percent to negative 35 percent for the one-year horizon. The specific targets within these ranges are dependent on market conditions and determined by our regulator.

In addition to the liquidity measures described above, we are required by the FHFA to meet two daily liquidity standards, each 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 20 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 during the first half of 2019.

See “Risk Management - Liquidity Risk Management” under this Item 72 for additional discussion on our liquidity requirements. Effective March 31, 2019, new liquidity guidance required us to maintain sufficient funds to meet our obligations assuming no access to capital markets for an increased period of time, among changes to other liquidity requirements. We remained in compliance with all liquidity requirements in effect during the first nine months of 2019.

Generally, our liquid assets are funded with discount notes or floating rate bonds of a shorter tenor. In order to help ensure sufficient liquidity, we generally maintain a relatively longer weighted-average maturity on our consolidated obligation discount notes and floating rate bonds than the weighted average maturity of short-term liquid investment and short-term advance balances. The weighted average remaining days to maturity of discount notes outstanding increased to 35 days as of June 30, 2019 from 31 days at December 31, 2018. The weighted average remaining maturity of our short-term liquid investment portfolio (Federal funds sold, marketable certificates of deposit, commercial paper, reverse repurchase agreements, and certain interest-bearing deposits), short-term advances (line of credit and advances with original maturities of 90 days or less), and non-earning cash left in our Federal Reserve Bank account was 3 days as of June 30, 2019 and 2 days as of December 31, 2018. The mismatch between discount notes and our short-term liquid investment and short-term advance portfolios increased from 29 days on December 31, 2018 to 32 days on June 30, 2019 as a result of the decrease in the weighted average remaining days to maturity of discount notes. Over time, especially as the yield curve steepens on the short end, maintaining the differential between the weighted average original maturity of discount notes and short-term liquid investments will increase our cost of funds and reduce our net interest income.

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

Capital stock outstanding increased ~~4.9~~9.6 percent from December 31, 2018 to ~~June~~September 30, 2019 (see Table ~~39)~~37) due to an increase in activity-based stock required from the correlating increase in advances between periods.

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

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

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

Table 3937 provides a summary of member capital requirements under our current capital plan as of ~~June~~September 30, 2019 and December 31, 2018 (in thousands):

Table 3937


Requirement	06/30/2019		12/31/2018		09/30/2019		12/31/2018
Asset-based (Class A Common Stock only)	$	159,090	$	157,406	$	158,656	$	157,406
Activity-based (additional Class B Common Stock)¹	1,302,108		1,192,807		1,278,696		1,192,807
Total Required Stock²	1,461,198		1,350,213		1,437,352		1,350,213
Excess Stock (Class A and B Common Stock)	140,056		177,921		235,815		177,921
Total Regulatory Capital Stock²	$	1,601,254	$	1,528,134	$	1,673,167	$	1,528,134

Activity-based Requirements:
Advances³	$	1,387,969	$	1,285,470	$	1,368,216	$	1,285,470
AMA assets (mortgage loans)⁴	711		772		675		772
Total Activity-based Requirement	1,388,680		1,286,242		1,368,891		1,286,242
Asset-based Requirement (Class A Common Stock) not supporting member activity¹	72,518		63,971		68,461		63,971
Total Required Stock²	$	1,461,198	$	1,350,213	$	1,437,352	$	1,350,213


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.

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 11 of the Notes to Financial Statements under Part I, Item 1 for additional information and compliance as of ~~June~~September 30, 2019 and December 31, 2018.

Capital Distributions: Dividends may be paid in cash or capital stock as authorized by our Board of 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 and was effective for all dividends paid in 2018 and 2019. 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 4038 presents the dividend rates per annum paid on capital stock under our capital plan for the periods indicated:

Table 4038


Applicable Rate per Annum	06/30/2019		03/31/2019		12/31/2018		09/30/2018		06/30/2018		09/30/2019		06/30/2019		03/31/2019		12/31/2018		09/30/2018
Class A Common Stock	2.50	%	2.25	%	2.00	%	2.00	%	1.50	%	2.50	%	2.50	%	2.25	%	2.00	%	2.00	%
Class B Common Stock	7.50		7.50		7.25		7.25		6.75		7.50		7.50		7.50		7.25		7.25
Weighted Average¹	6.56		6.56		6.24		6.32		5.99		6.61		6.56		6.56		6.24		6.32
Dividend Parity Threshold:
Average effective overnight Federal funds rate	2.40	%	2.40	%	2.22	%	1.92	%	1.74	%	2.20	%	2.40	%	2.40	%	2.22	%	1.92	%
Spread to index	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)
TOTAL (floored at zero percent)	1.40	%	1.40	%	1.22	%	0.92	%	0.74	%	1.20	%	1.40	%	1.40	%	1.22	%	0.92	%


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 paid dividend rates of 2.50 percent on Class A Common Stock and 7.50 percent on Class B Common Stock for the ~~second~~third quarter of 2019 to provide a higher percentage payout of quarterly earnings to our members. Adverse changes in market conditions may result in lower dividend rates in future quarters. While there is no assurance that our Board of Directors will not change the dividend parity threshold in the future, the capital plan requires that we provide members with 90 days' notice prior to the end of a dividend period in which a different dividend parity threshold is utilized in the payment of a dividend.

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

Risk Management

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

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

Transition from LIBOR to an Alternative Reference Rate – Many of our assets and liabilities are indexed to LIBOR, so we continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate, including the likelihood of SOFR prevailing as the most widely adopted replacement reference rate. We have assessed our current LIBOR exposure, which included evaluating the fallback language of derivative and investment contracts indexed to LIBOR, and have developed a transition plan that includes strategies to manage and reduce exposure in addition to operational readiness. 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 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. Derivative and investment exposure will also be impacted by the actions of industry groups and standard setters, which are still under deliberation.

In September 2019, the FHFA issued a supervisory letter to the FHLBanks providing LIBOR transition guidance. The supervisory letter states that by March 31, 2020, the FHLBanks should no longer enter into new financial assets, liabilities, and derivatives that reference LIBOR and mature after December 31, 2021, for all product types except investments. With respect to investments, the FHLBanks should, by December 31, 2019, stop purchasing investments that reference LIBOR and mature after December 31, 2021. For additional information, see "Legislative and Regulatory Developments" under this Item 2.

The principal balance of variable rate advances indexed to LIBOR as of September 30, 2019 was $660 million, which represents 2.88 percent of total variable rate advances. The contractual maturities of these LIBOR-indexed advances include $200 million and $460 million due in 2019 and 2020, respectively; thus, at September 30, 2019, we have no LIBOR exposure after 2021. We have no advances indexed to SOFR as of September 30, 2019.

Table 39 presents the par value of variable rate investment securities by the related interest rate index as of September 30, 2019 (dollar amounts in thousands):

Table 39



09/30/2019
Index	Trading		Available-for-sale		Held-to-maturity		Total		Percent
Non-mortgage-backed securities:
LIBOR	$	50,000	$	—	$	85,670	$	135,670	3.6	%
Non-mortgage-backed securities	50,000		—		85,670		135,670		3.6
Mortgage-backed securities:
LIBOR	50,889		—		3,530,909		3,581,798		96.4
Other	—		—		24		24		—
Mortgage-backed securities	50,889		—		3,530,933		3,581,822		96.4
TOTAL	$	100,889	$	—	$	3,616,603	$	3,717,492	100.0	%

Table 40 presents the par value of investment securities indexed to LIBOR outstanding by year of contractual maturity as of September 30, 2019 (in thousands):

Table 40



09/30/2019
Year of Contractual Maturity	Amount
Non-mortgage-backed securities:
2019	$	50,000
2020	—
2021	—
Thereafter	85,670
Non-mortgage-backed securities	135,670
Mortgage-backed securities:
2019	—
2020	—
2021	2,318
Thereafter	3,579,480
Mortgage-backed securities	3,581,798
TOTAL	$	3,717,468

Table 41 presents the notional amount of derivatives, excluding fixed rate mortgage purchase commitments, by the related interest rate index as of September 30, 2019 (dollar amounts in thousands):

Table 41



09/30/2019
Index	Total		Percent
LIBOR	$	10,252,369	54.0	%
SOFR	4,097,897		21.6
OIS	4,633,503		24.4
TOTAL	$	18,983,769	100.0	%

Table 42 presents the notional amount of derivatives indexed to LIBOR outstanding by termination date as of September 30, 2019 (in thousands). Actual terminations of certain derivatives will differ from contractual termination dates because derivative counterparties may have call options within the derivative contracts. Likewise, if the financial instrument being hedged by the derivative (either as a qualifying fair value hedge or as an economic hedge) is called or paid off prior to contractual maturity, we could potentially call or terminate the corresponding derivative prior to the termination date.

Table 42



09/30/2019
Year	Termination Date
2019	$	495,600
2020	1,334,723
2021	1,865,741
Thereafter	6,556,305
TOTAL	$	10,252,369

Table 43 presents the par value of variable rate consolidated obligation bonds by the related interest rate index as of September 30, 2019 (dollar amounts in thousands):

Table 43



09/30/2019
Index	Amount		Percent
LIBOR	$	6,490,000	38.7	%
SOFR	7,737,000		46.1
U.S. Treasury	2,550,000		15.2
TOTAL	$	16,777,000	100.0	%

Table 44 presents the par value of consolidated obligation bonds indexed to LIBOR outstanding by year of maturity and by year of maturity or next call date for callable bonds as of September 30, 2019 (in thousands):

Table 44



09/30/2019
Year	Maturity Date		Maturity or Next Call Date
2019	$	650,000	$	1,150,000
2020	4,590,000		4,590,000
2021	790,000		750,000
Thereafter	460,000		—
TOTAL	$	6,490,000	$	6,490,000

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

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

As provided in the Bank Act, a member’s investment in our capital stock is held as additional collateral for the member’s advances and other credit obligations (letters of credit, CE 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 CE 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 primary mortgage insurance (PMI) or supplemental mortgage insurance (SMI) arrangements) will fail to perform as expected. Should a PMI third-party insurer fail to perform, it would increase our credit risk exposure because our FLA is the next layer to absorb credit losses on conventional mortgage loan pools. Likewise, if an SMI third-party insurer fails to perform, it would increase our credit risk exposure because it would reduce the participating member’s CE obligation loss layer since SMI is purchased by PFIs to cover all or a portion of their CE obligation exposure for mortgage 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 monthly basis and regularly reported to the Board of Directors. We perform credit analysis of third-party PMI and SMI insurers on at least a semi-annual basis. On a monthly basis, we review trends that could identify risks with our mortgage loan portfolio, including low FICO scores and high LTV ratios. Based on the credit underwriting standards under the MPF Program and this monthly review, we have concluded that the mortgage loans we hold would not be considered subprime.

Investments – Our RMP restricts the acquisition of investments to high-quality, short-term money market instruments and highly rated long-term securities. The short-term investment portfolio represents unsecured credit and reverse repurchase agreements. Counterparty ratings are monitored daily while performance and capital adequacy are monitored on a monthly basis in an effort to mitigate unsecured credit risk on our short-term investments. Collateral eligibility and transaction margin requirements on our reverse repurchase agreements are monitored daily. U.S. Treasury obligations and MBS securitized by Fannie Mae or Freddie Mac represent the majority of our long-term investments. Other long-term investments include MBS issued by Ginnie Mae, unsecured GSE debentures and collateralized state and local housing finance agency securities that were rated at least double-A at the time of purchase.

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 Clearinghouse (cleared derivatives).

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative transactions. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage this risk through credit analysis and collateral management. We are also required to follow the requirements set forth by applicable regulation.

Uncleared Derivatives. We are subject to non-performance by the counterparties to our uncleared derivative transactions. All bilateral security agreements with our non-member counterparties include bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to a minimum transfer amount. As a result of these risk mitigation practices, we do not anticipate any credit losses on our uncleared derivative transactions as of ~~June~~September 30, 2019.

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 ~~June~~September 30, 2019.

We regularly monitor the exposures on our derivative transactions by determining the market value of positions using internal pricing models. The market values generated by the pricing model used to value derivatives are compared to dealer model results on a monthly basis to ensure that our derivative pricing model is reasonably calibrated to actual market pricing methodologies utilized by the dealers. In addition, we have our internal pricing model validated annually 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 7 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). 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 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 4145 and 4246 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 (Moody's) or Standard & Poor’s (S&P)) for derivative positions with counterparties to which we had credit exposure (in thousands):

Table 4145


06/30/2019
09/30/2019											09/30/2019
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties		Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A	$	51,000	$	47		$	—		$	47	$	288,500	$	583		$	400		$	183
Cleared derivatives¹	11,042,784		1,743			(80,443		)	82,186		11,810,950		2,089			(133,151		)	135,240
Liability positions with credit exposure:
Uncleared derivatives²:
Single-A	4,568,642		(55,302		)	(56,954		)	1,652		4,541,472		(105,365		)	(106,694		)	1,329
Triple-B	317,030		(5,896		)	(6,009		)	113		311,528		(9,325		)	(9,417		)	92
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	15,979,456	$	(59,408	)	$	(143,406	)	$	83,998	$	16,952,450	$	(112,018	)	$	(248,862	)	$	136,844

Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated A+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 ~~June~~September 30, 2019. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of ~~June~~September 30, 2019.


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

Table 4246



12/31/2018
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A	$	36,000	$	14		$	—		$	14
Liability positions with credit exposure:
Uncleared derivatives¹:
Single-A	1,225,774		(18,975		)	(22,261		)	3,286
Cleared derivatives²	4,623,289		(4,963		)	(36,140		)	31,177
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	5,885,063	$	(23,924	)	$	(58,401	)	$	34,477


¹	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.

Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated A+ by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A- by S&P as of December 31, 2018. 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, 2018.

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 4347 presents the fair value of cross-border outstandings as of ~~June~~September 30, 2019 (dollar amounts in thousands):

Table 4347


	Canada					Norway				Other¹					Total					Total¹
	Amount			Percent of Total Assets		Amount		Percent of Total Assets		Amount			Percent of Total Assets		Amount			Percent of Total Assets		Amount			Percent of Total Assets
Federal funds sold²	$	1,100,000		1.8	%	$	380,000	0.6	%	$	700,000		1.2	%	$	2,180,000		3.6	%	$	600,000		1.1	%

Trading securities³	150,021			0.3		280,030		0.5		560,036			0.9		990,087			1.7

Derivative assets:
Net exposure at fair value	(4,312		)			—				(10,693		)			(15,005		)			(18,224		)
Cash collateral held	4,407					—				11,983					16,390					19,236
Net exposure after cash collateral	95			—		—		—		1,290			—		1,385			—		1,012			—

TOTAL	$	1,250,116		2.1	%	$	660,030	1.1	%	$	1,261,326		2.1	%	$	3,171,472		5.3	%	$	601,012		1.1	%


¹	~~Total cross-border outstandings to~~Represents foreign countries ~~that individually represented between 0.75 and 1.0~~where individual exposure is less than one percent of ~~our~~ total ~~assets as of June 30, 2019 were $0.6 billion (France).~~assets.


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.

We manage liquidity, first and foremost, to meet the needs of members, while adhering to statutory and contingency liquidity requirements. We maintain daily liquidity levels above certain thresholds and consider hypothetical adverse scenarios. These thresholds are outlined in 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 requirements throughout the ~~second~~third quarter of 2019.

We are focused on maintaining a liquidity and funding balance between our financial assets and financial liabilities. ~~Within the FHLBank System guidelines, each FHLBank develops its own metrics and milestones for enhancing its liquidity risk management practices. However, the~~The FHLBanks work collectively to manage the system-wide liquidity and funding management and jointly monitor the combined refinancing risk. In managing and monitoring the amounts of assets that require refunding, we may consider contractual maturities of the financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations). See the Notes to the Financial Statements under Item 1 for more detailed information regarding contractual maturities of certain of our financial assets and liabilities.

We generally maintained stable access to the capital markets for the quarter ended ~~June~~September 30, 2019. 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 7 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

FHFA Advisory Bulletin ~~2019-01 Business Resiliency~~2019-03 Capital Stock Management.On ~~May 7,~~August 14, 2019, the FHFA issued an Advisory Bulletin ~~on Business Resiliency Management for FHLBanks~~(the AB) providing guidance that augments existing statutory and ~~other entities regulated by~~regulatory capital requirements to require each FHLBank to maintain a ratio of at least two percent of capital stock to total assets in order to help preserve the cooperative structure incentives that encourage members to remain fully engaged in the oversight of their investment in the FHLBank. Beginning in February 2020, the FHFA ~~(the Business Resiliency AB) that communicates~~will consider the ~~FHFA’s expectations with respect~~proportion of capital stock to ~~minimizing the impact of disruptions in service from uncontrolled events and the maintenance of business operations~~assets, measured on a daily average basis at predefined levels. The Business Resiliency AB rescinds the FHFA’s 2002 disaster recovery guidance. The guidance states that a business resiliency program should guide the regulated entity to respond appropriately to disruptions affecting business operations, personnel, equipment, facilities, information technology systems, and information assets. The Business Resiliency AB provides guidance on the elements of a safe and sound business resiliency program, which include governance, risk assessment and business impact analysis, risk mitigation and plan development, testing and analysis, and risk monitoring and program sustainability.

month end, when assessing each FHLBank’s capital management practices. We do not expect the ~~Business Resiliency~~ AB to have a material ~~effect~~impact on our capital management practices, financial condition, or results of operations.

~~U.S. Commodity Futures Trading Commission (CFTC) Advisory~~FHFA Supervisory Letter on ~~Initial Margin Documentation Requirements.~~Planning for LIBOR Phase-Out. On ~~July 9,~~September 27, 2019, the ~~CFTC~~FHFA issued ~~an advisory~~a Supervisory Letter (the ~~Advisory) on its Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (the Margin Rules),~~Supervisory Letter) to ~~clarify~~the FHLBanks that ~~documentation governing~~ the ~~posting, collection, and custody of initial margin~~FHFA stated is not required to be completed until such time as the initial margin amount exceeds $50 million. The Margin Rules provide that covered swap entities under the Margin Rules, or non-prudentially regulated swap dealers, are required to post and collect initial margin with counterparties that are swap dealers or financial end users with material swap exposure, as defined under the rule. The Margin Rules contain, however, an initial margin threshold amount of $50 million between a covered swap entity and its counterparty, on a counterparty-by-counterparty basis. The Advisory clarifies that no initial margin documentation is required until the amount of initial margin exchangeable between a covered swap entity and its counterparty exceeds the initial margin threshold amount of $50 million. The Advisory does, however, instruct covered swap entities to closely monitor initial margin amounts if they are approaching the $50 million initial margin threshold with a counterparty and to take appropriate stepsdesigned to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. The Supervisory Letter provides that the ~~required documentation is~~FHLBanks should, by March 31, 2020, cease entering into new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021 for all product types except investments. With respect to investments, the FHLBanks should, by December 31, 2019, stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates do not apply to collateral accepted by the FHLBanks. The Supervisory Letter also directs the FHLBanks to update their pledged collateral certification reporting requirements by March 31, 2020 in ~~place at such time as~~an effort to encourage members to distinguish LIBOR-linked collateral maturing after December 31, 2021. Acknowledging that that there may be LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes for the ~~threshold is reached.~~FHLBanks that do not currently have readily available alternatives, the Supervisory Letter permits the FHLBanks to jointly submit a single list of LIBOR-linked products maturing after 2021 that they would like to continue to use after March 31, 2020. We ~~are closely monitoring our initial margin thresholds on a counterparty-by-counterparty basis and are evaluating~~continue to evaluate the potential impact of the ~~Advisory~~Supervisory Letter on our ~~documentation requirements.~~LIBOR transition planning.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

~~Interest Rate Risk Management~~

We measure interest rate risk exposure by various methods, including the calculation of duration of equity (DOE) and market value of equity (MVE) in different interest rate scenarios.

Duration of ~~Equity:~~Equity

DOE aggregates the estimated sensitivity of market value for each of our financial assets and liabilities to changes in interest rates. In essence, DOE indicates the sensitivity of MVE to changes in interest rates. However, MVE should not be considered indicative of our market value as a going concern or our value in a liquidation scenario. A positive DOE results when the duration of assets and designated derivatives is greater than the duration of liabilities and designated derivatives. A positive DOE generally indicates a degree of interest rate risk exposure in a rising interest rate environment. A negative DOE indicates a degree of interest rate risk exposure in a declining interest rate environment. Higher DOE numbers, whether positive or negative, indicate greater volatility of MVE in response to changing interest rates.

We manage DOE within ranges approved by our Board of Directors as described under Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K, incorporated by reference herein. All our DOE measurements were in compliance with Board of Director established policy limits and operating ranges as of ~~June~~September 30, 2019. 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 4448 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 4448

							Duration of Equity
Date	Up 200 Basis Points	Base	Down 200 Basis Points	Up 200 Basis Points	Base	Down 200 Basis Points
09/30/2019				1.0	-0.7	2.0
06/30/2019	1.4	-0.4	2.6	1.4	-0.4	2.6
03/31/2019	1.6	0.0	3.8	1.6	0.0	3.8
12/31/2018	2.3	1.3	2.8	2.3	1.3	2.8
09/30/2018	2.9	1.2	1.9	2.9	1.2	1.9
06/30/2018	3.0	0.7	1.9

The absolute value of the DOE of the portfolio as of ~~June~~September 30, 2019 increased in the base scenario and decreased in the up and down 200 basis point shock scenarios from ~~March 31,~~June 30, 2019. The primary factors contributing to these changes in duration during the period were: (1) the decrease in long-term interest rates and the relative level of mortgage rates during the period; (2) ~~a slight~~an increase in the weighting of the mortgage loan portfolio as a percent of total assets during the period; and (3) asset/liability actions taken by management throughout the period, including the continued issuance of long-term, unswapped callable consolidated obligation bonds with relatively short lock-out periods, and the continued issuance of discount notes to fund changes in advance balances.

The decrease in long-term interest rates during the ~~second~~third quarter of 2019 generally indicates a shortening duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. The increase in our mortgage loan portfolio during the period, as discussed in Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program,” caused the portfolio to increase slightly as an overall percentage of assets as the balance sheet expanded, increasing from ~~15.1~~15.3 percent of total assets as of ~~March 31,~~June 30, 2019 to ~~15.3~~17.2 percent as of ~~June~~September 30, 2019. Since the mortgage loan portfolio continues to comprise a considerable percentage of overall assets and has such a sizable duration relative to our other assets, 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.

New loans were continually added to the mortgage loan portfolio to replace loans that were prepaid during the period and we continue to actively manage this ongoing growth to position the balance sheet sensitivity to perform within our expected risk tolerances. To effectively manage these changes in the mortgage loan portfolio (including new production loans) and related sensitivity to changes in market conditions, we continued to issue unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three months to one year). The issuance of callable bonds and reissuance of new callable bonds to replace called bonds at lower interest rates as rates declined during the period, generally extends the duration profile of this portfolio. This liability extension corresponds with the expected longer duration profile of the new fixed rate mortgage loans, all else being equal. This liability lengthening demonstrates the specific duration sensitivity to changes in interest rates at certain shock scenarios where the unswapped callable bonds are more or less sensitive to certain levels of increasing interest rates, causing the overall DOE to increase or decrease, similar to the factors causing the changes in DOE for all interest rate shock scenarios. This sensitivity, or convexity, is further described under Item 7A – "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K for the year ended December 31, 2018.

In addition, the relative level of mortgage rates generally contributes significantly to the sensitivity of the fixed rate mortgage loan portfolio causing the duration profile to lengthen or shorten based on the relationship between interest rates, mortgage rates and associated mortgage spreads. For instance, the decrease in interest rates during the period caused the mortgage loan portfolio duration to shorten slightly more than the associated liabilities, leading to a more liability sensitive DOE profile in the base interest rate scenario and less asset sensitive DOE profile in the up and down 200 basis point shock interest rate scenarios. Further, issuance of discount notes continued in order to provide adequate liquidity sources to appropriately address changes in customer short-term advance balances and associated capital stock activity during the period. The combination of all these factors contributed to the net DOE changes in all interest rate shock scenarios, where the DOE increased in the base scenario and decreased in the up and down 200 basis point shock scenarios. The down shock scenario continues to provide limited information since interest rates remain at historically low levels. This low interest rate environment essentially generates at or near zero interest rates for the short- and mid-term 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 ~~June~~September 30, 2019, we had no additional purchases of variable rate single-family GSE MBS. We also did not purchase additional interest rate caps during the ~~second~~third quarter of 2019 based on current interest rate cap exposure.

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 -0.4 months for September 30, 2019 and -0.2 months for June 30, ~~2019 and 0.0 months for March 31,~~ 2019. As discussed previously, the performance was primarily the result of the changes in the fixed rate mortgage loan portfolio and the associated funding decisions made by management in response to changes in the interest rate environment and balance sheet during the ~~second~~third quarter of 2019. All FHLBanks are required to submit this base duration gap number to the Office of Finance as part of the quarterly reporting process created by the FHFA.

Market Value of ~~Equity:~~Equity

MVE is the net value of our assets and liabilities. Estimating sensitivity of MVE to changes in interest rates is another measure of interest rate risk. We generally maintain an MVE within limits specified by the Board of Directors in the RMP. The RMP measures our market value risk in terms of the MVE in relation to total regulatory capital stock outstanding (TRCS). TRCS includes all capital stock outstanding, including stock subject to mandatory redemption. As a cooperative, we believe using the TRCS results is 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 4549 presents MVE as a percent of TRCS. As of ~~June~~September 30, 2019, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan market values as rates have continued to remain historically low 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. 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 and excess stock as of ~~June~~September 30, 2019 (see Table 3937 under Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital”) contributed to the ~~lower~~ MVE levels as of ~~June~~September 30, 2019. 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 4549

							Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date	Up 200 Basis Points	Base	Down 200 Basis Points	Up 200 Basis Points	Base	Down 200 Basis Points
09/30/2019				174		179
06/30/2019	171	174	176	171	174	176
03/31/2019	172	176		172	176
12/31/2018	167	173	174	167	173	174
09/30/2018	167	174	175	167	174	175
06/30/2018	168	175	174

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. Generally, we designate derivative instruments as either: (1) a fair value hedge of an underlying financial instrument or a forecasted transaction; or (2) an economic hedge used in asset/liability 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 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 4650 and 4751 present the notional amount and fair value amount (fair value includes net accrued interest receivable or payable on the derivative) for derivative instruments by hedged item, hedging instrument, hedging objective and accounting designation (in thousands):

Table 4650


06/30/2019
09/30/2019									09/30/2019
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount			Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	2,874,762	$	1,230		Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,132,648	$	895
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	1,270,350		(25,917		)	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	1,312,850		(44,515		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	65,504		(67		)	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	65,504		(48		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	25,077		(661		)	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	35,077		(1,066		)
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	6,000		(54		)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	6,000		(95		)
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	1,398,500		437			Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	1,898,500		409
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	810,708		(25,518		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	809,214		(37,412		)
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	2,441,732		(47,635		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	2,438,761		(79,255		)
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	2,000,000		1,069			Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	3,450,000		645
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,373,200		664			Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,248,200		170
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	288,633		768			Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	375,772		(452		)
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	246,846		(12		)
Fixed rate non-callable consolidated obligation discount notes with tenors less than 6 months	Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Economic Hedge	1,343,890		(125		)	Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Economic Hedge	298,515		5
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	2,648,500		13,645			Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	2,468,500		15,888
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	580,000		2,281			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	880,000		(31		)
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	15,000		26			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	10,000		66
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	355,000		(696		)	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	340,000		336
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	635,000		(1,873		)	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	590,000		175
TOTAL				$	18,378,702	$	(82,438	)				$	19,359,541	$	(144,285	)

Table 4751

																	12/31/2018
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount			Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	2,647,704	$	(1,102	)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	2,647,704	$	(1,102	)
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	1,150,850		10,028			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	1,150,850		10,028
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	140,475		(670		)	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	140,475		(670		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	9,136		(38		)	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	9,136		(38		)
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	2,000		(10		)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	2,000		(10		)
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	648,500		(1,199		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	648,500		(1,199		)
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	847,284		12,238			Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	847,284		12,238
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	1,752,493		40,197			Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,752,493		40,197
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,373,200		1,044			Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,373,200		1,044
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	101,551		549			Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	101,551		549
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	49,403		—			Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	49,403		—
Firm commitments to issue a discount notes	Discount note commitment	Protect against fair value risk	Economic Hedge	525,000		—
Firm commitments to issue discount notes									Discount note commitment	Protect against fair value risk	Economic Hedge	525,000		—
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	1,440,000		9,443			Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	1,440,000		9,443
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	680,000		(2,729		)	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	680,000		(2,729		)
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	15,000		(1,050		)	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	15,000		(1,050		)
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	470,000		(4,325		)	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	470,000		(4,325		)
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	645,000		(15,406		)	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	645,000		(15,406		)
TOTAL				$	12,497,596	$	46,970					$	12,497,596	$	46,970

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, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance in achieving their desired objectives; however, in designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management, with the participation of the President and Chief Executive Officer (CEO), our principal executive officer, and Chief Financial Officer (CFO), our 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 ~~June~~September 30, 2019. 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 ~~June~~September 30, 2019.

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 ~~June~~September 30, 2019 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 18, 2019, and such risk factors are incorporated by reference herein.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6: Exhibits



Exhibit No.	Description
3.1	Exhibit 3.1 to the FHLBank’s registration statement on Form 10, filed May 15, 2006, and made effective on July 14, 2006 (File No. 000-52004), Federal Home Loan Bank of Topeka Articles and Organization Certificate, is incorporated herein by reference as Exhibit 3.1.
3.2	Exhibit 3.1 to the Current Report on Form 8-K, filed December 18, 2018, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
4.1	Exhibit 99.2 to the Current Report on Form 8-K, filed August 5, 2011, Federal Home Loan Bank of Topeka Capital Plan, is incorporated herein by reference as Exhibit 4.1.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of President and Principal Executive Officer and Senior Vice President and 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


~~August 8,~~November 12, 2019	By: /s/ Mark E. Yardley
Date	Mark E. Yardley
	President and Chief Executive Officer

~~105~~107



	Three Months Ended 06/30/2018
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Total
Net amortization/accretion of hedging activities	$	(1,105	)	$	—		$	(120	)	$	—		$	(1,225	)
Net interest received (paid)	2,503			(182		)	—			(1,343		)	978
TOTAL	$	1,398		$	(182	)	$	(120	)	$	(1,343	)	$	(247	)



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