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Fair Values

6 Months Ended

Jun. 30, 2024

FAIR VALUES

The fair value amounts recorded on the Statements of Condition and presented in the note disclosures have been determined by FHLBank using available market and other pertinent information and reflect FHLBank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Although FHLBank uses its best judgment in estimating the fair value of its financial instruments, there are inherent limitations in any valuation technique. Therefore, the fair values may not be indicative of the amounts that would have been realized in market transactions as of June 30, 2024 and December 31, 2023. Additionally, these values do not represent an estimate of the overall market value of FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

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

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

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

•Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that FHLBank can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

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

•Level 3 Inputs – Unobservable inputs for the asset or liability. Valuations are derived from techniques that use significant assumptions not observable in the market, which include pricing models, discounted cash flow models using an unobservable discount rate, or similar techniques.

FHLBank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. There were no transfers of assets or liabilities between fair value levels during the three and six months ended June 30, 2024 and 2023.

Tables 12.1 and 12.2 present the carrying value, fair value and fair value hierarchy of financial assets and liabilities as of June 30, 2024 and December 31, 2023. FHLBank records trading securities, available-for-sale securities, derivative assets, and derivative liabilities at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. FHLBank measures all other financial assets and liabilities at amortized cost. Further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis are presented in Tables 12.3 and 12.4.

The carrying value, fair value and fair value hierarchy of FHLBank’s financial assets and liabilities as of June 30, 2024 and December 31, 2023 are summarized in Tables 12.1 and 12.2 (in thousands):

Table 12.1


	06/30/2024
	Carrying Value		Total Fair Value		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral1
Assets:
Cash and due from banks	$	26,550	$	26,550	$	26,550	$	—	$	—	$	—
Interest-bearing deposits	2,339,648		2,339,114		—		2,339,114		—		—
Securities purchased under agreements to resell	2,925,000		2,925,000		—		2,925,000		—		—
Federal funds sold	5,292,000		5,292,000		—		5,292,000		—		—
Trading securities	843,742		843,742		—		843,742		—		—
Available-for-sale securities	12,466,957		12,466,957		—		12,466,957		—		—
Held-to-maturity securities	247,993		244,428		—		210,199		34,229		—
Advances	46,219,747		46,240,518		—		46,240,518		—		—
Mortgage loans held for portfolio, net of allowance	8,719,897		7,725,206		—		7,721,106		4,100		—
Accrued interest receivable	275,977		275,977		—		275,977		—		—
Derivative assets	316,530		316,530		—		152,354		—		164,176
Liabilities:
Deposits	817,072		817,069		—		817,069		—		—
Consolidated obligation discount notes	18,209,813		18,210,161		—		18,210,161		—		—
Consolidated obligation bonds	56,059,156		55,121,561		—		55,121,561		—		—
Mandatorily redeemable capital stock	3,442		3,442		3,442		—		—		—
Accrued interest payable	380,927		380,927		—		380,927		—		—
Derivative liabilities	951		951		—		356,807		—		(355,856)
Other Asset (Liability):
Industrial revenue bonds	35,000		32,491		—		32,491		—		—
Financing obligation payable	(35,000)		(32,491)		—		(32,491)		—		—

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

Table 12.2


	12/31/2023
	Carrying Value		Total Fair Value		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral1
Assets:
Cash and due from banks	$	26,062	$	26,062	$	26,062	$	—	$	—	$	—
Interest-bearing deposits	1,604,989		1,604,989		—		1,604,989		—		—
Securities purchased under agreements to resell	3,875,000		3,875,000		—		3,875,000		—		—
Federal funds sold	2,080,000		2,080,000		—		2,080,000		—		—
Trading securities	908,608		908,608		—		908,608		—		—
Available-for-sale securities	11,753,453		11,753,453		—		11,753,453		—		—
Held-to-maturity securities	264,796		260,653		—		225,444		35,209		—
Advances	45,444,769		45,452,358		—		45,452,358		—		—
Mortgage loans held for portfolio, net of allowance	8,352,713		7,493,015		—		7,490,867		2,148		—

Accrued interest receivable	204,243		204,243		—		204,243		—		—
Derivative assets	350,367		350,367		—		139,255		—		211,112
Liabilities:
Deposits	752,200		752,209		—		752,209		—		—
Consolidated obligation discount notes	20,743,249		20,743,707		—		20,743,707		—		—
Consolidated obligation bonds	49,047,489		48,096,791		—		48,096,791		—		—
Mandatorily redeemable capital stock	247		247		247		—		—		—
Accrued interest payable	361,840		361,840		—		361,840		—		—
Derivative liabilities	860		860		—		410,752		—		(409,892)
Other Asset (Liability):
Industrial revenue bonds	35,000		32,695		—		32,695		—		—
Financing obligation payable	(35,000)		(32,695)		—		(32,695)		—		—

Fair Value Measurements: Tables 12.3 and 12.4 present, for each hierarchy level, FHLBank’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition as of or for the periods ended June 30, 2024 and December 31, 2023 (in thousands).

Table 12.3


	06/30/2024
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral1
Recurring fair value measurements - Assets:
Trading securities:
GSE debentures	$	241,444	$	—	$	241,444	$	—	$	—
GSE MBS	602,298		—		602,298		—		—
Total trading securities	843,742		—		843,742		—		—
Available-for-sale securities:
U.S. Treasury obligations	3,173,580		—		3,173,580		—		—
U.S. obligation MBS	88,847		—		88,847		—		—
GSE MBS	9,204,530		—		9,204,530		—		—
Total available-for-sale securities	12,466,957		—		12,466,957		—		—
Derivative assets:
Interest-rate related	316,466		—		152,290		—		164,176
Mortgage delivery commitments	64		—		64		—		—
Total derivative assets	316,530		—		152,354		—		164,176
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	13,627,229	$	—	$	13,463,053	$	—	$	164,176

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	921	$	—	$	356,777	$	—	$	(355,856)
Mortgage delivery commitments	30		—		30		—		—
Total derivative liabilities	951		—		356,807		—		(355,856)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	951	$	—	$	356,807	$	—	$	(355,856)

Nonrecurring fair value measurements - Assets2:
Impaired mortgage loans	$	4,146	$	—	$	—	$	4,146	$	—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	4,146	$	—	$	—	$	4,146	$	—

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

2 Includes assets adjusted to fair value during the six months ended June 30, 2024 and still outstanding as of June 30, 2024.

Table 12.4


	12/31/2023
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral1
Recurring fair value measurements - Assets:
Trading securities:



GSE debentures	$	288,438	$	—	$	288,438	$	—	$	—

GSE MBS	620,170		—		620,170		—		—
Total trading securities	908,608		—		908,608		—		—
Available-for-sale securities:
U.S. Treasury obligations	2,937,868		—		2,937,868		—		—
U.S. obligation MBS	107,535		—		107,535		—		—
GSE MBS	8,708,050		—		8,708,050		—		—
Total available-for-sale securities	11,753,453		—		11,753,453		—		—
Derivative assets:
Interest-rate related	350,234		—		139,122		—		211,112
Mortgage delivery commitments	133		—		133		—		—
Total derivative assets	350,367		—		139,255		—		211,112
TOTAL RECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	13,012,428	$	—	$	12,801,316	$	—	$	211,112

Recurring fair value measurements - Liabilities:
Derivative liabilities:
Interest-rate related	$	855	$	—	$	410,747	$	—	$	(409,892)
Mortgage delivery commitments	5		—		5		—		—
Total derivative liabilities	860		—		410,752		—		(409,892)
TOTAL RECURRING FAIR VALUE MEASUREMENTS - LIABILITIES	$	860	$	—	$	410,752	$	—	$	(409,892)

Nonrecurring fair value measurements - Assets2:
Held-to-maturity securities:

Impaired mortgage loans	$	2,178	$	—	$	—	$	2,178	$	—
Real estate owned	43		—		—		43		—
TOTAL NONRECURRING FAIR VALUE MEASUREMENTS - ASSETS	$	2,221	$	—	$	—	$	2,221	$	—

2 Includes assets adjusted to fair value during the year ended December 31, 2023 and still outstanding as of December 31, 2023.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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