UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

For the transition period from ________ to ________

Commission File Number 000-52004

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)



Federally chartered corporation		48-0561319
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
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, a 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~~issuer’s classes of common stock, as of the latest practicable date.



	Shares outstanding as of
	~~November 5, 2019~~May 7, 2020
Class A Stock, par value $100 per share	~~4,619,118~~6,266,177
Class B Stock, par value $100 per share	~~11,780,620~~10,341,670

.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	1312
	Notes to Financial Statements	1615
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5348
	Executive Level Overview	5348
	Financial Market Trends	5652
	Critical Accounting Policies and Estimates	5753
	Results of Operations	5853
	Financial Condition	7362
	Liquidity and Capital Resources	8876
	Risk Management	9280
	Recently Issued Accounting Standards	9887
	Legislative and Regulatory Developments	9987
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9989
Item 4.	Controls and Procedures	~~105~~94
Part II	OTHER INFORMATION	~~105~~94
Item 1.	Legal Proceedings	~~105~~94
Item 1A.	Risk Factors	~~105~~94
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~105~~95
Item 3.	Defaults Upon Senior Securities	~~105~~95
Item 4.	Mine Safety Disclosures	~~105~~95
Item 5.	Other Information	~~105~~95
Item 6.	Exhibits	~~106~~96

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 ~~upcoming discontinuance~~impact of the ~~London Interbank Offered Rate (LIBOR)~~Coronavirus Disease 2019 (COVID-19) pandemic or other pandemics on our members and ~~the related effect on the FHLBank's LIBOR-based financial products, investments, and contracts;~~our business;

~~Changes in demand for FHLBank products and services~~Governmental actions, including legislative, regulatory, judicial or ~~consolidated obligations of~~other developments that affect FHLBank; its members, counterparties or investors; housing government-sponsored enterprises (GSE); or the FHLBank ~~System;~~System in general;

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

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

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

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

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

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

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

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

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


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

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

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

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

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

The effects of amortization/accretion;

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

Changes in FHLBank’s capital structure;

Our ability to declare dividends or to pay dividends at rates consistent with past practices; and

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

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

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

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

Changes in the fair value and economic value of, impairments of, and risks associated with, the FHLBank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and related credit enhancement 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 Part II Item lA – Risk Factors and Item 1A – Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, incorporated by reference herein.

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

PART I

Item 1: Financial Statements


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	09/30/2019		12/31/2018		03/31/2020		12/31/2019
ASSETS
Cash and due from banks	$	24,639	$	15,060	$	451,670	$	1,917,166
Interest-bearing deposits	481,989		670,660		1,196,813		921,453
Securities purchased under agreements to resell (Note 10)	2,137,374		1,251,096
Securities purchased under agreements to resell (Note 9)					2,700,000		4,750,000
Federal funds sold	900,000		50,000		1,655,000		850,000

Investment securities:
Trading securities (Note 3)	2,901,575		2,151,113		3,177,991		2,812,562
Available-for-sale securities (Note 3)	6,098,929		1,725,640		7,526,096		7,182,500
Held-to-maturity securities¹ (Note 3)	3,728,655		4,456,873
Held-to-maturity securities, fair value of $3,319,631 and $3,556,938 (Note 3)					3,341,338		3,569,958
Total investment securities	12,729,159		8,333,626		14,045,425		13,565,020

Advances (Notes 4, 6)	30,634,583		28,730,113
Mortgage loans held for portfolio, net of allowance for credit losses of $905 and $812 (Notes 5, 6)	9,833,763		8,410,462
Advances (Note 4)					31,678,083		30,241,315
Mortgage loans held for portfolio, net of allowance for credit losses of $6,468 and $985 (Note 5)					11,018,168		10,633,009
Accrued interest receivable	150,823		109,366		143,873		143,765
Derivative assets, net (Notes 7, 10)	137,050		36,095
Derivative assets, net (Notes 6, 9)					203,449		154,804
Other assets	101,750		108,778		97,032		100,122

TOTAL ASSETS	$	57,131,130	$	47,715,256	$	63,189,513	$	63,276,654

LIABILITIES
Deposits (Note 8)	$	756,376	$	473,820
Deposits (Note 7)					$	975,397	$	790,640

Consolidated obligations, net:
Discount notes (Note 9)	21,044,232		20,608,332
Bonds (Note 9)	32,441,885		23,966,394
Discount notes (Note 8)					25,563,980		27,447,911
Bonds (Note 8)					33,730,055		32,013,314
Total consolidated obligations, net	53,486,117		44,574,726		59,294,035		59,461,225

Mandatorily redeemable capital stock (Note 11)	2,477		3,597
Mandatorily redeemable capital stock (Note 10)					2,390		2,415
Accrued interest payable	116,478		87,903		87,799		117,580
Affordable Housing Program payable	41,304		43,081		43,287		43,027
Derivative liabilities, net (Notes 7, 10)	990		7,884
Derivative liabilities, net (Notes 6, 9)					8,570		202
Other liabilities	69,066		69,993		64,446		70,514

TOTAL LIABILITIES	54,472,808		45,261,004		60,475,924		60,485,603

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

¹~~Fair value:~~ ~~$3,717,004~~ ~~and~~ ~~$4,447,078~~ ~~as of~~ ~~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)
	09/30/2019		12/31/2018		03/31/2020			12/31/2019
CAPITAL
Capital stock outstanding - putable:
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
Class A ($100 par value; 4,484 and 4,476 shares issued and outstanding) (Note 10)					$	448,404		$	447,610
Class B ($100 par value; 13,539 and 13,188 shares issued and outstanding) (Note 10)					1,353,892			1,318,846
Total capital stock	1,670,690		1,524,537		1,802,296			1,766,456

Retained earnings:
Unrestricted	748,888		716,555		743,731			765,295
Restricted	224,060		197,467		236,881			234,514
Total retained earnings	972,948		914,022		980,612			999,809

Accumulated other comprehensive income (loss) (Note 12)	14,684		15,693
Accumulated other comprehensive income (loss) (Note 11)					(69,319		)	24,786

TOTAL CAPITAL	2,658,322		2,454,252		2,713,589			2,791,051

TOTAL LIABILITIES AND CAPITAL	$	57,131,130	$	47,715,256	$	63,189,513		$	63,276,654


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
INTEREST INCOME:
Interest-bearing deposits	$	5,300		$	3,931		$	15,518		$	9,402		$	4,705		$	5,170
Securities purchased under agreements to resell	26,768			20,618			84,266			46,610			14,590			27,930
Federal funds sold	8,179			7,896			28,058			29,539			3,488			10,324
Trading securities	20,342			16,764			68,211			54,243			20,189			21,944
Available-for-sale securities	47,811			12,563			78,694			32,670			24,294			15,396
Held-to-maturity securities	24,337			30,602			84,469			85,538			17,068			31,273
Advances	186,431			158,943			563,602			460,751			130,887			187,609
Mortgage loans held for portfolio	76,546			65,424			225,015			186,709			85,106			73,284
Other	346			381			1,097			1,165			354			384
Total interest income	396,060			317,122			1,148,930			906,627			300,681			373,314

INTEREST EXPENSE:
Deposits	2,540			2,289			7,701			6,113			1,554			2,688
Consolidated obligations:
Discount notes	133,680			108,137			433,473			314,109			92,951			148,991
Bonds	185,096			138,668			519,967			382,442			150,742			158,157
Mandatorily redeemable capital stock (Note 11)	30			58			113			175
Mandatorily redeemable capital stock (Note 10)													24			43
Other	299			311			1,016			766			324			420
Total interest expense	321,645			249,463			962,270			703,605			245,595			310,299

NET INTEREST INCOME	74,415			67,659			186,660			203,022			55,086			63,015
Provision (reversal) for credit losses on mortgage loans (Note 6)	393			(391		)	509			(345		)
Provision (reversal) for credit losses on mortgage loans (Note 5)													(736		)	78
NET INTEREST INCOME AFTER LOAN LOSS PROVISION (REVERSAL)	74,022			68,050			186,151			203,367			55,822			62,937

OTHER INCOME (LOSS):
Net gains (losses) on trading securities (Note 3)	16,186			(11,514		)	86,784			(50,495		)	94,389			28,755
Net gains (losses) on sale of held-to-maturity securities (Note 3)	—			1,529			(46		)	1,591
Net gains (losses) on derivatives and hedging activities (Note 7)	(20,386		)	6,032			(78,939		)	29,661
Net gains (losses) on sale of available-for-sale securities (Note 3)													1,523			—
Net gains (losses) on derivatives and hedging activities (Note 6)													(122,252		)	(18,542		)
Standby bond purchase agreement commitment fees	566			642			1,685			2,242			565			566
Letters of credit fees	1,190			1,086			3,581			3,300			1,403			1,186
Other	937			725			2,470			2,676			1,143			709
Total other income (loss)	(1,507		)	(1,500		)	15,535			(11,025		)	(23,229		)	12,674


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended				Nine Months Ended				Three Months Ended
	09/30/2019		09/30/2018		09/30/2019		09/30/2018		03/31/2020		03/31/2019
OTHER EXPENSES:
Compensation and benefits	$	9,781	$	12,682	$	28,598	$	29,009	$	10,461	$	9,258
Other operating	5,031		4,763		14,331		13,419		4,680		4,255
Federal Housing Finance Agency	812		690		2,437		2,144		1,023		812
Office of Finance	972		812		2,717		2,313		1,007		849
Other	2,037		1,481		5,853		4,501		2,272		1,816
Total other expenses	18,633		20,428		53,936		51,386		19,443		16,990

INCOME BEFORE ASSESSMENTS	53,882		46,122		147,750		140,956		13,150		58,621

Affordable Housing Program	5,391		4,618		14,786		14,113		1,318		5,866

NET INCOME	$	48,491	$	41,504	$	132,964	$	126,843	$	11,832	$	52,755


FEDERAL HOME LOAN BANK OF TOPEKA	FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
	Three Months Ended					Nine Months Ended					Three Months Ended
	09/30/2019			09/30/2018		09/30/2019			09/30/2018		03/31/2020			03/31/2019
Net income	$	48,491		$	41,504	$	132,964		$	126,843	$	11,832		$	52,755

Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities	(17,324		)	3,694		(1,249		)	2,116		(94,131		)	11,848
Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities	—			3,655		—			4,163
Defined benefit pension plan	95			5		240			17		26			73
Total other comprehensive income (loss)	(17,229		)	7,354		(1,009		)	6,296		(94,105		)	11,921

TOTAL COMPREHENSIVE INCOME	$	31,262		$	48,858	$	131,955		$	133,139	$	(82,273	)	$	64,676


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 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 December 31, 2018																														2,473		$	247,361		12,772		$	1,277,176		15,245		$	1,524,537		$	716,555		$	197,467	$	914,022		$	15,693		$	2,454,252
Comprehensive income																33,203			8,301		41,504			7,354			48,858																		42,204			10,551		52,755			11,921			64,676
Proceeds from issuance of capital stock	3		310			3,973		397,309			3,976		397,619														397,619			1		52			3,377		337,706			3,378		337,758														337,758
Repurchase/redemption of capital stock	(2,360	)	(236,009		)	(21	)	(2,068		)	(2,381	)	(238,077		)												(238,077		)	(3,388	)	(338,827		)	(150	)	(15,023		)	(3,538	)	(353,850		)												(353,850		)
Net reclassification of shares to mandatorily redeemable capital stock	(574	)	(57,364		)	(1,577	)	(157,743		)	(2,151	)	(215,107		)												(215,107		)	(179	)	(17,911		)	(60	)	(6,004		)	(239	)	(23,915		)												(23,915		)
Net transfer of shares between Class A and Class B	2,793		279,316			(2,793	)	(279,316		)	—		—														—			3,074		307,404			(3,074	)	(307,404		)	—		—														—
Dividends on capital stock (Class A - 2.0%, Class B - 7.2%):
Dividends on capital stock (Class A - 2.3%, Class B - 7.5%):
Cash payment																(69		)			(69		)				(69		)																(71		)			(71		)				(71		)
Stock issued						232		23,209			232		23,209			(23,209		)			(23,209		)				—								238		23,866			238		23,866			(23,866		)			(23,866		)				—
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
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

	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 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 December 31, 2019																														4,476		$	447,610		13,188		$	1,318,846		17,664		$	1,766,456		$	765,295		$	234,514	$	999,809		$	24,786		$	2,791,051
Adjustment for cumulative effect of accounting change																																													(6,123		)	—		(6,123		)				(6,123		)
Comprehensive income																38,792			9,699		48,491			(17,229		)	31,262																		9,465			2,367		11,832			(94,105		)	(82,273		)
Proceeds from issuance of capital stock	—		—			3,974		397,429			3,974		397,429														397,429			—		47			2,547		254,704			2,547		254,751														254,751
Repurchase/redemption of capital stock	(721	)	(72,148		)	(1,191	)	(119,069		)	(1,912	)	(191,217		)												(191,217		)	—		—			(384	)	(38,437		)	(384	)	(38,437		)												(38,437		)
Net reclassification of shares to mandatorily redeemable capital stock	(253	)	(25,225		)	(1,345	)	(134,550		)	(1,598	)	(159,775		)												(159,775		)	(1,925	)	(192,560		)	(127	)	(12,750		)	(2,052	)	(205,310		)												(205,310		)
Net transfer of shares between Class A and Class B	2,263		226,290			(2,263	)	(226,290		)	—		—														—			1,933		193,307			(1,933	)	(193,307		)	—		—														—
Dividends on capital stock (Class A - 2.5%, Class B - 7.5%):
Dividends on capital stock (Class A - 2.3%, Class B - 7.2%):
Cash payment																(70		)			(70		)				(70		)																(70		)			(70		)				(70		)
Stock issued						257		25,749			257		25,749			(25,749		)			(25,749		)				—								248		24,836			248		24,836			(24,836		)			(24,836		)				—
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
Balance at March 31, 2020																														4,484		$	448,404		13,539		$	1,353,892		18,023		$	1,802,296		$	743,731		$	236,881	$	980,612		$	(69,319	)	$	2,713,589

¹Putable

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited
(In thousands)

Capital Stock¹
Retained Earnings Accumulated Total Capital
Other
Class A Class B Total Comprehensive
Shares Par Value Shares Par Value Shares Par Value Unrestricted Restricted Total Income (Loss)
Balance at December 31, 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
Comprehensive income 101,475
25,368
126,843
6,296
133,139
Proceeds from issuance of capital stock 11
1,154
12,939
1,293,853
12,950
1,295,007
1,295,007
Repurchase/redemption of capital stock (6,457 ) (645,743 ) (48 ) (4,732 ) (6,505 ) (650,475 ) (650,475 )
Net reclassification of shares to mandatorily redeemable capital stock (1,950 ) (195,026 ) (6,985 ) (698,519 ) (8,935 ) (893,545 ) (893,545 )
Net transfer of shares between Class A and Class B 7,873
787,305
(7,873 ) (787,305 ) —
—
—
Dividends on capital stock (Class A - 1.7%, Class B - 6.9%):
Cash payment (336 ) (336 ) (336 )
Stock issued 729
72,897
729
72,897
(72,897 ) (72,897 ) —
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
Other
Class A Class B Total Comprehensive
Shares Par Value Shares Par Value Shares Par Value Unrestricted Restricted Total Income (Loss)
Balance at December 31, 2018 2,473
$ 247,361
12,772
$ 1,277,176
15,245
$ 1,524,537
$ 716,555
$ 197,467
$ 914,022
$ 15,693
$ 2,454,252
Comprehensive income 106,371
26,593
132,964
(1,009 ) 131,955
Proceeds from issuance of capital stock 12
1,171
11,601
1,160,158
11,613
1,161,329
1,161,329
Repurchase/redemption of capital stock (6,450 ) (645,039 ) (2,256 ) (225,555 ) (8,706 ) (870,594 ) (870,594 )
Net reclassification of shares to mandatorily redeemable capital stock (778 ) (77,763 ) (1,406 ) (140,648 ) (2,184 ) (218,411 ) (218,411 )
Net transfer of shares between Class A and Class B 8,187
818,723
(8,187 ) (818,723 ) —
—
—
Dividends on capital stock (Class A - 2.4%, Class B - 7.5%):

Cash payment

(209 ) (209 ) (209 )
Stock issued 738
73,829
738
73,829
(73,829 ) (73,829 ) —
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

¹~~Putable~~


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			03/31/2020			03/31/2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	132,964		$	126,843		$	11,832		$	52,755
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net	738			(7,736		)	8,290			8,802
Concessions on consolidated obligations	10,128			4,050			6,688			2,478
Premiums and discounts on investments, net	6,246			2,676			5,312			919
Premiums, discounts and commitment fees on advances, net	(1,379		)	(3,758		)	(334		)	(927		)
Premiums, discounts and deferred loan costs on mortgage loans, net	18,542			13,786			9,088			3,989
Fair value adjustments on hedged assets or liabilities	2,948			1,249			1,240			1,267
Premises, software and equipment	2,331			2,226			822			753
Other	240			17			26			73
Provision (reversal) for credit losses on mortgage loans	509			(345		)	(736		)	78
Non-cash interest on mandatorily redeemable capital stock	111			173			24			42
Net realized (gains) losses on sale of held-to-maturity securities	46			(1,591		)
Net other-than-temporary impairment losses on held-to-maturity securities	—			26
Net realized (gains) losses on sale of available-for-sale securities							(1,523		)	—
Net realized (gains) losses on sale of premises and equipment	(3		)	(880		)	—			(3		)
Other adjustments	(272		)	(238		)	(20		)	(47		)
Net (gains) losses on trading securities	(86,784		)	50,495			(94,389		)	(28,755		)
Net change in derivatives and hedging activities	(144,589		)	36,107			(288,814		)	(38,853		)
(Increase) decrease in accrued interest receivable	(41,801		)	(15,814		)	237			(28,624		)
Change in net accrued interest included in derivative assets	(1,254		)	(7,822		)	7,760			(3,132		)
(Increase) decrease in other assets	3,056			(854		)	1,885			1,850
Increase (decrease) in accrued interest payable	28,372			35,166			(29,957		)	16,911
Change in net accrued interest included in derivative liabilities	4,332			(456		)	(549		)	3,778
Increase (decrease) in Affordable Housing Program liability	(1,777		)	784			260			1,881
Increase (decrease) in other liabilities	(1,682		)	(3,691		)	(6,121		)	(4,833		)
Total adjustments	(201,942		)	103,570			(380,811		)	(62,353		)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(68,978		)	230,413			(368,979		)	(9,598		)


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			03/31/2020			03/31/2019
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits	$	(32,829	)	$	28,298		$	(582,401	)	$	407,921
Net (increase) decrease in securities purchased under resale agreements	(886,278		)	(823,576		)	2,050,000			(3,022,342		)
Net (increase) decrease in Federal funds sold	(850,000		)	(265,000		)	(805,000		)	(1,900,000		)
Proceeds from sale of trading securities	429			—			275,186			—
Proceeds from maturities of and principal repayments on trading securities	3,015,268			3,290,566			53,774			237,807
Purchases of trading securities	(3,679,375		)	(2,682,969		)	(600,000		)	(1,964,941		)
Proceeds from sale of available-for-sale securities							289,045			—
Proceeds from maturities of and principal repayments on available-for-sale securities	8,732			16,165			44,055			2,902
Purchases of available-for-sale securities	(4,180,862		)	(281,489		)	(430,610		)	(2,135,066		)
Proceeds from sale of held-to-maturity securities	9,442			87,827
Proceeds from maturities of and principal repayments on held-to-maturity securities	716,417			699,016			228,033			214,456
Purchases of held-to-maturity securities	—			(625,170		)
Advances repaid	279,880,008			300,011,912			43,164,893			100,696,593
Advances originated	(281,623,825		)	(302,270,146		)	(44,344,471		)	(101,789,046		)
Principal collected on mortgage loans	1,011,265			706,748			502,097			196,864
Purchases of mortgage loans	(2,451,132		)	(1,553,027		)	(901,214		)	(491,056		)
Proceeds from sale of foreclosed assets	1,965			3,728			281			703
Purchases of other long-term assets	—			(6,000		)
Other investing activities	2,320			2,136			813			761
Proceeds from sale of premises, software and equipment	—			2,416
Purchases of premises, software and equipment	(1,037		)	(8,002		)	(329		)	(300		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(9,059,492		)	(3,666,567		)	(1,055,848		)	(9,544,744		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	205,498			91,182			$	185,357		$	7,352
Net proceeds from issuance of consolidated obligations:
Discount notes	633,162,917			765,464,193			124,347,336			251,204,917
Bonds	20,517,358			8,790,535			12,649,550			5,574,167
Payments for maturing and retired consolidated obligations:
Discount notes	(632,736,460		)	(763,468,454		)	(126,259,921		)	(245,039,459		)
Bonds	(12,082,800		)	(7,440,940		)	(10,974,650		)	(2,154,000		)
Net increase (decrease) in other borrowings	—			6,000
Proceeds from financing derivatives							3,470			—
Net interest payments received (paid) for financing derivatives	652			(3,614		)	(2,696		)	(609		)
Proceeds from issuance of capital stock	1,161,329			1,295,007			254,751			337,758
Payments for repurchase/redemption of capital stock	(870,594		)	(650,475		)	(38,437		)	(353,850		)
Payments for repurchase of mandatorily redeemable capital stock	(219,642		)	(894,494		)	(205,359		)	(24,006		)
Cash dividends paid	(209		)	(336		)	(70		)	(71		)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	9,138,049			3,188,604			(40,669		)	9,552,199
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	9,579			(247,550		)	(1,465,496		)	(2,143		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	15,060			268,050			1,917,166			15,060
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	24,639		$	20,500		$	451,670		$	12,917


FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended				Three Months Ended
	09/30/2019		09/30/2018		03/31/2020		03/31/2019
Supplemental disclosures:
Interest paid	$	919,428	$	672,944	$	261,222	$	279,543
Affordable Housing Program payments	$	16,859	$	13,468	$	1,064	$	4,251
Net transfers of mortgage loans to other assets	$	627	$	2,817	$	309	$	350

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements - Unaudited

~~September 30, 2019~~March 31, 2020

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.~~2019. The interim financial statements presented herein should be read in conjunction with ~~the~~ FHLBank’s audited financial statements and notes thereto, which are included in ~~the~~ FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March ~~18, 2019~~20, 2020 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K.

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~~nine months ended September 30, 2019 was an out-of-period adjustment of $14,336,000, of which $2,545,000 ~~and $11,791,000~~ related to income that should have been recorded during the three months ended March 31, ~~2019 and June 30, 2019, respectively.~~2019. 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~~Consequently, available-for-sale interest income was understated by $2,545,000 for the three months ended March 31, 2019. FHLBank has assessed the impact of this error and concluded that the amounts were not material, either individually or in the aggregate, to any prior period ~~financial statements 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 and the fair value of ~~derivatives and the allowance for credit losses.~~derivatives. Many of the estimates and assumptions, including those used in financial models, are based on financial market conditions as of the date of the financial statements. Because of the volatility of the financial markets, as well as other factors that affect management estimates, actual results may vary from these estimates.

~~Derivatives and Hedging Activities:~~Allowance for Credit Losses: Beginning January 1, ~~2019, the~~2020, FHLBank adopted new ~~hedge~~ accounting guidance ~~which, among other things, impacts~~pertaining to the ~~presentation~~measurement of ~~gains (losses)~~credit losses on ~~derivatives and hedging activities~~financial instruments that requires a financial asset or group of financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new guidance also requires credit losses relating to these financial instruments as well as available-for-sale securities to be recorded through an allowance for ~~qualifying hedges. Changes~~credit losses. Key changes as compared to prior accounting guidance are detailed below. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting. See Note 1 of the Notes to the Financial Statements included in the ~~fair value~~annual report on Form 10-K for information on the prior accounting treatment.

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

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

~~Prior to January 1, 2019,~~

Investment Securities:

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

If management intends to sell an impaired security classified as available-for-sale, or more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value ofat the ~~hedged item) was recorded~~reporting date with any incremental impairment reported in ~~non-interest income~~earnings as net gains (losses) on ~~derivatives and hedging activities.~~

~~Investment Securities:~~ ~~Securities that are~~available-for-sale securities. If management does not ~~classified as trading or held-to-maturity are~~intend to sell an impaired security classified as available-for-sale and ~~are carried at fair value. The change in~~it is not more likely than not that management will be required to sell the debt security, then the credit portion of the difference is recognized as an allowance for credit losses and any remaining difference between the security’s fair value ~~of available-for-sale securities~~and amortized cost is recorded ~~in other comprehensive income (loss) (OCI) as~~to net unrealized gains (losses) on available-for-sale ~~securities. Beginning January 1, 2019,~~securities within other comprehensive income (loss) (OCI).

Held-to-Maturity: Securities that FHLBank has both the ~~FHLBank adopted new hedge accounting guidance,~~ability and intent to hold to maturity are classified as held-to-maturity and are carried at amortized cost, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts. Accrued interest receivable is recorded separately on the Statements of Condition.

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

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

Advances: Advances are carried at amortized cost, which is original cost adjusted for periodic principal repayments, amortization of ~~gains (losses) on derivatives~~premiums, accretion of discounts, 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 adjustments. Accrued interest receivable is recorded separately on the ~~FHLBank records the portion~~Statements of ~~the change in the fair value of the investment related~~Condition. Advances are evaluated quarterly for expected credit losses. If deemed necessary, an allowance for credit losses is recorded with a corresponding adjustment to the ~~risk being hedged in available-for-sale interest income together with~~provision (reversal) for credit losses. See Note 4 for details on 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.allowance methodology relating to advances.

~~Prior to January 1, 2019,~~Mortgage Loans Held for ~~available-for-sale securities that were hedged~~Portfolio: Mortgage loans held for portfolio are recorded at amortized cost, which is original cost adjusted for periodic principal repayments, amortization of premiums, accretion of discounts, hedging adjustments, other fees, and ~~qualified as a fair value hedge, the FHLBank~~direct write-downs. Accrued interest receivable is 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)~~separately 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.~~Condition. FHLBank performs a quarterly assessment of its mortgage loans held for portfolio to estimate expected credit losses. An allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses.

FHLBank measures expected credit losses on mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a ~~new advance does not qualify as a modification of~~mortgage loan no longer shares risk characteristics with other loans, it is removed from the pool and evaluated for expected credit losses on 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.~~individual basis.

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

FHLBank does not purchase mortgage loans with credit deterioration present at the time of ~~an existing advance, any prepayment fee, net~~purchase. FHLBank includes estimates of ~~hedging adjustments, is deferred, recorded in~~expected recoveries within 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, dependingallowance for credit losses. See Note 5 for details on the ~~risk being hedged, and subsequent fair value changes that are attributable~~allowance methodologies relating 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.mortgage loans.

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

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

~~Inclusion~~Facilitation of the ~~Secured Overnight Financing~~Effects of Reference Rate ~~(SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes~~Reform on Financial Reporting (Accounting ~~Standards~~Standard Update (ASU) ~~2018-16)~~2020-04). In ~~October 2018,~~March 2020, the Financial Accounting Standards Board (FASB) issued ~~an amendment that permits use~~temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include: (1) contract modifications; (2) hedging relationships; and (3) sale or transfer of ~~the OIS rate based on SOFR~~debt securities classified as ~~a U.S. benchmark interest rate~~held-to-maturity. This guidance was effective immediately for ~~hedge accounting purposes under Topic 815 in addition to the U.S. Treasury rate, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate,~~FHLBank, and the ~~Securities Industry~~amendments may be applied prospectively through December 31, 2022. FHLBank is in the process of evaluating the guidance, and ~~Financial Markets Association Municipal Swap Rate. The amendments apply to all entities that elect to apply hedge accounting~~its effect on FHLBank's financial condition, results 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,operations and ~~interim periods within those annual periods, beginning January 1, 2019. The adoption of this guidance did~~cash flows has not ~~materially affect the FHLBank's application of hedge accounting or utilization of hedging strategies.~~yet been determined.

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~~were 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 isdid not ~~expected to have a material effect on the~~materially impact 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, 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~~were 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 also 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~~disclosures related to fair value measurements and did not impact FHLBank’s financial condition, results of operations or cash flows.

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

The guidance also requires:

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

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

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

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


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


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


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


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

The guidance isbecame effective for ~~the~~ FHLBank ~~for interim and annual periods beginning~~ on January 1, ~~2020. Early application is permitted as of the interim~~2020 and ~~annual reporting periods beginning after December 15, 2018. The FHLBank does not plan on early adoption. The guidance should be~~was applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for debt securities for which an other-than-temporary impairment (OTTI) charge had been recognized before the effective date; however, the FHLBank currently does not have any OTTI debt securities. 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.earnings. Adoption of this guidance isdid not ~~expected to have a material~~materially 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~~INVESTMENTS

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

~~Trading Securities:~~Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold: ~~Trading~~FHLBank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by ~~major security type as~~a nationally recognized statistical rating organization (NRSRO). These may differ from internal ratings of ~~September 30, 2019~~the investments, if applicable. As of March 31, 2020, approximately 49 percent of these investments were with unrated counterparties.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Federal Housing Finance Agency (FHFA) regulations include a limit on the amount of unsecured credit FHLBank may extend to a counterparty. As of March 31, 2020 and December 31, ~~2018~~2019, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. No allowance for credit losses was recorded for these assets as of March 31, 2020 and December 31, 2019. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $362,000 and $4,000, respectively, as of March 31, 2020, and $589,000 and $30,000, respectively, as of December 31, 2019.

Securities purchased under agreements to resell are ~~summarized~~short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with their counterparties, FHLBank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell as of March 31, 2020 and December 31, 2019. The carrying value of securities purchased under agreements excludes accrued interest receivable of $4,000 and $424,000 as of March 31, 2020 and December 31, 2019, respectively.

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

~~Table 3.1~~

Fair Value
09/30/2019 12/31/2018
Non-mortgage-backed securities:
U.S. Treasury obligations $ 1,533,842
$ 252,377
GSEobligations¹
468,747
1,000,495
Non-mortgage-backed securities 2,002,589
1,252,872
Mortgage-backed securities:
U.S. obligation MBS²
—
467
GSE MBS³
898,986
897,774
Mortgage-backed securities 898,986
898,241
TOTAL $ 2,901,575
$ 2,151,113

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


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


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


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


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


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


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

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

Table 3.1



	Fair Value
	03/31/2020		12/31/2019
Non-mortgage-backed securities:
Certificates of deposit	$	275,055	$	—
U.S. Treasury obligations	1,570,261		1,530,518
GSEobligations	433,576		416,025
Non-mortgage-backed securities	2,278,892		1,946,543
Mortgage-backed securities:
GSE MBS	899,099		866,019
Mortgage-backed securities	899,099		866,019
TOTAL	$	3,177,991	$	2,812,562

Net gains (losses) on trading securities during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ are shown in Table 3.2 (in thousands):

Table 3.2

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 )



	Three Months Ended
	03/31/2020		03/31/2019
Net gains (losses) on trading securities held as of March 31, 2020	$	94,203	$	28,659
Net gains (losses) on trading securities sold or matured prior to March 31, 2020	186		96
NET GAINS (LOSSES) ON TRADING SECURITIES	$	94,389	$	28,755

Available-for-sale Securities: Available-for-sale securities by major security type as of ~~September 30, 2019~~March 31, 2020 are summarized in Table 3.3 (in thousands):. Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and fair value hedge accounting adjustments, and excludes accrued interest receivable of $28,429,000 as of March 31, 2020.

Table 3.3


	09/30/2019									03/31/2020
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
U.S. Treasury obligations	$	3,516,938	$	—	$	(6,210	)	$	3,510,728	$	4,352,488	$	2,192	$	(984	)	$	4,353,696
Non-mortgage-backed securities	3,516,938		—		(6,210		)	3,510,728		4,352,488		2,192		(984		)	4,353,696
Mortgage-backed securities:
GSE MBS¹	2,564,172		29,013		(4,984		)	2,588,201
GSE MBS										3,240,951		15,094		(83,645		)	3,172,400
Mortgage-backed securities	2,564,172		29,013		(4,984		)	2,588,201		3,240,951		15,094		(83,645		)	3,172,400
TOTAL	$	6,081,110	$	29,013	$	(11,194	)	$	6,098,929	$	7,593,439	$	17,286	$	(84,629	)	$	7,526,096


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

Available-for-sale securities by major security type as of December 31, ~~2018~~2019 are summarized in Table 3.4 (in thousands):. Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and fair value hedge accounting adjustments, and excludes accrued interest receivable of $30,321,000 as of December 31, 2019.

Table 3.4


	12/31/2018									12/31/2019
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
U.S. Treasury obligations										$	4,258,608	$	3,580	$	(397	)	$	4,261,791
Non-mortgage-backed securities										4,258,608		3,580		(397		)	4,261,791
Mortgage-backed securities:
GSE MBS¹	$	1,706,572	$	25,815	$	(6,747	)	$	1,725,640
GSE MBS										2,897,104		28,353		(4,748		)	2,920,709
Mortgage-backed securities										2,897,104		28,353		(4,748		)	2,920,709
TOTAL	$	1,706,572	$	25,815	$	(6,747	)	$	1,725,640	$	7,155,712	$	31,933	$	(5,145	)	$	7,182,500


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

Table 3.5 summarizes the available-for-sale securities with unrealized losses as of ~~September 30, 2019~~March 31, 2020 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.5


	09/30/2019															03/31/2020
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations	$	3,510,728	$	(6,210	)	$	—	$	—		$	3,510,728	$	(6,210	)	$	1,238,322	$	(452	)	$	324,054	$	(532	)	$	1,562,376	$	(984	)
Non-mortgage-backed securities	3,510,728		(6,210		)	—		—			3,510,728		(6,210		)	1,238,322		(452		)	324,054		(532		)	1,562,376		(984		)
Mortgage-backed securities:
GSE MBS¹	155,339		(344		)	307,143		(4,640		)	462,482		(4,984		)
GSE MBS																1,973,210		(73,832		)	318,933		(9,813		)	2,292,143		(83,645		)
Mortgage-backed securities	155,339		(344		)	307,143		(4,640		)	462,482		(4,984		)	1,973,210		(73,832		)	318,933		(9,813		)	2,292,143		(83,645		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	3,666,067	$	(6,554	)	$	307,143	$	(4,640	)	$	3,973,210	$	(11,194	)	$	3,211,532	$	(74,284	)	$	642,987	$	(10,345	)	$	3,854,519	$	(84,629	)


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

Table 3.6


	12/31/2018														12/31/2019
	Less Than 12 Months					12 Months or More				Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations															$	1,579,004	$	(397	)	$	—	$	—		$	1,579,004	$	(397	)
Non-mortgage-backed securities															1,579,004		(397		)	—		—			1,579,004		(397		)
Mortgage-backed securities:
GSE MBS¹	$	570,042	$	(6,747	)	$	—	$	—	$	570,042	$	(6,747	)
GSE MBS															787,809		(932		)	301,161		(3,816		)	1,088,970		(4,748		)
Mortgage-backed securities															787,809		(932		)	301,161		(3,816		)	1,088,970		(4,748		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	570,042	$	(6,747	)	$	—	$	—	$	570,042	$	(6,747	)	$	2,366,813	$	(1,329	)	$	301,161	$	(3,816	)	$	2,667,974	$	(5,145	)


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

The amortized cost and fair values of available-for-sale securities by contractual maturity as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 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


	09/30/2019				12/31/2018				03/31/2020				12/31/2019
	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	$	—	$	—	$	1,268,884	$	1,269,148	$	754,003	$	753,891
Due after one year through five years	3,264,906		3,259,085		—		—		3,083,604		3,084,548		3,504,605		3,507,900
Due after five years through ten years	—		—		—		—		—		—		—		—
Due after ten years	—		—		—		—		—		—		—		—
Non-mortgage-backed securities	3,516,938		3,510,728		—		—		4,352,488		4,353,696		4,258,608		4,261,791
Mortgage-backed securities	2,564,172		2,588,201		1,706,572		1,725,640		3,240,951		3,172,400		2,897,104		2,920,709
TOTAL	$	6,081,110	$	6,098,929	$	1,706,572	$	1,725,640	$	7,593,439	$	7,526,096	$	7,155,712	$	7,182,500

Net gains (losses) realized on the sale of available-for-sale securities are recorded in other income (loss) on the Statements of Income. Table 3.8 presents details of the sales for the three months ended March 31, 2020 (in thousands). There were no sales of available-for-sale securities during the three months ended March 31, 2019.

Table 3.8



	Three Months Ended
	03/31/2020
Proceeds from sale of available-for-sale securities	$	289,045

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

Held-to-maturity Securities: Held-to-maturity securities by major security type as of ~~September 30, 2019~~March 31, 2020 are summarized in Table ~~3.8~~3.9 (in thousands):. Amortized cost includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivable of $3,576,000 as of March 31, 2020.

Table ~~3.8~~3.9


	09/30/2019											03/31/2020
	Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Net Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	85,670	$	85,670	$	—	$	(3,248	)	$	82,422	$	82,805	$	82,805	$	2	$	(1,496	)	$	81,311
Non-mortgage-backed securities	85,670		85,670		—		(3,248		)	82,422		82,805		82,805		2		(1,496		)	81,311
Mortgage-backed securities:
U.S. obligation MBS¹	97,647		97,647		11		(333		)	97,325
GSE MBS²	3,545,338		3,545,338		8,360		(16,441		)	3,537,257
U.S. obligation MBS												89,563		89,563		—		(1,123		)	88,440
GSE MBS												3,168,970		3,168,970		4,379		(23,469		)	3,149,880
Mortgage-backed securities	3,642,985		3,642,985		8,371		(16,774		)	3,634,582		3,258,533		3,258,533		4,379		(24,592		)	3,238,320
TOTAL	$	3,728,655	$	3,728,655	$	8,371	$	(20,022	)	$	3,717,004	$	3,341,338	$	3,341,338	$	4,381	$	(26,088	)	$	3,319,631


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~~2019 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 September 30, 2019~~ (in thousands). ~~The unrealized losses are aggregated by major security type~~Amortized cost includes adjustments made to the cost basis of an investment for accretion and ~~length~~amortization, and excludes accrued interest receivable of ~~time that individual securities have been in a continuous unrealized loss position.~~$4,324,000 as of December 31, 2019.

Table 3.10


	09/30/2019
	Less Than 12 Months					12 Months or More					Total					12/31/2019
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	55,666	$	(5	)	$	26,757	$	(3,243	)	$	82,423	$	(3,248	)	$	82,805	$	82,805	$	5	$	(1,956	)	$	80,854
Non-mortgage-backed securities	55,666		(5		)	26,757		(3,243		)	82,423		(3,248		)	82,805		82,805		5		(1,956		)	80,854
Mortgage-backed securities:
U.S. obligation MBS¹	60,360		(217		)	26,259		(116		)	86,619		(333		)
GSE MBS²	634,043		(2,581		)	2,147,252		(13,860		)	2,781,295		(16,441		)
U.S. obligation MBS																93,375		93,375		—		(496		)	92,879
GSE MBS																3,393,778		3,393,778		6,558		(17,131		)	3,383,205
Mortgage-backed securities	694,403		(2,798		)	2,173,511		(13,976		)	2,867,914		(16,774		)	3,487,153		3,487,153		6,558		(17,627		)	3,476,084
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	750,069	$	(2,803	)	$	2,200,268	$	(17,219	)	$	2,950,337	$	(20,022	)
TOTAL																$	3,569,958	$	3,569,958	$	6,563	$	(19,583	)	$	3,556,938


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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are shown in Table ~~3.12~~3.11 (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table ~~3.12~~3.11


	09/30/2019						12/31/2018						03/31/2020						12/31/2019
	Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Net Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Due after one year through five years	—		—		—		—		—		—		—		—		—		—		—		—
Due after five years through ten years	—		—		—		—		—		—		—		—		—		—		—		—
Due after ten years	85,670		85,670		82,422		86,430		86,430		82,951		82,805		82,805		81,311		82,805		82,805		80,854
Non-mortgage-backed securities	85,670		85,670		82,422		86,430		86,430		82,951		82,805		82,805		81,311		82,805		82,805		80,854
Mortgage-backed securities	3,642,985		3,642,985		3,634,582		4,370,443		4,370,443		4,364,127		3,258,533		3,258,533		3,238,320		3,487,153		3,487,153		3,476,084
TOTAL	$	3,728,655	$	3,728,655	$	3,717,004	$	4,456,873	$	4,456,873	$	4,447,078	$	3,341,338	$	3,341,338	$	3,319,631	$	3,569,958	$	3,569,958	$	3,556,938

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

During the three months ended March 31, 2020, FHLBank did not recognize a provision for credit losses associated with available-for-sale investments or held-to-maturity investments. To evaluate investment securities for credit loss as of March 31, 2020, FHLBank employed the following methodologies, based on the ~~sale~~type of held-to-maturity securities as presented below and are recorded as net gains (losses) on sale of held-to-maturity securities in other income (loss) on the Statements of Income. All securities sold had paid down below 15 percent of the principal outstanding at acquisition. Table 3.13 presents details of the sales (in thousands).security.

~~Table 3.13~~

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

~~As of September 30, 2019, the fair value of a portion of the~~ FHLBank's available-for-sale and held-to-maturity securities are principally certificates of deposit, U.S. obligations, GSE obligations, state or local housing agency obligations, and MBS issued by Ginnie Mae, Freddie Mac, and Fannie Mae that are backed by single-family or multifamily mortgage loans. FHLBank only purchases securities considered investment quality. As of March 31, 2020, all of FHLBank's available-for-sale securities and held-to-maturity securities were ~~below~~rated single-A or above by an NRSRO, based on the ~~amortized cost~~lowest long-term credit rating for each security. These may differ from any internal ratings of the securities, ~~due~~if applicable.

FHLBank evaluates available-for-sale securities for impairment by comparing the security’s fair value to ~~interest rate volatility and/or illiquidity. However,~~its amortized cost. Impairment may exist when the ~~decline in~~ fair value of ~~these~~the investment is less than its amortized cost (i.e., in an unrealized loss position). As of March 31, 2020, certain available-for-sale securities iswere in an unrealized loss position. These losses are considered temporary as ~~the~~ FHLBank expects to recover the entire amortized cost basis on ~~the remaining securities in unrecognized loss positions and~~these available-for-sale investment securities. FHLBank neither intends to sell these securities nor isconsiders it more likely than not that ~~the FHLBank~~it will be required to sell these securities before its anticipated recovery of ~~the~~each security's remaining amortized cost basis. Further, FHLBank has not experienced any payment defaults on the instruments. In addition, all of these securities carry an implicit or explicit government guarantee. As a result, no allowance for credit losses was recorded on these available-for-sale securities as of March 31, 2020.

FHLBank evaluates its held-to-maturity securities for impairment on a collective or pooled basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. As of March 31, 2020, FHLBank had not established an allowance for credit loss on any held-to-maturity securities because the securities: (1) were all highly-rated and/or had short remaining terms to maturity; (2) had not experienced, nor did FHLBank expect, any payment default on the instruments; and (3) in the case of U.S. or GSE obligations, carry an implicit or explicit government guarantee such that FHLBank considers the risk of nonpayment to be zero.

NOTE 4 – ADVANCES

General Terms: ~~The~~ FHLBank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018, the~~2019, FHLBank had advances outstanding at interest rates ranging from ~~0.95~~0.09 percent to 7.41 percent and ~~0.88~~0.96 percent to 7.41 percent, respectively. Table 4.1 presents advances summarized by redemption term as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollar amounts in thousands): . Carrying amounts exclude accrued interest receivable of $40,265,000 and $45,637,000 as of March 31, 2020 and December 31, 2019, respectively.

Table 4.1


	09/30/2019					12/31/2018					03/31/2020					12/31/2019
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	$	14,132,104		2.23	%	$	14,844,804		2.60	%	$	12,856,757		1.11	%	$	13,188,118		1.88	%
Due after one year through two years	6,623,255			2.29		1,482,844			2.40		2,640,111			1.85		10,448,433			1.96
Due after two years through three years	1,378,995			2.45		1,442,333			2.53		1,240,159			1.95		1,254,153			2.27
Due after three years through four years	2,438,871			2.31		7,496,058			2.66		1,130,479			2.24		1,067,662			2.42
Due after four years through five years	3,150,589			2.35		816,702			2.68		1,568,352			1.79		1,208,854			2.22
Thereafter	2,797,752			2.46		2,695,008			2.58		11,919,990			1.63		3,004,835			2.25
Total par value	30,521,566			2.29	%	28,777,749			2.60	%	31,355,848			1.48	%	30,172,055			1.99	%
Discounts	(2,034		)			(3,413		)			(5,688		)			(1,807		)
Hedging adjustments	115,051					(44,223		)			327,923					71,067
TOTAL	$	30,634,583				$	28,730,113				$	31,678,083				$	30,241,315

~~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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (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	09/30/2019		12/31/2018		09/30/2019		12/31/2018		03/31/2020		12/31/2019		03/31/2020		12/31/2019
Due in one year or less	$	24,738,805	$	23,343,939	$	14,672,104	$	15,133,204	$	24,917,487	$	24,271,238	$	13,878,057	$	14,053,068
Due after one year through two years	1,418,909		1,271,660		6,827,355		1,683,644		853,053		1,133,077		2,786,661		10,637,833
Due after two years through three years	776,452		1,021,189		1,647,995		1,629,233		776,494		728,429		1,583,159		1,524,153
Due after three years through four years	633,870		555,901		2,585,121		7,752,058		839,249		764,990		1,272,229		1,215,412
Due after four years through five years	724,005		598,282		3,223,089		954,452		982,582		686,594		1,663,752		1,304,254
Thereafter	2,229,525		1,986,778		1,565,902		1,625,158		2,986,983		2,587,727		10,171,990		1,437,335
TOTAL PAR VALUE	$	30,521,566	$	28,777,749	$	30,521,566	$	28,777,749	$	31,355,848	$	30,172,055	$	31,355,848	$	30,172,055

Interest Rate Payment Terms: Table 4.3 details additional interest rate payment terms for advances as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table 4.3


Redemption Term	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Fixed rate:
Due in one year or less	$	1,805,217	$	1,635,464	$	3,057,383	$	2,691,528
Due after one year	5,798,750		5,455,193		6,453,279		5,912,124
Total fixed rate	7,603,967		7,090,657		9,510,662		8,603,652
Variable rate:
Due in one year or less	12,326,887		13,209,340		9,799,374		10,496,590
Due after one year	10,590,712		8,477,752		12,045,812		11,071,813
Total variable rate	22,917,599		21,687,092		21,845,186		21,568,403
TOTAL PAR VALUE	$	30,521,566	$	28,777,749	$	31,355,848	$	30,172,055

~~See Note 6~~

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

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


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


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


▪	Cash or deposits in FHLBank;


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


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

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

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

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

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

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

NOTE 5 – MORTGAGE LOANS

~~The~~Mortgage loans held for portfolio consist of loans obtained through the MPF Program ~~involves~~and are either conventional mortgage loans or government-guaranteed or -insured mortgage loans. Under the MPF Program, the FHLBank ~~investing in~~purchases single-family mortgage loans ~~which have been funded~~that are originated or acquired 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~~PFIs or ~~sold~~are guaranteed or insured by ~~the participating member. The FHLBank does not buy or own any mortgage servicing rights.~~

Federal agencies.

Mortgage Loans Held for Portfolio: Table 5.1 presents information as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 on mortgage loans held for portfolio (in thousands):. Mortgage loans held for portfolio excludes accrued interest receivable of $54,348,000 and $52,358,000 as of March 31, 2020 and December 31, 2019, respectively.

Table 5.1


	09/30/2019			12/31/2018			03/31/2020			12/31/2019
Real estate:
Fixed rate, medium-term¹, single-family mortgages	$	1,212,501		$	1,179,087		$	1,408,353		$	1,347,385
Fixed rate, long-term, single-family mortgages	8,473,501			7,111,856			9,450,297			9,128,268
Total unpaid principal balance	9,686,002			8,290,943			10,858,650			10,475,653
Premiums	145,443			120,548			162,466			155,793
Discounts	(2,541		)	(2,936		)	(2,347		)	(2,503		)
Deferred loan costs, net	198			223			174			184
Other deferred fees	(42		)	(50		)	(36		)	(38		)
Hedging adjustments	5,608			2,546			5,729			4,905
Total before Allowance for Credit Losses on Mortgage Loans	9,834,668			8,411,274			11,024,636			10,633,994
Allowance for Credit Losses on Mortgage Loans	(905		)	(812		)
Allowance for Credit Losses on Mortgage Loans²							(6,468		)	(985		)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET	$	9,833,763		$	8,410,462		$	11,018,168		$	10,633,009


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


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

Table 5.2 presents information as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 on the outstanding unpaid principal balance ~~(UPB)~~ of mortgage loans held for portfolio (in thousands):

Table 5.2

09/30/2019 12/31/2018
Conventional loans $ 9,044,728
$ 7,619,498
Government-guaranteed or -insured loans 641,274
671,445
TOTAL UNPAID PRINCIPAL BALANCE $ 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.~~



	03/31/2020		12/31/2019
Conventional loans	$	10,247,783	$	9,849,542
Government-guaranteed or -insured loans	610,867		626,111
TOTAL UNPAID PRINCIPAL BALANCE	$	10,858,650	$	10,475,653

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

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

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

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

~~Allowance~~Table 5.3 presents the payment status based on amortized cost as well as other delinquency statistics for ~~Credit Losses: Table 6.1 presents a roll-forward~~FHLBank’s mortgage loans as of ~~the allowance for credit losses for the three and nine months ended September 30, 2019 and 2018 (in~~March 31, 2020 (dollar amounts in thousands):

Table ~~6.1~~5.3

Three Months Ended Nine Months Ended
09/30/2019 09/30/2018 09/30/2019 09/30/2018
Balance, beginning of the period $ 858
$ 1,029
$ 812
$ 1,208
Net (charge-offs) recoveries (346 ) 18
(416 ) (207 )
Provision (reversal) for credit losses 393
(391 ) 509
(345 )
Balance, end of the period $ 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 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~~

09/30/2019

Conventional
Loans
Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable
Total
Allowance for credit losses:

Individually evaluated for impairment $ —
$ —
$ —
$ —
$ —
Collectively evaluated for impairment 905
—
—
—
905
TOTAL ALLOWANCE FOR CREDIT LOSSES $ 905
$ —
$ —
$ —
$ 905
Recorded investment:

Individually evaluated for impairment $ 11,285
$ —
$ 30,690,019
$ 9,633
$ 30,710,937
Collectively evaluated for impairment 9,218,725
653,184
—
—
9,871,909
TOTAL RECORDED INVESTMENT $ 9,230,010
$ 653,184
$ 30,690,019
$ 9,633
$ 40,582,846



	03/31/2020
	Conventional Loans															Government Loans			Total
	Origination Year												Subtotal
	Prior to 2016		2016		2017		2018		2019		2020
Amortized Cost:¹
Past due 30-59 days delinquent	$	26,537	$	4,645	$	7,718	$	8,670	$	11,031	$	—	$	58,601		$	15,284		$	73,885
Past due 60-89 days delinquent	6,883		607		1,209		873		912		—		10,484			5,485			15,969
Past due 90 days or more delinquent	5,697		825		1,278		3,237		—		—		11,037			7,701			18,738
Total past due	39,117		6,077		10,205		12,780		11,943		—		80,122			28,470			108,592
Total current loans	2,702,728		869,155		1,080,872		1,307,221		3,668,111		697,256		10,325,343			590,701			10,916,044
Total mortgage loans	$	2,741,845	$	875,232	$	1,091,077	$	1,320,001	$	3,680,054	$	697,256	$	10,405,465		$	619,171		$	11,024,636

Other delinquency statistics:
In process of foreclosure²													$	3,441		$	2,922		$	6,363
Serious delinquency rate³													0.1		%	1.2		%	0.2		%
Past due 90 days or more and still accruing interest													$	—		$	7,701		$	7,701
Loans on non-accrual status⁴													$	15,157		$	—		$	15,157


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 September 30, 2018 (in thousands):

~~Table 6.3~~

09/30/2018
Conventional
Loans Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable Total
Allowance for credit losses:

Individually evaluated for impairment $ 37
$ —
$ —
$ —
$ 37
Collectively evaluated for impairment 619
—
—
—
619
TOTAL ALLOWANCE FOR CREDIT LOSSES $ 656
$ —
$ —
$ —
$ 656
Recorded investment:

Individually evaluated for impairment $ 9,904
$ —
$ 28,514,148
$ 12,718
$ 28,536,770
Collectively evaluated for impairment 7,450,722
693,567
—
—
8,144,289
TOTAL RECORDED INVESTMENT $ 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 September 30, 2019 (dollar amounts in thousands):~~

~~Table 6.4~~

09/30/2019

Conventional
Loans
Government
Loans
Credit
Products¹
Direct
Financing
Lease
Receivable
Total
Recorded investment:
Past due 30-59 days delinquent $ 48,259
$ 14,885
$ —
$ —
$ 63,144
Past due 60-89 days delinquent 7,182
4,226
—
—
11,408
Past due 90 days or more delinquent 10,083
8,427
—
—
18,510
Total past due 65,524
27,538
—
—
93,062
Total current loans 9,164,486
625,646
30,690,019
9,633
40,489,784
Total recorded investment $ 9,230,010
$ 653,184
$ 30,690,019
$ 9,633
$ 40,582,846

Other delinquency statistics:

In process of foreclosure, included above²
$ 3,505
$ 2,676
$ —
$ —
$ 6,181
Serious delinquency rate³
0.1 % 1.3 % — % — % — %
Past due 90 days or more and still accruing interest $ —
$ 8,427
$ —
$ —
$ 8,427
Loans on non-accrual status⁴
$ 13,824
$ —
$ —
$ —
$ 13,824


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


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


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


⁴	Loans on non-accrual status include ~~$1,279,000~~$1,361,000 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~~5.4 presents the ~~key credit quality indicators~~payment status based on recorded investment as well as other delinquency statistics for ~~all of the~~ FHLBank’s ~~portfolio segments~~mortgage loans as of December 31, ~~2018~~2019 (dollar amounts in thousands):

Table ~~6.5~~5.4


	12/31/2018															12/31/2019
	Conventional Loans			Government Loans			Credit Products¹			Direct Financing Lease Receivable			Total			Conventional Loans			Government Loans			Total
Recorded investment:
Recorded investment:¹
Past due 30-59 days delinquent	$	34,020		$	14,790		$	—		$	—		$	48,810		$	59,226		$	15,515		$	74,741
Past due 60-89 days delinquent	6,750			6,114			—			—			12,864			7,561			6,128			13,689
Past due 90 days or more delinquent	8,169			7,898			—			—			16,067			11,813			8,778			20,591
Total past due	48,939			28,802			—			—			77,741			78,600			30,421			109,021
Total current loans	7,720,640			655,054			28,777,274			11,966			37,164,934			9,969,930			607,400			10,577,330
Total recorded investment	$	7,769,579		$	683,856		$	28,777,274		$	11,966		$	37,242,675		$	10,048,530		$	637,821		$	10,686,351

Other delinquency statistics:
In process of foreclosure, included above²	$	2,922		$	2,398		$	—		$	—		$	5,320
In process of foreclosure²																$	3,352		$	2,730		$	6,082
Serious delinquency rate³	0.1		%	1.2		%	—		%	—		%	—		%	0.1		%	1.4		%	0.1		%
Past due 90 days or more and still accruing interest	$	—		$	7,898		$	—		$	—		$	7,898		$	—		$	8,778		$	8,778
Loans on non-accrual status⁴	$	11,301		$	—		$	—		$	—		$	11,301		$	14,923		$	—		$	14,923


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


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


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


⁴	Loans on non-accrual status include ~~$1,265,000~~$1,219,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which ~~the~~ FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

Allowance for Credit Losses:

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

Certain conventional loans may be evaluated for credit losses using the practical expedient for collateral dependent assets. A mortgage loan is considered collateral dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. FHLBank may estimate the fair value of this collateral by applying an appropriate loss severity rate or using third party estimates or property valuation model(s). The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. FHLBank ~~had $1,336,000~~records a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.

FHLBank established an allowance for credit losses on its conventional mortgage loans held for portfolio. Table 5.5 presents a roll-forward of the allowance for credit losses on mortgage loans for the three months ended March 31, 2020 and ~~$2,183,000 classified as real estate owned~~2019.

Table 5.5



	Three Months Ended
	03/31/2020			03/31/2019
Balance, beginning of the period	$	985		$	812
Adjustment for cumulative effect of accounting change	6,123			—
Net (charge-offs) recoveries	96			(66		)
Provision (reversal) for credit losses	(736		)	78
Balance, end of the period	$	6,468		$	824

Government-Guaranteed or -Insured Mortgage Loans: FHLBank invests in fixed-rate mortgage loans that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, the Rural Housing Service of the Department of Agriculture, and/or the Department of Housing and Urban Development. The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-guaranteed or -insured mortgage loans. Any losses on these loans that are not recovered from the issuer or the guarantor are absorbed by the servicer. Therefore, FHLBank only has credit risk for these loans if the servicer fails to pay for losses not covered by the guarantee or insurance. Based on FHLBank's assessment of its servicers and the collateral backing the loans, the risk of loss was immaterial, consequently, no allowance for credit losses for government-guaranteed or -insured mortgage loans was recorded ~~in other assets~~ as of ~~September 30, 2019 and~~March 31, 2020 or December 31, ~~2018, respectively.~~2019. Furthermore, none of these mortgage loans has been placed on non-accrual status because of the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

NOTE 76 – DERIVATIVES AND HEDGING ACTIVITIES

Table ~~7.1~~6.1 presents outstanding notional amounts and fair values of the derivatives outstanding by type of derivative and by hedge designation as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash collateral.

Table ~~7.1~~6.1


	09/30/2019							12/31/2018								03/31/2020							12/31/2019
	Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	14,098,263	$	20,184	$	126,203		$	8,345,925	$	73,969		$	24,177		$	18,927,900	$	25,165	$	291,756		$	16,448,512	$	23,462	$	80,398
Total derivatives designated as hedging relationships	14,098,263		20,184		126,203			8,345,925		73,969			24,177			18,927,900		25,165		291,756			16,448,512		23,462		80,398
Derivatives not designated as hedging instruments:
Interest rate swaps	3,637,306		848		38,832			2,151,920		12,907			17,322			2,731,000		362		75,061			3,099,622		736		26,285
Interest rate caps/floors	1,248,200		170		—			1,373,200		1,044			—			762,500		262		—			1,130,000		117		—
Mortgage delivery commitments	375,772		206		658			101,551		552			3			910,677		934		7,798			221,800		495		25
Consolidated obligation discount note commitments	—		—		—			525,000		—			—
Total derivatives not designated as hedging instruments	5,261,278		1,224		39,490			4,151,671		14,503			17,325			4,404,177		1,558		82,859			4,451,422		1,348		26,310
TOTAL	$	19,359,541	21,408		165,693			$	12,497,596	88,472			41,502			$	23,332,077	26,723		374,615			$	20,899,934	24,810		106,708
Netting adjustments and cash collateral¹			115,642		(164,703		)			(52,377		)	(33,618		)			176,726		(366,045		)			129,994		(106,506		)
DERIVATIVE ASSETS AND LIABILITIES			$	137,050	$	990				$	36,095		$	7,884				$	203,449	$	8,570				$	154,804	$	202

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 ~~$280,745,000~~$543,571,000 and ~~$58,902,000~~$236,700,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Cash collateral received was ~~$400,000~~$800,000 and ~~$77,661,000~~$200,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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~~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 gainsGains (losses) on fair value ~~derivatives~~hedges include unrealized changes in fair value as well as net interest settlements. For the three months ended ~~September 30,~~March 31, 2020 and 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~~6.2 (in thousands):

Table ~~7.2~~6.2


	Three Months Ended												Three Months Ended
	09/30/2019												03/31/2020
	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	$	186,431		$	47,811		$	133,680		$	185,096		$	130,887		$	24,294		$	92,951		$	150,742
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	(39,873	)	$	(61,468	)	$	(4	)	$	3,915		$	(260,132	)	$	(360,283	)	$	18,523		$	45,446
Hedged items²	43,355			75,743			3			(5,061		)	256,842			344,143			(15,690		)	(39,825		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	3,482		$	14,275		$	(1	)	$	(1,146	)	$	(3,290	)	$	(16,140	)	$	2,833		$	5,621


	09/30/2018³											3/31/2019
	Interest Income/Expense								Non-interest Income			Interest Income/Expense
	Advances			Available-for-sale Securities		Consolidated Obligation Bonds			Net gains (losses) on derivatives and hedging activities			Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income												$	187,609		$	15,396		$	148,991		$	158,157
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹	$	4,385		$	510	$	(2,280	)	$	28,615		$	(33,072	)	$	(44,192	)	$	32		$	9,705
Hedged items²	(1,022		)	—		—			(28,753		)	39,502			42,113			(30		)	(13,549		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	3,363		$	510	$	(2,280	)	$	(138	)	$	6,430		$	(2,079	)	$	2		$	(3,844	)


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 nine months ended 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~~

Nine Months Ended
09/30/2019
Interest Income/Expense
Advances Available-for-sale Securities Consolidated Obligation Discount Notes Consolidated Obligation Bonds
Total amounts presented in the Statements of Income $ 563,602
$ 78,694
$ 433,473
$ 519,967
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives¹
$ (144,016 ) $ (205,705 ) $ 21
$ 30,968
Hedged items²
159,254
206,340
(12 ) (39,427 )
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS $ 15,238
$ 635
$ 9
$ (8,459 )

09/30/2018³
Interest Income/Expense Non-interest Income
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
$ 4,423
$ (752 ) $ (2,700 ) $ 122,399
Hedged items²
(3,283 ) —
—
(124,369 )
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS $ 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~~6.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of ~~September 30,~~March 31, 2020 and December 31, 2019 (in thousands):

Table ~~7.4~~6.3


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
03/31/2020												03/31/2020
Line Item in Statements of Condition of Hedged Item												Carrying Value of Hedged Asset/(Liability)¹			Basis Adjustments for Active Hedging Relationships²			Basis Adjustments for Discontinued Hedging Relationships²		Cumulative Amount of Fair Value Hedging Basis Adjustments²
Advances												$	5,568,718		$	323,770		$	4,153	$	327,923
Available-for-sale securities												7,593,439			420,968			—		420,968
Consolidated obligation discount notes												(3,993,727		)	(15,540		)	—		(15,540		)
Consolidated obligation bonds												(2,757,036		)	(66,215		)	—		(66,215		)

12/31/2019												12/31/2019
Line Item in Statements of Condition of Hedged Item												Carrying Value of Hedged Asset/(Liability)¹			Basis Adjustments for Active Hedging Relationships²			Basis Adjustments for Discontinued Hedging Relationships²		Cumulative Amount of Fair Value Hedging Basis Adjustments²
Advances	$	4,672,632		$	113,443		$	1,608	$	115,051		$	4,951,445		$	69,643		$	1,424	$	71,067
Available-for-sale securities	6,081,110			145,653			—		145,653			7,155,712			79,141			—		79,141
Consolidated obligation bonds	(3,734,212		)	(32,913		)	—		(32,913		)	(3,270,635		)	(26,389		)	—		(26,389		)


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~~6.4 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~~6.4


	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
Derivatives designated as hedging instruments:
Interest rate swaps				$	(138	)				$	(1,970	)
Total net gains (losses) related to fair value hedge ineffectiveness				(138		)				(1,970		)
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	$	(19,566	)	8,256			$	(80,593	)	38,087			$	(111,715	)	$	(19,185	)
Interest rate caps/floors	(494		)	(184		)	(874		)	378			145			(626		)
Net interest settlements	(691		)	(1,192		)	(1,238		)	(4,592		)	(5,154		)	(296		)
Mortgage delivery commitments	365			(710		)	3,836			(2,242		)	(5,528		)	1,635
Consolidated obligation discount note commitments	—			—			(70		)	—			—			(70		)
Total net gains (losses) related to derivatives not designated as hedging instruments	(20,386		)	6,170			(78,939		)	31,631
NET GAINS (LOSSES) ON DERIVATIVES AND HEDGING ACTIVITIES	$	(20,386	)	$	6,032		$	(78,939	)	$	29,661		$	(122,252	)	$	(18,542	)

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 ~~$440,000~~$617,000 and ~~$25,799,000~~$211,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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

NOTE 87 – DEPOSITS

~~The~~ FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. Table ~~8.1~~7.1 details the types of deposits held by ~~the~~ FHLBank as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table ~~8.1~~7.1


	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Interest-bearing:
Demand	$	302,491	$	265,021	$	433,061	$	383,197
Overnight	304,000		158,300		365,400		280,300
Term					1,000		—
Total interest-bearing	606,491		423,321		799,461		663,497
Non-interest-bearing:
Other	149,885		50,499		175,936		127,143
Total non-interest-bearing	149,885		50,499		175,936		127,143
TOTAL DEPOSITS	$	756,376	$	473,820	$	975,397	$	790,640

NOTE 98 – CONSOLIDATED OBLIGATIONS

Consolidated Obligation Bonds: Table ~~9.1~~8.1 presents the FHLBank’s participation in consolidated obligation bonds outstanding as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollar amounts in thousands):

Table ~~9.1~~8.1


	09/30/2019					12/31/2018					03/31/2020					12/31/2019
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	15,086,200		2.10	%	$	8,960,500		2.17	%	$	17,467,750		1.11	%	$	15,991,800		1.79	%
Due after one year through two years	7,990,600			2.12		5,625,750			2.28		5,970,950			1.66		6,318,350			1.90
Due after two years through three years	1,373,900			2.24		2,285,100			2.11		1,758,400			2.01		1,375,000			2.11
Due after three years through four years	1,351,700			2.33		1,134,750			2.21		1,017,200			2.11		1,285,900			2.39
Due after four years through five years	1,131,600			2.34		1,087,900			2.58		1,367,700			2.02		1,223,350			2.40
Thereafter	5,471,600			2.84		4,879,850			3.01		6,052,300			2.52		5,776,300			2.78
Total par value	32,405,600			2.26	%	23,973,850			2.38	%	33,634,300			1.58	%	31,970,700			2.05	%
Premiums	21,331					15,591					50,201					34,789
Discounts	(3,573		)			(4,088		)			(3,858		)			(3,357		)
Concession fees	(14,386		)			(12,445		)			(16,803		)			(15,207		)
Hedging adjustments	32,913					(6,514		)			66,215					26,389
TOTAL	$	32,441,885				$	23,966,394				$	33,730,055				$	32,013,314

~~The~~ FHLBank issues optional principal redemption bonds (callable bonds) that may be redeemed in whole or in part at the discretion of ~~the~~ FHLBank on predetermined call dates in accordance with terms of bond offerings. The FHLBank’s participation in consolidated obligation bonds outstanding as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 includes callable bonds totaling ~~$9,412,000,000~~$8,161,500,000 and ~~$8,559,000,000,~~$8,891,500,000, respectively. ~~The~~ FHLBank uses the unswapped callable bonds for financing its callable fixed rate advances (Note 4), MBS (Note 3) and mortgage loans (Note 5). Contemporaneous with a portion of its fixed rate callable bond issuances, ~~the~~ FHLBank also enters into interest rate swap agreements (in which ~~the~~ FHLBank generally pays a variable rate and receives a fixed rate) with call features that mirror the options in the callable bonds (a sold callable swap). The combined sold callable swap and callable debt transaction allows ~~the~~ FHLBank to obtain attractively priced variable rate financing. Table ~~9.2~~8.2 summarizes the FHLBank’s participation in consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table ~~9.2~~8.2


Year of Maturity or Next Call Date	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Due in one year or less	$	23,908,200	$	16,971,500	$	25,629,250	$	24,583,300
Due after one year through two years	6,520,600		5,270,750		5,495,950		5,148,350
Due after two years through three years	618,900		655,100		938,400		615,000
Due after three years through four years	590,200		319,750		493,700		682,400
Due after four years through five years	345,100		275,150		456,200		356,850
Thereafter	422,600		481,600		620,800		584,800
TOTAL PAR VALUE	$	32,405,600	$	23,973,850	$	33,634,300	$	31,970,700

Table ~~9.3~~8.3 summarizes interest rate payment terms for consolidated obligation bonds as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table ~~9.3~~8.3


	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Simple variable rate	$	16,287,000	$	10,095,000	$	18,038,000	$	16,017,000
Fixed rate	15,288,600		12,858,850		15,546,300		15,573,700
Step	340,000		470,000		50,000		110,000
Variable rate with cap	260,000		20,000		—		220,000
Fixed to variable rate	220,000		515,000		—		50,000
Range	10,000		15,000
TOTAL PAR VALUE	$	32,405,600	$	23,973,850	$	33,634,300	$	31,970,700

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

Table ~~9.4~~8.4

Book Value Par Value
Weighted
Average
Interest
Rate¹
September 30, 2019 $ 21,044,232
$ 21,084,315
2.00 %

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



	Book Value		Par Value		Weighted Average Interest Rate¹
March 31, 2020	$	25,563,980	$	25,586,959	1.17	%

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


¹	Represents yield to maturity excluding concession fees.

NOTE 109 – ASSETS AND LIABILITIES SUBJECT TO OFFSETTING

~~The~~ FHLBank presents certain financial instruments, including derivatives, repurchase agreements and securities purchased under agreements to resell, on a net basis by clearing agent by Clearinghouse, or by counterparty, when it has met the netting requirements. For these financial instruments, ~~the~~ FHLBank has elected to offset its asset and liability positions, as well as cash collateral 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~~9.1 and ~~10.2~~9.2 present the fair value of financial assets, including the related collateral received from or pledged to clearing agents or counterparties, based on the terms of the FHLBank’s master netting arrangements or similar agreements as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table ~~10.1~~9.1


09/30/2019
03/31/2020													03/31/2020
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statements of Condition			Net Amounts of Assets Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative assets:
Uncleared derivatives	$	18,927	$	(17,117	)	$	1,810	$	(206	)	$	1,604	$	22,162	$	(19,823	)	$	2,339	$	(934	)	$	1,405
Cleared derivatives	2,481		132,759			135,240		—			135,240		4,561		196,549			201,110		—			201,110
Total derivative assets	21,408		115,642			137,050		(206		)	136,844		26,723		176,726			203,449		(934		)	202,515
Securities purchased under agreements to resell	2,137,374		—			2,137,374		(2,137,374		)	—		2,700,000		—			2,700,000		(2,700,000		)	—
TOTAL	$	2,158,782	$	115,642		$	2,274,424	$	(2,137,580	)	$	136,844	$	2,726,723	$	176,726		$	2,903,449	$	(2,700,934	)	$	202,515


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~~9.2


12/31/2018
12/31/2019													12/31/2019
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 Statements of Condition			Net Amounts of Assets Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative assets:
Uncleared derivatives	$	88,296	$	(83,378	)	$	4,918	$	(1,618	)	$	3,300	$	21,749	$	(14,424	)	$	7,325	$	(495	)	$	6,830
Cleared derivatives	176		31,001			31,177		—			31,177		3,061		144,418			147,479		—			147,479
Total derivative assets	88,472		(52,377		)	36,095		(1,618		)	34,477		24,810		129,994			154,804		(495		)	154,309
Securities purchased under agreements to resell	1,251,096		—			1,251,096		(1,251,096		)	—		4,750,000		—			4,750,000		(4,750,000		)	—
TOTAL	$	1,339,568	$	(52,377	)	$	1,287,191	$	(1,252,714	)	$	34,477	$	4,774,810	$	129,994		$	4,904,804	$	(4,750,495	)	$	154,309


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

Tables ~~10.3~~9.3 and ~~10.4~~9.4 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table ~~10.3~~9.3


09/30/2019
03/31/2020													03/31/2020
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statements of Condition			Net Amounts of Liabilities Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative liabilities:
Uncleared derivatives	$	165,301	$	(164,311	)	$	990	$	(658	)	$	332	$	370,366	$	(361,796	)	$	8,570	$	(7,798	)	$	772
Cleared derivatives	392		(392		)	—		—			—		4,249		(4,249		)	—		—			—
Total derivative liabilities	165,693		(164,703		)	990		(658		)	332		374,615		(366,045		)	8,570		(7,798		)	772
TOTAL	$	165,693	$	(164,703	)	$	990	$	(658	)	$	332	$	374,615	$	(366,045	)	$	8,570	$	(7,798	)	$	772


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~~9.4


12/31/2018
12/31/2019													12/31/2019
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statements of Condition			Net Amounts of Liabilities Presented in the Statements of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative liabilities:
Uncleared derivatives	$	36,363	$	(28,479	)	$	7,884	$	(3	)	$	7,881	$	105,468	$	(105,266	)	$	202	$	(25	)	$	177
Cleared derivatives	5,139		(5,139		)	—		—			—		1,240		(1,240		)	—		—			—
Total derivative liabilities	41,502		(33,618		)	7,884		(3		)	7,881		106,708		(106,506		)	202		(25		)	177
TOTAL	$	41,502	$	(33,618	)	$	7,884	$	(3	)	$	7,881	$	106,708	$	(106,506	)	$	202	$	(25	)	$	177


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

NOTE 1110 – CAPITAL

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

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

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

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

Table ~~11.1~~10.1 illustrates that ~~the~~ FHLBank was in compliance with its regulatory capital requirements as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollar amounts in thousands):

Table ~~11.1~~10.1


	09/30/2019						12/31/2018						03/31/2020						12/31/2019
	Required			Actual			Required			Actual			Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	382,468		$	2,300,065		$	387,729		$	2,193,001		$	407,775		$	2,335,377		$	486,650		$	2,319,531
Total regulatory capital-to-asset ratio	4.0		%	4.6		%	4.0		%	5.1		%	4.0		%	4.4		%	4.0		%	4.4		%
Total regulatory capital	$	2,285,245		$	2,646,115		$	1,908,610		$	2,442,156		$	2,527,581		$	2,785,298		$	2,531,066		$	2,768,680
Leverage capital ratio	5.0		%	6.6		%	5.0		%	7.4		%	5.0		%	6.3		%	5.0		%	6.2		%
Leverage capital	$	2,856,557		$	3,796,147		$	2,385,763		$	3,538,656		$	3,159,476		$	3,952,986		$	3,163,833		$	3,928,446

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~~10.2 presents a roll-forward of mandatorily redeemable capital stock for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Table ~~11.2~~10.2


	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
Balance, beginning of period	$	2,750		$	4,578		$	3,597		$	5,312		$	2,415		$	3,597
Capital stock subject to mandatory redemption reclassified from equity during the period	159,775			215,107			218,411			893,545			305,957			23,915
Capital stock redemption cancellations reclassified to equity during the period													(100,647		)	—
Redemption or repurchase of mandatorily redeemable capital stock during the period	(160,078		)	(215,206		)	(219,642		)	(894,494		)	(205,359		)	(24,006		)
Stock dividend classified as mandatorily redeemable capital stock during the period	30			57			111			173			24			42
Balance, end of period	$	2,477		$	4,536		$	2,477		$	4,536		$	2,390		$	3,548

Table ~~11.3~~10.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands). The year of redemption in Table ~~11.3~~10.3 is the end of the redemption period in accordance with ~~the~~ FHLBank’s capital plan. ~~The~~ FHLBank is not required to redeem or repurchase membership stock until six months (for Class A Common Stock) or five years (for Class B Common Stock) after ~~the~~ FHLBank receives notice for withdrawal from the member. Additionally, ~~the~~ FHLBank is not required to redeem or repurchase activity-based stock until any activity-based stock becomes excess stock as a result of an activity no longer remaining outstanding. However, ~~the~~ FHLBank intends to repurchase the excess activity-based stock of non-members to the extent that it can do so and still meet its regulatory capital requirements.

Table ~~11.3~~10.3


Contractual Year of Repurchase	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Year 1	$	—	$	—	$	—	$	—
Year 2	1		—		1		1
Year 3	873		1		868		869
Year 4	—		1,798		—		—
Year 5	—		—		—		—
Past contractual redemption date due to remaining activity¹	1,603		1,798		1,521		1,545
TOTAL	$	2,477	$	3,597	$	2,390	$	2,415


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

Excess Capital Stock: Excess capital stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum stock purchase requirement. FHFA rules limit the ability of ~~the~~ FHLBank to create excess member stock under certain circumstances. For example, ~~the~~ FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if the FHLBank’s excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause the FHLBank’s excess stock to exceed one percent of its total assets. As of ~~September 30, 2019,~~March 31, 2020, 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~~that FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide ~~the~~an FHLBank with written notice of the proposed action and an opportunity to submit a response. As of the most recent review by the FHFA, ~~for the second quarter of 2019, the~~ FHLBank Topeka was classified as adequately capitalized.

NOTE 1211 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Table ~~12.1~~11.1 summarizes the changes in AOCI for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Table ~~12.1~~11.1

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
Balance at June 30, 2018 $ 29,628
$ (3,655 ) $ (1,373 ) $ 24,600
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses) 3,694
3,694
Accretion of non-credit loss 30
30
Non-credit losses included in basis of securities sold 3,625
3,625
Reclassifications from other comprehensive income (loss) to net income:

Amortization of net losses - defined benefit pension plan¹
5
5
Net current period other comprehensive income (loss) 3,694
3,655
5
7,354
Balance at September 30, 2018 $ 33,322
$ —
$ (1,368 ) $ 31,954

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



	Three Months Ended
	Net Unrealized Gains (Losses) on Available-for-sale Securities			Defined Benefit Pension Plan			Total AOCI
Balance at December 31, 2018	$	19,068		$	(3,375	)	$	15,693
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	11,848						11,848
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan¹				73			73
Net current period other comprehensive income (loss)	11,848			73			11,921
Balance at March 31, 2019	$	30,916		$	(3,302	)	$	27,614


Balance at December 31, 2019	$	26,788		$	(2,002	)	$	24,786
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	(92,608		)				(92,608		)
Reclassifications from other comprehensive income (loss) to net income:
Realized net (gains) losses included in net income²	(1,523		)				(1,523		)
Amortization of net losses - defined benefit pension plan¹				26			26
Net current period other comprehensive income (loss)	(94,131		)	26			(94,105		)
Balance at March 31, 2020	$	(67,343	)	$	(1,976	)	$	(69,319	)


¹	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 nine months ended September 30, 2019 and 2018 (in thousands):~~

~~Table 12.2~~

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
Balance at December 31, 2017 $ 31,206
$ (4,163 ) $ (1,385 ) $ 25,658
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses) 2,116
2,116
Accretion of non-credit loss 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
Amortization of net losses - defined benefit pension plan²
17
17
Net current period other comprehensive income (loss) 2,116
4,163
17
6,296
Balance at September 30, 2018 $ 33,322
$ —
$ (1,368 ) $ 31,954

Balance at December 31, 2018 $ 19,068
$ —
$ (3,375 ) $ 15,693
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses) (1,249 ) (1,249 )
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan²
240
240
Net current period other comprehensive income (loss) (1,249 ) —
240
(1,009 )
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”~~“Net gains (losses) on sale of available-for-sale securities” non-interest ~~expense~~income on the Statements of Income. Amount represents a ~~debit~~credit (increase to other ~~expenses)~~income (loss)).

NOTE 1312 – FAIR VALUES

The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by ~~the~~ FHLBank using available market and other pertinent information and reflect ~~the~~ FHLBank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Although ~~the~~ FHLBank uses its best judgment in estimating the fair value of its financial instruments, there are inherent limitations in any valuation technique. Therefore, the fair values may not be indicative of the amounts that would have been realized in market transactions as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. 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. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

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

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

~~The~~ FHLBank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. There were no transfers of assets or liabilities between fair value levels during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Tables ~~13.1~~12.1 and ~~13.2~~12.2 present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018. The~~2019. 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~~12.3 and ~~13.4.~~12.4.

The carrying value, fair value and fair value hierarchy of ~~the~~ FHLBank’s financial assets and liabilities as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are summarized in Tables ~~13.1~~12.1 and ~~13.2~~12.2 (in thousands):

Table ~~13.1~~12.1


	09/30/2019																03/31/2020
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹			Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	24,639		$	24,639		$	24,639	$	—		$	—	$	—		$	451,670		$	451,670		$	451,670	$	—		$	—	$	—
Interest-bearing deposits	481,989			481,989			—		481,989			—		—			1,196,813			1,196,813			—		1,196,813			—		—
Securities purchased under agreements to resell	2,137,374			2,137,374			—		2,137,374			—		—			2,700,000			2,700,000			—		2,700,000			—		—
Federal funds sold	900,000			900,000			—		900,000			—		—			1,655,000			1,655,000			—		1,655,000			—		—
Trading securities	2,901,575			2,901,575			—		2,901,575			—		—			3,177,991			3,177,991			—		3,177,991			—		—
Available-for-sale securities	6,098,929			6,098,929			—		6,098,929			—		—			7,526,096			7,526,096			—		7,526,096			—		—
Held-to-maturity securities	3,728,655			3,717,004			—		3,634,582			82,422		—			3,341,338			3,319,631			—		3,238,320			81,311		—
Advances	30,634,583			30,680,520			—		30,680,520			—		—			31,678,083			31,730,957			—		31,730,957			—		—
Mortgage loans held for portfolio, net of allowance	9,833,763			10,149,450			—		10,147,407			2,043		—			11,018,168			11,584,130			—		11,582,673			1,457		—
Accrued interest receivable	150,823			150,823			—		150,823			—		—			143,873			143,873			—		143,873			—		—
Derivative assets	137,050			137,050			—		21,408			—		115,642			203,449			203,449			—		26,723			—		176,726
Liabilities:
Deposits	756,376			756,376			—		756,376			—		—			975,397			975,397			—		975,397			—		—
Consolidated obligation discount notes	21,044,232			21,045,884			—		21,045,884			—		—			25,563,980			25,582,865			—		25,582,865			—		—
Consolidated obligation bonds	32,441,885			32,528,060			—		32,528,060			—		—			33,730,055			33,926,405			—		33,926,405			—		—
Mandatorily redeemable capital stock	2,477			2,477			2,477		—			—		—			2,390			2,390			2,390		—			—		—
Accrued interest payable	116,478			116,478			—		116,478			—		—			87,799			87,799			—		87,799			—		—
Derivative liabilities	990			990			—		165,693			—		(164,703		)	8,570			8,570			—		374,615			—		(366,045		)
Other Asset (Liability):
Industrial revenue bonds	35,000			35,277			—		35,277			—		—			35,000			36,936			—		36,936			—		—
Financing obligation payable	(35,000		)	(35,277		)	—		(35,277		)	—		—			(35,000		)	(36,936		)	—		(36,936		)	—		—


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~~12.2


	12/31/2018																12/31/2019
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹			Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	15,060		$	15,060		$	15,060	$	—		$	—	$	—		$	1,917,166		$	1,917,166		$	1,917,166	$	—		$	—	$	—
Interest-bearing deposits	670,660			670,660			—		670,660			—		—			921,453			921,453			—		921,453			—		—
Securities purchased under agreements to resell	1,251,096			1,251,096			—		1,251,096			—		—			4,750,000			4,750,000			—		4,750,000			—		—
Federal funds sold	50,000			50,000			—		50,000			—		—			850,000			850,000			—		850,000			—		—
Trading securities	2,151,113			2,151,113			—		2,151,113			—		—			2,812,562			2,812,562			—		2,812,562			—		—
Available-for-sale securities	1,725,640			1,725,640			—		1,725,640			—		—			7,182,500			7,182,500			—		7,182,500			—		—
Held-to-maturity securities	4,456,873			4,447,078			—		4,364,127			82,951		—			3,569,958			3,556,938			—		3,476,084			80,854		—
Advances	28,730,113			28,728,201			—		28,728,201			—		—			30,241,315			30,295,813			—		30,295,813			—		—
Mortgage loans held for portfolio, net of allowance	8,410,462			8,388,885			—		8,387,425			1,460		—			10,633,009			10,983,356			—		10,981,458			1,898		—
Accrued interest receivable	109,366			109,366			—		109,366			—		—			143,765			143,765			—		143,765			—		—
Derivative assets	36,095			36,095			—		88,472			—		(52,377		)	154,804			154,804			—		24,810			—		129,994
Liabilities:
Deposits	473,820			473,820			—		473,820			—		—			790,640			790,640			—		790,640			—		—
Consolidated obligation discount notes	20,608,332			20,606,743			—		20,606,743			—		—			27,447,911			27,448,021			—		27,448,021			—		—
Consolidated obligation bonds	23,966,394			23,727,705			—		23,727,705			—		—			32,013,314			32,103,154			—		32,103,154			—		—
Mandatorily redeemable capital stock	3,597			3,597			3,597		—			—		—			2,415			2,415			2,415		—			—		—
Accrued interest payable	87,903			87,903			—		87,903			—		—			117,580			117,580			—		117,580			—		—
Derivative liabilities	7,884			7,884			—		41,502			—		(33,618		)	202			202			—		106,708			—		(106,506		)
Other Asset (Liability):
Industrial revenue bonds	35,000			32,154			—		32,154			—		—			35,000			34,850			—		34,850			—		—
Financing obligation payable	(35,000		)	(32,154		)	—		(32,154		)	—		—			(35,000		)	(34,850		)	—		(34,850		)	—		—


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

Fair Value Measurements: Tables ~~13.3~~12.3 and ~~13.4~~12.4 present, for each hierarchy level, ~~the~~ FHLBank’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition as of or for the periods ended ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands).

Table ~~13.3~~12.3


	09/30/2019											03/31/2020
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹			Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
Certificates of deposit												$	275,055	$	—	$	275,055	$	—	$	—
U.S. Treasury obligations	$	1,533,842	$	—	$	1,533,842	$	—	$	—		1,570,261		—		1,570,261		—		—
GSE obligations²	468,747		—		468,747		—		—
GSE MBS³	898,986		—		898,986		—		—
GSE obligations												433,576		—		433,576		—		—
GSE MBS												899,099		—		899,099		—		—
Total trading securities	2,901,575		—		2,901,575		—		—			3,177,991		—		3,177,991		—		—
Available-for-sale securities:
U.S. Treasury obligations	3,510,728		—		3,510,728		—		—			4,353,696		—		4,353,696		—		—
GSE MBS⁴	2,588,201		—		2,588,201		—		—
GSE MBS												3,172,400		—		3,172,400		—		—
Total available-for-sale securities	6,098,929		—		6,098,929		—		—			7,526,096		—		7,526,096		—		—
Derivative assets:
Interest-rate related	136,844		—		21,202		—		115,642			202,515		—		25,789		—		176,726
Mortgage delivery commitments	206		—		206		—		—			934		—		934		—		—
Total derivative assets	137,050		—		21,408		—		115,642			203,449		—		26,723		—		176,726
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	9,137,554	$	—	$	9,021,912	$	—	$	115,642		$	10,907,536	$	—	$	10,730,810	$	—	$	176,726

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	332	$	—	$	165,035	$	—	$	(164,703	)	$	772	$	—	$	366,817	$	—	$	(366,045	)
Mortgage delivery commitments	658		—		658		—		—			7,798		—		7,798		—		—
Total derivative liabilities	990		—		165,693		—		(164,703		)	8,570		—		374,615		—		(366,045		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	990	$	—	$	165,693	$	—	$	(164,703	)	$	8,570	$	—	$	374,615	$	—	$	(366,045	)

Nonrecurring fair value measurements - Assets⁵:
Nonrecurring fair value measurements - Assets²:
Impaired mortgage loans	$	2,056	$	—	$	—	$	2,056	$	—		$	1,463	$	—	$	—	$	1,463	$	—
Real estate owned	22		—		—		22		—			17		—		—		17		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	2,078	$	—	$	—	$	2,078	$	—		$	1,480	$	—	$	—	$	1,480	$	—


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 ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and still outstanding as of ~~September 30, 2019~~March 31, 2020.

Table ~~13.4~~12.4


	12/31/2018											12/31/2019
	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:
U.S. Treasury obligations	$	252,377	$	—	$	252,377	$	—	$	—		$	1,530,518	$	—	$	1,530,518	$	—	$	—
GSE obligations²	1,000,495		—		1,000,495		—		—
U.S. obligation MBS³	467		—		467		—		—
GSE MBS⁴	897,774		—		897,774		—		—
GSE obligations												416,025		—		416,025		—		—
GSE MBS												866,019		—		866,019		—		—
Total trading securities	2,151,113		—		2,151,113		—		—			2,812,562		—		2,812,562		—		—
Available-for-sale securities:
GSE MBS⁵	1,725,640		—		1,725,640		—		—
U.S. Treasury obligations												4,261,791		—		4,261,791		—		—
GSE MBS												2,920,709		—		2,920,709		—		—
Total available-for-sale securities	1,725,640		—		1,725,640		—		—			7,182,500		—		7,182,500		—		—
Derivative assets:
Interest-rate related	35,543		—		87,920		—		(52,377		)	154,309		—		24,315		—		129,994
Mortgage delivery commitments	552		—		552		—		—			495		—		495		—		—
Total derivative assets	36,095		—		88,472		—		(52,377		)	154,804		—		24,810		—		129,994
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	3,912,848	$	—	$	3,965,225	$	—	$	(52,377	)	$	10,149,866	$	—	$	10,019,872	$	—	$	129,994

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	7,881	$	—	$	41,499	$	—	$	(33,618	)	$	177	$	—	$	106,683	$	—	$	(106,506	)
Mortgage delivery commitments	3		—		3		—		—			25		—		25		—		—
Total derivative liabilities	7,884		—		41,502		—		(33,618		)	202		—		106,708		—		(106,506		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	7,884	$	—	$	41,502	$	—	$	(33,618	)	$	202	$	—	$	106,708	$	—	$	(106,506	)

Nonrecurring fair value measurements - Assets⁶:
Nonrecurring fair value measurements - Assets²:
Impaired mortgage loans	1,463		—		—		1,463		—			$	1,909	$	—	$	—	$	1,909	$	—
Real estate owned	1,028		—		—		1,028		—			144		—		—		144		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	2,491	$	—	$	—	$	2,491	$	—		$	2,053	$	—	$	—	$	2,053	$	—


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~~2019 and still outstanding as of December 31, ~~2018.~~2019.

NOTE 1413 – COMMITMENTS AND CONTINGENCIES

Joint and Several Liability: As provided in the ~~Federal Home Loan~~ Bank Act ~~of 1932, as amended (Bank Act)~~ or in FHFA regulations, consolidated obligations are backed only by the financial resources of the FHLBanks. FHLBank Topeka is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks. The par amounts for which FHLBank Topeka is jointly and severally liable were approximately ~~$956,780,794,000~~$1,115,448,699,000 and ~~$986,994,515,000~~$966,413,924,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 ~~September 30, 2019,~~March 31, 2020, FHLBank Topeka has concluded that a loss accrual is not necessary at this time.

Off-balance Sheet Commitments: As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, off-balance sheet commitments are presented in Table ~~14.1~~13.1 (in thousands):

Table ~~14.1~~13.1


	09/30/2019						12/31/2018						03/31/2020						12/31/2019
Notional Amount	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	$	3,538,145	$	7,290	$	3,545,435	$	3,824,497	$	37,933	$	3,862,430	$	4,732,084	$	7,935	$	4,740,019	$	4,764,724	$	4,335	$	4,769,059
Advance commitments outstanding	77,115		31,420		108,535		116,475		43,782		160,257		61,688		18,632		80,320		64,282		15,693		79,975
Commitments for standby bond purchases	184,945		580,884		765,829		69,277		686,602		755,879		214,751		483,789		698,540		—		701,392		701,392
Commitments to fund or purchase mortgage loans	375,772		—		375,772		101,551		—		101,551		910,677		—		910,677		221,800		—		221,800
Commitments to issue consolidated bonds, at par	81,000		—		81,000		—		—		—		210,000		—		210,000		—		—		—
Commitments to issue consolidated discount notes, at par	—		—		—		1,825,000		—		1,825,000		—		—		—		411,161		—		411,161

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 at the time of issuance 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. Outstanding standby letters of credit have original or extended expiration periods of up to 6 years. ~~Our~~FHLBank's current outstanding standby letters of credit expire no later than ~~2023.~~2024. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to ~~$1,300,000~~$1,388,000 and ~~$1,296,000~~$1,470,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the total commitments for bond purchases included agreements with two in-district state housing authorities. ~~The~~FHLBank was required to purchase $122,390,000 in bonds under these agreements during the three months ended March 31, 2020. These bonds were classified as available-for-sale securities, and were acquired at par and sold at par prior to March 31, 2020. FHLBank was not required to purchase any bonds under any agreements during the three ~~and nine~~ months ended ~~September 30, 2019 and 2018.~~March 31, 2019.

Commitments to Purchase Mortgage Loans: These commitments that unconditionally obligate ~~the~~ FHLBank to purchase mortgage loans from participating FHLBank Topeka members in the MPF Program are generally for periods not to exceed 60 calendar days. Certain commitments are recorded as derivatives at their fair values on the Statements of Condition. ~~The~~ FHLBank recorded mortgage delivery commitment net derivative asset (liability) balances of ~~$(452,000)~~$(6,864,000) and ~~$549,000~~$470,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Commitments to Issue Consolidated Obligations: ~~The~~ FHLBank enters into commitments to issue consolidated obligation bonds and discount notes outstanding in the normal course of its business. 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 1514 – TRANSACTIONS WITH STOCKHOLDERS

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

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

Activity with Members that Exceed a 10 Percent Ownership in FHLBank Capital Stock: Tables ~~15.1~~14.1 and ~~15.2~~14.2 present information on members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (dollar amounts in thousands). None of the officers or directors of these members currently serve on ~~the~~ FHLBank’s board of directors.

Table ~~15.1~~14.1


09/30/2019
03/31/2020														03/31/2020
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock		State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
MidFirst Bank														OK	$	500	0.1	%	$	431,950	31.9	%	$	432,450	24.0	%
BOKF, N.A.	OK	$	99,450	28.7	%	$	312,727	23.6	%	$	412,177	24.6	%	OK	68,664		15.3		247,000		18.2		315,664		17.5
MidFirst Bank	OK	500		0.1		368,500		27.8		369,000		22.1
TOTAL		$	99,950	28.8	%	$	681,227	51.4	%	$	781,177	46.7	%		$	69,164	15.4	%	$	678,950	50.1	%	$	748,114	41.5	%

Table ~~15.2~~14.2


12/31/2018
12/31/2019														12/31/2019
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock		State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
MidFirst Bank														OK	$	500	0.1	%	$	385,825	29.2	%	$	386,325	21.8	%
BOKF, N.A.	OK	$	24,006	9.6	%	$	274,000	21.4	%	$	298,006	19.5	%	OK	184,282		41.0		202,000		15.3		386,282		21.8
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	%		$	184,782	41.1	%	$	587,825	44.5	%	$	772,607	43.6	%

Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are summarized in Table ~~15.3~~14.3 (dollar amounts in thousands).

Table ~~15.3~~14.3


	09/30/2019				12/31/2018				09/30/2019				12/31/2018				03/31/2020				12/31/2019				03/31/2020				12/31/2019
Member Name	Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total
MidFirst Bank																	$	9,610,000	30.6	%	$	8,585,000	28.5	%	$	1,217	0.1	%	$	1,030	0.1	%
BOKF, N.A.	$	6,800,000	22.3	%	$	6,100,000	21.2	%	$	29,785	4.0	%	$	29,288	6.2	%	5,500,000		17.5		4,500,000		14.9		19,760		2.0		22,457		2.9
MidFirst Bank	8,200,000		26.9		6,560,000		22.8		850		0.1		331		0.1
TOTAL	$	15,000,000	49.2	%	$	12,660,000	44.0	%	$	30,635	4.1	%	$	29,619	6.3	%	$	15,110,000	48.1	%	$	13,085,000	43.4	%	$	20,977	2.1	%	$	23,487	3.0	%

For the three months ended March 31, 2020, BOKF, N.A. ~~and~~sold $6,936,000 of mortgage loans into the MPF Program. BOKF, N.A. did not sell any mortgage loans into the MPF Program during the three months ended March 31, 2019. MidFirst Bank did not sell any mortgage loans into the MPF Program during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Transactions with FHLBank Directors’ Financial Institutions: Table ~~15.4~~14.4 presents information as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 for members that had an officer or director serving on ~~the~~ FHLBank’s board of directors (dollar amounts in thousands). Information is only included for the period in which the officer or director served on ~~the~~ FHLBank’s board of directors. Capital stock listed is regulatory capital stock, which includes mandatorily redeemable capital stock.

Table ~~15.4~~14.4


	09/30/2019				12/31/2018				03/31/2020				12/31/2019
	Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total
Advances	$	180,964	0.6	%	$	157,012	0.5	%	$	143,302	0.5	%	$	178,945	0.6	%

Deposits	$	29,295	3.9	%	$	9,679	2.1	%	$	16,765	1.7	%	$	15,748	2.0	%

Class A Common Stock	$	6,344	1.8	%	$	4,179	1.7	%	$	4,671	1.0	%	$	6,467	1.4	%
Class B Common Stock	5,658		0.4		4,924		0.4		5,269		0.4		5,571		0.4
TOTAL CAPITAL STOCK	$	12,002	0.7	%	$	9,103	0.6	%	$	9,940	0.6	%	$	12,038	0.7	%

Table ~~15.5~~14.5 presents mortgage loans acquired during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ for members that had an officer or director serving on ~~the~~ FHLBank’s board of directors in ~~2019~~2020 or ~~2018~~2019 (dollar amounts in thousands). Information is only included for the period in which the officer or director served on ~~the~~ FHLBank’s board of directors.

Table ~~15.5~~14.5

Three Months Ended Nine Months Ended
09/30/2019 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 %



	Three Months Ended
	03/31/2020				03/31/2019
	Amount		Percent of Total		Amount		Percent of Total
Mortgage loans acquired	$	46,109	5.2	%	$	23,080	4.8	%

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,~~2019, which includes audited financial statements and related notes for the year ended December 31, ~~2018.~~2019. Our MD&A includes the following sections:

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

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

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

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

Financial Condition – an analysis of our financial position;

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

Risk Management – a discussion of our risk management strategies;

Impact of Recently Issued Accounting Standards; and

Legislative and Regulatory Developments.

Executive Level Overview

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

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

We serve eligible financial institutions in Colorado, Kansas, Nebraska, and Oklahoma (collectively, the Tenth District of the FHLBank System), who are also the member-owners of ~~the~~ FHLBank. Initially, a member is required to purchase shares of Class A Common Stock based on the member’s total assets subject to a per member cap of $500 thousand. Each member may be required to purchase activity-based capital stock (Class B Common Stock) as it engages in certain business activities with ~~the~~ FHLBank, including advances, standby letters of credit, and Acquired ~~Member~~Members Assets (AMA), at levels determined by management with the Board 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~~unpaid principal balances 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.

True to our mission, we provide a reliable source of funding for members during times of economic stability and periods of crisis. While the nation has seen a fair number of market disruptions during our long history, management believes the speed of the tightening of financial conditions related to the COVID-19 pandemic is unprecedented. While our income is lower than anticipated, a significant portion of the decline in net income in the first quarter of 2020 was the result of losses in fair values. Although market volatility cannot be predicted, the losses are expected to be reversed with market changes in the future. At no time during the first quarter of 2020 did the COVID-19 pandemic affect our balance sheet liquidity or access to the debt markets in such a manner that caused us to be unable to meet the liquidity needs of members. We have continually operated without significant operational difficulties or disruptions during the COVID-19 pandemic, with most employees working remotely since mid-March. At this time, management cannot predict when our full employee base will return to work in our offices or the potential impact of the COVID-19 pandemic to members, counterparties, vendors, and other third parties upon which we rely to conduct business. We will comply with state and local guidelines as we plan our transition back to the office, which will include a phased approach to the lifting of restrictions.

Due to stress in the financial markets associated with the COVID-19 pandemic, we made temporary changes to assist our members including increased flexibility for collateral through acceptance of various types of forbearance plans and loan modification agreements, including those with electronic signatures. For MPF customers, we waived delivery commitment extension fees through April 15, 2020 and eased certain underwriting, documentation and payment requirements for those impacted by the pandemic. Additional measures taken beginning in April 2020 include easing certain advance and collateral requirements. Starting on April 22, 2020, we began offering $1.5 billion in zero-cost and $1.5 billion in low-rate funding to help members serve their customers affected by the pandemic. We worked with the Federal Reserve to allow members to pledge their newly created Paycheck Protection Program (PPP) loans to the Federal Reserve Bank of Kansas City. Additionally, beginning May 7, 2020, members may pledge Small Business Administration (SBA) PPP loans to us as collateral. We continue to monitor the progress of the pandemic and are committed to assisting our members and their communities as impacts related to the pandemic continue to unfold.

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

Table 1


	09/30/2019			06/30/2019			03/31/2019			12/31/2018			09/30/2018			03/31/2020			12/31/2019			09/30/2019			06/30/2019			03/31/2019
Statement of Condition (as of period end):
Total assets	$	57,131,130		$	60,078,297		$	57,427,696		$	47,715,256		$	51,297,350		$	63,189,513		$	63,276,654		$	57,131,130		$	60,078,297		$	57,427,696
Investments¹	16,248,522			19,442,680			18,522,066			10,305,382			14,440,009			19,597,238			20,086,473			16,248,522			19,442,680			18,522,066
Advances	30,634,583			31,099,119			29,862,995			28,730,113			28,471,709			31,678,083			30,241,315			30,634,583			31,099,119			29,862,995
Mortgage loans, net²	9,833,763			9,192,097			8,701,250			8,410,462			8,114,220			11,018,168			10,633,009			9,833,763			9,192,097			8,701,250
Total liabilities	54,472,808			57,497,604			54,948,846			45,261,004			48,907,457			60,475,924			60,485,603			54,472,808			57,497,604			54,948,846
Deposits	756,376			589,543			544,500			473,820			446,282			975,397			790,640			756,376			589,543			544,500
Consolidated obligation discount notes, net³	21,044,232			27,163,395			26,785,113			20,608,332			22,417,330			25,563,980			27,447,911			21,044,232			27,163,395			26,785,113
Consolidated obligation bonds, net³	32,441,885			29,516,980			27,400,165			23,966,394			25,836,920			33,730,055			32,013,314			32,441,885			29,516,980			27,400,165
Total consolidated obligations, net³	53,486,117			56,680,375			54,185,278			44,574,726			48,254,250			59,294,035			59,461,225			53,486,117			56,680,375			54,185,278
Mandatorily redeemable capital stock	2,477			2,750			3,548			3,597			4,536			2,390			2,415			2,477			2,750			3,548
Total capital	2,658,322			2,580,693			2,478,850			2,454,252			2,389,893			2,713,589			2,791,051			2,658,322			2,580,693			2,478,850
Capital stock	1,670,690			1,598,504			1,508,396			1,524,537			1,463,923			1,802,296			1,766,456			1,670,690			1,598,504			1,508,396
Total retained earnings	972,948			950,276			942,840			914,022			894,016			980,612			999,809			972,948			950,276			942,840
AOCI	14,684			31,913			27,614			15,693			31,954			(69,319		)	24,786			14,684			31,913			27,614
Statement of Income (for the quarterly period ended):
Net interest income	74,415			49,230			63,015			68,175			67,659			55,086			69,404			74,415			49,230			63,015
Provision (reversal) for credit losses on mortgage loans	393			38			78			372			(391		)	(736		)	(122		)	393			38			78
Other income (loss)	(1,507		)	4,368			12,674			(1,822		)	(1,500		)	(23,229		)	7,438			(1,507		)	4,368			12,674
Other expenses	18,633			18,313			16,990			17,722			20,428			19,443			18,880			18,633			18,313			16,990
Income before assessments	53,882			35,247			58,621			48,259			46,122			13,150			58,084			53,882			35,247			58,621
Affordable Housing Program (AHP) assessments	5,391			3,529			5,866			4,831			4,618			1,318			5,811			5,391			3,529			5,866
Net income	48,491			31,718			52,755			43,428			41,504			11,832			52,273			48,491			31,718			52,755
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid in cash⁴	70			68			71			63			69			70			72			70			68			71
Dividends paid in stock⁴	25,749			24,214			23,866			23,359			23,209			24,836			25,340			25,749			24,214			23,866
Weighted average dividend rate⁵	6.61		%	6.56		%	6.56		%	6.24		%	6.32		%	5.94		%	6.14		%	6.61		%	6.56		%	6.56		%
Dividend payout ratio⁶	53.25		%	76.55		%	45.37		%	53.93		%	56.09		%	210.50		%	48.61		%	53.25		%	76.55		%	45.37		%
Return on average equity	7.54		%	5.13		%	8.77		%	7.07		%	6.89		%	1.75		%	7.82		%	7.54		%	5.13		%	8.77		%
Return on average assets	0.33		%	0.22		%	0.40		%	0.33		%	0.32		%	0.08		%	0.35		%	0.33		%	0.22		%	0.40		%
Average equity to average assets	4.36		%	4.37		%	4.54		%	4.69		%	4.67		%	4.44		%	4.52		%	4.36		%	4.37		%	4.54		%
Net interest margin⁷	0.51		%	0.35		%	0.48		%	0.52		%	0.53		%	0.36		%	0.47		%	0.51		%	0.35		%	0.48		%
Total capital ratio⁸	4.65		%	4.30		%	4.32		%	5.14		%	4.66		%	4.29		%	4.41		%	4.65		%	4.30		%	4.32		%
Regulatory capital ratio⁹	4.63		%	4.25		%	4.27		%	5.12		%	4.61		%	4.41		%	4.38		%	4.63		%	4.25		%	4.27		%


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

The allowance for credit losses on mortgage loans was $6,468,000, $985,000, $905,000, $858,000 ~~$824,000, $812,000~~ and ~~$656,000~~$824,000 as of March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019, ~~December 31, 2018~~respectively. Effective January 1, 2020, new accounting guidance was adopted relating to the measurement of credit losses on financial instruments and ~~September 30, 2018, respectively.~~resulted in a cumulative effect adjustment of $6,123,000.


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

⁴

Dividends reclassified as interest expense on mandatorily redeemable capital stock and not included as dividends recorded in accordance with GAAP were $24,000, $26,000, $30,000, $40,000 ~~$43,000, $54,000~~ and ~~$58,000~~$43,000 for the quarters ended March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019, ~~December 31, 2018 and 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 ~~increased $7.0~~decreased $41.0 million, or ~~16.8~~77.6 percent, to ~~$48.5~~$11.8 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$41.5~~$52.8 million for the three months ended ~~September~~March 30, ~~2018. Net income increased $6.2 million, or 4.8 percent, for the nine months ended September 30, 2019~~2019. The decrease was largely due to ~~$133.0 million compared to $126.8 million for the nine months ended September 30, 2018. The increase in both periods was driven by fair value fluctuations~~unrealized net losses on ~~derivatives and~~ trading securities and derivatives that do not qualify for hedge accounting (economic derivatives) and, to a smaller degree, a decrease in net interest income. The temporary declines in the ~~change~~fair values of derivatives resulted from market volatility related to the COVID-19 pandemic, as spreads between investments and their associated swaps widened considerably, therefore impacting fair values at the end of the quarter, which are recorded in net interest income for ~~the respective period. Declines in longer-term market~~qualifying hedges. Net interest settlements on interest rate swaps declined as interest rates ~~since December 31, 2018 resulted in unrealized fair value losses recorded~~declined, which impacted net interest income for ~~the majority of economic derivatives for both the three-~~qualifying hedges 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 an increase in other income for both the three- and 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.economic swaps.

Net interest income decreased $7.9 million, or 12.6 percent, to $55.1 million for the ~~three months~~quarter ended ~~September 30, 2019 was $74.4 million~~March 31, 2020 compared to ~~$67.7~~$63.0 million for the same period in the prior year. For the nine months ended September 30, 2019, net interest income was $186.7 million compared to $203.0 million for the same period in the prior year. The average cost of debt increased for both the three- and nine-month periods ended September 30, 2019 compared to the 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 recent increase in the average cost of debt. Accelerated amortization of concessions (i.e., broker fees) on called debt and 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; however, the impact was positive for the third quarter of 2019, due to the ~~out-of-period adjustment~~negative impact of fair value hedges and ~~negative~~tightening of portfolio spreads on mortgage assets due to factors related to the decline in market interest rates, including accelerated amortization of mortgage loan premiums and concessions on called consolidation obligation bonds, offset somewhat by the lower cost of debt refinanced towards the end of 2019 and early in the current quarter. The debt refinanced in March 2020 will provide a benefit in future periods, but the net result of increased amortization for the ~~2019 year-to-date period. Detailed discussion relating to the fluctuations~~current period was a decline 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 change in net interest income 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 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 us. The guidance was adopted prospectively, so the fair value fluctuations on fair value hedges in the prior year are presented in other income, which creates a lack of comparability between periods.income.

Total assets ~~increased $9.4~~remained relatively flat between periods, from $63.3 billion at December 31, 2019 to $63.2 billion at March 31, 2020, but the asset composition shifted, as short-term assets declined $2.4 billion, or ~~19.7~~28.9 percent, and advances grew by $1.4 billion, or 4.8 percent, and mortgage loans grew by $385.2 million, or 3.6 percent. Total liabilities decreased $9.7 million from December 31, ~~2018~~2019 to September 30, 2019 primarily due to increases in short- and long-term investments, advances, and mortgage loans. 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~~2020 which corresponded with the ~~purchase~~slight decline in assets, and the funding mix shifted to a lower percentage of ~~$5.0 billion in U.S. Treasury obligations since the third quarter of 2018.~~

Total liabilities increased $9.2 billion, or 20.4 percent, from December 31, 2018 to September 30, 2019. This increase was primarily due to an $8.5 billion increase in consolidated obligation bonds and a $0.4 billion increase in consolidated obligation discount notes ~~to fund asset growth.~~between periods, which corresponded with the decline in short-term 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,~~the Secured Overnight Financing Rate (SOFR), Prime, Treasury bills, 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.~~index swap (OIS) rate. For additional information on market trends impacting the cost of issuing debt, including discussion of the transition from LIBOR to an alternate reference rate, see "Market Trends" and "Financial Condition" under this Item ~~2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”~~ 2.

Total capital ~~increased $204.1~~decreased $77.5 million, or ~~8.3~~2.8 percent, between periods primarily due to ~~the increase in capital stock from increased advance utilization~~unrealized losses on available-for-sale securities and ~~net income~~dividends paid in excess of ~~dividends paid.~~

~~The increase in~~ net income for the ~~current~~ quarter ended March 31, 2020, partially offset by an increase in required capital stock related to advance utilization.

The decrease in net income combined with an increase in average equity resulted in ~~an increase in~~a return on average equity (ROE)~~, from 6.89~~ of 1.75 percent for the three months ended ~~September 30, 2018~~March 31, 2020 compared to ~~7.54~~8.77 percent for the prior year period. Dividends paid to members totaled $24.9 million for the three months ended ~~September 30, 2019. The increase in net income combined with a decrease in average capital~~March 31, 2020 compared to $23.9 million for the prior year. From March 31, 2019 to March 31, 2020, the dividend rate for Class A Common Stock remained at 2.25 percent and the dividend rate for Class B Common Stock decreased to 7.25 percent for the current ~~nine-month~~ period ~~resulted in an increase in ROE,~~ from ~~6.74~~7.50 percent for the ~~nine months ended September 30, 2018 compared to 7.14 percent for the nine months ended September 30, 2019.~~prior year period. The weighted average dividend rate for the ~~three months~~quarter ended ~~September 30, 2019~~March 31, 2020 was ~~6.61~~5.94 percent, which represented a dividend payout ratio of ~~53.2~~210.5 percent, compared to a weighted average dividend rate of ~~6.32~~6.56 percent and a payout ratio of ~~56.1~~45.4 percent for the same period in 2018. The weighted average dividend rate for the nine months ended September 30, 2019 was 6.58 percent, which represented a dividend payout ratio of 55.7 percent, compared to a weighted average dividend rate of 6.10 percent and a payout ratio of 57.7 percent for the same period in 2018.

~~The increase~~2019. Differences in the weighted average dividend rates ~~was~~between periods are due to ~~increases in~~ the ~~dividend rate on our Class A Common Stock and Class B Common Stock between periods and differences~~difference in the mix of outstanding Class A Common Stock and Class B Common Stock between ~~periods. The Class A Common Stock dividend rate increased from 2.00 percent to 2.50 percent~~those periods, and the ~~Class B Common Stock~~change in dividend ~~rate increased from 7.25 percent to 7.50 percent between September 30, 2018 and September 30, 2019. Factors~~rates. Other factors impacting the outstanding stock class mix during the first quarter of 2020 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). The significant increase in payout ratios between periods was a result of the steep decline in net income from the aforementioned COVID-19 related market volatility. We anticipate stock dividends on Class A Common Stock and Class B Common Stock will be lower in the second quarter of 2020, consistent with the lower level of short‑term interest rates and our retained earnings policy.

FHFA guidance requires that our strategic business plan describes how our business activities will achieve our mission consistent with the FHFA’s core mission achievement guidance. We intend to manage our balance sheet with an emphasis towards maintaining a primary mission 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~~available-for-sale with maturities of ten years or less utilizing par balances (primary mission asset ratio) was 7576 percent for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. However, because this ratio is dependent on several variables such as member demand for our advance and mortgage loan products, it is possible that we will be unable to maintain the primary mission 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


	09/30/2019		09/30/2018		09/30/2019		09/30/2018		09/30/2019		12/31/2018		09/30/2018		03/31/2020		03/31/2019		03/31/2020		12/31/2019		03/31/2019
Market Instrument	Three-month				Nine-month				Ending				Ending		Three-month				Ending		Ending		Ending
Market Instrument	Average								Rate				Rate		Average				Rate		Rate		Rate
Secured Overnight Financing Rate^1,2	2.28	%	1.93	%	2.38	%	N/A		2.35	%	3.00	%	2.25	%
Secured Overnight Financing Rate¹															1.23	%	2.43	%	0.01	%	1.55	%	2.65	%
Federal funds effective rate¹	2.20		1.92		2.33		1.70	%	1.90		2.40		2.18		1.23		2.40	%	0.08		1.55		2.43
Federal Reserve interest rate on excess reserves¹	2.15		1.96		2.30		1.76		1.80		2.40		2.20		1.24		2.40		0.10		1.55		2.40
3-month U.S. Treasury bill¹	2.02		2.06		2.26		1.83		1.84		2.36		2.20		1.11		2.43		0.09		1.55		2.39
3-month LIBOR¹	2.20		2.34		2.46		2.20		2.09		2.81		2.40		1.53		2.69		1.45		1.91		2.60
2-year U.S. Treasury note¹	1.68		2.66		2.10		2.43		1.62		2.51		2.82		1.10		2.49		0.25		1.57		2.28
5-year U.S. Treasury note¹	1.62		2.81		2.07		2.70		1.55		2.53		2.95		1.16		2.47		0.38		1.69		2.25
10-year U.S. Treasury note¹	1.79		2.92		2.26		2.87		1.68		2.70		3.06		1.38		2.65		0.67		1.92		2.42
30-year residential mortgage note rate^1,3	3.99		4.83		4.31		4.72		3.99		4.84		4.96
30-year residential mortgage note rate^1,2															3.73		4.64		3.47		3.95		4.36


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 ~~nine months~~quarter of ~~2019,~~2020, the cost of FHLBank consolidated obligations as measured by the spread to comparative U.S. Treasury rates remained relatively stable, although the ~~yield curve inverted, which made~~market volatility resulting from the COVID-19 pandemic widened spreads and the fixed-income market conditions became more challenging, with market participants favoring shorter-term ~~debt more expensive relative to longer-term structures. During the October 2019 meeting,~~obligations. In March 2020, the Federal Open Market Committee (FOMC) lowered the target Federal funds rate another 25 basis points, the third decrease since the FOMC began a series of rate increases in 2015, citing global economic uncertainty and persistently low inflationary pressures. The possibility of an additional reduction inannounced two emergency decreases to the Federal funds rate, ~~in 2019~~bringing the target range to zero to 0.25 percent due to the anticipated negative impact of the COVID-19 pandemic on the U.S. economy.

The FOMC stated its intent to maintain this target range until it is ~~contingent upon, among other things, labor market conditions, inflation indicators~~confident that the economy has recovered from the downturn related to the COVID-19 pandemic and ~~expectations,~~is on track to achieve its maximum employment and ~~financial~~price stability goals. The FOMC stated its intent to continue its purchases of U.S. Treasuries and ~~international developments.~~agency MBS as part of quantitative easing. 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.

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

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

Other factors impacting FHLBank consolidated obligations:

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~~include: (1) the ~~following:~~

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

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

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

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

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

The accounting policies that management believes are the most critical to an understanding of our financial results and condition and require complex management judgment are described under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our annual report on Form 10-K, incorporated by reference herein. There were no material changes to our critical accounting policies and estimates during the quarter ended ~~September 30, 2019.~~March 31, 2020.

Results of Operations

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

Table 3


	Increase (Decrease) in Earnings Components										Increase (Decrease) in Earnings Components
	Three Months Ended					Nine Months Ended					Three Months Ended
	09/30/2019 vs. 09/30/2018					09/30/2019 vs. 09/30/2018					03/31/2020 vs. 03/31/2019
	Dollar Change			Percentage Change		Dollar Change			Percentage Change		Dollar Change			Percentage Change
Total interest income	$	78,938		24.9	%	$	242,303		26.7	%	$	(72,633	)	(19.5	)%
Total interest expense	72,182			28.9		258,665			36.8		(64,704		)	(20.9	)
Net interest income	6,756			10.0		(16,362		)	(8.1	)	(7,929		)	(12.6	)
Provision (reversal) for credit losses on mortgage loans	784			200.5		854			247.5		(814		)	(1,043.6	)
Net interest income after mortgage loan loss provision	5,972			8.8		(17,216		)	(8.5	)	(7,115		)	(11.3	)
Net gains (losses) on trading securities	27,700			240.6		137,279			271.9		65,634			228.3
Net gains (losses) on derivatives and hedging activities	(26,418		)	(438.0	)	(108,600		)	(366.1	)	(103,710		)	(559.3	)
Other non-interest income	(1,289		)	(32.4	)	(2,119		)	(21.6	)	2,173			88.3
Total other income (loss)	(7		)	(0.5	)	26,560			240.9		(35,903		)	(283.3	)
Operating expenses	(2,633		)	(15.1	)	501			1.2		1,628			12.0
Other non-interest expenses	838			28.1		2,049			22.9		825			23.7
Total other expenses	(1,795		)	(8.8	)	2,550			5.0		2,453			14.4
AHP assessments	773			16.7		673			4.8		(4,548		)	(77.5	)
NET INCOME	$	6,987		16.8	%	$	6,121		4.8	%	$	(40,923	)	(77.6	)%

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

Table 4


	Three Months Ended								Nine Months Ended								Three Months Ended
	09/30/2019				09/30/2018				09/30/2019				09/30/2018				03/31/2020				03/31/2019
	Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total
Investments¹	$	132,737	33.5	%	$	92,374	29.2	%	$	359,216	31.3	%	$	258,002	28.5	%	$	84,334	28.1	%	$	112,037	30.0	%
Advances	186,431		47.1		158,943		50.1		563,602		49.0		460,751		50.8		130,887		43.5		187,609		50.3
Mortgage loans held for portfolio	76,546		19.3		65,424		20.6		225,015		19.6		186,709		20.6		85,106		28.3		73,284		19.6
Other	346		0.1		381		0.1		1,097		0.1		1,165		0.1		354		0.1		384		0.1
TOTAL INTEREST INCOME	$	396,060	100.0	%	$	317,122	100.0	%	$	1,148,930	100.0	%	$	906,627	100.0	%	$	300,681	100.0	%	$	373,314	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.

While our income is lower than anticipated for the first quarter of 2020, a significant portion of the decline in net income in the first quarter of 2020 was the result of losses in fair values. At no time during the first quarter of 2020 did the COVID-19 pandemic affect our balance sheet liquidity or access to the debt markets in such a manner that caused us to be unable to meet the liquidity needs of members. We have continually operated without significant operational difficulties or disruptions during the initial stages of the COVID-19 pandemic in the first quarter, with most employees working remotely since mid-March. At this time, management cannot predict when our full employee base will return to work in our offices or the potential impact of the COVID-19 pandemic to members, counterparties, vendors, and other third parties upon which we rely to conduct business. We will comply with state and local guidelines as we plan our transition back to the office, which include a phased approach to the lifting of restrictions.

Net income ~~for the three months ended September 30, 2019 was $48.5~~ decreased $41.0 million, ~~compared~~or 77.6 percent, to ~~$41.5~~$11.8 million for the three months ended ~~September 30, 2018. Net income for the nine months ended September 30, 2019 was $133.0 million~~March 31, 2020 compared to ~~$126.8~~$52.8 million for the ~~nine~~three months ended ~~September~~March 30, ~~2018.~~2019. The ~~increase in both periods~~decrease was ~~driven by fair value fluctuations~~largely due to unrealized net losses on ~~derivatives and~~ trading securities and ~~the change~~derivatives that do not qualify for hedge accounting (economic derivatives) and, to a smaller degree, a decrease in net interest income, ~~for~~which is discussed in greater detail below. The declines in the ~~respective period. Declines in longer-term~~fair values of derivatives resulted from market ~~interest rates since December 31, 2018 resulted in unrealized~~volatility related to the COVID-19 pandemic as spreads between investments and their associated swaps widened considerably therefore impacting fair ~~value losses recorded for~~values at the ~~majority~~end of ~~economic derivatives for~~ the ~~three and nine months ended September 30, 2019; however, those losses were largely offset by positive~~quarter. While we generally consider fair value fluctuations to be temporary and expect to recover these losses in future periods, the outlook for the remainder of 2020 is uncertain, so the fair values of our assets and derivatives could decline further or fail to recover for a prolonged period of time. Detailed discussion relating to the fluctuations in net gains (losses) on derivatives and hedging activities and net gains (losses) on trading ~~securities. The prior year comparative periods recorded fair value net losses on economic derivatives and trading~~ securities ~~which resulted~~can be found in ~~an increase in other income for both~~this section under the three- and 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 – Netheading "Net Gains (Losses) on Derivatives and Hedging Activities"~~). Included in net income for the three months ended September 30,~~ and "Net Gains (Losses) On Trading Securities." Other expenses increased by $2.5 million from March 31, 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~~March 31, 2020 primarily due to an increase in ~~available-for-sale interest income~~compensation and ~~a reduction~~benefits, mortgage loan transaction fees due to the growth in ~~other comprehensive income. For additional information on~~ the ~~out-of-period adjustment, see Note 1~~mortgage loan portfolio, and our proportionate share of ~~the Notes to Financial Statements under Part I, Item 1.~~FHFA and Office of Finance expenses.

Net Interest Income:Net interest income which includes interest earned on advances, mortgage loans, and investments less interest paid on consolidated obligations, deposits, and other borrowings is the primary source of our earnings. Net interest income increased $6.8was $55.1 million for the ~~three months~~quarter ended ~~September 30, 2019 and decreased $16.4~~March 31, 2020 compared to $63.0 million for the ~~nine months ended September 30, 2019 compared to~~same period in the prior ~~year periods.~~year. The ~~average cost of debt increased for both the three- and nine-month periods due to an increase~~Federal Reserve’s rapid reduction in ~~average~~ short-term interest rates ~~between periods. Market~~and purchase of U.S. Treasury bonds in response to the pandemic-related market volatility resulted in declines across the interest ~~rates, particularly~~rate curve, but most notably created margin compression on the short end, as overnight assets repriced downward faster than the liabilities funding them. The decline in long-term interest rates ~~decreased during the second and third quarters of 2019, which~~ caused an increase in ~~prepayment speeds~~mortgage loan prepayments, which accelerated amortization of premiums on mortgage-related assets, ~~resulting~~thereby reducing net interest income. The $7.9 million, or 12.6 percent, decline in ~~acceleration~~net interest income was also a result of ~~premium amortization. However, this~~fair value declines on qualifying hedges from COVID-19-related market volatility and declines in net interest settlements on qualifying hedges (see Tables 5 and 6). The decrease in long-term market interest rates allowed us to replace ~~some~~$4 billion of callable ~~consolidated obligation bonds~~debt at a lower cost ~~which we expect~~during the current quarter, resulting in accelerated amortization of concessions (broker fees). The refinanced debt will ~~eventually partially offset some~~provide a benefit in future periods, but the net result of increased amortization for the ~~recent increase~~current period was a decline in net interest income.

Yields: Market interest rates and trends affect yields and net interest margin on earning assets, including advances, mortgage loans, and investments. The average yield on total interest-earning assets for the three months ended March 31, 2020 was 1.98 percent compared to 2.83 percent for the three months ended March 31, 2019. The average cost of debt. Accelerated amortization of concessions (i.e., broker fees) on called debt and accelerated premium amortization on mortgages and MBS reduced net interest income for both the three- and nine-month periods. Both periods were also impacted by fair value fluctuations on designated fair value hedges; however, the impact was positiveinterest-bearing liabilities for the ~~quarter largely due~~three months ended March 31, 2020 was 1.70 percent, compared to ~~the impact of the out-of-period adjustment and negative~~2.47 percent for the ~~year-to-date period.~~

three months ended March 31, 2019. Net interest margin ~~decreased from 53~~declined by 12 basis points to 36 basis points for the three months ended ~~September 30, 2018~~March 31, 2020 compared to 5148 basis points for the same period in the prior year due to spread compression driven largely by the changes in short-term interest rates, specifically as it relates to overnight assets funded with term debt, as the average cost of discount notes decreased 94 basis points during the current quarter compared to the prior year period and the average yield on short-term investments decreased 123 basis points over the same period (see Table 7). The fair value losses and decline in net interest settlements on qualifying hedges decreased net interest margin by eight basis points and net interest spread by seven basis points. The increase in net premium amortization on mortgage loans combined with the net premium amortization and accelerated concession amortization on consolidated obligations decreased net interest spread and net interest margin by five basis points each.

Average Balances: The average balance of interest-earning assets increased $7.6 billion, or 14.1 percent, for the three months ended ~~September 30, 2019, and decreased from 50 basis points for~~March 31, 2020 compared to the ~~nine months ended September 30, 2018 to 45 basis points for~~same period in the ~~nine months ended September 30, 2019. The decline in net interest margin unrelated to fair value fluctuations for both periods~~prior year. This increase was ~~primarily~~ due to ana $4.0 billion, or 23.4 percent, increase in the ~~cost~~average balance of consolidated obligations, which increased 26 basis points and 60 basis points for the three and nine months ended September 30, 2019, respectively, compared to the prior year periods. Net interest spread decreased for the three and nine months ended 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 9 and 11).

~~The average yield on~~ investments, which ~~consists~~consist of interest-bearing deposits, Federal funds sold, reverse repurchase agreements, and investment securities, ~~increased 38 basis points, from 2.37~~and a $2.3 billion, or 27.0 percent, for the three months ended September 30, 2018 to 2.75 percent for the three months ended September 30, 2019. The average yield on investments increased 43 basis points, from 2.16 percent for the nine months ended September 30, 2018 to 2.59 percent for the nine months ended 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 19 basis points, from 2.31 percent for the three months ended September 30, 2018 to 2.50 percent for the three months ended September 30, 2019. The average yield on advances increased 65 basis points, from 2.00 percent for the nine months ended September 30, 2018 to 2.65 percent for the nine months ended September 30, 2019. The increase in the average ~~yield on advances during both the three and nine months ended September 30, 2019 compared to the prior year periods was due to continued increases in our cost~~balance of funds related to FOMC policy changes between periods and the corresponding 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.mortgage loans. The average balance of advances increased ~~$2.3~~$1.2 billion, or ~~8.4~~4.4 percent, ~~from~~during the ~~three months ended September 30, 2018~~first quarter of 2020 compared to the same period in ~~2019. The~~the prior year almost entirely as a result of an increase the average balance of line of credit advances, ~~decreased $2.3 billion, or 7.4 percent, from the nine months ended September 30, 2018 to the same period of 2019. The~~partially offset by a decline in the average balance of term advances ~~for the year-to-date period is relative to higher advance balances~~as members sought pricing efficiency 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 thea declining rate ~~on excess 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 decreased 7 basis points, from 3.26 percent for the three months ended September 30, 2018 to 3.19 percent for the three months ended September 30, 2019. The average yield on mortgage loans increased 8 basis points, from 3.26 percent for the nine months ended September 30, 2018 to 3.34 percent for the nine months ended September 30, 2019. The decrease in yield for the three-month period was a result of increased premium 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 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 26 basis points, from 2.11 percent for the three months ended September 30, 2018 to 2.37 percent for the current three-month period, and the average cost of discount notes increased 24 basis points over the same period, from 1.96 percent for the three months ended September 30, 2018 to 2.20 percent for the three months ended September 30, 2019. The average cost of consolidated obligation bonds increased 53 basis points, from 1.93 percent for the nine months ended September 30, 2018 to 2.46 percent for the nine months ended September 30, 2019. The average cost of discount notes increased 66 basis points, from 1.69 percent for the nine months ended September 30, 2018 to 2.35 percent for the nine months ended 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, most notably short-term interest rates, between periods. The decline in interest rates during the second and third quarters of 2019 allowed us to call some callable consolidated obligation bonds and replace at a lower cost, which will ultimately offset some of the increase in the average cost of debt.environment. For further discussion of ~~how we use discount notes~~investments, advances and ~~bonds,~~mortgage loans, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial ~~Condition – Consolidated Obligations.~~Condition.”

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 (see Tables 9 and 10 under this Item 2) instead of net interest income, ~~(net interest received/paid on economic derivatives is identified in Tables 13 through 16 under this Item 2),~~ which does not reflect the full economic impact of the swaps on yields, especially for trading investments that are swapped to a variable rate. Tables 5 ~~through 8~~and 6 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):

Table 5


	Three Months Ended 09/30/2019																	Three Months Ended 03/31/2020
	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	$	(924	)	$	12,610	$	—		$	—		$	114		$	11,800		$	(1,915	)	$	(5,780	)	$	—		$	(5	)	$	2	$	(7,698	)
Net amortization/accretion of hedging activities	(182		)	—		(658		)	—			—			(840		)	(258		)	—			(982		)	—			—		(1,240		)
Net interest received (paid)	4,588			1,665		—			(1		)	(1,260		)	4,992			(1,117		)	(10,360		)	—			2,838			5,619		(3,020		)
TOTAL	$	3,482		$	14,275	$	(658	)	$	(1	)	$	(1,146	)	$	15,952		$	(3,290	)	$	(16,140	)	$	(982	)	$	2,833		$	5,621	$	(11,958	)

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~~


	Nine Months Ended 09/30/2018															Three Months Ended 03/31/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Total			Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes																$	(166	)	$	(3,674	)	$	—		$	—	$	(219	)	$	(4,059	)
Net amortization/accretion of hedging activities	$	(3,283	)	$	—		$	(182	)	$	—		$	(3,465	)	(807		)	—			(460		)	—		—			(1,267		)
Net interest received (paid)	4,423			(752		)	—			(2,700		)	971			7,403			1,595			—			2		(3,625		)	5,375
TOTAL	$	1,140		$	(752	)	$	(182	)	$	(2,700	)	$	(2,494	)	$	6,430		$	(2,079	)	$	(460	)	$	2	$	(3,844	)	$	49

Table 97 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 97


	Three Months Ended												Three Months Ended
	09/30/2019						09/30/2018						03/31/2020						03/31/2019
	Average Balance		Interest Income/ Expense		Yield¹		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	920,843	$	5,300	2.28	%	$	778,834	$	3,931	2.00	%	$	1,451,820	$	4,705	1.30	%	$	836,128	$	5,170	2.51	%
Securities purchased under agreements to resell	4,437,123		26,768		2.39		3,989,197		20,618		2.05		4,105,066		14,590		1.43		4,423,022		27,930		2.56
Federal funds sold	1,456,826		8,179		2.23		1,604,630		7,896		1.95		1,559,099		3,488		0.90		1,719,989		10,324		2.43
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
Investment securities¹													14,069,587		61,551		1.76		10,190,398		68,613		2.73
Advances^1,2													28,933,750		130,887		1.82		27,707,072		187,609		2.75
Mortgage loans^3,4													10,846,508		85,106		3.16		8,537,768		73,284		3.48
Other interest-earning assets	45,861		346		2.99		45,700		381		3.30		54,294		354		2.62		49,229		384		3.16
Total earning assets	58,336,128		396,060		2.69		50,783,588		317,122		2.48		61,020,124		300,681		1.98		53,463,606		373,314		2.83
Other non-interest-earning assets	227,491						357,581						424,029						296,971
Total assets	$	58,563,619					$	51,141,169					$	61,444,153					$	53,760,577

Interest-bearing liabilities:
Deposits	$	542,683	2,540		1.86		$	543,255	2,289		1.67		$	658,239	1,554		0.95		$	513,230	2,688		2.12
Consolidated obligations³:
Consolidated obligations¹:
Discount Notes	24,054,320		133,680		2.20		21,865,096		108,137		1.96		25,100,421		92,951		1.49		24,874,122		148,991		2.43
Bonds	30,952,832		185,096		2.37		26,025,883		138,668		2.11		32,362,842		150,742		1.87		25,555,414		158,157		2.51
Other borrowings	46,487		329		2.81		54,836		369		2.66		60,181		348		2.33		69,428		463		2.70
Total interest-bearing liabilities	55,596,322		321,645		2.29		48,489,070		249,463		2.04		58,181,683		245,595		1.70		51,012,194		310,299		2.47
Capital and other non-interest-bearing funds	2,967,297						2,652,099						3,262,470						2,748,383
Total funding	$	58,563,619					$	51,141,169					$	61,444,153					$	53,760,577

Net interest income and net interest spread⁷			$	74,415	0.40	%			$	67,659	0.44	%
Net interest income and net interest spread⁵															$	55,086	0.28	%			$	63,015	0.36	%

Net interest margin⁸					0.51	%					0.53	%
Net interest margin⁶																	0.36	%					0.48	%


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.


⁴²	Advance income includes prepayment fees on terminated advances.


⁵³	CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was ~~$1.7~~$2.0 million and ~~$1.5~~$1.6 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.


⁶⁴	Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.


⁷⁵	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


⁸⁶	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 108 summarizes changes in interest income and interest expense (in thousands):

Table 108


	Three Months Ended									Three Months Ended
	09/30/2019 vs. 09/30/2018									03/31/2020 vs. 03/31/2019
	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	$	774		$	595		$	1,369		$	2,706		$	(3,171	)	$	(465	)
Securities purchased under agreements to resell	2,470			3,680			6,150			(1,884		)	(11,456		)	(13,340		)
Federal funds sold	(768		)	1,051			283			(887		)	(5,949		)	(6,836		)
Investment securities	23,735			8,826			32,561			21,354			(28,416		)	(7,062		)
Advances	13,901			13,587			27,488			7,982			(64,704		)	(56,722		)
Mortgage loans	12,428			(1,306		)	11,122			18,526			(6,704		)	11,822
Other assets	1			(36		)	(35		)	37			(67		)	(30		)
Total interest-earning assets	52,541			26,397			78,938			47,834			(120,467		)	(72,633		)
Interest Expense³:
Deposits	(2		)	253			251			618			(1,752		)	(1,134		)
Consolidated obligations:
Discount notes	11,426			14,117			25,543			1,343			(57,383		)	(56,040		)
Bonds	28,202			18,226			46,428			36,727			(44,142		)	(7,415		)
Other borrowings	(59		)	19			(40		)	(58		)	(57		)	(115		)
Total interest-bearing liabilities	39,567			32,615			72,182			38,630			(103,334		)	(64,704		)
Change in net interest income	$	12,974		$	(6,218	)	$	6,756		$	9,204		$	(17,133	)	$	(7,929	)


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~~

Nine Months Ended
09/30/2019 09/30/2018
Average
Balance Interest
Income/
Expense Yield Average
Balance Interest
Income/
Expense Yield
Interest-earning assets:

Interest-bearing deposits $ 856,180
$ 15,518
2.42 % $ 705,057
$ 9,402
1.78 %
Securities purchased under agreements to resell 4,512,240
84,266
2.50
3,369,892
46,610
1.85
Federal funds sold 1,583,982
28,058
2.37
2,343,044
29,539
1.69
Investment securities^1,2
11,585,625
231,374
2.67
9,563,982
172,451
2.41
Advances^2,3
28,486,279
563,602
2.65
30,765,902
460,751
2.00
Mortgage loans^4,5
9,004,201
225,015
3.34
7,656,992
186,709
3.26
Other interest-earning assets 47,627
1,097
3.08
45,761
1,165
3.40
Total earning assets 56,076,134
1,148,930
2.74
54,450,630
906,627
2.23
Other non-interest-earning assets 271,516

341,634

Total assets $ 56,347,650

$ 54,792,264

Interest-bearing liabilities:

Deposits $ 511,000
7,701
2.01
$ 559,483
6,113
1.46
Consolidated obligations²:

Discount Notes 24,619,124
433,473
2.35
24,883,153
314,109
1.69
Bonds 28,290,980
519,967
2.46
26,506,554
382,442
1.93
Other borrowings 54,571
1,129
2.77
44,522
941
2.82
Total interest-bearing liabilities 53,475,675
962,270
2.41
51,993,712
703,605
1.81
Capital and other non-interest-bearing funds 2,871,975

2,798,552

Total funding $ 56,347,650

$ 54,792,264

Net interest income and net interest spread⁶

$ 186,660
0.33 %
$ 203,022
0.42 %

Net interest margin⁷

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 $5.0 million and $4.5 million for the nine months ended 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~~

Nine 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 $ 2,286
$ 3,830
$ 6,116
Securities purchased under agreements to resell 18,521
19,135
37,656
Federal funds sold (11,292 ) 9,811
(1,481 )
Investment securities 39,051
19,872
58,923
Advances (36,195 ) 139,046
102,851
Mortgage loans 33,566
4,740
38,306
Other assets 46
(114 ) (68 )
Total earning assets 45,983
196,320
242,303
Interest Expense³:

Deposits (567 ) 2,155
1,588
Consolidated obligations:

Discount notes (3,367 ) 122,731
119,364
Bonds 27,137
110,388
137,525
Other borrowings 208
(20 ) 188
Total interest-bearing liabilities 23,411
235,254
258,665
Change in net interest income $ 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.

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,~~derivatives that do not qualify for hedge accounting treatment under GAAP (economic derivatives), 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 ~~13 through 16,~~9 and 10, the majority of the ~~derivative~~ net unrealized gains and losses on derivatives are related to changes in the fair values of economic ~~hedges, which do not qualify for hedge accounting treatment under GAAP.~~derivatives. Net interest payments or receipts on these economic ~~hedges~~derivatives 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 a function of the general level of ~~LIBOR~~ swap rates but also a function of the spreads in relationship to the relevant index rate. Tables 9 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 13 through 1610 present the earnings impact of derivatives and hedging activities by financial instrument as recorded in other non-interest income (in thousands):

Table 139


	Three Months Ended 09/30/2019																	Three Months Ended 03/31/2020
	Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total			Advances			Investments			Mortgage Loans			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	)	$	(3,872	)	$	(108,050	)	$	—		$	352	$	(111,570	)
Mortgage delivery commitments	—			—			365		—			—			365			—			—			(5,528		)	—		(5,528		)
Economic hedges – net interest received (paid)	(5		)	(315		)	—		(42		)	(329		)	(691		)	(17		)	(5,267		)	—			130		(5,154		)
Net gains (losses) on derivatives and hedging activities	(910		)	(21,365		)	365		(109		)	1,633			(20,386		)	(3,889		)	(113,317		)	(5,528		)	482		(122,252		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			16,375			—		—			—			16,375			—			94,467			—			—		94,467
TOTAL	$	(910	)	$	(4,990	)	$	365	$	(109	)	$	1,633		$	(4,011	)	$	(3,889	)	$	(18,850	)	$	(5,528	)	$	482	$	(27,785	)

Table 1410

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~~

Nine 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 $ (2,385 ) $ (94,567 ) $ —
$ 18
$ 15,467
$ (81,467 )
Mortgage delivery commitments —
—
3,836
—
—
3,836
Commitment to issue discount notes —
—
—
(70 ) —
(70 )
Economic hedges – net interest received (paid) (9 ) 700
—
(47 ) (1,882 ) (1,238 )
Net gains (losses) on derivatives and hedging activities (2,394 ) (93,867 ) 3,836
(99 ) 13,585
(78,939 )
Net gains (losses) on trading securities hedged on an economic basis with derivatives —
87,361
—
—
—
87,361
TOTAL $ (2,394 ) $ (6,506 ) $ 3,836
$ (99 ) $ 13,585
$ 8,422

~~Table 16~~


	Nine Months Ended 09/30/2018																		Three Months Ended 03/31/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Other			Total			Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Net gains (losses) on derivatives and hedging activities:
Fair value hedges - unrealized gains (losses) due to fair value changes	$	(2,272	)	$	415		$	—		$	(113	)	$	—		$	(1,970	)
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	—			53,818			—			(14,484		)	—			39,334			$	(520	)	$	(26,725	)	$	—	$	—		$	7,434		$	(19,811	)
Mortgage delivery commitments	—			—			(2,242		)	—			—			(2,242		)	—			—			1,635		—			—			1,635
Commitment to issue discount notes																			—			—			—		(70		)	—			(70		)
Economic hedges – net interest received (paid)	—			(3,889		)	—			(703		)	—			(4,592		)	(2		)	525			—		—			(819		)	(296		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—			(869		)	(869		)
Net gains (losses) on derivatives and hedging activities	(2,272		)	50,344			(2,242		)	(15,300		)	(869		)	29,661			(522		)	(26,200		)	1,635		(70		)	6,615			(18,542		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			(49,177		)	—			—			—			(49,177		)	—			29,019			—		—			—			29,019
TOTAL	$	(2,272	)	$	1,167		$	(2,242	)	$	(15,300	)	$	(869	)	$	(19,516	)	$	(522	)	$	2,819		$	1,635	$	(70	)	$	6,615		$	10,477

For the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, net gains and losses on derivatives and hedging activities resulted in a decrease in net income of ~~$26.4~~$122.3 million ~~and $108.6~~compared to a decrease of $18.5 million ~~respectively, compared to~~for the prior year ~~periods~~period primarily as a result of ~~changes~~temporary declines in the ~~LIBOR swap curve between periods, and, to a lesser extent, changes in other swap indices. The majority~~fair values of ~~the declines in fair value for both periods were~~derivatives resulting from market volatility related to the ~~economic interest rate~~COVID-19 pandemic, as spreads between investments and their associated swaps ~~hedging~~widened considerably, which impacted fair values. Further, the ~~multi-family GSE MBS, GSE debentures, and U.S. Treasury obligations. The overall increase~~decrease in the level of swap index rates from ~~September 30, 2018~~March 31, 2019 to ~~September 30, 2019~~March 31, 2020 had a ~~positive~~negative impact on the net interest settlements of interest rate swaps, which ~~increased~~decreased net income by ~~$0.5 million and $3.4~~$4.9 million for the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 compared to the prior year ~~periods.~~period.

The net unrealized losses on the economic interest rate swaps hedging the ~~multi-family~~multifamily 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 17 and 18 present~~Table 11 presents 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 1711

Three Months Ended
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
U.S. Treasury obligations $ (5,268 ) $ 2,565
$ (2,703 ) $ (466 ) $ 344
$ (122 )
GSE debentures (3,709 ) 3,551
(158 ) 3,373
(3,601 ) (228 )
GSE MBS (11,842 ) 10,259
(1,583 ) 7,633
(7,380 ) 253
TOTAL $ (20,819 ) $ 16,375
$ (4,444 ) $ 10,540
$ (10,637 ) $ (97 )

~~Table 18~~

Nine Months Ended
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
U.S. Treasury obligations $ (25,894 ) $ 22,090
$ (3,804 ) $ (466 ) $ 344
$ (122 )
GSE debentures (19,265 ) 18,747
(518 ) 16,697
(15,181 ) 1,516
GSE MBS (48,916 ) 46,524
(2,392 ) 37,209
(34,340 ) 2,869
TOTAL $ (94,075 ) $ 87,361
$ (6,714 ) $ 53,440
$ (49,177 ) $ 4,263

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

~~See Tables 50 and 51 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.~~



	Three Months Ended
	03/31/2020								03/31/2019
	Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net			Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net
U.S. Treasury obligations	$	(41,239	)	$	39,743	$	(1,496	)	$	(6,774	)	$	6,748	$	(26	)
GSE debentures	(19,884		)	17,550		(2,334		)	(5,658		)	6,501		843
GSE MBS	(47,247		)	37,174		(10,073		)	(13,692		)	15,770		2,078
TOTAL	$	(108,370	)	$	94,467	$	(13,903	)	$	(26,124	)	$	29,019	$	2,895

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 ~~13 through 16.~~9 and 10. Unrealized gains (losses) fluctuate as the fair value of our trading portfolio fluctuates. There are a number of factors that can impact the fair value of a trading security including the movement in interest rates, changes in credit spreads, the passage of time, and changes in price volatility. Table 1912 presents the major components of the net gains (losses) on trading securities (in thousands):

Table 1912


	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
Trading securities not hedged:
GSE debentures	$	(58	)	$	(614	)	$	(495	)	$	(1,371	)	$	—		$	(294	)
U.S. obligation MBS and GSE MBS	(8		)	(1		)	(82		)	34			(320		)	(56		)
Short-term securities	(123		)	(262		)	—			19			242			86
Total trading securities not hedged	(189		)	(877		)	(577		)	(1,318		)	(78		)	(264		)
Trading securities hedged on an economic basis with derivatives:
U.S. Treasury obligations	2,565			344			22,090			344			39,743			6,748
GSE debentures	3,551			(3,601		)	18,747			(15,181		)	17,550			6,501
GSE MBS	10,259			(7,380		)	46,524			(34,340		)	37,174			15,770
Total trading securities hedged on an economic basis with derivatives	16,375			(10,637		)	87,361			(49,177		)	94,467			29,019
TOTAL	$	16,186		$	(11,514	)	$	86,784		$	(50,495	)	$	94,389		$	28,755

Our trading portfolio is comprised primarily of fixed rate U.S. Treasury obligations, GSE debentures, and ~~multi-family~~multifamily GSE MBS, with ~~smaller percentages~~a small percentage 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 ~~Tables 17 and 18~~Table 11 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~~multifamily GSE MBS are affected by changes in mortgage rates and credit spreads, and these securities are swapped on an economic basis to one-month LIBOR. The fair values of the U.S. Treasury obligations are affected by changes in intermediate Treasury rates and swapped on an economic basis to OIS or SOFR. We experienced considerably larger unrealized gains ~~of $10.3 million and $46.5 million~~ on our fixed rate ~~multi-family~~multifamily GSE MBS investments for the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 compared to unrealized ~~losses of $7.4 million and $34.3 million for~~gains in the ~~three and nine months ended September 30, 2018, respectively,~~same period in 2019 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 nine months~~ ended ~~September 30, 2019.~~March 31, 2020. In addition to interest rates and credit spreads, the value of these securities is affected by time decay. The fixed rate GSE debentures possess coupons that are well above current market rates for similar securities and, therefore, are currently valued at substantial premiums. As these securities approach maturity, their prices will converge to par resulting in a decrease in their current premium price (i.e., time decay). Given that 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 5042 and 5143 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, ~~decreased $1.8~~increased $2.5 million for the three months ended ~~September 30, 2019 compared to the prior year period mostly due to fluctuations in the cost of employee benefits. Other expenses increased $2.6 million for the nine months ended September 30, 2019~~March 31, 2020 compared to the prior year period due ~~primarily~~ to an increase in salaries and employee benefits, mortgage loan transaction fees due to the growth in the mortgage loan ~~portfolio.~~portfolio, and our proportionate share of FHFA and Office of Finance expenses. We expect modest increases in compensation and benefits expense for 2020 in anticipation of hiring for new positions. We also expect an increase in FHLBank System-related expenses in 2020. We do not expect a material increase in operating expenses related to the COVID-19 pandemic, as certain budgeted expenses were reallocated for pandemic-related operating expenses.

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

We 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.~~unpredictable. However, we ~~utilize some assets and liabilities~~may engage in periodic instrument sales for liquidity purposes ~~which may involve periodic instrument sales.~~or to reduce our exposure to LIBOR-indexed instruments. We report the following non-GAAP financial measures that we believe are useful to stakeholders as 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~~As part of evaluating our financial performance, we adjust 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)~~settlements); and (3) unpredictable items, such as 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~~The result is referred to as “adjusted income,” which is a non-GAAP measure of income. Adjusted income is used to compute an adjusted ROE that is then compared to the 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. Because we are primarily a “hold-to-maturity” investor and do not trade derivatives, we believe that adjusted income, adjusted ROE and adjusted ROE spread are helpful in understanding our operating results and provide a meaningful period-to-period comparison. In contrast, GAAP net income, ROE based on GAAP net income and ROE spread based on GAAP net income can vary significantly from period to period because of fair value changes on derivatives and certain other items that management excludes when evaluating operational performance. Management believes such volatility hinders a consistent measurement analysis.

Derivative and hedge accounting affects the timing of income or expense from derivatives. However, when the derivatives are held to maturity or call dates, there is no economic income or expense impact from these derivatives. For example, interest rate caps are purchased with an upfront fixed cost to provide protection against the risk of rising interest rates. Under derivative accounting guidance, these instruments are then marked to fair value each month, which can result in having to recognize significant fair value gains and losses from year to year, producing volatility in our GAAP net 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 2013 presents a reconciliation of GAAP net income to adjusted income (in thousands):

Table 2013


	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
Net income, as reported under GAAP	$	48,491		$	41,504		$	132,964		$	126,843		$	11,832		$	52,755
AHP assessments	5,391			4,618			14,786			14,113			1,318			5,866
Income before AHP assessments	53,882			46,122			147,750			140,956			13,150			58,621
Derivative (gains) losses¹	7,895			(7,224		)	84,800			(34,253		)	124,796			22,305
Trading (gains) losses	(16,186		)	11,514			(86,784		)	50,495			(94,389		)	(28,755		)
Prepayment fees on terminated advances	(373		)	(153		)	(517		)	(254		)	(172		)	(69		)
Net (gains) losses on sale of held-to-maturity securities	—			(1,529		)	46			(1,591		)
Net (gains) losses on sale of available-for-sale securities													(1,523		)	—
Total excluded items	(8,664		)	2,608			(2,455		)	14,397			28,712			(6,519		)
Adjusted income (a non-GAAP measure)	$	45,218		$	48,730		$	145,295		$	155,353		$	41,862		$	52,102


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 ~~$3.5~~$10.2 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the same period in the prior year. The decrease was primarily due to a $4.8 million decrease in adjusted net interest income (see Table 21), which was partially offset by a $1.8 million decrease in other expenses mostly due to fluctuations in the cost of employee benefits. Adjusted income decreased $10.1 million for the nine months ended September 30, 2019 compared to the same period in the prior year period as a result of ~~a $6.2 million decrease in adjusted net interest income~~the aforementioned spread tightening and ~~a $2.6 million increase in other expenses. For both the three- and nine-month periods ended September 30, 2019,~~ the decline in ~~adjusted~~ net interest ~~income compared to the same periods in the prior year was a result of accelerated amortization of concessions~~settlements on called bonds and accelerated amortization of premiums on mortgage-related assets, as discussed previously. The increase in other expenses for the nine-month period ended September 30, 2019 was due primarily to an increase in mortgage loan transaction fees due to growth in the mortgage loan portfolio.qualifying hedges (see Table 14).

Table 2114 presents a reconciliation of GAAP net interest income to adjusted net interest income (in thousands):

Table 2114


	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
Net interest income, as reported under GAAP	$	74,415		$	67,659		$	186,660		$	203,022		$	55,086		$	63,015
(Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income¹	(11,800		)	—			7,099			—
Net interest settlements on economic hedges	(691		)	(1,192		)	(1,238		)	(4,592		)
(Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income													7,698			4,059
Net interest settlements on derivatives not qualifying for hedge accounting													(5,154		)	(296		)
Prepayment fees on terminated advances	(373		)	(153		)	(517		)	(254		)	(172		)	(69		)
Adjusted net interest income (a non-GAAP measure)	$	61,551		$	66,314		$	192,004		$	198,176		$	57,458		$	66,709

Net interest margin, as calculated under GAAP for the period	0.51		%	0.53		%	0.45		%	0.50		%
Net interest margin, as calculated under GAAP													0.36		%	0.48		%
Adjusted net interest margin (a non-GAAP measure)	0.42		%	0.52		%	0.46		%	0.49		%	0.38		%	0.51		%

~~_________~~


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 change in average LIBOR, SOFR, or OIS between periods. ~~Further, beginning January 1, 2019, fair~~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 2215 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~~decrease in adjusted ROE for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to the ~~same periods in the~~ prior year ~~reflect~~period reflects the decrease in adjusted net income ~~for both periods.~~

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

Table 2215


	Three Months Ended						Nine Months Ended						Three Months Ended
	09/30/2019			09/30/2018			09/30/2019			09/30/2018			03/31/2020			03/31/2019
Average GAAP total capital for the period	$	2,551,704		$	2,388,912		$	2,490,516		$	2,516,496
Average GAAP total capital													$	2,725,602		$	2,440,006
ROE, based upon GAAP net income	7.54		%	6.89		%	7.14		%	6.74		%	1.75		%	8.77		%
Adjusted ROE, based upon adjusted income	7.03		%	8.09		%	7.80		%	8.25		%	6.18		%	8.66		%
Average overnight Federal funds effective rate	2.20		%	1.92		%	2.33		%	1.70		%	1.23		%	2.40		%
Adjusted ROE as a spread to average overnight Federal funds effective rate	4.83		%	6.17		%	5.47		%	6.55		%	4.95		%	6.26		%

Financial Condition

Overall: Total assets ~~increased $9.4~~remained relatively flat between periods, from $63.3 billion at December 31, 2019 to $63.2 billion at March 31, 2020, but asset composition shifted, as short-term assets declined $2.4 billion, or ~~19.7~~28.9 percent, and advances grew by $1.4 billion, or 4.8 percent, and mortgage loans grew by $385.2 million, or 3.6 percent. Total liabilities decreased $9.7 million from December 31, ~~2018~~2019 to September 30, 2019 primarily due to increases in short- and long-term investments, advances, and mortgage loans. 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~~2020, which corresponded with the ~~purchase~~slight decline in assets, and the funding mix shifted to a lower percentage of ~~$5.0 billion in U.S. Treasury obligations since the third quarter of 2018. Total capital increased $204.1 million, or 8.3 percent,~~discount notes between periods, ~~due to~~which corresponded with the ~~increase in outstanding capital stock from advance utilization and net income in excess of dividends paid.~~

Average interest-earning assets increased $7.6 billion, or 14.9 percent, for the three months ended September 30, 2019 and increased $1.6 billion, or 3.0 percent, for the nine months ended 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 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 $9.2 billion, or 20.4 percent, from December 31, 2018 to September 30, 2019. This increase was primarily due to an $8.5 billion increase in consolidated obligation bonds and a $0.4 billion increase in consolidated obligation discount 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, Prime, Treasury bills, or ~~other indices. We replaced some discount note funding with bonds indexed to SOFR during the third quarter of 2019.~~OIS. For additional information on ~~our~~market trends impacting the cost of issuing debt, including discussion of the transition from LIBOR ~~transition efforts~~to an alternate reference rate, see "Market Trends" and ~~LIBOR exposure, see “Risk Management – Interest Rate Risk Management”~~"Financial Condition" under this Item 2.

Total capital decreased $77.5 million, or 2.8 percent, between periods primarily due to unrealized losses on available-for-sale securities and dividends paid in excess of net income for the quarter ended March 31, 2020, partially offset by an increase in required capital stock related to advance utilization.

Dividends paid to members totaled ~~$74.0~~$24.9 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$73.2~~$23.9 million for the same period in the prior year. The weighted average dividend rate for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~6.61~~5.94 percent, which represented a dividend payout ratio of ~~53.2~~210.5 percent, compared to a weighted average dividend rate of ~~6.32~~6.56 percent and a payout ratio of ~~56.1~~45.4 percent for the same period in ~~2018.~~2019. The ~~weighted average dividend rate for~~significant increase in payout ratios between periods was a result of the ~~nine months ended September 30, 2019 was 6.58 percent which represented a~~steep decline in quarterly net income from the aforementioned COVID-19-related market volatility. The dividend payout ratio represents dividends declared and paid during the quarter as a percentage of ~~55.7 percent, compared to a weighted average dividend rate of 6.10 percent and a payout ratio of 57.7 percent~~net income for the ~~same period~~quarter, although FHFA regulation requires dividends be paid out of known income prior to the declaration date. In other words, dividends declared and paid in ~~2018.~~

March 2020 were based on income during the three months ended February 2020. (See Item 1 – “Business – Capital, Capital Rules and Dividends” of our Form 10-K for other factors that contribute to the level of dividends paid). We anticipate stock dividends on Class A Common Stock and Class B Common Stock will be lower in the second quarter of 2020, consistent with the lower level of short‑term interest rates and our retained earnings policy.

Short-term money market investments ~~and investment securities increased notably~~decreased as a percentage of assets at ~~September 30, 2019~~March 31, 2020 compared to December 31, ~~2018. The increase~~2019, as liquidity was higher at the end of 2019 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 purchasesanticipation of ~~U.S. Treasury obligations in response to regulatory liquidity requirements that became effective March 31, 2019.~~potential advance demand. 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 to achieve certain liquidity targets, which ~~contributed to~~is reflected in Table 16, as the ~~increased~~ allocation of ~~consolidated obligation~~discount notes decreased and 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.~~increased. The ~~decrease~~increase in the percentage of advances and mortgage loans to total assets ~~was a direct result of the increase~~reflects growth in ~~short-term investments and investment securities~~these portfolios at ~~September 30, 2019~~March 31, 2020 compared to December 31, ~~2018.~~2019, but is also a function of the decline in short-term assets. Table 2316 presents the percentage concentration of the major components of our Statements of Condition:

Table 2316


	Component Concentration				Component Concentration
	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Assets:
Cash and due from banks					0.7	%	3.0	%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	6.2	%	4.1	%	8.8		10.3
Investment securities	22.3		17.5		22.2		21.4
Advances	53.6		60.2		50.1		47.8
Mortgage loans, net	17.2		17.6		17.4		16.8
Other assets	0.7		0.6		0.8		0.7
Total assets	100.0	%	100.0	%	100.0	%	100.0	%

Liabilities:
Deposits	1.3	%	1.0	%	1.5	%	1.2	%
Consolidated obligation discount notes, net	36.8		43.2		40.5		43.4
Consolidated obligation bonds, net	56.8		50.2		53.4		50.6
Other liabilities	0.4		0.5		0.3		0.4
Total liabilities	95.3		94.9		95.7		95.6

Capital:
Capital stock outstanding	2.9		3.2		2.8		2.8
Retained earnings	1.7		1.9		1.6		1.6
Accumulated other comprehensive income (loss)	0.1		—		(0.1	)	—
Total capital	4.7		5.1		4.3		4.4
Total liabilities and capital	100.0	%	100.0	%	100.0	%	100.0	%

Table 2417 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):

Table 2417


	Increase (Decrease) in Components					Increase (Decrease) in Components
	09/30/2019 vs. 12/31/2018					03/31/2020 vs. 12/31/2019
	Dollar Change			Percent Change		Dollar Change			Percent Change
Assets:
Cash and due from banks	$	9,579		63.6	%	$	(1,465,496	)	(76.4	)%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	1,547,607			78.5		(969,640		)	(14.9	)
Investment securities	4,395,533			52.7		480,405			3.5
Advances	1,904,470			6.6		1,436,768			4.8
Mortgage loans, net	1,423,301			16.9		385,159			3.6
Other assets	135,384			53.3		45,663			11.5
Total assets	$	9,415,874		19.7	%	$	(87,141	)	(0.1	)%

Liabilities:
Deposits	$	282,556		59.6	%	$	184,757		23.4	%
Consolidated obligation discount notes, net	435,900			2.1		(1,883,931		)	(6.9	)
Consolidated obligation bonds, net	8,475,491			35.4		1,716,741			5.4
Other liabilities	17,857			8.4		(27,246		)	(11.7	)
Total liabilities	9,211,804			20.4		(9,679		)	—

Capital:
Capital stock outstanding	146,153			9.6		35,840			2.0
Retained earnings	58,926			6.4		(19,197		)	(1.9	)
Accumulated other comprehensive income (loss)	(1,009		)	(6.4	)	(94,105		)	(379.7	)
Total capital	204,070			8.3		(77,462		)	(2.8	)
Total liabilities and capital	$	9,415,874		19.7	%	$	(87,141	)	(0.1	)%

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.

Advances increased $1.4 billion from December 31, 2019 to March 31, 2020 mostly as a result of an increase in fixed rate advances, as members extended fixed terms as interest rates declined. We anticipate volatility in advance balances in 2020 based on several factors related to the COVID-19 pandemic, including large members with relatively strong deposit growth and access to other funding sources, which could cause a decrease in advances.

Starting on April 22, 2020, we began offering a total of $1.5 billion in zero-cost and $1.5 billion in low-rate funding to help members serve their customers affected by the COVID-19 pandemic. The zero-cost advances have a term of six months and the low-rate advances have terms between 6 and 24 months. Because the demand for these specially priced advances was expected to be high, we established per institution caps of $3 million per member or housing associate on the zero-cost advances and $5 million per member or housing associate on the low-rate advances. Management continues to monitor the progress of the pandemic and is committed to assisting our members and their communities as impacts related to the COVID-19 pandemic continue to unfold.

Table 2518 summarizes advances outstanding by product (dollar amounts in thousands):

Table 2518


	09/30/2019				12/31/2018				03/31/2020				12/31/2019
	Dollar		Percent		Dollar		Percent		Dollar		Percent		Dollar		Percent
Adjustable rate:
Standard advance products:
Line of credit	$	11,272,387	36.9	%	$	11,989,165	41.7	%	$	8,720,104	27.8	%	$	9,421,491	31.2	%
Regular adjustable rate advances	745,000		2.5		655,000		2.3		700,000		2.3		665,000		2.2
Adjustable rate callable advances	10,863,000		35.6		9,003,675		31.3		12,387,870		39.5		11,444,700		38.0
Standard housing and community development advances:
Adjustable rate callable advances	37,212		0.1		39,252		0.1		37,212		0.1		37,212		0.1
Total adjustable rate advances	22,917,599		75.1		21,687,092		75.4		21,845,186		69.7		21,568,403		71.5
Fixed rate:
Standard advance products:
Short-term fixed rate advances	465,500		1.5		370,838		1.3		630,400		2.0		1,111,007		3.7
Regular fixed rate advances	4,627,503		15.2		4,310,003		15.0		5,884,456		18.8		4,717,025		15.6
Fixed rate callable advances	16,646		0.1		16,785		0.1		17,606		0.1		17,241		0.1
Standard housing and community development advances:
Regular fixed rate advances	477,058		1.6		461,431		1.6		473,346		1.5		470,925		1.6
Fixed rate callable advances	4,831		—		4,831		—		831		—		2,831		—
Total fixed rate advances	5,591,538		18.4		5,163,888		18.0		7,006,639		22.4		6,319,029		21.0
Convertible:
Standard advance products:
Fixed rate convertible advances	1,312,850		4.3		1,150,850		4.0		1,811,000		5.8		1,607,500		5.3
Amortizing:
Standard advance products:
Fixed rate amortizing advances	344,463		1.1		389,523		1.3		352,876		1.1		331,551		1.1
Fixed rate callable amortizing advances	12,801		—		15,028		0.1		10,253		—		10,807		—
Standard housing and community development advances:
Fixed rate amortizing advances	331,802		1.1		359,949		1.2		319,825		1.0		324,477		1.1
Fixed rate callable amortizing advances	10,513		—		11,419		—		10,069		—		10,288		—
Total amortizing advances	699,579		2.2		775,919		2.6		693,023		2.1		677,123		2.2
TOTAL PAR VALUE	$	30,521,566	100.0	%	$	28,777,749	100.0	%	$	31,355,848	100.0	%	$	30,172,055	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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018. The 6.1 percent increase in advance~~2019. Advance par value increased by 3.9 percent from December 31, ~~2018~~2019 to ~~September 30, 2019~~March 31, 2020 (see Table ~~25)~~18) and although the majority of the increase was ~~primarily due~~in longer-term fixed rate advances, the composition of the advance portfolio remains concentrated in advances that either reprice or mature on a relatively short-term basis as members continue to ~~an increase~~benefit from pricing efficiency in ~~our~~a declining interest rate environment. We expect members to transition away from regular adjustable rate callable ~~advances.~~ advances in future periods as pricing on other products becomes more attractive.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018, 59.5~~2019, 58.4 percent and ~~63.0~~57.6 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~~2019, the short-term advance rates became less attractive relative to the yield on excess reserves at the Federal Reserve. Following the recent steep decline in rates, our short-term advances should continue to become more attractive relative to other funding options. We expect advance growth from our smaller members in the short term as they take advantage of the subsidized COVID-19 Relief Advances to help serve their customers affected by the COVID-19 pandemic, but this increase is not expected to offset potential decreases from larger members as previously discussed. 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~~(e.g., one- or three-month LIBOR, ~~and, to a much smaller extent,~~ OIS beginning in late 2018, and SOFR beginning in 2019) to synthetically create adjustable rate advances. When coupled with the volume of our short-term advances, advances that effectively re-price at least every three months represent ~~91.2~~88.0 percent and ~~89.8~~91.0 percent of our total advance portfolio as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. We anticipate continuing the practice of swapping large dollar advances with longer maturities to short-term indices. In the first quarter of 2019, we began swapping fixed rate non-callable advances to SOFR as part of our plan to transition away from LIBOR as a reference rate. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Table 2619 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 2619


	09/30/2019				12/31/2018				03/31/2020				12/31/2019
Borrower Name	Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par
MidFirst Bank	$	8,200,000	26.9	%	$	6,560,000	22.8	%	$	9,610,000	30.7	%	$	8,585,000	28.5	%
BOKF, N.A.	6,800,000		22.3		6,100,000		21.2		5,500,000		17.6		4,500,000		14.9
Capitol Federal Savings Bank	2,140,000		7.0		2,175,000		7.6		1,990,000		6.3		2,090,000		6.9
United of Omaha Life Insurance Co.	1,118,363		3.7		813,182		2.8		1,607,803		5.1		1,205,761		4.0
Security Life of Denver Insurance Co.	840,000		2.7						1,015,000		3.2		925,000		3.1
Colorado Federal Savings					625,000		2.2
TOTAL	$	19,098,363	62.6	%	$	16,273,182	56.6	%	$	19,722,803	62.9	%	$	17,305,761	57.4	%

Table 2720 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 27~~

Three Months Ended
09/30/2019 09/30/2018
Borrower Name Advance Income
Percent of Total
Advance Income¹
Advance Income
Percent of Total
Advance Income¹
BOKF, N.A. $ 49,347
27.0 % $ 31,805
20.6 %
MidFirst Bank 39,859
21.9
24,425
15.8
Capitol Federal Savings Bank 14,915
8.2
11,645
7.5
United of Omaha Life Insurance Co. 6,053
3.3
5,023
3.3
Security Life of Denver Insurance Co. 4,262
2.3

Bellco Credit Union 3,772
2.4
TOTAL $ 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 28 presents the accrued interest income associated with~~ the five borrowers providing the highest amount of interest income earned for the periods presented (dollar amounts in thousands). ~~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 2820


	Nine Months Ended								Three Months Ended
	09/30/2019				09/30/2018				03/31/2020				03/31/2019
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
MidFirst Bank									$	30,585	22.9	%	$	40,826	22.6	%
BOKF, N.A.	$	143,014	26.2	%	$	87,956	19.3	%	26,613		19.9		46,310		25.7
MidFirst Bank	126,013		23.1		70,680		15.5
Capitol Federal Savings Bank	40,476		7.4		48,296		10.6		10,480		7.8		12,655		7.0
United of Omaha Life Insurance Co.	18,285		3.3		12,199		2.7		4,820		3.6		6,118		3.4
Security Life of Denver Insurance Co.	12,046		2.2						4,276		3.2		3,791		2.1
Ent Federal Credit Union					11,032		2.4
TOTAL	$	339,834	62.2	%	$	230,163	50.5	%	$	76,774	57.4	%	$	109,700	60.8	%


¹	Total advance income by borrower excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the advances; and (3) prepayment fees received.

See Table 4 for information on the amount of interest income on advances as a percentage of total interest income for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

MPF Program: The MPF Program is a secondary mortgage market alternative for our members, especially utilized by the smaller institutions in our district. We participate in the MPF Program through the MPF Provider, a division of FHLBank 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 ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$2.4~~$0.9 billion. These new originations and acquisitions, net of loan payments received, resulted in an increase of ~~16.9~~3.6 percent in the outstanding net balance of our mortgage loan portfolio from December 31, ~~2018~~2019 to ~~September 30, 2019. Despite the increase, net~~March 31, 2020. Net mortgage loans as a percentage of total assets ~~decreased,~~increased, from ~~17.6~~16.8 percent as of December 31, ~~2018~~2019 to ~~17.2~~17.4 percent as of ~~September 30, 2019 because of an increase in the percentage of investments held to meet new regulatory liquidity requirements.~~March 31, 2020. Table 4 presents the amount of interest income on mortgage loans held for portfolio as a percentage of total interest income for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and 2018. Although mortgage loan balances have grown steadily in recent years, the percentage of mortgage loan interest income to total interest income declined slightly for the three- and nine-month periods ended September 30, 2019 compared to the same periods ended September 30, 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.2019.

Recent growth in mortgage loans held for portfolio is attributed primarily to continued strong production from our top five PFIs, supported by enhancements to the pricing options available to ~~PFIs.~~PFIs, which has increased demand for the MPF Program. 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 ~~September 30, 2019.~~March 31, 2020.

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)~~third party 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 and mortgage loan participations with another FHLBank, which may further enhance our ability to manage the size of our mortgage loan portfolio in the future.

Table 2921 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 2921


	09/30/2019				12/31/2018				03/31/2020				12/31/2019
	Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans
NBKC Bank	$	719,924	7.4	%	$	570,440	6.9	%	$	943,663	8.7	%	$	925,748	8.8	%
FirstBank of Colorado	417,552		4.3		372,533		4.5		429,434		4.0		424,437		4.1
Fidelity Bank									419,814		3.9		393,205		3.8
Sunflower Bank									411,778		3.8		383,226		3.7
West Gate Bank									408,500		3.8
Mutual of Omaha Bank	410,615		4.2										396,389		3.8
Fidelity Bank	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
TOTAL	$	2,215,524	22.8	%	$	1,691,125	20.4	%	$	2,613,189	24.2	%	$	2,523,005	24.2	%

Two indications of credit quality are scores provided by Fair Isaac Corporation (FICO^®) and loan-to-value (LTV) ratios. FICO is a widely used credit industry indicator to assess borrower credit quality with scores typically ranging from 300 to 850 with the low end of the scale indicating greater credit risk. The MPF Program requires a minimum FICO score of 620 for all conventional loans. LTV is a primary variable in credit performance. Generally speaking, a higher LTV ratio means greater risk of loss in the event of a default and also means higher loss severity. The weighted average FICO score and LTV recorded at origination for conventional mortgage loans outstanding as of ~~September 30, 2019~~March 31, 2020 was ~~750~~751 and ~~74.9~~74.5 percent, respectively. See Note 65 of the Notes to Financial Statements under Part I, Item 1 for additional information regarding credit quality indicators.

Allowance for Credit Losses on Mortgage Loans Held for Portfolio – The allowance for credit losses increased ~~slightly~~$5.5 million from December 31, ~~2018~~2019 to ~~September 30, 2019.~~March 31, 2020 primarily as a result of the adoption of new accounting guidance pertaining to measurement of credit losses on financial instruments that resulted in an adjustment to retained earnings of $6.1 million. The recovery in the current quarter was due to a decrease in mortgage interest rates, which generally boosts home prices and bolsters the housing market. Delinquencies of conventional loans ~~trended higher but~~ remained at low levels relative to the portfolio, at ~~0.7 percent and 0.6~~0.8 percent of total conventional loans at ~~September 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively.~~2019. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held in portfolio. See Note 65 of the Notes to Financial Statements under Part I, Item 1 for a summary of the allowance for credit losses on mortgage loans as well as payment status and other delinquency ~~aging and key credit quality indicators~~statistics for our mortgage loan portfolio.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows financial institutions to provide payment forbearance to assist borrowers who have experienced a hardship resulting from COVID-19. The MPF Provider has released information on COVID-19 borrower assistance plans, and the FHLBank System continues to consider additional relief in line with the CARES Act, which could impact our mortgage loan portfolio and allowance in future periods.

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~~decreased from December 31, ~~2018~~2019 to ~~September 30, 2019,~~March 31, 2020, predominantly due to ~~increases~~decreases in the balances of short-term investments. Long-term investments ~~and~~increased slightly due to purchases of ~~U.S. Treasury obligations. The majority~~available-for-sale securities and increases in the carrying value of ~~the increase~~securities held at fair value, offset by maturities and ~~change in composition~~sales of long-term investments was in response to changes to regulatory liquidity requirements that became effective March 31, 2019, including the purchase of $5.0 billion in U.S. Treasury obligations since the third quarter of 2018. The 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.investment securities.

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, and certificates of ~~deposit and commercial paper.~~deposit. 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 may include the following types:

Interest-bearing deposits. Unsecured deposits that earn interest.

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

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

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

Table 3022 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 3022


	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Interest-bearing deposits	$	479,511	$	669,653	$	1,193,345	$	919,693
Federal funds sold	900,000		50,000		1,655,000		850,000
Certificates of deposit					275,055		—
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	1,379,511	$	719,653	$	3,123,400	$	1,769,693


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

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

FHFA regulations: (1) include limits on the amount of unsecured credit an individual FHLBank may extend to a counterparty or to a group of affiliated counterparties; (2) permit us to extend additional unsecured credit for overnight extensions of credit, subject to limitations; and (3) prohibit us from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. For additional information on our management of unsecured credit exposure, see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019. As of ~~September 30, 2019,~~March 31, 2020, we were in compliance with all FHFA regulations relating to unsecured credit exposure.

We manage our credit risk by conducting pre-purchase credit due diligence and on-going surveillance described previously and generally investing in unsecured investments of highly-rated counterparties. From time to time, we extend unsecured credit to qualified members by investing in overnight Federal funds issued by them. As of ~~September 30, 2019,~~March 31, 2020, all unsecured investments were rated as investment grade based on ~~Nationally Recognized Statistical Rating Organizations (NRSRO)~~NRSROs (see Table ~~34)~~26).

Table 3123 presents the amount of our unsecured investment credit exposure by remaining contractual maturity and by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks as of ~~September 30, 2019~~March 31, 2020 (in thousands). We also mitigate the credit risk on investments by generally investing in investments that have short-term maturities.

Table 3123


Domicile of Counterparty	Overnight		Overnight		Due 2 – 30 days		Total
Domestic	$	779,511	$	2,123,345	$	—	$	2,123,345
Total domestic and U.S. subsidiaries of foreign commercial banks	779,511
U.S. Branches and agency offices of foreign commercial banks:
Netherlands			475,000		—		475,000
Canada	200,000		100,002		175,053		275,055
Sweden	200,000
United Kingdom	200,000
Austria			250,000		—		250,000
Total U.S. Branches and agency offices of foreign commercial banks	600,000		825,002		175,053		1,000,055
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	1,379,511	$	2,948,347	$	175,053	$	3,123,400


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 GSE 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, beginning in 2019, 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 ~~September 30, 2019,~~March 31, 2020, the amortized cost of our MBS portfolio represented ~~269~~266 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~~year ended ~~September 30, 2019.~~March 31, 2020.

As of ~~September 30, 2019,~~March 31, 2020, we held ~~$3.6~~$3.3 billion of par value in MBS in our held-to-maturity portfolio, ~~$2.4~~$2.9 billion of par value in MBS in our available-for-sale portfolio, and ~~$0.9~~$0.8 billion of par value in MBS in our trading portfolio. The majority of the MBS in the held-to-maturity portfolio are variable rate GSE securities. The majority of the MBS in the trading and available-for-sale portfolios are fixed rate GSE securities, which are swapped from fixed to variable rates.

Major Security Types – Securities for which we have the ability and intent to hold to maturity are classified as held-to-maturity securities and recorded at carrying value, which is the net total of par, premiums, 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, such as reducing our LIBOR exposure, may require periodic sale of these securities but they are not actively traded with the intent of realizing gains; most often, they are held until maturity or call date. Securities acquired as asset/liability management tools to manage duration risk, which are likely to be sold when the duration risk is no longer present, are classified as trading or available-for-sale securities. Changes in the fair values of investments classified as trading are recorded through other income and original premiums/discounts on these investments are not amortized.

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 3224 (in thousands).

Table 3224


	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Trading securities:
Certificates of deposit					$	275,055	$	—
U.S. Treasury obligations	$	1,533,842	$	252,377	1,570,261		1,530,518
GSE debentures	468,747		1,000,495		433,576		416,025
Mortgage-backed securities:
U.S. obligation MBS	—		467
GSE MBS	898,986		897,774		899,099		866,019
Total trading securities	2,901,575		2,151,113		3,177,991		2,812,562
Available-for-sale securities:
U.S. Treasury obligations	3,510,728		—		4,353,696		4,261,791
GSE MBS	2,588,201		1,725,640		3,172,400		2,920,709
Total available-for-sale securities	6,098,929		1,725,640		7,526,096		7,182,500
Held-to-maturity securities:
State or local housing agency obligations	85,670		86,430		82,805		82,805
Mortgage-backed securities:
U.S. obligation MBS	97,647		109,866		89,563		93,375
GSE MBS	3,545,338		4,260,577		3,168,970		3,393,778
Total held-to-maturity securities	3,728,655		4,456,873		3,341,338		3,569,958
Total securities	12,729,159		8,333,626		14,045,425		13,565,020

Interest-bearing deposits	481,989		670,660		1,196,813		921,453

Federal funds sold	900,000		50,000		1,655,000		850,000

Securities purchased under agreements to resell	2,137,374		1,251,096		2,700,000		4,750,000
TOTAL INVESTMENTS	$	16,248,522	$	10,305,382	$	19,597,238	$	20,086,473

The carrying values by contractual maturities of our investments are summarized by security type in Table 3325 (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 3325


	09/30/2019														03/31/2020
	Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value		Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value
Trading securities:
Certificates of deposit															$	275,055		$	—		$	—		$	—		$	275,055
U.S. Treasury obligations	$	—		$	1,533,842		$	—		$	—		$	1,533,842	254,421			1,315,840			—			—			1,570,261
GSE debentures	50,001			399,540			19,206			—			468,747		—			413,640			19,936			—			433,576
Mortgage-backed securities:
GSE MBS	—			16,459			833,080			49,447			898,986		—			164,378			689,965			44,756			899,099
Total trading securities	50,001			1,949,841			852,286			49,447			2,901,575		529,476			1,893,858			709,901			44,756			3,177,991
Yield on trading securities	2.34		%	2.57		%	2.90		%	1.67		%			2.08		%	2.60		%	2.88		%	1.38		%
Available-for-sale securities:
U.S. Treasury obligations	251,643			3,259,085			—			—			3,510,728		1,269,148			3,084,548			—			—			4,353,696
GSE MBS	—			254,415			2,333,786			—			2,588,201		—			183,941			2,988,459			—			3,172,400
Total available-for-sale securities	251,643			3,513,500			2,333,786			—			6,098,929		1,269,148			3,268,489			2,988,459			—			7,526,096
Yield on available-for-sale securities	2.53		%	2.15		%	2.84		%	—		%			2.37		%	1.93		%	2.69		%	—		%
Held-to-maturity securities:
State or local housing agency obligations	—			—			—			85,670			85,670		—			—			—			82,805			82,805
Mortgage-backed securities:
U.S. obligation MBS	—			—			—			97,647			97,647		—			—			—			89,563			89,563
GSE MBS	—			418,870			960,025			2,166,443			3,545,338		2,264			510,631			718,534			1,937,541			3,168,970
Total held-to-maturity securities	—			418,870			960,025			2,349,760			3,728,655		2,264			510,631			718,534			2,109,909			3,341,338
Yield on held-to-maturity securities	—		%	1.39		%	1.53		%	1.67		%			0.75		%	1.37		%	1.41		%	1.60		%

Total securities	301,644			5,882,211			4,146,097			2,399,207			12,729,159		1,800,888			5,672,978			4,416,894			2,154,665			14,045,425
Yield on total securities	2.50		%	2.23		%	2.54		%	1.67		%			2.29		%	2.09		%	2.51		%	1.59		%

Interest-bearing deposits	481,989			—			—			—			481,989		1,196,813			—			—			—			1,196,813

Federal funds sold	900,000			—			—			—			900,000		1,655,000			—			—			—			1,655,000

Securities purchased under agreements to resell	2,137,374			—			—			—			2,137,374		2,700,000			—			—			—			2,700,000
TOTAL INVESTMENTS	$	3,821,007		$	5,882,211		$	4,146,097		$	2,399,207		$	16,248,522	$	7,352,701		$	5,672,978		$	4,416,894		$	2,154,665		$	19,597,238

Securities Ratings – Tables 3426 and 3527 present the carrying value of our investments by rating as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands). The ratings presented are the lowest ratings available for the security, issuer, or ~~the issuer~~counterparty based on NRSROs, where available. Some counterparties for collateralized overnight borrowing are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. We also utilize other credit quality factors when analyzing potential investments including, but not limited to, collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, and/or the financial health of the underlying issuer.

Table 3426


	09/30/2019										03/31/2020
	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	$	—	$	2,478	$	479,511	$	—	$	481,989	$	—	$	3,468	$	1,193,345	$	—	$	1,196,813

Federal funds sold²	—		200,000		700,000		—		900,000		—		—		1,655,000		—		1,655,000

Securities purchased under agreements to resell³	—		—		—		2,137,374		2,137,374		—		—		—		2,700,000		2,700,000

Investment securities:
Non-mortgage-backed securities:
Certificates of deposit²											—		275,055		—		—		275,055
U.S. Treasury obligations	—		5,044,570		—		—		5,044,570		—		5,923,957		—		—		5,923,957
GSE debentures	—		468,747		—		—		468,747		—		433,576		—		—		433,576
State or local housing agency obligations	55,670		30,000		—		—		85,670		52,805		30,000		—		—		82,805
Total non-mortgage-backed securities	55,670		5,543,317		—		—		5,598,987		52,805		6,662,588		—		—		6,715,393
Mortgage-backed securities:
U.S. obligation MBS	—		97,647		—		—		97,647		—		89,563		—		—		89,563
GSE MBS	—		7,032,525		—		—		7,032,525		—		7,240,469		—		—		7,240,469
Total mortgage-backed securities	—		7,130,172		—		—		7,130,172		—		7,330,032		—		—		7,330,032

TOTAL INVESTMENTS	$	55,670	$	12,875,967	$	1,179,511	$	2,137,374	$	16,248,522	$	52,805	$	13,996,088	$	2,848,345	$	2,700,000	$	19,597,238


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of ~~$46.2~~$49.0 million at ~~September 30,~~March 31, 2020.


²	Amounts include unsecured credit exposure with original maturities of overnight to 78 days.


³	Amounts represent collateralized overnight borrowings.

Table 27



	12/31/2019
	Carrying Value¹
	Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A
Interest-bearing deposits²	$	255	$	1,761	$	919,437	$	—	$	921,453

Federal funds sold²	—		—		850,000		—		850,000

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

Investment securities:
Non-mortgage-backed securities:
U.S. Treasury obligations	—		5,792,309		—		—		5,792,309
GSE debentures	—		416,025		—		—		416,025
State or local housing agency obligations	52,805		30,000		—		—		82,805
Total non-mortgage-backed securities	52,805		6,238,334		—		—		6,291,139
Mortgage-backed securities:
U.S. obligation MBS	—		93,375		—		—		93,375
GSE MBS	—		7,180,506		—		—		7,180,506
Total mortgage-backed securities	—		7,273,881		—		—		7,273,881

TOTAL INVESTMENTS	$	53,060	$	13,513,976	$	1,769,437	$	4,750,000	$	20,086,473


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


²	Amounts include unsecured credit exposure with overnight maturities.


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

~~Table 35~~

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.~~borrowings.

Table 3628 details interest rate payment terms for the carrying value of our investment securities as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (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 5042 and 5143 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk)."

Table 3628


	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Trading securities:
Non-mortgage-backed securities:
Fixed rate	$	1,952,588	$	652,376	$	2,278,892	$	1,946,543
Variable rate	50,001		600,496
Non-mortgage-backed securities	2,002,589		1,252,872		2,278,892		1,946,543
Mortgage-backed securities:
Fixed rate	848,179		839,726		853,120		817,568
Variable rate	50,807		58,515		45,979		48,451
Mortgage-backed securities	898,986		898,241		899,099		866,019
Total trading securities	2,901,575		2,151,113		3,177,991		2,812,562
Available-for-sale securities:
Non-mortgage-backed securities:
Fixed rate	3,510,728		—		4,353,696		4,261,791
Non-mortgage-backed securities	3,510,728		—		4,353,696		4,261,791
Mortgage-backed securities:
Fixed rate	2,588,201		1,725,640		3,172,400		2,920,709
Mortgage-backed securities	2,588,201		1,725,640		3,172,400		2,920,709
Total available-for-sale securities	6,098,929		1,725,640		7,526,096		7,182,500
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate	85,670		86,430		82,805		82,805
Non-mortgage-backed securities	85,670		86,430		82,805		82,805
Mortgage-backed securities:
Fixed rate	111,157		133,498		97,103		104,359
Variable rate	3,531,828		4,236,945		3,161,430		3,382,794
Mortgage-backed securities	3,642,985		4,370,443		3,258,533		3,487,153
Total held-to-maturity securities	3,728,655		4,456,873		3,341,338		3,569,958
TOTAL	$	12,729,159	$	8,333,626	$	14,045,425	$	13,565,020

Deposits: Total deposits increased ~~$282.6~~$184.8 million from December 31, ~~2018~~2019 to ~~September 30, 2019~~March 31, 2020 primarily as a result of an increase in overnight deposits. Deposit products offered primarily include demand and overnight deposits and short-term certificates of deposit. Demand deposit programs are offered primarily to facilitate customer transactions with us, such as cash flows associated with advances and mortgage loan transactions. Overnight deposits provide an alternative short-term investment option to members. The majority of deposits are in overnight or demand accounts that generally re-price daily based upon a market index such as overnight Federal funds. The level of deposits is driven by member demand for deposit products, which in turn is a function of the liquidity position of members. Factors that influence deposit levels include turnover in member investment and loan portfolios, changes in members’ customer deposit balances, changes in members’ demand for liquidity and our deposit pricing as compared to other short-term market rates. Declines in the level of deposits could occur if demand for loans at member institutions increases, if members choose to de-leverage their balance sheets, or if decreases in the general level of liquidity of members should occur. Fluctuations in deposits have little impact on our ability to obtain liquidity. We historically have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with similarly- 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 issued variable rate bonds indexed to the U.S. Treasury bill rate rather than issuing variable rate bonds indexed to LIBOR and we began swapping fixed rate bonds to OIS rates rather than swapping fixed-rate callable bonds to LIBOR. We did so in part to reduce our exposure to LIBOR as the market prepares to transition away from LIBOR as a reference rate. We also began participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in the first quarter of 2019 in an effort to manage our exposure to LIBOR assets and liabilities with maturities beyond 2021. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 2.

Discount notes are primarily used to fund: (1) shorter-term advances with indices and resets based on our short-term cost of funds; and (2) investments with maturities of three months or less. However, we sometimes use discount notes to fund longer-term assets, including fixed rate assets, variable rate assets, assets swapped to synthetically create variable rate assets, and short-term anticipated cash flows generated by longer-term fixed rate assets. At ~~September 30, 2019,~~March 31, 2020, 50.2 percent of discount notes outstanding funded short-term ~~advances~~ (advances maturing within one year), including line of credit ~~advances, represented 67.0 percent of discount notes outstanding.~~advances. 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 ~~14.4~~17.0 percent of discount notes outstanding as of ~~September 30, 2019.~~March 31, 2020.

Total consolidated obligations ~~increased $8.9~~decreased $0.2 billion, or ~~20.0~~0.3 percent, from December 31, ~~2018~~2019 to ~~September 30, 2019.~~March 31, 2020. The distribution between consolidated obligation bonds and discount notes shifted from 53.8 percent and 46.2 percent, respectively, at December 31, ~~2018~~2019 to ~~60.7~~56.9 percent and ~~39.3~~43.1 percent at ~~September 30, 2019,~~March 31, 2020, respectively. The ~~$8.5~~$1.7 billion increase in consolidated obligation bonds ~~was~~corresponded with the decline in discount notes due ~~primarily~~ to the ~~issuance of $7.7~~composition shift from short-term to long-term assets. We issued $4.4 billion of floating rate bonds indexed to SOFR during the quarter as we continue to ~~fund the growth in U.S. Treasuries~~transition away from LIBOR, and ~~short-term investments and $7.0~~$4.1 billion of callable fixed rate bonds ~~largely funding the growth in mortgage loans, of which $1.6 billion~~ were ~~swapped~~issued primarily to ~~OIS, issued in part to reduce LIBOR basis risk. During the third quarter of 2019, we replaced some callable~~replace called 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. Volatility in the capital markets caused by the COVID-19 pandemic could impact demand for FHLBank debt and the cost of the debt the FHLBanks issue.

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. While we increased liquidity and coordination of debt issuance among the FHLBanks in response to market volatility created by the COVID-19 pandemic, at no time during the first quarter of 2020 did the COVID-19 pandemic affect our balance sheet liquidity or access to the debt markets in a manner that caused us to be unable to meet the liquidity needs of our business or our members.

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

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were ~~$20.5~~$12.6 billion and ~~$633.2~~$124.3 billion, respectively, compared to ~~$8.8~~$5.6 billion and ~~$765.5~~$251.2 billion for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. 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 nine months of 2019, we replaced maturing bonds with longer-term fixed rate and shorter-term floating rate consolidated obligation bonds to 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, maturing Federal funds ~~purchased,~~sold, and proceeds from maturing 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~~decreased between periods, from ~~$2.6~~$9.4 billion as of December 31, ~~2018~~2019 to ~~$3.8~~$7.8 billion as of ~~September 30, 2019.~~March 31, 2020. The ~~increase between periods~~decrease was ~~relative~~primarily due to the ~~decrease~~accumulation of liquidity in ~~targeted leverage~~anticipation of potential advance demand at the end of ~~the year.~~2019. 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~~GSE MBS that can be pledged as collateral for financing in the securities repurchase agreement market and are classified as trading to enhance our liquidity position. The par value of these debentures and U.S. Treasury obligations was $1.9 billion ~~and $1.2 billion~~ as of ~~September 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively.~~2019. The par value of these MBS was ~~$0.9~~$0.8 billion as of ~~September 30, 2019~~both March 31, 2020 and December 31, ~~2018.~~2019, respectively. We also hold ~~$3.5~~$4.2 billion in par value of U.S. Treasury obligations classified as available-for-sale to satisfy regulatory liquidity requirements that went into effect March 31, 2019. In addition to the balance sheet sources of liquidity discussed previously, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. Accordingly, we expect to maintain a sufficient level of liquidity for the foreseeable future.

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

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, advance disbursements totaled ~~$281.6~~$44.3 billion compared to ~~$302.3~~$101.8 billion for the prior year period. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, investment purchases (excluding overnight investments) totaled ~~$7.9~~$1.0 billion compared to ~~$3.6~~$4.1 billion for the same period in the prior year. The ~~increase~~higher amount of investment purchases in ~~investment purchases~~the prior year was primarily U.S. Treasury obligations purchased in response to new regulatory liquidity requirements. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, payments on consolidated obligation bonds and discount notes were ~~$12.1~~$11.0 billion and ~~$632.7~~$126.3 billion, respectively, compared to ~~$7.4~~$2.2 billion and ~~$763.5~~$245.0 billion for the prior year period.

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

FHFA guidelines allow High Quality Liquid Assets (HQLA) to be included in liquidity metrics. The FHFA defines HQLA as uncommitted and unencumbered U.S. Treasury securities that have a remaining maturity of no greater than 10 years designated as trading and available-for-sale. We are also allowed to include some legacy GSE debentures as HQLA. We calculate our liquidity under ~~different scenarios.~~the funding gap guidelines monthly and are required to submit applicable data in a report to the FHFA monthly. We calculate our liquidity under the cash balance guidelines daily and are required to submit applicable data in a report to the FHFA weekly. Statutory liquidity requires us to have an amount equal to current deposits received from members invested in obligations of the United States, deposits in eligible banks or trust companies, and advances with a remaining maturity not exceeding five years. Operational liquidity 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. ContingencyStatutory liquidity is ~~an amount sufficient to meet~~calculated daily. See “Risk Management - Liquidity Risk Management” under this Item 2 for additional discussion on our liquidity ~~needs for five business days if we are unable to access~~requirements. We remained in compliance with all liquidity requirements in effect during the ~~capital markets to issue consolidated obligations. Our net liquidity in excess~~first quarter of ~~contingency liquidity over a cumulative five-business-day period was $8.9 billion as of September 30, 2019.~~ 2020.

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

See “Risk Management - Liquidity Risk Management” under this Item 2 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~~investments and short-term advance balances. 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~~ Total capital decreased $77.5 million, or 2.8 percent, between periods primarily due to unrealized losses on available-for-sale securities and dividends paid in excess of net income for the quarter ended March 31, 2020, partially offset by the 2.0 percent increase in capital stock outstanding ~~increased 9.6 percent~~ from December 31, ~~2018~~2019 to ~~September 30, 2019 (see Table 37)~~March 31, 2020 due to an increase in ~~activity-based~~required capital stock ~~required from the correlating increase in advances between periods.~~related to advance utilization (see Table 29).

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 periodically 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 3729 provides a summary of member capital requirements under our current capital plan as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):

Table 3729


Requirement	09/30/2019		12/31/2018		03/31/2020		12/31/2019
Asset-based (Class A Common Stock only)	$	158,656	$	157,406	$	157,328	$	158,758
Activity-based (additional Class B Common Stock)¹	1,278,696		1,192,807		1,318,143		1,264,160
Total Required Stock²	1,437,352		1,350,213		1,475,471		1,422,918
Excess Stock (Class A and B Common Stock)	235,815		177,921		329,215		345,953
Total Regulatory Capital Stock²	$	1,673,167	$	1,528,134	$	1,804,686	$	1,768,871

Activity-based Requirements:
Advances³	$	1,368,216	$	1,285,470	$	1,405,507	$	1,352,339
AMA assets (mortgage loans)⁴	675		772		600		621
Total Activity-based Requirement	1,368,891		1,286,242		1,406,107		1,352,960
Asset-based Requirement (Class A Common Stock) not supporting member activity¹	68,461		63,971		69,364		69,958
Total Required Stock²	$	1,437,352	$	1,350,213	$	1,475,471	$	1,422,918


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


²	Includes mandatorily redeemable capital stock.


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


⁴	Non-members ~~are~~previously subject to the AMA activity-based stock requirement remain subject as long as there are ~~UPBs~~unpaid principal balances 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 1110 of the Notes to Financial Statements under Part I, Item 1 for additional information and compliance as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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~~2019 and ~~2019.~~2020. The dividend parity threshold is effectively floored at zero percent when the current overnight Federal funds target rate is less than one percent. Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. Table 3830 presents the dividend rates per annum paid on capital stock under our capital plan for the quarterly periods ~~indicated:~~of 2020:

Table 3830


Applicable Rate per Annum	09/30/2019		06/30/2019		03/31/2019		12/31/2018		09/30/2018		03/31/2020		12/31/2019		09/30/2019		06/30/2019		03/31/2019
Class A Common Stock	2.50	%	2.50	%	2.25	%	2.00	%	2.00	%	2.25	%	2.50	%	2.50	%	2.50	%	2.25	%
Class B Common Stock	7.50		7.50		7.50		7.25		7.25		7.25		7.50		7.50		7.50		7.50
Weighted Average¹	6.61		6.56		6.56		6.24		6.32		5.94		6.14		6.61		6.56		6.56
Dividend Parity Threshold:
Average effective overnight Federal funds rate	2.20	%	2.40	%	2.40	%	2.22	%	1.92	%	1.23	%	1.65	%	2.20	%	2.40	%	2.40	%
Spread to index	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)
TOTAL (floored at zero percent)	1.20	%	1.40	%	1.40	%	1.22	%	0.92	%	0.23	%	0.65	%	1.20	%	1.40	%	1.40	%


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

We paid dividend rates of ~~2.50~~2.25 percent on Class A Common Stock and ~~7.50~~7.25 percent on Class B Common Stock for the ~~third~~first quarter of ~~2019 to provide a higher percentage payout~~2020. We anticipate stock dividends on Class A Common Stock and Class B Common Stock will be lower in the second quarter of ~~quarterly~~2020, consistent with the lower level of short‑term interest rates and our retained earnings ~~to our members. Adverse changes in~~policy. Continued adverse market conditions may result in lower dividend rates in future quarters. While there is no assurance that our Board 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. Our swap agreements are governed by the International Swap Dealers Association (ISDA). ISDA is in the process of developing a protocol to modify legacy trades to include fallback language. The market transition away from LIBOR is expected to be gradual and complex, including the development of term and credit adjustments to accommodate differences between LIBOR, an unsecured rate, and SOFR, a secured rate. SOFR is based on a broad segment of the overnight U.S. Treasuries repurchase market and is intended to be a measure of the average cost of borrowing cash overnight collateralized by U.S. Treasury securities. We started participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in January 2019 in an effort to manage our exposure

to LIBOR assets and liabilities with maturities beyond 2021. We sold $162.9 million of available-for-sale securities indexed to LIBOR during the first quarter of 2020. We continue to consider the sale of securities as part of our strategy to reduce LIBOR exposure, but market pricing and reinvestment opportunities are limiting factors. Derivative and investment exposure will also be impacted by the actions of industry groups and standard setters, which are still under deliberation.

In September 2019, the FHFA issued a supervisory letter to the FHLBanks providing LIBOR transition guidance. The supervisory letter states that by March 31, 2020, the FHLBanks should no longer enter into new financial assets, liabilities, and derivatives that reference LIBOR and mature after December 31, 2021, for all product types except investments. On March 16, 2020, in light of market volatility, the FHFA extended from March 31, 2020 to June 30, 2020 the FHLBanks’ ability to enter into instruments referencing LIBOR that mature after December 31, 2021, except for investments and option embedded products. With respect to investments, the FHLBanks ~~should,~~were required, by December 31, 2019, to 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~~March 31, 2020 was ~~$660~~$665 million, which represents ~~2.88~~3.0 percent of total variable rate advances. The contractual maturities of these LIBOR-indexed advances ~~include $200 million and $460 million~~are all due in ~~2019 and 2020, respectively;~~2020; thus, ~~at September 30, 2019,~~ we have no LIBOR exposure after 2021. We have no advances indexed to SOFR as of ~~September 30, 2019.~~March 31, 2020. However, we are in the process of developing the operational capabilities for SOFR-indexed advances and plan to offer these advances during the second quarter of 2020.

Table 3931 presents the par value of variable rate investment securities by the related interest rate index as of ~~September 30, 2019~~March 31, 2020 (dollar amounts in thousands):

Table 3931


09/30/2019
03/31/2020											03/31/2020
Index	Trading		Available-for-sale		Held-to-maturity		Total		Percent		Amount		Percent
Non-mortgage-backed securities:
LIBOR	$	50,000	$	—	$	85,670	$	135,670	3.6	%	$	82,805	2.5	%
Non-mortgage-backed securities	50,000		—		85,670		135,670		3.6		82,805		2.5
Mortgage-backed securities:
LIBOR	50,889		—		3,530,909		3,581,798		96.4		3,207,452		97.5
Other	—		—		24		24		—		23		—
Mortgage-backed securities	50,889		—		3,530,933		3,581,822		96.4		3,207,475		97.5
TOTAL	$	100,889	$	—	$	3,616,603	$	3,717,492	100.0	%	$	3,290,280	100.0	%

Table 4032 presents the par value of investment securities indexed to LIBOR outstanding by year of contractual maturity as of ~~September 30, 2019~~March 31, 2020 (in thousands):

Table 4032


09/30/2019
03/31/2020			03/31/2020
Year of Contractual Maturity	Amount		Amount
Non-mortgage-backed securities:
2019	$	50,000
2020	—		$	—
2021	—		—
Thereafter	85,670		82,805
Non-mortgage-backed securities	135,670		82,805
Mortgage-backed securities:
2019	—
2020	—		—
2021	2,318		2,263
Thereafter	3,579,480		3,205,189
Mortgage-backed securities	3,581,798		3,207,452
TOTAL	$	3,717,468	$	3,290,257

Table 4133 presents the notional amount of ~~derivatives, excluding fixed~~interest rate swaps (excludes interest rate caps and mortgage ~~purchase commitments,~~delivery commitments) by ~~the~~ related interest rate index as of ~~September 30, 2019 (dollar amounts~~March 31, 2020 (amounts in thousands):

Table 4133


09/30/2019
03/31/2020					03/31/2020
Index	Total		Percent		Pay Side		Receive Side
Fixed rate					$	15,010,554	$	6,648,346
LIBOR	$	10,252,369	54.0	%	145,000		6,161,353
SOFR	4,097,897		21.6		4,067,190		6,223,212
OIS	4,633,503		24.4		2,436,156		2,625,989
TOTAL	$	18,983,769	100.0	%	$	21,658,900	$	21,658,900

Table 4234 presents the notional amount of ~~derivatives~~interest rate swaps (excludes interest rate caps and mortgage delivery commitments) indexed to LIBOR outstanding by termination date as of ~~September 30, 2019~~March 31, 2020 (in thousands). Actual terminations of certain derivatives will differ from contractual termination dates because derivative counterparties may have call options within the derivative contracts. Likewise, if the financial instrument being hedged by the derivative (either as a qualifying fair value hedge or as an economic hedge) is called or paid off prior to contractual maturity, we could potentially call or terminate the corresponding derivative prior to the termination date.

Table 4234


09/30/2019
03/31/2020			03/31/2020
Year	Termination Date		Pay Side				Receive Side
2019	$	495,600
Year			Cleared		Bilateral		Cleared		Bilateral
	1,334,723		$	—	$	45,000	$	119,723	$	121,000
2021	1,865,741		—		75,000		378,219		15,000
Thereafter	6,556,305		—		25,000		1,614,543		3,912,868
TOTAL	$	10,252,369	$	—	$	145,000	$	2,112,485	$	4,048,868

Table 4335 presents the par value of variable rate consolidated obligation bonds by the related interest rate index as of ~~September 30, 2019~~March 31, 2020 (dollar amounts in thousands):

Table 4335


09/30/2019
03/31/2020					03/31/2020
Index	Amount		Percent		Amount		Percent
SOFR					$	10,138,000	56.2	%
LIBOR	$	6,490,000	38.7	%	7,850,000		43.5
SOFR	7,737,000		46.1
U.S. Treasury	2,550,000		15.2		50,000		0.3
TOTAL	$	16,777,000	100.0	%	$	18,038,000	100.0	%

Table 4436 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~~March 31, 2020 (in thousands):

Table 4436


09/30/2019
03/31/2020					03/31/2020
Year	Maturity Date		Maturity or Next Call Date		Maturity Date
2019	$	650,000	$	1,150,000
2020	4,590,000		4,590,000		$	4,300,000
2021	790,000		750,000		3,550,000
Thereafter	460,000		—		—
TOTAL	$	6,490,000	$	6,490,000	$	7,850,000

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

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

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

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

Derivatives – We transact most of our derivatives with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed with a counterparty (uncleared derivatives) or with an executing broker and cleared through a Futures Commission Merchant (i.e., clearing agent) that acts on our behalf to clear and settle derivative transactions through a 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 ~~September 30, 2019.~~March 31, 2020.

Cleared Derivatives. We are subject to nonperformance by the Clearinghouse(s) and clearing agent(s). The requirement that we post initial and variation margin, through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral and/or payments are posted daily for changes in the value of cleared derivatives through a clearing agent. We do not anticipate any credit losses on our cleared derivatives as of ~~September 30, 2019.~~March 31, 2020.

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

The contractual or notional amount of derivative transactions reflects our involvement in the various classes of financial instruments. The maximum credit risk with respect to derivative transactions is the estimated cost of replacing the derivative transactions if there are defaults, minus the value of any related collateral posted to satisfy the initial margin (if required). 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 4537 and 4638 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~~Moody's Investor Service ~~(Moody's)~~ or Standard & ~~Poor’s (S&P))~~Poor's) for derivative positions with counterparties to which we had credit exposure (in thousands):

Table 4537


09/30/2019
03/31/2020											03/31/2020
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	$	288,500	$	583		$	400		$	183	$	40,000	$	617		$	600		$	17
Cleared derivatives¹	11,810,950		2,089			(133,151		)	135,240		5,839,783		3,638			(70,860		)	74,498
Liability positions with credit exposure:
Uncleared derivatives²:
Single-A	4,541,472		(105,365		)	(106,694		)	1,329		2,814,816		(186,727		)	(188,115		)	1,388
Triple-B	311,528		(9,325		)	(9,417		)	92
Cleared derivatives¹											11,387,308		(3,326		)	(129,938		)	126,612
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	16,952,450	$	(112,018	)	$	(248,862	)	$	136,844	$	20,081,907	$	(185,798	)	$	(388,313	)	$	202,515

Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated AA- by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A by S&P as of ~~September 30, 2019~~March 31, 2020. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of ~~September 30, 2019~~March 31, 2020.


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 4638


12/31/2018
12/31/2019											12/31/2019
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	$	36,000	$	14		$	—		$	14	$	63,500	$	257		$	—		$	257
Cleared derivatives¹											14,150,148		1,821			(145,658		)	147,479
Liability positions with credit exposure:
Uncleared derivatives¹:
Uncleared derivatives^2:
Single-A	1,225,774		(18,975		)	(22,261		)	3,286		6,123,478		(78,575		)	(84,633		)	6,058
Cleared derivatives²	4,623,289		(4,963		)	(36,140		)	31,177
Triple-B											286,008		(5,894		)	(6,409		)	515
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	5,885,063	$	(23,924	)	$	(58,401	)	$	34,477	$	20,623,134	$	(82,391	)	$	(236,700	)	$	154,309

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


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

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 4739 presents the fair value of cross-border outstandings as of ~~September 30, 2019~~March 31, 2020 (dollar amounts in thousands):

Table 4739


	Total¹					Total¹
	Amount			Percent of Total Assets		Amount			Percent of Total Assets
Federal funds sold²	$	600,000		1.1	%	$	725,000		1.1	%

Trading securities³						275,055			0.4

Derivative assets:
Net exposure at fair value	(18,224		)			(59,330		)
Cash collateral held	19,236					60,127
Net exposure after cash collateral	1,012			—		797			—

TOTAL	$	601,012		1.1	%	$	1,000,852		1.5	%


¹	Represents foreign countries where individual exposure is less than one percent of total assets. Total cross-border outstandings to countries that individually represented between 0.75 and 1.0 percent of our total assets as of March 31, 2020 were $0.5 billion (Netherlands).


²	Consists solely of overnight Federal funds sold.


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

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

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 ~~third~~first quarter of ~~2019.~~2020.

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

We generally maintained stable access to the capital markets for the quarter ended ~~September 30, 2019.~~March 31, 2020. For additional discussion of the market for our consolidated obligations and the overall market affecting liquidity, see “Financial Market Trends” under this Item 2.

Our derivative instruments contain provisions that require all credit exposures be collateralized. See Note 76 of the Notes to Financial Statements under Part I, Item 1 for additional information on collateral posting requirements.

Recently Issued Accounting Standards

See Note 2 of the Notes to Financial Statements under Part I, Item 1 – "Financial Statements" for a discussion of recently issued accounting standards.

Legislative and Regulatory Developments

~~FHFA Advisory Bulletin 2019-03~~Margin and Capital ~~Stock Management.~~ Requirements for Covered Swap Entities.On ~~August 14, 2019,~~April 9, 2020, the ~~FHFA~~Commodities Futures Trading Commission (CFTC) issued ~~an Advisory Bulletin (the AB) providing guidance that augments existing statutory~~a final rule, effective May 11, 2020, to amend its rules requiring minimum margin and ~~regulatory~~ capital requirements for uncleared swaps for covered swap entities for which there is no prudential regulator by extending the phase-in compliance date for initial margin requirements from September 1, 2020 to ~~require each FHLBank to maintain a ratio~~September 1, 2021 for counterparties with an average daily aggregate notional amount 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 will consider the proportion of capital stock to assets, measured on a daily average basis at month end, when assessing each FHLBank’s capital management practices.non-cleared swaps between $8 billion and $50 billion. We do not expect ~~the AB~~this final rule to ~~have a material impact on~~materially affect our ~~capital management practices,~~ financial condition or results of operations.

Finance Agency Final Rule on Stress Testing. On March 24, 2020, the FHFA issued a final rule, effective upon issuance, to amend its stress testing rule, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. The final rule: (1) raises the minimum threshold for entities regulated by the FHFA to conduct periodic stress tests from $10 billion to $250 billion or more in total consolidated assets; (2) removes the requirements for FHLBanks to conduct stress testing; and (3) removes the adverse scenario from the list of required scenarios. FHLBanks are currently excluded from this regulation because no FHLBank has total consolidated assets over $250 billion, but the FHFA reserved its discretion to require an FHLBank with total consolidated assets below the $250 billion threshold to conduct stress testing. These amendments align the FHFA’s stress testing rule with rules adopted by other financial institution regulators that implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) stress testing requirements, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.

The results of our most recent annual severely adverse economic conditions stress test were published to our public website, www.fhlbtopeka.com on November 15, 2019. This rule will eliminate these stress testing requirements for us, unless the FHFA exercises its discretion to require stress testing in the future. We do not expect this rule to have a material effect on our financial condition or results of operations.

Finance Agency Supervisory Letter on Planning for LIBOR Phase-Out.On September 27, 2019, the FHFA issued a ~~Supervisory Letter~~supervisory letter (the Supervisory Letter) to the FHLBanks that the FHFA stated is designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. The Supervisory Letter provides that the FHLBanks should ~~by March 31, 2020,~~ cease entering into new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021 for all product types except investments. With respect to investments, the FHLBanks 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 an effort to encourage members to distinguish LIBOR-linked collateral maturing after December 31, 2021. ~~Acknowledging~~

As a result of the recent market volatility triggered in part by the COVID-19 pandemic, the FHLBanks’ authority to enter into LIBOR-based instruments that ~~that there may be LIBOR-linked products serving~~ ~~compelling mission, risk mitigating, and/or hedging~~ ~~purposes~~mature after December 31, 2021 has been extended from March 31, 2020 to June 30, 2020, except for investments and option embedded products. In addition, the ~~FHLBanks that do not currently have readily available alternatives,~~requirement to update pledged collateral certification reporting requirements was extended from March 31, 2020 to September 30, 2020.

As a result of the Supervisory Letter ~~permits~~and the ~~FHLBanks~~extension, beginning July 1, 2020, we expect to ~~jointly submit a single list of LIBOR-linked products maturing~~suspend transactions in advances with terms directly linked to LIBOR that mature after ~~2021~~December 31, 2021. In addition, beginning July 1, 2020, we expect to no longer enter into consolidated obligation bonds and derivatives with swaps, caps, or floors indexed to LIBOR that ~~they would like to continue to use~~terminate after ~~March~~December 31, ~~2020.~~ 2021. We have ceased purchasing investments that reference LIBOR and mature after December 31, 2021.

We continue to evaluate the potential impact of the Supervisory Letter on our financial condition and results of operations and LIBOR transition ~~planning.~~planning, but we may experience increased basis risk from our inability to fund LIBOR-indexed assets with LIBOR-indexed debt, reduced investment opportunities, and lower overall demand or increased costs for advances, which in turn may negatively impact the future composition of our balance sheet, capital stock levels, primary mission assets ratio, and net income.

For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under Item 2.

Legislative and Regulatory Developments Related to COVID-19 Pandemic.

Finance Agency Supervisory Letter on PPP Loans as Collateral for FHLBank Advances. On April 23, 2020, FHFA issued a Supervisory Letter (PPP Supervisory Letter) permitting the FHLBanks to accept PPP loans as collateral for advances as “Agency Securities,” given the SBA’s 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA published its third interim final rule related to PPP loans, which explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral, which conditions focus on the financial condition of members, collateral discounts, and pledge dollar limits.

We have reviewed the PPP Supervisory Letter and decided to accept PPP loans pledged as collateral beginning May 7, 2020. We do not expect the PPP Supervisory Letter to materially affect our financial condition or results of operations.

CARES Act. The CARES Act was passed by the Senate on March 25, 2020 and by the House on March 27, 2020, and the President signed it into law the same day. The $2.2 trillion package is the largest stimulus bill in U.S. history. The CARES Act is in addition to previous relief legislation passed by Congress in March 2020. The legislation provides the following:

Assistance to businesses, states, and municipalities.

Creates a loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives.

Provides the Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act.

Direct payments to eligible taxpayers and their families.

Expands eligibility for unemployment insurance and payment amounts.

Includes mortgage forbearance provisions and a foreclosure moratorium.

Additional phases of the CARES Act or other COVID-19 relief legislation may be enacted by Congress. We are evaluating the potential impact of the CARES Act on our business, including its impact to the U.S. economy, which is unknown; the acceptance of SBA loans as a new collateral source for advances; and impacts to mortgages held or serviced by our members and that we accept as collateral; and impacts on our mortgage loan portfolio.

Additional COVID-19 Legislative and Regulatory Developments. In light of the COVID-19 pandemic, governmental agencies, including the SEC, Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Association, CFTC and the FHFA, as well as state governments and agencies, have taken actions to provide various forms of relief from and guidance regarding the financial, operational, credit, market and other effects of the pandemic, some of which may have a direct or indirect impact on us and/or our members. Many of these actions are temporary in nature. We are monitoring these actions and guidance and evaluating their potential impact on our financial condition and results of operations.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

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

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 ~~September 30, 2019.~~March 31, 2020. On an ongoing basis, we actively monitor portfolio relationships and overall DOE dynamics as a part of our evaluation processes for determining acceptable future asset/liability management actions. Table 4840 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 4840

							Duration of Equity
Date	Up 200 Basis Points	Base	Down 200 Basis Points	Up 200 Basis Points	Base	Down 200 Basis Points
03/31/2020				-0.5	-2.3	0.7
12/31/2019				0.8	-0.9	2.4
09/30/2019	1.0	-0.7	2.0	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
09/30/2018	2.9	1.2	1.9

The absolute value of the DOE of the portfolio as of ~~September 30, 2019~~March 31, 2020 increased in the base scenario and decreased in the up and down 200 basis point shock scenarios from ~~June 30,~~December 31, 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) 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 ~~third~~first quarter of ~~2019~~2020 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 ~~15.3~~16.8 percent of total assets as of ~~June 30,~~December 31, 2019 to ~~17.2~~17.4 percent as of ~~September 30, 2019.~~March 31, 2020. 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.~~2019.

In addition, the relative level of mortgage rates generally contributes significantly to the sensitivity of the fixed rate mortgage loan portfolio causing the duration profile to lengthen or shorten based on the relationship between interest rates, mortgage rates and associated mortgage spreads. For instance, the decrease in interest rates during the period caused the mortgage loan portfolio duration to shorten slightly more than the associated liabilities, leading to a more liability sensitive DOE profile in the base and up 200 basis point shock interest rate ~~scenario~~scenarios and less asset sensitive DOE profile in the ~~up and~~ down 200 basis point shock interest rate ~~scenarios.~~scenario. 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~~majority of interest rates along the down 200 shocked term structure of interest rates, causing valuation changes to be limited, generating DOE results with marginal information.

With respect to the variable rate GSE MBS portfolio, we generally purchase interest rate caps to offset the impact of embedded caps in this portfolio in rising interest rate scenarios. As expected, these interest rate caps are a satisfactory interest rate risk hedge to rising interest rates and provide an off-setting risk response to the risk profile changes in variable rate GSE MBS with embedded caps. We periodically assess derivative strategies to ensure that overall balance sheet risk is appropriately hedged within established risk appetite metrics and make adjustments to the derivative portfolio as needed. This evaluation is completed considering not only the par value of the variable rate MBS with embedded caps being hedged with purchased caps, but the composition of the purchased cap portfolio and expected prepayments of the variable rate MBS with embedded caps. This evaluation of the relative relationship between the variable rate investment portfolio and the purchased cap portfolio continues to indicate a sufficient hedging relationship. During the quarter ended September 30, 2019, we had no additional purchases of variable rate single-family GSE MBS. We also did not purchase additional interest rate caps during the 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~~-1.3 months for ~~September 30, 2019~~March 31, 2020 and ~~-0.2~~-0.5 months for ~~June 30,~~December 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 ~~third~~first quarter of ~~2019.~~2020. All FHLBanks are required to submit this base duration gap number to the Office of Finance as part of the quarterly reporting process created by the FHFA.

Market Value of Equity

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 4941 presents MVE as a percent of TRCS. As of ~~September 30, 2019~~March 31, 2020, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan market values as rates have continued to remain historically low 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 ~~September 30, 2019~~March 31, 2020 (see Table 3729 under Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital”) contributed to the MVE levels as of ~~September 30, 2019.~~March 31, 2020. These relationships primarily generate the changes in the MVE/TRCS levels and produce the changes in the ratios in all interest rate scenarios in the table below.

Table 4941

							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
03/31/2020				184	173	177
12/31/2019				175	174	176
09/30/2019	174		179	174		179
06/30/2019	171	174	176	171	174	176
03/31/2019	172	176		172	176
12/31/2018	167	173	174
09/30/2018	167	174	175

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;~~instrument; 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 quantitative effectiveness of our long haul hedges. We determine the hedge accounting to be applied when the hedge is entered into by completing detailed documentation, which includes a checklist setting forth criteria that must be met to qualify for hedge accounting.

Tables 5042 and 5143 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 5042


09/30/2019
03/31/2020									03/31/2020
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount			Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,132,648	$	895		Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,321,389	$	(1,184	)
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	1,312,850		(44,515		)	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	1,811,000		(131,985		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	65,504		(48		)	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	33,822		(1,669		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	35,077		(1,066		)	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	28,004		39
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		(95		)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	10,255		(965		)
Investments
Fixed rate non-MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	4,200,000		(607		)
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	2,919,160		(153,949		)
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	1,898,500		409			Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	1,898,500		119
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	809,214		(37,412		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	788,423		(72,184		)
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	2,438,761		(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	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	1,248,200		170			Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	762,500		262
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	375,772		(452		)	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	910,677		(6,864		)
Consolidated Obligation Discount Notes
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	298,515		5
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	3,964,847		164
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	2,468,500		15,888			Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	2,633,500		20,755
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	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	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	340,000		336			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	50,000		176
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	590,000		175
TOTAL				$	19,359,541	$	(144,285	)				$	23,332,077	$	(347,892	)

Table 5143


12/31/2018
12/31/2019									12/31/2019
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount			Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	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	$	3,160,580	$	953
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	1,607,500		(24,784		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	140,475		(670		)	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	35,504		28
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	9,136		(38		)	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	35,077		(532		)
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	2,000		(10		)	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	6,000		(62		)
Investments
Fixed rate non-MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	4,200,000		(352		)
Fixed rate MBS available-for-sale investments									Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	2,822,646		(49,571		)
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	648,500		(1,199		)	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	1,898,500		248
Adjustable rate MBS with embedded caps									Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,130,000		117
Fixed rate MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	847,284		12,238			Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	790,045		(24,861		)
Fixed rate MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,752,493		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
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	221,800		470
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months	Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	49,403		—			Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	1,383,782		47
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	2,628,500		14,013
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	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	500,000		2,635
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	15,000		(1,050		)
Variable rate consolidated obligation bonds									Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	370,000		(342		)
Callable step-up/step-down consolidated obligation bonds	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	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	110,000		95
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	645,000		(15,406		)
TOTAL				$	12,497,596	$	46,970					$	20,899,934	$	(81,898	)

Item 4: Controls and Procedures

Disclosure Controls and Procedures

Senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 ~~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 ~~September 30, 2019.~~March 31, 2020. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~September 30, 2019.~~March 31, 2020.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended ~~September 30, 2019~~March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1: Legal Proceedings

We are subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations. Additionally, management does not believe that we are subject to any material pending legal proceedings outside of ordinary litigation incidental to our business.

Item 1A: Risk Factors

An economic downturn or natural disaster in the FHLBank’s region, or a pandemic, could adversely affect our profitability and financial condition. Economic recession over a prolonged period or other unfavorable economic conditions in our region (including on a state or local level) could have an adverse effect on our business, including the demand for our products and services, and the value of the collateral securing advances, investments, and mortgage loans held in portfolio. Portions of our region also are subject to risks from tornadoes, floods, or other natural disasters. These natural disasters, including those resulting from significant climate changes, could damage or dislocate the facilities of our members, may damage or destroy collateral that members have pledged to secure advances or mortgages, or the livelihood of borrowers of members, or otherwise could cause significant economic dislocation in the affected areas of our region. Additionally, the impact of widespread health emergencies may adversely impact our financial condition and results of operations.

The impact of the COVID-19 pandemic on our members and our business could adversely affect our profitability and financial condition. As of the date of the filing of this report, the full effects of the COVID-19 pandemic are evolving and not fully known. The COVID-19 pandemic has to date caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession. These conditions are expected to continue in the near term. Many businesses in our district and across the U.S. have been forced to suspend operations for an indefinite period of time in an attempt to slow the spread of the virus, and unemployment claims have increased dramatically as more employers lay off or furlough workers. Ultimately, the significant slowdown in economic activity caused by the COVID-19 pandemic could reduce demand at our member institutions, which could impact members’ demand for our products and services. It could also lead to a devaluation of our assets and/or the collateral pledged by the our members to secure advances and other extensions of credit, all of which could have an adverse impact on our financial condition and results of operations, including as a result of reduced business volumes, reduced income or increased credit losses.

Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets, which are beyond our control. Volatility in the capital markets caused by the COVID-19 pandemic can impact demand for FHLBank debt and the cost of the debt the FHLBanks issue, which could impact our liquidity and profitability. Our business and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies. The Federal Reserve Board’s policies directly and indirectly influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. In response to COVID-19, the FOMC lowered the target range for Federal funds to a target range of zero to 0.25 percent. The outlook for the remainder of 2020 is uncertain, and there is a possibility that the FOMC may keep interest rates low or even use negative interest rates if economic conditions warrant, each of which could affect the success of our asset and liability management activities and negatively affect our financial condition and results of operations.

Most of our employees have been working remotely since mid-March. At this time, we cannot predict when our full employee base will be permitted to return to work in our offices. With most of our employees working remotely, we could face operational difficulties or disruptions that could impair our ability to conduct and manage our business effectively. In addition, some of our employees, executive management team, or board of directors could become infected with the COVID-19 virus which, depending upon the number and the severity of their cases, could similarly affect our ability to conduct and manage our business effectively. Counterparties, vendors and other third parties upon which we rely to conduct our business could be adversely impacted by the COVID-19 pandemic which could, in turn, lead to operational challenges for us. These potential difficulties, disruptions and challenges could increase the likelihood that our financial condition and results of operations could be impacted.

Significant borrower defaults on loans made by our members could occur as a result of reduced economic activity and these defaults could cause members to fail. We could be adversely impacted by the reduction in business volume that would arise from the failure of one or more of our members. Further, counterparty default, whether as a result of the operational or financial impacts of the COVID-19 pandemic, could adversely impact our financial condition and results of operations.

There have been no other material changes to the risk factors previously disclosed in our annual report on Form 10-K filed on March ~~18, 2019,~~20, 2020, and such risk factors are incorporated by reference herein.

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

Not applicable.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6: Exhibits



Exhibit No.	Description
3.1	Exhibit 3.1 to the FHLBank’s registration statement on Form 10, filed May 15, 2006, and made effective on July 14, 2006 (File No. 000-52004), 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~~4.1 to the ~~Current~~Annual Report on Form ~~8-K,~~10-K, filed ~~August 5, 2011,~~March 20, 2020, Federal Home Loan Bank of Topeka Capital ~~Plan, is incorporated herein by reference as Exhibit 4.1.~~Plan.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Senior Vice President and 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


~~November~~May 12, ~~2019~~2020	By: /s/ Mark E. Yardley
Date	Mark E. Yardley
	President and Chief Executive Officer

~~107~~97



	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
Balance at June 30, 2018	$	29,628		$	(3,655	)	$	(1,373	)	$	24,600
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	3,694									3,694
Accretion of non-credit loss				30						30
Non-credit losses included in basis of securities sold				3,625						3,625
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan¹							5			5
Net current period other comprehensive income (loss)	3,694			3,655			5			7,354
Balance at September 30, 2018	$	33,322		$	—		$	(1,368	)	$	31,954

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



	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
Balance at December 31, 2017	$	31,206		$	(4,163	)	$	(1,385	)	$	25,658
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	2,116									2,116
Accretion of non-credit loss				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
Amortization of net losses - defined benefit pension plan²							17			17
Net current period other comprehensive income (loss)	2,116			4,163			17			6,296
Balance at September 30, 2018	$	33,322		$	—		$	(1,368	)	$	31,954


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



	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



	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