10-Q 1 ind6301710-q.htm 10-Q Document


 
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 June 30, 2017

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 July 31, 2017

Class B Stock, par value $100
18,949,958




Table of Contents
Page
 
 
Number
 
Glossary of Terms
 
Special Note Regarding Forward-Looking Statements
PART I.
FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS (unaudited)
 
 
 
 
 
Statements of Condition as of June 30, 2017 and December 31, 2016
 
 
 
 
Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
Statements of Capital for the Six Months Ended June 30, 2016 and 2017
 
 
 
 
Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016
 
 
 
 
Notes to Financial Statements:
 
 
Note 1 - Summary of Significant Accounting Policies
 
Note 2 - Recently Adopted and Issued Accounting Guidance
 
Note 3 - Available-for-Sale Securities
 
Note 4 - Held-to-Maturity Securities
 
Note 5 - Other-Than-Temporary Impairment
 
Note 6 - Advances
 
Note 7 - Mortgage Loans Held for Portfolio
 
Note 8 - Allowance for Credit Losses
 
Note 9 - Derivatives and Hedging Activities
 
Note 10 - Consolidated Obligations
 
Note 11 - Affordable Housing Program
 
Note 12 - Capital
 
Note 13 - Accumulated Other Comprehensive Income (Loss)
 
Note 14 - Segment Information
 
Note 15 - Estimated Fair Values
 
Note 16 - Commitments and Contingencies
 
Note 17 - Related Party and Other Transactions
 
 
 
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
Presentation
 
Executive Summary
 
Selected Financial Data
 
Results of Operations and Changes in Financial Condition
 
Operating Segments
 
Analysis of Financial Condition
 
Liquidity and Capital Resources
 
Off-Balance Sheet Arrangements
 
Critical Accounting Policies and Estimates
 
Recent Accounting and Regulatory Developments
 
Risk Management
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4.
CONTROLS AND PROCEDURES
 
 
 
PART II.
OTHER INFORMATION
 
Item 1.
LEGAL PROCEEDINGS
Item 1A.
RISK FACTORS
Item 6.
EXHIBITS



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
CEO: Chief Executive Officer
CFI: Community Financial Institution
CFPB: Consumer Financial Protection Bureau
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
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
Fitch: Fitch Ratings, Inc.
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
GDP: Gross Domestic Product
Genworth: Genworth Mortgage Insurance Corporation
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



KESA: Key Employee Severance Agreement between our Bank and an NEO
LCH: LCH.Clearnet LLC
LIBOR: London Interbank Offered Rate
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
MGIC: Mortgage Guaranty Insurance Corporation
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
RHA: Rural Housing Service of the Department of Agriculture
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 a similar frozen plan
SMI: Supplemental Mortgage Insurance
TBA: To Be Announced
TDR: Troubled Debt Restructuring
TVA: Tennessee Valley Authority
UCC: Uniform Commercial Code
UPB: Unpaid Principal Balance
VA: Department of Veterans Affairs
VaR: Value at Risk
VIE: Variable Interest Entity
WAIR: Weighted-Average Interest Rate






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;
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 Indiana and Michigan, 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, GSE's 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;
competition from other entities borrowing funds in the capital markets;
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.
 




PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Federal Home Loan Bank of Indianapolis
Statements of Condition
(Unaudited, $ amounts in thousands, except par value)
 
June 30,
2017
 
December 31,
2016
Assets:
 
 
 
Cash and due from banks
$
92,082

 
$
546,612

Interest-bearing deposits
334,432

 
150,225

Securities purchased under agreements to resell
2,527,000

 
1,781,309

Federal funds sold
2,575,000

 
1,650,000

Available-for-sale securities (Notes 3 and 5)
7,071,810

 
6,059,835

Held-to-maturity securities (estimated fair values of $5,675,036 and $5,848,692, respectively) (Notes 4 and 5)
5,633,192

 
5,819,573

Advances (Note 6)
32,253,350

 
28,095,953

Mortgage loans held for portfolio, net of allowance for loan losses of $(850) and $(850), respectively (Notes 7 and 8)
9,894,442

 
9,501,397

Accrued interest receivable
99,055

 
93,716

Premises, software, and equipment, net
36,871

 
37,638

Derivative assets, net (Note 9)
155,301

 
134,848

Other assets
39,441

 
36,294

 
 
 
 
Total assets
$
60,711,976

 
$
53,907,400

 
 
 
 
Liabilities:
 

 
 
Deposits
$
674,476

 
$
524,073

Consolidated obligations (Note 10):
 

 
 
Discount notes
21,036,075

 
16,801,763

Bonds
35,281,636

 
33,467,279

Total consolidated obligations, net
56,317,711

 
50,269,042

Accrued interest payable
117,220

 
98,411

Affordable Housing Program payable (Note 11)
24,629

 
26,598

Derivative liabilities, net (Note 9)
2,394

 
25,225

Mandatorily redeemable capital stock (Note 12)
166,835

 
170,043

Other liabilities
685,280

 
357,812

Total liabilities
57,988,545

 
51,471,204

 
 
 
 
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: 17,002,171 and 14,897,390, respectively
1,700,217

 
1,489,739

Class B-2 issued and outstanding shares: 16,266 and 28,416, respectively
1,627

 
2,842

     Total capital stock
1,701,844

 
1,492,581

Retained earnings:
 
 
 
Unrestricted
759,041

 
734,982

Restricted
166,126

 
152,265

Total retained earnings
925,167

 
887,247

Total accumulated other comprehensive income (Note 13)
96,420

 
56,368

Total capital
2,723,431

 
2,436,196

 
 
 
 
Total liabilities and capital
$
60,711,976

 
$
53,907,400


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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest Income:
 
 
 
 
 
 
 
Advances
$
94,618

 
$
51,246

 
$
168,899

 
$
99,756

Prepayment fees on advances, net
84

 
31

 
102

 
199

Interest-bearing deposits
636

 
234

 
971

 
398

Securities purchased under agreements to resell
2,887

 
636

 
3,705

 
2,223

Federal funds sold
9,333

 
3,313

 
17,030

 
5,510

Available-for-sale securities
29,337

 
15,922

 
53,719

 
29,779

Held-to-maturity securities
28,415

 
27,513

 
53,878

 
53,789

Mortgage loans held for portfolio
78,304

 
67,759

 
154,280

 
137,171

Other interest income, net
266

 
452

 
851

 
737

Total interest income
243,880


167,106

 
453,435


329,562

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
Consolidated obligation discount notes
41,758

 
15,171

 
67,254

 
31,103

Consolidated obligation bonds
134,222

 
104,318

 
256,773

 
200,399

Deposits
1,079

 
147

 
1,831

 
222

Mandatorily redeemable capital stock
1,756

 
1,871

 
3,509

 
2,868

Total interest expense
178,815

 
121,507

 
329,367

 
234,592

 
 
 
 
 
 
 
 
Net interest income
65,065

 
45,599

 
124,068

 
94,970

Provision for (reversal of) credit losses
130

 
(242
)
 
281

 
(217
)
 
 
 
 
 
 
 
 
Net interest income after provision for credit losses
64,935

 
45,841

 
123,787

 
95,187

 
 
 
 
 
 
 
 
Other Income (Loss):
 
 
 
 
 
 
 
Total other-than-temporary impairment losses

 

 

 

Non-credit portion reclassified to (from) other comprehensive
income, net
(111
)
 
(93
)
 
(193
)
 
(93
)
Net other-than-temporary impairment losses, credit portion
(111
)
 
(93
)
 
(193
)
 
(93
)
Net gains (losses) on derivatives and hedging activities
(4,710
)
 
(2,793
)
 
(9,085
)
 
(4,890
)
Service fees
244

 
380

 
462

 
743

Standby letters of credit fees
217

 
221

 
405

 
405

Other, net (Note 16)
527

 
402

 
913

 
750

Total other income (loss)
(3,833
)
 
(1,883
)
 
(7,498
)
 
(3,085
)
 
 
 
 
 
 
 
 
Other Expenses:
 
 
 
 
 
 
 
Compensation and benefits
10,995

 
11,093

 
22,759

 
21,921

Other operating expenses
6,309

 
6,025

 
12,020

 
11,336

Federal Housing Finance Agency
777

 
660

 
1,603

 
1,449

Office of Finance
700

 
633

 
2,009

 
1,588

Other
263

 
242

 
506

 
506

Total other expenses
19,044

 
18,653

 
38,897

 
36,800

 
 
 
 
 
 
 
 
Income before assessments
42,058

 
25,305

 
77,392

 
55,302

 
 
 
 
 
 
 
 
Affordable Housing Program assessments
4,381

 
2,717

 
8,090

 
5,817

 
 
 
 
 
 
 
 
Net income
$
37,677

 
$
22,588

 
$
69,302

 
$
49,485


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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net income
$
37,677

 
$
22,588

 
$
69,302

 
$
49,485

 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized gains (losses) on available-for-sale securities
14,854

 
(693
)
 
37,610

 
(906
)
 
 
 
 
 
 
 
 
Non-credit portion of other-than-temporary impairment losses on available-for-sale securities:
 
 
 
 
 
 
 
Reclassification of non-credit portion to other income (loss)
73

 
93

 
155

 
93

Net change in fair value not in excess of cumulative non-credit losses
85

 
28

 
2

 
52

Unrealized gains (losses)
990

 
(506
)
 
1,582

 
(6,297
)
Net non-credit portion of other-than-temporary impairment losses on available-for-sale securities
1,148

 
(385
)
 
1,739

 
(6,152
)
 
 
 
 
 
 
 
 
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:
 
 
 
 
 
 
 
Reclassification of non-credit portion to other income (loss)
38

 

 
38

 

Accretion of non-credit portion
6

 
8

 
12

 
16

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
44

 
8

 
50

 
16

 
 
 
 
 
 
 
 
Pension benefits, net
325

 
(858
)
 
653

 
(616
)
 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
16,371


(1,928
)

40,052

 
(7,658
)
 
 
 
 
 
 
 
 
Total comprehensive income
$
54,048

 
$
20,660

 
$
109,354

 
$
41,827



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

8



Federal Home Loan Bank of Indianapolis
Statements of Capital
Six Months Ended June 30, 2016 and 2017
(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, 2015
 
15,278

 
$
1,527,806

 
$
705,449

 
$
129,664

 
$
835,113

 
$
22,878

 
$
2,385,797

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
39,588

 
9,897

 
49,485

 
(7,658
)
 
41,827

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
515

 
51,539

 
 
 
 
 
 
 
 
 
51,539

Shares reclassified to mandatorily redeemable capital stock, net
 
(1,789
)
 
(178,898
)
 
 
 
 
 
 
 
 
 
(178,898
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(1,038
)
 

 
(1,038
)
 
 
 
(1,038
)
Cash dividends on capital stock
(4.25% annualized)
 
 
 
 
 
(30,182
)
 

 
(30,182
)
 
 
 
(30,182
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2016
 
14,004

 
$
1,400,447

 
$
713,817

 
$
139,561

 
$
853,378

 
$
15,220

 
$
2,269,045

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
14,926

 
$
1,492,581

 
$
734,982

 
$
152,265

 
$
887,247

 
$
56,368

 
$
2,436,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
55,441

 
13,861

 
69,302

 
40,052

 
109,354

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
2,092

 
209,263

 
 
 
 
 
 
 
 
 
209,263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(4.25% annualized)
 
 
 
 
 
(31,382
)
 

 
(31,382
)
 
 
 
(31,382
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2017
 
17,018

 
$
1,701,844

 
$
759,041

 
$
166,126

 
$
925,167

 
$
96,420

 
$
2,723,431




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)
 
Six Months Ended June 30,
 
2017
 
2016
Operating Activities:
 
 
 
Net income
$
69,302

 
$
49,485

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and depreciation
39,903

 
25,429

Prepayment fees on advances, net of related swap termination fees

 
(526
)
Changes in net derivative and hedging activities
(10,381
)
 
25,847

Net other-than-temporary impairment losses, credit portion
193

 
93

Provision for (reversal of) credit losses
281

 
(217
)
Changes in:
 
 
 
Accrued interest receivable
(5,456
)
 
(9,222
)
Other assets
(812
)
 
430

Accrued interest payable
18,813

 
6,382

Other liabilities
3,393

 
12,886

Total adjustments, net
45,934

 
61,102

 
 
 
 
Net cash provided by operating activities
115,236

 
110,587

 
 
 
 
Investing Activities:
 
 


Net change in:
 
 
 
Interest-bearing deposits
(214,162
)
 
(464,022
)
Securities purchased under agreements to resell
(745,691
)
 
(2,000,000
)
Federal funds sold
(925,000
)
 
(1,350,000
)
Available-for-sale securities:
 
 
 
Proceeds from maturities
726,741

 
230,099

Purchases
(1,347,941
)
 
(2,242,700
)
Held-to-maturity securities:
 
 
 
Proceeds from maturities
603,556

 
636,471

Purchases
(423,325
)
 
(699,192
)
Advances:
 
 
 
Principal repayments
111,970,703

 
68,037,610

Disbursements to members
(116,127,479
)
 
(67,480,894
)
Mortgage loans held for portfolio:
 
 
 
Principal collections
571,048

 
685,139

Purchases from members
(991,250
)
 
(1,305,002
)
Purchases of premises, software, and equipment
(2,206
)
 
(1,896
)
 
 
 
 
Net cash used in investing activities
(6,905,006
)
 
(5,954,387
)
 



(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)
 
Six Months Ended June 30,
 
2017
 
2016
Financing Activities:
 
 
 
Changes in deposits
138,364

 
106,621

Net payments on derivative contracts with financing elements
(10,079
)
 
(16,540
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
108,963,689

 
153,113,474

Bonds
12,522,925

 
17,767,472

Payments for matured and retired consolidated obligations:
 
 
 
Discount notes
(104,740,562
)
 
(156,449,992
)
Bonds
(10,713,770
)
 
(13,182,770
)
Proceeds from issuance of capital stock
209,263

 
51,539

Payments for redemption/repurchase of mandatorily redeemable capital stock
(3,208
)
 
(16,396
)
Dividend payments on capital stock
(31,382
)
 
(30,182
)
 
 
 
 
Net cash provided by financing activities
6,335,240

 
1,343,226

 
 
 
 
Net decrease in cash and due from banks
(454,530
)
 
(4,500,574
)
 
 
 
 
Cash and due from banks at beginning of period
546,612

 
4,931,602

 
 
 
 
Cash and due from banks at end of period
$
92,082

 
$
431,028

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest payments
$
242,369

 
$
188,309

Purchases of securities, traded but not yet settled
455,289

 
56,556

Affordable Housing Program payments
10,059

 
10,997

Capitalized interest on certain held-to-maturity securities
817

 
655

Par value of shares reclassified to mandatorily redeemable capital stock, net

 
178,898

 

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 certain acronyms and terms throughout these notes to financial statements, which are defined 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 substantially duplicate the disclosures in the financial statements, and notes thereto, included in our 2016 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 2016 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 forth in our 2016 Form 10-K in Note 1 - Summary of Significant Accounting Policies. There have been no significant changes to these policies through June 30, 2017, except for our policy on derivatives, which has been updated to reflect changes made to the CME rulebook.

Derivatives. We record derivative instruments, related cash collateral (including initial and variation margin 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, as either derivative assets or derivative liabilities at their estimated fair values. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability.

We use two clearinghouses for all cleared derivative transactions, LCH and CME. 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 continue to be characterized as cash collateral. Initial margin continues to be considered by both clearinghouses as cash collateral.

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 include derivatives and hedging activities, fair value estimates, 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 net income, total comprehensive income, total capital, or net cash flows.

Note 2 - Recently Adopted and Issued Accounting Guidance

Recently Adopted Accounting Guidance.

Contingent Put and Call Options in Debt Instruments. On March 14, 2016, the FASB issued amendments to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host contracts. The amendments require entities to apply only the four-step decision sequence when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.





Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)


This amended guidance was effective for the interim and annual periods beginning on January 1, 2017. The adoption of this guidance on January 1, 2017 had no effect on our financial condition, results of operations, or cash flows.

Recently Issued Accounting Guidance.

Premium Amortization on Purchased Callable Debt Securities. On March 30, 2017, the FASB issued amendments to shorten the amortization period for certain callable debt securities purchased at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. No change is required for securities purchased at a discount.

These amendments are effective beginning on January 1, 2019. Early adoption is permitted; however, we plan to adopt the amendments on the effective date. The amendments should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are in the process of evaluating these amendments; therefore, their effect on our financial condition, results of operations, and cash flows has not yet been determined.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. 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 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 are effective for interim and annual periods beginning on January 1, 2018. Early adoption is permitted; however, we plan to adopt the amendments on the effective date. The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit. The adoption of these amendments will result in a reclassification on the income statement only. As such, it will have no effect on our financial condition, results of operations, or cash flows.

Classification of Certain Cash Receipts and Cash Payments. On August 26, 2016, the FASB issued amendments to clarify existing guidance on the classification of certain cash receipts and payments on the statement of cash flows to reduce current and potential future diversity in practice regarding eight specific cash flow issues.
These amendments are effective for interim and annual periods beginning on January 1, 2018. Early adoption is permitted; however, we plan to adopt the amendments on the effective date. These amendments should be applied using a retrospective transition method to each period presented. The adoption of these amendments will have no effect on our financial condition, results of operations, or cash flows.
Note 3 - Available-for-Sale Securities

Major Security Types. The following table presents our AFS securities by type of security.
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Non-Credit
 
Unrealized
 
Unrealized
 
Estimated
June 30, 2017
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
4,681,231

 
$

 
$
46,946

 
$
(128
)
 
$
4,728,049

GSE MBS
 
2,069,238

 

 
30,337

 
(77
)
 
2,099,498

Private-label RMBS
 
215,586

 
(106
)
 
28,783

 

 
244,263

Total AFS securities
 
$
6,966,055

 
$
(106
)
 
$
106,066

 
$
(205
)
 
$
7,071,810

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
4,693,211

 
$

 
$
25,624

 
$
(4,201
)
 
$
4,714,634

GSE MBS
 
1,058,037

 

 
18,279

 
(234
)
 
1,076,082

Private-label RMBS
 
242,181

 
(263
)
 
27,201

 

 
269,119

Total AFS securities
 
$
5,993,429

 
$
(263
)
 
$
71,104

 
$
(4,435
)
 
$
6,059,835





Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)


(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.

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
June 30, 2017
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$
40,168

 
$
(128
)
 
$

 
$

 
$
40,168

 
$
(128
)
GSE MBS
 
49,795

 
(77
)
 

 

 
49,795

 
(77
)
Private-label RMBS
 

 

 
2,649

 
(106
)
 
2,649

 
(106
)
Total impaired AFS securities
 
$
89,963

 
$
(205
)
 
$
2,649

 
$
(106
)
 
$
92,612

 
$
(311
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
525,722

 
$
(3,604
)
 
$
176,104

 
$
(597
)
 
$
701,826

 
$
(4,201
)
GSE MBS
 

 

 
78,704

 
(234
)
 
78,704

 
(234
)
Private-label RMBS
 

 

 
3,002

 
(263
)
 
3,002

 
(263
)
Total impaired AFS securities
 
$
525,722


$
(3,604
)

$
257,810


$
(1,094
)

$
783,532


$
(4,698
)

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.
 
 
June 30, 2017
 
December 31, 2016
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in 1 year or less
 
$
338,025

 
$
338,371

 
$
972,508

 
$
974,215

Due after 1 year through 5 years
 
2,251,296

 
2,273,386

 
1,841,488

 
1,855,517

Due after 5 years through 10 years
 
1,839,988

 
1,863,092

 
1,734,156

 
1,740,029

Due after 10 years
 
251,922

 
253,200

 
145,059

 
144,873

Total non-MBS
 
4,681,231

 
4,728,049

 
4,693,211

 
4,714,634

Total MBS
 
2,284,824

 
2,343,761

 
1,300,218

 
1,345,201

Total AFS securities
 
$
6,966,055

 
$
7,071,810

 
$
5,993,429

 
$
6,059,835


Realized Gains and Losses. There were no sales of AFS securities during the three or six months ended June 30, 2017. As of June 30, 2017, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 




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
June 30, 2017
 
Cost (1)
 
OTTI
 
Value
 
Gains
 
Losses
 
 Fair Value
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
$
2,848,319

 
$

 
$
2,848,319

 
$
7,496

 
$
(6,294
)
 
$
2,849,521

GSE MBS
 
2,731,973

 

 
2,731,973

 
45,066

 
(3,783
)
 
2,773,256

Private-label RMBS
 
44,676

 

 
44,676

 
218

 
(358
)
 
44,536

Private-label ABS
 
8,277

 
(53
)
 
8,224

 
32

 
(533
)
 
7,723

Total HTM securities
 
$
5,633,245

 
$
(53
)
 
$
5,633,192

 
$
52,812

 
$
(10,968
)
 
$
5,675,036

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
$
2,678,437

 
$

 
$
2,678,437

 
$
5,412

 
$
(12,720
)
 
$
2,671,129

GSE MBS
 
3,082,343

 

 
3,082,343

 
46,480

 
(8,841
)
 
3,119,982

Private-label RMBS
 
49,748

 

 
49,748

 
61

 
(533
)
 
49,276

Private-label ABS
 
9,148

 
(103
)
 
9,045

 
40

 
(780
)
 
8,305

Total HTM securities
 
$
5,819,676

 
$
(103
)
 
$
5,819,573

 
$
51,993

 
$
(22,874
)
 
$
5,848,692


(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
June 30, 2017
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
467,766

 
$
(2,648
)
 
$
1,031,269

 
$
(3,646
)
 
$
1,499,035

 
$
(6,294
)
GSE MBS
 
569,000

 
(3,488
)
 
142,130

 
(295
)
 
711,130

 
(3,783
)
Private-label RMBS
 
7,561

 
(3
)
 
18,143

 
(355
)
 
25,704

 
(358
)
Private-label ABS
 

 

 
7,724

 
(554
)
 
7,724

 
(554
)
Total impaired HTM securities
 
$
1,044,327

 
$
(6,139
)
 
$
1,199,266

 
$
(4,850
)
 
$
2,243,593

 
$
(10,989
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
367,474

 
$
(997
)
 
$
1,426,182

 
$
(11,723
)
 
$
1,793,656

 
$
(12,720
)
GSE MBS
 
1,281,827

 
(7,915
)
 
320,141

 
(926
)
 
1,601,968

 
(8,841
)
Private-label RMBS
 
18,166

 
(62
)
 
15,770

 
(471
)
 
33,936

 
(533
)
Private-label ABS
 

 

 
8,304

 
(843
)
 
8,304

 
(843
)
Total impaired HTM securities
 
$
1,667,467

 
$
(8,974
)
 
$
1,770,397

 
$
(13,963
)
 
$
3,437,864

 
$
(22,937
)

(1) 
For private-label ABS, the total of unrealized losses does not agree to total gross unrecognized holding losses at June 30, 2017 and December 31, 2016 of $533 and $780, respectively. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI of $53 and $103, respectively, and gross unrecognized holding gains on previously OTTI securities of $32 and $40, respectively.




Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)


Note 6 - Advances

The following table presents advances outstanding by year of contractual maturity.
 
 
June 30, 2017
 
December 31, 2016
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$
1,779

 
3.38

 
$

 

Due in 1 year or less
 
16,238,103

 
1.24

 
12,598,864

 
0.91

Due after 1 year through 2 years
 
2,374,373

 
1.78

 
2,752,629

 
1.74

Due after 2 years through 3 years
 
2,791,702

 
1.74

 
1,920,962

 
2.10

Due after 3 years through 4 years
 
2,098,808

 
1.63

 
2,605,198

 
1.38

Due after 4 years through 5 years
 
2,084,100

 
1.69

 
2,009,395

 
1.47

Thereafter
 
6,699,872

 
1.46

 
6,244,912

 
1.20

Total advances, par value
 
32,288,737

 
1.42

 
28,131,960

 
1.22

Fair-value hedging adjustments
 
(51,704
)
 
 

 
(57,716
)
 
 

Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees
 
16,317

 
 

 
21,709

 
 

Total advances
 
$
32,253,350

 
 

 
$
28,095,953

 
 


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
 
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
Overdrawn demand and overnight deposit accounts
 
$
1,779

 
$

 
$
1,779

 
$

Due in 1 year or less
 
23,793,604

 
19,390,714

 
16,419,603

 
12,767,364

Due after 1 year through 2 years
 
1,967,873

 
2,502,629

 
2,374,373

 
2,757,629

Due after 2 years through 3 years
 
2,066,702

 
1,856,463

 
3,029,302

 
1,915,962

Due after 3 years through 4 years
 
1,326,508

 
1,548,998

 
2,565,308

 
2,605,198

Due after 4 years through 5 years
 
870,300

 
900,095

 
2,416,500

 
2,535,895

Thereafter
 
2,261,971

 
1,933,061

 
5,481,872

 
5,549,912

Total advances, par value
 
$
32,288,737

 
$
28,131,960

 
$
32,288,737

 
$
28,131,960


In accordance with the Final Membership Rule, captive insurance companies that were admitted as FHLBank members on or after September 12, 2014 repaid all of their outstanding advances and had their memberships terminated by February 19, 2017.

Under the Final Membership Rule, captive insurance companies that were admitted as FHLBank members prior to September 12, 2014, and do not meet the new definition of "insurance company" or fall within another category of institution that is eligible for FHLBank membership, shall have their memberships terminated no later than February 19, 2021. Prior to termination, new or renewed extensions of credit to such members will be subject to certain restrictions relating to maturity dates and the ratio of advances to the captive insurer's total assets and may be subject to additional restrictions at our discretion. The outstanding advances to these captive insurers mature on various dates through 2025.

Credit Risk Exposure and Security Terms. At June 30, 2017 and December 31, 2016, our top five borrowers held 45% and 43%, respectively, of total advances outstanding, at par. We held sufficient collateral to secure the advances to these borrowers.

See Note 9 - Allowance for Credit Losses in our 2016 Form 10-K for information related to credit risk on advances and allowance methodology for credit losses.





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 for OTTI our individual AFS and HTM investment securities that have been previously OTTI or are in an unrealized loss position.

Significant Inputs. The FHLBanks developed a short-term housing price forecast with projected changes ranging from a decrease of 5% to an increase of 11% over a twelve-month period. For the vast majority of housing markets, the changes range from an increase of 1% to an increase of 6%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

The following table presents the significant modeling assumptions used to determine the amount of credit loss recognized in earnings during the three months ended June 30, 2017 on the two securities for which an OTTI was determined to have occurred, as well as the related current credit enhancement.
 
 
 
 
 
 
 
 
 
 
 
Significant Modeling Assumptions
for OTTI private-label RMBS
for the three months ended June 30, 2017
 
Year of Securitization
 
Prepayment Rates
 
Default Rates
 
Loss Severities
 
Current Credit
 Enhancement
Prime - 2006
 
9
%
 
13
%
 
33
%
 
0
%
Subprime - 1998 (1)
 
7
%
 
41
%
 
40
%
 
0
%

(1) 
Modeling assumptions assume no payout from monoline bond insurers.

Results of OTTI Evaluation Process - Private-label RMBS and ABS. As part of our evaluation, we consider whether we intend to sell each security and whether it is more likely than not that we will be required to sell the security before its anticipated recovery of amortized cost.

If either of these conditions is met, we recognize an OTTI loss in earnings equal to the entire difference between the debt security's amortized cost and its estimated fair value at the statement of condition date. We did not have any such change in intent or likelihood during the three and six months ended June 30, 2017.

For those remaining securities that meet neither of these conditions, 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 analysis, on two securities previously OTTI, credit losses were recognized for the three and six months ended June 30, 2017 of $111 and $193, respectively. OTTI credit losses were recognized on one security for the three and six months ended June 30, 2016 of $93. 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 June 30, 2017 are considered temporary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 












Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)


Note 7 - Mortgage Loans Held for Portfolio

The following tables present information on mortgage loans held for portfolio by term, type, and product.
Term
 
June 30, 2017
 
December 31, 2016
Fixed-rate long-term mortgages
 
$
8,499,668

 
$
8,086,412

Fixed-rate medium-term (1) mortgages
 
1,174,779

 
1,206,978

Total mortgage loans held for portfolio, UPB
 
9,674,447

 
9,293,390

Unamortized premiums
 
221,789

 
210,116

Unamortized discounts
 
(2,593
)
 
(2,383
)
Fair-value hedging adjustments
 
1,649

 
1,124

Allowance for loan losses
 
(850
)
 
(850
)
Total mortgage loans held for portfolio, net
 
$
9,894,442

 
$
9,501,397


(1) 
Defined as a term of 15 years or less at origination.
Type
 
June 30, 2017
 
December 31, 2016
Conventional
 
$
9,212,060

 
$
8,796,407

Government-guaranteed or -insured
 
462,387

 
496,983

Total mortgage loans held for portfolio, UPB
 
$
9,674,447

 
$
9,293,390

Product
 
June 30, 2017
 
December 31, 2016
MPP
 
$
9,339,161

 
$
8,930,194

MPF Program
 
335,286

 
363,196

Total mortgage loans held for portfolio, UPB
 
$
9,674,447

 
$
9,293,390


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.

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

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 in Note 1 - Summary of Significant Accounting Policies and Note 9 - Allowance for Credit Losses in our 2016 Form 10-K.

Conventional Mortgage Loans.

Conventional MPP. The following table presents the activity in the LRA.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
LRA Activity
 
2017
 
2016
 
2017
 
2016
Liability, beginning of period
 
$
130,728

 
$
96,663

 
$
125,683

 
$
91,552

Additions
 
6,536

 
10,011

 
11,767

 
15,418

Claims paid
 
(146
)
 
(276
)
 
(248
)
 
(485
)
Distributions to PFIs
 
(277
)
 
(833
)
 
(361
)
 
(920
)
Liability, end of period
 
$
136,841

 
$
105,565

 
$
136,841

 
$
105,565






Notes to Financial Statements, continued
(Unaudited, $ amounts in thousands unless otherwise indicated)


The following table presents the impact of credit enhancements on the allowance for MPP loan losses.
MPP Credit Waterfall
 
June 30, 2017
 
December 31, 2016
Estimated incurred losses remaining after borrower's equity, before credit enhancements (1)
 
$
7,432

 
$
8,689

Portion of estimated incurred losses recoverable from PMI