UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2018

OR

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

Commission File Number:  000-51404

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

(Exact name of registrant as specified in its charter)

Federally chartered corporation (State or other jurisdiction of incorporation or organization)	35-6001443 (I.R.S. employer identification number)
8250 Woodfield Crossing Boulevard Indianapolis, IN (Address of principal executive offices)	46240 (Zip code)

(317) 465-0200

(Registrant's telephone number, including area code)

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 for the past 90 days.

x  Yes            o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x   Yes            o  No

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

o  Large accelerated filer	o  Accelerated filer
x Non-accelerated filer (Do not check if a smaller reporting company)	o  Smaller reporting company
	o  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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o  Yes            x  No

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

	Shares outstanding as of April 30, 2018
Class B Stock, par value $100	20,660,452

Table of Contents		Page
		Number
	Glossary of Terms	3
	Special Note Regarding Forward-Looking Statements	5
PART I.	FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS (unaudited)
	Statements of Condition as of March 31, 2018 and December 31, 2017	6
	Statements of Income for the Three Months Ended March 31, 2018 and 2017	7
	Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017	8
	Statements of Capital for the Three Months Ended March 31, 2017 and 2018	9
	Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017	10
	Notes to Financial Statements:
	Note 1 - Summary of Significant Accounting Policies	12
	Note 2 - Recently Adopted and Issued Accounting Guidance	12
	Note 3 - Available-for-Sale Securities	13
	Note 4 - Held-to-Maturity Securities	15
	Note 5 - Other-Than-Temporary Impairment	16
	Note 6 - Advances	16
	Note 7 - Mortgage Loans Held for Portfolio	17
	Note 8 - Allowance for Credit Losses	18
	Note 9 - Derivatives and Hedging Activities	21
	Note 10 - Consolidated Obligations	24
	Note 11 - Affordable Housing Program	25
	Note 12 - Capital	26
	Note 13 - Accumulated Other Comprehensive Income (Loss)	27
	Note 14 - Segment Information	28
	Note 15 - Estimated Fair Values	29
	Note 16 - Commitments and Contingencies	32
	Note 17 - Related Party and Other Transactions	33
	Note 18 - Subsequent Events	33
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Presentation	34
	Executive Summary	34
	Selected Financial Data	36
	Results of Operations and Changes in Financial Condition	37
	Operating Segments	41
	Analysis of Financial Condition	42
	Liquidity and Capital Resources	46
	Off-Balance Sheet Arrangements	48
	Critical Accounting Policies and Estimates	48
	Recent Accounting and Regulatory Developments	50
	Risk Management	51
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
Item 4.	CONTROLS AND PROCEDURES	55
PART II.	OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	55
Item 1A.	RISK FACTORS	55
Item 6.	EXHIBITS	56

GLOSSARY OF TERMS

ABS: Asset-Backed Securities

Advance: Secured loan to members, former members or Housing Associates

AFS: Available-for-Sale

AHP: Affordable Housing Program

AMA: Acquired Member Assets

AOCI: Accumulated Other Comprehensive Income (Loss)

Bank Act: Federal Home Loan Bank Act of 1932, as amended

bps: basis points

CBSA: Core Based Statistical Areas, refer collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget

CDFI: Community Development Financial Institution

CE: Credit Enhancement

CFI: Community Financial Institution, an FDIC-insured depository institution with average total assets below an annually-adjusted limit established by the Director based on the Consumer Price Index

CFPB: Bureau of Consumer Financial Protection

CFTC: United States Commodity Futures Trading Commission

Clearinghouse: A United States Commodity Futures Trading Commission-registered derivatives clearing organization

CME:CME Clearing

CMO: Collateralized Mortgage Obligation

CO bond: Consolidated Obligation bond

DB plan: Pentegra Defined Benefit Pension Plan for Financial Institutions

DC plan: Pentegra Defined Contribution Retirement Savings Plan for Financial Institutions

DDCP: Directors' Deferred Compensation Plan

Director: Director of the Federal Housing Finance Agency

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended

Exchange Act: Securities Exchange Act of 1934, as amended

Fannie Mae: Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FDIC: Federal Deposit Insurance Corporation

FHA: Federal Housing Administration

FHLBank: A Federal Home Loan Bank

FHLBanks: The 11 Federal Home Loan Banks or a subset thereof

FHLBank System: The 11 Federal Home Loan Banks and the Office of Finance

FICO®: Fair Isaac Corporation, the creators of the FICO credit score

Final Membership Rule: Final Rule on FHLBank Membership issued by the Federal Housing Finance Agency effective February 19, 2016

Finance Agency: Federal Housing Finance Agency, successor to Finance Board

Finance Board: Federal Housing Finance Board, predecessor to Finance Agency

FLA: First Loss Account

FOMC: Federal Open Market Committee

Form 8-K: Current Report on Form 8-K as filed with the SEC under the Exchange Act

Form 10-K: Annual Report on Form 10-K as filed with the SEC under the Exchange Act

Form 10-Q: Quarterly Report on Form 10-Q as filed with the SEC under the Exchange Act

FRB: Federal Reserve Board

Freddie Mac: Federal Home Loan Mortgage Corporation

GAAP: Generally Accepted Accounting Principles in the United States of America

Ginnie Mae: Government National Mortgage Association

GLB Act: Gramm-Leach-Bliley Act of 1999, as amended

GSE: United States Government-Sponsored Enterprise

HERA: Housing and Economic Recovery Act of 2008, as amended

Housing Associate: Approved lender under Title II of the National Housing Act of 1934 that is either a government agency or is chartered under federal or state law with rights and powers similar to those of a corporation

HTM: Held-to-Maturity

HUD: United States Department of Housing and Urban Development

JCE Agreement: Joint Capital Enhancement Agreement, as amended, among the 11 FHLBanks

LCH:LCH.Clearnet LLC

LIBOR: London Interbank Offered Rate

3

LRA: Lender Risk Account

LTV: Loan-to-Value

MAP-21: Moving Ahead for Progress in the 21st Century Act, enacted on July 6, 2012

MBS: Mortgage-Backed Securities

MCC: Master Commitment Contract

MDC: Mandatory Delivery Commitment

Moody's: Moody's Investor Services

MPF: Mortgage Partnership Finance®

MPP: Mortgage Purchase Program, including Original and Advantage unless indicated otherwise

MRCS: Mandatorily Redeemable Capital Stock

MVE: Market Value of Equity

NRSRO: Nationally Recognized Statistical Rating Organization

OCC: Office of the Comptroller of the Currency

OCI: Other Comprehensive Income (Loss)

OIS: Overnight-Indexed Swap

ORERC: Other Real Estate-Related Collateral

OTTI: Other-Than-Temporary Impairment or -Temporarily Impaired (as the context indicates)

PFI: Participating Financial Institution

PMI: Primary Mortgage Insurance

REMIC: Real Estate Mortgage Investment Conduit

REO: Real Estate Owned

RMBS: Residential Mortgage-Backed Securities

S&P: Standard & Poor's Rating Service

Safety and Soundness Act: Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended

SEC: Securities and Exchange Commission

Securities Act: Securities Act of 1933, as amended

SERP: Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Retirement Plan and/or a similar frozen plan

SETP: Federal Home Loan Bank of Indianapolis 2016 Supplemental Executive Thrift Plan, as amended

SMI: Supplemental Mortgage Insurance

TBA:To Be Announced, which represents a forward contract for the purchase or sale of MBS at a future agreed-upon date for an established price

TDR: Troubled Debt Restructuring

TVA: Tennessee Valley Authority

UPB: Unpaid Principal Balance

VaR: Value at Risk

VIE: Variable Interest Entity

WAIR: Weighted-Average Interest Rate

4

As used in this Form 10-Q, unless the context otherwise requires, the terms "we," "us," "our," and the "Bank" refer to the Federal Home Loan Bank of Indianapolis or its management. We use acronyms and terms throughout that are defined herein or in the Glossary of Terms.

Special Note Regarding Forward-Looking Statements

Statements in this Form 10-Q, including statements describing our objectives, projections, estimates or predictions, may be considered to be "forward-looking statements." These statements may use forward-looking terminology, such as "anticipates," "believes," "could," "estimates," "may," "should," "expects," "will," or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements involve risk or uncertainty and that actual results either could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following:

• economic and market conditions, including the timing and volume of market activity, inflation or deflation, changes in the value of global currencies, and changes in the financial condition of market participants;

• volatility of market prices, interest rates, and indices or other factors, resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, including those determined by the FRB and the FDIC, or a decline in liquidity in the financial markets, that could affect the value of investments (including OTTI of private-label RMBS), or collateral we hold as security for the obligations of our members and counterparties;

• changes in demand for our advances and purchases of mortgage loans resulting from:

◦ changes in our members' deposit flows and credit demands;

◦ federal or state regulatory developments impacting suitability or eligibility of membership classes;

◦ membership changes, including, but not limited to, mergers, acquisitions and consolidations of charters;

◦ changes in the general level of housing activity in the United States and particularly our district states of Michigan and Indiana, the level of refinancing activity and consumer product preferences; and

◦ competitive forces, including, without limitation, other sources of funding available to our members;

• changes in mortgage asset prepayment patterns, delinquency rates and housing values or improper or inadequate mortgage originations and mortgage servicing;

• ability to introduce and successfully manage new products and services, including new types of collateral securing advances;

• political events, including administrative, legislative, regulatory, or other developments, and judicial rulings that affect us, our status as a secured creditor, our members (or certain classes of members), prospective members, counterparties, GSEs generally, one or more of the FHLBanks and/or investors in the consolidated obligations of the FHLBanks;

• ability to access the capital markets and raise capital market funding on acceptable terms;

• changes in our credit ratings or the credit ratings of the other FHLBanks and the FHLBank System;

• changes in the level of government guarantees provided to other United States and international financial institutions;

• dealer commitment to supporting the issuance of our consolidated obligations;

• ability of one or more of the FHLBanks to repay its portion of the consolidated obligations, or otherwise meet its financial obligations;

• ability to attract and retain skilled personnel;

• ability to develop, implement and support technology and information systems sufficient to manage our business effectively;

• nonperformance of counterparties to uncleared and cleared derivative transactions;

• changes in terms of derivative agreements and similar agreements;

• loss arising from natural disasters, acts of war or acts of terrorism;

• changes in or differing interpretations of accounting guidance; and

• other risk factors identified in our filings with the SEC.

Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, additional disclosures may be made through reports filed with the SEC in the future, including our Forms 10-K, 10-Q and 8-K.

5

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Federal Home Loan Bank of Indianapolis

Statements of Condition

(Unaudited, $ amounts in thousands, except par value)

	March 31, 2018		December 31, 2017
Assets:
Cash and due from banks	$	76,856	$	55,269
Interest-bearing deposits	888,396		660,342
Securities purchased under agreements to resell	2,673,200		2,605,460
Federal funds sold	748,000		1,280,000
Available-for-sale securities (Notes 3 and 5)	7,222,912		7,128,758
Held-to-maturity securities (estimated fair values of $6,010,981 and $5,919,299, respectively)(Notes 4 and 5)	5,999,164		5,897,668
Advances (Note 6)	32,964,711		34,055,064
Mortgage loans held for portfolio, net of allowance for loan losses of $(850) and $(850), respectively (Notes 7 and 8)	10,495,825		10,356,341
Accrued interest receivable	107,415		105,314
Premises, software, and equipment, net	36,731		36,795
Derivative assets, net (Note 9)	140,278		128,206
Other assets	38,440		39,689
Total assets	$	61,391,928	$	62,348,906
Liabilities:
Deposits	$	457,336	$	564,799
Consolidated obligations (Note 10):
Discount notes	19,556,171		20,358,157
Bonds	37,778,855		37,895,653
Total consolidated obligations, net	57,335,026		58,253,810
Accrued interest payable	140,637		135,691
Affordable Housing Program payable (Note 11)	35,086		32,166
Derivative liabilities, net (Note 9)	2,396		2,718
Mandatorily redeemable capital stock (Note 12)	163,782		164,322
Other liabilities	248,741		249,894
Total liabilities	58,383,004		59,403,400
Commitments and contingencies (Note 16)
Capital (Note 12):
Capital stock (putable at par value of $100 per share):
Class B-1 issued and outstanding shares: 18,804,764 and 18,566,388, respectively	1,880,476		1,856,639
Class B-2 issued and outstanding shares: 4,686 and 11,271, respectively	469		1,127
Total capital stock	1,880,945		1,857,766
Retained earnings:
Unrestricted	800,447		792,783
Restricted	193,221		183,551
Total retained earnings	993,668		976,334
Total accumulated other comprehensive income (Note 13)	134,311		111,406
Total capital	3,008,924		2,945,506
Total liabilities and capital	$	61,391,928	$	62,348,906

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

6

Federal Home Loan Bank of Indianapolis

Statements of Income

(Unaudited, $ amounts in thousands)

	Three Months Ended March 31,
	2018			2017
Interest Income:
Advances	$	143,794		$	74,281
Prepayment fees on advances, net	—			18
Interest-bearing deposits	3,208			335
Securities purchased under agreements to resell	5,097			818
Federal funds sold	12,288			7,697
Available-for-sale securities	40,566			24,382
Held-to-maturity securities	34,920			25,463
Mortgage loans held for portfolio	83,554			75,976
Other interest income, net	12			585
Total interest income	323,439			209,555
Interest Expense:
Consolidated obligation discount notes	70,358			25,496
Consolidated obligation bonds	178,228			122,551
Deposits	1,977			752
Mandatorily redeemable capital stock	2,745			1,753
Total interest expense	253,308			150,552
Net interest income	70,131			59,003
Provision for (reversal of) credit losses	(104		)	151
Net interest income after provision for credit losses	70,235			58,852
Other Income (Loss):
Total other-than-temporary impairment losses	—			—
Non-credit portion reclassified to (from) other comprehensive income, net	—			(82		)
Net other-than-temporary impairment losses, credit portion	—			(82		)
Net gains (losses) on derivatives and hedging activities	5,932			(4,375		)
Service fees	225			218
Standby letters of credit fees	98			188
Other, net	(68		)	386
Total other income (loss)	6,187			(3,665		)
Other Expenses:
Compensation and benefits	12,977			11,237
Other operating expenses	6,418			5,711
Federal Housing Finance Agency	920			826
Office of Finance	1,191			1,309
Other	891			770
Total other expenses	22,397			19,853
Income before assessments	54,025			35,334
Affordable Housing Program assessments	5,677			3,709
Net income	$	48,348		$	31,625

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

7

Federal Home Loan Bank of Indianapolis

Statements of Comprehensive Income

(Unaudited, $ amounts in thousands)

	Three Months Ended March 31,
	2018			2017
Net income	$	48,348		$	31,625
Other Comprehensive Income (Loss):
Net change in unrealized gains on available-for-sale securities	22,553			22,756
Net non-credit portion of other-than-temporary impairment losses on available-for-sale securities	31			591
Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities	(2		)	6
Pension benefits, net	323			328
Total other comprehensive income	22,905			23,681
Total comprehensive income	$	71,253		$	55,306

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

8

Federal Home Loan Bank of Indianapolis

Statements of Capital

Three Months Ended March 31, 2017 and 2018

(Unaudited, $ amounts and shares in thousands)

	Capital Stock Class B Putable			Retained Earnings								Accumulated Other Comprehensive Income (Loss)		Total Capital
	Shares	Par Value		Unrestricted			Restricted		Total
Balance, December 31, 2016	14,926	$	1,492,581	$	734,982		$	152,265	$	887,247		$	56,368	$	2,436,196
Total comprehensive income				25,300			6,325		31,625			23,681		55,306
Proceeds from issuance of capital stock	615	61,503												61,503
Cash dividends on capital stock (4.25% annualized)				(15,564		)	—		(15,564		)			(15,564		)
Balance, March 31, 2017	15,541	$	1,554,084	$	744,718		$	158,590	$	903,308		$	80,049	$	2,537,441
Balance, December 31, 2017	18,578	$	1,857,766	$	792,783		$	183,551	$	976,334		$	111,406	$	2,945,506
Total comprehensive income				38,678			9,670		48,348			22,905		71,253
Proceeds from issuance of capital stock	231	23,179												23,179
Cash dividends on capital stock (6.75% annualized)				(31,014		)	—		(31,014		)			(31,014		)
Balance, March 31, 2018	18,809	$	1,880,945	$	800,447		$	193,221	$	993,668		$	134,311	$	3,008,924

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

9

Federal Home Loan Bank of Indianapolis

Statements of Cash Flows

(Unaudited, $ amounts in thousands)

	Three Months Ended March 31,
	2018			2017
Operating Activities:
Net income	$	48,348		$	31,625
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation	15,140			23,407
Changes in net derivative and hedging activities	95,082			5,136
Net other-than-temporary impairment losses, credit portion	—			82
Provision for (reversal of) credit losses	(104		)	151
Changes in:
Accrued interest receivable	(2,128		)	(3,373		)
Other assets	651			(80		)
Accrued interest payable	5,063			3,717
Other liabilities	3,290			(4,462		)
Total adjustments, net	116,994			24,578
Net cash provided by operating activities	165,342			56,203
Investing Activities:
Net change in:
Interest-bearing deposits	(228,149		)	(54,925		)
Securities purchased under agreements to resell	(67,740		)	(518,691		)
Federal funds sold	532,000			(130,000		)
Available-for-sale securities:
Proceeds from maturities	12,781			213,828
Purchases	(236,181		)	(975,896		)
Held-to-maturity securities:
Proceeds from maturities	163,884			245,375
Purchases	(264,633		)	(156,272		)
Advances:
Principal repayments	85,397,827			47,667,609
Disbursements to members	(84,411,165		)	(49,261,521		)
Mortgage loans held for portfolio:
Principal collections	279,197			281,627
Purchases from members	(429,338		)	(436,317		)
Purchases of premises, software, and equipment	(1,413		)	(1,180		)
Loans to other Federal Home Loan Banks:
Principal repayments	300,000			—
Disbursements	(300,000		)	—
Net cash provided by (used in) investing activities	747,070			(3,126,363		)

(continued)

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

10

Federal Home Loan Bank of Indianapolis

Statements of Cash Flows, continued

(Unaudited, $ amounts in thousands)

	Three Months Ended March 31,
	2018			2017
Financing Activities:
Changes in deposits	(43,740		)	3,603
Net payments on derivative contracts with financing elements	(2,324		)	(7,267		)
Net proceeds from issuance of consolidated obligations:
Discount notes	89,946,844			49,173,379
Bonds	4,364,745			6,935,723
Payments for matured and retired consolidated obligations:
Discount notes	(90,751,935		)	(47,578,774		)
Bonds	(4,396,040		)	(5,928,520		)
Proceeds from issuance of capital stock	23,179			61,503
Payments for redemption/repurchase of mandatorily redeemable capital stock	(540		)	(3,113		)
Dividend payments on capital stock	(31,014		)	(15,564		)
Net cash provided by (used in) financing activities	(890,825		)	2,640,970
Net increase (decrease) in cash and due from banks	21,587			(429,190		)
Cash and due from banks at beginning of period	55,269			546,612
Cash and due from banks at end of period	$	76,856		$	117,422
Supplemental Disclosures:
Interest payments	$	239,477		$	143,059
Purchases of securities, traded but not yet settled	—			217,647
Affordable Housing Program payments	2,757			3,104
Capitalized interest on certain held-to-maturity securities	1,620			219

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

11

Federal Home Loan Bank of Indianapolis

Notes to Financial Statements

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 1 - Summary of Significant Accounting Policies

We use acronyms and terms throughout these notes to financial statements that are defined herein or in the Glossary of Terms. Unless the context otherwise requires, the terms "Bank," "we," "us," and "our" refer to the Federal Home Loan Bank of Indianapolis or its management.

Basis of Presentation. The accompanying interim financial statements have been prepared in accordance with GAAP and SEC requirements for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. Certain disclosures that would have substantially duplicated the disclosures in the financial statements, and notes thereto, included in our 2017 Form 10-K have been omitted unless the information contained in those disclosures materially changed. Therefore, these interim financial statements should be read in conjunction with our audited financial statements, and notes thereto, included in our 2017 Form 10-K.

The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of our 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 calendar year or any other interim period.

Our significant accounting policies and certain other disclosures are set forthin our 2017 Form 10-K in Note 1 - Summary of Significant Accounting Policies. There have been no significant changes to these policies through March 31, 2018. However, see Note 2 - Recently Adopted and Issued Accounting Guidance.

Use of Estimates.When preparing financial statements in accordance with GAAP, we are required to make subjective assumptions and estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. The most significant estimates pertain to derivatives and hedging activities, fair value, the provision for credit losses, and OTTI. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates.

Reclassifications. We have reclassified certain amounts from the prior period to conform to the current period presentation. These reclassifications had no effect on total assets, total liabilities, total capital, net income, total comprehensive income, or net cash flows.

Note 2 - Recently Adopted and Issued Accounting Guidance

Recently Adopted Accounting Guidance.

Revenue from Contracts with Customers (ASU 2014-09). On May 28, 2014, the FASB issued guidance on revenue from contracts with customers. This guidance outlines a comprehensive model for recognizing revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, or lease contracts.

The guidance, which included subsequent amendments, was effective for interim and annual periods beginning on January 1, 2018. The adoption of this guidance had no effect on our financial condition, results of operations, or cash flows.

Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.

The guidance was effective for the interim and annual periods beginning on January 1, 2018. The adoption of this guidance had no effect on our financial condition, results of operations, or cash flows.

12

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). On August 26, 2016, the FASB issued amendments intended to reduce diversity in practice in how cash receipts and cash payments are presented and classified on the statement of cash flows for certain transactions.

These amendments were adopted on a retrospective basis effective beginning on January 1, 2018. As a result, the amount of interest payments as reported in the supplemental disclosures increased by $22,290 for the three months ended March 31, 2017. The adoption of these amendments had no effect on our financial condition, results of operations or cash flows.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). On March 10, 2017, the FASB issued amendments to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that an employer disaggregate the service cost component from the other components of net pension and benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement.

These amendments were effective for interim and annual periods beginning on January 1, 2018. The adoption of these amendments had no effect on our financial condition, results of operations, or cash flows. However, the amendments were applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost on the income statement, which resulted in a reclassification from compensation and benefits to other expenses for the non-service components of $527 for the three months ended March 31, 2017.

Note 3 - Available-for-Sale Securities

Major Security Types.The following table presents ourAFS securities by type of security.

						Gross		Gross
	Amortized		Non-Credit			Unrealized		Unrealized			Estimated
March 31, 2018	Cost (1)		OTTI			Gains		Losses			Fair Value
GSE and TVA debentures	$	4,276,983	$	—		$	61,621	$	—		$	4,338,604
GSE MBS	2,623,635		—			53,961		(510		)	2,677,086
Private-label RMBS	177,869		(40		)	29,393		—			207,222
Total AFS securities	$	7,078,487	$	(40	)	$	144,975	$	(510	)	$	7,222,912
December 31, 2017
GSE and TVA debentures	$	4,357,250	$	—		$	46,679	$	—		$	4,403,929
GSE MBS	2,460,455		—			45,840		—			2,506,295
Private-label RMBS	189,212		(68		)	29,390		—			218,534
Total AFS securities	$	7,006,917	$	(68	)	$	121,909	$	—		$	7,128,758

⁽¹⁾  Includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal, and, if applicable, OTTI recognized in earnings (credit losses) and fair-value hedge accounting adjustments.

13

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Unrealized Loss Positions. The following table presents impaired AFS securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
March 31, 2018	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
GSE MBS	$	171,853	$	(510	)	$	—	$	—		$	171,853	$	(510	)
Private-label RMBS	—		—			2,312		(40		)	2,312		(40		)
Total impaired AFS securities	$	171,853	$	(510	)	$	2,312	$	(40	)	$	174,165	$	(550	)
December 31, 2017
GSE MBS	$	—	$	—		$	—	$	—		$	—	$	—
Private-label RMBS	—		—			2,494		(68		)	2,494		(68		)
Total impaired AFS securities	$	—	$	—		$	2,494	$	(68	)	$	2,494	$	(68	)

Contractual Maturity.The amortized cost and estimated fair value of non-MBS AFS securities are presented below by contractual maturity. MBS are not presented by contractual maturity because their actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

	March 31, 2018				December 31, 2017
	Amortized		Estimated		Amortized		Estimated
Year of Contractual Maturity	Cost		Fair Value		Cost		Fair Value
Due in 1 year or less	$	83,170	$	83,234	$	83,666	$	83,754
Due after 1 year through 5 years	2,338,592		2,363,113		2,317,516		2,336,699
Due after 5 years through 10 years	1,672,152		1,705,086		1,766,440		1,791,829
Due after 10 years	183,069		187,171		189,628		191,647
Total non-MBS	4,276,983		4,338,604		4,357,250		4,403,929
Total MBS	2,801,504		2,884,308		2,649,667		2,724,829
Total AFS securities	$	7,078,487	$	7,222,912	$	7,006,917	$	7,128,758

Realized Gains and Losses. There were no sales of AFS securities during the three months ended March 31, 2018. As of March 31, 2018, we had no intention of selling the AFS securities in an unrealized loss position nor did we consider it more likely than not that we will be required to sell these securities before our anticipated recovery of each security's remaining amortized cost basis.

14

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 4 - Held-to-Maturity Securities

Major Security Types.The following table presents our HTM securities by type of security.

								Gross		Gross
								Unrecognized		Unrecognized
	Amortized		Non-Credit			Carrying		Holding		Holding			Estimated
March 31, 2018	Cost (1)		OTTI			Value		Gains		Losses			Fair Value
MBS and ABS:
Other U.S. obligations -guaranteed MBS	$	3,363,064	$	—		$	3,363,064	$	13,075	$	(1,213	)	$	3,374,926
GSE MBS	2,593,516		—			2,593,516		16,259		(15,832		)	2,593,943
Private-label RMBS	35,499		—			35,499		251		(451		)	35,299
Private-label ABS	7,138		(53		)	7,085		75		(347		)	6,813
Total HTM securities	$	5,999,217	$	(53	)	$	5,999,164	$	29,660	$	(17,843	)	$	6,010,981
December 31, 2017
MBS and ABS:
Other U.S. obligations -guaranteed MBS	$	3,299,157	$	—		$	3,299,157	$	6,555	$	(6,690	)	$	3,299,022
GSE MBS	2,553,193		—			2,553,193		26,727		(4,529		)	2,575,391
Private-label RMBS	37,889		—			37,889		240		(307		)	37,822
Private-label ABS	7,480		(51		)	7,429		40		(405		)	7,064
Total HTM securities	$	5,897,719	$	(51	)	$	5,897,668	$	33,562	$	(11,931	)	$	5,919,299

⁽¹⁾  Includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal, and, if applicable, OTTI recognized in earnings (credit losses).

Unrealized Loss Positions. The following table presents impaired HTM securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
March 31, 2018	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
MBS and ABS:
Other U.S. obligations - guaranteed MBS	$	775,364	$	(865	)	$	406,502	$	(348	)	$	1,181,866	$	(1,213	)
GSE MBS	965,195		(10,439		)	193,403		(5,393		)	1,158,598		(15,832		)
Private-label RMBS	13,618		(95		)	10,869		(356		)	24,487		(451		)
Private-label ABS	—		—			6,358		(347		)	6,358		(347		)
Total impaired HTM securities	$	1,754,177	$	(11,399	)	$	617,132	$	(6,444	)	$	2,371,309	$	(17,843	)
December 31, 2017
MBS and ABS:
Other U.S. obligations - guaranteed MBS	$	1,140,624	$	(3,274	)	$	886,359	$	(3,416	)	$	2,026,983	$	(6,690	)
GSE MBS	513,244		(2,191		)	203,401		(2,338		)	716,645		(4,529		)
Private-label RMBS	14,712		(26		)	11,369		(281		)	26,081		(307		)
Private-label ABS (1)	—		—			7,064		(416		)	7,064		(416		)
Total impaired HTM securities	$	1,668,580	$	(5,491	)	$	1,108,193	$	(6,451	)	$	2,776,773	$	(11,942	)

⁽¹⁾  For private-label ABS, at December 31, 2017, the total of unrealized losses does not agree to total gross unrecognized holding losses of $405. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI of $51 and gross unrecognized holding gains on previously OTTI securities of $40.

15

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 5 - Other-Than-Temporary Impairment

OTTI Evaluation Process and Results - Private-label RMBS and ABS. On a quarterly basis, we evaluate our individual AFS and HTM investment securities for OTTI, as disclosed in Note 1 - Summary of Significant Accounting Policies in our 2017 Form 10-K.

Significant Inputs. The FHLBanks developed a short-term housing price forecast with projected changes ranging from a decrease of 7.0% to an increase of 12.0% over a twelve-month period. For the vast majority of markets, the changes range from an increase of 1.0% to an increase of 6.0%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

Results of OTTI Evaluation Process - Private-label RMBS and ABS. As part of our evaluation, we did not have any change in intent to sell, nor were we required to sell, any OTTI security during the three months ended March 31, 2018. Therefore, we performed a cash flow analysis to determine whether we expect to recover the entire amortized cost of each security. As a result of our cash flow analysis, OTTI credit losses were recognized accordingly. We determined that the unrealized losses on the remaining private-label RMBS and ABS were temporary as we expect to recover the entire amortized cost.

Evaluation Process and Results - All Other AFS and HTM Securities.

Other U.S. and GSE Obligations and TVA Debentures. For other U.S. obligations, GSE obligations, and TVA debentures, we determined that, based on current expectations, the strength of the issuers' guarantees through direct obligations of or support from the United States government is sufficient to protect us from any losses. As a result, all of the gross unrealized losses as of March 31, 2018 are considered temporary.

Note 6 - Advances

The following table presents advances outstanding by year of contractual maturity.

	March 31, 2018				December 31, 2017
Year of Contractual Maturity	Amount			WAIR %	Amount			WAIR %
Overdrawn demand and overnight deposit accounts	$	—		—	$	—		—
Due in 1 year or less	16,038,030			1.76	16,935,411			1.46
Due after 1 year through 2 years	2,911,710			1.95	2,701,784			1.96
Due after 2 years through 3 years	2,469,124			1.88	2,682,073			1.69
Due after 3 years through 4 years	1,822,509			2.03	2,172,549			1.78
Due after 4 years through 5 years	2,638,907			2.22	2,213,319			1.93
Thereafter	7,302,527			1.92	7,464,333			1.66
Total advances, par value	33,182,807			1.87	34,169,469			1.61
Fair-value hedging adjustments	(228,114		)		(126,137		)
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees	10,018				11,732
Total advances	$	32,964,711			$	34,055,064

16

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents advances outstanding by the earlier of the year of contractual maturity or the next call date and next put date.

	Year of Contractual Maturity or Next Call Date				Year of Contractual Maturity or Next Put Date
	March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Overdrawn demand and overnight deposit accounts	$	—	$	—	$	—	$	—
Due in 1 year or less	23,719,041		25,067,272		16,135,030		17,032,411
Due after 1 year through 2 years	2,352,710		2,412,184		3,185,310		2,701,784
Due after 2 years through 3 years	1,816,824		1,716,873		3,161,124		3,406,673
Due after 3 years through 4 years	1,035,709		928,649		1,982,909		2,718,049
Due after 4 years through 5 years	1,565,317		1,494,529		3,273,132		2,524,619
Thereafter	2,693,206		2,549,962		5,445,302		5,785,933
Total advances, par value	$	33,182,807	$	34,169,469	$	33,182,807	$	34,169,469

Credit Risk Exposure and Security Terms. At March 31, 2018 and December 31, 2017, our top five borrowers held 43% and 45%, respectively, of total advances outstanding, at par. As security for the advances to these and our other borrowers, we held, or had access to, collateral with an estimated fair value at March 31, 2018 and December 31, 2017 that was well in excess of the advances outstanding on those dates, respectively. For information related to credit risk on advances and allowance methodology for credit losses, see Note 9 - Allowance for Credit Losses in our 2017 Form 10-K.

Note 7 - Mortgage Loans Held for Portfolio

The following tables present information on mortgage loans held for portfolio by term and type.

Term	March 31, 2018			December 31, 2017
Fixed-rate long-term mortgages	$	9,162,982		$	8,989,545
Fixed-rate medium-term (1) mortgages	1,101,850			1,134,303
Total mortgage loans held for portfolio, UPB	10,264,832			10,123,848
Unamortized premiums	234,638			234,519
Unamortized discounts	(2,523		)	(2,426		)
Fair-value hedging adjustments	(272		)	1,250
Allowance for loan losses	(850		)	(850		)
Total mortgage loans held for portfolio, net	$	10,495,825		$	10,356,341

⁽¹⁾  Defined as a term of 15 years or less at origination.

Type	March 31, 2018		December 31, 2017
Conventional	$	9,858,431	$	9,701,600
Government-guaranteed or -insured	406,401		422,248
Total mortgage loans held for portfolio, UPB	$	10,264,832	$	10,123,848

For information related to our credit risk on mortgage loans and allowance methodology for loan losses, see Note 8 - Allowance for Credit Losses.

17

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 8 - Allowance for Credit Losses

A description of the allowance methodologies for our portfolio segments as well as our policy for impairing financing receivables and charging them off when necessary is disclosed inNote 1 - Summary of Significant Accounting Policies and Note 9 - Allowance for Credit Losses in our 2017 Form 10-K.

Conventional MortgageLoans.

Conventional MPP.The following table presents the activity in the LRA, which is reported in other liabilities.

	Three Months Ended March 31,
LRA Activity	2018			2017
Liability, beginning of period	$	148,715		$	125,683
Additions	5,146			5,231
Claims paid	(170		)	(102		)
Distributions to PFIs	(417		)	(84		)
Liability, end of period	$	153,274		$	130,728

18

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Credit Quality Indicators. The tables below present the key credit quality indicators for our mortgage loans held for portfolio.

Delinquency Status as of March 31, 2018	Conventional		Government		Total
Past due:
30-59 days	$	53,679	$	11,418	$	65,097
60-89 days	7,790		2,225		10,015
90 days or more	19,749		1,469		21,218
Total past due	81,218		15,112		96,330
Total current	10,046,821		398,155		10,444,976
Total mortgage loans, recorded investment (1)	$	10,128,039	$	413,267	$	10,541,306
Delinquency Status as of December 31, 2017
Past due:
30-59 days	$	63,670	$	11,848	$	75,518
60-89 days	9,944		2,121		12,065
90 days or more	19,576		2,555		22,131
Total past due	93,190		16,524		109,714
Total current	9,878,030		412,869		10,290,899
Total mortgage loans, recorded investment (1)	$	9,971,220	$	429,393	$	10,400,613

Other Delinquency Statistics as of March 31, 2018	Conventional			Government			Total
In process of foreclosure(2)	$	12,243		$	—		$	12,243
Serious delinquency rate (3)	0.19		%	0.36		%	0.20		%
Past due 90 days or more still accruing interest (4)	$	17,769		$	1,470		$	19,239
On non-accrual status	$	2,856		$	—		$	2,856
Other Delinquency Statistics as of December 31, 2017
In process of foreclosure(2)	$	11,081		$	—		$	11,081
Serious delinquency rate (3)	0.20		%	0.59		%	0.21		%
Past due 90 days or more still accruing interest (4)	$	16,603		$	2,555		$	19,158
On non-accrual status	$	3,464		$	—		$	3,464

⁽¹⁾  The recorded investment in a loan is the UPB of the loan, adjusted for accrued interest, net of any deferred loan fees or costs, unamortized premiums or discounts (which may include the basis adjustment related to any gain or loss on a delivery commitment prior to being funded) and direct charge-offs. The recorded investment is not net of any valuation allowance.

⁽²⁾  Includes loans for which the decision of foreclosure or similar alternative, such as pursuit of deed-in-lieu of foreclosure, has been reported. Loans in process of foreclosure are included in past due categories depending on their delinquency status, but are not necessarily considered to be on non-accrual status.

⁽³⁾  Represents loans 90 days or more past due (including loans in process of foreclosure) expressed as a percentage of the total recorded investment in mortgage loans. The percentage excludes principal and interest amounts previously paid in full by the servicers on conventional loans that are pending resolution of potential loss claims. Our servicers repurchase seriously delinquent government loans, including FHA loans, when certain criteria are met.

⁽⁴⁾  Although our past due scheduled/scheduled MPP loans are classified as loans past due 90 days or more based on the loan's delinquency status, we do not consider these loans to be on non-accrual status.

19

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Allowance for Loan Losses on Mortgage Loans. The following table presents the components of the allowance for loan losses, including the credit enhancement waterfall for MPP.

Components of Allowance	March 31, 2018			December 31, 2017
MPP estimated incurred losses remaining after borrower's equity, before credit enhancements (1)	$	4,428		$	5,360
Portion of estimated incurred losses recoverable from credit enhancements:
PMI	(812		)	(995		)
LRA (2)	(1,282		)	(1,262		)
SMI	(1,614		)	(2,383		)
Total portion recoverable from credit enhancements	(3,708		)	(4,640		)
Allowance for unrecoverable PMI/SMI	30			30
Allowance for MPP loan losses	750			750
Allowance for MPF Program loan losses	100			100
Allowance for loan losses	$	850		$	850

⁽¹⁾  Based on a loss emergence period of 24 months.

⁽²⁾  Amounts recoverable are limited to (i) the estimated losses remaining after borrower's equity and PMI and (ii) the remaining balance in each pool's portion of the LRA. The remainder of the total LRA balance is available to cover any losses not yet incurred and to distribute any excess funds to the PFIs.

The tables below present a rollforward of our allowance for loan losses, the allowance for loan losses by impairment methodology, and the recorded investment in mortgage loans by impairment methodology.

	Three Months Ended March 31,
Rollforward of Allowance for Loan Losses	2018			2017
Balance, beginning of period	$	850		$	850
Charge-offs	(150		)	(235		)
Recoveries	254			84
Provision for (reversal of) loan losses	(104		)	151
Balance, end of period	$	850		$	850

Allowance for Loan Losses by Impairment Methodology	March 31, 2018		December 31, 2017
Conventional loans collectively evaluated for impairment	$	724	$	652
Conventional loans individually evaluated for impairment (1)	126		198
Total allowance for loan losses	$	850	$	850
Recorded Investment by Impairment Methodology	March 31, 2018		December 31, 2017
Conventional loans collectively evaluated for impairment	$	10,112,860	$	9,956,689
Conventional loans individually evaluated for impairment (1)	15,179		14,531
Total recorded investment in conventional loans	$	10,128,039	$	9,971,220

⁽¹⁾  The recorded investment in our MPP conventional loans individually evaluated for impairment excludes principal previously paid in full by the servicers as of March 31, 2018 and December 31, 2017 of $1,233 and $2,498, respectively, that remains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. However, the MPP allowance for loan losses as of March 31, 2018 and December 31, 2017 includes $79 and $144, respectively, for these potential claims.

20

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 9 - Derivatives and Hedging Activities

Managing Credit Risk on Derivatives. We are subject to credit risk due to the risk of nonperformance by the counterparties to our derivative transactions.

Uncleared Derivatives. For certain of our uncleared derivatives, we have credit support agreements that contain provisions requiring us to post additional collateral with our counterparties if there is deterioration in our credit rating. If our credit rating is lowered by an NRSRO, we could be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate estimated fair value of all uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest on cash collateral) at March 31, 2018 was $839, for which we were not required to post collateral. In addition, we held other derivative instruments in a net liability position of $314 that are not subject to credit support agreements containing credit-risk related contingent features. If our credit rating had been lowered by an NRSRO (from an S&P equivalent of AA+ to AA), we would not have been required to deliver additional collateral to our uncleared derivative counterparties at March 31, 2018.

Cleared Derivatives. For cleared derivatives, the clearinghouse is our counterparty. We use LCH and CME as clearinghouses for all cleared derivative transactions. Collateral is required to be posted daily for changes in the value of cleared derivatives to mitigate each counterparty's credit risk. The clearinghouse notifies the clearing agent of the required initial and variation margin, and the clearing agent notifies us.

Effective January 3, 2017, CME made certain amendments to its rulebook, including changing the legal characterization of variation margin payments to be daily settled contracts, rather than cash collateral. Variation margin payments related to LCH contracts were characterized as cash collateral until January 16, 2018, when LCH changed the characterization of variation margin payments to be daily settled contracts, consistent with CME. Initial margin continues to be considered by both clearinghouses as cash collateral.

21

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Financial Statement Effect and Additional Financial Information.

Derivative Notional Amounts. We record derivative instruments, related cash collateral received or pledged/posted and associated accrued interest on a net basis, by clearing agent and/or by counterparty when the netting requirements have been met. The following table presents the notional amount and estimated fair value of derivative assets and liabilities.

	Notional		Estimated Fair Value			Estimated Fair Value
	Amount of		of Derivative			of Derivative
March 31, 2018	Derivatives		Assets (1)			Liabilities (1)
Derivatives designated as hedging instruments:
Interest-rate swaps	$	32,875,334	$	234,875		$	76,168
Total derivatives designated as hedging instruments	32,875,334		234,875			76,168
Derivatives not designated as hedging instruments:
Interest-rate swaps	2,393,673		1,133			307
Swaptions	300,000		30			—
Interest-rate caps/floors	149,500		141			—
Interest-rate forwards	89,800		—			291
MDCs	82,090		138			23
Total derivatives not designated as hedging instruments	3,015,063		1,442			621
Total derivatives before adjustments	$	35,890,397	236,317			76,789
Netting adjustments and cash collateral (2)			(96,039		)	(74,393		)
Total derivatives, net			$	140,278		$	2,396
December 31, 2017
Derivatives designated as hedging instruments:
Interest-rate swaps	$	31,084,068	$	247,924		$	50,445
Total derivatives designated as hedging instruments	31,084,068		247,924			50,445
Derivatives not designated as hedging instruments:
Interest-rate swaps	1,026,778		1,174			734
Swaptions	—		—			—
Interest-rate caps/floors	245,500		92			—
Interest-rate forwards	72,800		37			1
MDCs	70,831		73			48
Total derivatives not designated as hedging instruments	1,415,909		1,376			783
Total derivatives before adjustments	$	32,499,977	249,300			51,228
Netting adjustments and cash collateral (2)			(121,094		)	(48,510		)
Total derivatives, net			$	128,206		$	2,718

⁽¹⁾  To conform with the current presentation, variation margin of $24,954 has been allocated to the individual derivative instruments as of December 31, 2017. Previously, this amount was included with netting adjustments and cash collateral.

⁽²⁾  Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty. Cash collateral pledged to counterparties at March 31, 2018 and December 31, 2017 totaled $131,214 and $16,437, respectively. Cash collateral received from counterparties at March 31, 2018 and December 31, 2017 totaled $152,860 and $89,021, respectively.

22

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents separately the estimated fair value of derivative instruments meeting and not meeting netting requirements, including the effect of the related collateral received from or pledged to counterparties.

	March 31, 2018						December 31, 2017
	Derivative Assets			Derivative Liabilities			Derivative Assets (1)			Derivative Liabilities (1)
Derivative instruments meeting netting requirements:
Gross recognized amount
Uncleared	$	231,617		$	72,970		$	118,932		$	27,491
Cleared	4,562			3,505			130,258			23,688
Total gross recognized amount	236,179			76,475			249,190			51,179
Gross amounts of netting adjustments and cash collateral
Uncleared	(222,097		)	(70,888		)	(113,842		)	(24,822		)
Cleared	126,058			(3,505		)	(7,252		)	(23,688		)
Total gross amounts of netting adjustments and cash collateral	(96,039		)	(74,393		)	(121,094		)	(48,510		)
Net amounts after netting adjustments and cash collateral
Uncleared	9,520			2,082			5,090			2,669
Cleared	130,620			—			123,006			—
Total net amounts after netting adjustments and cash collateral	140,140			2,082			128,096			2,669
Derivative instruments not meeting netting requirements (2)	138			314			110			49
Total derivatives, at estimated fair value	$	140,278		$	2,396		$	128,206		$	2,718

⁽¹⁾  To conform with the current presentation, variation margin of $24,954 has been allocated to the individual derivative instruments within the gross recognized amount as of December 31, 2017. Previously, this amount was included with the gross amounts of netting adjustments and cash collateral.

⁽²⁾  Includes MDCs and certain interest-rate forwards.

The following table presents the components of net gains (losses) on derivatives and hedging activities reported in other income (loss).

	Three Months Ended March 31,
Type of Hedge	2018			2017
Net gain (loss) related to fair-value hedge ineffectiveness:
Interest-rate swaps	$	7,324		$	(3,974	)
Total net gain (loss) related to fair-value hedge ineffectiveness	7,324			(3,974		)
Net gain (loss) on derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	172			(22		)
Swaptions	(58		)	(139		)
Interest-rate caps/floors	48			46
Interest-rate forwards	1,248			(168		)
Net interest settlements	(638		)	(147		)
MDCs	(1,370		)	79
Total net gain (loss) on derivatives not designated as hedging instruments	(598		)	(351		)
Other (1)	(794		)	(50		)
Net gains (losses) on derivatives and hedging activities	$	5,932		$	(4,375	)

⁽¹⁾  Consists of price alignment amounts on derivatives for which variation margin payments are characterized as daily settled contracts.

23

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair-value hedging relationships and the effect of those derivatives on net interest income.

	Gain (Loss)			Gain (Loss)			Net Fair-			Effect on
	on			on Hedged			Value Hedge			Net Interest
Three Months Ended March 31, 2018	Derivative			Item			Ineffectiveness			Income (1)
Advances	$	103,608		$	(100,748	)	$	2,860		$	1,339
AFS securities	154,327			(150,582		)	3,745			(3,310		)
CO bonds	(84,515		)	85,234			719			1,264
Total	$	173,420		$	(166,096	)	$	7,324		$	(707	)
Three Months Ended March 31, 2017
Advances	$	15,736		$	(14,528	)	$	1,208		$	(11,479	)
AFS securities	17,075			(20,083		)	(3,008		)	(16,865		)
CO bonds	(5,552		)	3,378			(2,174		)	3,388
Total	$	27,259		$	(31,233	)	$	(3,974	)	$	(24,956	)

⁽¹⁾  Includes the effect of derivatives in fair-value hedging relationships on net interest income that is recorded in the interest income/expense line item of the respective hedged items. Excludes the interest income/expense of the respective hedged items, which fully offset the interest income/expense of the derivatives, except to the extent of any hedge ineffectiveness. Net interest settlements on derivatives that are not in fair-value hedging relationships are reported in other income (loss). These amounts do not include the effect of amortization/accretion related to fair value hedging activities.

Note 10 - Consolidated Obligations

In addition to being the primary obligor for all consolidated obligations issued on our behalf, we are jointly and severally liable with each of the other FHLBanks for the payment of the principal and interest on all FHLBank outstanding consolidated obligations. The par values of the FHLBanks' outstanding consolidated obligations was $1.0 trillion at March 31, 2018 and December 31, 2017. As provided by the Bank Act and Finance Agency regulations, consolidated obligations are backed only by the financial resources of all FHLBanks.

Discount Notes. The following table presents our discount notes outstanding, all of which are due within one year of issuance.

Discount Notes	March 31, 2018			December 31, 2017
Book value	$	19,556,171		$	20,358,157
Par value	$	19,595,701		$	20,394,192
Weighted average effective interest rate	1.56		%	1.22		%

24

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

CO Bonds. The following table presents our CO bonds outstanding by contractual maturity.

	March 31, 2018				December 31, 2017
Year of Contractual Maturity	Amount			WAIR%	Amount			WAIR%
Due in 1 year or less	$	14,506,920		1.55	$	14,021,190		1.27
Due after 1 year through 2 years	8,320,340			1.86	9,392,470			1.46
Due after 2 years through 3 years	5,306,520			2.15	4,849,960			2.23
Due after 3 years through 4 years	1,212,870			2.05	1,294,470			2.17
Due after 4 years through 5 years	2,882,150			2.31	2,798,000			2.29
Thereafter	5,724,000			3.06	5,626,500			3.02
Total CO bonds, par value	37,952,800			2.00	37,982,590			1.80
Unamortized premiums	26,127				27,333
Unamortized discounts	(14,758		)		(13,782		)
Unamortized concessions	(14,481		)		(14,188		)
Fair-value hedging adjustments	(170,833		)		(86,300		)
Total CO bonds	$	37,778,855			$	37,895,653

The following tables present our CO bonds outstanding by redemption feature and the earlier of the year of contractual maturity or next call date.

Redemption Feature	March 31, 2018		December 31, 2017
Non-callable / non-putable	$	25,660,800	$	26,277,590
Callable	12,292,000		11,705,000
Total CO bonds, par value	$	37,952,800	$	37,982,590

Year of Contractual Maturity or Next Call Date	March 31, 2018		December 31, 2017
Due in 1 year or less	$	25,657,920	$	24,449,190
Due after 1 year through 2 years	8,220,340		9,098,470
Due after 2 years through 3 years	1,870,520		2,125,960
Due after 3 years through 4 years	453,870		584,470
Due after 4 years through 5 years	582,150		579,000
Thereafter	1,168,000		1,145,500
Total CO bonds, par value	$	37,952,800	$	37,982,590

Note 11 - Affordable Housing Program

The following table summarizes the activity in our AHP funding obligation.

	Three Months Ended March 31,
AHP Activity	2018			2017
Liability at beginning of period	$	32,166		$	26,598
Assessment (expense)	5,677			3,709
Subsidy usage, net (1)	(2,757		)	(3,104		)
Liability at end of period	$	35,086		$	27,203

⁽¹⁾  Subsidies disbursed are reported net of returns/recaptures of previously disbursed subsidies.

We made no AHP-related advances during the three months ended March 31, 2018 or 2017 and had no outstanding principal on AHP-related advances at March 31, 2018 or December 31, 2017.

25

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 12 - Capital

Stock Redemption and Repurchase. Through March 31, 2018 and December 31, 2017, certain members had requested redemptions of their Class B stock, but the related stock totaling $5,144 at March 31, 2018 and December 31, 2017 was not considered mandatorily redeemable and reclassified to MRCS because the requesting members may revoke their requests, without substantial penalty, throughout the five-year waiting period. Therefore, these requests are not considered sufficiently substantive in nature. However, we consider redemption requests related to mergers, acquisitions or charter terminations, as well as involuntary terminations from membership, to be sufficiently substantive when made and, therefore, the related stock is considered mandatorily redeemable and reclassified to MRCS.

Mandatorily Redeemable Capital Stock.The following table presents the activity in our MRCS.

	Three Months Ended March 31,
MRCS Activity	2018			2017
Liability at beginning of period	$	164,322		$	170,043
Redemptions/repurchases	(540		)	(3,113		)
Liability at end of period	$	163,782		$	166,930

In accordance with the Final Membership Rule, captive insurance companies that were admitted as FHLBank members on or after September 12, 2014 had their memberships terminated by February 19, 2017. All of their outstanding Class B stock, totaling $3,021 at December 31, 2016, was repurchased on or before February 19, 2017.

The following table presents MRCS by contractual year of redemption. The year of redemption is the later of (i) the final year of the five-year redemption period, or (ii) the first year in which a non-member no longer has an activity-based stock requirement.

MRCS Contractual Year of Redemption	March 31, 2018		December 31, 2017
Year 1 (1)	$	7,423	$	7,963
Year 2	13		13
Year 3	—		—
Year 4	4,158		4,158
Year 5	—		—
Thereafter (2)	152,188		152,188
Total MRCS	$	163,782	$	164,322

⁽¹⁾  Balances at March 31, 2018 and December 31, 2017 include $2,368 and $2,909, respectively, of Class B stock that had reached the end of the five-year redemption period but will not be redeemed until the associated credit products and other obligations are no longer outstanding.

⁽²⁾  Represents the five-year redemption period of Class B stock held by certain captive insurance companies which begins immediately upon their termination of memberships no later than February 19, 2021, in accordance with the Final Membership Rule.

The following table presents the distributions related to MRCS.

	Three Months Ended March 31,
MRCS Distributions	2018		2017
Recorded as interest expense	$	2,745	$	1,753
Recorded as distributions from retained earnings	—		—
Total	$	2,745	$	1,753

26

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Capital Requirements. We are subject to three capital requirements under our capital plan and Finance Agency regulations as disclosed in Note 15 - Capital in our 2017 Form 10-K. As presented in the following table, we were in compliance with those requirements at March 31, 2018 and December 31, 2017. For regulatory purposes, AOCI is not considered capital; MRCS, however, is considered capital.

	March 31, 2018						December 31, 2017
Regulatory Capital Requirements	Required			Actual			Required			Actual
Risk-based capital	$	914,158		$	3,038,395		$	903,806		$	2,998,422
Total regulatory capital-to-asset ratio	4.00		%	4.95		%	4.00		%	4.81		%
Total regulatory capital	$	2,455,677		$	3,038,395		$	2,493,956		$	2,998,422
Leverage ratio	5.00		%	7.42		%	5.00		%	7.21		%
Leverage capital	$	3,069,596		$	4,557,593		$	3,117,445		$	4,497,633

Note 13 - Accumulated Other Comprehensive Income (Loss)

The following table presents a summary of the changes in the components of AOCI.

AOCI Rollforward	Unrealized Gains (Losses) on AFS Securities		Non-Credit OTTI on AFS Securities			Non-Credit OTTI on HTM Securities			Pension Benefits			Total AOCI
Balance, December 31, 2016	$	39,468	$	26,938		$	(103	)	$	(9,935	)	$	56,368
OCI before reclassifications:
Net change in unrealized gains (losses)	22,756		592			—			—			23,348
Net change in fair value	—		(83		)	—			—			(83		)
Accretion of non-credit losses	—		—			6			—			6
Reclassifications from OCI to net income:
Non-credit portion of OTTI losses	—		82			—			—			82
Pension benefits, net	—		—			—			328			328
Total other comprehensive income (loss)	22,756		591			6			328			23,681
Balance, March 31, 2017	$	62,224	$	27,529		$	(97	)	$	(9,607	)	$	80,049
Balance, December 31, 2017	$	92,519	$	29,322		$	(51	)	$	(10,384	)	$	111,406
OCI before reclassifications:
Net change in unrealized gains (losses)	22,553		3			—			—			22,556
Net change in fair value	—		28			—			—			28
Accretion of non-credit losses	—		—			(2		)	—			(2		)
Reclassifications from OCI to net income:
Non-credit portion of OTTI losses	—		—			—			—			—
Pension benefits, net	—		—			—			323			323
Total other comprehensive income (loss)	22,553		31			(2		)	323			22,905
Balance, March 31, 2018	$	115,072	$	29,353		$	(53	)	$	(10,061	)	$	134,311

27

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 14 - Segment Information

The following table presents our financial performance by operating segment.

	Three Months Ended March 31, 2018								Three Months Ended March 31, 2017
	Traditional		Mortgage Loans			Total			Traditional			Mortgage Loans		Total
Net interest income	$	52,324	$	17,807		$	70,131		$	41,536		$	17,467	$	59,003
Provision for (reversal of) credit losses	—		(104		)	(104		)	—			151		151
Other income (loss)	6,342		(155		)	6,187			(3,674		)	9		(3,665		)
Other expenses	18,816		3,581			22,397			16,795			3,058		19,853
Income before assessments	39,850		14,175			54,025			21,067			14,267		35,334
Affordable Housing Program assessments	4,259		1,418			5,677			2,282			1,427		3,709
Net income	$	35,591	$	12,757		$	48,348		$	18,785		$	12,840	$	31,625

The following table presents asset balances by operating segment.

By Date	Traditional		Mortgage Loans		Total
March 31, 2018	$	50,896,103	$	10,495,825	$	61,391,928
December 31, 2017	51,992,565		10,356,341		62,348,906

28

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 15 - Estimated Fair Values

The following tables present the carrying value and estimated fair value of each of our financial instruments. The total of the estimated fair values does not represent an estimate of our overall market value as a going concern, which would take into account, among other considerations, future business opportunities and the net profitability of assets and liabilities.

	March 31, 2018
			Estimated Fair Value
	Carrying										Netting
Financial Instruments	Value		Total		Level 1		Level 2		Level 3		Adjustments (1)
Assets:
Cash and due from banks	$	76,856	$	76,856	$	76,856	$	—	$	—	$	—
Interest-bearing deposits	888,396		888,396		888,072		324		—		—
Securities purchased under agreements to resell	2,673,200		2,673,203		—		2,673,203		—		—
Federal funds sold	748,000		748,000		—		748,000		—		—
AFS securities	7,222,912		7,222,912		—		7,015,690		207,222		—
HTM securities	5,999,164		6,010,981		—		5,968,869		42,112		—
Advances	32,964,711		32,908,838		—		32,908,838		—		—
Mortgage loans held for portfolio, net	10,495,825		10,352,793		—		10,339,821		12,972		—
Accrued interest receivable	107,415		107,415		—		107,415		—		—
Derivative assets, net	140,278		140,278		—		236,317		—		(96,039		)
Grantor trust assets (2)	21,853		21,853		21,853		—		—		—
Liabilities:
Deposits	457,336		457,336		—		457,336		—		—
Consolidated Obligations:
Discount notes	19,556,171		19,595,701		—		19,595,701		—		—
Bonds	37,778,855		37,713,776		—		37,713,776		—		—
Accrued interest payable	140,637		140,637		—		140,637		—		—
Derivative liabilities, net	2,396		2,396		—		76,789		—		(74,393		)
MRCS	163,782		163,782		163,782		—		—		—

29

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

	December 31, 2017
			Estimated Fair Value
	Carrying										Netting
Financial Instruments	Value		Total		Level 1		Level 2		Level 3		Adjustments (1)
Assets:
Cash and due from banks	$	55,269	$	55,269	$	55,269	$	—	$	—	$	—
Interest-bearing deposits	660,342		660,342		659,926		416		—		—
Securities purchased under agreements to resell	2,605,460		2,605,461		—		2,605,461		—		—
Federal funds sold	1,280,000		1,280,000		—		1,280,000		—		—
AFS securities	7,128,758		7,128,758		—		6,910,224		218,534		—
HTM securities	5,897,668		5,919,299		—		5,874,413		44,886		—
Advances	34,055,064		34,001,397		—		34,001,397		—		—
Mortgage loans held for portfolio, net	10,356,341		10,426,213		—		10,413,134		13,079		—
Accrued interest receivable	105,314		105,314		—		105,314		—		—
Derivative assets, net	128,206		128,206		—		249,300		—		(121,094		)
Grantor trust assets (2)	21,698		21,698		21,698		—		—		—
Liabilities:
Deposits	564,799		564,799		—		564,799		—		—
Consolidated Obligations:
Discount notes	20,358,157		20,394,192		—		20,394,192		—		—
Bonds	37,895,653		37,998,928		—		37,998,928		—		—
Accrued interest payable	135,691		135,691		—		135,691		—		—
Derivative liabilities, net	2,718		2,718		—		51,228		—		(48,510		)
MRCS	164,322		164,322		164,322		—		—		—

⁽¹⁾  Represents the application of the netting requirements that allow the settlement of (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty. To conform with the current presentation, variation margin of $24,954 has been allocated to individual derivative instruments as of December 31, 2017. Previously, this amount was included with netting adjustments.

⁽²⁾  Included in other assets.

Summary of Valuation Techniques and Significant Inputs. A description of the valuation techniques, significant inputs, and levels of fair value hierarchy is disclosed in Note 19 - Estimated Fair Values in our 2017 Form 10-K. No changes have been made in the current year.

30

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Estimated Fair Value Measurements. The following tables present, by level within the fair value hierarchy, the estimated fair value of our financial assets and liabilities that are recorded at estimated fair value on a recurring or non-recurring basis on our statement of condition.

									Netting
March 31, 2018	Total		Level 1		Level 2		Level 3		Adjustments (1)
AFS securities:
GSE and TVA debentures	$	4,338,604	$	—	$	4,338,604	$	—	$	—
GSE MBS	2,677,086		—		2,677,086		—		—
Private-label RMBS	207,222		—		—		207,222		—
Total AFS securities	7,222,912		—		7,015,690		207,222		—
Derivative assets:
Interest-rate related	140,140		—		236,179		—		(96,039		)
MDCs	138		—		138		—		—
Total derivative assets, net	140,278		—		236,317		—		(96,039		)
Grantor trust assets (2)	21,853		21,853		—		—		—
Total assets at recurring estimated fair value	$	7,385,043	$	21,853	$	7,252,007	$	207,222	$	(96,039	)
Derivative liabilities:
Interest-rate related	$	2,082	$	—	$	76,475	$	—	$	(74,393	)
Interest-rate forwards	291		—		291		—		—
MDCs	23		—		23		—		—
Total derivative liabilities, net	2,396		—		76,789		—		(74,393		)
Total liabilities at recurring estimated fair value	$	2,396	$	—	$	76,789	$	—	$	(74,393	)
Mortgage loans held for portfolio (3)	$	2,204	$	—	$	—	$	2,204	$	—
Total assets at non-recurring estimated fair value	$	2,204	$	—	$	—	$	2,204	$	—
December 31, 2017
AFS securities:
GSE and TVA debentures	$	4,403,929	$	—	$	4,403,929	$	—	$	—
GSE MBS	2,506,295		—		2,506,295		—		—
Private-label RMBS	218,534		—		—		218,534		—
Total AFS securities	7,128,758		—		6,910,224		218,534		—
Derivative assets:
Interest-rate related	128,096		—		249,190		—		(121,094		)
Interest-rate forwards	37		—		37		—		—
MDCs	73		—		73		—		—
Total derivative assets, net	128,206		—		249,300		—		(121,094		)
Grantor trust assets (2)	21,698		21,698		—		—		—
Total assets at recurring estimated fair value	$	7,278,662	$	21,698	$	7,159,524	$	218,534	$	(121,094	)
Derivative liabilities:
Interest-rate related	$	2,669	$	—	$	51,179	$	—	$	(48,510	)
Interest-rate forwards	1		—		1		—		—
MDCs	48		—		48		—		—
Total derivative liabilities, net	2,718		—		51,228		—		(48,510		)
Total liabilities at recurring estimated fair value	$	2,718	$	—	$	51,228	$	—	$	(48,510	)
Mortgage loans held for portfolio (4)	$	2,637	$	—	$	—	$	2,637	$	—
Total assets at non-recurring estimated fair value	$	2,637	$	—	$	—	$	2,637	$	—

31

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

⁽¹⁾  Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty. To conform with the current presentation, variation margin of $24,954 has been allocated to the individual derivative instruments as of December 31, 2017. Previously, this amount was included with netting adjustments.

⁽²⁾  Included in other assets.

⁽³⁾  Amounts are as of the date the fair value adjustment was recorded during the three months endedMarch 31, 2018.

⁽⁴⁾  Amounts are as of the date the fair value adjustment was recorded during the year ended December 31, 2017.

Level 3 Disclosures for All Assets and Liabilities that are Measured at Fair Value on a Recurring Basis. The table below presents a rollforward of our AFS private-label RMBS measured at estimated fair value on a recurring basis using level 3 significant inputs. The estimated fair values were determined using a pricing source, such as a dealer quote or comparable security price, for which the significant inputs used to determine the price were not readily observable.

	Three Months Ended March 31,
Level 3 Rollforward - AFS private-label RMBS	2018			2017
Balance, beginning of period	$	218,534		$	269,119
Total realized and unrealized gains (losses):
Accretion of credit losses in interest income	1,438			1,871
Net losses on changes in fair value in other income (loss)	—			(82		)
Net change in fair value not in excess of cumulative non-credit losses in OCI	28			(83		)
Unrealized gains (losses) in OCI	3			592
Reclassification of non-credit portion in OCI to other income (loss)	—			82
Purchases, issuances, sales and settlements:
Settlements	(12,781		)	(13,828		)
Balance, end of period	$	207,222		$	257,671
Net gains (losses) included in earnings attributable to changes in fair value relating to assets still held at end of period	$	1,438		$	1,789

Note 16 - Commitments and Contingencies

The following table presents our off-balance-sheet commitments at their notional amounts.

	March 31, 2018
Type of Commitment	Expire within one year		Expire after one year		Total
Letters of credit outstanding	$	118,978	$	116,218	$	235,196
Unused lines of credit (1)	1,053,828		—		1,053,828
Commitments to fund additional advances (2)	21,550		—		21,550
Commitments to fund or purchase mortgage loans, net (3)	82,090		—		82,090
Unsettled CO bonds, at par	38,150		—		38,150
Unsettled discount notes, at par	669,132		—		669,132

⁽¹⁾  Maximum line of credit amount per member is $50,000.

⁽²⁾  Generally for periods up to six months.

⁽³⁾  Generally for periods up to 91 days.

Pledged Collateral.At March 31, 2018 and December 31, 2017, we had pledged cash collateral, at par, of $131,213 and $16,437, respectively, to counterparties and clearing agents. At March 31, 2018 and December 31, 2017, we had not pledged any securities as collateral.

32

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Legal Proceedings. We are subject to legal proceedings arising in the normal course of business. We record an accrual for a loss contingency when it is probable that a loss for which we could be liable has been incurred and the amount can be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these proceedings could have a material effect on our financial condition, results of operations or cash flows.

Additional discussion of other commitments and contingencies is provided inNote 6 - Advances; Note 7 - Mortgage Loans Held for Portfolio; Note 9 - Derivatives and Hedging Activities; Note 10 - Consolidated Obligations; Note 12 - Capital; and Note 15 - Estimated Fair Values.

Note 17 - Related Party and Other Transactions

Transactions with Related Parties. The following table presents the aggregate outstanding balances with directors' financial institutions and their balance as a percent of the total balance on our statement of condition.

	March 31, 2018				December 31, 2017
Balances with Directors' Financial Institutions	Par value		% of Total		Par value		% of Total
Capital stock	$	37,832	2	%	$	40,564	2	%
Advances	477,223		1	%	588,108		2	%

The par values at March 31, 2018 reflect changes in the composition of directors' financial institutions effective January 1, 2018, due to changes in board membership resulting from the 2017 director election.

The following table presents transactions with directors' financial institutions, taking into account the beginning and ending dates of the directors' terms, merger activity and other changes in the composition of directors' financial institutions.

	Three Months Ended March 31,
Transactions with Directors' Financial Institutions	2018			2017
Net capital stock issuances (redemptions and repurchases)	$	846		$	1,210
Net advances (repayments)	(97,300		)	(12,249		)
Mortgage loan purchases	6,355			3,448

Transactions with Other FHLBanks. Occasionally, we loan (or borrow) short-term funds to (from) other FHLBanks. The following table presents the loans to other FHLBanks.

	Three Months Ended March 31,
Loans to other FHLBanks	2018			2017
Disbursements	$	(300,000	)	$	—
Principal repayments	300,000			—

There were no borrowings from other FHLBanks during the three months ended March 31, 2018 or 2017. There were no loans to or borrowings from other FHLBanks outstanding at March 31, 2018 or December 31, 2017.

In December 2016, we agreed to sell a 90% participating interest in a $100 million MCC of certain newly acquired MPP loans to the FHLBank of Atlanta. Principal amounts settled in December 2016 totaled $72 million, and the remaining $18 million settled in January 2017.

Note 18 - Subsequent Events

Subsequent to March 31, 2018, we made the decision to sell, and on May 2, 2018 executed a sale of, all of our private-label RMBS and ABS (par value of $250 million at sale). A net realized gain of approximately $32 million associated with the sale will be recorded in the second quarter of 2018.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Presentation 

This discussion and analysis by management of the Bank's financial condition and results of operations should be read in conjunction with our 2017 Form 10-K and the Financial Statements and related Notes to Financial Statements contained in Item 1. Financial Statements.

Unless otherwise stated, amounts disclosed in this Item are rounded to the nearest million; therefore, dollar amounts of less than one million may not be reflected and, due to rounding, may not appear to agree to the amounts presented in thousands in the Financial Statements and related Notes to Financial Statements. Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations based upon the disclosed amounts (millions) may not produce the same results.

Executive Summary

Overview. We are a regional wholesale bank that serves as a financial intermediary between the capital markets and our members. We primarily make secured loans in the form of advances to our members and purchase whole mortgage loans from our members. Additionally, we purchase other investments and provide other financial services to our members. Our principal source of funding is the proceeds from the sale to the public of FHLBank debt instruments, called consolidated obligations, which are the joint and several obligation of all FHLBanks. We obtain additional funds from deposits, other borrowings, and the sale of capital stock to our members. As an FHLBank, we are generally designed to expand and contract in asset size as the needs of our members and their communities change over time.

Our primary source of revenue is interest earned on advances, mortgage loans, and long- and short-term investments.

Our net interest income is primarily determined by the spread between the interest rate earned on our assets and the interest rate paid on our share of the consolidated obligations. We use funding and hedging strategies to manage the related interest-rate risk.

Due to our cooperative structure and wholesale nature, we typically earn a narrow net interest spread. Accordingly, our net income is relatively low compared to our total assets and capital.

We group our products and services within two operating segments: traditional and mortgage loans.

Economic Environment. The Bank’s financial performance is influenced by a number of regional and national economic and market factors, including the behavior of interest rates and price levels, monetary and fiscal policy changes, employment levels, and the strength of housing markets.

As expected, the FOMC raised the target range for the federal funds rate by 25 bps at its meeting in March 2018, the sixth rate hike since it began to raise rates in December 2015. The current federal funds target range is 1.50% - 1.75%. Both core and headline Consumer Price Index (CPI) remain near the 2% target inflation level at 1.9% and 2.3%, respectively. The Personal Consumption Expenditures (PCE) price index (PCE deflator), the Federal Reserve's preferred measure of inflation, was 1.8% in the first quarter of 2018. The current economic conditions of near full employment, close to target inflation levels, and recently added fiscal stimulus will justify continued rate hikes, barring significant unforeseen circumstances. As short-term rates have increased, the Treasury yield curve has become much closer to flat. Yields on U.S. Treasuries increased during the first quarter of 2018 relative to the prevailing yields at the end of the fourth quarter 2017. The yield on the ten-year Treasury note increased from 2.46% at the beginning of the first quarter to 2.74% at the end of the quarter, reaching a quarterly high point of 2.94% in late February.

Equity markets have shown increased volatility in the first quarter of 2018 after several mild quarters and the S&P 500 posted its first quarterly decline since the third quarter of 2015, with losses across most market sectors. Corporate earnings have continued to increase and have been boosted significantly by stock buybacks. Stock repurchases have progressively increased from approximately $40 billion in 2010 to $150 billion in the 12 months ended March 31, 2018.

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During the first quarter, the U.S. Gross Domestic Product (GDP) figure for the fourth quarter of 2017 was revised to an annualized 2.9% from 2.5%. The length of the current economic expansion has far surpassed long-term averages. The historical average length of a U.S. economic recovery cycle is 47 months, while the current expansion is at 105 months. The strength of this recovery, however, has been lower than average. The post-war average year-over-year GDP growth during a recovery is 2.8%, while the current year-over-year growth rate is 2.2%. Primary growth components in the first quarter have remained mostly unchanged, and personal consumption remains the largest growth component. The net export deficit increased from 2.7% for the fourth quarter of 2017 to 3.0% for the first quarter of 2018, causing a continued drag on overall real GDP. Historically, the largest impact on economic growth has been the expansion in the working age population followed by growth in real output. Working age population growth has been over 1% since 1977, but from 2007-2016 it dropped to 0.6% and the U.S. Census Bureau forecasts 10-year growth of just 0.3%. After significant growth of 1.8% in the period 1998-2007, mostly due to internet development and automation, real output growth is forecast to be just 0.9% over the next ten years. Aging demographics and declining productivity growth have served to dampen GDP growth potential and inflationary pressures over this recovery cycle.

Despite strong continued job growth, wage growth has remained muted throughout most of this expansion cycle. The strong labor market, demonstrated by a low and stable 3.9% unemployment rate in April 2018, has shown regular improvements since the peak unemployment rate of 10% in October 2009. The U.S. economy has produced over two million jobs annually for each of the past six years; however, many of those jobs are part-time or seasonal positions offering lower wages and low or no benefits. The national long-term unemployment rate has declined significantly over the past 12 months, while the labor force participation rate has remained stable. Since 2010, every sector in the economy has added significant jobs except for the government sector, which has seen the number of jobs decline by 0.1% since 2010. Both Indiana and Michigan have shown improvement in labor conditions. In March 2018, the unemployment rate in Michigan remained slightly above the national average at 4.7%, while the unemployment rate in Indiana was only 3.2%.

Impact on Operating Results. Market interest rates and trends affect yields and margins on earning assets, including advances, purchased mortgage loans, and our investment portfolio, all of which contribute to our overall profitability. Additionally, market interest rates drive mortgage origination and prepayment activity, which can lead to both favorable and unfavorable interest margin volatility in our MPP and MBS portfolios. A flat yield curve, in which the difference between short-term interest rates and long-term interest rates is low, can have an unfavorable impact on our net interest margins.

Lending and investing activity by our member institutions is a key driver for our balance sheet and income growth. Such activity is a function of both prevailing interest rates and economic activity. Positive economic trends could drive interest rates higher, which could impair growth of the mortgage market. A less active mortgage market could affect demand for advances and activity levels in our MPP Advantage. However, borrowing patterns between our insurance company and depository members tend to differ during various economic and market conditions, thereby easing the potential magnitude of core business fluctuations during business cycles. Member demand for liquidity during stressed market conditions can lead to advances growth.

Local economic factors, particularly relating to the housing and mortgage markets, influence demand for advances and MPP sales activity by our member institutions.

35

Selected Financial Data

The following table presents a summary of selected financial information ($ amounts in millions).

	As of and for the Three Months Ended
	March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017
Statement of Condition:
Advances	$	32,965		$	34,055		$	32,953		$	32,253		$	29,671
Mortgage loans held for portfolio, net	10,496			10,356			10,196			9,894			9,633
Cash and investments (1)	17,608			17,628			18,718			18,234			17,059
Total assets	61,392			62,349			62,178			60,712			56,669
Discount notes	19,556			20,358			22,381			21,036			18,399
CO bonds	37,779			37,896			35,902			35,282			34,470
Total consolidated obligations	57,335			58,254			58,283			56,318			52,869
MRCS	164			164			165			167			167
Capital stock	1,881			1,858			1,779			1,702			1,554
Retained earnings (2)	993			976			949			925			903
AOCI	135			112			103			96			80
Total capital	3,009			2,946			2,831			2,723			2,537
Statement of Income:
Net interest income	$	70		$	70		$	69		$	64		$	59
Provision for credit losses	—			—			—			—			—
Other income (loss)	6			4			(3		)	(4		)	(3		)
Other expenses	22			23			20			19			20
AHP assessments	6			5			5			4			4
Net income	$	48		$	46		$	41		$	37		$	32
Selected Financial Ratios:
Net interest margin  (3)	0.46		%	0.45		%	0.45		%	0.44		%	0.43		%
Return on average equity (4)	6.57		%	6.46		%	5.95		%	5.77		%	5.18		%
Return on average assets (4)	0.31		%	0.30		%	0.26		%	0.25		%	0.23		%
Weighted average dividend rate (5)	6.75		%	4.25		%	4.25		%	4.25		%	4.25		%
Dividend payout ratio (6)	64.15		%	40.05		%	42.67		%	41.98		%	49.21		%
Total capital ratio (7)	4.90		%	4.72		%	4.55		%	4.49		%	4.48		%
Total regulatory capital ratio (8)	4.95		%	4.81		%	4.65		%	4.60		%	4.63		%
Average equity to average assets	4.75		%	4.57		%	4.44		%	4.41		%	4.46		%

⁽¹⁾  Consists of cash, interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, AFS securities, and HTM securities.

⁽²⁾  Includes restricted and unrestricted retained earnings.

⁽³⁾  Annualized net interest income expressed as a percentage of average interest-earning assets.

⁽⁴⁾  Annualized.

⁽⁵⁾  Annualized dividends paid in cash during the period divided by the average amount of Class B capital stock eligible for dividends under our capital plan, excluding MRCS.

⁽⁶⁾  Dividends paid in cash during the period divided by net income for the period. By dividing dividends paid in cash during the period by the net income for the prior period, the dividend payout ratios for each of the three months ended March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, would be 67%, 46%, 46%, 50% and 39%, respectively.

⁽⁷⁾  Capital stock plus retained earnings and AOCI expressed as a percentage of total assets.

⁽⁸⁾  Capital stock plus retained earnings and MRCS expressed as a percentage of total assets.

36

Results of Operations and Changes in Financial Condition

Results of Operations for the Three Months Ended March 31, 2018 and 2017. The following table presents the comparative highlights of our results of operations ($ amounts in millions).

	Three Months Ended March 31,
Comparative Highlights	2018		2017			$ Change			% Change
Net interest income	$	70	$	59		$	11		19	%
Provision for credit losses	—		—			—
Net interest income after provision for credit losses	70		59			11			19	%
Other income (loss)	6		(3		)	9
Other expenses	22		20			2
Income before assessments	54		36			18			53	%
AHP assessments	6		4			2
Net income	48		32			16			53	%
Total other comprehensive income (loss)	23		24			(1		)
Total comprehensive income	$	71	$	56		$	15		29	%

The increase in net income for the three months ended March 31, 2018 compared to the corresponding period in 2017 was primarily due to higher net interest income as well as net gains on derivatives and hedging activities.

Changes in Financial Condition for the Three Months Ended March 31, 2018. The following table presents the comparative highlights of our changes in financial condition ($ amounts in millions).

Condensed Statements of Condition	March 31, 2018		December 31, 2017		$ Change			% Change
Advances	$	32,965	$	34,055	$	(1,090	)	(3	%)
Mortgage loans held for portfolio, net	10,496		10,356		140			1	%
Cash and investments (1)	17,608		17,628		(20		)	—	%
Other assets	323		310		13			4	%
Total assets	$	61,392	$	62,349	$	(957	)	(2	%)
Consolidated obligations	$	57,335	$	58,254	$	(919	)	(2	%)
MRCS	164		164		—			—	%
Other liabilities	884		985		(101		)	(10	%)
Total liabilities	58,383		59,403		(1,020		)	(2	%)
Capital stock	1,881		1,858		23			1	%
Retained earnings (2)	993		976		17			2	%
AOCI	135		112		23			21	%
Total capital	3,009		2,946		63			2	%
Total liabilities and capital	$	61,392	$	62,349	$	(957	)	(2	%)
Total regulatory capital(3)	$	3,038	$	2,998	$	40		1	%

⁽¹⁾  Includes cash, interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, AFS securities, and HTM securities.

⁽²⁾  Includes restricted retained earnings at March 31, 2018 and December 31, 2017 of $193 million and $183 million, respectively.

⁽³⁾  Total capital less AOCI plus MRCS.

The decrease in total assets at March 31, 2018 compared to December 31, 2017 was primarily driven by a decrease in advances outstanding. The decrease in total liabilities at March 31, 2018 compared to December 31, 2017 was attributable to a net decrease in consolidated obligations, primarily related to the decrease in the Bank's advances outstanding. The increase in total capital at March 31, 2018 compared to December 31, 2017 was primarily a result of additional capital stock issued to members and unrealized gains on AFS securities. The growth of retained earnings also contributed to the increase.

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Analysis of Results of Operations for the Three Months Ended March 31, 2018 and 2017.

Net Interest Income.The following table presents average daily balances, interest income/expense, and average yields of our major categories of interest-earning assets and their funding sources ($ amounts in millions). 

	Three Months Ended March 31,
	2018						2017
	Average Balance		Interest Income/ Expense		Average Yield (1)		Average Balance		Interest Income/ Expense		Average Yield (1)
Assets:
Federal funds sold and securities purchased under agreements to resell	$	4,769	$	17	1.48	%	$	4,866	$	9	0.71	%
Investment securities (2)	12,963		75		2.36	%	12,250		50		1.65	%
Advances (3)	33,246		144		1.75	%	28,074		74		1.07	%
Mortgage loans held for portfolio (3)	10,426		84		3.25	%	9,571		76		3.22	%
Other assets (interest-earning) (4)	941		3		1.39	%	268		1		1.39	%
Total interest-earning assets	62,345		323		2.10	%	55,029		210		1.54	%
Other assets (5)	455						516
Total assets	$	62,800					$	55,545
Liabilities and Capital:
Interest-bearing deposits	$	610	2		1.31	%	$	565	1		0.54	%
Discount notes	20,589		70		1.39	%	17,790		25		0.58	%
CO bonds (3)	37,979		178		1.90	%	33,856		123		1.47	%
MRCS	164		3		6.79	%	169		2		4.22	%
Total interest-bearing liabilities	59,342		253		1.73	%	52,380		151		1.16	%
Other liabilities	475						690
Total capital	2,983						2,475
Total liabilities and capital	$	62,800					$	55,545
Net interest income			$	70					$	59
Net spread on interest-earning assets less interest-bearing liabilities					0.37	%					0.38	%
Net interest margin (6)					0.46	%					0.43	%
Average interest-earning assets to interest-bearing liabilities	1.05						1.05

⁽¹⁾  Annualized. 

⁽²⁾  Consists of AFS and HTM securities. The average balances of investment securities are based on amortized cost; therefore, the resulting yields do not reflect changes in the estimated fair value of AFS securities that are a component of OCI, nor do they reflect OTTI-related non-credit losses. Interest income/expense includes the effects of associated derivative transactions.

⁽³⁾  Interest income/expense and average yield include all other components of interest, including the impact of net interest payments or receipts on derivatives in qualifying hedge relationships, amortization of hedge accounting adjustments, and prepayment fees on advances.

⁽⁴⁾  Consists of interest-bearing deposits and loans to other FHLBanks (if applicable). Includes the rights or obligations to cash collateral, except for variation margin payments characterized as daily settled contracts. The 2017 amounts also include grantor trust assets that are included in other assets in 2018.

⁽⁵⁾  Includes changes in the estimated fair value of AFS securities and the effect of OTTI-related non-credit losses on AFS and HTM securities.

⁽⁶⁾ Annualized net interest income expressed as a percentage of the average balance of interest-earning assets.

38

The increase in net interest income for the three months ended March 31, 2018 compared to the corresponding period in 2017 was primarily due to an increase in the average balance of assets throughout the quarter.

Yields. The average yield on total interest-earning assets for the three months ended March 31, 2018 was 2.10%, an increase of 56 bps compared to the corresponding period in 2017, resulting primarily from increases in market interest rates that led to higher yields on advances and investment securities. The average cost of total interest-bearing liabilities was 1.73%, an increase of 57 bps due to higher funding costs on consolidated obligations. The net effect was a decrease in the net interest spread to 0.37% for the three months ended March 31, 2018 from 0.38% for the corresponding period in 2017.

Average Balances. The average balances of interest-earning assets for the three months ended March 31, 2018 increased compared to the corresponding period in 2017, largely due to advances and, to a lesser extent, mortgage loans and investment securities. The average balance of advances outstanding increased by 18%, generally driven by member funding needs. The average outstanding balance of mortgage loans held for portfolio increased by 9%, due to strong demand by our members for MPP Advantage. The increase in the average balances of investment securities was due primarily to purchases of agency MBS to maintain an MBS-to-regulatory capital ratio near 300%. The increase in average interest-bearing liabilities was due to an increase in consolidated obligations to fund the increases in the average balances of all interest-earning assets.

Provision for Credit Losses. The change in the provision for credit losses for the three months ended March 31, 2018 compared to the corresponding period in 2017 was insignificant.

Other Income (Loss).The following table presents a comparison of the components of other income ($ amounts in millions). 

	Three Months Ended March 31,
Components	2018		2017
Total OTTI losses	$	—	$	—
Non-credit portion reclassified to (from) other comprehensive income	—		—
Net OTTI credit losses	—		—
Net gains (losses) on derivatives and hedging activities	6		(4		)
Other	—		1
Total other income (loss)	$	6	$	(3	)

The change in total other income for the three months ended March 31, 2018 compared to the corresponding period in 2017 was primarily due to net gains on derivatives and hedging activities.

Net Gains (Losses) on Derivatives and Hedging Activities. For the hedging relationships that qualified for hedge accounting, the differences between the change in the estimated fair value of the hedged items and the change in the estimated fair value of the associated interest-rate swaps, i.e., hedge ineffectiveness, resulted in a net gain of $7 million for the three months ended March 31, 2018, compared to a net loss of $4 million for the corresponding period in 2017. The estimated fair values are based on a wide range of factors, including current and projected levels of interest rates, credit spreads and volatility.

To the extent those hedges did not qualify for hedge accounting, or ceased to qualify because they were determined to be ineffective, only the change in the fair value of the derivative was recorded in earnings with no offsetting change in the fair value of the hedged item. For the derivatives not qualifying for hedge accounting (economic hedges), the net interest settlements and the changes in the estimated fair value of the derivatives were recorded in net gains (losses) on derivatives and hedging activities. For economic hedges, the Bank recorded a net loss of $598 thousand for the three months ended March 31, 2018, compared to a net loss of $351 thousand for the corresponding period in 2017.

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The tables below present the net effect of derivatives on net interest income and other income (loss), within the net gains (losses) on derivatives and hedging activities, by type of hedge and hedged item ($ amounts in millions).

Three Months Ended March 31, 2018	Advances		Investments			Mortgage Loans		CO Bonds			Discount Notes		Other		Total
Net interest income:
Amortization/accretion of hedging activities (1)	$	—	$	—		$	—	$	—		$	—	$	—	$	—
Net interest settlements (2)	1		(3		)	—		1			—		—		(1		)
Total net interest income	1		(3		)	—		1			—		—		(1		)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair-value hedges	3		3			—		1			—		—		7
Gains (losses) on derivatives not qualifying for hedge accounting (3)	—		—			—		(1		)	—		—		(1		)
Other (4)	—		—			—		—			—		—		—
Net gains (losses) on derivatives and hedging activities	3		3			—		—			—		—		6
Total net effect of derivatives and hedging activities	$	4	$	—		$	—	$	1		$	—	$	—	$	5

Three Months Ended March 31, 2017	Advances			Investments			Mortgage Loans		CO Bonds			Discount Notes		Other		Total
Net interest income:
Amortization/accretion of hedging activities (1)	$	—		$	1		$	—	$	—		$	—	$	—	$	1
Net interest settlements (2)	(11		)	(17		)	—		3			—		—		(25		)
Total net interest income	(11		)	(16		)	—		3			—		—		(24		)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair-value hedges	1			(3		)	—		(2		)	—		—		(4		)
Gains (losses) on derivatives not qualifying for hedge accounting (3)	—			—			—		—			—		—		—
Other (4)	—			—			—		—			—		—		—
Net gains (losses) on derivatives and hedging activities	1			(3		)	—		(2		)	—		—		(4		)
Total net effect of derivatives and hedging activities	$	(10	)	$	(19	)	$	—	$	1		$	—	$	—	$	(28	)

⁽¹⁾  Represents the amortization/accretion of fair value hedge accounting adjustments for both current and terminated hedge positions.

⁽²⁾  Represents interest income/expense on derivatives in qualifying hedge relationships. Excludes the interest income/expense of the respective hedged items, which fully offset the interest income/expense of the derivatives, except to the extent of any hedge ineffectiveness.

⁽³⁾ Includes net interest settlements on derivatives not qualifying for hedge accounting. See Notes to Financial Statements - Note 9 - Derivatives and Hedging Activities for additional information.

⁽⁴⁾ Consists of price alignment amounts on derivatives for which variation margin payments are characterized as daily settled contracts.

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Other Expenses. The following table presents a comparison of the components of other expenses ($ amounts in millions).

	Three Months Ended March 31,
Components	2018		2017
Compensation and benefits	$	13	$	11
Other operating expenses	6		6
Finance Agency and Office of Finance expenses	2		2
Other	1		1
Total other expenses	$	22	$	20

The increase in total other expenses for the three months ended March 31, 2018 compared to the corresponding period in 2017 was primarily due to increases in compensation and benefits, primarily driven by salary increases and higher head count.

Total Other Comprehensive Income (Loss). Total other comprehensive income for the three months ended March 31, 2018 and 2017 consisted substantially of unrealized gains on non-OTTI AFS securities.

Operating Segments

Our products and services are grouped within two operating segments:traditional and mortgage loans.

Traditional. The traditional segment consists of (i) credit products (including advances, letters of credit, and lines of credit), (ii) investments (including federal funds sold, securities purchased under agreements to resell, AFS securities and HTM securities), and (iii) correspondent services and deposits. The following table presents the financial performance of our traditional segment ($ amounts in millions). 

	Three Months Ended March 31,
Traditional	2018		2017
Net interest income	$	52	$	42
Provision for credit losses	—		—
Other income (loss)	6		(3		)
Other expenses	19		17
Income before assessments	39		22
AHP assessments	4		3
Net income	$	35	$	19

The increase in net income for the traditional segment for the three months ended March 31, 2018 compared to the corresponding period in 2017 was due to higher net interest income, primarily due to an increase in the average balances of advances outstanding, as well as net gains on derivatives and hedging activities.

Mortgage Loans. The mortgage loans segment includes (i) mortgage loans purchased from our members through our MPP and (ii) participating interests purchased in 2012 - 2014 from the FHLBank of Topeka in mortgage loans originated by certain of its PFIs under the MPF Program. The following table presents the financial performance of our mortgage loans segment ($ amounts in millions). 

	Three Months Ended March 31,
Mortgage Loans	2018		2017
Net interest income	$	18	$	17
Provision for (reversal of) credit losses	—		—
Other income (loss)	—		—
Other expenses	3		3
Income before assessments	15		14
AHP assessments	2		1
Net income	$	13	$	13

Net income for the mortgage loans segment for the three months ended March 31, 2018 compared to the corresponding period in 2017 was relatively unchanged.

41

Analysis of Financial Condition

Total Assets. The table below presents the comparative highlights of our major asset categories ($ amounts in millions).

	March 31, 2018				December 31, 2017
Major Asset Categories	Carrying Value		% of Total		Carrying Value		% of Total
Advances	$	32,965	54	%	$	34,055	55	%
Mortgage loans held for portfolio, net	10,496		17	%	10,356		17	%
Cash and short-term investments	4,386		7	%	4,601		7	%
Investment securities	13,222		22	%	13,027		21	%
Other assets (1)	323		—	%	310		—	%
Total assets	$	61,392	100	%	$	62,349	100	%

⁽¹⁾  Includes accrued interest receivable, premises, software and equipment, derivative assets and other miscellaneous assets.

Total assets were $61.4 billion as of March 31, 2018, a net decrease of $1.0 billion or 2% compared to December 31, 2017, driven primarily by a decrease in advances outstanding. The mix of our total assets changed slightly, primarily due to the decrease in advances.

Advances. Advances at carrying value totaled $33.0 billion at March 31, 2018, a net decrease of $1.1 billion or 3% compared to December 31, 2017. This decrease was primarily due to a decline in short-term advances outstanding.

Advances to depository members - comprising commercial banks, savings institutions and credit unions - decreased by 1%. Advances to insurance company members decreased by 5%. Advances to depository institutions, as a percent of total advances outstanding, increased from 55% at December 31, 2017 to 56% at March 31, 2018, while advances to all insurance companies decreased from 45% to 44% at those dates.

The table below presents advances by type of financial institution ($ amounts in millions).

	March 31, 2018				December 31, 2017
Borrower Type	Par Value		% of Total		Par Value		% of Total
Depository institutions:
Commercial banks and savings institutions	$	15,945	48	%	$	15,818	46	%
Credit unions	2,616		8	%	2,901		9	%
Total depository institutions	18,561		56	%	18,719		55	%
Insurance companies:
Captive insurance companies (1)	2,998		9	%	3,020		9	%
Other insurance companies	11,593		35	%	12,389		36	%
Total insurance companies	14,591		44	%	15,409		45	%
Total members	33,152		100	%	34,128		100	%
Former members	31		—	%	41		—	%
Total advances	$	33,183	100	%	$	34,169	100	%

⁽¹⁾   Memberships must terminate no later than February 19, 2021. See certain restrictions on and maturities of advances in Notes to Financial Statements - Note 7 - Advances in the 2017 Form 10-K.

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The table below presents advances outstanding by interest-rate payment terms ($ amounts in millions).

	March 31, 2018				December 31, 2017
Interest-Rate Payment Terms	Par Value		% of Total		Par Value		% of Total
Fixed-rate	$	24,104	73	%	$	25,133	73	%
Variable-rate	9,079		27	%	9,036		27	%
Total advances	$	33,183	100	%	$	34,169	100	%

Our advance portfolio includes callable or prepayable and putable advances. For prepayable advances, the advance can be prepaid on specified dates without incurring repayment or termination fees. All other advances may only be prepaid by the borrower paying a fee that is sufficient to make us financially indifferent to the prepayment of the advance. Ignoring lockout dates, callable or prepayable advances totaled $9.0 billion, or 27%, and $8.9 billion, or 26%, of advances outstanding, at par, at March 31, 2018 and December 31, 2017, respectively.

Advances due in one year or less decreased from 50% of the total outstanding, at par, at December 31, 2017 to 48% of the total outstanding, at par, at March 31, 2018, reflecting members' decreased demand for short-term funding.

Mortgage Loans Held for Portfolio.A breakdown of mortgage loans held for portfolio by primary product type is presented below ($ amounts in millions).

	March 31, 2018				December 31, 2017
Product Type	UPB		% of Total		UPB		% of Total
MPP:
Conventional Advantage	$	8,815	86	%	$	8,608	85	%
Conventional Original	807		8	%	850		8	%
FHA	347		3	%	361		4	%
Total MPP	9,969		97	%	9,819		97	%
MPF Program:
Conventional	237		2	%	243		2	%
Government	59		1	%	62		1	%
Total MPF Program	296		3	%	305		3	%
Total mortgage loans held for portfolio	$	10,265	100	%	$	10,124	100	%

The increase in the UPB of mortgage loans held for portfolio was due to purchases under MPP Advantage exceeding repayments of outstanding MPP and MPF Program loans. Over time, the outstanding balance of mortgage loans purchased under our original MPP and the MPF Program will continue to decrease.

We have established and maintain an allowance for loan losses based on our best estimate of probable losses over the loss emergence period, which we have estimated to be 24 months. Our estimate of MPP losses remaining after borrower's equity, but before credit enhancements, was $4 million at March 31, 2018 and $5 million at December 31, 2017. After consideration of the portion recoverable under the associated credit enhancements, the resulting allowance for MPP loan losses was less than $1 million at March 31, 2018 and December 31, 2017. For more information, see Notes to Financial Statements - Note 9 - Allowance for Credit Lossesin our 2017 Form 10-K.

During the third quarter of 2017, major hurricanes caused substantial damage to property in several states on the southeastern coasts of the United States. The Bank has sought to analyze the potential impact of the hurricanes on the Bank’s mortgage loans held for portfolio. Because all or a portion of any incurred losses would be covered by the credit enhancements in place and because there is no concentration of the Bank's loans in the affected states, we did not record any additional allowance for loan losses as of March 31, 2018, and we do not expect that any net losses resulting from the hurricanes will have a material effect on the Bank’s financial condition or results of operations.

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Cash and Investments.The following table presents a comparison of the components of our cash and investments at carrying value ($ amounts in millions).

Components of Cash and Investments	March 31, 2018		December 31, 2017		Change
Cash and short-term investments:
Cash and due from banks	$	77	$	55	$	22
Interest-bearing deposits	888		660		228
Securities purchased under agreements to resell	2,673		2,606		67
Federal funds sold	748		1,280		(532		)
Total cash and short-term investments	4,386		4,601		(215		)
Investment securities:
AFS securities:
GSE and TVA debentures	4,339		4,404		(65		)
GSE MBS	2,677		2,507		170
Private-label RMBS	207		218		(11		)
Total AFS securities	7,223		7,129		94
HTM securities:
Other U.S. obligations - guaranteed MBS	3,363		3,299		64
GSE MBS	2,594		2,553		41
Private-label RMBS and ABS	42		46		(4		)
Total HTM securities	5,999		5,898		101
Total investment securities	13,222		13,027		195
Total cash and investments, carrying value	$	17,608	$	17,628	$	(20	)

Cash and Short-Term Investments.Cash andshort-term investments totaled $4.4 billion at March 31, 2018, a decrease of 5% compared to December 31, 2017. However, cash and short-term investments as a percent of total assets were 7% at both March 31, 2018 and December 31, 2017.

Investment Securities.AFS securities totaled $7.2 billion at March 31, 2018, a net increase of 1% compared to $7.1 billion at December 31, 2017. The increase resulted substantially from purchases of GSE MBS to maintain a ratio of MBS and ABS to total regulatory capital of up to 300%.

Net unrealized gains on AFS securities totaled $144 million at March 31, 2018, an increase of $23 million compared to December 31, 2017, primarily due to changes in interest rates, credit spreads and volatility.

HTM securities totaled $6.0 billion at March 31, 2018, relatively unchanged from December 31, 2017. At March 31, 2018, the estimated fair value of our HTM securities totaled $6.0 billion, of which $2.4 billion was in an unrealized loss position, a decrease of 15% from $2.8 billion at December 31, 2017, primarily due to changes in interest rates, credit spreads and volatility. The associated unrealized losses increased from $12 million at December 31, 2017 to $18 million at March 31, 2018.

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Interest-Rate Payment Terms. Our AFS and HTM securities are presented below at amortized cost by interest-rate payment terms ($ amounts in millions).    

	March 31, 2018				December 31, 2017
Interest-Rate Payment Terms	Amortized Cost		% of Total		Amortized Cost		% of Total
AFS Securities:
Total non-MBS fixed-rate	$	4,277	60	%	$	4,357	62	%
MBS:
Fixed-rate	2,626		37	%	2,463		35	%
Variable-rate	176		3	%	187		3	%
Total MBS	2,802		40	%	2,650		38	%
Total AFS securities	$	7,079	100	%	$	7,007	100	%
HTM Securities:
MBS and ABS:
Fixed-rate	$	1,107	18	%	$	1,141	19	%
Variable-rate	4,892		82	%	4,757		81	%
Total MBS and ABS	5,999		100	%	5,898		100	%
Total HTM securities	$	5,999	100	%	$	5,898	100	%

The mix of fixed- vs. variable-rate securities was relatively unchanged during the three months ended March 31, 2018. However, substantially all of the fixed-rate AFS securities are swapped to effectively create variable-rate securities, consistent with our balance sheet strategies to manage interest-rate risk.

Total Liabilities. Total liabilities were $58.4 billion at March 31, 2018, a net decrease of 2% compared to December 31, 2017, substantially due to a decrease in consolidated obligations.

Deposits (Liabilities). Total deposits were $457 million at March 31, 2018, a decrease of 19% compared to December 31, 2017. These deposits represent a relatively small portion of our funding. The balances of these accounts can fluctuate from period to period and vary depending upon such factors as the attractiveness of our deposit pricing relative to the rates available on alternative money market instruments, members' preferences with respect to the maturity of their investments, and members' liquidity.

Consolidated Obligations.The carrying value of consolidated obligations outstanding at March 31, 2018 totaled $57.3 billion, a net decrease of $919 million or 2% from December 31, 2017, primarily due to the decrease in advances outstanding.

The following table presents a breakdown by term of our consolidated obligations outstanding ($ amounts in millions).

	March 31, 2018				December 31, 2017
By Term	Par Value		% of Total		Par Value		% of Total
Consolidated obligations due in 1 year or less:
Discount notes	$	19,596	34	%	$	20,394	35	%
CO bonds	14,507		25	%	14,021		24	%
Total due in 1 year or less	34,103		59	%	34,415		59	%
Long-term CO bonds	23,446		41	%	23,962		41	%
Total consolidated obligations	$	57,549	100	%	$	58,377	100	%

We maintain a liquidity and funding balance between our financial assets and financial liabilities. Additionally, the FHLBanks work collectively to manage FHLB System-wide liquidity and funding and jointly monitor System-wide refinancing risk. In managing and monitoring the amounts of assets that require refunding, the FHLBanks 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 Notes to Financial Statements - Note 3 - Available-for-Sale Securities, Note 6 - Advances, and Note 10 - Consolidated Obligations for more detailed information regarding contractual maturities of certain of our financial assets and liabilities.

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Derivatives.Asof March 31, 2018 and December 31, 2017, we had derivative assets, net of collateral held or posted, including accrued interest, with estimated fair values of $140 million and $128 million, respectively, and derivative liabilities, net of collateral held or posted, including accrued interest, with estimated fair values of $2 million and $3 million, respectively. Increases and decreases in the fair value of derivatives are primarily caused by changes in the derivatives' respective underlying interest-rate indices.

The volume of derivative hedges is often expressed in terms of notional amounts, which is the amount upon which interest payments are calculated. The following table presents the notional amounts by type of hedged item whether or not it is in a qualifying hedge relationship ($ amounts in millions).

Hedged Item	March 31, 2018		December 31, 2017
Advances	$	11,762	$	11,296
Investments	7,378		7,238
Mortgage loans	472		144
CO bonds	15,783		13,524
Discount notes	495		298
Total notional	$	35,890	$	32,500

Total Capital. Total capital at March 31, 2018 was $3.0 billion, a net increase of $63 million or 2% compared to December 31, 2017. This increase was due primarily to additional capital stock issued to members and unrealized gains on AFS securities. The growth of retained earnings also contributed to the increase.

The following table presents a percentage breakdown of the components of GAAP capital.

Components	March 31, 2018		December 31, 2017
Capital stock	63	%	63	%
Retained earnings	33	%	33	%
AOCI	4	%	4	%
Total GAAP capital	100	%	100	%

The components of GAAP capital were relatively unchanged at March 31, 2018 compared to December 31, 2017.

The following table presents a reconciliation of GAAP capital to regulatory capital ($ amounts in millions).

Reconciliation	March 31, 2018			December 31, 2017
Total GAAP capital	$	3,009		$	2,946
Exclude: AOCI	(135		)	(112		)
Add: MRCS	164			164
Total regulatory capital	$	3,038		$	2,998

Liquidity and Capital Resources

Liquidity.Our primary sources of liquidity are holdings of cash and short-term investments and the issuance of consolidated obligations. Our cash and short-term investments portfolio totaled $4.4 billion at March 31, 2018. During the first three months of 2018, we maintained sufficient access to funding; our net proceeds from the issuance of consolidated obligations totaled $94.3 billion.

As discussed in Item 1A. Risk Factors in our 2017 Form 10-K, issuance of new liquidity requirements or guidance in the future could substantially change the amount and characteristics of liquidity that we are required to maintain. We have not identified any other trends, demands, commitments, or events that are likely to materially increase or decrease our liquidity.

Changes in Cash Flow. Net cash provided by operating activities was $165 million for the three months ended March 31, 2018, compared to $56 million for the three months ended March 31, 2017. The increase was primarily due to the impact of the change in the legal characterization of variation margin payments to be daily settled contracts.

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Capital Resources.

Total Regulatory Capital. A breakdown of our outstanding capital stock, categorized by type of member institution, and MRCS is provided in the following table ($ amounts in millions).

	March 31, 2018				December 31, 2017
By Type of Member Institution	Amount		% of Total		Amount		% of Total
Depository institutions:
Commercial banks and savings institutions	$	961	47	%	$	945	47	%
Credit unions	243		12	%	240		12	%
Total depository institutions	1,204		59	%	1,185		59	%
Insurance companies	677		33	%	673		33	%
CDFIs	—		—	%	—		—	%
Total capital stock, putable at par value	1,881		92	%	1,858		92	%
MRCS:
Captive insurance companies (1)	152		7	%	152		7	%
Former members (2)	12		1	%	12		1	%
Total MRCS	164		8	%	164		8	%
Total regulatory capital stock	$	2,045	100	%	$	2,022	100	%

⁽¹⁾   Memberships must terminate no later than February 19, 2021.

⁽²⁾  Balances at March 31, 2018 and December 31, 2017 include $2 million and $3 million, respectively, of MRCS that had reached the end of the five-year redemption period but will not be redeemed until the associated credit products and other obligations are no longer outstanding.

Excess Capital Stock.The following table presents the composition of our excess capital stock ($ amounts in millions).

Components	March 31, 2018			December 31, 2017
Member capital stock not subject to outstanding redemption requests	$	367		$	302
Member capital stock subject to outstanding redemption requests	5			4
MRCS	31			31
Total excess capital stock	$	403		$	337
Excess stock as a percentage of regulatory capital stock	20		%	17		%

The increase in excess stock during the three months ended March 31, 2018 resulted primarily from the decrease in advances outstanding.

Finance Agency rules limit the ability of an FHLBank to issue excess stock under certain circumstances, including when its total excess stock exceeds 1% of total assets or if the issuance of excess stock would cause total excess stock to exceed 1% of total assets. Our excess stock at March 31, 2018 was 0.7% of our total assets. Therefore, subject to these regulatory limitations, we are currently permitted to issue new excess stock to members and distribute stock dividends, should we choose to do so.

Capital Distributions.On April 26, 2018, our board of directors declared a cash dividend of 4.25% (annualized) on our Class B-1 capital stock and 3.40% (annualized) on our Class B-2 capital stock.

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Adequacy of Capital.We must maintain sufficient permanent capital to meet the combined credit risk, market risk and operations risk components of the risk-based capital requirement. As presented in the following table, we were in compliance with the risk-based capital requirement at March 31, 2018 and December 31, 2017 ($ amounts in millions).

Risk-Based Capital Components	March 31, 2018		December 31, 2017
Credit risk	$	356	$	360
Market risk	347		336
Operations risk	211		208
Total risk-based capital requirement	$	914	$	904
Permanent capital	$	3,038	$	2,998

Our permanent capital at March 31, 2018 remained well in excess of our total risk-based capital requirement.

Off-Balance Sheet Arrangements

At March 31, 2018, principal previously paid in full by our MPP servicers totaling $1 million remains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. An estimate of the losses is included in the MPP allowance for loan losses. For more information, see Notes to Financial Statements - Note 9 - Allowance for Credit Losses in our 2017 Form 10-K. For information on additional commitments and contingencies, seeNotes to Financial Statements - Note 16 - Commitments and Contingencies.

Critical Accounting Policies and Estimates

We determined that four of our accounting policies and estimates are critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions. These accounting policies pertain to:

• Derivatives and hedging activities (see Notes to Financial Statements - Note 9 - Derivatives and Hedging Activitiesfor more detail);

• Fair value estimates (see Notes to Financial Statements - Note 15 - Estimated Fair Valuesfor more detail);

• Provision for credit losses (see Notes to Financial Statements - Note 8 - Allowance for Credit Lossesfor more detail); and

• OTTI (see Notes to Financial Statements - Note 5 - Other-Than-Temporary Impairmentfor more detail).

A full discussion of our critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our 2017 Form 10-K. See below for additional information regarding certain of these policies.

Provision for Credit Losses.

Mortgage Loans Acquired under the MPP. Our allowance for loan losses incorporates our analysis of delinquent conventional MPP loans, using the estimated fair value of the underlying collateral, further reduced by estimated liquidation costs.

As part of our loan loss analysis at December 31, 2017, we considered an adverse scenario whereby we used a haircut on our underlying collateral values of 20% for delinquent conventional loans, including individually evaluated loans. We consider such a haircut to represent the most distressed scenario that is reasonably possible to occur over the loss emergence period of 24 months. In this distressed scenario, while holding all other assumptions constant, our estimated incurred losses remaining after borrowers' equity, but before credit enhancements, would increase by approximately $3.1 million. However, such increase would be substantially offset by credit enhancements. Based upon subsequent changes in underlying collateral values, we would not expect this amount to have significantly changed at March 31, 2018. Therefore, the allowance for loan losses continues to be based upon our best estimate of the probable losses over the loss emergence period that would not be recovered from the credit enhancements.

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Other-Than-Temporary Impairment. The following table presents the significant modeling assumptions used to determine whether any of our private-label RMBS and ABS was OTTI during the three months ended March 31, 2018, as well as the related current credit enhancement ($ amounts in millions).

			Significant Modeling Assumptions (1)						Current Credit Enhancement (3)
Classification (2)	UPB		Prepayment Rates		Default Rates		Loss Severities
Private-label RMBS:
Total Prime	$	247	13	%	7	%	22	%	4	%
Total Alt-A	—		10	%	9	%	8	%	13	%
Total private-label RMBS	$	247	13	%	7	%	22	%	4	%
Home equity loan ABS:
Total subprime - home equity loans (4)	$	1	7	%	27	%	39	%	—	%

⁽¹⁾  Weighted average based on UPB.

⁽²⁾  The classification (prime, Alt-A or subprime) is based on the model used to project the cash flows for the security, which may not be the same as the rating agency's classification at the time of origination.

⁽³⁾  Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before we will experience a loss on the security. A credit enhancement percentage of zero reflects a security that has no remaining credit support and is likely to have experienced an actual principal loss.

⁽⁴⁾  Modeling assumptions assume no payout from monoline bond insurers.

In addition to evaluating our private-label RMBS under a best estimate scenario, we perform a cash flow analysis for each of these securities under a more stressful housing price scenario. This more stressful scenario is primarily based on a short-term housing price forecast that is 5% lower than the best estimate scenario, followed by a recovery path with annual rates of housing price growth that are 33% lower than the best estimate.

The actual OTTI-related credit losses recognized in earnings for the three months ended March 31, 2018 totaled $0. Under the more stressful scenario, the estimated OTTI-related credit losses for the same period totaled $14 thousand.

Additional information regarding OTTI of our private-label RMBS and ABS is provided in Notes to Financial Statements - Note 5 - Other-Than-Temporary Impairment.

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Recent Accounting and Regulatory Developments

Accounting Developments. See Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance for a description of how recent accounting developments may impact our financial condition, results of operations or cash flows.

Legislative and Regulatory Developments.

Finance Agency Proposed Rule on Affordable Housing Program Amendments.On March 14, 2018, the Finance Agency published a proposed rule to amend the operating requirements of the FHLBanks’ AHPs. If adopted as proposed, among many other modifications, the AHP rule would: 

• require an FHLBank to create its own scoring criteria that are designed to satisfy new regulatory outcome requirements, replacing the existing regulatory scoring guidelines;

• permit an FHLBank to voluntarily increase its AHP homeownership set-aside program funding to 40% of its required annual AHP contributions (an increase from the current AHP rule’s 35% annual limit);

• increase the maximum per-household set-aside grant amount to $22,000 with an annual housing price inflation adjustment (an increase from the current AHP rule’s fixed limit of $15,000);

• remove the retention agreement requirement for owner-occupied units;

• further align AHP monitoring with certain federal low-income tax programs;

• increase threshold requirements for the number of units in certain project types, such as projects dedicated to homeless or special needs populations; and

• authorize an FHLBank using market research empirical data to create special targeted grant programs as a sub-set of the regular AHP competitive funding program.

The rule, as proposed, would represent a substantial overhaul of the existing AHP regulation and fundamentally change the structure and methodology for awarding grants to affordable housing projects. The proposed rule would also increase AHP’s complexity and administrative burden. In particular, the proposed rule would require changes in the FHLBanks’ operations, communications, and information systems. It would also require increased board of directors and Affordable Housing Advisory Council action and increased communications and education with members and sponsors. We do not believe the rule, if adopted substantially as proposed, would materially impact our financial condition or results of operation, because, among other things, it would not increase the annual AHP funding requirement. However, we do expect to incur increased costs related to implementing the rule requirements and making adjustments to our systems. Additionally, if the rule is adopted as proposed, we anticipate a possible change to the types of projects that we may fund on a go-forward basis, with a commensurate impact on AHP sponsors and their respective communities. Comments on the proposed rule are due by June 12, 2018.

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Risk Management

We have exposure to a number of risks in pursuing our business objectives. These risks may be broadly classified as market, credit, liquidity, operational, and business. Market risk is discussed in Item 3. Quantitative and Qualitative Disclosures about Market Risk. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management in our 2017 Form 10-K for more information.

Credit Risk Management. We face credit risk on advances and other credit products, investments, mortgage loans, derivative financial instruments, and AHP grants.

Advances and Other Credit Products.As of March 31, 2018 and December 31, 2017, advances to our insurance company members represented 44% and 45%, respectively, of our total advances, at par. The initial borrowing limit for our insurance company members (excluding captive insurance companies) is 25% of their total general account assets less money borrowed. As of March 31, 2018, no insurance company member had total credit products outstanding in excess of this threshold.

Effective February 19, 2016, new or renewed credit extensions to captive insurance companies that became members prior to September 12, 2014 are subject to certain regulatory restrictions relating to maturity dates and cannot exceed 40% of the member's total assets. As of March 31, 2018, one such captive insurance company member's total credit products previously outstanding exceeded the percentage limit. Therefore, no new or renewed credit extensions have been made to this member. We may impose additional restrictions on extensions of credit to our members, including captive insurance companies, at our discretion.

Concentration. Our credit risk is magnified due to the concentration of advances in a few borrowers. As of March 31, 2018, our top borrower held 16% of total advances outstanding, at par, and our top five borrowers held 43% of total advances outstanding, at par. As a result of this concentration, we perform frequent credit and collateral reviews on our largest borrowers. In addition, we analyze the implications to our financial management and profitability if we were to lose the business of one or more of these borrowers.

Investments. We are also exposed to credit risk through our investment portfolios. Our policies restrict the acquisition of investments to high-quality, short-term money market instruments and high-quality long-term securities.

At March 31, 2018, we did not have any unsecured credit exposure to investments in United States branches and agency offices of foreign commercial banks.

A Finance Agency regulation provides that the total amount of our investments in MBS and ABS, calculated using amortized historical cost, must not exceed 300% of our total regulatory capital, as of the day we purchase the securities, based on the capital amount most recently reported to the Finance Agency. These investments totaled 295% of total regulatory capital at March 31, 2018. Generally, our goal is to maintain these investments near the 300% limit in order to enhance earnings and capital for our members and diversify our revenue stream.

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The following table presents the carrying values of our investments, excluding accrued interest, grouped by credit rating and investment category. Applicable rating levels are determined using the lowest relevant long-term rating from S&P, Moody's and Fitch Ratings, Inc., each stated in terms of the S&P equivalent. Rating modifiers are ignored when determining the applicable rating level for a given counterparty or investment. Amounts reported do not reflect any subsequent changes in ratings, outlook, or watch status ($ amounts in millions).

													Below
													Investment
March 31, 2018	AAA			AA			A			BBB			Grade			Total
Short-term investments:
Interest-bearing deposits	$	—		$	—		$	888		$	—		$	—		$	888
Securities purchased under agreements to resell	—			2,673			—			—			—			2,673
Federal funds sold	—			353			395			—			—			748
Total short-term investments	—			3,026			1,283			—			—			4,309
Long-term investments:
GSE and TVA debentures	—			4,339			—			—			—			4,339
GSE MBS	—			5,271			—			—			—			5,271
Other U.S. obligations - guaranteed RMBS	—			3,363			—			—			—			3,363
Private-label RMBS and ABS	—			4			15			6			224			249
Total long-term investments	—			12,977			15			6			224			13,222
Total investments, carrying value	$	—		$	16,003		$	1,298		$	6		$	224		$	17,531
Percentage of total	—		%	91		%	8		%	—		%	1		%	100		%
December 31, 2017
Short-term investments:
Interest-bearing deposits	$	—		$	—		$	660		$	—		$	—		$	660
Securities purchased under agreements to resell	—			2,606			—			—			—			2,606
Federal funds sold	—			780			500			—			—			1,280
Total short-term investments	—			3,386			1,160			—			—			4,546
Long-term investments:
GSE and TVA debentures	—			4,404			—			—			—			4,404
GSE MBS	—			5,060			—			—			—			5,060
Other U.S. obligations - guaranteed RMBS	—			3,299			—			—			—			3,299
Private-label RMBS and ABS	—			4			16			2			242			264
Total long-term investments	—			12,767			16			2			242			13,027
Total investments, carrying value	$	—		$	16,153		$	1,176		$	2		$	242		$	17,573
Percentage of total	—		%	92		%	7		%	—		%	1		%	100		%

Mortgage Loans Held for Portfolio. The following table presents a breakdown of the activity in the LRA for original MPP and MPP Advantage ($ amounts in millions).

	Three Months Ended March 31, 2018								Three Months Ended March 31, 2017
LRA Activity	Original		Advantage			Total			Original		Advantage		Total
Liability, beginning of period	$	7	$	142		$	149		$	8	$	118	$	126
Additions	—		5			5			—		5		5
Claims paid	—		—			—			—		—		—
Distributions to PFIs	—		(1		)	(1		)	—		—		—
Liability, end of period	$	7	$	146		$	153		$	8	$	123	$	131

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Derivatives.The following table presents key information on derivative positions with counterparties on a settlement date basis using the lowest credit ratings from S&P or Moody's, stated in terms of the S&P equivalent ($ amounts in millions).

March 31, 2018	Notional Amount		Net Estimated Fair Value Before Collateral			Cash Collateral Pledged To (From) Counterparties			Net Credit Exposure
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives - AA	$	307	$	8		$	—		$	8
Uncleared derivatives - A	3,382		62			(61		)	1
Uncleared derivatives - BBB	49		1			(1		)	—
Cleared derivatives (1)	13,327		2			120			122
Liability positions with credit exposure
Uncleared derivatives - A	2,129		(1		)	2			1
Cleared derivatives (1)	8,551		(1		)	9			8
Total derivative positions with credit exposure to non-member counterparties	27,745		71			69			140
Total derivative positions with credit exposure to member institutions (2)	74		—			—			—
Subtotal - derivative positions with credit exposure	27,819		$	71		$	69		$	140
Derivative positions without credit exposure	8,071
Total derivative positions	$	35,890

⁽¹⁾  Represents derivative transactions cleared with a clearinghouse, which is not rated.

⁽²⁾  Includes MDCs from member institutions (MPP).

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Measuring Market Risks

To evaluate market risk, we utilize multiple risk measurements, including duration of equity, duration gap, convexity, VaR, earnings at risk, and changes in MVE. Periodically, we conduct stress tests to measure and analyze the effects that extreme movements in the level of interest rates and the shape of the yield curve would have on our risk position.

Market Risk-Based Capital Requirement. When calculating the risk-based capital requirement, the VaR comprising the first factor of the market risk component is defined as the potential dollar loss from adverse market movements, for a holding period of 120 business days, with a 99% confidence interval, based on those historical prices and market rates. The table below presents the VaR ($ amounts in millions).

Date	VaR
March 31, 2018	$	347
December 31, 2017	336

Certain Market and Interest-Rate Risk Metrics under Potential Interest-Rate Scenarios. We also monitor the sensitivities of MVE and duration of equity to potential interest-rate scenarios. We measure potential changes in the market value to book value of equity based on the current month-end level of rates versus large parallel rate shifts. The following table presents certain market and interest-rate metrics under different interest-rate scenarios ($ amounts in millions).

March 31, 2018	Down 200 (1)			Down 100 (1)			Base			Up 100			Up 200
MVE	$	3,383		$	3,267		$	3,179		$	3,081		$	3,006
Percent change in MVE from base	6.4		%	2.8		%	0		%	(3.1		)%	(5.4		)%
MVE/Book value of equity (2)	106.6		%	103.0		%	100.2		%	97.1		%	94.8		%
Duration of equity (3)	3.0			3.2			2.9			2.9			2.2

December 31, 2017
MVE	$	3,302		$	3,200		$	3,096		$	3,001		$	2,895
Percent change in MVE from base	6.7		%	3.4		%	0		%	(3.1		)%	(6.5		)%
MVE/Book value of equity (2)	106.2		%	102.9		%	99.5		%	96.5		%	93.1		%
Duration of equity (3)	2.3			3.7			2.9			3.4			3.7

⁽¹⁾  Given the current low interest rate environment, we adjusted the downward rate shocks to prevent the assumed interest rate from becoming negative.

⁽²⁾  The change in the base MVE/book value of equity from December 31, 2017 resulted primarily from the change in market value of the assets and liabilities in response to changes in the market environment and changes in portfolio composition.

⁽³⁾  We use interest-rate shocks in 50 bps increments to determine duration of equity.

Duration Gap. The base case duration gap was 0.10% at March 31, 2018 and December 31, 2017.

See Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Use of Derivative Hedges in our 2017 Form 10-K for information about our use of derivative hedges.

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Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports filed under the Securities Exchange Act of 1934, as amended ("Exchange Act") is: (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms; and (b) accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, to allow timely decisions regarding required disclosures. As of March 31, 2018, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive officer), Chief Financial Officer (the principal financial officer), and Chief Accounting Officer (the principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of March 31, 2018.

Internal Control Over Financial Reporting

Changes in Internal Control Over Financial Reporting.There were no changes in our internal control over financial reporting, as defined in rules 13a-15(f) and 15(d)-15(f) of the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls.We do not expect that our disclosure controls and procedures and other internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

In the ordinary course of business, we may from time to time become a party to lawsuits involving various business matters. We are unaware of any lawsuits presently pending which, individually or in the aggregate, could have a material effect on our financial condition or results of operations.

Item 1A. RISK FACTORS

There have been no material changes in the risk factors described in Item 1A. Risk Factors of our 2017 Form 10-K.

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Item 6. EXHIBITS

EXHIBIT INDEX

Exhibit Number	Description
10.1*+	2016 Supplemental Executive Thrift Plan, effective January 1, 2016, adopted on November 20, 2015, as amended by the First Amendment, effective January 1, 2018, adopted on January 19, 2018, incorporated by reference to Exhibit 10.7 of our Annual Report on Form 10-K (Commission File No. 000-51404) filed on March 9, 2018
10.2*+	Federal Home Loan Bank of Indianapolis Incentive Plan, effective January 1, 2012, as updated on January 19, 2018, effective as of January 1, 2018, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (Commission File No. 000-51404) filed on February 7, 2018
31.1	Certification of the President - Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Executive Vice President - Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	Certification of the Senior Vice President - Chief Accounting Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
32	Certification of the President - Chief Executive Officer, Executive Vice President - Chief Financial Officer, and Senior Vice President - Chief Accounting 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

* These documents are incorporated by reference.

+ Management contract or 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 INDIANAPOLIS
May 10, 2018	By:	/s/ CINDY L. KONICH
	Name:	Cindy L. Konich
	Title:	President - Chief Executive Officer
May 10, 2018	By:	/s/ GREGORY L. TEARE
	Name:	Gregory L. Teare
	Title:	Executive Vice President - Chief Financial Officer
May 10, 2018	By:	/s/ K. LOWELL SHORT, JR.
	Name:	K. Lowell Short, Jr.
	Title:	Senior Vice President - Chief Accounting Officer

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