UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from ________ to ________

Commission File Number 000-52004

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)

Federally chartered corporation	48-0561319
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
500 SW Wanamaker Road Topeka, KS	66606
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 785.233.0507

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

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

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

Large accelerated filer ¨                    Accelerated filer ¨

Non-accelerated filer x    Smaller reporting company ¨

Emerging growth company ¨

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

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

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

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

Indicate 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
	May 7, 2019
Class A Stock, par value $100 per share	3,879,855
Class B Stock, par value $100 per share	11,695,344

.FEDERAL HOME LOAN BANK OF TOPEKA

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Statements of Condition	6
	Statements of Income	8
	Statements of Comprehensive Income	10
	Statements of Capital	11
	Statements of Cash Flows	12
	Notes to Financial Statements	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
	Executive Level Overview	49
	Financial Market Trends	52
	Critical Accounting Policies and Estimates	53
	Results of Operations	53
	Financial Condition	64
	Liquidity and Capital Resources	78
	Risk Management	82
	Recently Issued Accounting Standards	86
	Legislative and Regulatory Developments	86
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	86
Item 4.	Controls and Procedures	92
Part II	OTHER INFORMATION	92
Item 1.	Legal Proceedings	92
Item 1A.	Risk Factors	92
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
Item 3.	Defaults Upon Senior Securities	92
Item 4.	Mine Safety Disclosures	92
Item 5.	Other Information	92
Item 6.	Exhibits	93

2

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, changes in interest rates and indices and the timing and volume of market activity;

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

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

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

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

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

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

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

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

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

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

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

3

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

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

4

PART I

Item 1: Financial Statements

5

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	03/31/2019		12/31/2018
ASSETS
Cash and due from banks	$	12,917	$	15,060
Interest-bearing deposits	238,363		670,660
Securities purchased under agreements to resell (Note 10)	4,273,438		1,251,096
Federal funds sold	1,950,000		50,000
Investment securities:
Trading securities (Note 3)	3,907,002		2,151,113
Available-for-sale securities (Note 3)	3,911,021		1,725,640
Held-to-maturity securities1 (Note 3)	4,242,242		4,456,873
Total investment securities	12,060,265		8,333,626
Advances (Notes 4, 6)	29,862,995		28,730,113
Mortgage loans held for portfolio, net of allowance for credit losses of $824 and $812 (Notes 5, 6)	8,701,250		8,410,462
Accrued interest receivable	137,957		109,366
Derivative assets, net (Notes 7, 10)	85,015		36,095
Other assets	105,496		108,778
TOTAL ASSETS	$	57,427,696	$	47,715,256
LIABILITIES
Deposits (Note 8)	$	544,500	$	473,820
Consolidated obligations, net:
Discount notes (Note 9)	26,785,113		20,608,332
Bonds (Note 9)	27,400,165		23,966,394
Total consolidated obligations, net	54,185,278		44,574,726
Mandatorily redeemable capital stock (Note 11)	3,548		3,597
Accrued interest payable	104,921		87,903
Affordable Housing Program payable	44,962		43,081
Derivative liabilities, net (Notes 7, 10)	408		7,884
Other liabilities	65,229		69,993
TOTAL LIABILITIES	54,948,846		45,261,004
Commitments and contingencies (Note 14)

¹    Fair value: $4,229,501 and $4,447,078 as of March 31, 2019 and December 31, 2018, respectively.

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

6

6

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CONDITION - Unaudited
(In thousands, except par value)
	03/31/2019		12/31/2018
CAPITAL
Capital stock outstanding - putable:
Class A ($100 par value; 1,981 and 2,473 shares issued and outstanding) (Note 11)	$	198,079	$	247,361
Class B ($100 par value; 13,103 and 12,772 shares issued and outstanding) (Note 11)	1,310,317		1,277,176
Total capital stock	1,508,396		1,524,537
Retained earnings:
Unrestricted	734,822		716,555
Restricted	208,018		197,467
Total retained earnings	942,840		914,022
Accumulated other comprehensive income (loss) (Note 12)	27,614		15,693
TOTAL CAPITAL	2,478,850		2,454,252
TOTAL LIABILITIES AND CAPITAL	$	57,427,696	$	47,715,256

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

7

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended
	03/31/2019			03/31/2018
INTEREST INCOME:
Interest-bearing deposits	$	5,170		$	2,236
Securities purchased under agreements to resell	27,930			11,430
Federal funds sold	10,324			10,589
Trading securities	21,944			16,587
Available-for-sale securities	15,396			8,862
Held-to-maturity securities	31,273			25,327
Advances	187,609			140,818
Mortgage loans held for portfolio	73,284			59,535
Other	384			409
Total interest income	373,314			275,793
INTEREST EXPENSE:
Deposits	2,688			1,614
Consolidated obligations:
Discount notes	148,991			94,978
Bonds	158,157			112,432
Mandatorily redeemable capital stock (Note 11)	43			61
Other	420			229
Total interest expense	310,299			209,314
NET INTEREST INCOME	63,015			66,479
(Reversal) provision for credit losses on mortgage loans (Note 6)	78			30
NET INTEREST INCOME AFTER LOAN LOSS (REVERSAL) PROVISION	62,937			66,449
OTHER INCOME (LOSS):
Net gains (losses) on trading securities (Note 3)	28,755			(26,950		)
Net gains (losses) on sale of held-to-maturity securities (Note 3)	—			34
Net gains (losses) on derivatives and hedging activities (Note 7)	(18,542		)	16,643
Standby bond purchase agreement commitment fees	566			848
Letters of credit fees	1,186			1,066
Other	709			1,372
Total other income (loss)	12,674			(6,987		)

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

8

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF INCOME - Unaudited
(In thousands)
	Three Months Ended
	03/31/2019		03/31/2018
OTHER EXPENSES:
Compensation and benefits	$	9,258	$	8,330
Other operating	4,255		4,185
Federal Housing Finance Agency	812		764
Office of Finance	849		784
Other	1,816		1,402
Total other expenses	16,990		15,465
INCOME BEFORE ASSESSMENTS	58,621		43,997
Affordable Housing Program	5,866		4,406
NET INCOME	$	52,755	$	39,591

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

9

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF COMPREHENSIVE INCOME - Unaudited
(In thousands)
	Three Months Ended
	03/31/2019		03/31/2018
Net income	$	52,755	$	39,591
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities	11,848		4,142
Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities	—		301
Defined benefit pension plan	73		7
Total other comprehensive income (loss)	11,921		4,450
TOTAL COMPREHENSIVE INCOME	$	64,676	$	44,041

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

10

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CAPITAL - Unaudited
(In thousands)
	Capital Stock1															Retained Earnings								Accumulated		Total Capital
																								Other
	Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2017	2,351		$	235,134		14,049		$	1,404,905		16,400		$	1,640,039		$	676,993		$	163,413	$	840,406		$	25,658	$	2,506,103
Comprehensive income																31,673			7,918		39,591			4,450		44,041
Proceeds from issuance of capital stock	3		323			2,721		272,052			2,724		272,375													272,375
Repurchase/redemption of capital stock	(2,369	)	(236,937		)	(21	)	(2,037		)	(2,390	)	(238,974		)											(238,974		)
Net reclassification of shares to mandatorily redeemable capital stock	(391	)	(39,140		)	(613	)	(61,250		)	(1,004	)	(100,390		)											(100,390		)
Net transfer of shares between Class A and Class B	2,069		206,908			(2,069	)	(206,908		)	—		—													—
Dividends on capital stock (Class A - 1.5%, Class B - 6.7%):
Cash payment																(70		)			(70		)			(70		)
Stock issued						257		25,686			257		25,686			(25,686		)			(25,686		)			—
Balance at March 31, 2018	1,663		$	166,288		14,324		$	1,432,448		15,987		$	1,598,736		$	682,910		$	171,331	$	854,241		$	30,108	$	2,483,085
	Capital Stock1															Retained Earnings								Accumulated		Total Capital
																								Other
	Class A					Class B					Total													Comprehensive
	Shares		Par Value			Shares		Par Value			Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)
Balance at December 31, 2018	2,473		$	247,361		12,772		$	1,277,176		15,245		$	1,524,537		$	716,555		$	197,467	$	914,022		$	15,693	$	2,454,252
Comprehensive income																42,204			10,551		52,755			11,921		64,676
Proceeds from issuance of capital stock	1		52			3,377		337,706			3,378		337,758													337,758
Repurchase/redemption of capital stock	(3,388	)	(338,827		)	(150	)	(15,023		)	(3,538	)	(353,850		)											(353,850		)
Net reclassification of shares to mandatorily redeemable capital stock	(179	)	(17,911		)	(60	)	(6,004		)	(239	)	(23,915		)											(23,915		)
Net transfer of shares between Class A and Class B	3,074		307,404			(3,074	)	(307,404		)	—		—													—
Dividends on capital stock (Class A - 2.3%, Class B - 7.5%):
Cash payment																(71		)			(71		)			(71		)
Stock issued						238		23,866			238		23,866			(23,866		)			(23,866		)			—
Balance at March 31, 2019	1,981		$	198,079		13,103		$	1,310,317		15,084		$	1,508,396		$	734,822		$	208,018	$	942,840		$	27,614	$	2,478,850

¹    Putable

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

11

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Three Months Ended
	03/31/2019			03/31/2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	52,755		$	39,591
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net	8,802			4,803
Concessions on consolidated obligations	2,478			1,369
Premiums and discounts on investments, net	919			783
Premiums, discounts and commitment fees on advances, net	(927		)	(1,304		)
Premiums, discounts and deferred loan costs on mortgage loans, net	3,989			4,184
Fair value adjustments on hedged assets or liabilities	1,267			453
Premises, software and equipment	753			791
Other	73			7
(Reversal) provision for credit losses on mortgage loans	78			30
Non-cash interest on mandatorily redeemable capital stock	42			61
Net realized (gains) losses on sale of held-to-maturity securities	—			(34		)
Net other-than-temporary impairment losses on held-to-maturity securities	—			22
Net realized (gains) losses on sale of premises and equipment	(3		)	(879		)
Other adjustments	(47		)	(132		)
Net (gains) losses on trading securities	(28,755		)	26,950
Net change in derivatives and hedging activities	(38,853		)	22,370
(Increase) decrease in accrued interest receivable	(28,624		)	(11,187		)
Change in net accrued interest included in derivative assets	(3,132		)	(3,989		)
(Increase) decrease in other assets	1,850			988
Increase (decrease) in accrued interest payable	16,911			18,464
Change in net accrued interest included in derivative liabilities	3,778			(273		)
Increase (decrease) in Affordable Housing Program liability	1,881			2,355
Increase (decrease) in other liabilities	(4,833		)	(9,117		)
Total adjustments	(62,353		)	56,715
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(9,598		)	96,306

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

12

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Three Months Ended
	03/31/2019			03/31/2018
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits	$	407,921		$	(440,909	)
Net (increase) decrease in securities purchased under resale agreements	(3,022,342		)	(44,599		)
Net (increase) decrease in Federal funds sold	(1,900,000		)	(3,107,000		)
Net (increase) decrease in short-term trading securities	(1,210,000		)	(715,000		)
Proceeds from maturities of and principal repayments on long-term trading securities	237,807			153,799
Purchases of long-term trading securities	(754,941		)	—
Proceeds from maturities of and principal repayments on long-term available-for-sale securities	2,902			2,260
Purchases of long-term available-for-sale securities	(2,135,066		)	(79,178		)
Proceeds from sale of held-to-maturity securities	—			8,406
Proceeds from maturities of and principal repayments on long-term held-to-maturity securities	214,456			203,664
Purchases of long-term held-to-maturity securities	—			(466,981		)
Advances repaid	100,696,593			102,395,193
Advances originated	(101,789,046		)	(103,131,501		)
Principal collected on mortgage loans	196,864			201,174
Purchases of mortgage loans	(491,056		)	(387,768		)
Proceeds from sale of foreclosed assets	703			1,722
Other investing activities	761			678
Proceeds from sale of premises, software and equipment	—			2,414
Purchases of premises, software and equipment	(300		)	(2,216		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(9,544,744		)	(5,405,842		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	7,352			217,732
Net proceeds from issuance of consolidated obligations:
Discount notes	251,204,917			260,985,732
Bonds	5,574,167			6,563,236
Payments for maturing and retired consolidated obligations:
Discount notes	(245,039,459		)	(258,807,777		)
Bonds	(2,154,000		)	(3,821,750		)
Net interest payments received (paid) for financing derivatives	(609		)	(2,951		)
Proceeds from issuance of capital stock	337,758			272,375
Payments for repurchase/redemption of capital stock	(353,850		)	(238,974		)
Payments for repurchase of mandatorily redeemable capital stock	(24,006		)	(100,734		)
Cash dividends paid	(71		)	(70		)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	9,552,199			5,066,819
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(2,143		)	(242,717		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	15,060			268,050
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	12,917		$	25,333

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

13

FEDERAL HOME LOAN BANK OF TOPEKA
STATEMENTS OF CASH FLOWS - Unaudited
(In thousands)
	Three Months Ended
	03/31/2019		03/31/2018
Supplemental disclosures:
Interest paid	$	279,543	$	186,887
Affordable Housing Program payments	$	4,251	$	2,093
Net transfers of mortgage loans to other assets	$	350	$	1,658

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

14

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements- Unaudited

March 31, 2019

NOTE 1 – BASIS OF PRESENTATION

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

The FHLBank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2018. The interim financial statements presented herein should be read in conjunction with the FHLBank’s audited financial statements and notes thereto, which are included in the FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 18, 2019 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K.

Reclassifications: Certain immaterial amounts in the financial statements have been reclassified to conform to current period presentations.

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

Derivatives and Hedging Activities: Beginning January 1, 2019, the FHLBank adopted new hedge accounting guidance, which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item. Net gains (losses) on derivatives and hedging activities for qualifying hedges recorded in net interest income include unrealized and realized gains (losses), which include net interest settlements.

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

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

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

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

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

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

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

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

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

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

16

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

Targeted Improvements to Accounting for Hedging Activities, as amended (ASU 2017-12). In August 2017, the FASB issued an amendment to simplify the application of hedge accounting guidance in current GAAP and to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:

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

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

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

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

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

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

Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). In March 2017, FASB issued an amendment to shorten the amortization period of any premium on callable debt securities to the first call date instead of over the contractual life of the instrument. The amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is intended to reduce diversity in practice in the amortization of premiums and the consideration of how the potential of a security being called is factored into current impairment assessments. The amendment also intends to more closely align the amortization of premiums and discounts to the expectations incorporated into the market pricing of the instrument. The amendment became effective for annual periods, and interim periods within those annual periods beginning on January 1, 2019 for the FHLBank. The adoption of this guidance did not have an impact on the FHLBank's financial condition, results of operations or cash flows.

Measurement of Credit Losses on Financial Instruments, as amended (ASU 2016-13). In June 2016, 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.

17

The guidance also requires:

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

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

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

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

The guidance is effective for the FHLBank for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. The FHLBank does not plan on early adoption. The guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for debt securities for which an other-than-temporary impairment (OTTI) charge had been recognized before the effective date; however, the FHLBank currently does not have any OTTI debt securities. The FHLBank's internal working group continues its implementation efforts of identifying key interpretive issues and potential impacts to processes and systems that determine the magnitude of the impact on the FHLBank's financial condition, results of operations and cash flows. The FHLBank does not expect this guidance to impact certain financial instruments, including Advances, Agency and government-sponsored enterprise investments, securities purchased under agreements to resell, and other overnight investments due to the specific terms, issuer guarantees, and/or collateralized nature of the instruments that result in high credit quality holdings with no expected credit losses. Adoption of this guidance is not expected to have a material impact on the FHLBank's municipal securities and short-term investments. The FHLBank is still evaluating the impact that adoption of this guidance will have on its mortgage loans held for portfolio.

Leases (ASU 2016-02). In February 2016, FASB issued amendments to lease accounting guidance. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases in the statement of financial condition, which effectively removes a source of off-balance sheet financing for operating leases. A distinction remains between finance leases and operating leases, but the assets and liabilities arising from operating leases are now also required to be recognized in the statement of financial condition. Lessor accounting is largely unchanged. The amendments became effective for annual periods, and interim periods within those annual periods, beginning on January 1, 2019 for the FHLBank. The adoption of this guidance did not have a material effect on the FHLBank's financial condition, results of operations or cash flows.

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NOTE 3 – INVESTMENT SECURITIES

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

Table 3.1

	Fair Value
	03/31/2019		12/31/2018
Non-mortgage-backed securities:
Certificates of deposit	$	1,210,086	$	—
U.S. Treasury obligations	1,014,067		252,377
GSEobligations1	806,702		1,000,495
Non-mortgage-backed securities	3,030,855		1,252,872
Mortgage-backed securities:
U.S. obligation MBS2	446		467
GSE MBS3	875,701		897,774
Mortgage-backed securities	876,147		898,241
TOTAL	$	3,907,002	$	2,151,113

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

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

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

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

Table 3.2

	Three Months Ended
	03/31/2019			03/31/2018
Net gains (losses) on trading securities held as of March 31, 2019	$	28,804		$	(25,784	)
Net gains (losses) on trading securities sold or matured prior to March 31, 2019	(49		)	(1,166		)
NET GAINS (LOSSES) ON TRADING SECURITIES	$	28,755		$	(26,950	)

Available-for-sale Securities: Available-for-sale securities by major security type as of March 31, 2019 are summarized in Table 3.3 (in thousands):

Table 3.3

	03/31/2019
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
U.S. Treasury obligations	$	2,017,155	$	1,463	$	(33	)	$	2,018,585
Non-mortgage-backed securities	2,017,155		1,463		(33		)	2,018,585
Mortgage-backed securities:
GSE MBS1	1,862,950		33,011		(3,525		)	1,892,436
Mortgage-backed securities	1,862,950		33,011		(3,525		)	1,892,436
TOTAL	$	3,880,105	$	34,474	$	(3,558	)	$	3,911,021

¹  Represents fixed rate multi-familyMBS issued by Fannie Mae.

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

Table 3.4

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

¹  Represents fixed rate multi-familyMBS issued by Fannie Mae.

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

Table 3.5

	03/31/2019
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
U.S. Treasury obligations	$	256,817	$	(33	)	$	—	$	—		$	256,817	$	(33	)
Non-mortgage-backed securities	256,817		(33		)	—		—			256,817		(33		)
Mortgage-backed securities:
GSE MBS1	145,633		(1,324		)	188,863		(2,201		)	334,496		(3,525		)
Mortgage-backed securities	145,633		(1,324		)	188,863		(2,201		)	334,496		(3,525		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	402,450	$	(1,357	)	$	188,863	$	(2,201	)	$	591,313	$	(3,558	)

¹  Represents fixed rate multi-familyMBS issued by Fannie Mae.

Table 3.6 summarizes the available-for-sale securities with unrealized losses as of December 31, 2018 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.6

	12/31/2018
	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities:
GSE MBS1	$	570,042	$	(6,747	)	$	—	$	—	$	570,042	$	(6,747	)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	570,042	$	(6,747	)	$	—	$	—	$	570,042	$	(6,747	)

¹  Represents fixed rate multi-familyMBS issued by Fannie Mae.

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

Table 3.7

	03/31/2019				12/31/2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	2,017,155		2,018,585		—		—
Due after five years through ten years	—		—		—		—
Due after ten years	—		—		—		—
Non-mortgage-backed securities	2,017,155		2,018,585		—		—
Mortgage-backed securities	1,862,950		1,892,436		1,706,572		1,725,640
TOTAL	$	3,880,105	$	3,911,021	$	1,706,572	$	1,725,640

Held-to-maturity Securities: Held-to-maturity securities by major security type as of March 31, 2019 are summarized in Table 3.8 (in thousands):

Table 3.8

	03/31/2019
	Amortized Cost		Carrying Value		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Non-mortgage-backed securities:
State or local housing agency obligations	$	86,430	$	86,430	$	—	$	(3,317	)	$	83,113
Non-mortgage-backed securities	86,430		86,430		—		(3,317		)	83,113
Mortgage-backed securities:
U.S. obligation MBS1	106,576		106,576		—		(364		)	106,212
GSE MBS2	4,049,236		4,049,236		10,456		(19,516		)	4,040,176
Mortgage-backed securities	4,155,812		4,155,812		10,456		(19,880		)	4,146,388
TOTAL	$	4,242,242	$	4,242,242	$	10,456	$	(23,197	)	$	4,229,501

¹  Represents single-family MBS issued by Ginnie Mae.

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

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Held-to-maturity securities by major security type as of December 31, 2018 are summarized in Table 3.9 (in thousands):

Table 3.9

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

¹  Represents single-family MBS issued by Ginnie Mae.

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

Table 3.10 summarizes the held-to-maturity securities with unrealized losses as of March 31, 2019 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.10

	03/31/2019
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities:
State or local housing agency obligations	$	56,426	$	(4	)	$	26,687	$	(3,313	)	$	83,113	$	(3,317	)
Non-mortgage-backed securities	56,426		(4		)	26,687		(3,313		)	83,113		(3,317		)
Mortgage-backed securities:
U.S. obligation MBS1	76,767		(231		)	29,445		(133		)	106,212		(364		)
GSE MBS2	1,264,935		(5,466		)	1,908,044		(14,050		)	3,172,979		(19,516		)
Mortgage-backed securities	1,341,702		(5,697		)	1,937,489		(14,183		)	3,279,191		(19,880		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	1,398,128	$	(5,701	)	$	1,964,176	$	(17,496	)	$	3,362,304	$	(23,197	)

¹  Represents single-family MBS issued by Ginnie Mae.

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

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Table 3.11 summarizes the held-to-maturity securities with unrealized losses as of December 31, 2018 (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 3.11

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

¹  Represents single-family MBS issued by Ginnie Mae.

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

The amortized cost, carrying value and fair values of held-to-maturity securities by contractual maturity as of March 31, 2019 and December 31, 2018 are shown in Table 3.12 (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 3.12

	03/31/2019						12/31/2018
	Amortized Cost		Carrying Value		Fair Value		Amortized Cost		Carrying Value		Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—
Due after one year through five years	—		—		—		—		—		—
Due after five years through ten years	—		—		—		—		—		—
Due after ten years	86,430		86,430		83,113		86,430		86,430		82,951
Non-mortgage-backed securities	86,430		86,430		83,113		86,430		86,430		82,951
Mortgage-backed securities	4,155,812		4,155,812		4,146,388		4,370,443		4,370,443		4,364,127
TOTAL	$	4,242,242	$	4,242,242	$	4,229,501	$	4,456,873	$	4,456,873	$	4,447,078

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Net gains (losses) were realized on the sale of long-term held-to-maturity securities during the three months ended March 31, 2018 and are recorded as net gains (losses) on sale of held-to-maturity securities in other income (loss) on the Statements of Income. All securities sold had paid down below 15 percent of the principal outstanding at acquisition. Table 3.13 presents details of the sales (in thousands). No held-to-maturity securities were sold during the three months ended March 31, 2019.

Table 3.13

	Three Months Ended
	03/31/2018
Proceeds from sale of held-to-maturity securities	$	8,406
Carrying value of held-to-maturity securities sold	(8,372		)
NET REALIZED GAINS (LOSSES)	$	34

As of March 31, 2019, the fair value of a portion of the FHLBank's available-for-sale and held-to-maturity securities were below the amortized cost of the securities due to interest rate volatility and/or illiquidity. However, the decline in fair value of these securities is considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining securities in unrecognized loss positions and neither intends to sell these securities nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis.

NOTE 4 – ADVANCES

General Terms: The FHLBank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics and optionality. As of March 31, 2019 and December 31, 2018, the FHLBank had advances outstanding at interest rates ranging from 0.88 percent to 7.41 percent. Table 4.1 presents advances summarized by redemption term as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands): 

Table 4.1

	03/31/2019					12/31/2018
Redemption Term	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	13,806,679		2.60	%	$	14,844,804		2.60	%
Due after one year through two years	1,985,215			2.44		1,482,844			2.40
Due after two years through three years	1,261,938			2.63		1,442,333			2.53
Due after three years through four years	755,038			2.63		7,496,058			2.66
Due after four years through five years	9,287,897			2.67		816,702			2.68
Thereafter	2,773,434			2.59		2,695,008			2.58
Total par value	29,870,201			2.61	%	28,777,749			2.60	%
Discounts	(2,486		)			(3,413		)
Hedging adjustments	(4,720		)			(44,223		)
TOTAL	$	29,862,995				$	28,730,113

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

Convertible advances allow the FHLBank to convert an advance from one interest payment term structure to another. When issuing convertible advances, the FHLBank purchases put options from a member that allow the FHLBank to convert the fixed rate advance to a variable rate advance at the current market rate or another structure after an agreed-upon lockout period. A convertible advance carries a lower interest rate than a comparable-maturity fixed rate advance without the conversion feature.

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

Table 4.2

	Redemption Term or Next Call Date				Redemption Term or Next Conversion Date
Redemption Term	03/31/2019		12/31/2018		03/31/2019		12/31/2018
Due in one year or less	$	24,189,884	$	23,343,939	$	14,193,579	$	15,133,204
Due after one year through two years	1,695,174		1,271,660		2,198,365		1,683,644
Due after two years through three years	782,116		1,021,189		1,405,988		1,629,233
Due after three years through four years	471,460		555,901		1,011,038		7,752,058
Due after four years through five years	646,325		598,282		9,419,647		954,452
Thereafter	2,085,242		1,986,778		1,641,584		1,625,158
TOTAL PAR VALUE	$	29,870,201	$	28,777,749	$	29,870,201	$	28,777,749

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

Table 4.3

Redemption Term	03/31/2019		12/31/2018
Fixed rate:
Due in one year or less	$	1,507,165	$	1,635,464
Due after one year	5,701,810		5,455,193
Total fixed rate	7,208,975		7,090,657
Variable rate:
Due in one year or less	12,299,514		13,209,340
Due after one year	10,361,712		8,477,752
Total variable rate	22,661,226		21,687,092
TOTAL PAR VALUE	$	29,870,201	$	28,777,749

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

NOTE 5 – MORTGAGE LOANS

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

25

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

Table 5.1

	03/31/2019			12/31/2018
Real estate:
Fixed rate, medium-term1, single-family mortgages	$	1,160,821		$	1,179,087
Fixed rate, long-term, single-family mortgages	7,414,412			7,111,856
Total unpaid principal balance	8,575,233			8,290,943
Premiums	125,937			120,548
Discounts	(2,841		)	(2,936		)
Deferred loan costs, net	216			223
Other deferred fees	(47		)	(50		)
Hedging adjustments	3,576			2,546
Total before Allowance for Credit Losses on Mortgage Loans	8,702,074			8,411,274
Allowance for Credit Losses on Mortgage Loans	(824		)	(812		)
MORTGAGE LOANS HELD FOR PORTFOLIO, NET	$	8,701,250		$	8,410,462

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

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

Table 5.2

	03/31/2019		12/31/2018
Conventional loans	$	7,909,524	$	7,619,498
Government-guaranteed or -insured loans	665,709		671,445
TOTAL UNPAID PRINCIPAL BALANCE	$	8,575,233	$	8,290,943

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

NOTE 6 – ALLOWANCE FOR CREDIT LOSSES

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

26

Allowance for Credit Losses: Table 6.1 presents a roll-forward of the allowance for credit losses for the three months ended March 31, 2019 and 2018 (in thousands):

Table 6.1

	Three Months Ended
	03/31/2019			03/31/2018
Balance, beginning of the period	$	812		$	1,208
Net (charge-offs) recoveries	(66		)	(181		)
(Reversal) provision for credit losses	78			30
Balance, end of the period	$	824		$	1,057

Table 6.2 presents the allowance for credit losses and the recorded investment as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of March 31, 2019 (in thousands). The recorded investment in a financing receivable is the UPB, adjusted for accrued interest, net deferred loan fees or costs, unamortized premiums or discounts, fair value hedging adjustments and direct write-downs. The recorded investment is not net of any valuation allowance.

Table 6.2

	03/31/2019
	Conventional Loans		Government Loans		Credit Products1		Direct Financing Lease Receivable		Total
Allowance for credit losses:
Individually evaluated for impairment	$	33	$	—	$	—	$	—	$	33
Collectively evaluated for impairment	791		—		—		—		791
TOTAL ALLOWANCE FOR CREDIT LOSSES	$	824	$	—	$	—	$	—	$	824
Recorded investment:
Individually evaluated for impairment	$	9,595	$	—	$	29,912,364	$	11,201	$	29,933,160
Collectively evaluated for impairment	8,059,526		678,006		—		—		8,737,532
TOTAL RECORDED INVESTMENT	$	8,069,121	$	678,006	$	29,912,364	$	11,201	$	38,670,692

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

27

Table 6.3 presents the allowance for credit losses and the recorded investment as well as the method used to evaluate impairment relating to all portfolio segments regardless of whether or not an estimated credit loss has been recorded as of March 31, 2018 (in thousands):

Table 6.3

	03/31/2018
	Conventional Loans		Government Loans		Credit Products1		Direct Financing Lease Receivable		Total
Allowance for credit losses:
Individually evaluated for impairment	$	30	$	—	$	—	$	—	$	30
Collectively evaluated for impairment	1,027		—		—		—		1,027
TOTAL ALLOWANCE FOR CREDIT LOSSES	$	1,057	$	—	$	—	$	—	$	1,057
Recorded investment:
Individually evaluated for impairment	$	11,044	$	—	$	27,019,326	$	14,184	$	27,044,554
Collectively evaluated for impairment	6,768,397		723,476		—		—		7,491,873
TOTAL RECORDED INVESTMENT	$	6,779,441	$	723,476	$	27,019,326	$	14,184	$	34,536,427

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.

28

Table 6.4 summarizes the delinquency aging and key credit quality indicators for all of the FHLBank’s portfolio segments as of March 31, 2019 (dollar amounts in thousands):

Table 6.4

	03/31/2019
	Conventional Loans			Government Loans			Credit Products1			Direct Financing Lease Receivable			Total
Recorded investment:
Past due 30-59 days delinquent	$	47,073		$	17,406		$	—		$	—		$	64,479
Past due 60-89 days delinquent	8,948			4,703			—			—			13,651
Past due 90 days or more delinquent	8,321			7,899			—			—			16,220
Total past due	64,342			30,008			—			—			94,350
Total current loans	8,004,779			647,998			29,912,364			11,201			38,576,342
Total recorded investment	$	8,069,121		$	678,006		$	29,912,364		$	11,201		$	38,670,692
Other delinquency statistics:
In process of foreclosure, included above2	$	2,917		$	2,124		$	—		$	—		$	5,041
Serious delinquency rate3	0.1		%	1.2		%	—		%	—		%	—		%
Past due 90 days or more and still accruing interest	$	—		$	7,899		$	—		$	—		$	7,899
Loans on non-accrual status4	$	10,719		$	—		$	—		$	—		$	10,719

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 $1,411,000 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.

29

Table 6.5 summarizes the key credit quality indicators for all of the FHLBank’s portfolio segments as of December 31, 2018 (dollar amounts in thousands):

Table 6.5

	12/31/2018
	Conventional Loans			Government Loans			Credit Products1			Direct Financing Lease Receivable			Total
Recorded investment:
Past due 30-59 days delinquent	$	34,020		$	14,790		$	—		$	—		$	48,810
Past due 60-89 days delinquent	6,750			6,114			—			—			12,864
Past due 90 days or more delinquent	8,169			7,898			—			—			16,067
Total past due	48,939			28,802			—			—			77,741
Total current loans	7,720,640			655,054			28,777,274			11,966			37,164,934
Total recorded investment	$	7,769,579		$	683,856		$	28,777,274		$	11,966		$	37,242,675
Other delinquency statistics:
In process of foreclosure, included above2	$	2,922		$	2,398		$	—		$	—		$	5,320
Serious delinquency rate3	0.1		%	1.2		%	—		%	—		%	—		%
Past due 90 days or more and still accruing interest	$	—		$	7,898		$	—		$	—		$	7,898
Loans on non-accrual status4	$	11,301		$	—		$	—		$	—		$	11,301

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

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

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

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

The FHLBank had $1,885,000 and $2,183,000 classified as real estate owned recorded in other assets as of March 31, 2019 and December 31, 2018, respectively.

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NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

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

Table 7.1

	03/31/2019							12/31/2018
	Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	11,606,188	$	51,605	$	29,264		$	8,345,925	$	73,969		$	24,177
Total derivatives designated as hedging relationships	11,606,188		51,605		29,264			8,345,925		73,969			24,177
Derivatives not designated as hedging instruments:
Interest rate swaps	2,884,035		4,090		12,020			2,151,920		12,907			17,322
Interest rate caps/floors	1,373,200		418		—			1,373,200		1,044			—
Mortgage delivery commitments	159,654		722		29			101,551		552			3
Consolidated obligation discount note commitments	—		—		—			525,000		—			—
Total derivatives not designated as hedging instruments	4,416,889		5,230		12,049			4,151,671		14,503			17,325
TOTAL	$	16,023,077	56,835		41,313			$	12,497,596	88,472			41,502
Netting adjustments and cash collateral1			28,180		(40,905		)			(52,377		)	(33,618		)
DERIVATIVE ASSETS AND LIABILITIES			$	85,015	$	408				$	36,095		$	7,884

¹  Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions, cash collateral, and related accrued interest held or placed with the same clearing agent and/or derivative counterparty. Cash collateral posted was $83,311,000 and $58,902,000 as of March 31, 2019 and December 31, 2018, respectively. Cash collateral received was $14,226,000 and $77,661,000 as of March 31, 2019 and December 31, 2018, respectively.

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

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

31

Interest settlements on derivatives designated as fair value hedges were recorded in net interest income or expense prior to, and continue to be recorded in net interest income or expense after January 1, 2019. However, beginning on January 1, 2019, disclosed gains (losses) on fair value derivatives include unrealized changes in fair value as well as net interest settlements. For the three months ended March 31, 2019 and 2018, the FHLBank recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank’s net interest income and net gains (losses) on derivatives and hedging activities, if applicable, as presented in Table 7.2 (in thousands):

Table 7.2

	03/31/2019
	Interest Income/Expense
	Advances			Available-for-sale Securities			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds
Total amounts presented in the Statements of Income	$	187,609		$	15,396		$	148,991		$	158,157
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1	$	(33,072	)	$	(44,192	)	$	32		$	9,705
Hedged items2	39,502			42,113			(30		)	(13,549		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	6,430		$	(2,079	)	$	2		$	(3,844	)

	03/31/20183
	Interest Income/Expense								Non-interest Income
	Advances			Available-for-sale Securities			Consolidated Obligation Bonds		Net gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Derivatives1	$	(2,465	)	$	(1,080	)	$	923	$	69,498
Hedged items2	(1,156		)						(71,472		)
NET GAINS (LOSSES) ON FAIR VALUE HEDGING RELATIONSHIPS	$	(3,621	)	$	(1,080	)	$	923	$	(1,974	)

¹  Includes net interest settlements in interest income/expense.

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

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

32

Table 7.3 presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of March 31, 2019 (in thousands):

Table7.3

03/31/2019
Line Item in Statement of Condition of Hedged Item	Carrying Value of Hedged Asset/(Liability)1			Basis Adjustments for Active Hedging Relationships2			Basis Adjustments for Discontinued Hedging Relationships2		Cumulative Amount of Fair Value Hedging Basis Adjustments2
Advances	$	4,014,805		$	(6,693	)	$	1,973	$	(4,720	)
Available-for-sale securities	3,880,105			(18,574		)	—		(18,574		)
Consolidated obligation discount notes	(298,273		)	(18		)	—		(18		)
Consolidated obligation bonds	(3,409,368		)	(7,035		)	—		(7,035		)

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

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

Table 7.4 provides information regarding gains and losses on derivatives and hedging activities recorded in non-interest income (in thousands). For fair value hedging relationships, the portion of net gains (losses) representing hedge ineffectiveness are recorded in non-interest income for periods prior to January 1, 2019.

Table 7.4

	Three Months Ended
	03/31/2019			03/31/2018
Derivatives designated as hedging instruments:
Interest rate swaps				$	(1,974	)
Total net gains (losses) related to fair value hedge ineffectiveness				(1,974		)
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	$	(19,185	)	21,075
Interest rate caps/floors	(626		)	515
Net interest settlements	(296		)	(1,690		)
Mortgage delivery commitments	1,635			(1,283		)
Consolidated obligation discount note commitments	(70		)	—
Total net gains (losses) related to derivatives not designated as hedging instruments	(18,542		)	18,617
NET GAINS (LOSSES) ON DERIVATIVES AND HEDGING ACTIVITIES	$	(18,542	)	$	16,643

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 $13,785,000 and $25,799,000 as of March 31, 2019 and December 31, 2018, respectively. The counterparty was the same for both periods.

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

The FHLBank utilizes two Derivative Clearing Organizations (Clearinghouse) for all cleared derivative transactions, LCH Limited and CME Clearing. At both Clearinghouses, initial margin is considered cash collateral. For cleared derivatives, the Clearinghouse determines initial margin requirements and generally, credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to credit rating downgrades. The FHLBank was not required to post additional initial margin by its clearing agents as of March 31, 2019 and December 31, 2018.

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

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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 March 31, 2019 and December 31, 2018 (in thousands):

Table 8.1

	03/31/2019		12/31/2018
Interest-bearing:
Demand	$	264,924	$	265,021
Overnight	215,200		158,300
Total interest-bearing	480,124		423,321
Non-interest-bearing:
Other	64,376		50,499
Total non-interest-bearing	64,376		50,499
TOTAL DEPOSITS	$	544,500	$	473,820

NOTE 9 – CONSOLIDATED OBLIGATIONS

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

Table 9.1

	03/31/2019					12/31/2018
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Due in one year or less	$	13,933,150		2.31	%	$	8,960,500		2.17	%
Due after one year through two years	4,790,400			2.32		5,625,750			2.28
Due after two years through three years	1,407,200			2.16		2,285,100			2.11
Due after three years through four years	1,512,650			2.32		1,134,750			2.21
Due after four years through five years	773,100			2.55		1,087,900			2.58
Thereafter	4,973,350			3.02		4,879,850			3.01
Total par value	27,389,850			2.44	%	23,973,850			2.38	%
Premiums	19,857					15,591
Discounts	(4,185		)			(4,088		)
Concession fees	(12,392		)			(12,445		)
Hedging adjustments	7,035					(6,514		)
TOTAL	$	27,400,165				$	23,966,394

34

The FHLBank issues optional principal redemption bonds (callable bonds) that may be redeemed in whole or in part at the discretion of the FHLBank on predetermined call dates in accordance with terms of bond offerings. The FHLBank’s participation in consolidated obligation bonds outstanding as of March 31, 2019 and December 31, 2018 includes callable bonds totaling $8,424,000,000 and $8,559,000,000, respectively. The FHLBank uses the unswapped callable bonds for financing its callable fixed rate advances (Note 4), MBS (Note 3) and mortgage loans (Note 5). Contemporaneous with a portion of its fixed rate callable bond issuances, the FHLBank also enters into interest rate swap agreements (in which the FHLBank generally pays a variable rate and receives a fixed rate) with call features that mirror the options in the callable bonds (a sold callable swap). The combined sold callable swap and callable debt transaction allows the FHLBank to obtain attractively priced variable rate financing. Table 9.2 summarizes the FHLBank’s participation in consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of March 31, 2019 and December 31, 2018 (in thousands):

Table 9.2

Year of Maturity or Next Call Date	03/31/2019		12/31/2018
Due in one year or less	$	21,909,150	$	16,971,500
Due after one year through two years	3,560,400		5,270,750
Due after two years through three years	637,200		655,100
Due after three years through four years	550,650		319,750
Due after four years through five years	260,350		275,150
Thereafter	472,100		481,600
TOTAL PAR VALUE	$	27,389,850	$	23,973,850

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

Table 9.3

	03/31/2019		12/31/2018
Fixed rate	$	13,897,850	$	12,858,850
Simple variable rate	12,537,000		10,095,000
Fixed to variable rate	480,000		515,000
Step	405,000		470,000
Variable rate with cap	55,000		20,000
Range	15,000		15,000
TOTAL PAR VALUE	$	27,389,850	$	23,973,850

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

Table 9.4

	Book Value		Par Value		Weighted Average Interest Rate1
March 31, 2019	$	26,785,113	$	26,851,797	2.40	%
December 31, 2018	$	20,608,332	$	20,649,098	2.35	%

¹  Represents yield to maturity excluding concession fees.

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NOTE 10 – ASSETS AND LIABILITIES SUBJECT TO OFFSETTING

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

The FHLBank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or clearing agent, or both. Based on this analysis, the FHLBank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

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

Table 10.1

03/31/2019
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition1			Net Amount
Derivative assets:
Uncleared derivatives	$	45,713	$	(36,216	)	$	9,497	$	(722	)	$	8,775
Cleared derivatives	11,122		64,396			75,518		—			75,518
Total derivative assets	56,835		28,180			85,015		(722		)	84,293
Securities purchased under agreements to resell	4,273,438		—			4,273,438		(4,273,438		)	—
TOTAL	$	4,330,273	$	28,180		$	4,358,453	$	(4,274,160	)	$	84,293

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

Table 10.2

12/31/2018
Description	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Condition			Net Amounts of Assets Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition1			Net Amount
Derivative assets:
Uncleared derivatives	$	88,296	$	(83,378	)	$	4,918	$	(1,618	)	$	3,300
Cleared derivatives	176		31,001			31,177		—			31,177
Total derivative assets	88,472		(52,377		)	36,095		(1,618		)	34,477
Securities purchased under agreements to resell	1,251,096		—			1,251,096		(1,251,096		)	—
TOTAL	$	1,339,568	$	(52,377	)	$	1,287,191	$	(1,252,714	)	$	34,477

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

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

Table 10.3

03/31/2019
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition1			Net Amount
Derivative liabilities:
Uncleared derivatives	$	40,293	$	(39,885	)	$	408	$	(29	)	$	379
Cleared derivatives	1,020		(1,020		)	—		—			—
Total derivative liabilities	41,313		(40,905		)	408		(29		)	379
TOTAL	$	41,313	$	(40,905	)	$	408	$	(29	)	$	379

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

Table 10.4

12/31/2018
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Condition			Net Amounts of Liabilities Presented in the Statement of Condition		Gross Amounts Not Offset in the Statement of Condition1			Net Amount
Derivative liabilities:
Uncleared derivatives	$	36,363	$	(28,479	)	$	7,884	$	(3	)	$	7,881
Cleared derivatives	5,139		(5,139		)	—		—			—
Total derivative liabilities	41,502		(33,618		)	7,884		(3		)	7,881
TOTAL	$	41,502	$	(33,618	)	$	7,884	$	(3	)	$	7,881

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

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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 March 31, 2019 and December 31, 2018 (dollar amounts in thousands):

Table 11.1

	03/31/2019						12/31/2018
	Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	451,611		$	2,254,949		$	387,729		$	2,193,001
Total regulatory capital-to-asset ratio	4.0		%	4.3		%	4.0		%	5.1		%
Total regulatory capital	$	2,297,108		$	2,454,784		$	1,908,610		$	2,442,156
Leverage capital ratio	5.0		%	6.2		%	5.0		%	7.4		%
Leverage capital	$	2,871,385		$	3,582,259		$	2,385,763		$	3,538,656

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

Table 11.2 presents a roll-forward of mandatorily redeemable capital stock for the three months ended March 31, 2019 and 2018 (in thousands):

Table 11.2

	Three Months Ended
	03/31/2019			03/31/2018
Balance, beginning of period	$	3,597		$	5,312
Capital stock subject to mandatory redemption reclassified from equity during the period	23,915			100,390
Redemption or repurchase of mandatorily redeemable capital stock during the period	(24,006		)	(100,734		)
Stock dividend classified as mandatorily redeemable capital stock during the period	42			61
Balance, end of period	$	3,548		$	5,029

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

Table 11.3

Contractual Year of Repurchase	03/31/2019		12/31/2018
Year 1	$	—	$	—
Year 2	—		—
Year 3	1		1
Year 4	1,785		1,798
Year 5	—		—
Past contractual redemption date due to remaining activity1	1,762		1,798
TOTAL	$	3,548	$	3,597

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

Excess Capital Stock: Excess capital stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum stock purchase requirement. FHFA rules limit the ability of the FHLBank to create excess member stock under certain circumstances. For example, the FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if the FHLBank’s excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause the FHLBank’s excess stock to exceed one percent of its total assets. As of March 31, 2019, the FHLBank’s excess stock was less than one percent of total assets.

Capital Classification Determination:The FHFA determines each FHLBank’s capital classification on at least a quarterly basis. If an FHLBank is determined to be other than adequately capitalized, the FHLBank becomes subject to additional supervisory authority by the FHFA. Before implementing a reclassification, the Director of the FHFA is required to provide the FHLBank with written notice of the proposed action and an opportunity to submit a response. As of the most recent review by the FHFA for the fourth quarter of 2018, the FHLBank was classified as adequately capitalized.

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NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME

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

Table 12.1

	Three Months Ended
	Net Unrealized Gains (Losses)  on Available-for-Sale Securities		Net Non-credit Portion of OTTI Gains (Losses) on Held-to-maturity Securities			Defined Benefit Pension Plan			Total AOCI
Balance at December 31, 2017	$	31,206	$	(4,163	)	$	(1,385	)	$	25,658
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	4,142								4,142
Accretion of non-credit loss			279						279
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI1			22						22
Amortization of net losses - defined benefit pension plan2						7			7
Net current period other comprehensive income (loss)	4,142		301			7			4,450
Balance at March 31, 2018	$	35,348	$	(3,862	)	$	(1,378	)	$	30,108
Balance at December 31, 2018	$	19,068	$	—		$	(3,375	)	$	15,693
Other comprehensive income (loss) before reclassification:
Unrealized gains (losses)	11,848								11,848
Reclassifications from other comprehensive income (loss) to net income:
Amortization of net losses - defined benefit pension plan2						73			73
Net current period other comprehensive income (loss)	11,848		—			73			11,921
Balance at March 31, 2019	$	30,916	$	—		$	(3,302	)	$	27,614

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

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

NOTE 13 – FAIR VALUES

The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by the FHLBank using available market and other pertinent information and reflect the FHLBank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Although the FHLBank uses its best judgment in estimating the fair value of its financial instruments, there are inherent limitations in any valuation technique. Therefore, the fair values may not be indicative of the amounts that would have been realized in market transactions as of March 31, 2019 and December 31, 2018. Additionally, these values do not represent an estimate of the overall market value of the FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

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

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Fair Value Hierarchy: The fair value hierarchy requires the FHLBank to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of the market observability of the fair value measurement for the asset or liability. The FHLBank must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities.

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

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

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

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

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

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

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

Table 13.1

	03/31/2019
	Carrying Value			Total Fair Value			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral1
Assets:
Cash and due from banks	$	12,917		$	12,917		$	12,917	$	—		$	—	$	—
Interest-bearing deposits	238,363			238,363			—		238,363			—		—
Securities purchased under agreements to resell	4,273,438			4,273,438			—		4,273,438			—		—
Federal funds sold	1,950,000			1,950,000			—		1,950,000			—		—
Trading securities	3,907,002			3,907,002			—		3,907,002			—		—
Available-for-sale securities	3,911,021			3,911,021			—		3,911,021			—		—
Held-to-maturity securities	4,242,242			4,229,501			—		4,146,388			83,113		—
Advances	29,862,995			29,883,120			—		29,883,120			—		—
Mortgage loans held for portfolio, net of allowance	8,701,250			8,812,569			—		8,811,376			1,193		—
Accrued interest receivable	137,957			137,957			—		137,957			—		—
Derivative assets	85,015			85,015			—		56,835			—		28,180
Liabilities:
Deposits	544,500			544,500			—		544,500			—		—
Consolidated obligation discount notes	26,785,113			26,785,088			—		26,785,088			—		—
Consolidated obligation bonds	27,400,165			27,330,525			—		27,330,525			—		—
Mandatorily redeemable capital stock	3,548			3,548			3,548		—			—		—
Accrued interest payable	104,921			104,921			—		104,921			—		—
Derivative liabilities	408			408			—		41,313			—		(40,905		)
Other Asset (Liability):
Industrial revenue bonds	35,000			33,162			—		33,162			—		—
Financing obligation payable	(35,000		)	(33,162		)	—		(33,162		)	—		—

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.

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Table 13.2

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

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

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

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Table 13.3

	03/31/2019
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral1
Recurring fair value measurements - Assets:
Trading securities:
Certificates of deposit	$	1,210,086	$	—	$	1,210,086	$	—	$	—
U.S. Treasury obligations	1,014,067		—		1,014,067		—		—
GSE obligations2	806,702		—		806,702		—		—
U.S. obligation MBS3	446		—		446		—		—
GSE MBS4	875,701		—		875,701		—		—
Total trading securities	3,907,002		—		3,907,002		—		—
Available-for-sale securities:
U.S. Treasury obligations	2,018,585		—		2,018,585		—		—
GSE MBS5	1,892,436		—		1,892,436		—		—
Total available-for-sale securities	3,911,021		—		3,911,021		—		—
Derivative assets:
Interest-rate related	84,293		—		56,113		—		28,180
Mortgage delivery commitments	722		—		722		—		—
Total derivative assets	85,015		—		56,835		—		28,180
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	7,903,038	$	—	$	7,874,858	$	—	$	28,180
Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	379	$	—	$	41,284	$	—	$	(40,905	)
Mortgage delivery commitments	29		—		29		—		—
Total derivative liabilities	408		—		41,313		—		(40,905		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	408	$	—	$	41,313	$	—	$	(40,905	)
Nonrecurring fair value measurements - Assets6:
Impaired mortgage loans	$	1,197	$	—	$	—	$	1,197	$	—
Real estate owned	187		—		—		187		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	1,384	$	—	$	—	$	1,384	$	—

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

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

³  Represents single-family MBS issued by Ginnie Mae.

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

⁵  Represents multi-family MBS issued by Fannie Mae.

⁶  Includes assets adjusted to fair value during the three months ended March 31, 2019 and still outstanding as of March 31, 2019.

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Table 13.4

	12/31/2018
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral1
Recurring fair value measurements - Assets:
Trading securities:
U.S. Treasury obligations	$	252,377	$	—	$	252,377	$	—	$	—
GSE obligations2	1,000,495		—		1,000,495		—		—
U.S. obligation MBS3	467		—		467		—		—
GSE MBS4	897,774		—		897,774		—		—
Total trading securities	2,151,113		—		2,151,113		—		—
Available-for-sale securities:
GSE MBS5	1,725,640		—		1,725,640		—		—
Total available-for-sale securities	1,725,640		—		1,725,640		—		—
Derivative assets:
Interest-rate related	35,543		—		87,920		—		(52,377		)
Mortgage delivery commitments	552		—		552		—		—
Total derivative assets	36,095		—		88,472		—		(52,377		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	3,912,848	$	—	$	3,965,225	$	—	$	(52,377	)
Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	7,881	$	—	$	41,499	$	—	$	(33,618	)
Mortgage delivery commitments	3		—		3		—		—
Total derivative liabilities	7,884		—		41,502		—		(33,618		)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	7,884	$	—	$	41,502	$	—	$	(33,618	)
Nonrecurring fair value measurements - Assets6:
Impaired mortgage loans	1,463		—		—		1,463		—
Real estate owned	1,028		—		—		1,028		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	2,491	$	—	$	—	$	2,491	$	—

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

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

³  Represents single-family MBS issued by Ginnie Mae.

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

⁵  Represents multi-family MBS issued by Fannie Mae.

⁶  Includes assets adjusted to fair value during the year ended December 31, 2018 and still outstanding as of December 31, 2018.

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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 $956,653,036,000 and $986,994,515,000 as of March 31, 2019 and December 31, 2018, respectively.

The joint and several obligations are mandated by FHFA regulations and are not the result of arms-length transactions among the FHLBanks. As described above, the FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several liability. Because the FHLBanks are subject to the authority of the FHFA as it relates to decisions involving the allocation of the joint and several liability for all FHLBanks' consolidated obligations, FHLBank Topeka regularly monitors the financial condition of the other FHLBanks to determine whether it should expect a loss to arise from its joint and several obligations. If the FHLBank were to determine that a loss was probable and the amount of the loss could be reasonably estimated, the FHLBank would charge to income the amount of the expected loss. Based upon the creditworthiness of the other FHLBanks as of March 31, 2019, FHLBank Topeka has concluded that a loss accrual is not necessary at this time.

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

Table 14.1

	03/31/2019						12/31/2018
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	$	3,871,177	$	7,338	$	3,878,515	$	3,824,497	$	37,933	$	3,862,430
Advance commitments outstanding	110,230		42,188		152,418		116,475		43,782		160,257
Commitments for standby bond purchases	188,876		561,311		750,187		69,277		686,602		755,879
Commitments to fund or purchase mortgage loans	159,654		—		159,654		101,551		—		101,551
Commitments to issue consolidated bonds, at par	1,039,550		—		1,039,550		—		—		—
Commitments to issue consolidated discount notes, at par	—		—		—		1,825,000		—		1,825,000

Commitments to Extend Credit: The FHLBank issues standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. These standby letters of credit are subject to the same collateralization and borrowing limits that are applicable to advances and are fully collateralized with assets allowed by the FHLBank’s Member Products Policy (MPP). Standby letters of credit may be offered to assist members in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from federal and state government agencies. Standby letters of credit are executed for members for a fee. If the FHLBank is required to make payment for a beneficiary's draw, the member either reimburses the FHLBank for the amount drawn or, subject to the FHLBank's discretion, the amount drawn may be converted into a collateralized advance to the member. However, standby letters of credit usually expire without being drawn upon. Standby letters of credit have original expiration periods of up to 10 years, currently expiring no later than 2023. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to $1,254,000 and $1,296,000 as of March 31, 2019 and December 31, 2018, respectively. Advance commitments legally bind and unconditionally obligate the FHLBank for additional advances up to 24 months in the future. Based upon management’s credit analysis of members and collateral requirements under the MPP, the FHLBank does not expect to incur any credit losses on the outstanding letters of credit or advance commitments.

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

46

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 $693,000 and $549,000 as of March 31, 2019 and December 31, 2018, respectively.

Commitments to Issue Consolidated Obligations: The FHLBank enters into commitments to issue consolidated obligation bonds and discount notes outstanding in the normal course of its business. Most settle within the shortest period possible and are considered regular way trades; however, certain commitments are recorded as derivatives at their fair values on the Statements of Condition.

NOTE 15 – TRANSACTIONS WITH STOCKHOLDERS

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

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

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

Table 15.1

03/31/2019
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
MidFirst Bank	OK	$	500	0.3	%	$	377,971	28.8	%	$	378,471	25.0	%
BOKF, N.A.	OK	7,145		3.6		328,002		25.0		335,147		22.2
TOTAL		$	7,645	3.9	%	$	705,973	53.8	%	$	713,618	47.2	%

Table 15.2

12/31/2018
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A		Total Class B Stock Par Value		Percent of Total Class B		Total Capital Stock Par Value		Percent of Total Capital Stock
BOKF, N.A.	OK	$	24,006	9.6	%	$	274,000	21.4	%	$	298,006	19.5	%
MidFirst Bank	OK	500		0.2		294,700		23.0		295,200		19.3
TOTAL		$	24,506	9.8	%	$	568,700	44.4	%	$	593,206	38.8	%

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

Table 15.3

	03/31/2019				12/31/2018				03/31/2019				12/31/2018
Member Name	Outstanding Advances		Percent of Total		Outstanding Advances		Percent of Total		Outstanding Deposits		Percent of Total		Outstanding Deposits		Percent of Total
MidFirst Bank	$	8,410,000	28.2	%	$	6,560,000	22.8	%	$	576	0.1	%	$	331	0.1	%
BOKF, N.A.	7,300,000		24.4		6,100,000		21.2		22,372		4.1		29,288		6.2
TOTAL	$	15,710,000	52.6	%	$	12,660,000	44.0	%	$	22,948	4.2	%	$	29,619	6.3	%

BOKF, N.A. and MidFirst Bank did not sell any mortgage loans into the MPF Program during the three months ended March 31, 2019 and 2018.

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

Table 15.4

	03/31/2019				12/31/2018
	Outstanding Amount		Percent of Total		Outstanding Amount		Percent of Total
Advances	$	160,734	0.5	%	$	157,012	0.5	%
Deposits	$	10,121	1.9	%	$	9,679	2.1	%
Class A Common Stock	$	4,710	2.4	%	$	4,179	1.7	%
Class B Common Stock	4,605		0.4		4,924		0.4
TOTAL CAPITAL STOCK	$	9,315	0.6	%	$	9,103	0.6	%

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

Table 15.5

	03/31/2019				03/31/2018
	Amount		Percent of Total		Amount		Percent of Total
Mortgage loans acquired	$	23,080	4.8	%	$	20,766	5.4	%

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding our business and assessing our operations both historically and prospectively. This discussion should be read in conjunction with our interim financial statements and related notes presented under Part I Item 1 of this quarterly report on Form 10-Q and the annual report on Form 10-K for the year ended December 31, 2018, which includes audited financial statements and related notes for the year ended December 31, 2018. Our MD&A includes the following sections:

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

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

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

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

• Financial Condition – an analysis of our financial position;

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

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

• Impact of Recently Issued Accounting Standards; and

• Legislative and Regulatory Developments.

Executive Level Overview

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

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

We serve eligible financial institutions in Colorado, Kansas, Nebraska, and Oklahoma (collectively, the Tenth District of the FHLBank System), who are also the member-owners of the FHLBank. Initially, a member is required to purchase shares of Class A Common Stock based on the member’s total assets subject to a per member cap of $500 thousand. Each member may be required to purchase activity-based capital stock (Class B Common Stock) as it engages in certain business activities with the FHLBank, including advances, standby letters of credit, and Acquired Member Assets (AMA), at levels determined by management with the Board of Director’s approval and within the ranges stipulated in our Capital Plan. Currently, our capital increases when members are required to purchase additional capital stock in the form of Class B Common Stock to support an increase in their advance borrowings. In the past, capital stock also increased when members sold additional mortgage loans to us; however, members are no longer required to purchase capital stock for AMA activity, as the mortgage loans are supported by the retained earnings of the FHLBank (former members previously required to purchase AMA activity-based stock are subject to the prior requirement as long as there are UPBs outstanding). At our discretion, we may repurchase excess stock 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):

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Table 1

	03/31/2019			12/31/2018			09/30/2018			06/30/2018			03/31/2018
Statement of Condition (as of period end):
Total assets	$	57,427,696		$	47,715,256		$	51,297,350		$	51,753,369		$	53,149,849
Investments1	18,522,066			10,305,382			14,440,009			14,968,579			18,437,771
Advances	29,862,995			28,730,113			28,471,709			28,705,448			26,978,350
Mortgage loans, net2	8,701,250			8,410,462			8,114,220			7,807,487			7,465,604
Total liabilities	54,948,846			45,261,004			48,907,457			49,356,700			50,666,764
Deposits	544,500			473,820			446,282			453,652			623,322
Consolidated obligation discount notes, net3	26,785,113			20,608,332			22,417,330			21,748,221			22,606,383
Consolidated obligation bonds, net3	27,400,165			23,966,394			25,836,920			26,969,184			27,236,839
Total consolidated obligations, net3	54,185,278			44,574,726			48,254,250			48,717,405			49,843,222
Mandatorily redeemable capital stock	3,548			3,597			4,536			4,578			5,029
Total capital	2,478,850			2,454,252			2,389,893			2,396,669			2,483,085
Capital stock	1,508,396			1,524,537			1,463,923			1,496,279			1,598,736
Total retained earnings	942,840			914,022			894,016			875,790			854,241
AOCI	27,614			15,693			31,954			24,600			30,108
Statement of Income (for the quarterly period ended):
Net interest income	63,015			68,175			67,659			68,884			66,479
(Reversal) provision for credit losses on mortgage loans	78			372			(391		)	16			30
Other income (loss)	12,674			(1,822		)	(1,500		)	(2,538		)	(6,987		)
Other expenses	16,990			17,722			20,428			15,493			15,465
Income before assessments	58,621			48,259			46,122			50,837			43,997
Affordable Housing Program (AHP) assessments	5,866			4,831			4,618			5,089			4,406
Net income	52,755			43,428			41,504			45,748			39,591
Selected Financial Ratios and Other Financial Data (for the quarterly period ended):
Dividends paid in cash4	71			63			69			197			70
Dividends paid in stock4	23,866			23,359			23,209			24,002			25,686
Weighted average dividend rate5	6.56		%	6.24		%	6.32		%	5.99		%	6.01		%
Dividend payout ratio6	45.37		%	53.93		%	56.09		%	52.89		%	65.05		%
Return on average equity	8.77		%	7.07		%	6.89		%	7.25		%	6.10		%
Return on average assets	0.40		%	0.33		%	0.32		%	0.33		%	0.28		%
Average equity to average assets	4.54		%	4.69		%	4.67		%	4.53		%	4.58		%
Net interest margin7	0.48		%	0.52		%	0.53		%	0.50		%	0.47		%
Total capital ratio8	4.32		%	5.14		%	4.66		%	4.63		%	4.67		%
Regulatory capital ratio9	4.27		%	5.12		%	4.61		%	4.59		%	4.62		%

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 $824,000, $812,000, $656,000, $1,029,000 and $1,057,000 as of March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.

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

⁴  Dividends reclassified as interest expense on mandatorily redeemable capital stock and not included as dividends recorded in accordance with GAAP were $43,000, $54,000, $58,000, $56,000 and $61,000 for the quarters ended March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.

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

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

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

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

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

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Net income for the three months ended March 31, 2019 was $52.8 million compared to $39.6 million for the three months ended March 31, 2018. The $13.2 million, or 33.2 percent, increase in net income for the three months ended March 31, 2019 compared to the prior year period was primarily due to an increase of $20.5 million in the net fair value of trading securities and derivatives that do not qualify for hedge accounting (economic derivatives), partially offset by a $3.5 million decrease in net interest income. For the three months ended March 31, 2019, the fair value net gains on trading securities and economic derivatives were due to the decline in end-of-quarter mortgage rates and swap rates from December 31, 2018 to March 31, 2019. Market rates associated with the mortgage investments declined more than the market rates associated with the interest rate swaps so the unrealized gain on the mortgage investments exceeded the corresponding unrealized loss in the fair value of the interest rate swaps. The decrease in net interest income for the three months ended March 31, 2019 compared to the same period in 2018 resulted primarily from the adoption of new hedge accounting guidance on January 1, 2019 that requires gains and losses on fair value hedges to be presented in the income statement line item related to the hedged item, which is interest income/expense. The guidance was adopted prospectively, so gains and losses on fair value hedges in the prior year period are presented in other income, which creates a lack of comparability between periods. Fair value losses on designated fair value hedges recorded in net interest income for the three months ended March 31, 2019 were $4.1 million.

The remaining elements of net interest income were relatively steady for the three months ended March 31, 2019 compared to the prior year period, despite a decrease of $3.7 billion, or 6.5 percent, in the average balance of interest-earning assets. This decrease in average interest-earning assets was attributable to a $6.1 billion decline in the average balance of advances, partially offset by higher levels of short-and long-term investment securities and continued growth in the average balances of mortgage loans. The decline in the average balance of advances resulted from the change in the relationship between certain short-term rates, as short-term advance rates became less attractive relative to the rate on excess reserves. The overall increase in the level of market interest rates between periods positively impacted net interest income by allowing many assets to effectively reprice upwards, either due to variable rate terms or an increase in derivative net interest settlements between periods. Continued increases in average short-term interest rates and marginally wider spreads on advances between periods caused net interest margin to increase by one basis point for the three months ended March 31, 2019 compared to the prior year period. Detailed discussion relating to the fluctuations in net interest income can be found under this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.”

Total assets increased $9.7 billion, or 20.4 percent, from December 31, 2018 to March 31, 2019 as a result of increases in short- and long-term investments, with smaller increases in advances and mortgage loans. The majority of the increase and change in composition of investments was in response to changes to regulatory liquidity requirements effective March 31, 2019, including the purchase of $3.0 billion in U.S. Treasury obligations since the third quarter of 2018. The $5.7 billion increase in short-term investments was intended to supplement earnings and offset upcoming investment maturities while market conditions were favorable.

Total liabilities increased $9.7 billion, or 21.4 percent, from December 31, 2018 to March 31, 2019. This increase was primarily due to a $3.4 billion increase in consolidated obligation bonds and a $6.2 billionincrease 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, SOFR, or other indices. Short-term advances, including line of credit advances, represent the majority of the assets funded by term discount notes. We also use term and overnight discount notes to fund overnight investments to maintain liquidity sufficient to meet the advance needs of members. For additional information, see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

The increase in net income combined with a decrease in average capital resulted in an increase in return on average equity (ROE), from 6.10 percent for the three months ended March 31, 2018 to 8.77 percent for the three months ended March 31, 2019. Total capital increased $24.6 million, or 1.0 percent, between periods despite a decrease in capital stock, largely due to net income in excess of dividends paid and unrealized gains on available-for-sale securities. Dividends paid to members totaled $23.9 million for the three months ended March 31, 2019 compared to $25.8 million for the same period in the prior year. The weighted average dividend rate increased to 6.56 percent for the three months ended March 31, 2019 from 6.01 percent for the prior year period primarily due to increases in the dividend rates on our Class A Common Stock and Class B Common Stock between periods and differences in the mix of outstanding Class A Common Stock and Class B Common Stock. The Class A Common Stock dividend rate increased from 1.50 percent to 2.25 percent and the Class B Common Stock dividend rate increased from 6.75 percent to 7.50 percent between March 31, 2018 and March 31, 2019. Our dividend payout ratio decreased to 45.4 percent for the three months ended March 31, 2019, from 65.1 percent for the three months ended March 31, 2018 due to the increase in net income. Other factors impacting the outstanding stock class mix and, therefore, the average dividend rates, include regular exchanges of excess Class B Common Stock to Class A Common Stock and periodic repurchases of excess Class A Common Stock (see “Liquidity and Capital Resources - Capital”under this Item 2). 

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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. Our ratio of average advances and average mortgage loans to average consolidated obligations less average U.S. Treasury securities classified as trading or available for sale with maturities of ten years or less utilizing par balances (core mission assets ratio) was 74 percent for the three months ended March 31, 2019. However, because this ratio is dependent on several variables such as member demand for our advance and mortgage loan products, it is possible that we will be unable to maintain the core 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

	03/31/2019		03/31/2018
Market Instrument	Three-month		Three-month		03/31/2019		12/31/2018		03/31/2018
	Average		Average		Ending Rate		Ending Rate		Ending Rate
Secured Overnight Financing Rate1,2	2.43	%	N/A		2.65	%	3.00	%	N/A
Federal funds effective rate1	2.40		1.45	%	2.43		2.40		1.67	%
Federal Reserve interest rate on excess reserves1	2.40		1.53		2.40		2.40		1.75
3-month U.S. Treasury bill1	2.43		1.57		2.39		2.36		1.71
3-month LIBOR1	2.69		1.93		2.60		2.81		2.31
2-year U.S. Treasury note1	2.49		2.16		2.28		2.51		2.27
5-year U.S. Treasury note1	2.47		2.53		2.25		2.53		2.56
10-year U.S. Treasury note1	2.65		2.76		2.42		2.70		2.74
30-year residential mortgage note rate1,3	4.64		4.54		4.36		4.84		4.69

¹  Source is Bloomberg.

²  SOFR was first published on April 3, 2018.

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

During the first quarter of 2019, the cost of FHLBank consolidated obligations as measured by the spread to comparative U.S. Treasury rates has remained relatively stable, although the yield curve has flattened, which makes shorter-term debt more expensive relative to longer-term structures. During the April 2019 meeting, the Federal Open Market Committee (FOMC) maintained the target Federal funds rate, citing a need for patience in light of global economic and financial developments and reduced inflationary pressures. The FOMC has been increasing the overnight Federal funds rate since 2016, but market conditions in early 2019, including flattening and/or inverting of the yield curve, have implied the possibility of a reduction in the Federal funds rate in 2019. We issue debt at a spread above U.S. Treasury securities; as a result, the level of interest rates impacts the cost of issuing FHLBank consolidated obligations and the cost of advances to our members and housing associates. For further discussion, see this Item 2 – “Financial Condition – Consolidated Obligations.”

In July 2017, the Chief Executive of the Financial Conduct Authority (FCA), which has regulated LIBOR since April 2013, announced the FCA’s intention to cease sustaining LIBOR after 2021. Many of our assets and liabilities are indexed to LIBOR, so we continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate, including the possibility of SOFR prevailing as the most widely adopted replacement reference rate. We have assessed our current LIBOR exposure and have developed a transition plan that includes strategies to manage and reduce exposure in addition to operational readiness.The market transition away from LIBOR is expected to be gradual and complex, including the development of term and credit adjustments to accommodate differences between LIBOR, an unsecured rate, and SOFR, a secured rate. SOFR is based on a broad segment of the overnight U.S. Treasuries repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. We started participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in an effort to manage our exposure to LIBOR assets and liabilities with maturities beyond 2021.

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Other factors impacting FHLBank consolidated obligations:

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

Critical Accounting Policies and Estimates

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

• Accounting related to derivatives and hedging activities;

• Fair value determinations;

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

• Determining the adequacy of the allowance for credit losses.

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

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

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
	03/31/2019 vs. 03/31/2018
	Dollar Change			Percentage Change
Total interest income	$	97,521		35.4	%
Total interest expense	100,985			48.2
Net interest income	(3,464		)	(5.2	)
(Reversal) provision for credit losses on mortgage loans	48			160.0
Net interest income after mortgage loan loss provision	(3,512		)	(5.3	)
Net gains (losses) on trading securities	55,705			206.7
Net gains (losses) on derivatives and hedging activities	(35,185		)	(211.4	)
Other non-interest income	(859		)	(25.9	)
Total other income (loss)	19,661			281.4
Operating expenses	998			8.0
Other non-interest expenses	527			17.9
Total other expenses	1,525			9.9
AHP assessments	1,460			33.1
NET INCOME	$	13,164		33.2	%

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

Table 4

	Three Months Ended
	03/31/2019				03/31/2018
	Interest Income		Percent of Total		Interest Income		Percent of Total
Investments1	$	112,037	30.0	%	$	75,031	27.2	%
Advances	187,609		50.3		140,818		51.1
Mortgage loans held for portfolio	73,284		19.6		59,535		21.6
Other	384		0.1		409		0.1
TOTAL INTEREST INCOME	$	373,314	100.0	%	$	275,793	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 March 31, 2019 was $52.8 million compared to $39.6 million for the three months ended March 31, 2018. The $13.2 million, or 33.2 percent, increase in net income for the quarter was due largely to the net fair value fluctuations on trading securities swapped on an economic basis and economic derivatives, partially offset by a decrease in net interest income compared to the prior year quarter. For the three months ended March 31, 2019, the fair value gains on trading securities and economic derivatives were due to the decline in end-of-quarter mortgage rates and swap rates from December 31, 2018 to March 31, 2019. Market rates associated with the mortgage investments declined more than the market rates associated with the interest rate swaps so the unrealized gain on the mortgage investments exceeded the corresponding unrealized loss in the fair value of the interest rate swaps. The decrease in net interest income for the three months ended March 31, 2019 when compared to the same period in 2018 resulted primarily from the adoption of new hedge accounting guidance on January 1, 2019 that requires gains and losses on fair value hedges to be presented in the income statement line item related to the hedged item, which is interest income/expense. The guidance was adopted prospectively, so gains and losses on fair value hedges in the prior year are presented in other income, which creates a lack of comparability between periods.

Net 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 after provision for credit losses for the three months ended March 31, 2019 was $62.9 million compared to $66.4 million for the same period in the prior year. The $3.5 million decline resulted primarily from a $4.1 million net decline in fair value on designated fair value hedges for the three months ended March 31, 2019. The majority of the $4.1 million unrealized loss represented hedge ineffectiveness on MBS swapped to LIBOR, resulting mostly from the decline in LIBOR since December 31, 2018.

The remaining elements of net interest income were relatively steady for the three months ended March 31, 2019 compared to the prior year period, despite a decrease of $3.7 billion, or 6.5 percent, in the average balance of interest-earning assets. This decrease was due to a $6.1 billion decline in the average balance of advances, partially offset by higher levels of investment securities and continued growth in the average balances of mortgage loans (see Table 7). The decline in the average balance of advances resulted from the change in the relationship between certain short-term rates, as short-term advance rates became less attractive relative to the rate on excess reserves. The overall increase in the level of market interest rates between periods positively impacted net interest income by allowing many assets to effectively reprice upwards, either due to variable rate terms or an increase in derivative net interest settlements between periods. Continued increases in average short-term interest rates and widening spreads on advances between periods caused net interest margin to increase by one basis point for the three months ended March 31, 2019 compared to the prior year period.

For the three months ended March 31, 2019, 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 75 basis points to 2.65 percent, from 1.90 percent for the three months ended March 31, 2018. The increase was a result of a $0.5 billion increase in the average balance and a 101 basis point increase in yield on money market investments, and a $0.7 billion increase in the average balance and a 56 basis point increase in yield on investment securities. The increase in money market investments was driven by attractive yields and spreads on reverse repurchase agreements while maintaining targeted leverage.

54

For the three months ended March 31, 2019, the average yield on advances increased 106 basis points to 2.75 percent, from 1.69 percent for the three months ended March 31, 2018. The increase in the average yield on advances for both periods was due to continued increases in short-term interest rates in conjunction with FOMC policy changes, which adjusted variable rate advances upward and positively impacted the net interest settlements on swapped advances. The average balance of advances decreased $6.1 billion for the three months endedMarch 31, 2019 as a result of the change in the relationship between certain short-term rates, as short-term advance rates became less attractive to our members relative to the rate on excess reserves.

For the three months ended March 31, 2019, the average yield on mortgage loans increased 20 basis points to 3.48 percent, from 3.28 percent for the three months ended March 31, 2018. The increase for the three-month period was largely due to an increase of $1.2 billion in the average balance due to increased production at rates higher than the existing portfolio, and, to a lesser extent, a decline in premium amortization.

For the three months ended March 31, 2019, the average cost of consolidated obligation bonds increased 79 basis points to 2.51 percent, from 1.72 percent for the three months ended March 31, 2018. The average cost of discount notes increased 103 basis points, to 2.43 percent for the three months ended March 31, 2019, from 1.40 percent for the three months ended March 31, 2018, as a result of the increase in short-term interest rates between periods. The average balance of bonds decreased by $1.0 billion, or 3.7 percent, for the three months ended March 31, 2019 and the average balance of discount notes decreased by $2.6 billion, or 9.4 percent for the three months endedMarch 31, 2019. During 2018, we began issuing floating rate bonds indexed to the U.S. Treasury bill rate rather than issuing floating rate bonds indexed to LIBOR and we began swapping fixed rate bonds to OIS rates rather than swapping fixed-rate callable bonds to LIBOR, in part to reduce exposure to LIBOR in general as the market prepares to transition away from LIBOR as a reference rate. We also began participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in the first quarter of 2019 in an effort to manage our exposure to LIBOR assets and liabilities with maturities beyond 2021. For 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.”

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Our net interest spread is impacted by derivative and hedging activities, as the assets and liabilities hedged with derivative instruments designated under fair value hedging relationships are adjusted for changes in fair values, while other assets and liabilities are carried at historical cost. For 2019, net interest income includes unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships as a result of new hedge accounting guidance adopted January 1, 2019. Further, in both 2018 and 2019, net interest payments or receipts on interest rate swaps designated as fair value hedges and the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the hedged asset or liability. However, net interest payments or receipts on derivatives that do not qualify for hedge accounting (economic hedges) flow through net gains (losses) on derivatives and hedging activities instead of net interest income (net interest received/paid on economic derivatives is identified in Tables 9and10 under this Item 2), which does not reflect the full economic impact of the swaps on yields, especially for trading investments that are swapped to a variable rate. Tables 5 and 6 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):

Table5

	03/31/2019
	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Total
Unrealized gains (losses) due to fair value changes	$	(166	)	$	(3,674	)	$	—		$	—	$	(219	)	$	(4,059	)
Net amortization/accretion of hedging activities	(807		)	—			(460		)	—		—			(1,267		)
Net interest received (paid)	7,403			1,595			—			2		(3,625		)	5,375
TOTAL	$	6,430		$	(2,079	)	$	(460	)	$	2	$	(3,844	)	$	49

Table6

	03/31/2018
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds		Total
Net amortization/accretion of hedging activities	$	(1,156	)	$	—		$	(9	)	$	—	$	(1,165	)
Net interest received (paid)	(2,465		)	(1,080		)	—			923		(2,622		)
TOTAL	$	(3,621	)	$	(1,080	)	$	(9	)	$	923	$	(3,787	)

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

Table 7

	Three Months Ended
	03/31/2019						03/31/2018
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	836,128	$	5,170	2.51	%	$	607,525	$	2,236	1.49	%
Securities purchased under agreements to resell	4,423,022		27,930		2.56		2,978,386		11,430		1.56
Federal funds sold	1,719,989		10,324		2.43		2,922,378		10,589		1.47
Investment securities1,2	10,190,398		68,613		2.73		9,477,588		50,776		2.17
Advances2,3	27,707,072		187,609		2.75		33,788,170		140,818		1.69
Mortgage loans2,4,5	8,537,768		73,284		3.48		7,367,886		59,535		3.28
Other interest-earning assets	49,229		384		3.16		48,884		409		3.39
Total earning assets	53,463,606		373,314		2.83		57,190,817		275,793		1.96
Other non-interest-earning assets	296,971						296,273
Total assets	$	53,760,577					$	57,487,090
Interest-bearing liabilities:
Deposits	$	513,230	2,688		2.12		$	543,393	1,614		1.20
Consolidated obligations2:
Discount Notes	24,874,122		148,991		2.43		27,456,061		94,978		1.40
Bonds	25,555,414		158,157		2.51		26,535,020		112,432		1.72
Other borrowings	69,428		463		2.70		39,837		290		2.94
Total interest-bearing liabilities	51,012,194		310,299		2.47		54,574,311		209,314		1.56
Capital and other non-interest-bearing funds	2,748,383						2,912,779
Total funding	$	53,760,577					$	57,487,090
Net interest income and net interest spread6			$	63,015	0.36	%			$	66,479	0.40	%
Net interest margin7					0.48	%					0.47	%

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. For 2019, interest amounts reported for advances, investment securities, consolidated obligation discount notes, and consolidated obligation bonds include realized and unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships. Prior period interest amounts do not conform to new hedge accounting guidance adopted January 1, 2019.

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 $1.6 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively.

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

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

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

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

Table 8

	Three Months Ended
	03/31/2019 vs. 03/31/2018
	Increase (Decrease) Due to
	Volume1,2			Rate1,2			Total
Interest Income3:
Interest-bearing deposits	$	1,045		$	1,889		$	2,934
Securities purchased under agreements to resell	7,079			9,421			16,500
Federal funds sold	(5,459		)	5,194			(265		)
Investment securities	4,041			13,796			17,837
Advances	(28,885		)	75,676			46,791
Mortgage loans	9,876			3,873			13,749
Other assets	3			(28		)	(25		)
Total interest-earning assets	(12,300		)	109,821			97,521
Interest Expense3:
Deposits	(94		)	1,168			1,074
Consolidated obligations:
Discount notes	(9,676		)	63,689			54,013
Bonds	(4,293		)	50,018			45,725
Other borrowings	198			(25		)	173
Total interest-bearing liabilities	(13,865		)	114,850			100,985
Change in net interest income	$	1,565		$	(5,029	)	$	(3,464	)

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

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

³  Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment. For 2019, interest amounts reported for advances, investment securities, consolidated obligation discount notes, and consolidated obligation bonds include realized and unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships. Prior period interest amounts do not conform to new hedge accounting guidance adopted January 1, 2019.

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

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As reflected in Tables 9and10, the majority of the derivative net unrealized gains and losses are related to changes in the fair values of economic hedges, which do not qualify for hedge accounting treatment under GAAP. Net interest payments or receipts on these economic hedges flow through net gains (losses) on derivatives and hedging activities instead of net interest income, which does not reflect the full economic impact of the swaps on yields, especially for trading investments that are swapped to variable rates. For periods prior to January 1, 2019, ineffectiveness on fair value hedges contributed to unrealized gains and losses on derivatives, but to a lesser degree. Beginning January 1, 2019, fair value fluctuations on fair value hedges are recorded in the financial statement line item related to the hedged item in accordance with the prospective adoption of new hedge accounting guidance (i.e., interest income or expense). In the past, we generally recorded net unrealized gains on derivatives when the overall level of interest rates would rise over the period and recorded net unrealized losses when the overall level of interest rates would fall over the period, due to the mix of the economic hedges. Net unrealized gains or losses on derivatives will continue to be primarily a function of the general level of LIBOR swap rates and the spread between the LIBOR swap curve and the GSE interest rate curve (interest rates swaps that are economic hedges of GSE debentures held in trading), but will also be affected by the spread between the LIBOR swap curve and mortgage rates (interest rate swaps that are economic hedges of fixed rate GSE MBS held in trading), the OIS curve and U.S. Treasury rates, and the SOFR swap curve and U.S. Treasury rates (interest rate swaps that are economic hedges of fixed rate U.S. Treasury obligations held in trading). Tables 9and10 present the earnings impact of derivatives and hedging activities by financial instrument as recorded in other non-interest income (in thousands):

Table 9

	Three Months Ended 03/31/2019
	Advances			Investments			Mortgage Loans		Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Total
Derivatives not designated as hedging instruments:
Economic hedges – unrealized gains (losses) due to fair value changes	$	(520	)	$	(26,725	)	$	—	$	—		$	7,434		$	(19,811	)
Mortgage delivery commitments	—			—			1,635		—			—			1,635
Commitment to issue discount notes	—			—			—		(70		)	—			(70		)
Economic hedges – net interest received (paid)	(2		)	525			—		—			(819		)	(296		)
Net gains (losses) on derivatives and hedging activities	(522		)	(26,200		)	1,635		(70		)	6,615			(18,542		)
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			29,019			—		—			—			29,019
TOTAL	$	(522	)	$	2,819		$	1,635	$	(70	)	$	6,615		$	10,477

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Table 10

	Three Months Ended 03/31/2018
	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Other			Total
Net gains (losses) on derivatives and hedging activities:
Fair value hedges - unrealized gains (losses) due to fair value changes	$	(2,800	)	$	378		$	—		$	448		$	—		$	(1,974	)
Economic hedges – unrealized gains (losses) due to fair value changes	—			31,938			—			(10,165		)	—			21,773
Mortgage delivery commitments	—			—			(1,283		)	—			—			(1,283		)
Economic hedges – net interest received (paid)	—			(2,258		)	—			568			—			(1,690		)
Price alignment amount on derivatives for which variation margin is daily settled	—			—			—			—			(183		)	(183		)
Net gains (losses) on derivatives and hedging activities	(2,800		)	30,058			(1,283		)	(9,149		)	(183		)	16,643
Net gains (losses) on trading securities hedged on an economic basis with derivatives	—			(26,395		)	—			—			—			(26,395		)
TOTAL	$	(2,800	)	$	3,663		$	(1,283	)	$	(9,149	)	$	(183	)	$	(9,752	)

For the three months ended March 31, 2019, net gains and losses on derivatives and hedging activities resulted in a decrease in net income of $35.2 million compared to the three months ended March 31, 2018 primarily as a result of changes in the LIBOR swap curve between periods, and, to a lesser extent, changes in other swap indices. The majority of the declines in fair value for the current three-month period were related to the economic interest rate swaps hedging the multi-family GSE MBS, GSE debentures, and U.S. Treasury obligations. The overall increase in the level of swap index rates from March 31, 2018 to March 31, 2019 also had a positive impact on the net interest settlements of interest rate swaps, which increased net income by $1.4 million for the three months ended March 31, 2019 compared to the prior year period.

The net unrealized losses on the economic interest rate swaps hedging the multi-family GSE MBS, U.S. Treasury obligations, and GSE debentures were mostly offset by the net unrealized gains attributable to the swapped securities, which are recorded in net gains (losses) on trading securities. Table 11 presents the relationship between the trading securities and the associated interest rate swaps that do not qualify for hedge accounting treatment by investment type (in thousands):

Table 11

	Three Months Ended
	03/31/2019								03/31/2018
	Gain (Loss) on Derivatives			Gain (Loss) on Trading Securities		Net			Gain (Loss) on Derivatives		Gain (Loss) on Trading Securities			Net
U.S. Treasury obligations	$	(6,774	)	$	6,748	$	(26	)	$	—	$	—		$	—
GSE debentures	(5,658		)	6,501		843			9,863		(8,464		)	1,399
GSE MBS	(13,692		)	15,770		2,078			21,560		(17,931		)	3,629
TOTAL	$	(26,124	)	$	29,019	$	2,895		$	31,423	$	(26,395	)	$	5,028

See Tables 36 and 37 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

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Net Gains (Losses) on Trading Securities: All unrealized gains and losses related to trading securities are recorded in other income (loss) as net gains (losses) on trading securities; however, only gains and losses relating to trading securities that are related to economic hedges are included in Tables 9 and 10. Unrealized gains (losses) fluctuate as the fair value of our trading portfolio fluctuates. There are a number of factors that can impact the fair value of a trading security including the movement in interest rates, changes in credit spreads, the passage of time, and changes in price volatility. Table 12 presents the major components of the net gains (losses) on trading securities (in thousands):

Table 12

	Three Months Ended
	03/31/2019			03/31/2018
Trading securities not hedged:
GSE debentures	$	(294	)	$	(425	)
U.S. obligation MBS and GSE MBS	(56		)	(12		)
Short-term securities	86			(118		)
Total trading securities not hedged	(264		)	(555		)
Trading securities hedged on an economic basis with derivatives:
U.S. Treasury obligations	6,748			—
GSE debentures	6,501			(8,464		)
GSE MBS	15,770			(17,931		)
Total trading securities hedged on an economic basis with derivatives	29,019			(26,395		)
TOTAL	$	28,755		$	(26,950	)

Our trading portfolio is comprised primarily of fixed rate U.S. Treasury obligations, variable and fixed rate GSE debentures, fixed rate multi-family GSE MBS, with smaller percentages of variable rate GSE MBS. Periodically, we also invest in short-term securities classified as trading for liquidity purposes. In general, the fixed rate securities are related to economic hedges in the form of interest rate swaps that convert fixed rates to variable rates (see Table 11 for the association between the gains (losses) on the fixed rate securities and the related economic hedges). The fair values of the fixed rate GSE debentures are affected by changes in intermediate interest rates and credit spreads, and are swapped on an economic basis to three-month LIBOR. The fair values of the fixed rate multi-family GSE MBS are affected by changes in mortgage rates and credit spreads, and these securities are swapped on an economic basis to one-month LIBOR. We experienced unrealized gains of $15.8 million on our fixed rate multi-family GSE MBS investments for the three months ended March 31, 2019 compared to unrealized losses of $17.9 million in the prior year period due to a decrease in mortgage-related interest rates between periods. The decrease in intermediate interest rates between periods resulted in unrealized gains on the fixed rate GSE debentures and U.S. Treasury obligations for the three months ended March 31, 2019. In addition to interest rates and credit spreads, the value of these securities is affected by time decay. The fixed rate GSE debentures possess coupons that are well above current market rates for similar securities and, therefore, are currently valued at substantial premiums. As these securities approach maturity, their prices will converge to par resulting in a decrease in their current premium price (i.e., time decay). Given that the variable rate GSE debentures re-price monthly, they generally account for a small portion of the net gains (losses) on trading securities unless current market spreads on these variable rate securities diverge from the spreads at the time of our acquisition of the securities.

See Tables 36 and 37 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk” for additional detail regarding notional and fair value amounts of derivative instruments.

Other Expenses: Other expenses, which include compensation and benefits and other operating expenses, increased to $17.0 million for the three months endedMarch 31, 2019, compared to $15.5 million for the same period in the prior year. The largest component of operating expenses, compensation and benefits, increased by $0.9 million, or 11.1 percent for the three months endedMarch 31, 2019, compared to the prior year period. We expect to remain near 2018 levels of compensation and benefits expense for 2019.

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

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

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

Derivative and hedge accounting affects the timing of income or expense from derivatives. However, when the derivatives are held to maturity or call dates, there is no economic income or expense impact from these derivatives. For example, interest rate caps are purchased with an upfront fixed cost to provide protection against the risk of rising interest rates. Under derivative accounting guidance, these instruments are then marked to fair value each month, which can result in having to recognize significant fair value gains and losses from year to year, producing volatility in our GAAP net income. However, if held to maturity, the sum of such gains and losses over the term of a derivative will equal its original purchase price.

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

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Table 13 presents a reconciliation of GAAP net income to adjusted income (in thousands):

Table 13

	Three Months Ended
	03/31/2019			03/31/2018
Net income, as reported under GAAP	$	52,755		$	39,591
AHP assessments	5,866			4,406
Income before AHP assessments	58,621			43,997
Derivative (gains) losses1	22,305			(18,333		)
Trading (gains) losses	(28,755		)	26,950
Prepayment fees on terminated advances	(69		)	(31		)
Net (gains) losses on sale of held-to-maturity securities	—			(34		)
Total excluded items	(6,519		)	8,552
Adjusted income (a non-GAAP measure)	$	52,102		$	52,549

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

Adjusted income decreased $0.4 million for the three months ended March 31, 2019 compared to the prior year period compared to the same period in the prior year. The decrease was due to a $1.5 million increase in other expenses and a $0.8 million decrease in other income, partially offset by a $2.0 million increase in adjusted net interest income (see table 14) due to the increase in the average level of swap index rates between quarters and the resulting impact on net interest settlements.

Table 14 presents a reconciliation of GAAP net interest income to adjusted net interest income (in thousands):

Table 14

	Three Months Ended
	03/31/2019			03/31/2018
Net interest income, as reported under GAAP	$	63,015		$	66,479
(Gains) losses on derivatives qualifying for hedge accounting recorded in net interest income1	4,059			—
Net interest settlements on economic hedges	(296		)	(1,690		)
Prepayment fees on terminated advances	(69		)	(31		)
Adjusted net interest income (a non-GAAP measure)	$	66,709		$	64,758
Net interest margin, as calculated under GAAP for the period	0.48		%	0.47		%
Adjusted net interest margin (a non-GAAP measure)	0.51		%	0.46		%

_________                   

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

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

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Table 15 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 compared to the same period in the prior year is a function of the change in adjusted net income and in the average balance of capital for the periods. Adjusted ROE as a spread to the average overnight Federal funds effective rate decreased during the three months ended March 31, 2019 compared to the same period in the prior year despite the increase in adjusted ROE due to increases in the target range for the Federal funds effective rate between periods. Adjusted ROE spread for the three months ended March 31, 2019 and 2018 is calculated as follows (dollar amounts in thousands):

Table15

	Three Months Ended
	03/31/2019			03/31/2018
Average GAAP total capital for the period	$	2,440,006		$	2,632,324
ROE, based upon GAAP net income	8.77		%	6.10		%
Adjusted ROE, based upon adjusted income	8.66		%	8.10		%
Average overnight Federal funds effective rate	2.40		%	1.45		%
Adjusted ROE as a spread to average overnight Federal funds effective rate	6.26		%	6.65		%

Financial Condition

Overall:Total assets increased $9.7 billion, or 20.4 percent, from December 31, 2018 to March 31, 2019 as a result of an increase in short- and long-term investments, with smaller increases in advances and mortgage loans. Average interest-earning assets declined $3.7 billion, or 6.5 percent, for the for the three months ended March 31, 2019 due to a $6.1 billion decline in the average balance of advances, partially offset by higher average levels of investment securities and continued strong growth in the average balances of mortgage loans. The decline in the average balance of advances resulted from the change in the relationship between certain short-term rates, as short-term advance rates became less attractive relative to the rate on excess reserves. The increase in mortgage loans was attributed in large part to continued production from our top five PFIs and utilization of recent program enhancements that provide PFIs with additional funding opportunities. Total liabilities increased $9.7 billion, or 21.4 percent, from December 31, 2018 to March 31, 2019. This increase was primarily due to a $3.4 billion increase in consolidated obligation bonds and a $6.2 billionincrease in consolidated obligation discount notes. The weighted average dividend rate for the three months ended March 31, 2019 was 6.56 percent, which represented a dividend payout ratio of 45.4 percent, compared to a weighted average dividend rate of 6.01 percent and a payout ratio of 65.1 percent for the same period in 2018.

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Short-term money market investments and investment securities increased notably as a percentage of assets at March 31, 2019 compared to December 31, 2018 largely in response to regulatory liquidity requirements that became effective March 31, 2019. We continue to fund our short-term advances and overnight investments with term and overnight discount notes, which is reflected in the increased allocation of discount notes as a percentage of total consolidated obligations. The decrease in the percentage of advances and mortgage loans to total assets was a direct result of the increase in short-term investments and investment securities at March 31, 2019 compared to December 31, 2018. Table 16 presents the percentage concentration of the major components of our Statements of Condition:

Table 16

	Component Concentration
	03/31/2019		12/31/2018
Assets:
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	11.3	%	4.1	%
Investment securities	21.0		17.5
Advances	52.0		60.2
Mortgage loans, net	15.1		17.6
Other assets	0.6		0.6
Total assets	100.0	%	100.0	%
Liabilities:
Deposits	1.0	%	1.0	%
Consolidated obligation discount notes, net	46.6		43.2
Consolidated obligation bonds, net	47.7		50.2
Other liabilities	0.4		0.5
Total liabilities	95.7		94.9
Capital:
Capital stock outstanding	2.6		3.2
Retained earnings	1.6		1.9
Accumulated other comprehensive income (loss)	0.1		—
Total capital	4.3		5.1
Total liabilities and capital	100.0	%	100.0	%

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Table 17 presents changes in the major components of our Statements of Condition (dollar amounts in thousands):

Table 17

	Increase (Decrease) in Components
	03/31/2019 vs. 12/31/2018
	Dollar Change			Percent Change
Assets:
Cash and due from banks	$	(2,143	)	(14.2	)%
Interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold	4,490,045			227.7
Investment securities	3,726,639			44.7
Advances	1,132,882			3.9
Mortgage loans, net	290,788			3.5
Other assets	74,229			29.2
Total assets	$	9,712,440		20.4	%
Liabilities:
Deposits	$	70,680		14.9	%
Consolidated obligation discount notes, net	6,176,781			30.0
Consolidated obligation bonds, net	3,433,771			14.3
Other liabilities	6,610			3.1
Total liabilities	9,687,842			21.4
Capital:
Capital stock outstanding	(16,141		)	(1.1	)
Retained earnings	28,818			3.2
Accumulated other comprehensive income (loss)	11,921			76.0
Total capital	24,598			1.0
Total liabilities and capital	$	9,712,440		20.4	%

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

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Table 18 summarizes advances outstanding by product (dollar amounts in thousands):

Table 18

	03/31/2019				12/31/2018
	Dollar		Percent		Dollar		Percent
Adjustable rate:
Standard advance products:
Line of credit	$	11,153,514	37.3	%	$	11,989,165	41.7	%
Regular adjustable rate advances	802,000		2.7		655,000		2.3
Adjustable rate callable advances	10,667,500		35.7		9,003,675		31.3
Standard housing and community development advances:
Adjustable rate callable advances	38,212		0.1		39,252		0.1
Total adjustable rate advances	22,661,226		75.8		21,687,092		75.4
Fixed rate:
Standard advance products:
Short-term fixed rate advances	315,600		1.1		370,838		1.3
Regular fixed rate advances	4,448,030		14.9		4,310,003		15.0
Fixed rate callable advances	17,165		0.1		16,785		0.1
Standard housing and community development advances:
Regular fixed rate advances	462,648		1.5		461,431		1.6
Fixed rate callable advances	4,831		—		4,831		—
Total fixed rate advances	5,248,274		17.6		5,163,888		18.0
Convertible:
Standard advance products:
Fixed rate convertible advances	1,212,850		4.1		1,150,850		4.0
Amortizing:
Standard advance products:
Fixed rate amortizing advances	373,799		1.2		389,523		1.3
Fixed rate callable amortizing advances	14,458		0.1		15,028		0.1
Standard housing and community development advances:
Fixed rate amortizing advances	348,387		1.2		359,949		1.2
Fixed rate callable amortizing advances	11,207		—		11,419		—
Total amortizing advances	747,851		2.5		775,919		2.6
TOTAL PAR VALUE	$	29,870,201	100.0	%	$	28,777,749	100.0	%

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

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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 March 31, 2019 and December 31, 2018. The 3.8 percentincrease in advance par value from December 31, 2018 to March 31, 2019 (see Table 18) was primarily due to an increase in our adjustable rate callable advances. As of March 31, 2019 and December 31, 2018, 56.9 percent and 63.0 percent, respectively, of our members carried outstanding advance balances. The overall demand for our advances is typically influenced by our members’ ability to profitably invest the funds in loans and investments as well as their need for liquidity, which is influenced by changes in loan demand and their ability to efficiently grow deposits proportionately. The attractiveness of our advances is also influenced by the impact our dividends have on the effective cost of advances. In recent periods, a portion of the growth in average advances resulted from our members’ ability to invest advances in excess reserves at the Federal Reserve and receive a profitable risk adjusted return largely because of the dividend paid on the capital stock supporting the advances. During 2018, the relationship between the interest on excess reserves and other short-term interest rates changed, resulting in a decline in the average balance of short-term advances as the short-term advance rates became less attractive relative to the yield on excess reserves at the Federal Reserve. When, and if, member advance demand changes, a few larger members could have a significant impact on the amount of total outstanding advances. If our members reduce the volume of their advances, we expect to continue our past practice of repurchasing excess capital stock.

Rather than match-funding long-term, fixed rate, large dollar advances, we elect to swap a significant portion of large dollar advances with longer maturities to short-term indices (primarily one- or three-month LIBOR and, to a much smaller extent, OIS beginning in late 2018 and SOFR in 2019) to synthetically create adjustable rate advances. When coupled with the volume of our short-term advances, advances that effectively re-price at least every three months represent 90.0 percent and 89.8 percent of our total advance portfolio as of March 31, 2019 and December 31, 2018, respectively. We anticipate continuing the practice of swapping large dollar advances with longer maturities to short-term indices. In the first quarter of 2019, we began swapping fixed rate non-callable advances to SOFR as part of our plan to transition away from LIBOR as a reference rate.

Table 19 presents information on our five largest borrowers (dollar amounts in thousands). If the borrower was not one of our top five borrowers for one of the periods presented, the applicable columns are left blank. Based on no historical loss experience on advances since the inception of the FHLBank, along with our rights to collateral with an estimated fair value in excess of the book value of these advances, we do not expect to incur any credit losses on these advances.

Table 19

	03/31/2019				12/31/2018
Borrower Name	Advance Par Value		Percent ofTotal Advance Par		Advance Par Value		Percent ofTotal Advance Par
MidFirst Bank	$	8,410,000	28.2	%	$	6,560,000	22.8	%
BOKF, N.A.	7,300,000		24.4		6,100,000		21.2
Capitol Federal Savings Bank	2,240,000		7.5		2,175,000		7.6
United of Omaha Life Insurance Co.	950,855		3.2		813,182		2.8
Security Life of Denver Insurance Co.	565,000		1.9
Colorado Federal Savings					625,000		2.2
TOTAL	$	19,465,855	65.2	%	$	16,273,182	56.6	%

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Table 20 presents the accrued interest income associated with the five borrowers providing the highest amount of interest income for the periods presented (dollar amounts in thousands). If the borrower was not one of our top five borrowers for whom we accrued the highest amount of interest income for one of the periods presented, the applicable columns are left blank.

Table 20

	Three Months Ended
	03/31/2019				03/31/2018
Borrower Name	Advance Income		Percent of Total Advance Income1		Advance Income		Percent of Total Advance Income1
BOKF, N.A.	$	46,310	25.7	%	$	24,587	17.2	%
MidFirst Bank	40,826		22.6		23,751		16.6
Capitol Federal Savings Bank	12,655		7.0		18,348		12.8
United of Omaha Life Insurance Co.	6,118		3.4
Security Life of Denver Insurance Co.	3,791		2.1
Ent Federal Credit Union					5,246		3.6
American Fidelity Assurance Co.					3,395		2.4
TOTAL	$	109,700	60.8	%	$	75,327	52.6	%

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

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

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

The principal amount of new mortgage loans acquired and held on our balance sheet from our PFIs during the three months ended March 31, 2019 was $0.5 billion. These new originations and acquisitions, net of loan payments received, resulted in an increase of 3.5 percent in the outstanding net balance of our mortgage loan portfolio from December 31, 2018 to March 31, 2019. Despite the increase, net mortgage loans as a percentage of total assets decreased, from 17.6 percent as of December 31, 2018 to 15.1 percent as of March 31, 2019 because of an increase in the percentage of investments held to meet new regulatory liquidity requirements. Table 4 presents the amount of interest income on mortgage loans held for portfolio as a percentage of total interest income for the three months ended March 31, 2019 and 2018. Although mortgage loan balances have grown steadily in recent years, the percentage of mortgage loan interest income to total interest income declined for the period ended March 31, 2019 compared to March 31, 2018. This is due to an increase in the average balance and yield of investment securities and the resulting increase in investment interest income.

Recent growth in mortgage loans held for portfolio is attributed primarily to continued production from our top five PFIs, supported by enhancements to the pricing options available to PFIs. The primary factors that may influence future growth in our mortgage loans held for portfolio include: (1) the number of new and delivering PFIs; (2) the mortgage loan origination volume of current PFIs; (3) refinancing activity; (4) the level of interest rates and the shape of the yield curve; (5) the relative competitiveness of MPF pricing to the prices offered by other buyers of residential mortgage loans; and (6) a PFI's level of excess risk-based capital relative to the required risk-based capital charge associated with the PFI's credit enhancement obligations (CE obligation) on MPF mortgage loans. In an effort to manage the level of mortgage loans on our books, management has researched and continues to review options including participating loan volume (as described below) or selling whole loans to other FHLBanks, members or other investors if needed. Although we may determine to sell whole loans from time to time, we have not identified any specific loans to be sold as of March 31, 2019.

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

Table 21 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 21

	03/31/2019				12/31/2018
	Mortgage Loan Balance		Percentof Total Mortgage Loans		Mortgage Loan Balance		Percentof Total Mortgage Loans
NBKC Bank	$	637,913	7.4	%	$	570,440	6.9	%
FirstBank of Colorado	377,548		4.4		372,533		4.5
Tulsa Teachers Credit Union	307,754		3.6		291,691		3.5
Fidelity Bank	272,620		3.2		253,413		3.1
Sunflower Bank	216,609		2.5
ENT Federal Credit Union					203,048		2.4
TOTAL	$	1,812,444	21.1	%	$	1,691,125	20.4	%

Two indications of credit quality are scores provided by Fair Isaac Corporation (FICO^®) and loan-to-value (LTV) ratios. FICO is a widely used credit industry indicator to assess borrower credit quality with scores typically ranging from 300 to 850 with the low end of the scale indicating greater credit risk. The MPF Program requires a minimum FICO score of 620 for all conventional loans. LTV is a primary variable in credit performance. Generally speaking, a higher LTV ratio means greater risk of loss in the event of a default and also means higher loss severity. The weighted average FICO score and LTV recorded at origination for conventional mortgage loans outstanding as of March 31, 2019 was 750 and 74.8 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 allowance for credit losses remained relatively unchanged from December 31, 2018 to March 31, 2019 at $0.8 million. The historical loss rate declined slightly for the period ending March 31, 2019 compared to December 31, 2018 and delinquencies trended higher but remained at low levels relative to the portfolio, at 0.8 percent and 0.6 percent of total loans at March 31, 2019 and December 31, 2018, respectively. We believe that policies and procedures are in place to effectively manage the credit risk on mortgage loans held in portfolio. See Note 6 of the Notes to Financial Statements under Item 1 for a summary of the allowance for credit losses on mortgage loans, and delinquency aging and key credit quality indicators for our mortgage loan portfolio.

Investments: Investments are used to enhance income and provide liquidity and primary and secondary market support for the U.S. housing securities market. Total investments increased from December 31, 2018 to March 31, 2019, predominantly due to increases in the average balances of short-term investments and purchases of U.S. Treasury obligations. The majority of the increase and change in composition of investments was in response to changes to regulatory liquidity requirements effective March 31, 2019, including the purchase of $3.0 billion in U.S. Treasury obligations since the third quarter of 2018. The $5.7 billion increase in short-term investments was intended to supplement earnings and offset upcoming investment maturities while market conditions were favorable. The U.S. Treasury obligations satisfy changes to regulatory liquidity requirements and were swapped to OIS or SOFR.

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

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

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

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

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

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

Table 22 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 22

	03/31/2019		12/31/2018
Interest-bearing deposits	$	235,716	$	669,653
Federal funds sold	1,950,000		50,000
Certificates of deposit	1,210,086		—
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1	$	3,395,802	$	719,653

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

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

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

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

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Table 23 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 March 31, 2019 (in thousands). We also mitigate the credit risk on investments by generally investing in investments that have short-term maturities.

Table 23

Domicile of Counterparty	Overnight		Due 2 – 30 days		Due 31 – 90 days		Total
Domestic	$	585,716	$	—	$	150,013	$	735,729
U.S. subsidiaries of foreign commercial banks	300,000		—		—		300,000
Total domestic and U.S. subsidiaries of foreign commercial banks	885,716		—		150,013		1,035,729
U.S. Branches and agency offices of foreign commercial banks:
France	200,000		460,035		—		660,035
Sweden	300,000		100,008		75,007		475,015
Austria	400,000		—		—		400,000
Germany	400,000		—		—		400,000
Norway	—		50,004		225,015		275,019
Finland	—		—		150,004		150,004
Total U.S. Branches and agency offices of foreign commercial banks	1,300,000		610,047		450,026		2,360,073
TOTAL UNSECURED INVESTMENT CREDIT EXPOSURE1	$	2,185,716	$	610,047	$	600,039	$	3,395,802

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

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

Long-term investments – Our long-term investment portfolio consists primarily of MBS and U.S. Treasury obligations. Our Risk Management Policy (RMP) restricts the acquisition of investments to highly rated long-term securities. The majority of these long-term securities are GSE MBS, which provide an alternative means to promote liquidity in the mortgage finance markets while providing acceptable returns. We hold fixed and variable rate GSE debentures in our long-term investment portfolio and we generally swap the fixed rate GSE debentures from fixed to variable rates. They provide attractive returns, can serve as excellent collateral (e.g., repurchase agreements and net derivatives exposure), and are generally classified as trading securities and carried at fair value, either to enhance our liquidity position, for asset/liability management purposes, or to provide a fair value offset to the gains or losses on the interest rate swaps tied to these securities. The interest rate swaps do not qualify for hedge accounting, which results in the net interest payments or receipts on these economic hedges flowing through net gains (losses) on derivatives and hedging activities instead of net interest income. During the last half of 2018, we began acquiring fixed rate U.S. Treasury obligations and swapping these securities from fixed to variable rates, as either trading securities that are economically swapped or available-for-sale securities that are swapped in qualifying fair value hedging relationships. In addition to serving as excellent collateral, U.S. Treasuries also satisfy recent changes to regulatory liquidity requirements.

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 March 31, 2019, the amortized cost of our MBS portfolio represented 281 percent of our regulatory capital. At times we may exceed the required threshold due to decreases in regulatory capital; however, we were in compliance with the regulatory limit at the time of each purchase during the quarter ended March 31, 2019.

As of March 31, 2019, we held $4.2 billion of par value in MBS in our held-to-maturity portfolio, $1.9 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.

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Major Security Types – Securities for which we have the ability and intent to hold to maturity are classified as held-to-maturity securities and recorded at carrying value, which is the net total of par, premiums, and discounts. We classify certain investments as trading or available-for-sale securities and carry them at fair value, generally for liquidity purposes, to provide a fair value offset to the gains (losses) on the interest rate swaps tied to swapped securities, and for asset/liability management purposes. 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.

See Note 3 of the Notes to Financial Statements under Item 1 of this quarterly report for additional information on our different investment classifications including the types of securities held under each classification. The carrying value of our investments is summarized by security type in Table 24 (in thousands).

Table 24

	03/31/2019		12/31/2018
Trading securities:
Certificates of deposit	$	1,210,086	$	—
U.S. Treasury obligations	1,014,067		252,377
GSE debentures	806,702		1,000,495
Mortgage-backed securities:
U.S. obligation MBS	446		467
GSE MBS	875,701		897,774
Total trading securities	3,907,002		2,151,113
Available-for-sale securities:
U.S. Treasury obligations	2,018,585		—
GSE MBS	1,892,436		1,725,640
Total available-for-sale securities	3,911,021		1,725,640
Held-to-maturity securities:
State or local housing agency obligations	86,430		86,430
Mortgage-backed securities:
U.S. obligation MBS	106,576		109,866
GSE MBS	4,049,236		4,260,577
Total held-to-maturity securities	4,242,242		4,456,873
Total securities	12,060,265		8,333,626
Interest-bearing deposits	238,363		670,660
Federal funds sold	1,950,000		50,000
Securities purchased under agreements to resell	4,273,438		1,251,096
TOTAL INVESTMENTS	$	18,522,066	$	10,305,382

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The contractual maturities of our investments are summarized by security type in Table 25 (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 25

	03/31/2019
	Due in one year or less			Due after oneyear throughfive years			Due after fiveyears through 10 years			Due after 10 years			Carrying Value
Trading securities:
Certificates of deposit	$	1,210,086		$	—		$	—		$	—		$	1,210,086
U.S. Treasury obligations	—			1,014,067			—			—			1,014,067
GSE debentures	400,202			109,374			297,126			—			806,702
Mortgage-backed securities:
U.S. obligation MBS	—			—			446			—			446
GSE MBS	—			16,284			805,403			54,014			875,701
Total trading securities	1,610,288			1,139,725			1,102,975			54,014			3,907,002
Yield on trading securities	2.59		%	2.78		%	2.83		%	2.89		%
Available-for-sale securities:
U.S. Treasury obligations	—			2,018,585			—			—			2,018,585
GSE MBS	—			139,289			1,753,147			—			1,892,436
Total available-for-sale securities	—			2,157,874			1,753,147			—			3,911,021
Yield on available-for-sale securities	—		%	2.47		%	2.80		%	—		%
Held-to-maturity securities:
State or local housing agency obligations	—			—			—			86,430			86,430
Mortgage-backed securities:
U.S. obligation MBS	—			—			—			106,576			106,576
GSE MBS	—			401,921			1,229,527			2,417,788			4,049,236
Total held-to-maturity securities	—			401,921			1,229,527			2,610,794			4,242,242
Yield on held-to-maturity securities	—		%	1.70		%	2.24		%	2.16		%
Total securities	1,610,288			3,699,520			4,085,649			2,664,808			12,060,265
Yield on total securities	2.59		%	2.48		%	2.64		%	2.18		%
Interest-bearing deposits	238,363			—			—			—			238,363
Federal funds sold	1,950,000			—			—			—			1,950,000
Securities purchased under agreements to resell	4,273,438			—			—			—			4,273,438
TOTAL INVESTMENTS	$	8,072,089		$	3,699,520		$	4,085,649		$	2,664,808		$	18,522,066

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Securities Ratings – Tables 26 and 27 present the carrying value of our investments by rating as of March 31, 2019 and December 31, 2018 (in thousands). The ratings presented are the lowest ratings available for the security or the issuer based on NRSROs, where available. Some counterparties for collateralized overnight borrowing are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. We also utilize other credit quality factors when analyzing potential investments including, but not limited to, collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, and/or the financial health of the underlying issuer.

Table 26

	03/31/2019
	Carrying Value1
	Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A
Interest-bearing deposits2	$	—	$	2,647	$	235,716	$	—	$	238,363
Federal funds sold2	—		600,000		1,350,000		—		1,950,000
Securities purchased under agreements to resell3	—		—		—		4,273,438		4,273,438
Investment securities:
Non-mortgage-backed securities:
Certificates of deposit2	—		600,037		610,049		—		1,210,086
U.S. Treasury obligations	—		3,032,652		—		—		3,032,652
GSE debentures	—		806,702		—		—		806,702
State or local housing agency obligations	56,430		30,000		—		—		86,430
Total non-mortgage-backed securities	56,430		4,469,391		610,049		—		5,135,870
Mortgage-backed securities:
U.S. obligation MBS	—		107,022		—		—		107,022
GSE MBS	—		6,817,373		—		—		6,817,373
Total mortgage-backed securities	—		6,924,395		—		—		6,924,395
TOTAL INVESTMENTS	$	56,430	$	11,996,433	$	2,195,765	$	4,273,438	$	18,522,066

¹  Investment amounts represent the carrying value and do not include related accrued interest receivable of $43.2 million at March 31, 2019.

²  Amounts include unsecured credit exposure with original maturities between overnight to 91 days.

³  Amounts represent collateralized overnight borrowings by counterparty rating.

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Table 27

	12/31/2018
	Carrying Value1
	Investment Grade						Unrated		Total
	Triple-A		Double-A		Single-A
Interest-bearing deposits2	$	435	$	1,007	$	669,218	$	—	$	670,660
Federal funds sold2	—		—		50,000		—		50,000
Securities purchased under agreements to resell3	—		—		—		1,251,096		1,251,096
Investment securities:
Non-mortgage-backed securities:
U.S. obligations	—		252,377		—		—		252,377
GSE debentures	—		1,000,495		—		—		1,000,495
State or local housing agency obligations	56,430		30,000		—		—		86,430
Total non-mortgage-backed securities	56,430		1,282,872		—		—		1,339,302
Mortgage-backed securities:
U.S. obligation MBS	—		110,333		—		—		110,333
GSE MBS	—		6,883,991		—		—		6,883,991
Total mortgage-backed securities	—		6,994,324		—		—		6,994,324
TOTAL INVESTMENTS	$	56,865	$	8,278,203	$	719,218	$	1,251,096	$	10,305,382

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

²  Amounts include unsecured credit exposure with overnight maturities.

³  Amounts represent collateralized overnight borrowings by counterparty rating.

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Table 28 details interest rate payment terms for the carrying value of our investment securities as of March 31, 2019 and December 31, 2018 (in thousands). We manage the interest rate risk associated with our fixed rate trading and available-for-sale securities by entering into interest rate swaps that convert the investment's fixed rate to a variable rate index (see Tables 36 and 37 under Item 3 – “Quantitative and Qualitative Disclosures About Market Risk)."

Table 28

	03/31/2019		12/31/2018
Trading securities:
Non-mortgage-backed securities:
Fixed rate	$	2,630,653	$	652,376
Variable rate	400,202		600,496
Non-mortgage-backed securities	3,030,855		1,252,872
Mortgage-backed securities:
Fixed rate	820,169		839,726
Variable rate	55,978		58,515
Mortgage-backed securities	876,147		898,241
Total trading securities	3,907,002		2,151,113
Available-for-sale securities:
Non-mortgage-backed securities:
Fixed rate	2,018,585		—
Non-mortgage-backed securities	2,018,585		—
Mortgage-backed securities:
Fixed rate	1,892,436		1,725,640
Mortgage-backed securities	1,892,436		1,725,640
Total available-for-sale securities	3,911,021		1,725,640
Held-to-maturity securities:
Non-mortgage-backed securities:
Variable rate	86,430		86,430
Non-mortgage-backed securities	86,430		86,430
Mortgage-backed securities:
Fixed rate	127,210		133,498
Variable rate	4,028,602		4,236,945
Mortgage-backed securities	4,155,812		4,370,443
Total held-to-maturity securities	4,242,242		4,456,873
TOTAL	$	12,060,265	$	8,333,626

Deposits: Total deposits increased $70.7 million from December 31, 2018 to March 31, 2019 primarily as a result of an increase in overnight deposits. Deposit products offered primarily include demand and overnight deposits and short-term certificates of deposit. Demand deposit programs are offered primarily to facilitate customer transactions with us, such as cash flows associated with advances and mortgage loan transactions. Overnight deposits provide an alternative short-term investment option to members. The majority of deposits are in overnight or demand accounts that generally re-price daily based upon a market index such as overnight Federal funds. The level of deposits is driven by member demand for deposit products, which in turn is a function of the liquidity position of members. Factors that influence deposit levels include turnover in member investment and loan portfolios, changes in members’ customer deposit balances, changes in members’ demand for liquidity and our deposit pricing as compared to other short-term market rates. Declines in the level of deposits could occur if demand for loans at member institutions increases, if members choose to de-leverage their balance sheets, or if decreases in the general level of liquidity of members should occur. Fluctuations in deposits have little impact on our ability to obtain liquidity. We historically have had stable and ready access to the capital markets through consolidated obligations and can replace any reduction in deposits with similarly- or lower-priced borrowings.

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Consolidated Obligations: Consolidated obligations are the joint and several debt obligations of the FHLBanks and consist of bonds and discount notes. Consolidated obligations represent the primary source of liabilities we use to fund advances, mortgage loans and investments. As noted under 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 or U.S. Treasury bills 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 March 31, 2019, short-term advances (advances maturing within one year), including line of credit advances, represented 51.4 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 23.2 percent of discount notes outstanding as of March 31, 2019.

Total consolidated obligations increased $9.6 billion, or 21.6 percent, from December 31, 2018 to March 31, 2019. The distribution between consolidated obligation bonds and discount notes shifted slightly, from 53.8 percent and 46.2 percent, respectively, at December 31, 2018 to 50.6 percent and 49.4 percent at March 31, 2019, respectively. The $3.4 billion increase in consolidated obligation bonds was due primarily to the issuance of $2.3 billion of floating rate bonds indexed to SOFR and $2.0 billion of fixed rate bonds, of which $0.9 billion were swapped to OIS, issued in part to reduce LIBOR basis risk. Discount notes of a shorter tenor were used to fund the increase in short-term investments. While we currently have stable access to funding markets, future developments could impact the cost of replacing outstanding debt. Some of these include, but are not limited to, a large increase in call volume, significant increases in advance demand, legislative and regulatory changes, geopolitical events, proposals addressing GSEs, derivative and financial market reform, 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 three months ended March 31, 2019, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were $5.6 billion and $251.2 billion, respectively, compared to $6.6 billion and $261.0 billion for the three months ended March 31, 2018. The large difference between the proceeds from bonds and discount notes reflects the cumulative effect of using short-term discount notes to fund short-term advances and our short-term liquidity portfolio. During the first quarter of 2019, we replaced maturing bonds with longer-term fixed and floating rate consolidated obligation bonds to lengthen the maturity of our liabilities relative to our assets. Our other sources of liquidity include deposit inflows, repayments of advances and mortgage loans, maturing investments, interest income, Federal Funds purchased, and proceeds from reverse repurchase agreements or the sale of unencumbered assets.

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Our short-term liquidity portfolio, which consists of cash and investments with remaining maturities of one year or less and includes Federal funds sold, interest-bearing demand deposits, certificates of deposit, commercial paper, and reverse repurchase agreements, increased between periods, from $2.6 billion as of December 31, 2018 to $8.1 billion as of March 31, 2019. The increase between periods was relative to the decrease in targeted leverage at the end of the year. The maturities of our short-term investments are structured to provide periodic cash flows to support our ongoing liquidity needs. To enhance our liquidity position, short-term investment securities (i.e., commercial paper and marketable certificates of deposit) are also classified as trading so that they can be readily sold should liquidity be needed immediately.

We also maintain a portfolio of GSE debentures, U.S. Treasury obligations, GSE MBS, and Agency MBS that can be pledged as collateral for financing in the securities repurchase agreement market and are classified as trading to enhance our liquidity position. The par value of these debentures and U.S. Treasury obligations was $1.8 billion and $1.2 billion as of March 31, 2019 and December 31, 2018, respectively. The par value of these MBS was $0.9 billion as of March 31, 2019 and December 31, 2018. We also hold $2.0 billion of U.S. Treasury obligations classified as available-for-sale to satisfy regulatory liquidity requirements that went into effect March 31, 2019. In addition to the balance sheet sources of liquidity discussed previously, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. Accordingly, we expect to maintain a sufficient level of liquidity for the foreseeable future.

We strive to manage our average capital ratio to remain above our minimum regulatory and RMP requirements 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 three months ended March 31, 2019, advance disbursements totaled $101.8 billion compared to $103.1 billion for the prior year period. During the three months ended March 31, 2019, investment purchases (excluding overnight investments) totaled $4.1 billion compared to $1.8 billion for the same period in the prior year. The increase in investment purchases was primarily U.S. Treasury obligations purchased in response to new regulatory liquidity requirements. During the three months ended March 31, 2019, payments on consolidated obligation bonds and discount notes were $2.2 billion and $245.0 billion, respectively, compared to $3.8 billion and $258.8 billion for the prior year period.

Liquidity Requirements – We are subject to the following metrics for measuring required liquidity: statutory, operational, and contingency liquidity, funding gaps, and calendar day guidelines under different scenarios. Statutory liquidity requires us to have an amount equal to current deposits received from members invested in obligations of the United States, deposits in eligible banks or trust companies, and advances with a remaining maturity not exceeding five years. Operational liquidity requires 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 $9.7 billion as of March 31, 2019. Contingency plans are in place at the FHLBank and the Office of Finance that prioritize the allocation of liquidity resources in the event of financial market disruptions, as well as systemic Federal Reserve wire transfer system disruptions. Further, under the Bank Act, the Secretary of Treasury has the authority, at his discretion, to purchase consolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977. Funding gaps are defined as the difference between our assets and liabilities scheduled to mature during a specific period stated as a percentage of total assets. We are required to maintain a funding gap of negative 10 percent to negative 20 percent for the three-month horizon and negative 25 percent to negative 35 percent for the one-year horizon. The specific targets within these ranges are dependent on market conditions and determined by our regulator.

In addition to the liquidity measures described above, we are required by the FHFA to meet two daily liquidity standards, each of which assumes that we are unable to access the market for consolidated obligations. The first standard requires us to maintain sufficient funds to meet our obligations for 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 during the first quarter of 2019. See “Risk Management - Liquidity Risk Management” under this Item 7 for additional discussion on our liquidity requirements. Effective March 31, 2019, new liquidity guidance required us to maintain sufficient funds to meet our obligations assuming no access to capital markets for an increased period of time, among changes to other liquidity requirements.

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In order to help 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 and short-term advance balances. The weighted average remaining days to maturity of discount notes outstanding increased to 38 days as of March 31, 2019 from 31 days at December 31, 2018. The weighted average remaining maturity of our short-term liquid investment portfolio (Federal funds sold, marketable certificates of deposit, commercial paper, reverse repurchase agreements, and certain interest-bearing deposits), short-term advances (line of credit and advances with original maturities of 90 days or less), and non-earning cash left in our Federal Reserve Bank account was 3 days as of March 31, 2019 and 2 days as of December 31, 2018. The mismatch between discount notes and our short-term liquid investment and short-term advance portfolios increased from 29 days on December 31, 2018 to 35 days on March 31, 2019 as a result of the decrease in the weighted average remaining days to maturity of discount notes. Over time, especially as the yield curve steepens on the short end, maintaining the differential between the weighted average original maturity of discount notes and short-term liquid investments will increase our cost of funds and reduce our net interest income.

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

Capital stock outstanding decreased 1.1 percent from December 31, 2018 to March 31, 2019, primarily due to a decrease in excess stock (see Table 29), which was partially offset by a moderate increase in activity-based stock required from the correlating increase in advances between periods.

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

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

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

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Table 29 provides a summary of member capital requirements under our current capital plan as of March 31, 2019 and December 31, 2018 (in thousands):

Table 29

Requirement	03/31/2019		12/31/2018
Asset-based (Class A Common Stock only)	$	156,324	$	157,406
Activity-based (additional Class B Common Stock)1	1,251,153		1,192,807
Total Required Stock2	1,407,477		1,350,213
Excess Stock (Class A and B Common Stock)	104,467		177,921
Total Regulatory Capital Stock2	$	1,511,944	$	1,528,134
Activity-based Requirements:
Advances3	$	1,334,657	$	1,285,470
AMA assets (mortgage loans)4	739		772
Total Activity-based Requirement	1,335,396		1,286,242
Asset-based Requirement (Class A Common Stock) not supporting member activity1	72,081		63,971
Total Required Stock2	$	1,407,477	$	1,350,213

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

²  Includes mandatorily redeemable capital stock.

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

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

We are subject to three capital requirements under provisions of the GLB Act, the FHFA’s capital structure regulation and our current capital plan, which includes risk-based capital requirement, total capital requirement and leverage capital requirement. We have been in compliance with each of the aforementioned capital rules and requirements at all times since the implementation of our capital plan. See Note 11 of the Notes to Financial Statements under Item 1 for additional information and compliance as of March 31, 2019 and December 31, 2018.

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

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

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The current dividend parity threshold is equal to the average effective overnight Federal funds rate for a dividend period minus 100 basis points and was effective for all dividends paid in 2018 and 2019. The dividend parity threshold is effectively floored at zero percent when the current overnight Federal funds target rate is less than one percent. Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. Table 30 presents the dividend rates per annum paid on capital stock under our capital plan for the periods indicated:

Table 30

Applicable Rate per Annum	03/31/2019		12/31/2018		09/30/2018		06/30/2018		03/31/2018
Class A Common Stock	2.25	%	2.00	%	2.00	%	1.50	%	1.50	%
Class B Common Stock	7.50		7.25		7.25		6.75		6.75
Weighted Average1	6.56		6.24		6.32		5.99		6.01
Dividend Parity Threshold:
Average effective overnight Federal funds rate	2.40	%	2.22	%	1.92	%	1.74	%	1.45	%
Spread to index	(1.00	)	(1.00	)	(1.00	)	(1.00	)	(1.00	)
TOTAL (floored at zero percent)	1.40	%	1.22	%	0.92	%	0.74	%	0.45	%

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

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

Risk Management

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

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.

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

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

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

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

Uncleared Derivatives. We are subject to non-performance by the counterparties to our uncleared derivative transactions. All bilateral security agreements with our non-member counterparties include bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to a minimum transfer amount. As a result of these risk mitigation practices, we do not anticipate any credit losses on our uncleared derivative transactions as of March 31, 2019.

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

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

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

Tables 31 and 32 present derivative notional amounts and counterparty credit exposure by whole-letter rating (in the event of a split rating, we use the lowest rating published by Moody’s Investor Service (Moody's) or Standard & Poor’s (S&P)) for derivative positions with counterparties to which we had credit exposure (in thousands):

Table 31

03/31/2019
Credit Rating	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged From (To) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A	$	4,785,057	$	20,497		$	14,120		$	6,377
Triple-B	317,299		230			(295		)	525
Cleared derivatives1	8,659,530		10,102			(65,416		)	75,518
Liability positions with credit exposure:
Uncleared derivatives2:
Single-A	1,317,437		(14,067		)	(15,940		)	1,873
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE	$	15,079,323	$	16,762		$	(67,531	)	$	84,293

¹  Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated A+ by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A- by S&P as of March 31, 2019. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of March 31, 2019.

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

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Table 32

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

¹  Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.

²  Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated A+ by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A- by S&P as of December 31, 2018. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of December 31, 2018.

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

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

Table 33 presents the fair value of cross-border outstandings as of March 31, 2019 (dollar amounts in thousands):

Table 33

	France					Other1					Total
	Amount			Percent of Total Assets		Amount			Percent of Total Assets		Amount			Percent of Total Assets
Federal funds sold2	$	200,000		0.3	%	$	1,100,000		1.9	%	$	1,300,000		2.2	%
Trading securities3	460,035			0.8		600,037			1.1		1,060,072			1.9
Derivative assets:
Net exposure at fair value	(92		)			(7,784		)			(7,876		)
Cash collateral held	140					9,190					9,330
Net exposure after cash collateral	48			—		1,406			—		1,454			—
TOTAL	$	660,083		1.1	%	$	1,701,443		3.0	%	$	2,361,526		4.1	%

¹  Total cross-border outstandings to countries that individually represented between 0.75 and 1.0 percent of our total assets as of March 31, 2019 were $0.5 billion (Sweden).

²  Consists solely of overnight Federal funds sold.

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

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

We manage liquidity, first and foremost, to meet the needs of members, while adhering to statutory and contingency liquidity requirements. We maintain daily liquidity levels above certain thresholds and consider hypothetical adverse scenarios. These thresholds are outlined in our internal policies and comply with federal statutes, FHFA regulations and other FHFA guidance not issued in the form of regulations. We remained in compliance with each of these liquidity requirements throughout the first quarter of 2019.

We are focused on maintaining a liquidity and funding balance between our financial assets and financial liabilities. Within the FHLBank System guidelines, each FHLBank develops its own metrics and milestones for enhancing its liquidity risk management practices. However, the 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 March 31, 2019. For additional discussion of the market for our consolidated obligations and the overall market affecting liquidity see “Financial Market Trends” under this Item 2.

Our derivative instruments contain provisions that require all credit exposures be collateralized. See Note 7 of the Notes to Financial Statements under 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

Interim Final Rule on Margin and Capital Requirements for Covered Swap Entities. On March 19, 2019, the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the FHFA (collectively, the Agencies) jointly adopted interim final rules (the Interim Rule) amending the Agencies’ regulations that established minimum margin and capital requirements (the Margin Rules) for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants (Covered Swap Entities) under the jurisdiction of one of the Agencies. The Interim Rule was adopted to assist Covered Swap Entities and their counterparties upon the expected withdrawal, currently delayed until October 31, 2019, of the United Kingdom (UK) from the European Union (EU), commonly referred to as “Brexit.” If the UK withdraws from the EU without a negotiated agreement between the UK and the EU, Covered Swap Entities located within the UK may not be authorized to continue providing certain financial services to swap counterparties that are located in the EU. The Interim Rule would permit Covered Swap Entities located within the UK to transfer their non-cleared swap portfolios to affiliates or other related entities located within the EU or the United States without subjecting legacy swaps (those swaps entered into before the compliance date of the Margin Rules) to the margin requirements of the Margin Rules, provided that the transfer is made within a year of a non-negotiated Brexit and there are no other amendments to the transactions.

We have UK-based non-cleared swap counterparties that may choose to transfer their non-cleared swap portfolios, including any such swaps with us, to a related entity in the EU or the United States. If any of our legacy non-cleared swaps are transferred in accordance with the Interim Rule, those swaps will retain legacy status under the Margin Rules.

On April 1, 2019, the Commodity Futures Trading Commission (CFTC) adopted its own version of the Interim Rule, which is substantially similar to the Agencies’ Interim Rule, but which applies to Covered Swap Entities that are not subject to the jurisdiction of one of the Agencies. Comments on the Interim Rule were due April 18, 2019 and are due on the CFTC’s version of the Interim Rule on May 31, 2019. We do not expect the Interim Rule 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.

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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 March 31, 2019. On an ongoing basis, we actively monitor portfolio relationships and overall DOE dynamics as a part of our evaluation processes for determining acceptable future asset/liability management actions. Table 34 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 34

Duration of Equity
Date	Up 200 Basis Points	Base	Down 200 Basis Points
03/31/2019	1.6	0.0	3.8
12/31/2018	2.3	1.3	2.8
09/30/2018	2.9	1.2	1.9
06/30/2018	3.0	0.7	1.9
03/31/2018	3.4	0.5	2.2

The DOE as of March 31, 2019 decreased in the base scenario and the up 200 basis point shock scenario and increased in the down 200 basis point shock scenario from December 31, 2018. The primary factors contributing to these changes in duration during the period were: (1) the decrease in long-term interest rates and the relative level of mortgage rates during the period; (2) a decrease in the weighting of the mortgage loan portfolio as a percent of total assets during the period; and (3) asset/liability actions taken by management throughout the period, including the continued issuance of long-term, unswapped callable consolidated obligation bonds with relatively short lock-out periods,the continued issuance of discount notes to fund changes in advance and liquid investment balances, and additional balance sheet management changes for liquidity purposes.

The decrease in long-term interest rates during the first quarter of 2019 generally indicates a shortening duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. Despite the increase in our mortgage loan portfolio during the period, as discussed in Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program,” the portfolio decreased as an overall percentage of assets as the balance sheet expanded, decreasing from 17.6 percent of total assets as of December 31, 2018 to 15.1 percent as of March 31, 2019. In spite of this weighting decrease, 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 sizable duration relative to our other assets, its behavior is quite visible in the duration risk profile and changes in this portfolio are typically magnified as the composition of assets changes. This magnification occurs when a portfolio market value weighting as a percent of the overall net market value of the balance sheet changes, causing the remaining portfolios to be a smaller or larger component of the total balance sheet composition. For example, if advance balances decrease during a given period, this decrease will cause the mortgage loan portfolio weighting to increase as a total proportion of total assets. Further, if interest rates decrease, the market value gains in the mortgage loan portfolio will cause the mortgage loan portfolio to further increase its sizable percentage of overall market value of assets. This increase in market value of assets will cause the duration for this portfolio to have a greater impact on DOE. In other words, this relationship causes the duration of the mortgage loan portfolio to have a larger contribution impact to the overall DOE since DOE is a market value weighted measurement. With these balance sheet dynamics, we continue to actively manage and monitor the contributing factors of our risk profile, including DOE. As the relationship of the fixed rate mortgage loan assets and the associated callable liabilities vary based on market conditions, we evaluate and manage these market driven sensitivities as both portfolios change in balance level and overall proportion.

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New loans were continually added to the mortgage loan portfolio to replace loans that were prepaid during the period and we continue to actively manage this ongoing growth to position the balance sheet sensitivity to perform within our expected risk tolerances. To effectively manage these changes in the mortgage loan portfolio (including new production loans) and related sensitivity to changes in market conditions, we continued to issue unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three months to one year). The issuance of callable bonds generally extends the duration profile of this portfolio. This liability extension corresponds with the expected longer duration profile of the new fixed rate mortgage loans, all else being equal. This liability lengthening demonstrates the specific duration sensitivity to changes in interest rates at certain shock scenarios where the unswapped callable bonds are more or less sensitive to certain levels of increasing interest rates, causing the overall DOE to increase or decrease, similar to the factors causing the changes in DOE for all interest rate shock scenarios. This sensitivity, or convexity, is further described under Item 7A – "Quantitative and Qualitative Disclosures About Market Risk" in the annual report on Form 10-K for the year ended December 31, 2018. In addition, the relative level of mortgage rates generally contributes significantly to the sensitivity of the fixed rate mortgage loan portfolio causing the duration profile to lengthen or shorten based on the relationship between interest rates, mortgage rates and associated mortgage spreads. For instance, the decrease in interest rates during the period caused the mortgage loan portfolio duration to shorten slightly more than the associated liabilities, leading to a less asset sensitive DOE profile in the base interest rate scenario (specifically, the base case DOE is slightly positive, but is reflected as zero in the table based on the relatively small positive DOE result). Further, issuance of discount notes continued in order to provide adequate liquidity sources to appropriately address changes in customer short-term advance balances and associated capital stock activity during the period. In addition, balance sheet management adjustments were implemented during the period to effectively enhance liquidity management practices by increasing the liquidity position of the balance sheet. The combination of all these factors contributed to the net DOE changes in all interest rate shock scenarios, where the DOE decreased in the base scenario and the up 200 basis point shock scenario but increased in the down 200 basis point shock scenario. The down shock scenario continues to provide limited information since interest rates remain at historically low levels. This low interest rate environment essentially generates at or near zero interest rates for the short- and mid-term interest rates along the down 200 shocked term structure of interest rates, causing valuation changes to be limited, generating DOE results with marginal information.

With respect to the variable rate GSE MBS portfolio, we generally purchase interest rate caps to offset the impact of embedded caps in this portfolio in rising interest rate scenarios. As expected, these interest rate caps are a satisfactory interest rate risk hedge to rising interest rates and provide an off-setting risk response to the risk profile changes in variable rate GSE MBS with embedded caps. We periodically assess derivative strategies to ensure that overall balance sheet risk is appropriately hedged within established risk appetite metrics and make adjustments to the derivative portfolio as needed. This evaluation is completed considering not only the par value of the variable rate MBS with embedded caps being hedged with purchased caps, but the composition of the purchased cap portfolio and expected prepayments of the variable rate MBS with embedded caps. This evaluation of the relative relationship between the variable rate investment portfolio and the purchased cap portfolio continues to indicate a sufficient hedging relationship. During the quarter ended March 31, 2019, we had no additional purchases of variable rate single-family GSE MBS. We also did not purchase additional interest rate caps during the first quarter of 2019 based on current interest rate cap exposure.

In calculating DOE, we also calculate our duration gap, which is the difference between the duration of our assets and the duration of our liabilities. Our base duration gap was 0.0 months for March 31, 2019 and 0.8 months for December 31, 2018. As discussed previously, the performance was primarily the result of the changes in the fixed rate mortgage loan portfolio and the associated funding decisions made by management in response to changes in the interest rate environment and balance sheet during the first quarter of 2019. All FHLBanks are required to submit this base duration gap number to the Office of Finance as part of the quarterly reporting process created by the FHFA.

Market Value of Equity: MVE is the net value of our assets and liabilities. Estimating sensitivity of MVE to changes in interest rates is another measure of interest rate risk. We generally maintain an MVE within limits specified by the Board of Directors in the RMP. The RMP measures our market value risk in terms of the MVE in relation to total regulatory capital stock outstanding (TRCS). TRCS includes all capital stock outstanding, including stock subject to mandatory redemption. As a cooperative, we believe using the TRCS results is an appropriate measure because it reflects our market value relative to the book value of our capital stock. Our RMP stipulates MVE shall not be less than: (1) 100 percent of TRCS under the base case scenario; or (2) 90 percent of TRCS under a ±200 basis point instantaneous parallel shock in interest rates. Table 35 presents MVE as a percent of TRCS. As of March 31, 2019, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan market values as rates have continued to remain historically low along with the relative level of outstanding capital.

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The MVE to TRCS ratios can be greatly impacted by the level of capital outstanding based on our capital management approach. Typically, as advances increase and the associated capital level increases, the ratio will generally decline since the new advances are primarily short-term with market values at or near par. Conversely, as advance balances decrease and the capital level decreases as capital stock is repurchased, the ratio will generally increase. However, if excess capital stock is not repurchased, the capital level remains higher thereby causing a decrease in the ratio. The relative level of advance balances, required stock and excess stock as of March 31, 2019 (see Table 29 under Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital”) contributed to the higher MVE as of March 31, 2019. These relationships primarily generate the changes in the MVE/TRCS levels and produce the changes in the ratios in all interest rate scenarios in the table below.

Table 35

Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date	Up 200 Basis Points	Base	Down 200 Basis Points
03/31/2019	172	176	176
12/31/2018	167	173	174
09/30/2018	167	174	175
06/30/2018	168	175	174
03/31/2018	164	171	170

Detail of Derivative Instruments by Type of Instrument by Type of Risk: Various types of derivative instruments are utilized to mitigate the interest rate risks described in the preceding sections as well as to better match the terms of assets and liabilities. Generally, we designate derivative instruments as either: (1) a fair value hedge of an underlying financial instrument or a forecasted transaction; or (2) an economic hedge used in asset/liability management. An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities or firm commitments that either does not qualify for hedge accounting, or for which we have not elected hedge accounting, but is an acceptable hedging strategy under our RMP. For hedging relationships that are not designated for shortcut hedge accounting, we formally assess (both at the hedge’s inception and monthly on an ongoing basis) whether the derivatives used have been highly effective in offsetting changes in the fair values or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. We typically use regression analyses or similar statistical analyses to assess the effectiveness of our long haul hedges. We determine the hedge accounting to be applied when the hedge is entered into by completing detailed documentation, which includes a checklist setting forth criteria that must be met to qualify for hedge accounting.

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Tables 36 and 37 present the notional amount and fair value amount (fair value includes net accrued interest receivable or payable on the derivative) for derivative instruments by hedged item, hedging instrument, hedging objective and accounting designation (in thousands):

Table 36

03/31/2019
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	$	2,695,023	$	4,785
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	1,212,850		91
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	127,475		83
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	23,577		(257		)
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	5,000		8
Investments
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	1,398,500		2,443
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	811,958		(2,117		)
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	1,874,591		6,751
Fixed rate non-MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	2,000,000		5,069
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,373,200		418
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	159,654		693
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	296,249		(3		)
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	2,400,000		10,213
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	580,000		(2,088		)
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	15,000		(392		)
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	405,000		(2,168		)
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	645,000		(8,007		)
TOTAL				$	16,023,077	$	15,522

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Table 37

12/31/2018
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	$	2,647,704	$	(1,102	)
Fixed rate convertible advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance	Fair Value Hedge	1,150,850		10,028
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Fair Value Hedge	140,475		(670		)
Firm commitment to issue a fixed rate advance	Forward settling interest rate swap	Protect against fair value risk	Economic Hedge	9,136		(38		)
Fixed rate non-callable advances	Pay fixed, receive variable interest rate swap	Convert the advance’s fixed rate to a variable rate index	Economic Hedge	2,000		(10		)
Investments
Fixed rate non-MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	648,500		(1,199		)
Fixed rate MBS trading investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Economic Hedge	847,284		12,238
Fixed rate MBS available-for-sale investments	Pay fixed, receive variable interest rate swap	Convert the investment’s fixed rate to a variable rate index	Fair Value Hedge	1,752,493		40,197
Adjustable rate MBS with embedded caps	Interest rate cap	Offset the interest rate cap embedded in a variable rate investment	Economic Hedge	1,373,200		1,044
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments	Mortgage purchase commitment	Protect against fair value risk	Economic Hedge	101,551		549
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months	Receive fixed, pay variable interest rate swap	Convert the discount note's fixed rate to a variable rate	Fair Value Hedge	49,403		—
Firm commitments to issue a discount notes	Discount note commitment	Protect against fair value risk	Economic Hedge	525,000		—
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index	Fair Value Hedge	1,440,000		9,443
Fixed rate callable consolidated obligation bonds	Receive fixed, pay variable interest rate swap	Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond	Fair Value Hedge	680,000		(2,729		)
Complex consolidated obligation bonds	Receive variable with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	15,000		(1,050		)
Callable step-up/step-down consolidated obligation bonds	Receive variable interest rate with embedded features, pay variable interest rate swap	Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond	Fair Value Hedge	470,000		(4,325		)
Variable rate consolidated obligation bonds	Receive variable interest rate, pay variable interest rate swap	Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index	Economic Hedge	645,000		(15,406		)
TOTAL				$	12,497,596	$	46,970

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Item 4:Controls and Procedures

Disclosure Controls and Procedures

Senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance in achieving their desired objectives; however, in designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management, with the participation of the President and Chief Executive Officer (CEO), our principal executive officer, and Chief Financial Officer (CFO), our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2019. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2019.

Changes in Internal Control Over Financial Reporting

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

Part II.OTHER INFORMATION

Item 1: Legal Proceedings

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

Item 1A:Risk Factors

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

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

Not applicable.

Item 3:Defaults Upon Senior Securities

Not applicable.

Item 4:Mine Safety Disclosures

Not applicable.

Item 5:Other Information

None.

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Item 6: Exhibits

Exhibit No.	Description
3.1	Exhibit 3.1 to the FHLBank’s registration statement on Form 10, filed May 15, 2006, and made effective on July 14, 2006 (File No. 000-52004), Federal Home Loan Bank of Topeka Articles and Organization Certificate, is incorporated herein by reference as Exhibit 3.1.
3.2	Exhibit 3.1 to the Current Report on Form 8-K, filed December 18, 2018, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
4.1	Exhibit 99.2 to the Current Report on Form 8-K, filed August 5, 2011, Federal Home Loan Bank of Topeka Capital Plan, is incorporated herein by reference as Exhibit 4.1.
10.1*	Exhibit 10.1 to the Current Report on Form 8-K, filed January 8, 2019, Executive Incentive Compensation Plan, is incorporated herein by reference as Exhibit 10.1.
10.2*	Exhibit 10.2 to the Current Report on Form 8-K, filed January 8, 2019, Federal Home Loan Bank of Topeka 2019 Executive Incentive Compensation Plan Targets, is incorporated herein by reference as Exhibit 10.2.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of President and Principal Executive Officer and Senior Vice President and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

^*     Represents a management contract or a compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Federal Home Loan Bank of Topeka
May 9, 2019	By: /s/ Mark E. Yardley
Date	Mark E. Yardley
	President and Chief Executive Officer

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