10-Q 1 ind9301710-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 September 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 October 31, 2017

Class B Stock, par value $100
19,836,564




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 September 30, 2017 and December 31, 2016
 
 
 
 
Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016
 
 
 
 
Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016
 
 
 
 
Statements of Capital for the Nine Months Ended September 30, 2016 and 2017
 
 
 
 
Statements of Cash Flows for the Nine Months Ended September 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)
 
September 30,
2017
 
December 31,
2016
Assets:
 
 
 
Cash and due from banks
$
69,564

 
$
546,612

Interest-bearing deposits
301,459

 
150,225

Securities purchased under agreements to resell
2,720,698

 
1,781,309

Federal funds sold
2,835,000

 
1,650,000

Available-for-sale securities (Notes 3 and 5)
6,983,996

 
6,059,835

Held-to-maturity securities (estimated fair values of $5,839,280 and $5,848,692, respectively) (Notes 4 and 5)
5,807,104

 
5,819,573

Advances (Note 6)
32,952,801

 
28,095,953

Mortgage loans held for portfolio, net of allowance for loan losses of $(850) and $(850), respectively (Notes 7 and 8)
10,195,650

 
9,501,397

Accrued interest receivable
96,910

 
93,716

Premises, software, and equipment, net
36,368

 
37,638

Derivative assets, net (Note 9)
141,727

 
134,848

Other assets
36,522

 
36,294

 
 
 
 
Total assets
$
62,177,799

 
$
53,907,400

 
 
 
 
Liabilities:
 

 
 
Deposits
$
489,911

 
$
524,073

Consolidated obligations (Note 10):
 

 
 
Discount notes
22,380,509

 
16,801,763

Bonds
35,902,425

 
33,467,279

Total consolidated obligations, net
58,282,934

 
50,269,042

Accrued interest payable
115,966

 
98,411

Affordable Housing Program payable (Note 11)
27,808

 
26,598

Derivative liabilities, net (Note 9)
1,404

 
25,225

Mandatorily redeemable capital stock (Note 12)
165,161

 
170,043

Other liabilities
263,528

 
357,812

Total liabilities
59,346,712

 
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: 17,780,387 and 14,897,390, respectively
1,778,039

 
1,489,739

Class B-2 issued and outstanding shares: 11,271 and 28,416, respectively
1,127

 
2,842

     Total capital stock
1,779,166

 
1,492,581

Retained earnings:
 
 
 
Unrestricted
774,252

 
734,982

Restricted
174,275

 
152,265

Total retained earnings
948,527

 
887,247

Total accumulated other comprehensive income (Note 13)
103,394

 
56,368

Total capital
2,831,087

 
2,436,196

 
 
 
 
Total liabilities and capital
$
62,177,799

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Interest Income:
 
 
 
 
 
 
 
Advances
$
111,513

 
$
55,487

 
$
280,412

 
$
155,243

Prepayment fees on advances, net
1,077

 
6

 
1,179

 
205

Interest-bearing deposits
924

 
252

 
1,895

 
650

Securities purchased under agreements to resell
1,329

 
2,769

 
5,034

 
4,992

Federal funds sold
13,844

 
1,655

 
30,874

 
7,165

Available-for-sale securities
32,590

 
18,218

 
86,309

 
47,997

Held-to-maturity securities
32,932

 
30,638

 
86,810

 
84,427

Mortgage loans held for portfolio
79,295

 
67,994

 
233,575

 
205,165

Other interest income, net
534

 
434

 
1,385

 
1,171

Total interest income
274,038


177,453

 
727,473


507,015

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
Consolidated obligation discount notes
54,701

 
16,485

 
121,955

 
47,588

Consolidated obligation bonds
147,521

 
109,368

 
404,294

 
309,767

Deposits
1,324

 
190

 
3,155

 
412

Mandatorily redeemable capital stock
1,768

 
1,880

 
5,277

 
4,748

Other interest expense

 

 

 

Total interest expense
205,314

 
127,923

 
534,681

 
362,515

 
 
 
 
 
 
 
 
Net interest income
68,724

 
49,530

 
192,792

 
144,500

Provision for (reversal of) credit losses
(90
)
 
85

 
191

 
(132
)
 
 
 
 
 
 
 
 
Net interest income after provision for credit losses
68,814

 
49,445

 
192,601

 
144,632

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

 

 

 

Non-credit portion reclassified to (from) other comprehensive
income, net
(14
)
 
(75
)
 
(207
)
 
(168
)
Net other-than-temporary impairment losses, credit portion
(14
)
 
(75
)
 
(207
)
 
(168
)
Net gains (losses) on derivatives and hedging activities
(3,745
)
 
(4,826
)
 
(12,830
)
 
(9,716
)
Service fees
232

 
227

 
694

 
970

Standby letters of credit fees
130

 
165

 
535

 
570

Other, net (Note 16)
409

 
339

 
1,322

 
1,089

Total other income (loss)
(2,988
)
 
(4,170
)
 
(10,486
)
 
(7,255
)
 
 
 
 
 
 
 
 
Other Expenses:
 
 
 
 
 
 
 
Compensation and benefits
11,753

 
11,274

 
34,512

 
33,195

Other operating expenses
6,813

 
6,307

 
18,833

 
17,643

Federal Housing Finance Agency
785

 
661

 
2,388

 
2,110

Office of Finance
804

 
785

 
2,813

 
2,373

Other
200

 
272

 
706

 
778

Total other expenses
20,355

 
19,299

 
59,252

 
56,099

 
 
 
 
 
 
 
 
Income before assessments
45,471

 
25,976

 
122,863

 
81,278

 
 
 
 
 
 
 
 
Affordable Housing Program assessments
4,724

 
2,786

 
12,814

 
8,603

 
 
 
 
 
 
 
 
Net income
$
40,747

 
$
23,190

 
$
110,049

 
$
72,675


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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net income
$
40,747

 
$
23,190

 
$
110,049

 
$
72,675

 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized gains on available-for-sale securities
5,007

 
24,784

 
42,617

 
23,878

 
 
 
 
 
 
 
 
Non-credit portion of other-than-temporary impairment losses on available-for-sale securities:
 
 
 
 
 
 
 
Reclassification of non-credit portion to other income (loss)
11

 
75

 
166

 
168

Net change in fair value not in excess of cumulative non-credit losses
(5
)
 
(131
)
 
(3
)
 
(79
)
Unrealized gains (losses)
1,617

 
564

 
3,199

 
(5,733
)
Net non-credit portion of other-than-temporary impairment losses on available-for-sale securities
1,623

 
508

 
3,362

 
(5,644
)
 
 
 
 
 
 
 
 
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:
 
 
 
 
 
 
 
Reclassification of non-credit portion to other income (loss)
4

 

 
42

 

Accretion of non-credit portion

 
6

 
12

 
22

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
4

 
6

 
54

 
22

 
 
 
 
 
 
 
 
Pension benefits, net
340

 
(310
)
 
993

 
(926
)
 
 
 
 
 
 
 
 
Total other comprehensive income
6,974


24,988


47,026

 
17,330

 
 
 
 
 
 
 
 
Total comprehensive income
$
47,721

 
$
48,178

 
$
157,075

 
$
90,005



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

8



Federal Home Loan Bank of Indianapolis
Statements of Capital
Nine Months Ended September 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
 
 
 
 
 
58,140

 
14,535

 
72,675

 
17,330

 
90,005

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
930

 
93,014

 
 
 
 
 
 
 
 
 
93,014

Shares reclassified to mandatorily redeemable capital stock, net
 
(1,830
)
 
(183,056
)
 
 
 
 
 
 
 
 
 
(183,056
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(1,072
)
 

 
(1,072
)
 
 
 
(1,072
)
Cash dividends on capital stock
(4.25% annualized)
 
 
 
 
 
(44,823
)
 

 
(44,823
)
 
 
 
(44,823
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2016
 
14,378

 
$
1,437,764

 
$
717,694

 
$
144,199

 
$
861,893

 
$
40,208

 
$
2,339,865

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
14,926

 
$
1,492,581

 
$
734,982

 
$
152,265

 
$
887,247

 
$
56,368

 
$
2,436,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
88,039

 
22,010

 
110,049

 
47,026

 
157,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
2,866

 
286,585

 
 
 
 
 
 
 
 
 
286,585

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(4.25% annualized)
 
 
 
 
 
(48,769
)
 

 
(48,769
)
 
 
 
(48,769
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
 
17,792

 
$
1,779,166

 
$
774,252

 
$
174,275

 
$
948,527

 
$
103,394

 
$
2,831,087




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)
 
Nine Months Ended September 30,
 
2017
 
2016
Operating Activities:
 
 
 
Net income
$
110,049

 
$
72,675

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and depreciation
57,454

 
42,947

Prepayment fees on advances, net of related swap termination fees

 
(526
)
Changes in net derivative and hedging activities
376

 
30,601

Net other-than-temporary impairment losses, credit portion
207

 
168

Provision for (reversal of) credit losses
191

 
(132
)
Changes in:
 
 
 
Accrued interest receivable
(3,327
)
 
(6,133
)
Other assets
232

 
652

Accrued interest payable
17,557

 
8,759

Other liabilities
19,193

 
23,258

Total adjustments, net
91,883

 
99,594

 
 
 
 
Net cash provided by operating activities
201,932

 
172,269

 
 
 
 
Investing Activities:
 
 


Net change in:
 
 
 
Interest-bearing deposits
(166,306
)
 
(335,205
)
Securities purchased under agreements to resell
(939,389
)
 
(2,250,000
)
Federal funds sold
(1,185,000
)
 
(1,450,000
)
Available-for-sale securities:
 
 
 
Proceeds from maturities
942,491

 
641,054

Purchases
(1,910,989
)
 
(2,643,720
)
Held-to-maturity securities:
 
 
 
Proceeds from maturities
920,737

 
1,035,530

Purchases
(911,505
)
 
(845,844
)
Advances:
 
 
 
Principal repayments
192,773,340

 
106,942,904

Disbursements to members
(197,645,975
)
 
(106,464,271
)
Mortgage loans held for portfolio:
 
 
 
Principal collections
911,928

 
1,202,287

Purchases from members
(1,637,664
)
 
(2,307,678
)
Purchases of premises, software, and equipment
(3,173
)
 
(2,830
)
 
 
 
 
Net cash used in investing activities
(8,851,505
)
 
(6,477,773
)
 



(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)
 
Nine Months Ended September 30,
 
2017
 
2016
Financing Activities:
 
 
 
Changes in deposits
(40,952
)
 
20,808

Net payments on derivative contracts with financing elements
(17,358
)
 
(28,417
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
161,660,654

 
273,582,542

Bonds
17,978,166

 
26,104,166

Payments for matured and retired consolidated obligations:
 
 
 
Discount notes
(156,102,609
)
 
(276,449,167
)
Bonds
(15,538,310
)
 
(21,226,935
)
Proceeds from issuance of capital stock
286,585

 
93,014

Payments for redemption/repurchase of capital stock

 

Payments for redemption/repurchase of mandatorily redeemable capital stock
(4,882
)
 
(18,972
)
Dividend payments on capital stock
(48,769
)
 
(44,823
)
 
 
 
 
Net cash provided by financing activities
8,172,525

 
2,032,216

 
 
 
 
Net decrease in cash and due from banks
(477,048
)
 
(4,273,288
)
 
 
 
 
Cash and due from banks at beginning of period
546,612

 
4,931,602

 
 
 
 
Cash and due from banks at end of period
$
69,564

 
$
658,314

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest payments
$
395,802

 
$
302,462

Purchases of securities, traded but not yet settled
17,034

 
230,700

Affordable Housing Program payments
11,604

 
16,037

Capitalized interest on certain held-to-maturity securities
1,669

 
875

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

 
183,056

 

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 September 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.

Targeted Improvements to Accounting for Hedging Activities. On August 28, 2017, the FASB issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in OCI. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:

Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.
Measurement of the hedged item in a partial-term fair value hedge of interest-rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.
Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest-rate risk.

This guidance is effective beginning January 1, 2019. Early adoption is permitted; however, we plan to adopt the guidance on the effective date. The amended presentation and disclosure guidance is applicable only prospectively. We are in the process of evaluating this guidance; therefore, its effect on our financial condition, results of operations, and cash flows has not yet been determined.

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 pension and benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net pension and 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.





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


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.

Measurement of Credit Losses on Financial Instruments. On June 16, 2016, the FASB issued amended guidance for the measurement of credit losses on financial instruments. See Note 2 - Changes in Accounting Principle and Recently Adopted and Issued Accounting Guidance in our 2016 Form 10-K for information related to this guidance.

This guidance is effective for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted as of the interim and annual reporting periods beginning after December 15, 2018. However, we plan to adopt this guidance on the effective date. We are in the process of evaluating this guidance, but expect the adoption to result in an increase to the allowance for credit losses, including an allowance for debt securities, primarily due to the requirement to measure losses for the entire estimated life of the financial asset. The impact on our financial condition, results of operations, and cash flows will depend upon the composition of financial assets held at the adoption date as well as the economic conditions and forecasts at that time.

Leases. On February 25, 2016, the FASB issued guidance which requires recognition of lease assets and lease liabilities on the statement of condition and disclosure of key information about leasing arrangements. See Note 2 - Changes in Accounting Principle and Recently Adopted and Issued Accounting Guidance in our 2016 Form 10-K for information related to this guidance.

This guidance is effective for the interim and annual periods beginning on January 1, 2019, and early adoption is permitted. However, we plan to adopt this guidance on the effective date. Upon adoption, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities on the statement of condition, but we do not expect its effect on our financial condition, results of operations, or cash flows to be material.

Recognition and Measurement of Financial Assets and Financial Liabilities. On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. See Note 2 - Changes in Accounting Principle and Recently Adopted and Issued Accounting Guidance in our 2016 Form 10-K for information related to this guidance.

The guidance is effective for the interim and annual periods beginning on January 1, 2018, and early adoption is only permitted for certain provisions. However, we plan to adopt this guidance on the effective date. We expect its adoption to have no effect on our financial condition, results of operations, or cash flows.

Revenue from Contracts with Customers. On May 28, 2014, the FASB issued new guidance on revenue from contracts with customers. See Note 2 - Changes in Accounting Principle and Recently Adopted and Issued Accounting Guidance in our 2016 Form 10-K for information related to this guidance.

The guidance is effective for interim and annual periods beginning on January 1, 2018. Early adoption is permitted only as of the interim and annual reporting periods beginning after January 1, 2017. However, we do not plan to adopt this guidance early. Given that the majority of our financial instruments and other contractual rights that generate revenue are covered by other GAAP provisions, we do not expect the adoption of this guidance to have a material effect on our financial condition, results of operations, or cash flows.





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


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
September 30, 2017
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
4,478,116

 
$

 
$
47,055

 
$
(198
)
 
$
4,524,973

GSE MBS
 
2,192,026

 

 
35,228

 

 
2,227,254

Private-label RMBS
 
201,469

 
(100
)
 
30,400

 

 
231,769

Total AFS securities
 
$
6,871,611

 
$
(100
)
 
$
112,683

 
$
(198
)
 
$
6,983,996

 
 
 
 
 
 
 
 
 
 
 
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


(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
September 30, 2017
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$
82,225

 
$
(198
)
 
$

 
$

 
$
82,225

 
$
(198
)
GSE MBS
 

 

 

 

 

 

Private-label RMBS
 

 

 
2,576

 
(100
)
 
2,576

 
(100
)
Total impaired AFS securities
 
$
82,225

 
$
(198
)
 
$
2,576

 
$
(100
)
 
$
84,801

 
$
(298
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
September 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
 
$
146,750

 
$
146,900

 
$
972,508

 
$
974,215

Due after 1 year through 5 years
 
2,356,721

 
2,380,328

 
1,841,488

 
1,855,517

Due after 5 years through 10 years
 
1,763,264

 
1,785,456

 
1,734,156

 
1,740,029

Due after 10 years
 
211,381

 
212,289

 
145,059

 
144,873

Total non-MBS
 
4,478,116

 
4,524,973

 
4,693,211

 
4,714,634

Total MBS
 
2,393,495

 
2,459,023

 
1,300,218

 
1,345,201

Total AFS securities
 
$
6,871,611

 
$
6,983,996

 
$
5,993,429

 
$
6,059,835





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


Realized Gains and Losses. There were no sales of AFS securities during the three or nine months ended September 30, 2017. As of September 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
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
September 30, 2017
 
Cost (1)
 
OTTI
 
Value
 
Gains
 
Losses
 
 Fair Value
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
$
3,171,027

 
$

 
$
3,171,027

 
$
7,439

 
$
(8,901
)
 
$
3,169,565

GSE MBS
 
2,588,959

 

 
2,588,959

 
36,752

 
(2,641
)
 
2,623,070

Private-label RMBS
 
39,315

 

 
39,315

 
242

 
(266
)
 
39,291

Private-label ABS
 
7,852

 
(49
)
 
7,803

 
35

 
(484
)
 
7,354

Total HTM securities
 
$
5,807,153

 
$
(49
)
 
$
5,807,104

 
$
44,468

 
$
(12,292
)
 
$
5,839,280

 
 
 
 
 
 
 
 
 
 
 
 
 
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.




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


 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
September 30, 2017
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
722,599

 
$
(5,868
)
 
$
915,850

 
$
(3,033
)
 
$
1,638,449

 
$
(8,901
)
GSE MBS
 
545,539

 
(2,356
)
 
138,174

 
(285
)
 
683,713

 
(2,641
)
Private-label RMBS
 
7,236

 
(5
)
 
11,904

 
(261
)
 
19,140

 
(266
)
Private-label ABS
 

 

 
7,354

 
(498
)
 
7,354

 
(498
)
Total impaired HTM securities
 
$
1,275,374

 
$
(8,229
)
 
$
1,073,282

 
$
(4,077
)
 
$
2,348,656

 
$
(12,306
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2017 and December 31, 2016 of $484 and $780, respectively. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI of $49 and $103, respectively, and gross unrecognized holding gains on previously OTTI securities of $35 and $40, respectively.

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 6% to an increase of 13% 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 September 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 September 30, 2017
 
Year of Securitization
 
Prepayment Rates
 
Default Rates
 
Loss Severities
 
Current Credit
 Enhancement
Prime - 2006
 
9
%
 
11
%
 
26
%
 
0
%
Subprime - 1998 (1)
 
8
%
 
40
%
 
42
%
 
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.





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


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 nine months ended September 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 nine months ended September 30, 2017 of $14 and $207, respectively. OTTI credit losses were recognized on one security for the three and nine months ended September 30, 2016 of $75 and $168, respectively. 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 September 30, 2017 are considered temporary.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 6 - Advances

The following table presents advances outstanding by year of contractual maturity.
 
 
September 30, 2017
 
December 31, 2016
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$
2,139

 
2.50

 
$

 

Due in 1 year or less
 
16,384,199

 
1.31

 
12,598,864

 
0.91

Due after 1 year through 2 years
 
2,522,835

 
1.78

 
2,752,629

 
1.74

Due after 2 years through 3 years
 
2,812,894

 
1.78

 
1,920,962

 
2.10

Due after 3 years through 4 years
 
1,934,836

 
1.65

 
2,605,198

 
1.38

Due after 4 years through 5 years
 
2,239,416

 
1.74

 
2,009,395

 
1.47

Thereafter
 
7,108,276

 
1.55

 
6,244,912

 
1.20

Total advances, par value
 
33,004,595

 
1.48

 
28,131,960

 
1.22

Fair-value hedging adjustments
 
(65,397
)
 
 

 
(57,716
)
 
 

Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees
 
13,603

 
 

 
21,709

 
 

Total advances
 
$
32,952,801

 
 

 
$
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
 
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
Overdrawn demand and overnight deposit accounts
 
$
2,139

 
$

 
$
2,139

 
$

Due in 1 year or less
 
24,015,209

 
19,390,714

 
16,549,199

 
12,767,364

Due after 1 year through 2 years
 
2,468,685

 
2,502,629

 
2,522,835

 
2,757,629

Due after 2 years through 3 years
 
1,914,894

 
1,856,463

 
3,292,494

 
1,915,962

Due after 3 years through 4 years
 
1,111,436

 
1,548,998

 
2,242,836

 
2,605,198

Due after 4 years through 5 years
 
1,194,116

 
900,095

 
2,820,216

 
2,535,895

Thereafter
 
2,298,116

 
1,933,061

 
5,574,876

 
5,549,912

Total advances, par value
 
$
33,004,595

 
$
28,131,960

 
$
33,004,595

 
$
28,131,960







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


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 September 30, 2017 and December 31, 2016, our top five borrowers held 44% 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.

Note 7 - Mortgage Loans Held for Portfolio

The following tables present information on mortgage loans held for portfolio by term, type, and product.
Term
 
September 30, 2017
 
December 31, 2016
Fixed-rate long-term mortgages
 
$
8,809,613

 
$
8,086,412

Fixed-rate medium-term (1) mortgages
 
1,156,400

 
1,206,978

Total mortgage loans held for portfolio, UPB
 
9,966,013

 
9,293,390

Unamortized premiums
 
230,943

 
210,116

Unamortized discounts
 
(2,493
)
 
(2,383
)
Fair-value hedging adjustments
 
2,037

 
1,124

Allowance for loan losses
 
(850
)
 
(850
)
Total mortgage loans held for portfolio, net
 
$
10,195,650

 
$
9,501,397


(1) 
Defined as a term of 15 years or less at origination.
Type
 
September 30, 2017
 
December 31, 2016
Conventional
 
$
9,525,624

 
$
8,796,407

Government-guaranteed or -insured
 
440,389

 
496,983

Total mortgage loans held for portfolio, UPB
 
$
9,966,013

 
$
9,293,390

Product
 
September 30, 2017
 
December 31, 2016
MPP
 
$
9,646,276

 
$
8,930,194

MPF Program
 
319,737

 
363,196

Total mortgage loans held for portfolio, UPB
 
$
9,966,013

 
$
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.






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 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 September 30,
 
Nine Months Ended September 30,
LRA Activity
 
2017
 
2016
 
2017
 
2016
Liability, beginning of period
 
$
136,841

 
$
105,565

 
$
125,683

 
$
91,552

Additions
 
7,616

 
11,722

 
19,383

 
27,140