Federal Home Loan Bank of Topeka

11/07/2024 | Press release | Distributed by Public on 11/07/2024 13:54

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

fhlbt-20240930
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 000-52004
FEDERAL HOME LOAN BANK OF TOPEKA
(Exact name of registrant as specified in its charter)
Federally chartered corporation of the United States
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. ☒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). ☒ 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 ☒ 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 ☒No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Shares outstanding as of
October 31, 2024
Class A Stock, par value $100 per share 3,010,365
Class B Stock, par value $100 per share 21,420,558
.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
12
Statements of Cash Flows
13
Notes to Financial Statements
15
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
45
Executive Level Overview
46
Financial Market Trends
47
Critical Accounting Policies and Estimates
48
Results of Operations
49
Financial Condition
59
Liquidity and Capital Resources
74
Risk Management
76
Recently Issued Accounting Standards
77
Legislative and Regulatory Developments
77
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
78
Item 4.
Controls and Procedures
83
Part II
OTHER INFORMATION
83
Item 1.
Legal Proceedings
83
Item 1A.
Risk Factors
83
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
83
Item 3.
Defaults Upon Senior Securities
83
Item 4.
Mine Safety Disclosures
83
Item 5.
Other Information
83
Item 6.
Exhibits
84
2
Important Notice about Information in this Quarterly Report
In this quarterly report, unless the context suggests otherwise, references to "FHLBank," "FHLBank Topeka," "we," "us" and "our" mean Federal Home Loan Bank of Topeka, and "FHLBanks" mean all Federal Home Loan Banks, including 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 FHLBank, and in some cases, 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 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. 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:
•Changes in the general economy and capital markets, the rate of inflation, employment rates, housing market activity and pricing, the size and volatility of the residential mortgage market, geopolitical events, and global economic uncertainty;
•Political events, including legislative, regulatory, judicial, or other developments that affect FHLBank; its members, counterparties or investors in the consolidated obligations of the FHLBanks, such as any government-sponsored enterprise (GSE) reforms, any changes resulting from the Federal Housing Finance Agency's (FHFA) review and analysis of the FHLBank System, including recommendations published in its "FHLBank System at 100: Focusing on the Future" report, changes in the Federal Home Loan Bank Act of 1932, as amended (Bank Act), changes in applicable sections of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or changes in other statutes or regulations applicable to the FHLBanks;
•External events, such as economic, financial, or political disruptions, and/or wars, pandemics, and natural disasters, including disasters caused by climate change, which could damage our facilities or the facilities of our members, damage or destroy collateral pledged to secure advances, or mortgage-related assets, which could increase our risk exposure or loss experience;
•Effects of derivative accounting treatment and other accounting rule requirements, or changes in such requirements;
•Competitive forces, including competition for loan demand, purchases of mortgage loans and access to funding;
•The ability of FHLBank to introduce new products and services to meet market demand and to manage successfully the risks associated with all products and services;
•Changes in demand for FHLBank products and services or consolidated obligations of the FHLBank System;
•Membership changes, including changes resulting from member creditworthiness, member failures or mergers, changes due to member eligibility or housing mission focus, or changes in the principal place of business of members;
•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 and their members, non-member borrowers, and counterparties;
•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, along with the other FHLBanks, 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;
•Volatility of market prices, changes in interest rates and indices and the timing and volume of market activity, including the effects of these factors on amortization/accretion;
•Gains/losses on derivatives or on trading investments and the ability to enter into effective derivative instruments on acceptable terms;
•Changes in FHLBank's capital structure;
•FHLBank's ability to declare dividends or to pay dividends at rates consistent with past practices;
4
•The ability of FHLBank to keep pace with technological changes and innovation such as artificial intelligence, and the ability to develop and support technology and information systems, including the ability to manage cybersecurity risks and securely access the internet and internet-based systems and services, sufficient to effectively manage the risks of FHLBank's business; and
•The ability of FHLBank to attract, onboard and retain skilled individuals, including qualified executive officers.
Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this quarterly report, as well as those discussed under Item 1A - "Risk Factors."
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 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
5
Table of Contents
FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
09/30/2024 12/31/2023
ASSETS
Cash and due from banks $ 27,863 $ 26,062
Interest-bearing deposits 2,074,473 1,604,989
Securities purchased under agreements to resell (Note 9)
2,875,000 3,875,000
Federal funds sold 6,370,000 2,080,000
Investment securities:
Trading securities (Note 3)
553,846 908,608
Available-for-sale securities, amortized cost of $13,204,971 and $11,872,397 (Note 3)
13,096,435 11,753,453
Held-to-maturity securities, fair value of $231,117 and $260,653 (Note 3)
233,234 264,796
Total investment securities 13,883,515 12,926,857
Advances (Note 4)
44,354,896 45,444,769
Mortgage loans held for portfolio, net of allowance for credit losses of $4,224 and $5,531 (Note 5)
8,882,033 8,352,713
Accrued interest receivable 267,599 204,243
Derivative assets, net (Notes 6, 9)
385,619 350,367
Other assets 83,540 81,985
TOTAL ASSETS $ 79,204,538 $ 74,946,985
LIABILITIES
Deposits (Note 7)
$ 885,987 $ 752,200
Consolidated obligations, net:
Discount notes (Note 8)
17,251,684 20,743,249
Bonds (Note 8)
56,461,457 49,047,489
Total consolidated obligations, net 73,713,141 69,790,738
Mandatorily redeemable capital stock (Note 10)
3,230 247
Accrued interest payable 366,680 361,840
Affordable Housing Program payable 89,841 77,794
Derivative liabilities, net (Notes 6, 9)
5,247 860
Other liabilities 68,589 72,654
TOTAL LIABILITIES 75,132,715 71,056,333
Commitments and contingencies (Note 13)
The accompanying notes are an integral part of these financial statements.
6
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
09/30/2024 12/31/2023
CAPITAL
Capital stock outstanding - putable:
Class A ($100 par value; 3,841 and 2,789 shares issued and outstanding) (Note 10)
$ 384,099 $ 278,887
Class B ($100 par value; 22,412 and 23,288 shares issued and outstanding) (Note 10)
2,241,182 2,328,796
Total capital stock 2,625,281 2,607,683
Retained earnings:
Unrestricted 1,077,770 989,457
Restricted 477,166 412,483
Total retained earnings 1,554,936 1,401,940
Accumulated other comprehensive income (loss) (Note 11)
(108,394) (118,971)
TOTAL CAPITAL 4,071,823 3,890,652
TOTAL LIABILITIES AND CAPITAL $ 79,204,538 $ 74,946,985
The accompanying notes are an integral part of these financial statements.
7
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
INTEREST INCOME:
Interest-bearing deposits $ 37,651 $ 37,569 $ 111,895 $ 104,953
Securities purchased under agreements to resell 40,217 27,969 120,583 90,607
Federal funds sold 69,652 49,772 180,720 150,058
Trading securities 5,272 7,497 18,182 27,477
Available-for-sale securities 202,409 159,499 586,368 421,079
Held-to-maturity securities 3,508 3,866 10,814 12,140
Advances 650,770 634,899 1,877,261 1,785,223
Mortgage loans held for portfolio 83,271 66,871 236,084 190,515
Other 178 286 534 1,237
Total interest income 1,092,928 988,228 3,142,441 2,783,289
INTEREST EXPENSE:
Deposits 10,811 8,720 30,687 23,469
Consolidated obligations:
Discount notes 230,295 284,947 691,610 836,651
Bonds 716,141 579,352 2,009,680 1,581,173
Mandatorily redeemable capital stock 69 3 124 11
Other 301 298 930 1,007
Total interest expense 957,617 873,320 2,733,031 2,442,311
NET INTEREST INCOME 135,311 114,908 409,410 340,978
Provision (reversal) for credit losses on mortgage loans (78) (33) (1,141) 311
NET INTEREST INCOME AFTER LOAN LOSS PROVISION (REVERSAL)
135,389 114,941 410,551 340,667
OTHER INCOME (LOSS):
Net gains (losses) on trading securities 10,264 2,216 15,993 6,599
Net gains (losses) on derivatives (10,404) 5,232 (198) 25,001
Standby bond purchase agreement commitment fees 737 715 2,225 2,085
Letters of credit fees 2,273 2,141 6,934 6,085
Other 687 623 1,780 1,795
Total other income (loss) 3,557 10,927 26,734 41,565
The accompanying notes are an integral part of these financial statements.
8
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
OTHER EXPENSES:
Compensation and benefits $ 13,374 $ 11,892 $ 38,229 $ 35,368
Other operating 7,801 6,988 21,329 18,261
Federal Housing Finance Agency 1,369 1,531 4,108 4,593
Office of Finance 1,263 1,195 3,634 3,254
Mortgage loans transaction service fees 1,754 1,618 5,133 4,768
Voluntary housing and community investment program contributions
720 - 4,639 -
Other 322 425 849 1,496
Total other expenses 26,603 23,649 77,921 67,740
INCOME BEFORE ASSESSMENTS 112,343 102,219 359,364 314,492
Affordable Housing Program 11,241 10,222 35,949 31,450
NET INCOME $ 101,102 $ 91,997 $ 323,415 $ 283,042
The accompanying notes are an integral part of these financial statements.
9
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
Net income $ 101,102 $ 91,997 $ 323,415 $ 283,042
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities 5,347 (45,590) 10,408 (45,149)
Defined benefit pension plan
- - 169 -
Total other comprehensive income (loss) 5,347 (45,590) 10,577 (45,149)
TOTAL COMPREHENSIVE INCOME (LOSS) $ 106,449 $ 46,407 $ 333,992 $ 237,893
The accompanying notes are an integral part of these financial statements.
10
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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 June 30, 2023 3,522 $ 352,169 22,920 $ 2,292,080 26,442 $ 2,644,249 $ 959,468 $ 376,598 $ 1,336,066 $ (83,829) $ 3,896,486
Comprehensive income 73,597 18,400 91,997 (45,590) 46,407
Proceeds from issuance of capital stock 15 1,504 8,459 845,924 8,474 847,428 847,428
Repurchase/redemption of capital stock (7,035) (703,482) (419) (41,972) (7,454) (745,454) (745,454)
Net reclassification of shares to mandatorily redeemable capital stock
(544) (54,428) (987) (98,751) (1,531) (153,179) (153,179)
Net transfer of shares between Class A and Class B
7,622 762,200 (7,622) (762,200) - - -
Dividends on capital stock (Class A - 4.5%, Class B - 9.2%):
Cash payment (70) (70) (70)
Stock issued 564 56,407 564 56,407 (56,407) (56,407) -
Balance at September 30, 2023 3,580 $ 357,963 22,915 $ 2,291,488 26,495 $ 2,649,451 $ 976,588 $ 394,998 $ 1,371,586 $ (129,419) $ 3,891,618
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 June 30, 2024 3,186 $ 318,601 24,174 $ 2,417,398 27,360 $ 2,735,999 $ 1,055,506 $ 456,945 $ 1,512,451 $ (113,741) $ 4,134,709
Comprehensive income 80,881 20,221 101,102 5,347 106,449
Proceeds from issuance of capital stock 7 726 4,669 466,840 4,676 467,566 467,566
Repurchase/redemption of capital stock (5,206) (520,626) (433) (43,283) (5,639) (563,909) (563,909)
Net reclassification of shares to mandatorily redeemable capital stock
(724) (72,425) (5) (497) (729) (72,922) (72,922)
Net transfer of shares between Class A and Class B
6,578 657,823 (6,578) (657,823) - - -
Dividends on capital stock (Class A - 4.7%, Class B - 9.5%):
Cash payment (70) (70) (70)
Stock issued 585 58,547 585 58,547 (58,547) (58,547) -
Balance at September 30, 2024 3,841 $ 384,099 22,412 $ 2,241,182 26,253 $ 2,625,281 $ 1,077,770 $ 477,166 $ 1,554,936 $ (108,394) $ 4,071,823
1 Putable
The accompanying notes are an integral part of these financial statements.
11
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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, 2022 2,388 $ 238,777 22,689 $ 2,268,932 25,077 $ 2,507,709 $ 914,716 $ 338,389 $ 1,253,105 $ (84,270) $ 3,676,544
Comprehensive income 226,433 56,609 283,042 (45,149) 237,893
Proceeds from issuance of capital stock 35 3,491 25,073 2,507,310 25,108 2,510,801 2,510,801
Repurchase/redemption of capital stock (17,157) (1,715,747) (1,710) (170,996) (18,867) (1,886,743) (1,886,743)
Net reclassification of shares to mandatorily redeemable capital stock
(3,569) (356,968) (2,898) (289,708) (6,467) (646,676) (646,676)
Net transfer of shares between Class A and Class B
21,883 2,188,410 (21,883) (2,188,410) - - -
Dividends on capital stock (Class A - 4.1%, Class B - 9.0%):
Cash payment (201) (201) (201)
Stock issued 1,644 164,360 1,644 164,360 (164,360) (164,360) -
Balance at September 30, 2023 3,580 $ 357,963 22,915 $ 2,291,488 26,495 $ 2,649,451 $ 976,588 $ 394,998 $ 1,371,586 $ (129,419) $ 3,891,618
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, 2023 2,789 $ 278,887 23,288 $ 2,328,796 26,077 $ 2,607,683 $ 989,457 $ 412,483 $ 1,401,940 $ (118,971) $ 3,890,652
Comprehensive income 258,732 64,683 323,415 10,577 333,992
Proceeds from issuance of capital stock 11 1,100 14,935 1,493,507 14,946 1,494,607 1,494,607
Repurchase/redemption of capital stock (12,257) (1,225,728) (1,161) (116,108) (13,418) (1,341,836) (1,341,836)
Net reclassification of shares to mandatorily redeemable capital stock
(2,959) (295,858) (95) (9,506) (3,054) (305,364) (305,364)
Net transfer of shares between Class A and Class B
16,257 1,625,698 (16,257) (1,625,698) - - -
Dividends on capital stock (Class A - 4.7%, Class B - 9.5%):
Cash payment (228) (228) (228)
Stock issued 1,702 170,191 1,702 170,191 (170,191) (170,191) -
Balance at September 30, 2024 3,841 $ 384,099 22,412 $ 2,241,182 26,253 $ 2,625,281 $ 1,077,770 $ 477,166 $ 1,554,936 $ (108,394) $ 4,071,823
1 Putable
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
Nine Months Ended
09/30/2024 09/30/2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 323,415 $ 283,042
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net (48,509) 59,694
Concessions on consolidated obligations 5,609 4,355
Premiums and discounts on investments, net (33,475) (18,821)
Premiums, discounts and commitment fees on advances, net (2,037) (2,191)
Premiums, discounts and deferred loan costs on mortgage loans, net 9,649 9,930
Fair value adjustments on hedged assets or liabilities (3,224) (2,294)
Premises, software and equipment 2,468 2,288
Provision (reversal) for credit losses on mortgage loans (1,141) 311
Other adjustments, net 228 12
Net (gains) losses on trading securities (15,993) (6,599)
Net change in derivatives and hedging activities
(349,026) 271,936
(Increase) decrease in accrued interest receivable (62,094) (14,838)
Change in net accrued interest included in derivative assets 9,667 (103,031)
(Increase) decrease in other assets (2,606) 1,339
Increase (decrease) in accrued interest payable 4,355 159,549
Change in net accrued interest included in derivative liabilities 7,432 (7,336)
Increase (decrease) in Affordable Housing Program liability 12,047 19,100
Increase (decrease) in other liabilities (3,871) (409)
Total adjustments (470,521) 372,995
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (147,106) 656,037
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits (369,272) $ 401,452
Net (increase) decrease in securities purchased under resale agreements 1,000,000 525,000
Net (increase) decrease in Federal funds sold (4,290,000) (650,000)
Proceeds from maturities of and principal repayments on trading securities
370,755 529,029
Proceeds from maturities of and principal repayments on available-for-sale securities
718,167 1,400,514
Purchases of available-for-sale securities (1,838,580) (3,015,515)
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
Nine Months Ended
09/30/2024 09/30/2023
Proceeds from maturities of and principal repayments on held-to-maturity securities
31,549 68,945
Advances repaid 201,080,491 661,546,972
Advances originated (199,775,810) (661,737,932)
Principal collected on mortgage loans 622,661 575,207
Purchases of mortgage loans (1,159,639) (888,729)
Net proceeds from sale of foreclosed assets 192 251
Purchases of premises, software and equipment (1,572) (3,774)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,611,058) (1,248,580)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 130,863 32,021
Net proceeds from issuance of consolidated obligations:
Discount notes 462,454,354 316,686,971
Discount notes transferred from other FHLBanks 610,000 -
Bonds 53,382,617 39,927,572
Payments for maturing, retired and transferred consolidated obligations:
Discount notes (465,909,231) (323,660,623)
Discount notes transferred to other FHLBanks (610,000) -
Bonds (46,167,565) (31,386,663)
Bonds transferred to other FHLBanks - (999,987)
Net interest payments received (paid) for financing derivatives 18,884 16,796
Proceeds from issuance of capital stock 1,494,607 2,510,801
Payments for repurchase/redemption of capital stock (1,341,836) (1,886,743)
Payments for repurchase of mandatorily redeemable capital stock (302,500) (646,713)
Cash dividends paid (228) (201)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,759,965 593,231
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,801 688
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,062 25,964
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,863 $ 26,652
Supplemental disclosures:
Interest paid $ 1,299,430 $ 827,474
Affordable Housing Program payments $ 24,399 $ 12,624
Net transfers of mortgage loans to other assets $ 177 $ 786
The accompanying notes are an integral part of these financial statements.
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FEDERAL HOME LOAN BANK OF TOPEKA
Notes to Financial Statements - Unaudited
September 30, 2024
NOTE 1 - BASIS OF PRESENTATION
Basis of Presentation:The accompanying interim financial statements of 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 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.
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, 2023. The interim financial statements presented herein should be read in conjunction with FHLBank's audited financial statements and notes thereto, which are included in FHLBank's annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 11, 2024 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K.
Use of Estimates: The preparation of financial statements under GAAP requires management to make estimates and assumptions as of the date of the financial statements in determining the reported amounts of assets, liabilities and estimated fair values and in determining the disclosure of any contingent assets or liabilities. Estimates and assumptions by management also affect the reported amounts of income and expense during the reporting period. The most significant of these estimates include the fair value of 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.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS AND CHANGES IN AND ADOPTIONS OF ACCOUNTING PRINCIPLES
Segment Reporting (ASU 2023-07). In July 2023, the FASB issued amendments to improve disclosures about a public entity's reportable segments and addresses requests from investors and other allocations of capital for additional, more detailed information about a reportable segment's expenses, including entities with a single reportable segment. The ASU is effective for FHLBank for the annual period ending December 31, 2024 and will be effective for interim periods beginning January 1, 2025. The adoption of this guidance is not expected to have a material effect on FHLBank's disclosures.
NOTE 3 - INVESTMENTS
FHLBank's investment portfolio consists of interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, and debt securities.
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 to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by a Nationally Recognized Statistical Rating Organization (NRSRO). These may differ from internal ratings of the investments, if applicable. As of September 30, 2024, approximately 23 percent of these overnight investments were with counterparties not rated by an NRSRO. All transactions with unrated counterparties are secured transactions.
Federal funds sold are unsecured loans that are generally transacted on an overnight term. FHFA regulations include a limit on the amount of unsecured credit FHLBank may extend to a counterparty. As of September 30, 2024 and December 31, 2023, 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 September 30, 2024 and December 31, 2023. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivableof $3,489,000 and $855,000, respectively, as of September 30, 2024, and $3,271,000 and $927,000, respectively, as of December 31, 2023.
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Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e., subject to collateral maintenance provisions). Based upon the collateral held as security and collateral maintenance provisions with its counterparties, FHLBank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell as of September 30, 2024 and December 31, 2023. The carrying value of securities purchased under agreements to resell excludes accrued interest receivableof $406,000 and $1,749,000 as of September 30, 2024 and December 31, 2023, respectively.
Debt Securities: FHLBank invests in 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, but FHLBank is not required to divest instruments that experience credit deterioration after their purchase.
FHLBank's debt securities include the following major security types, which are based on the issuer and the risk characteristics of the security:
▪U.S. Treasury obligations - sovereign debt of the United States;
▪GSE debentures - debentures issued by other FHLBanks, Federal National Mortgage Association (Fannie Mae), Federal Farm Credit Bank and Federal Agricultural Mortgage Corporation. GSE securities are not guaranteed by the U.S. government;
▪State or local housing agency obligations - municipal bonds issued by housing finance agencies;
▪U.S. obligation MBS - single-family MBS issued by Government National Mortgage Association (Ginnie Mae), which are guaranteed by the U.S. government; and
▪GSE MBS - single-family and multifamily MBS issued by Fannie Mae and Federal Home Loan Mortgage Corporation (Freddie Mac).
Trading Securities:Trading securities by major security type as of September 30, 2024 and December 31, 2023 are summarized in Table 3.1 (in thousands):
Table 3.1
Fair Value
09/30/2024 12/31/2023
Non-mortgage-backed securities:
GSE debentures
$ 17,841 $ 288,438
Non-mortgage-backed securities 17,841 288,438
Mortgage-backed securities:
GSE MBS
536,005 620,170
Mortgage-backed securities 536,005 620,170
TOTAL $ 553,846 $ 908,608
Net gains (losses) on trading securities during the three and nine months ended September 30, 2024 and 2023 are shown in Table 3.2 (in thousands):
Table 3.2
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
Net gains (losses) on trading securities held as of September 30, 2024
$ 7,340 $ (318) $ 9,664 $ (392)
Net gains (losses) on trading securities sold or matured prior to September 30, 2024
2,924 2,534 6,329 6,991
NET GAINS (LOSSES) ON TRADING SECURITIES $ 10,264 $ 2,216 $ 15,993 $ 6,599
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Available-for-sale Securities:Available-for-sale securities by major security type as of September 30, 2024 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 receivableof $36,235,000 as of September 30, 2024.
Table 3.3
09/30/2024
Amortized
Cost 		Gross
Unrecognized
Gains 		Gross
Unrecognized
Losses 		Fair
Value
Non-mortgage-backed securities:
U.S. Treasury obligations
$ 3,332,164 $ - $ (68,480) $ 3,263,684
Non-mortgage-backed securities 3,332,164 - (68,480) 3,263,684
Mortgage-backed securities:
U.S. obligation MBS 85,311 - (617) 84,694
GSE MBS
9,787,496 39,006 (78,445) 9,748,057
Mortgage-backed securities 9,872,807 39,006 (79,062) 9,832,751
TOTAL $ 13,204,971 $ 39,006 $ (147,542) $ 13,096,435
Available-for-sale securities by major security type as of December 31, 2023 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 receivableof $29,768,000 as of December 31, 2023.
Table 3.4
12/31/2023
Amortized
Cost 		Gross
Unrecognized
Gains 		Gross
Unrecognized
Losses 		Fair
Value
Non-mortgage-backed securities:
U.S. Treasury obligations
$ 2,983,880 $ - $ (46,012) $ 2,937,868
Non-mortgage-backed securities 2,983,880 - (46,012) 2,937,868
Mortgage-backed securities:
U.S. obligation MBS 109,083 - (1,548) 107,535
GSE MBS
8,779,434 32,178 (103,562) 8,708,050
Mortgage-backed securities 8,888,517 32,178 (105,110) 8,815,585
TOTAL $ 11,872,397 $ 32,178 $ (151,122) $ 11,753,453
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Table 3.5 summarizes the available-for-sale securities with gross unrealized losses as of September 30, 2024 (in thousands). The gross 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
09/30/2024
Less Than 12 Months 12 Months or More Total
Fair
Value 		Gross Unrealized Losses Fair
Value 		Gross Unrealized Losses Fair
Value 		Gross Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations
$ 477,021 $ (7,151) $ 2,786,663 $ (61,329) $ 3,263,684 $ (68,480)
Non-mortgage-backed securities 477,021 (7,151) 2,786,663 (61,329) 3,263,684 (68,480)
Mortgage-backed securities:
U.S. obligation MBS - - 84,694 (617) 84,694 (617)
GSE MBS
1,591,408 (10,310) 3,915,139 (68,135) 5,506,547 (78,445)
Mortgage-backed securities
1,591,408 (10,310) 3,999,833 (68,752) 5,591,241 (79,062)
TOTAL $ 2,068,429 $ (17,461) $ 6,786,496 $ (130,081) $ 8,854,925 $ (147,542)
Table 3.6 summarizes the available-for-sale securities with gross unrealized losses as of December 31, 2023 (in thousands). The gross 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
12/31/2023
Less Than 12 Months 12 Months or More Total
Fair
Value 		Gross Unrealized Losses Fair
Value 		Gross Unrealized Losses Fair
Value 		Gross Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations
$ 1,280,546 $ (10,036) $ 1,657,322 $ (35,976) $ 2,937,868 $ (46,012)
Non-mortgage-backed securities 1,280,546 (10,036) 1,657,322 (35,976) 2,937,868 (46,012)
Mortgage-backed securities:
U.S. obligation MBS 71,883 (366) 35,652 (1,182) 107,535 (1,548)
GSE MBS
2,863,223 (23,525) 3,164,674 (80,037) 6,027,897 (103,562)
Mortgage-backed securities
2,935,106 (23,891) 3,200,326 (81,219) 6,135,432 (105,110)
TOTAL $ 4,215,652 $ (33,927) $ 4,857,648 $ (117,195) $ 9,073,300 $ (151,122)
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The amortized cost and fair values of available-for-sale securities by contractual maturity as of September 30, 2024 and December 31, 2023 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
09/30/2024 12/31/2023
Amortized
Cost 		Fair
Value 		Amortized
Cost 		Fair
Value
Non-mortgage-backed securities:
Due in one year or less $ 204,347 $ 193,221 $ - $ -
Due after one year through five years
3,127,817 3,070,463 2,983,880 2,937,868
Due after five years through ten years
- - - -
Due after ten years - - - -
Non-mortgage-backed securities 3,332,164 3,263,684 2,983,880 2,937,868
Mortgage-backed securities 9,872,807 9,832,751 8,888,517 8,815,585
TOTAL $ 13,204,971 $ 13,096,435 $ 11,872,397 $ 11,753,453
Held-to-maturity Securities:Held-to-maturity securities by major security type as of September 30, 2024 are summarized in Table 3.8 (in thousands). Carrying value equals amortized cost, which includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivableof $548,000 as of September 30, 2024.
Table 3.8
09/30/2024
Amortized
Cost 		Gross
Unrecognized
Gains 		Gross
Unrecognized
Losses 		Fair
Value
Non-mortgage-backed securities:
State or local housing agency obligations
$ 34,790 $ - $ (540) $ 34,250
Non-mortgage-backed securities 34,790 - (540) 34,250
Mortgage-backed securities:
GSE MBS
198,444 560 (2,137) 196,867
Mortgage-backed securities 198,444 560 (2,137) 196,867
TOTAL $ 233,234 $ 560 $ (2,677) $ 231,117
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Held-to-maturity securities by major security type as of December 31, 2023 are summarized in Table 3.9 (in thousands). Carrying value equals amortized cost, which includes adjustments made to the cost basis of an investment for accretion and amortization, and excludes accrued interest receivableof $612,000 as of December 31, 2023.
Table 3.9
12/31/2023
Amortized
Cost 		Gross
Unrecognized
Gains 		Gross
Unrecognized
Losses 		Fair
Value
Non-mortgage-backed securities:
State or local housing agency obligations
$ 35,855 $ - $ (646) $ 35,209
Non-mortgage-backed securities 35,855 - (646) 35,209
Mortgage-backed securities:
GSE MBS
228,941 188 (3,685) 225,444
Mortgage-backed securities 228,941 188 (3,685) 225,444
TOTAL $ 264,796 $ 188 $ (4,331) $ 260,653
The amortized cost and fair values of held-to-maturity securities by contractual maturity as of September 30, 2024 and December 31, 2023 are shown in Table 3.10 (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 3.10
09/30/2024 12/31/2023
Amortized
Cost 		Fair
Value 		Amortized
Cost 		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
34,790 34,250 35,855 35,209
Due after ten years - - - -
Non-mortgage-backed securities 34,790 34,250 35,855 35,209
Mortgage-backed securities 198,444 196,867 228,941 225,444
TOTAL $ 233,234 $ 231,117 $ 264,796 $ 260,653
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. As of September 30, 2024 and 2023, FHLBank did not recognize a provision for credit losses associated with available-for-sale investments or held-to-maturity investments.
Although certain available-for-sale securities were in an unrealized loss position, these losses are considered temporary as FHLBank expects to recover the entire amortized cost basis on these available-for-sale investment securities. FHLBank neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis.
FHLBank's held-to-maturity and available-for-sale 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; (3) in the case of U.S. obligations, carry an explicit government guarantee such that FHLBank considers the risk of nonpayment to be zero; and (4) in the case of GSE debentures or MBS, the securities are purchased under an assumption that the issuers' obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs.
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NOTE 4 - ADVANCES
General Terms:FHLBank offers fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of September 30, 2024 and December 31, 2023, FHLBank had advances outstanding at interest rates ranging from 0.44 percent to 7.20 percent and 0.42 percent to 7.20 percent, respectively. Table 4.1 presents advances summarized by redemption term as of September 30, 2024 and December 31, 2023 (dollar amounts in thousands). The redemption term represents the period in which principal amounts are contractually due. Carrying amounts exclude accrued interest receivableof $171,407,000 and $118,604,000 as of September 30, 2024 and December 31, 2023, respectively.
Table 4.1
09/30/2024 12/31/2023
Redemption Term Amount Weighted Average Interest Rate Amount Weighted Average Interest Rate
Due in one year or less $ 26,789,970 4.87 % $ 29,786,238 5.32 %
Due after one year through two years 4,910,654 3.95 4,213,704 4.01
Due after two years through three years 4,558,812 4.20 3,882,479 4.22
Due after three years through four years 3,706,614 4.28 3,086,881 4.04
Due after four years through five years 2,544,079 3.88 2,837,481 4.03
Thereafter 1,855,492 3.23 1,863,519 3.04
Total par value 44,365,621 4.52 % 45,670,302 4.85 %
Discounts (8,239) (10,276)
Hedging adjustments (2,486) (215,257)
TOTAL $ 44,354,896 $ 45,444,769
FHLBank offers advances that may be prepaid without prepayment or termination fees on predetermined exercise dates (call dates) prior to the stated advance maturity (callable advances). In exchange for receiving the right to call the advance on a predetermined call schedule, the borrower may pay a higher rate for the advance relative to an equivalent maturity, non-callable advance. The borrower generally exercises its call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances). FHLBank also offers fixed rate advances that include a put option held by FHLBank (putable advances). On the date FHLBank exercises its put option, the borrower has the option to prepay the advance in full without a fee or roll into another advance product. A putable advance carries a lower interest rate than a comparable-maturity fixed rate advance without the put feature. FHLBank would generally exercise its put option when interest rates increase. Other advances are prepayable with a prepayment fee that makes FHLBank economically indifferent to the prepayment.
Convertible advances allow FHLBank to convert an advance from one interest payment term structure to another. When issuing convertible advances, FHLBank purchases put options from a member that allow 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.
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Table 4.2 presents advances summarized by redemption term or next call date and by redemption term or next put or conversion date as of September 30, 2024 and December 31, 2023 (in thousands):
Table 4.2
Redemption Term
or Next Call Date 		Redemption Term or Next Put or Conversion Date
Redemption Term 09/30/2024 12/31/2023 09/30/2024 12/31/2023
Due in one year or less $ 27,768,079 $ 31,038,961 $ 29,133,570 $ 31,299,438
Due after one year through two years 4,764,776 3,920,260 4,995,154 4,552,204
Due after two years through three years 4,113,529 3,562,900 4,674,312 3,954,979
Due after three years through four years 3,422,208 2,678,103 3,102,614 2,750,881
Due after four years through five years 2,538,166 2,715,262 1,618,579 1,600,481
Thereafter 1,758,863 1,754,816 841,392 1,512,319
TOTAL PAR VALUE $ 44,365,621 $ 45,670,302 $ 44,365,621 $ 45,670,302
Interest Rate Payment Terms: Table 4.3 details additional interest rate payment and redemption terms for advances as of September 30, 2024 and December 31, 2023 (in thousands):
Table 4.3
Redemption Term 09/30/2024 12/31/2023
Fixed rate:
Due in one year or less $ 14,479,770 $ 26,714,638
Due after one year through three years 7,047,121 6,034,768
Due after three years through five years 5,442,328 5,072,017
Due after five years through fifteen years 1,775,541 1,762,808
Due after fifteen years 20,376 28,659
Total fixed rate 28,765,136 39,612,890
Variable rate:
Due in one year or less 12,310,200 3,071,600
Due after one year through three years 2,422,345 2,061,415
Due after three years through five years 808,365 852,345
Due after five years through fifteen years 58,075 69,552
Due after fifteen years 1,500 2,500
Total variable rate 15,600,485 6,057,412
TOTAL PAR VALUE $ 44,365,621 $ 45,670,302
Credit Risk Exposure and Security Terms:FHLBank manages its credit exposure to advances through an integrated approach that includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower's financial condition, in conjunction with FHLBank's collateral and lending policies to limit risk of loss, while balancing borrowers' needs for a reliable source of funding. Using a risk-based approach and taking into consideration each borrower's financial strength, FHLBank considers the payment status as well as the types and level of collateral to be the primary indicators of credit quality on advances. As of September 30, 2024 and December 31, 2023, 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 September 30, 2024 and December 31, 2023, no advances were past due, on nonaccrual status, or considered impaired.
Based on the collateral held as security, FHLBank's credit extension and collateral policies, and repayment history on advances, no losses are expected on advances as of September 30, 2024 and December 31, 2023, and therefore no allowance for credit losses on advances was recorded.
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NOTE 5 - MORTGAGE LOANS
Mortgage loans held for portfolio consist of loans obtained through the MPF Program and are either conventional mortgage loans or government-guaranteed or -insured mortgage loans. Under the MPF Program, FHLBank purchases single-family mortgage loans that are originated or acquired by participating financial institutions (PFIs). These mortgage loans are credit-enhanced by PFIs or are guaranteed or insured by Federal agencies.
Mortgage Loans Held for Portfolio:Table 5.1 presents information as of September 30, 2024 and December 31, 2023 on mortgage loans held for portfolio (in thousands). Carrying amounts exclude accrued interest receivableof $52,617,000 and $45,669,000 as of September 30, 2024 and December 31, 2023, respectively.
Table 5.1
09/30/2024 12/31/2023
Real estate:
Fixed rate, medium-term1, single-family mortgages
$ 962,674 $ 1,055,326
Fixed rate, long-term, single-family mortgages 7,845,474 7,227,825
Total unpaid principal balance 8,808,148 8,283,151
Premiums 96,979 94,485
Discounts (6,100) (5,591)
Deferred loan costs, net 35 39
Hedging adjustments (12,805) (13,840)
Total before allowance for credit losses on mortgage loans 8,886,257 8,358,244
Allowance for credit losses on mortgage loans (4,224) (5,531)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET $ 8,882,033 $ 8,352,713
1 Medium-term defined as a term of 15 years or less at origination.
Table 5.2 presents information as of September 30, 2024 and December 31, 2023 on the outstanding unpaid principal balance of mortgage loans held for portfolio (in thousands):
Table 5.2
09/30/2024 12/31/2023
Conventional loans $ 8,483,631 $ 7,953,624
Government-guaranteed or -insured loans 324,517 329,527
TOTAL UNPAID PRINCIPAL BALANCE $ 8,808,148 $ 8,283,151
Payment Status of Mortgage Loans: Payment status is the key credit quality indicator for conventional mortgage loans and allows FHLBank to monitor borrower performance. A past due loan is one where the borrower has failed to make a full payment of principal and interest within 30 days of its due date. Other delinquency statistics include nonaccrual loans and loans in process of foreclosure.
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Table 5.3 presents the payment status based on amortized cost as well as other delinquency statistics for FHLBank's mortgage loans as of September 30, 2024 (dollar amounts in thousands):
Table 5.3
09/30/2024
Conventional Loans Government
Loans 		Total
Origination Year Subtotal
Prior to 2020 2020 2021 2022 2023 2024
Amortized Cost:1
Past due 30-59 days delinquent
$ 25,756 $ 6,235 $ 9,221 $ 6,251 $ 5,853 $ 2,454 $ 55,770 $ 8,391 $ 64,161
Past due 60-89 days delinquent
6,693 1,694 1,461 2,182 913 93 13,036 3,248 16,284
Past due 90 days or more delinquent
10,258 1,651 1,396 2,200 1,348 - 16,853 4,160 21,013
Total past due 42,707 9,580 12,078 10,633 8,114 2,547 85,659 15,799 101,458
Total current loans 2,504,914 1,405,827 1,616,444 793,378 1,078,956 1,072,700 8,472,219 312,580 8,784,799
Total mortgage loans $ 2,547,621 $ 1,415,407 $ 1,628,522 $ 804,011 $ 1,087,070 $ 1,075,247 $ 8,557,878 $ 328,379 $ 8,886,257
Other delinquency statistics:
In process of foreclosure2
$ 3,680 $ 301 $ 3,981
Serious delinquency rate3
0.2 % 1.3 % 0.2 %
Past due 90 days or more and still accruing interest
$ - $ 4,159 $ 4,159
Loans on nonaccrual status4
$ 21,619 $ - $ 21,619
1 Excludes accrued interest receivable.
2 Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.
3 Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total amortized cost for the portfolio class.
4 Includes $10,589,000 of conventional mortgage loans on nonaccrual status that did not have an associated allowance for credit losses because either these loans were previously charged off to the expected recoverable value or the fair value of the underlying collateral was greater than the amortized cost of the loans.
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Table 5.4 presents the payment status based on amortized cost as well as other delinquency statistics for FHLBank's mortgage loans as of December 31, 2023 (dollar amounts in thousands):
Table 5.4
12/31/2023
Conventional Loans Government
Loans 		Total
Origination Year Subtotal
Prior to 2019 2019 2020 2021 2022 2023
Amortized Cost:1
Past due 30-59 days delinquent
$ 19,739 $ 7,135 $ 5,601 $ 5,955 $ 6,745 $ 2,746 $ 47,921 $ 10,327 $ 58,248
Past due 60-89 days delinquent
5,013 1,319 479 931 2,047 - 9,789 2,972 12,761
Past due 90 days or more delinquent
8,063 5,185 1,354 1,170 447 - 16,219 2,659 18,878
Total past due 32,815 13,639 7,434 8,056 9,239 2,746 73,929 15,958 89,887
Total current loans 1,770,552 971,328 1,506,877 1,720,492 852,858 1,128,557 7,950,664 317,693 8,268,357
Total mortgage loans $ 1,803,367 $ 984,967 $ 1,514,311 $ 1,728,548 $ 862,097 $ 1,131,303 $ 8,024,593 $ 333,651 $ 8,358,244
Other delinquency statistics:
In process of foreclosure2
$ 6,008 $ 763 $ 6,771
Serious delinquency rate3
0.2 % 0.8 % 0.2 %
Past due 90 days or more and still accruing interest
$ - $ 2,657 $ 2,657
Loans on nonaccrual status4
$ 19,383 $ - $ 19,383
1 Excludes accrued interest receivable.
2 Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.
3 Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total amortized cost for the portfolio class.
4 Includes $12,502,000 of conventional mortgage loans on nonaccrual status that did not have an associated allowance for credit losses because either these loans were previously charged off to the expected recoverable value or the fair value of the underlying collateral was greater than the amortized cost of the loans.
Allowance for Credit Losses:
Conventional Mortgage Loans:Conventional loans are evaluated collectively when similar risk characteristics exist. Conventional loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis. FHLBank determines its allowance for credit losses on conventional loans through analyses that include consideration of various loan portfolio and collateral-related characteristics, such as past performance, current economic conditions, and reasonable and supportable forecasts of expected economic conditions. FHLBank uses a third-party projected cash flow model 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. The forecasts used in the calculation of expected credit losses cover the contractual terms of the loans rather than a reversion to historical trends after a forecasted period. 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 when the borrower is experiencing financial difficulty and repayment is expected to be substantially through the sale of the underlying collateral. FHLBank may estimate the fair value of this collateral by applying an appropriate loss severity rate or by using third party estimates or property valuation model(s). The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. FHLBank records a direct charge-off of the loan balance if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit losses.
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FHLBank established an allowance for credit losses on its conventional mortgage loans held for portfolio. Table 5.5 presents a roll-forward of the allowance for credit losses on mortgage loans for the three and nine months ended September 30, 2024 and 2023.
Table 5.5
Three Months Ended Nine Months Ended
Conventional Loans 09/30/2024 09/30/2023 09/30/2024 09/30/2023
Balance, beginning of the period $ 4,315 $ 6,630 $ 5,531 $ 6,378
Net (charge-offs) recoveries (13) (385) (166) (477)
Provision (reversal) for credit losses (78) (33) (1,141) 311
Balance, end of the period $ 4,224 $ 6,212 $ 4,224 $ 6,212
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. Based on FHLBank's assessment of its servicers and the collateral backing the loans, the risk of loss was immaterial; consequently, no allowance for credit losses for government-guaranteed or -insured mortgage loans was recorded as of September 30, 2024 and December 31, 2023. Furthermore, none of these mortgage loans have been placed on nonaccrual 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 6 - DERIVATIVES AND HEDGING ACTIVITIES
Table 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, 2024 and December 31, 2023 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments and cash collateral.
Table 6.1
09/30/2024 12/31/2023
Notional
Amount 		Derivative
Assets 		Derivative
Liabilities 		Notional
Amount 		Derivative
Assets 		Derivative
Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps $ 38,927,005 $ 109,310 $ 261,358 $ 44,804,870 $ 116,352 $ 410,595
Total derivatives designated as hedging relationships
38,927,005 109,310 261,358 44,804,870 116,352 410,595
Derivatives not designated as hedging instruments:
Interest rate swaps 8,147,119 9,347 2,376 6,383,296 22,072 152
Interest rate caps/floors 2,604,000 2,502 - 304,000 698 -
Mortgage delivery commitments 48,775 52 45 41,641 133 5
Total derivatives not designated as hedging instruments
10,799,894 11,901 2,421 6,728,937 22,903 157
TOTAL $ 49,726,899 121,211 263,779 $ 51,533,807 139,255 410,752
Netting adjustments and cash collateral1
264,408 (258,532) 211,112 (409,892)
DERIVATIVE ASSETS AND LIABILITIES $ 385,619 $ 5,247 $ 350,367 $ 860
1 Amounts represent the application of the netting requirements that allow FHLBank to settle positive and negative positions and cash collateral, including accrued interest, held or placed with the same clearing agent and/or derivative counterparty. Cash collateral posted was $548,508,000 and $649,456,000 as of September 30, 2024 and December 31, 2023, respectively. Cash collateral received was $25,568,000 and $28,452,000 as of September 30, 2024 and December 31, 2023, respectively.
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FHLBank carries derivative instruments at fair value on its Statements of Condition. 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.
Gains (losses) on fair value hedges include unrealized changes in fair value as well as net interest settlements. For the three months ended September 30, 2024 and 2023, FHLBank recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on FHLBank's net interest income as presented in Table 6.2 (in thousands):
Table 6.2
Three Months Ended
09/30/2024
Interest Income/Expense
Advances Available-for-sale Securities Consolidated Obligation Discount Notes Consolidated Obligation Bonds
Total amounts presented in the Statements of Income $ 650,770 $ 202,409 $ 230,295 $ 716,141
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$ (235,363) $ (193,204) $ 4,435 $ 92,390
Hedged items2
312,529 253,278 (8,308) (163,674)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS
$ 77,166 $ 60,074 $ (3,873) $ (71,284)
Three Months Ended
09/30/2023
Interest Income/Expense
Advances Available-for-sale Securities Consolidated Obligation Discount Notes Consolidated Obligation Bonds
Total amounts presented in the Statements of Income $ 634,899 $ 159,499 $ 284,947 $ 579,352
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$ 149,032 $ 134,941 $ (2,660) $ (66,086)
Hedged items2
(72,773) (85,579) (6,153) (26,480)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS
$ 76,259 $ 49,362 $ (8,813) $ (92,566)
1 Includes net interest settlements in interest income/expense.
2 Includes amortization/accretion on closed fair value relationships in interest income.
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For the nine months ended September 30, 2024 and 2023, FHLBank recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on FHLBank's net interest income as presented in Table 6.3 (in thousands):
Table 6.3
Nine Months Ended
09/30/2024
Interest Income/Expense
Advances Available-for-sale Securities Consolidated Obligation Discount Notes Consolidated Obligation Bonds
Total amounts presented in the Statements of Income $ 1,877,261 $ 586,368 $ 691,610 $ 2,009,680
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$ 16,874 $ (4,733) $ (2,228) $ (22,009)
Hedged items2
212,771 178,671 (5,955) (199,183)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS
$ 229,645 $ 173,938 $ (8,183) $ (221,192)
Nine Months Ended
09/30/2023
Interest Income/Expense
Advances Available-for-sale Securities Consolidated Obligation Discount Notes Consolidated Obligation Bonds
Total amounts presented in the Statements of Income $ 1,785,223 $ 421,079 $ 836,651 $ 1,581,173
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1
$ 311,358 $ 218,729 $ (5,569) $ (180,366)
Hedged items2
(133,680) (74,802) (23,902) (55,142)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS $ 177,678 $ 143,927 $ (29,471) $ (235,508)
1 Includes net interest settlements in interest income/expense.
2 Includes amortization/accretion on closed fair value relationships in interest income.
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Table 6.4 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of September 30, 2024 and December 31, 2023 (in thousands):
Table 6.4
09/30/2024
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 $ 16,166,382 $ 4,350 $ (6,835) $ (2,485)
Available-for-sale securities 7,686,273 (78,086) - (78,086)
Consolidated obligation discount notes (4,621,624) (3,642) - (3,642)
Consolidated obligation bonds (10,391,631) 166,705 (5,645) 161,060
12/31/2023
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 $ 13,545,019 $ (206,332) $ (8,924) $ (215,256)
Available-for-sale securities 6,367,691 (256,757) - (256,757)
Consolidated discount notes (3,874,550) 2,313 - 2,313
Consolidated obligation bonds (20,374,603) 366,180 (5,937) 360,243
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 other comprehensive income (AOCI) is excluded).
2 Included in amortized cost of the hedged asset/liability.
Table 6.5 provides information regarding net gains (losses) on derivatives recorded in non-interest income (in thousands).
Table 6.5
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps $ (14,087) $ (2,202) $ (18,431) $ 882
Interest rate caps/floors (3,897) (93) (5,693) 32
Net interest settlements 6,902 8,393 23,722 25,948
Price alignment interest (51) (216) (293) (607)
Mortgage delivery commitments 729 (650) 497 (1,254)
NET GAINS (LOSSES) ON DERIVATIVES $ (10,404) $ 5,232 $ (198) $ 25,001
For uncleared derivative transactions, 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.
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Bilateral derivative transactions executed on or after September 1, 2022, are subject to two-way initial margin requirements if aggregate uncleared derivative exposure to a counterparty exceeds a specified threshold. The initial margin is required to be held at a third-party custodian, and the secured party can only take ownership upon the occurrence of certain events, including an event of default due to bankruptcy, insolvency, or similar proceeding. As of September 30, 2024, FHLBank was not required to pledge to or receive initial margin from bilateral derivative counterparties.
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. FHLBank was not required to post additional initial margin by its clearing agents as of September 30, 2024 and December 31, 2023.
FHLBank's net exposure on derivative agreements is presented in Note 9.
NOTE 7 - DEPOSITS
FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. A member that services mortgage loans may also deposit funds collected in connection with the mortgage loans, pending disbursement of these funds to the owners of the mortgage loans. FHLBank classifies these funds as other deposits. Deposits classified as demand and overnight pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit.
Table 7.1 details the types of deposits held by FHLBank as of September 30, 2024 and December 31, 2023 (in thousands):
Table 7.1
09/30/2024 12/31/2023
Interest-bearing:
Demand $ 355,515 $ 297,267
Overnight 464,700 391,900
Term 4,300 10,650
Total interest-bearing 824,515 699,817
Non-interest-bearing:
Other 61,472 52,383
Total non-interest-bearing 61,472 52,383
TOTAL DEPOSITS $ 885,987 $ 752,200
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NOTE 8 - CONSOLIDATED OBLIGATIONS
Consolidated Obligation Bonds:Table 8.1 presents FHLBank's participation in consolidated obligation bonds outstanding as of September 30, 2024 and December 31, 2023 (dollar amounts in thousands):
Table 8.1
09/30/2024 12/31/2023
Year of Contractual Maturity Amount Weighted
Average
Interest
Rate 		Amount Weighted
Average
Interest
Rate
Due in one year or less $ 37,928,190 4.83 % $ 28,152,305 4.90 %
Due after one year through two years 7,343,720 3.71 9,327,370 4.21
Due after two years through three years 3,331,110 2.55 4,294,125 2.01
Due after three years through four years 1,628,350 3.11 1,780,895 2.01
Due after four years through five years 1,448,000 3.43 1,467,440 2.96
Thereafter 4,945,005 3.30 4,387,255 2.63
Total par value 56,624,375 4.33 % 49,409,390 4.15 %
Premiums 12,514 12,874
Discounts (2,407) (3,108)
Concession fees (11,965) (11,424)
Hedging adjustments (161,060) (360,243)
TOTAL $ 56,461,457 $ 49,047,489
FHLBank issues optional principal redemption bonds (callable bonds) that may be redeemed in whole or in part at the discretion of FHLBank on predetermined call dates in accordance with terms of bond offerings. FHLBank's consolidated obligation bonds outstanding as of September 30, 2024 and December 31, 2023 includes callable bonds totaling $16,863,300,000 and $22,940,000,000, respectively. Table 8.2 summarizes FHLBank's consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of September 30, 2024 and December 31, 2023 (in thousands):
Table 8.2
Year of Maturity or Next Call Date 09/30/2024 12/31/2023
Due in one year or less $ 48,584,190 $ 40,475,305
Due after one year through two years 5,076,720 6,503,370
Due after two years through three years 1,540,110 1,227,125
Due after three years through four years 725,850 362,895
Due after four years through five years 233,000 493,940
Thereafter 464,505 346,755
TOTAL PAR VALUE $ 56,624,375 $ 49,409,390
Table 8.3 summarizes interest rate payment terms for consolidated obligation bonds as of September 30, 2024 and December 31, 2023 (in thousands):
Table 8.3
09/30/2024 12/31/2023
Fixed rate $ 19,944,375 $ 28,093,390
Simple variable rate 35,123,000 19,524,000
Step 1,557,000 1,792,000
TOTAL PAR VALUE $ 56,624,375 $ 49,409,390
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Consolidated Discount Notes:Table 8.4 summarizes FHLBank's participation in consolidated obligation discount notes, all of which are due within one year (dollar amounts in thousands):
Table 8.4
Carrying Value Par Value
Weighted
Average
Interest
Rate1
September 30, 2024 $ 17,251,684 $ 17,367,826 4.86 %
December 31, 2023 $ 20,743,249 $ 20,903,145 5.15 %
1 Represents yield to maturity excluding concession fees.
NOTE 9 - ASSETS AND LIABILITIES SUBJECT TO OFFSETTING
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, FHLBank has elected to offset its asset and liability positions, as well as cash collateral received or pledged, including associated accrued interest.
FHLBank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or clearing agent, or both. Based on this analysis, FHLBank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.
Tables 9.1 and 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 FHLBank's master netting arrangements or similar agreements as of September 30, 2024 and December 31, 2023 (in thousands):
Table 9.1
09/30/2024
Description Gross Amounts
of Recognized
Assets 		Gross Amounts
Offset
in the
Statements of
Condition 		Net Amounts
of Assets
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative assets:
Uncleared derivatives $ 82,544 $ (79,542) $ 3,002 $ (52) $ 2,950
Cleared derivatives 38,667 343,950 382,617 - 382,617
Total derivative assets 121,211 264,408 385,619 (52) 385,567
Securities purchased under agreements to resell 2,875,000 - 2,875,000 (2,875,000) -
TOTAL $ 2,996,211 $ 264,408 $ 3,260,619 $ (2,875,052) $ 385,567
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).
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Table 9.2
12/31/2023
Description Gross Amounts
of Recognized
Assets 		Gross Amounts
Offset
in the
Statements of
Condition 		Net Amounts
of Assets
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative assets:
Uncleared derivatives $ 136,141 $ (133,650) $ 2,491 $ (133) $ 2,358
Cleared derivatives 3,114 344,762 347,876 - 347,876
Total derivative assets 139,255 211,112 350,367 (133) 350,234
Securities purchased under agreements to resell 3,875,000 - 3,875,000 (3,875,000) -
TOTAL $ 4,014,255 $ 211,112 $ 4,225,367 $ (3,875,133) $ 350,234
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 9.3 and 9.4 present the fair value of financial liabilities, including the related collateral received from or pledged to counterparties, based on the terms of FHLBank's master netting arrangements or similar agreements as of September 30, 2024 and December 31, 2023 (in thousands):
Table 9.3
09/30/2024
Description Gross Amounts
of Recognized
Liabilities 		Gross Amounts
Offset
in the
Statements of
Condition 		Net Amounts
of Liabilities
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative liabilities:
Uncleared derivatives $ 262,621 $ (257,374) $ 5,247 $ (45) $ 5,202
Cleared derivatives 1,158 (1,158) - - -
Total derivative liabilities 263,779 (258,532) 5,247 (45) 5,202
TOTAL $ 263,779 $ (258,532) $ 5,247 $ (45) $ 5,202
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).
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Table 9.4
12/31/2023
Description Gross Amounts
of Recognized
Liabilities 		Gross Amounts
Offset
in the
Statements of
Condition 		Net Amounts
of Liabilities
Presented
in the
Statements of
Condition
Gross Amounts
Not Offset
in the
Statement of
Condition1
Net
Amount
Derivative liabilities:
Uncleared derivatives $ 402,527 $ (401,667) $ 860 $ (5) $ 855
Cleared derivatives 8,225 (8,225) - - -
Total derivative liabilities 410,752 (409,892) 860 (5) 855
TOTAL $ 410,752 $ (409,892) $ 860 $ (5) $ 855
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 10 - CAPITAL
Capital Requirements:FHLBank is subject to three capital requirements under the provisions of the Gramm-Leach-Bliley Act (GLB Act) and the FHFA's capital structure regulation. Regulatory capital does not include AOCI but does include mandatorily redeemable capital stock.
•Risk-based capital.FHLBank must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, market risk and operational 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 the amounts paid-in for Class B Common Stock and retained earnings, can be used by FHLBank to satisfy its risk-based capital requirement. The FHFA may require 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 FHLBank to date.
•Total regulatory capital.The GLB Act requires 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.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 10.1 illustrates that FHLBank was in compliance with its regulatory capital requirements as of September 30, 2024 and December 31, 2023 (dollar amounts in thousands):
Table 10.1
09/30/2024 12/31/2023
Required Actual Required Actual
Regulatory capital requirements:
Risk-based capital $ 786,447 $ 3,798,629 $ 746,439 $ 3,730,738
Total regulatory capital-to-asset ratio 4.0 % 5.3 % 4.0 % 5.4 %
Total regulatory capital $ 3,168,182 $ 4,183,447 $ 2,997,879 $ 4,009,870
Leverage capital ratio 5.0 % 7.7 % 5.0 % 7.8 %
Leverage capital $ 3,960,227 $ 6,082,761 $ 3,747,349 $ 5,875,238
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Mandatorily Redeemable Capital Stock:FHLBank is a cooperative whose members own most of 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 FHLBank's Statements of Condition. Shares cannot be purchased or sold except between FHLBank and its members at a price equal to the $100 per share par value.
Table 10.2 presents a roll-forward of mandatorily redeemable capital stock for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Table 10.2
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
Balance, beginning of period $ 3,442 $ 263 $ 247 $ 280
Capital stock subject to mandatory redemption reclassified from equity during the period
72,922 153,179 305,364 646,676
Redemption or repurchase of mandatorily redeemable capital stock during the period
(73,201) (153,192) (302,500) (646,713)
Stock dividend classified as mandatorily redeemable capital stock during the period
67 3 119 10
Balance, end of period $ 3,230 $ 253 $ 3,230 $ 253
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 FHLBank to create excess member stock under certain circumstances. For example, FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if FHLBank's excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause FHLBank's excess stock to exceed one percent of its total assets. As of September 30, 2024, 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, that FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide 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, FHLBank Topeka was classified as adequately capitalized.
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NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Table 11.1 summarizes the changes in AOCI for the three months ended September 30, 2024 and 2023 (in thousands):
Table 11.1
Three Months Ended
Net Unrealized Gains (Losses) on Available-for-sale Securities Defined Benefit Pension Plan Total AOCI
Balance at June 30, 2023
$ (84,002) $ 173 $ (83,829)
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)
(45,590) (45,590)
Net current period other comprehensive income (loss) (45,590) - (45,590)
Balance at September 30, 2023 $ (129,592) $ 173 $ (129,419)
Balance at June 30, 2024 $ (113,883) $ 142 $ (113,741)
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)
5,347 5,347
Net current period other comprehensive income (loss) 5,347 - 5,347
Balance at September 30, 2024 $ (108,536) $ 142 $ (108,394)
Table 11.2 summarizes the changes in AOCI for the nine months ended September 30, 2024 and 2023 (in thousands):
Table 11.2
Nine Months Ended
Net Unrealized Gains (Losses) on Available-for-sale Securities Defined Benefit Pension Plan Total AOCI
Balance at December 31, 2022 $ (84,443) $ 173 $ (84,270)
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses) (45,149) (45,149)
Net current period other comprehensive income (loss) (45,149) - (45,149)
Balance at September 30, 2023 $ (129,592) $ 173 $ (129,419)
Balance at December 31, 2023 $ (118,944) $ (27) $ (118,971)
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses) 10,408 10,408
Impact of settlements - defined benefit pension plan
169 169
Net current period other comprehensive income (loss) 10,408 169 10,577
Balance at September 30, 2024 $ (108,536) $ 142 $ (108,394)
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NOTE 12 - FAIR VALUES
The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by FHLBank using available market and other pertinent information and reflect 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 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, 2024 and December 31, 2023. Additionally, these values do not represent an estimate of the overall market value of FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.
Subjectivity of Estimates:Estimates of the fair value of advances with options, mortgage instruments, and derivatives with embedded options are subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.
Fair Value Hierarchy:The fair value hierarchy requires 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. 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 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. Valuations are derived from techniques that use significant assumptions not observable in the market, which include pricing models, discounted cash flow models using an unobservable discount rate, or similar techniques.
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, 2024 and 2023.
Tables 12.1 and 12.2 present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of September 30, 2024 and December 31, 2023. 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. 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 12.3 and 12.4.
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The carrying value, fair value and fair value hierarchy of FHLBank's financial assets and liabilities as of September 30, 2024 and December 31, 2023 are summarized in Tables 12.1 and 12.2 (in thousands):
Table 12.1
09/30/2024
Carrying
Value 		Total
Fair
Value 		Level 1 Level 2 Level 3
Netting
Adjustment and Cash
Collateral1
Assets:
Cash and due from banks $ 27,863 $ 27,863 $ 27,863 $ - $ - $ -
Interest-bearing deposits 2,074,473 2,074,473 - 2,074,473 - -
Securities purchased under agreements to resell
2,875,000 2,875,000 - 2,875,000 - -
Federal funds sold 6,370,000 6,370,000 - 6,370,000 - -
Trading securities 553,846 553,846 - 553,846 - -
Available-for-sale securities 13,096,435 13,096,435 - 13,096,435 - -
Held-to-maturity securities 233,234 231,117 - 196,867 34,250 -
Advances 44,354,896 44,410,921 - 44,410,921 - -
Mortgage loans held for portfolio, net of allowance
8,882,033 8,167,143 - 8,163,475 3,668 -
Accrued interest receivable 267,599 267,599 - 267,599 - -
Derivative assets 385,619 385,619 - 121,211 - 264,408
Liabilities:
Deposits 885,987 885,992 - 885,992 - -
Consolidated obligation discount notes
17,251,684 17,255,795 - 17,255,795 - -
Consolidated obligation bonds 56,461,457 55,776,420 - 55,776,420 - -
Mandatorily redeemable capital stock
3,230 3,230 3,230 - - -
Accrued interest payable 366,680 366,680 - 366,680 - -
Derivative liabilities 5,247 5,247 - 263,779 - (258,532)
Other Asset (Liability):
Industrial revenue bonds 35,000 33,537 - 33,537 - -
Financing obligation payable (35,000) (33,537) - (33,537) - -
1 Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.
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Table 12.2
12/31/2023
Carrying
Value 		Total
Fair
Value 		Level 1 Level 2 Level 3
Netting
Adjustment
and Cash
Collateral1
Assets:
Cash and due from banks $ 26,062 $ 26,062 $ 26,062 $ - $ - $ -
Interest-bearing deposits 1,604,989 1,604,989 - 1,604,989 - -
Securities purchased under agreements to resell
3,875,000 3,875,000 - 3,875,000 - -
Federal funds sold 2,080,000 2,080,000 - 2,080,000 - -
Trading securities 908,608 908,608 - 908,608 - -
Available-for-sale securities 11,753,453 11,753,453 - 11,753,453 - -
Held-to-maturity securities 264,796 260,653 - 225,444 35,209 -
Advances 45,444,769 45,452,358 - 45,452,358 - -
Mortgage loans held for portfolio, net of allowance
8,352,713 7,493,015 - 7,490,867 2,148 -
Accrued interest receivable 204,243 204,243 - 204,243 - -
Derivative assets 350,367 350,367 - 139,255 - 211,112
Liabilities:
Deposits 752,200 752,209 - 752,209 - -
Consolidated obligation discount notes
20,743,249 20,743,707 - 20,743,707 - -
Consolidated obligation bonds 49,047,489 48,096,791 - 48,096,791 - -
Mandatorily redeemable capital stock
247 247 247 - - -
Accrued interest payable 361,840 361,840 - 361,840 - -
Derivative liabilities 860 860 - 410,752 - (409,892)
Other Asset (Liability):
Industrial revenue bonds 35,000 32,695 - 32,695 - -
Financing obligation payable (35,000) (32,695) - (32,695) - -
1 Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral and related accrued interest held or placed with the same clearing agent or derivative counterparty.
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Fair Value Measurements:Tables 12.3 and 12.4 present, for each hierarchy level, 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, 2024 and December 31, 2023 (in thousands).
Table 12.3
09/30/2024
Total Level 1 Level 2 Level 3
Netting
Adjustment and Cash
Collateral1
Recurring fair value measurements - Assets:
Trading securities:
GSE debentures $ 17,841 $ - $ 17,841 $ - $ -
GSE MBS
536,005 - 536,005 - -
Total trading securities 553,846 - 553,846 - -
Available-for-sale securities:
U.S. Treasury obligations 3,263,684 - 3,263,684 - -
U.S. obligation MBS 84,694 - 84,694 - -
GSE MBS 9,748,057 - 9,748,057 - -
Total available-for-sale securities 13,096,435 - 13,096,435 - -
Derivative assets:
Interest-rate related 385,567 - 121,159 - 264,408
Mortgage delivery commitments 52 - 52 - -
Total derivative assets 385,619 - 121,211 - 264,408
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS
$ 14,035,900 $ - $ 13,771,492 $ - $ 264,408
Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related $ 5,202 $ - $ 263,734 $ - $ (258,532)
Mortgage delivery commitments 45 - 45 - -
Total derivative liabilities 5,247 - 263,779 - (258,532)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES
$ 5,247 $ - $ 263,779 $ - $ (258,532)
Nonrecurring fair value measurements - Assets2:
Impaired mortgage loans $ 3,709 $ - $ - $ 3,709 $ -
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS
$ 3,709 $ - $ - $ 3,709 $ -
1 Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral, including related accrued interest, held or placed with the same clearing agent or derivative counterparty.
2 Includes assets adjusted to fair value during the nine months ended September 30, 2024 and still outstanding as of September 30, 2024.
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Table 12.4
12/31/2023
Total Level 1 Level 2 Level 3
Netting
Adjustment
and Cash
Collateral1
Recurring fair value measurements - Assets:
Trading securities:
GSE debentures $ 288,438 $ - $ 288,438 $ - $ -
GSE MBS
620,170 - 620,170 - -
Total trading securities 908,608 - 908,608 - -
Available-for-sale securities:
U.S. Treasury obligations 2,937,868 - 2,937,868 - -
U.S. obligation MBS 107,535 - 107,535 - -
GSE MBS 8,708,050 - 8,708,050 - -
Total available-for-sale securities 11,753,453 - 11,753,453 - -
Derivative assets:
Interest-rate related 350,234 - 139,122 - 211,112
Mortgage delivery commitments 133 - 133 - -
Total derivative assets 350,367 - 139,255 - 211,112
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS
$ 13,012,428 $ - $ 12,801,316 $ - $ 211,112
Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related $ 855 $ - $ 410,747 $ - $ (409,892)
Mortgage delivery commitments 5 - 5 - -
Total derivative liabilities 860 - 410,752 - (409,892)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES
$ 860 $ - $ 410,752 $ - $ (409,892)
Nonrecurring fair value measurements - Assets2:
Held-to-maturity securities:
Impaired mortgage loans $ 2,178 $ - $ - $ 2,178 $ -
Real estate owned 43 - - 43 -
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS
$ 2,221 $ - $ - $ 2,221 $ -
1 Represents the effect of legally enforceable master netting agreements that allow FHLBank to net settle positive and negative positions and also derivative cash collateral, including related accrued interest, held or placed with the same clearing agent or derivative counterparty.
2 Includes assets adjusted to fair value during the year ended December 31, 2023 and still outstanding as of December 31, 2023.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Joint and Several Liability:As provided in the 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 $1,098,807,664,000 and $1,134,003,465,000 as of September 30, 2024 and December 31, 2023, respectively.
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Off-balance Sheet Commitments:Table 13.1 presents off-balance sheet commitments at September 30, 2024 and December 31, 2023 (in thousands). No allowance for credit losses was recorded on these commitments at September 30, 2024 and December 31, 2023.
Table 13.1
09/30/2024 12/31/2023
Notional Amount Expire
Within
One Year 		Expire
After
One Year 		Total Expire
Within
One Year 		Expire
After
One Year 		Total
Standby letters of credit outstanding $ 6,836,169 $ 43,826 $ 6,879,995 $ 7,242,988 $ 5,670 $ 7,248,658
Advance commitments outstanding 3,615 3,069 6,684 48,526 3,615 52,141
Principal commitments for standby bond purchase agreements 144,160 834,735 978,895 283,220 716,295 999,515
Commitments to fund or purchase mortgage loans
48,775 - 48,775 41,641 - 41,641
Commitments to issue consolidated bonds, at par
545,000 - 545,000 1,300,000 - 1,300,000
Commitments to Extend Credit:FHLBank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. These standby letters of credit are subject to the same collateralization and borrowing limits that are applicable to advances and are fully collateralized at the time of issuance with assets allowed by FHLBank's Member Products Policy (MPP). Standby letters of credit may be offered to assist members and non-member housing associates 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 FHLBank is required to make payment for a beneficiary's draw, the member either reimburses FHLBank for the amount drawn or, subject to FHLBank's discretion, the amount drawn may be converted into a collateralized advance to the member. However, standby letters of credit usually expire without being drawn upon. FHLBank's current outstanding standby letters of credit expire no later than 2029. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to $2,780,000 and $2,367,000 as of September 30, 2024 and December 31, 2023, respectively. Advance commitments legally bind and unconditionally obligate 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, FHLBank does not expect to incur any credit losses on the outstanding letters of credit or advance commitments.
Standby Bond-Purchase Agreements:FHLBank has entered into standby bond purchase agreements with state housing authorities whereby 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 FHLBank to purchase the bond and typically allows FHLBank to terminate the agreement upon the occurrence of a default event of the issuer. The bond purchase commitments entered into by FHLBank expire no later than 2029, though some are renewable at the option of FHLBank. As of September 30, 2024 and December 31, 2023, the total commitments for bond purchases included agreements with two in-district state housing authorities. FHLBank was not required to purchase any bonds under any agreements during the nine months ended September 30, 2024 and 2023.
Commitments to Purchase Mortgage Loans:These commitments that unconditionally obligate 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. FHLBank recorded mortgage delivery commitment net derivative asset balances of $7,000 and $128,000 as of September 30, 2024 and December 31, 2023, respectively.
Commitments to Issue Consolidated Obligations: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.
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NOTE 14 - TRANSACTIONS WITH STOCKHOLDERS
FHLBank is a cooperative whose members own most of the capital stock of 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. 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 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, FHLBank defines related parties as FHLBank directors' financial institutions and members with capital stock investments in excess of 10 percent of FHLBank's total regulatory capital stock outstanding, which includes mandatorily redeemable capital stock.
Activity with Members that Exceed a 10 Percent Ownership in FHLBank Regulatory Capital Stock:Tables 14.1 and 14.2 present information on members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of September 30, 2024 and December 31, 2023 (dollar amounts in thousands). An officer of BOKF, N.A. currently serves on FHLBank's board of directors.
Table 14.1
09/30/2024
Member Name State Total Class A Stock Par Value Percent of Total Class A Total Class B Stock Par Value Percent of Total Class B Total Capital Stock Par Value Percent of Total Capital Stock
MidFirst Bank OK $ 1,690 0.4 % $ 494,735 22.1 % 496,425 18.9 %
BOKF, N.A. OK 98,026 25.5 213,458 9.5 311,484 11.9
TOTAL $ 99,716 25.9 % $ 708,193 31.6 % $ 807,909 30.8 %
Table 14.2
12/31/2023
Member Name State Total Class A Stock Par Value Percent of Total Class A Total Class B Stock Par Value Percent of Total Class B Total Capital Stock Par Value Percent of Total Capital Stock
MidFirst Bank OK $ 35,473 12.7 % $ 443,345 19.0 % $ 478,818 18.4 %
BOKF, N.A. OK 500 0.2 347,012 14.9 347,512 13.3
TOTAL $ 35,973 12.9 % $ 790,357 33.9 % $ 826,330 31.7 %
Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of September 30, 2024 and December 31, 2023 are summarized in Table 14.3 (dollar amounts in thousands).
Table 14.3
09/30/2024 12/31/2023 09/30/2024 12/31/2023
Member Name Outstanding Advances Percent of Total Outstanding Advances Percent of Total Outstanding Deposits Percent of Total Outstanding Deposits Percent of Total
MidFirst Bank $ 11,000,000 24.8 % $ 9,585,000 21.0 % $ 4,634 0.5 % $ 3,751 0.5 %
BOKF, N.A. 4,700,000 10.6 7,675,000 16.8 50,339 5.7 22,325 3.0 %
TOTAL $ 15,700,000 35.4 % $ 17,260,000 37.8 % $ 54,973 6.2 % $ 26,076 3.5 %
BOKF, N.A. sold $6,565,000 and $27,506,000 of mortgage loans into the MPF Program during the three and nine months ended September 30, 2024, respectively. BOKF, N.A. sold $5,905,000 and $15,989,000 of mortgage loans into the MPF Program during the three and nine months ended September 30, 2023. MidFirst Bank did not sell any mortgage loans into the MPF Program during the three and nine months ended September 30, 2024 and 2023.
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Transactions with FHLBank Directors' Financial Institutions:Table 14.4 presents information as of September 30, 2024 and December 31, 2023 for members that had an officer or director serving on FHLBank's board of directors (dollar amounts in thousands). Information is only included for the period in which the officer or director served on FHLBank's board of directors. Capital stock listed is regulatory capital stock, which includes mandatorily redeemable capital stock.
Table 14.4
09/30/2024 12/31/2023
Outstanding Amount Percent of Total Outstanding Amount Percent of Total
Advances $ 4,905,137 11.1 % $ 270,308 0.6 %
Deposits $ 52,028 5.9 % $ 7,314 1.0 %
Class A Common Stock $ 101,974 26.5 % $ 4,314 1.5 %
Class B Common Stock 225,959 10.1 14,924 0.6
TOTAL CAPITAL STOCK $ 327,933 12.5 % $ 19,238 0.7 %
Table 14.5 presents mortgage loans acquired during the three and nine months ended September 30, 2024 and 2023 for members that had an officer or director serving on FHLBank's board of directors in 2024 or 2023 (dollar amounts in thousands). Information is only included for the period in which the officer or director served on FHLBank's board of directors.
Table 14.5
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total
Mortgage loans acquired $ 15,768 4.0 % $ 5,476 1.5 % $ 50,751 4.4 % $ 14,461 1.6 %
NOTE 15 - TRANSACTIONS WITH OTHER FHLBANKS
From time to time, one FHLBank may transfer to another FHLBank the consolidated obligations for which the transferring FHLBank was originally the primary obligor but upon transfer the assuming FHLBank becomes the primary obligor. During the third quarter of 2024, FHLBank Topeka transferred debt obligations with a par amount of $610,000,000 to another FHLBank. During the same period, the other FHLBank transferred the same debt obligations back to FHLBank Topeka. During the first quarter of 2023, FHLBank Topeka transferred debt obligations with a par amount of $1,000,000,000 to another FHLBank.
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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, 2023, which includes audited financial statements and related notes for the year ended December 31, 2023. Our MD&A includes the following sections:
•Selected Financial Data - a tabular summary of selected balances, financial ratios and other financial information;
•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;
•Recently Issued Accounting Standards; and
•Legislative and Regulatory Developments.
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Executive Level Overview
Table 1 presents selected financial data for the periods indicated (dollar amounts in thousands):
Table 1
09/30/2024 06/30/2024 03/31/2024 12/31/2023 09/30/2023
Statement of Condition (as of period end):
Total assets $ 79,204,538 $ 79,755,037 $ 73,664,303 $ 74,946,985 $ 73,136,292
Investments1
25,202,988 24,115,340 22,855,565 20,486,846 19,967,164
Advances 44,354,896 46,219,747 41,660,129 45,444,769 44,322,221
Mortgage loans, net 8,882,033 8,719,897 8,440,064 8,352,713 8,207,138
Total liabilities 75,132,715 75,620,328 69,799,596 71,056,333 69,244,674
Deposits 885,987 817,072 846,628 752,200 751,952
Consolidated obligations, net2
73,713,141 74,268,969 68,462,333 69,790,738 67,991,607
Total capital 4,071,823 4,134,709 3,864,707 3,890,652 3,891,618
Capital stock 2,625,281 2,735,999 2,497,709 2,607,683 2,649,451
Retained earnings 1,554,936 1,512,451 1,461,777 1,401,940 1,371,586
Statement of Income (for the quarterly period ended):
Net interest income 135,311 137,958 136,141 119,072 114,908
Other income (loss) 3,557 9,261 13,916 6,382 10,927
Voluntary housing and community investment program contributions3
720 3,919 - 3,000 -
Other expenses 25,883 23,976 23,423 26,268 23,649
Income before assessments 112,343 120,187 126,834 97,139 102,219
Affordable Housing Program (AHP) assessments 11,241 12,024 12,684 9,714 10,222
Net income 101,102 108,163 114,150 87,425 91,997
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid 58,617 57,489 54,313 57,071 56,477
Weighted average dividend rate4
8.90 % 8.79 % 8.76 % 8.84 % 8.62 %
Dividend payout ratio5
57.98 % 53.15 % 47.58 % 65.28 % 61.39 %
Return on average equity 9.87 % 10.76 % 11.96 % 9.06 % 9.39 %
Return on average assets 0.50 % 0.56 % 0.62 % 0.46 % 0.49 %
Average equity to average assets 5.07 % 5.19 % 5.19 % 5.04 % 5.18 %
Net interest margin6
0.67 % 0.72 % 0.74 % 0.62 % 0.61 %
Total capital ratio7
5.14 % 5.18 % 5.25 % 5.19 % 5.32 %
Regulatory capital ratio8
5.28 % 5.33 % 5.38 % 5.35 % 5.50 %
1 Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold.
2 Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 13 to the financial statements for a description of the par amount of consolidated obligations of all FHLBanks for which we are jointly and severally liable.
3 Voluntary housing and community investment program contributions are expensed in the period they are approved by the board of directors and/or awarded.
4 Dividends paid in cash and stock on both classes of stock as a percentage of average capital stock eligible for dividends.
5 Ratio disclosed represents dividends declared and paid during the period as a percentage of net income for the period presented. FHFA regulation requires dividends be paid out of known income prior to declaration date.
6 Net interest income as a percentage of average earning assets.
7 GAAP capital stock, which excludes mandatorily redeemable capital stock, plus retained earnings and accumulated other comprehensive income (AOCI) as a percentage of total assets.
8 Regulatory capital (i.e., permanent capital and Class A Common Stock) as a percentage of total assets.
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. Our mission is to be a reliable source of liquidity and low-cost funding for our members in support of residential mortgage lending and related housing and economic development needs of the communities served by our members. As an independent, member-owned cooperative, we seek to maintain a balance between our public purpose and our ability to provide adequate returns on the capital supplied by our members. Our members include commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions.
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Third Quarter 2024 Financial Highlights:
•Net interest income/margin:Net interest income increased $20.4 million to $135.3 million for the quarter ended September 30, 2024 compared to $114.9 million for the quarter ended September 30, 2023. The increase in net interest income was primarily attributed to improvements in funding and asset spreads combined with the increase in interest rates, including the impact of higher interest rates on fair value hedges. Net interest margin increased six basis points for the current quarter, from 0.61 percent for the quarter ended September 30, 2023 to 0.67 percent for the quarter ended September 30, 2024. Net interest spread increased nine basis points, from 0.29 percent for the quarter ended September 30, 2023 to 0.38 percent for the quarter ended September 30, 2024.
•Total assets:Total assets increased from $74.9 billion as of December 31, 2023 to $79.2 billion as of September 30, 2024, driven by the $4.7 billion increase in short- and long-term investments between periods and a $1.1 billion decrease in advances. The average balance of interest-earning assets increased $5.3 billion between the quarter ended September 30, 2024 and the same period in the prior year, driven by a $4.1 billion increase in the average balance of short- and long-term investments, a $0.7 billion increase in mortgage loans and a $0.5 billion increase in the average balance of advances.
•Primary Mission Assets: Advances to members and housing associates and mortgage loans purchased from members are Primary Mission Assets because they are fundamental to the business and mission of FHLBank. The Primary Mission Asset ratio, as defined by the FHFA under its core mission achievement guidance, is calculated as average advances and average mortgage loans to average consolidated obligations (less certain U.S. Treasury securities), based on year-to-date averages. As of September 30, 2024 and December 31, 2023, our Primary Mission Asset ratio was 78 percent and 81 percent, respectively.
•Advances: Advances decreased to $44.4 billion at September 30, 2024 compared to $45.4 billion at December 31, 2023, representing 56.0 percent of total assets as of September 30, 2024, compared to 60.6 percent as of December 31, 2023. The average balance of advances increased $0.5 billion, or 1.0 percent to $46.3 billion for the quarter ended September 30, 2024 when compared to the prior year period. Advance demand continues to be relatively stable among FHLBank membership, especially among community banks. FHLBank continues to execute its liquidity mission by serving as a reliable source of liquidity and funding for members.
•Mortgage loans:Mortgage loans increased to $8.9 billion at September 30, 2024 compared to $8.4 billion at December 31, 2023, representing 11.2 percent of total assets at September 30, 2024, compared to 11.1 percent at December 31, 2023. The average balance of mortgage loans increased $0.7 billion, or 8.3 percent, for the three months ended September 30, 2024 when compared to the prior year period. Interest income was impacted slightly by mortgage loan prepayments and the related premium amortization but continues to be positively impacted by originations at interest rates higher than the weighted average rate of the existing portfolio.
•Performance ratios: Return on average equity (ROE) increased to 9.9 percent for the quarter ended September 30, 2024 compared to 9.4 percent for the prior year quarter due to the increase in net income for the current quarter, partially offset by the increase in average capital.
•Dividends: The Class A Common Stock dividend rate of 4.75 percent per annum and the Class B Common Stock dividend rate of 9.50 percent per annum combined for a weighted average dividend rate for the quarter ended September 30, 2024 of 8.90 percent.
Financial Market Trends
The primary external factors that affect net interest income are market interest rates and the general state of the economy, as discussed in greater detail below.
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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
09/30/2024 09/30/2023 09/30/2024 09/30/2023 09/30/2024 12/31/2023
Market Instrument Three-month Three-month Nine-month Nine-month Ending Ending
Average Average Average Average Rate Rate
Secured Overnight Financing Rate1
5.28 % 5.24 % 5.30 % 4.90 % 4.96 % 5.38 %
Federal funds effective rate1
5.27 5.26 5.31 4.93 4.83 5.33
Federal Reserve interest rate on reserve balances1
5.34 5.33 5.38 4.99 4.90 5.40
3-month U.S. Treasury bill1
5.13 5.43 5.30 5.10 4.63 5.34
2-year U.S. Treasury note1
4.06 4.93 4.46 4.53 3.64 4.25
5-year U.S. Treasury note1
3.81 4.31 4.12 3.94 3.56 3.85
10-year U.S. Treasury note1
3.96 4.14 4.18 3.80 3.78 3.88
30-year residential mortgage note rate1,2
6.51 7.18 6.83 6.76 6.14 6.76
1 Source is Bloomberg.
2 Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate.
The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 50 basis points at the September 2024 meeting, indicating that additional adjustments to the target range for the Federal funds rate will depend on incoming data and the balance of inflation and employment risks. The FOMC also indicated it would continue reducing its holdings of Treasury securities and agency debt and agency MBS.
We issue debt at a spread to 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 cost of issuing short-term debt has declined with the decrease in market rates, and the continued high demand for short-term Agency debt has kept this spread to the comparable Treasury security relatively narrow.
Volatility in the capital markets can also impact the demand for and cost of debt issued by the FHLBanks. Efforts of the Federal Reserve Board to ease inflation have contributed to volatility in the financial markets, financial difficulties experienced by some depository institutions, and uncertainties about the economic outlook. For further discussion of FHLBank debt, see this Item 2 - "Financial Condition - Consolidated Obligations."
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments, estimates, 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. Given the assumptions and judgment used, we have identified the accounting for derivatives and hedging activities as a critical accounting estimate. Our financial condition and results of operations could be materially affected under different conditions or different assumptions related to this accounting estimate.
The accounting policies that management believes are the most critical to an understanding of our financial results and condition and require complex management judgment are described under Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our annual report on Form 10-K, incorporated by reference herein. There were no material changes to our critical accounting policies and estimates during the quarter ended September 30, 2024.
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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
Three Months Ended Nine Months Ended
09/30/2024 vs. 09/30/2023 09/30/2024 vs. 09/30/2023
Dollar Change Percentage Change Dollar Change Percentage Change
Total interest income $ 104,700 10.6 % $ 359,152 12.9 %
Total interest expense 84,297 9.7 290,720 11.9
Net interest income 20,403 17.8 68,432 20.1
Provision (reversal) for credit losses on mortgage loans (45) (136.4) (1,452) (466.9)
Net interest income after mortgage loan loss provision 20,448 17.8 69,884 20.5
Net gains (losses) on trading securities 8,048 363.2 9,394 142.4
Net gains (losses) on derivatives (15,636) (298.9) (25,199) (100.8)
Other non-interest income 218 6.3 974 9.8
Total other income (loss) (7,370) (67.4) (14,831) (35.7)
Operating expenses 813 11.6 3,068 16.8
Other non-interest expenses 2,141 12.9 7,113 14.4
Total other expenses 2,954 12.5 10,181 15.0
AHP assessments 1,019 10.0 4,499 14.3
NET INCOME $ 9,105 9.9 % $ 40,373 14.3 %
Net income increased $9.1 million, or 9.9 percent, to $101.1 million for the three months ended September 30, 2024 compared to $92.0 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, net income increased $40.4 million, or 14.3 percent, to $323.4 million compared to $283.0 million for the same period in the prior year. The increase in net income is substantially attributed to the increase in net interest income, partially offset by fair value fluctuations of derivatives and trading securities, increases in operating expenses, and statutory and voluntary contributions to housing and community investment programs. See "Net Interest Income and Net Interest Margin," and "Other Expenses" under this Item 2.
Net Interest Income and Net Interest Margin: Net interest income increased $20.4 million for the quarter, or 17.8 percent, from $114.9 million for the three months ended September 30, 2023 to $135.3 million for the three months ended September 30, 2024. Net interest income increased $68.4 million for the current year-to-date period, from $341.0 million for the nine months ended September 30, 2023 to $409.4 million for the nine months ended September 30, 2024. Balance sheet composition, market interest rates and trends, and net interest spread affect net interest income and net interest margin on earning assets, including advances, mortgage loans, and investments. The increase for both the three- and nine-month periods was primarily attributed to improvements in funding spreads resulting from the maturities of higher-costing debt during 2024 and shifts in balance sheet composition. Asset spreads also improved, particularly on long-term investments and advances, combined with the impact of higher interest rates on fair value hedges as compared to the prior period.
Net interest margin increased six basis points for the current quarter, from 0.61 percent for the quarter ended September 30, 2023 to 0.67 percent for the quarter ended September 30, 2024 (see Table 8). Net interest margin increased eleven basis points, from 0.60 percent to 0.71 percent for the nine months ended September 30, 2024 compared to the prior year period (see Table 10). Net interest spread increased nine basis points, from 0.29 percent for the quarter ended September 30, 2023 to 0.38 percent for the quarter ended September 30, 2024. Net interest spread increased eight basis points, from 0.32 percent to 0.40 percent for the nine months ended September 30, 2024 compared to the prior year period. The increase in net interest spread was partially due to shifts in balance sheet composition between advances and investments, combined with spread improvements across most asset categories as discussed above. Net interest margin increased as a result of the improvement in net interest spread. For further discussion of advances, investments, mortgage loans, and consolidated obligations, see this Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition."
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Net interest income and net interest margin are also impacted by derivative and hedging activities, as net interest settlements on derivatives and the changes in fair values of hedged assets and liabilities and the corresponding derivative instruments designated in fair value hedging relationships are recorded in net interest income. The increase in net interest income resulting from fair value hedging was driven by the impact of swap index rate increases on net interest settlements between the comparative periods. Tables 4 through 7 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):
Table 4
Three Months Ended 09/30/2024
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Unrealized gains (losses) due to fair value changes
$ (1,564) $ 9,069 $ - $ (1,114) $ (1,821) $ 4,570
Net amortization/accretion of hedging activities
860 - 96 - 99 1,055
Net interest received (paid) 80,173 53,913 - (2,828) (69,482) 61,776
Price alignment amount (2,303) (2,908) - 69 (80) (5,222)
TOTAL $ 77,166 $ 60,074 $ 96 $ (3,873) $ (71,284) $ 62,179
Table 5
Three Months Ended 09/30/2023
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Unrealized gains (losses) due to fair value changes
$ 2,751 $ 4,115 $ - $ (2,758) $ (5,444) $ (1,336)
Net amortization/accretion of hedging activities
890 - 333 - 96 1,319
Net interest received (paid) 78,437 50,579 - (6,197) (87,413) 35,406
Price alignment amount (5,819) (5,332) - 142 195 (10,814)
TOTAL $ 76,259 $ 49,362 $ 333 $ (8,813) $ (92,566) $ 24,575
Table 6
Nine Months Ended 09/30/2024
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Unrealized gains (losses) due to fair value changes
$ (259) $ 29,479 $ - $ 129 $ (49) $ 29,300
Net amortization/accretion of hedging activities
2,515 - 417 - 292 3,224
Net interest received (paid) 238,672 156,926 - (8,533) (221,484) 165,581
Price alignment amount (11,283) (12,467) - 221 49 (23,480)
TOTAL $ 229,645 $ 173,938 $ 417 $ (8,183) $ (221,192) $ 174,625
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Table 7
Nine Months Ended 09/30/2023
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Unrealized gains (losses) due to fair value changes
$ (1,735) $ 23,000 $ - $ 353 $ (4,082) $ 17,536
Net amortization/accretion of hedging activities
1,309 - 793 - 193 2,295
Net interest received (paid) 191,163 133,552 - (30,435) (231,897) 62,383
Price alignment amount (13,059) (12,625) - 611 278 (24,795)
TOTAL $ 177,678 $ 143,927 $ 793 $ (29,471) $ (235,508) $ 57,419
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Average Balances and Yields: Table 8 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):
Table 8
Three Months Ended
09/30/2024 09/30/2023
Average
Balance 		Interest
Income/
Expense 		Yield Average
Balance 		Interest
Income/
Expense 		Yield
Interest-earning assets:
Interest-bearing deposits $ 2,820,610 $ 37,651 5.31 % $ 2,803,908 $ 37,569 5.32 %
Securities purchased under agreements to resell
2,951,522 40,217 5.42 2,078,370 27,969 5.34
Federal funds sold 5,176,924 69,652 5.35 3,697,174 49,772 5.34
Investment securities1,2
13,889,757 211,189 6.05 12,132,738 170,862 5.59
Advances1,2
46,324,602 650,770 5.59 45,862,896 634,899 5.49
Mortgage loans3,4
8,828,912 83,271 3.75 8,150,358 66,871 3.26
Other interest-earning assets 35,217 178 2.01 43,152 286 2.63
Total earning assets 80,027,544 1,092,928 5.43 74,768,596 988,228 5.24
Other non-interest-earning assets 369,730 182,623
Total assets $ 80,397,274 $ 74,951,219
Interest-bearing liabilities:
Deposits $ 850,192 $ 10,811 5.06 % $ 685,182 $ 8,720 5.05 %
Consolidated obligations1:
Discount Notes 17,224,667 230,295 5.32 21,345,764 284,947 5.30
Bonds 57,323,639 716,141 4.97 47,908,824 579,352 4.80
Other borrowings 44,783 370 3.28 43,469 301 2.74
Total interest-bearing liabilities 75,443,281 957,617 5.05 69,983,239 873,320 4.95
Capital and other non-interest-bearing funds
4,953,993 4,967,980
Total funding $ 80,397,274 $ 74,951,219
Net interest income and net interest spread5
$ 135,311 0.38 % $ 114,908 0.29 %
Net interest margin6
0.67 % 0.61 %
1 Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.
2 Interest income includes prepayment/yield maintenance fees.
3 Credit enhancement income payments made to PFIs are netted against interest earnings on the mortgage loans. The expense related to these payments was $1.8 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively.
4 Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.
5 Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
6 Net interest margin is defined as net interest income as a percentage of average interest-earning assets.
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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 9 summarizes changes in interest income and interest expense (in thousands):
Table 9
Three Months Ended
09/30/2024 vs. 09/30/2023
Increase (Decrease) Due to
Volume1,2
Rate1,2
Total
Interest Income3:
Interest-bearing deposits $ 223 $ (141) $ 82
Securities purchased under agreements to resell 11,893 355 12,248
Federal funds sold 19,909 (29) 19,880
Investment securities 26,083 14,244 40,327
Advances 6,430 9,441 15,871
Mortgage loans 5,865 10,535 16,400
Other assets (47) (61) (108)
Total interest-earning assets 70,356 34,344 104,700
Interest Expense3:
Deposits 2,098 (7) 2,091
Consolidated obligations:
Discount notes (55,099) 447 (54,652)
Bonds 117,075 19,714 136,789
Other borrowings 9 60 69
Total interest-bearing liabilities 64,083 20,214 84,297
Change in net interest income $ 6,273 $ 14,130 $ 20,403
1 Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.
2 Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.
3 Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.
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Table 10 presents average balances and yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):
Table 10
Nine Months Ended
09/30/2024 09/30/2023
Average
Balance 		Interest
Income/Expense 		Yield Average
Balance 		Interest
Income/Expense 		Yield
Interest-earning assets:
Interest-bearing deposits $ 2,784,231 $ 111,895 5.37 % $ 2,814,811 $ 104,953 4.99 %
Securities purchased under agreements to resell
2,964,124 120,583 5.43 2,441,429 90,607 4.96
Federal funds sold 4,471,281 180,720 5.40 4,022,454 150,058 4.99
Investment securities1,2
13,586,514 615,364 6.05 11,602,457 460,697 5.31
Advances1,2
44,665,703 1,877,261 5.61 46,699,337 1,785,223 5.11
Mortgage loans3,4
8,613,299 236,084 3.66 8,013,970 190,515 3.18
Other interest-earning assets
35,219 534 2.03 55,018 1,237 3.01
Total earning assets 77,120,371 3,142,441 5.44 75,649,476 2,783,290 4.92
Other non-interest-earning assets
292,797 254,818
Total assets $ 77,413,168 $ 75,904,294
Interest-bearing liabilities:
Deposits $ 801,818 30,687 5.11 $ 669,108 23,469 4.69
Consolidated obligations1:
Discount Notes 17,355,679 691,610 5.32 22,936,918 836,651 4.88
Bonds 54,310,542 2,009,680 4.94 47,284,287 1,581,173 4.47
Other borrowings 44,195 1,054 3.18 47,217 1,019 2.88
Total interest-bearing liabilities
72,512,234 2,733,031 5.04 70,937,530 2,442,312 4.60
Capital and other non-interest-bearing funds
4,900,934 4,966,764
Total funding $ 77,413,168 $ 75,904,294
Net interest income and net interest spread5
$ 409,410 0.40 % $ 340,978 0.32 %
Net interest margin6
0.71 % 0.60 %
1 Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.
2 Interest income includes prepayment/yield maintenance fees.
3 Credit enhancement income payments made to PFIs are netted against interest earnings on the mortgage loans. The expense related to these payments was $5.3 million and $4.9 million for the nine months ended September 30, 2024 and 2023, respectively.
4 Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.
5 Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
6 Net interest margin is defined as net interest income as a percentage of average interest-earning assets.
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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 11 summarizes changes in interest income and interest expense (in thousands):
Table 11
Nine Months Ended
09/30/2024 vs. 09/30/2023
Increase (Decrease) Due to
Volume1,2
Rate1,2
Total
Interest Income3:
Interest-bearing deposits $ (1,151) $ 8,093 $ 6,942
Securities purchased under agreements to resell
20,685 9,291 29,976
Federal funds sold 17,543 13,119 30,662
Investment securities 84,951 69,717 154,668
Advances (80,067) 172,105 92,038
Mortgage loans 14,963 30,606 45,569
Other assets (369) (334) (703)
Total earning assets 56,555 302,597 359,152
Interest Expense3:
Deposits 4,945 2,273 7,218
Consolidated obligations:
Discount notes (217,219) 72,178 (145,041)
Bonds 249,522 178,985 428,507
Other borrowings (68) 104 36
Total interest-bearing liabilities 37,180 253,540 290,720
Change in net interest income $ 19,375 $ 49,057 $ 68,432
1 Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.
2 Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.
3 Interest income/expense and average rates include the effect of associated derivatives that qualify for fair value hedge accounting treatment.
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Net Gains (Losses) on Derivatives: Tables 12 through 15 present the earnings impact of derivatives by financial instrument as recorded in other non-interest income (in thousands):
Table 12
Three Months Ended 09/30/2024
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
$ (5,044) $ (13,414) $ - $ 2,201 $ (1,727) $ (17,984)
Mortgage delivery commitments - - 729 - - 729
Economic hedges - net interest received (paid)
1,194 6,601 - (531) (362) 6,902
Price alignment amount (35) (10) - (6) - (51)
Net gains (losses) on derivatives (3,885) (6,823) 729 1,664 (2,089) (10,404)
Net gains (losses) on trading securities hedged on an economic basis with derivatives
- 10,227 - - - 10,227
TOTAL $ (3,885) $ 3,404 $ 729 $ 1,664 $ (2,089) $ (177)
Table 13
Three Months Ended 09/30/2023
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
$ 2,414 $ (4,855) $ - $ (95) $ 241 $ (2,295)
Mortgage delivery commitments - - (650) - - (650)
Economic hedges - net interest received (paid)
1,148 8,291 - (785) (261) 8,393
Price alignment amount (88) (140) - 5 7 (216)
Net gains (losses) on derivatives 3,474 3,296 (650) (875) (13) 5,232
Net gains (losses) on trading securities hedged on an economic basis with derivatives
- 2,254 - - - 2,254
TOTAL $ 3,474 $ 5,550 $ (650) $ (875) $ (13) $ 7,486
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Table 14
Nine Months Ended 09/30/2024
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
$ (2,499) $ (21,414) $ - $ 1,516 $ (1,727) $ (24,124)
Mortgage delivery commitments - - 497 - - 497
Economic hedges - net interest received (paid)
3,512 21,951 - (1,379) (362) 23,722
Price alignment amount (177) (120) - 4 - (293)
Net gains (losses) on derivatives 836 417 497 141 (2,089) (198)
Net gains (losses) on trading securities hedged on an economic basis with derivatives
- 15,899 - - - 15,899
TOTAL $ 836 $ 16,316 $ 497 $ 141 $ (2,089) $ 15,701
Table 15
Nine Months Ended 09/30/2023
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
$ 6,539 $ (8,975) $ - $ 2,713 $ 637 $ 914
Mortgage delivery commitments - - (1,254) - - (1,254)
Economic hedges - net interest received (paid) 2,428 25,499 - (1,227) (752) 25,948
Price alignment amount (136) (489) - (6) 24 (607)
Net gains (losses) on derivatives 8,831 16,035 (1,254) 1,480 (91) 25,001
Net gains (losses) on trading securities hedged on an economic basis with derivatives
- 6,622 - - - 6,622
TOTAL $ 8,831 $ 22,657 $ (1,254) $ 1,480 $ (91) $ 31,623
For the three months ended September 30, 2024, net gains and losses on derivatives resulted in a decrease in net income of $10.4 million compared to an increase of $5.2 million for the prior year period. For the nine months ended September 30, 2024, net gains and losses on derivatives resulted in a decrease in net income of $0.2 million compared to an increase of $25.0 million for the prior year period. The change between periods was attributed to fair value fluctuations resulting from changes in the level of swap index rates.
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Tables 16 and 17 present the relationship between the hedged trading securities and the associated interest rate swaps that do not qualify for hedge accounting treatment by investment type (in thousands):
Table 16
Three Months Ended
09/30/2024 09/30/2023
Gains (Losses) on Derivatives Gains (Losses) on Trading Securities Net Gains (Losses) on Derivatives Gains (Losses) on Trading Securities Net
U.S. Treasury obligations $ - $ - $ - $ (638) $ 593 $ (45)
GSE debentures (1,577) 1,397 (180) (1,643) 885 (758)
GSE MBS (7,940) 8,830 890 (2,481) 776 (1,705)
TOTAL $ (9,517) $ 10,227 $ 710 $ (4,762) $ 2,254 $ (2,508)
Table 17
Nine Months Ended
09/30/2024 09/30/2023
Gains (Losses) on Derivatives Gains (Losses) on Trading Securities Net Gains (Losses) on Derivatives Gains (Losses) on Trading Securities Net
U.S. Treasury obligations $ - $ - $ - $ (4,384) $ 3,767 $ (617)
GSE debentures (5,241) 4,403 (838) (3,874) 2,053 (1,821)
GSE MBS (10,480) 11,496 1,016 (749) 802 53
TOTAL $ (15,721) $ 15,899 $ 178 $ (9,007) $ 6,622 $ (2,385)
For additional detail regarding gains and losses on trading securities, see Table 18 and related discussion under this Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations."
See Tables 37 and 38 under Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" for additional detail regarding notional and fair value amounts of derivative instruments.
Net Gains (Losses) on Trading Securities: Our trading portfolio is comprised primarily of fixed rate GSE debentures and fixed rate multifamily GSE MBS, with a small percentage of variable rate single-family GSE MBS. Periodically, we also invest in short-term securities and U.S. Treasury obligations classified as trading. 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 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 term interest rates and credit spreads and are swapped on an economic basis to the Secured Overnight Financing Rate (SOFR). The fair values of the fixed rate multifamily GSE MBS are affected by changes in mortgage rates and credit spreads are swapped on an economic basis to SOFR.
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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 16 and 17. 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 18 presents the major components of the net gains (losses) on trading securities (in thousands):
Table 18
Three Months Ended Nine Months Ended
09/30/2024 09/30/2023 09/30/2024 09/30/2023
Trading securities not hedged:
U.S. obligation MBS and GSE MBS $ 37 $ (39) $ 94 $ (23)
Total trading securities not hedged 37 (39) 94 (23)
Trading securities hedged on an economic basis with derivatives:
U.S. Treasury obligations - 593 - 3,767
GSE debentures 1,397 885 4,403 2,053
GSE MBS 8,830 776 11,496 802
Total trading securities hedged on an economic basis with derivatives
10,227 2,254 15,899 6,622
TOTAL $ 10,264 $ 2,215 $ 15,993 $ 6,599
The unrealized gains on the securities in the trading portfolio for the current periods reflect the changes in term Treasury and mortgage rates relative to the prevailing yields at the end of the prior year periods. In addition to interest rates and credit spreads, the value of these securities is affected by price convergence to par which results in a decrease in their current premium price (i.e., time decay).
Other Expenses: Other expenses, which includes compensation and benefits, other operating expenses and voluntary housing and community investment program contributions, increased $3.0 million and $10.2 million for the three and nine months ended September 30, 2024, respectively. The increase for the current quarter was primarily due to the $1.5 million increase in compensation and benefits. The increase for the nine-month period is primarily a result of a $2.9 million increase in compensation and benefits and $4.6 million in voluntary grant programs awarded in partnership with FHLBank members to support affordable housing and community development initiatives throughout Colorado, Kansas, Nebraska, and Oklahoma. These voluntary contributions are in addition to the statutory Affordable Housing Program (AHP) assessments under the FHLBank Act required to fund affordable housing initiatives. Compensation and benefits increased due to hiring for new and open positions and higher incentive accruals based on incentive plan goal attainment.
In addition to the ten percent statutory assessment, the FHLBanks have stated in their public comment letter to the FHFA that they are already making or will make voluntary contributions of 5.0 percent of earnings in support of community investment activities. FHLBank has committed at least 2.5 percent of 2023 pre-assessment earnings to voluntary contributions in 2024 and at least 5.0 percent of pre-assessment earnings to voluntary contributions in 2025, plus a gross-up equal to the reduction in the statutory assessment attributable to the voluntary contributions. For 2024, the minimum commitment calculated using 2023 pre-assessment earnings of $414.6 million is $11.8 million. Voluntary housing and community investment program contributions are expensed in the period they are approved by the board of directors and/or awarded, which does not occur ratably throughout the year. During the nine months ended September 30, 2024, we expensed $4.6 million; the remaining amounts will be approved or awarded in the fourth quarter of 2024. For additional information on FHLBank's affordable housing and community development initiatives, refer to "Other Mission-Related Activities" in Part I, Item 1: Business of FHLBank's 2023 Form 10-K.
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Financial Condition
Overall:Table 19 presents the percentage concentration of the major components of our Statements of Condition:
Table 19
Component Concentration
09/30/2024 12/31/2023
Assets:
Cash and due from banks - % 0.1 %
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold 14.2 10.1
Investment securities 17.5 17.2
Advances 56.0 60.6
Mortgage loans, net 11.2 11.1
Other assets 1.1 0.9
Total assets 100.0 % 100.0 %
Liabilities:
Deposits 1.2 % 1.0 %
Consolidated obligation discount notes, net 21.8 27.7
Consolidated obligation bonds, net 71.3 65.4
Other liabilities 0.6 0.7
Total liabilities 94.9 94.8
Capital:
Capital stock outstanding 3.3 3.5
Retained earnings 2.0 1.9
Accumulated other comprehensive income (loss) (0.2) (0.2)
Total capital 5.1 5.2
Total liabilities and capital 100.0 % 100.0 %
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Table 20 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):
Table 20
Increase (Decrease)
in Components
09/30/2024 vs. 12/31/2023
Dollar
Change 		Percent
Change
Assets:
Cash and due from banks $ 1,801 6.9 %
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold 3,759,484 49.7
Investment securities 956,658 7.4
Advances (1,089,873) (2.4)
Mortgage loans, net 529,320 6.3
Other assets 100,163 15.7
Total assets $ 4,257,553 5.7 %
Liabilities:
Deposits $ 133,787 17.8 %
Consolidated obligation discount notes, net (3,491,565) (16.8)
Consolidated obligation bonds, net 7,413,968 15.1
Other liabilities 20,192 3.9
Total liabilities 4,076,382 5.7
Capital:
Capital stock outstanding 17,598 0.7
Retained earnings 152,996 10.9
Accumulated other comprehensive income (loss) 10,577 (8.9)
Total capital 181,171 4.7
Total liabilities and capital $ 4,257,553 5.7 %
Total assets increased between periods, from $74.9 billion at December 31, 2023 to $79.2 billion at September 30, 2024, driven by the $4.7 billion increase in short- and long-term investments between periods, partially offset by a $1.1 billion decrease in advances. Asset composition remained relatively consistent from December 31, 2023 to September 30, 2024, with advances comprising the largest asset on the balance sheet, despite a decrease in advance balances from 60.6 percent of total assets at December 31, 2023 to 56.0 percent at September 30, 2024. Short-term investments increased to 14.2 percent of total assets as of September 30, 2024 compared to 10.1 percent as of December 31, 2023 as a result of FHLBank holding higher balances of liquid assets to ensure adequate liquidity availability for members compared to the end of 2023. Total liabilities increased $4.1 billion from December 31, 2023 to September 30, 2024, which corresponded to the increase in assets, but the composition of debt shifted between periods. Consolidated obligation bonds and discount notes represented 70.3 percent and 29.7 percent of total consolidated obligations, respectively, at December 31, 2023 compared to 76.6 percent and 23.4 percent at September 30, 2024. This composition shift is mostly due to an increase in short-term floating rate bonds and a decrease in discount notes. Total capital increased $0.2 billion, or 4.7 percent, from December 31, 2023 to September 30, 2024 primarily due to an increase in retained earnings in excess of dividends paid and an increase in excess capital stock.
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Advances: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, 2024 and December 31, 2023. Advance par value decreased by 2.9 percent, from $45.7 billion at December 31, 2023 to $44.4 billion at September 30, 2024 (see Table 21). During the third quarter of 2024, insurance companies and community banks increased advance borrowing, while some large financial institutions replaced advances with other sources of funding. The composition of the advance portfolio remains concentrated in advances that either reprice or mature on a relatively short-term basis; line of credit and adjustable rate advances increased to 53.7 percent of the portfolio at September 30, 2024 compared to 39.0 percent as of December 31, 2023. Within the population of advances that reprice or mature on a relatively short-term basis, composition has shifted from short-term fixed rate advances to adjustable rate advances.
As of September 30, 2024 and December 31, 2023, 62.8 percent and 65.1 percent, respectively, of our members carried outstanding advance balances. Advance balances may be impacted by monetary policy changes intended to curb inflationary pressures and the related inflationary effects on member balance sheets, including decreased loan demand and the inability to grow or retain deposit balances. Members also have access to other wholesale funding sources, which may impact the demand for advances on the basis of relative cost.
We elect to swap a significant portion of advances with longer maturities to short-term indices to synthetically create adjustable rate advances to manage interest rate risk. When coupled with the volume of our short-term fixed rate and adjustable rate advances, advances that effectively re-price at least every three months represent 96.4 percent and 95.9 percent of our total advance portfolio as of September 30, 2024 and December 31, 2023, respectively. We anticipate continuing the practice of swapping advances with longer maturities to short-term indices.
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Table 21 summarizes advances outstanding by product (dollar amounts in thousands). An individual advance may be reclassified to a different product type between periods due to the occurrence of a triggering event such as the passing of a call date (i.e., from fixed rate callable advance to regular fixed rate advance) or conversion of an advance (i.e., from fixed rate convertible advance to adjustable rate callable advance).
Table 21
09/30/2024 12/31/2023
Dollar Percent Dollar Percent
Line of Credit:
Overnight line of credit1
$ 8,214,885 18.5 % $ 11,747,448 25.7 %
Adjustable rate:
Standard advance products:
Regular adjustable rate advances 14,362,550 32.4 4,418,750 9.7
Adjustable rate callable advances 1,217,400 2.7 1,616,400 3.5
Standard housing and community development advances:
Adjustable rate callable advances 20,535 0.1 22,262 0.1
Total adjustable rate term advances 15,600,485 35.2 6,057,412 13.3
Fixed rate:
Standard advance products:
Short-term fixed rate advances2
2,694,749 6.1 12,313,627 27.0
Regular fixed rate advances 13,219,450 29.8 12,359,319 27.1
Fixed rate callable advances 48,302 0.1 68,402 0.2
Fixed rate putable advances 3,186,700 7.2 2,071,800 4.5
Fixed rate convertible advances 73,400 0.2 113,400 0.3
Standard housing and community development advances:
Regular fixed rate advances 242,825 0.6 291,064 0.6
Fixed rate callable advances 458 - 458 -
Total fixed rate term advances 19,465,884 44.0 27,218,070 59.7
Amortizing:
Standard advance products:
Fixed rate amortizing advances 869,566 2.0 415,568 0.9
Fixed rate callable amortizing advances 17,053 - 18,367 -
Standard housing and community development advances:
Fixed rate amortizing advances 184,624 0.3 202,036 0.4
Fixed rate callable amortizing advances 13,124 - 11,401 -
Total amortizing advances 1,084,367 2.3 647,372 1.3
TOTAL PAR VALUE $ 44,365,621 100.0 % $ 45,670,302 100.0 %
1 Represents fixed rate line of credit advances with daily maturities.
2 Represents non-amortizing, non-prepayable loans with terms to maturity from 3 to 93 days.
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Table 22 presents information on our five largest borrowers (dollar amounts in thousands). We do not expect to incur any credit losses on these advances based on our rights to collateral with an estimated fair value in excess of the book value of these advances. We have not experienced a credit loss on an advance since the inception of FHLBank.
Table 22
Borrower Name 09/30/2024 12/31/2023
Advance
Par Value
Percent of Total
Advance Par
Advance
Par Value
Percent of Total
Advance Par
MidFirst Bank $ 11,000,000 24.8 % $ 9,585,000 21.0 %
BOKF, N.A. 4,700,000 10.6 7,675,000 16.8
United of Omaha Life Insurance Co. 2,904,125 6.5 2,278,283 5.0
First United Bank & Trust 2,442,942 5.5 1,881,516 4.1
Capitol Federal Savings Bank 2,230,000 5.0 2,375,410 5.2
TOTAL $ 23,277,067 52.4 % $ 23,795,209 52.1 %
Table 23 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 23
Three Months Ended
09/30/2024 09/30/2023
Borrower Name Advance Income
Percent of Total
Advance Income1
Advance Income
Percent of Total
Advance Income1
MidFirst Bank $ 157,983 27.5 % $ 148,537 26.5 %
BOKF, N.A. 88,391 15.4 95,813 17.1
United of Omaha Life Insurance Co. 33,478 5.8 21,426 3.8
First United Bank & Trust
31,449 5.5
Security Life of Denver Insurance Co.
29,820 5.2 20,636 3.8
Capitol Federal Savings Bank 23,984 4.3
TOTAL $ 341,121 59.4 % $ 310,396 55.5 %
1 Total advance income by borrower excludes: (1) changes in unrealized gains (losses) from qualifying fair value hedging relationships; (2) net interest settlements on derivatives hedging the advances; and (3) prepayment fees received.
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Table 24 presents 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 24
Nine Months Ended
09/30/2024 09/30/2023
Borrower Name Advance Income
Percent of Total
Advance Income1
Advance Income
Percent of Total
Advance Income1
MidFirst Bank $ 424,528 25.7 % $ 447,233 27.8 %
BOKF, N.A. 282,287 17.1 215,003 13.4
United of Omaha Life Insurance Co. 91,799 5.6 57,646 3.6
Security Life of Denver Insurance Co. 84,945 5.1 57,114 3.5
First United Bank & Trust Co. 80,145 4.9
Capitol Federal Savings Bank 86,294 5.4
TOTAL $ 963,704 58.4 % $ 863,290 53.7 %
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.
MPF Program:The MPF Program is a secondary mortgage market alternative for our members, predominately 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 residential mortgage loans.
The mortgage loan portfolio increased slightly between periods, from $8.4 billion at December 31, 2023 to $8.9 billion at September 30, 2024. Mortgage rates have remained elevated, which has reduced origination volume and refinancing incentive for borrowers and slowed prepayments in recent periods, although purchase volume has continued to exceed principal repayments. As mortgage interest rates decline, we expect an increase in prepayments and new originations of mortgage loans. Net mortgage loans as a percentage of total assets increased, from 11.1 percent as of December 31, 2023 to 11.2 percent as of September 30, 2024. The principal amount of new mortgage loans acquired and held on our balance sheet from our PFIs during the nine months ended September 30, 2024 was $1.1 billion.
Future growth in the MPF portfolio is a function of asset size and composition, most notably the balance of advances, and capital level, as growth in advances impacts our total assets and capital level, which allows the balance of mortgage loans to increase while maintaining our targeted Acquired Member Assets (AMA) risk tolerance. The other factors that may influence future growth in our mortgage loans held for portfolio include: (1) the level of interest rates and the shape of the yield curve; (2) the mortgage loan origination volume of current PFIs; (3) refinancing activity; (4) the relative competitiveness of MPF pricing to the prices offered by other buyers of residential mortgage loans; (5) 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 on MPF mortgage loans; and (6) the number of new and delivering PFIs.
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Table 25 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).
Table 25
09/30/2024 12/31/2023
Mortgage
Loan Balance
Percent of Total
Mortgage Loans
Mortgage
Loan Balance
Percent of Total
Mortgage Loans
Farmers Bank & Trust $ 471,103 5.3 % $ 338,745 4.1 %
Fidelity Bank 400,132 4.5 366,733 4.4
Tulsa Teachers Credit Union 305,224 3.5 304,925 3.7
West Gate Bank 288,873 3.3 267,101 3.2
First National Bank of Omaha
232,791 2.6
Community National Bank & Trust 226,466 2.7
TOTAL $ 1,698,123 19.2 % $ 1,503,970 18.1 %
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, 2024 was 750 and 75.0 percent, respectively. See Note 5 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 on mortgage loans decreased $1.3 million from December 31, 2023 to September 30, 2024. Delinquencies of conventional loans remained at low levels relative to the portfolio, at 1.0 percent of the amortized cost of total conventional loans at September 30, 2024 and December 31, 2023. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held for portfolio. See Note 5 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 statistics for our mortgage loan portfolio.
Investments:Investments are used to manage interest rate and duration risk, enhance income, and provide liquidity and primary and secondary market support for the U.S. housing securities market. Total investments increased $4.7 billion from December 31, 2023 to September 30, 2024 driven by increases in Federal funds sold, interest bearing deposits, MBS securities, and U.S. treasury obligations.
Short-term Investments -Short-term investments, which are used to provide funds for our members, maintain liquidity, meet other financial obligations such as debt servicing, and enhance income, consist primarily of reverse repurchase agreements, interest-bearing deposits, Federal funds sold, and certificates of deposit. Fluctuations in short-term investments reflect the impact of regulatory requirements, anticipated member liquidity needs, and timing of paydowns, maturities, and investment opportunities on liquidity management practices. At September 30, 2024, the $3.7 billion increase in short-term investments was due to advance paydowns, ensuring adequate liquidity available for members, and the timing of investment opportunities at quarter-end.
Within our portfolio of short-term investments, counterparty credit risk arises from unsecured exposures. Our short-term unsecured credit investments have maturities generally ranging between overnight and three months and may include the following types:
•Interest-bearing deposits.Unsecured deposits that earn interest.
•Federal funds sold.Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions that are made on either an overnight or term basis, but typically made on an overnight basis.
•Certificates of deposit.Unsecured negotiable promissory notes issued by banks and payable to the bearer at maturity.
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Table 26 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 26
09/30/2024 12/31/2023
Interest-bearing deposits $ 2,073,100 $ 1,604,423
Federal funds sold 6,370,000 2,080,000
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1
$ 8,443,100 $ 3,684,423
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.
We manage our credit risk by conducting pre-purchase credit due diligence and ongoing 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, 2024, all unsecured investments were rated as investment grade based on NRSROs (see Table 29).
Table 27 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, 2024 (in thousands). We also mitigate the credit risk on investments by purchasing instruments that have short-term maturities.
Table 27
Domicile of Counterparty Overnight
Domestic $ 2,463,100
U.S. Branches and agency offices of foreign commercial banks:
Canada 1,700,000
Germany
1,200,000
Australia
1,130,000
Norway
1,100,000
Netherlands
350,000
Finland
300,000
France
100,000
United Kingdom
100,000
Total U.S. Branches and agency offices of foreign commercial banks
5,980,000
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1
$ 8,443,100
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 conservatively placed. In addition, we anticipate continued future investment in reverse repurchase agreements, which are secured investments. 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.
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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. Generally, fixed rate U.S. Treasury obligations are either classified as trading securities and economically swapped to variable rates or classified as available-for-sale securities and swapped to variable rates in qualifying fair value hedging relationships. In addition to serving as excellent collateral, U.S. Treasury obligations also help satisfy regulatory liquidity requirements. We also purchase fixed rate securities for duration and interest rate risk management.
According to FHFA regulation, no additional MBS purchases may be made if the aggregate value of our MBS exceeds 300 percent of our regulatory capital. Further, quarterly increases in holdings of MBS are restricted to no more than 50 percent of regulatory capital. As of September 30, 2024, the aggregate value of our MBS portfolio represented 256 percent of our regulatory capital. We are below our regulatory threshold primarily due to an increase in regulatory capital despite increased MBS purchases in recent periods. We expect to be below our regulatory limit in the near-term but continue to remain opportunistic about future MBS purchases.
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 associated with swapped securities, and for asset/liability management purposes. Liquidity or other asset/liability management strategies may require periodic sale of these securities but they are not actively traded; most often, they are held until maturity or call date. Securities acquired as asset/liability management tools to manage duration risk, which may be sold when the duration exposure is within risk tolerances, 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 the original premiums/discounts on these investments are not amortized.
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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 values by contractual maturities of our investments as of September 30, 2024 are summarized by security type in Table 28 (dollar amounts in thousands) with certain weighted average yield metrics along with carrying values as of December 31, 2023. 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 yield maintenance fees.
Table 28
09/30/2024 12/31/2023
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 		Carrying
Value
Trading securities:
GSE debentures $ 17,841 $ - $ - $ - $ 17,841 $ 288,438
GSE MBS 436,938 89,525 5,552 3,990 536,005 620,170
Total trading securities 454,779 89,525 5,552 3,990 553,846 908,608
Available-for-sale securities:
U.S. Treasury obligations 193,221 3,070,463 - - 3,263,684 2,937,868
U.S. obligation MBS - - - 84,694 84,694 107,535
GSE MBS 310,266 2,452,423 3,689,257 3,296,111 9,748,057 8,708,050
Total available-for-sale securities 503,487 5,522,886 3,689,257 3,380,805 13,096,435 11,753,453
Held-to-maturity securities:
State or local housing agency obligations - - 34,790 - 34,790 35,855
GSE MBS - 31,634 1,628 165,182 198,444 228,941
Total held-to-maturity securities - 31,634 36,418 165,182 233,234 264,796
Total securities 958,266 5,644,045 3,731,227 3,549,977 13,883,515 12,926,857
Interest-bearing deposits 2,074,473 - - - 2,074,473 1,604,989
Federal funds sold 6,370,000 - - - 6,370,000 2,080,000
Securities purchased under agreements to resell
2,875,000 - - - 2,875,000 3,875,000
TOTAL INVESTMENTS $ 12,277,739 $ 5,644,045 $ 3,731,227 $ 3,549,977 $ 25,202,988 $ 20,486,846
Weighted average yields1:
Available-for-sale securities 2.49 % 2.97 % 3.95 % 4.57 %
Held-to-maturity securities - % 2.80 % 2.54 % 1.69 %
1 The weighted average yields are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the impact of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable portfolio. The result is then multiplied by 100 to express it as a percentage.
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Securities Ratings -Tables 29 and 30 present the carrying value of our investments by rating as of September 30, 2024 and December 31, 2023 (in thousands). The ratings presented are the lowest ratings available for the security, issuer, or 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 29
09/30/2024
Carrying Value1
Investment Grade Unrated Total
Triple-A Double-A Single-A
Interest-bearing deposits2
$ - $ 1,373 $ 2,073,100 $ - $ 2,074,473
Federal funds sold2
- 2,530,000 3,840,000 - 6,370,000
Securities purchased under agreements to resell3
- 250,000 - 2,625,000 2,875,000
Investment securities:
Non-mortgage-backed securities:
U.S. Treasury obligations - 3,263,684 - - 3,263,684
GSE debentures - 17,841 - - 17,841
State or local housing agency obligations
34,790 - - - 34,790
Total non-mortgage-backed securities
34,790 3,281,525 - - 3,316,315
Mortgage-backed securities:
U.S. obligation MBS - 84,694 - - 84,694
GSE MBS - 10,482,506 - - 10,482,506
Total mortgage-backed securities - 10,567,200 - - 10,567,200
TOTAL INVESTMENTS $ 34,790 $ 16,630,098 $ 5,913,100 $ 2,625,000 $ 25,202,988
1 Investment amounts represent the carrying value and do not include related accrued interest receivable of $43.0 million at September 30, 2024.
2 Amounts include unsecured credit exposure with overnight maturities.
3 Amounts represent collateralized overnight borrowings.
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Table 30
12/31/2023
Carrying Value1
Investment Grade Unrated Total
Triple-A Double-A Single-A
Interest-bearing deposits2
$ 87 $ 566 $ 1,604,336 $ - $ 1,604,989
Federal funds sold2
- - 2,080,000 - 2,080,000
Securities purchased under agreements to resell3
- - 1,500,000 2,375,000 3,875,000
Investment securities:
Non-mortgage-backed securities:
U.S. Treasury obligations - 2,937,868 - - 2,937,868
GSE debentures - 288,438 - - 288,438
State or local housing agency obligations
35,855 - - - 35,855
Total non-mortgage-backed securities
35,855 3,226,306 - - 3,262,161
Mortgage-backed securities:
U.S. obligation MBS - 107,535 - - 107,535
GSE MBS - 9,557,161 - - 9,557,161
Total mortgage-backed securities - 9,664,696 - - 9,664,696
TOTAL INVESTMENTS $ 35,942 $ 12,891,568 $ 5,184,336 $ 2,375,000 $ 20,486,846
1 Investment amounts represent the carrying value and do not include related accrued interest receivable of $39.9 million at December 31, 2023.
2 Amounts include unsecured credit exposure with overnight maturities.
3 Amounts represent collateralized overnight borrowings.
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Table 31 details interest rate payment terms for the carrying value of our investment securities as of September 30, 2024 and December 31, 2023 (in thousands). We generally 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 37 and 38 under Part I, Item 3 - "Quantitative and Qualitative Disclosures About Market Risk)."
Table 31
09/30/2024 12/31/2023
Trading securities:
Non-mortgage-backed securities:
Fixed rate $ 17,841 $ 288,438
Non-mortgage-backed securities 17,841 288,438
Mortgage-backed securities:
Fixed rate 526,463 609,139
Variable rate 9,542 11,031
Mortgage-backed securities 536,005 620,170
Total trading securities 553,846 908,608
Available-for-sale securities:
Non-mortgage-backed securities:
Fixed rate 3,263,684 2,937,868
Non-mortgage-backed securities 3,263,684 2,937,868
Mortgage-backed securities:
Fixed rate 4,695,859 3,727,446
Variable rate 5,136,892 5,088,139
Mortgage-backed securities 9,832,751 8,815,585
Total available-for-sale securities 13,096,435 11,753,453
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate 34,790 35,855
Non-mortgage-backed securities 34,790 35,855
Mortgage-backed securities:
Fixed rate 17,706 23,650
Variable rate 180,738 205,291
Mortgage-backed securities 198,444 228,941
Total held-to-maturity securities 233,234 264,796
TOTAL $ 13,883,515 $ 12,926,857
Deposits:Deposits are generally an insignificant source of funding. Total deposits increased $133.8 million from December 31, 2023 to September 30, 2024 primarily due to an increase in demand and overnight deposits. 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. Fluctuations in deposits have little impact on our ability to obtain liquidity. Specific disclosures about deposits that exceed Federal Deposit Insurance Corporation (FDIC) limits have been omitted as deposits are not insured by the FDIC. Historically, we have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with similarly or even lower priced borrowings.
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Consolidated Obligations:Consolidated obligations are the joint and several debt obligations of the FHLBanks and consist of bonds and discount notes. Consolidated obligations represent the primary source of liabilities we use to fund advances, mortgage loans and investments. As noted under Part I, Item 3 - "Quantitative and Qualitative Disclosures About Market Risk," we use debt with a variety of maturities and option characteristics to manage our interest rate risk profile and maintain sufficient levels of liquidity. We make use of derivative transactions, executed in conjunction with specific consolidated obligation debt issues, to synthetically structure funding terms and costs.
Table 32 presents the carrying value of consolidated obligation bonds and discounts notes as of September 30, 2024 and December 31, 2023 (in thousands).
Table 32
09/30/2024 12/31/2023
Bonds:
Par value $ 56,624,375 $ 49,409,390
Premiums 12,514 12,874
Discounts (2,407) (3,108)
Concession fees (11,965) (11,424)
Hedging adjustments (161,060) (360,243)
Total bonds 56,461,457 49,047,489
Discount Notes:
Par value 17,367,826 20,903,145
Discounts (119,433) (157,163)
Concession fees (351) (420)
Hedging adjustments 3,642 (2,313)
Total discount notes 17,251,684 20,743,249
TOTAL $ 73,713,141 $ 69,790,738
Total consolidated obligations increased $3.9 billion, or 5.6 percent, from December 31, 2023 to September 30, 2024 aligning with the increase in total assets. The distribution between consolidated obligation bonds and discount notes shifted between periods, from 70.3 percent and 29.7 percent, respectively, at December 31, 2023 compared to 76.6 percent and 23.4 percent at September 30, 2024, respectively, mostly due to an increase in short-term floating rate bonds and a decrease in discount notes. Callable bonds outstanding declined from $22.9 billion at December 31, 2023 to $16.9 billion at September 30, 2024 primarily due to calls or maturities of swapped callable bonds. Callable bonds are typically fixed or structured rate debt that pay higher coupons to investors because of the optionality held by the issuer. When a swap is called by the counterparty in a swapped callable bond transaction, we call the hedged bond. Unswapped callable bonds provide us with options to replace the bonds at lower costs if interest rates decline. 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 unswapped consolidated obligations and the cost of consolidated obligations swapped or indexed to SOFR or OIS. For additional information on market trends impacting the cost of issuing debt, see "Financial Market Trends", "Liquidity and Capital Resources - Liquidity - Sources of Liquidity" and "Risk Management - Interest Rate Risk Management" under this Item 2.
Derivatives:We use derivatives to reduce the interest-rate sensitivity of our assets and liabilities. We also use derivatives in our overall interest rate risk management to adjust the interest rate sensitivity of consolidated obligations to approximate more closely the interest rate sensitivity of assets, including advances, investments and mortgage loans. We also use derivatives to manage embedded options in assets and liabilities, to hedge the market value of existing assets, liabilities, and anticipated transactions, to hedge the duration risk of prepayable instruments, to mitigate adverse impacts to earnings from the contraction or extension of certain assets (e.g., advances or mortgage assets) and liabilities, to hedge the basis risk between adjustable-rate indices, and to reduce funding costs as discussed below. Generally, we designate derivatives as a fair value hedge of an underlying financial instrument or firm commitment. Economic hedges are defined as derivatives hedging specific or non-specific underlying assets, liabilities, or firm commitments that do not qualify for hedge accounting, but are acceptable hedging strategies under our RMP for asset/liability management.
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All derivatives are marked to fair value with any associated accrued interest, and netted by clearing agent by Clearinghouse or by counterparty and offset by the fair value of any swap cash collateral received or delivered where the legal right of offset has been determined, and included on the Statements of Condition as an asset when there is a net fair value gain or as a liability when there is a net fair value loss. Fair values of our derivatives primarily fluctuate as the swap interest rate curves fluctuate. Other factors such as implied price/interest rate volatility, the shape of the above interest rate curves and time decay can also drive the market price for derivatives.
The notional amount of total derivatives outstanding decreased by $1.8 billion, from $51.5 billion at December 31, 2023 to $49.7 billion at September 30, 2024, primarily due to decreases in interest rate swaps hedging callable fixed rate bonds, offset by increases in interest rate swaps hedging non-callable and putable fixed rate advances and interest rate caps purchased to manage duration risk in variable rate investments. For additional information regarding the types of derivative instruments and risks hedged, see Tables 37 and 38 under Item 7A - "Quantitative and Qualitative Disclosures About Market Risk
Liquidity and Capital Resources
Liquidity:We maintain high levels of liquidity to achieve our mission of serving as a dependable and 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 changes in member credit demand, membership composition, and market conditions. As such, assets and liabilities utilized for liquidity purposes can vary significantly in the normal course of business due to the amount and timing of cash flows as a result of these factors.
Sources and Uses of Liquidity- A primary source of our liquidity is the issuance of consolidated obligations. The capital markets traditionally have treated FHLBank obligations as U.S. government agency debt. As a result, even though the U.S. government does not guarantee FHLBank debt, we generally have comparatively stable access to funding at relatively favorable spreads to U.S. Treasury rates. We are primarily and directly liable for our portion of consolidated obligations (i.e., those obligations issued on our behalf). In addition, we are jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all FHLBanks. Our uses of liquidity primarily include repaying called and maturing consolidated obligations for which we are the primary obligor, issuing advances, and purchasing investments and mortgage loans. We also use liquidity to repay member deposits, pledge collateral to derivative counterparties, and redeem or repurchase capital stock. Our other sources of liquidity include our short-term liquidity portfolio, deposit inflows, repayments of advances and mortgage loans, maturing investments, trading and available-for-sale investments, other secured and unsecured borrowings, interest income, or the sale of unencumbered assets.
During the nine months ended September 30, 2024, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were $53.4 billion and $462.5 billion, respectively, compared to $39.9 billion and $316.7 billion for the nine months ended September 30, 2023. The 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, and the increase between periods reflects the increase in assets. High demand for Agency debt has kept the spread to U.S. Treasury obligations relatively narrow. Our ability to issue debt remains robust, but volatility in the capital markets can impact the demand for and cost of debt issued by the FHLBanks.
Our short-term liquidity portfolio consists of cash, short-term investments, and long-term investments with remaining maturities of one year or less. Short-term investments may include Federal funds sold, interest-bearing demand deposits, reverse repurchase agreements, and certificates of deposit. The short-term liquidity portfolio increased between periods, from $8.0 billion as of December 31, 2023 to $12.4 billion as of September 30, 2024. 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., marketable certificates of deposit) are also classified as trading when held so that they can be readily sold should liquidity be needed immediately.
Investment securities on our balance sheet are also a source of potential liquidity. U.S. Treasury obligations, GSE debentures, and GSE MBS can be sold or pledged as collateral for financing in the securities repurchase agreement market. In addition to balance sheet sources of liquidity, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. We expect to maintain a sufficient level of liquidity for the foreseeable future.
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During the nine months ended September 30, 2024, advance disbursements totaled $199.8 billion compared to $661.7 billion for the prior year period which reflects the decrease in member utilization of advances compared to the prior year period, especially short-term advances, due to declines in on-balance sheet liquidity needs, as previously discussed. Investment purchases (excluding overnight investments) totaled $1.8 billion in the nine months ended September 30, 2024 compared to $3.0 billion in the same period in 2023. Payments on maturing and retired consolidated obligation bonds and discount notes were $46.2 billion and $465.9 billion, respectively, for the nine months ended September 30, 2024 compared to $31.4 billion and $323.7 billion for the prior year period.
Capital:Total capital increased $181.2 million, or 4.7 percent, from December 31, 2023 to September 30, 2024 due to an increase in retained earnings in excess of dividends paid and capital stock (see Table 33). We strive to manage our average capital ratio 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 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 increase 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. 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 33 provides a summary of member capital requirements under our current capital plan as of September 30, 2024 and December 31, 2023 (in thousands):
Table 33
Requirement 09/30/2024 12/31/2023
Asset-based (Class A Common Stock only) $ 187,734 $ 184,901
Activity-based (additional Class B Common Stock)1
2,141,887 2,182,176
Total Required Stock2
2,329,621 2,367,077
Excess Stock (Class A and B Common Stock) 298,891 240,853
Total Regulatory Capital Stock2
$ 2,628,512 $ 2,607,930
Activity-based Requirements:
Advances3
$ 1,992,802 $ 2,050,911
Letters of credit 17,200 18,122
AMA assets (mortgage loans)4
263,047 247,490
Total Activity-based Requirement 2,273,049 2,316,523
Asset-based Requirement (Class A Common Stock) not supporting member activity1
56,572 50,554
Total Required Stock2
$ 2,329,621 $ 2,367,077
1 Class A Common Stock, up to a member's asset-based stock requirement, will be used to satisfy a member's activity-based stock requirement before any Class B Common Stock is purchased by the member.
2 Includes mandatorily redeemable capital stock.
3 Advances to housing associates have no activity-based requirements because housing associates cannot own FHLBank stock.
4 Non-members previously required to purchase AMA activity-based stock are subject to the stock requirement in place at the time their membership ended as long as there are unpaid principal balances outstanding.
We are subject to various capital requirements under provisions of the GLB Act, the FHFA's capital structure regulation and our RMP. See Item 1 - "Business - Capital, Capital Rules and Dividends" for details on the various capital requirements. We have been in compliance with each of the capital rules and requirements at all times, as applicable, since the implementation of our capital plan. See Note 10 of the Notes to Financial Statements under Part I, Item 1 for additional information and compliance as of September 30, 2024 and December 31, 2023.
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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.
Dividends paid to members totaled $170.4 million for the nine months ended September 30, 2024 compared to $164.6 million for the same period in the prior year. The weighted average dividend rate was 8.90 percent and 8.82 percent for the three and nine months ended September 30, 2024, respectively, which represented a dividend payout ratio of 58.0 percent and 52.7 percent, respectively. The weighted average dividend rate was 8.62 percent and 8.35 percent for the three and nine months ended September 30, 2023, respectively, which represented a dividend payout ratio of 61.4 percent and 58.1 percent, respectively. The dividend payout ratio represents dividends declared and paid during a period as a percentage of net income for the period, although FHFA regulation requires dividends be paid out of known income prior to the declaration date. For example, dividends declared and paid in September 2024 were based on income during the three months ended August 31, 2024. (See Part I, Item 1 - "Business - Capital, Capital Rules and Dividends" in our annual report on Form 10-K for the year ended December 31, 2023 for other factors that contribute to the level of dividends paid.)
In accordance with our capital plan, we must pay holders of Class A Common Stock the dividend parity threshold (DPT) rate before paying a higher rate to holders of Class B Common Stock. The DPT is a dividend rate expressed as a percentage per annum up to which the dividends paid per share on Class A Common Stock and Class B Common Stock must be equal. When the overnight Federal funds effective rate is below 2.00 percent, the DPT is zero for that dividend period (DPT is floored at zero). Table 34 presents the dividend rates per annum paid on capital stock under our capital plan for the quarterly periods listed below:
Table 34
Applicable Rate per Annum 09/30/2024 06/30/2024 03/31/2024 12/31/2023 09/30/2023
Class A Common Stock 4.75 % 4.75 % 4.75 % 4.75 % 4.50 %
Class B Common Stock 9.50 9.50 9.50 9.50 9.25
Weighted Average1
8.90 8.79 8.76 8.84 8.62
Dividend Parity Threshold:
Average effective overnight Federal funds rate 5.27 % 5.33 % 5.33 % 5.33 % 5.26 %
Spread to index (2.00) (2.00) (2.00) (2.00) (2.00)
TOTAL (floored at zero percent) 3.27 % 3.33 % 3.33 % 3.33 % 3.26 %
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 anticipate that our stock dividends on Class A Common Stock and Class B Common Stock will remain at or near current dividend rates throughout 2024. Historically, dividend rates have moved directionally with short-term interest rates. Market conditions and movements in short-term interest rates can be unpredictable, and adverse market conditions may result in lower dividend rates in future quarters. If there is a change to the DPT in the future, the capital plan requires that we provide members notice of that change 90 days prior to a dividend payment.
Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. 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. FHFA regulation prohibits any FHLBank from paying a stock dividend if excess stock outstanding will exceed one percent of its total assets after payment of the stock 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, support our affordable housing mission, and meet retained earnings thresholds. See Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management" in our Form 10-K for information on our enterprise risk management program. A separate discussion of market risk is included under Part I, Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" of this Form 10-Q.
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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 (MVE) sensitivity. See Part I, Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" for additional information on interest rate risk measurement.
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
Significant regulatory actions and developments for the period covered by this report not previously disclosed are summarized below.
FHFA's Review and Analysis of the FHLBank System.On November 7, 2023, FHFA issued a written report titled "FHLBank System at 100: Focusing on the Future," (System at 100 Report) presenting its review and analysis of the FHLBank System and the actions and recommendations it plans to pursue in service of its vision for the future of the FHLBank System. The report focused on four broad themes: (1) the mission of the FHLBank System; (2) the FHLBank System as a stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure, and governance. FHFA has stated that it expects to continue a multi-year collaborative effort with the FHLBanks, their member institutions, and other stakeholders to address the recommended actions in the System at 100 Report and has stated that it can implement some of the recommendations from the report through ongoing supervision, guidance, or rulemaking, as well as through statutory changes by proposing specific requests for Congressional action. FHFA made legislative recommendations for the FHLBank System in its 2023 Report to Congress issued on June 14, 2024, consistent with proposed plans and actions included in the System at 100 Report. Other significant recent regulatory actions for the FHLBanks are discussed in this section.
Advisory Bulletin on FHLBank Member Credit Risk Management. On September 27, 2024, FHFA issued an advisory bulletin setting forth FHFA's expectations that an FHLBank's underwriting and credit decisions should reflect a member's financial condition and not rely solely on the collateral securing the member's credit obligations. The advisory bulletin provides guidance for the FHLBanks to implement policies for credit risk governance, member credit assessment and monitoring of credit conditions, among other considerations. It also provides guidance on the oversight of members in financial distress by recommending implementation of escalation policies, processes for coordination with members' prudential regulators, and management policies addressing default, failure, and insolvency situations. FHLBank is evaluating this advisory bulletin versus its current member credit risk management policies and procedures to assess its potential impact on FHLBank and its operations
Advisory Bulletin on Federal Home Loan Bank System Climate-Related Risk Management.On September 30, 2024, FHFA issued an advisory bulletin setting forth FHFA's expectation that each FHLBank should integrate climate-related risk management into its existing enterprise risk management framework incrementally over time. The advisory bulletin provides that an effective framework should address climate-related risk governance, such as selection of the related risk appetite and setting strategy and objectives, establishing and implementing plans to mitigate and monitor and report material exposures to such risks, and establishing roles and responsibilities for the board of directors and management. The advisory bulletin requires the FHLBanks to establish metrics that track exposure to climate-related risks and collect related data to quantify risk exposures, conduct climate-related scenario analyses, implement processes to report and communicate climate-related risks to internal stakeholders, and have a plan to respond to natural disasters and support climate resiliency. FHLBank is evaluating the potential impact of the advisory bulletin on FHLBank and its operations.
Proposed Rule on Unsecured Credit Limits for Federal Home Loan Banks. On October 3, 2024, FHFA published a proposed rule with a comment deadline of December 2, 2024 to amend FHFA's regulation on capital requirements (Capital Regulation) to modify unsecured credit limits for FHLBanks. The proposed rule would include interest bearing deposit accounts (IBDAs) in a category of authorized overnight investments that would be excluded from the general limit on unsecured credit to a single counterparty. IBDAs are non-maturity deposits in approved counterparties which may be used to manage liquidity. The proposed rule would, among other things, increase the frequency of the required performance of certain capital calculations and clarify that certain non-interest-bearing deposit accounts (such as settlement, payment or other transactional accounts) are to be considered unsecured extensions of credit subject to the Capital Regulation's unsecured general or overall (less restrictive) limit. Although excluding IBDAs from the general unsecured credit limit could provide greater flexibility for an FHLBank's liquidity management, several of the other proposed changes, if adopted, could result in significant changes to FHLBank's current business processes. FHLBank is evaluating the potential impact of the proposed rule on FHLBank and its operations.
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Proposed Rule on Federal Home Loan Bank System Boards of Directors and Executive Management. On October 21, 2024, FHFA proposed revisions to its regulations addressing boards of directors and overall corporate governance of the FHLBanks and the Office of Finance. The comment deadline will be 90 days after the proposed rule is published in the Federal Register. If adopted as presented, the proposed rule would, among other things: (1) impact director compensation by allowing the Director of FHFA to establish an annual amount of director compensation that the Director determines is reasonable; (2) require FHLBank to complete and submit background checks to FHFA on every nominee for a directorship; (3) impact public interest independent director qualifications, in part by requiring a person to have advocated for, or otherwise acted primarily on behalf of or for the direct benefit of, consumers or the community to meet the representation requirement; (4) expand the list of qualifying experiences for all FHLBank independent directors to include artificial intelligence, information technology and security, climate-related risk, Community Development Financial Institutions, business models, and modeling; and (5) establish a review process for director performance and participation, together with a process for removing FHLBank directors for cause. Other proposed revisions address, among other things, FHLBank conflicts of interest policies, covering all FHLBank employees, including specific limitations on executive officers and senior management and record retention.
While some proposed revisions would codify existing guidance and practice, several of the proposed revisions could result in significant changes to the nomination, election and retention of FHLBank's board of directors. Additional director eligibility requirements and limitations on and potential reductions or limitations to director compensation resulting from the proposed rule could hinder FHLBank's ability to recruit and retain the talent and expertise that are critical to FHLBank's ability to satisfy its mission, particularly given the growing complexities of the finance industry. We continue to analyze the impact that the proposed rule could have on us.
FHLBank continues to monitor FHFA's efforts to implement the recommendations from the System at 100 Report and FHLBank is not able to predict what actions will ultimately result, the timing or extent of any actions or changes, or the ultimate effect on FHLBank, its members, or the FHLBank System in the future. FHLBank plans to continue to engage with FHFA and other stakeholders in an effort to ensure that the FHLBank System remains well positioned to serve FHLBank's members and their communities. For a further discussion of the System at 100 Report, including proposed plans and actions, and related risks, see, respectively, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments" and Item 1A - "Risk Factors," each included in FHLBank's annual report on Form 10-K.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk that changes in market value may adversely affect our financial condition and performance. Interest rate risk is a component of market risk and represents our most significant market risk exposure. Interest rate risk is the risk that the market value of our asset, liability, and derivative portfolios will be negatively impacted by interest rate volatility or that earnings will be affected significantly by interest rate changes. We manage interest rate risk through the characteristics of our portfolio of assets and liabilities and by using derivative transactions to limit duration mismatches and reduce MVE sensitivity. Matching the duration of assets with the duration of liabilities funding those assets is accomplished through the use of different debt maturities and embedded option characteristics, as well as the use of derivatives, primarily interest rate swaps, interest rate caps, and interest rate floors. Interest rate swaps increase the flexibility of our funding alternatives by providing cash flows or characteristics that might not be as readily available or cost-effective if obtained in the standard GSE debt market.
Duration of Equity:DOE aggregates the estimated sensitivity of market value for each of our financial assets and liabilities to changes in interest rates. A positive DOE results when the duration of assets and designated derivatives is greater than the duration of liabilities and designated derivatives, indicating a degree of interest rate risk exposure in a rising interest rate environment. A negative DOE results in the opposite scenario, indicating a degree of interest rate risk exposure in a declining interest rate environment. Higher DOE numbers, whether positive or negative, indicate greater volatility of market value in response to changing interest rates. A decline in market value does not necessarily translate directly into a decline in income, especially for entities that do not trade financial instruments. Changes in market value may indicate trends in income over longer periods, and knowing the sensitivity of our market value to changes in interest rates provides a measure of the interest rate risk we take.
Under the RMP, our base case DOE is generally limited to a range of ±5.0 assuming current interest rates. In addition, our DOE is generally limited to a range of ±7.0 assuming an instantaneous parallel increase or decrease in interest rates of 200 basis points. During periods of extremely low interest rates, the FHFA requires that the FHLBanks employ a constrained down shock analysis to limit the evolution of forward interest rates to positive non-zero values. Since our market risk model imposes a positive non-zero boundary on post-shock interest rates, no additional calculations are necessary to meet this FHFA requirement when applicable. When DOE exceeds the limits established by the RMP, corrective actions taken may include: (1) the purchase of interest rate caps, interest rate floors, or other derivatives; (2) the sale of assets; and/or (3) the addition to the balance sheet of assets or liabilities having characteristics that are such that they counterbalance the excessive duration observed.
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Table 35 presents our DOE in the base and the up and down 200 basis point interest rate shock scenarios:
Table 35
Duration of Equity
Date Up 200 Basis Points Base Down 200 Basis Points
09/30/2024 2.7 2.5 1.5
06/30/2024 2.7 2.4 1.5
03/31/2024 3.3 2.3 1.3
12/31/2023 3.3 2.1 1.2
09/30/2023 3.2 2.2 1.9
The primary factors contributing to the net changes in duration from December 31, 2023 to September 30, 2024 were: (1) the relative change in interest rates and the relative level of mortgage rates during the period along with variable rate CMOs and their effective cap levels; (2) the relative percent of total assets represented by the fixed rate mortgage loan portfolio during the period; and (3) asset/liability actions taken by management throughout the period, including the addition of interest rate cap positions. The decrease in interest rates and the relative level of shorter-term interest rates during the period impacted the implied forward rates and the valuation of the variable rate CMO investments with lower effective interest rate caps. To reduce the impact of the general duration lengthening from the variable rate CMO investments with lower effective interest rate caps, stand-alone interest caps were purchased during the period, leading to the continued less asset sensitive DOE level in the +200 interest rate shock scenario.
In addition, the relative changes in interest rates and mortgage rates during the period caused the mortgage loan portfolio contribution to duration to change marginally less than the associated liabilities, contributing to the increase in the asset sensitive DOE profile in the base case. The mortgage loan portfolio generally has a longer duration profile in the interest rate shock scenarios contributing to the asset-sensitive DOE in the up and down 200 basis point shock scenarios. However, the prepayment sensitivity and market value changes in our mortgage portfolio currently align well with our non-swapped callable debt portfolio in these scenarios generating a relatively stable sensitivity profile in the interest rate shock scenarios.
The change in interest rates during the period generally shortens the duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. However, the decline in advances during the period generated a marginally larger contribution and an overall modest duration profile change from the mortgage loan and unswapped callable bond portfolios. This behavior is expected since DOE is a market value weighted measure and as portfolio weightings change in relation to total market value of assets, the respective contributions increase or decrease to overall DOE. With the increase in our mortgage loan portfolio balance, the net impact was a slight increase as a percentage of total assets during this period, as discussed in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - MPF Program" so the duration profile changed as expected as prepayments shifted slightly for both new production mortgage loans, as well as the outstanding fixed rate mortgage loan portfolio.
To effectively manage these changes in the mortgage loan portfolio (including new production and prepaid loans) and related sensitivity to changes in market conditions, unswapped callable consolidated obligation bonds that either matured or were called were generally replaced with reissuance of unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three months to one year). Generally, changes in the profile of the liability portfolio corresponds with the expected duration profile of the fixed rate mortgage loans, all else being equal, and positions the balance sheet for future changes in rates, including changes in interest rate increases where the mortgage loan portfolio will likely lengthen in duration as expected prepayments slow. For further discussion of the call and reissuance of consolidated obligation bonds, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Consolidated Obligations." The combination of these factors contributed to the net DOE changes in all scenarios during the period.
Duration gap is the difference between the duration of our assets and the duration of our liabilities. Our base duration gap was 1.5 months and 1.3 months for September 30, 2024 and December 31, 2023, respectively.
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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. 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 36 presents MVE as a percent of TRCS. As of September 30, 2024, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan and associated funding portfolio market values along with the relative level of outstanding capital.
The MVE to TRCS ratios can be impacted by the market value of equity sensitivity and level of capital outstanding based on our capital management approach. The relative level of advance, mortgage loan, and letters of credit balances, which trigger required stock, and excess stock as of September 30, 2024 (see Table 33 under Part I, Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Capital") contributed to the MVE levels as of September 30, 2024. These relationships and associated risk sensitivity 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.
Generally, a positive duration position accompanied by rising interest rates would negatively impact the base market value of equity (numerator). Likewise, as capital increases, the MVE/TRCS ratio declines since the capital level is the denominator in the ratio. While the change in interest rates contributed to the overall impact on base MVE during the period, the changes were limited with the ratio maintaining consistent levels in the base case and interest rate shock scenarios during the period.
Table 36
Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date Up 200 Basis Points Base Down 200 Basis Points
09/30/2024 148 156 161
06/30/2024 142 149 155
03/31/2024 147 155 161
12/31/2023 145 153 157
09/30/2023 136 144 150
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. Tables 37 and 38 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):
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Table 37
09/30/2024
Hedged Item Hedging Instrument Hedging Objective Accounting Designation Notional Amount Fair Value Amount
Advances
Fixed rate non-callable advances Pay fixed, receive variable interest rate swap Convert the advance's fixed rate to a variable rate index Fair Value Hedge $ 12,649,456 $ 21,613
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 73,400 999
Fixed rate putable 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 3,186,700 (53,284)
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 356,424 974
Firm commitment to issue a fixed rate advance Forward settling interest rate swap Protect against fair value risk Fair Value Hedge 6,683 16
Investments
Fixed rate non-MBS available-for-sale investments Pay fixed, receive variable interest rate swap Convert the investment's fixed rate to a variable rate index Fair Value Hedge 3,300,000 4,328
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 4,643,270 38,206
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 18,000 9
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 533,855 8,325
Adjustable rate MBS with embedded caps Interest rate cap Offset the interest rate cap embedded in a variable rate investment Economic Hedge 2,604,000 2,502
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments Mortgage purchase commitment Protect against fair value risk Economic Hedge 48,775 7
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 5,238,840 (190)
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 4,496,196 695
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 2,278,000 (26,911)
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 7,341,300 (102,191)
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 907,000 (35,462)
Firm commitment to issue a consolidated obligation bond Receive fixed, pay variable interest rate swap Protect against fair value risk Fair Value Hedge 45,000 (57)
Fixed rate callable consolidated obligation bonds Receive fixed, pay variable interest rate swap Convert the bond's fixed rate to a variable rate index
Economic Hedge
1,500,000 (1,079)
Firm commitment to issue a consolidated obligation bond
Receive variable interest rate, pay variable interest rate swap
Reduce interest rate sensitivity and repricing gaps
Economic Hedge
500,000 (1,068)
TOTAL $ 49,726,899 $ (142,568)
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Table 38
12/31/2023
Hedged Item Hedging Instrument Hedging Objective Accounting Designation Notional Amount Fair Value Amount
Advances
Fixed rate non-callable advances Pay fixed, receive variable interest rate swap Convert the advance's fixed rate to a variable rate index Fair Value Hedge $ 11,315,760 $ (2,205)
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 113,400 4,215
Fixed rate putable 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 2,071,800 (9,227)
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 201,138 834
Firm commitment to issue a fixed rate advance Forward settling interest rate swap Protect against fair value risk Fair Value Hedge 52,141 7
Investments
Fixed rate non-MBS available-for-sale investments Pay fixed, receive variable interest rate swap Convert the investment's fixed rate to a variable rate index Fair Value Hedge 3,050,000 (4,065)
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 3,766,473 48,363
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 293,000 (26)
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 628,027 20,659
Adjustable rate MBS with embedded caps Interest rate cap Offset the interest rate cap embedded in a variable rate investment Economic Hedge 304,000 698
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments Mortgage purchase commitment Protect against fair value risk Economic Hedge 41,641 128
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 5,261,131 453
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 3,727,296 911
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 4,599,000 (18,313)
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 14,797,000 (241,011)
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 1,312,000 (72,918)
TOTAL $ 51,533,807 $ (271,497)
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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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance in achieving their desired objectives; however, in designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Management, with the participation of the President and Chief Executive Officer (CEO), our principal executive officer, and the Chief Accounting Officer, 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, 2024. Based upon that evaluation, the CEO and Chief Accounting Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024.
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, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1: Legal Proceedings
We are subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations. Additionally, management does not believe that we are subject to any material pending legal proceedings outside of ordinary litigation incidental to our business.
Item 1A: Risk Factors
There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K filed on March 11, 2024, 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
None.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
None.
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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 3.2 to the Current Report on Form 8-K, filed October 31, 2024, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
4.1
Exhibit 4.1 to the Annual Report on Form 10-K, filed March 20, 2020, Federal Home Loan Bank of Topeka Capital 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 Chief Accounting Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification of President and Chief Executive Officer (Principal Executive Officer) and Chief Accounting Officer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Represents a management contract or a compensatory plan or arrangement.
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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 7, 2024 By: /s/ Jeffrey B. Kuzbel
Date Jeffrey B. Kuzbel
President and Chief Executive Officer
November 7, 2024 By: /s/ Amy J. Crouch
Date Amy J. Crouch
First Vice President and Chief Accounting Officer
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