10-Q 1 ind9301810-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, 2018

OR

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

Commission File Number:  000-51404
 
FEDERAL HOME LOAN BANK OF INDIANAPOLIS
(Exact name of registrant as specified in its charter)
 
Federally chartered corporation
(State or other jurisdiction of incorporation or organization)
 
35-6001443
(I.R.S. employer identification number)
8250 Woodfield Crossing Boulevard
Indianapolis, IN
(Address of principal executive offices)
 
46240
(Zip code)
(317) 465-0200
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x   Yes            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, 2018

Class B Stock, par value $100
20,787,708




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, 2018 and December 31, 2017
 
 
 
 
Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Statements of Capital for the Nine Months Ended September 30, 2017 and 2018
 
 
 
 
Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017
 
 
 
 
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
CFI: Community Financial Institution, an FDIC-insured depository institution with average total assets below an annually-adjusted limit established by the Director based on the Consumer Price Index
CFPB: Bureau of Consumer Financial Protection
CFTC: United States Commodity Futures Trading Commission
Clearinghouse: A United States Commodity Futures Trading Commission-registered derivatives clearing organization
CME: CME Clearing
CMO: Collateralized Mortgage Obligation
CO bond: Consolidated Obligation bond
DB plan: Pentegra Defined Benefit Pension Plan for Financial Institutions, as amended
DC plan: Pentegra Defined Contribution Retirement Savings Plan for Financial Institutions, as amended
DDCP: Directors' Deferred Compensation Plan
Director: Director of the Federal Housing Finance Agency
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended
Exchange Act: Securities Exchange Act of 1934, as amended
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FDIC: Federal Deposit Insurance Corporation
FHA: Federal Housing Administration
FHLBank: A Federal Home Loan Bank
FHLBanks: The 11 Federal Home Loan Banks or a subset thereof
FHLBank System: The 11 Federal Home Loan Banks and the Office of Finance
FICO®: Fair Isaac Corporation, the creators of the FICO credit score
Final Membership Rule: Final Rule on FHLBank Membership issued by the Federal Housing Finance Agency effective February 19, 2016
Finance Agency: Federal Housing Finance Agency, successor to Finance Board
Finance Board: Federal Housing Finance Board, predecessor to Finance Agency
FLA: First Loss Account
FOMC: Federal Open Market Committee
Form 8-K: Current Report on Form 8-K as filed with the SEC under the Exchange Act
Form 10-K: Annual Report on Form 10-K as filed with the SEC under the Exchange Act
Form 10-Q: Quarterly Report on Form 10-Q as filed with the SEC under the Exchange Act
FRB: Federal Reserve Board
Freddie Mac: Federal Home Loan Mortgage Corporation
GAAP: Generally Accepted Accounting Principles in the United States of America
Ginnie Mae: Government National Mortgage Association
GLB Act: Gramm-Leach-Bliley Act of 1999, as amended
GSE: United States Government-Sponsored Enterprise
HERA: Housing and Economic Recovery Act of 2008, as amended
Housing Associate: Approved lender under Title II of the National Housing Act of 1934 that is either a government agency or is chartered under federal or state law with rights and powers similar to those of a corporation
HTM: Held-to-Maturity
HUD: United States Department of Housing and Urban Development
JCE Agreement: Joint Capital Enhancement Agreement, as amended, among the 11 FHLBanks
LCH: LCH.Clearnet LLC
LIBOR: London Interbank Offered Rate



LRA: Lender Risk Account
LTV: Loan-to-Value
MAP-21: Moving Ahead for Progress in the 21st Century Act, enacted on July 6, 2012
MBS: Mortgage-Backed Securities
MCC: Master Commitment Contract
MDC: Mandatory Delivery Commitment
Moody's: Moody's Investor Services
MPF: Mortgage Partnership Finance®
MPP: Mortgage Purchase Program, including Original and Advantage unless indicated otherwise
MRCS: Mandatorily Redeemable Capital Stock
MVE: Market Value of Equity
NRSRO: Nationally Recognized Statistical Rating Organization
OCC: Office of the Comptroller of the Currency
OCI: Other Comprehensive Income (Loss)
OIS: Overnight-Indexed Swap
ORERC: Other Real Estate-Related Collateral
OTTI: Other-Than-Temporary Impairment or -Temporarily Impaired (as the context indicates)
PFI: Participating Financial Institution
PMI: Primary Mortgage Insurance
REMIC: Real Estate Mortgage Investment Conduit
REO: Real Estate Owned
RMBS: Residential Mortgage-Backed Securities
S&P: Standard & Poor's Rating Service
Safety and Soundness Act: Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended
SEC: Securities and Exchange Commission
Securities Act: Securities Act of 1933, as amended
SERP: Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Retirement Plan and/or a similar frozen plan
SETP: Federal Home Loan Bank of Indianapolis 2016 Supplemental Executive Thrift Plan, as amended
SMI: Supplemental Mortgage Insurance
TBA: To Be Announced, a forward contract for the purchase or sale of MBS at a future agreed-upon date for an established price
TDR: Troubled Debt Restructuring
TVA: Tennessee Valley Authority
UPB: Unpaid Principal Balance
VaR: Value at Risk
VIE: Variable Interest Entity
WAIR: Weighted-Average Interest Rate






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

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

economic and market conditions, including the timing and volume of market activity, inflation or deflation, changes in the value of global currencies, and changes in the financial condition of market participants;
volatility of market prices, interest rates, and indices or other factors, resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, including those determined by the FRB and the FDIC, or a decline in liquidity in the financial markets, that could affect the value of investments or collateral we hold as security for the obligations of our members and counterparties;
changes in demand for our advances and purchases of mortgage loans resulting from:
changes in our members' deposit flows and credit demands;
federal or state regulatory developments impacting suitability or eligibility of membership classes;
membership changes, including, but not limited to, mergers, acquisitions and consolidations of charters;
changes in the general level of housing activity in the United States and particularly our district states of Michigan and Indiana, the level of refinancing activity and consumer product preferences; and
competitive forces, including, without limitation, other sources of funding available to our members;
changes in mortgage asset prepayment patterns, delinquency rates and housing values or improper or inadequate mortgage originations and mortgage servicing;
ability to introduce and successfully manage new products and services, including new types of collateral securing advances;
political events, including administrative, legislative, regulatory, or other developments, and judicial rulings that affect us, our status as a secured creditor, our members (or certain classes of members), prospective members, counterparties, GSEs generally, one or more of the FHLBanks and/or investors in the consolidated obligations of the FHLBanks;
ability to access the capital markets and raise capital market funding on acceptable terms;
changes in our credit ratings or the credit ratings of the other FHLBanks and the FHLBank System;
changes in the level of government guarantees provided to other United States and international financial institutions;
dealer commitment to supporting the issuance of our consolidated obligations;
ability of one or more of the FHLBanks to repay its portion of the consolidated obligations, or otherwise meet its financial obligations;
ability to attract and retain skilled personnel;
ability to develop, implement and support technology and information systems sufficient to manage our business effectively;
nonperformance of counterparties to uncleared and cleared derivative transactions;
changes in terms of derivative agreements and similar agreements;
loss arising from natural disasters, acts of war or acts of terrorism;
changes in or differing interpretations of accounting guidance; and
other risk factors identified in our filings with the SEC.

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




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,
2018
 
December 31,
2017
Assets:
 
 
 
Cash and due from banks
$
115,619

 
$
55,269

Interest-bearing deposits
1,370,790

 
660,342

Securities purchased under agreements to resell
3,171,348

 
2,605,460

Federal funds sold
3,398,000

 
1,280,000

Available-for-sale securities (Notes 3 and 5)
7,430,027

 
7,128,758

Held-to-maturity securities (estimated fair values of $5,808,391 and $5,919,299, respectively) (Notes 4 and 5)
5,810,492

 
5,897,668

Advances (Note 6)
33,566,891

 
34,055,064

Mortgage loans held for portfolio, net of allowance for loan losses of $(600) and $(850), respectively (Notes 7 and 8)
11,294,203

 
10,356,341

Accrued interest receivable
115,638

 
105,314

Premises, software, and equipment, net
36,132

 
36,795

Derivative assets, net (Note 9)
124,155

 
128,206

Other assets
38,462

 
39,689

 
 
 
 
Total assets
$
66,471,757

 
$
62,348,906

 
 
 
 
Liabilities:
 

 
 
Deposits
$
484,167

 
$
564,799

Consolidated obligations (Note 10):
 

 
 
Discount notes
22,649,814

 
20,358,157

Bonds
39,563,644

 
37,895,653

Total consolidated obligations, net
62,213,458

 
58,253,810

Accrued interest payable
166,942

 
135,691

Affordable Housing Program payable (Note 11)
37,475

 
32,166

Derivative liabilities, net (Note 9)
2,451

 
2,718

Mandatorily redeemable capital stock (Note 12)
164,434

 
164,322

Other liabilities
345,859

 
249,894

Total liabilities
63,414,786

 
59,403,400

 
 
 
 
Commitments and contingencies (Note 16)


 


 
 
 
 
Capital (Note 12):
 

 
 
Capital stock (putable at par value of $100 per share):
 
 
 
Class B-1 issued and outstanding shares: 19,000,804 and 18,566,388, respectively
1,900,080

 
1,856,639

Class B-2 issued and outstanding shares: 6,169 and 11,271, respectively
617

 
1,127

     Total capital stock
1,900,697

 
1,857,766

Retained earnings:
 
 
 
Unrestricted
845,922

 
792,783

Restricted
214,782

 
183,551

Total retained earnings
1,060,704

 
976,334

Total accumulated other comprehensive income (Note 13)
95,570

 
111,406

Total capital
3,056,971

 
2,945,506

 
 
 
 
Total liabilities and capital
$
66,471,757

 
$
62,348,906


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

6



Federal Home Loan Bank of Indianapolis
Statements of Income
(Unaudited, $ amounts in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2017
Interest Income:
 
 
 
 
 
 
 
Advances
$
197,145

 
$
111,513

 
$
518,682

 
$
280,412

Prepayment fees on advances, net
118

 
1,077

 
120

 
1,179

Interest-bearing deposits
5,801

 
924

 
12,880

 
1,895

Securities purchased under agreements to resell
19,868

 
1,329

 
40,680

 
5,034

Federal funds sold
15,239

 
13,844

 
35,160

 
30,874

Available-for-sale securities
52,071

 
32,590

 
140,561

 
86,309

Held-to-maturity securities
39,258

 
32,932

 
111,298

 
86,810

Mortgage loans held for portfolio
90,561

 
79,295

 
259,690

 
233,575

Other interest income, net

 
534

 
17

 
1,385

Total interest income
420,061


274,038

 
1,119,088


727,473

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
Consolidated obligation discount notes
113,705

 
54,701

 
274,162

 
121,955

Consolidated obligation bonds
228,610

 
147,521

 
617,906

 
404,294

Deposits
2,932

 
1,324

 
7,542

 
3,155

Mandatorily redeemable capital stock
1,927

 
1,768

 
6,557

 
5,277

Total interest expense
347,174

 
205,314

 
906,167

 
534,681

 
 
 
 
 
 
 
 
Net interest income
72,887

 
68,724

 
212,921

 
192,792

Provision for (reversal of) credit losses
102

 
(90
)
 
(359
)
 
191

 
 
 
 
 
 
 
 
Net interest income after provision for credit losses
72,785

 
68,814

 
213,280

 
192,601

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

 

 

 

Non-credit portion reclassified to (from) other comprehensive
income, net

 
(14
)
 

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

 
(14
)
 

 
(207
)
Net realized gains from sale of available-for-sale securities

 

 
32,407

 

Net realized losses from sale of held-to-maturity securities

 

 
(45
)
 

Net gains (losses) on derivatives and hedging activities
(8,160
)
 
(3,745
)
 
(5,216
)
 
(12,830
)
Service fees
278

 
232

 
783

 
694

Standby letters of credit fees
123

 
130

 
414

 
535

Other, net (Note 16)
931

 
409

 
1,324

 
1,322

Total other income (loss)
(6,828
)
 
(2,988
)
 
29,667

 
(10,486
)
 
 
 
 
 
 
 
 
Other Expenses:
 
 
 
 
 
 
 
Compensation and benefits
12,306

 
11,226

 
38,164

 
33,012

Other operating expenses
7,216

 
6,813

 
20,566

 
18,833

Federal Housing Finance Agency
853

 
785

 
2,616

 
2,388

Office of Finance
1,078

 
804

 
3,509

 
2,813

Other
975

 
727

 
3,859

 
2,206

Total other expenses
22,428

 
20,355

 
68,714

 
59,252

 
 
 
 
 
 
 
 
Income before assessments
43,529

 
45,471

 
174,233

 
122,863

 
 
 
 
 
 
 
 
Affordable Housing Program assessments
4,546

 
4,724

 
18,079

 
12,814

 
 
 
 
 
 
 
 
Net income
$
38,983

 
$
40,747

 
$
156,154

 
$
110,049


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,
 
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
38,983

 
$
40,747

 
$
156,154

 
$
110,049

 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized gains on available-for-sale securities
9,043

 
5,007

 
19,015

 
42,617

 
 
 
 
 
 
 
 
Net non-credit portion of other-than-temporary impairment losses on available-for-sale securities

 
1,623

 
(29,322
)
 
3,362

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

 
4

 
51

 
54

 
 
 
 
 
 
 
 
Pension benefits, net
636

 
340

 
(5,580
)
 
993

 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
9,679


6,974


(15,836
)
 
47,026

 
 
 
 
 
 
 
 
Total comprehensive income
$
48,662

 
$
47,721

 
$
140,318

 
$
157,075



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, 2017 and 2018
(Unaudited, $ amounts and shares in thousands)
 
 
Capital Stock
Class B Putable
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Capital
 
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
14,926

 
$
1,492,581

 
$
734,982

 
$
152,265

 
$
887,247

 
$
56,368

 
$
2,436,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
18,578

 
$
1,857,766

 
$
792,783

 
$
183,551

 
$
976,334

 
$
111,406

 
$
2,945,506

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
124,923

 
31,231

 
156,154

 
(15,836
)
 
140,318

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
696

 
69,686

 
 
 
 
 
 
 
 
 
69,686

Repurchase/redemption of capital stock
 

 
(32
)
 
 
 
 
 
 
 
 
 
(32
)
Shares reclassified to mandatorily redeemable capital stock, net
 
(267
)
 
(26,723
)
 
 
 
 
 
 
 
 
 
(26,723
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(38
)
 
 
 
(38
)
 
 
 
(38
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(5.16% annualized)
 
 
 
 
 
(71,746
)
 
 
 
(71,746
)
 
 
 
(71,746
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2018
 
19,007

 
$
1,900,697

 
$
845,922

 
$
214,782

 
$
1,060,704

 
$
95,570

 
$
3,056,971




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,
 
2018
 
2017
Operating Activities:
 
 
 
Net income
$
156,154

 
$
110,049

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and depreciation
50,484

 
57,454

Changes in net derivative and hedging activities
188,223

 
376

Net other-than-temporary impairment losses, credit portion

 
207

Provision for (reversal of) credit losses
(359
)
 
191

Net realized gains from sale of available-for-sale securities
(32,407
)
 

Net realized losses from sale of held-to-maturity securities
45

 

Changes in:
 
 
 
Accrued interest receivable
(17,242
)
 
(3,327
)
Other assets
1,290

 
232

Accrued interest payable
31,439

 
17,557

Other liabilities
49,796

 
19,193

Total adjustments, net
271,269

 
91,883

 
 
 
 
Net cash provided by operating activities
427,423

 
201,932

 
 
 
 
Investing Activities:
 
 


Net change in:
 
 
 
Interest-bearing deposits
(704,317
)
 
(166,306
)
Securities purchased under agreements to resell
(565,888
)
 
(939,389
)
Federal funds sold
(2,118,000
)
 
(1,185,000
)
Available-for-sale securities:
 
 
 
Proceeds from maturities
80,172

 
942,491

Proceeds from sales
203,841

 

Purchases
(773,346
)
 
(1,910,989
)
Held-to-maturity securities:
 
 
 
Proceeds from maturities
755,770

 
920,737

Proceeds from sales
41,226

 

Purchases
(712,272
)
 
(911,505
)
Advances:
 
 
 
Principal repayments
250,517,838

 
192,773,340

Disbursements to members
(250,185,035
)
 
(197,645,975
)
Mortgage loans held for portfolio:
 
 
 
Principal collections
910,622

 
911,928

Purchases from members
(1,874,800
)
 
(1,637,664
)
Purchases of premises, software, and equipment
(3,989
)
 
(3,173
)
Loans to other Federal Home Loan Banks:
 
 
 
Principal repayments
400,000

 

Disbursements
(400,000
)
 

 
 
 
 
Net cash used in investing activities
(4,428,178
)
 
(8,851,505
)
 



(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,
 
2018
 
2017
Financing Activities:
 
 
 
Changes in deposits
38,839

 
(40,952
)
Net payments on derivative contracts with financing elements
(2,242
)
 
(17,358
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
254,190,275

 
161,660,654

Bonds
13,074,648

 
17,978,166

Payments for matured and retired consolidated obligations:
 
 
 
Discount notes
(251,909,384
)
 
(156,102,609
)
Bonds
(11,302,290
)
 
(15,538,310
)
Proceeds from issuance of capital stock
69,686

 
286,585

Payments for redemption/repurchase of capital stock
(32
)
 

Payments for redemption/repurchase of mandatorily redeemable capital stock
(26,649
)
 
(4,882
)
Dividend payments on capital stock
(71,746
)
 
(48,769
)
 
 
 
 
Net cash provided by financing activities
4,061,105

 
8,172,525

 
 
 
 
Net increase (decrease) in cash and due from banks
60,350

 
(477,048
)
 
 
 
 
Cash and due from banks at beginning of period
55,269

 
546,612

 
 
 
 
Cash and due from banks at end of period
$
115,619

 
$
69,564

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest payments
$
841,065

 
$
497,055

Purchases of securities, traded but not yet settled
44,583

 
17,034

Affordable Housing Program payments
12,770

 
11,604

Capitalized interest on certain held-to-maturity securities
3,480

 
1,669

Par value of shares reclassified to mandatorily redeemable capital stock, net
26,723

 

 

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

11



Federal Home Loan Bank of Indianapolis
Notes to Financial Statements
(Unaudited, $ amounts in thousands unless otherwise indicated)


Note 1 - Summary of Significant Accounting Policies

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

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

The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full calendar year or any other interim period.

Our significant accounting policies and certain other disclosures are set forth in our 2017 Form 10-K in Note 1 - Summary of Significant Accounting Policies. There have been no significant changes to these policies through September 30, 2018. However, see Note 2 - Recently Adopted and Issued Accounting Guidance.

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

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

Note 2 - Recently Adopted and Issued Accounting Guidance

Recently Adopted Accounting Guidance.

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

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

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

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





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


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

These amendments were adopted on a retrospective basis effective beginning on January 1, 2018. As a result, the amount of interest payments as reported in the supplemental disclosures increased for the nine months ended September 30, 2017 by $101,253. The adoption of these amendments had no effect on our financial condition, results of operations or cash flows.

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

These amendments were effective for our interim and annual periods beginning on January 1, 2018. The adoption of these amendments had no effect on our financial condition, results of operations, or cash flows. However, the amendments were applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost on the income statement, which resulted in a reclassification from compensation and benefits to other expenses for the non-service components for the three and nine months ended September 30, 2017 of $526 and $1,500, respectively.

Recently Issued Accounting Guidance.

Leases (ASU 2016-02). 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. In particular, this guidance requires a lessee, in an operating or finance lease, to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for a lease with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize a lease asset and lease liability. Under previous guidance, a lessee was not required to recognize a lease asset and lease liability arising from an operating lease on the statement of condition. While this guidance does not fundamentally change lessor accounting, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP.

This guidance is effective for the interim and annual periods beginning on January 1, 2019. As amended, the guidance allows lessors and lessees to recognize and measure leases at the adoption date by recognizing a cumulative-effect adjustment directly to retained earnings. Upon adoption, we will report higher assets and liabilities as a result of including right-of-use assets and lease liabilities on the statement of condition, but its effect on our financial condition, results of operations, and cash flows would not currently be material.

Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). 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.





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


This guidance is effective for the interim and annual periods beginning on January 1, 2019. Its adoption would currently have no effect on our financial condition, results of operations, or cash flows. However, the amended presentation and disclosure guidance will result in a prospective reclassification on the income statement of the change in fair value of hedging instruments and related hedged items in fair value hedging relationships from other income to interest income.

Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). On August 28, 2018, the FASB issued guidance to update the disclosure requirements for fair value measurement. These amendments were issued as part of the FASB's disclosure framework project and are intended to improve disclosure effectiveness.

The guidance is effective for the interim and annual periods beginning on January 1, 2020, and early adoption is permitted; however, we currently plan to adopt this guidance on the effective date. The adoption may have an effect on our disclosures, but will not have any effect on our financial condition, results of operations, or cash flows.

Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). On August 28, 2018, the FASB issued guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. These amendments were issued as part of the FASB's disclosure framework project and are intended to improve disclosure effectiveness.

The guidance is effective for the annual period ended December 31, 2020, and early adoption is permitted; however, we currently plan to adopt this guidance on the effective date. The adoption may have an effect on our disclosures, but will not have any effect on our financial condition, results of operations, or cash flows.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). On August 29, 2018, the FASB issued guidance on implementation costs incurred in a hosting arrangement as a service contract. The amendments align the requirements for capitalizing such costs with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.

This guidance is effective for the interim and annual periods beginning on January 1, 2020, and early adoption is permitted; however, we currently plan to adopt this guidance on the effective date. We are in the process of evaluating this guidance, but we currently do not expect its effect on our financial condition, results of operations, or cash flows to be material.

Inclusion of the Secured Overnight Financing Rate (SOFR) OIS Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (ASU 2018-16). On October 25, 2018, to facilitate the LIBOR to SOFR transition, the FASB issued guidance permitting the OIS rate based on SOFR as an eligible U.S. benchmark interest rate for hedge accounting purposes.

This guidance is effective for the interim and annual periods beginning on January 1, 2019, concurrent with the adoption of ASU 2017-12. We are in the process of evaluating the impact that this guidance may have on our hedging strategies, but we currently do not expect its effect on our financial condition, results of operations, or cash flows to be material.





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, 2018
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
4,173,432

 
$

 
$
58,136

 
$

 
$
4,231,568

GSE MBS
 
3,145,061

 

 
53,607

 
(209
)
 
3,198,459

Total AFS securities
 
$
7,318,493

 
$

 
$
111,743

 
$
(209
)
 
$
7,430,027

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
4,357,250

 
$

 
$
46,679

 
$

 
$
4,403,929

GSE MBS
 
2,460,455

 

 
45,840

 

 
2,506,295

Private-label RMBS
 
189,212

 
(68
)
 
29,390

 

 
218,534

Total AFS securities
 
$
7,006,917

 
$
(68
)
 
$
121,909

 
$

 
$
7,128,758


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

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, 2018
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE MBS
 
$
131,681

 
$
(209
)
 
$

 
$

 
$
131,681

 
$
(209
)
Total impaired AFS securities
 
$
131,681

 
$
(209
)
 
$

 
$

 
$
131,681

 
$
(209
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Private-label RMBS
 
$

 
$

 
$
2,494

 
$
(68
)
 
$
2,494

 
$
(68
)
Total impaired AFS securities
 
$


$


$
2,494


$
(68
)

$
2,494


$
(68
)





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


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, 2018
 
December 31, 2017
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in 1 year or less
 
$
528,101

 
$
528,885

 
$
83,666

 
$
83,754

Due after 1 year through 5 years
 
1,905,256

 
1,923,714

 
2,317,516

 
2,336,699

Due after 5 years through 10 years
 
1,562,013

 
1,596,517

 
1,766,440

 
1,791,829

Due after 10 years
 
178,062

 
182,452

 
189,628

 
191,647

Total non-MBS
 
4,173,432

 
4,231,568

 
4,357,250

 
4,403,929

Total MBS
 
3,145,061

 
3,198,459

 
2,649,667

 
2,724,829

Total AFS securities
 
$
7,318,493

 
$
7,430,027

 
$
7,006,917

 
$
7,128,758


Realized Gains and Losses. During the nine months ended September 30, 2018, for strategic, economic and operational reasons, we sold all of our AFS and HTM investments in private-label RMBS and ABS. Of the OTTI AFS securities sold in 2018, none were in an unrealized loss position. Proceeds from the AFS sales totaled $203,841, resulting in realized gains of $32,407 determined by the specific identification method. There were no sales during the three or nine months ended September 30, 2017.
 
 
 
 
 
 
 
 
 
As of September 30, 2018, we had no intention of selling any 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, 2018
 
Cost (1)
 
OTTI
 
Value
 
Gains
 
Losses
 
 Fair Value
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
$
3,542,561

 
$

 
$
3,542,561

 
$
12,032

 
$
(681
)
 
$
3,553,912

GSE MBS
 
2,267,931

 

 
2,267,931

 
8,989

 
(22,441
)
 
2,254,479

Total HTM securities
 
$
5,810,492

 
$

 
$
5,810,492

 
$
21,021

 
$
(23,122
)
 
$
5,808,391

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
$
3,299,157

 
$

 
$
3,299,157

 
$
6,555

 
$
(6,690
)
 
$
3,299,022

GSE MBS
 
2,553,193

 

 
2,553,193

 
26,727

 
(4,529
)
 
2,575,391

Private-label RMBS
 
37,889

 

 
37,889

 
240

 
(307
)
 
37,822

Private-label ABS
 
7,480

 
(51
)
 
7,429

 
40

 
(405
)
 
7,064

Total HTM securities
 
$
5,897,719

 
$
(51
)
 
$
5,897,668

 
$
33,562

 
$
(11,931
)
 
$
5,919,299


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





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


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
September 30, 2018
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
518,514

 
$
(288
)
 
$
426,118

 
$
(393
)
 
$
944,632

 
$
(681
)
GSE MBS
 
778,546

 
(10,055
)
 
328,379

 
(12,386
)
 
1,106,925

 
(22,441
)
Total impaired HTM securities
 
$
1,297,060

 
$
(10,343
)
 
$
754,497

 
$
(12,779
)
 
$
2,051,557

 
$
(23,122
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
1,140,624

 
$
(3,274
)
 
$
886,359

 
$
(3,416
)
 
$
2,026,983

 
$
(6,690
)
GSE MBS
 
513,244

 
(2,191
)
 
203,401

 
(2,338
)
 
716,645

 
(4,529
)
Private-label RMBS
 
14,712

 
(26
)
 
11,369

 
(281
)
 
26,081

 
(307
)
Private-label ABS (1)
 

 

 
7,064

 
(416
)
 
7,064

 
(416
)
Total impaired HTM securities
 
$
1,668,580

 
$
(5,491
)
 
$
1,108,193

 
$
(6,451
)
 
$
2,776,773

 
$
(11,942
)

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

Realized Gains and Losses. During the nine months ended September 30, 2018, for strategic, economic and operational reasons, we sold all of our AFS and HTM investments in private-label RMBS and ABS. The amortized cost of the HTM securities sold totaled $41,271. Proceeds from the HTM sales totaled $41,226, resulting in realized losses of $45 determined by the specific identification method. For each of these HTM securities, we had previously collected at least 85% of the principal outstanding at the time of acquisition due to prepayments or scheduled payments over the term. As such, the sales were considered maturities for purposes of security classification. There were no sales of HTM securities during the three or nine months ended September 30, 2017.
 
 
 
 
 
 
 
 
 
As of September 30, 2018, we had no intention of selling any HTM 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 5 - Other-Than-Temporary Impairment

OTTI Evaluation Process and Results - Private-label RMBS and ABS.

Results of OTTI Evaluation Process - Private-label RMBS and ABS. As part of our evaluation for the three months ended March 31, 2018, we did not have any change in intent to sell, nor were we required to sell, any OTTI security. Therefore, we performed a cash flow analysis at that time to determine whether we expected to recover the entire amortized cost of each security. As a result of that cash flow analysis, no OTTI credit losses were recognized. At that time, we determined that the unrealized losses on the remaining private-label RMBS and ABS were temporary as we expected to recover the entire amortized cost.

During the nine months ended September 30, 2018, for strategic, economic and operational reasons, we sold all of our investments in private-label RMBS and ABS. The following table presents a rollforward of the amounts related to credit losses recognized in earnings.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Credit Loss Rollforward
 
2018
 
2017
 
2018
 
2017
Balance at beginning of period
 
$

 
$
48,049

 
$
44,936

 
$
51,514

Additions:
 
 
 
 
 
 
 
 
Additional credit losses for which OTTI was previously recognized(1)
 

 
14

 

 
207

Reductions:
 
 
 
 
 
 
 
 
Credit losses on securities sold, matured, paid down or prepaid
 

 

 
(43,049
)
 

Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities)
 

 
(1,647
)
 
(1,887
)
 
(5,305
)
Balance at end of period
 
$


$
46,416


$


$
46,416


(1) 
Relates to all securities impaired prior to January 1, 2018 and 2017, respectively.

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, 2018 are considered temporary.





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.
 
 
September 30, 2018
 
December 31, 2017
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$
5,682

 
4.54

 
$

 

Due in 1 year or less
 
16,245,713

 
2.15

 
16,935,411

 
1.46

Due after 1 year through 2 years
 
2,836,746

 
2.17

 
2,701,784

 
1.96

Due after 2 years through 3 years
 
1,998,543

 
2.08

 
2,682,073

 
1.69

Due after 3 years through 4 years
 
2,239,182

 
2.27

 
2,172,549

 
1.78

Due after 4 years through 5 years
 
2,246,585

 
2.60

 
2,213,319

 
1.93

Thereafter
 
8,264,215

 
2.27

 
7,464,333

 
1.66

Total advances, par value
 
33,836,666

 
2.22

 
34,169,469

 
1.61

Fair-value hedging adjustments
 
(276,325
)
 
 

 
(126,137
)
 
 

Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees
 
6,550

 
 

 
11,732

 
 

Total advances
 
$
33,566,891

 
 

 
$
34,055,064

 
 


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,
2018
 
December 31,
2017
 
September 30,
2018
 
December 31,
2017
Overdrawn demand and overnight deposit accounts
 
$
5,682

 
$

 
$
5,682

 
$

Due in 1 year or less
 
24,109,124

 
25,067,272

 
16,277,713

 
17,032,411

Due after 1 year through 2 years
 
2,002,596

 
2,412,184

 
3,416,346

 
2,701,784

Due after 2 years through 3 years
 
1,540,743

 
1,716,873

 
2,972,043

 
3,406,673

Due after 3 years through 4 years
 
1,303,582

 
928,649

 
2,884,982

 
2,718,049

Due after 4 years through 5 years
 
1,294,395

 
1,494,529

 
2,669,690

 
2,524,619

Thereafter
 
3,580,544

 
2,549,962

 
5,610,210

 
5,785,933

Total advances, par value
 
$
33,836,666

 
$
34,169,469

 
$
33,836,666

 
$
34,169,469


Credit Risk Exposure and Security Terms. At September 30, 2018 and December 31, 2017, our top five borrowers held 43% and 45%, respectively, of total advances outstanding, at par. As security for the advances to these and our other borrowers, we held, or had access to, collateral with an estimated fair value at September 30, 2018 and December 31, 2017 that was well in excess of the advances outstanding on those dates, respectively. For information related to our credit risk on advances and allowance methodology for credit losses, see Note 9 - Allowance for Credit Losses in our 2017 Form 10-K.





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 and type.
Term
 
September 30, 2018
 
December 31, 2017
Fixed-rate long-term mortgages
 
$
10,020,297

 
$
8,989,545

Fixed-rate medium-term (1) mortgages
 
1,025,119

 
1,134,303

Total mortgage loans held for portfolio, UPB
 
11,045,416

 
10,123,848

Unamortized premiums
 
252,814

 
234,519

Unamortized discounts
 
(2,419
)
 
(2,426
)
Fair-value hedging adjustments
 
(1,008
)
 
1,250

Allowance for loan losses
 
(600
)
 
(850
)
Total mortgage loans held for portfolio, net
 
$
11,294,203

 
$
10,356,341


(1) 
Defined as a term of 15 years or less at origination.
Type
 
September 30, 2018
 
December 31, 2017
Conventional
 
$
10,666,464

 
$
9,701,600

Government-guaranteed or -insured
 
378,952

 
422,248

Total mortgage loans held for portfolio, UPB
 
$
11,045,416

 
$
10,123,848


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

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 2017 Form 10-K.

Conventional Mortgage Loans.

Conventional MPP. The following table presents the activity in the LRA, which is reported in other liabilities.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
LRA Activity
 
2018
 
2017
 
2018
 
2017
Liability, beginning of period
 
$
161,339

 
$
136,841

 
$
148,715

 
$
125,683

Additions
 
8,667

 
7,616

 
22,138

 
19,383

Claims paid
 
(61
)
 
(87
)
 
(310
)
 
(335
)
Distributions to PFIs
 
(98
)
 
(317
)
 
(696
)
 
(678
)
Liability, end of period
 
$
169,847

 
$
144,053

 
$
169,847

 
$
144,053

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





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


Credit Quality Indicators. The tables below present the key credit quality indicators for our mortgage loans held for portfolio.
Delinquency Status as of September 30, 2018
 
Conventional
 
Government
 
Total
Past due:
 
 
 
 
 
 
30-59 days
 
$
42,004

 
$
9,015

 
$
51,019

60-89 days
 
5,417

 
1,953

 
7,370

90 days or more
 
14,260

 
1,539

 
15,799

Total past due
 
61,681

 
12,507

 
74,188

Total current
 
10,895,690

 
372,773

 
11,268,463

Total mortgage loans, recorded investment (1)
 
$
10,957,371

 
$
385,280

 
$
11,342,651

 
 
 
 
 
 
 
Delinquency Status as of December 31, 2017
 
 
 
 
 
 
Past due: