Federal Home Loan Bank of Topeka - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - Federal Home Loan Bank of Topeka	ex9301732.htm
EX-31.2 - EXHIBIT 31.2 - Federal Home Loan Bank of Topeka	ex93017312.htm
EX-31.1 - EXHIBIT 31.1 - Federal Home Loan Bank of Topeka	ex93017311.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017

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

For the transition period from ________ to ________

Commission File Number 000-52004

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)



Federally chartered corporation		48-0561319
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Security Benefit Pl. Suite 100 Topeka, KS		66606
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 785.233.0507

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

Emerging growth company ¨

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

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

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



	Shares outstanding as of
	November 7, 2017
Class A Stock, par value $100 per share	1,945,677
Class B Stock, par value $100 per share	14,444,350

.FEDERAL HOME LOAN BANK OF TOPEKA

TABLE OF CONTENTS




PART I	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Statements of Condition	5
	Statements of Income	7
	Statements of Comprehensive Income	9
	Statements of Capital	10
	Statements of Cash Flows	11
	Notes to Financial Statements	14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
	Executive Level Overview	50
	Financial Market Trends	53
	Critical Accounting Policies and Estimates	54
	Results of Operations	54
	Financial Condition	69
	Liquidity and Capital Resources	85
	Risk Management	89
	Recently Issued Accounting Standards	93
	Legislative and Regulatory Developments	94
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	95
Item 4.	Controls and Procedures	101
Part II	OTHER INFORMATION	101
Item 1.	Legal Proceedings	101
Item 1A.	Risk Factors	101
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	101
Item 3.	Defaults Upon Senior Securities	101
Item 4.	Mine Safety Disclosures	101
Item 5.	Other Information	101
Item 6.	Exhibits	102

Important Notice about Information in this Quarterly Report

In this quarterly report, unless the context suggests otherwise, references to the “FHLBank,” “FHLBank Topeka,” “we,” “us” and “our” mean the Federal Home Loan Bank of Topeka, and “FHLBanks” mean all the Federal Home Loan Banks, including the FHLBank Topeka.

The information contained in this quarterly report is accurate only as of the date of this quarterly report and as of the dates specified herein.

The product and service names used in this quarterly report are the property of the FHLBank, and in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services and company names mentioned in this quarterly report are the property of their respective owners.

Special Cautionary Notice Regarding Forward-looking Statements

The information in this Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements describing the objectives, projections, estimates or future predictions of the FHLBank’s operations. These statements may be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “may,” “is likely,” “could,” “estimate,” “expect,” “will,” “intend,” “probable,” “project,” “should,” or their negatives or other variations of these terms. The FHLBank cautions that by their nature forward-looking statements involve risks or uncertainties and that actual results may differ materially from those expressed in any forward-looking statements as a result of such risks and uncertainties, including but not limited to:


•	Governmental actions, including legislative, regulatory, judicial or other developments that affect the FHLBank; its members, counterparties or investors; housing government-sponsored enterprises (GSE); or the FHLBank System in general;


•	Changes in the FHLBank’s capital structure;


•	Changes in economic and market conditions, including conditions in our district and the U.S. and global economy, as well as the mortgage, housing and capital markets;


•	Changes in demand for FHLBank products and services or consolidated obligations of the FHLBank System;


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


•	The effects of amortization/accretion;


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


•	Volatility of market prices, interest rates and indices and the timing and volume of market activity;


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


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


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


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


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


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


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


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


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


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


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

Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under Item 1A – Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2016, incorporated by reference herein.

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

PART I

Item 1: Financial Statements



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	09/30/2017			12/31/2016
ASSETS
Cash and due from banks	$	7,803		$	207,254
Interest-bearing deposits	301,208			387,920
Securities purchased under agreements to resell (Note 10)	2,595,589			2,400,000
Federal funds sold	1,692,000			2,725,000

Investment securities:
Trading securities (Note 3)	2,973,383			2,502,788
Available-for-sale securities (Note 3)	1,464,472			1,091,721
Held-to-maturity securities¹ (Note 3)	4,740,532			4,502,224
Total investment securities	9,178,387			8,096,733

Advances (Notes 4, 6)	28,319,226			23,985,835

Mortgage loans held for portfolio, net:
Mortgage loans held for portfolio (Notes 5, 6)	7,056,647			6,642,399
Less allowance for credit losses on mortgage loans (Note 6)	(1,408		)	(1,674		)
Mortgage loans held for portfolio, net	7,055,239			6,640,725

Overnight loans to other FHLBanks	—			600,000
Accrued interest receivable	79,854			68,400
Premises, software and equipment, net	36,034			16,205
Derivative assets, net (Notes 7, 10)	50,496			60,900
Other assets	45,353			27,777

TOTAL ASSETS	$	49,361,189		$	45,216,749

LIABILITIES
Deposits (Note 8)	$	550,627		$	598,931

Consolidated obligations, net:
Discount notes (Note 9)	21,280,938			21,775,341
Bonds (Note 9)	25,070,225			20,722,335
Total consolidated obligations, net	46,351,163			42,497,676

Mandatorily redeemable capital stock (Note 11)	5,439			2,670
Accrued interest payable	61,616			49,808
Affordable Housing Program payable	42,533			33,242
Derivative liabilities, net (Notes 7, 10)	640			7,171
Other liabilities	50,563			64,803

TOTAL LIABILITIES	47,062,581			43,254,301

Commitments and contingencies (Note 14)

¹Fair value: $4,740,231 and $4,487,252 as of September 30, 2017 and December 31, 2016, respectively.

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	09/30/2017		12/31/2016

CAPITAL
Capital stock outstanding - putable:
Class A ($100 par value; 1,730 and 1,621 shares issued and outstanding) (Note 11)	$	172,996	$	162,143
Class B ($100 par value; 12,940 and 10,645 shares issued and outstanding) (Note 11)	1,294,005		1,064,532
Total capital stock	1,467,001		1,226,675

Retained earnings:
Unrestricted	662,401		611,226
Restricted	153,740		123,970
Total retained earnings	816,141		735,196

Accumulated other comprehensive income (loss) (Note 12)	15,466		577

TOTAL CAPITAL	2,298,608		1,962,448

TOTAL LIABILITIES AND CAPITAL	$	49,361,189	$	45,216,749

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
INTEREST INCOME:
Interest-bearing deposits	$	1,285		$	614		$	2,928		$	1,400
Securities purchased under agreements to resell	6,735			3,370			15,902			8,947
Federal funds sold	8,396			1,221			20,071			4,033
Trading securities	15,317			15,410			45,412			51,540
Available-for-sale securities	6,865			3,420			16,489			8,239
Held-to-maturity securities	20,684			11,874			53,082			35,205
Advances	113,673			57,961			281,806			167,882
Prepayment fees on terminated advances, net	161			1,137			1,331			1,746
Mortgage loans held for portfolio	54,548			50,164			157,074			153,457
Other	344			306			928			947
Total interest income	228,008			145,477			595,023			433,396

INTEREST EXPENSE:
Deposits	988			237			2,366			697
Consolidated obligations:
Discount notes	69,556			25,323			162,539			70,502
Bonds	88,306			56,681			228,788			169,728
Mandatorily redeemable capital stock (Note 11)	69			22			135			63
Other	162			74			319			214
Total interest expense	159,081			82,337			394,147			241,204

NET INTEREST INCOME	68,927			63,140			200,876			192,192
(Reversal) provision for credit losses on mortgage loans (Note 6)	(171		)	329			(196		)	(140		)
NET INTEREST INCOME AFTER LOAN LOSS (REVERSAL) PROVISION	69,098			62,811			201,072			192,332

OTHER INCOME (LOSS):
Total other-than-temporary impairment losses on held-to-maturity securities	(84		)	—			(94		)	(65		)
Net amount of impairment losses on held-to-maturity securities reclassified to/(from) accumulated other comprehensive income (loss)	(256		)	(30		)	(370		)	3
Net other-than-temporary impairment losses on held-to-maturity securities (Note 3)	(340		)	(30		)	(464		)	(62		)
Net gain (loss) on trading securities (Note 3)	3,319			(3,826		)	16,400			63,904
Net gain (loss) on derivatives and hedging activities (Note 7)	(322		)	9,557			(9,681		)	(84,225		)
Standby bond purchase agreement commitment fees	1,165			1,344			3,506			4,056
Letters of credit fees	979			911			2,889			2,666
Other	660			752			1,844			1,966
Total other income (loss)	5,461			8,708			14,494			(11,695		)

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended				Nine Months Ended
	09/30/2017		09/30/2016		09/30/2017		09/30/2016
OTHER EXPENSES:
Compensation and benefits	$	12,030	$	11,798	$	29,396	$	28,260
Other operating	4,612		3,749		12,477		11,379
Federal Housing Finance Agency	697		697		2,145		2,204
Office of Finance	717		683		2,179		2,035
Other	1,479		1,008		3,967		2,975
Total other expenses	19,535		17,935		50,164		46,853

INCOME BEFORE ASSESSMENTS	55,024		53,584		165,402		133,784

Affordable Housing Program	5,510		5,361		16,554		13,385

NET INCOME	$	49,514	$	48,223	$	148,848	$	120,399

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
	Three Months Ended					Nine Months Ended
	09/30/2017			09/30/2016		09/30/2017			09/30/2016
Net income	$	49,514		$	48,223	$	148,848		$	120,399

Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities:
Unrealized gain (loss)	1,452			8,434		13,319			10,736
Total net unrealized gain (loss) on available-for-sale securities	1,452			8,434		13,319			10,736

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:
Non-credit portion	(26		)	—		(30		)	(62		)
Reclassification of non-credit portion included in net income	282			30		400			59
Accretion of non-credit portion	321			479		1,027			1,554
Total net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities	577			509		1,397			1,551

Defined benefit pension plan:
Amortization of net loss	58			47		173			142
Total defined benefit pension plan	58			47		173			142

Total other comprehensive income (loss)	2,087			8,990		14,889			12,429

TOTAL COMPREHENSIVE INCOME	$	51,601		$	57,213	$	163,737		$	132,828

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited
(In thousands)
	Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other
	Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2015	1,797		$	179,683		10,293		$	1,029,264		12,090		$	1,208,947		$	560,166		$	91,616	$	651,782		$	(18,977	)	$	1,841,752
Comprehensive income																96,319			24,080		120,399			12,429			132,828
Proceeds from issuance of capital stock	25		2,537			9,998		999,834			10,023		1,002,371														1,002,371
Repurchase/redemption of capital stock	(4,158	)	(415,853		)	(29	)	(2,880		)	(4,187	)	(418,733		)												(418,733		)
Net reclassification of shares to mandatorily redeemable capital stock	(244	)	(24,408		)	(4,750	)	(475,037		)	(4,994	)	(499,445		)												(499,445		)
Net transfer of shares between Class A and Class B	4,170		417,025			(4,170	)	(417,025		)	—		—														—
Dividends on capital stock (Class A - 1.0%, Class B - 6.0%):
Cash payment																(218		)			(218		)				(218		)
Stock issued						587		58,734			587		58,734			(58,734		)			(58,734		)				—
Balance at September 30, 2016	1,590		$	158,984		11,929		$	1,192,890		13,519		$	1,351,874		$	597,533		$	115,696	$	713,229		$	(6,548	)	$	2,058,555

	Capital Stock¹															Retained Earnings								Accumulated			Total Capital
																								Other
	Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2016	1,621		$	162,143		10,645		$	1,064,532		12,266		$	1,226,675		$	611,226		$	123,970	$	735,196		$	577		$	1,962,448
Comprehensive income																119,078			29,770		148,848			14,889			163,737
Proceeds from issuance of capital stock	9		852			13,268		1,326,782			13,277		1,327,634														1,327,634
Repurchase/redemption of capital stock	(5,270	)	(527,051		)	(15	)	(1,453		)	(5,285	)	(528,504		)												(528,504		)
Net reclassification of shares to mandatorily redeemable capital stock	(161	)	(16,075		)	(6,104	)	(610,433		)	(6,265	)	(626,508		)												(626,508		)
Net transfer of shares between Class A and Class B	5,531		553,127			(5,531	)	(553,127		)	—		—														—
Dividends on capital stock (Class A - 1.1%, Class B - 6.5%):
Cash payment																(199		)			(199		)				(199		)
Stock issued						677		67,704			677		67,704			(67,704		)			(67,704		)				—
Balance at September 30, 2017	1,730		$	172,996		12,940		$	1,294,005		14,670		$	1,467,001		$	662,401		$	153,740	$	816,141		$	15,466		$	2,298,608

¹Putable

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended
	09/30/2017			09/30/2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	148,848		$	120,399
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net	6,187			(3,769		)
Concessions on consolidated obligations	4,194			11,904
Premiums and discounts on investments, net	3,087			1,972
Premiums, discounts and commitment fees on advances, net	(4,389		)	(4,963		)
Premiums, discounts and deferred loan costs on mortgage loans, net	17,082			15,029
Fair value adjustments on hedged assets or liabilities	3,664			4,405
Premises, software and equipment	1,732			1,535
Other	173			142
(Reversal) provision for credit losses on mortgage loans	(196		)	(140		)
Non-cash interest on mandatorily redeemable capital stock	133			59
Net other-than-temporary impairment losses on held-to-maturity securities	464			62
Net realized (gain) loss on sale of premises and equipment	71			(39		)
Other adjustments	166			(568		)
Net (gain) loss on trading securities	(16,400		)	(63,904		)
(Gain) loss due to change in net fair value adjustment on derivative and hedging activities	12,766			101,545
(Increase) decrease in accrued interest receivable	(11,503		)	11,535
Change in net accrued interest included in derivative assets	(3,627		)	(4,355		)
(Increase) decrease in other assets	(3,107		)	(3,064		)
Increase (decrease) in accrued interest payable	11,811			(1,630		)
Change in net accrued interest included in derivative liabilities	(2,497		)	(11,517		)
Increase (decrease) in Affordable Housing Program liability	9,291			4,437
Increase (decrease) in other liabilities	(2,178		)	(2,143		)
Total adjustments	26,924			56,533
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	175,772			176,932

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended
	09/30/2017			09/30/2016
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits	$	110,278		$	(292,718	)
Net (increase) decrease in securities purchased under resale agreements	(195,589		)	615,000
Net (increase) decrease in Federal funds sold	1,033,000			750,000
Net (increase) decrease in short-term trading securities	(675,000		)	(280,000		)
Proceeds from maturities of and principal repayments on long-term trading securities	220,806			666,092
Purchases of long-term trading securities	—			(843,423		)
Proceeds from maturities of and principal repayments on long-term available-for-sale securities	4,103			2,210
Purchases of long-term available-for-sale securities	(361,295		)	(573,012		)
Proceeds from maturities of and principal repayments on long-term held-to-maturity securities	824,497			639,881
Purchases of long-term held-to-maturity securities	(1,092,421		)	(415,744		)
Principal collected on advances	387,903,973			103,603,233
Advances made	(392,261,039		)	(106,716,569		)
Principal collected on mortgage loans	714,847			783,915
Purchases of mortgage loans	(1,147,274		)	(962,663		)
Proceeds from sale of foreclosed assets	1,888			3,782
Purchases of other long-term assets	(16,500		)	—
Principal collected on other loans made	1,887			1,765
Net (increase) decrease in loans to other FHLBanks	600,000			—
Proceeds from sale of premises, software and equipment	48			1
Purchases of premises, software and equipment	(20,655		)	(5,152		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(4,354,446		)	(3,023,402		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	(42,291		)	(99,107		)
Net proceeds from issuance of consolidated obligations:
Discount notes	701,800,511			389,032,517
Bonds	14,266,201			14,348,306
Payments for maturing and retired consolidated obligations:
Discount notes	(702,310,944		)	(385,334,143		)
Bonds	(9,909,180		)	(15,829,890		)
Net increase (decrease) in other borrowings	16,500			—
Proceeds from financing derivatives	1,921			16,784
Net interest payments received (paid) for financing derivatives	(18,554		)	(50,091		)
Proceeds from issuance of capital stock	1,327,634			1,002,371
Payments for repurchase/redemption of capital stock	(528,504		)	(418,733		)
Payments for repurchase of mandatorily redeemable capital stock	(623,872		)	(499,218		)
Cash dividends paid	(199		)	(218		)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	3,979,223			2,168,578
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(199,451		)	(677,892		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	207,254			682,670
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,803		$	4,778

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



FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Nine Months Ended
	09/30/2017		09/30/2016
Supplemental disclosures:
Interest paid	$	372,036	$	232,433
Affordable Housing Program payments	$	7,749	$	9,357
Net transfers of mortgage loans to other assets	$	1,808	$	1,596
Change in capital expenditures incurred but reserved for construction holdback	$	1,025	$	—

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

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements - Unaudited

September 30, 2017

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation: The accompanying interim financial statements of the Federal Home Loan Bank of Topeka (FHLBank or FHLBank Topeka) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instruction provided by Article 10, Rule 10-01 of Regulation S-X. The financial statements contain all adjustments which are, in the opinion of management, necessary for a fair statement of the FHLBank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.

The FHLBank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2016. The interim financial statements presented herein should be read in conjunction with the FHLBank’s audited financial statements and notes thereto, which are included in the FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 9, 2017 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K.

Use of Estimates: The preparation of financial statements under GAAP requires management to make estimates and assumptions as of the date of the financial statements in determining the reported amounts of assets, liabilities and estimated fair values and in determining the disclosure of any contingent assets or liabilities. Estimates and assumptions by management also affect the reported amounts of income and expense during the reporting period. The most significant of these estimates include the fair value of trading and available-for-sale securities, the fair value of derivatives and the allowance for credit losses. Many of the estimates and assumptions, including those used in financial models, are based on financial market conditions as of the date of the financial statements. Because of the volatility of the financial markets, as well as other factors that affect management estimates, actual results may vary from these estimates.

Derivatives: All derivatives are recognized on the Statements of Condition at their fair values (including net accrued interest receivable or payable on the derivatives) and are reported as either derivative assets or derivative liabilities, net of cash collateral, including initial and variation margin, and accrued interest received or pledged by clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative.

The FHLBank utilizes two Derivative Clearing Organizations (Clearinghouses) for all cleared derivative transactions, LCH.Clearnet LLC and CME Clearing. Effective January 3, 2017, CME Clearing made certain amendments to its rulebook changing the legal characterization of variation margin payments to be daily settlement payments rather than collateral. Variation margin payments related to LCH.Clearnet LLC contracts continue to be characterized as cash collateral. At both Clearinghouses, initial margin is considered cash collateral.

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

Targeted Improvements to Accounting for Hedging Activities. In August 2017, Financial Accounting Standards Board (FASB) issued an amendment to simplify the application of hedge accounting guidance in current GAAP and to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:


•	Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception;


•	Measurement of the hedged item in a partial-term fair value hedge of interest rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged;


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


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

The amendment will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is January 1, 2019 for the FHLBank, and early adoption is permitted in any interim period or fiscal year prior to the effective date. The FHLBank does not plan on early adoption. This guidance should be applied through a cumulative-effect adjustment directly to retained earnings as of the beginning of the fiscal year of adoption. The FHLBank is in the process of evaluating this guidance and its effect on the FHLBank's financial condition, results of operations and cash flows.

Premium Amortization on Purchased Callable Debt Securities. In March 2017, FASB issued an amendment to shorten the amortization period of any premium on callable debt securities to the first call date instead of over the contractual life of the instrument. The amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is intended to reduce diversity in practice in the amortization of premiums and the consideration of how the potential of a security being called is factored into current impairment assessments. The amendment also intends to more closely align the amortization of premiums and discounts to the expectations incorporated into the market pricing of the instrument. The amendment will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is January 1, 2019 for the FHLBank, and early adoption is permitted. The FHLBank does not plan on early adoption. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. In March 2017, FASB issued an amendment to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendment requires that the employer disaggregate the service cost component and the other components of net benefit cost and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendment is intended to provide transparency, consistency, and usefulness to users of financial statements. The amendment will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, which is January 1, 2018 for the FHLBank. This guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption of this guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.

Classification of Certain Cash Receipts and Cash Payments. In August 2016, FASB issued amendments to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for the FHLBank for interim and annual periods beginning on January 1, 2018. This guidance should be applied using a retrospective transition method to each period presented. This guidance is not expected to have an impact on the FHLBank's statement of cash flows.

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

The guidance also requires:


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


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


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


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

The guidance is effective for the FHLBank for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. The FHLBank does not plan on early adoption. The guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for debt securities for which an other-than-temporary impairment (OTTI) charge had been recognized before the effective date. The FHLBank has formed an internal working group that has begun its implementation efforts by identifying key interpretive issues and potential impacts to processes and systems that will eventually determine the magnitude of the impact on the FHLBank's financial condition, results of operations and cash flows.

Contingent Put and Call Options in Debt Instruments. In March 2016, FASB issued amendments to resolve current diversity in practice by clarifying the steps required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments became effective for annual periods, and interim periods within those annual periods, beginning on January 1, 2017. The adoption of this guidance had no effect on the FHLBank's financial condition, results of operations or cash flows.

Leases. In February 2016, FASB issued amendments to lease accounting guidance. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases in the statement of financial condition, which effectively removes a source of off-balance sheet financing for operating leases. A distinction remains between finance leases and operating leases, but the assets and liabilities arising from operating leases are now also required to be recognized in the statement of financial condition. Lessor accounting is largely unchanged. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is January 1, 2019 for the FHLBank. The FHLBank does not plan on early adoption. The FHLBank has a limited number of lease agreements and has concluded that the impact of the guidance is not expected to have a material effect on the FHLBank's financial condition, results of operations or cash flows.

Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, FASB issued amendments to improve the recognition, measurement, presentation and disclosure of financial instruments through changes to existing GAAP. The provisions impacting the FHLBank include the elimination of the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments carried at amortized cost, the requirement to use the notion of exit price when measuring the fair value of financial instruments for disclosure purposes, and the separate presentation of financial assets and financial liabilities by measurement category and form of asset (i.e., securities or loans and receivables) on the statement of financial condition or in the notes to financial statements. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, which is January 1, 2018 for the FHLBank. The FHLBank has concluded that this guidance will impact disclosures related to the fair value of financial instruments. However, this guidance is not expected to have an impact on the FHLBank's financial condition, results of operations or cash flows.

Revenue Recognition. In May 2014, FASB issued guidance to introduce a new revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In July 2015, FASB voted to defer the effective date of the new standard by one year. In addition, in March 2016, FASB issued amendments to clarify the implementation guidance on principal versus agent considerations, in particular, relating to how an entity should determine whether the entity is a principal or an agent for each specified good or service promised to the customer and the nature of each specified good or service. The amendments do not change the core principle in the new revenue standard. The standard is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017, which is January 1, 2018 for the FHLBank. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the adoption of this guidance has limited potential for impact to the FHLBank. The FHLBank has completed an analysis of its sources of revenue that fall within the scope of the guidance and does not expect the new guidance to have a material impact on its financial condition, results of operations or cash flows.

NOTE 3 – INVESTMENT SECURITIES

Trading Securities: Trading securities by major security type as of September 30, 2017 and December 31, 2016 are summarized in Table 3.1 (in thousands):

Table 3.1



	Fair Value
	09/30/2017		12/31/2016
Non-mortgage-backed securities:
Certificates of deposit	$	675,027	$	—
GSEobligations¹	1,357,859		1,563,351
Non-mortgage-backed securities	2,032,886		1,563,351
Mortgage-backed securities:
U.S. obligation MBS²	604		690
GSE MBS³	939,893		938,747
Mortgage-backed securities	940,497		939,437
TOTAL	$	2,973,383	$	2,502,788


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


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


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

Net gains (losses) on trading securities during the three and nine months ended September 30, 2017 and 2016 are shown in Table 3.2 (in thousands):

Table 3.2



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Net gains (losses) on trading securities held as of September 30, 2017	$	3,890		$	363		$	21,444		$	80,983
Net gains (losses) on trading securities sold or matured prior to September 30, 2017	(571		)	(4,189		)	(5,044		)	(17,079		)
NET GAIN (LOSS) ON TRADING SECURITIES	$	3,319		$	(3,826	)	$	16,400		$	63,904

Available-for-sale Securities: Available-for-sale securities by major security type as of September 30, 2017 are summarized in Table 3.3 (in thousands):

Table 3.3



	09/30/2017
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Mortgage-backed securities:
GSE MBS¹	$	1,441,808	$	24,420	$	(1,756	)	$	1,464,472
TOTAL	$	1,441,808	$	24,420	$	(1,756	)	$	1,464,472


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

Available-for-sale securities by major security type as of December 31, 2016 are summarized in Table 3.4 (in thousands):

Table 3.4



	12/31/2016
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Mortgage-backed securities:
GSE MBS¹	$	1,082,376	$	9,396	$	(51	)	$	1,091,721
TOTAL	$	1,082,376	$	9,396	$	(51	)	$	1,091,721


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

Table 3.5 summarizes the available-for-sale securities with unrealized losses as of September 30, 2017 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.5



	09/30/2017
	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities:
GSE MBS¹	$	359,138	$	(1,756	)	$	—	$	—	$	359,138	$	(1,756	)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	359,138	$	(1,756	)	$	—	$	—	$	359,138	$	(1,756	)


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

Table 3.6 summarizes the available-for-sale securities with unrealized losses as of December 31, 2016 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.6



	12/31/2016
	Less Than 12 Months				12 Months or More					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities:
GSE MBS¹	$	—	$	—	$	33,509	$	(51	)	$	33,509	$	(51	)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	—	$	—	$	33,509	$	(51	)	$	33,509	$	(51	)


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

All available-for-sale securities are GSE MBS and as such do not have a single maturity date. The expected maturities of these securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Held-to-maturity Securities: Held-to-maturity securities by major security type as of September 30, 2017 are summarized in Table 3.7 (in thousands):

Table 3.7



	09/30/2017
	Amortized Cost		OTTI Recognized in AOCI			Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	94,625	$	—		$	94,625	$	87	$	(5,409	)	$	89,303
Non-mortgage-backed securities	94,625		—			94,625		87		(5,409		)	89,303
Mortgage-backed securities:
U.S. obligation MBS¹	133,342		—			133,342		200		(120		)	133,422
GSE MBS²	4,429,372		—			4,429,372		15,542		(13,792		)	4,431,122
Private-label residential MBS	87,637		(4,444		)	83,193		5,310		(2,119		)	86,384
Mortgage-backed securities	4,650,351		(4,444		)	4,645,907		21,052		(16,031		)	4,650,928
TOTAL	$	4,744,976	$	(4,444	)	$	4,740,532	$	21,139	$	(21,440	)	$	4,740,231


¹	Represents single-family MBS issued by Ginnie Mae.


²	Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.

Held-to-maturity securities by major security type as of December 31, 2016 are summarized in Table 3.8 (in thousands):

Table 3.8



	12/31/2016
	Amortized Cost		OTTI Recognized in AOCI			Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	105,780	$	—		$	105,780	$	98	$	(5,707	)	$	100,171
Non-mortgage-backed securities	105,780		—			105,780		98		(5,707		)	100,171
Mortgage-backed securities:
U.S obligation MBS¹	36,331		—			36,331		—		(201		)	36,130
GSE MBS²	4,250,547		—			4,250,547		12,044		(22,071		)	4,240,520
Private-label residential MBS	115,407		(5,841		)	109,566		4,869		(4,004		)	110,431
Mortgage-backed securities	4,402,285		(5,841		)	4,396,444		16,913		(26,276		)	4,387,081
TOTAL	$	4,508,065	$	(5,841	)	$	4,502,224	$	17,011	$	(31,983	)	$	4,487,252


¹	Represents single-family MBS issued by Ginnie Mae.


²	Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.

Table 3.9 summarizes the held-to-maturity securities with unrealized losses as of September 30, 2017 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.9



	09/30/2017
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses¹
Non-mortgage-backed securities:
State or local housing agency obligations	$	—	$	—		$	24,591	$	(5,409	)	$	24,591	$	(5,409	)
Non-mortgage-backed securities	—		—			24,591		(5,409		)	24,591		(5,409		)
Mortgage-backed securities:
U.S. obligation MBS²	40,515		(110		)	17,302		(10		)	57,817		(120		)
GSE MBS³	570,234		(583		)	1,585,259		(13,209		)	2,155,493		(13,792		)
Private-label residential MBS	38		(1		)	67,998		(2,988		)	68,036		(2,989		)
Mortgage-backed securities	610,787		(694		)	1,670,559		(16,207		)	2,281,346		(16,901		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	610,787	$	(694	)	$	1,695,150	$	(21,616	)	$	2,305,937	$	(22,310	)


¹	Total unrealized losses in Table 3.9 will not agree to total gross unrecognized losses in Table 3.7. Total unrealized losses in Table 3.9 include non-credit-related OTTI recognized in accumulated other comprehensive income (AOCI) and gross unrecognized gains on previously other-than-temporarily impaired securities.


²	Represents single-family MBS issued by Ginnie Mae.


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

Table 3.10 summarizes the held-to-maturity securities with unrealized losses as of December 31, 2016 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.10



	12/31/2016
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses¹
Non-mortgage-backed securities:
State or local housing agency obligations	$	—	$	—		$	34,348	$	(5,707	)	$	34,348	$	(5,707	)
Non-mortgage-backed securities	—		—			34,348		(5,707		)	34,348		(5,707		)
Mortgage-backed securities:
U.S obligation MBS²	—		—			35,998		(201		)	35,998		(201		)
GSE MBS³	1,097,379		(2,612		)	2,025,394		(19,459		)	3,122,773		(22,071		)
Private-label residential MBS	1,903		(3		)	85,984		(6,263		)	87,887		(6,266		)
Mortgage-backed securities	1,099,282		(2,615		)	2,147,376		(25,923		)	3,246,658		(28,538		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	1,099,282	$	(2,615	)	$	2,181,724	$	(31,630	)	$	3,281,006	$	(34,245	)


¹	Total unrealized losses in Table 3.10 will not agree to total gross unrecognized losses in Table 3.8. Total unrealized losses in Table 3.10 include non-credit-related OTTI recognized in AOCI and gross unrecognized gains on previously other-than-temporarily impaired securities.


²	Represents single-family MBS issued by Ginnie Mae.


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

The amortized cost, carrying value and fair values of held-to-maturity securities by contractual maturity as of September 30, 2017 and December 31, 2016 are shown in Table 3.11 (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.11



	09/30/2017						12/31/2016
	Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—
Due after one year through five years	2,270		2,270		2,270		2,710		2,710		2,710
Due after five years through 10 years	—		—		—		10,055		10,055		10,048
Due after 10 years	92,355		92,355		87,033		93,015		93,015		87,413
Non-mortgage-backed securities	94,625		94,625		89,303		105,780		105,780		100,171
Mortgage-backed securities	4,650,351		4,645,907		4,650,928		4,402,285		4,396,444		4,387,081
TOTAL	$	4,744,976	$	4,740,532	$	4,740,231	$	4,508,065	$	4,502,224	$	4,487,252

Other-than-temporary Impairment: For the 21 outstanding private-label residential MBS with OTTI during the lives of the securities, the FHLBank’s reported balances as of September 30, 2017 are presented in Table 3.12 (in thousands):

Table 3.12



	09/30/2017
	Unpaid Principal Balance		Amortized Cost		Carrying Value		Fair Value
Private-label residential MBS:
Prime	$	8,104	$	7,145	$	6,584	$	7,553
Alt-A	25,965		23,046		19,163		23,377
TOTAL	$	34,069	$	30,191	$	25,747	$	30,930

Table 3.13 presents a roll-forward of OTTI activity for the three and nine months ended September 30, 2017 and 2016 related to credit losses recognized in earnings (in thousands):

Table 3.13



	Three Months Ended					Nine Months Ended
	09/30/2017			09/30/2016		09/30/2017			09/30/2016
Balance, beginning of period	$	7,420		$	7,596	$	7,502		$	7,785
Additional charge on securities for which OTTI was not previously recognized	57			—		63			1
Additional charge on securities for which OTTI was previously recognized¹	283			30		401			61
Amortization of credit component of OTTI²	(38		)	20		(244		)	(201		)
Balance, end of period	$	7,722		$	7,646	$	7,722		$	7,646


¹	For the three months ended September 30, 2017 and 2016, securities previously impaired represent all securities that were impaired prior to July 1, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, securities previously impaired represent all securities that were impaired prior to January 1, 2017 and 2016, respectively.

The FHLBank amortizes the credit component based on estimated cash flows prospectively up to the amount of expected principal to be recovered. The discounted cash flows will move from the discounted loss value to the ultimate principal to be written off at the projected date of loss. If the expected cash flows improve, the amount of expected loss decreases which causes a corresponding decrease in the calculated amortization. Based on the level of improvement in the cash flows, the amortization could become a positive adjustment to income.

As of September 30, 2017, the fair value of a portion of the FHLBank's available-for-sale and held-to-maturity MBS were below the amortized cost of the securities due to interest rate volatility and/or illiquidity. However, the decline in fair value of these securities is considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining securities in unrecognized loss positions and neither intends to sell these securities nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis. For state and local housing agency obligations, the FHLBank determined that all of the gross unrealized losses on these bonds were temporary because the strength of the underlying collateral and credit enhancements was sufficient to protect the FHLBank from losses based on current expectations.

NOTE 4 – ADVANCES

General Terms: The FHLBank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of September 30, 2017 and December 31, 2016, the FHLBank had advances outstanding at interest rates ranging from 0.66 percent to 7.41 percent and 0.46 percent to 7.41 percent, respectively. Table 4.1 presents advances summarized by year of contractual maturity as of September 30, 2017 and December 31, 2016 (dollar amounts in thousands):

Table 4.1



	09/30/2017					12/31/2016
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	16,017,562		1.39	%	$	12,601,183		1.03	%
Due after one year through two years	1,715,493			1.66		2,019,260			1.96
Due after two years through three years	915,753			2.01		1,073,881			1.47
Due after three years through four years	1,136,194			2.09		781,339			1.96
Due after four years through five years	925,576			1.93		848,112			2.15
Thereafter	7,607,138			1.58		6,636,740			1.19
Total par value	28,317,716			1.52	%	23,960,515			1.24	%
Discounts	(9,724		)			(13,977		)
Hedging adjustments	11,234					39,297
TOTAL	$	28,319,226				$	23,985,835

The FHLBank’s advances outstanding include advances that contain call options that may be exercised with or without prepayment fees at the borrower’s discretion on specific dates (call dates) before the stated advance maturities (callable advances). In exchange for receiving the right to call the advance on a predetermined call schedule, the borrower may pay a higher fixed rate for the advance relative to an equivalent maturity, non-callable, fixed rate advance. The borrower normally exercises its call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances). The FHLBank’s advances as of September 30, 2017 and December 31, 2016 include callable advances totaling $7,310,460,000 and $6,336,280,000, respectively. Of these callable advances, there were $7,263,662,000 and $6,260,837,000 of variable rate advances as of September 30, 2017 and December 31, 2016, respectively.

Convertible advances allow the FHLBank to convert an advance from one interest payment term structure to another. When issuing convertible advances, the FHLBank purchases put options from a member that allow the FHLBank to convert the fixed rate advance to a variable rate advance at the current market rate or another structure after an agreed-upon lockout period. A convertible advance carries a lower interest rate than a comparable-maturity fixed rate advance without the conversion feature. As of September 30, 2017 and December 31, 2016, the FHLBank had convertible advances outstanding totaling $884,950,000 and $1,147,392,000, respectively.

Table 4.2 presents advances summarized by contractual maturity or next call date (for callable advances) and by contractual maturity or next conversion date (for convertible advances) as of September 30, 2017 and December 31, 2016 (in thousands):

Table 4.2



	Year of Contractual Maturity or Next Call Date				Year of Contractual Maturity or Next Conversion Date
Redemption Term	09/30/2017		12/31/2016		09/30/2017		12/31/2016
Due in one year or less	$	22,938,453	$	18,411,727	$	16,121,062	$	12,897,983
Due after one year through two years	1,381,255		1,752,403		1,746,493		1,800,460
Due after two years through three years	788,426		750,126		1,025,853		1,168,381
Due after three years through four years	951,274		666,059		1,245,744		808,139
Due after four years through five years	523,503		755,753		1,161,576		945,462
Thereafter	1,734,805		1,624,447		7,016,988		6,340,090
TOTAL PAR VALUE	$	28,317,716	$	23,960,515	$	28,317,716	$	23,960,515

Interest Rate Payment Terms: Table 4.3 details additional interest rate payment terms for advances as of September 30, 2017 and December 31, 2016 (in thousands):

Table 4.3



	09/30/2017		12/31/2016
Fixed rate:
Due in one year or less	$	2,139,820	$	2,400,382
Due after one year	5,288,792		5,589,805
Total fixed rate	7,428,612		7,990,187
Variable rate:
Due in one year or less	13,877,742		10,200,801
Due after one year	7,011,362		5,769,527
Total variable rate	20,889,104		15,970,328
TOTAL PAR VALUE	$	28,317,716	$	23,960,515

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

NOTE 5 – MORTGAGE LOANS

The MPF Program involves the FHLBank investing in mortgage loans, which have been funded by the FHLBank through or purchased from participating financial institutions (PFIs). These mortgage loans are government-insured or guaranteed loans (by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the Rural Housing Service of the Department of Agriculture (RHS) and/or the Department of Housing and Urban Development (HUD)) and conventional residential loans credit-enhanced by PFIs. Depending upon a member’s product selection, the servicing rights can be retained or sold by the participating member. The FHLBank does not buy or own any mortgage servicing rights.

Mortgage Loans Held for Portfolio: Table 5.1 presents information as of September 30, 2017 and December 31, 2016 on mortgage loans held for portfolio (in thousands):

Table 5.1



	09/30/2017			12/31/2016
Real estate:
Fixed rate, medium-term¹, single-family mortgages	$	1,287,124		$	1,353,938
Fixed rate, long-term, single-family mortgages	5,659,589			5,182,103
Total unpaid principal balance	6,946,713			6,536,041
Premiums	106,716			103,665
Discounts	(2,484		)	(2,276		)
Deferred loan costs, net	294			387
Other deferred fees	(63		)	(85		)
Hedging adjustments	5,471			4,667
Total before Allowance for Credit Losses on Mortgage Loans	7,056,647			6,642,399
Allowance for Credit Losses on Mortgage Loans	(1,408		)	(1,674		)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET	$	7,055,239		$	6,640,725


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

Table 5.2 presents information as of September 30, 2017 and December 31, 2016 on the outstanding unpaid principal balance (UPB) of mortgage loans held for portfolio (in thousands):

Table 5.2



	09/30/2017		12/31/2016
Conventional loans	$	6,268,517	$	5,899,924
Government-guaranteed or insured loans	678,196		636,117
TOTAL UNPAID PRINCIPAL BALANCE	$	6,946,713	$	6,536,041

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

NOTE 6 – ALLOWANCE FOR CREDIT LOSSES

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

Roll-forward of Allowance for Credit Losses: Table 6.1 presents a roll-forward of the allowance for credit losses for the three and nine months ended September 30, 2017 as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of September 30, 2017 (in thousands). The recorded investment in a financing receivable is the UPB, adjusted for accrued interest, net deferred loan fees or costs, unamortized premiums or discounts, fair value hedging adjustments and direct write-downs. The recorded investment is not net of any valuation allowance.

Table 6.1



	09/30/2017
	Conventional Loans			Government Loans		Credit Products¹		Direct Financing Lease Receivable		Total
Allowance for credit losses:
Balance, beginning of three-month period	$	1,525		$	—	$	—	$	—	$	1,525
Net (charge-offs) recoveries	54			—		—		—		54
(Reversal) provision for credit losses	(171		)	—		—		—		(171		)
Balance, end of three-month period	$	1,408		$	—	$	—	$	—	$	1,408

Balance, beginning of nine-month period	$	1,674		$	—	$	—	$	—	$	1,674
Net (charge-offs) recoveries	(70		)	—		—		—		(70		)
(Reversal) provision for credit losses	(196		)	—		—		—		(196		)
Balance, end of nine-month period	$	1,408		$	—	$	—	$	—	$	1,408

Allowance for credit losses, end of period:
Individually evaluated for impairment	$	39		$	—	$	—	$	—	$	39
Collectively evaluated for impairment	1,369			—		—		—		1,369

Recorded investment, end of period:
Individually evaluated for impairment	$	9,655		$	—	$	28,350,505	$	15,487	$	28,375,647
Collectively evaluated for impairment	6,388,094			692,447		—		—		7,080,541
Total	$	6,397,749		$	692,447	$	28,350,505	$	15,487	$	35,456,188


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

Table 6.2 presents a roll-forward of the allowance for credit losses for the three and nine months ended September 30, 2016 as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of September 30, 2016 (in thousands):

Table 6.2



	09/30/2016
	Conventional Loans			Government Loans		Credit Products¹		Direct Financing Lease Receivable		Total
Allowance for credit losses:
Balance, beginning of three-month period	$	1,298		$	—	$	—	$	—	$	1,298
Net (charge-offs) recoveries	33			—		—		—		33
(Reversal) provision for credit losses	329			—		—		—		329
Balance, end of three-month period	$	1,660		$	—	$	—	$	—	$	1,660

Balance, beginning of nine-month period	$	1,972		$	—	$	—	$	—	$	1,972
Net (charge-offs) recoveries	(172		)	—		—		—		(172		)
(Reversal) provision for credit losses	(140		)	—		—		—		(140		)
Balance, end of nine-month period	$	1,660		$	—	$	—	$	—	$	1,660

Allowance for credit losses, end of period:
Individually evaluated for impairment	$	—		$	—	$	—	$	—	$	—
Collectively evaluated for impairment	1,660			—		—		—		1,660

Recorded investment, end of period:
Individually evaluated for impairment	$	10,919		$	—	$	26,746,950	$	17,996	$	26,775,865
Collectively evaluated for impairment	5,923,892			652,663		—		—		6,576,555
Total	$	5,934,811		$	652,663	$	26,746,950	$	17,996	$	33,352,420


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

Credit Quality Indicators: The FHLBank’s key credit quality indicators include the migration of: (1) past due loans; (2) non-accrual loans; (3) loans in process of foreclosure; and (4) impaired loans, all of which are used either on an individual or pool basis to determine the allowance for credit losses.

Table 6.3 summarizes the delinquency aging and key credit quality indicators for all of the FHLBank’s portfolio segments as of September 30, 2017 (dollar amounts in thousands):

Table 6.3



	09/30/2017
	Conventional Loans			Government Loans			Credit Products¹			Direct Financing Lease Receivable			Total
Recorded investment:
Past due 30-59 days delinquent	$	38,716		$	19,295		$	—		$	—		$	58,011
Past due 60-89 days delinquent	6,506			5,764			—			—			12,270
Past due 90 days or more delinquent	10,932			4,243			—			—			15,175
Total past due	56,154			29,302			—			—			85,456
Total current loans	6,341,595			663,145			28,350,505			15,487			35,370,732
Total recorded investment	$	6,397,749		$	692,447		$	28,350,505		$	15,487		$	35,456,188

Other delinquency statistics:
In process of foreclosure, included above²	$	3,812		$	1,520		$	—		$	—		$	5,332
Serious delinquency rate³	0.2		%	0.6		%	—		%	—		%	—		%
Past due 90 days or more and still accruing interest	$	—		$	4,243		$	—		$	—		$	4,243
Loans on non-accrual status⁴	$	14,502		$	—		$	—		$	—		$	14,502


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


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


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


⁴	Loans on non-accrual status include $1,313,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which the FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

Table 6.4 summarizes the key credit quality indicators for all of the FHLBank’s portfolio segments as of December 31, 2016 (dollar amounts in thousands):

Table 6.4



	12/31/2016
	Conventional Loans			Government Loans			Credit Products¹			Direct Financing Lease Receivable			Total
Recorded investment:
Past due 30-59 days delinquent	$	40,290		$	16,920		$	—		$	—		$	57,210
Past due 60-89 days delinquent	7,982			6,383			—			—			14,365
Past due 90 days or more delinquent	11,970			5,185			—			—			17,155
Total past due	60,242			28,488			—			—			88,730
Total current loans	5,962,533			622,856			24,009,010			17,385			30,611,784
Total recorded investment	$	6,022,775		$	651,344		$	24,009,010		$	17,385		$	30,700,514

Other delinquency statistics:
In process of foreclosure, included above²	$	4,408		$	1,748		$	—		$	—		$	6,156
Serious delinquency rate³	0.2		%	0.8		%	—		%	—		%	0.1		%
Past due 90 days or more and still accruing interest	$	—		$	5,185		$	—		$	—		$	5,185
Loans on non-accrual status⁴	$	15,002		$	—		$	—		$	—		$	15,002


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


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


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


⁴	Loans on non-accrual status include $1,327,000 of troubled debt restructurings. Troubled debt restructurings are restructurings in which the FHLBank, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

Individually Evaluated Impaired Loans: Table 6.5 presents the recorded investment, UPB, and related allowance of impaired conventional mortgage loans individually assessed for impairment as of September 30, 2017 and December 31, 2016 (in thousands):

Table 6.5



	09/30/2017						12/31/2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance	$	9,519	$	9,494	$	—	$	11,834	$	11,776	$	—
With an allowance	136		137		39		—		—		—
TOTAL	$	9,655	$	9,631	$	39	$	11,834	$	11,776	$	—

Table 6.6 presents the average recorded investment and related interest income recognized on these individually evaluated impaired loans during the three and nine months ended September 30, 2017 and 2016 (in thousands):

Table 6.6



	Three Months Ended									Nine Months Ended
	09/30/2017					09/30/2016				09/30/2017					09/30/2016
	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized
With no related allowance	$	9,917	$	53		$	11,293	$	77	$	10,819	$	181		$	11,759	$	224
With an allowance	137		(2		)	—		—		61		(6		)	—		—
TOTAL	$	10,054	$	51		$	11,293	$	77	$	10,880	$	175		$	11,759	$	224

The FHLBank had $2,569,000 and $2,608,000 classified as real estate owned (REO) recorded in other assets as of September 30, 2017 and December 31, 2016, respectively.

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

Table 7.1 presents outstanding notional amounts and fair values (excluding fair value adjustments related to variation margin on daily settled contracts) of the derivatives outstanding by type of derivative and by hedge designation as of September 30, 2017 and December 31, 2016 (in thousands). Total derivative assets and liabilities include the effect of netting adjustments, cash collateral, and variation margin for daily settled contracts.

Table 7.1



	09/30/2017								12/31/2016
	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	7,219,820	$	56,584		$	37,013		$	7,896,110	$	70,683		$	65,471
Total derivatives designated as hedging relationships	7,219,820		56,584			37,013			7,896,110		70,683			65,471
Derivatives not designated as hedging instruments:
Interest rate swaps	3,529,847		69			33,086			2,022,630		649			40,824
Interest rate caps/floors	2,462,400		1,673			—			2,765,200		4,859			—
Mortgage delivery commitments	121,377		38			189			90,013		214			372
Total derivatives not designated as hedging instruments	6,113,624		1,780			33,275			4,877,843		5,722			41,196
TOTAL	$	13,333,444	58,364			70,288			$	12,773,953	76,405			106,667
Netting adjustments, cash collateral, and variation margin for daily settled contracts¹			(7,868		)	(69,648		)			(15,505		)	(99,496		)
DERIVATIVE ASSETS AND LIABILITIES			$	50,496		$	640				$	60,900		$	7,171

Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions as well as cash collateral, including initial or variation margin, and related accrued interest held or placed with the same clearing agent and/or derivative counterparty, and includes fair value adjustments on derivatives for which variation margin is characterized as a daily settled contract. Cash collateral posted was $78,846,000 and $105,481,000 as of September 30, 2017 and December 31, 2016, respectively. Cash collateral received was $16,622,000 and $21,490,000 as of September 30, 2017 and December 31, 2016, respectively. Variation margin for daily settled contracts was $(444,000) as of September 30, 2017.

The following tables provide information regarding gains and losses on derivatives and hedging activities by type of hedge and type of derivative and gains and losses by hedged item for fair value hedges.

For the three and nine months ended September 30, 2017 and 2016, the FHLBank recorded net gain (loss) on derivatives and hedging activities as presented in Table 7.2 (in thousands):

Table 7.2



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Derivatives designated as hedging instruments:
Interest rate swaps	$	(49	)	$	3,291		$	(3,243	)	$	(1,019	)
Total net gain (loss) related to fair value hedge ineffectiveness	(49		)	3,291			(3,243		)	(1,019		)
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	2,280			14,307			7,123			(50,322		)
Interest rate caps/floors	(392		)	(132		)	(3,186		)	(3,848		)
Net interest settlements	(3,088		)	(8,760		)	(12,707		)	(32,875		)
Mortgage delivery commitments	913			851			2,326			3,839
Total net gain (loss) related to derivatives not designated as hedging instruments	(287		)	6,266			(6,444		)	(83,206		)
Other¹	14			—			6			—
NET GAIN (LOSS) ON DERIVATIVES AND HEDGING ACTIVITIES	$	(322	)	$	9,557		$	(9,681	)	$	(84,225	)


¹	Amount represents price alignment amount on derivatives for which variation margin is characterized as a daily settled contract.

The FHLBank carries derivative instruments at fair value on its Statements of Condition. Any change in the fair value of derivatives designated under a fair value hedging relationship is recorded each period in current period earnings. Fair value hedge accounting allows for the offsetting fair value of the hedged risk in the hedged item to also be recorded in current period earnings. For the three months ended September 30, 2017 and 2016, the FHLBank recorded net gain (loss) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank’s net interest income as presented in Table 7.3 (in thousands):

Table 7.3



	Three Months Ended
	09/30/2017												09/30/2016
	Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income¹			Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income¹
Advances	$	10,854		$	(10,041	)	$	813		$	(10,538	)	$	44,831		$	(40,908	)	$	3,923		$	(22,346	)
Investments	(894		)	87			(807		)	(2,144		)	5,748			(6,370		)	(622		)	(3,330		)
Consolidated obligation bonds	(2,745		)	2,690			(55		)	3,308			(6,462		)	6,445			(17		)	5,123
Consolidated obligation discount notes	—			—			—			—			(130		)	137			7			16
TOTAL	$	7,215		$	(7,264	)	$	(49	)	$	(9,374	)	$	43,987		$	(40,696	)	$	3,291		$	(20,537	)


¹	The differentials between accruals of interest receivables and payables on derivatives designated as fair value hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the designated underlying hedged item.

For the nine months ended September 30, 2017 and 2016, the FHLBank recorded net gain (loss) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank’s net interest income as presented in Table 7.4 (in thousands):

Table 7.4



	Nine Months Ended
	09/30/2017												09/30/2016
	Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income¹			Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income¹
Advances	$	23,985		$	(24,007	)	$	(22	)	$	(40,965	)	$	(27,042	)	$	30,656		$	3,614		$	(71,538	)
Investments	(6,508		)	4,412			(2,096		)	(7,058		)	(40,472		)	36,742			(3,730		)	(8,667		)
Consolidated obligation bonds	(4,623		)	3,534			(1,089		)	12,468			(3,696		)	3,063			(633		)	25,684
Consolidated obligation discount notes	16			(52		)	(36		)	(15		)	52			(322		)	(270		)	(29		)
TOTAL	$	12,870		$	(16,113	)	$	(3,243	)	$	(35,570	)	$	(71,158	)	$	70,139		$	(1,019	)	$	(54,550	)


¹	The differentials between accruals of interest receivables and payables on derivatives designated as fair value hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the designated underlying hedged item.

Based on credit analyses and collateral requirements, FHLBank management does not anticipate any credit losses on its derivative agreements. The maximum credit risk applicable to a single counterparty was $16,863,000 and $21,112,000 as of September 30, 2017 and December 31, 2016, respectively. The counterparty was the same for both periods.

For uncleared derivative transactions, the FHLBank recently entered into updated bilateral security agreements with its non-member counterparties with bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to minimum transfer amounts. Previously, certain of the FHLBank’s uncleared derivative instruments contained provisions that required the FHLBank to post additional collateral with its counterparties if there was deterioration in the FHLBank’s credit rating. If the FHLBank’s credit rating had been lowered by a Nationally Recognized Statistical Rating Organization (NRSRO), the FHLBank may have been required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate fair value of these uncleared derivatives as of December 31, 2016 was $4,779,000, for which the FHLBank had posted no collateral. If the FHLBank’s credit rating had been lowered one level (e.g., from double-A to single-A), the FHLBank still would not have been required to deliver additional collateral to its uncleared derivative counterparties as of December 31, 2016.

The FHLBank utilizes two Clearinghouses for all cleared derivative transactions, LCH.Clearnet LLC and CME Clearing. Effective January 3, 2017, CME Clearing made certain amendments to its rulebook changing the legal characterization of variation margin payments to represent daily settlement payments rather than collateral. Variation margin related to LCH.Clearnet LLC contracts continues to be characterized as cash collateral. At both Clearinghouses, initial margin is considered cash collateral. For cleared derivatives, the Clearinghouse determines initial margin requirements and generally, credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to credit rating downgrades. The FHLBank was not required to post additional initial margin by its clearing agents as of September 30, 2017 and December 31, 2016.

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

NOTE 8 – DEPOSITS

The FHLBank offers demand, overnight and short-term deposit programs to its members and to other qualifying non-members. Table 8.1 details the types of deposits held by the FHLBank as of September 30, 2017 and December 31, 2016 (in thousands):

Table 8.1



	09/30/2017		12/31/2016
Interest-bearing:
Demand	$	274,231	$	269,341
Overnight	227,900		278,200
Total interest-bearing	502,131		547,541
Non-interest-bearing:
Demand	48,496		51,390
Total non-interest-bearing	48,496		51,390
TOTAL DEPOSITS	$	550,627	$	598,931

NOTE 9 – CONSOLIDATED OBLIGATIONS

Consolidated Obligation Bonds: Table 9.1 presents the FHLBank’s participation in consolidated obligation bonds outstanding as of September 30, 2017 and December 31, 2016 (dollar amounts in thousands):

Table 9.1



	09/30/2017					12/31/2016
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	11,573,375		1.27	%	$	11,001,615		0.92	%
Due after one year through two years	6,294,800			1.26		2,460,440			1.46
Due after two years through three years	1,217,500			1.51		1,190,750			1.51
Due after three years through four years	1,095,950			1.59		739,600			1.56
Due after four years through five years	798,350			1.89		1,215,600			1.60
Thereafter	4,074,100			2.47		4,088,400			2.39
Total par value	25,054,075			1.51	%	20,696,405			1.37	%
Premiums	20,602					26,812
Discounts	(2,396		)			(2,342		)
Concession fees	(9,423		)			(9,441		)
Hedging adjustments	7,367					10,901
TOTAL	$	25,070,225				$	20,722,335

The FHLBank’s participation in consolidated obligation bonds outstanding as of September 30, 2017 and December 31, 2016 includes callable bonds totaling $6,057,000,000 and $6,097,000,000, respectively. The FHLBank uses the unswapped callable bonds for financing its callable fixed rate advances (Note 4), MBS (Note 3) and mortgage loans (Note 5). Contemporaneous with a portion of its fixed rate callable bond issuances, the FHLBank also enters into interest rate swap agreements (in which the FHLBank generally pays a variable rate and receives a fixed rate) with call features that mirror the options in the callable bonds (a sold callable swap). The combined sold callable swap and callable debt transaction allows the FHLBank to obtain attractively priced variable rate financing. Table 9.2 summarizes the FHLBank’s participation in consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of September 30, 2017 and December 31, 2016 (in thousands):

Table 9.2



Year of Maturity or Next Call Date	09/30/2017		12/31/2016
Due in one year or less	$	17,548,375	$	16,581,615
Due after one year through two years	5,888,800		2,275,440
Due after two years through three years	627,500		694,750
Due after three years through four years	325,950		389,600
Due after four years through five years	248,350		190,600
Thereafter	415,100		564,400
TOTAL PAR VALUE	$	25,054,075	$	20,696,405

Table 9.3 summarizes interest rate payment terms for consolidated obligation bonds as of September 30, 2017 and December 31, 2016 (in thousands):

Table 9.3



	09/30/2017		12/31/2016
Simple variable rate	$	14,057,000	$	9,537,000
Fixed rate	9,982,075		10,164,405
Fixed to variable rate	535,000		545,000
Step	435,000		420,000
Range	45,000		30,000
TOTAL PAR VALUE	$	25,054,075	$	20,696,405

Consolidated Discount Notes: Consolidated discount notes are issued to raise short-term funds. Consolidated discount notes are consolidated obligations with original maturities of up to one year. These consolidated discount notes are generally issued at less than their face amount and redeemed at par value when they mature.

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

Table 9.4



	Book Value		Par Value		Weighted Average Interest Rate¹
September 30, 2017	$	21,280,938	$	21,304,555	1.04	%

December 31, 2016	$	21,775,341	$	21,784,924	0.47	%


¹	Represents yield to maturity excluding concession fees.

NOTE 10 – ASSETS AND LIABILITIES SUBJECT TO OFFSETTING

The FHLBank presents certain financial instruments, including derivatives, repurchase agreements and securities purchased under agreements to resell, on a net basis by clearing agent by Clearinghouse, or by counterparty, when it has met the netting requirements. For these financial instruments, the FHLBank has elected to offset its asset and liability positions, as well as cash collateral, including initial and certain variation margin, received or pledged, and associated accrued interest.

Tables 10.1 and 10.2 present the fair value of financial assets, including the related collateral received from or pledged to clearing agents or counterparties and variation margin for daily settled contracts, based on the terms of the FHLBank’s master netting arrangements or similar agreements as of September 30, 2017 and December 31, 2016 (in thousands):

Table 10.1



09/30/2017
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition¹			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition²			Net Amount
Derivative assets:
Uncleared derivatives	$	40,577	$	(33,824	)	$	6,753	$	(38	)	$	6,715
Cleared derivatives³	17,787		25,956			43,743		—			43,743
Total derivative assets	58,364		(7,868		)	50,496		(38		)	50,458
Securities purchased under agreements to resell	2,595,589		—			2,595,589		(2,595,589		)	—
TOTAL	$	2,653,953	$	(7,868	)	$	2,646,085	$	(2,595,627	)	$	50,458


¹	Represents netting adjustments, cash collateral, and variation margin for daily settled contracts.


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


³	Variation margin for daily settled contracts of $(444,000) is included with gross amounts offset in the Statement of Condition.

Table 10.2



12/31/2016
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative assets:
Uncleared derivatives	$	51,765	$	(39,540	)	$	12,225	$	(214	)	$	12,011
Cleared derivatives	24,640		24,035			48,675		—			48,675
Total derivative assets	76,405		(15,505		)	60,900		(214		)	60,686
Securities purchased under agreements to resell	2,400,000		—			2,400,000		(2,400,000		)	—
TOTAL	$	2,476,405	$	(15,505	)	$	2,460,900	$	(2,400,214	)	$	60,686


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

Tables 10.3 and 10.4 present the fair value of financial liabilities, including the related collateral received from or pledged to counterparties and variation margin for daily settled contracts, based on the terms of the FHLBank’s master netting arrangements or similar agreements as of September 30, 2017 and December 31, 2016 (in thousands):

Table 10.3



09/30/2017
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition¹			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition²			Net Amount
Derivative liabilities:
Uncleared derivatives	$	41,885	$	(41,245	)	$	640	$	(189	)	$	451
Cleared derivatives	28,403		(28,403		)	—		—			—
Total derivative liabilities	70,288		(69,648		)	640		(189		)	451
TOTAL	$	70,288	$	(69,648	)	$	640	$	(189	)	$	451


¹	Represents netting adjustments and cash collateral.


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

Table 10.4



12/31/2016
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition¹			Net Amount
Derivative liabilities:
Uncleared derivatives	$	72,039	$	(64,868	)	$	7,171	$	(372	)	$	6,799
Cleared derivatives	34,628		(34,628		)	—		—			—
Total derivative liabilities	106,667		(99,496		)	7,171		(372		)	6,799
TOTAL	$	106,667	$	(99,496	)	$	7,171	$	(372	)	$	6,799


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

NOTE 11 – CAPITAL

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

•

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

•

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


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

Table 11.1 illustrates that the FHLBank was in compliance with its regulatory capital requirements as of September 30, 2017 and December 31, 2016 (dollar amounts in thousands):

Table 11.1



	09/30/2017						12/31/2016
	Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	356,019		$	2,113,507		$	333,044		$	1,800,372
Total regulatory capital-to-asset ratio	4.0		%	4.6		%	4.0		%	4.3		%
Total regulatory capital	$	1,974,448		$	2,288,581		$	1,808,670		$	1,964,541
Leverage capital ratio	5.0		%	6.8		%	5.0		%	6.3		%
Leverage capital	$	2,468,059		$	3,345,334		$	2,260,837		$	2,864,727

Mandatorily Redeemable Capital Stock: The FHLBank is a cooperative whose members and former members own all of the FHLBank’s capital stock. Member shares cannot be purchased or sold except between the FHLBank and its members at a price equal to the $100 per share par value. If a member cancels its written notice of redemption or notice of withdrawal, the FHLBank will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.

Table 11.2 presents a roll-forward of mandatorily redeemable capital stock for the three and nine months ended September 30, 2017 and 2016 (in thousands):

Table 11.2



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Balance, beginning of period	$	6,186		$	4,356		$	2,670		$	2,739
Capital stock subject to mandatory redemption reclassified from equity during the period	202,595			147,225			626,508			499,445
Redemption or repurchase of mandatorily redeemable capital stock during the period	(203,410		)	(148,578		)	(623,872		)	(499,218		)
Stock dividend classified as mandatorily redeemable capital stock during the period	68			22			133			59
Balance, end of period	$	5,439		$	3,025		$	5,439		$	3,025

Table 11.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption as of September 30, 2017 and December 31, 2016 (in thousands). The year of redemption in Table 11.3 is the end of the redemption period in accordance with the FHLBank’s capital plan. The FHLBank is not required to redeem or repurchase membership stock until six months (for Class A Common Stock) or five years (for Class B Common Stock) after the FHLBank receives notice for withdrawal. Additionally, the FHLBank is not required to redeem or repurchase activity-based stock until any activity-based stock becomes excess stock as a result of an activity no longer remaining outstanding. However, the FHLBank intends to repurchase the excess activity-based stock of non-members to the extent that it can do so and still meet its regulatory capital requirements.

Table 11.3



Contractual Year of Repurchase	09/30/2017		12/31/2016
Year 1	$	501	$	192
Year 2	—		1
Year 3	—		—
Year 4	245		—
Year 5	3,112		641
Past contractual redemption date due to remaining activity¹	1,581		1,836
TOTAL	$	5,439	$	2,670


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

Excess Capital Stock: Excess capital stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum stock purchase requirement. FHFA rules limit the ability of the FHLBank to create excess member stock under certain circumstances. For example, the FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if the FHLBank’s excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause the FHLBank’s excess stock to exceed one percent of its total assets. As of September 30, 2017, the FHLBank’s excess stock was less than one percent of total assets.

Capital Classification Determination: The FHFA implemented the prompt corrective action (PCA) provisions of the Housing and Economic Recovery Act of 2008. The rule established four capital classifications (i.e., adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) for FHLBanks and implemented the PCA provisions that apply to FHLBanks that are not deemed to be adequately capitalized. The FHFA determines each FHLBank’s capital classification on at least a quarterly basis. If an FHLBank is determined to be other than adequately capitalized, the FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide the FHLBank with written notice of the proposed action and an opportunity to submit a response. As of the most recent review by the FHFA for the second quarter of 2017, the FHLBank has been classified as adequately capitalized.

NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Table 12.1 summarizes the changes in AOCI for the three months ended September 30, 2017 and 2016 (in thousands):

Table 12.1



	Three Months Ended
	Net Unrealized Gain (Loss) on Available-for-Sale Securities			Net Non-credit Portion of OTTI Losses on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI
Balance at June 30, 2016	$	(6,275	)	$	(6,908	)	$	(2,355	)	$	(15,538	)
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss)	8,434									8,434
Accretion of non-credit loss				479						479
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				30						30
Amortization of net loss - defined benefit pension plan²							47			47
Net current period other comprehensive income (loss)	8,434			509			47			8,990
Balance at September 30, 2016	$	2,159		$	(6,399	)	$	(2,308	)	$	(6,548	)

Balance at June 30, 2017	$	21,212		$	(5,021	)	$	(2,812	)	$	13,379
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss)	1,452									1,452
Non-credit OTTI losses				(26		)				(26		)
Accretion of non-credit loss				321						321
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				282						282
Amortization of net loss - defined benefit pension plan²							58			58
Net current period other comprehensive income (loss)	1,452			577			58			2,087
Balance at September 30, 2017	$	22,664		$	(4,444	)	$	(2,754	)	$	15,466


¹	Recorded in “Net other-than-temporary impairment losses on held-to-maturity securities” on the Statements of Income. Amount represents a debit (decrease to other income (loss)).


²	Recorded in “Compensation and benefits” on the Statements of Income. Amount represents a debit (increase to other expenses).

Table 12.2 summarizes the changes in AOCI for the nine months ended September 30, 2017 and 2016 (in thousands):

Table 12.2



	Nine Months Ended
	Net Unrealized Gain (Loss) on Available-for-Sale Securities			Net Non-credit Portion of OTTI Losses on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI
Balance at December 31, 2015	$	(8,577	)	$	(7,950	)	$	(2,450	)	$	(18,977	)
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss)	10,736									10,736
Non-credit OTTI losses				(62		)				(62		)
Accretion of non-credit loss				1,554						1,554
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				59						59
Amortization of net loss - defined benefit pension plan²							142			142
Net current period other comprehensive income (loss)	10,736			1,551			142			12,429
Balance at September 30, 2016	$	2,159		$	(6,399	)	$	(2,308	)	$	(6,548	)


Balance at December 31, 2016	$	9,345		$	(5,841	)	$	(2,927	)	$	577
Other comprehensive income (loss) before reclassification:
Unrealized gain (loss)	13,319									13,319
Non-credit OTTI losses				(30		)				(30		)
Accretion of non-credit loss				1,027						1,027
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI¹				400						400
Amortization of net loss - defined benefit pension plan²							173			173
Net current period other comprehensive income (loss)	13,319			1,397			173			14,889
Balance at September 30, 2017	$	22,664		$	(4,444	)	$	(2,754	)	$	15,466


¹	Recorded in “Net other-than-temporary impairment losses on held-to-maturity securities” on the Statements of Income. Amount represents a debit (decrease to other income (loss)).


²	Recorded in “Compensation and benefits” on the Statements of Income. Amount represents a debit (increase to other expenses).

NOTE 13 – FAIR VALUES

The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by the FHLBank using available market and other pertinent information and reflect the FHLBank’s best judgment of appropriate valuation methods. Although the FHLBank uses its best judgment in estimating the fair value of its financial instruments, there are inherent limitations in any valuation technique. Therefore, the fair values may not be indicative of the amounts that would have been realized in market transactions as of September 30, 2017 and December 31, 2016.

Subjectivity of Estimates: Estimates of the fair value of advances with options, mortgage instruments, derivatives with embedded options and consolidated obligation bonds with options are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.

Fair Value Hierarchy: The FHLBank records trading securities, available-for-sale securities, derivative assets and derivative liabilities at fair value on a recurring basis and on occasion, certain private-label MBS, impaired mortgage loans held for portfolio and non-financial assets on a non-recurring basis. The fair value hierarchy requires the FHLBank to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of the market observability of the fair value measurement for the asset or liability. The FHLBank must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities.

The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:


•	Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the FHLBank can access on the measurement date.

•

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


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

The FHLBank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. There were no reclassifications of assets or liabilities recorded at fair value on a recurring basis during the three and nine months ended September 30, 2017 and 2016.

The carrying value and fair value of the FHLBank’s financial assets and liabilities as of September 30, 2017 and December 31, 2016 are summarized in Tables 13.1 and 13.2 (in thousands). These values do not represent an estimate of the overall market value of the FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

Table 13.1



	09/30/2017
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	7,803		$	7,803		$	7,803	$	—		$	—	$	—
Interest-bearing deposits	301,208			301,208			—		301,208			—		—
Securities purchased under agreements to resell	2,595,589			2,595,589			—		2,595,589			—		—
Federal funds sold	1,692,000			1,692,000			—		1,692,000			—		—
Trading securities	2,973,383			2,973,383			—		2,973,383			—		—
Available-for-sale securities	1,464,472			1,464,472			—		1,464,472			—		—
Held-to-maturity securities	4,740,532			4,740,231			—		4,564,544			175,687		—
Advances	28,319,226			28,350,430			—		28,350,430			—		—
Mortgage loans held for portfolio, net of allowance	7,055,239			7,211,720			—		7,210,291			1,429		—
Accrued interest receivable	79,854			79,854			—		79,854			—		—
Derivative assets	50,496			50,496			—		58,364			—		(7,868		)
Liabilities:
Deposits	550,627			550,627			—		550,627			—		—
Consolidated obligation discount notes	21,280,938			21,281,281			—		21,281,281			—		—
Consolidated obligation bonds	25,070,225			24,987,504			—		24,987,504			—		—
Mandatorily redeemable capital stock	5,439			5,439			5,439		—			—		—
Accrued interest payable	61,616			61,616			—		61,616			—		—
Derivative liabilities	640			640			—		70,288			—		(69,648		)
Other Asset (Liability):
Industrial revenue bonds	16,500			15,540			—		15,540			—		—
Financing lease payable	(16,500		)	(15,540		)	—		(15,540		)	—		—
Standby letters of credit	(1,106		)	(1,106		)	—		(1,106		)	—		—
Standby bond purchase agreements	44			3,648			—		3,648			—		—
Advance commitments	—			(6,949		)	—		(6,949		)	—		—

Represents the effect of legally enforceable master netting agreements that allow the FHLBank to net settle positive and negative positions and also derivative cash collateral, related accrued interest held or placed with the same clearing agent or derivative counterparty, and variation margin for daily settled contracts. Variation margin for daily settled contracts of $(444,000) is included with derivative assets.

Table 13.2



	12/31/2016
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral¹
Assets:
Cash and due from banks	$	207,254		$	207,254		$	207,254	$	—		$	—	$	—
Interest-bearing deposits	387,920			387,920			—		387,920			—		—
Securities purchased under agreements to resell	2,400,000			2,400,000			—		2,400,000			—		—
Federal funds sold	2,725,000			2,725,000			—		2,725,000			—		—
Trading securities	2,502,788			2,502,788			—		2,502,788			—		—
Available-for-sale securities	1,091,721			1,091,721			—		1,091,721			—		—
Held-to-maturity securities	4,502,224			4,487,252			—		4,276,650			210,602		—
Advances	23,985,835			24,016,686			—		24,016,686			—		—
Mortgage loans held for portfolio, net of allowance	6,640,725			6,754,046			—		6,752,849			1,197		—
Overnight loans to other FHLBanks	600,000			600,000			—		600,000			—		—
Accrued interest receivable	68,400			68,400			—		68,400			—		—
Derivative assets	60,900			60,900			—		76,405			—		(15,505		)
Liabilities:
Deposits	598,931			598,931			—		598,931			—		—
Consolidated obligation discount notes	21,775,341			21,774,950			—		21,774,950			—		—
Consolidated obligation bonds	20,722,335			20,568,653			—		20,568,653			—		—
Mandatorily redeemable capital stock	2,670			2,670			2,670		—			—		—
Accrued interest payable	49,808			49,808			—		49,808			—		—
Derivative liabilities	7,171			7,171			—		106,667			—		(99,496		)
Other Asset (Liability):
Standby letters of credit	(1,151		)	(1,151		)	—		(1,151		)	—		—
Standby bond purchase agreements	6			6,016			—		6,016			—		—
Advance commitments	—			(6,241		)	—		(6,241		)	—		—


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

Fair Value Methodologies and Techniques and Significant Inputs:

Changes in the FHLBank's fair value methodologies and techniques and significant inputs for the period ended September 30, 2017 include the following:

Industrial Revenue Bonds and Financing Lease Payable: The fair values for the industrial revenue bonds and the financing lease payable are estimated using the present value of future payments discounted using the Consolidated Obligation curve (CO curve) published by the Office of Finance. The CO curve is an internal curve constructed by the Office of Finance using the U.S. Treasury curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE trades and secondary market activity. See Note 14 for additional information on the industrial revenue bonds and related financing lease.

Fair Value Measurements: Tables 13.3 and 13.4 present, for each hierarchy level, the FHLBank’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition as of or for the periods ended September 30, 2017 and December 31, 2016 (in thousands). The FHLBank measures certain held-to-maturity securities at fair value on a nonrecurring basis due to the recognition of a credit loss. For held-to-maturity securities that had credit impairment recorded during a period for which no total impairment was recorded (the full amount of additional credit impairment was a reclassification from non-credit impairment previously recorded in AOCI), these securities were recorded at their carrying values and not fair value. The FHLBank measures certain impaired mortgage loans held for portfolio at fair value on a nonrecurring basis when, upon individual evaluation for impairment, the estimated fair value less costs to sell is lower than the recorded investment. REO is measured at fair value when the asset’s fair value less costs to sell is lower than its carrying amount.

Table 13.3



	09/30/2017
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
Certificates of deposit	$	675,027	$	—	$	675,027	$	—	$	—
GSE obligations²	1,357,859		—		1,357,859		—		—
U.S. obligation MBS³	604		—		604		—		—
GSE MBS⁴	939,893		—		939,893		—		—
Total trading securities	2,973,383		—		2,973,383		—		—
Available-for-sale securities:
GSE MBS⁵	1,464,472		—		1,464,472		—		—
Total available-for-sale securities	1,464,472		—		1,464,472		—		—
Derivative assets:
Interest-rate related	50,458		—		58,326		—		(7,868		)
Mortgage delivery commitments	38		—		38		—		—
Total derivative assets	50,496		—		58,364		—		(7,868		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	4,488,351	$	—	$	4,496,219	$	—	$	(7,868	)

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	451	$	—	$	70,099	$	—	$	(69,648	)
Mortgage delivery commitments	189		—		189		—		—
Total derivative liabilities	640		—		70,288		—		(69,648		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	640	$	—	$	70,288	$	—	$	(69,648	)

Nonrecurring fair value measurements - Assets⁶:
Held-to-maturity securities:
Private-label residential MBS	$	4,327	$	—	$	—	$	4,327	$	—
Impaired mortgage loans	1,431		—		—		1,431		—
Real estate owned	1,127		—		—		1,127		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	6,885	$	—	$	—	$	6,885	$	—


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


²	Represents debentures issued by other FHLBanks, Fannie Mae, Freddie Mac, Farm Credit and Farmer Mac. GSE securities are not guaranteed by the U.S. government.


³	Represents single-family MBS issued by Ginnie Mae, which are guaranteed by the U.S. government.


⁴	Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.


⁵	Represents multi-family MBS issued by Fannie Mae.


⁶	Includes assets adjusted to fair value during the nine months ended September 30, 2017 and still outstanding as of September 30, 2017.

Table 13.4



	12/31/2016
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral¹
Recurring fair value measurements - Assets:
Trading securities:
GSE obligations²	$	1,563,351	$	—	$	1,563,351	$	—	$	—
U.S. obligation MBS³	690		—		690		—		—
GSE MBS⁴	938,747		—		938,747		—		—
Total trading securities	2,502,788		—		2,502,788		—		—
Available-for-sale securities:
GSE MBS⁵	1,091,721		—		1,091,721		—		—
Total available-for-sale securities	1,091,721		—		1,091,721		—		—
Derivative assets:
Interest-rate related	60,686		—		76,191		—		(15,505		)
Mortgage delivery commitments	214		—		214		—		—
Total derivative assets	60,900		—		76,405		—		(15,505		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	3,655,409	$	—	$	3,670,914	$	—	$	(15,505	)

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	6,799	$	—	$	106,295	$	—	$	(99,496	)
Mortgage delivery commitments	372		—		372		—		—
Total derivative liabilities	7,171		—		106,667		—		(99,496		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	7,171	$	—	$	106,667	$	—	$	(99,496	)

Nonrecurring fair value measurements - Assets⁶:
Held-to-maturity securities:
Private-label residential MBS	$	4,781	$	—	$	—	$	4,781	$	—
Impaired mortgage loans	1,205						$	1,205
Real estate owned	1,086		—		—		1,086		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	7,072	$	—	$	—	$	7,072	$	—


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


²	Represents debentures issued by other FHLBanks, Fannie Mae, Freddie Mac and Farm Credit.


³	Represents single-family MBS issued by Ginnie Mae.


⁴	Represents single-family and multi-family MBS issued by Fannie Mae and Freddie Mac.


⁵	Represents multi-family MBS issued by Fannie Mae.


⁶	Includes assets adjusted to fair value during the year ended December 31, 2016 and still outstanding as of December 31, 2016.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Joint and Several Liability: As provided in the Federal Home Loan Bank Act of 1932, as amended (Bank Act) or in FHFA regulations, consolidated obligations are backed only by the financial resources of the FHLBanks. FHLBank Topeka is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks. The par amounts for which FHLBank Topeka is jointly and severally liable were approximately $982,350,905,000 and $946,829,735,000 as of September 30, 2017 and December 31, 2016, respectively.

Off-balance Sheet Commitments: As of September 30, 2017 and December 31, 2016, off-balance sheet commitments are presented in Table 14.1 (in thousands):

Table 14.1



	09/30/2017						12/31/2016
Notional Amount	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	$	2,845,040	$	14,348	$	2,859,388	$	2,995,497	$	12,823	$	3,008,320
Advance commitments outstanding	73,875		69,475		143,350		37,950		45,025		82,975
Commitments for standby bond purchases	713,023		419,849		1,132,872		210,349		1,002,669		1,213,018
Commitments to fund or purchase mortgage loans	121,377		—		121,377		90,013		—		90,013
Commitments to issue consolidated bonds, at par	28,000		—		28,000		45,000		—		45,000

Commitments to Extend Credit: Standby letters of credit are executed for members for a fee. A standby letter of credit is a short-term financing arrangement between the FHLBank and its member or non-member housing associate. If the FHLBank is required to make payment for a beneficiary’s draw, these amounts are converted into a collateralized advance to the member. As of September 30, 2017, outstanding standby letters of credit had terms to maturity upon issuance of the currently outstanding standby letters of credit of 4 days to 10 years with a final expiration in 2020. As of December 31, 2016, outstanding standby letters of credit had terms to maturity upon issuance of the currently outstanding standby letters of credit of 7 days to 10 years with a final expiration in 2020. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to $1,106,000 and $1,151,000 as of September 30, 2017 and December 31, 2016, respectively. Standby letters of credit are fully collateralized with assets allowed by the FHLBank’s Member Products Policy (MPP). Advance commitments legally bind and unconditionally obligate the FHLBank for additional advances up to 24 months in the future. Based upon management’s credit analysis of members and collateral requirements under the MPP, the FHLBank does not expect to incur any credit losses on the outstanding letters of credit or advance commitments.

Standby Bond-Purchase Agreements: The FHLBank has entered into standby bond purchase agreements with state housing authorities whereby the FHLBank, for a fee, agrees to purchase and hold the authorities’ bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the FHLBank to purchase the bond. The bond purchase commitments entered into by the FHLBank expire no later than 2020, though some are renewable at the option of the FHLBank. As of September 30, 2017 and December 31, 2016, the total commitments for bond purchases were with two in-district and one out-of-district state housing authorities. The FHLBank was not required to purchase any bonds under any agreements during the three and nine months ended September 30, 2017 and 2016.

Commitments to Purchase Mortgage Loans: These commitments that unconditionally obligate the FHLBank to purchase mortgage loans from participating FHLBank Topeka members in the MPF Program are generally for periods not to exceed 60 calendar days. Certain commitments are recorded as derivatives at their fair values on the Statements of Condition. The FHLBank recorded mortgage delivery commitment net derivative asset (liability) balances of $(151,000) and $(158,000) as of September 30, 2017 and December 31, 2016, respectively.

Commitments to Issue Consolidated Obligations: The FHLBank enters into commitments to issue consolidated obligation bonds and discount notes outstanding in the normal course of its business. All settle within the shortest period possible and are considered regular way trades; thus, the commitments are appropriately not recorded as derivatives.

Other Commitments: On June 28, 2017, the FHLBank completed an industrial revenue bond financing transaction with Shawnee County, Kansas (County) that will provide property tax savings for 10 years on the FHLBank's new headquarters. In the transaction, the County acquired an interest in the land, improvements, building and equipment (collectively, the Project) by issuing up to $36,000,000 of industrial revenue bonds due December 31, 2027 (IRBs) and leased the Project to the FHLBank for an identical 127-month term under a financing lease. The IRBs are collateralized by the Project and the lease revenues for the related leasing transaction with the County. The IRBs were purchased by the FHLBank. The County assigned the lease to the bond trustee for the FHLBank's benefit as the sole holder of the IRBs. The FHLBank can prepay the IRBs at any time, but would forfeit its property tax benefit in the event the IRBs were to be prepaid. As a result, the land and building will remain a component of the property, plant and equipment in the FHLBank's statement of financial condition. The IRBs and the equivalent liability are included in the FHLBank's statement of financial condition in Other Assets and Other Liabilities, respectively. The FHLBank, as holder of the IRBs, is due interest at 2.0 percent per annum with interest payable annually in arrears on December 1, beginning December 1, 2017. This interest income is directly offset by the financing interest expense payments on the land and building, which are due at the same time and in the same amount as the interest income. The bond trustee for the transaction is BOKF, N.A., a related party disclosed in Note 15. As bond trustee, BOKF, N.A. received trustee fees of $11,000. As of September 30, 2017, $16,500,000 of the IRBs were issued and outstanding.

NOTE 15 – TRANSACTIONS WITH STOCKHOLDERS

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

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

Activity with Members that Exceed a 10 Percent Ownership in FHLBank Capital Stock: Tables 15.1 and 15.2 present information as of September 30, 2017 and December 31, 2016 on members that owned more than 10 percent of outstanding FHLBank regulatory capital stock in 2017 or 2016 (dollar amounts in thousands). None of the officers or directors of these members currently serve on the FHLBank’s board of directors.

Table 15.1



09/30/2017
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
BOKF, N.A.	OK	$	13,950	8.0	%	$	296,672	22.9	%	$	310,622	21.1	%
MidFirst Bank	OK	500		0.3		241,067		18.6		241,567		16.4
TOTAL		$	14,450	8.3	%	$	537,739	41.5	%	$	552,189	37.5	%

Table 15.2



12/31/2016
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
BOKF, N.A.	OK	$	500	0.3	%	$	219,755	20.6	%	$	220,255	17.9	%
MidFirst Bank	OK	500		0.3		197,669		18.6		198,169		16.1
TOTAL		$	1,000	0.6	%	$	417,424	39.2	%	$	418,424	34.0	%

Advance and deposit balances with members that owned more than 10 percent of outstanding FHLBank regulatory capital stock as of September 30, 2017 and December 31, 2016 are summarized in Table 15.3 (dollar amounts in thousands).

Table 15.3



	09/30/2017				12/31/2016				09/30/2017				12/31/2016
Member Name	Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total
BOKF, N.A.	$	6,200,000	21.9	%	$	4,800,000	20.0	%	$	8,548	1.6	%	$	54,145	9.1	%
MidFirst Bank	5,265,000		18.6		4,340,000		18.1		254		—		424		0.1
TOTAL	$	11,465,000	40.5	%	$	9,140,000	38.1	%	$	8,802	1.6	%	$	54,569	9.2	%

BOKF, N.A. and MidFirst Bank did not sell any mortgage loans into the MPF Program during the three and nine months ended September 30, 2017 and 2016.

Transactions with FHLBank Directors’ Financial Institutions: Table 15.4 presents information as of September 30, 2017 and December 31, 2016 for members that had an officer or director serving on the FHLBank’s board of directors (dollar amounts in thousands). Information is only included for the period in which the officer or director served on the FHLBank’s board of directors. Capital stock listed is regulatory capital stock, which includes mandatorily redeemable capital stock.

Table 15.4



	09/30/2017				12/31/2016
	Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total
Advances	$	163,943	0.6	%	$	172,793	0.7	%

Deposits	$	9,478	1.7	%	$	12,329	2.1	%

Class A Common Stock	$	4,123	2.4	%	$	3,782	2.3	%
Class B Common Stock	5,102		0.4		5,585		0.5
TOTAL CAPITAL STOCK	$	9,225	0.6	%	$	9,367	0.8	%

Table 15.5 presents mortgage loans acquired during the three and nine months ended September 30, 2017 and 2016 for members that had an officer or director serving on the FHLBank’s board of directors in 2017 or 2016 (dollar amounts in thousands). Information is only included for the period in which the officer or director served on the FHLBank’s board of directors.

Table 15.5



	Three Months Ended								Nine Months Ended
	09/30/2017				09/30/2016				09/30/2017				09/30/2016
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
Mortgage loans acquired	$	30,912	6.6	%	$	23,168	5.8	%	$	85,904	7.6	%	$	56,871	6.0	%

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding our business and assessing our operations both historically and prospectively. This discussion should be read in conjunction with our interim financial statements and related notes presented under Part I Item 1 of this quarterly report on Form 10-Q and the annual report on Form 10-K for the year ended December 31, 2016, which includes audited financial statements and related notes for the year ended December 31, 2016. Our MD&A includes the following sections:


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


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


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


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


•	Financial Condition – an analysis of our financial position;


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


•	Risk Management – a discussion of our risk management strategies;


•	Impact of Recently Issued Accounting Standards; and


•	Legislative and Regulatory Developments.

Executive Level Overview

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

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

We serve eligible financial institutions in Colorado, Kansas, Nebraska, and Oklahoma (collectively, the Tenth District of the FHLBank System), who are also the member-owners of the FHLBank. Initially, a member is required to purchase shares of Class A Common Stock based on the member’s total assets subject to a per member cap of $500 thousand. Each member may be required to purchase activity-based capital stock (Class B Common Stock) as it engages in certain business activities with the FHLBank, including advances, standby letters of credit, and Acquired Member Assets (AMA), at levels determined by management with the Board of Director’s approval and within the ranges stipulated in the Capital Stock Plan. Currently, our capital increases when members are required to purchase additional capital stock in the form of Class B Common Stock to support an increase in their advance borrowings. In the past, capital stock also increased when members sold additional mortgage loans to us; however, members are no longer required to purchase capital stock for AMA activity, as the mortgage loans are supported by the retained earnings of the FHLBank (former members previously required to purchase AMA activity-based stock are subject to the prior requirement as long as there are UPBs outstanding). At our discretion, we may repurchase excess stock if there is a decline in a member’s advances. We believe it is important to manage our business and the associated risks so that we strive to provide franchise value by maintaining a core mission asset focus and meeting the following objectives: (1) achieve our liquidity, housing finance and community development missions by meeting member credit needs by offering advances, supporting residential mortgage lending through the MPF Program and through other products; (2) periodically repurchase excess capital stock in order to appropriately manage the size of our balance sheet; and (3) pay acceptable dividends.

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

Table 1



	09/30/2017			06/30/2017			03/31/2017			12/31/2016			09/30/2016
Statement of Condition (as of period end):
Total assets	$	49,361,189		$	49,741,538		$	47,091,131		$	45,216,749		$	46,846,615
Investments¹	13,767,184			15,755,784			14,286,143			13,609,653			13,392,337
Advances	28,319,226			26,443,416			25,822,945			23,985,835			26,723,461
Mortgage loans, net²	7,055,239			6,839,892			6,700,948			6,640,725			6,554,516
Total liabilities	47,062,581			47,504,133			44,961,702			43,254,301			44,788,060
Deposits	550,627			496,015			579,805			598,931			682,059
Consolidated obligation bonds, net³	25,070,225			22,882,026			21,670,348			20,722,335			18,383,598
Consolidated obligation discount notes, net³	21,280,938			23,955,782			22,505,730			21,775,341			25,518,065
Total consolidated obligations, net³	46,351,163			46,837,808			44,176,078			42,497,676			43,901,663
Mandatorily redeemable capital stock	5,439			6,186			2,264			2,670			3,025
Total capital	2,298,608			2,237,405			2,129,429			1,962,448			2,058,555
Capital stock	1,467,001			1,433,620			1,352,345			1,226,675			1,351,874
Total retained earnings	816,141			790,406			767,556			735,196			713,229
AOCI	15,466			13,379			9,528			577			(6,548		)
Statement of Income (for the quarterly period ended):
Net interest income	68,927			65,277			66,672			64,992			63,140
(Reversal) provision for credit losses on mortgage loans	(171		)	20			(45		)	31			329
Other income (loss)	5,461			1,148			7,885			(2,135		)	8,708
Other expenses	19,535			15,713			14,916			16,853			17,935
Income before assessments	55,024			50,692			59,686			45,973			53,584
Affordable Housing Program (AHP) assessments	5,510			5,074			5,970			4,599			5,361
Net income	49,514			45,618			53,716			41,374			48,223
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid in cash⁴	66			69			64			73			73
Dividends paid in stock⁴	23,713			22,699			21,292			19,334			19,950
Weighted average dividend rate⁵	5.81		%	5.74		%	5.73		%	5.28		%	5.28		%
Dividend payout ratio⁶	48.03		%	49.91		%	39.76		%	46.91		%	41.52		%
Return on average equity	8.00		%	7.64		%	9.58		%	7.50		%	8.69		%
Return on average assets	0.36		%	0.35		%	0.43		%	0.34		%	0.39		%
Average equity to average assets	4.52		%	4.54		%	4.49		%	4.55		%	4.46		%
Net interest margin⁷	0.51		%	0.50		%	0.54		%	0.54		%	0.51		%
Total capital ratio⁸	4.66		%	4.50		%	4.52		%	4.34		%	4.39		%
Regulatory capital ratio⁹	4.64		%	4.48		%	4.51		%	4.34		%	4.41		%
Ratio of earnings to fixed charges¹⁰	1.35			1.38			1.58			1.56			1.65


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


²	The allowance for credit losses on mortgage loans was $1,408,000, $1,525,000, $1,617,000, $1,674,000 and $1,660,000 as of September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.


³	Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 14 to the financial statements for a description of the total consolidated obligations of all FHLBanks for which we are jointly and severally liable.


⁴	Dividends reclassified as interest expense on mandatorily redeemable capital stock and not included as dividends recorded in accordance with GAAP were $69,000, $52,000, $14,000, $16,000 and $22,000 for the quarters ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.


⁵	Dividends paid in cash and stock on both classes of stock as a percentage of average capital stock eligible for dividends.


⁶	Ratio disclosed represents dividends declared and paid during the period as a percentage of net income for the period presented, although the FHFA regulation requires dividends be paid out of known income prior to declaration date.


⁷	Net interest income as a percentage of average earning assets.


⁸	GAAP capital stock, which excludes mandatorily redeemable capital stock, plus retained earnings and AOCI as a percentage of total assets.


⁹	Regulatory capital (i.e., Class A and Class B Common Stock and retained earnings) as a percentage of total assets.


¹⁰	Total earnings divided by fixed charges (interest expense including amortization/accretion of premiums, discounts and capitalized expenses related to indebtedness).

Net income increased $1.3 million, or 2.7 percent, to $49.5 million for the three months ended September 30, 2017 compared to $48.2 million for the same period in the prior year. Net income increased $28.4 million, or 23.6 percent, to $148.8 million for the nine months ended September 30, 2017 compared to $120.4 million for the same period in the prior year. The increase in net income for the quarter was driven by an increase in net interest income of $5.8 million, or 9.2 percent, partially offset by fair value fluctuations on derivatives and hedging activities and trading securities. For the nine-month period, the increase was largely a result of fair value fluctuations on derivatives and hedging activities and trading securities compared to the prior year period, combined with the increase in net interest income of $8.7 million, or 4.5 percent. The increases in net interest income when compared to the same periods in 2016 were the result of continued growth in advances, replacement of matured and called consolidated obligations at lower costs during the last half of 2016, which partially offset increases in the cost of debt resulting from the increase in market interest rates, and an increase in consolidated obligations that were allocated to money market investments. Detailed discussion relating to the fluctuations in net interest income can be found under this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.”

Total assets increased $4.1 billion, or 9.2 percent, from December 31, 2016 to September 30, 2017. This increase was due to a $4.3 billion, or 18.1 percent, increase in advances, mostly in our line of credit and adjustable rate callable advances. The growth in advances since 2014 has been largely attributed to our active promotion of the all-in cost of advances considering the impact of our dividend since that time and the increase in dividend rates on our Class B Common Stock (from 5.0 percent to 6.0 percent in 2014, and from 6.0 percent to 6.5 percent in 2017), which effectively reduces the cost of our advances to our members and increases our members' ability to profitably deploy the funding. During the third quarter of 2017, we also increased the dividend rate on our Class A Common Stock from 1.0 percent to 1.25 percent. Changes in interest rates could reduce the benefit of the dividend as it relates to advances to our members, which could cause a significant decline in advances. Our mortgage loan portfolio reached $7.1 billion during the quarter ended September 30, 2017, with recent growth attributed to recruitment of high-production PFIs and program enhancements that provide PFIs with additional funding opportunities.

Total liabilities increased $3.8 billion, or 8.8 percent, from December 31, 2016 to September 30, 2017. This increase was due to a $4.3 billion increase in consolidated obligation bonds, partially offset by a $0.5 billion decrease in consolidated obligation discount notes. Our funding mix generally is driven by asset composition, but we may also shift our debt composition as a result of market conditions that impact the cost of consolidated obligations swapped or indexed to LIBOR. Short-term advances, including line of credit advances, represent the majority of the assets funded by term discount notes. We also use term discount notes to fund overnight investments to maintain liquidity sufficient to meet the advance needs of members. During the third quarter of 2017, we increased our allocation of floating rate consolidated obligation bonds to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and debt ceiling deadline. For additional information, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

Return on average equity (ROE) was 8.00 percent and 8.69 percent for the three months ended September 30, 2017 and 2016, respectively and 8.37 percent and 7.43 percent for the nine months ended September 30, 2017 and 2016, respectively. The decrease in ROE for the three months ended September 30, 2017 was the result of an increase in average capital related to the increase in advances without a compensating increase in net income. The increase in net income for the nine months ended September 30, 2017 resulted in an increase in ROE compared to the prior year period, despite a similar increase in average capital.

Dividends paid to members totaled $67.9 million for the nine months ended September 30, 2017 compared to $59.0 million for the same period in the prior year. As mentioned previously, we increased the dividend rate for Class A Common Stock to 1.25 percent during the third quarter of 2017 and increased the dividend rate for Class B Common Stock to 6.50 percent during the first quarter of 2017. Differences in the weighted average dividend rates between the last five quarters are due to the difference in the mix of outstanding Class A Common Stock and Class B Common Stock between those periods and the increases in the dividend rates. Other factors impacting the outstanding stock class mix and, therefore, the average dividend rates, include weekly exchanges of excess Class B Common Stock to Class A Common Stock and periodic repurchases of excess Class A Common Stock (see “Liquidity and Capital Resources - Capital” under this Item 2).

FHFA guidance requires that our strategic business plan describes how our business activities will achieve our mission consistent with the FHFA’s core mission asset guidance. We intend to manage our balance sheet with an emphasis towards maintaining a core mission assets ratio above 70 percent during 2017. Our ratio of average advances and average mortgage loans to average consolidated obligations based on par balances (core mission assets ratio) was 77 percent for the nine months ended September 30, 2017. However, because this ratio is dependent on several variables such as member demand for our advance and mortgage loan products, it is possible that we will be unable to maintain the core mission assets ratio at this level indefinitely.

Financial Market Trends

The primary external factors that affect net interest income are market interest rates and the general state of the economy.

General discussion of the level of market interest rates:

Table 2 presents selected market interest rates as of the dates or for the periods shown.

Table 2



	09/30/2017		09/30/2016		09/30/2017		09/30/2016
Market Instrument	Three-month		Three-month		Nine-month		Nine-month		09/30/2017	12/31/2016		09/30/2016
Market Instrument	Average		Average		Average		Average		Ending Rate	Ending Rate		Ending Rate
Federal funds effective rate¹	1.16	%	0.40	%	0.94	%	0.38	%	1.06%	0.55	%	0.29	%
Federal Reserve interest rate on excess reserves¹	1.25		0.50		1.03		0.50		1.25	0.75		0.50
3-month U.S. Treasury bill¹	1.05		0.29		0.85		0.27		1.05	0.50		0.27
3-month LIBOR¹	1.31		0.79		1.20		0.69		1.33	1.00		0.85
2-year U.S. Treasury note¹	1.36		0.73		1.30		0.78		1.47	1.20		0.76
5-year U.S. Treasury note¹	1.81		1.12		1.85		1.24		1.91	1.94		1.15
10-year U.S. Treasury note¹	2.24		1.56		2.31		1.74		2.32	2.45		1.60
30-year residential mortgage note rate²	4.13		3.66		4.23		3.81		4.12	4.39		3.66


¹	Source is Bloomberg.


²	Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate obtained from Bloomberg.

During the first nine months of 2017, the cost of FHLBank consolidated obligations as measured by the spread to comparative U.S. Treasury rates remained relatively stable; however, funding spreads relative to LIBOR have been deteriorating on the short end of the curve since the beginning of 2017, while spreads on longer tenors have improved. The Federal Open Market Committee (FOMC) raised the target rate for overnight Federal funds in June 2017 for the second time this year, amid positive economic indicators. Market participants are assigning a high probability of an additional increase in 2017 amidst a backdrop of positive economic indicators and Congressional approval of a short-term extension of the debt ceiling. During the September 2017 meeting, the FOMC announced their plan to gradually reduce the reinvestment of principal payments from its holdings of GSE debt, GSE MBS, and U.S. Treasury securities, which began in October 2017. This reduction in reinvestment is expected to cause a rise in the U.S. Treasury yield curve and a widening in the option-adjusted spread on MBS, although we anticipate the impact to be gradual concurrent with the planned gradual pace of the reduction. We issue debt at a spread above U.S. Treasury securities; as a result, higher interest rates increase the cost of issuing FHLBank consolidated obligations and increase the cost of advances to our members and housing associates. For further discussion, see this Item 2 – “Financial Condition – Consolidated Obligations.”

Other factors impacting FHLBank consolidated obligations:

Investors continue to view FHLBank consolidated obligations as carrying a relatively strong credit profile. Historically, our strong credit profile has resulted in steady investor demand for FHLBank discount notes and short-term bonds. Recent regulatory changes to money market funds has intensified demand for our debt. Several market events continue to have the potential to impact the demand for our consolidated obligations including geopolitical events and/or disruptions; potential policy changes under the current administration and a pending Congressional budget agreement, including the approaching debt ceiling deadline; potential regulatory changes in liquidity requirements; changes in interest rates and the shape of the yield curve as the FOMC contemplates additional increases in short-term interest rates and has announced the plan to reduce principal reinvestments; the replacement of LIBOR with another index; and a decline in dealer demand due to regulatory changes related to capital.

Critical Accounting Policies and Estimates

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


•	Accounting related to derivatives and hedging activities;


•	Fair value determinations;


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


•	Determining the adequacy of the allowance for credit losses.

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

The accounting policies that management believes are the most critical to an understanding of our financial results and condition and require complex management judgment are described under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our annual report on Form 10-K, incorporated by reference herein. There were no material changes to our critical accounting policies and estimates during the quarter ended September 30, 2017.

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
	09/30/2017 vs. 09/30/2016					09/30/2017 vs. 09/30/2016
	Dollar Change			Percentage Change		Dollar Change			Percentage Change
Total interest income	$	82,531		56.7	%	$	161,627		37.3	%
Total interest expense	76,744			93.2		152,943			63.4
Net interest income	5,787			9.2		8,684			4.5
(Reversal) provision for credit losses on mortgage loans	(500		)	(152.0	)	(56		)	(40.0	)
Net interest income after mortgage loan loss provision	6,287			10.0		8,740			4.5
Net gain (loss) on trading securities	7,145			186.7		(47,504		)	(74.3	)
Net gain (loss) on derivatives and hedging activities	(9,879		)	(103.4	)	74,544			88.5
Other non-interest income	(513		)	(17.2	)	(851		)	(9.9	)
Total other income (loss)	(3,247		)	(37.3	)	26,189			223.9
Operating expenses	1,095			7.0		2,234			5.6
Other non-interest expenses	505			21.1		1,077			14.9
Total other expenses	1,600			8.9		3,311			7.1
AHP assessments	149			2.8		3,169			23.7
NET INCOME	$	1,291		2.7	%	$	28,449		23.6	%

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

Table 4



	Three Months Ended								Nine Months Ended
	09/30/2017				09/30/2016				09/30/2017				09/30/2016
	Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total		Interest Income		Percent of Total
Investments¹	$	59,282	26.0	%	$	35,909	24.7	%	$	153,884	25.9	%	$	109,364	25.3	%
Advances	113,834		49.9		59,098		40.6		283,137		47.6		169,628		39.1
Mortgage loans held for portfolio	54,548		23.9		50,164		34.5		157,074		26.4		153,457		35.4
Other	344		0.2		306		0.2		928		0.1		947		0.2
TOTAL INTEREST INCOME	$	228,008	100.0	%	$	145,477	100.0	%	$	595,023	100.0	%	$	433,396	100.0	%


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

Net income for the three months ended September 30, 2017 was $49.5 million compared to $48.2 million for the three months ended September 30, 2016. Net income for the nine months ended September 30, 2017 was $148.8 million compared to $120.4 million for the nine months ended September 30, 2016. The increase in net income for the quarter was driven by an increase in net interest income of $5.8 million, or 9.2 percent, partially offset by fair value fluctuations on derivatives and hedging activities and trading securities. For the nine-month period, the increase was largely a result of fair value fluctuations on derivatives and hedging activities and trading securities compared to the prior year period, combined with the increase in net interest income of $8.7 million, or 4.5 percent.

Net Interest Income: Net interest income, which includes interest earned on advances, mortgage loans, and investments less interest paid on consolidated obligations, deposits and other borrowings, is the primary source of our earnings. Net interest income increased $5.8 million and $8.7 million for the three and nine months ended September 30, 2017 and 2016, respectively, due to growth in advances, primarily in our line of credit advances and adjustable rate callable advances; replacement of matured and called consolidated obligations at a lower cost during the last half of 2016, which partially offset the increase in the cost of debt resulting from the increase in market interest rates; and an increase in consolidated obligations that were allocated to money market investments (see Table 5). Despite the increase in net interest income, net interest spread and net interest margin both decreased slightly or remained the same for the three- and nine-month periods primarily due to increases in the average rate on borrowings between both the three- and nine-month periods, which was largely offset by increases in the average yield on interest-earning assets between periods, all of which are discussed in greater detail below.

For the three months ended September 30, 2017, the average yield on investments, which consist of interest-bearing deposits, Federal funds sold, securities purchased under agreement to resell (reverse repurchase agreements), and investment securities, increased 49 basis points to 1.60 percent, from 1.11 percent for the three months ended September 30, 2016. The increase was a result of a $1.1 billion increase in the average balance and a 71 basis point increase in yield on short-term investments and a $0.8 billion increase in the average balance and a 39 basis point increase in yield on long-term investments. For the nine months ended September 30, 2017, the average yield increased 26 basis points to 1.44 percent, from 1.18 percent for the nine months ended September 30, 2016 as a result of an increase in the average yield on short-term investments of 52 basis points and an increase of $1.0 billion in the average balance of the portfolio and a $0.9 billion increase in the average balance and a 15 basis point increase in yield on long-term investments. For both periods, the increase in short-term investments was driven by attractive yields and spreads on reverse repurchase agreements and Federal funds sold.

For the three months ended September 30, 2017, the average yield on advances increased 61 basis points to 1.39 percent, from 0.78 percent for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the average yield on advances increased 45 basis points to 1.21 percent, from 0.76 percent for the nine months ended September 30, 2016. The increase in the average yield on advances for both periods was due to the increase in short-term interest rates in conjunction with FOMC policy changes. The average balance of advances increased $2.4 billion and $1.6 billion for the three and nine months ended September 30, 2017, respectively, which contributed to the increase in net interest income along with the increase in yields.

For the three months ended September 30, 2017, the average yield on mortgage loans increased 6 basis points to 3.12 percent, from 3.06 percent for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the average yield on mortgage loans decreased 9 basis points to 3.09 percent, from 3.18 percent for the nine months ended September 30, 2016. The increase for the three-month period was a result of a decrease in premium amortization from slowing prepayments. The decrease for the nine-month period is a result of increased premium amortization in the first half of 2017. Mortgage rates increased at the end of 2016 and are expected to increase slightly for the remainder of 2017, and as a result premium amortization is likely to remain near or slightly lower than current levels, as prepayments tend to slow during periods of relatively stable or rising rates.

For the three months ended September 30, 2017, the average cost of consolidated obligation bonds increased 13 basis points to 1.43 percent, from 1.30 percent for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the average cost of consolidated obligation bonds increased 6 basis points to 1.36 percent, from 1.30 percent for the nine months ended September 30, 2016. During 2016, we were able to replace some maturing consolidated obligation bonds and called unswapped consolidated obligation bonds at a lower cost, which partially offset the increase in the cost of debt resulting from the increase in market interest rates. The average cost of discount notes increased 69 basis points, from 0.35 percent for the three months ended September 30, 2016 to 1.04 percent for the three months ended September 30, 2017, and the average cost of discount notes increased 47 basis points, from 0.34 percent for the nine months ended September 30, 2016 to 0.81 percent for the nine months ended September 30, 2017 as a result of the increase in short-term interest rates between periods. During the last half of 2016, the spread to LIBOR improved so we increased our allocation of floating rate consolidated obligation bonds and decreased our allocation of discount notes in an effort to more closely align our LIBOR-indexed assets with our LIBOR-indexed liabilities. The average balance of bonds increased by $7.2 billion, or 41.3 percent, and $5.0 billion, or 28.6 percent, for the three and nine months ended September 30, 2017, respectively, and the average balance of discount notes decreased by $2.2 billion, or 7.7 percent, and $1.0 billion, or 3.5 percent, for the three and nine months ended September 30, 2017, respectively. For further discussion of how we use bonds and discount notes, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Consolidated Obligations.”

Our net interest spread is impacted by derivative and hedging activities, as the assets and liabilities hedged with derivative instruments designated under fair value hedging relationships are adjusted for changes in fair values, while other assets and liabilities are carried at historical cost. Further, net interest payments or receipts on interest rate swaps designated as fair value hedges and the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the hedged asset or liability. However, net interest payments or receipts on derivatives that do not qualify for hedge accounting (economic hedges) flow through net gain (loss) on derivatives and hedging activities instead of net interest income (net interest received/paid on economic derivatives is identified in Tables 9 through 12 under this Item 2), which does not reflect the full economic impact of the swaps on yields, especially for trading investments that are swapped to a variable rate.

Table 5 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 5



	Three Months Ended
	09/30/2017						09/30/2016
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	436,659	$	1,285	1.17	%	$	610,229	$	614	0.40	%
Securities purchased under agreements to resell	2,272,501		6,735		1.18		2,653,587		3,370		0.51
Federal funds sold	2,825,109		8,396		1.18		1,185,565		1,221		0.41
Investment securities^1,2	9,170,016		42,866		1.85		8,381,503		30,704		1.46
Advances^2,3	32,465,954		113,834		1.39		30,037,475		59,098		0.78
Mortgage loans^2,4,5	6,943,148		54,548		3.12		6,516,558		50,164		3.06
Other interest-earning assets	32,121		344		4.26		20,055		306		6.08
Total earning assets	54,145,508		228,008		1.67		49,404,972		145,477		1.17
Other non-interest-earning assets	191,447						113,496
Total assets	$	54,336,955					$	49,518,468

Interest-bearing liabilities:
Deposits	$	463,183	988		0.85		$	583,027	237		0.16
Consolidated obligations²:
Discount Notes	26,636,379		69,556		1.04		28,855,078		25,323		0.35
Bonds	24,482,281		88,306		1.43		17,322,188		56,681		1.30
Other borrowings	30,066		231		3.04		6,916		96		5.51
Total interest-bearing liabilities	51,611,909		159,081		1.22		46,767,209		82,337		0.70
Capital and other non-interest-bearing funds	2,725,046						2,751,259
Total funding	$	54,336,955					$	49,518,468

Net interest income and net interest spread⁶			$	68,927	0.45	%			$	63,140	0.47	%

Net interest margin⁷					0.51	%					0.51	%


¹	The non-credit portion of the OTTI discount on held-to-maturity securities and the fair value adjustment on available-for-sale securities are excluded from the average balance for calculations of yield since the changes are adjustments to equity.


²	Interest income/expense and average rates include the effect of associated derivatives.


³	Advance income includes prepayment fees on terminated advances.


⁴	CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was $1.4 million and $1.3 million for the three months ended September 30, 2017 and 2016, respectively.


⁵	Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.


⁶	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


⁷	Net interest margin is net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 6 summarizes changes in interest income and interest expense (in thousands):

Table 6



	Three Months Ended
	09/30/2017 vs. 09/30/2016
	Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total
Interest Income:
Interest-bearing deposits	$	(217	)	$	888		$	671
Securities purchased under agreements to resell	(547		)	3,912			3,365
Federal funds sold	3,036			4,139			7,175
Investment securities	3,091			9,071			12,162
Advances	5,129			49,607			54,736
Mortgage loans	3,335			1,049			4,384
Other assets	147			(109		)	38
Total earning assets	13,974			68,557			82,531
Interest Expense:
Deposits	(58		)	809			751
Consolidated obligations:
Discount notes	(2,091		)	46,324			44,233
Bonds	25,350			6,275			31,625
Other borrowings	194			(59		)	135
Total interest-bearing liabilities	23,395			53,349			76,744
Change in net interest income	$	(9,421	)	$	15,208		$	5,787


¹	Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.


²	Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.

Table 7 presents average balances and yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 7



	Nine Months Ended
	09/30/2017						09/30/2016
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	417,251	$	2,928	0.94	%	$	494,311	$	1,400	0.38	%
Securities purchased under agreements to resell	2,263,304		15,902		0.94		2,540,560		8,947		0.47
Federal funds sold	2,766,505		20,071		0.97		1,406,503		4,033		0.38
Investment securities^1,2	8,801,097		114,983		1.75		7,915,035		94,984		1.60
Advances^2,3	31,340,060		283,137		1.21		29,701,885		169,628		0.76
Mortgage loans^2,4,5	6,790,722		157,074		3.09		6,450,693		153,457		3.18
Other interest-earning assets	27,411		928		4.53		20,569		947		6.16
Total earning assets	52,406,350		595,023		1.52		48,529,556		433,396		1.19
Other non-interest-earning assets	194,495						115,563
Total assets	$	52,600,845					$	48,645,119

Interest-bearing liabilities:
Deposits	$	500,423	2,366		0.63		$	599,004	697		0.16
Consolidated obligations²:
Discount Notes	26,922,459		162,539		0.81		27,898,952		70,502		0.34
Bonds	22,489,091		228,788		1.36		17,485,654		169,728		1.30
Other borrowings	15,389		454		3.94		8,756		277		4.23
Total interest-bearing liabilities	49,927,362		394,147		1.06		45,992,366		241,204		0.70
Capital and other non-interest-bearing funds	2,673,483						2,652,753
Total funding	$	52,600,845					$	48,645,119

Net interest income and net interest spread⁶			$	200,876	0.46	%			$	192,192	0.49	%

Net interest margin⁷					0.51	%					0.53	%


¹	The non-credit portion of the OTTI discount on held-to-maturity securities and the fair value adjustment on available-for-sale securities are excluded from the average balance for calculations of yield since the changes are adjustments to equity.


²	Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment.


³	Advance income includes prepayment fees on terminated advances.


⁴	CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was $4.2 million and $3.9 million for the nine months ended September 30, 2017 and 2016, respectively.


⁵	Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.


⁶	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.


⁷	Net interest margin is net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 8 summarizes changes in interest income and interest expense (in thousands):

Table 8



	Nine Months Ended
	09/30/2017 vs. 09/30/2016
	Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total
Interest Income:
Interest-bearing deposits	$	(249	)	$	1,777		$	1,528
Securities purchased under agreements to resell	(1,072		)	8,027			6,955
Federal funds sold	6,210			9,828			16,038
Investment securities	11,159			8,840			19,999
Advances	9,827			103,682			113,509
Mortgage loans	7,942			(4,325		)	3,617
Other assets	269			(288		)	(19		)
Total earning assets	34,086			127,541			161,627
Interest Expense:
Deposits	(133		)	1,802			1,669
Consolidated obligations:
Discount notes	(2,552		)	94,589			92,037
Bonds	50,566			8,494			59,060
Other borrowings	197			(20		)	177
Total interest-bearing liabilities	48,078			104,865			152,943
Change in net interest income	$	(13,992	)	$	22,676		$	8,684


¹	Changes in interest income and interest expense not identifiable as either volume-related or rate-related have been allocated to volume and rate based upon the proportion of the absolute value of the volume and rate changes.


²	Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.

Net Gain (Loss) on Derivatives and Hedging Activities: The volatility in other income (loss) is driven predominantly by net gains (losses) on derivative and hedging transactions, which generally includes interest rate swaps, caps and floors. Net gain (loss) from derivatives and hedging activities is sensitive to several factors, including: (1) the general level of interest rates; (2) the shape of the term structure of interest rates; and (3) implied volatilities of interest rates. The fair value of options, particularly interest rate caps and floors, are also impacted by the time value decay that occurs as the options approach maturity, but this factor represents the normal amortization of the cost of these options and flows through income irrespective of any changes in the other factors impacting the fair value of the options (level of rates, shape of curve, and implied volatility).

Tables 9 through 12 categorize the earnings impact by product for hedging activities (in thousands):

Table 9



	Three Months Ended 09/30/2017
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Other		Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(1,272	)	$	—		$	(534	)	$	—	$	—		$	—	$	(1,806	)
Net interest received (paid)	(9,266		)	(2,144		)	—			—		3,308			—		(8,102		)
Subtotal	(10,538		)	(2,144		)	(534		)	—		3,308			—		(9,908		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	813			(807		)	—			—		(55		)	—		(49		)
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			1,168			—			—		1,112			—		2,280
Interest rate caps	—			(392		)	—			—		—			—		(392		)
Mortgage delivery commitments	—			—			913			—		—			—		913
Economic hedges – net interest received (paid)	—			(4,087		)	—			—		999			—		(3,088		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—		—			14		14
Subtotal	813			(4,118		)	913			—		2,056			14		(322		)
Net impact of derivatives and hedging activities	(9,725		)	(6,262		)	379			—		5,364			14		(10,230		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			2,764			—			—		—			—		2,764
TOTAL	$	(9,725	)	$	(3,498	)	$	379		$	—	$	5,364		$	14	$	(7,466	)

Table 10



	Three Months Ended 09/30/2016
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(1,384	)	$	—		$	(762	)	$	—	$	—		$	(2,146	)
Net interest received (paid)	(20,962		)	(3,330		)	—			16		5,123			(19,153		)
Subtotal	(22,346		)	(3,330		)	(762		)	16		5,123			(21,299		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	3,923			(622		)	—			7		(17		)	3,291
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			15,089			—			—		(782		)	14,307
Interest rate caps	—			(132		)	—			—		—			(132		)
Mortgage delivery commitments	—			—			851			—		—			851
Economic hedges – net interest received (paid)	—			(9,551		)	—			—		791			(8,760		)
Subtotal	3,923			4,784			851			7		(8		)	9,557
Net impact of derivatives and hedging activities	(18,423		)	1,454			89			23		5,115			(11,742		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			(4,072		)	—			—		—			(4,072		)
TOTAL	$	(18,423	)	$	(2,618	)	$	89		$	23	$	5,115		$	(15,814	)

Table 11



	Nine Months Ended 09/30/2017
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Other		Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(3,913	)	$	—		$	(1,516	)	$	—		$	—		$	—	$	(5,429	)
Net interest received (paid)	(37,052		)	(7,058		)	—			(15		)	12,468			—		(31,657		)
Subtotal	(40,965		)	(7,058		)	(1,516		)	(15		)	12,468			—		(37,086		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	(22		)	(2,096		)	—			(36		)	(1,089		)	—		(3,243		)
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			1,138			—			—			5,985			—		7,123
Interest rate caps	—			(3,186		)	—			—			—			—		(3,186		)
Mortgage delivery commitments	—			—			2,326			—			—			—		2,326
Economic hedges – net interest received (paid)	—			(16,933		)	—			—			4,226			—		(12,707		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—			—			6		6
Subtotal	(22		)	(21,077		)	2,326			(36		)	9,122			6		(9,681		)
Net impact of derivatives and hedging activities	(40,987		)	(28,135		)	810			(51		)	21,590			6		(46,767		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			14,831			—			—			—			—		14,831
TOTAL	$	(40,987	)	$	(13,304	)	$	810		$	(51	)	$	21,590		$	6	$	(31,936	)

Table 12



	Nine Months Ended 09/30/2016
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Impact of derivatives and hedging activities in net interest income:
Net amortization/accretion of hedging activities	$	(3,808	)	$	—		$	(1,894	)	$	—		$	—		$	(5,702	)
Net interest received (paid)	(67,730		)	(8,667		)	—			(29		)	25,684			(50,742		)
Subtotal	(71,538		)	(8,667		)	(1,894		)	(29		)	25,684			(56,444		)
Net gain (loss) on derivatives and hedging activities:
Fair value hedges:
Interest rate swaps	3,614			(3,730		)	—			(270		)	(633		)	(1,019		)
Economic hedges – unrealized gain (loss) due to fair value changes:
Interest rate swaps	—			(52,410		)	—			(4		)	2,092			(50,322		)
Interest rate caps	—			(3,848		)	—			—			—			(3,848		)
Mortgage delivery commitments	—			—			3,839			—			—			3,839
Economic hedges – net interest received (paid)	—			(36,184		)	—			4			3,305			(32,875		)
Subtotal	3,614			(96,172		)	3,839			(270		)	4,764			(84,225		)
Net impact of derivatives and hedging activities	(67,924		)	(104,839		)	1,945			(299		)	30,448			(140,669		)
Net gain (loss) on trading securities hedged on an economic basis with derivatives	—			63,827			—			—			—			63,827
TOTAL	$	(67,924	)	$	(41,012	)	$	1,945		$	(299	)	$	30,448		$	(76,842	)

As reflected in Tables 9 through 12, the majority of the derivative net unrealized gains and losses are related to economic hedges, such as interest rate swaps matched to GSE debentures or MBS classified as trading securities and interest rate caps, which do not qualify for hedge accounting treatment under GAAP. Net interest payments or receipts on these economic hedges flow through net gain (loss) on derivatives and hedging activities instead of net interest income, which does not reflect the full economic impact of the swaps on yields, especially for fixed rate trading investments that are swapped to variable rates. Ineffectiveness on fair value hedges contributes to unrealized gains and losses on derivatives, but to a much lesser degree. Net unrealized gains or losses on derivatives and the related trading securities are generally a function of the level of LIBOR swap rates and the spread between the LIBOR swap curve and the GSE interest rate curve (interest rate swaps that are economic hedges of GSE debentures held in trading). The net fair values of derivatives and the related trading MBS are affected by the spread between the LIBOR swap curve and mortgage rates (interest rate swaps that are economic hedges of fixed rate GSE MBS held in trading).

For the three- and nine-month periods ended September 30, 2017, net unrealized gains and losses on derivatives and hedging activities decreased net income by $9.9 million and increased net income by $74.5 million, respectively, compared to the same periods in 2016, primarily as a result of changes in the LIBOR swap curve over the respective periods. The net losses on derivatives and hedging activities and trading securities for the current quarter correspond to the significant improvement in swap spreads and an increase in interest rates in the prior year period that resulted in unrealized gains. In the current year period, these same swap spreads and interest rates have not changed as dramatically, resulting in a slight unrealized loss on the economic interest rate swaps hedging the multi-family GSE MBS and a decrease in unrealized gains on the economic swaps hedging the GSE debentures. The majority of the positive fair value fluctuations for the nine month-period were related to the economic interest rate swaps hedging the multi-family GSE MBS. The increase in the LIBOR swap curve between periods also had a positive impact on the net interest settlements on interest rate swaps, which increased net unrealized gains on derivatives and hedging activities by $5.7 million and $20.2 million for the three- and nine-month periods ended September 30, 2017, respectively. Increases in swap spreads during the first half of 2016 caused fair value decreases for many of our economic hedges, but especially interest rate swaps economically hedging multi-family GSE MBS recorded as trading securities. These spreads improved significantly towards the end of 2016 and have remained relatively stable into the first nine months of 2017, despite some widening in the second quarter that has resulted in unrealized losses of $0.1 million and $2.6 million for the current three- and nine-month periods, respectively, compared to unrealized gains of $6.1 million and unrealized losses of $49.7 million for the three- and nine-month periods ended September 30, 2016, respectively. All of these multi-family GSE MBS and the associated interest rate swaps were purchased or entered into after May 2015 and are expected to create more income statement volatility than the interest rate swaps and related trading GSE debentures due to the relatively long length of the contracts and their relationship with mortgage rates, which tend to be more volatile than rates on GSE debentures.

Unrealized gains of $1.3 million and $3.7 million for the three and nine months ended September 30, 2017 were attributable to the fair value changes of our interest rate swaps matched to GSE debentures as a result of the passage of time, as several derivatives approached maturity (reducing the overall loss position of the derivatives), changes in interest rates for their respective maturities (pay fixed rate swap), and increases in three-month LIBOR (receive variable rate swap). These fluctuations were offset by the net unrealized losses attributable to the swapped GSE debentures, which are recorded in net gain (loss) on trading securities. Tables 13 and 14 present the relationship between the swapped trading securities and the associated interest rate swaps that do not qualify for hedge accounting treatment by investment type (in thousands):

Table 13



	Three Months Ended
	09/30/2017								09/30/2016
	Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities			Net		Gain (Loss) on Derivatives		Gain (Loss) on Trading Securities			Net
GSE debentures	$	1,252		$	(541	)	$	711	$	8,956	$	(6,185	)	$	2,771
GSE MBS	(84		)	3,305			3,221		6,133		2,113			8,246
TOTAL	$	1,168		$	2,764		$	3,932	$	15,089	$	(4,072	)	$	11,017

See Tables 42 and 43 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

Table 14



	Nine Months Ended
	09/30/2017								09/30/2016
	Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities			Net		Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net
GSE debentures	$	3,743		$	(415	)	$	3,328	$	(2,670	)	$	4,963	$	2,293
GSE MBS	(2,605		)	15,246			12,641		(49,740		)	58,864		9,124
TOTAL	$	1,138		$	14,831		$	15,969	$	(52,410	)	$	63,827	$	11,417

See Tables 42 and 43 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

Net Gain (Loss) on Trading Securities: All unrealized gains and losses related to trading securities are recorded in other income (loss) as net gain (loss) on trading securities; however, only gains and losses relating to trading securities that are related to economic hedges are included in Tables 9 through 14. 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 15 presents the major components of the net gain (loss) on trading securities (in thousands):

Table 15



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Trading securities not hedged:
GSE debentures	$	390		$	369		$	1,242		$	579
U.S. obligation and GSE MBS	97			(125		)	300			(504		)
Short-term money market securities	68			2			27			2
Total trading securities not hedged	555			246			1,569			77
Trading securities hedged on an economic basis with derivatives:
GSE debentures	(541		)	(6,185		)	(415		)	4,963
GSE MBS	3,305			2,113			15,246			58,864
Total trading securities hedged on an economic basis with derivatives	2,764			(4,072		)	14,831			63,827
TOTAL	$	3,319		$	(3,826	)	$	16,400		$	63,904

Our trading portfolio is comprised primarily of variable and fixed rate GSE debentures and fixed rate multi-family GSE MBS, with a small percentage of variable rate GSE MBS. In general, the fixed rate securities are related to economic hedges in the form of interest rate swaps that convert fixed rates to variable rates (see Table 13 and 14 for the association between the gains (losses) on the fixed rate securities and the related economic hedges). The fair values of the fixed rate GSE debentures are affected by changes in intermediate interest rates (e.g., two-year to four-year rates) and credit spreads, and are swapped to three-month LIBOR. The fair values of the fixed rate multi-family GSE MBS are affected by changes in mortgage rates and credit spreads, and these securities are swapped to one-month LIBOR. The unrealized gains on our fixed rate multi-family GSE MBS investments increased $1.2 million for the current quarter, due to a slight decrease in mortgage-related interest rates and credit spreads compared to the quarter ended September 30, 2016. The decrease of $43.6 million in net unrealized gains on these same investments for the current nine-month period was a result of a more significant decline in mortgage interest rates in the prior year period compared to the current year period. In addition to interest rates and credit spreads, the value of these securities is affected by time decay. The fixed rate GSE debentures possess coupons that are well above current market rates for similar securities and, therefore, are currently valued at substantial premiums. As these securities approach maturity, their prices will converge to par resulting in a decrease in their current premium price (i.e., time decay). Given that the variable rate GSE debentures re-price monthly, they generally account for a small portion of the net gain (loss) on trading securities unless current market spreads on these variable rate securities diverge from the spreads at the time of our acquisition of the securities.

Other Expenses: Other expenses, which include compensation and benefits and other operating expenses, increased $1.6 million to $19.5 million and $3.3 million to $50.2 million for the three and nine months ended September 30, 2017 compared to $17.9 million and $46.9 million for the same periods in the prior year. The largest component of operating expenses, compensation and benefits, increased by $0.2 million, or 2.0 percent, and $1.1 million, or 4.0 percent for the three and nine months ended September 30, 2017 compared to the prior year period. The increase in compensation was due to the hiring of additional employees and an increase in the base salaries of existing employees. We expect to remain at or near 2016 levels of compensation and benefits expense for 2017. Other operating expense increased by $1.1 million for the nine months ended September 30, 2017 primarily due to new software implementations and is expected to continue to increase during the remainder of 2017 and into 2018 due to additional planned software implementations. We expect a moderate increase in occupancy expense in 2017 as we complete construction of a new office building later this year, and as a result, experience duplicative maintenance costs for a brief period.

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

Adjusted income is a non-GAAP measure used by management to evaluate the quality of our ongoing earnings. We believe that the presentation of adjusted income as measured for management purposes enhances the understanding of our performance by highlighting our underlying results and profitability. By removing volatility created by fair value fluctuations and items such as prepayment fees, we can compare longer-term trends in earnings that might otherwise be indeterminable. Management uses adjusted net interest income to evaluate the earnings impact of economic hedges (derivatives that do not qualify for hedge accounting). Net interest payments or receipts on economic hedges flow through net gain (loss) on derivatives and hedging activities instead of net interest income due to GAAP accounting requirements. We believe that the presentation of the net interest impact of economic hedges in net interest income provides a more useful depiction of net interest income for the purposes of yield analysis and the overall economics of the relationship, especially for fixed rate investments that are swapped to a variable rate.

Although we calculate our non-GAAP financial measures consistently from period to period using appropriate GAAP components, non-GAAP financial measures are not required to be uniformly applied and are not audited. These non-GAAP measures are frequently used by our stakeholders in the evaluation of our performance, but they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

Adjusted net income increased $10.8 million and $25.2 million for the three and nine months ended September 30, 2017 compared to the same periods in the prior year. The increase was due primarily to increased adjusted net interest income, which includes the impact of net interest settlements on derivatives not qualifying for hedge accounting, partially offset by an increase in other expenses, as discussed previously. Adjusted net interest income increased for the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to the replacement of called and matured debt at a lower cost during the last half of 2016, the impact of which is more apparent when net interest settlements of economic hedges are presented with the other components of net interest income because it reflects the impact of LIBOR repricing on both the asset and liability. Adjusted net interest margin, which is calculated with adjusted net interest income, increased by five basis points for the three and nine months ended September 30, 2017. Under GAAP, the net interest amount that converts fixed rate investments that are economically swapped to a variable rate is recorded as part of Net Gain/Loss on Derivatives and Hedging Activities rather than net interest income. For the purpose of calculating adjusted net interest margin, these fixed rate investments are considered to be variable rate investments and the corresponding net interest amount in adjusted net interest income reflects the widening of the spread between the variable rate assets created by the economic hedge and the variable rate liabilities funding them as a result of the increase in LIBOR between periods. Under GAAP, an increase in LIBOR causes the spread to tighten between fixed rate assets and variable rate liabilities and therefore causes a decrease in net interest margin. Tables 16 and 17 present a reconciliation of GAAP net income to adjusted income and GAAP net interest income to adjusted net interest income (in thousands):

Table 16



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Net income, as reported under GAAP	$	49,514		$	48,223		$	148,848		$	120,399
AHP assessments	5,510			5,361			16,554			13,385
Income before AHP assessments	55,024			53,584			165,402			133,784
Derivative (gains) losses¹	(2,766		)	(18,317		)	(3,026		)	51,350
Trading (gains) losses	(3,319		)	3,826			(16,400		)	(63,904		)
Prepayment fees on terminated advances	(161		)	(1,137		)	(1,331		)	(1,746		)
Total excluded items	(6,246		)	(15,628		)	(20,757		)	(14,300		)
Adjusted income (a non-GAAP measure)	$	48,778		$	37,956		$	144,645		$	119,484


¹	Consists of fair value changes on derivatives and hedging activities excluding net interest settlements (see next table) on derivatives not qualifying for hedge accounting.

Table 17



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Net interest income, as reported under GAAP	$	68,927		$	63,140		$	200,876		$	192,192
Net interest settlements on derivatives not qualifying for hedge accounting	(3,088		)	(8,760		)	(12,707		)	(32,875		)
Prepayment fees on terminated advances	(161		)	(1,137		)	(1,331		)	(1,746		)
Adjusted net interest income (a non-GAAP measure)	$	65,678		$	53,243		$	186,838		$	157,571

Net interest margin, as calculated under GAAP for the period	0.51		%	0.51		%	0.51		%	0.53		%
Adjusted net interest margin (a non-GAAP measure)	0.48		%	0.43		%	0.48		%	0.43		%

Table 18 presents a comparison of adjusted ROE (a non-GAAP financial measure) to the average overnight Federal funds rate, which we use as a key measure of effective utilization and management of members’ capital. The increase in adjusted ROE between the comparative periods is mostly a function of increases in adjusted net interest income, despite the increase in average capital as a result of the increase in advances. Adjusted ROE spread for the three and nine months ended September 30, 2017 and 2016 is calculated as follows (dollar amounts in thousands):

Table 18



	Three Months Ended						Nine Months Ended
	09/30/2017			09/30/2016			09/30/2017			09/30/2016
Average GAAP total capital for the period	$	2,456,549		$	2,206,927		$	2,376,455		$	2,163,089
ROE, based upon GAAP net income	8.00		%	8.69		%	8.37		%	7.43		%
Adjusted ROE, based upon adjusted income	7.88		%	6.84		%	8.14		%	7.38		%
Average overnight Federal funds effective rate	1.16		%	0.40		%	0.94		%	0.38		%
Adjusted ROE as a spread to average overnight Federal funds effective rate	6.72		%	6.44		%	7.20		%	7.00		%

Financial Condition

Overall: Total assets increased $4.1 billion, or 9.2 percent, from December 31, 2016 to September 30, 2017. This growth was due primarily to continued growth in advances, mostly in our line of credit and adjustable rate callable advances, and continued steady growth in our mortgage loan portfolio. Our mortgage loan portfolio reached $7.1 billion during the quarter ended September 30, 2017, with recent growth attributed to recruitment of high-production PFIs and program enhancements that provide PFIs with additional funding opportunities. We have been actively promoting the impact of the dividend paid on outstanding capital stock on the effective borrowing cost of advances to increase member awareness of the benefit of higher dividends since 2014 (and raised again in 2017 for both our Class A and Class B Common Stock), which has resulted in increased utilization of advances, especially the line of credit product. We strive to maintain a core mission assets ratio of over 70 percent, so increases in the average balance of both advances and mortgage loans allows for growth in non-mission assets while maintaining our desired core mission assets ratio. Although our investments represent non-mission assets, they are utilized to provide liquidity and primary and secondary market support for the U.S. housing securities market.

During the third quarter of 2017, two significant hurricanes impacted the southeastern coasts of the United States. On August 25, 2017, Hurricane Harvey made landfall near Corpus Christi, Texas and caused substantial damage and flooding to southeastern Texas, including the Houston metropolitan area. On September 10, 2017, Hurricane Irma made landfall on the Florida mainland near Marco Island, Florida. Hurricane Irma then moved northward through Florida and into Georgia, causing significant damage to property in Florida, Georgia, and certain other southeastern states.

We have analyzed the potential impact that damage related to Hurricanes Irma and Harvey might have on our mortgage loans held for portfolio and private-label residential MBS. Based on our historical experience with similar storms, we do not expect that losses resulting from Hurricanes Irma and Harvey will have a material effect on our financial condition or results of operations. Using the information currently available, we did not record any additional impairment on our mortgage loans held for portfolio or private-label residential MBS as of September 30, 2017. We will continue to evaluate the impact of these hurricanes on our mortgage loans held for portfolio and non-agency MBS investments. If additional information becomes available indicating that any of these assets has been impaired and the amount of the loss can be reasonably estimated, we will record appropriate reserves at that time.

As a percentage of assets at September 30, 2017 compared to December 31, 2016, investment securities and advances increased, while short-term investments and mortgage loans decreased, despite continued growth in the mortgage portfolio. Advance balances fluctuate seasonally and tend to trend down at the end of a quarter, but the average balance of advances increased by $2.4 billion, or 8.1 percent, during the third quarter of 2017 compared to the third quarter of 2016. In terms of liabilities, we increased the allocation of consolidated obligation bonds relative to total consolidated obligation discount notes and bonds at September 30, 2017 compared to December 31, 2016, and we increased the allocation of floating rate consolidated obligation bonds with longer-term structures to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and debt ceiling deadline. We continue to fund our short-term advances and overnight investments with term discount notes. Table 19 presents the percentage concentration of the major components of our Statements of Condition:

Table 19



	Component Concentration
	09/30/2017		12/31/2016
Assets:
Cash and due from banks	—	%	0.5	%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	9.3		12.2
Investment securities	18.6		17.9
Advances	57.4		53.0
Mortgage loans, net	14.3		14.7
Overnight loans to other FHLBanks	—		1.3
Other assets	0.4		0.4
Total assets	100.0	%	100.0	%

Liabilities:
Deposits	1.1	%	1.3	%
Consolidated obligation discount notes, net	43.1		48.2
Consolidated obligation bonds, net	50.8		45.8
Other liabilities	0.3		0.4
Total liabilities	95.3		95.7

Capital:
Capital stock outstanding	3.0		2.7
Retained earnings	1.7		1.6
Accumulated other comprehensive income (loss)	—		—
Total capital	4.7		4.3
Total liabilities and capital	100.0	%	100.0	%

Table 20 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):

Table 20



	Increase (Decrease) in Components
	09/30/2017 vs. 12/31/2016
	Dollar Change			Percent Change
Assets:
Cash and due from banks	$	(199,451	)	(96.2	)%
Investments¹	157,531			1.2
Advances	4,333,391			18.1
Mortgage loans, net	414,514			6.2
Derivative assets, net	(10,404		)	(17.1	)
Overnight loans to other FHLBanks	(600,000		)	(100.0	)
Other assets	48,859			43.5
Total assets	$	4,144,440		9.2	%

Liabilities:
Deposits	$	(48,304	)	(8.1	)%
Consolidated obligations, net	3,853,487			9.1
Derivative liabilities, net	(6,531		)	(91.1	)
Other liabilities	9,628			6.4
Total liabilities	3,808,280			8.8

Capital:
Capital stock outstanding	240,326			19.6
Retained earnings	80,945			11.0
Accumulated other comprehensive income (loss)	14,889			2,580.4
Total capital	336,160			17.1
Total liabilities and capital	$	4,144,440		9.2	%

¹Investments also include interest-bearing deposits, Federal funds sold and securities purchased under agreements to resell.

Advances: Our advance products are developed, as authorized in the Bank Act and in regulations established by the FHFA, to meet the specific liquidity and term funding needs of our members. As a wholesale provider of funds, we compete with brokered certificates of deposit and security repurchase agreements. We strive to price our advances relative to our marginal cost of funds while trying to remain competitive with the wholesale funding markets. While there is typically less competition in the long-term maturities, member demand for advances in these maturities has historically been lower than the demand for advances with short- and medium-term maturities. Nonetheless, long-term advances are also priced at relatively low spreads to our cost of funds.

Table 21 summarizes advances outstanding by product (dollar amounts in thousands):

Table 21



	09/30/2017				12/31/2016
	Dollar		Percent		Dollar		Percent
Adjustable rate:
Standard advance products:
Line of credit	$	13,272,467	46.9	%	$	9,634,491	40.2	%
Regular adjustable rate advances	352,975		1.3		75,000		0.3
Adjustable rate callable advances	7,165,660		25.3		6,161,835		25.7
Standard housing and community development advances:
Adjustable rate callable advances	98,002		0.3		99,002		0.4
Total adjustable rate advances	20,889,104		73.8		15,970,328		66.6
Fixed rate:
Standard advance products:
Short-term fixed rate advances	391,250		1.4		452,545		1.9
Regular fixed rate advances	4,899,504		17.3		5,084,882		21.2
Fixed rate callable advances	13,470		—		39,445		0.2
Standard housing and community development advances:
Regular fixed rate advances	423,840		1.5		400,412		1.7
Fixed rate callable advances	4,831		—		4,000		—
Total fixed rate advances	5,732,895		20.2		5,981,284		25.0
Convertible:
Standard advance products:
Fixed rate convertible advances	884,950		3.1		1,147,392		4.8
Amortizing:
Standard advance products:
Fixed rate amortizing advances	392,117		1.4		409,926		1.7
Fixed rate callable amortizing advances	20,714		0.1		23,239		0.1
Standard housing and community development advances:
Fixed rate amortizing advances	390,153		1.4		419,587		1.8
Fixed rate callable amortizing advances	7,783		—		8,759		—
Total amortizing advances	810,767		2.9		861,511		3.6
TOTAL PAR VALUE	$	28,317,716	100.0	%	$	23,960,515	100.0	%

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

Advances are one of the primary ways we fulfill our mission of providing liquidity to our members and constituted the largest asset on our balance sheet at September 30, 2017 and December 31, 2016. The 18.2 percent increase in advance par value from December 31, 2016 (see Table 21) was due mostly to an increase in our line of credit and adjustable rate callable advances. Changes in interest rates could reduce the benefit of line of credit advances to our members, which could cause a significant decline in advances. We expect advances as a percent of total assets to remain near current levels as part of our core mission asset focus and continued efforts to promote awareness of the benefits of higher dividends (see “Executive Level Overview” under this Item 2), but we cannot predict member demand for our advance products.

As of September 30, 2017 and December 31, 2016, 68.0 percent and 65.7 percent, respectively, of our members carried outstanding advance balances. The overall demand for our advances can typically be attributed to the demand for loans that our depository members are experiencing in their communities and their ability to fund those loans with deposit growth. It is also influenced by our insurance company members’ need for operational liquidity and the ability of both depository and insurance company members to profitably invest advance funding. The demand for advances is also influenced by the impact dividends have on the cost of advances. Dividend yields have trended higher since the last half of 2014, which has provided members with more opportunities to profitably invest advance funding, resulting in historically high levels of advances outstanding. The majority of the growth in advances experienced is a result of a small number of large members increasing short-term advances. We anticipate demand for advances to remain steady with these members. Advances with other members could decline or remain flat until greater levels of funding can be reallocated from short-term liquid assets into higher-yielding loans or assets. If our members reduce the volume of their advances, we expect to continue our past practice of repurchasing excess capital stock. In addition, when, and if, member advance demand changes, a few larger members could have a significant impact on the amount of total outstanding advances, much like what has occurred since the latter half of 2014.

Rather than match-funding long-term, fixed rate, large dollar advances, we elect to swap a significant portion of large dollar advances with longer maturities to short-term indices (one- or three-month LIBOR) to synthetically create adjustable rate advances. When coupled with the volume of our short-term advances, advances that effectively re-price at least every three months represent 89.5 percent and 87.5 percent of our total advance portfolio as of September 30, 2017 and December 31, 2016, respectively.

Table 22 presents information on our five largest borrowers (dollar amounts in thousands). If the borrower was not one of our top five borrowers for one of the periods presented, the applicable columns are left blank. We have rights to collateral with an estimated fair value in excess of the book value of these advances and, therefore, do not expect to incur any credit losses on these advances.

Table 22



	09/30/2017				12/31/2016
Borrower Name	Advance Par Value		Percent of Total Advance Par		Advance Par Value		Percent of Total Advance Par
BOKF, N.A.	$	6,200,000	21.9	%	$	4,800,000	20.0	%
MidFirst Bank	5,265,000		18.6		4,340,000		18.1
Capitol Federal Savings Bank	2,175,000		7.7		2,275,000		9.5
United of Omaha Life Insurance Co.	793,818		2.8		670,000		2.8
Bellco Credit Union	696,000		2.5
Mutual of Omaha Bank					556,000		2.3
TOTAL	$	15,129,818	53.5	%	$	12,641,000	52.7	%

Table 23 presents the interest income associated with the five borrowers with the highest interest income for the periods presented (dollar amounts in thousands).

Table 23



	Three Months Ended
	09/30/2017				09/30/2016
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
MidFirst Bank	$	20,151	16.4	%	$	5,852	7.4	%
BOKF, N.A.	19,678		16.0		8,692		11.0
Capitol Federal Savings Bank	17,649		14.3		15,999		20.3
American Fidelity Assurance Co.	3,543		2.9		4,062		5.2
United of Omaha Life Insurance Co.	3,037		2.5		1,924		2.4
TOTAL	$	64,058	52.1	%	$	36,529	46.3	%


¹	Total advance income by borrower excludes net interest settlements on derivatives hedging the advances. Total advance income for all borrowers is net of interest receipts/(payments) on derivatives hedging advances of $(9.3) million and $(21.0) million for the three months ended September 30, 2017 and 2016, respectively.

Table 24 presents the accrued interest income associated with the five borrowers providing the highest amount of interest income for the periods presented (dollar amounts in thousands).

Table 24



	Nine Months Ended
	09/30/2017				09/30/2016
Borrower Name	Advance Income		Percent of Total Advance Income¹		Advance Income		Percent of Total Advance Income¹
Capitol Federal Savings Bank	$	51,788	16.2	%	$	48,202	20.5	%
MidFirst Bank	47,503		14.9		17,183		7.3
BOKF, N.A.	45,643		14.3		24,302		10.3
American Fidelity Assurance Co.	10,765		3.4		12,143		5.1
United of Omaha Life Insurance Co.	7,774		2.5		5,725		2.4
TOTAL	$	163,473	51.3	%	$	107,555	45.6	%


¹	Total advance income by borrower excludes net interest settlements on derivatives hedging the advances. Total advance income for all borrowers is net of interest receipts/(payments) on derivatives hedging advances of $(37.0) million and $(67.7) million for the nine months ended September 30, 2017 and 2016, respectively.

Table 4 presents the amount of interest income on advances as a percentage of total interest income for the three and nine months ended September 30, 2017 and 2016.

MPF Program: The MPF Program is a secondary mortgage market alternative for our members, especially utilized by the smaller institutions in our district. We participate in the MPF Program through the MPF Provider, a division of FHLBank of Chicago. Under the MPF Program, participating members can sell us conventional and government fixed rate, size-conforming, single-family residential mortgage loans.

The principal amount of new mortgage loans acquired and held on our balance sheet from our PFIs during the nine months ended September 30, 2017 was $1.1 billion. These new originations and acquisitions, net of loan payments received, resulted in an increase of 6.2 percent in the outstanding net balance of our mortgage loan portfolio from December 31, 2016 to September 30, 2017. Net mortgage loans as a percentage of total assets decreased slightly from 14.7 percent as of December 31, 2016 to 14.3 percent as of September 30, 2017. Table 4 presents the amount of interest income on mortgage loans held for portfolio as a percentage of total interest income for the three and nine months ended September 30, 2017 and 2016. Although mortgage loan balances grew to over $7.0 billion as of September 30, 2017, mortgage loans as a percentage of total assets and the percentage of mortgage loan interest income to total interest income has declined, predominantly due to an increase in average advance balances as a percentage of average total assets and the resulting increase in advance interest income.

Recent growth in mortgage loans held for portfolio is attributed primarily to the recruitment of high-production PFIs, but we have also made enhancements to pricing structures that provide PFIs with additional funding opportunities. Recent reductions in the required CE obligation against current and past production may reduce our PFIs' risk-based capital requirements and result in additional MPF portfolio growth. The primary factors that may influence future growth in our mortgage loans held for portfolio include: (1) the number of new and delivering PFIs; (2) the mortgage loan origination volume of current PFIs; (3) refinancing activity; (4) the level of interest rates and the shape of the yield curve; (5) the relative competitiveness of MPF pricing to the prices offered by other buyers of residential mortgage loans; and (6) a PFI's level of excess risk-based capital relative to the required risk-based capital charge associated with the PFI's CE obligations on MPF mortgage loans. In an effort to manage the level of mortgage loans on our books, management has researched and continues to review options including participating loan volume or selling whole loans to other FHLBanks, members or other investors. As described below, we have pursued participations and, although we may determine to sell whole loans from time to time, we have not identified any specific loans to be sold as of September 30, 2017.

Historically, we have used the MPF Xtra product and mortgage loan participations with another FHLBank to effectively restrict the growth in mortgage loans held for portfolio and provide management with adequate means to control the amount of mortgage loan portfolio volume retained on our balance sheet to maintain our desired asset composition. The MPF Xtra product is a structure where our PFIs sell mortgage loans to FHLBank of Chicago and simultaneously to Fannie Mae. We also recently began offering an MPF Government MBS product that similarly allows our PFIs to sell mortgages to FHLBank of Chicago that are pooled into Ginnie Mae securities. Both products are intended to enhance our ability to manage mortgage volumes and receive a counterparty fee from FHLBank of Chicago based on mortgage volumes sold by our PFIs. We have the authority to offer participation interests in risk sharing MPF loan pools to member institutions, which may further enhance our ability to manage the size of our mortgage loan portfolio in the future.

The number of approved PFIs was 270 and 274 as of September 30, 2017 and December 31, 2016, respectively. During the nine months ended September 30, 2017, we purchased loans from 179 PFIs with no one PFI accounting for more than 6.8 percent of the total dollar volume purchased. Although there is no guarantee, we anticipate that the number of PFIs delivering loans will increase during 2017 as we continue to educate our members about the improved execution and relative ease of use associated with the MPF Program and the previously discussed reduction in CE obligation available to PFIs. 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). If the member was not one of our top five PFIs for one of the periods presented, the applicable columns are left blank.

Table 25



	09/30/2017				12/31/2016
	Mortgage Loan Balance		Percent of Total Mortgage Loans		Mortgage Loan Balance		Percent of Total Mortgage Loans
FirstBank of Colorado	$	310,484	4.5	%	$	273,386	4.2	%
Tulsa Teachers Credit Union	263,553		3.8		242,312		3.7
ENT Federal Credit Union	174,367		2.5
Fidelity Bank	168,869		2.4
Mid-America Bank	152,406		2.2		131,419		2.0
Mutual of Omaha Bank					152,264		2.3
SAC Federal Credit Union					141,992		2.2
TOTAL	$	1,069,679	15.4	%	$	941,373	14.4	%

Two indications of credit quality are scores provided by Fair Isaac Corporation (FICO^®) and loan-to-value (LTV) ratios. FICO is a widely used credit industry indicator to assess borrower credit quality with scores typically ranging from 300 to 850 with the low end of the scale indicating greater credit risk. The MPF Program requires a minimum FICO score of 620 for all conventional loans. LTV is a primary variable in credit performance. Generally speaking, a higher LTV ratio means greater risk of loss in the event of a default and also means higher loss severity. The weighted average FICO score and LTV recorded at origination for conventional mortgage loans outstanding as of September 30, 2017 was 750 and 74.1 percent, respectively. See Note 6 of the Notes to Financial Statements under Item 1 for additional information regarding credit quality indicators.

Allowance for Credit Losses on Mortgage Loans Held for Portfolio – The slight decrease in the allowance for credit losses as of September 30, 2017 was primarily attributable to a decrease in delinquent loans during the first nine months of 2017. We have analyzed the potential impact that damage related to Hurricanes Irma and Harvey might have on mortgage loans held for portfolio. We do not expect that losses resulting from Hurricanes Irma and Harvey will have a material effect on our financial condition or results of operations due to the combination of property/flood insurance coverage and borrower equity in the impacted areas. We will continue to evaluate the impact of the hurricanes on our mortgage loans held for portfolio. If additional information becomes available indicating that mortgage loans in any impacted areas have been impaired and the amount of the loss can be reasonably estimated, we will record appropriate reserves at that time. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held in portfolio. See Note 6 of the Notes to Financial Statements under Item 1 for a summary of the allowance for credit losses on mortgage loans, and delinquency aging and key credit quality indicators for our mortgage loan portfolio.

Investments: Investments are used to enhance income and provide liquidity and primary and secondary market support for the U.S. housing securities market. Total investments increased from December 31, 2016 to September 30, 2017 due to increases in MBS and certificates of deposit, partially offset by a decrease in money market investments. The increase in long-term MBS coincided with the increase in advances and mortgage loans, as growth in core mission assets and the corresponding increase in capital allow for growth in non-mission assets while maintaining our desired core mission assets ratio. Consistent with FHFA guidance, we define investment quality as a security with adequate financial backings so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security.

Short-term Investments – Short-term investments, which are used to provide funds to meet the credit needs of our members, maintain liquidity, and meet other financial obligations such as debt servicing, consist primarily of reverse repurchase agreements, interest-bearing deposits, overnight Federal funds sold, term Federal funds sold, certificates of deposit and commercial paper. The Bank Act and FHFA regulations and guidelines set liquidity requirements for us, and our Board of Directors has adopted additional liquidity policies. In addition, we maintain a contingency liquidity plan in the event of financial market disruptions. See “Risk Management – Liquidity Risk Management” under this Item 2 for a discussion of our liquidity management.

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


•	Interest-bearing deposits. Unsecured deposits that earn interest.


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


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


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

Table 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



	09/30/2017		12/31/2016
Interest-bearing deposits	$	299,741	$	385,148
Federal funds sold	1,692,000		2,725,000
Certificates of deposit	675,027		—
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	2,666,768	$	3,110,148


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

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

FHFA regulations: (1) include limits on the amount of unsecured credit an individual FHLBank may extend to a counterparty or to a group of affiliated counterparties; (2) permit us to extend additional unsecured credit for overnight extensions of credit, subject to limitations; and (3) prohibit us from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. For additional information on our management of unsecured credit exposure, see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” in our Form 10-K for the year ended December 31, 2016. As of September 30, 2017, we were in compliance with all FHFA regulations relating to unsecured credit exposure.

We manage our credit risk by conducting pre-purchase credit due diligence and on-going surveillance described previously and generally investing in unsecured investments of highly-rated counterparties. From time to time, we extend unsecured credit to qualified members by investing in overnight Federal funds issued by them. As of September 30, 2017, all unsecured investments were rated as investment grade based on NRSROs (see Table 30).

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, 2017 (in thousands). We also mitigate the credit risk on investments by generally investing in investments that have short-term maturities.

Table 27



Domicile of Counterparty	Overnight		Due 2 – 30 days		Due 31 – 90 days		Total
Domestic	$	299,741	$	—	$	—	$	299,741
U.S. subsidiaries of foreign commercial banks	42,000		—		—		42,000
Total domestic and U.S. subsidiaries of foreign commercial banks	341,741		—		—		341,741
U.S. Branches and agency offices of foreign commercial banks:
Germany	425,000		—		—		425,000
Norway	425,000		—		—		425,000
Austria	400,000		—		—		400,000
Netherlands	400,000		—		—		400,000
Canada	—		150,003		200,014		350,017
Sweden	—		—		325,010		325,010
Total U.S. Branches and agency offices of foreign commercial banks	1,650,000		150,003		525,024		2,325,027
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE¹	$	1,991,741	$	150,003	$	525,024	$	2,666,768


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

Unsecured credit exposure continues to be cautiously placed, with exposure concentrated domestically and in the countries listed in Table 27. In addition, we anticipate continued future investment in reverse repurchase agreements, which are secured investments, and limiting unsecured exposure, especially to foreign financial institutions, as long as the interest rates are comparable. To enhance our liquidity position, we classify our unsecured short-term investment securities in our trading portfolio, which allows us to sell these securities if necessary.

Long-term investments – Our long-term investment portfolio consists primarily of MBS and GSE debentures. Our Risk Management Policy (RMP) restricts the acquisition of investments to highly rated long-term securities. The majority of these long-term securities are GSE MBS, which provide an alternative means to promote liquidity in the mortgage finance markets while providing acceptable returns. We hold fixed and variable rate GSE debentures in our long-term investment portfolio and we swap the fixed rate GSE debentures from fixed to variable rates. They provide attractive returns, can serve as excellent collateral (e.g., repurchase agreements and net derivatives exposure), and are generally classified as trading securities and carried at fair value, either to enhance our liquidity position, for asset/liability management purposes, or to provide a fair value offset to the gains or losses on the interest rate swaps tied to these securities. The interest rate swaps do not qualify for hedge accounting, which results in the net interest payments or receipts on these economic hedges flowing through net gain (loss) on derivatives and hedging activities instead of net interest income.

According to FHFA regulation, no additional MBS purchases can be made if the amortized cost of our mortgage securities exceeds 300 percent of our regulatory capital. Further, quarterly increases in holdings of mortgage securities are restricted to no more than 50 percent of regulatory capital. As of September 30, 2017, the amortized cost of our MBS portfolio represented 307 percent of our regulatory capital; however, we were in compliance with the regulatory limit at the time of each purchase during the current quarter.

As of September 30, 2017, we held $4.7 billion of par value in MBS in our held-to-maturity portfolio, $1.4 billion of par value in MBS in our available-for-sale portfolio, and $0.9 billion of par value in MBS in our trading portfolio. The majority of the MBS in the held-to-maturity portfolio are variable rate GSE securities. The majority of the MBS in the trading and available-for-sale portfolios are fixed rate GSE securities, which are swapped from fixed to variable rates.

Major Security Types – Securities for which we have the ability and intent to hold to maturity are classified as held-to-maturity securities and recorded at carrying value, which is the net total of par, premiums, discounts and credit and non-credit OTTI discounts. We classify certain investments as trading or available-for-sale securities and carry them at fair value, generally for liquidity purposes, to provide a fair value offset to the gains (losses) on the interest rate swaps tied to swapped securities, and for asset/liability management purposes. Securities acquired as asset/liability management tools to manage duration risk, which are likely to be sold when the duration risk is no longer present, are classified as trading or available-for-sale securities. Changes in the fair values of investments classified as trading are recorded through other income and original premiums/discounts on these investments are not amortized. We do not actively trade any of these securities with the intent of realizing gains; most often, they are held until maturity or call date.

Traditionally, if fixed rate securities were hedged with interest rate swaps, we would classify the securities as trading investments so that the changes in fair values of both the derivatives hedging the securities and the hedged securities are recorded in other income. However, during 2015, we began classifying our newly acquired swapped fixed rate multi-family GSE MBS as available-for-sale and designating the corresponding interest rate swaps as fair value benchmark hedges. See Note 3 of the Notes to Financial Statements under Item 1 of this report for additional information on our different investment classifications including what types of securities are held under each classification. The carrying value of our investments is summarized by security type in Table 28 (in thousands).

Table 28



	09/30/2017		12/31/2016
Trading securities:
Certificates of deposit	$	675,027	$	—
GSE debentures	1,357,859		1,563,351
Mortgage-backed securities:
U.S. obligation MBS	604		690
GSE MBS	939,893		938,747
Total trading securities	2,973,383		2,502,788
Available-for-sale securities:
GSE MBS	1,464,472		1,091,721
Total available-for-sale securities	1,464,472		1,091,721
Held-to-maturity securities:
State or local housing agency obligations	94,625		105,780
Mortgage-backed securities:
U.S. obligation MBS	133,342		36,331
GSE MBS	4,429,372		4,250,547
Private-label residential MBS	83,193		109,566
Total held-to-maturity securities	4,740,532		4,502,224
Total securities	9,178,387		8,096,733

Interest-bearing deposits	301,208		387,920

Federal funds sold	1,692,000		2,725,000

Securities purchased under agreements to resell	2,595,589		2,400,000
TOTAL INVESTMENTS	$	13,767,184	$	13,609,653

The contractual maturities of our investments are summarized by security type in Table 29 (dollar amounts in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 29



	09/30/2017
	Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Carrying Value
Trading securities:
Certificates of deposit	$	675,027		$	—		$	—		$	—		$	675,027
GSE debentures	344,007			602,163			411,689			—			1,357,859
Mortgage-backed securities:
U.S. obligation MBS	—			—			604			—			604
GSE MBS	—			—			867,667			72,226			939,893
Total trading securities	1,019,034			602,163			1,279,960			72,226			2,973,383
Yield on trading securities	1.20		%	1.16		%	2.88		%	2.18		%
Available-for-sale securities:
GSE MBS	—			89,899			1,316,997			57,576			1,464,472
Total available-for-sale securities	—			89,899			1,316,997			57,576			1,464,472
Yield on available-for-sale securities	—		%	2.09		%	2.60		%	2.61		%
Held-to-maturity securities:
State or local housing agency obligations	—			2,270			—			92,355			94,625
Mortgage-backed securities:
U.S. obligation MBS	—			—			—			133,342			133,342
GSE MBS	114			274,107			1,540,549			2,614,602			4,429,372
Private-label residential MBS	1,605			3,237			1,921			76,430			83,193
Total held-to-maturity securities	1,719			279,614			1,542,470			2,916,729			4,740,532
Yield on held-to-maturity securities	2.00		%	1.49		%	1.86		%	1.77		%

Total securities	1,020,753			971,676			4,139,427			3,046,531			9,178,387
Yield on total securities	1.21		%	1.34		%	2.41		%	1.79		%

Interest-bearing deposits	301,208			—			—			—			301,208

Federal funds sold	1,692,000			—			—			—			1,692,000

Securities purchased under agreements to resell	2,595,589			—			—			—			2,595,589
TOTAL INVESTMENTS	$	5,609,550		$	971,676		$	4,139,427		$	3,046,531		$	13,767,184

Securities Ratings – Tables 30 and 31 present the carrying value of our investments by rating as of September 30, 2017 and December 31, 2016 (in thousands). The ratings presented are the lowest ratings available for the security or the issuer based on NRSROs, where available. Some counterparties for collateralized overnight borrowing are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. We also utilize other credit quality factors when analyzing potential investments including, but not limited to, collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, and/or the financial health of the underlying issuer.

Table 30



	09/30/2017
	Carrying Value¹
	Investment Grade								Below Triple-B		Unrated		Total
	Triple-A		Double-A		Single-A		Triple-B
Interest-bearing deposits²	$	741	$	1,467	$	299,000	$	—	$	—	$	—	$	301,208

Federal funds sold²	—		—		1,692,000		—		—		—		1,692,000

Securities purchased under agreements to resell³	—		—		—		—		—		2,595,589		2,595,589

Investment securities:
Non-mortgage-backed securities:
Certificates of deposit²	—		525,024		150,003		—		—		—		675,027
GSE debentures	—		1,357,859		—		—		—		—		1,357,859
State or local housing agency obligations	64,625		30,000		—		—		—		—		94,625
Total non-mortgage-backed securities	64,625		1,912,883		150,003		—		—		—		2,127,511
Mortgage-backed securities:
U.S. obligation MBS	—		133,946		—		—		—		—		133,946
GSE MBS	—		6,833,737		—		—		—		—		6,833,737
Private label residential MBS	—		2,492		4,777		31,828		43,650		446		83,193
Total mortgage-backed securities	—		6,970,175		4,777		31,828		43,650		446		7,050,876

TOTAL INVESTMENTS	$	65,366	$	8,884,525	$	2,145,780	$	31,828	$	43,650	$	2,596,035	$	13,767,184


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of $14.5 million at September 30, 2017.


²	Amounts include unsecured credit exposure with original maturities ranging between overnight to 96 days.


³	Amounts represent collateralized overnight borrowings by counterparty rating.

Table 31



	12/31/2016
	Carrying Value¹
	Investment Grade								Below Triple-B		Unrated		Total
	Triple-A		Double-A		Single-A		Triple-B
Interest-bearing deposits²	$	148	$	2,772	$	385,000	$	—	$	—	$	—	$	387,920

Federal funds sold²	—		600,000		2,125,000		—		—		—		2,725,000

Securities purchased under agreements to resell³	—		—		—		—		—		2,400,000		2,400,000

Investment securities:
Non-mortgage-backed securities:
GSE debentures	—		1,563,351		—		—		—		—		1,563,351
State or local housing agency obligations	65,725		30,000		10,055		—		—		—		105,780
Total non-mortgage-backed securities	65,725		1,593,351		10,055		—		—		—		1,669,131
Mortgage-backed securities:
U.S. obligation MBS	—		37,021		—		—		—		—		37,021
GSE MBS	—		6,281,015		—		—		—		—		6,281,015
Private label residential MBS	—		666		9,089		43,379		56,393		39		109,566
Total mortgage-backed securities	—		6,318,702		9,089		43,379		56,393		39		6,427,602

TOTAL INVESTMENTS	$	65,873	$	8,514,825	$	2,529,144	$	43,379	$	56,393	$	2,400,039	$	13,609,653


¹	Investment amounts represent the carrying value and do not include related accrued interest receivable of $13.3 million at December 31, 2016.


²	Amounts include unsecured credit exposure with overnight original maturities.


³	Amounts represent collateralized overnight borrowings by counterparty rating.

Table 32 details interest rate payment terms for the carrying value of our investment securities as of September 30, 2017 and December 31, 2016 (in thousands). We manage the interest rate risk associated with our fixed rate MBS and non-MBS trading securities as well as our fixed rate MBS available-for-sale securities by entering into interest rate swaps that convert the investment's fixed rate to a variable rate index (see Tables 42 and 43 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk)."

Table 32



	09/30/2017		12/31/2016
Trading securities:
Non-mortgage-backed securities:
Fixed rate	$	1,086,716	$	618,423
Variable rate	946,170		944,928
Non-mortgage-backed securities	2,032,886		1,563,351
Mortgage-backed securities:
Fixed rate	865,557		851,774
Variable rate	74,940		87,663
Mortgage-backed securities	940,497		939,437
Total trading securities	2,973,383		2,502,788
Available-for-sale securities:
Mortgage-backed securities:
Fixed rate	1,464,472		1,091,721
Total available-for-sale securities	1,464,472		1,091,721
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate	94,625		105,780
Non-mortgage-backed securities	94,625		105,780
Mortgage-backed securities:
Fixed rate	193,076		236,612
Variable rate	4,452,831		4,159,832
Mortgage-backed securities	4,645,907		4,396,444
Total held-to-maturity securities	4,740,532		4,502,224
TOTAL	$	9,178,387	$	8,096,733

Private-label Mortgage-backed Securities – The carrying value of our portfolio of private-label MBS is less than one percent of total assets. We classify private-label MBS as prime, Alt-A and subprime based on the originator’s classification at the time of origination or based on classification by an NRSRO upon issuance of the MBS.

Table 33 presents a summary of the UPB of private-label MBS by interest rate type and by type of collateral (in thousands):

Table 33



	09/30/2017						12/31/2016
	Fixed Rate¹		Variable Rate¹		Total		Fixed Rate¹		Variable Rate¹		Total
Private-label residential MBS:
Prime	$	5,792	$	49,043	$	54,835	$	10,924	$	58,725	$	69,649
Alt-A	10,888		25,841		36,729		16,361		33,497		49,858
TOTAL	$	16,680	$	74,884	$	91,564	$	27,285	$	92,222	$	119,507


¹	The determination of fixed or variable rate is based upon the contractual coupon type of the security.

Almost all of our private-label MBS were securitized prior to 2006, and there are no securities in the portfolio issued after April 2006. As a result of this higher quality, well-seasoned portfolio, we have not experienced significant losses in our private-label MBS portfolio from OTTI. Table 34 presents statistical information for our private-label MBS by rating (dollar amounts in thousands):

Table 34



	09/30/2017
Private-label residential MBS:
UPB by credit rating:
Double-A	$	2,493
Single-A	4,779
Triple-B	31,946
Double-B	12,437
Single-B	14,723
Triple-C	6,894
Double-C	1,801
Single-D	16,046
Unrated	445
TOTAL	$	91,564

Amortized cost	$	87,637
Unrealized losses	(2,989		)
Fair value	86,384

OTTI:
Credit-related OTTI charge taken year-to-date	$	464
Non-credit-related OTTI charge taken year-to-date	(370		)
TOTAL	$	94

Weighted average percentage of fair value to UPB	94.3		%
Original weighted average credit support¹	5.3
Weighted average credit support¹	12.9
Weighted average collateral delinquency²	9.1


¹	Credit support is defined as the percentage of subordinate tranches and over-collateralization, if any, in a security structure that will absorb losses before the holders of the security will incur losses.


²	Collateral delinquency is based on the sum of loans greater than 60 days delinquent plus loans in foreclosure plus loans in bankruptcy plus REO.

Deposits: Total deposits decreased $48.3 million from December 31, 2016 to September 30, 2017. Deposit products offered primarily include demand and overnight deposits and short-term certificates of deposit. Demand deposit programs are offered primarily to facilitate customer transactions with us, such as cash flows associated with advances and mortgage loan transactions. Overnight deposits provide an alternative short-term investment option to members. The majority of deposits are in overnight or demand accounts that generally re-price daily based upon a market index such as overnight Federal funds. The level of deposits is driven by member demand for deposit products, which in turn is a function of the liquidity position of members. Factors that influence deposit levels include turnover in member investment and loan portfolios, changes in members’ customer deposit balances, changes in members’ demand for liquidity and our deposit pricing as compared to other short-term market rates. Declines in the level of deposits could occur if demand for loans at member institutions increases, if members choose to de-leverage their balance sheets, or if decreases in the general level of liquidity of members should occur. Fluctuations in deposits have little impact on our ability to obtain liquidity. We historically have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with similarly or even lower priced borrowings.

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

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

Discount notes are primarily used to fund: (1) shorter-term advances with indices and resets based on our short-term cost of funds; and (2) investments with maturities of three months or less. However, we sometimes use discount notes to fund longer-term assets, including fixed rate assets, variable rate assets, assets swapped to synthetically create variable rate assets, and short-term anticipated cash flows generated by longer-term fixed rate assets. At September 30, 2017, short-term advances (advances maturing within one year), including line of credit advances, represented 75.2 percent of discount notes outstanding. We also use discount notes to fund overnight investments (Federal funds sold and reverse repurchase agreements) to maintain liquidity sufficient to meet the advance needs of members. Overnight investments represented 20.1 percent of discount notes outstanding as of September 30, 2017.

Total consolidated obligations increased 9.1 percent from December 31, 2016 to September 30, 2017. The distribution between consolidated obligation bonds and discount notes shifted from December 31, 2016 to September 30, 2017, as discount notes decreased from 51.2 percent of total outstanding consolidated obligations as of December 31, 2016 to 45.9 percent as of September 30, 2017 and consolidated obligation bonds increased from 48.8 percent as of December 31, 2016 to 54.1 percent as of September 30, 2017. We increased the allocation of floating rate consolidated obligation bonds with longer-term structures to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and debt ceiling deadline. We were able to increase the allocation of consolidated obligation bonds due to an improvement in spreads during the last half of 2016 as a result of an increase in the LIBOR swap curve and increased demand for consolidated obligations largely attributed to money market fund reforms. As discussed previously, we were able to replace some maturing and unswapped callable bonds with lower cost bonds during the last half of 2016, which has partially offset the increased cost of debt as a result of the increase in interest rates during 2017. Replacing callable debt generally increases interest costs in the short term due to the acceleration of the unamortized concessions on the called debt because concession costs are amortized to contractual maturity. However, this increase is offset by the lower rate on the new debt and the funding benefit due to the timing differences between the date the debt is called and the forward settlement date of the new debt (conventionally not exceeding 30 days).

While we currently have stable access to funding markets, future developments could impact the cost of replacing outstanding debt. Some of these include, but are not limited to, a large increase in call volume, significant increases in advance demand, legislative and regulatory changes, geopolitical events, proposals addressing GSEs, derivative and financial market reform, a decline in investor demand for consolidated obligations, further rating agency downgrades of U.S. Treasury obligations that will in turn impact the rating on FHLBank consolidated obligations, and changes in Federal Reserve policies and outlooks.

Liquidity and Capital Resources

Liquidity: We maintain high levels of liquidity to achieve our mission of serving as an economical funding source for our members and housing associates. As part of fulfilling our mission, we also maintain minimum liquidity requirements in accordance with certain FHFA regulations and guidelines and in accordance with policies established by management and the Board of Directors. Our business model enables us to manage the levels of our assets, liabilities, and capital in response to member credit demand, membership composition, and market conditions. As such, assets and liabilities utilized for liquidity purposes can vary significantly in the normal course of business due to the amount and timing of cash flows as a result of these factors.

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

During the nine months ended September 30, 2017, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were $14.3 billion and $701.8 billion, respectively, compared to $14.3 billion and $389.0 billion for the same period in 2016. The large increase in the issuance of discount notes between periods reflects the cumulative effect of using a higher allocation of overnight discount notes during the first nine months of 2017 compared to the first nine months of 2016. We generally use short-term discount notes to fund short-term advances and our short-term liquidity portfolio, but we funded a larger percentage of our assets with discount notes in the first half of 2016 due to market conditions that increased the cost of consolidated obligation bonds indexed or swapped to LIBOR. During the second and third quarters of 2017, we began increasing the allocation of longer-term floating rate consolidated obligation bonds to increase liquidity in response to uncertainty surrounding the pending Congressional budget resolution and the debt ceiling deadline. Our other sources of liquidity include deposit inflows, repayments of advances and mortgage loans, maturing investments, interest income, Federal Funds purchased, and proceeds from reverse repurchase agreements or the sale of unencumbered assets.

At September 30, 2017, our short-term liquidity portfolio, which consists of cash and investments with remaining maturities of one year or less and includes term and overnight Federal funds sold, certificates of deposit, commercial paper, and reverse repurchase agreements, decreased $0.3 billion, from $5.9 billion as of December 31, 2016 to $5.6 billion as of September 30, 2017. The maturities of our short-term investments are structured to provide periodic cash flows to support our ongoing liquidity needs. To enhance our liquidity position, short-term investment securities (i.e., commercial paper and marketable certificates of deposit) are also classified as trading so that they can be readily sold should liquidity be needed immediately. We also maintain a portfolio of GSE debentures and GSE MBS that can be pledged as collateral for financing in the securities repurchase agreement market and are classified as trading to enhance our liquidity position. The par value of these debentures was $1.3 billion and $1.5 billion as of September 30, 2017 and December 31, 2016, respectively. We held GSE MBS with a par value of $926.1 million and $940.6 million as of September 30, 2017 and December 31, 2016, respectively. In addition to the balance sheet sources of liquidity discussed previously, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. Accordingly, we expect to maintain a sufficient level of liquidity for the foreseeable future.

We strive to manage our average capital ratio to remain above our minimum regulatory and RMP requirements so that we have the ability to issue additional consolidated obligations should the need arise. Excess capital capacity ensures we are able to meet the liquidity needs of our members and/or repurchase excess stock either upon the submission of a redemption request by a member or at our discretion for balance sheet or capital management purposes.

Our uses of liquidity primarily include issuing advances, purchasing investments, and repaying called and maturing consolidated obligations for which we are the primary obligor. We also use liquidity to purchase mortgage loans, repay member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, and pay dividends to members.

During the nine months ended September 30, 2017, advance disbursements totaled $392.3 billion compared to $106.7 billion for the same period in 2016. During the nine months ended September 30, 2017, investment purchases (excluding overnight investments) totaled $3.1 billion compared to $2.1 billion for the same period in 2016. During the nine months ended September 30, 2017, payments on consolidated obligation bonds and discount notes were $9.9 billion and $702.3 billion, respectively, compared to $15.8 billion and $385.3 billion for the same period in 2016, which includes bonds that were called during the period. The large increase in payments on discount notes between periods primarily reflects the cumulative effect of using a higher allocation of overnight discount notes during the first nine months of 2017.

Liquidity Requirements – We are subject to five metrics for measuring liquidity: statutory, operational, and contingency liquidity, and calendar day guidelines under different scenarios. Statutory liquidity requires us to have an amount equal to current deposits received from members invested in obligations of the United States, deposits in eligible banks or trust companies, and advances with a final maturity not exceeding five years. Operational liquidity requires that we maintain liquidity in an amount not less than 20 percent of the sum of our demand and overnight deposits and other overnight borrowings, plus 10 percent of the sum of our term deposits, consolidated obligations, and other borrowings that mature within one year. Contingency liquidity is an amount sufficient to meet our liquidity needs for five business days if we are unable to access the capital markets to issue consolidated obligations. Our net liquidity in excess of contingency liquidity over a cumulative five-business-day period was $10.8 billion as of September 30, 2017. Contingency plans are in place at the FHLBank and the Office of Finance that prioritize the allocation of liquidity resources in the event of financial market disruptions, as well as systemic Federal Reserve wire transfer system disruptions. Further, under the Bank Act, the Secretary of Treasury has the authority, at his discretion, to purchase consolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

In addition to the liquidity measures described above, we are required by the FHFA to meet two daily liquidity standards, each of which assumes that we are unable to access the market for consolidated obligations. The first standard requires us to maintain sufficient funds to meet our obligations for 15 days under a scenario in which it is assumed that members do not renew any maturing advances. The second standard requires us to maintain sufficient funds to meet our obligations for five days under a scenario in which it is assumed that members renew all maturing advances. We remained in compliance with each of these liquidity requirements throughout the first nine months of 2017. See “Risk Management - Liquidity Risk Management” under this Item 2 for additional discussion on our liquidity requirements.

In order to ensure sufficient liquidity, we generally maintain a relatively longer weighted-average maturity on our consolidated obligation discount notes than the weighted average maturity of short-term liquid investment balances. The weighted average remaining days to maturity of discount notes outstanding increased to 39 days as of September 30, 2017 from 32 days at December 31, 2016 as we issued discount notes with an original maturity of approximately one year during the first quarter of 2017 to fund longer term assets, in anticipation of an increase in interest rates. The weighted average remaining maturity of our money market investment portfolio (Federal funds sold, marketable certificates of deposit, commercial paper and reverse repurchase agreements) and non-earning cash left in our Federal Reserve Bank account was 8 days and 3 days as of September 30, 2017 and December 31, 2016, respectively, because we held primarily short-term investments with overnight maturities as of those dates. The mismatch of discount notes and our money market investment portfolio increased from 29 days on December 31, 2016 to 31 days on September 30, 2017 as a result of the increase in the weighted average remaining days to maturity of our discount notes. Over time, especially as the yield curve steepens on the short end, maintaining the differential between the weighted average original maturity of discount notes and money market investments will increase our cost of funds and reduce our net interest income.

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

Capital stock outstanding increased 19.6 percent from December 31, 2016 to September 30, 2017, primarily due to increased utilization of advances. Under our capital plan, members must purchase additional activity-based stock as they enter into advance transactions with us. The amount required is subject to change within ranges established under our capital plan.

Excess stock represents the amount of stock held by a member in excess of that institution’s minimum stock requirement. Upon reducing the activity-based stock purchase requirement, through a mandated change or through a reduction of advance balances, excess stock is created since the member is no longer required under our capital plan to hold the same amount of activity-based capital stock. If our excess stock exceeds 1.0 percent of our assets before or after the payment of a dividend in the form of stock, we would be prohibited by FHFA regulation from paying dividends in the form of stock. To manage the amount of excess stock, we repurchase excess Class A Common Stock over FHLBank-established limits held by any individual member periodically throughout the year. Our current practices include repurchasing all outstanding excess Class A Common Stock, generally on a monthly basis, and regular weekly exchanges of all excess Class B Common Stock over $50,000 per member for Class A Common Stock.

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

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

Table 35 provides a summary of member capital requirements under our current capital plan as of September 30, 2017 and December 31, 2016 (in thousands):

Table 35



Requirement	09/30/2017		12/31/2016
Asset-based (Class A Common Stock only)	$	156,696	$	156,291
Activity-based (additional Class B Common Stock)¹	1,168,406		980,747
Total Required Stock²	1,325,102		1,137,038
Excess Stock (Class A and B Common Stock)	147,338		92,307
Total Stock²	$	1,472,440	$	1,229,345

Activity-based Requirements:
Advances³	$	1,269,962	$	1,075,517
AMA assets (mortgage loans)⁴	1,003		1,192
Total Activity-based Requirement	1,270,965		1,076,709
Asset-based Requirement (Class A Common Stock) not supporting member activity¹	54,137		60,329
Total Required Stock²	$	1,325,102	$	1,137,038


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


²	Includes mandatorily redeemable capital stock.


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


⁴	Non-members are subject to the AMA activity-based stock requirement as long as there are UPBs outstanding, but the requirement is currently zero percent for members.

We are subject to three capital requirements under provisions of the GLB Act, the FHFA’s capital structure regulation and our current capital plan, which includes risk-based capital requirement, total capital requirement and leverage capital requirement. We have been in compliance with each of the aforementioned capital rules and requirements at all times since the implementation of our capital plan. See Note 11 of the Notes to Financial Statements under Item 1 for additional information and compliance as of September 30, 2017 and December 31, 2016.

Capital Distributions: Dividends may be paid in cash or capital stock as authorized by our Board of Directors. Quarterly dividends can be paid out of current and previous unrestricted retained earnings, subject to FHFA regulation and our capital plan.

Within our capital plan, we have the ability to pay different dividend rates to the holders of Class A Common Stock and Class B Common Stock. This differential is implemented through a methodology referred to as the dividend parity threshold. Holders of Class A Common Stock and Class B Common Stock share in dividends equally up to the dividend parity threshold for a dividend period, then the dividend rate for holders of Class B Common Stock can exceed the rate for holders of Class A Common Stock, but the dividend rate on Class A Common Stock can never exceed the dividend rate on Class B Common Stock. In essence, the dividend parity threshold: (1) serves as a soft floor to holders of Class A Common Stock since we must pay holders of Class A Common Stock the dividend parity threshold rate before paying a higher rate to holders of Class B Common Stock; (2) indicates a potential dividend rate to holders of Class A Common Stock so that they can make decisions as to whether or not to hold excess Class A Common Stock; and (3) provides us with a tool to manage the amount of excess stock through higher or lower dividend rates by varying the desirability of holding excess shares of Class A Common Stock (i.e., the lower the dividend rate on Class A Common Stock, the less desirable it is to hold excess Class A Common Stock).

The current dividend parity threshold is equal to the average effective overnight Federal funds rate for a dividend period minus 100 basis points. This dividend parity threshold was effective for dividends paid for all of 2016 and 2017 and will continue to be effective until such time as it may be changed by our Board of Directors. The dividend parity threshold is effectively floored at zero percent when the current overnight Federal funds target rate is less than one percent. Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. Table 36 presents the dividend rates per annum paid on capital stock under our capital plan for the periods indicated:

Table 36



Applicable Rate per Annum	09/30/2017		06/30/2017		03/31/2017		12/31/2016		09/30/2016
Class A Common Stock	1.25	%	1.00	%	1.00	%	1.00	%	1.00	%
Class B Common Stock	6.50		6.50		6.50		6.00		6.00
Weighted Average¹	5.81		5.74		5.73		5.28		5.28
Dividend Parity Threshold:
Average effective overnight Federal funds rate	1.16	%	0.95	%	0.70	%	0.45	%	0.40	%
Spread to index	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)
TOTAL (floored at zero percent)	0.16	%	0.00	%	0.00	%	0.00	%	0.00	%


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

We increased the dividend rate to 1.25 percent on Class A Common Stock in the third quarter of 2017 and increased the dividend rate to 6.50 percent on Class B Common Stock in the first quarter of 2017 to provide a higher percentage payout of quarterly earnings to our members. Adverse changes in market conditions may result in lower dividend rates in future quarters. While there is no assurance that our Board of Directors will not change the dividend parity threshold in the future, the capital plan requires that we provide members with 90 days' notice prior to the end of a dividend period in which a different dividend parity threshold is utilized in the payment of a dividend.

We expect to continue paying dividends primarily in the form of capital stock in 2017, but future dividends may be paid in cash. The payment of cash dividends instead of stock dividends should not have a significant impact from a liquidity perspective, as the subsequent redemption of excess stock created by stock dividends would utilize liquidity resources in the same manner as a cash dividend.

Risk Management

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

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

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

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

Credit risk arising from AMA activities under our MPF Program falls into three categories: (1) the risk of credit losses on the mortgage loans represented in our First Loss Account (FLA) and last loss positions; (2) the risk that a PFI will not perform as promised with respect to its loss position provided through its CE obligations on conventional mortgage loan pools, which are covered by the same collateral arrangements as those described for advances; and (3) the risk that a third-party insurer (obligated under private mortgage insurance (PMI) or supplemental mortgage insurance (SMI) arrangements) will fail to perform as expected. Should a PMI third-party insurer fail to perform, it would increase our credit risk exposure because our FLA is the next layer to absorb credit losses on conventional mortgage loan pools. Likewise, if an SMI third-party insurer fails to perform, it would increase our credit risk exposure because it would reduce the participating member’s CE obligation loss layer since SMI is purchased by PFIs to cover all or a portion of their CE obligation exposure for mortgage pools. Credit risk exposure to third-party insurers to which we have PMI and/or SMI exposure is monitored on a monthly basis and regularly reported to the Board of Directors. We perform credit analysis of third-party PMI and SMI insurers on at least an annual basis. On a monthly basis, we review trends that could identify risks with our mortgage loan portfolio, including low FICO scores and high LTV ratios. Based on the credit underwriting standards under the MPF Program and this monthly review, we have concluded that the mortgage loans we hold would not be considered subprime.

Investments – Our RMP restricts the acquisition of investments to high-quality, short-term money market instruments and highly rated long-term securities. The short-term investment portfolio represents unsecured credit and reverse repurchase agreements. Counterparty ratings are monitored daily while performance and capital adequacy are monitored on a monthly basis in an effort to mitigate unsecured credit risk on our short-term investments. Collateral eligibility and transaction margin requirements on our reverse repurchase agreements are monitored daily. MBS represent the majority of our long-term investments. We hold MBS issued by Ginnie Mae and GSEs, and private-label MBS rated triple-A at the time of purchase. Most of our MBS portfolio is securitized by Fannie Mae or Freddie Mac. All of our private-label MBS have been downgraded below triple-A subsequent to purchase (see Table 34), but the downgraded securities have been and are currently paying according to contractual agreements with the exception of seven securities that have experienced immaterial cash flow shortfalls. Other long-term investments include unsecured GSE debentures and collateralized state and local housing finance agency securities that were rated at least double-A at the time of purchase.

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

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

Uncleared Derivatives. We are subject to non-performance by the counterparties to our uncleared derivative transactions. We recently entered into updated bilateral security agreements with our non-member counterparties with bilateral-collateral-exchange provisions that require all credit exposures be collateralized regardless of credit rating, subject to a minimum transfer amount. Previously, some of our uncleared derivative instruments contained provisions that required the counterparty to deliver additional collateral to us if there was deterioration in that counterparty’s credit rating. As a result of these risk mitigation practices, we do not anticipate any credit losses on our uncleared derivative transactions as of September 30, 2017.

Cleared Derivatives. We are subject to nonperformance by the Clearinghouse(s) and clearing agent(s). The requirement that we post initial and variation margin, through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral and/or payments are posted daily for changes in the value of cleared derivatives through a clearing agent. We do not anticipate any credit losses on our cleared derivatives as of September 30, 2017.

We regularly monitor the exposures on our derivative transactions by determining the market value of positions using internal pricing models. The market values generated by the pricing model used to value derivatives are compared to dealer model results on a monthly basis to ensure that our derivative pricing model is reasonably calibrated to actual market pricing methodologies utilized by the dealers. In addition, we have our internal pricing model validated annually by an independent consultant. As a result of these risk mitigation initiatives, management does not anticipate any credit losses on our derivative transactions. See Note 7 of the Notes to Financial Statements under Item 1 for additional information on managing credit risk on derivatives.

The contractual or notional amount of derivative transactions reflects our involvement in the various classes of financial instruments. The maximum credit risk with respect to derivative transactions is the estimated cost of replacing the derivative transactions if there are defaults, minus the value of any related collateral posted to satisfy the initial margin (if required) and the variation margin. Our derivative transactions are subject to variation margin which is derived from the change in market value of the transaction and must be posted by the net debtor on demand. Cleared transactions are subject to initial margin as well as variation margin. The initial margin is intended to protect the Clearinghouse against default of a clearing agent and to protect the clearing agent against default of a customer. Initial margin is calculated to cover the potential price volatility of the derivative transaction between the time of the default and the assignment of the transaction to another clearing agent or termination of the transaction. Although the initial margin requirement should decrease over time as the duration and market volatility decrease, it remains outstanding for the life of the transaction; thus, it is possible that we could either have: (1) net credit exposure with a Clearinghouse even if our net creditor position has been fully satisfied by the receipt of variation margin; or (2) net credit exposure with a Clearinghouse despite being the net debtor (i.e., being in a liability position). In determining maximum credit risk, we consider accrued interest receivables and payables as well as the netting requirements to net assets and liabilities.

Tables 37 and 38 present derivative notional amounts and counterparty credit exposure by whole-letter rating (in the event of a split rating, we use the lowest rating published by Moody's or Standard and Poor's) for derivative positions with counterparties to which we had credit exposure (in thousands):

Table 37



09/30/2017
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral and Variation Margin for Daily Settled Contracts			Cash Collateral Pledged From (To) Counterparty and Variation Margin for Daily Settled Contracts¹			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Double-A	$	1,098,013	$	1,364		$	576		$	788
Single-A	2,225,321		17,554			15,881			1,673
Cleared derivatives²	2,284,994		5,730			(2,091		)	7,821
Liability positions with credit exposure:
Uncleared derivatives³:
Single-A	3,803,969		(16,068		)	(19,892		)	3,824
Triple-B	392,320		(2,225		)	(2,655		)	430
Cleared derivatives²	3,037,450		(16,346		)	(52,268		)	35,922
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	12,842,067	$	(9,991	)	$	(60,449	)	$	50,458


¹	Includes variation margin for daily settled contracts of $(444,000) as of September 30, 2017.

Represents derivative transactions cleared with LCH.Clearnet LLC and CME Clearing, which are not rated. LCH.Clearnet LLC's parent company, LCH Group Holdings Ltd. is also not rated; however, London Stock Exchange Group, LCH Group Holdings Ltd.'s ultimate parent, was rated A3 by Moody's and A- by S&P as of September 30, 2017. CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of September 30, 2017.


³	Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.

Table 38



12/31/2016
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Double-A	$	896,943	$	2,958		$	—		$	2,958
Single-A	2,424,306		22,615			20,408			2,207
Cleared derivatives¹	819,470		9,427			782			8,645
Liability positions with credit exposure:
Uncleared derivatives²:
Single-A	2,646,762		(32,555		)	(39,401		)	6,846
Cleared derivatives¹	2,957,331		(19,416		)	(59,446		)	40,030
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	9,744,812	$	(16,971	)	$	(77,657	)	$	60,686


¹	Represents derivative transactions cleared with LCH.Clearnet LLC and CME Clearing, which are not rated. LCH.Clearnet LLC's parent company, LCH Group Holdings Ltd., was rated A+ by S&P and CME Clearing's parent company, CME Group, Inc., was rated A3 by Moody's and AA- by S&P as of December 31, 2016.


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

Foreign Counterparty Risk – Loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets payable to us by entities of foreign countries, regardless of the currency in which the claim is denominated are referred to as "cross-border outstandings." Our cross-border outstandings consist primarily of short-term trading securities and Federal funds sold issued by banks and other financial institutions, which are non-sovereign entities, and derivative asset exposure with counterparties that are also non-sovereign entities. Secured reverse repurchase agreements outstanding are excluded from cross-border outstandings because they are fully collateralized.

In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. We continue to cautiously place unsecured cross-border outstandings.

Table 39 presents the fair value of cross-border outstandings to countries in which we do business as of September 30, 2017 (dollar amounts in thousands):

Table 39



	Total¹
	Amount			Percent of Total Assets
Federal funds sold²	$	1,650,000		3.3	%

Trading securities³	675,027			1.4

Derivative assets:
Net exposure at fair value	(8,127		)
Cash collateral held	10,324
Net exposure after cash collateral	2,197			—

TOTAL	$	2,327,224		4.7	%


¹	Represents foreign countries where individual exposure is less than one percent of total assets. Total cross-border outstandings to countries that individually represented between 0.75 and 1.0 percent of our total assets as of September 30, 2017 were $1.7 billion (Austria, Germany, Netherlands and Norway).


²	Consists solely of overnight Federal funds sold.


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

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

Operational liquidity, or the ability to meet operational requirements in the normal course of business, is currently defined in our RMP as sources of cash from both our ongoing access to the capital markets and our holding of liquid assets. We manage exposure to operational liquidity risk by maintaining appropriate daily liquidity levels above the thresholds established by our RMP. We are also required to manage liquidity in order to meet statutory and contingency liquidity requirements and FHFA liquidity guidelines by maintaining a daily liquidity level above certain thresholds also outlined in the RMP, federal statutes, FHFA regulations and other FHFA guidance not issued in the form of regulations. We remained in compliance with each of these liquidity requirements throughout the third quarter of 2017.

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

We generally maintained stable access to the capital markets for the quarter ended September 30, 2017. For additional discussion of the market for our consolidated obligations and the overall market affecting liquidity see “Financial Market Trends” under this Item 2.

Our derivative instruments contain provisions that require all credit exposures be collateralized. See Note 7 of the Notes to Financial Statements under Item 1 for additional information on collateral posting requirements.

Recently Issued Accounting Standards

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

Legislative and Regulatory Developments

Information Security Management Advisory Bulletin. On September 28, 2017, the FHFA issued an Advisory Bulletin, effective upon issuance, that supersedes previous guidance on an FHLBank’s information security program. The Advisory Bulletin describes three main components of an information security program and provides the expectation that each FHLBank will use a risk-based approach to implement its information security program. The Advisory Bulletin contains expectations related to: (1) governance, including guidance related to roles and responsibilities, risk assessments, industry standards, and cyber-insurance; (2) engineering and architecture, including guidance on network security, software security, and security of endpoints; and (3) operations, including guidance on continuous monitoring, vulnerability management, baseline configuration, asset life cycle, awareness and training, incident response and recovery, user access management, data classification and protection, oversight of third parties, and threat intelligence sharing.

We do not expect this advisory bulletin to materially affect our financial condition or results of operations.

Minority and Women Inclusion. On July 25, 2017, the FHFA published a final rule, effective August 24, 2017, amending its Minority and Women Inclusion regulations to clarify the scope of the FHLBanks’ obligation to promote diversity and ensure inclusion. The final rule updates the existing FHFA regulations aimed at promoting diversity and the inclusion and use of minorities, women, and individuals with disabilities, and the businesses they own (MWDOB) in all FHLBank business and activities, including management, employment, and contracting. The final rule will:


•	require the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;


•	encourage the FHLBanks to expand contracting opportunities for minorities, women, and individuals with disabilities through subcontracting arrangements;


•	require the FHLBanks to develop policies that address reasonable accommodations for employees to observe their religious beliefs;


•	require the FHLBanks to amend their policies on equal opportunity in employment by adding sexual orientation, gender identity, and status as a parent to the list of protected classifications;

•

require the FHLBanks to provide information in their annual reports to the FHFA about their efforts to advance diversity and inclusion through financial transactions, identification of ways in which FHLBanks might be able to improve MWDOB business with the FHLBank by enhancing customer access by MWDOB businesses, including through its affordable housing and community investment programs and strategies for promoting the diversity of supervisors and managers; and


•	require the FHLBanks to classify and provide additional data in their annual reports about the number of and amounts paid under its contracts with MWDOB.

We do not expect this final rule to materially affect our financial condition or results of operations, but anticipate that it may result in increased compliance costs and substantially increase the amount of tracking, monitoring, and reporting that would be required.

FHLBank Capital Requirements. On July 3, 2017, the FHFA published a proposed rule to adopt, with amendments, the regulations of the Federal Housing Finance Board (predecessor to the FHFA) pertaining to the capital requirements for the FHLBanks. The proposed rule would carry over most of the existing regulations without material change but would substantively revise the credit risk component of the risk-based capital requirement, as well as the limitations on extensions of unsecured credit. The main revisions would remove requirements that the FHLBanks calculate credit risk capital charges and unsecured credit limits based on ratings issued by an NRSRO, and instead, require that the FHLBanks establish and use their own internal rating methodology. With respect to derivatives, the proposed rule would impose a new capital charge for cleared derivatives, which under the existing rule do not carry a capital charge, to align with the Dodd-Frank Act’s clearing mandate. The proposed rule also would revise the percentages used in the regulation’s tables to calculate credit risk capital charges for advances and for non-mortgage assets. The FHFA proposes to retain, for now, the percentages used in the tables to calculate capital charges for mortgage-related assets, and to address the methodology for residential mortgage assets at a later date. While a March 2009 regulatory directive pertaining to certain liquidity matters will continue to remain in place, the FHFA also proposes to rescind certain minimum regulatory liquidity requirements for the FHLBanks and address these liquidity requirements in a separate rulemaking.

We submitted a joint comment letter with the other FHLBanks on August 31, 2017. We are continuing to evaluate the proposed rule but do not expect this rule, if adopted in final form, to materially affect our financial condition or results of operations.

FHLBank Membership for Non-Federally-Insured Credit Unions. On June 5, 2017, the FHFA issued a final rule effective July 5, 2017 governing FHLBank membership that would implement statutory amendments to the Bank Act authorizing FHLBanks to accept applications for membership from state-chartered credit unions without federal share insurance, provided that certain prerequisites have been met. The new rule generally treats these credit unions the same as other depository institutions with an additional requirement that they obtain: (1) an affirmative statement from their state regulator that they meet the requirements for federal insurance as of the date of their application for FHLBank membership; (2) a written statement from the state regulator that it cannot or will not make any determination regarding eligibility for federal insurance; or (3) if the regulator fails or refuses to respond to the credit union’s request within six months, confirmation of the failure to receive a response.

We do not expect this rule to materially affect our financial condition or results of operations.

Mandatory Contractual Stay Requirements for Qualified Financial Contracts (QFCs). On September 12, 2017, the Federal Reserve Board (FRB) published a final rule, effective November 13, 2017, requiring certain global systemically important banking institutions (GSIBs) regulated by the FRB to amend their covered qualified financial contracts (QFCs) to limit a counterparty’s immediate termination or exercise of default rights under the QFCs in the event of bankruptcy or receivership of the GSIB or an affiliate of the GSIB. Covered QFCs include derivatives, repurchase agreements and reverse repurchase agreements, and securities lending and borrowing agreements. On September 27, 2017, the Federal Deposit Insurance Corporation (FDIC) adopted a substantively identical final rule, effective January 1, 2018, with respect to QFCs entered into with certain FDIC-supervised institutions.

Although we are not a covered entity under these rules, as a counterparty to covered entities under QFCs, we may be required to amend QFCs entered into with FRB-regulated GSIBs or applicable FDIC-supervised institutions. We do not expect these final rules to materially affect our financial condition or results of operations.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk Management

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

Duration of Equity: DOE aggregates the estimated sensitivity of market value for each of our financial assets and liabilities to changes in interest rates. In essence, DOE indicates the sensitivity of MVE to changes in interest rates. However, MVE should not be considered indicative of our market value as a going concern or our value in a liquidation scenario.

We manage DOE within ranges approved by our Board of Directors as described under Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K, incorporated by reference herein. All our DOE measurements were in compliance with Board of Director established policy limits and operating ranges as of September 30, 2017. On an ongoing basis, we actively monitor portfolio relationships and overall DOE dynamics as a part of our evaluation processes for determining acceptable future asset/liability management actions. Table 40 presents the DOE in the base case and the up and down 200 basis point interest rate shock scenarios as of the periods noted:

Table 40



Duration of Equity
Date	Up 200 Basis Points	Base	Down 200 Basis Points
09/30/2017	2.8	-1.0	2.7
06/30/2017	2.3	-0.4	2.3
03/31/2017	2.2	-1.0	2.3
12/31/2016	2.6	-1.0	3.0
09/30/2016	-0.1	-2.2	1.1

The DOE as of September 30, 2017 increased (became more negative) in the base scenario and increased in the up and down 200 basis point shock scenarios from June 30, 2017. The primary factors contributing to these changes in duration during the period were: (1) the slight increase in long-term interest rates and the relative level of mortgage rates during the period; (2) the slight increase in the fixed rate mortgage loan portfolio during the period along with an increase in the weighting of the portfolio as a percent of total assets; and (3) asset/liability actions taken by management throughout the period, including the continued call and re-issuance of long-term, unswapped callable consolidated obligation bonds with short lock-out periods and the continued issuance of discount notes to fund the growth in advances.

The increase in long-term interest rates during the third quarter of 2017 generally indicates a lengthening duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. With the slight increase in our mortgage loan portfolio during the period, as discussed in Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program,” the portfolio increased as an overall percentage of assets as expected and as the balance sheet contracted, increasing from 13.7 percent of total assets as of June 30, 2017 to 14.3 percent as of September 30, 2017. With this weighting increase, the mortgage loan portfolio continues to represent a sizable portion of the balance sheet, and changes occurring with this portfolio tend to be magnified in terms of DOE. Since the mortgage loan portfolio continues to comprise a considerable percentage of overall assets and has such a high duration relative to our other assets, its behavior is quite visible in the duration risk profile and changes in this portfolio are typically magnified as the composition of assets changes. This magnification occurs when a portfolio market value weighting as a percent of the overall net market value of the balance sheet changes, causing the remaining portfolios to be a smaller or larger component of the total balance sheet composition. For example, if advance balances decrease during a given period, this decrease will cause the mortgage loan portfolio weighting to increase as a total proportion of total assets. Further, if interest rates decrease, the market value gains in the mortgage loan portfolio will cause the mortgage loan portfolio to further increase its sizable percentage of overall market value of assets. This increase in market value of assets will cause the duration for this portfolio to have a greater impact on DOE. In other words, this relationship causes the duration of the mortgage loan portfolio to have a larger contribution impact to the overall DOE since DOE is a market value weighted measurement. With these balance sheet dynamics, we continue to actively manage and monitor the contributing factors of our risk profile, including DOE. As the relationship of the fixed rate mortgage loan assets and the associated callable liabilities vary based on market conditions, we evaluate and manage these market driven sensitivities as both portfolios change in balance level and overall proportion.

New loans were continually added to the mortgage loan portfolio to replace loans that were prepaid during the period and we continue to actively manage this ongoing growth to position the balance sheet sensitivity to perform within our expected risk tolerances. To effectively manage these changes in the mortgage loan portfolio (including new production loans) and related sensitivity to changes in market conditions, a continued issuance of unswapped callable consolidated obligation bonds with short lock-out periods (generally three months) positioned us to also replace called bonds as the interest rate environment continued to remain at historically low levels. The new issuance and call of higher rate callable bonds and reissuance of these bonds at lower interest rates in this manner generally extends the duration profile of this portfolio as bonds are called that are in-the-money (above market rates) and subsequently reissued at lower interest rates (at market rates). This liability extension corresponds with the expected longer duration profile of the new fixed rate mortgage loans, all else being equal.

As discussed above, while long-term interest rates increased based on period-end dates, interest rates continued to remain historically low throughout the quarter and as we continued to experience prepayments of the fixed rate mortgage loan portfolio, the short lock-out periods of the callable bonds plus some maturities of non-callable bonds provided the opportunity to continue the refinancing of our liabilities. The slight increase in long-term interest rates during the period also caused the duration profile of the existing portfolio of unswapped callable bonds to lengthen slightly. This liability lengthening demonstrates the specific duration sensitivity to changes in interest rates at certain shock scenarios where the unswapped callable bonds are more or less sensitive to certain levels of increasing interest rates, causing the overall DOE to increase or decrease, similar to the factors causing the changes in DOE for all interest rate shock scenarios. This sensitivity, or convexity, is further described under Item 7A – "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K for the year ended December 31, 2016. In addition, the relative level of mortgage rates generally contributes significantly to the sensitivity of the fixed rate mortgage loan portfolio causing the duration profile to lengthen or shorten based on the relationship between interest rates, mortgage rates and associated mortgage spreads. Further, issuance of discount notes continued in order to provide adequate liquidity sources to appropriately address customer short-term advance growth and associated capital stock activity during the period. The combination of all these factors contributed to the net DOE changes in all interest rate shock scenarios where the DOE increased (became more negative) in the base scenario and increased in the up and down 200 basis point shock scenarios. The down shock scenario continues to provide limited information since interest rates remain at historically low levels. This low interest rate environment essentially generates zero interest rates for the short- and mid-term interest rates along the down 200 shocked term structure of interest rates, causing valuation changes to be limited, generating DOE results with marginal information.

With respect to the variable rate GSE MBS portfolio, we generally purchase interest rate caps to offset the impact of embedded caps in this portfolio in rising interest rate scenarios. As expected, these interest rate caps are a satisfactory interest rate risk hedge to rising interest rates and provide an off-setting risk response to the risk profile changes in variable rate GSE MBS with embedded caps. We periodically assess derivative strategies to ensure that overall balance sheet risk is appropriately hedged within established risk appetite metrics and make adjustments to the derivative portfolio as needed. This evaluation is completed considering not only the par value of the variable rate MBS with embedded caps being hedged with purchased caps, but the composition of the purchased cap portfolio and expected prepayments of the variable rate MBS with embedded caps. This evaluation of the relative relationship between the variable rate investment portfolio and the purchased cap portfolio continues to indicate a sufficient hedging relationship. During the quarter ended September 30, 2017, we purchased $45.8 million of variable rate multi-family GSE MBS. However, we did not purchase additional interest rate caps during the third quarter of 2017 because the investments did not contain interest rate cap exposure. In addition, we purchased $234.8 million fixed rate multi-family GSE MBS during the current quarter. These fixed rate securities were effectively swapped to LIBOR and impacted DOE only slightly since they are reflected as variable rate instruments and are further described in Item 2 – "Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Net Gain (Loss) on Trading Securities."

In calculating DOE, we also calculate our duration gap, which is the difference between the duration of our assets and the duration of our liabilities. Our base duration gap was -0.6 months for September 30, 2017 and -0.3 months for June 30, 2017. As discussed previously, the relatively stable performance was primarily the result of the changes in the fixed rate mortgage loan portfolio and the associated funding decisions made by management in response to changes in the interest rate environment and balance sheet during the third quarter of 2017. All FHLBanks are required to submit this base duration gap number to the Office of Finance as part of the quarterly reporting process created by the FHFA.

Market Value of Equity: MVE is the net value of our assets and liabilities. Estimating sensitivity of MVE to changes in interest rates is another measure of interest rate risk. We generally maintain an MVE within limits specified by the Board of Directors in the RMP. The RMP measures our market value risk in terms of the MVE in relation to total regulatory capital stock outstanding (TRCS). TRCS includes all capital stock outstanding, including stock subject to mandatory redemption. As a cooperative, we believe using the TRCS results in 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 41 presents MVE as a percent of TRCS. As of September 30, 2017, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan market values as rates have continued to remain historically low, the general value impact of the refinancing activities of the associated unswapped callable consolidated obligation bonds and the relative level of outstanding capital.

The MVE to TRCS ratios can be greatly impacted by the level of capital outstanding based on our capital management approach. Typically, as advances increase and the associated capital level increases, the ratio will generally decline since the new advances are primarily short-term with market values at or near par. Further, as advance balances decrease and the capital level decreases as capital stock is repurchased, the ratio will generally increase. These relationships primarily generate the changes in the MVE/TRCS levels and produce the changes in the ratios in all interest rate scenarios in the table below.

Table 41



Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date	Up 200 Basis Points	Base	Down 200 Basis Points
09/30/2017	170	174	175
06/30/2017	169	172	173
03/31/2017	174	176	176
12/31/2016	177	181	179
09/30/2016	180	172	176

Detail of Derivative Instruments by Type of Instrument by Type of Risk: Various types of derivative instruments are utilized to mitigate the interest rate risks described in the preceding sections as well as to better match the terms of assets and liabilities. We currently employ derivative instruments by designating them as either a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction or in asset/liability management (i.e., an economic hedge). An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities or firm commitments that either does not qualify for hedge accounting, or for which we have not elected hedge accounting, but is an acceptable hedging strategy under our RMP. For hedging relationships that are not designated for shortcut hedge accounting, we formally assess (both at the hedge’s inception and monthly on an ongoing basis) whether the derivatives used have been highly effective in offsetting changes in the fair values or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. We typically use regression analyses or similar statistical analyses to assess the effectiveness of our long haul hedges. We determine the hedge accounting to be applied when the hedge is entered into by completing detailed documentation, which includes a checklist setting forth criteria that must be met to qualify for hedge accounting.

Tables 42 and 43 present the notional amount and fair value amount (fair value includes net accrued interest receivable or payable on the derivative), excluding variation margin, for derivative instruments by hedged item, hedging instrument, hedging objective and accounting designation (in thousands):

Table 42



09/30/2017
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,189,136	$	(1,403	)
Fixed rate convertible advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	882,950		(100		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	143,350		396
Investments
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	398,500		(10,169		)
Fixed rate MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	851,347		(11,242		)
Fixed rate MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,449,384		4,944
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	2,462,400		1,673
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	121,377		(151		)
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	860,000		17,506
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	215,000		15
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	45,000		(379		)
Callable step-up/step-down consolidated obligation bonds	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	435,000		(1,408		)
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	2,280,000		(11,606		)
TOTAL				$	13,333,444	$	(11,924	)

Table 43



12/31/2016
Hedged Item	Hedging Instrument	Hedging Objective	Accounting Designation	Notional Amount		Fair Value Amount
Advances
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Fair Value Hedge	$	3,360,835	$	(14,485	)
Fixed rate callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	30,000		60
Fixed rate convertible advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	1,145,392		(17,339		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	82,975		2,567
Investments
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	604,820		(16,376		)
Fixed rate MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	852,810		(8,804		)
Fixed rate MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,096,867		14,190
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	2,765,200		4,859
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	90,013		(158		)
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months	Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	149,361		370
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	830,680		26,425
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	750,000		(1,083		)
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	30,000		(1,174		)
Callable step-up/step-down consolidated obligation bonds	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	420,000		(4,319		)
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	565,000		(14,995		)
TOTAL				$	12,773,953	$	(30,262	)

100

Item 4: Controls and Procedures

Disclosure Controls and Procedures

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

Management, with the participation of the President and Chief Executive Officer (CEO), our principal executive officer, and Chief Financial Officer (CFO), our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2017. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2017.

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, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1: Legal Proceedings

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

Item 1A: Risk Factors

There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K filed on March 9, 2017, and such risk factors are incorporated by reference herein.

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

Not applicable.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

101

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) (the “Form 10 Registration Statement”), 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 2015 Annual Report on Form 10-K, filed March 10, 2016, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
4.1	Exhibit 99.2 to the Current Report on Form 8-K, filed August 5, 2011, Federal Home Loan Bank of Topeka Capital Plan, is incorporated herein by reference as Exhibit 4.1.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of President and Principal Executive Officer and Senior Vice President and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

102

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 9, 2017	By: /s/ Mark E. Yardley
Date	Mark E. Yardley
	President and Chief Executive Officer


November 9, 2017	By: /s/ William W. Osborn
Date	William W. Osborn
	Senior Vice President and Chief Financial Officer

103

Federal Home Loan Bank of Topeka - FORM 10-Q - November 9, 2017

Attached files

Federal Home Loan Bank of Topeka Reports