10-Q 1 ind6301910-q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019
 
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
 
35-6001443
(State or other jurisdiction of incorporation)
 
(IRS employer identification number)
 
 
 8250 Woodfield Crossing Blvd. Indianapolis, IN
 
46240
(Address of principal executive offices)
 
(Zip code)
(317) 465-0200
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report.)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
None
None
 
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, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
o  Large accelerated filer
o  Accelerated filer
o  Emerging growth company
x Non-accelerated filer
o  Smaller reporting 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.   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes            x  No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Shares outstanding
as of July 31, 2019

Class B Stock, par value $100
22,485,561




Table of Contents
Page
 
 
Number
 
Special Note Regarding Forward-Looking Statements
PART I.
FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS (unaudited)
 
 
 
 
 
Statements of Condition as of June 30, 2019 and December 31, 2018
 
 
 
 
Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018
 
 
 
 
Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018
 
 
 
 
Statements of Capital for the Three and Six Months Ended June 30, 2018 and 2019
 
 
 
 
Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018
 
 
 
 
Notes to Financial Statements:
 
 
Note 1 - Summary of Significant Accounting Policies
 
Note 2 - Recently Adopted Accounting Guidance
 
Note 3 - Investment Securities
 
Note 4 - Advances
 
Note 5 - Mortgage Loans Held for Portfolio
 
Note 6 - Allowance for Credit Losses
 
Note 7 - Derivatives and Hedging Activities
 
Note 8 - Consolidated Obligations
 
Note 9 - Affordable Housing Program
 
Note 10 - Capital
 
Note 11 - Accumulated Other Comprehensive Income
 
Note 12 - Segment Information
 
Note 13 - Estimated Fair Values
 
Note 14 - Commitments and Contingencies
 
Note 15 - Related Party and Other Transactions
 
 
 
 
Glossary of Terms
 
 
 
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




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 in Part I Item 1.

Special Note Regarding Forward-Looking Statements
 
Certain 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 federal government shutdowns, 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)
 
June 30, 2019
 
December 31, 2018
Assets:
 
 
 
Cash and due from banks
$
76,477

 
$
100,735

Interest-bearing deposits
656,051

 
1,210,705

Securities purchased under agreements to resell
4,249,710

 
3,212,726

Federal funds sold
2,858,000

 
3,085,000

Trading securities (Note 3)
3,192,790

 

Available-for-sale securities (Note 3)
8,395,767

 
7,703,596

Held-to-maturity securities (estimated fair values of $5,097,578 and $5,676,145, respectively) (Note 3)
5,088,423

 
5,673,720

Advances (Note 4)
33,890,767

 
32,727,668

Mortgage loans held for portfolio, net of allowance for loan losses of $(600) and $(600), respectively (Notes 5 and 6)
11,363,834

 
11,384,978

Accrued interest receivable
140,913

 
124,611

Premises, software, and equipment, net
37,443

 
37,198

Derivative assets, net (Note 7)
157,136

 
116,764

Other assets
42,482

 
33,998

 
 
 
 
Total assets
$
70,149,793

 
$
65,411,699

 
 
 
 
 
 
 
 
Liabilities:
 

 
 
Deposits
$
855,307

 
$
500,440

Consolidated obligations (Note 8):
 

 
 
Discount notes
22,645,457

 
20,895,262

Bonds
42,726,793

 
40,265,465

Total consolidated obligations, net
65,372,250

 
61,160,727

Accrued interest payable
190,180

 
179,728

Affordable Housing Program payable (Note 9)
40,247

 
40,747

Derivative liabilities, net (Note 7)
2,825

 
21,067

Mandatorily redeemable capital stock (Note 10)
174,193

 
168,876

Other liabilities
315,915

 
289,665

 
 
 
 
Total liabilities
66,950,917

 
62,361,250

 
 
 
 
Commitments and contingencies (Note 14)


 


 
 
 
 
Capital (Note 10):
 

 
 
Capital stock (putable at par value of $100 per share):
 
 
 
Class B-1 issued and outstanding shares: 20,482,199 and 19,306,333, respectively
2,048,220

 
1,930,633

Class B-2 issued and outstanding shares: 3,028 and 3,192, respectively
303

 
319

     Total capital stock
2,048,523

 
1,930,952

Retained earnings:
 
 
 
Unrestricted
856,911

 
855,311

Restricted
236,142

 
222,499

Total retained earnings
1,093,053

 
1,077,810

Total accumulated other comprehensive income (Note 11)
57,300

 
41,687

 
 
 
 
Total capital
3,198,876

 
3,050,449

 
 
 
 
Total liabilities and capital
$
70,149,793

 
$
65,411,699


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

4



Federal Home Loan Bank of Indianapolis
Statements of Income
(Unaudited, $ amounts in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
2019
 
2018
Interest Income:
 
 
 
 
 
 
 
Advances
$
222,146

 
$
177,745

 
$
433,900

 
$
321,539

Interest-bearing deposits
5,421

 
3,871

 
9,687

 
7,079

Securities purchased under agreements to resell
25,846

 
15,715

 
45,660

 
20,812

Federal funds sold
20,134

 
7,633

 
40,515

 
19,921

Trading securities
10,654

 

 
13,455

 

Available-for-sale securities
56,786

 
47,924

 
106,267

 
88,490

Held-to-maturity securities
38,973

 
37,120

 
79,857

 
72,040

Mortgage loans held for portfolio
93,446

 
85,575

 
189,699

 
169,129

Other interest income

 
5

 

 
17

Total interest income
473,406


375,588

 
919,040


699,027

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
Consolidated obligation discount notes
139,139

 
90,099

 
258,513

 
160,457

Consolidated obligation bonds
268,849

 
211,068

 
531,858

 
389,296

Deposits
3,521

 
2,633

 
6,515

 
4,610

Mandatorily redeemable capital stock
2,353

 
1,885

 
5,071

 
4,630

Total interest expense
413,862

 
305,685

 
801,957


558,993

 
 
 
 
 
 
 
 
Net interest income
59,544

 
69,903

 
117,083

 
140,034

Provision for (reversal of) credit losses
(40
)
 
(357
)
 
14

 
(461
)
 
 
 
 
 
 
 
 
Net interest income after provision for credit losses
59,584

 
70,260

 
117,069

 
140,495

 
 
 
 
 
 
 
 
Other Income:
 
 
 
 
 
 
 
Net realized gains from sale of available-for-sale securities

 
32,407

 

 
32,407

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

 
(45
)
 

 
(45
)
Net gains on trading securities
16,585

 

 
20,656

 

Net gains (losses) on derivatives and hedging activities
(14,365
)
 
(2,988
)
 
(17,787
)
 
2,944

Service fees
202

 
280

 
395

 
505

Standby letters of credit fees
143

 
193

 
302

 
291

Other, net
903

 
461

 
2,918

 
393

Total other income
3,468

 
30,308

 
6,484

 
36,495

 
 
 
 
 
 
 
 
Other Expenses:
 
 
 
 
 
 
 
Compensation and benefits
13,424

 
12,881

 
27,557

 
25,858

Other operating expenses
7,146

 
6,932

 
13,120

 
13,350

Federal Housing Finance Agency
1,001

 
843

 
1,997

 
1,763

Office of Finance
1,009

 
1,240

 
2,145

 
2,431

Other
1,284

 
1,993

 
2,372

 
2,884

Total other expenses
23,864

 
23,889

 
47,191

 
46,286

 
 
 
 
 
 
 
 
Income before assessments
39,188

 
76,679

 
76,362

 
130,704

 
 
 
 
 
 
 
 
Affordable Housing Program assessments
4,154

 
7,856

 
8,143

 
13,533

 
 
 
 
 
 
 
 
Net income
$
35,034

 
$
68,823

 
$
68,219

 
$
117,171


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

5



Federal Home Loan Bank of Indianapolis
Statements of Comprehensive Income
(Unaudited, $ amounts in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
35,034

 
$
68,823

 
$
68,219

 
$
117,171

 
 
 
 
 
 
 
 
Other Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized gains (losses) on available-for-sale securities
(7,924
)
 
(12,581
)
 
18,981

 
9,972

 
 
 
 
 
 
 
 
Net non-credit portion of other-than-temporary impairment losses


(29,300
)


 
(29,271
)
 
 
 
 
 
 
 
 
Pension benefits, net
(3,715
)
 
(6,539
)
 
(3,368
)
 
(6,216
)
 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
(11,639
)

(48,420
)

15,613


(25,515
)
 
 
 
 
 
 
 
 
Total comprehensive income
$
23,395

 
$
20,403

 
$
83,832


$
91,656



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

6



Federal Home Loan Bank of Indianapolis
Statements of Capital
Three Months Ended June 30, 2018 and 2019
(Unaudited, $ amounts and shares in thousands)
 
 
Capital Stock
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Capital
 
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2018
 
18,809

 
$
1,880,945

 
$
800,447

 
$
193,221

 
$
993,668

 
$
134,311

 
$
3,008,924

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
55,058

 
13,765

 
68,823

 
(48,420
)
 
20,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
345

 
34,412

 
 
 
 
 
 
 
 
 
34,412

Shares reclassified to mandatorily redeemable capital stock, net
 
(232
)
 
(23,163
)
 
 
 
 
 
 
 
 
 
(23,163
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(5
)
 

 
(5
)
 
 
 
(5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(4.25% annualized)
 
 
 
 
 
(19,612
)
 

 
(19,612
)
 
 
 
(19,612
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2018
 
18,922

 
$
1,892,194

 
$
835,888

 
$
206,986

 
$
1,042,874

 
$
85,891

 
$
3,020,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2019
 
19,853

 
$
1,985,330

 
$
855,314

 
$
229,136

 
$
1,084,450

 
$
68,939

 
$
3,138,719

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
28,028

 
7,006

 
35,034

 
(11,639
)
 
23,395

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
632

 
63,193

 
 
 
 
 
 
 
 
 
63,193

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares reclassified to mandatorily redeemable capital stock, net
 

 

 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(1
)
 

 
(1
)
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(5.50% annualized)
 
 
 
 
 
(26,430
)
 

 
(26,430
)
 
 
 
(26,430
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2019
 
20,485

 
$
2,048,523

 
$
856,911

 
$
236,142

 
$
1,093,053

 
$
57,300

 
$
3,198,876



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

7



Federal Home Loan Bank of Indianapolis
Statements of Capital
Six Months Ended June 30, 2018 and 2019
(Unaudited, $ amounts and shares in thousands)
 
 
Capital Stock
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Capital
 
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
18,578

 
$
1,857,766

 
$
792,783

 
$
183,551

 
$
976,334

 
$
111,406

 
$
2,945,506

 
 
 
 
 
 
 
 
 
 

 
 
 
 
Total comprehensive income
 
 
 
 
 
93,736

 
23,435

 
117,171

 
(25,515
)
 
91,656

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
576

 
57,591

 
 
 
 
 
 
 
 
 
57,591

Shares reclassified to mandatorily redeemable capital stock, net
 
(232
)
 
(23,163
)
 
 
 
 
 
 
 
 
 
(23,163
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(5
)
 

 
(5
)
 
 
 
(5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(5.50% annualized)
 
 
 
 
 
(50,626
)
 

 
(50,626
)
 
 
 
(50,626
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2018
 
18,922

 
$
1,892,194

 
$
835,888

 
$
206,986

 
$
1,042,874

 
$
85,891

 
$
3,020,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
 
19,310

 
$
1,930,952

 
$
855,311

 
$
222,499

 
$
1,077,810

 
$
41,687

 
$
3,050,449

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
54,576

 
13,643

 
68,219

 
15,613

 
83,832

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of capital stock
 
1,196

 
119,680

 
 
 
 
 
 
 
 
 
119,680

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares reclassified to mandatorily redeemable capital stock, net
 
(21
)
 
(2,109
)
 
 
 
 
 
 
 
 
 
(2,109
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on mandatorily redeemable capital stock
 
 
 
 
 
(1
)
 

 
(1
)
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(5.50% annualized)
 
 
 
 
 
(52,975
)
 

 
(52,975
)
 
 
 
(52,975
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2019
 
20,485

 
$
2,048,523

 
$
856,911

 
$
236,142

 
$
1,093,053

 
$
57,300

 
$
3,198,876




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

8



Federal Home Loan Bank of Indianapolis
Statements of Cash Flows
(Unaudited, $ amounts in thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Operating Activities:
 
 
 
Net income
$
68,219

 
$
117,171

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization and depreciation
65,681

 
40,516

Changes in net derivative and hedging activities
(279,398
)
 
131,793

Provision for (reversal of) credit losses
14

 
(461
)
Net gains on trading securities
(20,656
)
 

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
(24,853
)
 
(8,921
)
Other assets
(3,598
)
 
4,724

Accrued interest payable
10,213

 
22,467

Other liabilities
9,280

 
17,063

Total adjustments, net
(243,317
)
 
174,819

 
 
 
 
Net cash provided by (used in) operating activities
(175,098
)
 
291,990

 
 
 
 
Investing Activities:
 
 


Net change in:
 
 
 
Interest-bearing deposits
268,159

 
(206,548
)
Securities purchased under agreements to resell
(1,036,984
)
 
(1,320,066
)
Federal funds sold
227,000

 
(122,000
)
Trading securities:
 
 
 
Purchases
(3,172,134
)
 

Available-for-sale securities:
 
 
 
Proceeds from maturities
289,500

 
69,662

Proceeds from sales

 
203,841

Purchases
(595,818
)
 
(481,325
)
Held-to-maturity securities:
 
 
 
Proceeds from maturities
577,125

 
392,057

Proceeds from sales

 
41,226

Purchases

 
(352,231
)
Advances:
 
 
 
Principal repayments
230,990,466

 
165,153,875

Disbursements to members
(231,826,261
)
 
(165,114,221
)
Mortgage loans held for portfolio:
 
 
 
Principal collections
605,627

 
589,590

Purchases from members
(587,879
)
 
(1,137,284
)
Purchases of premises, software, and equipment
(3,605
)
 
(2,487
)
Loans to other Federal Home Loan Banks:
 
 
 
Principal repayments

 
400,000

Disbursements

 
(400,000
)
 
 
 
 
Net cash provided by (used in) investing activities
(4,264,804
)
 
(2,285,911
)
 



(continued)

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

9



Federal Home Loan Bank of Indianapolis
Statements of Cash Flows, continued
(Unaudited, $ amounts in thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Financing Activities:
 
 
 
Changes in deposits
270,707

 
86,116

Net payments on derivative contracts with financing elements
1,296

 
(895
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
151,187,829

 
179,134,205

Bonds
13,680,362

 
8,868,317

Payments for matured and retired consolidated obligations:
 
 
 
Discount notes
(149,470,837
)
 
(177,520,886
)
Bonds
(11,323,625
)
 
(8,542,040
)
Proceeds from issuance of capital stock
119,680

 
57,591

Proceeds from issuance of mandatorily redeemable capital stock
3,704

 

Payments for redemption/repurchase of mandatorily redeemable capital stock
(497
)
 
(6,577
)
Dividend payments on capital stock
(52,975
)
 
(50,626
)
 
 
 
 
Net cash provided by (used in) financing activities
4,415,644

 
2,025,205

 
 
 
 
Net increase (decrease) in cash and due from banks
(24,258
)
 
31,284

 
 
 
 
Cash and due from banks at beginning of period
100,735

 
55,269

 
 
 
 
Cash and due from banks at end of period
$
76,477

 
$
86,553

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest payments
$
728,901

 
$
498,725

Purchases of securities, traded but not yet settled

 
100,643

Affordable Housing Program payments
8,643

 
10,065

Capitalized interest on certain held-to-maturity securities
3,289

 
2,749

Par value of shares reclassified to mandatorily redeemable capital stock, net
2,109

 
23,163

 

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

10



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


Note 1 - Summary of Significant Accounting Policies

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

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 2018 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 2018 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 2018 Form 10-K in Note 1 - Summary of Significant Accounting Policies. See Note 2 - Recently Adopted and Issued Accounting Guidance for the changes effective January 1, 2019.

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 and provision for credit losses. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates.

Note 2 - Recently Adopted Accounting Guidance

Leases (ASU 2016-02). On February 25, 2016, the FASB issued guidance that 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 was effective for the interim and annual periods beginning on January 1, 2019. Upon adoption, we reported 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 was not material.

Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). On March 30, 2017, the FASB issued guidance to shorten the amortization period for certain callable debt securities purchased at a premium. Specifically, the guidance requires the premium to be amortized to the earliest call date. No change is required for securities purchased at a discount, which continue to be amortized to their contractual maturities.

This guidance was effective for the interim and annual periods beginning on January 1, 2019. 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)


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.

This guidance was effective for the interim and annual periods beginning on January 1, 2019. The adoption of this guidance had no effect on our financial condition, net income, or cash flows. However, the adoption resulted in a prospective change in the statement of income in which the net losses resulting from the changes in the fair value of the hedging instruments and the changes in the fair value of the associated hedged items attributable to the hedged risk for qualifying fair-value hedging relationships for the three and six months ended June 30, 2019 of $8,575 and $22,451, respectively, are presented in interest income instead of other income.

Inclusion of 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 use of the OIS rate based on SOFR as an eligible U.S. benchmark interest rate for hedge accounting purposes.

This guidance was effective for the interim and annual periods beginning on January 1, 2019, concurrent with the adoption of ASU 2017-12. The adoption of this guidance had no effect on our financial condition, results of operations, or cash flows.

Note 3 - Investment Securities

Trading Securities.
 
 
 
 
 
In January 2019, the Bank began purchasing U.S. Treasury securities to enhance its liquidity.

Net Gains (Losses) on Trading Securities. The following table presents net gains (losses) on trading securities, excluding any offsetting effect of gains (losses) on the associated derivatives.


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net gains on trading securities held at period end
 
$
16,585

 
$

 
$
20,656

 
$

Net gains (losses) on trading securities that sold/matured during the period
 

 

 

 

Net gains on trading securities
 
$
16,585

 
$

 
$
20,656

 
$


Available-for-Sale Securities.

Major Security Types. The following table presents our AFS securities by type of security.
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated
June 30, 2019
 
Cost (1)
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
4,094,182

 
$
34,685

 
$
(126
)
 
$
4,128,741

GSE MBS
 
4,229,618

 
43,231

 
(5,823
)
 
4,267,026

Total AFS securities
 
$
8,323,800

 
$
77,916

 
$
(5,949
)
 
$
8,395,767

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
4,239,622

 
$
37,458

 
$

 
$
4,277,080

GSE MBS
 
3,410,988

 
27,797

 
(12,269
)
 
3,426,516

Total AFS securities
 
$
7,650,610

 
$
65,255

 
$
(12,269
)
 
$
7,703,596


(1) 
Includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal and, if applicable, fair-value hedging adjustments.





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


Unrealized Loss Positions. The following table presents impaired AFS securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
12 months or More
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
June 30, 2019
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$
41,574

 
$
(126
)
 
$

 
$

 
$
41,574

 
$
(126
)
GSE MBS
 
996,946

 
(4,557
)
 
143,310

 
(1,266
)
 
1,140,256

 
(5,823
)
Total impaired AFS securities
 
$
1,038,520

 
$
(4,683
)
 
$
143,310

 
$
(1,266
)
 
$
1,181,830

 
$
(5,949
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
GSE MBS
 
$
1,256,816

 
$
(12,269
)
 
$

 
$

 
$
1,256,816

 
$
(12,269
)
Total impaired AFS securities
 
$
1,256,816


$
(12,269
)

$


$


$
1,256,816


$
(12,269
)
 
 
 
 
 
 
 
 
 
Realized Gains and Losses. There were no sales of AFS securities during the three and six months ended June 30, 2019. As of June 30, 2019, 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.

During the three months ended June 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.
 
 
 
 
 
 
 
 
 
Held-to-Maturity Securities.

Major Security Types. The following table presents our HTM securities by type of security.
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
Unrecognized
 
Unrecognized
 
 
 
 
Amortized
 
Holding
 
Holding
 
Estimated
June 30, 2019
 
Cost (1)
 
Gains
 
Losses
 
 Fair Value
MBS:
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
3,284,393

 
$
7,004

 
$
(10,851
)
 
$
3,280,546

GSE MBS
 
1,804,030

 
15,422

 
(2,420
)
 
1,817,032

Total HTM securities
 
$
5,088,423

 
$
22,426

 
$
(13,271
)
 
$
5,097,578

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
MBS:
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
3,468,882

 
$
11,034

 
$
(1,552
)
 
$
3,478,364

GSE MBS
 
2,204,838

 
7,673

 
(14,730
)
 
2,197,781

Total HTM securities
 
$
5,673,720

 
$
18,707

 
$
(16,282
)
 
$
5,676,145


(1) 
Carrying value equals amortized cost. Includes adjustments made to the cost basis of an investment for accretion, amortization and collection of principal.





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
June 30, 2019
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
MBS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
1,060,651

 
$
(7,658
)
 
$
604,717

 
$
(3,193
)
 
$
1,665,368

 
$
(10,851
)
GSE MBS
 
112,610

 
(108
)
 
706,867

 
(2,312
)
 
819,477

 
(2,420
)
Total impaired HTM securities
 
$
1,173,261

 
$
(7,766
)
 
$
1,311,584

 
$
(5,505
)
 
$
2,484,845

 
$
(13,271
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
MBS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
829,121

 
$
(873
)
 
$
417,952

 
$
(679
)
 
$
1,247,073

 
$
(1,552
)
GSE MBS
 
435,756

 
(890
)
 
716,647

 
(13,840
)
 
1,152,403

 
(14,730
)
Total impaired HTM securities
 
$
1,264,877

 
$
(1,763
)
 
$
1,134,599

 
$
(14,519
)
 
$
2,399,476

 
$
(16,282
)

Realized Gains and Losses. There were no sales of HTM securities during the three and six months ended June 30, 2019. As of June 30, 2019, 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.

During the three months ended June 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.
 
 
 
 
 
 
 
 
 
Other-Than-Temporary Impairment.

Evaluation Process and Results - AFS and HTM Securities.

Other U.S. and GSE Obligations and TVA Debentures. For other U.S. obligations, GSE obligations, and TVA debentures, we determined that, based on current expectations, the strength of the issuers' guarantees through direct obligations of or support from the United States government is sufficient to protect us from any losses. As a result, all of the gross unrealized losses as of June 30, 2019 are considered temporary.
 
 
 
 
 
 
 
 
 




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


Note 4 - Advances

The following table presents advances outstanding by redemption term.
 
 
June 30, 2019
 
December 31, 2018
Redemption Term
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$
1,540

 
4.82

 
$

 

Due in 1 year or less
 
14,533,278

 
2.41

 
15,595,985

 
2.47

Due after 1 year through 2 years
 
2,772,361

 
2.22

 
2,957,861

 
2.19

Due after 2 years through 3 years
 
1,705,538

 
2.35

 
2,444,486

 
2.46

Due after 3 years through 4 years
 
2,798,794

 
2.42

 
2,139,695

 
2.36

Due after 4 years through 5 years
 
3,824,147

 
2.51

 
1,977,925

 
2.76

Thereafter
 
8,029,497

 
2.40

 
7,713,409

 
2.41

Total advances, par value
 
33,665,155

 
2.40

 
32,829,361

 
2.44

Fair-value hedging adjustments
 
223,316

 
 

 
(106,499
)
 
 

Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees
 
2,296

 
 

 
4,806

 
 

Total advances
 
$
33,890,767

 
 

 
$
32,727,668

 
 


The following table presents advances outstanding by the earlier of the redemption date or the next call date and next put date.
 
 
Earlier of Redemption
or Next Call Date
 
Earlier of Redemption
or Next Put Date
 
 
June 30,
2019
 
December 31,
2018
 
June 30,
2019
 
December 31,
2018
Overdrawn demand and overnight deposit accounts
 
$
1,540

 
$

 
$
1,540

 
$

Due in 1 year or less
 
21,307,139

 
22,574,897

 
15,789,378

 
15,595,985

Due after 1 year through 2 years
 
2,189,212

 
2,061,411

 
3,665,361

 
3,682,461

Due after 2 years through 3 years
 
1,453,238

 
1,356,186

 
2,525,938

 
3,660,486

Due after 3 years through 4 years
 
2,075,604

 
1,581,905

 
3,319,299

 
2,547,995

Due after 4 years through 5 years
 
2,323,647

 
1,425,525

 
3,739,647

 
2,633,030

Thereafter
 
4,314,775

 
3,829,437

 
4,623,992

 
4,709,404

Total advances, par value
 
$
33,665,155

 
$
32,829,361

 
$
33,665,155

 
$
32,829,361


Credit Risk Exposure and Security Terms. At June 30, 2019 and December 31, 2018, our top five borrowers held 42% and 40%, 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 June 30, 2019 and December 31, 2018 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 7 - Allowance for Credit Losses in our 2018 Form 10-K.





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


Note 5 - Mortgage Loans Held for Portfolio

The following tables present information on mortgage loans held for portfolio by term, type and product.
Term
 
June 30, 2019
 
December 31, 2018
Fixed-rate long-term mortgages
 
$
10,186,522

 
$
10,145,476

Fixed-rate medium-term (1) mortgages
 
931,624

 
992,059

Total mortgage loans held for portfolio, UPB
 
11,118,146

 
11,137,535

Unamortized premiums
 
248,770

 
251,778

Unamortized discounts
 
(2,348
)
 
(2,415
)
Fair-value hedging adjustments
 
(134
)
 
(1,320
)
Allowance for loan losses
 
(600
)
 
(600
)
Total mortgage loans held for portfolio, net
 
$
11,363,834

 
$
11,384,978


(1) 
Defined as a term of 15 years or less at origination.
Type
 
June 30, 2019
 
December 31, 2018
Conventional
 
$
10,769,196

 
$
10,769,980

Government-guaranteed or -insured
 
348,950

 
367,555

Total mortgage loans held for portfolio, UPB
 
$
11,118,146

 
$
11,137,535


Product
 
June 30, 2019
 
December 31, 2018
MPP
 
$
10,871,758

 
$
10,875,079

MPF Program
 
246,388

 
262,456

Total mortgage loans held for portfolio, UPB
 
$
11,118,146

 
$
11,137,535


For information related to our credit risk on mortgage loans and allowance methodology for loan losses, see Note 6 - Allowance for Credit Losses.

Note 6 - 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 7 - Allowance for Credit Losses in our 2018 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 June 30,
 
Six Months Ended June 30,
LRA Activity
 
2019
 
2018
 
2019
 
2018
Liability, beginning of period
 
$
176,637

 
$
153,274

 
$
174,096

 
$
148,715

Additions
 
3,920

 
8,325

 
6,990

 
13,471

Claims paid
 
(55
)
 
(79
)
 
(142
)
 
(249
)
Distributions to PFIs
 
(428
)
 
(181
)
 
(870
)
 
(598
)
Liability, end of period
 
$
180,074

 
$
161,339

 
$
180,074

 
$
161,339

 
 
 
 
 
 
 
 
 
 
 
 
 




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 June 30, 2019